CLIMATE CRISIS. TRUSTING THE SCIENCE HAS NEVER BEEN MORE IMPORTANT.

What do Scientists Really Know? Why the Philosophy Really Matters.

This column does not often stray into the philosophy of science, but there are occasions when it is useful to reflect on just why we consider certain things to be true and with what evidence. Nowhere is this more true than in evaluation of what science tells us on climate change. Given the superficial and inaccurate material that continues to flow from the many political opponents of action on climate issues, it is worth dissecting some of the fallacies and misunderstandings that find their way into popular debate. One of these is the notion that the nature of scientific knowledge is always provisional, with the additional assertion that it cannot therefore be relied upon in matters of policy. This is a misreading of the nature of scientific method and the philosophy of science. It is often combined with the false claim that climate science has lacked predictive power and in particular failed to anticipate the actual warming that we are now observing. These arguments owe little to logic or fact.

…………………………………………………………..

“Science is never settled. History tells us that!”

“We can’t even find models that forecast tomorrow’s weather, so there cannot be any basis for predicting the climate decades ahead.”

A lot of the popular discussion on climate (and other) science stems from low level interpretations of the work of Karl Popper, and in particular the criterion of falsifiability as a necessary condition for any proposition to be considered as science. So it is worth describing briefly the nature and status of Popper's philosophy. Loosely summarised, Popper's essential thesis was that no proposition could ever be finally proved, but that proper science could be defined by our ability to set tests, often of a predictive nature, for it to pass. Hence falsifiability, or the capability of being disproved, was the test of proper science. Popper has always been popular among political commentators, especially on the Right, because he usefully demolished the pretensions to science status of many Marxists. He observed that they failed, or refused, to produce testable, and hence falsifiable, propositions based on their ideas.

These ideas, taken in isolation, characterise science as proceeding by a series of hypotheses, each of which may or will in turn be falsified and replaced by a better  hypothesis. This is the feature that excites the interest of climate science sceptics. The idea (incorrect, as we shall argue later) that scientific propositions are always provisional supposedly implies that they can and will be found to be false, and are therefore not reliable as a basis for policy. Needless to say, this is an attractive argument for anyone faced with what they may regard as an “inconvenient scientific truth”.

So far, so good. Popper made an important contribution, at the very least as a codification of what had always been present in de facto practice of science since the days of Isaac Newton[1]. But his insight is not the whole story, although it is sometimes treated as such in a political context. Nor is it a complete description of how science works, and Popper is certainly not the ultimate court of appeal or the last word on scientific method.

One excellent source on this subject is the work[2] of Brian Davies, referenced below, which gives a much more coherent and comprehensive account of the nature of proof and knowledge in mathematics and science, fully acknowledging the contribution of Popper among others, but putting it in its proper historical, scientific and philosophical perspective. Another interesting article by Richard Lawson[3] makes a further interesting contribution on the application of Popper’s approach to validation of climate science

Popper and Evolution. Scientific understanding of evolution has had an enormous impact on human thought and on practical science since these ideas developed more than 150 years ago. Comparison with climate science, which threatens to be an issue of similar scale, is therefore instructive, not least because there is some overlap[4] between the sceptics on both issues. However, Popper’s judgement on matters scientific is called into question by his earlier failure to recognise the theory of evolution as science under his criterion. JBS Haldane is famously attributed the answer: “Show me a pre-Cambrian rabbit, and my confidence in the theory of evolution is lost.” Popper later and sensibly retracted.

Not all science provides a basis for future prediction. Falsifiability does not depend on and cannot be equated with the ability to make accurate future predictions. Evolutionary biologists may understand perfectly the mechanisms of genetic mutation but there is no way they can predict, or we test, exactly how random mutations might lead over many millennia to the evolution of new species under the same or changed environmental conditions. Similarly, weather, the day-to-day manifestation of climate, is intrinsically unpredictable for more than a few days ahead. But this is much less likely to be true of climate, the composite or “average” of weather over a long period.

Prediction and falsifiability. The reality of science is in practice much more nuanced and complex than a simple move from predictive failure[5] to falsification. Where a prediction made from an apparently well-established theory fails, the first response should normally be to look for what has gone wrong with the data or the experiment, or what other factors have affected the result. It should not be immediate rejection of a well-established theory.  Otherwise the laws of chemistry and physics would be disproved on a daily basis in school laboratories.

