Global warming: an economic hypothesis

The news in March 2001 that President George W Bush had decided to pull out of the Kyoto protocols on global warming, earned him not only the wrath of environmentalists around the world, but the scorn of much of the US establishment.

Jimmy Carter, Walter Cronkite, Stephen Hawking and former astronaut John Glenn have penned a letter to President Bush within the pages of Time magazine, claiming that ‘no challenge we face is more momentous than the threat of global climate change’ (1).

Most Americans, on the other hand, betray a curiously schizophrenic approach to the global warming thesis. An opinion poll published in the same edition of Time suggests that 75 percent of Americans believe global warming to be a ‘serious problem’, but only 48 percent of those same Americans would be willing to pay 25 cents more for a gallon of gasoline in order to address the problem.

Environmentalists, no doubt, will accuse Americans of fiddling while Rome burns. But it would be a shame if scepticism about the global warming thesis were to become the monopoly of the US Republican party and a dwindling network of pro-business lobbyists.

The debate about global warming is usually talked about as a problem within science or as symptomatic of the changing relationship between humanity and nature. But global warming can also be seen as a social and an economic problem, which can be analysed in terms of the costs and benefits with which it is associated – and economics adds a radically different perspective to debate on the global warming thesis.

Most scientists now agree that the earth is getting warmer, but the contribution of humanity to climate change – whether humans are the chief or significant perpetrators of global warming – remains uncertain. Much more importantly, and more often forgotten in the debate about global warming, is that proponents of the global warming thesis must prove that humans will be victims of global warming, or that global warming will pose harmful effects for humans around the world – some countries, for example, may well end up benefiting from increased agricultural yields as a result of that climatic change.

But let us assume, for the sake of argument, that the environmental worst-case scenario is correct: that, by the year 2050, it has been proven beyond reasonable doubt that human action is a significant cause of global warming and that global warming and associated fluctuations in weather conditions are presenting a real major social problem from which many countries are suffering.

To the economist, global warming would now represent a problem of harmful effects or a problem of social cost: an unintended consequence of the production or consumption activity of one economic agent that has an effect on the production or consumption activity of another. Since the problem of social cost is always of a reciprocal nature, an efficient bargain to resolve the problem can always be arrived at in the form of a bargain between its perpetrator and its victim – a bargain which will make both parties better off and which will serve to maximise the value of production.

Take, for example, one environmental worst-case scenario – that Bangladesh will be partially flooded by the year 2050 as a result of global warming. Economics teaches us that any bargain to resolve this problem will turn on weighing the value of the activities which give rise to global warming for its perpetrators (the Western countries whose larger economies rely on much greater emission of greenhouse gasses) against the losses which accrue to the economy of Bangladesh as a result. In such an eventuality, as the economist Wilfred Beckerman has argued, both Bangladesh and the Western nations (whose larger economies are causing global warming) might be better off if Western countries paid that country to do what it could to cope with the consequences of warming. (Provided, that is, that Bangladesh were armed with a right that enabled it to bargain for its losses at an international level.)

Would it pay Bangladesh to have the nations of the West restrain the economic activities that give rise to global warming, or would Bangladesh be better off accepting a bribe whose value will amount to more than the costs that it will incur in taking measures to protect against the ravages of global warming, and still have money left over to invest in its economy or to feed its people?

If the bargain to resolve the problem looks unfair, that is primarily because it reproduces existing inequalities within the value of national economies, which have nothing to do with global warming.

Global warming too easily serves as a metaphor for our common humanity and the indivisibility of the species in a fragmented world. But in the real world, there is nothing indivisible about the gains which flow from the activities that may give rise to global warming, and there is nothing indivisible about any of the losses which may or may not be caused as a result.

We have all internalised the irresponsible idea that global warming is something that we must seek to prevent at almost all costs. This is a misanthropic illusion which assumes that there ever existed a harmonious equilibrium between humanity and nature, and which arrogantly ignores the fact that humans always have to allocate resources towards securing their material lives (feeding, clothing and housing themselves, for example) before they begin to trade off those goods against the harmful effects posed to the reproduction of their material lives by global warming.

We should all be profoundly relaxed about global warming, and concentrate our energies instead on the more pressing problems facing humanity: like, for example, how to lift Bangladeshis out of poverty and economic dependence.

James Harkin is a trend forecaster for the Social Issues Research Centre in Oxford and a consultant to global intelligence projects at HeadlightVision.

(1) Time, 9 April 2001