Why “extremely unlikely” climate events matter

You could say that the world is like a single individual trying to insure themselves. It might or might not be rational, but you can’t say that it obviously makes sense because it’s the same as paying in to an insurance pool.

When you look at things from the point of view of social resources as a whole there is a big difference between most of the risks we insure against, such as your examples of car crashes and premature death, versus a 5% risk of high climate sensitivity.

The car crashes have a low risk of happening to any individual, but they are virtually guaranteed to happen to someone, and we can estimate how many people fairly accurately.

So the probability that the social resources will be well spent is not 5%, it is better than 99%.

But in the case of climate sensitivity we have one earth that either has high sensitivity or it does not. The chance that resources allocated on the basis that sensitivity is high will be well spent is 5%.

I’m surprised your policy implications don’t include a massive hike in resources for research on climate sensitivity.

One thing I am a little confused about is the interplay between an individual and a global perspective on climate change, its consequences and when it is proper to say, “risk” or “insurance”.

If an individual chooses to own and drive an auto, there is some very small risk that operating the auto will have as a consequence someone’s death or serious injury in an accident, a risk that may be meliorated by, say, careful driving and insured by pooling the financial consequences with the very large number of drivers, most of whom will not have serious accidents in any finite, discrete period of time. If a society chooses to have a system of automotive transportation, there is some calculable expectation of some rate of accidental death and injury, a rate that may be controllable within limits by policies of safety promotion. It is sensible for the individual to buy insurance for the foreseeable but remote chances of catastrophic consequences to self or others. It may be sensible for the government to mandate that auto owners and drivers maintain insurance. And, certainly sense in having policies for safe highways, safe vehicles, enforcement of traffic laws, etc. But, is there any sense in the government buying insurance for the risk of having an auto system?

Climate change has the foreseeable consequence that extreme weather events become more common and more extreme. Those weather events may constitute insurable risks (allowing that actual large weather events stretch the capacity of actual insurance facilities) and subject to control by policy in the sense of mitigating consequences (e.g. flood control, building codes, weather forecasting, etc) But, I am a bit unclear about where the global and general effects of climate change are insurable. “global climate change” is global after all. And, “climate”! Climate is not an event — it subsumes weather events, no?

Whatever is meant metaphorically by talking prospectively about the “probability” that the climate might change faster than the consensus point estimate rate projection, that metaphoric “risk” lacks the discrete and repetitive qualities of something one can usefully bet on. Who is going to take the other side of the bet? How would anyone assemble a portfolio of such wagers? There is only one “global climate”.

Moreover, is there a control response, a means of enhanced mitigation? When we talk about “risk” that the processes of climate change might accelerate beyond the pace projected, where exactly does that put the efficacy of policy response? (The equivalent of driving more carefully in hazardous circumstances, say, or cracking down on drunk driving?) If the world collectively proves suboptimal in its ability to constrain carbon emissions (if! Ha!), and the natural forward forcings accelerating the rise in climate-temperatures (e.g. the melting of ice caps, methane releases from melting permafrost, etc), isn’t the “risk” that policy loses all traction? In projecting that a rate of carbon emission is associated with a level of ppm CO2 equivalent in the atmosphere and that corresponds to a climate state in 2050 and 2100, the false certainty of projection seems to be suggesting a continuous function relating additions of carbon to the carbon cycle to a rise in climate-temperatures. The actual science says something else, says that the direct, functional relationship between CO2 concentration and greenhouse effect is very modest almost minor, but that minor direct and functional effect will trigger forward forcings that will amplify and accelerate somewhat chaotically both the changes in climate and the consequences. Chaotic, as in not neatly and continuously functional. The uncertainty in the underlying science is about the nature and magnitudes, on balance, of these chaotic forcings positive and negative. The “risk” metaphor has been applied as a label for the possibility that climate change takes off on its own, so to speak, launched by past human additions of carbon to the carbon cycle, but forced by natural processes running out of human control and taking the climate to some new equilibrium climate state of much higher temperatures.

That is the science. But, what is the economics? “Insurable risk” seems like bad translation for what is meant when the IPCC tries to characterize the uncertainty of what are complex chaotic processes in inherently chaotic systems. In economic terms, I am not seeing how ideas like a portfolio applies, making sense of insurance concepts. But, I am also wondering whether proper attention is being paid to the potency and effectiveness of control responses in this frame of analysis.

I read JQ’s three points on the attendant risk arising from climate change not as an imprecation to find some “insurance” (whatever that might be) but as a accurate restatement of the human tendency to significantly under-estimate the risks of events with which we’re familiar and wildly over estimate those with which we’re unfamiliar.

Governments have a disappointing track record of exploiting this weakness, attempting to frighten the citizenry with what are very low-risk probabilities and, conversely, sooth citzens’ concerns about what are, on rational analysis, evidently high-risk probabilities. They consequently devote substantial fractions of tax revenue on remote but apparently scary risks and, to pay for these, cut back investment on mitigation of genuine high-risk issues.

If the risk of certain events associated with climate change are approaching the 5% domain, these are not by any valid reasoning “extremely unlikely”, a phrase most carefully chosen and, self evidently, not for the purpose of properly informing the populace. Politics, writ large.

Is the sample size one? Suppose we take the view that the nasty effects of climate change will not be evenly distributed, but will hit some people and places much harder than others. Then why is it wrong for everyone to have some insurance?

