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.