The climate crisis cannot be solved without cost-benefit analysis
Lisa Heinzerling, a Georgetown law professor, has written an essay arguing against the embrace of cost-benefit analysis by environmentalists. She suggests that environmentalists enjoy nature in a very concrete and reverential manner that cannot be captured by economic analysis.
I think this is a fairly substantial misinterpretation of the use of cost-benefit analysis. Heinzerling makes a number of key errors.
First, economists aren’t pulling their discount rates out of nowhere, they’re making an effort to capture actual human valuations of the future. Analysts place less value on outcomes well down the road because you and I do, too. That’s what interest rates are all about.
It’s also important to note that there are disagreements within the economic community about the appropriate discount rate. It’s a bit dishonest to argue that the median economic position is that nothing should be done on climate; certainly some in the field believe this, but in many cases their rate choices are influenced by ideology more than data. If we remove the cost-benefit abstraction, their positions would not substantially change. The analysis isn’t the evil in such cases — the belief system is.
And at times, Heinzerling seems to acknowledge this, suggesting that cost-benefit analysis might have been all right in her book if only the users had gotten their numbers right — that is, come up with discount rates more favorable to her position. She also acts as if it’s improper to consider these analyses alongside other pieces of information, as if once the dollar abstraction has been made, all other information has been erased. That’s not the case at all — in fact, many economists have looked at different economic models of climate change, observed the findings, and speculated that other things are worth taking into consideration.
But the big — enormous, really — problem with this line of thought is that there is no good alternative. Economists, by and large, haven’t adopted this mindset because they’re emotionless and cruel. They’ve adopted these techniques because it’s almost impossible to grapple with the problems and solutions involved in climate without abstracting to some degree. It’s all well and good to observe that the globe is warming and the spiritual power of nature compels us to act to halt this process … but then what? What changes should be made, who will those changes help and hurt, and what costs should we be prepared to accept in this battle?
I suppose Heinzerling would answer that more should be done, and that present humans should be prepared to suffer more for the sake of the future. Ok, fine. Why? Are costs not to be considered at all? Are all potential trade-offs to be ignored? A person in her position, observing the environmental destruction of the industrial age, might have argued that we were vastly underestimating the costs of such destruction. On the other hand, the wealth generated from that industrialization has materially improved billions of lives.
It’s important to acknowledge the weaknesses and limitations in any of the models used to establish costs and benefits, and to fill in gaps with qualitative information when possible. But to toss out the analysis completely is bound to do more harm than good. Doing so would, in all likelihood, lead to worse decision making. It would also deprive environmentalists of a common language with which to debate these issues with policy makers and skeptics. Answering hard numbers with discussions of nature’s transcendent power is unlikely to be helpful when the rubber meets the road.
If environmentalists don’t want to be marginalized, and if they don’t want the weight of undue human suffering on their hands and consciences, then they’d do well to embrace cost-benefit analysis. Because these issues are so important, we can’t afford to toss aside the best analytical tools we have, imperfect as they may be.