Monckton explains

`Global warming', painting your roof white, and the Chattanooga Chu-Chu. A science-based answer by The Viscount Monckton of Brenchley to a science-based question from Rush Limbaugh. Chu's `Texas Longhorn' (A point here, a point there, and a whole lotta bull in between.)

Steven Chu, entertainingly described as an "Energy Secretary", says we can Save The Planet from "global warming" by painting our rooftops and roads white. He says making roofs and roads paler would have the same effect as taking every automobile in the world off the road for 11 years. The Limbaugh Question Rush Limbaugh, entertainingly as always, but pointedly, asks:

"Now, would somebody explain to me how he knows this? . If we can do something that will effectively remove the carbon emissions of every car on the road for 11 years, then why are we doing anything else? Why are we doing cap and trade? Why are we getting rid of SUVs? . How much paint is this going to take, by the way? How much of a footprint does paint manufacturing leave? I need a scientist to answer this for me. I understand how clouds at altitude can help reflect the heat, but I want to know where does that reflected heat go? Are we being told here that reflected heat is not damaging at all, but direct heat is? It seems to me that, if we had `global warming', wouldn't we want dark roofs to absorb the heat?"

His Lordship's Elegant Answer:

Steven Chu, like the Chattanooga locomotive whose name he proudly bears, is all steamed up about nothing, exists in a previous century, goes slowly and pointlessly backwards and forwards over the same ground, pulls a lot of fellow-travellers along with him, makes scary hooting and howling noises from time to time, keeps on missing points, is invariably late, and needs massive Federal subsidies to keep the whole show on the rails until his gravy-train hits the sand-trap.

Rush Limbaugh is really asking three questions: Does the Chu-Chu's science make the grade, or is he off track? Does his proposal make any more economic sense than your average steam railroad? Is "global warming" a global crisis rather than a signal failure of prediction? I'm happy to answer all three questions. No, No, and No. Let's do the science one first.

The Sexual Life of Heteroatomic Molecules: When radiant energy such as sunlight meets a planetary surface, one of three things happen. The surface transmits the energy to a body with which it is in intimate contact, or it reflects the energy as though it were a mirror, or it simultaneously absorbs and emits the energy. Transmission doesn't really come into it much at this stage, so reflection and absorption/emission are what we're talking about. "Global warming" happens, so the theory goes, because, though the Earth's atmosphere is more or less transparent to short-wave radiant energy (ultra-violet and visible light), that accounts for about half of all incoming solar radiation, it is not transparent to long-wave (infrared) radiant energy, that accounts for the other half.

The long-wave half of the incoming solar radiation interacts with what scientists call "heteroatomic" molecules and socialists call "greenhouse gases". The long-wave half of the incoming solar radiation interacts with what scientists call "heteroatomic" molecules and socialists call "greenhouse gases". Roughly speaking, these are red-blooded gaseous molecules made up of three or more atoms. They like to interact with long-wave radiation. Water is the commonest and therefore the most important heteroatomic gas. Each water molecule has two hydrogen atoms combined with one oxygen atom.

Carbon dioxide, though there is very little of it in the atmosphere, is the next most important heteroatomic gas. Each carbon dioxide molecule has two oxygen atoms combined with one carbon atom. Short-wave radiation does not get intimate with heteroatomic molecules. It disdainfully ignores them. But those sexy little photons of long-wave radiation like to interact with heteroatomic molecules and have a good time, setting up what is known as a "quantum resonance" that generates heat.

This is where "global warming" comes from. About one-third of the incoming short-wave radiation that passes through the atmosphere hits the Earth's surface, bounces off, and is reflected straight back up through the atmosphere and, harmlessly, into space. It doesn't warm the atmosphere because, on the whole, short-wave radiation is far too grand to say hello to the heteroatomic molecules it meets. It cuts them dead and goes on about its business. No warming results.

However, two-thirds of the short-wave radiation that reaches the Earth's surface is simultaneously absorbed and emitted by the surface in obedience to Kirchhoff's radiative-transfer law. But, in the process, the temperature at the Earth's surface changes the incoming short-wave radiation into outgoing long-wave radiation. This is called "displacement" - like being kicked out of bed.

And the long-wave radiation, unlike its short-wave cousins, isn't stand-offish at all. It's happy to say a warm Howdy-doody to any heteroatomic molecule it meets. What's more, heteroatomic molecules have the hots for long-wave radiation. So warming results from their meetings with it.

