Monday, February 23, 2009
More on Valuation
I have been thinking more about how the attitude toward climate risk in the Developing World and the Developed World may drive disagreement going forward. I live in a pretty stable world. Day to day life is quite regular. Disruption is minimal. Not just that, where disruption occurs, life is stable under such perturbation unless it was extreme – which to date it has not been. (I have been in no serious car accidents, nor had serious disease and so on.) For me the calculus of cost and benefit for a 550 or 650 ppm world is negative. Climate change is driven by energy use which is tied to economic growth. I am well off enough that marginal growth does not yield much incremental benefit. Instead, I’d prefer to avoid the increase in potential disruption to my life that such climate change may risk. But now consider my counterpart – a poor person in a Developing Country. His day to day life is filled with disruptions to regularity – uncertainty in food supply, health, energy (if any) and so on. He lives on a knife edge - with little resilience to minor perturbations. You might think he should disfavor the increased risk that climate change would bring more than I would. But that is not obviously the case. For if climate change is driven by his increased energy use as a result of his increased economic growth he may be better off. For notice two things: the same marginal gain to me which is small relative to my income may be huge to him relative to his income. And that improvement may render him more resilient to the effects of climate change than he would have been – poorer in a lower ppm world. But not just that, his increased income will not just increase his resilience in the face of the effects of climate change but across all the other existing disruptive forces in his life.