The Cost of the Insurance Policy Matters

I once found myself in a debate with someone advocating the precautionary principle, that we should abate all CO2 production "just in case" it might cause a catastrophe.  The person I was debating with said, trying to be reasonable, "you buy car insurance, right?"

I answered, "Yes, but I wouldn’t buy insurance on my car if the insurance itself cost more than my car."  The point is that in most forecasts, the cost of CO2 abatement with current technologies tends to outweigh even some of the more dramatic catastrophic costs of warming, particularly since the best defense against climate disaster is wealth, not less CO2.  Here is another example:

Climatologist Patrick Michaels thinks it would have virtually no effect on the climate, an additional 0.013 degrees (Celsius) of "prevented" warming. That’s another little bitty fact that will never see the light of day on most press reports. Instead what we’ll get is the usual hot air, except this time it has the price tag of 660 hurricanes.

Update:  "the sexiness has gone out of the movement…AGW was fun … as long as nobody lost an eye."  Or as long as no Senator had to put his name on a $4 a gallon gas tax (about what they have in Europe, an amount that is still way insufficient to force compliance with Kyoto goals).

  • mal

    OT: Are there any articles you can suggest for Kids that explain global warming objectively.?

  • Stevo

    I’ve never read it, so take this recommendation with a pinch of salt, but the book “The sky’s not falling” is about AGW scepticism for children. Have a look and see what you think.

    http://www.amazon.com/Skys-Not-Falling-Global-Warming/dp/0976726947

  • bbeeman

    The insurance example has other ramifications. Insurance companies can calculate the probability of you having a wreck, and therefore, they know the cost of taking on that risk.

    To my knowledge, the risk of AGW has not been quantified to the point that you can put a cost on it. The risks seem to always be expressed in dire warnings, hazy forecasts, and darned few facts.

    BTW, I enjoy your posts.

    bb

  • bbeeman

    The insurance example has other ramifications. Insurance companies can calculate the probability of you having a wreck, and therefore, they know the cost of taking on that risk.

    To my knowledge, the risk of AGW has not been quantified to the point that you can put a cost on it. The risks seem to always be expressed in dire warnings, hazy forecasts, and darned few facts.

    BTW, I enjoy your posts.

    bb

  • John M

    I’ve always disliked the insurance analogy. An insurance policy is designed to spread risk and provide funds to people who suffer a loss. The only way this analogy would hold is if there is a fossil fuel fee or tax that is put into a “lock box” (sorry Al) and used to offset damages from climate change.

    That’s not what people are really trying to do. They are trying to change behavior and re-apportion wealth. And they want to use the funds generated to “prevent” harm in some nebulous and unproven way, not use it to offset damages. How many people would voluntarily buy that kind of “insurance policy”?

    The closest analogy I can think of is car insurance, where “bad” behavior is punished with higher fees. Lots of luck deciding what “bad” behavior is, when you consider the quagmire that’s already forming regarding biofuels. Also, even good drivers have accidents. If all the money collected for car insurance went to punish bad drivers in some way, what good would that do good drivers who have an innocent accident?

    How long before people start noticing that Prius drivers are bathed in EMF fields? Wait’ll the health insurance companies get a hold of that. (That parts a joke, son.)

  • Mhaze

    Through what is effectively a tax, gov. alleges to seek to reduce CO2. Gov. collects $ based on noble supposed purpose, then Gov spends $ collected plus some more it prints just for good measure. Every utilization of those $ has a CO2 effect, the right to produce CO2 has only been shifted from the free market to the Gov.

    The US produces one ton of CO2 output per every $2115 of GNP. That will be approximately true for tax revenue dollars.

  • Mhaze

    Through what is effectively a tax, gov. alleges to seek to reduce CO2. Gov. collects $ based on noble supposed purpose, then Gov spends $ collected plus some more it prints just for good measure. Every utilization of those $ has a CO2 effect, the right to produce CO2 has only been shifted from the free market to the Gov.

    The US produces one ton of CO2 output per every $2115 of GNP. That will be approximately true for tax revenue dollars.

  • Austin

    Mike Tyson said it best:

    “Everyone has a plan until they get punched in the mouth.”

  • austin

    Insurance policies are really closed futures markets.