The Chu-Chu's notion is that painting some of the Earth's surface white will increase what scientists call its "albedo". Just as some gentlemen prefer blondes and some prefer brunettes, each type of heteroatomic molecule resonates with particular wavelengths of long-wave radiation. And carbon dioxide resonates with wavelengths in the near-infrared. The average temperature of the Earth is around 59 degrees Fahrenheit, which is 288 degrees Kelvin. Wien's displacement law dictates that it is solely the temperature of the absorbing/emitting surface that determines the peak wavelength of the resultant outgoing radiation.

As a rule of thumb, the peak wavelength, measured in microns, or very tiny fractions of an inch, will be 2897 divided by the temperature (in degrees Kelvin) of the absorbing/emitting surface. This means that, regardless of whether the incoming solar radiation that meets the Earth's surface is long-wave or short-wave, friendly or stand-offish, the peak wavelength of the outgoing long-wave radiation from the Earth's surface will be around 10 microns. And that's in the near-infrared, just about where it's very likely to meet some very friendly carbon dioxide molecules.

That's enough molecular sex. Enter the Chu-Chu The Chu-Chu's notion is that painting some of the Earth's surface white will increase what scientists call its "albedo". And, for all those energetic photons, albedo is the opposite of libido. It's a turn-off, big-time. The Earth's albedo is the fraction of all incoming solar radiation that will be reflected straight back into space, so that none of those photons gets to date any of the heteroatomic molecules. No dating, no warming. The Chu-Chu hopes, in a Puritanical sort of way, that if he can increase the Earth's albedo he'll reduce the photons' libido, so that fewer of them get to interact socially with the heteroatomic molecules they meet on their way back out into space, and less "global warming" will happen.

Or, to put it another way, he hopes that he and his mates can get huge Federal subsidies to study the idea before anyone notices that it's what polite scientists call "hogwash".

Is he wrong or is he wrong? Will painting the town white be a cool thing to do? Scientists answer questions like this by doing a little math. As we'll see, it's a pity the Chu-Chu didn't get his taxpayer-funded abacus out before tooting his whistle. Here's the math he didn't bother to do. It's not difficult, and - unlike most math - it's kinda fun, particularly when you see the answer. How much warming, in Fahrenheit degrees, will we prevent with the Chu-Chu's cunning plan?

About 75% of the Earth is covered in water or ice. Not even the Chu-Chu can paint water, though he probably thinks that with enough taxpayer subsidy he can walk on it. And there's no need to paint ice because it's white already. That leaves 25% of the surface. Let's cautiously assume that 2% of the land is covered in roads or buildings with roofs: 2% of 25% is 0.5% of the Earth's surface. That's how much of it we have to paint. All that roof-painting will reduce global warming by one-fifth of a Fahrenheit degree. If that.

About 40% of the atmosphere is covered in clouds. They're white too, so they already reflect a lot of those glamor-puss photons right back into space where they came from. Then we have to allow for the fact that most buildings and roads are not in the tropics, where most of the sunlight comes in. We also have to allow for the fact that white paint is not a perfect reflector. And up to 30% of the land surface of the Earth is covered in snow for up to six months of the year. These factors bring us down to the equivalent of just 0.2% of the "global warming" at the Earth's surface. Maybe.

Then we have to divide that by 2, because half of the incoming radiation from the Sun is long-wave already, and - however much white paint we throw around - it gets all up close and personal with those hunky heteroatomic molecules on the way in from space. So, if we paint every road and every roof whiter than white, we'll send just 0.1% more of those curvaceous photons straight back into space, where they came from. Don't you love it when big government thinks big? At your expense, of course.

How much warming, in Fahrenheit degrees, will we prevent with the Chu-Chu's cunning plan? For this, we need a little math. Increasing the Earth's albedo (and reducing its libido) by 0.1% would cut the average amount of solar radiation in the atmosphere from 236 to 235.6 Watts per square meter, which translates to a global cooling of just o.2 Fahrenheit degrees.

Let's pretend that the UN's climate panel is right in assuming that "global warming" caused by humans is going to warm the world by 7 Fahrenheit degrees this century. Actually, it will probably be more like 1 Fahrenheit degree, but let's clamber aboard the Chu-Chu's bandwagon even as the wheels are noisily falling off. Seven Fahrenheit it is, then. All that roof-painting will reduce global warming by one-fifth of a Fahrenheit degree. If that. The world's temperature monitoring stations won't even be able to measure it. And, even after we've painted everything we can, we still have another six and four-fifths Fahrenheit degrees to go.

