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CLIMATE CHANGE
OPPONENTS’ VIEWS
In his challenge paper, William Cline paints a picture of
severe long-term economic damage that would result from
climate change if mankind does not take decisive action
to reduce greenhouse gas emissions in the near future.
His preferred option is the introduction of aggressive carbon taxes which would rise steadily over the next two to
300 years. Robert Mendlesohn, in his opposition paper,
takes issue with the logic and analysis that leads Cline to these conclusions.
In Mendlesohn’s view, Cline makes the mistake of
proposing very costly (and economically damaging) strate-
gies in the short term to tackle potential problems that
might result from the action of future generations. He
thinks it would be fairer for those costs to be borne by those generations causing the problem, if they so choose.
Economists use a process called discounting to compare
costs and benefits over time. This accounts for the common-sense fact that it is only worthwhile spending money now if it produces future benefits greater than the interest which could be gained by saving it. Because Cline believes that
climate damage in the far future is so important, he sets
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Climate Change
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an artificially low discount rate so that the cost of damage appears large in present-day terms.
Another flaw is his reliance on older studies for esti-
mates. More recently, there is systematic evidence from the literature that likely climate damage had previously been
overestimated, since studies had failed to allow for adap-
tation and climate benefits. For example, countries in the polar regions would receive large benefits from warming,
those in mid-latitudes would benefit as long as the aver-
age temperature rise was less than 2.5◦C, and only tropical and sub-tropical regions would suffer short-term harm to
the degree previously suggested. Overall, benefits of global warming are likely to outweigh damage until the rise is
greater than 2.5◦C, and even then the net damage would
be far smaller than originally thought.
Such reduced impacts imply that fossil fuel use would
not need to be cut as drastically as Cline suggests, and that carbon taxes should be much lower. These would start at
only $1–2 per ton, rising to $10–20 per ton by 2100. This
does not take account of the concerns about potentially
catastrophic events such as shutting down the thermoha-
line circulation in the Atlantic, but Mendelsohn believes it is unrealistic to link current emissions to such hypothetical events.
He also argues that emissions of greenhouse gases
should be controlled in the same way as any other pollutant: by the use of tradable permits. Companies can be issued
with permits to emit a certain amount of carbon dioxide;
if they release less, they can sell part of their allowance. A further major abatement policy that Cline does not cover
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How to Spend $50 Billion to Make the World a Better Place is carbon sequestration: removal of carbon dioxide from
the atmosphere, for example, by growing trees. Mendlesohn
believes that an optimal forest management program can
be constructed that could account for one-third of the total abatement. This would reduce the level of emissions tax
needed.
Based on the more recent evidence, none of the options
proposed by Cline would be cost-effective, in Mendlesohn’s view: Only the much more modest proposals of carbon
tax rates between $1 and $20 per ton for the next cen-
tury have a benefit-cost ratio greater than one. In contrast, Cline’s “optimal” program would yield a benefit-cost ratio of only 0.07 by 2100: $100 of cost would produce only $7 of benefit.
In summary, Mendlesohn argues for a much less dra-
conian approach to climate change policy, and takes a
far more optimistic view of mankind’s ability to learn,
adapt, and find better solutions. He proposes that com-
mitments should only be made for what is definitely
intended to be done in the near term, and that the policy
should then be reviewed every decade in the light of new
evidence.
Alan Manne, in his opposition paper, also agrees that
Cline has overstated the immediacy of the problems pre-
sented by climate change. In his view, dealing with poverty and disease in developing countries warrants much higher
priority. He criticizes Cline’s arguments for an optimal carbon tax. He also objects to Cline considering an even more risk-averse solution (the so-called “value-at-risk” approach)
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Climate Change
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that appears to justify yet higher carbon taxes. This is based on a highly pessimistic view of current uncertainties, many of which will be resolved in the future.
Manne’s main concern, which he shares with Mendle-
sohn, is that Cline’s discounting strategy is unduly alarmist.
