The 21st Century climate challenge

1The 21 st Century climate challengeThe costs of delayedmitigation will not beequally spread acrosscountries and peopleresponses to the challenge of climate changemitigation. To put it differently: a smallprobability of an infinite loss can still representa very big risk.Beyond one world—why distributionmattersThere has also been a debate on the second aspectof the discount rate. How should we weight thevalue of an extra dollar of consumption in thefuture if the overall amount of consumption isdifferent from today’s? Most people who wouldaccord the same ethical weight to future generationswould agree that, if those generations weregoing to be more prosperous, an increase in theirconsumption should be worth less than it istoday. As income increases over time, the questionarises as to the value of an additional dollar.How much we discount increasing consumptionin the future depends on social preference:the value attached to the additional dollar. Thecritics of the Stern review have argued that itschoice of parameter was too low, leading inturn to what is, in their eyes, an unrealisticallylow overall discount rate. The issues relating tothis part of the debate are different from thoserelating to pure time preference and involveprojected growth scenarios under conditions ofgreat uncertainty.If the world were a single country with anethical concern for the future of its citizens,it should be investing heavily in catastrophicrisk insurance through climate changemitigation. In the real world, the costs ofdelayed mitigation will not be equally spreadacross countries and people. The social andeconomic impacts of climate change will fallfar more heavily on the poorest countries andtheir most vulnerable citizens. Distributionalconcerns linked to human developmentgreatly reinforce the case for urgent action. Infact, these concerns represent one of the mostcritical parts of that case. This point is widelyignored by those arguing about discount ratesin ‘one world’ models.Global cost–benefit analysis withoutdistribution weights can obscure the issues inthinking about climate change. Small impactson the economies of rich countries (or richpeople) register more strongly on the cost–benefitbalance sheet precisely because they arericher. The point can be illustrated by a simpleexample. If the 2.6 billion poorest people inthe world saw their incomes cut by 20 percent,per capita world GDP would fall by less than1 percent. Similarly, if climate change led to adrought that halved the income of the poorest28 million people in Ethiopia, it would barelyregister on the global balance sheet: world GDPwould fall by just 0.003 percent. There are alsoproblems in what cost–benefit analysis doesnot measure. The value that we attach to thingswhich are intrinsically important are not easilycaptured by market prices (box 1.5).Distributional imperatives are oftenoverlooked in the case for action on climatechange mitigation. As with the wider debateon discounting, the weighting of consumptiongains and losses for people and countries withdifferent levels of income must be explicitlyconsidered. There is, however, a key differencebetween the distribution issues relating tointergeneration distribution and those relatingto distribution between current populations.In the former, the case for ambitious mitigationrests on the need to insure against uncertainbut potentially catastrophic risk. In the lattercase of distribution of income in our lifetimes,it rests in the ‘certain’ costs of climate changefor the livelihoods of the poorest people inthe world. 95Concern for distributional outcomesbetween countries and people at very differentlevels of development is not restricted tomitigation. Mitigation today will create asteady flow of human development benefits thatstrengthen in the second half of the 21 st Century.In the absence of urgent mitigation, povertyreduction efforts will suffer and many millionsof people will face catastrophic outcomes. Massdisplacement due to flooding in countries likeBangladesh and mass hunger linked to droughtin sub-Saharan Africa are two examples.However, there is no neat dividing linebetween present and future. Climate changeis already impacting on the lives of the poorand the world is committed to further climatechange irrespective of mitigation efforts.64 HUMAN DEVELOPMENT REPORT 2007/2008