Risk Communication on Climate

John Sterman’s new Policy Forum in Science should be required reading. An excerpt:

The strong scientific consensus on the causes and risks of climate change stands in stark contrast to widespread confusion and complacency among the public. Why does this gulf exist, and why does it matter? Policies to manage complex natural and technical systems should be based on the best available scientific knowledge, and the Intergovernmental Panel on Climate Change (IPCC) provides rigorously vetted information to policy-makers. In democracies, however, the beliefs of the public, not only those of experts, affect government policy.

Effective risk communication is grounded in deep understanding of the mental models of policy-makers and citizens. What, then, are the principal mental models shaping people’s beliefs about climate change? Studies show an apparent contradiction: Majorities in the United States and other nations have heard of climate change and say they support action to address it, yet climate change ranks far behind the economy, war, and terrorism among people’s greatest concerns, and large majorities oppose policies that would cut greenhouse gas (GHG) emissions by raising fossil fuel prices.

More telling, a 2007 survey found a majority of U.S. respondents (54%) advocated a “wait-and-see” or “go slow” approach to emissions reductions. Larger majorities favored wait-and-see or go slow in Russia, China, and India. For most people, uncertainty about the risks of climate change means costly actions to reduce emissions should be deferred; if climate change begins to harm the economy, mitigation policies can then be implemented. However, long delays in the climate’s response to anthropogenic forcing mean such reasoning is erroneous.

Wait-and-see works well in simple systems with short lags. We can wait until the teakettle whistles before removing it from the flame because there is little lag between the boil, the whistle, and our response. Similarly, wait-and-see would be a prudent response to climate change if there were short delays in the response of the climate system to intervention. However, there are substantial delays in every link of a long causal chain stretching from the implementation of emissions abatement policies to emissions reductions to changes in atmospheric GHG concentrations to surface warming to changes in ice sheets, sea level, agricultural productivity, extinction rates, and other impacts. Mitigating the risks therefore requires emissions reductions long before additional harm is evident. Wait-and-see policies implicitly presume the climate is roughly a first-order linear system with a short time constant, rather than a complex dynamical system with long delays, multiple positive feedbacks, and nonlinearities that may cause abrupt, costly, and irreversible regime changes.

Continue reading “Risk Communication on Climate”

Another Bailout MetaRoundup

More good stuff from my blog reader:

Real Time Economics – Secondary Sources: Rebutting Myths, King on Stability, Green Econ & Secondary Sources: Rates, Innovation, Recession, Suprime Lending

Greg Mankiw – More Commentary on the Financial Mess

Economist’s View – links for 2008-10-23 &  links for 2008-10-22

Marginal Revolution – Four myths of the credit crisis, again

Econbrowser – More Unhappy Numbers

Forrester on the Financial Crisis

Jay Forrester writes on the SD email list:

First, the current crisis did not start with the burst housing bubble. It started with the excessive credit that led to the housing bubble. That excess credit resulted from the Federal Reserve holding down interest rates to less than the inflation rate in housing. This negative real interest rate (bank interest minus inflation in the housing assets) produced a powerful incentive for investment and speculation in housing. And the action of the Federal Reserve, with the increase in risk taking by banks, were a result of pressure from Congress and the public who were all enjoying the short-term rise in housing prices.

We see here one of the characteristics of a complex social system in which a policy that is good in the short run is almost always bad in the long run. Feeding the bubble with easy credit was popular in the short run but now we have the consequent day of reckoning with the collapse of the financial system.

Continue reading “Forrester on the Financial Crisis”

Rising at the Interest Rate?

With oil back at $70, I got curious how Hotelling is holding up. The observation that resource prices ought to rise at the interest rate is looking almost plausible now, if you squint, whereas it looked rather foolish for most of the 80s and 90s. Of course, the actual production trajectory has nothing to do with Hotelling’s simple model, which produces a monotonic decline. The basic problem with Hotelling, as I see it, is that there’s a difference between equilibrium and expectations subject to uncertainty. Moreover the extraction trajectory is largely controlled by the rate at which governments lease or otherwise exploit resources, and governments have more than the usual dose of bounded rationality. (I got interested in this because I’ve been investigating Montana’s management of mineral rights on its school trust lands. So far, the state’s exercise of its fiduciary responsibility looks suspiciously like a corporate welfare program. More on that another time.)