At a higher level, discrepancies in the orbit of Uranus revealed the existence of Neptune, not the failure of Newton’s Laws. Small discrepancies for Mercury, on the other hand, could only be explained after Einstein’s theory of relativity had overtaken Newtonian physics as a more complete description of the universe. The clear parallels in climate science have been critical examination of apparent anomalies in global temperature data (compared to model predictions), together with the impact of unpredictable events such as particular large volcanic eruptions. The normal scientific process of seeking increased understanding has, in this context, absurdly been characterised as data fraud, as part of the politicisation of the policy debates. Perhaps fortunately for Einstein and the general theory of relativity, views on the orbit of Uranus did not disturb as many vested interests.

Science may never be complete, but it is not always provisional. The absence of complete knowledge and understanding does not imply the absence of useful knowledge and understanding. Most of conventional science is for all practical purposes providing facts that we can and do treat as certain. Our understanding, even of the principles of quantum physics, and however incomplete, enables most of the advanced technologies of the modern world that we take for granted.

Popper’s characterisation of scientific knowledge as always provisional, is more relevant to particular parts of physics (quantum mechanics or astrophysics) than it is to many other sciences.  Theoretical physics does indeed include speculative interpretations, such as string theory or parallel universes (though it is questionable whether either is capable of being tested and meeting Popper’s falsifiability test). But much of science, especially in relation to the natural world, is descriptive and observational.

Science gives us a huge amount of fact that is certain. There are many more things that we “know” with certainty as a result of scientific observation, that do not need to be regarded as “provisional”, and are fundamental to any sensible consideration of public policy. This is true of much of climate science, which will be essentially concerned with careful observation of known phenomena such as parts of the carbon cycle or heat exchange within the oceans and the atmosphere.

 “Science is never settled. History tells us that! “

This is an absurd generalisation and history tell us nothing of the kind. Science provides vast amounts of knowledge that we can and do, for all practical purposes, treat as certainty. We know that the basic theory of tectonic plates is true. We know that AIDS is caused by the HIV virus, and malaria by mosquitoes. We know that mass vaccination can protect populations from lethal diseases.

The anti-science brigade, from the Trump and Pence core vote on measles, or tobacco companies denying the links between smoking and lung cancer, or Melanie Phillips on MMR vaccines, or African leaders in denial on HIV/AIDs, and more recently anti-vaccination activists on Ebola, must over the years bear responsibility for huge amounts of human suffering.

The basic building blocks of climate science, in terms of the radiative forcing effects of various greenhouse gases, have well established parameters, and we have, at a minimum, an awareness of most of the other major factors involved in the carbon cycle and the climate system. And the knowledge is constantly improving. Climate science as a distinct discipline consists of the application of knowledge from a large number of separate but related fields of knowledge and observation. Putting the pieces together to form a full understanding of climate variation is a complex application of known science along with some known uncertainties. And of course it necessarily includes numerous year-on-year effects such as variations in solar variation and climate cycles such as el Nino, which do not have a human cause, as well as the possibility of sampling error in climate measurement.

 “We can’t even find models that forecast tomorrow’s weather, so there cannot be any basis for predicting the climate decades ahead.”

This is a popular myth with no basis in reality. Today’s short term weather forecasting, along with associated probabilities, is good enough to be extremely useful. In farming and shipping, not to mention storm alerts, it is regarded as a crucially important service. Forecasts will always have a margin of error, and will always be revised to reflect additional information and unforeseen extraneous factors, but in various forms it is an essential part of almost every human endeavour. 

The reality is that scientists have also proved remarkably consistent in their assessment of the determinants of climate, which is necessarily measured over much longer time scales than weather. This includes the global temperature impacts of greenhouse gases. These forecasting efforts are very well summarised in a Carbon Brief article that starts with some relatively simple calculations in the early 1970s.

In a paper published in Nature in 1972, Sawyer hypothesised that atmospheric CO₂ would increase by 25% and that the world would warm 0.6^oC between 1969 and 2000. Sawyer argued for a climate sensitivity – how much long-term warming will occur per doubling of atmospheric CO₂ levels – of 2.4^oC, which is not too far off the best estimate of 3^oC used by the Intergovernmental Panel on Climate Change (IPCC) today, on the basis of much more information and sophisticated analysis.

In some instances, the forecasts have under or overestimated current observed warming because they were based on assumptions that under or over overestimated key parameters such as CO₂ emissions, and other factors such as unusual volcanic activity. But of course the real purpose of forecasts is not absolute precision but a reasonably accurate picture, including the risks and uncertainties, of the impact of policy alternatives, such as the effect of allowing uncontrolled emissions or adopting measures for their limitation.

