Wednesday, March 28, 2012

Big Blue Valuation

Putting a price on something that is priceless is, well, tricky. It is, however, possible to assign a number to how much damage is being done to that thing. In the case of the oceans, a conservative estimate of the cost of climate change is that by the year 2100 it will amount to nearly $2 trillion annually in 2010 dollars, or about 0.4% of global GDP. Any number that purports to describe an economy nine decades hence must be taken with a dollop of salt, of course. But it should not be dismissed out of hand.

Frank Ackerman and Elizabeth Stanton, economists at the Stockholm Environment Institute (SEI), a non-profit research organisation, arrived at their figure by looking at five measures: how much fisheries and tourism stand to lose and what the economic impact would be of rising sea levels, more storms and less carbon being absorbed by oceans. If the world continues to warm at its present rate and temperatures rise by 4°C by 2100, they reckon, the total will come to $1.98 trillion. If drastic measures are taken to cut emissions and they rise by only 2.2°C, it will be $612 billion.

This does not take into account unexpected catastrophic events. What happens if Greenland’s ice-sheet collapses? What if all the methane stored in the Arctic is released? The researches prefer not to contemplate such scenarios. As a result, their could be viewed as a conservative estimate. The economic argument of the SEI’s new book, “Valuing the Ocean”, is that the world stands to save at least $1 trillion every year by doing something about climate change.

The point of the exercise is, of course, to make policymakers - and the public - take notice. Dr Ackerman would like to see climate change become as much a piece of furniture in people’s heads as is airport security or the risk that their house might catch fire. He has long been a vociferous critic of the cost-benefit analyses used in policy-making. Instead, Dr Ackerman suggests looking at combating climate change as a form of insurance.

The insurance analogy is imperfect though. Insurance is about pooling individual risks; it is by definition impossible to pool a risk that affects the whole world. In that respect fighting global warming more akin to defense spending - stumping up now to fend of an uncertain future threat - which few question as unreasonable even in the most peacable of times. Making the oceans a topic of conversation is difficult; $2 trillion ought to concentrate minds.

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