And at what cost? That's the question that gravy-train drivers like the Chu-Chu never bother to ask, because - just like Amtrak - they'll be passing the check right along the line to the taxpayer. That's you and me, and I So, Mr. Taxpayer, it's going to cost you $17 trillion to reduce global temperature by just 0.2 Fahrenheit degrees. Chu-Chu only made up that story to keep the dead horse of "global warming" in the news for another few months, in the hope that the hated nations of the free West can be hornswoggled into giving up their independence to a new world government.

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Earth's Incredible Dissolving Corals

In a paper recently published in Geophysical Research Letters, Silverman et al. (2009) created a model of coral calcification based on field observations of gross community (SST) and live coral cover, after which they calculated calcification rates for more than 9,000 reef locations using model values concentrations, which exercise led them to conclude that "by the time atmospheric partial pressure of CO2 will reach 560 ppm, all coral reefs will cease to grow and start to dissolve."

What's wrong with this picture? For starters - and as actually acknowledged by the researchers themselves - "coral reefs were exposed throughout their geological history to higher temperatures and CO2 levels than at present and yet have persisted," which is a pretty amazing admission for them to make, in light of the fact that they have boldly declared that when the atmosphere's CO2 concentration reaches 560 ppm in the not too distant future, "all coral reefs will cease to grow and start to dissolve."

So how did the five modelers get things so wrong? ... as we clearly believe they did. For one thing, they say their calculations "are based on the assumption that an increase of 1øC in the maximum summer monthly average SST [relative to pre-Industrial Revolution or PIR values] will result in bleaching that will reduce the live coral cover [of a reef] by 50%."

This means that if a reef's live coral coverage parameter (AC, which can vary from 1.0 to 0.0) was initially 0.5, it will decline to 0.25, as they describe it, "when monthly average model SST increases by >=1øC above the temperature of the warmest month during PIR," and that "a further decrease of AC to 0.125 is invoked by the model on the next encounter with >=1øC SST increase," so that the reef's live coral coverage gradually dwindles away to next to nothing over the course of subsequent SST spikes.

Fortunately, real-world corals do not behave in this manner. They almost always recover from bleaching episodes, and they come back even better prepared for the next bleaching, so that equally severe - or even more severe - high temperature anomalies often have less of a negative effect on them than prior heat waves had; and this phenomenon enables earth's corals to indefinitely maintain - and possibly even expand -their undersea structures, which end result is just the opposite of what Silverman et al. assume in their model.

In describing the work of Adjeroud et al. (2002), for example, Adjeroud et al. (2005) reported that an interannual survey of reef communities at Tiahura on the French Polynesian island of Moorea "showed that the mortality of coral colonies following a and yet have bleaching event was decreasing with successive events, even if the latter have the same intensity."

Commenting on these and the similar observations of others, the seven French scientists additionally noted that the "spatial and temporal variability of the impacts observed at several scales during the present and previous surveys may reflect an acclimation and/or adaptation of local populations," such that "coral colonies and/or their endosymbiotic zooxanthellae may be phenotypically and possibly genotypically resistant to bleaching events," citing the work of Rowan et al. (1997), Hoegh-Guldberg (1999), Kinzie et al. (2001) and Coles and Brown (2003) in support of this conclusion.

Still other researchers have also confirmed the phenomenon of thermal adaptation in coral reefs. Guzman and Cortes (2007), for example, studied coral reefs of the eastern Pacific Ocean that had "suffered unprecedented mass mortality at a regional scale as a consequence of the anomalous sea warming during the 1982-1983 El Nino." At Cocos Island, in particular, they found in a survey of three representative reefs (which they conducted in 1987) that the remaining live coral cover was only 3% of what it had been prior to the occurrence of the great 1982-1983 El Nino (Guzman and Cortes, 1992); and based on this finding and the similar observations of other scientists at other reefs, they predicted that "the recovery of the reefs' framework would take centuries, and recovery of live coral cover, decades."

Just 15 years later, however, they found that the mean live coral cover had increased nearly five-fold - from 2.99% in 1987 to 14.87% in 2002 - at the three sites studied during both periods, while the mean live coral cover of all five sites studied in 2002 was 22.7%. In addition, they found that "most new recruits and adults belonged to the main reef building species from pre-1982 ENSO, Porites lobata, suggesting that a disturbance as outstanding as [the 1982-1983] El Nino was not sufficient to change the role or composition of the dominant species."

