To 'Solve' Climate Change While Ignoring Costs and Benefits Is to Ignore Reason

"The most formidable weapon against errors of every kind is Reason. I have never used any other, and I trust I never shall." - Thomas Paine, 1794, Introduction to The Age of Reason

There is a reasonable debate about the appropriate social response to human impacts on the environment and climate change. “Reasonable” means evaluating policy alternatives based on their consequences, good and bad, in recognition of the considerable uncertainty that attaches to those estimates. There is also an unreasoned debate that evaluates alternatives by their intentions.

The latest unreasoned contribution is from climate scientist Kevin Noone, “Cost-benefit analysis does not work well for wicked problems like climate change." The author is refreshingly clear in admitting that his position goes against science, and gives an example of a colleague who disagrees with him, presumably representing the views of most scientists. Also most scientists would resist attaching a moral judgment (“wicked”) to a physical fact (climate change).

I think the issue here is ignorance. Noone defines cost-benefit analysis as: “1) You figure out the monetary value of the expected benefits of a policy; 2) You figure out the monetary value of the expected costs of the policy; 3) If (2) is larger than (1), you sit on our thumbs.” (I assume “sit on our thumbs” is either a typo or a usage error, and he means “do nothing,” as the alternative is painful to contemplate). The totalitarian assumption is that “you” figure out things for everyone. In fact, the entire point of monetary cost-benefit analysis is to use market prices to determine the best course. You don’t “figure” anything, you measure things by arms-length transactions among free people.

Even using Noone’s definition, nominal cost-benefit analysis would be valuable. He is correct that it is easy to force any conclusion you want by including or ignoring costs or benefits, or by putting implausible monetary values on them. But forcing you to specify these in advance opens up your decision to rational debate. It may not stop you from implementing destructive policies, but it allows others to prove you wrong after the fact.

But properly stated, cost-benefit analysis can expose unreasonable alternatives. For some decisions, presumably the ones Noone would endorse cost-benefit analysis for, the costs and benefits are well defined with clear, liquid market prices.

For other decisions, we need to estimate prices indirectly. The first example Noone gives is, “the monetary value of being able to breathe in Beijing or New Delhi without discomfort.” While there’s no listed price for this, we can estimate it by wage rates or housing prices in places with varying degrees of air pollution. People make choices every day balancing economic opportunity with fresh air.

What Noone really means is not that we can’t estimate the price, but that different people will assign different prices to it. An ambitious young person from an impoverished rural area in India or China may not value things the same way as a professor in Stockholm. The totalitarian vision cannot tolerate disagreement. Rather than looking for the market-clearing cost that allows everyone to choose their own trade-offs, he wants to impose a solution ignoring individual preferences.

The next two examples show a different misunderstanding, the monetary values of “a healthy, resilient Amazonian ecosystem,” and ”preventing sea level rise from washing away a traditional burial site for the Pointe-au-Chien Tribe of southern Louisiana.” These things do have to be decided for everyone, we can’t preserve them only for those willing to pay. Nevertheless, these decisions have to be made. We have a political process, and also private fund-raising efforts, that determine how much money will be spent to preserve things some people value a lot, and others not at all. These things aren’t free, and we can’t fund every initiative someone wants but doesn’t want to pay for personally. Saving the Amazon or the burial site means losing other things, things some people value more.

The final example displays the most important misunderstanding. “Let’s say you received an offer to buy your just-turned-17 daughter for $250,000. By accepting the offer, not only would you recoup all the costs you incurred under her upbringing, but you would also avoid the $12,978.33 cost of raising her for the final year until she turned 18. Indiscriminate use of cost-benefit analysis gives us a clear answer: Sell your child.”

Putting aside the obvious point that you don’t own the daughter, this makes the fundamental error that if a market price exists, everyone has to be willing to accept any proposed transaction at that price. To make this example reasonable, substitute a three-year-old colt for the 17-year-old daughter. If someone offers to buy your horse for $250,000, you won’t think about how much you paid to buy and raise it, nor how much you might expect to pay in the future. You’ll think about how much owning the colt is worth to you. That might be a monetary calculation, how much is the horse likely to win racing or at stud?, or a non-monetary one, will the horse get your 17-year-old daughter an Olympic equestrian berth? My daughter and I built a model together that I would have trouble selling for one dollar, that I wouldn’t sell for $1,000 (But for $250,000? Call me. Or better still, call my daughter.).

Now cost-benefit analysis does not cut the Gordian Knot of environmental policy disagreements. There are huge uncertainties in the effects of legislation, both financial and environmental. There are huge differences in preferences among individuals. The biggest single reasonable disagreement, in my experience, is between people who like massive top-down governmental attacks on badly understood problems—knowing that mistakes will be made, but preferring to act now and correct as needed—and people who prefer to do no harm—knowing that effective collection action will be delayed, but preferring to avoid the costs in money and liberty of misguided proposals. The latter group, and I incline to it myself, usually has more faith in bottom-up efforts of private individuals; and in adaption for mitigation rather than regulation for prevention. Both sides can point to historical examples where their approach worked, and other examples where the opposite approach was disastrous.

The reasonable debate over climate change policy proposals is over their good and bad effects. It’s true, as Noone points about, that these things have different dimensions—financial versus moral for example, or in Noone’s characterization “price” versus “value,” or “money” versus “dignity.” Nevertheless they have to be reduced to a single dimension so they can be added up and compared. We have mechanisms for doing that, developed by painful trial and error over the last three centuries of Reason. To refuse to use those mechanisms and insist on a solution that ignores costs and benefits, ignores revealed preferences of individuals, ignores political mechanisms for funding public goods, ignores scientific and economic research; is to ignore Reason.