21 January 2011


There are two simple facts about climate change that are worth emphasising. First, climate change could devastate animal, plant and human life across the planet. Second, we're doing nothing to prevent it. Actually, 'nothing' might be an overstatement: we're still encouraging greenhouse gas emissions through subsidies on fossil fuel extraction and consumption. And for all the endless, divisive, bureaucratic wrangling, we're not actually cutting back global emissions. Elegant so-called solutions, apart from diverting intellectual resources away from the actual problem, attract fraud of the sort that is technically illegal, or are designed to be gamed by the major players.

My role here is not to criticise, but to offer a better solution than those currently on offer. Let's state another simple fact: if we want to reduce climate change, then we ought to reward people who reduce climate change. Definitions are crucial, but there's no need to go into detail here. 'Climate change' can be defined to include physical, biological and financial variables (and rates of change of variables), and 'reduce' can be defined in terms of those costs. What is important is to to set up systems that will see climate change, however defined, reduced. But how are we to convince people that the inevitable costs of preventing climate change are worth paying? The many vested interests who are willing to take refuge in the scientific uncertainties have largely blocked any meaningful international agreement. Well, one huge advantage of a Climate Stability Bond regime is that it wouldn't need to persuade the vast majority of people that climate change is actually happening. Instead, it transfer the risk of doing too much or too little to those willing to bear it, in return for big rewards if they call it correctly. Another is that whereas scientific uncertainty (and there are some huge ones, over the role of clouds for instance, or methane clathrates) could dramatically undermine the success of the current approach, a bond regime would simply absorb such uncertainty through the market for the bonds. The current approach requires scientists to take a position now on physical and biological relationships that just cannot be identified and quantified. Climate Stability Bonds would adapt to our rapidly expanding knowledge.

It's clear that no better solution is on offer. Resources are going instead into gaming the current approach or defending against climate change - which is something that only rich countries can afford to do (and then, only partially). Kyoto, Cancun and all the rest are a distraction. They are "policy as if outcomes don't matter in the least". They represent payment for activity rather than results. They are doomed to fail, and the outcome will be disastrous for many millions of human beings.


Henderson Bail Bonds said...

I am just not sold on the foregone conclusion that there is such a thing as global warming, but then again, I could be wrong as a lowly bail bondsman.

Ronnie Horesh said...

Thanks for your comment, HBB, and I agree with you. You could be wrong; I could be wrong; the great majority of scientists and policymakers could be wrong. Science is not a consensual process, and it is possible that man-made climate change is not actually happening, or that it might not be disastrous, or that, even if it is happening, we might not be able to do anything to stop it. But I am in the happy position - intellectually - of not needing to have an opinion about what is happening to the world's climate, or any of the other matters. Climate Stability Bonds would be the most cost-efficient way of dealing with climate change whether we accept the scientific consensus or not and whether climate change is happening or not. If the market believes it's not happening, then the net outlay by whoever issues Climate Stability Bonds will be close to zero, because the bonds would then be auctioned off for close to their redemption value. The bonds minimise the risk-adjusted costs of taking steps to avoid climate change. Check out my paper on Climate Stability Bonds to see exactly how this works, but if you have any other queries, get in touch again.