The shady climate salesmen

If a shifty salesman in a blue suit adorned with yellow stars appeared on your doorstep flogging a life insurance policy with 'high, high costs and low, low returns', would you turn over your hard-earned cash? Most likely, you would shut the door in his face. This is effectively what some NGOs and governments are asking us to do when they call for drastic restrictions on greenhouse gas emissions in the name of saving us from climate change.

From 28 November to 9 December, the annual UN climate policy negotiations will occur in Quebec, Canada. At this meeting, poor countries such as South Africa, India, China, and Brazil will be pressured to buy an insurance scheme (the son of the Kyoto Protocol) promoted by global climate actuaries - the European Union (EU), the UN Environment Programme and others. So far, these countries have been wary of this grand Ponzi scheme- and with good reason.

Every day, people buy insurance for their homes, cars and health, lives, even their pets. They do this to protect themselves against an uncertain future: accidents and unforeseen events that might result in financial loss or personal injury.

Proponents of global climate control - restrictions on humanity's emissions via centralised government mandates - have branded their strategy as an 'insurance policy' against climate-sensitive problems in the future.

Proponents of climate control argue that governments should restrict emissions by regulating some kinds of energy use (those which result from the burning of fossil fuels) and promoting others (biofuels, solar, wind, 'energy efficiency', etc.). The future dividend of this insurance policy might be to avoid a 'climate catastrophe', or perhaps to reduce the extent of climate-sensitive problems.

Fundamentally, insurance acts as a form of security, enabling us to live our lives despite possible (but unlikely) calamities. Yet this security comes with a price tag: It entails forgoing some resources today, in exchange for an unlikely but potentially large payout (relative to the original payment) should a catastrophe occur.

In the real world, insurance purveyors use numerous criteria to decide on the price they charge. Importantly, the price reflects the risks posed by the client and thus potential future payouts. When selling personal accident insurance, companies might want to know, for example: Is the client a teenage boy? Does he own a car? Does he live in a socially-deprived area?

So, would 'climate control' be an effective insurance policy for humanity? What is the actuarially fair premium? Unfortunately, the salesmen haven't given us a price. We are being pressured to buy an insurance policy without knowing the premium. That is known in the trade as mis-selling.

If our climate insurance policy really had a zero price tag, EU nations would have no problem attaining their targets under the Kyoto treaty. Yet so far EU nations have largely failed to reach their targets. In fact, they have found that artificially restricting the supply of energy causes economic and social damage. Economic growth is reduced, jobs are lost, the poor go hungry, become sick and react with violence (as most recently in France).

The premise that this price is worth paying to prevent future costs is flawed. Climate control would have little or no impact on climate-sensitive problems. Studies by the UK's Department of Food and Rural Affairs (DEFRA) show that malaria, biodiversity loss, hunger and water scarcity, would barely be touched by reducing humanity's emissions.

Any insurance policy is only worth purchasing if it is less costly than the alternative of self-insuring or taking other risk-reducing actions. Of course, climate insurance salesmen have no interest in the alternatives - except inasmuch as they have to justify you not choosing them. But if our future might be impaired by climate-sensitive problems, it is imperative that we consider how best to address those specific problems in the least costly fashion.

The DEFRA studies show that, at least until 2030, tackling specific problems such as malaria, food shortages, water scarcity, biodiversity loss and vulnerability to extreme weather and coastal flooding, is the most practical and most cost-effective insurance policy..

This strategy would pay dividends now and in the future. It would alleviate human suffering and environmental problems today. It would help eliminate, or greatly reduce, our exposure to climate-sensitive problems in the future. It would greatly contribute to achieving sustainable development.

Lest the cost-deniers forget, Article 3 of the Framework Convention on Climate Change (the treaty to which Kyoto is a Protocol) mandates that 'policies and measures to deal with climate change should be cost-effective so as to ensure global benefits at the lowest possible cost.'

Climate control is a poor insurance policy. It is wrong to waste resources when more cost-effective and more humane ways to address climate-sensitive problems exist. Whether in Montreal, Beijing, Brussels or Delhi, our representatives should be wary of offers from shady climate insurance salesmen.

Author: Kendra Okonski is a Programme Director of International Policy Network, a London-based development charity, and editor of Adapt or Die (Profile Books, 2003). This article first appeared in the European Voice. The article may be republished without prior consent but with acknowledgements to the author and European Voice. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article/ 6 December 2005