Learning curves, negative and positive--a Carbon Based original

    Under most circumstances, the more we practice at a task or a project, the greater our skill. In a positive learning curve, the costs of acting go down as the rewards increase.  But in some instances, practice makes our performance worse.  Economists and psychologists describe a negative learning curve as one where the more we persist with an activity, the greater the costs we face.  Practice makes us worse off.

    A 2011 article by the vigorously anti-nuclear Joe Romm in Think Progress asked, "Does nuclear power have a negative learning curve?"According to the piece, even the most successful nuclear operations suffer from a sharp growth in construction and operating expenses, even after adjusting for inflation.  Unlike wind and solar, where the cost per kilowatt hour has been steadily dropping, nuclear's has climbed.  A 2007 Moody's study finds nuclear costs mounting from $4000 before 2007 to $5000 to $6,000 today. One case Romm cites in Florida is even more expensive.

    Lest you think that this is just a problem for the balkanized, inefficient, poorly regulated US, Romm links to a paper that finds the same pattern in France's nuclear industry. Arnulf Grubler of the International Institute for Applied Systems in Austria analyzed public records for Energy Policy and wrote “The costs of the French nuclear scale-up: A case of negative learning by doing”.

     The cost escalation has happened even though French reactor designs are standardized to a degree that impossible in the US, and even though costs go down per unit as the size of the reactor increases.   France has other advantages, too, such as a powerful, well-run state utility. But this hasn't saved it from the negative learning curve.  Grubler speculates that the French cost rise stems from the inherent complexity of nuclear technology, which demands "a formidable ability to manage complexity in both construction and operation."  It's an ability nobody has, not even Electricite de France. 

    Romm's stinging conclusion: "New nukes have gone from too cheap to meter to too expensive to matter." 

    So much for nuclear power (though I wonder whether the same objections would apply to thorium-based nuclear reactors).  But I'm struck by the notion of negative learning, defined as an activity that grows more costly the longer it's pursued.

    In the broader climate change landscape, the business as usual scenario -- the path we're on now -- exemplifies negative learning.  Sticking with our carbon-intensive ways entails worsening costs in the form of natural disasters, sea level rise and other impacts.  Most casual onlookers or organizations tend to regard climate impacts as random.  But they are externalities that follow predictably from burning fossil fuels.  The more greenhouse gases we emit into the atmosphere, the higher the costs go.

    One reason we remains stuck in this negative learning curve is ideological.  A substantial minority of American citizens have political objections to the kind of actions required to cut emissions drastically.

    Occasionally public opinions leans toward actually taking action against climate change, usually after a natural disaster.  That's when fossil fuel propagandists hurl themselves into the fray.  Hundreds of megaphones start blaring , stupefying the debate with a cacophony of marginal scientists, pro-capitalist think tanks, and industry flacks. A coalition of petroleum, steel, autos and utilities use their legislative clout to stop anyone from thinking about the origin of the growing costs, or noticing that they're not random. 

    This kind of political bind bedevils the whole world, not just the United States. The dispiriting fizzle of the latest round of international climate talks in Doha revealed yet again that the US inaction has global allies.  The motives of poorer countries are different from the wealthy nations, and stem largely from the urgent need to use energy to advance their development.  They have much catching up to do, and to reach the goal, they believe, they need a full energy portfolio, including fossil fuels.

    The irony is that with climate change, a positive learning curve awaits us when we cut emissions.  Because of the physical nature of growing concentrations of greenhouse gases in the atmosphere, early carbon mitigation can have huge benefits.  We have the power to avoid decades of growing costs.

    A recent report in Nature suggested that an international price on carbon at $20 per ton today gives the world an almost 60% chance of holding global temperature increases under 2°C. This temperature level would blunt the costliest impacts of global warming, including: rising sea levels, floods, droughts, and extreme weather.

    Unfortunately for slow learners or non-learners, the cost of action closely tracks the level of greenhouse gas concentrations.  By 2020, when the parts per million are higher, we will need a price of $100 per ton of carbon to achieve the same result.  If we wait until 2030, no price on carbon, no matter how expensive, will be able to hold the line on temperature. 

    Under these circumstances, the moral and economic case for action now is strong. Rather than linger in a negative learning curve, we should actually try to benefit from our experience.  But we live in a cynical, paralyzed, ungovernable time, when our elites cannot act on behalf of our species in any coherent way. 

Some learning curves from an 1899 issue of Popular Science Monthly

Extreme weather more persuasive on climate change than scientists

Suzanne Golderberg in the Guardian (UK): As one of the Marx brothers famously said: who do you believe, me or your own eyes? Climate sceptics, it turns out, are much more likely to believe direct evidence of a changing climate in the form of extreme weather events than they do scientists, when it comes to global warming.

