Informing an Effective Response to Climate Change (2010) / Chapter Skim
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3 Decision Frameworks for Effective Responses to Climate Change
3 Decision Frameworks for Effective Responses to Climate Change
Pages 91-122
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From page 91... ...
At present, however, the appropriate framework for climate related decisions remains an open question. As discussed in the preceding chapters, climate change presents a host of novel challenges that may require many organizations to change their standard operating procedures in order to consider new types of information and to incorporate that information into their decisions in new ways.
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From page 92... ...
In this same way, iterative risk management can be defined as an ongoing process in which the potential but uncertain consequences of climate change and climate policy are identified, assessed, prioritized, managed, and reevaluated in response to experience, monitoring, and new information. The advantage of an iterative risk management approach is that it includes a strategy for responding to climate related risks as conditions change and we learn more about them.
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From page 93... ...
However, responding to climate change now requires a decision-making framework that addresses an expanded set of questions. For instance, a decision framework might help policy makers consider how much greenhouse gas emissions might be reduced, and by whom, or help them consider how the design of a new bridge might take into account the potential for future climate change.
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From page 94... ...
For example, by monitoring trends in population, the economy, policy, operations, management and material costs, future adaptation strategies can be iteratively tailored to ensure they remain con sistent with broader citywide objectives. Chicago The Chicago Climate Action Plan (CCAP)
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From page 95... ...
Key Lessons Learned from creating the Chicago Climate Action Plan (Parzen, 2009)
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From page 96... ...
Chicago Checklist for Climate Action Planning, Part of a Risk Management Framework (Parzen, 2009) • Create a staff and organizational structure to carry out work and manage funds.
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From page 97... ...
As a result, a set of criteria has been useful in choosing among such frameworks. Generally, an effective decision framework for climate related decisions should: • Help to relate actions to consequences in a way that decision makers can com pare the extent to which alternative actions achieve various objectives and goals; • Provide a way to address uncertainty, in particular the deep uncertainties that often characterize many climate related decisions; • Provide a way to handle multiple, often competing objectives; and • Provide a process and results seen as legitimate by stakeholders to the decision.
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From page 98... ...
. Due to the city's flood hazard management efforts, flood insurance rates for Tulsa residents are significantly lower than those in other flood-prone communities around the country.
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From page 99... ...
Decision Frameworks for Effective Responses to Climate Change Tulsa flood of 1984. SOURCE: Tulsa World (1984)
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From page 100... ...
The precautionary approach, however, does not always address several of the criteria for an effective decision framework. Precaution provides no way to balance among competing goals (Sunstein, 2005)
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From page 101... ...
Economic decision frameworks have the advantage of providing a systematic structure for understanding the consequences of alternative decisions, in particular in complicated human systems when some actions may have surprising or counterintuitive consequences. In practice, however, economic analyses are often criticized for oversimplifying important aspects of climate related decisions, for example, by ignoring (or poorly representing)
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From page 102... ...
It also requires specification of a rate of time preference -- discounting -- which is a normative exercise in easily monetized categories. These challenges prove fatal when applying CBA to many climate related decisions, because the uncertainties about the costs and benefits often prove too large and because the impacts are too diverse and extensive for all the parties to the decision to agree on a common metric for comparison or how future generations should be discounted 0
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From page 103... ...
An iterative risk management framework (Figure 3.1) defines risk as the impact of some adverse event multiplied by the probability of its occurrence (see Adapting to the Impacts of Climate Change, NRC, 2010a)
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From page 104... ...
. action, reassessment, and response that will continue -- in the case of many climate related decisions -- for decades if not longer, which will require documentation so that each iteration learns from previous iterations.
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From page 105... ...
However, many climate related decisions confront a number of especially difficult challenges that include the expectation of surprise, the need for urgent action, the need for long-term decision making, the potential demands of crisis response, and the overall characterization of climate change as a complex problem3 (Box 3.3)
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From page 106... ...
. Those faced with climate related decisions should expect to be surprised (NRC, 2009a; Schneider et al., 1998)
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From page 107... ...
. Technology research may reveal unanticipated possibilities that broaden the range of options to limit the magnitude of future climate change.
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From page 108... ...
