|The use of discount rates in
"Copenhagen Consensus 2008":
Debate in "Frederiksborg Amts Avis"
Copenhagen Consensus main
page Copenhagen Consensus 2008
On discount rates
The following is a translation of a debate in the local Danish newspaper "Frederiksborg Amts Avis" in February 2009.
SCHOOL PUPILS ABANDONED TO THE MERCY OF LOMBORG
By Kåre Fog
Frederiksborg Amts Avis writes (11./2.) that the environment debater Bjørn Lomborg puts himself up to discuss with 450 young people from the schools in the Rudersdal district on Wednesday February 25th.
According to the advance publicity, it is going to be about both facts and emotions. When things are put up as facts versus emotions, Lomborg is in his right element. He loves to present things so that his counterpart is the goodhearted person who is carried away by his emotions, whereas he is the one who keeps his head cool and represents the facts.
"Al Gore reads signs of the end of the world because of climate changes . . . " it says with a huge exaggeration. I wonder if not Lomborg imagines that Al Gore is going to represent the emotional commitment, whereas Lomborg represents the facts? And as Al Gore does not participate in person, he is unable to defend himself against this spin.
Before the debate meeting, the pupils and their teachers ought to investigate how much of the contents of Al Gore´s film and how much of the contens of Lomborg´s books are facts.
One can do that by studying the following page on the internet: "www.lomborgerrors.dk/Goreversus-Lomborg.htm." Here it appears that in the whole of Al Gore´s film, there are 10 errors, whereas in Lomborg´s book on the climate, there are 82 errors just in the first third.
In the meeting, Lomborg will presumably refer to his Copenhagen Consensus conference, where it is shown with - seemingly - matter-of-fact cost/benefit calculations that it pays better to solve other problems than global warming. Lomborg will certainly assert that these are the facts - the naked figures.
The 450 school pupils have no chance on earth to see what lies behind these seemingly objective figures. They do not know that the figures have arisen by discounting calculations and that Lomborg has cheated in these calculations. He has used one discount rate for climate projects, and another discount rate for the remaining projects.
If he had used the same rate for all projects, an endeavour for the climate would have appeared much higher on the ranking list; it would have obtained a more favourable cost/benefit ratio than the endeavours against tuberculosis, malaria, child diseases and heart diseases. But by using different rates of interest - without valid reason - Lomborg has manipulated things in such a way that it looks as if the endeavour against climate change is not very profitable.
This is regular cheating, and the pupils have no chance to see through this cheating.
WE HAVE NOT CHEATED WITH THE CALCULATIONS
By Bjørn Lomborg
Kåre Fog writes on February 11th in Frederiksborg Amt Avis that we in Copenhagen Consensus have "cheated with the calculations", because we have used one rate of interest for climate projects and another rate of interest for the remaining projects.
This is simply wrong.
Indeed, our Nobel laureates have stressed the importance of using the same rate of interest for all projects (which naturally is also the only fair approach), and this yields that solely CO2 cuts are an extraordinarily poor way of helping future generations.
Instead the Nobel laureates recommend to invest in better energy technology through research and development - an investment that is more than 10 times better.
LOMBORG FIDDLES THE RATE OF INTEREST
By Kåre Fog
I claimed on February 12th here in the newspaper that Bjørn Lomborg´s conference has used one rate of interest for climate projects and another rate of interest for other projects.
On February 14th Lomborg writes here in the newspaper that my claim simply is wrong.
But, unfortunately, it is fully correct. There really have been used different rates of interest. This appears from the papers in the Copenhagen consensus conference, and it has also been confirmed to me by one of the climate economists of the conference, Richard Tol.
How can pupils and teachers now, before meeting Lomborg, realize from personal inspection that Lomborg does not speak the truth here in the newspaper? They can go on the internet and read the papers from Copenhagen Consensus ´08. Among other places, in Jamison´s text on diseases and in Horton´s text on malnutrition they will se that there has been used a discount rate of 3 percent (as prescribed by Lomborg) (the rate of discount is easily found by searching for the word "discount" in the text). But if they enter the climate papers, they will se that Yohe et al. has a discount rate of 4 to 5 percent, and Green has a disocunt rate of 4 percent.
