Thursday, February 19, 2009

Does the Existence of Global Warming Matter?

This past week, I found myself engaged in a debate regarding the existence of climate change. To me, it was like debating if the sky is blue, but my opponent probably thought it was like debating the existence of Big Foot (not to be confused with the Yeti whom we all know exists). He proposed the following argument (which you may have heard on "insert conservative talk show name here"):

For the global warming alarmists to be right, all of the following three have to be true:
  1. The globe is warming.
  2. It is caused principally by human activity (not principally by natural cycles).
  3. It will result in disaster.

Makes sense right? It follows logically and I would not necessarily disagree with the structure of the first two caveats of the argument. As I said above, I do believe the first two are true. The scientific consensus from every major scientific body backs those two claims. I do not believe that I am an expert in everything (contrary to what my wife may say about me), so I have to defer to those "in the know" (or at least to whom Wikipedia says is "in the know"). In regards to the third part of the argument, I would rewrite it as follows:

3. It will result in a net negative effect on humanity.

I think an important underlying premise of this rewritten third caveat that net negative effect does not necessarily only incorporate "bad things" happening to humanity, but also includes missing out on "good things" for humanity. Much in the same way that financial decisions look at net present value, it is important to look at the net present value of not taking action against climate change. If we miss out on returns by not taking action (e.g. renewable energy, sustainability movements, etc.), then those accrue as "negative cash flows" to humanity.

OK, I realize I was just a little over philosophical and nerdy, so to simplify my argument, I think you can simplify the argument to take action down to one question:

Is there a higher probability that EITHER climate change will result in a net negative effect on humanity OR taking action against climate change will result in a net positive effect on humanity?

Notice the relevant question is not if global warming or climate change or the great socialist conspiracy (feel free to pick your own name as well) actually exists, but whether not acting against climate change is the best option. Further, as we are dealing with imperfect information, we have to use our best judgment (via probabilities) with the data that is available. If we take the no-action approach, then we are simply rolling the dice and hoping nothing bad happens. However, if we take action against global warming, then the probabilities point to two positive outcomes, a cleaner and (more than likely) cooler world and a good start on energy independence.

If you are still not impressed, I came across this link on Twitter as I was posting this. The use of Pascal's Wager is an excellent premise (if you're into that sort of thing).

Wednesday, February 11, 2009

Carbonution? Evolarbon? Darwinian Carbonation?

In honor of the 200th anniversary of Charles Darwin's birth (I figured arguing about global warming and carbon markets wasn't controversial enough, so I'm bringing in evolution, and if this doesn't stir up my readers, maybe I'll talk about something even more controversial like stem cell research or mustaches), I have decided to utilize some of the facets of his theory to explain why an established carbon market will be good for our economy. If you are not into evolution, feel free to intelligently design an alternate argument for a carbon market.

Only the strong will survive...

One of the main arguments of opponents of a regulated carbon market is in regards to the job loss that will occur due to either companies not being able to bear the burden of the additional cost or the flight of jobs to countries where carbon restrictions are less restrictive. It is a typical fear argument, similar to the one your mom would use when you were a kid, "Don't cross your eyes or they'll stay that way!" Sure, it was effective, but factual, not really. Yes, the carbon market is going to have some losers. It is the Darwinian forces of economics at work, additional costs will cause organizations to either adapt or die off. But does this mean that society (that's you and me) should continue to bear these externality costs so that a small amount of individuals should remain gainfully employed. It is always funny to me that most people scrutinize the government when it props up corporations with their hard earned money (just ask the financial institutions on the U.S.), but then ignore the other corporation induced costs that are difficult to quantify. One of the benefits of the carbon market is that some of these "other corporation induced costs" will now have a monetary amount attached to them so that you and I no longer have to bear those costs.

Life will find a way...

In addition to some corporations dying off, entire new industries and organizations will come to life. That is, most (actually it will more than likely be all and then some) of the jobs that are destroyed by the price of carbon will be replaced by new positions in the "green" economy or in organizations that are able to adapt to the new industry dynamics. Regulations and the inevitable expansion of the carbon markets into developing countries will prevent too many jobs from fleeing to countries with unregulated carbon. Further, as long as the cost of carbon does not exceed the cost to transport goods from outside of the U.S. (which will more than likely have a carbon price built into it), it will be cheaper for manufacturers to remain where they are. In fact, the majority of those corporations that would have moved their facilities to outside the U.S. due to a carbon price probably have already done so due to NAFTA, the China price, etc.

Ability to adapt to change...

From the establishment of trade to the continuous evolution of technology to the incorporation of labor rights, the U.S. economy has always adapted and moved forward. It is the structure of an economic market that matters, not the players within that market. As long as the market functions, there will always be jobs. Capitalism = Darwinian Evolution.

Sunday, February 1, 2009

Somethings Are Better Left Unsaid

With the advent of carbon trading most likely to be adopted in the U.S. sometime in 2009 and a very near global meeting in Copenhagen regarding climate change, energy and world leaders should weigh their words carefully (much like me in this blog). Commentaries such as this one in which carbon trading and subprime are used in the same breath certainly are (in the words of Borat) NOT good. Such words will certaily not convince a significant global population (especially in the U.S.) that believe the carbon markets are nothing more than a tool to offset Al Gore's waist line (what, too far?) instead of a tool to fight climate change or (if you don't believe in that scientific consensus mumbo jumbo) to improve the overall global environment. Granted, the current carbon trading markets commited the ultimate capitalistic sin in giving away credits for free under Kyoto, but let bygones be bygones, shall we? The overall message of the commentary is a good one, this may be our last shot at getting it right, so let us be meticulous in creating an efficient global carbon market and ensure the appropriate regulations and appropriate systems are incorporated. But trying to exclude the financial markets from the carbon trading markets is like trying to keep Al Gore from buffet line (sorry, couldn't resist, I do like the guy if that helps). Further, the world is still being sold on this carbon trading idea so can we watch our carbon related language, there are children present.