In 2013, US president Barack Obama tweeted that 97 per cent of scientists agree that climate change is real, man-made and dangerous. So why it is so difficult for governments to combine the conflicting views within this consensus in a way that allows for effective decision-making?
At the United Nations Climate Change Conference in Paris later this year, governments will negotiate policies aimed at reducing global greenhouse gas emissions. When deciding how stringent these should be, negotiators will consider how the earth’s climate will change without preventative measures, the associated damages in the future, and the costs of action today.
But taking a position on these issues alone is insufficient to determine the appropriate policy response. The world has numerous unresolved problems, many of which could be alleviated with more investment, so it is not clear how much we should sacrifice today for our descendants.
To help inform discussions in Paris on this point, we surveyed the opinions of 200 international academic experts on long-term cost-benefit analysis. Effectively, we asked them how much governments should be prepared to invest today if this spending would ensure that society avoids £1 million of climate change damages a century from now.
The lack of consensus amongst our respondents was stark. Some argued that we should invest the full £1 million today, while one expert was not even prepared to pay £75 for the same benefit.
Why is there so much disagreement on this matter? The survey sheds light on the origins and extent of this disagreement and reveals the key underlying parameter values used by academic experts when determining their responses.
Each respondent has their own forecasts of the returns that will be delivered by real and financial investment opportunities, and by how much income will change, over long time horizons. The wealthier an individual expects future generations to be, the less he or she will wish to invest today on their behalf. In addition, different responses reflect each expert’s ethical position - they disagree on how to weigh future well-being, and on how strongly governments should strive to tackle economic inequality.
How might a government best combine these divergent opinions into a single social value? We address this question in a paper, "Positively Gamma Discounting: Combining the Opinions of Experts on the Social Discount Rate", published this month in the Economic Journal. Unfortunately, no simple answer exists.
When responses reflect economic forecasts, the government should use a valuation similar to the average assessment. By contrast, when disagreement reflects ethical differences, optimal investment is close to the highest individual valuation. Our survey shows that experts place a high weight on ethical issues when making such long-term decisions. Yet they also recommend that other factors, including economic forecasts, are taken into account.
Consequently, there is no simple way for the government to aggregate over the divergent opinions. Even when the science is known, economists will continue to disagree about the appropriate policy response, and there is no uncontroversial way of reconciling these different views.
While our survey suggests that 75 per cent of experts will find it acceptable to spend £140,000 today to avoid £1 million of climate change damages a century from now, a significant minority will argue strongly against such policy choices.
Mark Freeman is professor of finance at Loughborough University and Ben Groom is associate professor in environment and development economics at the London School of Economics.