The most interesting aspect of the study, however, was the fact that a second major El Nino occurred between the two assessment periods; and Guzman and Cortes state that "the 1997-1998 warming event around Cocos Island was more intense than all previous El Nino events," noting that temperature anomalies "above 2øC lasted 4 months in 1997-1998 compared to 1 month in 1982-83." Nevertheless, they determined that "the coral communities suffered a lower and more selective mortality in 1997-1998, as was also observed in other areas of the eastern Pacific (Glynn et al., 2001; Cortes and Jimenez, 2003; Zapata and Vargas-Angel, 2003)," which finding is indicative of a significant thermal adaptation following the 1982-83 El Nino.

Researchers One year later, in a paper published in Marine Biology, Maynard et al. (2008) described how they analyzed bleaching severity in three coral genera (Acropora, Pocillopora and Porites) via underwater video surveys of five sites in the central section of Australia's Great Barrier Reef in late February and March of 1998 and 2002, while contemporary sea surface temperatures were acquired from satellite-based Advanced Very High Resolution Radiometer data that were calibrated to ship- and drift buoy-obtained measurements, and surface irradiance data were obtained "using an approach modified from that of Pinker and Laszlo (1991)."

With respect to temperature, the four researchers report that "the amount of accumulated thermal stress (as degree heating days) in 2002 was more than double that in 1998 at four of the five sites," and that "average surface irradiance during the 2002 thermal anomaly was 15.6-18.9% higher than during the 1998 anomaly." Nevertheless, they too found that "in 2002, bleaching severity was 30-100% lower than predicted from the relationship between severity and thermal stress in 1998, despite higher solar irradiances during the 2002 thermal event." In addition, they found that the coral genera that were originally most susceptible to thermal stress (Pocillopora and Acropora) "showed the greatest increase in tolerance."

In discussing their findings, Maynard et al. said they were "consistent with previous studies documenting an increase in thermal tolerance between bleaching events (1982-1983 vs. 1997-1998) in the Galapagos Islands (Podesta and Glynn, 2001), the Gulf of Chiriqi, the Gulf of Panama (Glynn et al., 2001), and on Costa Rican reefs (Jimenez et al., 2001)," and they noted that Dunne and Brown (2001) found similar results in the Andaman Sea, in that "bleaching severity was far reduced in 1998 compared to 1995 despite sea-temperature and light conditions being more conducive to widespread bleaching in 1998."

As for the significance of these and other observations, the Australian scientists stated that "the range in bleaching tolerances among corals inhabiting different thermal realms suggests that at least some coral symbioses have the ability to adapt to much higher temperatures than they currently experience in the central Great Barrier Reef," citing the work of Coles and Brown (2003) and Riegl (1999, 2002). In addition, they stated that "even within reefs there is a significant variability in bleaching susceptibility for many species (Edmunds, 1994; Marshall and Baird, 2000), suggesting some potential for a shift in thermal tolerance based on selective mortality (Glynn et al., 2001; Jimenez et al., 2001) and local population growth alone." Hence, they concluded their results suggested "a capacity for acclimatization or adaptation."

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Correcting Krugman on climate

In a previous article, I argued that Paul Krugman's recent articles in support of government efforts to mitigate climate change — and in particular the Waxman-Markey legislation pending in Congress — were typically misleading. Specifically, Krugman's estimate that "serious" efforts to fight climate change would cost only 2 percent of GDP by the year 2050 was much lower than what the IPCC "consensus" itself said about aggressive measures like Waxman-Markey, and in any event these estimates all assumed that politicians worldwide implement the policies in textbook fashion.

In the present article I wish to continue my criticism of Krugman's writings in support of Waxman-Markey. We will see that even on mainstream, neoclassical economic terms, Waxman-Markey fails a cost/benefit test by a huge margin. It's not even close.

Krugman Trick to Downplay Costs Would Also Minimize Benefits

In a passage intended to show just how cheap even aggressive climate action can be, Krugman writes, Consumers would end up poorer than they would have been without a climate-change policy. But how much poorer? Not much, say careful researchers, like those at the Environmental Protection Agency or the Emissions Prediction and Policy Analysis Group at the Massachusetts Institute of Technology. Even with stringent limits, says the M.I.T. group, Americans would consume only 2 percent less in 2050 than they would have in the absence of emission limits. That would still leave room for a large rise in the standard of living, shaving only one-twentieth of a percentage point off the average annual growth rate.

Elsewhere I have written about this neat little trick of translating a fairly large impact into an apparently negligible amount, by switching from the level of the impact into a reduced rate of annual growth. After all, two percent of global output in 2050 is a fantastic amount of income. To give a ballpark, in 2007, using the "purchasing power parity" approach, global GDP was about $66 trillion.