He uses an unrealistic economic analysis to achieve the
result he wants.
Unlike Mendlesohn, Manne includes in his analysis fac-
tors such as impact on human health, species loss, and
catastrophic risks such as shut-down of the Atlantic thermohaline circulation (so-called non-market damage). Indeed,
in his view the market damages (losses to agriculture and
fisheries, for example) that are the usual basis of economic analysis are not the principal reason to be concerned about climate change. How much individual countries would be
prepared to pay to avoid climate damage depends on a
number of factors, but will depend largely on the estimated benefit-cost ratio.
In Manne’s opinion, Cline’s use of an unrealistically
low discount rate inevitably means that high carbon taxes, designed to force a rapid reduction in the use of fossil fuels, is the only reason this aggressive approach appears to be
cost-effective.
A more measured, market oriented strategy would still
limit temperature rise to 2.5◦C, but would delay costly
abatement measures, which a more prosperous future
world might show a greater willingness to pay. In contrast to Cline’s aggressive carbon tax rates, starting at $300 per ton, Manne’s approach suggests a near-term optimal tax
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How to Spend $50 Billion to Make the World a Better Place of $12 per ton. This is higher than Mendelsohn’s $1–2 per
ton, but nevertheless these two very different approaches
still come to essentially the same conclusio
n: Cline’s highly expensive, social engineering approach is not justified. Both authors put far more faith in mankind’s ability to adapt and develop appropriately flexible solutions.
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ANNE MILLS AND SAM SHILLCUTT1
2
Communicable Diseases
The challenge of communicable disease
The second half of the twentieth century saw enormous
improvements in health across the whole world. Indeed,
life expectancy in developing countries has increased faster than in the industrialized world, albeit from a lower
baseline. People in many developing countries have life
expectancies close to those in more advanced economies,
but there is now a big gap between them and another group
of countries, mainly in sub-Saharan Africa (SSA), where
high mortality persists.
In 2002, there were 57 million deaths worldwide. Of
these, 20% were children under five, and 98% of these childhood deaths occurred in developing countries. Communica-
ble diseases represent seven out of the top 10 causes of child deaths in developing countries, and account for around 60%
of all such deaths: more than 6 million deaths annually.
A further problem in developing countries is premature
1 Health Economics and Financing Programme, London School of Hygiene and Tropical Medicine.
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How to Spend $50 Billion to Make the World a Better Place mortality of adults (15–59), which represents 30% of all
deaths, compared to only 20% in developed economies.
As ever, it is the poorest in these countries who suffer
disproportionately.
Non-smokers in the richest countries have a lower risk
of dying throughout their life than other population cat-
egories. Deaths in excess of the rate in this category can be considered avoidable, and certain sectors of developing country societies, particularly infants and young women,
are disproportionately affected. Around 90% of these avoidable deaths are caused by communicable diseases. The tools to tackle these have been employed to good effect in the
world’s richest countries, but the challenge is now to make them available to the world’s poorest people.
In this chapter, the focus is on three major opportu-
nities to combat communicable disease out of the many
possibilities:
r Malaria control.
r HIV/AIDS control.
r Scaled-up basic health services.
Of course, these are to some extent interdependent, but we examine them separately for clarity.
Assessing the opportunities
Health has both direct and indirect effects on a coun-
try’s economy; direct through the impact of ill health on
current productivity, and indirect via the size and qual-
ity of the labor force as determined by such factors as
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Communicable Diseases
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Higher fertility
Higher
Labour force
and
dependency
reduced by
child mortality
ratio
mortality and
early retirement
Lower
per capita
income
Labour
Adult
Child
productivity
Illness and
illness
reduced
malnutrition
Reduced access
Child
to natural
malnutrition
resources and
global economy
Less schooling
Reduced
and impaired
investment in
inactive capacity
physical capital
Figure 2.1. Channels through which illness reduces income
Source: Ruger, Jamison and Bloom (2001).
mortality, fertility, and intellectual capacity. The drain on economic performance through ill health can be reversed
by appropriate interventions; for example, up to 1.7% of
annual economic growth in East Asia between 1965 and
1990 (about half the total GDP increase for the period) has been attributed to massive improvements in public health.
