Center for Business and Public Policy
at the University of Illinois, Urbana-Champaign

In my last blog, I pointed out the inherent nature of uncertainties in climate projections, and the long list of reasons for particular uncertainties about the effects of anthropogenic greenhouse gas emissions on the change in future temperature levels, droughts, severe storms, sea level rise, and about measures of economic damages from any such event.  The range of possible outcomes is enormous, but I argued that the uncertainties are not a reason to wait and do more research before enacting legislation to reduce those emissions.  Indeed, the huge range of probability outcomes is a big reason to act now to reduce the possibility of such costly events.

In this blog, I want to expand that point to talk about the various kinds of uncertainties and what to do about them.  I just read an interesting blog by Keith Kloor that lists five kinds of reactions to uncertainty.  I will describe HIS five points, but what they bring to mind for me are the FIVE STAGES OF GRIEF (when a loved one dies, for example).  I’m sure you’ve heard these before:

1-Denial

2-Anger

3-Bargaining

4-Depression

5-Acceptance

Well, those approximately label his five reactions to uncertainty about climate change.  First, one could DENY the uncertainty, which might be done to try to further some political agenda.  Those who want environmental protection might say we KNOW that anthropogenic greenhouse gas emissions will cause significant global warming, and therefore we must act to prevent it.  That’s just wrong; we don’t KNOW that global warming will be significant and highly costly.

In fact, “uncertainty deniers” have done a great disservice to their own cause.  The claim that global warming is certain just gives the other side the opportunity to point out correctly that it’s NOT certain!  But that whole argument is irrelevant!  The relevant problem is that global warming MIGHT be significant and highly costly!

Second, one could react by trying to REDUCE the uncertainty, such as through herculean research efforts to make better predictions.  Research might well be worthwhile, and it might help reduce some of the uncertainties, but it will not reduce all of them, and it might introduce new uncertainties that we’ve not yet considered!

Third, one could try to SIMPLIFY the uncertainties, such as to explain in simple terms the complex scientific reasons for the inherent uncertainties listed in my previous blog.  It’s not wrong to try to explain complex uncertainties, and even to fit them into a finite set of categories, but the danger is that such simplification be taken as a replacement for consideration of all the complexities.   The problem is that simplification may in effect minimize those uncertainties.  Anyway, this kind of reaction is somewhat like bargaining: “maybe if we make up simple categories for these complex uncertainties then they might not seem so daunting.”

Actually, Kloor’s fourth reaction sounds even more like bargaining, when he says “Uncertainty detectives – well all scientists should work hard to understand, represent, and reason about uncertainty (. . .). The conflict is when political opponents seize on this uncertainty as an excuse for inaction.”  Now that is a cause for depression!

Anyway, of course, the fifth and final reaction to uncertainty is ACCEPTANCE: “include uncertainty information in rational decision support systems and policies.”  We need to know what is known, and what is unknown, to be able to make rational decisions as a society to adopt policies that can insure us against the worst possible outcomes.  We at least need to make the right tradeoffs between the costs of that insurance and the benefits of reducing those risks.  We need to undertake any available low cost measures to reduce fossil-fuel-fired electricity generation, to increase energy efficiency of vehicles and appliances, to increase alternative fuel use, to build water storage that can help deal with a possible increase in the number of droughts, and to build levees that can help deal with a possible increase in the number of severe storms.

Accepting the fact of uncertainty means giving up the idea of building in those protections because we know things will get worse.  Instead, it means building in those protections because things might get worse, and they might get a lot worse.

Nobody has any doubt that climate forecasts are uncertain.  They are uncertain with or without anthropogenic (human caused) effects of greenhouse gas emissions.  Then, when trying to gauge the effects of humans, we have to take the difference between the uncertain climate forecast with extra emissions and the uncertain forecast without extra emissions.  That only compounds the uncertainty!

Suppose for example that without our extra carbon dioxide and other greenhouse gas emissions, the temperature in 2050 is predicted to average 50°F plus or minus 5°.  And suppose the temperature with our current rate of emissions is predicted to average 52°F plus or minus 5°F.  Then the difference (the effect of emissions) is not just 52-50 = 2°F.  Rather, it could be anywhere between 57-45 = 12°F, at the high end, or 47-55 = -8°F, at the low end.  We just don’t know.

