Copenhagen Consensus

Copenhagen Consensus is a project that seeks to establish priorities for advancing global welfare using methodologies based on the theory of welfare economics. It was conceived and organized by Bjørn Lomborg, the author of The Skeptical Environmentalist and the then director of the Danish government's Environmental Assessment Institute. The initial project was co-sponsored by the Danish government and The Economist newspaper. A book summarizing the Copenhagen Consensus 2004 conclusions, Global Crises, Global Solutions, edited by Lomborg, was published in October 2004 by Cambridge University Press. Another conference was held in 2006 to review the prioritization of projects. The Copenhagen Consensus Center was created at the Copenhagen Business School to organize another round in 2008.

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 ; this increased expenditure would have to continue each year until 2015 in order to achieve the Millennium Development Goals.

The emphasis on "rational prioritization" 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.

An updated report in 2008 identified supplementing vitamins for undernourished children as the world’s best investment.

Process
Eight leading economists met May 24 - May 28, 2004 at a roundtable in Copenhagen. A series of background papers had been prepared in advance to summarize the current knowledge about the welfare economics of 32 proposals ("opportunities") from 10 categories ("challenges"). For each category, one assessment article and two critiques were produced. After a closed-door review of the background papers, each of the participants gave economic priority rankings to 17 of the proposals (the rest were deemed inconclusive).

Experts
"Nobel Prize" winners marked with (¤)
 * Jagdish Bhagwati
 * Robert Fogel (¤)
 * Bruno Frey
 * Justin Yifu Lin
 * Douglass North (¤)
 * Thomas Schelling (¤)
 * Vernon L. Smith (¤)
 * Nancy Stokey

Challenges
Below is a list of the 10 challenge areas and the author of the paper on each. Within each challenge, 3-4 opportunities (proposals) were analyzed:
 * 1) Global Warming sometimes also called Climate change (William R. Cline)
 * 2) Communicable diseases (Anne Mills)
 * 3) Conflicts (Paul Collier)
 * 4) Education (Lant Pritchett)
 * 5) Financial instability (Barry Eichengreen)
 * 6) Government and corruption (Susan Rose-Ackerman)
 * 7) Malnutrition and hunger (Jere Behrman)
 * 8) Population: migration (Phillip L. Martin)
 * 9) Sanitation and water (Frank Rijsberman)
 * 10) Subsidies and trade barriers (Kym Anderson)

Ratings
The experts agreed to rate seventeen of the thirty-two opportunities within seven of the ten challenges. The rated opportunities were further classified into four 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.

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.

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.

Global Warming
The panel found that all three climate policies 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."

In regard to the science of global warming, the paper presented by Cline relied primarily on the framework set by Intergovernmental Panel on Climate Change, and accepted the consensus view on global warming that greenhouse gas emissions from human activities are the primary cause of the global warming. Cline relies on various research studies published in the field of economics and attempted to compare the estimated cost of mitigation policies against the expected reduction in the damage of the global warming.

Cline used a discount rate of 1.5%. (Cline's summary is on the project webpage ) 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). 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 becomes 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 one of the two perspective paper writers Robert O. Mendelsohn (both opponents of the Kyoto protocol) criticised Cline, mainly on the issue of discount rates. (See "The opponent notes to the paper on Climate Change" ) 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". Cline responded to this by arguing that there is no obvious reason to use a large discount rate just because this is what is usually done in economic analysis. In other words climate change ought to be treated differently than other, more imminent problems. The Economist quoted Mendelsohn as worrying that "climate change was set up to fail". .

Moreover, Mendelsohn argued that Cline's damage estimates were excessive. 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."

After the results were published, members of the panel, including Schelling, criticised the way this issue was handled in the Consensus project.

Approach and Alleged Bias
The report, especially its conclusion regarding 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 both the Kyoto protocol and increased development aid, who argued 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." .

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".

John Quiggin, an Australian economics professor, 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 members was slanted towards the conclusions previously supported by Lomborg. 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.

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 response Lomborg argued that $50 billion was "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."

One of the Copenhagen Consensus panel experts later distanced himself from the way in which the Consensus results have been interpreted in the wider debate. Thomas Schelling now thinks that it was misleading to put climate change at the bottom of the priority list. The Consensus panel members were presented with a dramatic proposal for handling climate change. If given the opportunity, Schelling would have put a more modest proposal higher on the list. The Yale economist Robert O. Mendelsohn was the official critic of the proposal for climate change during the Consensus. He thought the proposal was way out of the mainstream and could only be rejected. Mendelsohn worries that climate change was set up to fail.

Panel membership
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." . 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 countered criticism of the panel membership 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,"