Paul Klemperer has three
unanswered questions on climate change. I can’t answer them fully, of course,
but it might be useful to at least make a first-order approximation, or an attempt
at one.
The first question is how likely the occurrences are against which we should
be paying an insurance premium: what’s the chance that global warming is going
to get disastrously bad?
This is actually two questions. You can insure your house against fire, but
you can’t insure your house against global thermonuclear war. There are two
types of disastrous climate change: the insurable type – which can be
prevented if we "pay the premium" in terms of reducing our carbon
emissions – and the uninsurable type. Some disastrous outcomes, such as
the aforementioned nuclear conflagration, are going to be possible no matter
how much we reduce our carbon emissions.
That said, the "business as usual" forecasts in the IPCC reports
and elsewhere are unremittingly grim. If we don’t reduce our carbon
emissions, then the chances of a disastrous outcome are very high indeed –
somewhere between 50% and 100%. The ice sheets in Antarctica and Greenland will
continue to melt, the atmosphere and the oceans will continue to get warmer,
and sea levels will continue to rise. Eventually – and this is mostly
a question of when, not of whether, if we don’t act now – most of sub-Saharan
Africa and the Indo-Gangetic plain will become uninhabitably hot, while most
people living in low-lying cities will find their homes flooded. Both are indubitable
global disasters.
So the probabilities Klemperer is worried about are very high indeed –
much higher than most insurance companies would ever be comfortable with. The
much more difficult question is the size of the insurable probabilities. Let’s
say we do spend 1% of global GDP reducing our carbon emissions: then
what would the disaster probability become? The difference between that answer
and our first answer is very important, and it’s that number which it’s very
hard indeed to get a good bead on.
Klemperer’s second question deals with other types of catastrophe-as-seen-by-future-generations,
such as the extinction of millions of species, especially in the oceans. This
one’s easier, I think: we know is that after you add them in, the chances of
a global disaster can only go up, and the chances of an insurable disaster can
only go up as well. So if a course of action makes sense to our eyes, it only
makes more sense after answering this question.
The third question is about the moral standing of future generations. Klemperer
concentrates on discount rates here, but the really big effects of Nick
Stern’s calculations come not only from discount rates but also from
the fact that if you push forward 200 years, the sheer number of future humans
so vastly outweighs the number of present humans that even if they’re given
only a fraction of our moral weight each, they still easily outweigh us in aggregate.
The journalistic shorthand, which Klemperer uses, is to talk about "our
great-grandchildren" – which I think provides one interesting hint
as to how we might tweak our approaches here. It’s well known that individuals
care much more, in terms of how much they are prepared to spend, on their own
family as opposed to others’ children; on their own neighborhood; on their own
state; and on their own country. A certain percentage of today’s population
will die childless, and therefore have no great-grandchildren at all; other
families, too, will die out within a generation or two. It is reasonable to
assume that those families might not be prepared to spend quite as much, in
terms of insurance premiums for their great-grandchildren, than those families
which will be vastly larger in 100 years’ time.
It’s also reasonable to assume that most of the population growth over the
next 100 years will come from countries which punch well below their population
weight right now in terms of global GDP. Essentially, Northern Europeans are
paying the insurance premium for Indian families. Which is quite right, in that
it’s the Northern Europeans and the North Americans who caused the problem in
the first place. But even so, the number of families today who would want to
pay the insurance premium might be a little bit lower than assumed in Nick Stern’s
calculations. So maybe the answer here is to keep Stern’s discount rate within
families, but to do the calculations giving each person alive today –
along with all their descendants – an equal weight. That would have the
effect of raising the effective discount rate, but probably not enormously.