Rejection of known science is both foolish and unjustified. It has also become perhaps the most dangerous intellectual fallacy of our age.

---

[1] Popper had never read Principia Mathematica. Had he done so he might have found Newton’s ideas on science closer to his own.

[2] Science in the Looking Glass: What Do Scientists Really Know? E. Brian Davies Oxford University Press, 2003. 288 pages, ISBN 0198525435. (Useful review in Notices of the American Mathematical Society.) Inter alia this remarkable book provides a good description of Popperian ideas on falsifiability, both their positive contribution and their limitations.

[3] Climate Science and Falsifiability. Philosophy Now, 2014. Richard Lawson shows how Karl Popper can help settle the climate debate. This article by Richard Lawson provides a usefully brief discussion and turns the sceptic argument on its head by imposing a falsifiability test on the sceptic position.

[4] Christopher Booker. Trump and Pence.

[5] It is of course only in very specific conditions, such as astronomical observation or highly controlled laboratory experiments, that truly precise predictions and measurements are relevant. In most practical circumstances outcomes can be significantly affected by complex boundary conditions, eg the precise shape of the land mass and its contours.

THE THEORY OF THE SECOND BEST. SOME INCONVENIENT TRUTHS.

What sometimes seem like complex abstractions lead to some clear and important real world conundrums. 

There is a well-known principle in economics, the theory of the second best, which calls into question the neo-liberal paradigm of reliance on free markets alone to produce the best or even reasonably satisfactory outcomes without external intervention. The impeccable logic of the theory tells us that in a complex system (such as any modern economy), a serious market failure in one part, such as failure to tax greenhouse gas emissions or to develop cost reflective retail tariffs, can change the rules of the game in a disturbing way.  Policies normally assumed to be fundamental necessities of a market economy, such as competition policy, can then actually make things worse. The subject is most often discussed in relation to international trade, but the energy sector also provides many examples. We need to recognise them and address the underlying issues.

The perfectly competitive idealisation of the market economy, the neo-liberal paradigm, leads in equilibrium to an efficient allocation of resources and a socially optimum outcome. This philosophy is based on elegant mathematical and logical proofs of the wisdom of the invisible hand, but the proofs depend in turn on important assumptions about the nature of the real world which the theory is intended to describe. Recognition of the questionable nature of many of these assumptions leads in turn to many of the complexities of policy making often discussed in this blog. This piece is intended only as a simple and brief “umbrella” exposition of some general ideas about the nature and implications of market failure.[1]

A recognised glitch in the philosophy of the neo-liberal paradigm is known as “the theory of the second best.” It qualifies the presumption for unfettered markets with the caveat that as soon as you’re dealing with an imperfect world, then there is no guarantee that taking away any single distortion will make things better, rather than worse. In terms of pure logic these arguments are unassailable, and have rarely been challenged to any effect. In consequence they are often used to justify government interventions to correct or mitigate the effects of market failures.  Such interventions may well be imperfect, but, provided the initial diagnosis of market failure is correct, it is hard to claim they are unnecessary. Market failures can result from inadequate competition, externalities such as pollution, taxes, trade barriers, financial barriers and distortions, poor policy, and many other causes.

The energy sector currently provides some particularly striking illustrations, most evidently in approaches to dealing with the damaging consequences (social and environmental costs) of greenhouse gas emissions (GHG). It is particularly easy to  show, inter alia, that in the absence of rational pricing policies, especially in relation to greenhouse gas emissions, many of the conventional nostrums of energy policy, such as the importance of enforcing competition policy, can lead to more damaging outcomes when the bigger issue, adequate levels of carbon pricing, remains unaddressed.

There are many major market failures that impact the energy sector, but the simplest to describe and most prominent starting point is the “greatest market failure in human history”[2]. This is the fact that social and environmental costs of CO2 emissions (an “externality” for economists) are either not priced at all into production and consumption choices, or, as with the EU’s emissions trading scheme (ETS), are only priced at a fraction of the true cost. [The current European carbon price is around €22 per tonne, and has been below €10 for most of the last decade. I have in other contexts quoted, purely as indicators, a UK Committee on Climate Change number of around €75, and of anywhere from €200 to €600 per tonne for carbon sequestration (“carbon trees”). Others, focusing on the potentially catastrophic consequences of out of control climate change, will suggest even higher numbers.] The real point is the massive scale of consequential economic distortion, reflecting both the size of the anomaly and the central and essential role of the energy sector.