A poll released on Friday by the Associated Press-GfK found rising concern about climate change among Americans in general, with 80% citing it as a serious problem for the US, up from 73% in 2009. Belief and worry about climate change were rising faster still among people who do tend not to trust scientists on the environment.

Some of the doubters said in follow-up interviews that they were persuaded by personal experience: such as record temperatures, flooding of New York City subway tunnels, and news of sea ice melt in the Arctic and extreme drought in the mid-west. About 78% of respondents overall believed in climate change, a slight rise from AP's last poll in 2009. The result was in line with other recent polls.

Among climate doubters, however, 61% now say temperatures have been rising over the past century, a substantial rise from 2009 when only 47% believed in climate change.

The change was not among the hard core of climate deniers, but in the next tier of climate doubters, AP reported. About 1 in 3 of the people surveyed fell into that category. "Events are helping these people see what scientists thought they had been seeing all along," Jon Krosnick, a Stanford University psychologist who studies attitudes to climate change and consulted on the poll, told the news agency....

US Air Force picture of Hurricane Sandy effects on the New Jersey coast

Where are the climate change investments? A Carbon Based Original

    Markets can fall prey to inefficiencies or fail altogether. The annals of investment are replete with tales of visionary investors who find ways to exploit these failures.      Climate change, in addition to being a global emergency, is also a market failure.  In the words of climate economist Nicholas Stern in 2007, "Climate change is the greatest market failure the world has ever seen, and it interacts with other market imperfections."

    So where are the investors who are profiting from exploiting this failure?  In fact, their numbers are small, and so far their performance has not attracted other asset managers. 

    One disadvantages is that investors in climate change do not have need politicians committed to the right policies.  As Stern put it, "The first is the pricing of carbon, implemented through tax, trading or regulation. The second is policy to support innovation and the deployment of low-carbon technologies. And the third is action to remove barriers to energy efficiency, and to inform, educate and persuade individuals about what they can do to respond to climate change."

    Investments in the right actions face a political headwind. Instead of a concerted three-pronged push, would-be climate investors face virulent obstruction from conservative politicians.   These politicians and their fossil fuel backers work indefatigably to thwart all measures to price carbon. They do their utmost to thwart any large-scale post-carbon investing -- witness the near-criminalization of renewable energy at the hands of congressional Republicans.  They spout fossil fuel propaganda unabated even though governments and businesses pursue hundreds of small improvements in energy efficiency, and a majority of Americans believe climate change is real.

    Hostility from politicians and lobbyists is not the only obstacle. Psychology and cognitive habits place another barrier in the way of investing profitably in climate change action.

    Most people rarely notice long-term, lumbering problems for a number of cognitive and psychological reasons.  Their time horizon is too short. The climate signal emerges too slowly from the noise to command investors' attention.

    Traders, for example, operate in the briefest of short runs, and for them, climate change has hardly any existence at all. They buy securities, hold them for just a moment. 

    Investors work with a time horizon of three months to a year.  But even this somewhat longer field of view is the blink of the climate's eye. 

    Some asset managers defy this tendency, focusing on climate and renewable energy as investments, but most other investors quickly lose interest. 

    The time horizon problem even bedevils insurance, the one industry that cares the most about climate change right now.  Insurers have an immediate and obvious stake in reducing climate risk, since clients' disaster losses determine how profitable they are. 

    A growing number of property and casualty firms are focused on climate change. They are cutting their own emissions, taking climate into consideration in their portfolios, spelling out and communicating the risks of climate change, and even trying to influence policy. 

    Does this mean we should put our money in climate-savvy insurers?  Sometimes the industry does well, but the nature of the risk business prevents them from reaping extravagant payoffs. 

    The time horizon of insurers is one year -- policies are renewed every twelve months, usually in January.  Their judgment of their portfolios' risks only needs to be correct enough for a year. 

    Skill at assessing risk is only one part of the insurance business. The other half is investing. Insurers invest the premiums they take in, resulting in some of the largest asset pools in the world.  Their bias is conservative and short-term, since they might face large losses that could force them to unwind their portfolio in a hurry. In short, an insurer that has an acute understanding of climate risks has a better chance for staying in business, but it won't perform like a boom stock.

    Between the difficulty of thinking long term and fierce political opposition, sound climate investing has languished. That's alarming because all of us have a stake in stopping greenhouse gas emissions and reducing the harshness of its impacts. It should be profitable to do so.

Dunes at Gran Canaria, shot by Marc Ryckaert (MJJR), Wikimedia Commons, under the Creative Commons Attribution 3.0 Unported license