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RECOMMENDED READING

Carson, Rachel (1962). Silent Spring. Boston: Houghton Mifflin.

23

Act Now, Later, or Never?

The Challenges of Managing Long-Term Risks

CHRISTIAN GOLLIER

The publication in 1972 of “The Limits to Growth” by the Club of Rome marked the emergence of a public awareness about collective perils associated with the sustainability of our development. Since then, citizens and politicians have been confronted by a never-ending list of environmental problems: nuclear wastes, genetically modified organisms, climate change, biodiversity. . . .

This debate has recently culminated with the publication of three reports. On one side, the Copenhagen Consensus in 2004 put top priority on public programs yielding immediate benefits (fighting malaria and AIDS, improving water supplies, etc.) and rejected the idea of investing much in the prevention of global warming. On the other side, the Stern Review in 2006 and the fourth report of the Intergovernmental Panel on Climate Change in 2008 put a tremendous pressure on acting quickly and strongly against global warming. The absence of consensus among the experts on this question has translated into public debate and public action, notably with respect to the current limitations of the Kyoto Protocol to encourage all countries to seriously reduce their greenhouse gas emissions.

A striking aspect of the recent debate on climate change is the transfer of the most pressing scientific challenges from the so-called hard sciences (e.g., climatology, oceanography, chemistry) to the social sciences, and more specifically to economics. Yet the economic community remains divided on the way to approach long-term environmental risks. The absence of consensus about efficient public policy for the environment may be explained by several factors. First, there is still no consensus within the scientific community about the intensity and future impact of many underlying long-term environmental risks. Second, scientists disagree about whether we should wait to get better information before implementing strong actions. Third, they disagree as well about how much effort should be expended to improve the environment for future generations. The bottom line is that there is no agreed-upon rule about how to evaluate long-term environmental risks and therefore no consensus yet about how to shape environmental policy.

But this does not have to be the case. Recent advances have been made toward providing a unified scientific framework to evaluate and make policy recommendations regarding collective long-term risks. This progress puts a new light on concepts such as “sustainable development” and “precautionary principle,” increasing their suitability as efficient guidelines for collective decision making.

The state-of-the-art methodology for evaluating an environmental project is based on a benefit-cost analysis in which the net present value of the future monetarized benefits is compared to the cost of the project. This methodology has been applied to the reduction of emissions of carbon dioxide, which are bad for the environment: Specifically, the cost of reducing CO2 by one ton (e.g., through the substitution of nuclear or solar technologies in place of fossil fuel for example) is compared to the discounted value of the flow of future marginal damages generated by one more ton of CO2 in the atmosphere—the so-called carbon value. Two crucial elements explain the very diverse estimations of this carbon value: selection of the discount rate (one dollar today will not be equal to one dollar in thirty years) and uncertainty about the damages. Similar attempts to evaluate environmental policy in favor of biodiversity versus a moratorium on genetically modified organisms, for example, led to similarly ambiguous conclusions.

The consequence of the absence of consensus is an inefficient allocation of our resources invested for the future. Its cause—namely, the lack of a consensual methodology—originates from