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We Are Underestimating the Economic Risks

For Tuesday 2 June 2020 provided by (#letsfindsolutions)

News for green investors and organisations, stock watch & grant opportunities

We Are Underestimating the Economic Risks

One of the more vexing aspects of climate change politics and policy is the longstanding gap between the models that project the physical effects of global warming and those that project the economic impacts. In a nutshell, even as the physical effects models deliver worse and worse news, especially about a temperature rise of 3 degrees Celsius or more, the economic models remain placid.

The famous?DICE model created by Yale?s William Nordhaus shows that a 6-degree rise in global average temperature, which the physical sciences characterize as an?unliveable hellscape, would only dent global GDP by 10 percent.

Projections of modest economic impacts from even the most severe climate change affect climate politics in a number of ways. For one thing, they fuel the arguments of ?lukewarmers,? those who say that the climate is warming but it?s not that big a problem. (Lukewarmism is the public stance of?most Trump Cabinet members). Meanwhile, the Australian federal government has wheeled out the Technology investment roadmap which is not about the presence of technology. It is about the absence of consequences. It is a repudiation of the very concept of global climate action, an active denial of the need to act on climate change.

Climate hawks have long had the strong instinct that it?s the economic models, not the physical-science models, that are missing something. That is, the current expert consensus about climate economic damages is far too sanguine but lacks the vocabulary to do any more than insist.

As it happens, that vocabulary exists. The?Review of Environmental Economics and Policy (, recommends that in its Sixth Assessment Report (AR6), the Intergovernmental Panel on Climate Change (IPCC) improve its approach to the management of the uncertainties inherent in climate policy decisions. In particular, it suggests that the IPCC in preparing its Sixth Assessment Report to:

  1. Strengthen its focus on applications of decision making under risk, uncertainty, and outright ambiguity; and

  2. Estimate how the uncertainty itself affects its economic and financial cost estimates of climate damage and, ultimately, the optimal price for each ton of carbon dioxide released.

The IPCC typically uses integrated assessment models (IAMs) to estimate effects. The models incorporate an ?expected utility function?. That is, they add up effects based on their probability of occurring. The models include economic and climate models in interaction. The economy produces emissions, which feed into the climate models, which produce effects, which are applied as a ?damage function? to the economic models.

The problem is that the expected utility function does not allow modelers to indicate their subjective confidence in various sources of input data. Also, many difficult-to-quantify effects are omitted entirely including physical impacts not translated into monetary terms.

The heart of the critique is that IAMs do not properly account for ?tipping points i.e. levels of atmospheric change ?beyond which impacts accelerate, become unstoppable, or become irreversible.

The conclusion is that the degree of governmental support for clean energy in Australia and the USA is detrimentally affected because the true costs of doing nothing are not included in climate change models.

Notwithstanding the above, there is good news: the USA?s annual energy consumption from renewable sources exceeded that from coal for the first time since before 1885, according to the Energy Information Administration.

Grants/Subsidies/Funding ? JobKeeper

The Australian Taxation Office has just published LGR 2020/1, setting out the Tax Commissioner?s view of the decline in turnover test as part of the JobKeeper rules.

?The reason for this ruling is that we are continuing to receive questions about some aspects of the turnover test that require further explanation in a product of this type,? the ATO said.

Eco-tip for the day ? Transport options

From Everlution?s last newsletter: ?Transport now accounts for 19% of Australia’s greenhouse gas emissions, but changes to your daily routine could make a big difference to your personal carbon footprint.?

The graphic below shows the different emissions per passenger per kilometre for different forms of transport.

The airline figures reflect (in the light blue) the impact of the added radiative forcing of emissions of greenhouse gases high up in the atmosphere. The graphic includes the per passenger emissions of the Eurostar high-speed train between the UK and Europe. At 6 grams, it certainly supports the argument for high speed trains between the major capital cities of the Australian eastern states.

Share watch ? Anson Resources Ltd (ASN:ASX)

Anson is developing the Paradox Basin Brine Project for recovery of valuable chemicals from a unique salt brine resource in southern Utah, USA. The project will supply lithium chemicals to the rapidly growing battery market, and will produce high value by-products including bromine, iodine, and boron. The preliminary economic assessment is above expectations with the after-tax IRR in the 30s.

Its 10-year share performance graph is what some would describe as a roller coaster ride. The webpage photos of the company?s directors doesn?t do much to inspire confidence either, but despite that, has the Board been astute enough to put the company in the right place at the right time?

?Financial indicators

The VIX fear gauge up slightly by 0.29 of a point since Friday EST to 27.94.

The Dow Jones Industrial Average up slightly since last Friday EST by 74.46 points or 0.29% to 25,475.02, the STOXX 600 down 1.27 points or 0.36% to 354.20 and the Shanghai Composite index up 69.21 points or 12.43% to 2,915.43.

Gold steady on 1,749.90. US 10-year Treasury Bonds down to 0.660 and oil up to 35.62. Cryptos Bitcoin up 234.91 points since Friday or 2.49% to 9,684.00.

ASX 200 down 16 points or 0.27% since Friday to 5,835.10. The Aussie dollar up to 68.01US cents.

?Eco Market Spot Prices

LGC $33.10

STC $39.30

ESC $25.95

VEEC $33.10

Sources:?RenewEconomy, demandmanager,? Reuters, SMH, Market Watch, Vox

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