Thursday, March 30, 2006

Climate Change & Governance: Wednesday Morning

Some notes from the second day of the Climate Change and Governance Conference, which wrapped up yesterday in Wellington. Where day one had focused on the science, day two focused on the policy, as ought to be obvious from the below.

Professor Will Steffen (ANU) spoke on "sleeping giants: surprises in the climate and earth system". The key idea here is tipping points - and the key problem is that we don't know where they are. Three large areas of uncertainty were discussed: climate sensitivity (how strongly the climate responds to increased CO2 levels), cyrospheric instability (melting icecaps), and ocean acidification. The latter is the sleeping giant of the global climate system; the ocean is an enormous carbon sink and absorbs a large amount of CO2 from the atmosphere. But part of this involves the formation of carbonic acid, which dissolves the calcium carbonate shells of coral, phytoplankton and other marine organisms. Normally, the variation of CO2 concentration between 180 and 280 ppm between glacials and interglacials produces a variation of 0.1 in pH. We've already seen that, and with CO2 concentrations now well outside the normal range, we'll see more. The consequences could be a massive die-off of marine life (phytoplankton is the base of the marine ecosystem), and the loss of almost all the world's coral reefs. As an aside, this has happened before, around 55 million years ago, and precisely because a marine clathrate eruption caused runaway global warming. The CO2 this liberated from elsewhere in the system then turned the oceans acidic, causing a mass-extinction. The consequences can be seen in marine sediments, where the white carbonate (the skeletons of those marine mammals) suddenly turns to red clay, and only gradually shades back to normality over 50 - 100 thousand years. That's where we could be headed, and the prospect is quite frightening.

Dr Steve Hatfield-Dodds (CSIRO) gave a very interesting and wide-ranging talk on "interpreting the economic impacts of reducing greenhouse emissions". This began with a discussion of how economists model costs and with the idea of opportunity cost. Economist's models typically price Kyoto as costing 1-3% of GDP over 10 years, and stabilising global carbon emissions at 0.5 - 0.8% of GDP over 50 years (meaning that expected GDP in 50 years will be that much below where it would be if we did nothing). They also tell us that how we get there matters; late action is more expensive than early action, and emissions trading helps a lot. But its worth noting that these models do not include the expected costs of business-as-usual emissions (making them essentially a strapped chicken), and they do not incorporate technological change; they focus solely on reducing emissions by reducing consumption.

There was a diversion into the happiness literature (basically, how happiness varies with GDP; the answer is "not much" after around US$10,000 per capita) - and what this tells us is that if the goal is utilitarian (as economics covertly assumes), then high growth is not necessarily better than low growth, or even no growth at all - and that people care about a hell of a lot more than money. This then led on to a discussion of economic psychology: the models assume that the valuation of costs and benefits is symmetric, that is that the amount people are willing to pay for something ("willingness to pay", or WTP) is exactly the same as the amount they would accept as compensation for losing that thing ("willingness to accept", or WTA). This simply isn't the case: real people (as opposed to the ones economists assume in their models) are highly loss-averse, with WTA typically being twice WTP. This loss-aversion increase dramatically for catastrophic losses, with subjective valuation ratios of ten or even a hundred times between WTA and WTP. In other words, their answers accept moral judgements rather than valuation of costs and benefits.

All of this is a roundabout way of getting to the real point: that the framing of climate change policy in terms of cost is highly misleading, and risks a misunderstanding of the real consequences. According to some empirical research, cost-framing underestimates support for action on climate change by 25-50%, and overestimates opposition by 50 - 100%. Which is I guess why those opposing action do it. But its worth noting two key points: that no scenario for dealing with climate change involves any reduction in living standards, and that all scenarios involve increases in living standards, only at a slower rate. Dealing with this problem is not going to make us poorer. Not dealing with it almost certainly will.

The conference was then taken over by TV3 for their live-link-up with Tony Blair. I'm sure you've all read about it already, so I won't talk about it. The video is here if anyone wants to see it.