Some analysts even have argued that such health improve-
ments have contributed at least as much to economic devel-
opment as have innovation and expansion in goods and
services.
The costs of poor health across communities can
be assessed by both micro- and macroeconomic studies.
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How to Spend $50 Billion to Make the World a Better Place Microeconomic studies examine the effect of disease at a
household level, but they tend to underestimate the full
economic impact of poor health. This is partly because
communities adopt coping mechanisms such as labor sub-
stitution within the family, liquidating assets, and increased birth-rates. Furthermore, because the state of health usually affects an entire community, there are no unaffected
households with which to make direct comparisons, nor
good ways of accurately assessing the value of alternative activities for which labor is unavailable.
Macroeconomic studies, in contrast, compare the effects
of disease on the economies of different countries. Such
studies attempt to capture the full, wide-ranging effects
of ill health, but there is much less data of this type
available.
Most studies of particular interventions have analyzed
the data in terms of cost effectiveness rather than cost-
benefit ratios, calculating the cost-per-life saved or disability averted. To draw on this data to produce a cost-benefit analysis, a monetary value must be placed on human life.
This value will vary with the approach taken and assump-
tions made, introducing a degree of subjectivity into the
final analysis.
In this chapter, these cost effectiveness studies and other relevant work have been used as a basis for calculating costs and benefits of the three opportunities being considered. No attempt has been made to extrapolate results for a particular country to a wider area, but the various pieces of evidence taken together give a sense of the overall cost-benefit balance. To avoid understating benefits, results are adjusted
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to Purchasing Power Parity and expressed in 2003 interna-
tional dollars (Int $).
A standard discount rate of 3% has been used to cal-
culate net present values. Simple sensitivity analyses were done to ensure the conclusions were not just valid for a single s
et of assumptions.
Control of malaria
Malaria – a parasitic disease spread by the Anopheles mos-
quito – is transmitted in 103 countries, and is estimated to cause 1–3 million deaths annually. It is now primarily a tropical disease, having been eradicated from North America,
Europe, and Russia during the twentieth century.
Malaria is caused by four different species of the Plas-modium parasite. The most dangerous of these predomi-nates in sub-Saharan Africa (SSA), where 90% of malarial
deaths (and 85% of all infections) occur. There are two types of transmission:
1. Stable, in which young children are repeatedly infected.
Those who survive acquire immunity, meaning that
they are very unlikely to die from the disease as adults
(although they may have recurrent fevers).
2. Unstable, where transmission rates are low and immunity does not develop. In this case, malaria epidemics
occur, and deaths occur amongst all age groups.
In Africa, about 1 million deaths caused by malaria are
believed to occur each year, more than three-quarters of
them children. In SSA, malaria accounts for around 20%
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How to Spend $50 Billion to Make the World a Better Place of deaths of under-5s. This is a small proportion of the
total disease burden: 200–450 million cases of malaria are estimated to occur among young children in Africa, and
there could be in the region of 2 billion cases globally. 3%
of attacks are characterized as severe, and half of those
affected die if they do not receive hospital treatment.
In addition to the direct effects, malaria is an important cause of anemia, interacts with other infectious diseases, and contributes to Low Birth Weight when contracted during pregnancy. As well as its various direct and indirect
physical effects, malaria is believed to have a significant negative impact on intellectual development.
Microeconomic impact
There is evidence of a considerable burden on households
and governments for prevention and treatment. In Malawi,
for example, it was estimated that the total annual direct cost of malaria for an average household was $40, representing over 7% of total income. Similar figures have been reported for small farmers in other African countries: 9–
18% of income in Kenya, and 7–13% in Nigeria. It seems
quite clear that the burden falls particularly heavily on the poorest in each society.
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