So if we conservatively assume that real global GDP (and yes we're ignoring all of the Austrian critiques about such a concept) grows at 3.5 percent annually, then MIT's estimate of the cost of fighting climate change works out to $5.8 trillion in the year 2050 alone. In other words, we're not talking about a one-shot cost here; we're saying the annual cost in the year 2050 will be $5.8 trillion (in 2007 US dollars). Somehow I think that if Dick Cheney suggested that fighting the global war on terror would "only" cost 2 percent of world output by 2050, Paul Krugman might raise more of a fuss.

In any event, Krugman's column seems rather one-sided, doesn't it? After all, when trying to decide if a particular policy makes economic sense, the standard mainstream thing to do is check whether the costs are lower than the benefits. And yet, the modeled benefits of fighting climate change aren't mentioned anywhere in Krugman's column. It is simply taken for granted that the US government must do something — and quick! As Krugman says in another column (again without pointing to any specific evidence), "It's time to save the planet."

Yet this is rather noneconomist talk, isn't it? It sounds a bit like saying, "Teachers should get a huge pay raise, because education is very important."

Yes, if the planet itself were in jeopardy, then just about any forfeited economic output would be worth it, if it could avert that catastrophe.

But of course "the planet" isn't in danger. What people really mean by such language is that "the desirability of living on earth as judged by our descendants" is at risk. Well then, exactly what are the risks? And let's be scientific and objective about this, folks! No consulting fringe "deniers." I want to draw from the consensus of world experts, as codified in the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4).

Now things get really interesting, and we see why Krugman and other proponents of Waxman-Markey haven't been talking about the quantitative, net benefits of their plans. As Jim Manzi points out, according to middle-of-the-pack estimates of various dials (such as the level of global emissions without strict government controls, the sensitivity of the climate to these emissions, the vulnerability of future generations to warmer temperatures, etc.), the IPCC reports that the hit to global GDP would be between 1 and 5 percent, for 4 degrees Celsius of (additional) warming that would probably not occur until the 22nd century.

Yikes, up to a 5 percent loss in total global output — an inconvenient truth indeed! Oh wait, Krugman has shown us how to deal with such alarming numbers. If we just shave 0.05 percentage points off of global GDP growth — for example, if the world economy grows at 2.95 percent per year, rather than 3 percent — then, as Krugman has already demonstrated, global GDP in the year 2050 will be 2 percent lower than it otherwise would have been.

Now if we just let the simulation run until the year 2114, the gap between 3 percent growth and 2.95 percent growth will have grown exponentially into a 5-percentage-point difference.

What does all this mean? Quite simple: the differential in growth rates that Krugman considers quite negligible when weighing the costs of fighting climate change works just as well for the differential in growth rates that the IPCC middle-of-the-pack forecasts say the world would suffer under unrestricted emissions.

In other words, by Krugman's own criteria, the best-guess IPCC estimate of the benefits of fighting climate change are just as negligible as Krugman considers the MIT estimate of the costs of fighting climate change.

Mainstream Economic Models Would Never Justify Waxman-Markey

The more I have investigated these matters, the more shocked I become. One doesn't even need to rely on Austrian or public-choice arguments to show that Waxman-Markey is crazy.

For example, William Nordhaus is one of the pioneers in the field of climate-change economics, and he is no laissez-faire ideologue; Austrian readers may recognize Nordhaus as Samuelon's coauthor of a textbook that is sympathetic to "market failure," to say the least.

Yet according to Nordhaus's "DICE" model of the global climate and economy, if the whole world were to implement the stringent emissions caps (83% below 2005 levels by the year 2050) contained in Waxman-Markey, the net loss of the policy would be enormous.[1] It's true, such stringent limits would reduce the amount of climate damage future generations would suffer, but the harms imposed on the economy (because of the emission caps) would more than outweigh these benefits. Indeed, Nordhaus's model says that the present discounted value of these different impacts (i.e., slowing climate change but also slowing economic growth) is somewhere in the range of negative $14 trillion to negative $21 trillion, measured in 2005 US dollars. (I give more details of this derivation here.)

Conclusion

Paul Krugman is a very sharp guy, conversant in many different fields. Yet his analysis of the economics of climate change is as wrongheaded as his analysis of depressions. Relying just on the IPCC "consensus" estimates as well as a leading model such as Nordhaus's, it is impossible to justify the draconian emission cuts in Waxman-Markey.

Partisans on both sides of the debate concede that if the United States imposes unilateral emission cuts, there will be a negligible effect on global temperatures. But, ironically, if the whole world were to foolishly follow us down this path, one of the leading mainstream models projects that the globe would be many trillions of dollars poorer for it — and that figure includes the alleged benefits of mitigating harmful climate change.