Murray Ward (consultant) gave a presentation on "framing policy action in the short and long term". His key question was "why are we stuck" - and his key answer was that governments had failed to prevent climate change policy from being presented as burdensome. As a result, we've had poor policy implementation, as governments have tip-toed around powerful vested interests, which has increased the costs of action overall. This has also resulted in business being stuck, as without clear policy signals they have no certainty and no guidance for the long-term investment decisions necessary to solve the problem. And the public is stuck because we (wrongly) fear the costs of action more than the effects of climate change, and do not appreciate the benefits and co-benefits of such action. His answer to this was to stress that action can be taken without affecting living standards, and that it is really all about technological transformation rather than reducing consumption.

(As you might have guessed from his job description, this was a fairly lightweight seminar, and rather disappointing compared with the other high-quality material on offer).

Simon Upton (former Minister for the Environment) gave a very information-packed talk on "what sort of contribution can a small country make?" His answer was "very little", but that it could be a useful little. Upton starts from the premise that the US, India and China, whoa re sitting on top of large piles of coal, will burn it - the former for energy security, the latter two because they need energy and they cannot afford to do anything else if they are to develop. He regards the right to develop as unquestionable. What this means is that policy has to focus around long-term transformation, on technology, and on making that technology available cheaply to developing nations. That really is the only way this potentially massive source of emissions will be limited.

Internationally, Upton thinks that as most developed nations are going to miss their CP1 targets, CP2 targets will be modest and probably immediately deliverable. As for new Zealand, he thinks that we should be focussing our diplomatic resources on ensuring that larger nations commit sufficient resources to R&D on technologies such as "clean coal" and carbon sequestration. Credibility requires that we be seen to be acting ourselves and that we have something to bring to the table - that we can "add value" - and here he thinks that we can definitely make a contribution on ways to reduce animal emissions. Unfortunately, we're not spending enough money on it - a paltry $4 million - and from discussions with scientists (he was also a former Minister of research, science and technology, remember), he thinks it needs to approximately double. Domestically, he thinks it is essential to put a price on carbon, and while in the past he favoured emissions trading, he now favours a carbon tax as the simplest measure. He also noted that if oil price hikes have failed to crash the economy (the headline in this morning's Dominion-Post was "Petrol price hits record high"), then a carbon charge at the levels being discussed is unlikely to. Finally, he called for a cross-party accord on the issue, so that policy wasn't dependent on who won the next election and business had the certainty to make the necessary investment decisions.

Upton got to the right place, but there was a little weirdness along the way. He seems to think that dealing with climate change requires massive lifestyle reductions in industrialised nations - while at the same time thinking that the long-term solution is all about technological transformation. And while he thinks that nation-states must push their markets to make the right decisions (that's what putting a price on carbon is all about), he's utterly dismissive of international treaties as a way of getting them to do that. Maybe his time in the OECD and watching the EU has made him a cynic about such things - but I'm wondering exactly how he expects to see the necessary coordinated global action unless its via such agreements.

Next up: the Dutch, risk-managers, and the insurance industry.


Just a query about your precis of the Hatsfield-Dodds's paper. You say that real people are loss averse and gain tolerant. But the standard asymmetry that's observed in the framing literature is that people are risky about losses and risk averse about gains. E.g. (in the loss case) I'll choose a .01 chance of a getting a bill for 100K$ rather than simply hand over 1K$. (And my attitudes flip around for the corresponding gains....) So I'm risk tolerant or risky about losses/costs (not risk averse).... I suspect then that your (or H-D's) terminology is garbled or at least very non-standard, but maybe there's a more fundamental confusion at work. Care to clarify? Thanks.

Posted by Anonymous : 4/01/2006 07:36:00 PM

Well, their program is working on you, you're scared enough to listen to anything they suggest it would seem. Ever wondered if their case is perhaps just a little overplayed ? I mean, you probably won't survive the bird flu, or you'll be too obese to worry, or second smoke or salt or cholesterol or diabetes or superbugs or nano-goo or even the coming jihad will get you first !

Scaring the public silly is mass power hand-over tactic number one.

