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Climate Cognitive Dissonance: The “Profound Contradiction” Between Science and Markets on the Road to 10°F Warming

By Climate Guest Contributor on December 21, 2011 at 10:31 am

"Climate Cognitive Dissonance: The “Profound Contradiction” Between Science and Markets on the Road to 10°F Warming"


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by David Roberts, cross-posted from Grist

Earlier this month, Nicholas Stern — respected U.K. economist and author of the famed Stern Review on the Economics of Climate Change — cast a spotlight on what he calls a “profound contradiction at the heart of climate change policy.”

On one side, the world’s governments have pledged to hold temperature rise to 2 degrees C (3.6 degrees F). To have even a 50/50 shot at meeting that target, humanity has a “carbon budget” of about 1,400 billion tonnes of carbon dioxide between now and 2050. The more we exceed that budget, the more the 2 degrees target slips out of reach. Here’s the thing, though: The world’s proven fossil fuel reserves, if burned, would create about 2.8 trillion tonnes of CO2, double that carbon budget. If countries are serious about 2 degrees, they must be planning to leave a lot of fossil fuels in the ground. Right?

On the other side, however, the world’s top fossil fuel companies are valued at some $7.42 trillion (including the top 100 listed coal companies and the top 100 listed oil and gas companies). They are valued at this level because of proven fossil fuel reserves to which they have access. In other words, their valuation carries the implicit assumption that they will burn the fossil fuels available to them.

Markets are assuming that fossil fuel companies will burn the fossil fuels that the world’s governments have, at least implicitly, said they cannot burn. That’s the “profound contradiction.” So what are markets thinking?

Well, either they think a full-fledged carbon capture and sequestration solution is going to spring into being overnight (spoiler: they don’t think that) or they just don’t think countries are serious about climate change. They think it’s going to be business as usual. “If this is the case,” says Stern …

the resulting rise in atmospheric concentrations could eventually mean, with a substantial probability, global warming of 5 degrees [C] or more, to temperatures not seen on Earth for more than 30m years. That would probably transform where and how people could live and lead to the migration of hundreds of millions, as well as to conflict and severe economic decline.

Yet markets don’t seem to be pricing those risks either! In fact, global markets don’t seem to be taking climate change or climate policy seriously. Even if you don’t care about that ecologically, it’s alarming economically. It’s a huge, unacknowledged, unhedged risk, and if we’ve learned anything in the past few years, it’s that having huge, unacknowledged risks at the core of your economy is ill-advised.

I was thinking about this “profound contradiction” as I looked over Black & Veatch’s latest “Energy Market Perspective” (they update it every six months), which contains a variety of predictions and projections about U.S. electricity markets. It’s a great example of what Stern is talking about, in microcosm. Here’s the core finding (keep in mind, this graph shows power produced — megwatt-hours — not capacity):

B&V: US energy mix in 2012 and 2036

Click for larger version. Black & Veatch, Energy Market Perspective, Fall 2011

Renewables more than double their contribution over the next 25 years, mainly due to state renewable portfolio standards, but the big story is the shift from coal to gas, gas, gas. Coal declines from 41 to 16 percent; gas goes from 24 to 44 percent.

Here’s the impact on CO2 emissions (chart is a bit confusing: the green area is the CO2 eliminated by reductions; the other colors are regions of the electric grid):

B&V: CO2 reductions in electricity, 2012-2036

Click for larger version. Black & Veatch, Energy Market Perspective, Fall 2011

Emissions decline, mainly due to a big wave of coal-plant retirements around 2020, but nothing like the amount that would be required under the carbon budget necessary to give the world a chance at 2 degrees. (After all, for large-scale reductions, electricity is central.)

To be sure, there are economic assumptions in B&V’s projections that could be disputed. They have natural gas prices staying low and stable all the way out to 2036, only reaching the highs of the early 2000s after 2030. But with demand rising through that whole period, there are reasons to expect far more volatility than that (see here and here). B&V also has wind deployment falling off after today’s state RPSs are satisfied, but I strongly suspect that underestimates both what states will do in the intervening years and wind’s increasing competitiveness.

But never mind all that. The core assumption, the one B&V shares with most analysts, is about policy. It is simply this: The U.S. is not going to do its part in a global effort to hit 2 degrees.

They don’t assume there will be no climate policy. They include state RPSs and even a carbon price starting in 2020. But as the results show, that level of policy is woefully inadequate.