At least for the energy sector, we certainly inhabit a world of the second best. Even apparently simple economic nostrums become highly suspect. Policies and measures that were assumed automatically to promote the greater good suddenly become questionable.

Competition policy can become dysfunctional. Ensuring more effective competition is supposed to benefit us all. If so, what should we make of anti-cartel measures[3] to prevent European power generators from reaching an agreement to limit US coal imports? The effect of this is to substitute coal for gas, and substantially increase carbon emissions. The social and environmental cost of this will be an order of magnitude higher than the relatively small benefit to European consumers. (See also this link[4] on this site.)

Serious distortion means improvements in productive efficiency can make things worse? More efficient production leads, in a competitive environment, to lower prices for consumers and encourages higher consumption. Usually this is a good thing, but if the consequences include higher emissions this may not be the case. Again, the “true” cost of additional environmental and social damage will outweigh the apparent benefit to consumers.

The Green Paradox. The absence of adequate carbon pricing now, combined with the uncertainties around future carbon taxes or restrictions, creates a positive incentive to accelerate fossil resource depletion and greatly increased emissions. (See recent comment[5] on this site.)

Distortions to environmental policy. Even when there are policy interventions to compensate for the absence of an adequate carbon tax, these will be distorted by failure to reflect the high cost of emissions, and particularly current against future emissions, ie the time profile.(See a longer article on, and one referenced[6] from, this site.)

Interaction with deficiencies in retail tariffs. Further issues are introduced when gas and electricity retail tariffs are not cost reflective in recovering the network costs of supplying consumers, but recovering too much fixed cost through a unit rate partially offsets the failure to price carbon correctly. Some of these issues are discussed in a recent paper[7] for Energy Systems Catapult, but their resolution will get more attention, and we will return to this subject.

And what should we conclude from all this? The main observation perhaps is that the world is a complex place, does not conform to theoretical conditions, and has problems not amenable to simplistic economic theories or ideologies. The intricate reasoning and analysis around market imperfections are in one sense what policy, and energy policy in particular, is all about. This is a general theme to which we shall return time and again.

---

[1] An excellent summary of the divide, on this issue, between economists is provided by this link to a Rodrik blog: https://rodrik.typepad.com/dani_rodriks_weblog/2007/08/why-do-economis.html

Many articles and blogs by economists like Stiglitz and Krugman will also deal with examples of market failure in areas as diverse as trade policy and health care.

[2] Nicholas Stern

[3] These issues are very well described in this link, to a 2013 case involving Dutch competition authorities: Sustainable Competition law; Competition Law Kills Coal Closure ...

[4] EUROPEAN ENERGY AND COMPETITION POLICY. AN OBSESSION WITH MARKET STRUCTURES THAT DO NOT WORK.

[5] . NORWAY’S DISINVESTMENT IN OIL, THE GREEN PARADOX, AND A WEAKNESS OF POLICY TOWARDS GLOBAL CLIMATE RISKS.

[6]Fuller discussion on this topic  can be found in the author’s earlier paper. Cumulative Carbon Emissions And Climate Change: Has The Economics Of Climate Policies Lost Contact With The Physics?, John Rhys, OIES Working Paper EV 57, July 2011.  

[7] See the full report here: Cost Reflective Pricing in Energy Networks: The nature of future tariffs, and implications for households and their technology choices

NORWAY’S DISINVESTMENT IN OIL, THE GREEN PARADOX, AND A WEAKNESS OF POLICY TOWARDS GLOBAL CLIMATE RISKS

This commentary was provoked by recent reports that Norway’s sovereign wealth fund is to sell off its investments in companies that explore for oil and natural gas. This has been welcomed by some environmentalists campaigning for disinvestment from the hydrocarbon-based economy. In fact the Norwegian move is not really a signal of environmental virtue or ethical investing, and is best interpreted simply as a prudent rebalancing of their investment portfolio, a point made forcefully by Nick Butler in a recent FT article (18 March 2019). Butler regrets that this disinvestment is not balanced by “positive” investment in low carbon alternatives.

