First off the bat, I would like to highlight one of the key events that happened across the Atlantic Ocean last week. I am referring to the super storm that raged the US East coast, Hurricane Sandy. One of the possible impacts of abrupt climate change is more frequent and more adverse weather conditions (such as droughts, floods and hurricanes). In the aftermath of the destruction, insurers estimate that the cost of the hurricane could amount to $15-20 billion. This reminded me of what Bjørn Lomborg mentioned in his book- Cool It.
Bjørn dedicates a section of his book to talk about extreme weather (page 94-107). He presents the arguments proposed by Al Gore in his famous documentary (An inconvenient Truth) and reasserts the claim that the costs of extreme weather conditions (future Sandys) in the future could amount to $1 trillion per year. However, he proposes that social changes are driving the higher costs rather than climate change. He posits that hurricanes have had similar strength and intensity over the past few decades and an increase in the economic costs of hurricanes over the years is caused by the rising concentrations of population and infra-structure in coastal regions. As such, resources should be put into mitigating such societal changes rather than mitigating climate change. Policies that he propose ranges from more stringent controls on coastal cities development, preventing people from staying in these hurricane prone areas, to redirecting the $180 billion a year spent on the kyoto protocol into building stronger buildings that can withstand more adverse conditions. Although there is still much uncertainty over the links between the frequency/intensity of hurricanes to anthropogenic processes, this is not the focus of todays post.
Let us first assume that the claims proposed by Bjørn are true and justified while we consider Hurricane Sandy and its impact on the residents of New York. It is quite possible for the city to build more 'hurricane-proof' buildings in the aftermath of Sandy but it is unlikely that people will relocate themselves away from this area given the importance that the city holds in light of the number of job opportunities and the significance of New York as a trading hub in the world. Hence, if the control of social changes are limited, under the model proposed by Bjørn, contrary to what is proposed, more effort will then need to be put in to mitigate climate change effects so that such extreme weather events do not become the norm.
On this note, I would now like to highlight a paper written by Nicholas Stern in 2006, ahead of the publication of the Stern Review (which would be touched on in future posts). In his paper 'What is the Economics of Climate Change?', Stern identifies the severity of climate change and acknowledges the role of human activity in causing global warming. He highlights that climate change involves an externality (i.e. the emission of greenhouse gases damages others at no cost to the agent responsible for the emissions) and there is urgent need to find a remedy due to the risks of severe outcomes. With standard economic theory of externalities, several ways of ensuring that producers of the externality internalize the external costs have been proposed. However, these theories are based on strict assumptions that do not hold true in reality. Stern (2006) sums this up as 'a problem of intertemporal international collective action with major uncertainty and linked market failures'.
The economics of climate change, like the economics of most other social phenomenon, is focused on modelling the different aspects of society, ranging from implications of growth for emissions, calculating the 'social costs of carbon', to modelling the economics of technological options in mitigating climate change impacts. Key in this concept is the role of uncertainty. Stern reveals that uncertainty over the scientific, economic and social consequences of climate change makes it difficult for international collective action to mitigate the impacts of climate change.
In light of these factors raised in the paper, focusing on mitigating the impacts of climate change is not simple and straight-forward. Even though economic models are useful in predicting social behavior, using such models to justify action (or inaction) towards mitigating climate change has its limitation due to a high degree of uncertainty. In the following posts, I will talk about the concepts of risks and uncertainties in the managing of climate change before moving on to the concept of tipping points.
For more information about the issues raised in this post, please refer to the following sources.
Lomborg, B. (2007) Cool It. London, Marshall cavendish limited and cyan communications limited.
Stern, N. (2006) 'What is the economics of climate change?', World Economics, 7, 2, 1-10.
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