Timing is everything for omicron and the weather

Por Gernot Wagner

As you walk the streets of New York these past few days, what is most surprising to see is the sudden resurgence of long lines everywhere. Not to buy, but to test for COVID. The masks also returned. Cornell, New York and Princeton universities quickly decided to take their final exams online, all in a clear sign of the arrival of omicron, the latest worrying variant of COVID-19.

Seeing masks and lines of people waiting for tests makes me hope that we will fare better during this wave. If there’s one thing we’ve learned in the past two years, it’s that acting early doesn’t just move things forward, it can also change the entire trajectory.

For the climate, something very similar applies. As Stanford economist Larry Goulder emphatically noted in an important article: “Timing is everything. “

Economists like to balance benefits and costs accordingly. Cost-benefit analysis rules for good reason. Its limitations are also clear. For many local infrastructure projects, benefits are too often exaggerated, while costs are underestimated, without considering the inevitable delays and cost overruns.

Economists Bent Flyvbjerg and Dirk Bester analyzed more than 2,000 such public works projects in more than 100 countries and found a systematic bias for everything from roads, bridges, and tunnels to power plants. His inevitable conclusion: the cost-benefit analysis of public investments must be fixed.

Meanwhile, in looking at the benefits and costs of reducing CO₂ emissions, many signs point to the exact opposite bias. Climate damage – and thus the benefits of reducing emissions – have traditionally been underestimated, while the costs of reducing emissions are often overestimated.

After all, despite incredible advances in the last decade alone, the science of attributing extreme weather events to climate change always lags behind the actual event. And few predicted the sharp new drops in solar PV costs just a decade ago. Both divert the world from climate action.

However, that idea still overlooks the all-important impact of timing. For public works projects, that impact is clear: it is often a direct cost, generating huge cost overruns while reducing benefits. The more the bridge is delayed, the later people can benefit from it.

Something similar happens with the weather. The very process of endlessly debating climate policies has enormous costs. Stanford economist Goulder argues that delay alone should guide the policies to be considered. The carbon tax – perfectly designed and sufficiently high – might be the best option, but if imperfect policies could be approved sooner, that fact alone should figure in economists’ analyzes and recommendations on monetary policy options.

Imagine how different the last two years would have been if the world had been able to end the COVID-19 pandemic in its early days. Climate change is no different. Despite the myriad of climate measures, the gap with what is needed is still widening. Our monetary policy choices should reflect this.