The implication of extreme events on policy responses

Transcription

1 The implication of extreme events on policy responses (Forthcoming in Journal of Risk Research) Urs Steiner Brandt Super-storm Sandy Tsunami in Japan

2 International terror 9/11 New threads Motivation Why take away a bottle of water at the security check at the airport? This is clearly a precautionary measure to reduce risk Why do we (international society) apply (accept) the precautionary principle when terror is at issue, but not when matter is about climate change

3 Climate change International terror Well known problems with Climate Change Large free riding incentives / unilateral risk reduction optimal writ to adaptation, but not mitigation Reduction implies: costs now benefits later Highest costs of reduction and largest benefits from reduction are located in different parts of the world International Terror Unilateral risk reduction optimal for some countries (USA) (as in ozone layer depletion problem) Resources spend on mitigating IT (USA) Iraq, Afghan wars will cost to $4 trillion to $6 trillion, Harvard study says ( billion dollars) Bilmes (2013), The Financial Legacy of Iraq and Afghanistan: How Wartime Spending Decisions Will Constrain Future National Security Budgets, Faculty Research Working Paper Series, Harvard Kennedy School The U.S. wars in Afghanistan and Iraq will cost taxpayers $4 trillion to $6 trillion, taking into account the medical care of wounded veterans and expensive repairs to a force depleted by more than a decade of fighting

4 Costs of mitigating climate change According to recent studies, mitigation needed to meet the 2 C target is projected to cost at most 2.5% of global GDP in 2050 (reducing annual growth by at most 0.05%/year) if policies are designed in a cost-effective way These costs are reduced significantly when cobenefits (i.e. reduction in air pollution health damage, air pollution control costs and energy security) are included (EU, 2008) Very unlikely that this target will be meet??? Climate change up and down Facts about actions to mitigate risk from climate change Some reductions actually take place (local/ regional) Adaptation measures are being implemented Sometimes, focus on climate change is massive, but often focus is completely lost Moreover, scientific evidence for action is strong (IPCC)

5 Model that can explain the following observation - CC Fluctuating amounts of resources allocated to mitigation/adaptation (risk reduction policies) Varying public awareness of risk of CC Strong and persistent scientific evidence of risk from climate change

6 Policy shaped by public s perception of the current risk According to Salanié and Treich (2009) and Wagner and Zenkhauser (2012), the risk regulators typically respond to the citizens beliefs Heaney (1993) for many political issues, it is essential that the (affected) public support the proposed project ( socio-political feasibility test) Coenen (2010) identifies several perspectives through which a policymaker can incorporate the information possessed by the relevant groups The pluralist approach appears to be the most appropriate for describing risk management policies on the governmental/state level A simple policy model

7 Main hypothesis of this analysis Oversecured Undersecured Underperceived Overperceived Public perception is affected by extreme events Public perceived risk is mainly based short-term estimated of risk heavily affected by occurrence of extreme events linked to the underlying risk generating process (climate change, international terror, earthquake, hurricans/tyfons).

8 How extreme events affect perceived risk How single (extreme) events shape policy 9/11 war on terror Fukushima German regional and national policy on nuclear power Flooding in Copenhagen 2011 new adaptation policies Oxygen depletion in Mariager Fjord 1997 focus on farmers usage of fertilizers

9 The second event triggering this analysis In the wake of the incident at the Fukushima nuclear power plant in 2011, a nuclear power security expert concluded that the incident effectively showed how secure nuclear energy actually is. The incident involved a major earthquake and an unprecedentedly high tsunami, and yet it was not severe For a nuclear sceptic, however, this incident provides additional proof that nuclear power is dangerous. Many individuals, regardless of the expert testimony, feel increasingly uncomfortable with nuclear power. In several countries, the incident affected decisions on the future of nuclear power policy (e.g. in Germany and Switzerland, where the latter reacted to the Japanese disaster by suspending plans to build and replace nuclear plants) Extreme event- definition An extreme event is a low-probability, high-impact event For climate change, IPCC (2012) defines an extreme climate event as the occurrence of a value of a weather or climate variable above (or below) a threshold value near the upper (or lower) ends of the range of observed values of the variable For most types of events, the likelihood and the size/ impact are negatively correlated (e.g. of the 100 terror attacks with highest number of fatalities, only 17 had a death toll of over 200, 8 of over 300 and 1 of over 510, which is the 9/11 attack with 2993 death For the purpose of this paper, an extreme event is defined as one that significantly changes public perception over a period of time

10 Perceived risk depends on extreme event and the memory effect Perceived risk A possible evolution of the perceived risk after extreme events

