The questionable appeal of efficiency

One frequently mentioned criterion for climate change policies is that they should help us achieve our goals “efficiently”. An advantage claimed for emissions trading or environmental markets is that they reduce emissions in an economically efficient way.

We need to be very careful with applying this criterion of efficiency, since it is easy in practice to confuse it with the minimisation of cost, something which may be undesirable.

First, consider a scenario in Jermyn Street, London. You have just bought a new cashmere jumper. Suddenly it clouds over. You step out of the shop and it starts bucketing it down with rain and you have an urgent need for an umbrella.

There are three shops along the street which sell umbrellas. Do you:

(a) Go to all three to check prices and, having ascertained which gives best value for money, return to the chosen shop and make your purchase
(b) Go to one and spend five minutes (in the rain) bargaining with the umbrella seller, on the grounds that you can always take your custom to the next shop along the road, or
(c) Buy the first umbrella you find and preserve your new cashmere jumper?

By conventional measure, the third approach is unlikely to bring the lowest cost of an umbrella. But think of the heavy rain, i.e. circumstances which are very likely to be catastrophic (for your jumper).

With climate change we might be already in the rain shower. We do not know how much time we have. We should be very careful being too clever about spending a lot of time figuring out the lowest cost approach. Let’s just do something which works.

Second, there is the question of redundancy, in many ways the opposite of efficiency. Redundancy (not the kind with which bankers have become recently familiar) is about deliberately building into your design back-up systems in case a main system does not work. You might have several redundant features, and never use any of them, but its good to know that they are there in case something goes wrong. In the pursuit of efficiency, redundancy is often ignored by people designing and operating systems and businesses.

With climate change policy there is little time to get it right and little space for experimentation or error. Therefore it makes sense to build redundancy into the policies. We should adopt plenty of different policies at the same time, some expensive, some cheap, all with the aim of cutting emissions. And to be safe we might want to overshoot rather than undershoot reductions. Building in redundancy is quite the opposite of efficiency. Despite its importance it is constantly overlooked by linear-minded policy makers.

Third, the cost of measures to combat climate change is thought of as the cost to the current economy as we know it and the notion assumes that the current economy is largely a constant. The low-costers are thinking: “We have a big economy with lots of factories and power plants and lorries and planes and things and we want to cause as little disturbance as possible to it.” So any policy measures must be as low cost as possible in order not to cause any disturbance.

The trouble with this approach is that we are not talking about some little scheme on the edge of the economy. This is not fine-tuning. We are talking about replacing big chunks of the economy – well over half the things we do in our economy are not sustainable. Once these chunks have gone, we will not have the same economy. Power generation, manufacture of cement, iron and steel, bricks, glass, aluminium, fertilisers, and chemicals, the oil and gas industry, the construction industry or transport all consume, or their products consume, stupendous quantities of fossil fuels. All this will have to go or be fundamentally changed in a low carbon economy. From the point of view of society, this technology is junk and has no value. Let’s not be afraid to impose costs on it which will hasten its demise.

The so-called costs of climate change policies are the costs of switching to a sustainable economy within which mankind and other species can survive. In fact, these costs are investments. Therefore they should be compared with the benefit of obtaining a new economy which works.

Things which seem to cost us money now in terms of today’s economy, are actually helping us move more quickly to a sustainable economy where we will create wealth, wellbeing, happiness, satisfaction, or contentment by other technologies and behaviour. We should spend lavishly and boldly on this goal.

Climate change policy makers need to be very careful in considering how they handle efficiency. The shortage of time and need for redundancy call for more attention to effectiveness than efficiency. And the denominator of efficiency should not be the costs imposed on industries of which our planet cannot afford.

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