Is it worth it - Is it worth it? Dec 3rd 2009 From The...

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Is it worth it? Dec 3rd 2009 From The Economist print edition What economists have to say about mitigating climate change EVER since climate change became a subject for public discourse, economists have been making life difficult for environmentalists. Their problem is that mitigating climate change will require sizeable investments. When making investments, governments and companies normally look at rates of return. If an investment looks likely to deliver a decent return, it is worth making. If it doesn’t, it isn’t. The trouble with mitigating climate change is that the benefits are uncertain and distant. Compared with investments that deliver clear benefits in the near future—such as education in developing countries, for instance, which commonly produces returns of around 10% a year—they do not look worthwhile. Conventional analysis would therefore suggest that those who want to make the planet a better place should invest in schools in Malawi rather than in clean energy. Lord Stern, asked by Tony Blair, then Britain’s prime minister, to look into the economics of climate change, devoted his report published in 2006 to the question of whether mitigation was worthwhile (or, according to some critics, to justifying a political decision that had already been made). He came out in favour. The Stern review has since been used as an intellectual prop by greenish politicians everywhere. Economists have been more critical, on two grounds. The first concerns the discount rate—the annual rate at which future costs and benefits are discounted. Lord Stern uses a rate close to zero. A higher rate, often the cost of borrowing money, is more common. The higher the rate, the lower the value of future benefits or costs; and vice versa. Lord Stern agrees with Frank Ramsey, an economist who wrote 80 years ago that discounting “later enjoyments in comparison with earlier ones…is ethically indefensible and arises merely from the weakness of the imagination”. Other economists feel there is nothing wrong with their imaginations but plenty wrong
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Is it worth it - Is it worth it? Dec 3rd 2009 From The...

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