The Ethical Underpinnings of Climate Economics

Adrian Walsh, Säde Hormio, Duncan Purves

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317303152
• Edition: 1
• Topic: Economics
• Subtopic: Sustainable Development
• Index: Economics

Despite their obvious importance, the ethical implications of climate change are often neglected in economic evaluations of mitigation and adaptation policies. Economic climate models provide estimates of the value of mitigation benefits, provide understanding of the costs of reducing emissions, and develop tools for making policy choices under uncertainty. They have thus offered theoretical and empirical instruments for the design and implementation of a range of climate policies, but the ethical assumptions included in the calculations are usually left unarticulated.

This book, which brings together scholars from both economics and ethical theory, explores the interrelation between climate ethics and economics. Examining a wide range of topics including sustainability, conceptions of value, risk management and the monetization of harm, the book will explore the ethical limitations of economic analysis but will not assume that economic theory cannot accommodate the concerns raised. The aim in part is to identify ethical shortcomings of economic analysis and to propose solutions. Given the on-going role of economics in government thinking on mitigation, a constructive approach is vital if we are to deal adequately with climate change.

This volume will be of great interest to students and scholars of environmental ethics, economics, political science, political philosophy and the philosophy of economics.

1
Introduction

Adrian Walsh, Säde Hormio and Duncan Purves

Climate change is one of the most crucial problems facing the global community at the present time. Climate change will affect not only the well-being of future generations but the prospects of those who are currently alive. At the time of writing this introduction (March 2016), news outlets across the world were reporting that global temperatures for February of this year showed an unprecedented upward spike.¹ According to NASA data, it was 1.35°C warmer than the average February during the baseline period of 1950–1981. Even more disturbingly, this is the biggest temperature anomaly since records began in 1880. At the same time, Arctic sea-ice cover recorded its lowest ever February value. Many commentators in those reports spoke understandably of a climate emergency at our very doorstep. These alarming statistics illustrate the rapid changes occurring across the globe and demonstrate the urgency of the climate challenges that confront us.

In responding to climate change and in formulating climate policy, economic analysis and economic solutions will undoubtedly be two of the key tools employed by policymakers. They will be central to the solutions that governments and other relevant institutional agencies develop to the challenge of climate change. Indeed climate economics has been at the heart of much of the recent policy debate. One need only think of the impact in contemporary debates over climate change of Nicholas Stern’s 2006 report, The Stern Review of the Economics of Climate Change to realise the influence of economic theory and economic analysis on public policy.² Equally William Nordhaus’s work in books such as A Question of Balance and The Climate Casino have had a tremendous influence on public debates over climate change.³ Economic analysis will undoubtedly be at the heart of government assessments of how best to deal with these problems. As John Broome notes in Climate Matters:

the advice of economists is already deeply embedded in the political processes surrounding climate change, and economic system it has created. The governments of the world have put in place a framework for responding to climate change founded on economic principles. The moral problems of climate change arise within the context set by this framework. You need to understand it if you are to bring your moral thinking to bear accurately upon climate change.⁴

But is economics itself up to the challenge? Is economics as it is currently practised “up to the task” of responding to the ethical and practical problems raised by climate change?

In considering the suitability of the economic framework for responding to climate change, we need, amongst other things, to reflect upon the aims or goals of our responses to climate change. What is the goal of climate policy? Presumably one aim is to foster and maintain decent levels of well-being across the globe, which is an aim that is fundamentally ethical and normative in nature. There are a range of specific ethical concerns that arise once we focus on the goal of human flourishing, including, for instance, the nature of the obligations we have to future generations or how the costs of mitigation and adaptation should be spread across societies and across nations.⁵ But one might well wonder whether there are methodological or structural features of economic theory as it is currently understood which stand in the way of realising the kinds of outcomes required by ethics. If there are such obstacles how might they best be overcome? To take but one example – and this is an example which is discussed at length at a number of points in this book – orthodox economic theory employs a social discount rate which prioritises present wants or well-being over future ones. One influential justification for such discounting is the assumption (held by many economists) that as the standard of living improves future generations will be better off than present ones. Accordingly, we should give greater weight to the wants and needs of those who are living now. However, the assumption that future generations will be better off than the present generation is hardly uncontroversial. What if the emission of carbon creates a context in which future generations are, all things considered, worse off than present ones? Are we justified in discounting future needs over present ones if we find ourselves in a situation where our choices makes the lives of future generations far worse than they would otherwise have been? If we regard the wants and needs of future generations as significant – and surely we should – then we need a social discount rate that recognises the possible harms being done by present generations to our distant (and not so distant) descendants. This is but one instance where the relevance of ethical considerations to the basic theoretical assumptions of climate economics should be clear; and there are many other such cases. Climate change with its potential for damage to human productive activity – and the need it might well create for us to change how we live, consume and produce – renders questionable many of the assumptions underpinning economic theory.

