Climate Change: The Resilience Option (far better than climate stasis)

In general, the mainstream response to the issue of climate change has been reactive, pessimistic, authoritarian, and resistant to change. Those alarmed about a changing climate would stand athwart the stream of climate history and cry “stop, enough!” Rather than working to cease human influence on climate, they want to find a way to make the climate stand still. This focus on creating climate stasis has led to policy proposals that would have been laughed at or dismissed as wacky conspiracy theories in the 1980s. But mainstream anti-climate-change activists are proposing nothing less than the establishment of global weather control through energy rationing, regulations, and taxes, all managed by a global bureaucracy with a goal of leading humanity into a future that will become smaller, more costly, and less dynamic over time. Environmental groups, along with organizations like the United Nations IPCC, are calling for nothing less than imposing climate stasis on a chaotic system.

Consider the climate bill now before Congress: the Waxman-Markey American Climate and Energy Security Act. Waxman-Markey sets the ambitious target of reducing total U.S. GHG emissions by 83 percent below 2005 levels by the year 2050 (with intermediate benchmarks at 2020 and 2030). Thus, the cap and the allowances sold pursuant to it will be lowered from a peak of 5.4 billion tons in 2016 to just a little over 1 billion tons in 2050. As my colleague Steven F. Hayward and I have pointed out elsewhere, these targets are absurd.   From Department of Energy (DOE) historical statistics on energy consumption, it is possible to estimate that the United States last emitted 1 billion tons in the year 1910, when the nation’s population was only 92 million people, per-capita income (in 2008 dollars) was only $6,196, and total GDP (also in 2008 dollars) was about $572 billion—about one-twenty-fifth the size of the U.S. economy today. By the year 2050, however, the United States is expected to have a population of 420 million, according to Census Bureau projections—more than four times the population of 1910. In order to reach the 83 percent reduction target, per-capita carbon dioxide (CO2) emissions will have to be no more than 2.4 tons per person—only one-quarter the level of per-capita emissions in 1910.

When did the United States last experience per-capita CO2 emissions of only 2.4 tons? From the limited historical data available, it appears that this was about 1875. In 1875, the nation’s GDP (in 2008 dollars) was $147 billion, per-capita income (in 2008 dollars) was $3,300, and the population was only 45 million.

My colleague Kevin A. Hassett, Hayward and I have also written elsewhere about the problems with cap-and-trade and suggested that a revenue-neutral carbon tax would be preferable,  but that, too, represents an effort to impose stasis on a dynamic system simply using more efficient means. A carbon tax is, to be sure, vastly superior to a cap-and-trade system, but there are doubts that it is politically possible to enact one in a way that is actually revenue-neutral and is not abused by politicians who will look to tax those they dislike and rebate the taxes to groups they favor, namely, those which are most inclined to vote for their party.

A more forward-looking, optimistic, and free-market approach to the risks of climate variability accepts that the climate has been, is, and will be variable; focuses on the risks of variability; and looks for ways to build resilience in the face of that change, regardless of cause.

Aaron Wildavsky’s Resilience Paradigm

Aaron Wildavsky, one of the great policy analysts of the late twentieth century, wrote extensively about the benefits of resilient social institutions. Wildavsky observed that possible risk-reduction interventions lie along a spectrum from resilient to interceptive. Resilient approaches maximize our ability to cope with risk by maintaining a dynamic, market-based, knowledge-building strategy. Interceptive interventions emphasize specific risk-reduction efforts that require certain specific actions and prohibit or restrict others.  But how do we decide, for a given risk such as climate change, whether an interceptive approach is more likely to provide greater safety than a resilient approach?

Employing both theory and empirical observation, Wildavsky observed that uncertainties about the likelihood or extent of any given risk and about the effectiveness of any intervention constrain risk-reduction decisions.  He clearly demonstrated that a strategy of risk-interception is likely to be successful only in situations of truly excellent information.

So, for example, for a power plant owner who knows that a particular part is going to burn out every 150 days an interception strategy of replacing the part every 149 days to prevent the risk is likely cost-effective. But where less information exists, more resilient strategies are likely to succeed, because interception will be either infeasible or expensive in such situations. If a power plant had 8,000 critical pieces of equipment that would create a fire upon failure but the plant owner did not know the failure rates of each piece, trying to intercept the risk by replacing pieces before they failed would be enormously costly. Further, trying to have backup systems on all 8,000 pieces would be technologically difficult and probably not financially feasible. Instead, a strategy of resilience, such as implementing a sophisticated fire-response system, is more likely to be a feasible and efficient way of dealing with this risk.

