by Judith Curry
I am a strong believer that academic freedom is essential for scientific progress, and such freedom includes the right to be “wrong.” In fact, scientists can often learn much from failed experiments and failed predictions. However, for regulatory science and science for policy, should there be some premium on (and some reward for) actually being “right”? How can we know what is “right” in the short term? Shi-Ling Hsu has a provocative new essay that advocates an entirely different path for evaluating climate science that draws upon an institution that is truly independent: markets.
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A Prediction Market for Climate Outcomes
Shi-Ling Hsu
Abstract: This article proposes a way of introducing some organization and tractability in climate science, generating more widely credible evaluations of climate science, and imposing some discipline on the processing and interpretation of climate information. I propose a two-part policy instrument consisting of (1) a carbon tax that is indexed to a “basket” of climate outcomes, and (2) nested inside this carbon tax, a cap-and-trade system of emissions permits that can be redeemed in lieu of paying the carbon tax. The amount of the carbon tax in this proposal would be set each year on the basis of some objective, non-manipulable climate indices, such as temperature and mean sea level, and also on the number of certain climate events, such as hurricanes or droughts, that occurred in the previous year (or some moving average of previous years). In addition to setting a carbon tax rate each year, an auction would be held each year for tradeable permits to emit a ton of carbon dioxide in separate, specific, future years. That is, in the year 2012, a number of permits to emit in 2013 would be auctioned, as well as a number of permits to emit in 2014, in 2015, and so forth. In the year 2013, some more permits to emit in 2014 would be auctioned, as well as more permits to emit in 2015, 2016, and so forth. The permits to emit in the future are essentially unitary exemptions from a future carbon tax: an emitter can either pay the carbon tax or surrender an emissions permit to emit in the specific vintage year. Because of this link between the carbon tax and the permit market, the trading price of the permits should reflect market expectations of what the carbon tax will be in the future, and concomitantly, expectations of future climate outcomes. The idea is to link the price of tradeable permits to future climate outcomes, so that a market is created in which accurate and credible information about future climate conditions are important inputs into the price of permits. The market for tradeable permits to emit in the future is essentially a prediction market for climate outcomes.
Hsu, Shi-Ling, A Prediction Market for Climate Outcomes (February 26, 2011). Available at SSRN: http://ssrn.com/abstract=1770882 [link]
Some biographical information from Hsu’s web page: Hsu is Associate Professor of Law at the University of British Columbia. Professor Hsu has also been an Associate Professor at George Washington University where he taught courses in Environmental Law, Law and Economics and Property. Prior to his academic career, Professor Hsu was Senior Attorney and Economist for the Environmental Law Institute in Washington D.C; Deputy City Attorney in San Francisco; and practiced law with Fenwick & West in Palo Alto, California. Professor Hsu has a B.S. in Electrical Engineering from Columbia University, a J.D., from Columbia Law School, and a M.S. in Ecology and Ph.D. in Agricultural and Resource Economics, both from the University of California, Davis.
JC comment: Read the whole thing (all 74 pages), it is well worth it. Hsu nails the description and definition of the “problem” IMO, and points us in the direction of some new ideas for a solution. There are many small gems of wisdom in this paper, for which a blog post can’t do justice.
Introduction
Some excerpts from the Introduction provide the rationale for the prediction market for climate outcomes:
At the same time, the advantages of prediction markets are uniquely useful in processing climate science. First, the ability of prediction markets to aggregate and organize vast, disparate pieces of information is nowhere employed as productively as in the case of climate change. With climate science coming from so many quarters and drawing on information that is local in many ways, prediction markets are a singularly effective way to process the otherwise intractably numerous bodies of climate science. Secondly, prediction markets tap into pecuniary self-interest to process information in a way that is presumptively free of bias or preference for certain outcomes. This advantage is of crucial importance in the climate debate, as climate science is not only in need of aggregation and filtering, but also an institution that can scrub out some of the taint of ideology or political manipulation. In the current environment, beliefs about climate change are too intertwined with a variety of economic and professional interests, such that virtually no one can make an assertion about climate change without being accused of having some interest – economic, professional, or psychic – in convincing others. In prediction markets, it is simply too costly to sustain a disingenuous position. It is harder to put your money where your mouth is when you do not truly believe what you are saying, particularly when market prices are providing constant feedback. [ JC emphasis]
While this proposal could reduce greenhouse gas emissions, the primary purpose of this proposal is not to regulate or price emissions, but to create a market that harnesses, processes and even creates information about climate science in a way that is presumptively free of ideology and bias.
Why is climate science so hard?
Some excerpts:
But it is ultimately self-defeating to focus on the role of climate skeptics in trying to explain why people have trouble understanding climate change. Even without an opposition campaign, the task of communicating and addressing climate change is bound to run into trouble. If there was ever a scientific problem that was tailor-made to create public doubt and confusion, it would be global climate change.
But how does anyone make sense of the barrage of information from these hundreds of entities? . . . Under these circumstances, it begins to appear rational to delegate some of the information processing to intermediaries, an interpretive vacuum into which interest groups of all types have been happy to fill in a self-serving manner.
A second major cause of the climate comprehension problem is the complexity of climate science, and the attendant uncertainties of modeling complex systems. . . Uncertainty and complexity are naturally going to be parts of this process, which makes for problematic communications to a lay public that may not relish the complexity or have the patience for uncertainty, and might just be looking for a reason to not think about such a depressing subject.
But given the high costs of trying to avoid climate change, this economic uncertainty, coupled with the scientific complexities and uncertainties, make a compelling case for rational denial.
Unsurprisingly, none of these measures have mollified critics or climate skeptics. . . It is hard to escape the conclusion that climate skeptics will simply never be convinced by institutional adjustments aimed at making climate science more credible, and would find fodder in efforts to increase transparency. This article thus advocates an entirely different path for evaluating climate science, and proposes to draw on an institution that is truly independent: markets.
Prediction markets
Talk is cheap. Predictions are very cheap. In the public world of climate science, talk and predictions are not only cheap, they are frequently valueless, issued as they are by individuals and organizations with self- serving agendas, and on the basis of questionable information. Quality climate science (and reasonable climate skepticism) is mixed with too much ideology to create an ill broth contains very little informational nutrition. [JC comment: wow, I wish I wrote that.]
The core value of markets can thus be boiled down to this: if well- designed, they are capable of collecting, filtering, and processing a huge amount of information of varying quality.
A prediction market is a constructed market in which trades are made on contracts that specify payouts based on specific outcomes. Participating in a prediction market is betting on outcomes. Depending on the type of prediction market, “shares” of an outcome are bought and sold, so that the trading prices reflect expectations about the likelihood of that specific outcome ultimately taking place.
In appreciating the vast information network embodied in market prices, it becomes apparent how markets can play a role in aggregating and weighting the disparate pieces of climate science.
Perhaps most importantly, a prediction market in future climate conditions would force market participants – in the first instance, emitters of greenhouse gases that face a future carbon tax liability – to be extremely discerning consumers of climate science, critically evaluating climate science and the critiques offered by climate skeptics. While some emitters may have an ideological axe to grind in terms of climate policy, it would probably turn out to be very expensive to allow an ideological filter to affect its evaluation of the value of different pieces of climate science.
In addition, prediction markets, like markets generally, weight the value of information by allowing market participants to vary the amount of money invested. This allows prediction market participants to place a premium on information that they believe to be especially important or credible, and likely to change the expectation of an outcome.
Perhaps most importantly, a prediction market in future climate conditions would force market participants – in the first instance, emitters of greenhouse gases that face a future carbon tax liability – to be extremely discerning consumers of climate science, critically evaluating climate science and the critiques offered by climate skeptics. While some emitters may have an ideological axe to grind in terms of climate policy, it would probably turn out to be very expensive to allow an ideological filter to affect its evaluation of the value of different pieces of climate science.
Talk is cheap; but prediction markets force participants to back their stated beliefs with money. . . In the world of climate change, climate scientists and climate skeptics alike, can, instead of lobbing rhetorical grenades at the other, profit by trading on what they believe is superior information. Complaints that the market price reflects too much optimism or too much pessimism about future climate outcomes could be met with the advice to go and buy or sell some emissions permits.
The Tax-and-Cap-and-Trade Proposal
For details on how this would work, see the original article. Some overarching points are excerpted here:
The motivation for this part of the proposal is to tie market activity in tradable permits to future climate outcomes and thereby create a market for information about future climate outcomes. If emitters with future carbon tax liability are rational and risk-neutral, they should be willing to pay for tradable permits a price just slightly less than their anticipated liability under the indexed carbon tax.
This second part of the proposal forces emitters to forecast their own future carbon tax liabilities, and reveal their forecasts through the exchange of tradable permits. But the level of private concern over future climate conditions, as expressed through market prices for permits, is at least an unbiased opinion derived from self-interest. The price bid by emitters for say, permits to emit in 2020, would speak volumes about private expectations of the consequences of climate change, free from, as climate skeptics claim, conspiracies by climate scientists to shore up their research grant fiefdoms, or desires by radical environmentalists who really wish to use climate change as an excuse for imposing environmental restrictions. The market price is a far stronger and clearer signal of future expectations than what would probably be mostly anecdotal information about which firms are worried about and planning for rising temperature taxes.
There is one final benefit of this tax-and-cap-and-trade proposal that is worth emphasizing, as it achieves something unprecedented in both enhancing climate science, and accomplishing something far more effectively than any previous prediction market has accomplished. This proposal would create a private market for information and information processing about climate outcomes. Clearly, emitters with future carbon tax liabilities do not have and would unlikely develop the internal capacity to do their own climate outcome projections. At the same time, a carbon tax liability that is tied to future climate outcomes would compel most emitters to invest some money to investigate the likely extent of their liabilities. This could constitute a major source of funding for a new climate information market.
Which Climate Outcomes?
A key element of the proposal is the development of an index of climate outcomes, that is more complex than the oft used global average temperature anomaly.
A broader “basket” of climate outcomes, not unlike a consumer price index, might be devised to be a better indicator of the state of the Earth’s climate.
Hsu suggests an index with the following elements:
(i) global mean temperature
(ii) days of unusually high or low temperatures
(iii) extreme rainfall and drought events
(iv) sea level rise
(v) ocean acidity
(vi) hurricanes above a certain intensity level
JC comment: This concept of a broader climate index (beyond global mean surface temperature anomaly) is a key contribution, IMO.
Conclusion
We are probably better off not giving in to cynicism when considering the arguments of those with whom we disagree about climate science, however tempting it is to think that the “other side” is just nuts or corrupt. However, the vast uncertainties, the enormous political stakes involved, and the very core personal values implicated by the problem of climate change, not to mention the large investments that both climate advocates and climate skeptics have in their particular substantive positions, give rise to a situation in which anybody can accuse anybody of taking a subjective interpretation of climate science. It is truly challenging under these circumstances to take a benign view of those with whom we disagree. This proposal, more than even addressing the problem of reducing greenhouse gases, addresses the question of whom we truly believe, and how sure we are of our beliefs. Markets are inherently imperfect, so the information generated by this proposal will be imperfect. It is not as if this cap-and-trade market will reveal the true climate science. Rather, what this proposal does is provide objective information about what everyone else thinks. This information network aspect, similar to the information network embedded in market prices, is feedback more than it is information, and serves as a challenge to our beliefs.
JC summary: there is much food for thought in this article, even if you don’t buy the idea of a prediction market for climate. But I think this is an idea worth exploring, even if I don’t quite understand the actual market aspect of it.
In a 2006 paper on “Achieving sustained economic growth,” addressed to state government, I wrote , in a section entitled “‘Picking winners” – always a bad policy” –
Commercial businesses and investors thrive or fail on their capacity to correctly identify and pursue profitable opportunities. The skills required for this are highly valued and are in great demand, particularly by firms and investors who operate globally. If there is a profitable opportunity available in Queensland or elsewhere, it is unlikely to be overlooked.
Nevertheless, governments and public servants with little relevant expertise frequently think that their capacity to identify and pursue viable commercial opportunities exceeds that of the businessmen whose livelihood depends on that capacity. In practice this almost invariably leads to poor investment choices at great cost to the state concerned.
I concluded the section with a box “Advice to Ministers:”
Be sceptical of any public servant who brings to you a “wonderful” investment opportunity which has not been pursued by commercial investors. Your first question should be: “Have you mortgaged your house to invest in this wonderful opportunity?” Unless the answer is a resounding “Yes!”, go no further.
Hsu’s proposal is in tune with the above – there are always vested interests, always varying degrees of knowledge, ignorance and agendas not directly related to the policy in question. Elsewhere in the paper I noted that “Markets are very efficient devices for providing and processing information, for organising production and distribution of goods and services so as to allocate resources to their highest valued use and thus maximise community income. Their superiority to central planning is well attested.”
As we all know, and Hsu notes, climate is very complex and uncertain and may never be fully understood. Any attempt to make 100-year forecasts is fraught with difficulty. It is just such a situation in which markets excel, given the incentives to get the best information and the best understanding of it.
You say “Any attempt to make 100-year forecasts is fraught with difficulty.”
That is not true. History is the best predictor of the future. If you look at NOAA data from the ice cores, Temperature has varied equal to or less than plus or minus two degrees for the past ten thousand years. Most of it was inside plus or minus one. Use NOAA data and do your own histogram. With temperature that steady, it is an extremely good bet that in 100 years and in 1000 years, we will be inside this same range. The climate models are unstable, but the actual data is extremely stable. We have constant climate change inside a narrow temperature range while CO2 has varied over a wider range. Any climate model that does not do this is wrong.
Look at the NOAA section on climate modeling and see the Warming Statement from their article that I included here. You can look on this page and search for this statement or just scroll down to it.
http://www.research.noaa.gov/climate/t_modeling.html
Greenhouse Warming
On NOAA’s website they say: “Climate models are the only means to estimate the effects of increasing greenhouse gases on future global climate.
In other words, they can’t prove it with the data.
When earth is colder, I mean one or two degrees below the modern stable normal, it don’t snow much and we get warmer. When earth is warmer, as we are now, a little less than one degree above the modern stable normal, it snows more and we cool. Thus, this past winter.
Watch this, “Explanation on Global Warming from mainstream media”, http://www.click2houston.com/video/27156168/index.html
are you nuts really that was the crap i would hear from my 97 yearold grampa
A prediction market for climate outcomes sounds a sensible idea, but then restricting it to a carbon tax and cap and trade system reflects the pollution of intellectual freedom by demonising carbon dioxide over all other numerous potential causes of warming.
Indeed, if carbon does not control climate (as I am sure it does not) then this is just an elaborate system for betting on climate. If the money is big enough it will produce a lot of study, its intended result. But one might as well put the tax on food, or babies, or tomatoes.
In short this proposal can only be justified if one believes that carbon controls climate. But that is the very question at issue. Thus this appears to be just another example of endless research that assumes dangerous AGW. If so then it is worthless, but perhaps I have missed something.
One of the early pioneers of prediction markets was Robin Hanson, and his page of papers on the subject contains some interesting reading:
http://hanson.gmu.edu/ifpubs.html#Hanson
Excellent idea, but can all participate, even individuals if they tend to always be correct? Well, at least it would quickly scrub off the current players and level the board. The current system that has grown since the 80’s is a joke.
Sorry, my mistake, got interrupted. My statement above applies to Judith’s initial summary paragraph, NOT Shi-Ling Hsu’s type of cap-and-trade market system. That would unfairly penalizes citizens, for it taxes before any harm manifests. I thought Judith was speaking of taxing the scientists if publicly wrong and only rewarding them if they were publicly correct, a science market, now that may have some merit. ☺
Yes, if a cost for emissions is to be imposed by gubmints, this may be a least worst way of doing it. At least it provides lots of feedback, and penalties for error and rewards for accuracy.
If such a market existed, I’d leverage myself to the hilt selling short.
It would be interesting if, like financial prognosticators, climate science prognosticators had to reveal their stakes in the climate market…
No matter how I try to get behind the idea, I can’t get past the moats or the caltrops strewn in my path; the idea that carbon (sic) is the cause of global warming, and that there will be or even can be a “consumer price index” for the climate. What if increased carbon dioxide is found to be, on the whole, beneficial to the environment (much more likely than the current alarmist mantra)? Will emitting industries be given tax credits? I doubt it.
Governments tend not to like shutting off any spigot that fills the public trough at which they’re eating. Once created, a tax seems never to go away, especially one that requires a whole new bureaucracy to administer it. I am especially leery of whom might be tasked with setting the standards of measure. Judging by the author’s c.v. I think he expects the usual warmist team to be in charge.
This is at heart an attempt to make cap and trade palatable to folks who might be drawn to the “market driven” aspect. I see it as another means of getting that pesky camel’s nose under the tent.
