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Copenhagen Consensus

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Copenhagen Consensus is a project which seeks to establish priorities for advancing global welfare using methodologies based on the theory of welfare economics. It was conceived [link] and organized by Bjørn Lomborg, the author of The Skeptical Environmentalist and the Environmental Assessment Institute which he was heading at the time. The project was funded largely by the Danish government, and co-sponsored by The Economist. A book summarizing the conclusions, Global Crises, Global Solutions, edited by Lomborg, was published in October 2004 by Cambridge University Press. A second round is proposed for 2008. The Copenhagen Consensus Center [link] is now located at Copenhagen Business School.

The participants were all economists, with the focus of the project being a rational prioritization based on economic analysis. The project is based on the contention that, in spite of the billions of dollars spent on global challenges by the United Nations, the governments of wealthy nations, foundations, charities, and non-governmental organizations, the money spent on problems such as malnutrition and climate change is not sufficient to meet many internationally-agreed targets. This argument is supported by evidence from the World Bank, which estimates that the UN's Millennium Development Goals would cost an additional annual $40-$70 billion on top of the $57 billion already spent as of 2004 [link]; this increased expenditure would have to continue each year until 2015 in order to achieve the Millennium Development Goals.

The emphasis on "rational priorization" is justified as a corrective to standard practice in international development, where, it is alleged, media attention and the "court of public opinion" results in priorities that are often far from optimal.

Contents

Process

The process used by the project depends heavily on the expertise of reputable economists to evaluate the costs and benefits of addressing the ten major global challenges initially chosen by the project. Eight economists, including four Nobel winners, met May 24 - May 28, 2004 at a roundtable in Copenhagen. Ten stimulus articles were prepared by other economic experts, one on each of the challenges. Each article summarizes some current knowledge about one of the challenges, identifies from three to five opportunities to solve or ameliorate the problem, and contains cost and benefits estimates, calculated on particular assumptions with varying levels of uncertainty, related to the challenge. For each article, two critiques were written by other reputable economists, in an attempt to achieve a balanced perspective. At closed-door sessions the experts reviewed the articles and the critiques, and produced a ranking based on applied welfare economics of the 30-50 identified opportunities.

Experts

"Nobel Prize" winners marked with (¤)

Challenges

The author of the primary article about each challenge is also listed

The experts started with ten challenges and several "opportunities" within each:

Preventing spread of HIV
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Preventing spread of HIV

The experts agreed to rate seventeen of the opportunities within seven of the ten challenges. Projects were rated in 4 groups: Very Good, Good, Fair and Bad

Very Good The highest priority was assigned to implementing certain new measures to prevent the spread of HIV and AIDS. The economists estimated that an investment of $27 billion could avert nearly 30 million new infections by 2010.

Policies to reduce malnutrition and hunger were chosen as the second priority. Increasing the availability of micronutrients, particularly reducing iron deficiency anemia through dietary supplements, was judged to have an exceptionally high ratio of benefits to costs, which were estimated at $12 billion.

Control malaria
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Control malaria

Third on the list was trade liberalization; the experts agreed that modest costs could yield large benefits for the world as a whole and for developing nations.

The fourth priority identified was controlling and treating malaria; $13 billion costs were judged to produce very good benefits, particularly if applied toward chemically-treated mosquito netting for beds. [link]

Good The fifth priority identified was increased spending on research into new agricultural technologies appropriate for developing nations. Three proposals for improving sanitation and water quality for a billion of the world’s poorest followed in priority (ranked sixth to eighth: small-scale water technology for livelihoods, community-managed water supply and sanitation, and research on water productivity in food production). Completing this group was the 'government' project concerned with lowering the cost of starting new businesses.

Fair Ranked tenth was the project on lowering barriers to migration for skilled workers. Eleventh and twelfth on the list were malnutrition projects - improving infant and child nutrition and reducing the prevalence of low birth weight. Ranked thirteenth was the plan for scaled-up basic health services to fight diseases.

Poor Ranked fourteenth to seventeenth were: a migration project (guest-worker programmes for the unskilled), which was deemed to discourage integration; and three projects addressing climate change (optimal carbon tax, the Kyoto protocol and value-at-risk carbon tax), which the panel judged to be least cost-efficient of the proposals.

Climate Change

The panel found that all three climate policy to have "costs that were likely to exceed the benefits". It further stated "global warming must be addressed, but agreed that approaches based on too abrupt a shift toward lower emissions of carbon are needlessly expensive." [link]

In regard to the science of global warming, the paper relied primarily on the framework set by Intergovernmental Panel on Climate Change. Crucially, the project accept that greenhouse gas emitted from human activities to be the primarily cause of the global warming. In regard to the economics of global warming, the paper relies on various research studies published in the field of economics and attempt to compare the estimated cost of each policies against the expected reduction in the damage of the global warming from the policies.

