Thursday, November 22, 2007

Minimising regret in climate change policy

The simplest yet most persuasive case for addressing climate change problems is that huge possible costs, even catastrophic costs in the future, can be avoided at relatively low cost now. If the future huge costs do not arise because we have got it wrong then we have wasted only a small amount now.

Similarly if most of the climatologists of the world have conspired against humankind to develop an unreasonable paranoia about climate change then we would sacrifice the cost made now for addressing the problem. Finally, if policies advocated to militate against or fail to work and we experience anthropogenic climate change anyway we would have, again, wasted these costs. But, even if these last events are possible – I certainly don't for a minute buy the bizarre conspiracy theory of the climate change denialists – we should go ahead and address the issue of climate change for what I would call minimax regret reasons (this link provides a nice discussion of this idea) – we best avoid the chance that future generations will experience a disaster we could have avoided at low cost. I assume, in fact, that this heuristic describes how most of us take insurance decisions – we do not weigh up probabilities and outcomes but make the judgement that insurance can be justified because it avoids imaginably bad costs at relatively low cost.

Recent work from the IPCC is based essentially an implicit acceptance of the idea of trying to minimise regret. They confirm the disastrous aspects of unaddressed climate change – species destructions, raising sea levels and threats to the world’s poor are already occurring. They also emphasise the low cost now of taking measures to deal with this problem. Specifically:

‘Global warming is destroying species, raising sea levels and threatening millions of poor people, the United Nations' top scientific panel said ... only firm action, including a price on CO2 emissions, will avoid more catastrophic events.Those actions will take a small part of the world's economic growth and will be substantially less than the costs of doing nothing, the report will say.

The report of the IPCC Change will be important ammunition when world leaders meet in Bali next month to decide what to do after the Kyoto Protocol expires in 2012. The UN and many countries want strong mandatory reductions of the greenhouse gases that drive global warming.

The most stringent efforts to stabilise greenhouse gases would cost the world's economies 0.12% of their average annual growth to 2050......the first to suffer from global warming would be the poor, who would face faltering water supplies, damage to crops, new diseases and encroaching oceans’.

These moves by IPCC are political and rightly so. They are trying to drive a sense of urgency about the climate change issue using sensible logic. Most industrialised countries however continue to flout their Kyoto targets. Australia has not ratified Kyoto but has agreed to meet Kyoto targets adjusted up by 8%:

'UN figures released last night - just weeks ahead of a key meeting to start brokering a new global deal to cut emissions - show greenhouse gases from Kyoto's 41 industrialised and transition countries approaching ‘an all-time high’. Emissions fell 1990 - 2000 but they rose 2.6% between 2000- 2005... The UN Framework Convention on Climate Change said the increase was driven by continued growth in the world's highly industrialised countries and the accelerating economies of the former Soviet bloc nations, led by a big increase in emissions from transport.

The figures show Australia's greenhouse emissions in 2005 were about 25.6% above 1990 levels, although the figure falls to a rise of 4.5% when the effect of bans on land-clearing is included. This puts Australia on track to meet its generous Kyoto target of an 8 per cent increase on 1990 levels by 2012. (my bold)

Despite this latest upturn, the UNFCCC said last night all Kyoto signatories were projected to meet their target of cutting emissions by 5% from 1990 levels by 2012, although most of these cuts were the result of the economic collapse of Eastern European countries at the end of the Cold War. (my bold)

Their recent economic recovery has helped push emission rates back to record levels, even though their total emissions are still 35% lower than those reported in 1990...Fast-growth countries such as Turkey, Spain and Portugal have ratified Kyoto but still reported increases of about 50% or more since 1990, while emissions from fellow signatory New Zealand have increased by 23%, Canada by 54% and Austria by 14%. Emissions from the US, which, like Australia, has not ratified the protocol, are up 16.3% since 1990.

Countries that breach their Kyoto targets during the compliance period from next year to 2012 face theoretical penalties, although these appear unlikely to be enforced. They can also cut their emissions by buying emissions credits and investing in Kyoto's "flexible mechanisms", which include investing in programs in developing countries that cut emissions. Some developed economies including Denmark, Sweden, France and Britain have managed to reduce their total emissions since 1990’.