11 Scientific risk estimate Main (behavioral) hypothesis

12 The consequences of basing risk regulation policy in part on the public perception of risk The cyclic nature of investments in risk-reducing policies: Periods with overprotection are followed by periods with under-protection As noted in Salanié and Treich (2009), this populist policy increases wellbeing but offers non-optimal protection against the underlying risk from the problem at hand Two case-studies Climate change: A possible dynamic of policy decisions for controlling risks related to climate change International terror: A possible dynamic of policy decisions for controlling the risks related to international terror

13 Potential implications CC Consequences Too few resources allocated on average Fluctuating resources allocated over time Implications High costs Path-dependence (lock in to wrong technology) Possible under-secured when risk high Implications CC 2 High costs of varying between high and low investments If costs of reducing risk is convex increasing in a single period, smoothing out resource allocation between periods would be cost effective Too much wind power introduced into the energy systems in a short time Too high increase in CO 2 tax

14 Implications CC 3 High costs due to path-dependency One means of limiting climate change is to reduce emissions, primarily CO 2 : reducing the CO 2 content in energy consumption and from traffic Such policies can include transitioning from coal-fired power plants to renewable energy production The expansion of coal-fired power plants or the construction of a power plant or large off-shore wind farm will exhibit economic, if not technological, path dependence, being either extremely expensive or technologically complex to adjust significantly within several years or even decades Technological lock-in Implications CC 4 Acemoglu et al. (2012) analyse the presence of path-dependence in the area of technological development The article demonstrates that if a company produces an innovation in a relatively dirty technology, it will also find it more profitable to do so in the subsequent periods and will respond less to price effects (e.g. taxes or quota regulations aimed at providing a price signal for more innovation in clean technologies) The conclusion is that this technological lock-in leads to technological path-dependence, which complicates the possibilities for correcting a temporary, non-optimal climate policy

15 Implications CC 5 Under-secured The presence of natural variation In periods of no observed increase in the average temperature, effective climate policies are difficult to implement Moreover, it can then be expected that such a period will be followed by a period of large temperature increases, when no appropriate policy measures will be in place This can create serious problems Very costly Technological infeasible Possible implications IT 1 Terror cycle After a terrorist attack, public pressure results in more safeguards, implying that there is less terror followed by less pressure and fewer safeguards and, therefore, a higher probability of another terror attack Feichtinger et al. (2001) analyse a model of terror cycles in the context of the tourism industry As a country invests in tourism, it attracts an increasing number of tourists, making the industry a more likely target for terrorism, which scares away tourists, which then reduces the interest of terrorists. As terrorist incidents decline, the government again begins to invest in tourism, and the cycle continues Relevant also for environmental problems??

16 Implications IT 2 If policy is focused on public perceptions and public perceptions are primarily based on experience then the unfortunate situation occurs that when security is most needed, it is the most difficult to implement Real threat Risk communication - CC 1 Climate change too little attention Scare campaign, stimulate danger in target audience Produce fear Promote precautionary measures Scare campaigns can have some effect on, e.g., health promotion Will it help alleviating climate change?

17 Do we fear climate change The glacier has retreated by almost 10 km over the last 80 years Risk communication - CC 2 For climate change No personal experience No identification (distant and impersonal) Moser and Dilling (2004): Individuals confronted with fear Control the reason for the fear Denial => leading to inaction

18 Risk communication - CC 3 Intelligent RC: Attention economics Use insight from prospect theory (Kahneman/Tversky) Certain outcome over uncertain Loss aversion Frame information Policies that have high rate of success (adaptation), highlight benefits Policies that have less certain outcomes (global agreement on reductions), highlight costs Risk communication CC 4 Intelligent RC: Give people sense of control Local responsibility (zero carbon cities) Sønderborg (project zero) Zero-emission homes Incentives /disincentives (selective incentives) The government can create incentives such that it is in the consumer's best interest to be climate friendly or can provide grants for proper climate conduct or disincentives for suboptimal climate solutions

19 Risk communication IT 1 Regarding international terror: Too much attention RC: Attempting to reduce affect-driven fear Proposals Provide quantitative estimates of risk (problem with probability neglect) The RC should choose means that are Highly visible Low in costs Perceived effective (bottle of water at airport??) Own control? Conclusion Risk policy based on public risk perception Is prone to fast shifting perceived risk people attach to specific sources Is prone to non-optimal policy on average Terror on average response overshooting Climate change on average response undershooting Both resulting in (temporary) inadequate security levels not reflecting the real risk A lesson that can be drawn from the analysis is that public involvement in risk reducing policies appears to be a universal strategy for providing the public with a more realistic sense of the potential risks stemming from a given problem

20 Which pictures triggers the largest emotional reaction? Urs Steiner Brandt 39