Category Archives: Climate Change

Have the Kids Started Caring?

Back in 2011, I wrote a blog post called “Do the Kids Care?” about the attitude of young people toward climate change. The tentative conclusion was they cared less due to their limited experience of risk. Today (15th February 2019) was a day when many of them certainly seemed to care. I had the pleasure of attending a rally in Oxford (part of the #SchoolStrikeforClimate movement), which was inspired by the 16-year old climate activist from Sweden Greta Thunberg.

 
So have global youth undergone a Damascene conversion and suddenly realise the existential threat they face from climate change? Probably not, but I hope that something significant is emerging  here: at least a realisation by youth that they will be expected to clear up the CO2 pollution party from hell thrown by their parents and grandparents.

The jury is out over whether this movement has staying power, but in the meantime the next school student strike is going global and takes place on 15th March; details can be found here:

https://www.facebook.com/events/1994180377345229/

So get out there and give Greta and all the other kids a helping hand!

IMG_0010

And in the meantime, here is my original post from 2011:

Climate change, if nothing else, is a time horizon risk: the longer you live, the more you are exposed to climate change and its impacts. Thus, to follow the logic, the old (and especially childless) should be less sensitive to climate change risk than the young. (For the different question of “Should the kids care?” see ‘Odds of Cooking the Kids’ here, here and here.) But do the young care?

survey last year suggests the young care a little less about climate change than anyone else. This seems rather strange, since the young adults involved would have had a high exposure to the topic from early adolescence both through the media and school.

The first Climate Change Conference took place in Geneva 1979 a few years after a landmark paper by Wally Broecker in 1975 established a link between anthropogenic (human) CO2 emissions and temperature rise. The Intergovernmental Panel on Climate Change (IPCC) was established in 1988, but it probably took another decade before the topic spilled out of the academic community and into the public domain.

By around 2006 or 2007, few people would have remained unaware of the issue, even if they differed about the causes and severity of the problem. The documentary ‘An Inconvenient Truth’ show cased Al Gore’s campaign to educate citizens about the dangers of global warming and received extensive publicity. Meanwhile, the IPCC’s Fourth Assessment Report declared that human-caused factors were ‘very likely’ the cause of climate change and was widely reported. In retrospect, these years appear to have seen the high water mark for public awareness of the risks from climate change (partly because carbon-industry financed lobby groups had only just started to enter the debate on the skeptics’ side).

For a younger generation, the general media buzz over climate change was also supplemented by information they received via their school curricula.

In the UK’s case, a child in high school in the 1980s would only have come across climate change in school if introduced to the topic by an enthusiastic science teacher. In 1995, however, climate change was formally introduced into the National Curriculum, and nowadays a pupil has no choice but to bump up against it in variety of contexts including science, geography and even, occasionally, religious education.

In the United States, the federal, state and local involvement in education have made the delivery of climate change education a little more variable between schools. Nonetheless, there appears to be a consensus among teachers that climate change is taking place and that it should be taught. A position paper (here) from the US National  Association of Geoscience Teachers (NAGT) is unequivocal:

The National Association of Geoscience Teachers (NAGT) recognizes: (1) that Earth’s climate is changing, (2) that present warming trends are largely the result of human activities, and (3) that teaching climate change science is a fundamental and integral part of earth science education.

The National Association of Science Teachers (NSTA) is a little less forthright on the subject, but in a 2007 NSTA President’s report  entitled ‘Teaching About Global Climate Change’ we see this:

Central to environmental literacy is students’ ability to master critical-thinking skills that will prepare them to evaluate issues and make informed decisions regarding stewardship of the planet. The environment also offers a relevant context for the learning and integration of core content knowledge, making it an essential component of a comprehensive science education program.

Two of the most reliable sources of information for classroom teachers are the National Oceanic and Atmospheric Administration and the United Nations Intergovernmental Panel on Climate Change, both offering materials that are scientifically based and bias-free.

No prizes for bravery here, but by endorsing two sources that document the risks related to human-induced climate change, the NSTA in effect is adopting a similar position to the NAGT—but at one remove. The NSTA’s reticence is obviously because science teachers who promote awareness of the problem are likely to receive a lot of push-back; an NSTA survey (here) gives a sense of this:

(Rather disappointingly for a science-based organisation, neither the number of educators who responded nor the climate change beliefs of the responding educators were reported, rendering any firm conclusions problematic).