While Kyoto targets are not in themselves important - the focus should be on events post-2012 – holding countries to account and pointing out that targets are often being met by means that are hardly genuine attempts to cut greenhouse gas emissions, is a sensible ploy.

As the New York Times reports the message about climate change is alarming but not at all alarmist. There are still much respected voices out there that see much worse potential climatic effects of global warming:

‘The world is already at or above the worst case scenarios in terms of emissions,” said Gernot Klepper, of the Kiel Institute for World Economy in Kiel, Germany. “In terms of emissions, we are moving past the most pessimistic estimates of the IPCC and by some estimates we are above that red line.

The panel presents several scenarios for the trajectory of emissions and climate change. In 2006, 8.4 gigatons of carbon were put into the atmosphere from fossil fuels, according to a study in the proceedings of the National Academy of Science, which was co-written by Dr. Klepper. That is almost identical to the panel’s worst case prediction for that year.

Likewise, a recent International Energy Agency report looking at the unexpectedly rapid emissions growth in China and India estimated that if current policies were not changed the world would warm six degrees by 2030, a disastrous increase far higher than the panel’s estimates of one to four degrees by the end of the century.'

I think the minimax regret motivation for policy is sound and that the IPCC are exercising perhaps excessively moderate judgement to assess the situation. We need to pay more attention to the prospect of severe long-tailed catastrophic events given that the accompanying costs would be so drastic.


whyisitso said...

Who are "we". I've heard some ridiculous lefty arguments that we must sacrifice our (Australian) coal industry and our living standards because only if "we" set a good example, surely China and India will sit up and take notice! You've already demonstrated in this post the utmost futility of Kyoto. Nobody's taking any notice of it (not even the sanctimonious Kiwis). As far as the EU is concerned, their whole motivation for signing up to it was to get an economic advantage over their competitors. The elimination of East Germany's archaic smoke stack industries was enough to make their target dead easy, particularly as they had the silly advantage of being able to pool their targets and results.

hc said...

whyisitso, We=society, those bearing the costs of addressing climate change.

Our coal consumption will be penalised by such thinks as carbon taxes not our exports.

I don't think the costs of addressing climate change are as large as you seem to believe. If we had 6 degrees C change in temperature by 2030 my kids will be suffering enormous costs in their 30s and 40s. There children would face a very difficulty world.

I am happy to incur relatively minor cuts to my current standard of living to avoid this.

You are right - China and India are not waiting on our policy moves. But if all developed countries agree to make cuts there is increased pressure for India and China to join in.

whyisitso said...

"If we had 6 degrees C change in temperature by 2030"

This is just a fairy story, Harry, given we've had a 0.7 degree warming in 107 years in continuing our emergence from a 'little ice age'.

It's just this sort of hype and exaggeration that's acting to discredit the climate change social engineers.

hc said...

Two reputable scientific groups believe it possible. Suppose there was 1/100 chance it was true - would you take action to address it? I probably would. But certainly I would if the chance was 1/50.

These long-tail low probability events you must account for because they are potentially so dangerous.

Tony of South Yarra said...

“I’ll believe it’s a crisis when the people who say it’s a crisis start acting like it’s a crisis.” Glenn Reynolds.

Have a look at this Harry:
Carbon Footprint of UN Conference

hc said...

I certainly like the post Tony - it does illustrate hypocrisy. The delegates could have teleconferenced. (I am treading on thin ice here as currently attending an international conference myself!)

I heard a talk from David Suzuki a few weeks ago where he said he would no longer fly to Australia for climate change reasons. It is positive gesture that reinforces the point he is making.

whyisitso said...

Let me know when your hero Al Gore achieves the same carbon "footprint", to use a political correct term, as I do, Harry.

By the way congratulations for having enough information to rate the nightmare scenario at only 100 to 1. My guestimate is 1,000,000 to one or more. But then, I know as little as you do about the "true" odds.

hc said...

whyisitso, The numbers were illustrative. The point of the p;ost was to try to suggest good ways of making judgements when you don't have probability information.

chrisl said...