Climate tax credits if the temperature drops? That’s a great question and a logical suggestion, but in all honesty, you are right to doubt it. Not because this proposal is meant to get that camel’s nose under the tent, but because this proposal is meant to impose a small carbon tax, not to create a new source of budget deficits.
I highly recommend that you download the “BC Climate Action Plan available at:
http://www.env.gov.bc.ca/cas/cap.html#cap
After you study the CAP, you will learn that it is in fact “The New Communist Manifesto”
In July 2008, BC enacted the “Climate Action Plan” (CAP) and started Phase One of the Plan: A carbon tax on fossil fuels at $20 per tonne of CO2 equivalent. This tax will increase to $30 per tonne on July 1, 2012.
I currently pay a ca 22% tax on the commodity price of BC nat gas and that is not a small or modest tax. And will it have effect on my consumption of nat gas or gasoline.
The BC gov will soon introduce Phase Two: Laws regulating the emission of GHG’s from all sources. When the CAP is fully “entrenched” in law, the BC gov has the “legislative authority” to:
1. Indirectly, seize control of all means of production.
2. Indirectly, control the production of all goods and services.
3. Use the carbon tax scheme to redistribute wealth via tax cuts to busineses and corporation and to taxpayers with incomes less than $120,000. Individual taxpayers and families with incomes much greater than $120,000 get no tax breaks.
4. Control every aspect of the affairs and lives of the people of BC. For example, banning the sale of certain incan. lightbulbs.
NB: The terms “entrenched” and “legislative authority” are used in the CAP. When in recent times you ever seen the term “entrenched”, a very strong and menacing word.
The BC gov touted the CAP as being revenue neutral and bribed most of the people with tax cuts. And it has the “legislative authority” to change the rules and regulations to reduce the emission of GHG’s at a whim. Or when Commissar Jaccard orders the gov to do so.
What is really scary about the CAP is that the clueless folks in BC have swallowed the CAP hook, line, sinker, beaver, bear, and bluejay. There has been no complaints so far about the CAP because they have brain washed by the white-coated wiseguys aka climate scientists and the likes of Don David Suzuki who is a running a climate protection racket and shaking down a guillible public for cold hard cash.
Ya know, you really haven’t got a clue about the true objectives of the UN via its front organization the IPCC and the white-coated wiseguys, but you do now.
Government wins if
Temps go up or temp goes down.
A two headed coin.
Or
Consumers lose if
Temps go up or temp goes down.
That’s a two tailed coin.
=============
You make my point, “… but because this proposal is meant to impose a small carbon tax …”. That’s the camel whose nose is in question. The gargantuan bureaucracy required for this scheme means the camel would soon own the tent. Why do it at all? There is no empirical evidence to suggest it would benefit anyone other than the radical Luddites, socialists, both left and right, and the people who think they will be running things because they and only they know what’s good for the great unwashed masses.
Well, if the market existed, we could drive the cost of permits negative — companies would then pay you to take them off their hands!
;)
What if CO2 is beneficial? Yes, but not just more likely, it has been proven with experiments.
Why do greenhouses run their CO2 at 1000 parts per million instead of trying to get it lower by using regular air?
Read Leighton Steward’s book, “Fire Ice and Paradise” and look for follow-up work. He is still advancing this concept and trying to prevent the economic disaster of Carbon Control. Have any of you already read this book?
CO2 makes green things grow better while it requires less water. Multiple studies have shown this.
We must try to keep the USA from committing economic suicide by spending trillions trying to reduce CO2. Temperature is going to stay in the Paradise range and it don’t care what CO2 does. World Crop growth, on the other hand, cares a lot about how much CO2 we have. Less would be a disaster because less food would grow and it would take increased water.
In history, there was a time the CO2 was 7000 and things grew like crazy and the earth cooled while CO2 was more than order of magnitude higher. There is no correlation of CO2 driving temperature. There is, on the other had good correlation of times when CO2 was driven by Temperature. That is based on pure physics and having oceans that have huge amounts of CO2.
Earth is like a huge carbonated drink and CO2 in the air goes up and down with ocean temperate.
This is what happens when progressive academics try to use what little they understand about free market economics to implement their progressive policies. The whole thrust of the CAGW movement has been the imposition of a carbon tax and cap and trade system. The CAGW tribe is losing the political debate badly. So what is the answer? Institute a carbon tax and cap and trade system to help us figure out what to do.
More to the point, the fundamental starting point of the article, from reading the excerpt here, is completely false. The problem in the “climate debate” is not the failure of the market to properly analyze the information provided by climate scientists. The problem has been with climate scientists providing inflated estimation of uncertainty, dishonest PR charts in their peer reviewed literature, hubris in thinking they know so much more about the complex climate than it is possible for them yet to know, and other bad science.
A carbon tax and cap and trade system would simply penalize the national (or global) economy, without doing anything to affect the overwhelmingly government funded climate research, which has caused the problem in the first place. If you want to use market systems to address the problems in the climate debate, expose the climate scientists to the rigors of the market. But that’s less likely to happen than the disappearance of the Himalayan glaciers by 2035.
GaryM
As usual you are spot on! Here in Australia our ‘Prime Minister’ repeatedly claimed in the lead up to the last election that ‘there will be no carbon tax under the government I lead’. Having persuaded a couple of independent politicians (who were elected) to side with her in an otherwise ‘hung parliament’, she is now hell bent on implementing a carbon tax. She and her colleagues are now captive to the ‘greens’ and the independents. For this she is totally unapologetic.
Herein lies an insurmountable problem. Governments cannot be trusted to ‘adhere to the rules’ or even honour their promises. Expediency is substituted for integrity and such politicians will find a way of corrupting any idealised system emanating from the ivory towers of academia.
Sorry, but this bit, the very basis, is flawed : ‘The amount of the carbon tax in this proposal would be set each year on the basis of some objective, non-manipulable climate indices, such as temperature and mean sea level , and also on the number of certain climate events, such as hurricanes or droughts, that occurred in the previous year (or some moving average of previous years).’ I don’t believe it is possible, with the current state of the science, to even determine these indices with any great accuracy, no less to claim they are or could be ‘non-manipulable’. These figures have been, and continue to be, manipulated for political purposes, and there is no reason to think that that will change any time soon.
Hsu must have been asleep the least ten years or so not to realize this.
With so little real scientific understanding of the natural and anthropogenic causes of global climate change, I find it difficult to understand how businessmen (carbon emitters) are going to be able to make wise investment decisions. If it’s a free market, one option is to do nothing. I don’t get the sense that that would be an option, which makes the market unfree and a way to force emitters to play even if they don’t want to.
Stock and commodity investing use long understood and tested concepts for valuations, the uncertainty lies in whether the factors that lie behind the investment decision materialize and to what degree. Investors know that when the Fed increases the money supply stock prices generally go up. Businessmen have reams of economic data on all sorts of industrial, governmental and personal income and consumption activity that can be used to predict future economic activity. Businessmen and investors are also constantly in tune with changing patterns of this data and can also influence outcomes but changing the way they do business.
That is not the case with the natural factors that influence climate. We, first of all don’t even know what they are, and second we have very little information to predict their occurrence. Some scientist think sunspot activity, affects galactic cosmic rays, which impact clouds, which impact climate. Is it possible to predict sunspot activity? What if natural causes are mostly to blame for climate. Why should a businessman be forced to predict the natural causes just because his business is an emitter and it is forced to.
If climate were simply a matter of the burning of fossil fuels, then you could make predictions based upon the expected growth rate of economic activity of the world economy. But if natural forces have a large impact on climate, and such impacts are poorly or not understood, then you are not investing you are crap shooting in the dark and you are being forced to do it, as I understand the scheme..
“The amount of the carbon tax in this proposal would be set each year on the basis of some objective, non-manipulable climate indices, such as temperature and mean sea level.”
Temperature and mean sea level indices are objective and non- manipulable? News to me.
“A key element of the proposal is the development of an index of climate outcomes, that is more complex than the oft used global average temperature anomaly” …. “Hsu suggests an index with the following elements:”
“(i) global mean temperature
(ii) days of unusually high or low temperatures
(iii) extreme rainfall and drought events
(iv) sea level rise
(v) ocean acidity
(vi) hurricanes above a certain intensity level”
Why not add (vii) tornadoes and (viii) blizzards? We have no proof that anthropogenic CO2 emissions cause them either.
The more I think about this article, the worse it sounds. Could someone who supports such a notion please tell me how any carbon tax, or cap and trade system, would have any impact on Michael Mann, Green Peace, James Hansen, the IPCC, and other any governmental and NGO funded participants in the climate debate, other than providing massive additional tax dollars to provide them additional funding to argue for more taxation and regulation?
The author’s problem isn’t that the market isn’t adequately processing climate information, it is that the market (and the electorate) is reaching an answer the author does not like. So like any good progressive losing politically, he wants to end the debate, and just institute his preferred tax and regulatory policies.
One of the papers listed on his web page is “A Two-Dimensional Framework for Analyzing Property Rights Regimes.” It contains this description of his basic principle in the abstract:
“I introduce four fundamental property regimes: the Individual Use, Joint Use, Individual Exclusion and Joint Exclusion regimes. The Individual Use regime is one in which an individual owns property and enjoys very strong and unfettered use rights vis-a-vis the rest of the world, and no one has any exclusion rights with respect to the property. The Joint Use regime is one in which all of the persons in the world own property jointly, and have strong use rights, while no one has any exclusion rights – in effect, open access. The Individual Exclusion regime is an extreme form of Heller’s anticommons regime – where all individuals have an exclusion right to property, and no one has any effective use right. Finally, a Joint Exclusion regime is one in which all of the persons in the world have a joint exclusion right to property, and no one has any effective use right.”
http://works.bepress.com/cgi/viewcontent.cgi?article=1011&context=shi_ling_hsu&sei-redir=1#search=%22A+Two-Dimensional+Framework+for+Analyzing+Property+Rights+Regimes%22
From the body of the paper:
“In other words, the Joint Exclusion regime can be used to protect against the occurrence of externalities, especially those occurring over time. In other words, with extremely fragile resources, a Joint Exclusion regime may protect the rights of future generations that would otherwise have no means of protection.”
He writes that joint resources “may thus warrant the extreme regulation under a Joint Exclusion regime.” The author uses fisheries as his example of something that should be subject to a “Joint Exclusion regime,” but is there any doubt that the author sees either climate or atmosphere as a species of “property” that ” all of the persons in the world own … jointly” that therefore justifies “extreme regulation?”
For comparison, see Ross McKitrick: Global Warming – The T3 Tax (without the cap & trade).
McKitrick, Ross R. (2007) Calling the Carbon Bluff Environment & Energy 19(5) 707-711.
McKitrick, Ross R. (2010) A Simple State-Contingent Pricing Rule for Complex Intertemporal Externalities. Energy Economics doi:10.1016/j.eneco.2010.06.013. Data/code archive.
I’m quite sceptic about the specifics of this proposal, even if the idea of a market mechanism as such does sound logical.
About the proposed index of climate conditions I notice two problems:
1. Including carbon dioxide emissions is a mistake: the index should be about actual climate conditions, not about one of the possible drivers of climate change. Of course, a moving average or moving cumulative total for a (relatively large) number of years should be used, not a particular year. One particularly hot or cold year should not move the index, but a string of such years should.
2. A CPI-like index needs weights. How to establish such weights is a mighty question. In this regard, two aspects must be considered: (a) since conditions change all the time, the weights should reflect the average between previous and current conditions, to avoid distortions derived from using outdated weights; (b) the weight of each component should have an objective basis; since the true cost or benefit of each particular temperature, rainfall or hurricane are hard to determine (and the effects may be spread over several years after the event), those costs or benefits would hardly be the basis for the weights; one possibility is a ‘hedonic’ approach, in which a market is established for the various components, and weights determined by the amount of money mobilised by each (details have to be worked out, of course).
About the whole idea, what I feel is lacking is some kind of reward-punishment system for people or institutions making climate predictions. As it stands, or better, as it has been summarized by Judy, the proposal does not contemplate any such system: one individual organisation may issue a climate prediction of any kind, and then the market would reflect the degree of panic or complacency resulting from that prediction; such situation would be rife with insider trading and speculation: if you are an environmental NGO, for instance, you can buy short a lot of permits at the going price, then issue a catastrophic prediction backed by your favourite climate scientist, and wait for your permit price to rise (if you’re a denialist think tank you can proceed in the opposite direction). That is, unless the system penalizes you hugely for that maneouvre, and your favourite scientist is also penalized with lower funding for her future research each time a prediction does not come true, or fails to produce credible empirical evidence of its validity. I do not know how to implement this component, but it should surely be an ingredient of such system.
On the whole, the practical difficulties are overwhelming. However, the idea of mixing a an adjustable carbon tax with a cap-and-trade system, and linking the tax rate with actual developments in the climate, seems promising.
Hector M
“…………what I feel is lacking is some kind of reward-punishment system for people or institutions making climate predictions.”
Chinese astronomers who failed to predict an eclipse were beheaded. Chinese astronomy has made remarkable progress since then. Possibly a tad draconian for the modern world but I think you are right in principle. There have been far too many inaccurate climate predictions which seem to somehow be swept under the carpet and expediently forgotten when the forecast is ‘busted’ and there are seemingly no penalties for such alarmist behaviour which continues unabated.
If emitters with future carbon tax liability are rational and risk-neutral, they should be willing to pay for tradable permits a price just slightly less than their anticipated liability under the indexed carbon tax.
The devil is in the detail. Markets, while much more efficient than central planning, are not always rational or risk-neutral. Market are very vulnerable precisely to the the kinds of distortions arising from mass-psychology. Moreover, they would be dependent on the integrity of those who supply the information. Thus, while the notion that
…climate scientists and climate skeptics alike, can, instead of lobbing rhetorical grenades at the other, profit by trading on what they believe is superior information…
is superficially attractive, we are still dependent on the probity of those who supply information. Once the information itself becomes a generator of income (over and above the usual melee around grants applications for scientific studies and jockeying for journal publication), the temptation for unscrupulous operators becomes enormous).
Markets in their own way have already spoken with their manifest resisatnce to carbon taxes and emissions trading (though of course if these things are forced onto the market, people will look for ways of making money out of it). While the insurance industry apparently has been seriously looking at potential future costs of extreme weather events arising out of climate change, I note this is very controversial. For example, the oft cited Stern Report has been criticised by, head of research at Risk Management Solutions, for alleged misuse of their work purporting to show that:
<a href="http://en.wikipedia.org/wiki/Stern_Review" title="New analysis based on insurance industry data has shown that weather-related catastrophe losses have increased by 2% each year since the 1970s over and above changes in wealth, inflation and population growth/movement. […] If this trend continued or intensified with rising global temperatures, losses from extreme weather could reach 0.5%-1% of world GDP by the middle of the century.“>
In fact, <a href=http://www.webcitation.org/5nCHdPWb2" title="Muir-Wood’s study did show an association between global warming and the impact and frequency of disasters. But he said this was caused by exceptionally strong hurricanes in the final two years of his study.“>
While:
<a href=http://www.webcitation.org/5nCHdPWb2" title="A spokesman for Stern said: “Muir-Wood may have been deceived by his own observations.”“>
Lets assume two scenarios.
Scenario 1: Greenhouse emisisons will impose major costs (“externalities”) on all of us within a generation or two. If so, then those who resist any price on emissions are neither rational nor risk-neutral. They are clearly unable to see beyond their very limited self-interest. Can we really expect honesty, probity, and fair trading from such purportedly unscrupulous Merchants of Doubt if a carbon tax is imposed on them?
Scenario 2: Greenhouse emission will create few costs that fall beyond mundane adaptive responses which in themselves will create markets in their own right. If so, the enterprise is a waste of time. However, given the propsects of serious money, creation of a climate prediction futures market becomes a honeypot for Merchants of Doom.
The dififculty remains that we are trying to generate responses to a highly uncertain future previously characterised on this blog as a “Wicked Problem.”
If emitters with future carbon tax liability are rational and risk-neutral, they should be willing to pay for tradable permits a price just slightly less than their anticipated liability under the indexed carbon tax.
The devil is in the detail. Markets, while much more efficient than central planning, are not always rational or risk-neutral. Market are very vulnerable precisely to the the kinds of distortions arising from mass-psychology. Moreover, they would be dependent on the integrity of those who supply the information. Thus, while the notion that
…climate scientists and climate skeptics alike, can, instead of lobbing rhetorical grenades at the other, profit by trading on what they believe is superior information…
is superficially attractive, we are still dependent on the probity of those who supply information. Once the information itself becomes a generator of income (over and above the usual melee around grants applications for scientific studies and jockeying for journal publication), the temptation for unscrupulous operators becomes enormous).
