Sting in the tail

Climate change tail risks aren't like Wall Street's

Climate change tail risks, including ones cited in a closely watched report on global warming, aren't like Wall Street's. As with traders and bank risk managers, researchers rely on complex models to assess the chances of bad outcomes.

The incentives are different, though. Dire predictions can be more rewarding for scientists. That's the reason to focus on the new baseline forecasts from the Intergovernmental Panel on Climate Change, which are now less alarming.

The 800 authors of the study released on Friday say rising temperatures on the planet are "unequivocal" and that it is at least 95 per cent probable human influence has been the dominant cause for more than a half century. The 2007 edition found that likelihood to be 90 per cent and, in 2001, it was only 66 per cent.

Ranges provided by the computer-modeled scenarios have changed over the years, too. In the latest report, the biggest increase envisioned is of a 4.8 degrees Celsius rise in the global temperature by 2100.

That would indeed be highly disruptive, and therefore, might capture the attention of world leaders and green energy advocates. It's important to remember, though, just how worst-case scenarios affect the scientific community.

Putting an emphasis on moderate results that aren't much cause for worry won't generate new funding grants. It also won't help a researcher attract the attention necessary to become an acknowledged expert or star in the field.

That's a stark contrast to innovators of financial products, whose over-optimistic profitability expectations have an unfortunate tendency to break down under higher standard-deviation events, and therefore these downplay them.

That's why it's important to scrutinize the central case of the IPCC forecasts and the trend-line since the last assessment.

Though the panel cautioned that a recent moderation of temperatures would not last, the average midpoint of the four latest scenarios it modelled suggests a 2.2 degrees Celsius rise by 2100. Six years ago, under six different scenarios, the average figure was 3.1 degrees. The worst-case outcome is also lower, down from an increase of 6.4 degrees. On a similar basis, the risk of a rise in sea levels is also getting more conservative.

After the calamitous financial events of 2008, fewer practitioners in most fields will be inclined to be dismissive of the rarest risks.

It just pays to consider carefully the possible motivations for accentuating or seizing upon them.