Monday
Jun042012
by 
Bishop Hill
Bishop Hill Further thoughts on carbon taxes
Jun 4, 2012 Climate: other Economics Tax After I posted the carbon tax piece last night I was struck by a thought. The argument apparently goes that the uncertainty in climate change means that we should insure against it.
Now, let's suppose that I come up with a theory that our world is in danger of being taken over by a superrace of green lizards from the planet Beetlegeuse. Should we insure against that too?
I guess the question I'm asking is, what are the criteria that determine when a hypothesis of impending danger is sufficiently well-supported that insurance is required.
If a bunch of scientists say their models predict that there's a problem but their models seem unable to forecast anything very much, is that sufficient?
Reader Comments (129)
According to a basic interpretation of the 'Precautionary Principle', yes. However a little known corollary to the 'Precautionary Principle' states that it only applies if someone is willing to throw money at the problem.
The same argument is made in a number of forms. One form is the so called 'precautionary principle'. Another is this insurance argument.
They are all forms of Pascal's Wager and all suffer from the same logical defect. The form of the argument is: there is a small (and unknown) probability of x. The costs associated with x occurring are hugely enormous. The costs associated with taking preventive or insurance measures against x occurring are very small. Therefore the economically rational thing to do is take measures against x.
For example: the cost of being wrong about the Christian account of the universe is eternal damnation through disbelief. The cost of belief is rather small, it just involves practising a not very demanding religion. Therefore one should believe and practise.
The logical defect is that what is being advocated is not exclusive. Muslims, Buddhists, Rastafarians etc can make the same argument, and if valid for one its valid for all. In addition, one really does need to know the real probability of the event before being able to make the judgment. Finally, there needs to be some proven connection between the averting and insurance behaviour and the catastrophe in question.
Consider, for instance, the possibility that a giant lizare may devour the planet unless we all stand on our heads for five minutes every day. Clearly we should do it starting now. Yes, but what if a giant bat will eat the planet if we don't stand on one leg? What if the lizard will in fact be enraged by our standing on our heads? What if it will only have a small chance of averting his devouring? What if he doesn't exist?
At bottom, the rhetorical strategy in these arguments is to try to get around lack of convincing evidence, and it does not work. What is needed is real evidence that the datastrophe is linked to the advocated behaviour in a way that makes it a sensible use of resources on the scale required to avert it.
You can't get away from it. You have to show that rising CO2 really will lead to catastrophic warming, and that lowering CO2 emissions by the amount suggested is likely to be effective in averting it, and that it is the most cost-effective choice (rather than mitigation). No amount of rhetorical posturing will get around this.
The problem is that in many cases, its clearly not true. For instance, the suggestion that the UK should reduce its emissions in pursuit of saving the planet from warming is clearly nuts. The connection is unproven, but even if it were, no amount of reduction by the UK would make the slightest difference to global warming because we are too small an economy. You then go on to assert that we have to set an example. Fine, now show evidence that our example will provoke anything but amazed laughter in China or India.
AGW hysteria often indulges in this sort of thing: the politics of gesture, where something which on its own terms is totally ineffective is nonetheless defended as essential.
The argument on reducing UK emissions horribly combines gesture politics with Pascal's Wager. Utter nonsense.
As a matter of fact, we do take precautionary measures against alien invasion (by microbes). It is not widely known, and not very expensive, but we do guard against a risk that may not exist.
Ditto for climate. It may be a hoax. It may be catastrophic. I don't think it is either, but I have no conclusive proof. If we spend a bit of money on emission reduction and it turns out to be a hoax, we lost a little money. If we do not spend that bit of money and it turns out to be catastrophic, we are in trouble.
Asymmetric risk justifies intervention.
Your Excellency: That uncertainty you speak of, is built into Ross McKittrick's T3 tax. The tax only goes up as the Tropical Tropospheric Temperature goes up.
It gives some certainty to business, who can plan for a few years ahead on the effect of the tax.
At the start of the tax, the rates would be very low. The higher the temperature goes, the greater the risk, and the higher the tax rate.
I agree with other posters though, in that it may be revenue neutral, but a large portion will be eaten up with administering it. And, eventually, a government hungry for revenue will take some portion to pay the bills. Temporarily of course. In Canada, we have the Temporary Income Tax Act of 1917 as an example.
