A Cost/Benefit Analysis of Sustainability

Businesses often spend money on politically correct solutions that don’t lead to anything.
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TRANSCRIPT

Question: What are the facts actually telling us about global warming? 

Bjørn Lomborg: Global warming is real, it’s man-made, it is a problem that we need to fix. But just like we shouldn’t say it’s not happening, we shouldn’t over and say it’s going to be the end of the world. Global warming is going to be a problem. We estimate it’s going to cost about half a percentage point of the GDP of the 21st century. That’s substantial, but not the end of the world. 

Question: How much do we need to invest in R&D for sustainability? 

Bjørn Lomborg: We asked some of the world’s top climate economists what are the best ways to fix climate? They told us the best long-term way is by dramatically increasing investment in research and development of green energy. They said spend $100 billion or about 0.2% of global GDP, every year. That’s about 50 times than what the world spends today. 

Question: What should be our top priorities when it comes to sustainability? 

Bjørn Lomborg: It’s a great question, because businesses only have a limited amount of money to spend and they have to ask very clearly, "What is it we can do to attain sustainability?" Very often we go for grand gestures and stuff that looks good in the press, but in reality, we have to ask ourselves "Where do we help humans? Where do we help the future the most?" Look, for instance, if you spend your money on cutting back carbon emissions, the typical cost is at least a couple of dollars and very likely, $20 or even $100 per ton of CO2 saved. That means you very easily end up doing less good with the money you spent. Had you spent the same amount of money on some of the things where you could do immense amounts of good—for instance, clean drinking water, or sanitation, or basic health care—you can do 10 to 20 to 40 times as much good as the money you spent. 

So, spend it where your business says you can do extra good. Coca Cola, for instance, is focusing on spending it on clean drinking water. That makes great sense. Of course the choices for us are very nuanced and very complex, and we’d love to do it all. But we don’t. We don’t actually fix all problems in the world. And so we got to ask ourselves, how do we want to be remembered? Spending it well—that is doing the most good we could with the money we spent—or just doing some good? I would hope that we want to do the most good possible. That includes asking, "How much do you get back if you invest in the HIV/AIDS? How much do you get if you invest it in micro-nutrient deficiencies? And how much do you get if you cut a ton of carbon emissions? "

If we can do much more good by spending it on some of the less interesting, more mundane, but ultimately much more beneficial areas, don’t we have a moral responsibility to do so? 

Question: How did you arrive at your cost/benefit analysis for sustainability? 

Bjørn Lomborg: We asked some of the world’s top economists to cross all different areas. Asked them to identify what are the biggest problems for the world and what are the best solutions to those problems? But not only that, also tell us how much does it cost and how much good does it do? 

Now, if you say, it’s going to cost a billion, but it’ll actually do $20 billion worth of social good. The benefit/cost ration is 1 to 20; for every dollar spent, you do $20 worth of good. That’s a great investment. And it makes it very easy for us to understand how we’re spending the money to do that most good. So, these are estimates from some of the world’s top economists across the board, and they will help us make decisions on how to spend our money in the best possible way. 

Question: How important are political will and consensus? 

Bjørn Lomborg: Cold economic facts don’t change the world by themselves, we need political will. But I’m hoping the cold economic facts can inform that political decision so we don’t just make the easy, feel good, politically correct decisions, but we actually focus on the things were we can do immense amounts of good first.

Recorded on May 6, 2010

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