Markets in their own way have already spoken with their manifest resistance to carbon taxes and emissions trading (though of course if these things are forced onto the market, people will look for ways of making money out of it). While the insurance industry apparently has been seriously looking at potential future costs of extreme weather events arising out of climate change, I note this is very controversial. For example, the oft cited Stern Report has been criticised by Robert Muir-Wood, head of research at Risk Management Solutions, for alleged misuse of their work purporting to show that:
New analysis based on insurance industry data has shown that weather-related catastrophe losses have increased by 2% each year since the 1970s over and above changes in wealth, inflation and population growth/movement. […] If this trend continued or intensified with rising global temperatures, losses from extreme weather could reach 0.5%-1% of world GDP by the middle of the century.
In fact, Muir-Wood’s study did show an association between global warming and the impact and frequency of disasters. But he said this was caused by exceptionally strong hurricanes in the final two years of his study.
While
A spokesman for Stern said: “Muir-Wood may have been deceived by his own observations.”
See for the source.
Lets assume two scenarios.
Scenario 1: Greenhouse emissions will impose major costs (“externalities”) on all of us within a generation or two. If so, then those who resist any price on emissions are neither rational nor risk-neutral. They are clearly unable to see beyond their very limited self-interest. Can we really expect honesty, probity, and fair trading from such purportedly unscrupulous Merchants of Doubt if a carbon tax is imposed on them?
Scenario 2: Greenhouse emission will create few costs that fall beyond mundane adaptive responses which in themselves will create markets in their own right. If so, the enterprise is a waste of time. However, given the prospects of serious money, creation of a climate prediction futures market becomes a honeypot for Merchants of Doom.
The difficulty remains that we are trying to generate responses to a highly uncertain future previously characterised on this blog as a “Wicked Problem.”
My absolutely last attempt at an error free post (delete the preceding if this succeeds, otherwise let it remain warts and all) and again thanks for your patience, Dr Curry:
If emitters with future carbon tax liability are rational and risk-neutral, they should be willing to pay for tradable permits a price just slightly less than their anticipated liability under the indexed carbon tax.
The devil is in the detail. Markets, while much more efficient than central planning, are not always rational or risk-neutral. Markets are very vulnerable precisely to the kinds of distortions arising from mass-psychology. Moreover, they would be dependent on the integrity of those who supply the information. Thus, while the notion that
…climate scientists and climate skeptics alike, can, instead of lobbing rhetorical grenades at the other, profit by trading on what they believe is superior information…
is superficially attractive, we are still dependent on the probity of those who supply information. Once the information itself becomes a generator of income (over and above the usual melee around grants applications for scientific studies and jockeying for journal publication), the temptation for unscrupulous operators becomes enormous).
Markets in their own way have already spoken with their manifest resistance to carbon taxes and emissions trading (though of course if these things are forced onto the market, people will look for ways of making money out of it). While the insurance industry apparently has been seriously looking at potential future costs of extreme weather events arising out of climate change, I note this is very controversial. For example, the oft cited Stern Report has been criticised by Robert Muir-Wood, head of research at Risk Management Solutions, for alleged misuse of their work purporting to show that:
New analysis based on insurance industry data has shown that weather-related catastrophe losses have increased by 2% each year since the 1970s over and above changes in wealth, inflation and population growth/movement. […] If this trend continued or intensified with rising global temperatures, losses from extreme weather could reach 0.5%-1% of world GDP by the middle of the century.
In fact, Muir-Wood’s study did show an association between global warming and the impact and frequency of disasters. But he said this was caused by exceptionally strong hurricanes in the final two years of his study.
While:
A spokesman for Stern said: “Muir-Wood may have been deceived by his own observations.”
See: http://www.webcitation.org/5nCHdPWb2
Let’s assume two scenarios:
Scenario 1: Greenhouse emissions will impose major costs (“externalities”) on all of us within a generation or two. If so, then those who resist any price on emissions are neither rational nor risk-neutral. They are clearly unable to see beyond their very limited self-interest. Can we really expect honesty, probity, and fair trading from such purportedly unscrupulous Merchants of Doubt if a carbon tax is imposed on them?
Scenario 2: Greenhouse emission will create few costs that fall beyond mundane adaptive responses which in themselves will create markets in their own right. If so, the enterprise is a waste of time. However, given the prospects of serious money, creation of a climate prediction futures market becomes a honeypot for Merchants of Doom.
The difficulty remains that we are trying to generate responses to a highly uncertain future previously characterised on this blog as a “Wicked Problem.”
chris 1958
Thanks for your excellent comment, which was posted at the same time as mine.
You’ve carried my critique of the Shi-Ling Hsu paper one step further by getting into the complexities of implementing and actually realizing the “prediction market” proposals being suggested.
Max
chris 1958
I’d like to echo Max’s thanks (and parenthetically thank Max for his thoughtful comments too);
Could you expand on, “Markets in their own way have already spoken with their manifest resistance to carbon taxes ..” please?
I’m not sure I follow the meaning of that claim in detail.
Thanks
This is meant to be a reply here – but I was definitely sabotaged. I have closed the window and re-opened it so it should work this time.
http://judithcurry.com/2011/04/30/a-prediction-market-for-climate-outcomes/#comment-66179
The market has spoken by condemning Chicago Climate Exchange to the dustbin. That was the ” market ” created for ” Carbon [sic]” trading.
A market analogy is valid only if you have a freedom to want to play or not in that market. If I don’t like to trade in commodity futures, I can stay away. If I don’t like to trade in ” carbon ” futures, I can stay away just like everyone stayed away from the CCX.
An idiotic carbon tax, as proposed by this article, doesn’t give people a choice of whether they want to play in this market or not.
So for heaven’s sake stop pretending that this proposal has anything to do with ” market ” forces or situations.
>So for heaven’s sake stop pretending that this proposal has anything to do with ” market ” forces or situations.<
It is a very, very cynical proposal indeed – based on the absolute presumption of polluting guilt, with "indulgences" from the imposed tax that can be cleverly traded
Perhaps Judith C does not perceive the inherent cynicism, but Shi-Ling Hsu most certainly does … a lawyer's answer to Wickedness: "Everyone is guilty"
[I just posted this, but it seems to have gooten lost so will re-post]
OK guys.
Let’s see what we can do to our climate by simply shutting down the USA, the UK and Australia.
Let’s say we shut these 3 nations down completely (carbon footprint = 0) by 2030.
These nations currently emit a total of 20.6% of the global CO2 emissions.
These were around 34 GtCO2 in 2010 (from all sources).
So the 3 nations we will shut down emitted around 7 GtCO2 in 2010.
The compounded annual growth rate (CAGR) of the CO2 emissions of these 3 nations has been 0.87% per year.
At this CAGR these 3 nations would emit a cumulative total of 425 GtCO2 over the 70-year period 2031 to 2100.
The mass of the atmosphere = 5,140,000 Gt
If 50% of the emitted CO2 “stays” in the atmosphere (as has been the case historically) this equals:
212.5 * 1,000,000 / 5,140,000 = 41 ppm(mass) = 27 ppmv
IPCC estimates that the atmospheric CO2 level (scenario B1) will be around 580 ppmv (without shutting down USA/UK/AUS).
So it will be 26 ppmv lower or 554 ppmv if we do shut them down
How much global warming will we be able to avoid by doing this?
Let’s take the IPCC estimate for the 2xCO2 impact (which may, itself, be high by a factor of 2 to 4).
No shutdown:
C1 = 2011 CO2 level = 390 ppmv
C2 = 2100 CO2 level = 580 ppmv
C2/C1 = 1.487
ln(C2/C1) = 0.3969
ln2 = 0.6931
dT(2xCO2) = 3°C (IPCC AR4 average)
dT (2011-2100) = 3 * 0.3969 / 0.6931 = 1.7°C
With USA/UK/AUS shutdown:
C1 = 2011 CO2 level = 390 ppmv
C2 = 2100 CO2 level = 580 – 27 = 553 ppmv
C2/C1 = 1.417
ln(C2/C1) = 0.3488
ln2 = 0.6931
dT(2xCO2) = 3°C (IPCC AR4 average)
dT (2011-2100) = 3 * 0.3507 / 0.6931 = 1.5°C
So by shutting down the USA, the UK and Australia completely by 2030 we would theoretically be able to avoid 0.2°C of warming by year 2100 (at equilibrium).
As they say in New York City:
FUGGIDABOUDIT!
Here we see how absurd it is for anyone to talk about reducing future warming by curtailing CO2 emissions, whether one tries this with a carbon tax or a market-based cap and trade system.
And this was my point at the start:
Before we start talking about complex schemes for implementing a carbon-reduction plan, let’s make sure we know what we are getting for our money. As it turns out the “ROI” (no matter how you slice it) is ZERO.
And, unfortunately, this is what the “climate scientists” forgot to tell Shi-Ling Hsu.
Max
Max
OOPS!
I made a mistake in the calculation.
The cumulative CO2 emission would be 825 GtCO2 (instead of 425).
This changes the difference in atmospheric CO2 from 27 to 53 ppmv.
With USA/UK/AUS shutdown:
C1 = 2011 CO2 level = 390 ppmv
C2 = 2100 CO2 level = 580 – 53 = 527 ppmv
C2/C1 = 1.352
ln(C2/C1) = 0.3015
ln2 = 0.6931
dT(2xCO2) = 3°C (IPCC AR4 average)
dT (2011-2100) = 3 * 0.3015 / 0.6931 = 1.3°C
So by shutting down the USA, the UK and Australia completely by 2030 we would theoretically be able to avoid 0.4°C of warming by year 2100 (at equilibrium).
(The conclusion does not change, however, as this is still an imperceptible theoretical reduction in warming for shutting down three nations completely.)
Max
For some reason the postings appear to be in jumbled order. Your .4C appears too high. Check above.
fred
My response to your post ended up a few spots higher.
Max
fred berple
[Am repeating this post here, so you don’t have to look all over for it.]
Yeah. You are probably right that I have “erred on the high side” (after correcting my first calculation).
It all depends on the assumed growth rate of CO2 emissions from USA/UK/AUS.
I had assumed that the CAGR would continue at the rate actually observed over the past 25 years (0.87%/year). If one only took the CAGR of the past 10 years (0.26%/year) this would obviously result in a lower total cumulated amount of CO2 (580 Gt versus 825 Gt). This would result in a lower “reduction” in atmospheric CO2 (37 ppmv vs. 53 ppmv) and the reduction in global warming from shutting down USA/UK/AUS would be 0.3°C (instead of 0.4°C).
Either way, it’s peanuts and the “take home” message is:
we cannot change our planet’s climate at will, no matter how much money we throw at it.
All these many versions of “innovative solutions to the problem” ignore that there probably is no problem in the first place and, even if there were, there is nothing we can really do about it.
Max
fred berple
Back to the calculation. You asked how I did it.
First I calculate how much CO2 the 3 nations are emitting today.
Then I see what the past CAGR was. In one case I got 0.87%/year, based on the past 25 years (later I got 0.26% per year, based on the past 10 years).
This tells me the amount of cumulative CO2 they would theoretically emit from 2030 to 2100 if they continued at these growth rates.
This came out to 825 and 580 GtCO2 for the two cases.
This is the amount of CO2 that will not be emitted if the nations are “shut down” in 2030.
Half of this stays in the atmosphere (based on the past).
This half goes into an atmosphere with a total mass of 5,140,000 Gt, so it increases the content by 53 ppmv in one case and 37 ppmv in the other.
IPCC estimates we will be at 580 ppmv without shutting down USA/UK/AUS.
With this reduction, we would have 527 ppmv (or 543 ppmv).
So I simply calculate the amount of warming we would theoretically have from today (at 390 ppmv) to 2100 with and without this reduction, using the logarithmic relationship and IPCC’s 2xCO2 climate sensitivity of 3C (which is probably, in itself, exaggerated by a factor of 3 to 4, based on the latest satellite observations).
However you calculate it, it shows that we are not able to change our climate, so all these alternate schemes for carbon reduction are simply hot air, since they will achieve nothing.
Max
Does not Goodhart’s Law apply.
If it does, as soon as any interpretation of the what the garnered information indicates, is used in a way visible to the market, the information content of that interpretation will be lost.
Alex
“[…] an institution that is truly independent: markets.”
Independence seems a laughably untenable assumption – and “truly independent” of what?…
‘If climate scientists are right, then the world faces a stark choice: either undertake fundamental changes in the way that almost every economy operates, imposing substantial costs on almost every country and society in the world, or roll the dice and see what happens with the Earth’s climate.’
We do have a fundamental choice – to increase food security, energy supply and global wealth in this century. There is no alternative worth considering. If we need to – I say we roll the dice in the halls of the Dragon Kings of chaos.
We can suggest an alternative – but not while there is a ideological fixation on the utterly impractical. The world is cooling for a decade or 3 at least – as is an emerging theme in the literature. The bulk of the world – China, India Asia and Africa and much of the rest – will at any rate and for very good reasons never buy into the policy insanity of dismantling large sections of the productive economy.
The alternative of course involves the multiple paths and multiple objectives of the Hartwell 2010 paper. Reducing black carbon and stratospheric ozone – a very efficient way to reduce forcing and improve health, environment and agriculture. Conserving and restoring landscapes has carbon sequestering and biodiversity benefits. Health services, education, safe water and sanitation are the surest and most humane ways to stabilise population. Ultimately, low cost, low carbon energy sources would be most desirable. An expanded R&D program in developed countries seems more than reasonable and simple tax breaks are the way to
go.
Many of these things occur to a greater or lessor extent already and greater focus on this is the obvious way forward in the short term. This paper is hopefully one of the last gambits in the politics of hairshirt economics. It is a distraction from a real, effective, achievable and pragmatic policy on limiting the great atmospheric experiment (for which we have not the wit to know the outcome) that we could and should be focussing on.
This is not to suggest that Kevin ‘surely it isn’t decadal’ Trenberth and fellow travellers are at all right. They are in fact ludicrously mistaken. I know that many have been driven mad by the climate wars – but we do have an alternative real world consensus on a real and pragmatic future that involves greater riches and more abundance for the long suffering peoples of the world. And if we could do something to reduce carbon emissions at the same time – terrific. It is just a matter of getting our priorities right.
Chief –
You may not have run into this. I wouldn’t have if my wife hadn’t told me about it (I’m not a great promoter of the source) –
http://www.washingtonpost.com/opinions/imagining-a-world-without-oil/2011/04/12/AFppFHKE_story.html
It’s a short version of what I’ve tried to say here several times in the last few months. Better written, too.
Oh God, please NO! Trading derivatives of derivatives is not good policy. Would you buy a CDS (credit default swap) on a slice a of pooled MBS (mortgage back securities)? Have we not suffered enough from nonsensical financial schemes to create better smelling crap out of pure crap? CCX went bust when no one wanted to trade carbon credits. I kind of feel bad for the people/companies who actually bought or were forced to buy their now worthless carbon credits. The market has already predicted. FAIL!
No only do we have too many activist climate scientists, we appear have too many activist environmental lawyers working as economists.
All to solve a problem that we don’t know if it is a problem or if we could do anything to prevent if it is a problem
At least mortgage backed securities are backed by tangible assets (with some exceptions). Cap and trade creates a fictitious “commodity” (emission allowances) and then creates a “market” for trading carbon credits, ie. the government’s permission to use carbon based fuels.
This is as much a “market” as taxes are “investments” and tax deductions are “expenditures.” Orwellian economics at its finest.
Would I buy a credit default swap on a pool of mortgages? On the ones originated after 2008 crash, I’d have to think about it. Given the insane talk coming out the possible 2012 winners, I think I would.
If you want a little flutter on climate in the shorter term (gloabl temps 2011 > 2010) then go and invest at https://www.ipredict.co.nz/app.php?do=contract_detail&contract=TEMP.2011
Currently $1 contracts are trading at $0.26
I have a number of objections to this concept from a free market perspective:
First of course, is that participants in markets are free to participate or not. If I don’t care for broccoli, then I don’t have to buy it, and therefore do not participate in the vagaries of the broccoli market.
Next of course, is the issue, given that the proposed prediction market would be imposed on business in a participating country, but presumably not all countries are going to agree to go along with this market and its restrictions, that businesses are going to incur costs (assuming that the AGW claim is true) that are not under their own control, but based on activities occurring in those other countries. If the AGW skeptics are correct, that these climate changes are natural and not subject to human control, but still unpredictable, then businesses are to be forced to participate in some sort of random lottery affecting the “prediction” market.
Then, according to Hsu, “[i]t is harder to put your money where your mouth is when you do not truly believe what you are saying … when market prices are providing constant feedback.” (p.5) But exactly what price is exacted against the AGW advocates to insure they put their money where their mouth is, and that they are penalized if they are wrong?