But with Ross's idea, at least the revenue should be minor, at current trends, or if the hypotheses of AGW is totally wrong. As he says, both parties should be happy with the concept. I think he has that part wrong though. I believe that if both sides are unhappy with legislation, then its probably about right.
Of course, quite a few scientists are now warning about global cooling - so I guess that means we should take urgent measures to heat up our atmosphere?
p.s. Richard Tol - what is that 'bit of money' on emission reduction - how many trillions of pounds/dollars/euros - and how many old age pensioners will it kill prematurely, in the UK alone, because their energy prices skyrocket them into fuel poverty?
Ditto for climate. It may be a hoax. It may be catastrophic. I don't think it is either, but I have no conclusive proof. If we spend a bit of money on emission reduction and it turns out to be a hoax, we lost a little money. If we do not spend that bit of money and it turns out to be catastrophic, we are in trouble.
Asymmetric risk justifies intervention.
Jun 4, 2012 at 8:31 AM | Richard Tol>>>>>
How many £trillions do you regard as "a little money"?
How many senior citizens dying of hypothermia due to fuel poverty is an acceptable level of insurance?
Jun 4, 2012 at 8:47 AM | Ian E>>>>
I think our almost identical posts must have crossed in the 'post'
"I guess the question I'm asking is, what are the criteria that determine when a hypothesis of impending danger is sufficiently well-supported that insurance is required."
A resounding "No". If the activist scientists choose to present CAGW as a scam then we need to react to it as presented. I do not insure against scams.
The fact is that all the Trillions spent on trying to effect the climate have had no measurable effect so it is a complete waste of money.
Jun 4, 2012 at 8:47 AM | Ian E>>>>
I think our almost identical posts must have crossed in the 'post'
Jun 4, 2012 at 8:54 AM | RKS
I would say 'Snap'!.
Richard
> If we spend a bit of money on emission reduction and it turns out to be a hoax, we lost a little money.
But it isn't a little bit of money, it is a lot of money.
I have a lot of sympathy with Richard Tol's comment. Why wouldn't we take out a little bit of insurance against a known risk, even if the risk is quite small?
However, judging by other responses, the reason is that many people don't trust the insurance company to administer such a scheme honestly and in the interests of their customers. I have a lot of sympathy with that as well.
If there is a choice between ignoring a small risk, or doing business with people I do not trust, then I will ignore the small risk, but keep my eyes open for someone more trustworthy.
You would be sued for plagiarism, by David Icke.
When you take out insurance, you don't expect it to affect the *probability* of the outcome. If you insure your house against fire, you don't think that, by doing so, you make it less likely to catch fire. If you take out travel insurance, you don't believe that's what keeps the plane up. We are being told that, by paying money, we will affect the likelihood of something happening. This is basically superstitious thinking - totally irrational.
"If we spend a bit of money on emission reduction and it turns out to be a hoax, we lost a little money."
The problem is, spending a little money on reduction is totally ineffective in its own terms. Spend it on figuring out if there is a problem.
Richard Tol says
"As a matter of fact, we do take precautionary measures against alien invasion (by microbes). It is not widely known, and not very expensive, but we do guard against a risk that may not exist."
First of all the risk from microbes is real - did not Apollo 12 return with a camera from Surveyor 3 which had a species of living bacteria in it. Secondly the technology for the protection has been around for some time. Thirdly the cost of the protection is relatively low in comparison to the cost of the space flights. If the cost was very high, then we most likely wouldn't be doing space travel.
You cannot validly discuss insurance unless you have some reasonable indication of the probability of occurrence with which to evaluate whether the cost is worth it.
If we cannot heat our homes because our electricity is so expensive, how many more people are we going to let die each year from the cold in order to prepare for some highly unlikely event?
There is a finite probability of being hit by meteorites so does the "Precautionary Principle" lead us to live underground? Why are we not spending billions protecting ourselves from asteroid collisions?
There are far more real problems in the world which could have deadly effects on us (e.g. disease, famine) which are much more likely to happen than any dubious modelled catastrophe!
Richard Tol. If we spend a bit of money to avert the catastrophes being pur forward by the alarmists we won't avert the catastrophes, should they occur. What we're doing at the moment is ditching our energy plans for fossil fuels with a pie in the sky belief that we'll make up the shortfall with wind and sun generation. That's where the money is going into subsidies for useless technologies.
