Is global warming due to human activity? Here’s why it doesn’t matter.

March 31, 2008

This week at Darden, our ethics class begins exploring sustainability and its impact on business in the global economy. Normally, ethics is a late-week class for me, but I had an opportunity (long flight) to read ahead over the weekend. As a Darden student, I know when you have these opportunities, you take them.

Reading the case and the technical notes on the “shades of green” prepared me to listen to a radio talk show that I tuned into on the drive home from the airport. The host spoke critically of last weekend’s “Earth Hour” event and former Vice President Al Gore’s recent interview on 60 Minutes. She was clearly skeptical of the idea that global warming is caused by human activity, despite mounting evidence and the growing concensus of the scientific community. There are still very viable theories that imply that the Earth’s rising temperature is a result of naturally-occuring phenomenon, and the climate change skeptics cling to these theories and espouse the old party line, which asserts that sustainability, particularly the kind that accompanies reduced carbon emissions, is expensive. It hurts the bottom line… it affect the competitiveness of our economy. It can only be achieved at the expense of economic growth. Why should we pay all these costs for something that is unproven?

And as I listened, it occurred to me that it doesn’t matter. The fact is, the case connected global warming and human activity may never be conclusively proven. But, by applying one of the first quantitative concepts I learned at Darden, the risk profile,  it becomes clear to me that we cannot afford to remain apathetic. All that’s needed to gain agreement from the skeptics is the agreement on the following:

1) The connection between human activity and global warming is uncertain.

2) If global warming exists and persists, the impact would range from (best case) a small improvement in the quality of life to a catastrophe (worst case).

Any net improvement from global warming seems pretty unlikely. The worst case, mass extinction and the end of modern human society, may be equally as unlikely. If a concession is made that there is a 50% chance that global warming is not linked to human activity (which is being very generous), we can expect that the remaining 50% is spread somewhere between no effect and catastrophic. The risk profile would generally look something the photo shown here:

Risk Profile

If we multiply all the probabilities by the associated costs (specifically, net present values) and sum the resulting expected values, we can get a handle on the expected risk.

The fact is that the downside risk is so high (the end of everything we know) that the expected overall risk makes the average cost incredibly high, regardless of the assignment of a significant probability to the increasingly improbable theory that global warming occurs naturally (or, even less likely, that it doesn’t exist). From ethics class, I know that this is a classic example of “Pascal’s Wager”, which postulates that one may as well be religious because it doesn’t cost much to be so, and the potential upside (heaven), and downside (hell) indicate the decision is easy (Freeman, 11).

But what of the cost of cutting our carbon emissions? If they are prohibitively high, perhaps they outpace the costs to society mentioned above.

Or not. According to a recent study by McKinsey (shameless plug), up to 40% of carbon abatement can be acheived with negative cost. That means that it actually makes money, folks. Here’s a clipping from the report, which I highly recommend:

McKinsey Carbon Curve

So, why this persistent and active skepticism? Where is this coming from? I have a few thoughts on the matter.

1. Carbon emission abatement demands collective action restricting individual behavior. This is counter to the rugged individualism that many skeptics believe drives us to improve ourselves, and thus society.

2. The “cost and competitiveness” stigma is prevalent among those who haven’t yet realized that there are ways to reduce carbon emssions without paying prohibitively high costs or affecting competitiveness.

3. The environmental agenda has become the domain of the left, and any ideals espoused by one political party, regarless of merit, are likely to receive significant criticism from the opposing dominant party.

4. Some people are just thick-headed and need to read more.

 So, happy Earth Hour everyone. And buy a high-milage car, please.

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2 Responses to “Is global warming due to human activity? Here’s why it doesn’t matter.”

  1. Ravi said

    very good analysis. concise and apolitical! i think much time is spent on just supporting or rejecting the issue by the two camps that translates into inaction. Though there are more and more companies that are bringing in the triple bottom line approach to tackle some of the climate change, energy and broadly speaking sustainability issues.

  2. very astute and concise, dearest michael! you rock. thanks so much for articulating this. why not take mr. pascal’s wager?!
    keep on keepin on!

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