Bjorn Lomborg:
If you had $75 billion to spend over the next four years and your goal was to advance human welfare, especially in the developing world, how could you get the most value for your money?
That is the question that I posed to a panel of five top economists, including four Nobel laureates, in the Copenhagen Consensus 2012 project. The panel members were chosen for their expertise in prioritization and their ability to use economic principles to compare policy choices. ...
When it comes to climate change, the experts recommend spending a small amount – roughly $1 billion – to investigate the feasibility of cooling the planet through geo-engineering options. This would allow us to understand better the technology’s risks, costs, and benefits. Moreover, the research could potentially give us low-cost, effective insurance against global warming.
One reason that climate change ranks low in the Copenhagen Consensus exercise is that the benefit-cost analyses conducted for the Copenhagen Consensus were required to use 3% and 5% discount rates. Since the benefits of climate policy may happen 50+ years down the road, these benefits are discounted away. Really, conventional benefit-cost analysis has some serious limitations when informing climate policy.
Also, the absence of a carbon tax (or cap-and-trade) in the recommended policies makes it appear that the expert panel rejected incentive-based policy on merit, in favor of geoengineering. I'm not sure if they did or didn't, however, as Richard Tol put it in his Challenge Paper:
There is wide agreement in the economic literature that greenhouse gas emission reduction is best done through a carbon tax. A uniform carbon tax implies equimarginal abatement costs. Climate change is a stock problem, so a price instrument is more robust to uncertainty than a quantity instrument. Taxes properly incentivise R&D. That is, climate policy is not about spending money. It is about raising money (and, of course, about finding the best way to spend the revenues raised through a carbon tax.)
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I argue that the format of the Copenhagen Consensus is ill-suited for a problem like climate change, and that it is inappropriate for evaluating the different aspect of climate policy. Climate policy is a long programme, not a short project, and revenue should be raised through a carbon tax, rather than spent by a blue-ribbon panel. Climate policy is a portfolio of adaptation, abatement of various gases, R&D, and perhaps geoengineering. Ignoring the complementarity of these options is silly.
