10 May 2021

What roles for markets and for the state when climate risk is existential?

Climate system tipping points. From Climate Reality Check 2020

This blog is based on a paper given to the University of Hamburg's “Unsustainable Past – Sustainable Futures?” conference on 12 February 2021.  A video of the presentation is available. 

by David Spratt

In his foreword to our 2018 Breakthrough report on scientific reticence and the Intergovernmental Panel of Climate Change (IPCC), Prof. Hans Joachim Schellnhuber, the Director Emeritus of the Potsdam Institute, wrote that:

"When the issue is the very survival of our civilisation... conventional means of analysis may become useless."

And yes, he was talking about the IPCC! This failure of analysis extends beyond the science of climate change, to the political economy of climate disruption. 

The climate policymaking orthodoxy is that markets can efficiently price and mitigate climate risks, but this blog argues that when risks are existential — that is, a permanent and drastic curtailing of human civilisation’s future development — then the damages are beyond calculation. What follows is that conventional climate cost-benefit analyses and climate-economy models, which rely on the quantification of both the potential damages and the  probabilities, are of little value, and that markets cannot efficiently assess or optimally price the risk.