Butler goes on to claim, again correctly, that environmentalists may also be disappointed because, as he says, the evidence is that the oil companies are anticipating a continuing demand for their product, with few forecasts anticipating a peak before the mid-2030s. If these forecasts are correct and we are unable to prevent continuing growth in production and consumption, then it is bad news for hopes that the ambitious aspirations of the Paris agreement can be met, and that global warming can be limited to the 1.5^o C. This is regarded by many climate scientists as the upper limit consistent with avoiding the most dangerous environmental and climate outcomes.

There are however some related factors that should concern us in relation to oil industry incentives for investment. One is the so-called Green Paradox[1]. This argues, very logically, that if fossil fuel producers perceive that they face increasingly hostile restrictions on output, and gradually increasing carbon taxes, then they have a strong incentive to accelerate production and accelerate the depletion of their reserves. Implicitly the same argument would apply to many of the main sources of demand for oil, where the product depends on oil consumption either in the production stage

And yet that is more or less exactly the future carbon scenario that is most often presented in policy forums, that of a gradually increasing carbon tax. Needless to say, there is little evidence yet of the sort of collapsing investment that would seriously reduce supplies, nor of the much higher oil prices that could result, at least temporarily, from serious disincentives to production. The oil price seems to be stuck somewhere around the $60/ bbl mark, near the bottom of the $60 - $120 “credible range” recognised by many industry analysts.

In consequence it should be no surprise that production and consumption continue to rise. A rational policy to reverse this, and to overcome the Green Paradox, would be to recognise that, if anything, immediate near-term emissions, given that CO2 is cumulative, do more damage per tonne than future emissions[2] and have a significantly higher social cost. Rational policy towards climate should therefore include a policy for a price/tax on emissions that starts high rather than climbs gradually. This would make fossil fuel extraction and investment less profitable, and also provide an additional non-distorting incentive for low carbon investment of all kinds, an objective that many of us share.

Of course, it will be argued that this may have redistributive consequences, but green taxes offer their own answer in this respect. Revenues from taxing emissions offset the need for other taxes, or can be used for redistributive agendas.

………..

From an economic analysis perspective, the Green/ Sinn Paradox may not seem very surprising. It simply represents a potential consequence of policies that are poorly thought out (at least from a climate perspective). There are of course other factors that lead some oil rich states to favour accelerated exploitation, notably the desire for an immediate boost to the domestic economy, even at the expense of longer term considerations. But the Sinn paradox provides an additional incentive.

The source of the disconnection, between the science led climate imperative and the current economics of fossil fuel industries, is explored in more depth on another page: CUMULATIVE CARBON. HAS THE ECONOMICS LOST CONTACT WITH THE PHYSICS?

---

[1] aka the Sinn paradox, it was first discussed by Hans Werner Sinn.

[2] See link above.

CLIMATE CHANGE. CREATION OF THE “PERFECT STORM”. WE WERE WARNED.

On this day …. Sometimes anniversary events can underline and dramatise a sombre warning.

19 March 2009. BBC

John Beddington, then Chief Scientific Adviser to the UK Government, warned the Sustainable Development UK 09 conference of a global crisis 'to strike by 2030'.  Growing world population would cause a "perfect storm" of food, energy and water shortages by 2030. "It's a perfect storm."  (Link)

“There is an intrinsic link between the challenge we face to ensure food security through the 21st century and other global issues, most notably climate change, population growth and the need to sustainably manage the world’s rapidly growing demand for energy and water. It is predicted that by 2030 the world will need to produce 50 per cent more food and energy, together with 30 per cent more available fresh water, whilst mitigating and adapting to climate change. This threatens to create a ‘perfect storm’ of global events.

.….

The backdrop against which these demands must be met is one of rising global temperatures, impacting on water, food and ecosystems in all regions, and with extreme weather events becoming both more severe and more frequent.     Rising sea levels and flooding will hit hardest in the mega-deltas, which are important for food production, and will impact too on water quality for many.

…..

Even since the last report of the Intergovernmental Panel on Climate Change (IPCC) in 2007, new evidence suggests that climate change is impacting the real world faster than the models predicted, and global greenhouse gas emissions are continuing to rise at the high end of projections. For example, in 2007 the IPCC concluded that large parts of the Arctic were likely to be ice-free in the summer by the end of the 21st century. Record lows in sea ice extent in 2007 and 2008, combined with other evidence on ice thinning and age, have caused scientists to radically review these estimates, with some analyses now suggesting the Arctic may be near ice-free by 2030 (Figures 5 and 6).  This has major implications not just for the Arctic region but for the world as a whole, as strong positive feedbacks effects are expected to drive climate changes even faster.” Recall that this revision is being discussed in 2009.

