Thursday, July 22, 2004

Turning Up the Thermostat

Dan Drezner picks up the CFR report on climate policy by David Victor I wrote about last night. Also, after a delay of about three months, I finally made a comment on a post on the subject of climate science by Frank, whom I suspect may be looking forward to commissions to design vast new sea walls for the County Louth coast.

As Drezner points out (I'm not on first name terms with the Professor, even in this blog), and I should have in my posting, while the research has paid off in greater efficiency for damage cost estimates, the confidence intervals for the forecast warming resulting from increased CO2 have become even wider; the IPCC forecasts range from 1.4 to 5.8 degrees C. The climate science is getting better, but the predictions are very uncertain. Assuming a degree of risk aversion towards potentially large losses that society pays in other applications (Dr William Cline explicitly modeled this for his Copenhagen Consensus paper using the Value At Risk methodology. This is used in banking to for managing derivatives portfolios by setting limits on losses assuming that the estimated volatility of returns produces an outcome in the bottom 5% or 1% of the possible outcomes.

It may not be unreasonable to spend modestly on information about this problem. Certainly, oil as a fuel isn't without its undesirable externalities - collateral pollution, insecurity of supply, the "resource curse" crippling the development of many producer countries - and developing alternatives like clean coal, more natural gas, wind or solar seems attractive.

Another resource I found extremely informative is the panel discussion at the Cato Institute last year, with contributions from Cline and other heavyweights on the cost/benefit issues and other presentations on the questions of the state of the science and the appropriate decision-making frameworks.

Cynic I may be, and free-marketer I definitely am, but I'm not going to go into an unaccustomed paranoid funk a la Naomi Klein and fret over a sinister cabal of geographers supposedly manipulating our governments, markets and courts towards their own nefarious ends.

Reading the IPCC material, which while not completely neo-classical in its approach, to put a strong emphasis on world trade, market-driven pricing and economic growth that some more left-wing climate campaigners seem to find distateful in other contexts.