The impact of the financial crisis that broke out in 2008 has expanded discussion concerning the viability of capitalism. Nonetheless, the breakup of the international financial system has not led to a reform of the system but rather to an administration of the crisis that has prolonged the present state of affairs without offering a solution. This false exit has transferred the debt burden of banks and corporations to the population at large, destroying the confidence of societies that had thought they had reached an irreversible level of affluence and exposing a good part of the population to the precarious everyday reality facing the peoples of the rest of the world.
The crisis affecting the climate of our planet has also unleashed a parallel process of administration that offers containment rather than solutions. The international regime of climate change, that threatens to take the place of the already weakened Kyoto Protocol, is based on the establishment of voluntary quotas for greenhouse gases (GHG) and the use of market mechanisms to promote structural change. This regime is based on a gradualist approach to the problem that has no support in reality.
Too much data already exists concerning the dimensions and the speed of adverse climate change due to human activity, to the point that it becomes difficult to follow the relevant information. There are many indications, and no solid refutation, to the effect that climate change is accelerating, not only because its direct causes are increasing, but also because climate sensitivity to these factors is also increasing.
One of the most recent reports of the Potsdam Institute for Climate Impact Research (PIK), produced for the World Bank, estimates that if the present rate of greenhouse gas emissions continues, it will result in warming to the order of 4º C. in the coming century, almost double the amount officially accepted as a danger zone (1). Other recognized climatologists assure us that even a rise in warming on the order of 1º C. could generate disturbances that would be extremely difficult to overcome (2). According to these estimates, the climate perturbation produced by the “business as usual” trajectory will put food and water supply systems, ecosystems and human health at unprecedented risk. But while our certainty about the causes and magnitude of global warming is growing, our knowledge about its effects is plagued by uncertainties, for example about the rate and sequence in which these effects may present themselves. In particular, there is great uncertainty about the feedback effects of climate change. Here we should like to point out just three of these potential effects.
1) For more than a decade, the thawing in the Arctic reaches a new record level every year (3). The reduction of the Arctic ice cap is a very important mechanism for climate change feedback: as the ice cap is smaller, less sunlight is reflected into space and more energy is absorbed by the earth, which in turn produces greater melting. The melting increases the climate's sensitivity to a given concentration of greenhouse gases (with more thawing, a smaller quantity of greenhouse gas emissions has a greater impact on the climate system) (4).
2) At the same time, the Amazon River reached its lowest level in 47 years in 2010, in the worst drought of the century. Worse still, the second worst drought hit the Amazon jungles five years before. The two events reveal another strong mechanism of climate feedback. In a normal year, the Amazon jungle absorbs something like 1.5 billion tons of CO2. But the biomass eliminated by the 2010 drought had a carbon impact of 2.2 billion tons, and could reach 5 billion in coming years as the dead vegetation rots (5).
This means that in addition to the destruction of one of the richest ecosystems of the planet, global warming could reverse the “carbon sink” properties of tropical forests, turning them into net sources of GHG.
3) A third feedback effect can be detonated by the liberation of frozen methane from the platform of the Siberian arctic region, released when the permafrost thaws (6). These arctic regions conserve some of the greatest storehouses of carbon of the planet in the form methane hydrates, something like 1.6 trillion tons, double the amount of carbon in the atmosphere (7). These are precisely the regions that have indicated the most rapid rates of warming. A fraction of this frozen methane, which is already being released in the Siberian arctic, would unleash an abrupt climatic warming (8). The Russian authorities have already estimated that the Siberian permafrost could shrink between 15 and 30% by the year 2050 (9).
The accumulation of the effects of climate change and its interaction could produce totally unforeseen results at an unknown scale and accelerated rates. Many of these feedback mechanisms, as well as the structure of relationships that exist between different climate subsystems, are not yet known with any certainty. This makes it impossible to determine which of these would entail an irreversible disruption. As the PIK recognizes, the complete spectrum of the damage that would occur in a 4º warmer world has yet to be evaluated. Conventional studies on the effects of climate change are based on calculations on isolated effects in different economic sectors, different regions and different ecosystems. But there are no studies on the accumulation and possible chain reaction of these effects on a global scale. Hence there is no guarantee that adaptation to a world 4º warmer is possible.
