How do you price the death of the world?

Climate change is hard to account for.

Grist's David Roberts writes about the distinction between climate change and other environmental problems:

The first difference is that carbon dioxide is not like other pollutants… The typical climate-policy targets that get thrown around — reducing emission rates by 80 percent by 2050, for example — are relatively meaningless. They focus on the rate of flow from the faucet. But that’s not what matters. What matters is the amount in the tub. If the tub fills up enough, global average temperature will rise more than 2 degrees Celsius and we’ll be in trouble. Avoiding that — staying within our “carbon budget” — is the name of the game.

The second difference is that climate change is irreversible.

Roberts cites a 2009 paper from Nature, "among many others":

The climate change that takes place due to increases in carbon dioxide concentration is largely irreversible for 1,000 years after emissions stop. Following cessation of emissions, removal of atmospheric carbon dioxide decreases radiative forcing, but is largely compensated by slower loss of heat to the ocean, so that atmospheric temperatures do not drop significantly for at least 1,000 years.

Climate change is notoriously tricky to deal with in standard economic terms. Part of it is that, to any normal person, something which is irreversible for 1,000 years sounds at least ten times worse than something which is irreversible for 100 years, if not even worse still.

Economically, though, the two are essentially the same. "Present value" is an economic concept dealing with the fact that money in the future is worth less than money now – because you can always invest money now and have more money in the future. Of course, that assumes long-term growth, which, if we're talking about world-changing events like anthropogenic climate change, might not be a safe assumption.

But the end result of the calculations is that nearly any cost beyond a hundred years into the future isn't worth spending money today to avoid. The intuitive conclusion – that it's worth fighting climate change harder if it will last for a millennium than a century – isn't the case. Assuming growth.

But there are even bigger problems for climate change than that. The vast majority of economic responses to it require calculating a "likely cost", and then applying that to the measures proposed to combat it. So, for example, a properly implemented carbon tax requires a calculation of the damage one tonne of CO2 does to the environment, in order to accurately price in the negative externalities.

Unfortunately, conventional ways of pricing risk rather fall over when considering something like climate change, because it carries a non-zero risk of existential threat. That is, there are proposed mechanisms whereby "runaway climate change" could present a civilisation-ending threat.

How do you price the end of civilisation? One option is to look at the value of everything in the world. It would be quite an accounting task, and one faced by the UK government last year when they had to put a price on Stonehenge to fulfil new bookkeeping requirements. The American government puts the value of the entirety of the US at $110trn, so it seems likely that the value of all the world's civilisations is well into 16 figures.

That's high, but it's countable. The real issue comes when you look at an alternative way of measuring the cost of risk, which is the amount you would pay to prevent it. Presumably, there is no sum which would not be worth spending to prevent the end of civilisation. Any cost would be less than the destruction of everything.

By that measure, then, the damage caused by an existential threat is infinite. But the problem with infinite quantities is that they don't work very well in conventional mathematics. Back to the normal risk accounting: you typically multiply the damage you are risking with the chance it will happen. So we are happy to suffer high risk of low damage – like groping for a glass of water at midnight with the lights off – or low risk of high damage – like driving a car – but not high risk of high damage – like driving a car at midnight with the lights off.

But infinity multiplied by anything other than zero is still infinity. Conventional risk assessment simply falls apart when confronted with something the magnitude of the worst possibilities of climate change.

Note too that it doesn't require the risk to be large. I think the risks of climate change are greater than most, but I also think it's extraordinarily unlikely that it actually would result in the end of civilisation. But can we rule it out with certainty?

The best way to look at it is to compare it to our every day lives. Thousands of people are killed crossing the road every day. To do so carries a non-negligible personal existential threat – that is, you might die. Yet I see people dodging traffic to get to work 30 seconds earlier every day, which suggests that, instinctively, we don't treat the risk of death with as much weight as we perhaps should.

But I think theres a different motivator at work. We know death is bad, and that it's worth doing a lot to try and avoid it; but we also know death can come from any corner. And the same is true of fighting existential threats to civilisation. If we could spend ludicrous sums to eliminate them all, it might be worth it; but who's to say we won't prevent climate change, only to die from an asteroid hit? Or cap our future development by not experimenting with nanotech, only for an angry AI to kill us in our sleep?