And, as well, who are we going to trust to determine the “value” of the basket of environmental goodies that will be used as the standard for imposing costs in the market? Surely not the same AGW advocates that today have been shown to put their fingers on the scale, all the while declaring their data and their methods are intellectual property, etc., etc., and not open to independent scrutiny.
I believe the saddest part of this paper is that, from and engineering perspective, it does not matter if the AGW proponents are correct or not. The assumed ‘best’ solution by those folks is simply no better today than when it was presented a couple decades ago. Even if controlling CO2 production actually worked to manage Earth’s climate to some significant degree, the cost in human suffering it would cause makes it a no-go.
From an engineering perspective, even assuming bad things will happen because of a shift in the planets natural warming/cooling variations to somewhat more warming, controlling CO2 will simply not stop natural disasters that would occur without human influence on climate. Preparation for and recovery from those disasters would only slightly be impacted by predicted AGW impacts. Let me say that again. Projected AGW impacts vary only slightly from climate problems that would be expected without AGW.
Let’s look at it. A couple degrees warming? A tenth of a pH unit reduction in sea water. Seven inches of sea level rise over a full century. None of those represent significant problems to work around.
Worried about the poor folks in the undeveloped countries not being able to adapt to AGW? Most of those folks are a lot more connect to the climate than the folks in the developed world. The are used to dealing directly with and adapting to whatever the climate throws at them as it is. The idea that allowing them cheap energy and improved technology will harm them seems truly irrational.
Nope, the whole presentation is wrong. A “Business as usual” path of protect/recover is the least costly and best solution to any projected AGW problems. The market approach should be used with the climate model predictions. Teams get money if the guess correct at some future climate state. The longer the time span and the more accurate the guess, the more money they get. That is the way to use a free market.
Sorry, proposing a tax basing a presumption of humans altering climate due to CO2 emissions is a non-starter. Everything in this proposal related to the science and economics is totally wrong. Academics should stay out of such policy making issues, especially when the essay demonstrates that there is zero understanding of practical world economic issues.
And please, terms like ” Ocean Acidification ” are a joke. Don’t use them in any report.
Not a single penny of anyone’s should be collected in the name of carbon
[ sic ] or climate.
Can’t see the forest through the trees.
The proposed broader index of outcomes is a problem for me. His list is lacking and it just the tip of the iceberg.
He proposed:
(i) global mean temperature
(ii) days of unusually high or low temperatures
(iii) extreme rainfall and drought events
(iv) sea level rise
(v) ocean acidity
(vi) hurricanes above a certain intensity level
But global mean temperature is one of the most obvious problems. Why not variance instead of averages? or local averages? and the plethora of other measures?
Just for starters he could also add:
-polar temperatures
-atmospheric temperatures
-ocean temperatures
-the cryosphere
-atmospheric pressure
-frost
-humidity
-rainfall
-wind speeds
-land cover changes(like desertification, or reclamation/irrigation)
-albedo
etc.
How about the predictions of failed economies, melting, and climate refugees and all the others that are running amuck?
It would be nice to somehow keep score but many people cover themselves with multiple predictions or vagaries.
Speaking of markets, from the price of bacon to the price of beer, corn ethanol subsidies are killing the consumer, and thus the economy:
http://online.wsj.com/article/SB10001424052748704330404576291772245610028.html
Be careful what you wish for. It’s grammatical nonsense.
Perhaps he meant to say, “…is mixed with too much ideology to avoid creating an ill broth that contains …”
Nope
just change >containscontainingwhich contains< … this then describes the current full-throated rookery noise precisely
I find Shi-Ling Hsu's paper to be about the most disingenuous effort I have read in quite a few years. He states: "We are probably better off not giving in to cynicism when considering the arguments of those with whom we disagree about climate science …", yet has constructed a mechanism wherein the initial and basic presumption is one of guilt through pollution, to be wriggled out of by clever but venal trading. An open invitation to cynicism (his), which he then has the appalling and deliberate gall to mislabel as a "free" market – with a "guilt" tax already in place to commence trading with
The Jesuits ("give me a child till its 5, I'll give you back a faithful for life") haven't yet matched this level of cynical manipulation
just change >containscontainingwhich contains<
read, when I typed it in:
just change "contains" to "containing" or "which contains" … this then etc
Nope. The whole sentence is still nonsense with your “correction”. Read it out loud. It goes off the rails beginning with ” is mixed with too much …”.
“The core value of markets can thus be boiled down to this: if well- designed, they are capable of collecting, filtering, and processing a huge amount of information of varying quality.”
This sentiment I applaud.
I have so much to read and re-read here. Forgive a few brief comments after only a few short hours consideration:
I see this proposal evolves some of Dr. McKitrick’s recently published views, and that it seeks to avoid the roulette wheel of natural variance somewhat by aggregation and running-year averages mechanisms.. however, the problem remains with so much tinkering of trust in whoever creates and maintains the system.
With respect, why not trust the market to do all this with slightly less central planning?
It’s probably fine from some standpoint to aggregate indices and produce an artificial shopping basket and then set a price based on this aggregate.. but isn’t it redundant?
Simply float the price of CO2E so high as the market will bear, until the unit price at which returns to stakeholders begin to diminish, just as with any other goods on the market.
Won’t that ultimately achieve the same results, except eliminating the expensive middleman? Or rather, privatizing those middlemen who will need to anticipate the wisdom of the market by generating better and better information competitively?
People upstream in this thread have highlighted a number of problems with this idea.
For me, Judith, this thread shows that neither you or the lawyer understand the idea of the “null hypothesis”. Let’s look at some facts.
1. The world has been warming (in fits and starts) at about half a degree per century since the little ice age.
2. The ocean has been rising (in fits and starts) for as long as we have tide gauges, and likely for as long as the temperature.
Now Judith, you and the lawyer want to sell this plan to inter alia, businessmen. Having been one myself, I have to say it doesn’t pass the laugh test.
You propose a tax. And if the world continues to warm, as it has for 300 years or so, my taxes go up. And if the ocean continues to rise, as it has done for hundreds of years, my taxes go up.
That’s your brilliant plan? That’s the dumbest idea I’ve heard in a while. The null hypothesis is as important here as elsewhere. The null hypothesis is that the world will warm and the seas will rise … and you want to penalize me if that happens? Get your hands out of my pockets with that cockamamie plan, if you please, that’s legalized theft.
More to the point is the underlying null hypothesis, which you AGW folks have never managed to falsify, which is that what we are seeing is just natural variation. I find your continued insistence on focusing on solutions to be a sad commentary on the death of science.
Because before real scientists start discussing solutions, they first determine that a problem exists … and AGW scientists have never done shown that to be the case.
Perhaps you think we will forget your failure to establish the existence of the problem you are so eager to tax me to “solve”. Perhaps you believe that we will get so caught up in some lawyer’s fantasy of some new way to steal money from my wallet, that we’ll forget you haven’t established a problem. I assure you, that will not happen.
So bugger this discussion of solutions, Judith. First, you have to show us that a problem exists. My high school science teacher would slap your hand, Judith, she was a believer in the scientific method and she actually understood the importance of the null hypothesis …
So let me go over it real slowly.
1. You have to falsify the null hypothesis and show that climate is somehow anomalous.
2. You then have to show that the cause of that anomaly is actually the cause you are so rabidly in favor of.
3. Then you have to show that the anomaly, if it continues, will cause problems for the world.
4. Then you have to show that your proposal will actually solve the problem.
5. Finally, you have to show that your solution is cost effective.
Your incessant repeating of “Well, let’s just jump the first 3 steps and get to discussing the solution”, in thread after thread, is getting very tiresome … but I assure you, Judith, it ain’t gonna happen. People out here are not as stupid as lawyers and ivory tower scientists seem to think … you and the lawyer want people to sign on to getting penalized if the world continues doing what it has done for 300 years, in a situation where you haven’t even shown that there is a problem, or shown that your “solution” will solve the problem, or shown it is cost-effective??
And that doesn’t ring a single false note for either of you? Neither of you know enough about the game to notice it is stacked? Or is that selective blindness? My friend, you gotta get out more, your BS detector is totally on the fritz and sunshine is the only cure.
It’s not a communication problem. The problem is that AGW supporters haven’t falsified the null hypothesis. Here’s the 411:
We don’t need more New! Improved! solutions, Judith.
We need you to show us that a problem exists. You know … step 1 above, then we can move to step 2 once we know what anomaly it is we’re trying to explain. The scientific method, I believe it’s called. First establish a problem exists, and only then find a solution.
w.
See my post above at 3:59am
Willis, i am actually writing a journal article on the role of null hypothesis in climate science, should be ready for discussion in about two months.
As a general rule, microeconomics is a total mystery to academics. In this regard they are cognitively handicapped. Lacking pertinent real world experience in managing businesses or key business functions in a competitive market they are much like bright high school kids figuring out how the world can be made better if only things were done another way. Sophomoric.
Does the statement:
“what we are seeing is just natural variation”
qualify as a null hypothesis?
Is it falsifiable by observation?
Is “natural variation” bounded in a fashion that permits statistical testing?
An assertion about an observable that is not falsifiable by statistical or other means is not a testable hypothesis, null or otherwise.
Can the the following statement be shown to be false:
The assertion: “what we are seeing is just natural variation”, is not a null hypothesis.
If the assertion permits interpretations that preclude falsification then it is not scientific.
Is it falsifiable? Sure. Just show what is happening now is outside the range of what has happened in the past or is unexpected based upon that past. Has it never been warmer? Has it never been colder? Have there never been Category 5 hurricanes? Have there never been hundreds of tornadoes in a single day? In other words, what makes today’s weather unusual considering long term history?
Adding to Willis’ points 3 and 4:
“3. Then you have to show that the anomaly, if it continues, will cause problems for the world.” to this I would add that you need to examine what benefits(not just problems) should be just also be included. For example, a warmer climate could allow for longer growing seasons, more land for agriculture, less heating costs, and a northern passage.
“4 Then you have to show that your proposal will actually solve the problem.” to this the consequences and risk of the proposal need to examined. In some cases – if the illness doesn’t kill you, the cure will.
‘So let me go over it real slowly.’
Let’s try instead to reframe the discussion.
1. You have to falsify the null hypothesis and show that climate is somehow anomalous.
‘This is usually a statement of “no effect”, that is to say that the independent variable will not have any effect on the dependent variable and that any differences between the experimental and control groups are attributable to chance. …’
At what sort of level are we speaking? Both laboratory and satellite measurements (spectral adsorption) show certain properties of greenhouse gases. It is certain that we emit greenhouse gases – :lol:. It is certain that greenhouse gases are accumulating in the atmosphere. Unless you wish to dispute that the accumulation of greenhouse gases in the atmosphere is not related to emissions? Then there remains a prima facie case that we are conducting a great atmospheric experiment for which we have not the wit to determine the outcome. Ipso facto – we perhaps should limit the experiment to the degree possible.
2. You then have to show that the cause of that anomaly is actually the cause you are so rabidly in favor of.
It seems abundantly clear that simple cause and effect are inadequate concepts for understanding the spatio-temporal chaos of Earth systems. Theoretically, in such systems, there is sensitive dependence to initial conditions resulting in abrupt and non-linear change.
3. Then you have to show that the anomaly, if it continues, will cause problems for the world.
The abrupt and non-linear changes – Dragon Kings in the language of dynamical complexity – are not easily predictable. I gave quoted this most succinct expression of the climate prediction problem before – but it is worth doing again in this context.
‘Prediction of weather and climate are necessarily uncertain: our observations of weather and climate are uncertain, the models into which we assimilate this data and predict the future are uncertain, and external effects such as volcanoes and anthropogenic greenhouse emissions are also uncertain. Fundamentally, therefore, therefore we should think of weather and climate predictions in terms of equations whose basic prognostic variables are probability densities ρ(X,t) where X denotes some climatic variable and t denoted time. In this way, ρ(X,t)dV represents the probability that, at time t, the true value of X lies in some small volume dV of state space.’ (Predicting Weather and Climate – Palmer and Hagedorn eds – 2006)
Mathematically it is certain that there are risks – albeit unquantified – of anthropogenic greenhouse gases of catastrophic climate change. That we can’t predict it doesn’t eliminate the risk. To argue that there there is no risk is a classic case of an argumentum ad ignorantiam.
4. Then you have to show that your proposal will actually solve the problem.
This is the real policy problem. Taxes only work at an horrendous human cost involving a dismantling of much of global productive capacity – as indeed was explicit stated in this paper.
5. Finally, you have to show that your solution is cost effective.
A combination of the Millennium Development Goals, the Lomberg priorities and technological innovation – such as outlined in the Hartwell 2010 paper – is both humane and cost effective.
We need to get onto an effective and pragmatic path sooner rather than later because we need to increase food and energy resources by 3%/year for the rest of the century. Taxes and carbon trading are a distraction at best and a humanitarian catastrophe at worst.
Prezakly! And CAGW and LukeWarmism alike fail all 5 of your tests.
Succintly put, Willis. CO2 is not a problem. We are in the midst of an interglacial with temperatures rising slightly over the past century and a half, with ups and downs happening over decadal cycles, not catastrophic in any manner. Rising temperatures and ocean levels have not been proven to be anomalous. The rates of increase have not changed.
There is no need to talk about solutions and taxes for a non-existent problem based upon CO2.
“…But given the high costs of trying to avoid climate change…”
Dr Hsu ought to be aware that avoidance of climate change is an impossibility. Climate change has always happened and it always will. It’s unstoppable. So the costs of trying to ‘avoid’ it would be infinite rather than just high.
But perhaps Dr Hsu means ‘anthropogenic’ climate change. Avoiding that would not be an impossibility, but could only realistically be achieved by banishing the human species from the earth. Ever since we spread out from Africa a million years or so ago we’ve been altering the environment and the climate.
As a environmental scientist I’ve better things to do with my time then read about idiotic and ill-thought-out schemes thought up by lawyers and economists who show no understanding of scientific processes. I’m not convinced Dr Hsu understands much about markets either.
“I’m not convinced Dr Hsu understands much about markets either”
But he well understands the infinite fun that lawyers have with assumptive guilt-based laws
The tax is based on CO2 and price on climate. If the weather is deteriorating unrelated with co2 … what is the tax for? Make prices higher?
If a small clever understands how the climate works, he will do everything to hide his findings to sell more ofrant matches. Is that what we want.
This proposition supose that co2 and climate are in short relation.
As we can see here, difference is made betwin scientistes and septiks why?
LOL made like hansen! Climate not weather!
Climate science is chock-full of failed predictions. But do they learn anything? No way – they are still on the start line after 20 years. No laws discovered, no fundamental principles, no new concepts.
It’s really sad. And it’s hard to see a way forward with the cargo-cult approach in ascendance.
There’s no Isaac Newton figuring out why the apple fell from the tree.
Just thousands of lower-calibre people writing about apples hitting the ground and how they feel about this.
Jack Hughes
With respect, Isaac Newton also stuck needles in his own eye, famously insulted other scientists in frequesnt, long and intense rants to the point of fainting, and ingested heavy metal salts while trying to transmute base metals to gold; are you so sure we aren’t seeing similar behaviors today?
The mind boggles. Dr. Curry seems to be seriously considering how we get international agreements on the measurement of half a dozen or so, exteremely complex things. People might like to consider how we have come to intermational “agreements” on the measurment of L(ength), M(ass) and T(ime). I wont even attempt a short summary.
But the fact that Judith has put forward this thread for serious consideration, makes me realize just how much work we skeptics/deniers have left to do, in order to convince her that adding CO2 to the atmosphere on top of current concentrations, has a negligible effect on any of the factors listed.
“If climate scientists are right, we face ….”
[Which climate scientists and right about what?]
If the climate scientists being referenced are the alarmist scientists who predict stark disaster, it will be the first time that scientists making such a prediction were ever right. Given the track record, a little skepticism is in order.
“In prediction markets, it is simply too costly to sustain a disingenuous position. It is harder to put your money where your mouth is when you do not truly believe what you are saying, particularly when market prices are providing constant feedback.”
The market has never been about creating social value or rewarding rational, scientific behaviour. The powers that be are equally likely to pay for data that re-inforces an ideology than the truth. I don’t see any logic to the idea that a better climate science woul be developed through market forces. What is more short termist and devoid of social consequences than turning a profit?
“What is more short termist and devoid of social consequences than turning a profit?”
There are 2 kinds of social consequences in the world: Those that result from dealing from people as equals, on a voluntary basis, and those that result from dealing with people by the use of force, where one party is an involuntary participant. The free market uses the former, in which voluntary participants each think that a transaction is in their best interest, and each gains from the transaction. That’s the way businesses make a profit, by offering a value to their customers. The social consequences of such a system are a free society and a society in which no one has the power to exploit others.
