Local Economic Development under Profound Uncertainty About Future Climate

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Local Economic Development under Profound
Uncertainty About Future Climate

• Municipal Workshop on Climate Change and Its
  Impact on Shoreline Communities
• Gary Yohe
• John E. Andrus Professor of Economics
• Wesleyan University
• November 19, 2004

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Outline of Remarks

• Reflections of Profound Uncertainty
• Evidence that Adaptation Matters
• Reflections from the Third Assessment Report of
  the Intergovernmental Panel on Climate Change
• Cautionary Tales about Decision-Analytic
  Approaches
• A Thought Organizing Indexing Device

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Reflections of Profound Uncertainty

• Model Uncertainty
• Projection Uncertainty
• Calibration Uncertainty
• Climate Sensitivity
• Temperature Trajectories
• Abrupt Change

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A CDF of Climate Sensitivity
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Unregulated Temperature Trajectories(Driven by a
Baseline Emissions Scenario)
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Evidence that Adaptation MattersThe Cost of Sea
Level Rise in the United States

• Cost in
• Dates SLR(2100) 2065
• Early Vulnerability
• (1989-1994) 100 cm 1.37B
• Later with adaptation
• (1996) 100 cm 0.40B
• (1998) 41 cm 0.10B
• (1998) 10 cm 0.01B
• (1998) 81 cm 0.31B

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More Evidence that Adaptation Matters

• The environmental economics literature optimal
  intervention assumes efficient evasive activity
  (i.e., exercise available adaptations to reduce
  exposure or sensitivity to environmental risk).
• The finance literature efficient returns
  include risk premia net of diversifiable risk, so
  they include the benefits of effective
  diversification (i.e., maximal adaptation to the
  uncertainty).

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Reflections from the TAR Fundamental Conclusions
from Chapter 18

• Current knowledge of adaptation and adaptive
  capacity is insufficient for reliable prediction
  of adaptations it is also insufficient for
  rigorous evaluation of planned adaptation
  options, measures and policies of governments
  (pg 880 or WGII Report).
• Net vulnerability is a function of exposure and
  sensitivity and both can be influenced by
  adaptation supported by inherent adaptive
  capacity.
• Exposure, sensitivity, and adaptive capacity are
  all path dependent and site specific.

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Determinants of Adaptive Capacity

• Availability of adaptation options
• Access to resources
• Distribution of resources equity the scope of
  poverty
• Governance issues
• Human capital
• Social capital
• Decisionmakers abilities to process information
  and uncertainty
• Access to risk-spreading mechanisms
• Public perception of causality and responsibility
• These are all sources of site specificity and
  path dependence.

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A Weakest Link hypothesis

• The strength of a systems adaptive capacity, as
  well as the specific capacity that supports a
  particular option, is a function of the weakest
  of its supporting determinants.
• Implicit in the TAR
• Explicit in Yohe and Tol (2001)
• This insight can support the construction of a
  unitless index of the relative strength of
  adaptive capacity as manifest in specific
  responses.

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Cautionary Tales About Decion-Analytic Approaches

• Tip ONeil
• The most powerful committee in the House of
  Representatives is the Rules Committee.
• A Corollary
• Deciding how you will approach development
  decisions under conditions of profound
  uncertainty is absolutely critical.

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Cost-Benefit Approaches

• Cost-benefit analysis is not particularly well
  adapted to handling profound uncertainty
• Can handle uncertainty that can be well
  characterized or circumstances when uncertainty
  may be resolved.
• Has difficulty handling low-probability and
  high-consequence events.
• Profound uncertainty can be a source of paralysis
  otherwise a reason to do nothing.
• Difficulties here can be exploited by opponents
  of action.
• Exploitation exaggerated by political coverage
  of scientific uncertainty.

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An Example Would a C-B Approach Support
Disallowing the Random Draws before they Start?

• Consider a series of 5 random draws
• First 4 50 chance of outcome N 50 of moving
  to next node.
• Last draw 50 of outcome B 50 of outcome J
• Productivity losses climbing to 100m to 300m
  across the first 4 draws.
• Outcomes
• N normal outcome with benefit to population I
  and cost to population II
• J Less cost to II but extreme cost to I
• B Large uneven benefit (net of public
  expenditure and some chaos in some places)to I
  and higher cost to II

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If you Cant Convince, then ConfuseAccesstoene
rgy website with 19,000 scientist signatures
claiming global warming is a fraud
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More Confusion Focus on More Recent Trends from
Satellite Observations
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Confusion in the Cost-Benefit Paradigm

• Cant tell what is right, so do nothing until
  uncertainty is resolved.
• Equal time coverage in the popular press
  cements the view across the population.
• Population is vulnerable to blanket attacks
  against risk-based approaches
• The cost-effectiveness (robustness) analysis of
  Yohe et al. in Science labeled as nothing more
  than another attempt to apply the fatally flawed
  precautionary principle to climate policy last
  line in a Chicago SunTimes article on that
  highlighted the paper.

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A Risk-Based Approach

• Designed explicitly the accommodate uncertainty.
• Vulnerable to claims of inefficiency, so
  characteristics of the decision context matter.
• Adaptive management (hedge, learn, perhaps adjust
  downstream, etc.)
• Take note of the temporal dimension
• When will action be required?
• To what degree to decisions lock-in more
  exposure or sensitivity?

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A Thought-Organizing Indexing Device for
Development Planning

• Select not-implausible climate stress (SLR and
  storm) scenarios that span a range of possible
  futures within the planning horizon and/or the
  horizon of the proposed projects.
• Contemplate the degree to which the plans and
  projects effect exposure and/or sensitivity to
  climate stress along these scenarios.
• Contemplate adjustments (adaptations) that could
  reduce exposure and/or sensitivity.

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An Indexing Method for Evaluating the Adaptations
A Portfolio Approach

• Assign indices of strength or concern for each
  underlying determinant (1 to 5)
• Resource requirements and availability
• Governance support (manage information signal to
  noise credible leadership well-defined
  authority etc.)
• Access to risk-spreading
• Public support and perception
• Assign an overall feasibility index minimum
  of the above the feasibility factor.
• Evaluate the likelihood of reducing exposure or
  sensitivity the efficacy factor.
• Multiply these factors to produce an overall
  coping index.
• Rank options and assess robustness.

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The Point of the Thought Exercise

• The numbers are less important that the
  discussions among stakeholders that will be
  focused on critical aspects of a risk assessment.
• The evaluation of resources will accommodate a
  cost-benefit calculus, but the discussion will
  proceed beyond the bottom line.
• Timing, durability, flexibility can all be
  accommodated.
• Climate variability can be the signal.
• A portfolio of approaches and designs can be
  accommodated.

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Thank you.