Overall, however, for those students who had not already taken a firm position vis-a-vis the veracity of human-induced climate change from their parents, the senior school experience over the last 10 years or so would have taught most of them that the climate is changing and anthropogenic carbon emissions are to blame (based on scientific evidence). For those 1990s high school graduates, the school input on the topic would likely have been far more mixed. But by contrast, anyone over 35 is unlikely to have come across climate change at school.

So back to the survey—conducted jointly by the American University, Yale University and George Mason University—titled ‘The Climate Change Generation?’ The generation in question as per the survey definition was a sample of 1001 adults aged between 22 and 35 as of when the survey took place (between December 24, 2009 and January 3, 2010).

Given the educational backdrop of the ‘Climate Change Generation’ we get two immediate counter-intuitive findings from the survey. Younger people neither think about climate change more nor worry about it more (or at least no more than others):

And this being a risk blog, I am particularly interested in people’s perceptions of the personal harm they could incur. Again, the young don’t appear particularly concerned.

Moreover, despite the impression that climate change concern (and activism) is a province of the young (and almost a social norm these days), the data just don’t show this to be true:

Could it be that factor ‘youth’ is not determining the direction of the survey responses  (and when it does, the sign is opposite of what one would expect) because the ‘old young’, who had come of age in the 1990s when climate change was less reported, were diluting the signal in the data? The answer to this is ‘no’ since the survey also split the young adults into two cohorts: in effect, the ‘young young’ and the ‘old young’. Note the answer ‘not at all worried about global warming’ at the bottom of the chart sees the ‘young young’ the least concerned of all:

On reflection, it appears that education has had no impact on the brain’s perception of risk, which takes us into the realm of cognitive psychology. A traditional view of the risk appetite of adolescents has suggested that they have a feeling of invulnerability (and perhaps this extends to those in their twenties as well). However, more modern findings such as a paper by Cohn et al entitled ‘Risk Perception: Differences Between Adolescents and Adults’ suggests this is not the case:

Adolescent involvement in health-threatening activities is frequently attributed to unique feelings of invulnerability and a willingness to take risks. The present findings do not support either proposition and instead suggest that many adolescents do not regard their behavior as extremely risky or unsafe. Compared with their parents, teenagers minimized the harm associated with periodic involvement in health-threatening activities. Ironically, it is periodic involvement in these activi- ties that jeopardizes the health of most adolescents. Thus teenagers may be underestimating the risk associated with the very activities that they are most likely to pursue, such as occasional intoxication, drug use, and reckless driving.

So to get a better idea of what is going on, it is worth moving on to the field of heuristics and biases in the perception or risk, which has become a key area of study in economics and finance over the last 30 years. This new area of investigaton was kicked off by the pioneering work of Nobel Laureates Daniel Kahneman and Amos Tversky; a good and accessible summary of the work can be found in Kahneman’s recent book “Thinking fast and slow“.

One critical finding was the distinction between ‘choice from experience’ and ‘choice from description’. Experimental data show that rare outcomes are overweighted when they are vividly described but are frequently underweighted if they are abstract. By extension, a more abstract threat, like harm from radiation, may be overweighted as a risk as it calls forth rich associations that provide a vivid description: for example, images from Chernobyl, a scene from the movie ‘China Syndrome’ or a picture of a child atom bomb victim suffering from radiation sickness.

Keeping this in mind, climate change risk is rather difficult to grasp in terms of the potential impact on oneself: no photos of dying babies to give us a descriptive representation—or at least only abstract theoretical ones.

Furthermore, risks are underweighted if we have no experience of them. The experience can also go beyond one’s own experience and encompass those of others. Accordingly, a particular teen or adult may not have experienced an auto crash through reckless driving, but it is almost certain that the adult will know someone personally, either family or friend, who has suffered from a reckless driving act. They thus get an experience boost by proxy.

Thankfully, few of us have yet to experience severely negative effects from climate change. However, an elderly person is more likely to have experienced, or known someone who has experienced, a rare event that gives them a proxy association of climate risk. Through having touched on the experience of war, flood  and other natural disasters (and possibly even famine for immigrants from low income countries), older people are better aware that ‘ really bad stuff’ happens.