Of course, in societies and systems governed not by profit, but by the alternative, the use of force, those who gain do so at the expense of those who are forced into transactions against their will. The social consequences of those types of systems are slavery – usually long term slavery and exploitation.
Indeed, once real dollars start to depend on accurate prediction of specific outcomes, the temptation to distort information so as to maintain the appearance of a specific outcome grows apace. Indeed, I find myself wondering about the true value of such dollars given the money churn underpinning both our financial markets and our taxation systems. Then again, I’m no economist.
A “business as usual” approach tied closely to genuine market forces (eg, costs of fossil fuels) whilst maintaining prosperity carries better prospects of addressing problems as they emerge.
Neither India nor China are willing to sacrifice their opportunity to regain prosperity even though much of their population lives in settings seemingly more vulnerable to the adverse impacts of AGW. Both countries have long traditions of central planning , which they are gradually relinquishing in an espousal of market forces. The Chinese would be all too happy to mass manufacture the technology for renewable energy for the First World whilst burning Australian coal and building up what for the short term is likely to be a fossil fuel powered infrastructure.
chris1958,
As we see from this tornado outbreak, the AGW promoters are already distorting information so as to build their credibility in the public square.
I would suggest that this sort of distortion has been a hallmark of the AGW community for many years.
I would suggest that this sort of distortion has been a hallmark of the AGW community for many years.
Since the late 1950’s, at least. Long before warming was taken seriously. Think PCB’s, Dioxin, Alar, Arsenic, etc. ad nauseum.
The Climate Prediction Market is based upon the philosophy that the market is the best guide to the right price. Funny how poorly the early prices for Carbon Credits panned out. Even the CCX exchange is moribund.
The opportunity to manipulate the Exchanges to influence Governmental Policy is immense. Deliberately loose $1MM on the exchange to pick up $50MM in green energy subsidies. All too easy.
The CCX worked fine. It ended up pricing Carbon (-Dioxide) Credits properly: $Zero.
lol.
the market speaks.
rofl&lmao
The essay by Shi-Ling Hsu, “A Prediction Market for Climate Outcomes” is very interesting. I read it all, but will comment only on the portions cited by Judith Curry.
I would agree with Dr. Curry, “there are many small gems of wisdom in this paper, for which a blog post can’t do justice”.
The abstract is fine. The “prediction market” approach of “putting your money where your mouth is” also sounds good. The assertion is made that
This is undoubtedly true, but it is hardly astonishing, in view of the draconian policy proposals that are being justified by the proponents of the “dangerous AGW” premise.
The author then continues:
While it is easy to agree with this statement in principle, it is not so easy to see how this relates in practice to policy decisions relating to the current climate debate, with all its inherent unknowns and uncertainties.
Further down the author gets into the “role of climate skeptics”
The assumption is made here that people are skeptical of (potentially catastrophic anthropogenic) climate change because they “have trouble understanding” it.
IMO this is an unsubstantiated and rather arrogant assumption.
There are many rational skeptics of this premise, who are very well qualified to understand the claims being made by IPCC and to judge whether or not these claims are valid or not. I’d suggest that the author tune in to some of the climate sites, such as this one, in order to straighten out his apparent confusion on this matter.
Again, this is based on the (rather arrogant) assumption that the general public is too unintelligent to be able to make judgments on the validity of the climate claims being made by IPCC, i.e. the spokesperson for the potentially alarming AGW premise.
This is not the case (see above).
The author mentions “an interpretive vacuum into which interest groups of all types have been happy to fill in a self-serving manner”.
The first of these “self-serving interest groups” has been the IPCC itself (although this is probably not what the author had in mind here).
Here the author is right (as Judith Curry has emphasized over and over again). “Uncertainty and complexity” are inherent problems. The first of these is understated by IPCC, in order to get its message of potentially catastrophic AGW across. Confidence levels in its model-based predictions are way overstated and any “uncertainty” in its conclusions and projections is understated.
But the author misses this point: it is not so much that the public lacks “the patience for uncertainty” but rather that those in the political elite who want to impose draconian policy changes “lack the patience to wait for more certainty”. There is a false “sense of urgency to act”, based on exaggerated predictions of climate-related disaster. This is where the problem lies, not with the “public”.
IMO, the author is wrong again in sort of an elitist “we know best what’s good for you” way, without checking out the details.
The “high costs of trying to avoid climate change” are undoubtedly real.
But what the author does not realize is that there have been no specific proposals, no matter how costly, that will achieve any perceptible change in our planet’s climate. None.
The author then goes off to “advocate an entirely different path for evaluating climate science, and proposes to draw on an institution that is truly independent”.
A superb observation, as Judith has commented.
But, unfortunately, from here on the author starts looking at “market based solutions” to the “dangerous AGW problem”, all of which are based on good market reasoning but on the questionable premise that there is a “dangerous AGW problem”, i.e. that AGW, caused principally by human CO2 emissions, has been the primary cause of observed 20th century warming and, therefore, represents a serious potential threat tho humanity and our environment.
As the author writes: “talk is cheap”.
So far the “dangerous AGW problem” is nothing more than “cheap talk” based on questionable interpretations of uncertain data and model-based projections of future climate using exaggerated and often fabricated assumptions.
Let’s get a firmer basis for the premise that AGW is a real “problem”, before we go off on finding market-based “solutions” to this problem.
The section calling for a “better indicator of the state of the Earth’s climate” makes good sense to me (as it apparently does to JC), although I would use the “KISS” principle and make sure that all the indicators used are based on empirical data from actual physical observations made with comprehensive and reliable measurement techniques.
As just one example, if “sea level rise” is to be one such measure (which I would not recommend in the first place), I would make sure that the measurement methodology used is not changed in mid-stream (as IPCC has done in AR4, in order to show a putative acceleration in rise, which did not exist in real fact). I would simply stay with the 100+ year old tide gauge record.
On the other hand if “upper ocean temperature” is to be used (which I would recommend as it is a key indicator of our planet’s energy balance), I would make sure that only the comprehensive measurements since the reliable ARGO system was installed in 2003 are used and other earlier, spotty and unreliable measurements are simply shown as approximate reference values.
I would also add an indicator measuring cloud cover, since this is a major factor influencing our climate, where there is currently great uncertainty.
But I agree that the concept makes sense. The “devil” will be in the “detail” of how to set this up, and I would want to make sure that there are as many “skeptics” in the panel setting this up as there are “IPCC supporters”, to make sure we don’t end up with a skewed indicator based on “cherry-picked” metrics.
The author compares a carbon tax with cap and trade and then argues for a “prediction market” solution with “emission permits” to the climate problem.
Judith Curry has summarized
I would agree that there is “much food for thought in this article”.
However, as stated above, the “prediction market” proposals get the cart before the horse IMO. There would undoubtedly be a lot of money made by hedge fund operators, money shufflers, etc. and a lot of administrative cost in implementing an “emission permit” system as proposed.
But let’s make sure we have a real problem before we come up with top-down “market based” solutions for solving it (if it were to really exist as our climate models have imagined it to do).
Just imagine how silly we would all look if the past decade’s “lack of warming” turned into a real multi-decadal cooling trend (as we have seen before), despite continued “business as usual” on CO2 emissions, because it turned out that the (unknown) natural climate forcing factors were much stronger than the (model-based) anthropogenic forcing factors, which we were spending a great deal of effort and money trying to “mitigate”.
Just my thoughts, as a rational skeptic of the premise that we have a climate problem.
Max
Visions of demons
Frighten the poor Professor.
Author, out to lunch.
===========
Max, thanks for your thorough analysis
Max –
But I agree that the concept makes sense. The “devil” will be in the “detail” of how to set this up, and I would want to make sure that there are as many “skeptics” in the panel setting this up as there are “IPCC supporters”, to make sure we don’t end up with a skewed indicator based on “cherry-picked” metrics. <
I wouldn’t want just “skeptics” involved – I’d want engineeers – and NO climate scientists. This would NOT be a climatology related activity at all, but rather an engineering project to design, build and operate a data acquisition, retrieval and processing system.
Not that I agree with the concept at all – either as a skeptic or as a taxpayer.
First, because I think this is a solution in search of a problem.
Second, because as the author states above: ” this proposal is meant to impose a small carbon tax, not to create a new source of budget deficits.”
IOW – there is no penalty for “bad” prediction – only for participating in the system, specifically, that that “small” carbon tax that would inevitably grow up to be a BIG carbon tax with no escape clause even for the possible future cooling trend you mention.
And third, because (obviously) while GW IS real (at least until 2001), the extent, attribution and effects of the anthropogenic component are still indeterminate. IS there a problem other than the fear that there might be one? If so, where is it? How is it defined? What are the solutions to which that “small carbon tax” would be applied?
As you said, max –
There would undoubtedly be a lot of money made by hedge fund operators, money shufflers, etc. and a lot of administrative cost in implementing an “emission permit” system as proposed.
Why would anyone expect me to contribute to the wealth of those who operate the system when there is no return, no apparent solution to the “problem”, no end to either the problem or the tax and, in fact, no apparent or even provable problem to start.
As I said to my wife yesterday wrt a different subject, “Why should I have to live with someone else’s paranoia?”
I would like to thank you, also, for your careful read and analysis. I would like to respond to the repeated observation that this proposal is elitist or arrogant. In fact, this proposal is really about how wisdom is dispersed, and not best delivered through centralized agencies. One of the foundations of this proposal is James Suroweicki’s “The Wisdom of Crowds.” Yes, I do think there is much public confusion about climate science — but the first third of the paper is really about why this is inherently so — the uncertainty and the complexity make it difficult to process. That doesn’t mean the public is stupid, just that there is a lot there. And I don’t think markets are a “top-down” mechanism at all — they depend vitally on decentralized information.
“Men use thought only as authority for their injustice, and employ speech only to conceal their thoughts.” Voltaire (As an aside – this puts a new spin on brain drain)
There is for a start no reason to believe in the wisdom of crowds in this context – if at all. Individual guesses at the weight of an ox summing up to an accurate mean? Problematical – it is sounding like ensemble climate forecasting for which there is no theoretical justification. But at any rate – in the real world and in markets there is the irrational exuberance of the crowd.
‘Surowiecki studies situations (such as rational bubbles) in which the crowd produces very bad judgment, and argues that in these types of situations their cognition or cooperation failed because (in one way or another) the members of the crowd were too conscious of the opinions of others and began to emulate each other and conform rather than think differently.’
You underlying rationale is expressed on p18 in the dismantling of global economic systems. ‘Because any serious attempt to avert climate change almost certainly requires a sharp curtailment of fossil fuel consumption – by far the greatest contributor to greenhouse gas emissions62 – whole industries and regions, and large parts of most economies will have to undergo dramatic changes.’ Thankfully – and even if this were justified by cAGW – it is not a path the rational world will take.
Your economics are a long march from Adam Smith. ‘Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.’ I feel I could usefully add a Hayek quote here – there are many relevant and full of the wisdom of individual freedom. ‘From the saintly and single-minded idealist to the fanatic is often but a step.’
What you are demonstrating is a perversion of high theory. Economists posing as social engineers. You call a tax a market mechanism. You profess to believe in the wisdom of crowds and in the same breath complain that they don’t understand. If only it could be explained better by a committee. Luckily most business, most people and half of all economists don’t believe you for a moment – or simply are irritated with the irrational clamour and tune out or turn off and just want to get on with their lives. A cooling planet for a decade or three, as is an emerging theme in the peer reviewed literature, will add to your troubles and to your confusion.
‘Again, climate scientists should not be any more surprised by the apathy
than they are by the violence. If climate scientists are right, then the
world faces a stark choice: either undertake fundamental changes in the
way that almost every economy operates, imposing substantial costs on
almost every country and society in the world, or roll the dice and see
what happens with the Earth’s climate.’
Apart from the paranoia and elitist disappointment on display, let’s be stark about it. These costs include inevitably millions upon millions of deaths and billions of blighted lives. If this is the only choice – and it isn’t – I say roll the dice.
Chief –
These costs include inevitably millions upon millions of deaths and billions of blighted lives. If this is the only choice – and it isn’t – I say roll the dice.
Thank you for saying it so well.
Prof. Hsu, the Wisdom of the Crowds is figuring out that CO2 may be more angel than demon.
========
Dr. Hsu,
Thank you for taking the time to respond.
The probelm I see is one of assumption.
If we were in fact dealing with a problem, then a market may have some merit as a tool to deal with it.
But you are not proposing an actual market. You are proposing a trading site created by fiat to trade securities that are only valued because of the law that created them.
There is no evidence that we need to do anything other than what we have always done in the face of a powerful Earth that brings danger on the winds, from the ground and from the sea.
This is less a solution to a real problem than a very problematical solution in search of a problem that does not actually exist, and for which this market-by-fiat does not deliver a solution anyway.
The question I would ask you is why adaptation, the one strategy proven to work, is dismissed so readily by so many academics?
hunter, thanks for your comment. I was responding to a post by Max, but I am happy to reply to your question, also.
You’re absolutely right on all counts. I am proposing the creation of a market, and this clearly unnerves many commenting on this thread. You and I disagree on the likelihood that we have a real problem. What I am trying to do is to use the market to settle the disagreement between us (and clearly between me and many followers on this blog). If there is no problem, then climate outcomes will not get worse, and the tax will not rise, and the price of permits will remain small. It occurs to me as I read the comments from this entry that maybe I should set the initial price of the carbon tax to zero! Then, there is no government takeaway, no camel’s nose under the tent. But if markets believe there is a problem then permits to emit in the future will trade for more than zero. One raises the legitimate question of what to do if climate outcomes drive the indexed carbon tax below zero, and I don’t have a good answer for that.
And in answer to your last question, I wouldn’t generalize about academics dismissing adaptation. I think some environmental organizations were uncomfortable with the idea of devoting resources to adaptation because they felt that would detract from the mission of mitigating. I think they have lost that argument. I don’t think it’s been academics that have been making that argument though.
“Men use thought only as authority for their injustice, and employ speech only to conceal their thoughts.” Voltaire
This is a still a dead parrot – a new wrinkle on idea that is still a tax, still on the nose and still going nowhere. So why are we wasting our time discussing it? I’m clueless. We know that there are much better ways to expend scarce global resources – the Hartwell 2010 paper proposals, the Copenhagen consensus priorities, the Millennium development goals. Reduce black carbon and stratospheric ozone with health, environmental and agricultural benefits. Ensure people have access to medicine, education, safe water and sanitation to stabilise population sooner. Restore and conserve ecosystems and agricultural soils. Multiple paths and multiple directions.
Instead we get another doomed one dimensional proposal to make energy more expensive. I would suggest that we stop talking and vote on it – there is 30% support for a carbon tax in Australia – but I suspect that won’t stop them talking.
http://www.youtube.com/watch?v=JWLXBpousUI
I quite frequently quote ‘The Wrong Trousers: Radically Rethinking Climate Policy’.
‘Although it has failed to produce its intended impact nevertheless the Kyoto Protocol has performed an important role. That role has been allegorical. Kyoto has permitted different groups to tell different stories about themselves to themselves and to others, often in superficially scientific language. But, as we are increasingly coming to understand, it is often not questions about science that are at stake in these discussions. The culturally potent idiom of the dispassionate scientific narrative is being employed to fight culture wars over competing social and ethical values. Nor is that to be seen as a defect. Of course choices between competing values are not made by relying upon scientific knowledge alone. What is wrong is to pretend that they are.’ I think this is exceptionally so in this paper – a proposal for a social democratic ‘economics as social engineering’ experiment.
‘To the extent that economic analysis is seen simply as a tool it is likely that economists will recommend greater intervention in the marketplace. Largely, the damage is caused by an ever-increasing emphasis on “short-term” analysis and social discussion.’ With so many people in the world on the edge of economic disaster it seems especially pointless, worthless and irresponsible.
Chief, thanks for the wrong trousers ref. this is similar in concept to Brunner’s adaptive governance.
I was disappointed in the paper. From your paper’s Introduction, it sounds like you don’t believe in the wisdom of crowds at all:
“These disparate and complicated bodies of knowledge, products of research efforts at hundreds of universities and research institutes throughout the world, have been foisted upon a hapless global public in desperate need of a ‘Climate Change for Dummies’ manual.”
The first third of the paper is full of many false assumptions. You claim “Hasn’t humankind grappled with new and complicated sciences before, like nuclear energy and weaponry, space exploration, and information technology, and eventually wrestled them down to some satisfactory understanding?” Japan’s nuclear problems indicates this is not true. Space exploration is not completed or settled or satisfactorily understood. I do not mind nuclear energy but at this point a nuclear tax seems more reasonable than a carbon tax – at least we have proof that it can cause real world disasters that can be clearly attributed to it and that we never had before.
You also seem to think that doubling co2 instantaneously could happen in a real world scenario and therefore the closed static models are reasonable.
