From Climate Scepticism

By JOHN RIDGWAY

When I ran risk assessment workshops during my days in software development, I was always keen to remind those participating that the risk that is most likely to dominate is the one that did not make it onto the risk register. This annoying detail is due to the novelty that often accompanies software development work, and therefore the extent to which epistemic uncertainty features. You can do as much Monte Carlo analysis as you want in order to model schedule risk, but the brute fact is that you cannot account for the impact of your ignorance, and so you are likely wasting your time. Another way of putting this is that the risk profile is dominated by black swans and not the logic of the gaming table.

The question I have posed in the title to this article is whether or not climate change is like that. When we look forward, are the risks primarily determined by the unknown unknowns? Is that where the greatest potential impact lies? And if so, does that justify the drastic approach currently proposed by advocates of an emergency transition to Net Zero? After all, in some important respects, we have never been here before and the placards tell me there is no planet B.

Before I attempt to answer that question, it is very important that we all have the right idea of what a black swan is and what it is not. Yes, they are rare events that have huge impact and were not predicted, but is that all there is to it?

In a word: No.

This is not roulette

The idea of the black swan was first introduced by Professor Nassim Nicholas Taleb in his book, Fooled by Randomness, and further developed in his now famous book, The Black Swan – The Impact of the Highly Improbable. In that book he wastes no time in introducing the reader to the three essential characteristics of a black swan event. On the very first page of the prologue he states:

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

From this, one can discern that improbability and extreme impact are necessary but insufficient conditions for an event to be called a black swan. Nor is it sufficient that the event had not been anticipated. The essential feature is that it could not have been expected ‘because nothing in the past can convincingly point to its possibility’. Black swans are therefore epistemic phenomena in so far as a lack of information not only prevents the accurate calculation of probabilities, it even prevents the conception of the possibility. As an illustration, consider the following two examples, neither of which can be termed a black swan.

The first is the outbreak of a nuclear war. Certainly that would be an all or nothing event that, if it were to happen, would rather render irrelevant any other things we might have included in our risk register. It is also very difficult to predict exactly when such an outcome may befall us. However, there is plenty in the past that must surely convince us of the possibility. In fact, many political and military analysts would suggest that a global nuclear war will probably occur at some stage; it’s just a matter of time. The fact that it hasn’t happened yet is of no comfort. As for rationalising after the event – chance would be a fine thing.

The second example is the famous 1913 run on the roulette wheel in the Monte Carlo Casino, Las Vegas, in which the ball landed on black 26 times in a row. A moment’s thought should be enough to recognise that, despite this being a most unexpected outcome, with potentially extreme significance for anyone who may have bet on it, the event, nevertheless, fails as a black swan example. This is once again due to the all-important required condition that ‘nothing in the past can convincingly point to its possibility.’  This is not the case for roulette because, in fact, the probabilities are childishly simple to calculate, and the possibility was established the moment the roulette wheel was invented. It just took a long time, and a vast number of spins in casinos across the world before it happened. The event taken in isolation seems almost miraculous, but within the context of the full history of gaming, it was much less so. It was pure dumb luck and any attempt to portray it as a black swan would be to allow oneself to be fooled by randomness.

The roulette example is also important because it is a timely reminder not to look to the casino for examples that illustrate how uncertainty usually works in the real world. Taleb was so anxious to warn against making such a mistake that he dedicated a full chapter to it in his book (chapter 15, The Bell Curve, That Great Intellectual Fraud) and coined a term for it: the ludic fallacy. Casino games, both in theory and in practice, are a misleading model for the rest of real life, and the reason for this is that the uncertainty in games, such as roulette, is hugely dominated by the aleatory, whereas in real life the epistemic basis for the uncertainty is usually significant. If one insists on using games as a model for real life, one has to introduce a significant level of uncertainty that the game may have been rigged in some unknown fashion. As the Forbes magazine article, Black Swan Bets, puts it:

“He [Taleb] fumes at finance professors who have treated investing like a roulette wheel where we know the odds. We don’t.”