In this book we explore the ethical underpinnings of climate economics as part of a larger and more long-term project of ensuring that economic theory is capable of meeting the challenges associated with climate change. More modestly, this book begins to outline the conditions under which the discipline of economics is capable of playing a positive and significant role in the response to climate change. There are good reasons for doing so. The first of these is simply a matter of realpolitik. The political reality is that economic theory and economic analysis will continue to be highly influential in government decision-making for the foreseeable future. The marked influence of economics on government policy is unlikely to change. Given that fact we need to ensure that the economic analysis, as employed by policymakers, is able both to recognise and to accommodate the moral demands that an adequate response to climate change must address. Second, as a number of authors in this volume note, economics has much to offer in terms of our understanding of the nature of the problems that face us and in terms of how best to respond. Questions of economic efficiency for instance are vital in determining the correct course of action when faced with a range of possible paths in the use of social resources. Equally, economic solutions to coordination problems have often been highly successful when employed in a range of social situations. As John Broome notes economic theory “provides essential tools” for thinking about how to respond to climate change.⁶ Thus, over and above the practical point that economics will continue to be a leading source of policy advice, and hence that it needs to be shaped to fit the contours of the current climate problem, there are positive reasons for endorsing its use in climate policy.

This volume, then, is focused on how we might best develop climate economics so as to deal with the ethical challenges of climate change. It is not an exercise in foundational critique in which philosophers attempt to establish the fundamental mistakes of climate economics (although some of the essays are quite damning). Nor should it be thought of as an attempt by economists to demonstrate that the ethical questions raised by moral philosophers are either irrelevant to the issues under examination or can be accommodated by economic theory without the need for any changes whatsoever to their basic assumptions and methodologies. Clearly, there are important and daunting ethical challenges that the emergence of significant threats to our climate raises for economic theory in general. In order to deal with those, economists need to think more carefully about the ethical underpinnings of their discipline. Thus this volume – which grew out of an interdisciplinary workshops attended by both philosophers and economists – represents amongst other things a call for greater dialogue between philosophers and economists to ensure that the climate economics we do in fact use is “fit for purpose”.

With these preliminary remarks in mind, let us now consider briefly the contents of each of the chapters of this book.

John Broome’s starting position in Chapter 2, “Do not ask for morality”, is that we cannot solve climate change simply by appealing to the morality of individuals, as the economic infrastructure itself needs to change and that requires social cooperation on a large scale. He argues that the slow progress of climate negotiations has shown that neither can we rely on nations’ moral motivation to respond adequately with the urgency required. Rather than making moral appeals in vain, he advocates from a realpolitik point of view that we should instead concentrate on a different message: no sacrifice is necessary to solve the problem. According to Broome, no generation needs to sacrifice its own interest, and climate change can be brought under control without a sacrifice in consumption. The key to changing the inefficient current situation is to shift from conventional investments towards reducing emissions. This does not solve the maldistribution of well-being, but that is a separate problem that needs a moral response. The investments necessary for building solar or wind farms, or insulating buildings, will be compensated by the current generation reducing the amount of resources bequeathed to future generations. Broome writes that financing this operation will require an increase in public debt, and the world’s financial system needs to be strengthened to make this possible. He thus ends his chapter by calling for the creation of a World Climate Bank.

Marc D. Davidson, in Chapter 3, “The ethics of discounting: an introduction”, offers an accessible and comprehensive introduction to the discounting debate. He begins by explaining Ramsey’s model of economic growth, as it is vital to understanding the central disagreements in ethics and economics over discounting the future. While many of the disputes (such as whether the discount rate should be based on preferences revealed by markets or on moral principles) predate climate ethics, the literary review shows how climate change has made these debates more urgent. Davidson explains why the choice of discount rate is not simply a matter of efficiency or consumer sovereignty, and illustrates how different moral theories lead to different discount rates. He argues that there are two widely held moral intuitions that are usually in conflict: we ought to reduce the long-term risks of climate change faced by future generations, yet we have no duty to increase our general savings rate across the board. Deontological approaches are capable of reconciling these, but are mostly foreign to the framework of standard welfare economics, unlike consequentialism and welfarism. Davidson concludes that while all these theories concentrate on our duties, more research into our intergenerational preferences and how the prospects of future generations affect our well-being would be timely.

Simon Caney discusses our obligations to future generations. His Chapter 4, “Climate change, intergenerational equity, and social discount rate” considers three kinds of considerations that have been put forward to guide the types of action that one generation should take if it is to treat both current and future people equitably. In particular it examines the implications of pure time discounting, growth discounting and opportunity cost discounting for climate policy. He argues that pure time discounting gives us no reason to delay aggressive mitigation policies, while the other two give little or no reason for the same. Caney also critically engages with Broome’s argument that some of the costs of mitigation could be passed on to future generations, looking at it from the viewpoint of intergenerational prioritarianism, egalitarianism and sufficientarianism. While he agrees that Broome’s argument is defensible, there are two major caveats: the assumption of continuous economic growth, and the possible limits of being able to pass some of the costs of mitigation to future generations.