19th March 2019, Guardian:

Cyclone Idai, now devastating large areas of South East Africa, 'might be Southern Hemisphere's worst such disaster'.

 Dr Friederike Otto, of Oxford University’s Environmental Change Institute, said: “There are three factors with storms like this: rainfall, storm surge and wind. Rainfall levels are on the increase because of climate change, and storm surges are more severe because of sea level rises… Otto said it was important to help communities in the worst-hit areas become more resilient to storms. “The standard of housing, the size of the population and effectiveness of the early warning systems … these are the sorts of things we need to think about as we move into a world where these events become more severe.”

We are now starting to see the real human impact of our collective failures to heed the warnings. The trend line, and the inertia built into our limited responses, suggests our problems may just be beginning.

Climate scientists, far from alarmist, have tended to understate the risks. Even in 2009, projections of Arctic ice melt were being revised upwards.

• This is no longer a remote and uncertain risk. It is an existential threat.
• In ten years, we have made nothing like sufficient progress to mitigate or adapt to the dangers we face. 
• There is still a large constituency of political leaders, economists and commentators, that is in complete denial on the subject.  (Lawson, Mogg, Trump, Redwood, Phillips …).

…………………

BRAIN OF BRITAIN QUESTION. What else do those last named have in common?

ANSWER. They have all been enthusiastic advocates of Brexit. EIGHT ECONOMISTS. BREXIT AND CLIMATE

AN ECONOMICS AND ENVIRONMENTAL CASE FOR TRAVEL CONCESSIONS TO PENSIONERS.

And how subsidies, even if to the not so poor, can make a small contribution to the public good and saving the planet.

It is tempting to assume that the pensioner bus pass, or in London the Freedom Pass, is just another item within the host of benefits, tax reliefs, grants and subsidies that make up the complex of arrangements that reflect our welfare state and public spending choices. On this interpretation, it might be viewed as a policy choice based on political priorities. According to your political persuasion and generational perspective, it is then either just another bung to an over-privileged age group who happen to turn out in greater numbers to vote, or, alternatively a redistributive measure which can be a major help to some low income households. I have to declare a personal interest as a beneficiary; but even among pass holders many will have inclined to the former rather cynical explanation, a view which will likely be shared by large numbers of millennials.

The politics matter, but a little more thought and investigation reveals some hidden dimensions for the policy that may actually be just as important. Even if the policy is of benefit mainly to wealthier pensioners, it may still add significantly to the public good.

The Energy and Environment Connection

First there is an inevitable connection with energy use and hence with policies for a low carbon economy. Road transport is a major source of CO₂ emissions, so any policy that has a significant impact on traffic volumes will also have a corresponding impact on emissions. We also know that two of the biggest factors influencing a driver’s fuel use for any given journey are, first, cruising speeds, and, second, traffic congestion, particularly when it results in stop/ start movement.

Of course, CO₂ emissions are not the only important factor in terms of environment and the quality of urban life. More traffic can mean poor air quality, especially due to diesel fuel, and longer journey times for drivers. But in this instance, I would argue, all the effects are moving in the same direction. Less traffic means less CO₂, better air quality, and shorter travel times.

Enter Market Failures and the Search for Second Best Solutions

Market failures occur when the fairly strict conditions, under which the unfettered operation of competitive markets can be shown to lead to a “best of all possible worlds” social welfare optimum, are simply not met. They often provide classic and compelling arguments for policy interventions. In addition, it will very often be the case that, if the failures are bad enough, then other generally sensible measures, like competition policy, will also start to show serious flaws (see an earlier essay on gas for coal substitutionin Europe). The “second best”, given that the theoretical “best” is unattainable, can be hard to find.

Failure to comply with these “welfare” conditions is particularly rife in relation to monopolies, networks (as in the Braess paradox), failure to “internalise” social, health, or environmental costs caused by pollution of various kinds, and difficulties in the allocation of fixed costs into (marginal) prices. And unfortunately transport networks and road travel display these characteristics in spades.

·         Drivers do not face any penalty when they add to congestion and increase the journey times of all other drivers.

·         Fuel costs may not reflect the full environmental and health costs that their use incurs, although UK fuel taxes probably go quite a long way in this direction.

·         Most of the costs of operating a bus or rail service are fixed, at least in the sense that the (short run) marginal cost of an additional passenger is usually close to zero, but fares will still need to recover the high fixed costs.