The parsimony (not to say the cynicism) of international negotiations concerning the global climate change regime responds in part to the tragic gap between scientific evidence and the capacity of diplomatic systems to reach agreements (10). But it must also be noted that a particular kind of economic thinking that is dominant today underwrites political discourse and establishes a vision of the climatic crisis as something that can be controlled by small, gradual changes. This approach to the problem has determined the terms of international negotiation, including the positions of poor nations, based on the principle of minimization of costs.
While the discussion on the science of climate change has involved the more or less rigorous exercise of collaboration and scrutiny based on evidence and theory, the process of translation of the problem in the area of solutions has fallen into the camp of economic orthodoxy. The perspective of this "climate change economics" is mostly based on a set of extremely limited cost-benefit models, and on the systematic assumption that every ecological problem can be reduced to a cost that can be internalized (in markets that, it is also believed, function with no problems).
The problem of climate change from this perspective is reduced to a search for the optimal trajectory of reduction of climate change. Some of the more influential models based on this approach have obtained surprising results, as for example that the effects of initial warming are rather positive (11), or that the social costs of climate change are, in the medium term, relatively low (along the order of $5 and $50 dollars per ton of CO2) (12). The corollary of this approach is that the problem can be solved with very small incentives, administered in the economic system through small doses over time. Given that the application of these incentives in the form of a carbon tax could generate market distortions, the best approach is to create a system for trading emission rights that includes the cost of potential damage in the calculation of all economic agents.
This perspective is plagued with inconsistencies and arbitrary factors. It is incapable of perceiving systemic relations between parts of the problem. It is based on economic theory that has for some time fallen into decadency as a scientific programme. Already the financial crisis has smashed the myth of the invisible hand and the unregulated market. Due to a lack of space we consider here only two inconsistencies, exposed in a precise manner by the economist Frank Akerman in a number of works (13). The first is that the results of models, on their own terms, change radically when small changes in the parameters are made, such as for example, the discount rate employed. Using an elevated discount rate, these studies reduce the value of damages that can happen in the future. There are many arguments for using a smaller discount rate, such as that employed in the famous Stern Report. The point is that the criterion for choosing a discount rate has a political and ethical dimension with respect to ecological and social responsibility, and this cannot be reduced to a technical problem.
A second point is that the treatment of the uncertainties in the orthodox cost-benefit approach is completely inadequate, since it practically excludes the consideration of risk from catastrophic events. Akerman indicates that Weizman's approach is more adequate (14). Weizman shows that in cases in which there is a potentially unlimited risk, for which there is little information, the expected value of risk reduction is unlimited. In other words, when there is an unknown probability that a catastrophic event may occur, any precaution against this event is incredibly valuable. This kind of risk, as we have pointed out in the above section, characterizes the problem of climate change on the basis of knowledge that we already have. Consequently, the option for a strategy to minimize costs is simply mistaken and must be replaced by a strategy to prevent the worst case scenario.
The predominance of the orthodox perspective in the economics of climate change echoes other inertial features that determine the present course of societies with intensive carbon emissions. On the one hand, the technological matrix employed on the use of fossil fuels is profoundly enshrined in the economic system. The energy transition from fossil fuels to a different techno-economic matrix (necessarily based on solar energy and its most immediate conversions, such as wind) is strongly limited both because of the technical inertia of the present system and the size of the economic interests involved. A palpable way to estimate these inertias is the recognition that something like 80% of present reserves of fossil fuels must remain in the ground if we want to avoid climate collapse (15). States and corporations have taken control of these reserves that are part of their "assets". The elimination of the liability of fossil energy necessarily involves establishing new mechanisms for the allocation and valuation of resources.
