Economic optimization risks tipping of important Earth system elements

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OPTIMIZING economic welfare without constraints might put human well-being at risk, a new climate study argues.

While being successful in bringing down costs of greenhouse-gas reductions, for instance, the concept of profit maximization alone does not suffice to avoid the tipping of critical elements in the Earth system that could lead to dramatic change of livelihood.

Scientists at the Potsdam Institute for Climate Impact Research (PIK) used mathematical experiments to compare economic optimization to the governance concepts of sustainability and the more recent approach of a safe operating space for humanity. All of these turn out to have their benefits and deficits, yet the profit-maximizing approach shows the greatest likelihood of producing outcomes that harm people or the environment.

“We find that the concept of optimization of economic welfare might in some cases be neither sustainable nor safe for governing modern environmental change,” said Wolfram Barfuss of the PIK in a study shared to Database.

“Economic optimization can be quite effective in reducing current greenhouse-gas emissions, and it certainly has its strengths. Yet, under human-made global warming, we face a world full of complex nonlinearities, namely the tipping elements in the Earth system. The ice sheets of Greenland and Antarctica might collapse at some point if greenhouse-gas emissions do not get reduced, or the great circulation systems in ocean and atmosphere could fundamentally change. In such a setting, optimization can lead to dangerous side effects. Even for relatively high risks, and even if profit-maximizing agents in our calculations are farsighted, they tend to accept the possibility of detrimental environmental and societal impacts,” said the PIK study.

Mathematical experiments

This is the result of mathematical experiments that the scientists performed. While governments worldwide agreed on ambitious targets, such as the 17 United Nations Sustainability Goals and the Paris Agreement, which aims to limit global warming to well below 2 degrees Celsius, there is no consensus on how to reach those targets.

The scientists identified and then analyzed three big concepts: economic optimization (act to maximize your expected profit, with discounted future), sustainability (act to always stay above a minimum standard of expected profit, with discounted future) and the safe operating space approach, relying on the Planetary Boundaries concept (act to always stay within the safe space for humanity to ensure the functioning of the Earth’s life-supporting systems).

“Take the Atlantic Overturning Circulation, better known as the Gulf Stream System, one of the great potential tipping elements in the Earth system,” said coauthor Jonathan Donges, from PIK and Stockholm Resilience Centre.

“We know, both from our understanding of the physics and from observations, that it can be put at risk by global warming. But we cannot yet calculate the timing of a tipping, as well as the potential damages arising from it. Hence, it is clear that economic optimization of climate policy would normally not be able to count it in as future costs,” Donges said.

“From the safe operating space perspective, we’d have to cut greenhouse-gas emissions immediately to make sure the Gulf Stream does not get seriously disturbed. But you cannot say that ‘safe’ is always ‘best’ because, from a sustainability point of view, poverty reduction is one main goal. If we ended fossil-fuel use too abruptly, the costs of a transition to clean energy would be substantial and might, at least for a certain time, rise energy and food prices and, consequently, impede the poverty-reduction goal,” Donges added.

What’s suitable?

It depends on the circumstances whether a sustainable or safe approach is most suitable. The only thing clear is that in a no-policy scenario of unmitigated greenhouse-gas emissions, a Gulf Stream System collapse would also have negative impacts on poverty reduction.

“It turns out that there is no master concept for countering environmental challenges,” said co-author Jürgen Kurths, head of the PIK research department Transdisciplinary Concepts and Methods and a pioneer of the complex nonlinear systems analysis applied here.

“Yet our analysis is a first step to provide decision-makers with better insights on which concept for achieving the climate and sustainability targets works and under which circumstances. Neither economic thinking nor good will alone suffice to deal with a world full of complex nonlinear dynamics,” Kurts said.

The PIK, a member of the Leibniz Association, is one of the leading research institutions addressing relevant questions in the fields of global change, climate impacts and sustainable development. Natural and social scientists work closely together to generate interdisciplinary insights that provide a sound basis for decision-making for society, businesses and politics.

Founded in 1990 and funded with €1.8 billion, the Leibniz Association, in Berlin, Germany, is a nonprofit scientific research organization comprising German non-university research institutes from various branches of study. In 2017 91 non-university research institutes and service device for science belonged to the Leibniz-Gemeinschaft, with the Senate as its main organ. Its president is eminent Prof. Dr. Matthias Kleiner.


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