Thanks from me too, Max, for your well-thought-out essay.
manacker,
Good post but I disagree keeping the measures simple. The Keep It Simple principle in desired for manageability but a complex system probably needs complex measures. I think Albert Einstein’s maxim “everything should be made as simple as possible, but no simpler” is a better principle to follow in complex systems.
In addtion to the comments above wrt integrity of the data and whether the taxes would actually impact the “problem”, I would add the reality that, regardless of the intent, this would just be viewed as a big source of additional revenue by governments.
History is littered with “temporary” or “targeted” schemes to generate revenue for governments. Examples I can think of off the top of my head—lottery revenues “only” for the elderly/education, a “temporary” surcharge to pay for the Vietnam war, cigarette taxes “only” to fund medical care, an alternative minimum tax aimed “only” at the wealthy, casino revenue “only” for…you name it.
All these have ever led to are bigger government.
When the source of that revenue slows (are cigarette taxes really meant to discourage tobacco use?) or the propensity for government to outspend the available revenue hits the fan, we all know what happens.
This is a complete non-starter, in that proposes a tax for something for no reason that bears scrutiny.
The rest is just standard AGW alarmist boilerplate.
That our legal academics are now trying to impose by fiat what the climatocracy has so far failed to do by over hyped fear and misleading claims about weather bodes very badly for the future.
This is tax based gambling on climate futures. Since it is fairly well established that temperatures have been increasing slowly since the LIA regardless of cause, it is a reasonably sure bet for those collecting the tax and a reasonably sure loss for those paying the tax.
In any event, should temperatures start heading down, governments would simply raise a different tax, or mortgage the future, to return the climate tax. It is a fools bet. Either way you the taxpayer will lose.
Bingo ferd; I’ve said the same thing in a pair of haiku above. This is a particularly bad bet for those of us who think the globe may be cooling for a century.
============
great haiku! its always takes longer to write less.
Sounds like this is pretty much the distilled summary of comments here:
The basic problem is pretty obvious; if the metric that we bet on is a climate metric, they’ve burned the null hypothesis, and anything that physically happens is defined to be evidence of anthropogenic climate change.
For the warmers, that’s a feature, for the skeptics, that’s a bug.
This might keep a lid on some of the really outlandish “Manhattan will be underwater by 2010” predictions, but it also means that whatever does happen is irrefutable proof of AGW.
No sale.
High fuel prices will make the CO2 tax a non-starter. CCX was sold because it was a non-starter after Climategate and Copenhagen. Where the serious future money is being invested is in forests. There is an acronym for the program. Hilary Clinton and Maurice Strong have both mentioned it, but the name escapes me at the moment. The basic premise is to buy up the forests of the earth using environmental funds and then get on-going rent for not cutting them down. This will be a much easier sell than cap and trade. The forests will of course be logged once they mature, but as the turnover rate is so low, less than once per lifetime, it will barely be noticed. After they are logged they will be replanted and again the rent payments will start for not cuttng them down.
Found it! $$30 billion a year.
http://un-redd.org/AboutREDD/tabid/582/Default.aspx
Reducing Emissions from Deforestation and Forest Degradation (REDD) is an effort to create a financial value for the carbon stored in forests, offering incentives for developing countries to reduce emissions from forested lands and invest in low-carbon paths to sustainable development.
It is predicted that financial flows for greenhouse gas emission reductions from REDD+ could reach up to US$30 billion a year. This significant North-South flow of funds could reward a meaningful reduction of carbon emissions and could also support new, pro-poor development, help conserve biodiversity and secure vital ecosystem services.
Right off the bat, they implicitly are assuming a causal relationship that is unproven. Anything built upon this ASSumption will be unfounded.
I think Yogi Berra said it best:
All this market will do is make a lot of money for the people who are accidentally right. Ever seen a market fund manager (other than Bernie Madoff) sustain a long string of good predictions? No, the ones who get rich are just lucky, and the ones who are smart take their money and run.
ChE –
the ones who get rich are just lucky, and the ones who are smart take their money and run.
Kinda like the CCX founder, who walked away with 90+ mil of other people’s money.
ChE
Yeah, and after a few bad predictions Yogi lamented:
(I’m sure “Travesty Trenberth”, “Juggler Jones” and “Hysteria Hansen” have thought the same recently.)
Max
If predictions were bought and sold like stocks, the market would very quickly pass devastating judgment on the whole notion of of AGW. Don’t think so? What would a 100 shares of the 50,000 climate refugees prediction by 201o have been worth when freshly minted in 2005? Sure, there’d have been a few suckers bullish on that one at first, but only a few. And by 2007 a share in such a manifestly risible forecast wouldn’t have been worth 2 cents…
Himalayan glaciers gone by 2035? What do I hear for a share in that one?
The article says:
“climate scientists and climate skeptics alike, can, instead of lobbing rhetorical grenades at the other, profit by trading on what they believe is superior information…”
What if the company is skeptical of the link between CO2 and rising temperature ? Do they make profit if they bet temperatures will go down and they do ? Just not paying as much tax seems like a bad bargain for them.
There are very good reasons to believe that we are at the top of a 60 year temperature cycle and the coming 30 years will be cooler than 2010. Since the PDO has gone negative and this usually causes more La Nina’s and hence cooling [ like 2011 so far].
If the link between CO2 and warming is small or nonexistent then the proposal makes no sense except to generate revenue with costs passed on to the consumer.
There already is such a market.
If you want to bet that 2011 will be cooler than 2010 or that the minimum ice extent at the north pole will be more or less than 2008 you can bet on that too.
http://www.intrade.com/v4/home/
As of today:
Minimum Arctic ice extent for 2011 to be greater than 2007
You bet $5 a share and get back $10 a share if you are right.
Global Temperature Anomaly for Apr 2011 to be greater than 0.65 Degrees C [GISS temp anomaly]
You bet $2.2o and get back $10 a share.
netdr
Are the Vegas guys in on this yet?
Looks like a better bet than carbon trading. And , best of all, the government doesn’t need to be involved.
How about an 8 to 5 bet that “IPCC will fold up in 2015 after a continuation of cooling trend since 2001 and another in a series of harsh winters across North America and Europe”?
Max
You can propose a bet to suit yourself.
This is a “Tragedy of the commons” but it may be a fallacy.
If increasing CO2 has little affect on temperature and natural forces have many times as much influence then reducing CO2 is costly and unproductive.
I think it will cool for the next 20 to 30 years so will the proposal pay me if I am right and do nothing about CO2 reduction ?
Will we see the climatologist buck up? Doesn’t take a whole lot of smarts to see how they could make a killing by betting on the same temperature records that they control.
There we go.
Question of a +/- AGW climate prediction market rendered moot by existence of a mechanism for ad hoc prediction markets.
Which is fortunate as it disentangles the issues a little.
(EG, lag time between emission and removal of CO2E’s, which opinion varies but is likely to be multidecadal at least.)
I appreciate the problem of setting a price for CO2E, but the initial approach seems self-evident: implement at a low level, gradually increase the price for CO2E, return the income from CO2E per capita to all citizens (shareholders), stop raising the price when returns to shareholders stop increasing.
Just like with every other good in every fair market in the world.
Simple.
Clean.
The democracy of the market passes its judgement on the price to demand for the scarce CO2E budget.
No central-planning middleman.
If at the time in the future +/-AGW pressures lead to other approaches, my preference would be to end subsidies to the fossil and allied industries first, and then set whatever standards directly and only by CO2E concentrations; every uncertainty of +/-AGW, of climate chaos, is then removed from the economy.
That reduced uncertainty is the more desireable goal.
Bart –
Which is fortunate as it disentangles the issues a little.
Only until the government discovers that there’s money to be made at it.
Then they’ll do what they did with the numbers game – declare it illegal and open their own numbers game (the lotteries). At least the Mafia ran an honest numbers game that Joe Sixpack had a chance of winning. The government never has.
Jim Owen
Government has the power to raise revenue pretty much by whatever means it deems necessary, or if it doesn’t, to borrow so much as it can.
This in part is why I so strongly advocate every dime of CO2E revenue collected ought go directly to people per capita, reusing the tax apparatus as the payment mechanism. A clear statement of what belongs to the people, and what doesn’t belong to the government, so no one forgets who owns the air — us, not the government.
If they choose to tax the (enlarged) economy afterwards for whatever reason, that’s a separate issue and a different fight.
Yeah, right.
ChE
Put another way, what government in its right mind would impose such a tax to generate revenues to itself, when it could more easily and invisibly just tax corporations?
Sure, this drives down employment, makes health care less affordable, and drives jobs overseas, but it’s politically spineless.. Say, why are corporate taxes in the USA some of the highest in the world?
Bart –
How many legislators do you know who would be willing to raise taxes at this time? What taxes? And what legislature? Do you think they’d still be there after the next election?
Maryland is talking about raising gasoline taxes – it’ll be “interesting” to see that happen with gas prices already headed for $6/gal. I’m glad I moved out of there.
Jim Owen
I really gotta refresh before I post, I keep missing relevant questions in the meantime.
I’ll go with Spineless Politicians for $400, Alex.
I agree with you about the prediction market game.
Difference between raising taxes and collecting payments is taxes go to the government’s pockets, and payments get delivered in checks to shareholders.
You’re a shareholder, Jim.
You going to turn down a $1,000.00 check a year for life?
And on behalf of every member of your family?
When 70% of people will get more in new revenue than they pay in new revenue-neutral CO2E tax?
Are you saying you think you’re in the 30% who won’t or can’t switch from fossil to say a new car that gets 60 mpg, or insulation and draftproofing your home, or wearing a sweater when you get chilly instead of upping the thermostat?
And sure, someday it will all equalize out. A generation or three hence. But until then, the early adopters are the big winners.
Are you saying you don’t want your America to be in the winners’ circle, Jim?
“I appreciate the problem of setting a price for CO2E, but the initial approach seems self-evident: implement at a low level, gradually increase the price for CO2E, return the income from CO2E per capita to all citizens (shareholders), stop raising the price when returns to shareholders stop increasing.”
Just start taxing energy until the economy can no longer bear any additional tax burden. And do it solely for pure unadulterated redistribution of income. At least this latest explanation of it is clear about that. Impose a tax on energy, completely divorced from climate change, CO2 levels, or anything rational, simply using the faked climate emergency as an excuse to take money from some and give it to others.
At least the proposals of Hsu and McKitrick (as bad as they are) are tied to real measurable climate effects. Bart’s tax doesn’t have any rational limitation at all except, except apparently when it ceases generating additional revenue. The reason for such an event is of course irrelevant to our wannabe economist.
How much would the tax burden be? What effect would it have on industry when alternative fuels are not available to replace carbon based fuels? Who knows? Who cares?
The only good thing about such a massive, purely redistributive tax is that, as far as I can tell, out of upwards of 310,000,000 Americans, only one takes it seriously.
There is an end game problem with a carbon tax. It’s stated intention is to switch production methods to higher cost alternative and make this somewhat politically acceptable with compensation paid for increased costs in the marketplace for all goods and services.
If it actually worked the carbon revenue would dry up leaving either a budget deficit or the need to increase taxes elsewhere. So consumers are in the end left with higher prices from a higher cost production base and higher taxes or a greater fiscal deficit. This can’t be positive for the global economy.
It is a classic shell game – here it is or is it here. But governments are not likely push it to the extent of any actual substitution – precisely because of the end game problem. It is simply is a pretence of ‘taking action’ driven by self delusion and opportunism.
Chief
You really never do check your math, do you?
How long before endgame?
(I certainly can’t foretell, can you? How?)
Yes, in the end a revenue-neutral CO2E price would dry up to mere frictional levels, giving each shareholder only a token amount.
But that token amount belongs to each shareholder, doesn’t it?
Is your guiding light that theft is okay, so long as it is petty theft?
And this premise of higher costs.. where does that come from?
I posit higher efficiency, and as a result net lower costs and more utility, more satisfaction, less misery in the economy.
Prove to me how your costs will come about, because I have the classic arguments of Capitalism in a fair market to back my position.
Yours sounds like Australian socialism.
“Men use thought only as authority for their injustice, and employ speech only to conceal their thoughts.” Voltaire
I quote Adam Smith, Friedrich Hayek and Shi-Ling Hsu.
‘Again, climate scientists should not be any more surprised by the apathy than they are by the violence. If climate scientists are right, then the world faces a stark choice: either undertake fundamental changes in the way that almost every economy operates, imposing substantial costs on almost every country and society in the world, or roll the dice and see what happens with the Earth’s climate.’
Stop proving Voltaire right.
I have never made but one prayer to God, a very short one: “O Lord make my enemies ridiculous.” And God granted it. Voltaire
Turning a problem with switching costs into the horns of a wicked dilemma is.. ridiculous.
The fundamental changes aren’t fundamental, the substantial costs need not be substantial, the panic is just scaremongering.
There’s at least one cool-headed solution, though I suspect there are many cool-headed solutions.
Would that there were more cool-headed people discussing them.
Gary
The net result on such a stupid tax on energy is that whatever industry is left in the west will migrate to China and India causing even more job losses in USA. Nobody can take any additional unwarranted costs in an already struggling economy.
Of course ivory tower scientists and impractical wafflers have no clue about realities of the world.
GaryM
Who’s talking about taxing energy?
Cement contributes to CO2E emissions, but is generally not called energy.
Agriculture, too, is noted for fugitive methane emissions.
I’m speaking of pricing the scarce resource of CO2E budget as it qualifies in all rational ways for the same treatment as land or produce, industrial products or any other goods in the market: it has a limit, it is administratively feasible to set a price and collect payment, and that payment can be efficiently delivered to the proper owners (all of us per capita).
While Shi-Ling Hsu’s scheme appears intent on using state central planners to deliver a tax to general revenues, Gary you are right, my proposal simply says on behalf of us all, “I want my money.”
So, yes, I want my money, up to the point my share in the scarce CO2E budget stops making me more money, in the same way — except unlike them, without US government subsidies in the billions of US taxpayer dollars — as Exxon shareholders price their commodity, or ADM shareholders price theirs, as determined by the Law of Supply and Demand.
Why shouldn’t I?
And why should the whinging of people who have been free riding on my resources for decades move me to relent in demanding my fair share?
Why should their central planning politburo appointees set my price?
You want to whine about tax burden, put the cause of the burden on the right heads: who gets your tax money?
As for these future predictions you demand (I expect you want a central planning committee of the politburo to look into it for you), of what effects paying their fair share for the scarce CO2E budget (ceiling) resource will have?
What efficiencies and decreased waste will industry exploit, what technology innovation will it advance, what switching cost obstacles will we overcome to get to a more efficient and economical America?
Who can know before the Market makes that decision by the democracy of individual choices?
If you can continue to pull the wool over the eyes of 309,999,999 Americans with your corporate socialism, your taxing 70% of people to benefit 30%, then how is that a good thing, again?
Thanks. — Shi-Ling
Suckers bet – the April UAH anomaly is -0.1 degrees C
whoops meant the March anomaly
Chief
Measure twice, click once.
There’s a name for these pseudo-market based regulatory schemes:
Cargo Cult Capitalism.
It has most of the look and feel of the real thing, but it doesn’t work.
“This might keep a lid on some of the really outlandish “Manhattan will be underwater by 2010″ predictions, but it also means that whatever does happen is irrefutable proof of AGW.”
That’s the problem. IN the minds of many, especially liberal dems, there is no discussion because the science is settled. You can’t be skeptical of “facts,” you can only “deny” them. There is no difference, to their way of thinking, between Obama “birthers” and AGW skeptics. Both groups are paranoid and delusional..
It’s the politicization of the GW debate that’s done the greatest damage.
OTOH, there are serious questions about the way the WTC towers collapsed… :P
Creating markets when they are unnecessary and in reality just driven by administrative measures (quotas, pre-calculated prices etc.) just introduces gross inefficiencies in other affected and more effective markets. The more interventions, the less real competition, the more corporatism, the less efficiency.
One of the many ways that Steve McIntyre improves the level of discourse in climate science* is his continued call for engineering-grade quality reports in key areas — such as the determination of climate sensitivity.
My favorite engineer-author, Henry Petroski, points out in almost very book that engineers learn the most by failing. Almost very new technology gets pushed too far — bridge-building is a fine exmple — with the limits brought forcefully to the public’s attention when the new bridge collapses.