It’s not that the U.S. electricity system can’t accommodate the level of changes necessary. Amory Lovins’ new book Reinventing Fire shows how to transform the U.S. electricity system at a profit. Or check out Michael Moynihan’s Electricity 2.0. Plenty of other analysts have charted out a course that U.S. policymakers could chart if they got serious. It’s just that mainstream analysts don’t expect them to.

And yet we do nothing to prepare for the future that inaction is going to bring us! It’s a widespread and increasingly glaring case of cognitive dissonance in the institutions and practices at the center of the modern global economy. One way or the other, it’s going to resolve itself, and I fear the results will not be pretty.

David Roberts is a staff writer for Grist. This piece was originally published at Grist.

December 21 News: European Court Upholds Plan to Charge Airlines for Carbon Emissions, Rejecting U.S. Appeal

Romney Claims Government Support “Kills Solar Energy” — Another Major Flip Flop

21 Responses to Climate Cognitive Dissonance: The “Profound Contradiction” Between Science and Markets on the Road to 10°F Warming

  1. Jeff H says:

    There is a self-interest and timing dynamic that we should keep in mind that doesn’t seem to be reflected in the post, or at least not explicitly. To illustrate…

    Imagine Rex Tillerson, the Chairman and CEO of ExxonMobil. It’s POSSIBLE that Rex Tillerson understands that climate change is very real and very problematic AND that he believes that public policy will sooner or later (more likely later) recognize that reality and put policies in place that will indeed substantially reduce our use of hydrocarbon fuels. If so, why don’t his actions seem to reflect that understanding and belief? Well, perhaps they do — in a very self-interested way (and a way that, in this case, we should judge to be irresponsible and immoral). Perhaps he thinks that the “timing is not right”, or “not optimal”, for ExxonMobil, or especially himself, to acknowledge these things, even if acknowledging them will eventually be inevitable.

    There is (of course) a *time* aspect of the market, and sometimes people ride waves or “bubbles” or trends that they know will inevitably change, even when they know that the ride will end, on the thought that they will “get out” before others understand to get out. And in effect, Rex Tillerson has HUGE inside information. He can try to facilitate public ignorance, and try to delay government policy, and try to avoid any reduction in ExxonMobil’s share price, until some time in the future — I wouldn’t be surprised if he’s hoping to do so through at least until after he retires?

    This is all speculation, of course, but I’m merely trying to illustrate the point about timing. It’s not necessarily the case that present-day market valuations indicate that the big-wigs have no clue about climate change or the need for, or even inevitability of, government policy action. They — or most of them — may just be playing a timing game involving short-term self-interest and a belief that they’ll get out before others do.



    • Tim says:

      I think you’ve got it exactly right.

      Consider a comparison: I have a retirement program into which I am pouring significant amounts of money, and yet I’m pretty pessimistic about stocks’ long term prospects. I’ve been burned twice already: by the dot-com collapse and and the housing bubble collapse. The bust-boom cycles that had been tamed by post-depression regulation are back with a vengeance now that right-wing idiots and thieves have decided to put our financial system on a casino-like footing (spoiler: I’m not the ‘house’, I’m just a player.) I have little choice however. I don’t get my employer’s match if I don’t contribute and there is no provision for putting my money into, say, rental properties. There is no moderate risk alternative that yields returns to yield my preretirement lifestyle, despite my prodigious savings rate. So, like most of the middle class retirement investors (yes, I know, I’m in the lucky group!), I hoping I’ll have the sense to get out while the getting is relatively good, and that the companies that manage my money don’t go under and take my retirement with them.

      Like the investors in energy companies, if I think the entire system is unsustainable, the hope is that it is sufficiently stable to get out out before the roof collapses.

    • Mulga Mumblebrain says:

      I think it is way simpler. The Masters do not care what happens in 2050, let alone 2100. They have no interest in the future because they will not be there. What matters to them is ‘Now’ and being on top, ‘Now’. The universe ends, as far as they are concerned, when they die. It is a real mistake to try to understand ‘Them’ as if they thought like us. It is wishful thinking and delusion to project our humanity and concern for others (in this case, future generations)onto those with a different psychology entirely.

  2. John McCormick says:

    David, Lord Stern may not have included feedbacks from permafrost and tundra melting and transformation, nor the effects of global clean air (minus the dimming factor) that kicks in about a half degree increase.

    And the Black and Veatch report addresses only US data. It’s like going to a three act play, the first being US energy and acts 2 and 3 are dropped from the program. They are China and India’s energy future.

    Isn’t it time Lord Stern, Todd Stern and you tell us all that the likelihood of going to 2,then 3 then 4, then 5 degree C increase is certain. We’ll never know what a 5 degree increase feels like because famine will have replaced us with algae and other lesser life forms for as long as they can tolerate the climate and acid level in their ocean environments.