Clarifying the question

Now that we have a better idea regarding the full range of conditions that have to be met in order for an event to qualify as a black swan, we can return to the headline question with a better understanding of what it means exactly. Stated fully, the question is as follows:

Knowing what we know of the processes that drive climate change and the relevance of man’s emission of carbon dioxide, are there any gaps in our knowledge that may lead us to suspect that a future black swan event may radically change our understanding and lead to significant, unpredicted impact?

I think that is a very valid question and, to be honest, I think the answer has to be yes. I just don’t think our current level of understanding can rule out such an event. In fact, black swans, by definition, cannot be ruled out in advance, since even a belief that there are no significant gaps in our knowledge is not a provable belief. However, whilst one must accept the possibility of future black swans in principle, the problem comes in trying to provide plausible examples, since as soon as a specific possibility has been conceived it is no longer a black swan. The best that such an example could then be is a so-called grey swan, i.e. a low probability, high impact event for which the possibility has been conceived, but for which reliable probabilities may or may not have been calculated. If such examples entail ruin scenarios, there may be reason to apply the precautionary principle, but calling them a black swan would still be a misnomer.

Take, for example, the tipping points that have been posited for climate change, such as speculation of a Greenland ice sheet collapse. Even where these may be legitimate, scientific concerns, they are still not potential black swans, if only because we have had the foresight to anticipate the possibility. For each given tipping point example, there has been something in the past that has convinced someone of its possibility, albeit perhaps not its probability. The true black swan would be the tipping point that no one has yet thought of. It is the risk that did not make it onto the risk register.

On the other hand…

The spectre of the black swan may be something that keeps many climate change activists awake at night but it actually works both ways. One might, for example, rephrase the question thus:

Knowing what we know of the processes that drive climate change and the relevance of man’s emission of carbon dioxide, are there any gaps in our knowledge that may lead us to suspect that a future black swan event may radically change our understanding and lead to far less impact being attributable to man?

Having honestly answered in the affirmative to the original question, I would have to ask myself why I should not do so again. And if one argued that the current gaps in knowledge render such a black swan much less likely, that would be to fail to understand what a black swan is. We can’t talk in advance about one being more likely than the other. We can only assess in hindsight whether one should have been more predictable. And that retrospective will just be a story we tell ourselves.

Handling the truth

The climate change debate is essentially all about determining the approach to be taken when making decisions under uncertainty. To engage in that debate, one must have a good grasp of uncertainty’s conceptual framework and how uncertainty influences the perception of risk. Failing to understand the important distinction to be made between aleatory and epistemic uncertainty can lead to the ludic fallacy. A failure to understand how epistemic uncertainty works in real life can lead to a failure to appreciate the important distinction between black and grey swans. The truth is, however, that all this talk of black swans and grey swans somewhat misses the point. In life there will always be the event that comes out of the blue and changes everything, such as 9/11. And there are already plenty of known threats, such as pandemics, that have the potential to bring things crashing down. Quibbling over the correct term to use for such events is not nearly as important as knowing what to do about it.

It is often said that uncertainty is not the sceptic’s friend since it allows for the possibility of ruin scenarios that cannot be ruled out. The less one can be certain, the more one has to take the possibility seriously since it dominates the risk profile. The reality, however, is that uncertainty is nobody’s friend, since the prospect of unforeseen ruin may reside both in the problem and solution domain. The issue, if you ask a climate sceptic, is that the accelerated transition to Net Zero does not look like a straightforward proposition, and swans of all shades can be expected on that road. In fact, many of the swans look decidedly white. Whilst Net Zero advocates talk of the costs necessarily incurred to remove risk, it looks to the sceptic more like a case of swapping one set of potentially ruinous scenarios with others that are just as ruinous and much more likely. Fear is prompting the speed of the Net Zero transition, and unrealistic optimism seems to be giving it a free pass when weighing up the pros and cons. And then, of course, there is the ultimate concern:

What if the ruinous climate change black swans turn out to have been flightless birds all along?