To tackle the problem of climate change demands an important modification of the balance of international political forces in order to rid ourselves of the gradualist bias concerning climate crisis. The dominant discourse on the criteria for valuation of the costs of climate change provides a key support for the legitimacy of the status quo, as is the case in the administration of the financial crisis. To debunk this discourse is part of the task in the generation of alternatives.
– Francisco Aguayo is an economist and PhD Fellow at the Maastricht Economic Research and Training Institute on Technology (UNU-MERIT).
* The Spanish version of this text is part of the magazine América Latina en Movimiento No. 483 (March 2013), titled "La crisis compleja" (the complex crisis) (http://www.alainet.org/publica/483.phtml)
(Translation: Jordan Bishop and the author).
(1) Turn down the heat. Why a 4°C warmer world must be avoided. Berlin, 2012. Complete report: http://www.pik-potsdam.de/news/press-releases/4-degrees-briefing-for-the-world-bank-the-risks-of-a-future-without-climate-policy.
(2) Hansen, J. et al. (2008), “Dangerous human-made interference with climate: a GISS modelE study,” in Atmospheric and Chemistry and Physics no. 7, p. 2287–2312.
(3) The department of Atmospheric and Earth Sciences of City College, New York recently demonstrated that the melted area of the Arctic increases close to 17,000 square kms each year and that this has occurred for the last 30 years (http://greenland.cryocity.org/ ). This trend confirms previous results of the US National Agency for the Atmosphere and Oceans (http://www.arctic.noaa.gov/reportcard/).
(4) Lenton. T. et al. (2008), “Tipping elements in the Earth’s climate system” in Proceedings of the National Academy of Science of the U.S, vol. 105, no. 6, p. 1786–1793, pnas. 0705414105. Online document: www.pnas.org_cgi_doi_10.1073_pnas.0705414105.
(5) Lewis, S., P. Brando at al. (2011), The 2010 Amazon Drought, Science, vol. 331, no. 6017, p. 554. Online summary: http://www.sciencemag.org/content/331/6017/554.abstract.
(6) Ver por ejemplo Schaeffer, K., Zhang, T., et al. (2011), “Amount and timing of permafrost carbon release in response to global warming,” in Tellus, vol. 63, issue 2, pp. 165-180; Lawrence, D. M. and A. G. Slater (2005), “A projection of sever near-surface permafrost degradation during the 21st century, in Geophysical Research Letters, vol. 32.
(7) Tarnocai, C., J. G. Canadell, E. A. G. Schuur, P. Kuhry, G. Mazhitova, and S. Zimov (2009), Soil organic carbon pools in the northern circumpolar permafrost region, Global Biogeochemical Cycles, vol. 23, GB2023, doi:10.1029/2008GB003327.
(8) Shakhova, N., I. Semiletov, et al., (2010), “Extensive venting to the atmosphere from sediments of the Siberian Arctic Shelf,” in Science, vol. 327, no. 5970, p. 1246-1250, doi: 10.1126/science.1182221.
(9) “Russia may lose 30% of permafrost by 2050: official”, AFP, Sunday, 31 July 2011.
(10) It took 10 years to get the Kyoto Protocol off the ground. Meanwhile, if the dismantling of the compulsory principle, consecrated in this Protocol, occurred much quicker, it will surely take a number of years to revert the present trend of voluntary mitigation goals.
(11) William Nordhaus and Joseph Boyer, Warming the World: Economic Models of Global Warming (MIT Press, 2000), 84-85.
(12) Richard Tol, “The Social Cost of Carbon: Trends, Outliers and Catastrophes,” Economics (e-journal), Vol. 2, 2008.
(13) See for example, Ackerman, F. (2009), Can we afford the future? The economics of a warming world, ZED Books; Ackerman F. and E. Stanton (2010), The Social costs of carbon, Economics for Equity and the Environment Network, available online at www.e3network.org.
(14) Martin Weitzman, “On Modeling and Interpreting the Economics of Catastrophic Climate Change,” Review of Economics and Statistics (2009).
(15) See Leaton, J. (2012), Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble?, Carbon Tracker, www.carbontracker.org.