That simplified example is overstated.  But look at the figure from the IPCC Fourth Assessment Report’s “Summary for Policymakers”.  It shows a set of model simulations with a range of results anywhere from no global warming to about 4°C (which is about 7°F).   That is a lot of uncertainty, but that figure does not reflect all possible uncertainties.  Those include (but are not limited to): uncertainties about the amount of GHG emissions in the future, about the effect of those GHG emissions on ambient atmospheric concentrations, about the effect of ambient atmospheric concentrations on air temperature, about the effects of air temperature on ocean water temperature at different depths, about the feedback effects of ocean water temperature back on air temperature, the effects of all those changes on polar ice caps, the effects of polar ice caps on sea level rise, the effects of sea level rise on millions of miles of coastline around the world, and the effect of all those changes on economic damages.

Many have taken this inherent uncertainty as a reason not to act now, but instead to wait, to undertake more research, and to try to reduce that uncertainty.

That may be a natural initial reaction, but it is not a good one.  It assumes that uncertainty reduces the need to act, when in fact increases in uncertainty only increase the need to act!  That is not to say research is unwarranted, or that we have nothing more to learn. We can and should try to find out more and try to reduce uncertainties.  But a lot of that research may raise additional considerations and uncertainties!  Uncertainty is inherent to the problem and will never disappear, so waiting for resolution of the uncertainty means waiting forever and doing nothing forever.

Uncertainty itself is a problem we need to face, as it raises additional costs we can reduce.  A single hot summer or drought is a problem with which we have learned to cope.  But now we don’t even know whether we are facing that same level of heat and drought, or perhaps much more heat, reduced rainfall, extreme storms, huge loss of landmass, etc., etc., etc.  It is the unknown possibility of such loss that ought to make us act now to protect ourselves.

To the extent that anthropogenic GHG emissions raise uncertainties about future climate, the more we need policies that are resilient to those uncertainties: policies that increase our abilities to deal with drought, to make it possible to increase crop production with less rainfall, and to protect ourselves against the possibility of storms worse than Katrina.

Which brings us to the key distinction between adaptation and mitigation.  One way to protect ourselves is to adapt to droughts and storms, as just mentioned.  But another way to protect ourselves against those adverse possibilities is to start now to mitigate climate change by reducing GHG emissions.

A very Happy Thanksgiving to all of our readers out there!

In a recently completed article titled “The Allocation of Permits in U.S. Climate Change Legislation”, Daniel Karney and I analyze the allocation of permits for a cap-and-trade plan recently enacted by the U.S. House of Representatives.  (For an explanation of cap-and-trade, please see my previous post.)  We argue that freely allocating permits to firms on the basis of historic emission rates is unnecessary.  Instead, permit allocation should be focused on other goals, such as helping to cushion the financial impact of higher electricity prices on low-income households.

The figure below shows the percent of household expenditures on electricity for seven different income groups for two regions (Midwest and South).  The figure demonstrates two interesting trends.  First, low-income households spend a higher fraction of their income on electricity compared to high-income households.  Indeed, low-income households spend relatively more on almost all energy-intensive goods and services.  Second, Southern states spend a higher percentage on electricity at every income level (due to air-conditioning use in the summer).

Fossil fuels are used to generate most of the electricity in the United States; the cap-and-trade policy would raise the cost of carbon emissions and therefore would raise the price of electricity.  Thus, low-income households face a higher burden, regardless of region.

Electricity production in the Midwest mainly comes from coal-fired power plants, the heaviest emitters of CO2 pollution. In contrast, Southern states have a large portfolio of hydroelectric dams (see Tennessee Valley Authority) that emit no CO2 , and they have natural gas-fired power plants with low CO2 emissions.  A quick calculation reveals that in 2005, Midwest electricity generation uses twice the carbon dioxide per capita.

Thus, some argue that Southern states would not be affected by cap-and-trade as much as Midwestern states.  They further argue that the use of permit allocation or permit revenue to help low-income individuals should be directed to Midwestern states.  After all, households in that region would see a larger percentage increase in electricity prices.  Yet, because the logic of this allocation is based on historic emission rates, it is a form of grandfathering.  The proponents of such a policy are not taking into account an important technological change that alters the analysis.

The same legislation that enacts a cap-and-trade policy also funds the construction of a “smart” electricity grid.  With lower transmission barriers, electricity prices will converge across regions.  In turn, this means the carbon price impact in Midwestern states will spread to Southern states.  If permit allocations to help low-income families are based on historic emission rates, then Southern households are in much worse shape, because they spend approximately 1-2% more per year of household expenditures on electricity compared to Midwestern states.

In other words, grandfathering permits is generally a bad idea, and this example is just one example of what can go wrong.