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Could cap and trade cause another market meltdown? A view from the Left

The same Wall Street players that upended the economy are clamoring to open up a massive market to swap, chop, and bundle carbon derivatives. Sound familiar?

You've heard of credit default swaps and subprime mortgages. Are carbon default swaps and subprime offsets next? If the Waxman-Markey climate bill is signed into law, it will generate, almost as an afterthought, a new market for carbon derivatives. That market will be vast, complicated, and dauntingly difficult to monitor. And if Washington doesn't get the rules right, it will be vulnerable to speculation and manipulation by the very same players who brought us the financial meltdown.

Cap and trade would create what Commodity Futures Trading commissioner Bart Chilton anticipates as a $2 trillion market, "the biggest of any [commodities] derivatives product in the next five years." That derivatives market will be based on two main instruments. First, there are the carbon allowance permits that form the nuts and bolts of any cap-and-trade scheme. Under cap and trade, the government would issue permits that allow companies to emit a certain amount of greenhouse gases. Companies that emit too much can buy allowances from companies that produce less than their limit. Then there are carbon offsets, which allow companies to emit greenhouse gases in excess of a federally mandated cap if they invest in a project that cuts emissions somewhere else—usually in developing countries. Polluters can pay Brazilian villagers to not cut down trees, for instance, or Filipino farmers to trap methane in pig manure.

In addition to trading the allowances and offsets themselves, participants in carbon markets can also deal in their derivatives—such as futures contracts to deliver a certain number of allowances at an agreed price and time. These instruments will be traded not only by polluters that need to buy credits to comply with environmental regulations, but also by financial services firms. In fact, a study (PDF) by Duke University's Nicholas Institute for Environmental Policy Solutions anticipates that if the United States passes a cap-and-trade law, the derivatives trade will probably exceed the market for the allowances themselves. "We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market," says Robert Shapiro, a former undersecretary of commerce in the Clinton administration and a cofounder of the US Climate Task Force.

Banks like JPMorgan Chase, Morgan Stanley, and Goldman Sachs already have active carbon trading desks that deal in instruments connected to Europe's cap-and-trade system and voluntary markets here. But business will explode if a cap-and-trade system becomes law. So it's no surprise that the financial industry has taken an intense interest in the fine print of the Waxman-Markey bill. According to data compiled by the Center for Public Integrity, the financial services industry has 130 lobbyists working on climate issues, compared to almost none in 2003. They represent companies like Goldman Sachs, JPMorgan Chase, and AIG (before it was shamed into temporarily halting its lobbying activities last fall). The industry "wants lawmakers to create a brand-new revenue stream for its bottom line, and cap and trade would do it," says Tyson Slocum of Public Citizen, who is a member of a Commodity Futures Trading Commission (CFTC) advisory committee considering how carbon trading should be regulated.

Among environmental groups, there is, understandably, less focus on the finer points of financial regulation. "The derivatives side is not something that a person who comes to the table worried about carbon emissions has on their agenda," says Michael Greenberger, a derivatives expert at the University of Maryland who has also served in the CFTC and the Justice Department. "Those people—and they're fighting a good battle—opened the door."

Already, the industry has achieved its main objective: The Waxman-Markey bill would create a big, convoluted market for carbon derivatives. Experts from the Congressional Budget Office have said that the most stable and effective form of cap and trade would involve a system in which the government periodically sets prices in much the same way that the Fed determines interest rates. That would prevent volatility, which would in turn remove the temptation to gamble on big price swings. In other words, it would provide far less opportunity for wheeling and dealing—and profits. Rep. Jim McDermott (D-Wash.) offered a proposal for a managed-price cap-and-trade scheme, but failed to gain any traction. Meanwhile, industry groups like the International Swaps and Derivatives Association pushed for a system in which a "broad suite" of financial products can be traded, and that's what Waxman-Markey delivers.

In an especially audacious move, the industry also argued that cap and trade should allow the very same types of unregulated instruments that helped spread risk throughout the financial system like a cancer, contributing to the economic meltdown. In particular, it lobbied for "over the counter" carbon derivatives—deals conducted directly between two parties with no one monitoring the risk. (Perhaps the most notorious form of OTC derivative is the credit default swap, which crippled AIG when it issued too many high-risk swaps while lacking the money to cover them.)

