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2. Ethics of Total Cost of Carbon Mitigation

Criteria Set 5: Application of Ethical Standards to Total Cost of Mitigation and Adaptation

Some of the most contentious issues in the area of climate change are the projected costs of efforts to mitigate and adapt to climate change as well as the distribution of those costs among social groups and nations. Often rule-based ethics has shied away from discussions of costs, leaving these to the discipline of economics, which has in general avoided rule-making because of its roots in utilitarianism.  The economist Nicholas Stern in his Review on the Economics of Climate Change estimated that a 1% annual commitment of GDP would suffice to hold off the worst effects of climate change, which he estimated as being as much as 20% of GDP in damages, a cost for mitigation which he revised up to 2% in 2008 because of the accelerated effects of warming.  Stern, in his position as an economic advisor to the British government suggested these numbers but, as he is not in the business of making ethical rules, did not propose this type of spending as a rule or mandate.

Unlike many who write about climate change and the related economics, I believe the tendency to underestimate or downplay the costs of climate change works against ethically informed action because of the enormous costs of failure to mitigate climate change.  If for instance, it required 5 years of spending 5% of GDP (which is one half of what most developed countries spend on health care and less than one third what the United States spends on healthcare) and then 2% for 10 years afterwards, the price in my reckoning would be still affordable.  There is, especially in the economic downturn in which we find ourselves, a multitude of worthy projects that would set our societies on a new zero-carbon course.  To start these projects sooner rather than later would be of greater benefit than adhering to a fixed amount of expenditure per year or worse, attempting to pare expenditure to a bare minimum subject to political struggles and horse-trading.

The Least-Cost Doctrine

In discussions of the costs of climate change mitigation and adaptation, “least-cost” is brought into discussions as if it were an unalloyed and unquestionable “good”, an ethical value beyond reproach.  While “most-cost” is clearly a bad from the point of view of the entire economic system, it’s opposite, “least-cost” is not necessarily a good.  “Least-cost” is one of the ethical justifications for the use of cap and trade, which reputedly saved polluters money in cutting the emissions of acid-rain causing pollutants in the US during the last 15 years.  Cap and trade has for the most part incentivized the purchase of low-sulfur coal by power plant operators, a relatively low cost and convenient pre-existing solution to sulfur-emissions, for which we do not have an equivalent in the area of greenhouse gases.

It is not yet verifiable whether cap and trade incurs fewer costs to mitigate carbon emissions because it has not yet certifiably cut any carbon emissions.  However the rumor of its “least cost” nature has remained an unquestioned assumption within the various presentations of advocates for its use.  Speaking against “least-cost” then is not speaking against the ethical value that companies and society as a whole should place on cost savings or economic efficiency or any past savings that they have incurred while cutting emissions.

One of the chief problems with “least-cost” is the questionable durability of the products and services that it buys and thereby the durability of the “retired” emissions that are promised via the purchase of products, offsets, or derivatives thereof.  This is based on two observations, one a commonsensical rule of thumb and the other factual.  In general the cheapest things are less likely to be of high quality and to be as durable as those things that are more expensive.  For some reasons in the promotion of the cheapness of climate mitigation the durability and reliability question seems to have largely escaped the advocates and least-cost oriented economists who attempt to reassure policymakers, corporations and the public of the ultimate inexpensiveness of climate action.

As could be predicted by common sense, the request for “least cost” can lead to “cheap” in the sense of poor quality and has been realized by the implementation of cap and trade so far.  Offsets are a key device in the notion of an international marketplace of carbon reduction opportunities targeting “least cost”.  The questionable nature of offsets is now recognized by most who have studied the quality and authenticity of offset emissions reductions, recognizing rampant fraud and by some estimates one-third of offsets not accounting for actual emissions cuts.