In all this, sets of statistical tables showing objective probabilities have far less impact on people’s perceptions of risk than one would expect if humans were no more than purely rationale calculating machines. Presenting a person with a dry set of stats will barely move the risk perception needle—whether the subject is vulnerability to HIV infection or the destruction of the planet. We are just not built that way (even if we did do some stats at school).

Critically, though, the old perceive only a little more climate change risk than the young. Humans, as a whole, look like a teenager engaging in unprotected sex when it comes to global warming. Whether this poor risk perception can be changed is something I want to return to in a future post.

The Green New Deal and Modern Monetary Theory (MMT)

This post is a bit of diversion from my recent focus on the mobility and energy revolutions currently taking place (the solar posts are “to be continued”). The Democrats new super star Alexandria Ocasio-Cortez has been making waves since becoming the youngest woman to ever serve in the United States Congress. Yesterday Ocasio-Cortez submitted a non-binding resolution in the House of Representatives under the title “Recognising the duty of the Federal Government to create a Green New Deal“. If you haven’t read the actual document (a couple of pages long), I urge you take a look rather than get a second-hand interpretation. You can find the resolution here. And Ocasio-Cortez introducing the policy here:

The resolution is to be accomplished “through a 10-year national mobilization” to execute a series of projects and achieve a range of goals, one of which is “meeting 100 percent of the power demand in the United States through clean, renewable, and zero-emission energy sources”. Well I think Tony Seba would approve of that even if Tony would believe this will happen regardless of the government’s involvement through the magic of technology and market forces.

Criticisms, or course, have come thick and fast, but one of the most major relates to cost: who will pay for the Green New Deal? The frequently asked question (FAQ) sheet attached to the resolution gives this answer:

How will you pay for it?

The same way we paid for the New Deal, the 2008 bank-bailout and extended quantitative easing programs. The same way we paid for World War II and all our current wars. The Federal Reserve can extend credit to power these projects and investments….

The critical component of this response to the question of payment is the statement that “the Federal Reserve can extend credit to power these projects and investments”. And this is where I am heading with this post. Ocasio-Cortez is not only an advocate of a far-reaching environmental policy aimed at tackling climate change, but she is also an adherent to the rather arcane economic theory of Modern Monetary Theory, or MMT.

MMT focuses on the fact that modern monetary systems are based on fiat money. This means monetary systems where nothing backs the issuance of paper money, unlike under previous systems which were backed by gold or some other real substance. Under such so called ‘fiat money’ systems, the government can never go bankrupt since it has the power to print money. That said, while the government may not be able to bankrupt itself through printing money, it is quite capable of bankrupting the private sector through printing so much money that it sets off hyper-inflation: think Wehrmacht Germany, Zimbabwe or Venezuela. Nonetheless, MMT adherents see a world of difference between using debt and money creation in a responsible way to achieve policy goals and in an irresponsible way to support some form of crony capitalism.

Critically, the general public finds it very hard to understand the fact that the government can create money from nothing, but this is just an irrefutable fact.

Accordingly, the government can impact on the real economy through printing paper money in exchange for labour or goods. Under Ocasio-Cortez’s plan, the US government could print money, via the Federal Reserve, to buy wind and solar farms and pay workers to install them. It would use government debt to get to where it wants to go.

In many aspects, MMT is not far away from traditional Keynesian economics, which encourages governments to smooth out business cycles through engaging in pump priming the economy by running fiscal deficits whenever a recession emerges. Followers of MMT, however, believe that the government’s power over money creation should not just be used as a safety net in times of trouble but also in a much more proactive goal-oriented manner to solve current problems.

Under MMT, you needn’t worry about deficits and debt in and of themselves, but only if they result in the adverse outcomes of rising inflation and real interest rates. According to followers of MMT, if you run a big deficit and build up a lot of debt with neither inflation rising nor real interest rates spiking, then you have nothing to worry about. MMT also shifts the policy balance of power away from central banks to politicians.