In the case of climate change, our knowledge of the nature and scope of risks and future conditions is low, and our knowledge about how to intervene to head off specific risks is small. This suggests that current policy approaches that focus on mitigating GHG emissions largely to the exclusion of everything else are simply a waste of attention and resources, and resilience should be considered the default climate strategy. And to a large extent, the resilience option is the complete opposite of the climate-stasis approach; it focuses on decentralization, deregulation, and freeing markets to maximize resilience.

Managing Risks with Resilience-building Policies

A vast range of risks has been discussed in the context of climate change, from flood to drought, threatened food supplies, more deadly insect-borne diseases; higher heat-related deaths; rising sea levels, and so forth. Several approaches economists and policy analysts have identified could help increase social resilience to such risks.

Eliminate risk subsidies. Predicted damages associated with sea levels and storms are high because of the popularity of such locales for high-density business and upscale residential development. As a result, damages from extreme coastal weather events have been hugely expensive. The damages from Hurricane Katrina, for example, reached over $150 billion.  The question, however, is why there was so much value that was so badly protected against completely predictable events? Levees and sea-walls were under-designed. Many houses and businesses were not insured against flood damage. As Charles Perrow observes in Our Next Catastrophe, “Even in areas known to be hazardous, only about 20 percent of homeowners purchase flood insurance, and less than 50 percent of businesses purchase flood and earthquake insurance in risky areas.”

The reason for much of that risk-taking is the role of state and federal governments as the insurer of last resort. People know that in the event of a disaster, even if uninsured, the Federal Emergency Management Agency will give grants to let people recover from natural disasters such as hurricanes, floods, and storm surges. Without such assurances, we can assume that many people would be unwilling to face the risk of living in coastal areas that could be flooded by rising sea levels, and would relocate to higher ground. Capital needed for businesses would also avoid areas of high-risk due to sea-level rise, preventing further siting of high-value structures in vulnerable areas. If risk subsidies cannot be abolished entirely, at the very least, they should charge risk-based premiums.

Privatize Infrastructure. Climate change could also pose a challenge for coastal or low-lying roadways, water-treatment facilities facing increased rainfall intensity, energy utilities facing increased summertime electricity demand, and so on. Governments are quite good at building infrastructure. After all, what politician does not enjoy a ribbon cutting ceremony for some new element of name-bearing infrastructure? But governments are dismal at maintaining infrastructure, as they generally fail to establish a revenue stream to maintain a system that provides feedback about whether a particular road should be raised or a water-treatment facility expanded or a power-capability increased. A solution to these problems, as well as a potential source of revenue for cash-strapped state and municipal governments is the privatization of infrastructure. While a few poorly executed privatization efforts have tarnished the name, the baby should not be thrown out with the bathwater; privatization offers a host of benefits. A great deal of research on privatization in developing and developed countries demonstrates that, on the whole, privatization shows considerably more benefit than risk. One reason is that private owners of infrastructure have a lot of investment tied up in getting a long-run stream of revenue from the infrastructure. Ensuring that future changes in climate do not disrupt that long- run cash flow is critical to their current financial performance.

• Roadways. If roads are privately owned and tolled, road operators have a revenue stream to tap in order to raise, resurface, or re-contour roadways to adapt to climate changes. If costs of such adaptation are high, tolls will rise, and at some point, an economic decision will occur about whether a road should be maintained, or whether some alternate route should be developed. In some cases people may indeed find their transportation options so limited that they must move away to a place with a less fragile climate. One can imagine something like this for some coastal roadways where there are no easy alternate routes, but it would probably be a fairly rare outcome. Still, if such situations did develop, this is a desirable outcome, as it is both economically efficient and reduces the likely cost of climate-related damages to structures.

• Electricity Supply. As long as governments distort the prices consumers pay for energy with subsidies, fuel mandates, renewable power mandates and the like, electricity markets cannot effectively adapt to changing climatic conditions. If electricity markets were fully deregulated, and if full costs were passed onto consumers, price signals would be created for the electricity provider in terms of expanding or decreasing capacity and for the consumer in terms of the real cost of living in an environment subject to energy-consuming heat waves (or cold snaps). Privatization would create incentives for electricity conservation and for the acquisition of energy-efficient appliances and devices without any need for specific governmental efficiency standards. Further, electric companies would be driven to connect with one another to ensure reliability to their customers rather than doing the minimum possible to satisfy regulators.