Furthermore, certain key technologies and investments are disadvantaged by “least cost” despite their role in long-term sustainability and future reductions that follow-on preceding investments.  “Searching out all least-cost carbon mitigation opportunities” as a mandate or stated value of carbon mitigation policy means passing over, postponing, and therefore removing priority from necessarily expensive investments like electrical infrastructure, many renewable generators, more expensive but durable energy retrofits, and carbon-free energy storage.  Collecting all “low hanging fruit” first does not lead necessarily to net total lowest cost for the entire project of building a zero net carbon emitting society: in many cases entering a cost-curve earlier is going to lead to lower costs.

Conclusion: The “least-cost” doctrine is pernicious in so far as the performance, longevity, appropriateness, and integrity of the physical products, services, and tradable certificates of value cannot be guaranteed.  “Least cost” as applied to individual measures also ignores the systemic nature of building a zero-net-carbon society.  Without such guarantees or as the only cost-related rule, adherence to a “least-cost” rule is unethical.

Where are Mitigation and Adaption in a Hierarchy of Needs?

While it is “taboo” in current economic orthodoxy to prioritize needs and wants a priori, a prioritization of such needs for the society as a whole is contained in the varying budgeting priorities of nations and the international community as a whole via the UN.  How much to spend on the climate crisis lurks behind every argument about what to do and how much to do and differences in assessment of the priority of climate protection.   Put in other words, there is an implicit hierarchy of needs and wants which people operate with.  If we look at discretionary spending in the budget of the US government, defense towers over other priorities, though if we look at mandatory spending, retirement insurance and healthcare for the elderly come first.  Arguments about spending on climate change can be seen as having at their root variations in what different political actors view as the to-them optimal hierarchy of needs.

To those in the climate action community, if you were to ask them in private what amount they would have governments and corporations invest in climate protection, many would no doubt cite a higher number than they would allow themselves to utter in a public setting.  The passion and concern of this group, within which I include myself, has some rational roots:  we are facing a wholesale destruction of the natural basis of our wealth and well-being if we do not take some very ambitious actions, which appear to cost a good deal of money.

The injection into political discussions of those who deny that the climate crisis exists, alters and biases the numbers downward.  This is particularly the case in the United States, where one of two major political parties in essence denies the importance of climate change.  The reduction of expenditures on climate protection may one of the ultimate motivations of those who deny climate change, many of whom are funded by economic interests who stand to lose from a rapid move away from a carbon-intensive economy.

But even if we accept that climate change is our greatest challenge, on a day to day basis there are pressing needs which will continue on, that have equal or greater priority. Our own needs to eat, sleep, receive medical care, etc. surely take priority.    However there is a wide range of other wants and needs that especially in the developed world are taken to be necessities of life or at least non-negotiable needs/wants.  What are we willing among these “discretionary” expenses and activities to forego to ensure an environmentally protective, just and equitable resolution to the climate crisis?

The reasonable, non-destructive resistance to action on climate is based on these “opportunity costs” of investment in climate:  people who say that they want to spend their money and time in concerns that deal with the here and now or an alternative, less climate-influenced future have our sympathy.  In many ways, they could be and are all of us because we all want to keep on living lives of comfort or at least not-reduced comfort.

There are perhaps three classes of activity which we all might reasonably consider in comparison to climate protecting activities and investment

1)      Immediate life-threatening emergencies

2)      Basic activities like eating, sleeping, working, communicating, caring for and educating children, having sex, etc.

3)      Optional or “discretionary” activities

The first two uncontroversially take precedence over spending on climate protection under all but the most extreme circumstances of adaptation to climate change that themselves could be considered life-threatening.  But determination of how much spending on climate change trumps category “3” or which “line items” in that category are less important than climate change.

Those who are marginally interested in or do not understand the threat of climate change, are far more likely to believe that most or all of their current household or their nation’s current set of spending priorities in category “3” are more important than climate mitigation and adaptation.  Those are most concerned about climate change are perhaps willing to forgo many of their category “3” activities if that would mean a higher likelihood of a sustainable future.