On this front, however, Wall Street was less successful. The day before the bill passed out of committee, Rep. Bart Stupak (D-Mich.) inserted language requiring all allowance derivatives to be either traded on an exchange or cleared by an organization registered with the CFTC. This would provide a paper trail for regulators, although the reporting requirements for clearinghouses are less stringent than those for public exchanges. Stupak also added limits to prevent speculators from cornering too much of the market. Still, the bill leaves many vital specifics to the White House, directing the president to form a task force to determine precisely how to avoid "fraud, market manipulation and excess speculation." Andy Stevenson, finance adviser at the National Resources Defense Council, says, "I would feel comfortable if much more of it were explicit." He applauds the bill's "spirit" but cautions that "the details are important."

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POLITICAL CLIMATE CHANGE: CENTRE-RIGHT PARTIES LIKELY TO DILUTE EU CLIMATE POLICIES, PROTECT INDUSTRY

A strong showing by pro-industry Conservatives in elections to the European Parliament could make it hard for Green parties to capitalise on their own gains. Greens won 51 seats, up from 43, as the European Union's parliament prepares to debate a swathe of new laws in the next year to curb greenhouse gas emissions. A stronger Green voice could also help Europe maintain its influence in global climate negotiations in Copenhagen in December.

But the ecologists will have to compete with a powerful conservative grouping. The centre-right European People's Party (EPP), which will have 267 out of 736 seats, proved a formidable force last year in watering down climate legislation in favour of industry. The EPP won 36.3 percent of the seats in the assembly, little changed from 36.7 percent previously, but gained influence as its main Socialist rivals fell further behind.

"The Greens are stronger, but the centre-right is stronger too," said Cecile Kerebel at French think tank Ifri. "The centre-right parties do not have the most forward-looking policies for the climate and energy and think more about protecting their own industries," she added.

Governing centre-right groups won in Germany, France, Poland and Italy, and Green parties did well on a bad night for Socialists, who failed to cash in on widespread discontent with Europe's handling of the global economic crisis.

Greens scored their biggest triumph in France, where they won about 16.3 percent of the votes, less than 1 percent behind the Socialists, whom they beat in Paris. "This should strengthen our hand," Philippe Lamberts, co-president of the European Green Party, told Reuters. "We made gains where we could articulate that the way out of the financial and economic crisis is through a Green new deal to stimulate the economy," he added.

GERMAN INFLUENCE

Some analysts see the Greens' biggest challenge on climate policy coming from Germany, where the pro-business Free Democrat Party was the biggest winner, pointing to a possible alliance with Chancellor Angela Merkel's conservatives after the autumn election. "This is not good for the climate agenda," said analyst Simon Tilford at Britain's Centre for European Reform. "Pro-business need not necessarily mean opposed to the climate agenda, but there is a concern about countries where members of the European Parliament have been more easily influenced by the industry lobby -- and that includes the German centre-right," he added.

German conservatives were particularly influential last year in watering down legislation to curb climate-warming gases from cars, which threatened the profits of big German automakers such as Mercedes and BMW. Their influence will be particularly important in the coming years as the EU gears up for a swathe of tough new rules to tackle surging emissions from road transport.

However, German support for industry could go hand in hand with some aspects of fighting climate change, said Susanne Droege at the German Institute for International and Security Affairs. "If the conservatives take over, I see further support for industry policy that would favour the climate, as industry could sell those Green technologies all over the world," she said. "I also see a shift to nuclear policy, but that would undermine renewable energies," she added.

With their increased seat tally, Green parties are starting to reach a mass that could tip the balance in the parliament committees that help shape EU law, said Tony Long, director of the European policy office of environment group WWF. That is territory traditionally held by the Liberal alliance, which won 81 seats. "That's the game to play for," Long said. "But the Greens find it more difficult to do alliance-building than other parties. When you have principles, it's more difficult to cut deals."

Greenpeace European unit director Jorgo Riss also saw hard work ahead in building alliances beyond the traditional pro-climate camp of Greens, British Liberals and some Socialists. "The picture is getting more fragmented, and building big alliances will require more small groups," he said. "That'll take more work."

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Climate insurance

By Lawrence Solomon

Before the Kyoto Treaty of 1997, before the Rio Conference of 1992, before the UN's Intergovernmental Panel on Climate Change's first report in 1990 or even its creation in 1988, even before the first ever World Climate Conference in 1979 expressed concern that "continued expansion of man's activities on Earth" may lead to climate change, the reinsurance industry spotted the potential that climate change had for its bottom line. (Reinsurers insure insurance companies.)

In determining the level of claims that insurers must pay out, man-made "climatic variations become most significant," explained Munich Re, one of the world's largest reinsurers in a 1973 publication, citing "the pollution of the Earth's atmosphere" by CO2.