Posted by Anonymous : 4/01/2006 09:49:00 PM

Stephen: Hatfield-Dodds' talk can be viewed here, as can his powerpoint (the earlier talk is ahead of it). The relevant slides are 100 and 101. He was specifically talking about people being less willing to give up stuff they already had - which is pretty much what you say. And his key point here is that the current climate change dialogue frames things in terms of giving up stuff people already have (e.g. "it will cost the country $6 billion"). Focusing on the fact that this is an opportunity cost, and that people will still be better off, only less so, makes people far more likely to agree (see slides 107 and 108).

Posted by Idiot/Savant : 4/01/2006 11:18:00 PM

i/s: thanks for the references and links (I'll check those out shortly).... I'd like to retract a little of my original query though! I'd forgotten the term "loss aversion" is used to refer to loss/gain (pain/pleasure) asymmetry even under conditions of certainty. Bugger: nobody garbled or confused anything except me! I hate the terminology and find it confusing...but that's no excuse for my forgetting it!

The asymmetry you mention is real alright but deep down it's hard to see what good could come of appealing to it in climate change settings.

Suppose we negotiate over something. What you give up is evaluated by me as a gain, whereas what I'll have to give up is evaluated by me as a loss. Since I'm loss averse (say) I require twice as much gain (i.e., you to give up twice as much) to make up for my loss. And the same applies on your end. Wonderful... we both defend our personal status quo by insisting that the other has to sacrifice twice as much for our own losses to be worth it. That's a sort of "no deal" irrationality that we can all do without in my view.... loss aversion will end up explaining beautifully why no climate change agreements are reached etc.! And this of course reflects that the psychological theories in question are descriptive through and through, and not normative the way utility theory is (proudly!). But if you are worried about climate change then "oughts", "should"s and "should not"s etc. are the name of the game.... so I don't quite get it yet! I look forward to checking out H-D's slides etc..

Many thanks --- s.g.

Posted by Anonymous : 4/02/2006 12:20:00 AM

Stephen: Oh, I agree that its about the moral (and pragmatic) case. But Hatfield-Dodds is talking about how to persuade people that action is necessary. He's talking about framing, and the loss he's talking about is the perceived cost of serious climate change policies - not the losses caused by climate change. And what he's found so far is that when you frame things in terms of "policy will mean you only make $600 extra a year instead of $700" rather than "policy will cost you $100 a year", people are far more likely to accept it, because its quite clear that nothing real is actually being taken from them.

Posted by Idiot/Savant : 4/02/2006 01:00:00 AM

Last comment (I hope!). H-D and you both seem to suppose - contrary to the basic spirit of the framing literature - that there's a fact of the matter about whether some alternative represents a gain or a loss. Is an employer ending bonuses (or regular raises or nice health insurance benefits or profit-sharing) a *loss* for the employees or just a shrinking of their gains? How about being reduced to 4 days work per week? Is this a loss or merely gaining less? (Good luck selling a "Nothing real is being taken from you" line in that case!) If you want to persuade people that the status quo is OK and the proposed change stinks you describe the change as a loss, and conversely...

Consider a decision to go to war with projected .002 of the civilian population to die. If you're against it you'll describe that as a loss (as you tend to do on this site!), but if you're for it you'll instead talk about the whole thing as a gain, stressing how you're going to save .998 of the civilian pop..

Normally the beginning of wisdom in all these sorts of cases (I've occasionally taught this stuff) is not to sign off on any one description of the alternatives but to at the very least be aware of the different ways of formulating the problem and possibly even to try to symmetrize ones underlying attitudes, e.g., so that you feel the same way about sharing in profits as you do in accepting your share of the burden of belt-tightening. Anything else and one is doomed to be a kind of horrible propagandist and hypocrite, seeing losses where it serves one's purposes and not otherwise. I'm very suspicious of the suggestion that climate change of all things – where every nation's status quo is different from every other's, and risk is omni-present – can benefit from having asymmetries of attitudes rooted in specific starting points/status quos pumped up and exploited as opposed to transcended/abstracted away from. (I also find it hard to believe H-D's assertion that climate change/greenhouse gas emission problems boil down to choosing between more and less steep economic growth tracks. But that's definitely good news insofar as it's true.)
cheers -s.g.

Posted by Anonymous : 4/02/2006 06:59:00 PM