    Why cann’t EDF, UCS and NRDC mobilize a sit-in at the State Department and rethug national hq on Capitol Hill and do something more than make movies, publish reports and jawbone? Maybe it is not in their job descriptions.

  3. Peter Mizla says:

    these governments are sleepwalking

    in actuality 1 degree rise C over the PI era is now the limit we should achieve – its the old 2 degree= 2 degree is the old 3 degree

    these global governments simply do not know what is facing them.

    • Mulga Mumblebrain says:

      Most of them do, the science is plain, the recommendations from scientists clear (it’s not rocket surgery!)but they do not care. Their worldview is circumscribed by the need to garner money from the rich, and retain political power. They run like lemmings from the Rightwing MSM standover thugs, believing in nothing so having no heartfelt arguments to make nor moral positions to defend. In Austr-failure it has reached the stage where I can think of no politician, no big businessman and very few MSM pundits who I am not convinced are morally insane and spiritually corrupt. Over the years the numbers of decent humane specimens in public life have been steadily falling, and a society that only exists to consume and excrete, like some helminthine dweller in the ooze, really isn’t gonna make it.

  4. Mike Roddy says:

    From a business point of view, the fossil fuel companies, banks, and investors are correct. The discount rate and current valuation of money are going to govern. Investors can get out of coal and oil stocks in seconds if things develop in that direction. Much of the increased wealth held by the 1% in the last decade derives from explosive profits in the coal, gas, and oil sectors, and they especially love it that it’s risk free- they don’t even have to think.

    A spiritual transformation is required, one centered in the notion that the earth’s creatures have value, including our descendants. Ancient cultures tended to hold these values, since they lived closer to the means of production.

    We are truly dealing with the dark side. They can only be defeated if we fight them- nonviolently, of course, but with everything we’ve got.

    • Merrelyn Emery says:

      Mike, it wasn’t just that the ancient cultures were closer to the means of production. They were organized on the opposite design principle to our cultures, that principle that confers equality by locating responsibility with the collective (Tribes without Rulers), not always one level further up the hierarchy as we have.

      Ours produces irresponsibility because it is always somebody elses fault until you get to the very top that is, which when you think about it, is lunacy in itself. Does Obama know what each individual American is doing at the moment?

      Once a design principle becomes dominant in a culture, it is extended to all relationships so the ancients recognized the equality of all life; did not regard other-than-human, or the Earth herself, as lessers to be dominated and subordinated to our ‘interests’, ME

      • Mulga Mumblebrain says:

        It went pear-shaped when ‘God’, that ego-projection of some deranged desert dwellers, commanded Us to ‘subdue the earth’. Patriarchy comes into it, as well, with ‘Mother Nature’, ‘Gaia’ and the other girls being well detested by the God-botherers. ‘Goddess worship’ is a term of abuse, often spluttered with some venom, for this type.

    • Bill Goedecke says:

      Yes, the way capitalism is construed is that value is based on exchange. Nothing in nature has inherent value. I am never surprised when it is ‘revealed’ that oil companies will want to exploit all of their ‘property’ for commercial value. Like, duh. We must remember that use of fossil fuels today enables the development of food supplies and transport of such food to entire populations, so I don’t necessarily condemn oil companies, as they serve our society as it is.

      The way I understand the necessary spiritual transformation required is that human kind finds a spiritual bond in its relations with other human beings and from that bond begins to understand nature in the spiritual light. Nature has to be something other than utilitarian.

  5. EDpeak says:


    “The more we exceed that budget, the more the 2 degrees target slips out of reach. Here’s the thing, though: The world’s proven fossil fuel reserves, if burned, would create about 2.8 trillion tonnes of CO2, double that carbon budget.”

  6. EDpeak says:

    part of my copy/paste went missing, I meant to include:

    “carbon budget” of about 1,400 billion tonnes of carbon dioxide between now and 2050.

    which has a ‘billion’ versus the ‘trillion’ in:

    “The more we exceed that budget, the more the 2 degrees target slips out of reach. Here’s the thing, though: The world’s proven fossil fuel reserves, if burned, would create about 2.8 trillion tonnes of CO2, double that carbon budget.”

  7. EDpeak says:

    A quote from about dot com from “Hegemony and Survival:

    A few years ago, one of the great figures of contemporary biology, Ernst Mayr, published some reflections on the likelihood of success in the search for extraterrestrial intelligence. He considered the prospects very low. His reasoning had to do with the adaptive value of what we call “higher intelligence,” meaning the particular human form of intellectual organization. Mayr estimated the number of species since the origin of life at about fifty billion, only one of which “achieved the kind of intelligence needed to establish a civilization.” It did so very recently, perhaps 100,000 years ago. It is generally assumed that only one small breeding group survived, of which we are all descendants.