Subsidising pensioner travel. The Bus Pass meets some sensible public policy tests

Particularly in big cities, traffic volume is the major cause congestion and hence of increased journey times, higher fuel consumption per vehicle journey made, and hence higher emissions. Subsidising pensioner travel on public transport can significantly reduce the number of vehicle journeys and hence traffic volumes. This helps address the first two bullet points above.

But, one might ask, why not make all travellers pay higher charges in the form of road pricing – which is what economists might recommend as a first best solution? The answer is first, that there is a lot of political resistance to raising travel costs for commuters travelling to work, some of whom may not have a public transport option and already pay a high percentage of their income on commuting to work. Second, introducing a road pricing scheme can be a complex and costly exercise.  In the UK, for example, it is currently confined to central London.

In the absence of effective road pricing, subsidising travel by public transport can be a useful part of a “second best” solution. Pensioners are a group more likely to switch to public transport in response to a financial incentive, partly because they will tend to be less constrained by working hours. Because the marginal cost of taking an extra passenger is mostly close to zero (the third bullet point), this discrimination between categories of traveller does not in this instance lead to any serious distortions in the use of resources.

And, finally, is it fair that only pensioners enjoy free travel? The answer is probably no, but free travel for all could also bring its own problems, influencing fundamental long term decisions on choice of where to live in relation to work, for example. And as a practical matter of public finances, the transport system does need to be paid for, at least in substantial part, by travelling passengers. Given that most of the costs are typically fixed, and that pensioners are the group most likely to revert to personal transport if faced with higher fares, there is again a pragmatic case for offering them lower fares or free travel. This is essentially the same motivation[1] that leads private rail companies to sell tickets at lower prices to groups deemed to be price sensitive, eg old people or students.

…………………….

Readers are also recommended to two much more comprehensive evaluations of the benefits of these particular subsidised travel schemes.

Greener Journeys. The costs and benefits of concessionary bus travel for older and disabled people in Britain.   September 2014

UK Department for Transport. Evaluation of Concessionary Bus Travel The impacts of the free bus pass. 2016

---

[1] Ramsey pricing. This is a well known economics approach to recovering fixed costs in a monopoly situation. In technical terms it means allocating fixed costs in inverse proportion to the elasticity of demand. Sometimes unfair because it means that charges fall more heavily on "essential users".

PHYSICS OR ECONOMICS. WHEN “SENSIBLE CHOICES” MAKE THINGS WORSE.

Neither economics nor physics can always be reduced to simple common sense. The Braess Paradox may not be in the same league as Schrodinger’s Cat, but like other market failures it too may have some important implications for how we manage power systems and other networks.

• My apologies are offered to anyone susceptible to mathematics allergy, intolerance or indigestion, but you can still read this piece. Just ignore the algebra and arithmetic, assume that it’s correct, and move on to the discussion. I am hoping to produce a series of occasional comments that illustrate some of the broader issues of market failure in the energy sector, including those associated with the intriguingly named theory of the second best.

There is a phenomenon, well known to traffic engineers, called the Braess paradox, in which adding an additional link to a traffic network can actually increase journey times for everyone. The example below, a deliberately simplified but, superficially at least, plausible example, shows how this can come about.

4000 vehicles travel from X to Y every hour and there is a choice of routes, via A or via B. Sections X-B and A-Y are uncongested with capacity well in excess of any likely volumes, and a typical travel time of 45 minutes. Sections X-A and B-Y, in contrast, have shorter travel times – only 20 minutes when there is no congestion, but the travel time rises with the number of cars if the volume of traffic exceeds 2000. The travel time on these links rises by 1 minute for every extra 100 cars. This is represented by the formula t = max [T/100; 20], where t is travel time, T is traffic volume, and max simply means the higher of the values in the bracket.

As drivers learn from their experiences, the volumes of traffic quickly reach an equilibrium, in which 2000 drivers use route X-A-Y, and 2000 use route X-B-Y. Whichever route is chosen the journey time is 65 minutes. The situation is stable in the following sense: if there is any significant net shift in the number of drivers changing away from their normal route, then they will face a longer journey time and are likely to revert back to their previous choice.

