Problems with the Copenhagen Consensus Evert Wesker, Shell Global Solutions, Amsterdam In Hans Vlemmings' note (N1535) it was stated: "Seeing numbers like this, one would feel ashamed that societies in Europe, North America and Japan are still pushing the Climate story in favour of much more effective healthy life enhancing policies. Could it be that many of the benefits of the projects in the top of the table save lives in developing countries rather than rich western lives??" I think that the analysis by the Copenhagen Consensus is a rather lopsided economic one. When looking at economics only one can be led severely astray. Let me first give some examples to make my point: In modern western style countries, farming only yields 1-2% of the total Gross National Product. But nobody will be calling for its total abandon – for obvious reasons – because of its very limited contribution to the GNP. Secondly, just assume that all subsidies on agriculture are stopped in the US and Europe, and then imagine that all food can be produced much more cheaply abroad. Would a big country, like the US, accept to be totally dependent on imported food? I don't think so. This proves that economic arguments can be overruled by other arguments: security of supply. A similar way of reasoning could be made for energy. No big country would like to be totally dependent on a very limited number of suppliers, although they are the cheapest producers. The "most economic" (cheapest) oil production takes place in the Middle East. Still, nobody in the USA would call for a (partial) abandonment of local production. Again, security of supply reasons override economic arguments. Cost-Benefit Analyses Then I come to the statement by the Copenhagen Consensus on the cost benefit ratio for investments in climate policies. I don't think it is possible to make a really rigorous cost benefit assessment – leading to meaningful results – for climate policies. In a contribution to the Newsletter in April 2002 I tried to make this point in Economics and Climate Policies, the Fallacy of Cost Benefit Assessments . In the ensuing discussion with Tim Harford, I wrote: Tim tries to invert the arguments I used to arrive at a precautionary approach in climate policies: "An attempt to move to a low-carbon economy could lead to economic collapse, mass starvation and war. This is a low-probability, high-impact event and subject to the precautionary principle. Therefore we should under no circumstances attempt to move to a low-carbon economy: 'The economy is so complex that the position of critical thresholds remains an unknown. Therefore the chance of a discontinuous catastrophic change can never be eliminated. Against this background, an economic policy based on a strategy of precaution is a rational one.'" In being able to invert an argument, one has to deal with subjects/issues which are to a sufficient degree symmetrical. Factors like the irreversibility of system changes have to be sufficiently similar. Also the ability (of humans) to redress (catastrophic) changes has to be of the same order of magnitude. Is this so when comparing "an economic policy based on a strategy of precaution" with "a climate policy based on a strategy of precaution". I don't think so. First of all, one can observe that the economy is a highly complex system, but a climate-biosphere-economy system is a cascade of complex systems. The latter is much less well understood. I even doubt whether it is possible to build models which produce useful forecasts. When looking at economic catastrophes (e.g. The Great Depression of the 1930s), humans – with some difficulty – have been able to clean up the mess. This also shows that the ill-founded policies which created this mess (the social/economic policies of the 1920s, especially in the US) were of a completely different nature than policies on climate issues which might be considered at this moment. So, precaution against what? Turning to the risk of climatic step changes, are we able to redress the mess, e.g. a shift of precipitation zones on Earth which turns cereal belts into (semi)deserts? I think that our ability to repair this sort of damage is of an entirely different order than in the case of economic mischief like The Great Depression. Cost estimates can be made with a very reasonable accuracy – also in the case of climate policies. In that case, economic tools are useful. However, making benefit assessments is next to impossible. If one reads the IPCC report carefully, one can find out that there is an overlap in global average temperature forecasts when comparing the following cases: The most 'optimistic' climate models combined with the most carbon rich emission scenarios. The most 'pessimistic' climate models combined with the 'greenest' emission scenarios. So I stay with my view: a precautionary approach is rational. Energy Supply and Climate are Interlinked A second aspect is the fact that energy supply – using fossil fuels – and the climate issue are highly interlinked. I addressed this issue in a contribution in December 2003, Fossil Fuel Based Energy – Access and Climate: a Double Clamp. In this contribution I gave another example of economic theory leading one astray: Classical economic theory tells us that prices of commodities like metals and other mineable materials rise as they become scarce. When, due to this, prices rise there will be a market-driven impetus to dig deeper and access deposits previously thought too low grade to be economically accessed. When taken to its limit one might say that – up to a certain limit of feasibility – such materials cannot be exhausted. They are only redistributed over the Planet and can be reclaimed. However, when