    Mayr speculated that the human form of intellectual organization may not be favored by selection. The history of life on Earth, he wrote, refutes the claim that “it is better to be smart than to be stupid,” at least judging by biological success: beetles and bacteria, for example, are vastly more successful than humans in terms of survival. He also made the rather somber observation that “the average life expectancy of a species is about 100,000 years.”

    We are entering a period of human history that may provide an answer to the question of whether it is better to be smart than stupid. The most hopeful prospect is that the question will not be answered: if it receives a definite answer, that answer can only be that humans were a kind of “biological error,” using their allotted 100,000 years to destroy themselves and, in the process, much else.

    The species has surely developed the capacity to do just that, and a hypothetical extraterrestrial observer might well conclude that humans have demonstrated that capacity throughout their history, dramatically in the past few hundred years, with an assault on the environment that sustains life, on the diversity of more complex organisms, and with cold and calculated savagery, on each other as well.

    –end of quote from Noam Chomsky’s Hegemony or Survival (legal extended (4 para.) quote judging by how many websites have it)

    As Chomsky points out, governments not only can but historically generally _do_ put hegemony over survival: they prioritize hegemony over survival.

    Markets and corporations prioritize profits over human needs, but also, even more, they prioritize short-term profits over their own survival, as this post alludes to.

    I have to say “markets and corporations” since the latter distort markets with their deliberate externalizing of costs etc, but markets are also guilty of the same: future generations don’t vote in “the” market, the environment doesn’t since even without corporate tricks externalities, note little footnote externalities but gigantic ones – always exist in regards to a high-tech civilization capable of altering the entire planet – these externalities mean the environment doesn’t vote in the market, and poorer people virtually don’t vote: so small is their ‘vote’ that vastly disproportionate input is given to them.

    But not just markets, corporations too
    Just as the banks put short term profits over their own survival, and same with U.S. auto industry’s management (not workers) maximized shorter-term profits over their own survival.

    We need a stead-state economy instead of one that can only be in two modes, recession/collapse mode or never-ending exponential growth mode, yet U.S. and China and most of the world have this growth-based economic model. We also don’t want to go to a centrally-planned, undemocratically planned economy. The lies told by the Soviet union is the same as the lies we tell today, the lie that those are the only two choices (they aren’t even that different, as looking at the ‘hybrid’ China of today shows)

    A third choice is an economy (there are many such types and flavors) based no de-centralized, democratic, grassroots ‘planning’ (read, participatory decision making) from the bottom-up. That along with steady-state are needed not just for justice and democracy, but for survival. In addition to the first chapter of “The Ecology of Money” (which is available online at no cost, just google for it) there are articles by Herman Daly on steady state.

    Thanks to CP for having the course to write about one of the largest Sacred Cows, the orthodoxy that “markets know best” or even know at all in many cases, what’s needed for sustainability of even survival.

    • Mulga Mumblebrain says:

      The dichotomy between hegemony and survival comes down, I believe, to a simple difference in human psychology. How we relate to, interact with and experience those other human creatures alive when we are, and those to come (the dead are differently experienced, and their fate is already sealed and beyond our meddling)depends on our relative reserves of compassion, empathy, understanding and fellow feeling. If you see others as alike to oneself in purely existential terms, as a human animal with desires, needs and value as a living human soul, you’re likely to come down on the side of survival, of collective solutions, of ‘freedom’ as a value only when it is universal, of justice and fraternity being core principles of a good life, and as great a degree of equality and enjoyment of life and a decent sufficiency of life’s pleasures being the entitlement of all.
      If on the other hand, you are one of those in whom the wellsprings of compassion and empathy run dry, and in whom paranoia, distrust, fear and contempt for others are the basis of your character, then hegemony, dominance and egomania will rule your life. It’s pretty clear which type dominates the world at present, and that, I believe, is because this type has created an operating system that furthers their dominance and control, through economic means, and which has exceeded and reduced to vestigial remnants all other value systems and ways of living. And that system is capitalism, the living realisation of the greed, egomania, lack of empathy and paranoia of the hegemonic fraction of humanity. And these creatures will see the world destroyed before they surrender their advantage.