Not that engineers (or anyone) plans the “learning experience”. But they do happen, even now with better computer simulations — which themselves fail, sometimes in quite novel and disconcerting fashions…
“To Engineer is Human.” And I just put Petroski’s latest on reserve:
“The essential engineer : why science alone will not solve our global problems “: (blurb) The Essential Engineer is an eye-opening exploration of the ways in which science and engineering must work together to address our world s most pressing issues, from dealing with climate change and the prevention of natural disasters to the development of efficient automobiles…
—-
* not that he gets much credit. Rather more villification, as in the Climategate emails: “Mr. Fraudit” was one of the milder ones, ims…
75% Of Australian Business Does Not Support A Carbon Tax
http://www.acci.asn.au/Research-and-Publications/Media-Centre/Media-Releases-and-Transcripts/Economics-Industry/75–Of-Business-Does-Not-Support-A-Carbon-Tax?feed=ACCIResearch
Labor support slumps to 15 year low amid carbon tax revolt – and they are already a minority government. They will definitely lose office on this – nothing surer.
http://www.abc.net.au/news/stories/2011/04/18/3193914.htm
50% of Australians think climate change isn’t happening, don’t know if it is happening or not or think it is natural cycles.
http://www.csiro.au/files/files/p102a.pdf
This is before the world starts cooling – http://iopscience.iop.org/1748-9326/5/2/024001 – http://www.pnas.org/content/107/5/1833.full – because the ‘science’ is ludicrously wrong.
India, China and most of the rest of the world have no intention at all of taxing carbon in any meaningful way – and I could say the same about California.
This horse is dead and smelly Bart – pointless flogging it further.
Chief
While I sincerely believe you have spoken to India, China and the rest of the world personally, I appeal to you on your principles.
All that is necessary for a reckless experiment to continue is for the decent experimentalist to say nothing.
Oh. Uh. No one can accuse you of saying nothing.
Uhm.
Moving on, I just don’t care about Australia’s carbon tax decision. It’s pretty meaningless to me. I was hoping to do my Australian friends a favor by pointing out something that might work better than the lameness that they’re faced with, but overall, Australia, it’s just an island 20 hours away by plane from anything. Embrace revenue neutral carbon tax, or don’t.
Me, I’m looking out for myself. I want that $1,000.00 check a year from carbon revenues. If there’s a +/-AGW issue (and I agree, it looks likely), it’s not my issue, but if this addresses it — as seems likely it might at least in part — so much the better.
But bottom line, I want my $1,000/year.
I consider that it’s being picked out of my pocket by free riders.
If some humanity-friendly spark in me after I get my check fires up and says I should put some of my money into a fund for developing human dignity that is in no way CO2E-related, then that’s a matter for my own conscience, and not a thing I crow about making myself a whited Pharisee, now, isn’t it?
The virtue of my argument is intrinsic, not based on exploiting the needs or dignity of people who have never elected me to speak on their behalf.
OK – this time I have shut down my computer and rebooted. A conspiracy nut would be in paroxysms of paranoia by now.
All of the countries I spoke of made their position abundantly clear at Copenhagen. Weren’t you paying attention?
Your argument rests on paying $1000 more for electricity, gas, cement, steel, aluminium – so you can get a thousand dollar rent? The cheques in the mail Bart and you should use it to do something about the US dollar and deficit.
Have you not looked at a map recently? Continents may have shifted but Australia is closer to Indonesia, China and India these days than they are to North America. We quite like it because it is good for exports and restuarants.
If the goal is reduction of greenhouse gases – a $20/tonne tax is going nowhere. If the rationale is that someone somewhere is ripping you off by a net nothing a year – it just strikes me as madness.
I concentrated on Australia out of a polite desire not to embarrass you with American polls. More Americans believe Elvis was abducted by aliens than in AGW.
‘Oh. Uh. No one can accuse you of saying nothing.’
Oh Bart – such obvious posturing from the clown prince of verbosity. You asked for details on the markets or the politics – and you then respond by not caring. Not my problem.
>If the goal is reduction of greenhouse gases – a $20/tonne tax is going nowhere. If the rationale is that someone somewhere is ripping you off by a net nothing a year – it just strikes me as madness.<
Yes, I had a problem replying to silly Bart's silly description of Aus – you did it with some elegance of restraint, so we'll let it be
My point on Gillard's "carbon" tax is that it is essentially a surcharge income tax on higher incomes (cut-off point not yet disclosed), since lower-middle incomes will attract tax rebates. Just a typical ALP transfer of wealth draped in a green cloak … ho-hum
The polls indicate that the older Aus citizens hate it – because they are the group most likely to fall outside the tax rebate cut-off
It does appear that the ALP would lose an election on the issue (and lose heavily), but there is no way of forcing such an election for about 2.5 years yet – unless one of the Labour MP's in a marginal seat has the effrontery to fall off his twig
Hi Ian,
Have a look at this from Sinclair Davidson – the end game problem for a carbon tax.
I voted for Julia – simply because she smiled at me once, I wasn’t going to be on the wrong side of history in Australia’s first woman PM and I live in a safe Labor electorate so it made no difference at all.
Any prediction – other than the Labor Party is going down big time sooner or later – is impossible. We live in interesting times.
Cheers
Here’s the link – http://www.theaustralian.com.au/news/opinion/carbon-illusion-we-cant-afford/story-e6frg6zo-1226036879214
I agree on the point of the Davidson article – I’d read that when it was published. But I think Davidson (whom the ALP does not like, of course) has a basic mis-concept: a $10/tonne CO2 tax will not be nearly sufficient to alter producers’ choice of energy sources, since wind etc are very much more expensive than $10/tonne and completely unreliable – so we won’t see less expensive goods and services to drive down emissions until the tax is raised about 10x higher
All we will see, as you also agree on, is a rise in our cost of living as wealth is forcibly transferred to lower-middle incomes. This will suit the ALP and the Greens will claim kudos for “greenery” … these people are truly pathetic
I had guessed you were from the Dark Side – your ambivalence about the ALP vs actual science does come through
I’d also guess that you expect to be on the happy side of the tax rebate cut-off point
That’ll teach us “aspirationals” … class warfare at its’ finest :)
Not sure what you mean – I’m ambivalent about all sides of politics? I tried not voting once. The penalties just kept growing as I told my wife that I would go to goal before paying it. She paid the fine without telling me about it.
All I expect of a carbon tax is that it will cost me money and not achieve anything. The point of the Davidson article is that ultimately no-one wins.
Chief
I buy remarkably little gas, cement, steel or aluminum. Indeed, even with electricity of which I am a moderate consumer, my total purchases come to less than $1,000/year.
Are you sure you’ve checked your figures?
Mine put me in the 70% of people who come out far, far ahead with a full-on fee for CO2E charged to users at market price — ie the price the market will bear — compared to those 30% who use so much gas, electricity, cement, steel and aluminum that they would bear the brunt of — guess what?
The brunt of their own decisions.
These free riders have been picking all our pockets for decades, tens of thousands of dollars worth cumulatively (a lot more than $10 or $20 a ton of CO2E).
I can see you’re caught up in political philosophy, so don’t have the concerns of the common man about the bottom line, but some of us who aren’t 20 hours by plane from Living Within Our Means actually care about those little green bits of paper in our wallets.
I want my $1,000.
If you don’t want yours, that’s fine, write a check to Human Dignity Incorporated.
Rather meant it to be here – http://judithcurry.com/2011/04/30/a-prediction-market-for-climate-outcomes/#comment-66177
:)
Rather meant it to be here – http://judithcurry.com/2011/04/30/a-prediction-market-for-climate-outcomes/#comment-66177
Getting sabotaged by wordpress?
OMG – help
http://judithcurry.com/2011/04/30/a-prediction-market-for-climate-outcomes/#comment-66181
I give up –
http://judithcurry.com/2011/04/30/a-prediction-market-for-climate-outcomes/#comment-66177
How about we don’t spend any more money on the carbon management game and instead spend it on finding a cure for cancer which surely everyone agrees is a real problem. And if people like indexes, then cap spending on carbon solutions (solving what problem being anybody’s guess) to 2% that spent on cancer cures and prevention.
Interesting idea of trading carbon futures whose value is not $0 even if there is no AGW occurring. In this case, the value of a future is a function of variability of natural variability of climate and weather events (driving market volatility), and the interest rate. I don’t see how the markets will dial out the inherent variabilities involved in the natuaral processes. While economics still considers this an efficient market, it’s easy to see that a lot of money would change hands even in the case of no underlying human driven climate risk. I view this as a poor choice.
I see no reason why this market wouldn’t work like other markets – people who write the contracts make money over the long term, people who buy the contracts lose money over the long term.
OK guys.
Let’s see what we can do to our climate by simply shutting down the USA, the UK and Australia.
Let’s say we shut these 3 nations down completely (carbon footprint = 0) by 2030.
These nations currently emit a total of 20.6% of the global CO2 emissions.
These were around 34 GtCO2 in 2010 (from all sources).
So the 3 nations we will shut down emitted around 7 GtCO2 in 2010.
The compounded annual growth rate (CAGR) of the CO2 emissions of these 3 nations has been 0.87% per year.
At this CAGR these 3 nations would emit a cumulative total of 425 GtCO2 over the 70-year period 2031 to 2100.
The mass of the atmosphere = 5,140,000 Gt
If 50% of the emitted CO2 “stays” in the atmosphere (as has been the case historically) this equals:
212.5 * 1,000,000 / 5,140,000 = 41 ppm(mass) = 27 ppmv
IPCC estimates that the atmospheric CO2 level (scenario B1) will be around 580 ppmv (without shutting down USA/UK/AUS).
So it will be 27 ppmv lower or 553 ppmv if we do shut them down
How much global warming will we be able to avoid by doing this?
Let’s take the IPCC estimate for the 2xCO2 impact (which may, itself, be high by a factor of 2 to 4).
No shutdown:
C1 = 2011 CO2 level = 390 ppmv
C2 = 2100 CO2 level = 580 ppmv
C2/C1 = 1.487
ln(C2/C1) = 0.3969
ln2 = 0.6931
dT(2xCO2) = 3°C (IPCC AR4 average)
dT (2011-2100) = 3 * 0.3969 / 0.6931 = 1.7°C
With USA/UK/AUS shutdown:
C1 = 2011 CO2 level = 390 ppmv
C2 = 2100 CO2 level = 580 – 27 = 553 ppmv
C2/C1 = 1.417
ln(C2/C1) = 0.3488
ln2 = 0.6931
dT(2xCO2) = 3°C (IPCC AR4 average)
dT (2011-2100) = 3 * 0.3488 / 0.6931 = 1.5°C
So by shutting down the USA, the UK and Australia completely by 2030 we would theoretically be able to avoid 0.2°C of warming by year 2100 (at equilibrium).
As they say in New York City:
FUGGIDABOUDIT!
Here we see how absurd it is for anyone to talk about reducing future warming by curtailing CO2 emissions, whether one tries this with a carbon tax or a market-based cap and trade system.
And this was my point at the start:
Before we start talking about complex schemes for implementing a carbon-reduction plan, let’s make sure we know what we are getting for our money. As it turns out the “ROI” (no matter how you slice it) is ZERO.
And, unfortunately, this is what the “climate scientists” forgot to tell Shi-Ling Hsu.
Max
“So by shutting down the USA, the UK and Australia completely by 2030 we would theoretically be able to avoid 0.4°C of warming by year 2100”
That seems high to me. The increase you show is 580 – 390 = 190 ppm.
The contribution from us,uk,oz = 27. 27/190 = 14%.
How you estimate temperature saving as .4/1.7 = 24%
This doesn’t seem correct, as the savings will occur up at 527 ppm and since this is a log function, they will have less effect, not more, than if it was linear.
So, you result should show a temperature savings of less than 14%, not more than 14%. The 24% you show now is too high, it should be less thean 14%.
fred berple
Yeah. You are probably right that I have “erred on the high side” (after correcting my first calculation).
It all depends on the assumed growth rate of CO2 emissions from USA/UK/AUS.
I had assumed that the CAGR would continue at the rate actually observed over the past 25 years (0.87%/year). If one only took the CAGR of the past 10 years (0.26%/year) this would obviously result in a lower total cumulated amount of CO2 (580 Gt versus 825 Gt). This would result in a lower “reduction” in atmospheric CO2 (37 ppmv vs. 53 ppmv) and the reduction in global warming from shutting down USA/UK/AUS would be 0.3°C (instead of 0.4°C).
Either way, it’s peanuts and the “take home” message is:
we cannot change our planet’s climate at will, no matter how much money we throw at it.
All these many versions of “innovative solutions to the problem” ignore that there probably is no problem in the first place and, even if there were, there is nothing we can really do about it.
Max
Max
Help me out here..
You’re saying if 100% of all industrial CO2 emissions were eliminated, then by 2100 the total CO2 level will still rise from 390 ppmv by roughly 55 ppmv to about 445 ppmv? (5*27 = 135; 190-135=55)
So the world is going to keep on producing more CO2 than it consumes no matter what, and to get to zero growth, the nations of the world would have to remediate roughly 40% more than their industries generate?
Not saying that’s not true. Just seeking clarity on your views.
Bart R
My example was for shutting down completely the combined (carbon-fueled) economies of the USA, the UK and Australia in 2030 (these currently emit around 20% of the global human CO2 emissions)..
The calculated theoretical impact on the GMTA by year 2100 of doing this (impossible) thing is around 0.3 to 0.4C, pointing out simply that we are not able to change our planet’s climate no matter how much money we throw at it.
Max
Max
I get that.
But your premise was that you were shutting down 20% of the emission.
20% is 1/5.
Five times your result falls far short of 100%. (5×27=135; 135<<190).
There's a discrepancy in your calculation I'm hoping you can explain.
The obvious explanation is that your figures tell us about 40% more CO2 is emitted than is accounted for by your model from human sources; is your model inaccurate, or would humans need to remediate not just 100% of human CO2E, but also 40% more than that?
Bart R
You state:
Let’s walk through the basis for the calculation:
Data from various sources (see attachment) tell us that the global human CO2 emissions were (in GtCO2/year):
http://farm6.static.flickr.com/5011/5500972088_54742f12be_b.jpg
29,500 from fossil fuel combustion
1,200 from cement
3,600 from deforestation (net)
34,400 total
The three nations (USA/UK/AUS) emitted an estimated:
6,000 USA
580 UK
420 Australia
7,000 total or ~20% of total
IPCC has estimated several “scenarios” for increased CO2 levels by 2100.
The top two are based on more added CO2 than exists in all the optimistically estimated remaining fossil fuel reserves of our planet, so can be discarded as highly unlikely for now.
The next four show increase to:
580 ppmv B1
700 pmv A1T
800 ppmv B2
850 ppmv A1B
For an increase beyond 2011 level of 390 ppmv of:
190 ppmv B1
310 ppmv A1T
410 ppmv B2
460 ppmv A1B
This equals (converted to mass):
289 ppm(mass) B1
471 ppm(mass) A1T
623 ppm(mass) B2
699 ppm(mass) A1B
In an atmosphere with a total mass of 5,140,000 Gt, this equals
ppm(mass) * 5.14 =
1,484 GtCO2 B1
2,422 GtCO2 A1T
3,203 GtCO2 B2
3,594 GtCO2 A1B
Over past 5 years the CAGR of CO2 emissions of these three nations was ~0.29% per year (while the CAGR of world-wide CO2 emissions was somewhat higher at ~0.42% per year).
But let’s assume that the CO2 emissions from these 3 nations remains at 20% of the world total until 2100 in case 1 (no shutdown) and until 2030 in case 2 (total shutdown of these 3 nations in 2030).
Assuming they continue to increase at this rate over the next 70 year, the cumulative CO2 emitted from 2011 to 2030 would be around 144 GtCO2 and from 2030 to 2100 would be another 550 GtCO2.
Historically around 50% of the emitted CO2 “remains” in the atmosphere, so this represents an added
Case 1: dCO2 = 347 Gt
Case 2: dCO2 = 72 Gt
from these 3 nations.
How reasonable is this, compared to the IPCC projections?
If the 3 nations represent 20% of global CO2 emissions this mean the total CO2 emissions to 2100 which were absorbed by the atmosphere would have to be 347 / 0.2 = 1,700 Gt
This would equate to an increase in atmospheric CO2 concentration by year 2100 (no shutdown) of:
dCO2: 1,700 Gt = 1,700 * 1,000,000 / 5,140,000 = 330 ppm(mass)
= 220 ppmv
Today’s CO2 = 390 ppmv
So this equals a 2100 level of 610 ppmv and lies between IPCC scenario B1 and A1T, and the assumption is reasonable.
With the shutdown in 2030 there are 275 GtCO2 less going into the atmosphere by 2100 (Case 1 – Case 2).