Oil vs Interest Rates

The figure compares the nominal oil price trajectory to actual risk-free rates (3month T-bills and the federal funds rate), as well as three constant rates for good measure. At those rates, one would have to conclude that a large risk premium must apply to oil production, or that there’s been an awful lot of uneconomic production over the years (for example, everything from about 1986 to 2006), or that current prices are just a blip and will continue to revert to some more moderate long-term level.

Climate, the Bailout, and the Blame Game

I’ve been watching a variety of explanations of the financial crisis. As a wise friend noticed, the only thing in short supply is acceptance of responsibility. I’ve seen theories that place the seminal event as far back as the Carter administration. Does that make sense, causally?

In a formal sense, it might in some cases. I could have inhaled a carcinogen a decade ago that only leads to cancer a decade from now, without any outside triggers. But I think that sort of system is a rarity. As a practical matter, we have to look elsewhere.

Socioeconomic systems are at a constant slow boil, with many potential threats existing below the threshold of imminent danger at any given time. Occasionally, one grows exponentially and emerges as a real catastrophe. It seems like a surprise, because of the hockey stick behavior of growth (the French riddle of the lily pond again). However, most apparent low-level threats never emerge from the noise. They don’t have enough gain to grow fast, or they get shut down by some unsuspected negative feedback.

Continue reading “Climate, the Bailout, and the Blame Game”

Dimensions of The Deal

In the Tällberg event we talked a lot about the deal we need, without really defining what was meant by that. I think it has at least four dimensions:

Technical

What science drives the goal? Is it 350ppm? 450ppm? 550ppm? 2C?

Social

What regions or sectors will move first, and what transfers will the rich or the winners use to induce the poor or the losers to play along? Do transfers consist of money, intellectual property, or both?

Implementation

What form will commitments take, who will make them, and how will they be implemented? Will the mechanism favor taxes or trading, for example? Will standards be expressed as intensities or absolute emissions or … ? How will goals and mechanisms adapt as we learn about uncertainties?

Coalition

We don’t have a deal now because we don’t have the coalition needed to make it happen. Some combination of the public, politicians, media, religion, education, etc. needs to come together to create critical mass behind a policy. We have fragments (the EU, California) but not a whole. I rather doubt that there is a quick, transformative solution (unless catastrophe drives us to one, which I’d rather not contemplate).

I say “critical mass” deliberately, because what we’re all implicitly searching for is a reinforcing feedback that will grow policy out of its current dysfunctional state. The question is, what is that loop? My guess is that it involves starting gradually. Don’t shoot for the moon and fail. Instead, take a little medicine at first. Impose a modest carbon tax. Observe that the economy doesn’t collapse, and efficiency is cheap or even profitable. Greentech gets a little more profitable, and the more numerous low-carbon voters grow to enjoy their tax rebates. Enlisting their support allows the tax to be ratcheted up further, and soon you’re rolling toward real emissions controls. But is the gain on that loop high enough to yield emissions reductions in time to avoid catastrophe?

Hansen on The Deal

Jim Hansen kicked off the Tällberg panel with a succinct summary of the argument for a 350ppm target in Hansen et al. (a short version is here). As I heard it,

  • The dangerous level of GHGs in the atmosphere is lower than we thought.
  • 3C climate sensitivity from fast feedbacks is confirmed; the risk is slow feedbacks, which are not as slow as we thought.
  • There is enough warming in pipeline to lose arctic ice, glaciers, reefs.
  • Good news: we need to go back to the stable Holocene climate.
  • The problem is solvable because conventional oil and gas are limited; we just need the will to not burn coal, oil shale, etc., except with CCS.
  • Among other things, that requires a price on carbon; for which a tax is the preferred mechanism.
  • The only loser is the fossil fuel industry; we simply need to bring them to heel.