Simo Kyllönen and Alessandra Basso, in Chapter 5, “When utility maximization is not enough: sufficientarianism and the economics of climate change”, examine a range of problems that the evaluation of climate policies raises for standard economic methods of evaluation. In response a number of writers have suggested that the economics of climate change must go beyond the narrow utilitarian view which underlies standard economic modeling. Kyllönen and Basso explore the possibilities that a “sufficientarian” approach to intergenerational justice – which has become increasingly popular amongst climate ethicists – provides for doing so. They argue that sufficientarianism has many advantages over utilitarianism and prioritarianism in dealing with the specific intergenerational issues related to climate change. Kyllönen and Basso note the increasing willingness of environmental and climate economists to re-examine the central assumptions of economic evaluation in sufficientarian ways. After exploring some of the limitations of standard economic theory in dealing with distributional issues, they argue that devising an economic evaluation of climate policies based on sufficientarian ethical principles provides a plausible way of dealing with distributional issues in general, but also particular questions of intergenerational justice and climate change.

In Chapter 6, “A new defence of probability discounting”, Kian Mintz-Woo offers a novel argument for the standard economic practice of discounting value on the basis of probability. Probability discounting (or probability weighting) in decision-making is multiplying the value of an outcome by one’s subjective probability that the outcome will occur. The chapter defends probability discounting both negatively, from arguments by Simon Caney, and with a new positive argument. The argument is that, given that we can limit our deliberation and consideration to that which we are morally responsible for and that our moral responsibility for outcomes is limited by our subjective probabilities, our subjective probabilities provide a sound moral basis for probability discounting.

Säde Hormio’s Chapter 7, “Climate change mitigation, sustainability and non-substitutability”, explores the ethical issues around substitutability and its relevance to discounting practices in climate economics. Substitutability is about some form of capital being a substitute for another, so that consumption of one can be compensated with additional stocks of the other. Discounting implicitly makes the assumption that natural capital is always substitutable with man-made capital, but this is questionable, especially when it comes to life-supporting critical natural capital, some of which climate change puts under jeopardy. Hormio writes that it is a given that future generations need to be taken into account when discussing climate change policy options as cumulative emissions continue to warm our planet over millennia. Future populations will bear the environmental cost of current emissions, while the generations alive today will make decisions on their behalf over whether to invest into mitigation or direct resources to consumption, be it anything from material wealth to education. She argues that even though empirical data about the preferences of future generations is impossible to obtain, a compelling case can be made for substantial investments into mitigation on intergenerational justice grounds alone.

John O’Neill, in Chapter 8, “Dimensions of climate disadvantage”, explores issues of climate justice and, in particular, the ways in which some individuals and communities will be more disadvantaged by climate change than others. In doing so he draws on a distinct set of debates in economics and ethics about well-being, inequality and disadvantage, engaging in particular with the “capabilities” approach to well-being. Most academic and policy debates surrounding the harmful impacts of climate change have, for good reasons, focused on international and intergenerational effects of climate change. However, O’Neill argues that discussions of climate injustice must also pay attention to the fact that these negative impacts will be differentially spread within societies. He develops a multi-dimensional approach to climate disadvantage, both about the dimensions of well-being that are threatened by climate change and the personal, environmental and social factors that determine how vulnerable different groups are to those threats. While extreme weather events such as floods and droughts will generally increase in frequency and intensity with climate change, how badly individuals and communities will be disadvantaged by these events will be affected by both their exposure to them and their prior vulnerabilities. Distributions of exposure and vulnerabilities mean that climate change will disproportionally harm those from already disadvantaged groups.

In Chapter 9, “Moral asymmetries in economic evaluations of climate change: the challenge of assessing diverse effects”, Blake Francis considers the moral difficulties posed by comparing “diverse effects” of a climate policy. When assessing climate change policy, decision makers face the challenge of comparing diverse effects – comparing potential gains in agricultural productivity, biodiversity and sea level stability from mitigation policy against the risk of higher energy/transportation prices, lost employment opportunities and reduced competition in certain markets. Economic methods present a solution, but are criticised for their “aggregative character”. The chapter offers an alternative diagnosis of economic methods based on the differences or “asymmetries” in the moral significance of harms and benefits. It argues that while some economic methods fail to accommodate harm/benefit asymmetry, it is possible to design aggregation methods to be more morally sensitive.

In “The ethical failures of climate economics”, Chapter 10, Clive Spash and Clemens Gattringer cast doubt on the prevailing view that economics is a mere positive science, devoid of any moral assumptions. The chapter proceeds by surveying various moral assumptions made by climate economists and then demonstrating that these assumptions are at least controversial, if not implausible. A...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Notes on contributors
• Preface
• Acknowledgements
• 1 Introduction
• 2 Do not ask for morality
• 3 The ethics of discounting: an introduction
• 4 Climate change, intergenerational equity, and the social discount rate
• 5 When utility maximization is not enough: intergenerational sufficientarianism and the economics of climate change
• 6 A new defence of probability discounting
• 7 Climate change mitigation, sustainability and non-substitutability
• 8 Dimensions of climate disadvantage
• 9 Moral asymmetries in economic evaluations of climate change: the challenge of assessing diverse effects
• 10 The ethical failures of climate economics
• 11 A Lockean approach to greenhouse gas emission rights
• 12 Climate change policy, economic analysis and price-independent conceptions of ultimate value
• Index