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Suited polluters assess climate change risk

An Inconvenient TruthA riddle with climate change (and many other environmental issues) is the irreconcilable positions of well-informed and well-intentioned people who are firmly for and against remedial action. They share so few points of agreement that debate seems impractical. Let me propose a two-pronged explanation for this.

The first is that making policy for natural resources is — as Professor Ross Garnaut remarked in relation to climate change — a 'diabolical political problem'. Natural resources such as climate, air and water are public goods, which suffer the 'free-rider problem', or ability of everyone to enjoy the good without paying the costs of its preservation.

Because individuals have no incentive to protect or preserve public resources they can become subject to debilitating neglect, extending to toxic pollution, and can be over-exploited, even to extinction.

Any policy that seeks to reverse damage and (say) lower concentrations of carbon dioxide in the atmosphere typically follows the principle of 'polluter pays' by imposing regulation such as emission controls or placing a tax on emissions. This concentrates the costs of reducing emissions on those who directly cause them, whereas the benefits are thinly-spread because the whole community is only slightly better off on average.

This gives strong motivation to the minority opposed to the environmental policy, but much weaker motivation to the majority who benefit. As a result, resources policy making tends to be paralysed or produces an inferior outcome, and those results that can be agreed tend to be blunt instruments that occasionally get it wrong.

Although opponents of environmental policies typically criticise their efficiency and claim adverse impacts on competitiveness, fortunately these are generally trivial because compliance costs tend to be offset by innovation and regeneration of plant and processes.

A comprehensive US study, for instance, showed that tough controls on environmental damage that have been introduced since the first Earth Day in 1970 have simply cleaned industry up, not closed it down.

The second source of dispute is risk propensity. Risks associated with climate change involve uncertainty in forecasts of future warming and its impacts, along with the possibility of high cost or downside scenarios. These latter include occurrence of a tipping point where climate change becomes uncontrollable and triggers an apocalyptic outcome.

Advocates of immediate action are termed 'risk averse'. They are most concerned about risks or possible losses. On the other hand, people opposed to immediate policy action are said to be 'risk neutral'. They do not incorporate uncertainty into their decision, but use the best forecasts of what will happen to project costs and benefits.

Risk averse people are motivated to achieve security and value safety. In particular they focus on worst case outcomes, which are the risks to be avoided, and seek insurance to avoid future regret.

Risk neutral people equally weight gains and losses. They rely on experts' advice and use standard economic decision techniques such as cost-benefit analysis. Thus debaters never see eye-to-eye because they are looking either at a tail of the distribution of possible outcomes or its centre.

There are other divisions between these groups. Research has shown, for instance, that white males, with better education and income have a significantly lower perception of the risk of any activity, probably because they have more direct involvement in it.

In similar vein, people with an egalitarian preference for equal sharing of wealth in society have a higher perception of the risk of a range of hazards, whereas people who prefer a hierarchical society with experts in control have lower perceptions of risk.

A more extreme split echoes Kantian philosophy whereby ethics should eschew self-interest, and so truly moral behaviour can only come at a cost: doing good must hurt. Those in favour of immediate mitigation can see climate change as sourced in excess consumption of fossil fuels, and so a moral solution should damage the economy. Opponents of mitigation require a positive outcome from policy.

Whatever causes divisions between protagonists in the climate change and other natural resources debates, an important element of policy making must be to develop a better understanding of the nature and possibility of catastrophic outcomes, and actively work for a more inclusive framework.

The upshot of all this is that those who threaten the integrity of natural resources have a strong incentive to oppose any controls, while members of the broader community who benefit have limited incentive to play a role.

Those who do become involved are either opponents of action who tend to be risk neutral and focus on most likely outcomes, or advocates of mitigation who are risk averse and focus on extreme outcomes such as environmental catastrophe. No wonder debates appear polarised.

Australian Story: It's Not Easy Being Green

Les ColemanDr Les Coleman lectures in finance at the University of Melbourne.

Topic tags: Les Coleman, Bill McHarg, climate change, risk assessment, Ross Garnaut, garnaut report



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Existing comments

This is interesting, and thought-provoking, but I think wrong in that it misses out on one important element. The richer and more powerful decision-makers and opinion-formers in society are the very people who have the better economic capacity to insulate themselves personally - literally and metaphorically - for a time (years? decades?) against climate change. They can more easily afford air conditioning, dearer petrol, higher utility and food bills ... yet these are the people we trust with policy on climate change and peak oil. They will feel its adverse effects far later and more gently than poorer people who are starting to feel it already.

Climate change and peak oil look different on $50,000 pa family income than $200,000 pa family income. I don't think Kevin Rudd or Penny Wong are in any way personally affected in their pockets by climate change in Australia, though I am sure they have the empathy to feel the pain of others. Yet I am personally affected in my pocket already by climate change and peak oil.