I believe a public discussion of the investment priorities associated with climate change would be far more productive than settling on a single instrument as the sole vehicle for dealing with carbon mitigation.  An open national and international discussion about the relative priority of dealing with the climate crisis should be linked with budget-setting for investment in climate protection activities.  So massive is the climate challenge that anything short of such a discussion is unwise.

Conclusion: Determining the tolerable amount of investment (of time and money) in mitigation and adaptation to climate change in relationship to broader social and personal priorities is a necessary step in arriving at climate policies that can have a chance of addressing the scope of the climate crisis.

From Disaster Insurance to Sustainable Development

Even if we remove the reflexive insistence upon least-cost, there is a range of tasks and thereby cost levels which might be assigned to the overall project of climate policy.

Investment related to climate change may not be simply a means to prevent specific events and damages from taking place but a framework through which a sustainable society can be structured.  If we conceive of climate policy as the leading edge to developing sustainable societies, a series of large scale projects that address water shortages, agricultural productivity, biodiversity, human population growth, education, and the definition of development itself in a resource-limited world might in part influence how climate policy is conducted and add or subtract costs from the enterprise.

Level 1: Basic Insurance

If climate policy is conceived of disaster insurance for certain circumscribed disasters that can be strictly related to climate, it makes sense to assign cost estimates to the specific projects required to mitigate the effects of carbon emissions.  The cost of insurance follows the simple formula:

(Probability of Event) x (Cost of Mitigation and/or Repair)

Numerous studies, including the Stern Review as well as the McKinsey/Vattenfall study have looked at estimated costs of various mitigation measures yet have not taken into account the large and unique infrastructure projects (electric rail systems, electric transmission, earthworks to prevent flooding, etc.) that will be required to reach a zero-carbon emitting society.  This oversight is part and parcel with the trend in economics over the past 30 years that has undervalued or taken for granted public goods while overinflating the role of exchange of goods and services in traditional market format.

Cost and Benefit Co-factor: Speed of Mitigation and Target Concentration of Greenhouse Gases

Stepping away from the simple insurance model, the course of three factors also impacts costs:

1)      The rate of onset and spacing in time of damages due to climate change

2)      The proximity in time from the present of tipping points in climate activity

3)      The speed of action which has been selected to mitigate 1 and 2

Factor “3” has the most significant impact.  If we follow the ethically and scientifically responsible “350 ppm Emergency Pathway”, costs are greater upfront as large-scale infrastructure projects will need to be started right away to essentially design and build a zero-emissions infrastructure plus plan or steer via policy large increases in carbon sink.

Overall investment costs may be higher for the 350ppm pathway but benefits would appear to be much greater, including lowered risk of encountering catastrophic tipping points.  A pathway that targets 450ppm or even 550ppm appears at first glance to have lesser cost in mitigation but much greater expectable costs in adaptation.  For some reason these tradeoffs in relationship to less ambitious targets are rarely pushed to the front of discussions on climate change.  The effort to present a “modest” cost proposal seems to trump for many the obvious corollaries drawn from the climate science and current emissions:  “pay more upfront for mitigation to save adaptation costs down the road”.   The usual framework for estimating adaptation costs and losses assumes “business as usual” rather than milder versions of mitigation efforts.  The future costs in adaptation and economic losses due to half-hearted, “cheap” or politically expedient mitigation efforts appear not to have made it onto center stage.

Level 2: Building Basis for Sustainable Societies

If action on climate change is not viewed as simply an insurance policy against disaster but part of a project to resolve long-standing issues of imbalance between human societies and their environments, the acceptable cost framework shifts yet again.  While efforts to present modest cost proposals might mention this as a “side-benefit”, it is far more likely that such efforts will incur both more and different costs than a simple insurance policy.  I am not passing judgment here on whether it is realistic to simply try to block climate change via mitigation efforts versus establish a completely different method of interacting with the limited resources of the planet in total, including the atmosphere.  Among the crises that are foreseeable with or without significant climate effects are the shortages of oil, fresh water, agricultural land and agricultural inputs like phosphate.

