Posts Tagged ‘Compensation for Damage in Jewish Law’

By Rabbi Julian Sinclair

What sort of damages are environmental damages? What sort of restitution is necessary to put them right? This is a foundational question for environmental theory and practice. We will argue that Talmudic thought provides a very useful set of tools and concepts for thinking about the question.

The main means of compensation for environmental damage is money. Yet we instinctively feel that monetary compensation, though necessary, is not always sufficient.

Part 1

Suppose a polluting factory causes a generally non-fatal variety of cancer in its vicinity. Imagine too that the factory owners are sued, and end up paying full financial compensation to the victims for their suffering, medical bills and unemployment. Have they thereby cleared their moral obligation? We would tend to think not. There is something about causing people to contract cancer that money alone cannot put right.

Or suppose that a rare species of butterfly lives in a nature reserve and that visitors pay to come and see this natural wonder. What if toxic emissions cause the butterfly to become extinct? Then what if the emitters fully compensate the reserve owners for loss of revenue? Have they made good the extinction of the butterflies? It’s pretty clear that they haven’t. There’s a dimension of damage involved in destroying a unique species that is unquantifiable and cannot be made up for with money.

Policy discussions on global climate change, which has emerged as the most serious and urgent environmental threat, provide some striking examples of this issue. The Stern review was a major report commissioned by the UK government from Sir Nicholas Stern, Chief Economic Adviser to the Treasury, to assess the economic implications of climate change. It found that the global cost of unrestrained climate change in the 21st century would range between 5% and 20% of world GDP over the 21st century. Conversely, the Review estimated the cost of taking preventative action to mitigate the effects of climate change as 1% of global GDP over the same period. Stern proved that it is unequivocally cheaper to run the world than to wreck it.

This was welcome news to those who wish to see action on climate change. However, the basis of Stern’s calculations is complex and problematic. Stern himself acknowledges the immense difficulties in estimating global costs of climate change impacts where the uncertainties are great, the time scale is long and the distribution of effects is highly unequal.

Chapter 2 of the Stern Review is a fascinating exploration of how this task runs up against some of the key unresolved questions in economic theory. The Chapter goes on to describe and justify the positions which the Review decided to take on some of these issues.

To take three brief examples: firstly, the distribution of impacts from climate change is likely to be extremely unfair. The poorest countries in the world will suffer first and they will suffer most, both because they tended to be located in areas where weather changes will be most severe and which are already susceptible to droughts and floods, and because they have far fewer resources with which to take mitigating measures. Moreover a given dollar reduction in consumption for the rich is clearly far less serious for their well-being than the same loss would be for the poor. This runs into the well-know problem in welfare economics of aggregating social preferences. Stern takes the enlightened view that the welfare of the world’s poorest, many of whom are currently on the verge of subsistence, should be given greater weight in the calculation.

Secondly assessing the long term impacts requires welfare comparisons of present with future generations. The worst effects of climate change will strike in the life time of our children and grandchildren. Mainstream economic theory makes an assumption of “pure time preference;” that rational, maximizing individuals would rather have a given utility today than the same utility tomorrow, next year or next century. This is the main principle that underlies the discounting of future wellbeing against the present by around 5% per year. Applying that discount rate to the effects of climate change would imply that impacts due to occur in fifty years are of negligible significance in present day decision making. The “pure time preference” assumption was severely criticized by some of the twentieth century’s leading economists. Stern rejects the assumption as immoral and gives the same weight to the wellbeing of future generations as to our own.

Thirdly, the assessment requires finding ways to incorporate radical uncertainty. The Intergovernmental Panel on Climate Change (IPCC) whose findings are the scientific basis for the Stern Review estimates that average global temperatures will rise by somewhere between 1.4 and 5.8 degrees centigrade over the 21st century. These figures span a range from the unpleasant but manageable to the unimaginably catastrophic. Outcomes towards the top end of that estimate would be way outside anything humans have ever experienced on Earth. This makes it very difficult to know what the real impacts of such a huge rise in temperatures would be and so to attach costs to those consequences. Here Stern invokes a distinction made by J.M.Keynes between risk and uncertainty. Risk is a measure of the uncertainty in decision making about the future in a case where we can assign probabilities and hence expected values to the different possible outcomes. Uncertainty is the corresponding situation in which it is impossible to estimate probabilities and expected values. Based on recent theoretical work extending Keynes distinction by the French economist Claude Henry, Stern posits plausibly that decision makers are “uncertainty averse”. They will give greater weight in their deliberations to the worst foreseeable consequences even if precisely because of uncertainty, expected values cannot be placed on those outcomes.

Stern recognizes where his project bumps up against the limits of economic theory. He sees the serious problems involved in assigning monetary values to consequences that are unknowable and in comparing damages that are incommensurable. Yet, despite his understanding of the complexities and his humane instincts in addressing them, in the end he lumps together all of the costs into one monetary sum. The 5-20% figure includes economically quantifiable costs such as physical damage to property, together with estimated dollar costs for the destruction of eco-systems and human communities, death from hunger, thirst and disease. All these are combined in a figure that he calls “equivalent to a reduction in consumption.”

Whatever its advantages in presenting Stern’s findings to policy-makers, this reduction of non-monetary costs to cold numbers is ethically problematic. What if the calculations had come out differently? Would Stern then have proved that it is economically worthwhile to destroy a certain number of lives and ecosystems rather than to invest a lot of money in technologies that would help us avoid dangerous climate change? And does he mean to imply that death and destruction of irreplaceable species and ecosystems could, after the fact, be adequately compensated by money? Both conclusions would seem to miss an important distinction between monetary and non-monetary damage.

George Monbiot, a British political journalist, makes the same point. He wonders what exactly the British Department of Transport means when it suggests that the aviation industry should pay the (climate change) external costs its activities impose on society at large.

“This is an interesting proposal, but unfortunately, the department does not explain how it could be arranged. Should a steward be sacrificed every time someone in Ethiopia dies of hunger? As Bangladesh goes under water, will the government demand the drowning of a commensurate number of airline executives? The idea is strangely attractive. But the only suggestion it makes is that aviation fuel might be taxed.”

Monbiot humorously but incisively points out that while money is the main means we have of compensating for environmental damage, we often feel that it is wholly inadequate.

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