Last week’s column described how “merchants of doubt” have perfected modern public relations strategies to delay action on the major issues of the day. When scientists seem to disagree on effects of pesticides on the environment, or the link between cigarette smoking and lung cancer or the threat of climate change, the resulting uncertainty contributes to the maintenance of the status quo.
But dealing with uncertainty has been a feature of human existence since the dawn of civilization. Nature is nothing if not uncertain. In addition to her fairest gifts, Mother Nature also perennially serves up storms, famine, disease and fire to mention just a few of the horsemen of the apocalypse. But because we are the beast who walks upright and clever to boot, we have developed means of living with uncertainty and protecting ourselves against the threat of catastrophe. We have learned to hedge our bets by accepting small losses against the possibility of financial ruin or doom. The basis of this ancient idea is called insurance.
The concept of insurance developed fundamentally as a consequence of maritime trade, and has a venerable and complicated history. The point, however, was that ship owners and merchants needed to hedge the risk of losing their valuable maritime cargoes. Once it left port, a ship was subject to the vagaries of storms, pirates and other disasters that could wipe out the traders’ wealth in an instant. One of the early examples of insurance developed well before the birth of Christ. Merchants from the island of Rhodes in the eastern Mediterranean articulated the legal principle of the “general average,” which required all parties in a sea venture to share proportionally any loss of cargo that was jettisoned en-route rather than expend valuable time in an emergency quarreling over whose goods might be tossed overboard to save the ship.
Now fast-forward another millennia to London, at the hub of another island kingdom that was a center for maritime trade in the 16th and 17th centuries. A coffee house opened by one Edward Lloyd in London became a favorite haunt of ship owners, merchants and sea captains to trade in the latest shipping news. Lloyd’s coffee house also became a convenient venue to arrange insurance contracts to underwrite England’s growing maritime trade. Lloyd’s of London ultimately became the world’s premier insurance market based on an ancient and intuitively obvious idea that it makes sense for a group of interested individuals in a common enterprise to absorb a small cost in profit rather than risk losing the entire enterprise to the uncertainties of nature or foibles of mankind. Insurance is now a multi-trillion dollar industry operating in innumerable markets in every corner of the world.
So what does insurance have to do with the environmental threat of climate change?
Some people rightly insist that we do not know for certain what the effects of climate change will be on a given region, or a specific country like ours, or on the rest of the world for that matter. They say, also correctly, that the science is not fully settled. They maintain there is too much uncertainty to accept that climate change is occurring, especially as a result of the buildup of carbon dioxide in the atmosphere. It could be, after all, just natural variability or God’s will that explains the effects we are experiencing. The drought in the Midwest, for example, was preceded by an equally intense—although not as extensive—drought during the great Dust Bowl years of the 1930s. Sea level rise that threatens to undermine every major city and port on every coast of the world and swallow whole island nations in the Pacific and Indian oceans and communities in Chesapeake Bay and the Outer Banks and might not actually affect us during our lifetime. After all, no one can say for certain when or where catastrophe might strike.
But we have already learned that because uncertainty is inevitable, purchasing insurance is a really good idea—actually a great idea. We don’t buy homeowners insurance because we think our house is going to burn down, or car insurance because we anticipate a horrific wreck or health insurance (voluntarily) because we expect to get cancer. But bad things happen; the world is unpredictable.
Climate change is unpredictable. Maine’s climate might actually improve in some respects, say for tourists, but lobstermen may have to reorganize their businesses to contend with a glut of shedders earlier than the tourists arrive or lose more of their catch shell disease. Maine’s ski areas may have spend a lot more money making snow; the leaf peeping season may be less satisfyingly intense. But these are minor qualms compared with the potential desertification of the American Southwest, the removal of entire communities from the shifting sands of the Outer Banks, the cost of higher levees along the banks of cities next to flooding rivers or the entire Midwest American Corn Belt moving north.
One of the ways of insuring against these potential catastrophes is some form of carbon tax. That is, taxing the production of carbon dioxide that ends up in the air to warm the planet in order to incent the transition to new forms of energy. All of economic life depends on energy and lots of it. We are never going to stop producing energy. But the question is what kind of energy and how much of our carbon-based fuel endowment we are going to burn before we make a serious effort to hedge our bets and shift to other forms of energy. Our markets are poised to react to incentives.
The best estimates of using a carbon tax to insure against planet-wide and irreversible local disruptions are on the order of several hundred dollars per year for each American. Makes health insurance tax—or was it a mandate—look paltry.
Too bad it is an election year when we cannot discuss serious issues.
Philip Conkling is president and founder of the Island Institute based in Rockland, Maine.