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On Addressing Climate Risk and Uncertainty

On Addressing Climate Risk and Uncertainty

Jonathan Adler has an insightful piece in The Bulwark arguing that conservatives need to engage in the climate policy debate. Adler, a professor at Case Western Reserve University, correctly cuts to the chase of what the mainstream body of climate literature says: anthropogenic warming is unequivocally real and poses a risk to our planet.

Just how big is that risk?

According to the latest Intergovernmental Panel on Climate Change report there’s good news and concerning news on that front. The Wall Street Journal’s Greg Ip aptly summarized, “On the encouraging side, the IPCC has dialed back the probability of (without ruling out) more extreme changes in temperature. Such scenarios have often been used to justify much faster and costlier action to ban or limit fossil fuels. On the sobering side, benign outcomes are also less likely, and uncertainty a less viable excuse for inaction.” A much likelier projected temperature increase of 3 degrees Celsius is very much cause for concern.

As Ip notes, despite the welcoming news that worst-case-scenarios are increasingly unlikely, they cannot be ruled out.  Aside from climate change, there is a wide range of improbable but catastrophic events that could affect us as families (a house fire) or the entire planet (an asteroid hitting earth). Whether it’s a risk to an individual human or to humanity, we confront those risks with varying degrees of information and uncertainty.

In the case of a house fire, Adler writes, “You don’t install smoke alarms, acquire fire extinguishers, and buy home insurance because you expect a house fire. Rather, you recognize the value of insuring against low-probability/high-magnitude events. The costs and dislocation resulting from your house burning down are sufficiently grave that they justify prudent investments that will reduce the likelihood and the consequences of such an event.”

A risk-based, insurance approach is popular and sensible among conservatives and libertarians who want policy action on climate change. But there are few things to note with Adler’s analogy. Purchasing homeowner’s insurance may not be worth it if the premiums are too high or greater than the value of the insurance. Generally, though, homeowners willingly pay because on the off chance a fire destroys their home, the insurance will appropriately compensate them. Adler’s other two examples of installing smoke alarms and buying fire extinguishers are two low-cost options that provide a lot of value (even greater value than the annoyance of the smoke detector constantly going off when I cook).

With respect to climate change, policies that increase energy bills or restrain economic prosperity must be weighed against how much insurance we’re buying for that premium. Costly, unilateral policies could impose significant economic harm on families and businesses with while failing to reduce the risk of climate change in any meaningful way.

However, there are plenty of ways to engage in climate policy where the premiums are essentially free or low-cost. Good tax policy encourages investment in research and development and can incentivize investment in cleaner, more energy-efficient technologies. Improvements in environmental review and permitting processes can accelerate the deployment of carbon-free and low-carbon technologies. Low-cost spending (offset by reductions in lower priority spending) on scientific discovery, research and development can have positive spillovers in acquiring new knowledge and spurring the implementation of game-changing technologies. Active forest management can reduce the risk of wildfires and the huge quantities of black carbon, carbon dioxide and other pollutants they release into the air. There’s an abundance of policy ideas Democrats and Republicans can embrace that could encourage investment and job creation in the United States and drive down the cost of decarbonization.

Driving down that cost and making it economically attractive to decarbonize is essential for global reductions in greenhouse gas emissions and reducing the risks of climate change. Sound economic policies that reduce the costs of likely climate scenarios and continue to shrink the probability of an unlikely but catastrophic warming is a win-win.  At a minimum, policymakers should start there.

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