On getting hit by a long tail
I’m writing this week from Santa Barbara, where the sunny beaches stand in stark contrast to the offshore oil rigs. That’s not the only stark contrast: despite a torrent of news about the ever-clearer risks of catastrophic climate change, hardly anyone at this year’s Wall Street Journal ECO:nomics conference brought up the issue until EDF President Fred Krupp took the stage after lunch. Energy prices, energy volatility, future of utilities? Yes. Climate change? No.
So what will it take to get mainstream businesses to start taking climate risk into account? Maybe we first need a shared understanding of what that risk looks like, and what it could cost American businesses. That’s the goal of our Risky Business project, which had a nice write-up in Forbes this week. As project co-chair Hank Paulson told reporter Kerry Dolan, when asked why he got involved in the initiative, “It’s not just an environmental issue, it’s an economic issue. I thought investors were ignoring real risks of climate change.” Turns out that’s not true of all investors, though: Risky Business recently partnered with risk management firm RMS, which does risk modeling for insurance, reinsurance, and hedge fund clients interested in such long-term, catastrophic economic risks as climate change and (gulp) terrorism.
Climate risk is also one of the main themes of the most recent IPCC report, which came out on Monday and highlights the long-term impacts of unmitigated climate change. The full report is here; Those interested in the meat of the report should take the time to read the Summary for Policymakers; those more interested in the chattering classes’ response might want to see these pieces from the NY Times and LA Times. The upshot of these pieces: we believe it, but will we do anything about it? And also: how can we convince anyone to act when the crisis is unfolding slowly – at least, more slowly than a standard political or business cycle?
That last question gets to the heart of the challenge of how to communicate the urgency of climate action. My favorite recent piece addressing this issue comes from economist Kerry Emanuel, who co-authored the recent AAAS study on climate science, What We Know. He has a pretty wonky but very smart article in Climate Change National Forum looking at the importance of talking about why he thinks climate scientists should look not only at the most probable future climate events, but also at the low-probability, high-impact events that are at the very end of the distribution curve – what analysts and economists refer to as “long tail risks.” As Dr. Emanuel points out, we take these kinds of low-probability, high-impact risks into account all the time: when deciding whether to cross a busy street (his example), or when deciding what kind of health insurance to buy, or how many U.S. troops to keep on active service in case of a potential conflict (my examples). We’re used to evaluating risks and acting accordingly, even if those risks seem far-off and improbable. It’s time we started taking the same approach to climate change: hence the AAAS report, which looks at tail risks, and our Risky Business research, which will assess and then quantify those risks.
There’s no question that we need to be more forward-thinking when it comes to addressing climate change. But we can’t lose sight of the important actions we can take today to curb carbon emissions and reduce our dependence on the very fossil fuels that got us into this mess in the first place. Here are some of today’s solutions to tomorrow’s climate crises:
- Proving the case in California: California’s cap and trade program continues to “bat about 1000” despite legal challenges and partisan attacks. This week California consumers are seeing the fruits of that success, as utilities return “carbon credits”, generated by carbon auction revenues, via their customers’ utility bills.
- Cutting back on methane: The latest move in the President’s plan to address climate change is the announcement that the White House will direct federal agencies to cut methane emissions from oil and gas production, storage, transportation, and agricultural operations. Why does the WH have this authority? It’s targeting activities on public lands. Of particular interest to this Wisconsinite is the plan to accelerate the adoption of anaerobic digesters, which turn manure into energy. (Note for you urban types: agricultural operations produce 8% of all U.S. greenhouse gas emissions, mostly in the form of methane from livestock waste.)
- Moving into more efficient cars: This week the California Senate’s Housing and Transportation Committee unanimously passed Senator Kevin De Leon’s Charge Ahead California initiative (SB 1275). The bill provides critical support to electric vehicles and charging infrastructure, with an eye toward low-income communities. As I’ve said many times in the past, we at Next Generation are huge supporters of EVs, but we also think there needs to be room for efficient gas-powered vehicles in the state’s transportation plans, especially in car-dependent, rural areas. As an important study out this week from the Urban institute shows, car ownership is vital to improving economic outcomes for many low-income families, whose access to good schools, good housing, and good jobs grows with their access to reliable transportation. As Emily Badger of the Washington Post WonkBlog writes, “it turns out that much of the opportunity in places with better schools, lower poverty and less crime is hard to unlock without a car.”
That’s a somewhat bitter pill for us transit advocates, but it’s also powerful validation of the argument we made in our recent “No Californian Left Behind” report (echoed more recently by a great paper from Lisa Margonelli of the New America Foundation). It’s clear that we can’t afford to lose any more time debating whether we should be helping low-income folks into cars; we need to focus instead on how we can help struggling Californians afford the cleanest, most reliable, and most efficient cars possible—gas-powered, hybrid, or electric.
Well, you got a short post last week, so I punished you this week with over 1000 words. That’s what you get for hanging in there and reading till the end. See you next week!