At this stage, I recommend you sit down and spend a very fruitful 45 minutes of your time watching the following January 2019 lecture by the most famous advocate for MMT Stephanie Kelton. Kelton is that rare thing in an economics professor: a great communicator. Anyone who has got this far down the blog post will be able to understand the lecture — I promise (honest). More important, by the end of the lecture you will realize that government spending is not like household spending. So next time a politician says that a government must learn to live within its means just like a household, you will understand that the politician in question doesn’t know what he or she is talking about.

And, finally, in response to Prime Minister Theresa May’s claim that “there is no magic money tree”, well, actually there is, and in the UK it sits within the Bank of England (BOE). In a wonderful BBC Radio 4 programme called “Shaking the Magic Money Tree“, Michael Robinson descended into the depths of the BOE to see money created out of nothing: so the money tree does exist!

That said, magic can be a force for good or evil. I’m not saying that Ocasio-Cortez has no constraint over what the government can do deficit-wise in terms of executing a Green New Deal. But the judicious use of government’s deficits to finance ambitious government goals should not be dismissed out of hand. Financing such goals through deficits has been done before, and, handled well, it can be done again.

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Data Watch: UAH Global Mean Temperature, June 2015 Release

On July 6th, Dr Roy Spencer released the University of Alabama-Huntsville (UAH) global average lower tropospheric temperature anomaly as measured by satellite for June 2015 (here). The anomaly refers to the difference between the current temperature reading and the average reading for the period 1981 to 2010 as per satellite measurements.

June 2015: Anomaly +0.33 degrees Celsius This is the 3rd warmest June temperature recorded since the satellite record was started in December 1978 (36 June observations). The warmest June to date over this period was in 1998, with an anomaly of +0.56 degrees Celsius. Full data set available here (click for larger image).

UAH Global Temp July 2015 jpeg

The El Nino Southern Oscillation (ENSO) cycle is the main determinant of new temperature records over the medium term (up to 30 years) . The U.S. government’s Climate Prediction Centre currently has an El Nino advisory in effect and is forecasting that the current El Nino event is set to continue through into 2016 (update 9 July 2015 here):

Overall, there is a greater than 90% chance that El Niño will continue through Northern Hemisphere winter 2015-16, and around an 80% chance it will last into early spring 2016.

Given this background, I would expect the UAH anomalies to remain elevated for some time.

As background, five major global temperature time series are collated by different international agencies: three land-based and two satellite-based. The terrestrial readings are from NASA GISS (Goddard Institute for Space Studies), HadCRU (Hadley Centre/Climate Research Unit in the U.K.), and NCDC (National Climate Data Center). The lower-troposphere temperature satellite readings are from RSS (Remote Sensing Systems, data not released to the general public) and UAH (Univ. of Alabama at Huntsville).

The most high profile satellite-based series is put together by UAH and covers the period from December 1978 to the present. Like all these time series, the data is presented as an anomaly (difference) from the average, with the average in this case being the 30-year period from 1981 to 2010. UAH data is the earliest to be released each month.

One of the initial reasons for publicising this satellite-based data series was due to concerns over the accuracy of terrestrial-based measurements (worries over the urban heat island effect and other factors). The satellite data series have now been going long enough to compare the output directly with the surface-based measurements. All the time series are now accepted as telling the same story (for a fuller mathematical treatment of this, see Tamino’s post at the Open Mind blog here). Note that the anomalies produced by different organisations are not directly comparable since they have different base periods. Accordingly, to compare them directly, you need to normalise each one by adjustment to a common base period.

Climate Change Will Make ISIS Look Like Amateurs

The destruction by ISIS (Islamic State) of the ancient Assyrian city of Nimrud in Iraq and potential destruction of Palmyra in Syria has shocked the world—almost as much as the organisation’s previous beheadings of its captives.

Nimrud jpeg

Unfortunately, an article in this week’s New Scientist on sea level rise titled “Five Metres and Counting” (apologies print or paywall access only) suggests that climate change has already committed the world to the destruction of human heritage many orders of magnitude greater than anything ISIS is capable of doing.

You may be familiar with the Intergovernmental Panel on Climate Change (IPCC)‘s end of century sea level rise forecast (here, page 11 in the report). This pegs the upper sea level rise outcome at just below one metre (click for larger image).