Climate change could be very, very bad indeed. But making the important choices about the trade-offs we should make to fight it are hard because, not despite, its seriousness.

Photograph: Getty Images.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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Autumn Statement 2015: How we got here

The story of Britain's finances in six charts. 

Today George Osborne did two things. He gave his annual ‘Autumn Statement’, in which he’ll detailed how his estimates for growth, debt and the deficit have changed since the Budget in July, and he laid out the Spending Review, which detailed exactly how much government departments will spend over the parliament.

We’ll have coverage of today’s decisions shortly, but first, how did we get here? After five years of austerity, why is the government still cutting so much?

As we all know, in 2008 the party stopped. In the same way that the Paris attacks are a product of 9/11, today’s Spending Review can trace its origins to the fateful crash of the global financial system seven years ago.

So let’s return to 2008 and remember that government debt is any Chancellor’s greatest fear. If your debt gets too high you will become bankrupt: global markets will not lend you the money you need to keep running your government.

For 15 years, from 1993 to 2008, government debt was not a great worry. Gordon Brown was able to spend his decade as Chancellor doling out the fat of the land. Debt never rose high than 41 per cent of GDP, and was only 37 per cent in spring 2008, not much higher than it had been in 1993.

Then the financial crisis happened.


In seven years the government’s debt has doubled, from 41 to 80 per cent. The Tories spent five years very successfully blaming the last Labour government for causing this spike by overspending from 1997-2008, but, as this chart suggests, the greatest cause was the global crisis, not Labour profligacy.

Regardless of who was responsible, the debt is now at a historic high. If we rewind our chart back to 1975 we can see that today’s debt levels are even higher than those Thatcher railed against in the 1980s, when she, like today’s Tories, also cut spending heavily upon entering office.

But while she succeeded in wrestling the debt down, Osborne failed in his first term. In his 2010 budget he promised to reduce the budget deficit by 2015. After five years of austerity, the debt was going to start falling. But that hasn’t happened.

But while Thatcher succeeded in wrestling the debt down, Osborne failed in his first term. In his 2010 budget he promised to reduce the budget deficit by 2015. After five years of austerity, the debt was going to start falling. But that hasn’t happened.

So now the UK must endure another five years of cuts if we are to run the surplus Osborne is targeting and which he recommitted himself to today. If we don’t run a surplus our debt levels will continue to slowly creep up towards 100 per cent of our GDP.

According to Eurostat, who measure things slightly different to the Office of National Statistics, our debt is close to 90 per cent and is among the highest in Europe. 

We are still just below the level of the PIGS (Portugal, Italy, Greece and Spain), those countries whose debts ballooned after the financial crisis and who have gone through a succession of governments as austerity has been imposed by international markets.

But most of those countries have now started to cut spending severely, as for instance in Greece, whereas the UK is still running a relatively high budget deficit (nearly 6 per cent of GDP according to Eurostat). If we continue to do so we will keep adding to our debt, and could approach the level at which markets will no longer lend to us.

That, at least, is the Tories’ line of argument. So we are set for another five years of cuts. And everything is also dependent on growth. The figures I’ve quoted for debt and the deficit are all expressed as a percentage of GDP. A country’s total levels of debt don’t matter; what matters is how great they are compared to the size of your economy.

The cuts Osborne announced today will only succeed in cutting the deficit if growth is as high as he hopes it will be (as Paul Johnson of the IFS pointed out on the Today programme this morning).

How likely is that? Well, the estimates he gave in 2010 seemed over-optimistic in 2012, when the economy was flat-lining and Osborne was at his political nadir, but eventually seemed just in 2014, when the economy recovered.

Osborne’s political future will thrive or dive depending on growth over the next five years. Many economists have argued, including Robert Skidelsky and Simon Wren-Lewis in these pages, that Osborne’s focus on austerity in 2010 caused growth to stall in 2012. If he continues to cut, growth could stall yet again in 2017 or 2018.

The cuts over the next five years are going to be more severe than those from 2010-2015, and are greater than those any other major economy is planning. If they cripple growth, Osborne’s plan will need readjusting once again if both he and the UK are to survive. 

Harry Lambert was the editor of May2015, the New Statesman's election website.