Does it matter? Yes, certainly.
Green states what the results will be with other rates of interest. His climate project gives a benefit/cost ratio of approximately 16 when he uses 4 percent, but if he uses 3 percent, like in the health projects, this yields a ratio of no less than 28.5.
The top priority in Lomborg´s list is supplying vitamin A and zink to small children in the developing world. This gives a benefit/cost ratio of about 17. And that may then be compared to Green´s climate project. By using the same rate of interest as in the other projects this yields as I said a ratio of 28.5, that is far higher than the vitamin A-project. If one had been objective, the climate project would have ranked higher than Lomborg´s top priority.
So what does Lomborg do to ensure that the climate projects do not look so favourable? He has them evaluated at a more unfavourable rate of interest.
That is really humbug! And what Lomborg writes here in the newpaper on February 14th, is directly untrue.
IT DOES NOT STAND UP
By Bjørn Lomborg
Kåre Fog (KF) insists in claiming that I make humbug (19./2.).
Unfortunately, his claims still don´t stand up. KH claims that the health paper uses only a low rate of interest of 3 %.
This is wrong; on page 60 it clearly apears that the paper also evaluates a high 6 percent rate of interest. KF holds conspiratorically that I should have insisted on a low rate for health and a higher (4-5 %) for climate. No, all papers were asked to evaluate all projects at both 3 percent and 6 percent. In some fields, for instance the climate models, this is extraordinarily cumbersome, and therefore the climate economists chose one rate of interest "in the middle" and made a qualitative evaluation of the estimates at higher and lower rates of interest.
KF seems rather incredibly to hold that I have gathered all these world class economists in Copenhagen over four days, presented for them an expert panel including five Nobel laureates, and still cheated all of them to look only at the low rates of interest in health and the high rates in climate.
No, all the papers have presented, as well as it is possible, costs and benefits for a range between 3 and 6 percent rate. But, as I wrote also in my first reply here (and as KF chooses to neglect), the Nobel laureates inist on thereafter prioritizing all solutions at the same, consistent rate of interest.
It would suit KF to be less interested in hurling untrue claims and be more interested in understanding the process.
LOMBORG ACTUALLY MAKES HUMBUG
By Kåre Fog
Bjørn Lomborg writes in Frederiksborg Amts Avis 23/2 that all papers in Copenhagen Consensus have been presented "as well as it is possible": No, they certainly have not been. It is a rather large detective work to unravel how the calculations have been made, and especially it is unclear - remarkably unclear - how Lomborg has arrived from the particular cost/benefit calculations to the final ranking list.
I did not in my earlier contribution write anything untrue. It is actually true that all other projects than the climate projects have applied a rate of discount of three percent. In addition one has also worked out what the result would be with six percent, but the result of these supplementary calculations has not been used to rank the projects. Therefore it remains correct, as I say, that in the conference one has compared the profitability of non-climate-projects with a rate of three percent and of climate-projects with a rate of four-to-five percent.
If the climate- and non-climate projects had been calculated with the same rate of interest, investment in climate technology would rank higher than vitamin A supplementation. Lomborgs explaining away does not shake that. Thus it must also be maintained that the project calculations are not comparable and that the ranking in Copenhagen Consensus is not worth the paper it is printed on.
I have actually waited for a long time when Lomborg would include this detail about the extra six percent as his next step in the process of confusing people. To have a situation where you use two different rates of interest, but only apply one set of calculations for anything, is as if it were created in order to confuse people. Maybe it was really created deliberately to confuse people.
And by the way, stop with all this Nobel laureate talking. Lomborg has found five Nobel laureates who support his these that one should do nothing about the climate. One could gather a similar number of Nobel laureates with the diametrically opposite attitudes. The fact that a deliberate humbug maker as Lomborg is able to associate some Nobel laureates as figureheads for his project (whereas other Nobel laureates clearly stay away) cannot be used as an argument that then the calculations must be OK. They clearly are not OK.