So I don't think it really is about risk any more. I think it is about the burden-sharing of necessary disruptive change in social and economic policy settings. The rich can go on preferring to pay more for utilities, fuel, food, rather than deal with disruptive change in the way they make their money i.e., in the present socio-economic structure. The real reason why we have not gone solar is not that it is too costly - it isn't any more - it is that it's too inconvenient for decision makers in society to make all those changes and consequential adjustments. So much easier not to rock the boat, to go on mining and burning and taxing coal. It will, I fear, be business as usual for a long time yet. We may be too late.

A useful comparative read is a recent paper I gave at a Manning Clark House climate change conference in Canberra.

tony kevin | 21 August 2008  

Dear Les,

Sophistry will get us nowhere in this debate. Am I right or am I right when I say that people like us never tipped our worn-out cooking oil down the sink, clogged our toilets with used disposable nappies, or dropped our wet garbage in suburban gutters?

When will we come to terms with the fact that there is a tension between the exploitation and protection of the environment?

Ian McKernan is a hero but a victim of every bogan who chucks his old car tyres into the nearest water course.

Claude Rigney | 21 August 2008  

Spot the paradox?

In the illustration on the cover at the top of the page we have steam cooling towers presented as allegedly spewing out carbon.

Just that the inconvenient truth is not admitted!

Pat Healy | 22 August 2008  

Firstly, Co2 is not a pollutant, and has nothing to do with anti-pollution acts whatsoever.

Secondly, climate change has occurred before, and is part of the natural cycle of the earth. The evidence for this is clear and overwhelming. More and more scientists are speaking out against the so-called consensus on AGW, although you wouldn't know it through reading the popular press.

Look up Prof. Bob Carter's explanation on Youtube. There he explains in simple language that even an economist can understand, that the AGW hypothesis fails every test.

As for Mr McHarg, I'm afraid he's just another soul lost to the cult of environmentalism; incidentally, a cult that spawns more Messiahs than a Monty Python movie.

In an age when skepticism has become a dirty word, and contra-arguments are dismissed as immoral, it takes some courage to make a stand for the truth.
I can only pray that this madness passes before millions in the developing world are condemned to eternal poverty by patronising greens insisting on appropriate technologies in the name of nature.

Even the church is getting in on the act; read the Columbans' website where Father Broun attributes AGW skepticism to Satan!

My frustration lies in another fact. Contrary to green orthodoxy, poverty destroys the environment, not development or power stations.
We can only hope that the current hysteria abates before too much destruction is wreaked by all this environmental lunacy.

Pope John Paul II would have recognised the green movement for the anti-democratic rabble it represents; he, after all, lived through two prior manifestations.

Markus A Frank | 23 August 2008  

Marcus said:
"Firstly, Co2 is not a pollutant"

Actually Marcus, nothing is a pollutant... inherently.

The word 'pollution' is simply a term ascribed to anything which occurs where we do not want it. If the level of Carbon dioxide in the atmosphere reaches a point where it's effect on the climate is deleterious to human health, then it can, most definitely be considered as such.

I do not know whether this will be the case, but on the preponderence of evidence, it would appear likely.

"Secondly, climate change has occurred before, and is part of the natural cycle of the earth."

By 'natural' I presume you mean 'not human induced', which is correct, although it tended to occur over tens of thousands, if not millions of years. The rise in the percentage of atmospheric CO2 over the past century correlates almost precisely to the amount produced by human activity.

"In an age when skepticism has become a dirty word, and contra-arguments are dismissed as immoral, it takes some courage to make a stand for the truth."

Ahhh, You know the truth.

Then you are indeed a wise man.

But I share your scepticism over the value of the measures undertaken by the current government. If we value the future for our children's, children's, children, then perhaps we should start to view the planet as a hostile environment (as it may well become), and develop enclosed self sustaining communities. That may well be a gross over-reacton.

If it is - no harm done. But if not, by the time any consequences come to pass it will be too late.


Rob Callander | 24 August 2008  

I love sarcasm Bob, thank you for calling me a wise man; yet the claim to Truth is surely made by those who decry skepticism as 'denial'.

The truth is, that AGW 'believers' ignore some pertinent facts at least. Firstly, your claim that the current rate of climate change (warming) is more rapid than at any other time in history.

Quite apart from the fact that no warming has occurred since at least 2000, you ignore that the rate of change is measured since the end of the coldest period in almost a century. Of course the rate of warming appears rapid.

How much of that warming is anthropogenic? Some of it may be, but you won't find a serious scientist who will claim to be able to tell you.

More importantly, the money wasted on emission controls would be better spent on adaption to changing conditions. Playing semantic games doesn't ameliorate the false claim that CO2 is a pollutant in the sense that the word is used as it is commonly understood by the general public.

Vaclav Klaus has named environmentalism as the greatest threat to democracy; the fundamental point of my comment was that the current climate stifles debate. That is the danger, and the source of my frustration.

The basis for good science is skepticism. I think we are in serious trouble when the first response to skepticism is moral outrage.

As to your claims of percentages of CO2 correlating to temperature rise, I'd very much like to read the paper that shows this to be the case.

Markus A Frank | 26 August 2008