Would you prefer to buy a new car for $30,000, or pay down your mortgage and make do with your “clunker”? As you shop for gifts this month, do you buy your loved one an expensive gift, or a cheaper one which would allow you both to take a more expensive vacation next year?
Those dilemmas are what economists call an “opportunity cost.” Simply put, the opportunity cost is the forgone alternative closed off when a resource is used in one way as opposed to another.
It’s no different for governments. Governments must constantly assess whether resources spent in one area could do more good elsewhere.
This concept is particularly important as politicians descend on Copenhagen for the United Nations Climate Change Conference. The purpose is to develop a more ambitious successor treaty to the Kyoto accord. But if the monetary cost of such a treaty runs to trillions of dollars- as it likely will- the potential opportunity cost of Copenhagen seems overwhelming.
Is there an alternative that should be considered? Yes, and it is tied to the irony that the UN’s climate change conference is being held in Copenhagen. That Danish city is also home to the Copenhagen Consensus, a world-renowned think tank that compares the effectiveness of different approaches to aid and development. Analysts at the Copenhagen Consensus have consistently found that to spend money on the reduction of greenhouse gas emissions is extremely inefficient; it would deliver far less bang-for-the-buck in terms of alleviating human suffering than dozens of other projects.
For example, in its 2008 report, the Copenhagen Consensus group found even small investments meant to relieve malnutrition can have a greater impact on human well-being compared to more expensive efforts to reduce greenhouse gas emissions. In one instance, the economists found each dollar spent to combat malnutrition with micro vitamins for children brings between eight and 17 dollars worth of benefits in the form of increased productivity, improved health and reduced mortality. By contrast, the researchers found the benefits from carbon reduction policies are often outweighed by the costs associated with their implementation.
A consideration of the costs and benefits of the Kyoto protocol underscores this point. Imagine the full cost of implementing the old Kyoto treaty was $100 billion. (The actual costs were almost certainly much higher, but even an extreme low-end estimate serves to illustrate the point.) What was the positive impact created in exchange for this $100 billion? By the admission of many of the treaty’s defenders, Kyoto was largely symbolic and with a negligible and statistically insignificant impact on global warming. In other words, it is impossible to positively identify any measurable impact whatsoever of the Kyoto treaty on the life of a single human being .
Consider the good that could have been done with even a small fraction of this money if it were spent on the priorities identified by the Copenhagen Consensus and the Kyoto accord seems to be not merely a mistake, but a tragedy. For example, at a cost of just $60 million per year, the analysts found that we could provide the required levels of vitamin a and zinc to 112 million malnourished children, allowing them to lead longer and better lives. Compare this humanitarian achievement to the implementation of the largely symbolic-but much more expensive- Kyoto accord and the folly of such pacts becomes readily apparent.
Issues that rise to the top of the policy agenda are not always determined by a rational cost-benefit analyses. Unlike the Copenhagen Consensus, which relies on Nobel Prize-winning economists to set priorities based on dispassionate policy analysis, agendas set in real life are often determined by which cause has the most effective public relations campaign. In this area, the global warming lobby is unparalleled. Appealing to compassion with images of adorable but sad-looking polar bears, and stoking fears by presenting dubious apocalyptic scenarios as all-but-certain, a group of activists has relied on the manipulation of emotions rather than reasoned argument to move global warming to the top of the international agenda.
Global warming might be one problem that mankind faces; if so, it is not the only problem. And the resources available to address all problems are finite—which brings us back to the opportunity cost dilemma. Those at the UN Climate Change Conference should walk down the street to the Copenhagen Consensus headquarters; they should ask the experts there whether the resources earmarked for carbon reduction might be spent elsewhere and more effectively for men, women and children around the planet.