Humanity’s situation with respect to climate change is sometimes compared to that of a frog in a slowly boiling pot of water, meaning that change will happen too gradually for us to appreciate the likelihood of catastrophe and act before it is too late. With all the scientific and economic information at our disposal, this ought not to be the case. But how good a job are we doing of telling the boiling frog what he needs to know?
Thresholds are important things to know about, in situations of both risk and opportunity. They are the lines beyond which the gradual becomes rapid; the incremental, transformational; and the temporary, permanent.
Risk management is usually concerned with identifying what is the worst that could happen, and how to avoid it. In fields such as health and safety, building standards, or financial regulation, the focus is on understanding, and then minimising, the likelihood of crossing thresholds of extreme or irreversible impact such as death, collapse and insolvency. But in a new paper, I argue that most of the climate science communicated to policymakers fails to convey this kind of vital information. Instead of risk assessment, it takes the form of prediction: first identifying what is most likely to happen, and then what its consequences would be. This is like telling the boiling frog that in five minutes’ time, the water he is in will probably be two degrees warmer, plus or minus a degree or two. What he really needs to know is that the worst that could happen is himself being boiled to death, and that while the probability of this is low within the next five minutes, it is rising over time, and at some point it will become more likely than not. With the information presented this way, the need for him to take some kind of action is relatively clear.
Policymaking can be thought of as an exercise in identifying what is the best that could happen, and how to achieve it. If the job of scientists is to tell the boiling frog that he might boil to death, then the job of economists is surely to advise him how best to survive. But here also, there are problems.
A traditional recommendation has been that policy should aim to balance the marginal costs of reducing emissions with the marginal benefits of reducing climate change losses, and that a carbon price should be imposed at the level at which this balance is achieved (the ‘social cost of carbon’). The problem is, the ‘social cost of carbon’ is impossible to determine objectively; and a carbon price set this way may not be at a level that does anything useful. Consequently, this approach leads to perverse conclusions: the Nobel Prize-winning economist William Nordhaus has proposed that the ‘optimal’ trajectory for global emissions is one consistent with warming of 4°C – a level described by the World Bank and many others as ‘devastating’. This kind of advice is about as helpful to the frog as telling him to blow on the water to see if he can cool it down.
A more effective approach is to target thresholds that will generate rapid change in the desired direction. An obvious example is to make cleaner technologies cheaper than dirtier ones. Recent experience shows that this works well. In the UK, where a carbon tax on electricity generation has made gas cheaper than coal, our coal use has fallen by over 75% in the last five years. This has led to the UK decarbonising its power sector ‘much faster than any other country in the world‘. In Norway, where taxes and subsidies have made electric vehicles cheaper to buy than petrol cars, electric vehicles make up nearly 60% of new car sales, compared to around 1-2% in the US, China and EU. These thresholds are examples of sensitive intervention points in complex systems – points at which a very small input can be amplified by feedbacks to produce a very large effect.
It may seem obvious that we should aim for these thresholds, just as it should be obvious to the frog that he should jump high enough to clear the sides of the pot. But these successes are the exception rather than the rule, and the reasoning that leads to them is fundamentally different from the reasoning used by Nordhaus as described above. As UCL Institute for Innovation and Public Purpose (IIPP) colleagues Rainer Kattel, Mariana Mazzucato, Josh Ryan-Collins and I argued in our paper ‘The economics of change‘, grand challenges such as climate change require a different approach to economic appraisal: one that values the potential for transformational change, instead of the expectation of marginal change.
For the boiling frog of humanity, the risks of climate change are not marginal, and neither are the actions required to reach safety. But if we focus on what really matters – the thresholds of risk and opportunity – then we may be able to give ourselves a better chance.
Read Simon Sharpe’s latest paper: Telling the boiling frog what he needs to know: why climate change risks should be plotted as probability over time.
Read the related paper: The economics of change: policy and appraisal for missions, market shaping and public purpose.
Sign up to the UCL Institute for Innovation and Public Purpose’s mailing list to hear about our latest research, news and events. You can also follow us on Twitter: @IIPP_UCL.
This article was first published at https://medium.com/iipp-blog/telling-the-boiling-frog-what-he-needs-to-know-thresholds-of-risk-and-opportunity-in-the-science-27828ee60cf5.