And the futility of all this is that for most people on the planet things couldn't be worse so they're not about to be frightened into suspending their emissions of CO2 as they drag their people out of their misery.
Baarbara, 9.37AM
Brilliantly put!
If we look at the history of income tax, it was touted as a temporary tax to defeat Napoleon in 1798. It was repealed during a short lived peace treaty, only to be reinstated when the French started up again, this became a permanent "solution".
Who funded Napoleon, twice? It was the same banksers who funded the Belgian mercenaries, the same mercenaries who came in at the last minute on the British side at Waterloo. According to Wellington the battle was "the nearest-run thing you ever saw in your life."
A cynic might say the banksters enabled the war, and decided the outcome, for the sole purpose of making us all tax slaves.
There are certainly parallels to carbon tax IMO.
The insurance analogy is superficially attractive: if it’s worthwhile paying a small premium to insure my house against the remote risk of it’s burning down, why not pay the relatively small (from an individual's perspective) premium that might avoid the possibility of a man-made climate change catastrophe? But the analogy is false.
Fire insurance works because, if my house burns down (as houses sometimes do), the cost of rebuilding it is met by the premiums of the householders whose houses have not burned down: I pay a premium, not to stop my house burning down, but to be compensated if it does. That plainly isn’t the case when the householder is the entire population of the world and the premium (vast on a global perspective) is paid in an attempt to avoid a possible catastrophe.
The analogy would be more accurate if I considered it worthwhile to avoid the remote risk of my house burning down by incurring the vast cost of pulling it down and rebuilding and furnishing it exclusively from non-flammable materials. But I don’t. And nor does anyone else – although some may buy a few fire extinguishers. And that’s so despite the certainty that some houses will burn down. In contrast, there’s no certainty about a global AGW-caused catastrophe.
Well put, Barbara - more pithy than my comment (posted before I read yours).
http://www.dailymail.co.uk/news/article-2154106/Is-end-wind-farms-UK-George-Osborne-slashes-subsidies.html
If the Hockey Stick is correct and the temperature(s) has shot up in the last 100 years
Then trying to assess it impact in the future for insurances purposes
Are we feeling or noticing the effects right now
So how much damage has it caused already
If any
PS It could have stayed sunny and not rain for the Queens big river boat parade
yesterday
"The argument apparently goes that the uncertainty in climate change means that we should insure against it."
Not quite. The argument is that there is some effect from emissions. We are uncertain as to the severity of that effect. Thus the insurance analogy: given that we are uncertain (and this is uncertainty, not risk) then a modest attempt to reduce the likelihood of extreme effects seems worthwhile.
Given that we're already having our pockets picked of the necessary billions the idea that we might change the system so that it actually achieves that goal, rather than the current splurging of fortunes on nonsenses, seems prettyy unradical to me.
Validated models can a helpful tool in predicting but modelling without validation is of little merit since we cannot trust the output to any degree. Only a model which has proven prediction capability will be of any use and even then there will be limitations.
It was Kevin Trenbreth who mentioned that climate models do not predict but rather provide projections.
Given that current climate models are at variance with recent observations, the implication is that there is significant uncertainty in anything that is produced.
"Do you think Global Waming is unlikely because we use modelling to predict what would happen? How on Earth could we assess what might happen without using modelling?"
The models are not fit for purpose. There is no reason to think that they have any predictive power, and every reason to think that they have none.
This will no doubt sound selfish but here goes anyway.
Why would I insure my neighbours house against some future catastrophe? If Tuvalu thinks that it will need insurance against the effects of AGW, why would I pay for that?
The issue to my mind is not whether to insure or not to insure. If I am forced to pay to mitigate other people's risks (less affluent people's usually), then it's just socialist redistribution of wealth by the back door.
If the worriers are right, they can pay now and I'll joint the band wagon to pay to insure my own assets in the future when I see the error of my ways. If I as a non-worrier am right, I can keep the money I've earned and enjoy watching the worriers fritter their money away if they so choose.
To restate it another way: I don't want to stop people blowing their cash in Las Vegas, but I don't want to be forced to go there and blow mine just because others insist that I should.
So basically you want me to pay extra tax (don't even try to tell me it isn't extra) to ensure that Oxfordshire's climate does not become like that of Portugal. Bearing in mind that I am freezing my arse off on June 4th, how are you going to sell that concept? I had the wood burner on yesterday, no tax, just CO2, soot, aerosols of all kinds, noxious fumes and blessed blessed warmth.
