Eighteen months ago, cheers from environmentalists and their allies greeted Sir Nicholas Stern’s report on the economics of global warming. George Monbiot has taken another look at the Stern Report and not liked what he found. Monbiot is the author of Heat, a fine book on global warming and what to do about it. He writes regularly for the Guardian and is well worth following.
-Peter D. Kinder

ZNet Commentary
An Exchange of Souls
February 19, 2008
By George Monbiot

This is a column about how good intentions can run amok. It tells the story of how an honourable, intelligent man set out to avert environmental disaster and ended up accidentally promoting the economics of the slave trade. It shows how human lives can be priced and exchanged for goods and services.

The story begins in a village a few miles to the west of London. The British government proposes to flatten Sipson in order to build a third runway for Heathrow airport. The public consultation is about to end, but no one doubts that the government has made up its mind.

Its central case is that the economic benefits of building a third runway outweigh the economic costs. The extra capacity, the government says, will deliver a net benefit to the UK economy of £5bn(1). The climate change the runway will cause costs £4.8bn(2), but this is dwarfed by the profits to be made.

There is plenty of evidence suggesting that the government’s numbers are wrong. A new analysis by the environmental consultancy CE Delft shows that the official figures overestimate both the number of jobs the runway will generate and the value brought to the United Kingdom by extra business passengers(3). In an excoriating article in the Guardian last week, Professor Paul Ekins demonstrated that the government has rigged the cost of carbon(4). (Delightfully, the web address for the consultation document ends completecondoc.pdf.) But while the runway’s opponents don’t like the results, most people seem to agree that weighing up economic costs and benefits is a sensible method of making this decision. The problem, they argue, is that the wrong figures have been used.

When Sir Nicholas Stern published his study of the economics of climate change, environmentalists (myself included) lined up to applaud him: he had given us the answer we wanted. He showed that stopping runaway climate change would cost less than failing to prevent it. But because his report was so long, few people bothered to find out how he had achieved this result. It took me a while, but by the time I reached the end I was horrified.

On one side of Stern’s equation are the costs of investing in new technologies (or not investing in old ones) to prevent greenhouse gas emissions from rising above a certain level. These can reasonably be priced in pounds or dollars. On the other side are the costs of climate change. Some of them - such as higher food prices and the expense of building sea walls - are financial, but most take the form of costs which are generally seen as incalculable: the destruction of ecosystems and human communities; the displacement of people from their homes; disease and death. All these costs are thrown together by Sir Nicholas with a formula he calls “equivalent to a reduction in consumption”, to which he then attaches a price.

Stern explains that this “consumption” involves not just the consumption of goods we might buy from the supermarket, but also of “education, health and the environment.”(5) He admits that this formula “raises profound difficulties”, especially the “challenge of expressing health (including mortality) and environmental quality in terms of income”(6). But he uses it anyway, and discovers that the global disaster which would be unleashed by a 5-6° rise in temperature, and which is likely to involve widespread famine, is “equivalent to a reduction in consumption” of 5-20%.

It is true that as people begin to starve they will consume less. When they die they cease to consume altogether. But Stern’s unit (a reduction in consumption) incorporates everything from the price of baked beans to the pain of bereavement. He then translates it into a “social cost of carbon”, measured in dollars. He has, in other words, put a price on human life. Worse still, he has ensured that this price is buried among the other prices: when you read that the “social cost of carbon” is $30 a tonne, you don’t know - unless you unpick the whole report and its methodology and sources - how much of this is made of human lives.

The poorer people are, the cheaper their lives become. “For example,” Stern observes, “a very poor person may not be ‘willing-to-pay’ very much money to insure her life, whereas a rich person may be prepared to pay a very large sum. Can it be right to conclude that a poor person’s life or health is therefore less valuable?”(7) Up to a point, yes: income, he says, should be one of the measures used to determine the social cost of carbon. Sir Nicholas was by no means the first to use such a formula. What was new was the unthinking enthusiasm with which his approach was greeted.

Stern’s methodology has a disastrous consequence, unintended but surely obvious. His report shows that the dollar losses of failing to prevent a high degree of global warming outweigh the dollar savings arising from not taking action. It therefore makes economic sense to try to stop runaway climate change. But what if the result had been different? What if he had discovered that the profits to be made from burning more fossil fuels exceeded the social cost of carbon? We would then find that it makes economic sense to kill people.

This is what the government has done. Its consultation paper boasts that “our approach is entirely consistent with the Stern Review”(8). It has translated his “social cost of carbon” into a “shadow price of carbon”, which is currently valued, human lives and all, at £25 a tonne(9).

Against this is set the economic benefit of a new runway. Part of this benefit takes the form of shorter waiting times for passengers. The government claims that building a third runway will reduce delays, on average, by three minutes(10). This saving is costed at €38-49 per passenger per hour(11). The price is a function of the average net wages of travellers: the more you earn, the more the delays are deemed to cost you, even if you are on holiday.

Consider the implications. On one side of the equation human life is being costed. On the other side, the value of delays to passengers is being priced, and it rises according to their wealth. Convenience is weighed against human life. The richer you are, the more lives your time is worth.

The people most likely to be killed by climate change do not live in this country. Most of them live in Africa and South Asia. Hardly any of the economic benefits of expanding Heathrow accrue to them. Yet the government has calculated the economic benefits to the United Kingdom, weighed them against the global costs of climate change and discovered that sacrificing foreigners - especially poor ones - is a sensible economic decision.

I can accept that a unit of measurement which allows us to compare the human costs of different spending decisions is a useful tool. What I cannot accept is that it should be scrambled up with the price of eggs and prefixed with a dollar sign. Human life is not a commodity. It cannot be traded against profits or exchanged for convenience. We have no right to decide that others should die to make us richer.

References:

1. The net benefits are estimated at between £4.4bn and £5.2bn: Department for Transport, November 2007. Adding Capacity at Heathrow Airport: Consultation Document, p74.

2. Department for Transport, November 2007. Adding Capacity at Heathrow Airport: Consultation Document, p125.

3. Bart Boon et al, February 2008. The economics of Heathrow expansion: Final report. CE Delft.

4. Paul Ekins, 13th February 2008. Path of least resistance. The Guardian.

5. Sir Nicholas Stern, October 2006. The Economics of Climate Change. HM Treasury, Part 1, page 28.

6. ibid, Part 1, page 30.

7. ibid, Part 1, page 30-31.

8. Department for Transport, ibid, p10.

9. Department for Environment, Food and Rural Affairs, December 2007. The Social Cost Of Carbon And The Shadow Price Of Carbon: What They Are, And How To Use Them In Economic Appraisal In The UK.

10. Department for Transport, November 2007. UK Air Passenger Demand and CO2 Forecasts, p128.

11. Finding the figures on which the government based its benefit estimates was a struggle. The consultation document led me to the passenger demand forecast (see note 10), which in turn referenced this paper:
European Organisation for the Safety of Air Navigation, 2005. Standard Inputs for EUROCONTROL Cost Benefit Analyses.