Cline, the author of the paper, set the discount rate, which is crucial in the cost benefit analysis to low rate of 1.5%. (Cline's summary is on the project webpage [link]) He justified his choice of discount rate on the ground of "utility-based discounting", that is there is zero bias in terms of preference between the present and the future generation (see time preference) and the discount rate is based on the expected decrease in the marginal benefit of three climate policies. This diverges from the conventional cost-benefit accounting, which simply bases the discount rate on the marginal cost of capital (i.e. interest rate). Moreover, Cline extended the time frame of the analysis to three hundred years in the future. Because the expected net damage of the global warming become more apparent beyond the present generation(s), this choice had the effect of increasing the present-value cost of the damage of global warming as well as the benefit of abatement policies.

Members of the panel including Thomas Schelling and Robert Mendelsohn (both opponents of the Kyoto protocol) criticised the way this issue was handled in the Consensus project, particulaly the issue of discount rates. (See "The opponent notes to the paper on Climate Change" [link]) Mendelsohn, in particular, characterizing Cline's position, said that "[i]f we use a large discount rate, they will be judged to be small effects" and called it "circular reasoning, not a justification". Moreover, he argue that Cline's literature survey is not up-to-date. Citing various recent articles, including some of his own, he stated that "[a] series of studies on the impacts of climate change have systematically shown that the older literature overestimated climate damages by failing to allow for adaptation and for climate benefits." Moreover, he criticized the way in which the policy proposals are fixed in the analysis. In the Cline's paper, the present generation is responsible for the welfare of the future generations extending upto 300 years in the future. Instead, Mendelsohn argues that the each successive generation should be responsible for their own welfare i.e. each generation should respond to the global warming as it happens. This means that the current generation only needs to worry itself with the present net cost/benefit of the global warming. This, in turn, mean that the severity of three policy alternative does not need to adjusted to the 300 years in the future, and consequently, would not be as taxing.

After the results were published, members of the panel including Thomas Schelling and Robert Mendelsohn (both opponents of the Kyoto protocol) criticised the way this issue was handled in the Consensus project. The Economist quoted Mendelsohn as worrying that "climate change was set up to fail".[link].

Criticism

The report, especially its conclusion regarding the climate change was subsequently criticised from a variety of perspectives. The general approach adopted to set priorities was criticised by Jeffrey Sachs, an American economist and advocate of increased development aid, and Kyoto protocol [link], made numerous criticisms of the project arguing that the analytical framework was inappropriate and biased and that the project "failed to mobilize an expert group that could credibly identify and communicate a true consensus of expert knowledge on the range of issues under consideration." [link].

Under the heading "Wrong Question", Sachs further argued that: "The panel that drew up the Copenhagen Consensus was asked to allocate an additional US$50 billion in spending by wealthy countries, distributed over five years, to address the world’s biggest problems. This was a poor basis for decision-making and for informing the public. By choosing such a low sum — a tiny fraction of global income — the project inherently favoured specific low-cost schemes over bolder, larger projects. It is therefore no surprise that the huge and complex challenge of long-term climate change was ranked last, and that scaling up health services in poor countries was ranked lower than interventions against specific diseases, despite warnings in the background papers that such interventions require broader improvements in health services."

In contrast, Tom Burke, a former director of Friends of the Earth, repudiated the entire approach of the project, arguing that applying cost-benefit analysis in the way the Copenhagen panel did was "junk economics". [link] John Quiggin, an economist and a self described social-democrat, commented that the project is a mix of "a substantial contribution to our understanding of important issues facing the world" and an "exercises in political propaganda" and argued that the selection of the panel menbers was slanted towards the conclusions previously supported by Lomborg [link]. Quiggin observed that Lomborg had argued in his controversial book, The Skeptical Environmentalist, that resources allocated to mitigating global warming would be better spent on improving water quality and sanitation, and was therefore seen as having prejudged the issues.

In addition, Quiggin argued that the members of the panel, selected by Lomborg, were, "generally towards the right and, to the extent that they had stated views, to be opponents of Kyoto." [link]. Sachs also noted that the panel members had not previously been much involved in issues of development economics, and were unlikely to reach useful conclusions in the time available to them.

Lomborg's response

Bjorn Lomborg countered the criticism by stating that "Sachs disparaged the Consensus ‘dream team’ because it only consisted of economists. But that was the very point of the project. Economists have expertise in economic prioritization. It is they and not climatologists or malaria experts who can prioritize between battling global warming or communicable disease," [link] Bjorn Lomborg argue that $50 billion were "an optimistic but realistic example of actual spending." "Experience shows that pledges and actual spending are two different things. In 1970 the UN set itself the task of doubling development assistance. Since then the percentage has actually been dropping". "But even if Sachs or others could gather much more than $50 billion over the next 4 years, the Copenhagen Consensus priority list would still show us where it should be invested first." [link]

Issues not considered

The Copenhagen Consensus did not consider some issues, such as a cost-benefit analysis of the War on Terrorism. The direct financial spending on this issue dwarfs the money that the panels were allocated. In the introduction of Global Crises, Global Solutions, war and fighting terrorism are both covered as early possible candidates, but did not make the final list of 10 (later expanded to 17) issues with highest cost/benefit ratios. Also both were seen as primarily benefiting developed nations, not the targeted developing countries.

References

See also

External links

 

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