Developing a cost model then for building not only carbon neutral but all-around sustainable societies would need then to itemize what are the various tasks that societies need to undertake to become sustainable and where there are areas of overlap and ways to economize between these tasks.

1)      Carbon mitigation

2)      Climate change adaptation

3)      Agricultural Sustainability

    1. Phosphate
    2. Nitrogen
    3. Water
    4. Conservation and Restoration of Organic Matter in Soils

4)      Fresh Water

5)      Viability of Oceans (beyond acidification)

    1. Sustainability fisheries
    2. Refuse and dumping

6)      Biodiversity

The list above is merely suggestive of the task confronting those who want to rationally confront the “piggy-backing” of many sustainability issues on top of climate mitigation.

Level 3: Building a Basis for More Equitable, Healthier Societies

A further list of desiderata are added to the climate challenge if we feel, as some do, that the occasion of climate change is an opportunity to remake society in one of a number of ways to increase social equality and/or to make societies healthier places on a social basis.  Certainly the enterprise of addressing climate change pushes to the fore the notion that some, mostly the rich countries and/or wealthy individuals, are using up a common resource, the atmosphere.  Should more aspects of equity and/or criteria of what constitutes a good society be added into the effort and, if so, what are their expectable costs?

1)      Medical Care

2)      Public Health

3)      Income Security

4)      Right to Work

5)      Freedom from Persecution/Social Prejudice/Cultural Rights

6)      Child-friendly Society

7)      Right to Shelter

8)      Educational Opportunity

9)      More Social Equality

As there are great political disagreements about how to address or not address these social goals, I will not offer a recommendation in this context on including these goals as integral to climate mitigation and adaptation efforts.  On the other hand, in some way many of these goals will of necessity have to be addressed along the way.   I believe that an open and rational approach to addressing the climate crisis and associated sustainability issues that will impact all people will by the nature of its process also develop a more effective and healthier social process.  Some would insist that social justice is a prerequisite for an effective climate policy of any kind.

If a consensus or movement towards a transformation of society in one direction or another becomes attached to or turns out to be integral to the effort to address climate change, this will be the “maximal” position in the spectrum of transformations and/or costs associated with the entire enterprise.  While those who prize social justice most highly will welcome this, there are downsides that even these people should acknowledge to the “maximum program”.  Much political opposition to addressing either the basic insurance model of cost or the climate plus sustainability model of cost comes from fears of social conservatives that society as it exists will need to change in a direction that they oppose.  Discussing the complexities of this opposition goes outside the scope of this document, however delaying addressing either menu item “1” (mitigation and adaptation) or menu item “2” (mitigation and adaption plus sustainable development) because of fears that “3” (mitigation and adaption plus sustainable development plus unspecified social change) will go awry, would be negligence of duty for even social and political conservatives because “1” and “2” are simply addressing common interests of humanity.  Surely if their political and social views are salutary, then they should prevail in “3”, while not allowing us to neglect “1” and “2”.

Conclusion: Calculations of the ultimate costs of addressing the climate crisis will have to rest on the degree to which moral actors link carbon mitigation and adaptation to either other bio-physical limitations of social development and/or to social preferences that go beyond issues of bio-physical sustainability.

Discussion:  Rule-based Investment Cost and Benefit Estimation

The pervasive tendency in estimated costs for climate mitigation and adaptation appears to be to “underbid” the actual costs, especially if we are going to make timely cuts and target a lower atmospheric GHG concentration.  Furthermore if climate policy incorporates other societal missions and environmental challenges, the overall investment cost may rise though total benefits will increase.  A public discussion of the overall costs as they relate to the specific tasks required rather than to relative assignment of responsibility for those costs, would be the first step.  The factors of timing of cuts in emissions and the accompanying issues should be openly discussed within national and international communities.

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Comments»

1. Jon Anderholm - March 23, 2010

Well reasoned…


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