. In response to such deep uncertainties, many climate related decisions should seek to be robust, that is, to perform well compared to the alternatives across a wide range of plausible future scenarios, even if they do not perform optimally for any particular stakeholder's view of the most likely outcome.4 The iterative risk management framework can implement this concept by characterizing probabilities by a range of plausible values or by a set of plausible probability distributions (CCSP SAP 5.2, 2009)
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From page 109... ...
, including a major investment in a pilot project to evaluate carbon capture and sequestration (CCS) technology that, if successful, could eventually allow AEP and other utilities worldwide to continue to burn coal but without emitting carbon dioxide into the atmosphere.b Consistent with the iterative risk management framework, AEP recognizes that it cannot eliminate all potential risks associated with climate change.
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From page 110... ...
While the concept of adaptive management is ideal for the challenges of climate related decisions, it often proves difficult to implement because organizations find it difficult to design actual interventions as experiments; to document failures with the detail, transparency, and clarity needed to facilitate learning; and to spend sufficient resources on monitoring (NRC, 2009a)
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From page 111... ...
The industry regularly uses iterative risk management to assess the long-term implications of the activities they insure. It is uniquely positioned to manage climate risks, including potential losses from extreme events, health impacts, and other insured risks.
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From page 112... ...
it came from a financial services company and (2) it argued that the repercussions from climate change "could be enormous, with threats posed not only to citizens and enterprises, but also to whole cities and branches of the economy, even entire states and social systems." Swiss Re's risk management strategy includes the following elements: • Advance knowledge and understanding of climate risks and, where relevant, integrate them into risk management and underwriting frameworks.
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From page 113... ...
In October 2003, Swiss Re was the major company in the financial services industry to announce that it would reduce or offset its greenhouse gas emissions with a goal of becoming carbon neutral in 2013. a In partnership with the UNDP and the Center for Human Heath and the Global Environment at the Harvard Medical School.
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From page 114... ...
In a changing climate, government insurers will need to analyze the implications for future insurance rates and identify prevention measures that may be taken to reduce climate exacerbated risks, such as floods, to prevent the average claimant from being a repeat claimant. Finance Sector: Risk Awareness and Management As noted in Chapter 2, the finance sector is using a risk management approach to include information about climate change in its investment strategies.
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From page 115... ...
. Financial accounting offers a range of decision frameworks, methods, and tools for both emission reduction and adaptation strategies (KPMG, 2009)
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From page 116... ...
In contrast, only 15 percent of U.S. insurers even mention climate change, leading investors to file a number of shareholder resolutions requesting disclosure of potential climate change exposure.
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In practice, however, significant challenges face Congress and state legislatures in implementing adaptive governance for climate related decisions. By their nature, institutions are meant to cement particular policies and practices into place and to resist alteration.
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From page 118... ...
However, there are also important ques tions regarding the ability of alternative types of targets to help communicate the goals of policy and to help motivate appropriate actions to achieve those goals. Such questions represent an important issue in any study of the best means to inform effective climate related decisions and actions.
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From page 119... ...
Since limiting climate change will likely require stretch goals, but many political organizations will pursue legitimacy seeking goals, the use of targets as a primary means of communicating and implementing climate policy may suffer a serious tension between risking failure by promising more than can be delivered or failing to exploit potential opportunities by promising too little. Policy makers might reduce this tension by focusing more on creating strong incentives for emissions reductions, and building constituency, rather than particular targets to be reached.
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From page 120... ...
Adaptive governance structures have emerged to deal with sector-specific climate related problems such as ecosystem, coastal, and water management (Scholz and Stitfel, 2005)
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From page 121... ...
Addressing such challenges requires augmenting the basic iterative risk management framework, incorporating the objectives of multiple actors, using robustness criteria to help manage the deep uncertainties facing many climate related decisions, and embedding the framework in a broader process of institutional learning and adaptive governance. We find that the assumptions of a number of current decision frameworks may need to be revised given the risks of climate change.
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From page 122... ...
develop a clear financial disclosure requirement for climate change risks are likely to facilitate transparency and comparison of corporate exposure. Recommendation 3: Decision makers in both public and private sectors should implement an iterative risk management strategy to manage climate decisions and to identify potential climate damages, co-benefits, considerations of equity, societal attitudes to climate risk, and the availability of potential response options.
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