IPCC Sea Level jpeg

What is less well-known is that this is just the preliminary phase of sea level rise. Given the extent of warming to date plus the warming guaranteed by current levels of carbon dioxide in the atmosphere, we are committed to barrel through one metre. In the words of Michael Le Page from The New Scientist:

Whatever we do now, the seas will rise by at least 5 metres. Most of Florida and many other low-lying areas and cities around the world are doomed to go under. If that weren’t bad enough, without drastic cuts in global greenhouse gas emissions–more drastic than any being discussed ahead of the critical climate meeting in Paris later this year—a rise of 20 metres will soon be unavoidable.

The arithmetic is pretty depressing (chart from New Scientist article): 0.4 metres for mountain glaciers, plus 0.8 metres for ocean thermal expansion, plus 3.5 metres for the West Antarctic ice sheet (the areas in orange in the chart below, click for larger image). If we go past 2 degrees Celsius of warming and get to 4 degrees, then we add all the blue bars as well.

NS Meltdown Imminent jpeg

Since the IPCC’s Fifth Assessment Report (AR5) was published, fresh evidence has emerged relating to West Antarctic ice sheet instability. Moreover, two large basins, the Aurora and the Wilkes, that form part of the East Antarctic ice sheet also appear vulnerable. In short, if we push up to 4 degrees Celsius of warming, then we are likely committing ourselves to 20 metre sea level rise.

So we’ve seen what ISIS had done in Nimrud, this is what we will do to Venice with 20 metres of sea level rise (source: here):

Venice jpeg

And New York:

New York jpeg

These projections are Old Testament in terms of the scale of the catastrophes they portend; indeed, ISIS could only dream of unleashing such wanton destruction. Yet, in our failure to tackle climate change, such wanton destruction appears to have been accepted by the G20 elites and, frankly, ourselves.

Addendum: 

Had a request for the background papers quoted by New Scientist. Most of these are behind paywalls but the authors frequently make pdfs available on their personal web sites or the web sites of their institutions:

Link to Science article on collapse of West Antarctic ice sheets
http://sumnerscience.com/wp-content/uploads/2014/05/Science-2014-Sumner-683.pdf

Link to Nature Geoscience article on Aurora Basin (East Antarctic): http://www.nature.com/ngeo/journal/v8/n4/full/ngeo2388.html

Link to Nature Climate Change article on Wilkes (East Antarctic):
http://www.nature.com/nclimate/journal/v4/n6/full/nclimate2226.html

Link to Earth and Planetary Science Letters on overall East Antarctic melting (total 15 metres):
http://www.sciencedirect.com/science/article/pii/S0012821X14007961

Link to Nature Climate Change Letter on Greenland
http://www.nature.com/nclimate/journal/v2/n6/full/nclimate1449.html

The EIA Sees Our Energy Future – Which Doesn’t Look That Much Different from Today

Exams finished (I’ve been exercising my brain cells by doing some data analysis and computer courses with the UK’s Open University), so I have at last had a chance to blog.

Let’s kick off with a report I usually try to catch each year: the US government’s Energy Information Administration (EIA)‘s “Annual Energy Outlook 2015“, which looks out to 2040.

If you keep up with media reports, the backdrop to the 2015 Outlook would be something like this:

US oil production has pushed up toward 10 million barrels per day (bpd) and is a whisker away from overtaking Saudi Arabia; five LNG export terminals have been approved and are under construction because the US is so awash with natural gas (due to the fracking boom) that it needs to export it; solar PV panel price falls coupled with efficiency gains have brought the levelised cost of solar PV down so substantially that solar energy is now making a major contribution to electricity generation in an ever-growing number of American states; Texas has become a wind-energy king second only to Denmark; and Elon Musk is bringing power to the people (literally) in the form of a new generation of home super batteries.

Wow, sexy stuff! So I guess we are going to see the EIA predicting radical changes to the energy mix in 2040, especially as many of the trends I just highlighted are only getting started. Right? Let’s look at EIA’s flagship chart (page 17 of the report, click for larger image on all charts):

US Primary Energy Consumption jpeg

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Utopia, Dystopia, Uncertainty and Our Psychological Selves

I have just finished reading Dylan Evans’ book “The Utopia Experiment“, which chronicles the author’s doomed attempt to found a self-sufficient community in rural Scotland as a post-collapse prototype for others to learn from.

