From Kyoto to Copenhagen and then Cancun, the pace of the negotiations on a global compact on climate change has been faltering. UN Secretary General Ban Ki-moon has been quoted just last week as saying that he feels the effort at reaching agreement on another global compact may not be worth it.
This should not be surprising. The intensity of feeling on the eve of Copenhagen when people were telling us we only had a week to save the world was always misplaced. Given that the
?Development Round? at Doha is still inching its way after several years to an agreement, we should not be surprised that climate change negotiations have taken time.
But mere delay will not necessarily get us to an agreement which is in consonance with the expectations of those who want a binding global agreement. The difficulty lies not in the nature of international diplomacy, but at the very theoretical foundations of the project. Economic theory, albeit of a generation now forgotten, argued cogently that such projects cannot be realised in theory.
One of the reasons for this is that from the very beginning the problem was mistakenly defined as ?global warming? rather than ?climate change?. Global warming focuses on a single variable?mean temperature and the trend in it. But climate change has manifested itself much more as greater volatility in temperature than previously. If the negotiators are to command public support, they need to refocus on volatility and not on trend.
The idea that the world will come together to accomplish a common object, which it ?should? perceive is in its own interest, faces the difficulty that rich and poor, continental countries and island states, coastal regions and mountainous ones, have different preferences regarding what they are willing to give up for saving the world from climate change. This reminds one of what Lionel Robbins argued in the 1930s, that utility was not comparable across individuals. Utilities were not interpersonally comparable nor aggregable.
Daunted economists changed their tack. They began to define the aggregate not in terms of utility but in terms of income. The attraction of this technique is obvious, as the Stern Report showed, for the global warming problem. But what allows us to add up incomes together, not only of people living contemporaneously but also of future generations? The value judgement required is that we are all in this together, that our well-beings are intertwined and that if we do not do something soon, future generations will suffer. Sound as these values are, they can be and are contested politically and socially.
In 1937, Friedrich Hayek, in an article titled Economics and Knowledge, argued that knowledge was scattered across individuals and regions. The economic problem was to pool together this local knowledge most efficiently. It was difficult, if not impossible, for any single agency to know everything that was known locally. Even if one did aggregate all local knowledge, it would very soon become obsolete because at the local level knowledge keeps changing.
This is the classic co-ordination problem. One way of coordinating local knowledge was via the price mechanism, but that need not be the only way. There can be many cooperative strategies used to share knowledge locally. Decentralised knowledge defies any single method of aggregation.
The relevance of the Robbins-Hayek critiques to the global warming issue is that it is difficult to get people to agree to a single objective and arrive at an agreed set of policies to reduce the target level of temperature. People have markedly different preferences and are not easily persuaded to enter into redistributive policies at present or commit themselves to them over an uncertain future.
While carbon emissions are homogeneous across the world, the opportunity cost of reducing one unit of carbon emission differs widely across countries and regions and people. The developing countries value growth more than reduction of emissions and the developed countries?some of them at least?have a different calculus.
But even if we could get such an agreement and proceed to implement it, what Hayek tells us is that a plan devised as a top-down agreement will miss out on the constantly changing situation because of innovations and new ways of doing old things, which people constantly come across.
Given that the opportunity cost of carbon emission reduction differs widely, the action undertaken will also do so. Income transfer across regions that have a high opportunity costs to where they are low may reduce the gap and lead to faster action in the low opportunity costs areas. Yet we lack the knowledge to devise a perfect income transfer system. This is in the nature of the problem.
So, don?t hold your breath for the Durban Conference. It, too, will pass.
The author is a prominent economist and Labour peer