applied to fossil fuels this concept is dead wrong. When lignite, coal, oil, natural gas or Uranium are being used to raise energy in some form, they no longer exist as an energy carrier. In classic economic theory mass balances are taken into account in some way. However, the second law of thermodynamics is not! Energy cannot be recycled; energy is – in the end – just lost to a heat sink, being the environment. In my view, issues like energy supply, agriculture (definitely in the USA!) and the climate issue can not be dealt with in isolation. One cannot say, "investments in Climate Policies are suffering from a bad cost benefit ratio", while they are linked to energy supply and agricultural production, which both are absolutely vital. Finally I want to draw the attention to the fact that water management is listed under the "good" investments by the Copenhagen Consensus. Again I want to make the link to climate policies. Everyone who has walked around in the Himalayas (I have done so since 1983) can see for himself at what speed the Glaciers are vanishing. For example, in only 15 years (I walked over there in 1985, 1995 and 2000) the glacier along the south wall of Makalu lost about 4 km in length. As an example, just consider the water supply of the river Indus. Over 100 million people in the Punjab are totally dependent on it. In the dry season, this river is provided with melting water only from the big glaciers in the Himalayas and Karakorams. If, due to global warming, much of these ice masses would disappear, the Punjab – due to severe water shortages in the dry season – would become inhabitable for many people. In conclusion, the list provided by the Copenhagen Consensus is in itself useful. Many of the issues listed on top are getting shamefully inadequate attention. However, saying beforehand that climate policies are "bad investments" is the result of – in my view – a lopsided economic analysis, in which the subjects are considered in isolation and each predictable through linear extrapolation of historic trends. This is in my view a glaring and potentially perilous denial of emerging scientific insights on non-linear behavior.

The Tragedy of the Copenhagen Consensus Gert-Jan Kramer. Shell Global Solutions, Amsterdam The idea that the "value-investment-ratio table" produced by the Copenhagen Consensus project is a list that should be worked through from top to bottom, as suggested by Hans Vlemmings, is – as I will show – deeply and tragically flawed. At first blush it may seem perfectly sensible to spend scarce resources in those problem areas where the return is highest. Isn't this after all the best way to bring about 'the greatest happiness of the greatest number', as Jeremy Bentham famously put the objective of political economy? In fact the world has been spectacularly successful over the past two or three centuries, to produce lots of good and goods for an ever-increasing number of people. This remarkable success has at the same time produced global environmental threats that will not go away by further pursuance of Bentham's lofty goal by simply following Copenhagen Consensus priorities. The Copenhagen Consensus project looks upon the world as a system and upon the allocation of money as the knobs that tune the system. They have determined the first derivates: which knob to turn for the greatest effect. Sadly, the world is a highly non-linear system (as Evert Wesker already pointed out) and linear process control is bound to produce disasters. At the same time, the VIR ranking has an understandable appeal to business people. It works well in business, so why shouldn't it in government? The reason is that individual companies' decisions have little impact on the world at large (only collectively their decisions have) and therefore linear analysis and VIR ranking makes perfect sense as a guiding principle for company investment decisions. Governmental decision-making by contrast does impact whole countries or even the entire world, and therefore should take into account the non-linearity of policy measures and the intrinsic interwovenness of policy domains. It follows that wise government cannot solely be based on VIR tables derived from spreadsheet calculus, or, for that matter, from calculus of any sophistication. (The above, by the way, goes a long way to explain why successful business people do not necessarily make good cabinet ministers.) Having said that, there is probably some merit in comparing like with like. It may be useful to know that a dollar spent on HIV/AIDS control saves more lives than a dollar spent on malaria control. The tragic mistake of the Copenhagen Consensus project is its comparison of measures that affect individual well being (such as health care) with measures that affect the well being of the World Commons, i.e. the environment. As Garrett Hardin argued in his 1968 landmark Science paper, The Tragedy of the Commons, global environmental problems do not have a technical solution, but ultimately require a change in human values and morality. Hence prioritization between different policy domains can never follow from economic analysis as such, but is after all the domain of what in Bentham's time was called political economy, that is: politics. I warmly recommend Hardin's paper as well as the 35th anniversary celebration in the December 2003 issues of Science as a good antidote to the Copenhagen Consensus tabulations. This is essential reading for economist to appreciate the limits of applicability of their trade. As Shell has stopped maintaining most of its libraries – another commons – it is worthwhile to know that the Hardin paper can be downloaded from http://dieoff.com/page95.htm