  8. Solar Jim says:

    Under a decrepit economic theory of perfect marketplace information (nation-state fuels are centrally planned), if investing people around the world realize that $7.4 trillion of so-called wealth is actually false valuation of precursory and fatal carbonic acid gas contamination (which now precipitates numerous, cascading, climate destabilizing, self-perpetuating feedbacks) then a new perception of “existential toxic assets” may bring coal and petroleum (oil and gas) dependent economies to their knees. This is to say nothing of economic damage which has occurred so far due to the increasing hundreds of billions of dollars of annual, nation-state, fossil subsidies in true ecologic debt, to say nothing of public fiscal debt.

    Themes of meltdowns and apocalypse do seem to have some purchase during these strange times. Most transnational entities seem to have turned into corrupt, fossilized, rackets, supported by hubris (and central bank notes). Take a note, petroleum is not “a resource of energy,” although it can be “dug up” and ignited by fools. “Plan for the worst and hope for . . .” redress of grievances.

    By the way, I read that B&V (Kansas) is involved in massive coal plant constructions in South Africa courtesy of US Treasury supported Export-Import Bank financing. Centralized corporate-federal fossil financing presented as “projections?”

  9. Rabid Doomsayer says:

    The plan to deal with climate change goes as follows:
    Put fingers in ears.
    Shout loudly, not true, not true.
    Believe your own lies.

    Then use the same method for other problems. If the middle class are destroyed financially, they will still be good little consumers of SUVs, oil, and take away coffee.

    Do not, under any circumstances, use logic and think things through. Do not let others think either, the group think must be reinforced.

    Reading the Bible is encouraged, but not Revelations. Revelations is to be read by professionals and interpreted for you. The great number of droughts and floods is God’s will, nothing at all to do with climate change.

  10. Lou Grinzo says:

    Once again: Timing, timing, timing.

    Wall Street and investors are either ignorant of our climate and energy situation, or they’re betting they can profit and jump from the speeding train before it crashes (as other pointed out above). My guess is that many on WS really have no clue how bad things are — they’re too focused on the gamesmanship of the market, i.e. making trades instead of investments — and nearly every Main Street investor is so blindly chasing any sort of positive return in this age of near-zero interest rates that he/she doesn’t see or want to see the bigger picture.

    For all the free market worshipers out there: This is what you get when unfettered capitalism and equity markets run headlong into super wicked problems (http://en.wikipedia.org/wiki/Wicked_problems#Super_wicked_problems) like peak oil and climate change: Catastrophe fueled by myopia and greed.

    While I know it’s not fashionable to say this, I strongly disagree with the common view that the lack of accounting for negative externalities in economics is a market failure. Because of the time frame involved such things are well beyond the planning horizon of the market’s actors and therefore the entire market. It is a failure of politics and even personal vision, to be sure, but to demand or expect that the market value such things is like saying your dog has a communication failure because he can’t speak English.

    • Mulga Mumblebrain says:

      It’s a spiritual failure, of dead souls not, somehow, being able to appreciate the moral infamy, the psychological abomination, of willfully destroying human civilization in pursuit of base greed.

  11. Jon Flatley says:

    A “carbon fee” levied against users and producers of fossil fuels is one of the methods suggested by James Hansen in his book, “Storms of My Grandchildren” to properly evaluate the true cost to society and the environment (for burning fossil fuels). Money speaks louder than anything in a market society. And a hefty “carbon fee” would help some. The money to be made is so enormous however that short of a huge fee that is agreed by nations and corporations around the world, it might only slow the process of burning the leftover carbon-based fuels currently underground. As Hansen goes on to say, this fee would be then used to pay for environmental damage and human health issues, etc. caused by burning fossil fuels.

  12. Spike says:

    NOAA confirms my impression of November’s unusually warm weather in northern Europe

    “The November average monthly temperature in Norway was 4.6°C (8.3°F) above average, making this month the country’s warmest November since records began in 1900. The average temperature for Northern Norway was 5.3°C (9.5°F) above normal, also a new November record.

    According to the UK Met Office, November 2011 was the second warmest November on record for the United Kingdom, Behind 1994, at 2.9°C (5.2°F) above normal. Provisionally, Scotland recorded its warmest November on record.”

  13. Hugh says:

    Grist also has an excellent three-part series (here, here and here) on cognitive dissonance related to the world-wide “carbon bubble” arising from failure to acknowledge that most of the world’s fossil-fuel resources must be left in the ground.

    The political log-jam preventing concerted progress towards a new energy future WILL be broken once exposure of issues like this reaches critical mass with investors, regulators, insurers and economists; though we don’t know when the tipping point will come, there is no option but to fight as if it’s just around the corner. …