A Piece of the Action
August 25th, 2005Posted by: Roger Pielke, Jr.
There is a lot of attention being paid to public bets about the future these days. For example, a climate scientist in Japan, James Annan, has bet two Russian solar physicists, Galina Mashnich and Vladimir Bashkirtsev, $10,000 that the earth will warm over the next decade, as measured by the U.S. NCDC over two different 6-year periods. At this point, such bets are little more than political stunts, but if they move us in the direction of actual futures markets on climate forecasts, then I’m all for it.
Just yesterday I read about a $5,000 bet between New York Times columnist John Tierney and energy industry consultant Matthew Simmons (described here) over whether or not the price of oil in 2010 would be over $200 in 2005 dollars. Tierney is taking Simmons to the cleaners. There is already a futures market for oil, and Simmons can get all the action he wants there at a price of $62.39 for Dec 2010. Anyone who thinks oil prices are going up dramatically can purchase futures and then make a killing if they are proven right. Tierney can simply hedge his side of the bet by, for example, buying $5,000 worth of 2010 futures at $62.39. If the price goes down by as much as 50% he is still in the black as he would win the bet. If the price if over $200 he comes out far ahead as he can pay the bet off from the proceeds of his gains. And the best case scenario for him is a price higher than $62.39 and less than $200, in which he collects on the investment and the bet. There are of course more complicated hedges that would involve a smaller outlay than $5000. From a financial perspective he can’t lose, which is obviously why he states that he will “consider bets from anyone else convinced that our way of life is “unsustainable.” If you think the price of oil or some other natural resource is going to soar, show me the money.” (As an aside, all of this raises some questions for me about the thinking behind Simmons’ analyses about economics and oil, but that is a subject for another time.)
With all of this excitement going on about betting, I’d like to get a piece of the action. I’d consider a bet along the lines of the following:
a) whether global concentrations of CO2 will be lower than 2005 values at any point over the next 30 years;
b) whether the rate of change in global CO2 concentrations will be negative (i.e., decreasing year over year) over any 3-year period over the next 30 years;
c) whether (b) will occur before atmospheric concentrations reach 400, 450, or 550 ppm.
I’m not no much interested in a bet per se, so mostly this is to see who out there is optimistic about the current approach to climate mitigation. Who out there thinks that the current policy trajectory will be effective from the standpoint of atmospheric concentrations? The three options above are set up to allow for various levels of optimism. Feel free to discuss in the comments. I’ll be happy to summarize in a week or so. Any takers?
August 25th, 2005 at 5:37 pm
I think the answer to all three is “no,” and the only reason I might be wrong has far more to do with Hubbert than Kyoto.
August 25th, 2005 at 6:19 pm
My own inexpert view would be:
a) Thirty years is a LONG time, but no.
b) Still no.
c) I’m in no position to make any kind of educated guess whatsoever, but no.
August 25th, 2005 at 10:51 pm
It may be a “political stunt” to you, Roger, but it’s $10,000 to me
I agree that a wider market would be interesting.
a is false with high confidence
If by b you mean actually decreasing atmospheric CO2, it’s also false with high confidence. The more interesting question IMO is whether the rate of increase will drop (maybe this is what you meant?), and over 3 year intervals, that happens already due to interannual variability (in fact 2002-2004 is one example of a large rise followed by a smaller one, that might well continue downwards in 2005).
August 26th, 2005 at 2:54 am
I doubt you’ll get anyone to take you on (a), a better idea would be spread-betting over some plausible trend.
Note that James scooped you on the oil-futures idea (http://julesandjames.blogspot.com/2005/08/how-not-to-bet-on-future.html by a few hours). If its so obvious to several (non-energy-experts) you have to wonder why it wasn’t obvious to a “consultant”, or even to the NYT!
August 26th, 2005 at 5:00 am
On a different time scale, you can now trade futures on Atlantic hurricane landfalls at http://hurricanefutures.miami.edu. A friend made $5 on his $100 investment on the I storm not making landfall. I don’t know what he did on Katrina.
August 27th, 2005 at 6:53 am
Why do you always break your posts up with a jump? It adds nothing to the post and just makes one more hurdle for the reader to jump through. When your server is slow (often) I usually don’t even bother with the jump. What’s the problem with simply presenting a post whole???
August 28th, 2005 at 8:53 pm
I’m too lazy to look up the actual numbers, but current human industrial emissions are approximately 7 gigatons as carbon, with land use changes adding another 1 gigaton or so. But the change in CO2 concentration is equivalent to about 3-4 gigatons as carbon.
In other words, in order to get the CO2 concentration to stop increasing, either: a) emissions need to be cut by about 50%, or b) an additional sink of about 50% needs to be found.
Given those two facts, it’s unlikely that a) or b) will occur. My estimate is a probability of less than 1 in 20.
As for c), the main questions are: 1) will renewable energy technologies or nuclear fusion come into being in a big way in the next 50-80 years, or 2) will a technology to remove ~4-8 billion tons per year (e.g. ocean iron fertilization) be developed in the next 50-80 years?
Even if the answer to 1) or 2) is “yes,” we’d still go above 400 ppm (which we should do in the next 10-15 years), and probably above 450 ppm (should happen circa 2040. I’d say there’s a better-than-50/50 chance of 1) or 2) happening before concentrations hit 550 ppm (absent 1 or 2, 550 ppm won’t be hit until 2080+).
So a) no, b) no, c) no for 400 ppm, no for 450 ppm, 50/50 chance of yes for 550 ppm.