The paradox arises if we add in the possibility of a new connection A-B, which has a negligibly short journey time, taken for arithmetical convenience and to make the illustration simple, as being zero. Real physical examples might be a new short river bridge, or the removal of some other physical impediment to create a short new road connection. What then happens is that drivers using the X-A-Y route realise that they can reach Y faster using the new connection AB, and travelling along X-A-B-Y, avoiding the slow A-Y link. Initially this cuts their overall journey time. They are joined by drivers who had previously used X-B-Y. Unfortunately, the extra traffic on the X-A and B-Y links now raises the travel time on both links. When 500 drivers have switched from X-B-Y, the overall journey time is the same as before, at 65 minutes.

The next consequence is that all drivers previously using X-B-Y start to realise that X-A-B-Y is now faster and start to switch to that route, with result that the X-A travel time rises further. A new equilibrium is only reached when all 2000 drivers have switched to the X-A-B-Y route, adding 20 minutes to X-A travel time, and the total journey time X-Y for everyone is 80 minutes. No-one has any incentive to use the X-B or A-Y links at all.

In this new situation, once again, no individual will gain from changing their route, and everyone has an extra 15 minutes on their journeys each day. But if everyone were to agree not to use the link A-B, journey times would of course revert to 65 minutes. So what has gone wrong?

Explanation and Implications.

The underlying explanation of this paradox is what economists call an externality. Every additional driver on a congested route is adding a small amount to the travel time of every other driver on that route, but the very considerable extra cost (in terms of time) imposed on other drivers is not something that any individual driver can perceive directly, and it does not enter his/ her decision making. As a result, the individual "selfish" strategies of each driver result in everyone reaching their destination later.

The stable state of traffic flows, in which no-one has anything to gain by changing their individual behaviour is what economists call a Nash equilibrium; and it can be a long way from the ideal outcome.  The best solution, at least in theory, would be found by “pricing the externality”. Some form of road pricing, or an easily administered toll, would confront each individual driver with a “congestion charge” on the key routes, and would be set at a level that restored the previous equilibrium.

Power grid upgrades may cause blackouts, warns Braess's paradox.

I had naively assumed that network flows governed by the laws of physics were immune from this paradox, which it can be argued, stems from the foibles of a world where humans fail to cooperate and markets fail to produce sensible outcomes. It turns out that power networks have their own intrinsic problems, described as a Braess paradox, according to researchers at the University of Göttingen and the Max Planck Institute for Dynamics and Self-Organization (MPIDS).[1] Whether these deserve the label of paradox is another matter.

In traffic networks, as explained above, Braess's paradox has a clear economic explanation, that of externalities, “selfish” behaviour and a suboptimal Nash equilibrium. In power grids, the issue is purely one of physics, and is due to a phenomenon called "geometric frustration." A stable operation of the power grid corresponds to a synchronous state of generators and motors, which must rotate with exactly the same frequency and fixed phase differences. Adding a new transmission line introduces new pathways for the electric power, reducing losses, but also introduces a new constraint. In certain situations the power grid cannot meet all the constraints and becomes unstable. In my view, despite the analogies with traffic flows, this is best described as physics, not as a paradox.

But the decentralisation of decision making in the electricity sector has also raised the possibility of market solutions that will operate to relieve congestion constraints in local networks. In that case there may be numerous participants connected to the grid who are making economic choices in response to incentives that reflect congestion on particular parts of the network. That is likely to mean, in any complex network, that situations can arise that are analogous to the traffic congestion example described above, and the potential for the  Braess paradox of economics will come into play.

And Implications for Future Decentralised System Operations for Power Networks  

There is some evidence that decentralised networks are less susceptible to the dynamic instabilities of large complex networks caused by synchronisation issues. But, like any transport network, they will be potentially subject to the problems associated with multiple actors attempting measures to resolve congestion problems, ie the Braess “sub-optimal Nash equilibrium problem “ described above

The development of local congestion markets within power networks is still largely hypothetical, but the possible emergence of the Braess paradox is one factor that supports an important role for a distribution network operator (DNO) in coordinating the operation of the power system. That might include responsibility for some form of congestion pricing. Quite how big that role should be, and whether it extends to making the DNO the sole retail supplier for decentralised local networks, is a much bigger question on which the jury is still undecided.

In the meantime, it will be worth remembering that market failures are not just theoretical inventions. They matter and they can cause serious problems.

Read more at: https://phys.org/news/2012-10-power-grid-blackouts-braess-paradox.html#jCp

And see some interesting comments attaching to this blog

---

[1] Witthaut, D. and Timme, M. Braess's paradox in oscillator networks, desynchronization and power outage. New Journal of Physics, (2012), 14(August)