Bruce Wilder asks :

But, is there any sense in the government buying insurance for the risk of having an auto system?

Well, suppose the government simply paid the cost of auto accidents, adding it on to the tax system. Single-payer, you might call it. There are some obvious flaws with that, but in the absence of auto insurance companies it might be the best we can do. Is the climate change scenario vastly different?

Situations akin to those we insure against justify insurance against them.

Say, a revenue neutral carbon tax rather than the dismantling of industrial capitalism (I know JQ agrees with the first and not the second).

Oh dear. Tim you aren’t going to solve this crisis with a tax. How silly to think that’s all it takes. An even sillier to think anyone wants to dismantle industrial capitalism.

Though good luck finding a solution to the plastic waste problem that doesn’t involve reforming capitalism significantly.

We can’t have a revenue-neutral carbon tax. The first claim on the revenues has logically to be an equal and opposite subsidy for carbon sequestration. As time goes on, this absorbs an ever-growing share of the revenue. Eventually we hit zero emissions, and zero revenue from the carbon tax, but will still need the sequestration subsidies to get back to 350-400ppm of CO2 in the atmosphere, the only levels we know we can live with.

The merits of a carbon price (whether the price should be a tax or an ETS is a separate argument) versus direct regulation is a bit OT for this post. But I must say the comments by the “banning cars is the only way to stop AGW and besides it would punish people I don’t like” faction are pretty unconvincing here. They show no evidence of having thought through the respective full effects (including political economy, as well as straight economics) of either a carbon price or of heavy direct regulation.

James Wimberley @19 in particular – why on earth would “the first claim on the revenues … logically … be an equal and opposite subsidy for carbon sequestration”? That is simply a straight non-sequitur.

I’ll back that comment up with a typical example: A low income US family considering replacing their gas-guzzler car. For this family the car is essential and their primary issue is not low- vs. high fuel efficiency, but second hand vs. new. Faced with a new renault leaf or a secondhand nissan march they will choose the latter because it will be much cheaper and much more fuel efficient than their current car. You could force them to buy the new leaf by putting a huge licensing cost on second hand combustion cars but that is not a carbon tax. Your carbon tax will only encourage them to buy the leaf over the march if it is so incredibly high that it causes the annual fuel cost to significantly exceed both the annual fuel cost of their previous gas guzzler and the financing costs of the nissan leaf (and remember a low-income family will be getting this car on hire purchase so the financing costs will be huge).

Instead you will be left using your cabon tax to try and get them to use the car less, but they have a fixed amount of use they have to put it to – the daily work commute. If you raise the tax enough they will simply offset the increased commute costs with some other cutback which may be carbon intensive (e.g. heating) or may not (cinema tickets). But whatever happens, the carbon tax is not going to reduce this family to carbon zero.

A better way to make this family reduce its carbon footprint is to recognize that they need to buy the secondhand combustion car, and implement policies that ensure they never need to use it – so that either they decide not to buy any new car, or they only use it for very rare, short trips. The best policy in this case is to ensure they have access to a reliable electrified public transport network (as we have here in Tokyo) that ensures they never need to use the car. But this policy option has nothing to do with a carbon tax.

The same considerations also apply to any low-margin carbon-intensive industry with high financing costs – taxis, fisheries, trucking, you name it. It is simply ridiculous to think that these industries can be made carbon zero through a tax. It misunderstands the balance of their costs and the decisions they have to make, and it shows you aren’t seriously considering the full balance of the economic changes we have to make, or the speed at which we have to make them. A proper response to the economy fully considered is a rich mix of subsidies, bans, and heavy-handed interventions that force industries to change on the one hand, and help them change on the other.

Your small government ideas are bullshit and completely unsuited to this task.

As ex commenter Rich would now point out here, taxes won’t work because as soon as they start to cost real money they get repealed. You have to change over the infrastructure to a carbon free form.

@ 23 “Your small government ideas are bullshit and completely unsuited to this task.”

This seems unhelpful, both in terms of tone and substance.

We can be confident that any one size fits all approach is going to have it’s detractors. Individual transport is essential in areas where population densities do not justify large capital investments to set up electrified rail systems, or the costs of their maintenance. This is particularly true in larger nations, such as Canada, where all passenger rail services outside of densely traveled corridors are irregular and subsidized by the taxpayer. But is also true in Japan; where the concentration of employment opportunities and the benefits of cheap, effective transport, have had a crushing impact on the tax-base of smaller cities and communities outside large urban centers. This phenomena is not unique to Japan.

Individual consumption rates matter and shifting people away from carbon combustion transportation is an excellent short-term goal. Paris is doing what it can, as are other cities. Subsidizing new car purchases is one of the solutions in place in Japan. The older the vehicle, the greater the cost of having the vehicle inspected as roadworthy.

Imagining the end of capitalism and private property is fun, but individual choice – the choice to smoke, get fat, think bad thoughts, and drive cars is part and parcel of a free society.

When people are given beneficial choice a/ and less beneficial choice b/ many will in fact choose choice a/. Reduced tobacco consumption is a good case in point. Removing choices from people tends to make them grumpy and hostile. Hence the need to respect others, even small government types. Warning labels on

I’m sure you’ll agree that the need to protect the environment supersedes petty tribalism and point-scoring. Think of the children and the spotted owl, if that helps.