• Water Supply. Full pricing of water and full privatization of the water supply, drinking water plants, and wastewater treatment plants would ameliorate many climatic risks incrementally over time, including flooding, seawater intrusion, and coastal and river pollution from storm runoff. Charging the full price for water, from supply to disposal, would create a price signal for consumers regarding the real risks they face living in hydrologically sensitive areas and create incentives for conservation while producing a revenue stream to allow for expanded capability or the securing of alternative supplies. At some point, again, high prices could simply lead people to move away from areas that are hydrologically costly, such as cities dependent on a single winter snow pack that shrinks or a single major river that suffers reduced flow.

• Flooding. What is not achieved by removing insurance subsidies in flood-prone areas can be managed through the creation of privately administered hydrologic utilities, which would be financed by flood-protection fees charged to residents of flood prone areas. Again, such a system creates a price signal that can show when it is and when it is not efficient to raise the height of a levee, for example, or to expand permeable surfacing requirements in development. The cost of paying for such activities would send the consumer a signal about the true cost of living in flood-prone areas, and would ultimately lead those who could not afford to fully finance their level of risk to relocate to safer areas.

Trust in Resilience, but Tie up Your Camel

In the event that climate change does tend toward higher estimates put forward by the United Nations and other groups, it is reasonable to consider insurance options that might help deal with such climate changes. Such options might include government investment in geoengineering research, investment in research and development to advance technologies allowing the removal of GHGs from the atmosphere, and possibly the creation of a climate adaptation fund to be used where state and local governments find themselves unable to cope with a given climate change, or even to compensate others should it ultimately be shown that U.S. emissions of GHGs have caused harm to other countries or the property of other individuals.

It has long been known that certain types of risk are not suited to attempted prevention, but instead must be met with the resilience needed to live with the risk. Climate change is one such risk that is, as the world is increasingly observing, virtually impossible to prevent, whether it is manmade or natural.

As efforts to mitigate GHGs fail around the world, it is long past time to broaden the tools available to us in order to make our society resilient to climate risk. Rather than remain largely focused on the quixotic effort to reduce GHG emissions or to stand athwart the stream of climate and shout “stop, enough!” we should shift the majority of our policymaking attention to an agenda of resilience building and adaptation, two areas  with which governments particularly struggle. Plan B for climate resilience should consist of an aggressive program of resilience building through the elimination of risk subsidies, and the privatization of infrastructure. Other subsidies and regulations that make the overall economy more brittle in the face of climate change would also be ripe targets for removal, such as those which permeate energy and water markets.

NOTES

1. Steven F. Hayward and Kenneth P. Green, “Waxman-Markey: An Exercise in Unreality,” AEI Energy and Environment Outlook, no. 3 (July 2009), available at www.aei.org/outlook/100057.

2. It is possible that per-capita CO2 emissions were never this low even before the advent of widespread use of fossil fuels: wood burning by Americans in the nineteenth century may have produced more than 2.4 tons of CO2 per capita. Much depends on the emissions coefficient for wood burning and how, since wood is biomass rather than a fossil fuel, reforestation is credited in carbon accounting. In 1875, burning wood generated twice as much energy as fossil fuels.

3. Kenneth P. Green, Steven F. Hayward, and Kevin A. Hassett, “Climate Change: Caps vs. Taxes,” AEI Environment and Energy Outlook, no. 2 (June 2007), available at www.aei.org/outlook/26286.

4. Aaron Wildavsky, Searching for Safety (New Brunswick, NJ: Transaction Publishers, 1988). Wildavsky used the terms “resilience” and “anticipation” rather than “resilience” and “interception.” In adapting Wildavsky’s framework to more recent risk-related issues, I have chosen to use “interception” because it corresponds better to common perceptions of how risk regulations work.

5. Ibid.

6. Mark L. Burton and Michael J. Hicks, “Hurricane Katrina, Preliminary Estimates of Commercial and Public Sector Damages” (Huntington, WV: Marshall University Center for Business and Economic Research, September 2005), available at www.marshall.edu/cber/research/katrina/Katrina-Estimates.pdf (accessed September 24, 2009).

7. Charles Perrow, The Next Catastrophe: Reducing Our Vulnerabilities to Natrual, Industrial, and Terrorist Disasters (Princeton, NJ: Princeton University Press, 2007): 37–38.

This post is an excerpt from a longer Environment and Energy Outlook, published by the American Enterprise Institute. The full study can be found here.