Hansen was a little impatient with our bit of the forum, and argued that our focus on regions (and the challenges in reaching a regional accord) was too pessimistic. Instead, a focus on fuels (e.g., phasing out coal) provides clarity of purpose.

My counterargument, which I only partially articulated during the session, for fear of driving the conversation off on a tangent, is as follows:

As a technical solution, phasing out coal and letting peak oil run its course probably works. However, phasing out coal by 2030 implies a time constant of seven years or a rate of decline in coal utilization of about 10%/year (by the 3-tau rule of thumb). Coal-fired power plants have a long lifetime, so the natural rate of decline, assuming no new coal investment, is more like 2.5% or 3%/year. Phasing out coal at 10% per year implies not only halting construction, but also abandoning many plants before their natural economic lifetime is up. Age structure complicates things a bit, perhaps making it easier in the US (where plants are disproportionately old) and harder in China (where they’re new). Closing plants ahead of schedule is going to make the fossil fuel interests that Hansen proposes to control rather vocally upset. Also, eliminating coal emissions that fast requires some combination of rapid deployment of efficiency, noncarbon energy sources, and CCS above natural rates of capital turnover, and lifestyle change to pick up the slack. That in itself is a significant challenge.

That would be doable for a coalition with enough political power to either overpower or buy off the owners of stranded assets. But that coalition doesn’t now exist, and therein lies the reason that this is a political problem more than a technical one.

Random Reflections on The Deal

The following are some stream-of-consciousness insights that struck me from other presentations and audience comments during the Tällberg event. Apologies to Bo Ekman, Bob Corell, Christine Loh, Johan Rockström, and other unattributed sources of these thoughts – my notes just aren’t that good.

There’s much tearing of hair and gnashing of teeth in attempts to interpret the UNFCC objective, “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” But the convention actually provides a useful definition in the very next sentence, “Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.” That’s already a fairly stringent and specific requirement.

    The mood of the Club of Rome, and of statements about the state of ecological and social systems in general, is gloomy, i.e. that issues raised 40 years ago regrettably are now more acute and immediate.

      Climate is not a future problem, it’s happening now.
      It’s not a gradual process; it could happen drastically.
      It’s not globally uniform; regional variations are large.
      It’s not an environmental problem; it’s connected to an array of issues in many domains (oil security, ecosystems, water, refugees, the real and money economies). Developments in the money economy rely on the underlying real economy, which in turn relies on resources, yet finance ministers routinely trump environmental decisions and few environmental agreements are honored.

        Sovereignty is one of the notions that stands in the way of agreements; such fundamental principles need to be rethought. The philosophical problem leads to practical problems. For example, enthusiasm for cap & trade, at least in some quarters, stems from the idea that it could be used as a mechanism for transfers from rich to poor nations, for example via allocation of emissions permits on a per capita basis. An ideal system would have to operate person to person though. If governments receive allowances, the system risks becoming a mechanism for the elites of the poor world to fleece the rich world, with limited benefit to the poor.

          As soon as one accepts the framing of climate change as, how to sustain GDP growth, or as a cost-benefit problem, half the battle is lost. The ‘economy as means’ is confused with ‘economy as end’. The solution needs to connect to well being. This is difficult, because of role confusion – so many of the interests involved in creating a solution are also dependent on the creation of consumer demand. Seen in that light, there might be a silver lining to the financial crisis. It is distracting, but it might also be the storm of creative destruction that provides fertile ground for growth of new interpretations of well being and new economic goals.

            The world of climate negotiation is closed. Negotiations are driven by diplomats who’ve been at it for years, and resist information sources and constraints representing reality. Environment ministers complain that they have no influence over the outcome. Nature needs to be brought into the room (exactly what we’re trying to do).

              Tol Talks Tax

              Stumbled upon while searching for a reference: Richard Tol Changes Tune, Talks Carbon Tax. From what I’ve read, Tol is too much of a nonconformist to club with the professional skeptics, and has probably always preferred a Hotelling-style carbon price trajectory, so I’m not convinced that this is really a change, but it’s intriguing.