I was recently tasked to prepare a presentation on the political economy questions of climate change: How expensive is saving the climate? And who should shoulder the costs?
As I prepared the presentation for Dr. Mildner’s “States & Markets” seminar, it occurred to me that to answer these questions, we first have to understand the risks and uncertainties of climate change. The real questions, I thought were then different ones:
- How do we manage risk, and respond to uncertainty?
- How do we treat extreme low probability and high consequence events?
- How do we respond to asymmetric risks?
The more I learned about current risk modeling of the climatic and economic impacts of global warming, the more worried I became. I realized, that climate change (as, incidentally, lessons learned from the financial crisis), requires us to rethink how we manage systemic, interdependent, asymmetric and extreme risks as well as uncertainty.
“Act Now!”
I agree, we need to act now, and we need to ask strongly.
Yes, this video simplifies. Yes, it dramatizes. And Yes, it scares us.
And it should. For when everything is at stake, alarmism is not irrational, it becomes a moral imperative and different risk management is necessary.
The Costs of Inaction, As We Know Them
The rigor, fervor and tenacity of those economists and climatologists involved in modeling the effects of increased greenhouse gas emissions should put to shame the recently en vogue naysayers of modernity. The researchers on the Intergovernmental Panel for Climate Change and economic analysts of the Stern Review do not resign in the face of an alleged “multiplying of” and “undermined rationality” (Beck 2003: 13, 8). Quite the opposite, their work has, now for some time, put the “unintended consequence” (ibid.:8) of man-made global warming beyond dispute, and what is more, they enable us to act, as we always should, based upon an enlightened understanding of the world we live in. Quite essentially modern, in fact.
Sure enough, gauging the effects of increased greenhouse gases (GHGs) is far from easy. Warming, for once, is determined not by the flow of CO2e (carbon-dioxide equivalents), but by the stock of GHGs in the planet’s atmosphere, where, once emitted they remain for decades before re-absorption. In other words, the only one thing we can influence, present and future emissions, is merely the first derivative, or the slope of global warming. What sets in, once greater GHG concentrations increase infrared re-emission, is a chain of yet incompletely understood, dynamic, interdependent, non-linear, non-monotone, discrete, feedback-ridden and possibly irreversible effects. The end results of this, as we understand them today, include droughts and floods, rising sea levels, loss of biodiversity and more frequent extreme weather events.
"The figure below illustrates the types of impacts that could be experienced as the world comes into equilibrium with more greenhouse gases. The top panel shows the range of temperatures projected at stabilisation levels between 400ppm and 750ppm COe at equilibrium. The solid horizontal lines indicatethe 5 - 95% range based on climate sensitivity estimates from the IPCC 2001 and a recent Hadley Centre ensemble study3. The vertical line indicates the mean of the 50th percentile point. The dashed lines show the 5 - 95% range based on eleven recent studies. The bottom panel illustrates the range of impacts expected at different levels of warming. The relationship between global average temperature changes and regional climate changes is very uncertain, especially with regard to changes in precipitation (see Box 4.2). This figure shows potential changes based on current scientific literature." (Stern 2006:3)
The Stern review then estimates what the likely effects of these climate changes are on human life and economic activity, highly complex systems themselves. Material costs incurred, and modeled in the Stern review stem from replacement of capital, transactions in relocation, retraining and disruption as well as from increased uncertainty in planning, investment and insurance. In simple terms, some of our material prosperity will be destroyed, some will have to be adjusted, and new ones will be harder to achieve. To this, Stern adds quantifications of decreased quality of life, human suffering (and casualties) and loss of biodiversity. From this results an average loss of 1.5% of annual GDP in 2050, of 5% in 2100 and 14% in 2200. Put differently, if we continue business as usual, in 90 years time, the total amount of goods and services produced on Earth will decrease by 5%, a margin that marks the difference between solid growth and recession in normal business-cycles.
Costs of Climate Change under Business as Usual, in Percent of World GDP (Stern et al. 2006 as cited in IMF 2007: 63)