Harry, Do you have any ideas on how a tax on carbon would work, considering we have recently had an INCREASE of 35% in the price of petrol with no noticable reduction in car usage(judging by the amount of traffic on the roads)

whyisitso said...

"when you don't have probability information"

Yes, we don't have anywhere enough knowledge and information. Computer modelling is NOT knowledge and NOT prediction.

"Our coal consumption will be penalised by such things as carbon taxes not our exports"

Surely in your "world", we cannot continue exporting coal in good conscience? Is its use not going to to produce carbon? So-called climate change is not a local phenonmenon, although to hear the fanatics, you would think Australia's drought is directly caused by John Howard's refusal to ratify Kyoto. If only Bob Brown were PM these last 11 years the drought would have been averted.

conrad said...

"Computer modelling is NOT knowledge and NOT prediction"

You've no idea what you are talking whyisitso. If you don't like the way science is done today in many fields, then you should say why. Just screaming NOT gets you no where. You just look an idiot to people that use these types of models. The fact that solutions to problems are not simple and rely on computation that is not as beautifully provable as what you might have learnt in high school is no big deal, and nor is it an argument against this type of analyses.

whyisitso said...

On the contrary Conny I've had extensive experience in my profession with computer modelling. They are constantly misused to over-simplify complex issues and most become obsolete from the moment they are completed. They are only as good as the underlying assumptions and data, which are often seriously flawed. Science is not done this way. Modelling is just politics.

conrad said...

I've extensive experience in it too. No doubt these models are used and abused (what area of science are things not ?), but in the end, what you are saying is that you hate many areas of science for no real reason. If you want tell all the chemists, physicists, neuroscientists, biologists etc. that they're all barking up the wrong tree, and that they should retract thousands and thousands of models that have led to unique and often profound levels of understanding of different phenomena, then you should (and that we should also give up trying to examine numerous areas where nice little linear model simply don't work -- including ones with practical applications). I just doubt they would care, and nor should anyone else.

whyisitso said...

A major problem the AGW religionists have is that despite the propaganda there are huge differences of interpretation even among themselves. There is no real consensus. Gore's lies and exaggerations are well proven and as long as scientists go along with such rubbish they lose credibility.

conrad said...

There's debate in every field. For example, lots of people didn't like fourier transfroms, quantum physics etc. when they were first invented. Some people like you don't like computation full stop (vs witchdoctery?). In any case, there's almost no debate left that warming is happening and due to humans, even if there is debate as to probabilities of different outcomes etc. . THats like quantum physiscs -- there's lots of debate within the area about various aspects of it, but I doubt too many think that the entire field is worthless.

Also, the fact that global warming zealots now have propaganada machines like their AGW warming equivalent has nothing to do with science.

Bruce said...

Unlike insurance though, the projections, which ever way they go, gain more confidence as more data is crunched. I believe this will give us a bit more to go buy before the crunch, than is the case with insurance.

Just as long as people keep corrigible that is.

Avi said...

Harry this sounds an awful lot like the precautionary principle, which I thought you didnt like.
Not that I disagree with your argument.

hc said...

Avi, That's a pretty astute observation but I'd say the PP is closer to straight out minimax (minimising the worst) rather than minimax regret (minimising regret).

I like the intuition behind PP but it leads to silly judgements. This argument might be viewed as a sensible basis for PP.

avi said...

I agree that PP is closer to straight out minimax, and thus shouldn't be followed as an absolute, but more to be considered as part of prudent risk aversion. Is your regret minimisation risk neutral?

hc said...

I think so. There are axiomatic treatments of minimax regret in the first link I site which I will read when I get back to Australia.

There are problems with MR as well as minimax which I am thinking about.

One that occurs to me is this. Suppose that instead of acting on climate change you got some huge benefit B - for example you got a head start on other countries in developing certain industies. The benefit B would have to be bigger than the loss you might incur with climate change.

Even if this is a very low probability event MR would say go for it and take no action. It worries me a bit.