In an atmosphere of 5,140,000 Gt this equals
275 / 5.14 = 53 ppm(mass), or 35 ppmv
So we have atmospheric CO2 concentration:
Case 1: 610 ppmv
Case 2: 610 – 35 = 575 ppmv
Using the logarithmic relationship and the IPCC estimate of 2xCO2 climate sensitivity (with feedbacks), we have
Case 1 (no shutdown)
C1 = 390 ppmv (2011)
C2 = 610 ppmv (2100
1.564 = C2/C1
0.447 = ln(C2/C1)
0.693 = ln2
3°C = dT(2xCO2) per IPCC
dT (2011-2100) = 0.3 * 0.447 / 0.693 = 1.94°C
Case 1 (shutdown USA+UK+AUS in 2030)
C1 = 390 ppmv (2011)
C2 = 610 – 35 = 575 ppmv (2100)
1.474 = C2/C1
0.388 = ln(C2/C1)
0.693 = ln2
3°C = dT(2xCO2) per IPCC
dT (2011-2100) = 0.3 * 0.447 / 0.693 = 1.68°C
Net reduction in GMTA by year 2100 resulting from total shutdown of USA+UK+AUS in 2030:
1.94 – 1.68 = 0.26°C
IOW, doing something as absurd as shutting down 20% of the world economy by 2030 would theoretically get us less than 0.3°C reduction in global warming by 2100.
If you have a problem with the calculation method, please show your calculation.
Thanks and regards,
Max
Max
Thank you for your very careful and thorough work.
I have no problem with the method.
The equivocation of ‘total economic shutdown’ with CO2E emission reduction, that’s a matter of political philosophy of no importance to me here, so I’ll skip over it, if that’s okay.
The ‘discrepancy’ is, and I see no way around it either on your calculations or on my own reproduction of your work, (close enough that there’s no point repeating it here), is that no matter how much CO2E is shut down, the level will continue to rise independent of human activity.
With more human activity, the rise from non-human sources will be higher under the assumptions I’ve made (ie higher temperature leads to higher CO2E concentrations, assume temperature in the same range as the past half century, positive feedback, no new negative feedback), but even at zero human emissions, I don’t see CO2E levels going anywhere but up for the foreseeable future.
Do you agree with this?
Bjorn Lomberg also thinks the tax/cap/trade approach is futile. He has written a book. See radio program/transcript:
http://www.abc.net.au/news/video/2011/03/02/3153560.htm
Bart R
You ask:
I believe that this is likely but a purely hypothetical case, since human CO2 emissions will continue (as we all know).
Estimates have been made of the long-term residence time of CO2 in our climate system. [I am not talking about the short-term residence time estimates of 5 to 15 years, summarized by Segalstad, but the long-term residence time.]
Zeke Hausfather presented some data on this at a Yale Forum.
This appears to show that the half-life of CO2 in our climate system is 100-120 years. Assuming it is 120 years, then the annual decay would be about 0.58% of the concentration (see Wiki for formula).
So if the net added CO2 (from whatever sources) is lower than this value, the atmospheric CO2 content should decrease theoretically (assuming the half-life estimate is correct).
Humans now emit around twice as much CO2 annually.
34.4 GtCO2
5,140,000 Gt – mass of atmosphere
34.4 / 5,140,000 = 6.7 ppm(mass) = 4.4 ppmv = theoretical annual increase that should have occurred (if humans are the only factor)
Since 2005, the average annual increase has been around 2.1 ppmv (or less than half of the theoretical increase from human emissions)
So the difference of 2.3 ppmv is “disappearing” somewhere (diffused out to space, absorbed by terrestrial biosphere, soils, weathering or ocean where it is buffered chemically or absorbed by phytoplankton, entering the food chain and partially ending up at the bottom of the ocean as carbonates).
Hausfather’s long-term “half-life” calculates out today to:
0.58% * 390 ppmv = 2.3 ppmv
So is the “missing” CO2 “disappearing” completely from our climate system following the long-term residence time formula?
I’m afraid nobody has the real answer to that question (although there are many hypotheses).
But it makes the answer to your question more difficult.
Max
That would qualify as a runaway chain reaction then?
Slow (so far, for a given value of ‘slow’), diffuse over a huge area, but not tending to halt if left to its own, nor to be within our means to halt?
Bart R
Can’t answer your question about a “runaway chain reaction”, but if Zeke Hausfather’s residence time data are correct, CO2 is constantly leaving our climate system, but at a slower rate today than it is being added to the climate system by human emissions.
If human emissions were to be reduced to 50% of the current levels, this would theoretically balance out (assuming that human emissions are the only factor which has an impact on the overall balance, which, in itself, is a highly doubtful assumption, but is, in fact, the assumption made by IPCC).
But I would agree with you that it is highly unlikely that CO2 levels will be reduced or even stabilized no matter what we do.
And, as the calculation showed, we are not able to perceptibly change our planet’s temperature, no matter what we do. This is true, even if we accept IPCC’s rather exaggerated assumptions on 2xCO2 climate sensitivity. Of course, if we determine that this is much lower (as recent physical observations seem to suggest), the the whole discussion is beside the point, anyway.
IMO we should first find out if there is a problem at all before we charge off trying to develop (or, even worse, implement) complicated and costly solutions that will not solve the problem, even if one were to exist.
That is why all this theoretical talk of different carbon tax or cap schemes is so absurd.
It truly reminds me of the theological debates about how many angels can dance on the head of a pin.
Max
Max
I’m not really all that into the whole temperature thing. I’m not about the +/-AGW. As far as I can see, it doesn’t need proving, as it’s a sub-issue, and it follows the laws of conservation of energy: if the energy isn’t going to warming, it’s going someplace else that had been at a lower overall level for 10-15 million years, and now isn’t. We don’t need to know what that ‘someplace else’ is, if we just stop emitting CO2E.
While reducing CO2E emissions might or might not have some dramatic temperature effect, it’s going to have direct first-order CO2E effects.
Which means reduced risk associated with CO2E in all areas: temperature, circulating patterns, chemistry, botany, zoology, etc. And as a free bonus, it also has a side-along effect on those troublesome particulate and sulphate and nitrate emissions we’re all sure to be concerned about, and their chemistry, botany, zoology, etc. effects.
Unless we’re at a level of runaway COE2 increase.. which will also inevitably happen with enough warming or retreat of northern sea ice and permafrost extents or depletion of botanical activity or desertification or.. whatever outcomes of enough imbalance in CO2E levels.
I’ve always been a fan of markets for climate futures. Any time you can arbitrage folks with ideological blinders (on both sides) is a good chance to make excellent returns, e.g. http://rankexploits.com/musings/2011/bastardis-wager-you-bet/
Unfortunately, betting (in any sense) on future warming is nominally illegal in the U.S., and putting money in escrow for a long-term bet can have significant opportunity costs.
This is an interesting suggestion if one accepts that the connection between a climate index and the CO2 added to the atmosphere by humans is unequivocal. (Although sea level rise should be replaced by departure from the long-term trend in sea level rise; otherwise part of the tax is on the ongoing geological recovery from the last ice age.)
But suppose, just suppose, that a substantial part of the land temperature increase is due to changes in land use/land cover. Interesting idea to tax that, but the cap and trade part would then be ineffective policy.
So maybe land temperature is replaced by ocean heat content in the climate index. Then suppose, just suppose, that natural variability is a major factor. We are then taxing ourselves over nature’s moods, and again have an ineffective policy.
Although novel, the proposal still depends on certainty of attribution. I thought this was not accepted by JC.
The European emission rights market with all its futures has many similarities with the idea. The rules were first fixed for the period 2005-07. The private participants where first surprisingly eager to hoard emission rights which lead to to high prices of some 25 euro per ton of CO2, but after a while, it was realized that they erred seriously and the price dropped to 0.01 euro/t-CO2. The private actors failed totally in foreseeing what was coming.
Later during the Kyoto period 2008-12 the variations have not been quite that extreme (helper also by some changes in the rules), but we still lack evidence on the ability of the market to find good predictions. It’s still very possible that new extreme failures are near.
Basically I have considered the idea of a carbon tax adjusted gradually based on improving knowledge to be far superior to the cap and trade alternative chosen as basis for both the Kyoto agreement and the European emission rights market. Whether a derivatives market of some kind would really provide an useful addition to that, is an interesting question. This is not at all obvious, as the background process (the underlying of the derivative) is anyway administered through public decision making based on some rules that are supposed to be fixed, but may be changed anyway.
The markets know what people on earth know. On the other hand, price fixing by government gives undue power to the organizations that lobby governments and we all know that big business “owns” governments in advanced democracies.
In all these proposals the market is created by the government. The way this is done varies and the extent government may further influence the market without breaking stated rules varies. But the government may change the rules, if there is sufficient political will. Thus they is no way of excluding the role of government.
The beauty of a market is that when the science demonstrates the CO2 warming is all a big mistake, then the speculators will pay the price and hopefully not us.
Interesting to see how the climate community manages to keep an “out” to not have a meaningful stake in a carbon market on the basis of “insider knowledge”.
Good luck with speculators taking a bath – oil speculators don’t seem to be taking a bath. Pump and dumpers only take a bath if they’re prosecuted. Anyone any where in the world with access to a dark market can do a lot of damage. The easiest way to look at how much is at stake would be to calculate present value of all the potential futures contracts. Pricing would have to be approximated by estimated penalties, but in reality pricing would be significantly higher than this number.
Add in to all the mix that prices reflect buyer / seller balance and the fact that a new investment opportunity attracts an initial influx of money (spiking prices), but this tends to settle out, and negative momentum starts showing up. Sellers step in harder, and the prices swing wildly. I think this is a crazy idea
So… not a bad read. And you and Peter are referenced. Charmed. :-)
I’m very happy that you like Hsu. I like Hsu , too (albeit for different reasons).
Hsu is well-known, especially in B.C. and Canadian policy circles, advocating for the need to reduce consumption, charge industry for the real costs of energy, and use carbon taxes to manage carbon in addition to a regulatory approach and changing how we live – not instead of it. He argues that a priority for policy makers is to manage carbon and reduce emissions. And he bases all this on a rational response to science.
This article is part of a suite of proposed actions to mitigate climate change, provide aid and manage resources. And it recognizes the increasing role of a market-centred decision-making approach to policy, in addition to other regulatory approaches.
Hsu speculates that a market-based approach to a carbon tax for industry will increase “everyone’s knowledge of what everyone thinks”. He may be right. As he explains, it’s not about the market itself revealing anything new about climate science, but about the possibility that the market might provide a new and objective information network for sharing science.
However, it’s not possiblel from your perspective. A prediction market requires that players in the market system be able to aggregate accurate and consistent information, and recognize/offset disinformation. In other words, accurate and consistent information is the commodity. It’s not a new idea (prediction markets for climate policy have been discussed for quite a few years). But you emphasize uncertainties and minimize the strength of the consensus about what is known, such that it is not possible to provide accurate and consistent information for decision-making and trading. And Hsu does not seem to be considering the difficulties science has now and will have into the future, linking specific events to climate change — never mind how this has already been misused and miscommunicated to narrow and delay responsibliity-taking. So to my surprise, I agree with most of your denizens, too, that it won’t work for you (albeit again for different reasons).
A prediction market of any kind can’t get off the ground, on the basis of all that you argue on this blog.
Hsu quotes you on the likelihood that hurricane intensity will increase with climate change, not your knowledge of current climate science or the range of policiy issues and options. ;-)
In BC we have had carbon taxes on fossil fuels since July 1 2008. When I ask folks: Have you checked the carbon tax on you nat gas bill? Do you know that the tax rate on nat gas? They reply that they haven’t checked the bill, and they don’t know actual tax rate.
I tell them the carbon tax is $0.9932 per gigajoule of BC nat gas which costs $4.568 per gigajoule. The carbon tax is 21.7% of the commodity price of the nat gas. They are shocked.
Most all people in BC haven’t a clue about the carbon taxes they are paying. And most don’t care because they receive a carbon tax rebate except those whose personal or family income is much greater than $120,000 per year.
In 2008, the BC gov bribed the people and the bussiness community with a “One-Time Climate Action Dividend” and by cutting personal and corporate tax rates to get them to sallow the “Climate Action Plan”
All of the above boils down to this: The carbon tax on fossil fuel is a wealth redistribution scheme.
Since this spring in BC has been unseasonally cool and rainy, I consumed about 40% more nat gas for April compared to a year ago. There is no provision cold spells in the CAP.
RE: “This article is part of a suite of proposed actions to mitigate climate change…”
What climate change? After watching weather reports on the TV for over 60 years, I see no evidence for any climate change. That is to say, the patterns of weather in the various regions of the earth are still about the same.
Climate change is coming and it going to cool down to like it was back in 1940-1970’s. As they say about weather, what happened in the past is most likely going to happen in the future.
.
Thank you, Martha. I appreciated hearing that I am “well-known,” and after reading these comments, appreciate even more hearing that I am “liked.”
I would be interested in knowing about past discussions about prediction markets for climate policy. I was not aware of that.
I am aware that this proposal seems speculative in expecting a wide range of people to be able to process and aggregate information. But that is, in fact what markets expect from people, and what markets do, somewhat mysteriously. There is intense trading in the shares of Google, and on the basis of some pretty sketchy expectations of what Google’s earnings are going to be for a very long time frame, and in a very volatile industry. Facebook is now deemed by some to be worth $65 billion, on what people believe is a mere $2 billion in revenue. Why do we think FB is worth so much? Why do you sock your retirement money into mutual funds? How did you pick an advisor or family of mutual funds? In markets, we take our best guess, and sometimes we win and sometimes we lose. I like repeating a quote from the paper, by Cornell economist Maureen O’Hara: “we know markets work in practice, we are not sure how they work in theory.”
You read the the BC CAP yet? It is scheme concocted by that closet commie Jaccard and his fellow travellers to take over and rule the province
I would emit strong skepticism on the idea that found this paper.
The idea that people cannot stupidly maintaine an erroneous visions if it can ruin them.
Yes they can… as explain here, in the “pattern of denials by R benanbou” http://www.princeton.edu/~rbenabou/papers/Patterns%20of%20Denial%204l%20fin.pdf you see many exmplae of people (like Enron) at the same time frauding the safety procedure to hide the catastrophe that they cannot ignore, and at the same time keeping their bucks in the catastrophe because they sincerely believe they are right…
Roland Benabou (princeton) have a series of articles about this dynamis of self delusion, atacking different sub problems and domains.
http://www.princeton.edu/~rbenabou/papers.html
Article about to apply his models to belief in market or statism,
http://www.princeton.edu/~rbenabou/papers/jeea%202008%206%202-3%20321.pdf
how truth circulate in hierarchical organization bottom up
http://www.princeton.edu/~rbenabou/papers/groupthink%20iom%204l%20fin.pdf
.
see the many others…
his models are model, but they give unexpected conclusions that match better the reality than the usual beliefs.
the second reason I’m skeptic about this kind of long term expectation, is the well know (recent) myopia of markets.
today, and much more than before, the vision of future is nearly absent. derivatives markets, commodities markets, debts markets, are used to make money at a much shorter horizon that their maturities.
to talk finacially, the interest rate is very high (cash today is much more valuable that tomorow), but the worst is that this interest is not event rational (because of cognitive bias for today, let’s say the dopaminergic system fighting with the cortical system)…
Today the interest rate of today, is much higher with the intereste date today, of tomorow. and tomorrow the interest rate of tomorrow with be much hight that todays rate for tomorow… we are natirally much more short termist with today, than with far future.
in the old economy and society there was some mental structures fighting this problem.
first there was very few short term gains in old “bourgeoisie” economy… plus-value was long to obtain, markets were not liquids…
but most of al, the bourgeois, and the governements were acting with a vision of eternity, of dynasty… what i call the “imperial” vision of wealth… a tendency to enjoy building, gathering, preparing an empire for you childs and all the dynasty.
you see that it is dead by the market beahavior on pricing of wood an forest.
Wood cut today is much more valuable that the promis of wood in a century, far from the expected interest rate.
more than not believing in the value of future assets, and not caring, the market are sure that nobody care on future, leading to small value of futures. One of the cause is also the reaction of intermediates (finance companies, traders, elected management, retirement funds) that structurally cannot price the future for them selves, because they won’t be there to enjoy.
for all of that, I think that it cannot work .
the papers of roland benabou gives however conditions for self delusion not to happend.
the idea is to make new people, who have invested nothing in any belief, get into the business.
it is also to let the lower lever talk openly, without risk from the hierarchy… because they might know.
to finish I will talk about a problem for the mind to change, and compare franch and indonesian situation.
in indonesia there are cheap religious schools (madrassa) that helps some poor and middle class to have education (needed because todays “Chicago Consensus” ideology is killing state education). the problem is that those kids then have only access to theology cursus, and they became naturally islamic lawyers… but since Syariah law is not the state law in indonesia, their competence is useless.
don’t be surprised if they get into hard-liner islamic parties, just to change the world so they can have a good position…
and in france we start to have “green technology”, “green finance”, “green business” MSc or PhD proposed by state university, that wand to get subsidies and be fashion…
don’t be surprised if those future researchers or engineers, don’t want to admit they are wrong , and part of their competence is useless…