Solve Global Warming with Slave Trade Economics?

This is a column about how good intentions can run amok. It tells the story of how an honorable, 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 £5 billion [Ed. note: one British Pound is worth nearly $2]. The climate change the runway will cause costs £4.8 billion, 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. In an excoriating article in the Guardian last week, Professor Paul Ekins demonstrated that the government has rigged the cost of carbon. (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." He admits that this formula "raises profound difficulties", especially the "challenge of expressing health (including mortality) and environmental quality in terms of income." 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 ton, you don't know -- unless you unpick the whole report and its methodology and sources -- how much of this is made of human lives.