It is always interesting to find a hidden back story about one of the authors who sit on my book shelf–and boy does Evans have a bizarre back story. Evans is an LSE-trained philosopher and scholar of risk, robotics, artificial intelligence and evolutionary psychology (after many a wayward turn).  I already own his book “Risk Intelligence”, which deals with many of the issues I confront in this blog, particularly ‘decision-making under uncertainty’. Unknown to me, Evans’ interest in risk, combined with his own personal demons, had previously led to a decision to opt out of conventional society, which in turn led to a complete nervous breakdown.

Evans displays a compulsive personality: he pours himself into a particular endeavour for a year or two, then recoils from any further long-term commitment. To launch ‘Utopia’, he sacrifices everything: his house, his job, his relationships. To justify this, ‘Utopia’ becomes more than a mere experiment but rather a lifeboat being made ready for the collapse of civilisation. In a conversation with Oxford academic and scholar of existential risk Nick Bostrom, he is asked this question:

How likely do you think it is that something like the imaginary scenario you are acting out in Scotland might really come to pass in the next ten years?

Evans replies:

I thought a bit longer, and finally declared that I thought that the chance of such a thing happening within the next ten years was about 50 per cent. Nick looked shocked. Not even the most pessimistic scientists thought things were that bad….

….the precision that Nick had demanded of me forced me to own up to my error in a way that vagueness never would. It betrayed the extent to which what had started out in my mind as an exercise in collaborative fiction had already become an insurance policy against a global disaster that I was increasingly convinced was imminent.

Later he frames this decision as more psychological rather than intellectual. A predisposition toward depression coupled with a generalized angst at living within large corporate structures results in a rejection of his existing social and institutional ties. The irony here, as he later admits, is that for one so psychologically fragile discarding structure is about the worst thing he could have done mental health-wise.

Moreover, ever the contrarian, Evans comes to question his own beliefs more rigorously the more advanced the experiment becomes. Intellectually, his certainty is lost and without that comforting narrative ‘Utopia’ become less a personal lifeboat but more of a rip tide dragging him below the waves.

So are there any wider lessons here? I think there are many. First, as behavioural economics teaches us so well, humans and not what the economist Richard Thaler calls ‘Econs’; that is, emotionless calculating machines as opposed to humans. We can only perceive risk and uncertainty within an emotional framework. Humans have an optimism bias partly as an evolutionary means to advertise positive traits that allow us to mate and flourish but partly just to keep us sane. Examining the downside is painful and can lead to isolation, rejection and depression.

Yet perhaps there are those of us who can maintain contrarianism without falling apart. Evans documents how the participants in ‘Utopia’ rapidly progress from viewing the commune as an experiment to one of preparation for real collapse. They need a narrative to inoculate themselves from the outside world. Yet after a time, Evans starts to question all the collapse narratives that the commune volunteers espouse, falls into depression and is eventually replaced as leader by an early volunteer called Agric.

What Agric offers to the remaining volunteers is a narrative of certainty, which Evans could no longer offer. Further, this is a narrative that is immune to any counter-argument since it rests upon an irrefutable theory.

Part of the reason why Agric was so dismissive of any suggestion that civilisation might not be about to collapse was the fact that he had a powerful theory. He was in the grip of Malthus, like many before him. Malthus had shown that population growth must always outstrip food supply, right? He had proved it.

And earlier:

The idea that our civilisation might not only survive global warming but also continue to grow richer had appalled me, and this was perhaps why I had believed so ardently that it would collapse. I had wanted it to. Agric still did.

At this point it would be easy to laugh at the ‘Utopia’ pioneers, painting them as New Age fools. But not so fast. Evans’ story shows how hard it is to disentangle the dispassionate from the emotional when it comes to risk and uncertainty, particularly when it comes to tail risk. But this cuts both ways.

Let’s assign a 1% probability to collapse rather than Evans’ 50% and let’s push out the horizon to five decades rather than one. We are now entering the territory of intellectual respectability. The kind of probabilities that former Astronomer Royal Martin Rees sets out in his book “Our Final Century“.

.