"We wish to enlarge on this complex of problems in greater detail, especially as-- as far as we know-- [climate change's] conceivable impact on the long-range risk-trend has hardly been examined to date."

Since those early days, when manmade climate change was a virtually unknown theory, other far-sighted reinsurers, chiefly giant Swiss Re, have joined Munich Re in aggressively warning of climate-change dangers. In doing so, the reinsurers have been doing their duty in maximizing shareholder profit.

Fear of climate change, in fact, has been the biggest boon in insurance industry history. Contrary to conventional wisdom, the insurance industry has no interest in minimizing future risks to the public, in climate change or in any other field. To the contrary, the more that risks exist and the more that the insurance industry can charge to insure against those risks, the larger the potential market for insurance industry products.

The insurance industry's chief concerns are to minimize the risks to itself by determining the level of premiums that are commensurate with the risks -- this is the job of actuaries -- and to embellish the risks whenever it can, to drum up more business.

Nothing beats the drum better for the insurance business than the threat of looming catastrophe, and no threats have ever loomed larger than those from global warming -- in the public's mind, it is blamed for hurricanes, cyclones, flooding and other extreme weather events that represent many of the insurance industry's most profitable business sectors. Swiss Re capitalizes on these fears by citing climate change as one of the five biggest causes for increases in property damage.

Not only do global-warming threats extend to all regions of the world, but global warming especially plays well in the emerging countries of the Third World -- the focus for most predictions of catastrophe. This corresponds precisely with Swiss Re's marketing strategy: As concluded in a 2004 Swiss Re report entitled Exploiting the growth potential of emerging insurance markets -- China and India in the spotlight, "Emerging markets will be at the frontier of insurance in the 21st century."

Yet although the Third-World insurance market is the world's fastest growing, this potential remains largely untapped. "In many emerging markets, the costs of catastrophes are either uninsured or insufficiently insured," states Swiss Re in its recently published report, Natural catastrophes and manmade disasters in 2008. "As a result, individuals and companies are vulnerable, and tend to be overly dependent on government or other international organizations for aid."

Swiss Re laments the lack of awareness of the risks the Chinese run without insurance. "Between 1980 and 2008, Shenzen's population grew from 300,000 to roughly 12 million. Given the history of powerful tropical cyclones hitting the South China Sea coast, the potential impact of this rapid growth on both insured and uninsured losses is enormous. [Swiss Re estimates show that] the total loss potential in China is enormous and that there is a strong need to develop insurance. Today, a [major catastrophe] would leave the vast majority of the losses uninsured. China serves only as an example. The situation in many other Asian emerging markets does not differ substantially from that of China."

To raise awareness in China and the rest of the developing world, Swiss Re works with China and other Third-World governments to impress on them the future risks that they face from climate change. It sponsors international climate-change conferences that help shape the agenda for scientific discussions. And it works with the UN's Intergovernmental Panel on Climate Change, where it is an official expert reviewer. These efforts at raising global awareness of climate change have been productive beyond compare. When the press reports the IPCC conclusions about the catastrophes to come, for example, it is reflecting, in part, an IPCC document influenced by the reinsurance industry.

The centrality of the reinsurance industry in the climate-change debate can also be seen in its close relationships over two decades with major environmental organizations, Greenpeace among them. Prominent U. K. environmentalist Fred Pearce, in a New Scientist article published on the eve of the 1997 Kyoto Protocol, lauded Greenpeace for having "shown the way" by engaging the insurance companies in the international climate-change negotiations, and achieving a "coup" by persuading the companies to speak out. In Greenpeace's own account of its relationship with the reinsurers, published in Greenpeace & The Financial Sector --The Possibility Of Profitable Relationships Between Not-For-Profits And For-Profits, it documents its role in enlisting the aid of the reinsurers as lobbyists in aid of greenhouse-gas reforms.

In Greenpeace's mind, the multi-trillion-dollar insurance industry may have been decisive in tipping governments to supporting climate-change legislation, and in this Greenpeace may well be right. Greenpeace may also be right in noting where the reinsurers most often chose to air their views: "in forums provided by Greenpeace, rather than one organized by government actors or international economic agencies."

That Greenpeace orchestrated the reinsurers' conversion into public advocates for climate change reform, however, is a delusion. The reinsurance industry, then as now, had an interest in extreme weather events and it knew where its interest lay -- if CO2 did exacerbate climate, the reinsurers would have had a financial incentive to pump more of it into the atmosphere. Whether or not CO2 exacerbates climate catastrophes, the reinsurers have an incentive to make us believe that it does, and with many of us they have succeeded.

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