The World is cooling fast: http://notrickszone.com/2012/06/03/winter-returns-to-europe-stockholm-has-coldest-day-in-84-years-sweden-coldest-in-20-years/
Lovelock has had the scientific honesty to state that the IPCC 'consensus' got it wrong.
"You're trying to find problems not answers here Roger You've also ducked the question. How on Earth could we assess what might happen without using modelling?"
There are no problems. Climate is exactly where we should expect it to be - cycling between LIA and MWP conditions. The last time I looked there were no vineyards in Yorkshire or ice fairs on the Thames (the last one was in 1814 - this must be right cos I saw it on the telly last night),
As the MWP seemed to be a positive time rather than a negative and the LIA seemed to be negative time rather than a positive. And scientists are now, as in the seventies, warning against a cold spell. Should we not be taking precautions against the cold rather than the warm?
as for accuracy of the models? By definition, out of 35 storylines, as the IPCC used to call them, 34 must be wrong. Thats the best case. Worst case is all 35 are wrong.
The models are definitely not on the money that is why Ben Santer issued his 17 year period to determine global warming signature from the noise. This is due to the acknowledged non-warming period of the last 10-15 years which was not predicted.
The "smoking gun" mentioned by Schimdt which would come from the ocean temperature back in 2005, has failed to materialise. The Argo sensors have failed to show significant rise in temperature
There is no indication that sea levels will rise much more than we have seen for the last few years. We are already in the 2nd decade of the century and nature is not behaving as some would like.
The models are wrong. However, the experimenters were fooled by this: http://www.kippzonen.com/?product/16132/CGR+3.aspx
Scroll down and the manufacturers correctly state that to measure net energy flow you need two instruments back to back. Take one away and you have a temperature signal. A Really Bad Mistake.
Richard Tol:
You sound as if you believe this: if we spend a little money and it would have turned out to be catastrophic without spending that money then it definitely won't turn out to be catastrophic if we do spend the money.
But how do we know that? So far real catastrophes don't correlate with warming.
I agree more with Tim's argument that if X billion is being spent on a ragbag of measures that benefit the rich at the expense of the poor (not that Tim put it exactly like that) then let's scrap the ragbag and gain the same reduction in carbon emissions through a much fairer and more economically rational carbon tax.
That I might vote for. But my main concern has always been the impact of this policy meddling on the poorest countries. If this goes global a flat tax is surely the best for the poorest. But it's still a burden to them.
But the main thing I object to is the apparent concession that we know that the CO2 lever will have some effect on future catastrophes. We don't know that, in either direction. Our CO2 emissions may be just what the doctor ordered as far as catastrophes are concerned. And deaths from extreme events have been coming down since the 1920s. Strangely the IPCC failed to highlight that - no, it failed to even mention it - in its recent Summary for Policy Makers on the subject. We need facts like that to be fully in front of policy makers before the next stages of the policy debate occur.
But many thanks to Tim for engaging so intensively here. Respect.
Comments by Zed and responses are all being removed.
"If this [a tax] goes global [...]" (Richard Drake)
At the moment Richard, I would think there is less likelihood of that than of CAGW itself. i.e. next to none.
Scroll down and the manufacturers correctly state that to measure net energy flow you need two instruments back to back. Take one away and you have a temperature signal. A Really Bad Mistake.
Jun 4, 2012 at 10:55 AM | Unregistered Commenterspartacusisfree
Are you saying that mdgnn was right all along?
Jun 4, 2012 at 11:10 AM | Mike Jackson>>>>>
MDGNN has no problem conversing with others of varying opinions over at Tallbloke.
It seems it's just at BH that the resident back radiation fanatics try to ridicule him because of his lifetime experience in temperature measurement engineering techniques.
Comments by Zed and responses are all being removed.
Jun 4, 2012 at 11:05 AM | Bishop Hill>>>>
The DM seem to have run out of climate related articles.
Mike; Yes, and there''s the proof. Any experimentalist who knows their stuff sees through this error.
The task has been to find a way to prove the point even to the non technical.
Insurance is just one of many tools for managing risk. It is at its best when you have adverse events that you can't control, but that within a population are predictable. Insurance allows you to pool that risk so you swap a potentially significant uncontrollable cost for a much less costly predicable one.
