Hard News by Russell Brown

220

Climate, money and risk

It was, wrote Rodney Hide in his Herald on Sunday column, "the trigger that finally ended the public fear of global warming." The Australasian Antarctic Expedition getting stuck in sea ice was the "ironic event" that undid the "nuttiness" of "the high priests of global warming". Game over, alarmist ninnies.

Hide was so busy high-fiving his reflection in the mirror that one simple fact eluded him: he was only able to do because he is inconsequential.

Nothing really hangs on a celebrity newspaper column, beyond page impressions and the applause of a hundred-odd lay commenters who've had their feelings validated. It's a luxury not available to people who are genuinely tasked with managing the fundaments of capitalism: money and risk.

Three months ago, the Smithsonian magazine blog ran a post looking at how the insurance industry is dealing with climate change. Short version: things have changed. The future will not be like the past:

“Our business depends on us being neutral. We simply try to make the best possible assessment of risk today, with no vested interest,” says Robert Muir-Wood, the chief scientist of Risk Management Solutions (RMS), a company that creates software models to allow insurance companies to calculate risk. “In the past, when making these assessments, we looked to history. But in fact, we’ve now realized that that’s no longer a safe assumption—we can see, with certain phenomena in certain parts of the world, that the activity today is not simply the average of history."

The insurance industry is all about assessing risk. That's precisely how insurance companies stay in business and earn returns on the billions of dollars in their care. And its researchers are seeing, and responding to, new risks.

On the whole, it seems likely that insurance premiums for houses and buildings in flood-prone coastal regions will go up to account for the shifts Muir-Wood is seeing. On the other hand, because of the complex impacts of climate change, we might see risks—and premiums—go down in other areas. There’s evidence, for example, that snowmelt-driven springtime floods in Britain will become less frequent in the future.

The Smithsonian post links to a recent paper from the Geneva Association, another insurance industry resarcher, Warming of the Oceans and Implications for the (Re)insurance Industry, which makes similar points in greater detail. This is its executive summary:

• There is new, robust evidence that  the  global  oceans  have  warmed significantly. Given that energy from the ocean is the key driver of extreme events, ocean warming has effectively caused a shift towards a “new normal” for a number of insurance-relevant hazards. This shift is quasi irreversible - even if greenhouse gas (GHG) emissions completely stop tomorrow, oceanic temperatures will continue to rise.

• In the non-stationary environment caused  by  ocean warming,  traditional approaches, which are solely based on analysing historical data, increasingly fail to estimate today’s hazard probabilities. A paradigm shift from historic to predictive risk assessment methods is necessary.

• Due to the limits of predictability and scientific understanding of extreme events in a non-stationary environment, today’s likelihood of extreme events is ambiguous. As a consequence, scenario-based  approaches and tail risk modelling become an essential part of enterprise risk management.

• In some high-risk areas, ocean warming and climate change threaten the insurability of catastrophe risk more generally. To avoid market failure, the coupling of risk transfer and risk mitigation becomes essential.

These guys don't have the luxury of just recycling the last thing they read on Watt's Up. They're facing total collapse if they don't get it right. And they are, of course, not at all alone in the top echelons of global economics and finance. The International Monetary Fund's climate change fact sheet opens with this line:

Stabilising atmospheric concentrations of greenhouse gases will require a radical transformation of the global energy system over coming decades.

And the World Bank's new climate change special envoy Rachel Kyte had this to say a couple of months ago:

Climate change is posing a systemic risk to long-term economic growth and stability, and you've got to get your head around it now, and depending on which country you are, you've got different challenges ...

We've come to a situation where we fully realise that development is taking place in the context of a quickly changing world. Climate change isn't something that our clients, whether they be public or private, have to think about as a future risk; it's actually pummelling them now if they are a country with a coastline in the tropics or an arid country with an agricultural economy.

The interesting thing is that these people aren't having a media to-and-fro about whether this or that weather event is attributable to climate change. They've decided that it is happening and are acting on that basis.

But although these people talk to, advise and lobby politicians, they are not themselves politicians. And history teaches us that politicians, to put it mildly, are capable of acting irresponsibly.

Some of the people charged with monitoring and maintaining global security are becoming impatient with their political masters. Six months ago, two key NATO strategic agencies published a report on energy strategies and security:

[I]n blunt language, they criticize American policymakers and legislators for refusing to accept the "robust" scientific evidence that emissions of carbon dioxide are already causing harmful global warming, and for refusing to take actions that, if taken swiftly, could ward off its worst effects.

"Political leaders, including many in the United States, refuse to accept short-term costs to address long-term dangers even though the future costs of responding to disasters after they occur will be far greater," said their report, published this month.

This isn't new, of course. The US-based Military Advisory Board has been banging the same drum since 2007.

On a personal level, I've made my lay assessment of climate change in much the same way I thought through the implications of genetic modification technologies 10 or 12 years ago: not by flattering myself that I could prove the scientists wrong with my pocket calculator (although I did read some original research), but by looking at the positions of the major scientific academies and journals, and asking what previously reliable reporters and agencies were saying. (Also, of course: looking at the record of those who are spurning the consensus, which can be equally useful.) The same process that led me to determine that while GM carries risks, it is not innately wrong or dangerous and holds considerable potential benefit leads me to the view that anthropogenic climate change is real and embodies existential risks.

GM alarmism and climate denialism share more than simply being on the wrong side of scientific authority. Both are riven with cherry-picking and zombie factoids. So I thought that if some people I was aruguing with on the internet were ideologically immune to scientific authority on climate change  -- which seems commonly regarded as some sort of left-wing plot -- they might respond better to arguments about money and risk.

I was wrong. Pretty much all of the above wasn't so much dismissed as never even engaged with. And that, surely, is the grand luxury of inconsequentiality. The luxury of keeping to one's own set of facts.

Should the news media refuse to entertain tosh like Hide's column? So long as commentary doesn't slide over into news, I wouldn't say so. After all, the only reason you're reading this this is that Rodney Hide wrote his column and people talked about it.

Sir Peter Gluckman has said that the roadblock on accepting climate risk is that the risk is of such magnitude that the ultimate solutions can only be collective, and that inevitable collectivism is anathema to those of libertarian bent. Denial becomes the only available response. Harmless, enough, I suppose, in celebrity columnists and their cheer squads. But fairly dangerous in leaders.

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