Yet the vast majority of us are repelled at discussing such negative scenarios. Nick Bostrom points out that the academic literature is many times richer when it comes to publishing papers on dung beetles or Star Trek than it is to considering existential threats to humanity (here).

Academic Prioritisation jpeg

I propose that to seriously consider those dark-side scenarios you need either 1) immense psychological detachment and resilience or 2) no psychological detachment at all (a joyful embrace of the collapse narrative). In short, psychology-wise you need to be built differently from the vast majority.

Nonetheless, some true contrarians do exist in a variety of fields, for example, finance, and walk a fine line between delusion and perception. It is such people who populate Gregory Zuckerman’s book “The Greatest Trade Ever” which retells the story of five individuals who made their fortunes from the collapse of Lehman Brothers and the onset of the Great Recession. These are not Thaler’s dispassionate, calculating ‘Econs’ devoid of emotion. These are five individuals with their own rather peculiar character quirks who are naturally uncomfortable with both the status quo and the institutions that support the status quo. In this particular case, they emerge from Zuckerman’s book as prescient heroes. Of course, we never hear of the thousands of similar individuals whose backs are broken on the wheel of markets that go the wrong way.

Perhaps our differing reactions to upside and downside risk is nature’s way of hedging its bets. A few of us are comfortable operating in the super optimistic probability tail of upside risk and fewer still like Agric like to wallow in the pessimistic tail of downside risk. From an evolutionary perspective, most of the tail risk jockeys end up as road kill. But things do change, and perhaps a maladaptive mutation will suddenly becomes a vital survival trait. Those Agric-like fellows who believe they know the future will be the equivalent of bacteria on a petri dish that survive a dose of penicillin. A mutation that may previously have been an impediment becomes a life-saver as circumstances change.

We each have our own view of rationality, but it is our emotional state that keeps us sane when seeing the world. Don’t get me wrong: I am no post-modern relativist. For example, I think there does exist an objective assessment of the likelihood that the globe will experience extreme climate change leading to economic collapse by end century (and a non-negligible one at that). This is certainly not enough risk to make me run off to the wilds of Scotland, but it is a risk nevertheless. But I think that only some people can psychologically live with such a fact. Most can’t. The dominant narrative is: let’s pretend that climate change doesn’t exist as a factor in our or our children’s lives and carry on regardless.

Dylan Evans’ story may perhaps be one of the delusion of a few, but humanity’s inability to tackle climate change is a story of the delusion of the many. So let’s not laugh too long at ‘Utopia’.

The IMF, Fossil Fuels and the Name for a Rose

Juliet:

Tis but thy name that is my enemy;
Thou art thyself, though not a Montague.
What’s Montague? it is nor hand, nor foot,
Nor arm, nor face, nor any other part
Belonging to a man. O, be some other name!
What’s in a name? that which we call a rose
By any other name would smell as sweet

 IMF:

But if thine enemy is the fossil fuel industry,
And one would name a rose as ‘tax’,
then television, and radio, and newspapers
and twitter and a multitude of social media
would declare such rose as smelling most foul,
like vomit, or excrement or the pustulent sores
of a pox-ridden hag in the lowliest of taverns

In truth, Juliet was wrong. Names do matter. They frame narratives, just as the names Montague and Capulet did.

We live in a neoliberal world where both ‘tax’ and ‘subsidy’ are framed as evil. So whatever you do don’t talk about introducing a carbon ‘tax’, talk about eliminating a carbon ‘subsidy’. And this is what the IMF has done in a widely publicised report issued yesterday (here):

A key factor in estimating the magnitude of current subsidies is which definition of “subsidies” is used. Pre-tax consumer subsidies arise when the price paid by consumers (that is, firms and households) is below the cost of supplying energy. Post-tax consumer subsidies arise when the price paid by consumers is below the supply cost of energy plus an appropriate “Pigouvian” (or “corrective”) tax that reflects the environmental damage associated with energy consumption and an additional consumption tax that should be applied to all consumption goods for raising revenues.

Generally, when we talk about externalities, we talk about costs rather than subsidies, but, like double-entry book keeping, these are two sides of the same concept. When consumer A transfers a cost to consumer B, we can think of consumer B subsidising consumer A. Continue reading