You should insure if you can control the event (or you should at least accept the and manage directly as much as you can), nor should you insure for predicable events (you should always take the highest excess you can afford). If possible pool your risk with those who will control the risk (BMW drivers get much lower cost insurance when they pool exclusively with other BMW drivers even though the loss might be higher, simply because BMW drivers are likely to be better drivers).
It makes no sense to insure against a global event like climate change because there is no pool for the risk. It will happen to all or none of us. We need to look to other risk management techniques. Like decide that it is completely unpredictable and catastrophic (like the earth splitting in two) and accept it as a fact of life. Or decide it is totally predictable and inevitable, and party, party, party. Or maybe recognise that temp is going up and that means some good and bad things that we need to respond to.
Regardless, as a species it is likely that if extreme events occur this will mean some of the gene pool will survive and some won't. Exactly in what shape in form remains to be seen, but I suspect from a dispassionate assessment the survivors will, as in the past, be those that adapt quickly rather than those that try to manage the planet.
2nd para "You shouldn't insure if you can control the event (or you should at least accept the risk and manage directly as much as you can) .."
RKS; I sympathise with the back radiation proponents because they thought they could measure it and this tied in with Houghton's use of the Schwarzchild two-stream approximation. But in science there is only one right answer.
Read Claes Johnson on pyrgeometers: whet we have is a failure of academic physics' education.
I am asked to believe a lot of stuff which goes against the instinct here. But the suggestion that BMW drivers are better is going a little too far. And I was one.
http://en.wikipedia.org/wiki/UNFCCC
This whole article is worth reading. The UN's whole idea is to transfer wealth from advanced Western economies to the developing world, and Russia, China, India and OPEC countries are somehow immune from the whole process. Funny that!
'Developing countries are not required to reduce emission levels unless developed countries supply enough funding and technology. Setting no immediate restrictions under UNFCCC serves three purposes:
* it avoids restrictions on their development, because emissions are strongly linked to industrial capacity
* they can sell emissions credits to nations whose operators have difficulty meeting their emissions targets
* they get money and technologies for low-carbon investments from Annex II countries.
Developing countries may volunteer to become Annex I countries when they are sufficiently developed.'
Even Greece, Spain and Portugal are among the wicked Annex II nations 'which pay for costs of developing countries'. So in effect the UN is enticing third world governments to jump on the CAGW bandwagon, because lots of moolah will be coming their way.
I always thought that BMW drivers were worse!
BTW Bish, it's 'Betelgeuse' (where Ford Prefect came from).
I have worked as a project accountant, looking at potential, but uncertain, future cost. The way to deal with this is a three stage process. First quantify the scale of the cost. Second, attach a risk percentage. Multiplying the two together gets an expected future cost. Third, and most importantly, you look at effect ways to manage that future risk down. That means critical examination of your information, finding out more, taking adaptive measures and constantly reviewing. As a result, what at first to be multiple "disasters" that could sink a medium-sized business, turned out to be much smaller in cost.
How does this differ from the current consensus? Only the more extreme voices are heard, so we get a false impression of the magnitude and likelihood of future events. We end up justifying policy on a few vocal PR hacks, and faulty opinion polls, not on a critical assessment of our limited knowledge.
A caricature of this way of thinking is to be found in wacky science teacher Greg Craven. He got round the alien invasion issue (he used mutant space hamsters) but using a credibility scale of who was saying what. This Simon Singh adopted in the Spectator debate last year. So if nearly all the experts say we are going to be invaded by mutant space hamsters, then we should act as if we were.
I tried to look at number of UNIPCC scenarios, putting a crude magnitude & likelihood figures against each. My conclusion is that the question should change from
to
Barbara is mistaken - it is quite reasonable to spend money doing things which lower risk or avert bad things. The problem is that the proposed spend does not seem likely to do that.
Jun 4, 2012 at 10:06 AM | Tim Worstall. "We are uncertain as to the severity of that effect."
There is always the possibility that CO2 enrichment of our atmosphere is a net benefit. CAGW is currently dead in the water, AGW (via CO2 emissions) by definition is not catastrophic. Why would I want to insure my house against it becoming more comfortable?
Insurance does not apply to CAGW, because insurance is based on everyone's premiums, less costs, compensating the unlucky few. There being only one planet, we are either all lucky or all unlucky. Either way, it doesn't work.