Climate Change Futures Market
Robin Hanson, who has the somewhat idiosyncratic view that pretty much all issues can best be resolved by gambling, thinks the real moral of the East Anglia email fracas is that we need a climate change futures market. Nate Silver likes the idea, too, arguing:
The markets would help to clarify exactly the extent to which there is in fact a consensus about climate change. There is, I believe, an abnormally high degree of disingenuousness within the global warming debate, most of it coming from one side. We would very quickly find out if the skeptics — and for that matter the believers — were willing to put their money where there mouths were.
This idea has some merit, but let’s not get carried away with ourselves. The underlying intuition here is that talk about climate change is cheap, but if we made people put their money where their mouth is we’d force them to speak honestly. The problem is that when coal and oil interests or the Koch family pays people money to mislead people about climate science or clean energy policies they are putting their money where their mouth is. Big money is at stake in this issue, and it could be easily worthwhile for polluters to lose money on a prediction market if that helped undercut support for clean energy legislation.
The problem is that just about any metric you might like becomes contaminated once people know there are large political economy stakes.
41 Responses to “Climate Change Futures Market”
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November 24th, 2009 at 4:51 pm
Second only to the idea that we should gamble on the next terrorist attack.
November 24th, 2009 at 4:53 pm
Haven’t we learned that markets are not exactly a good way to judge behavior? This whole mortgage crisis has shown us that markets are not rational actors, they can be gamed and used to make people a lot of money without doing any good for anyone else. I am for a straight up carbon tax with huge fines in place if you are caught cheating. I know this simple response to the problem has no chance of getting through congress but we should delude ourselves into thinking a market solution is te answer.
November 24th, 2009 at 4:59 pm
The cardinals of the Church of Global Warming are on record admitting that they:
falsified data
suppressed data
destroyed data
broke the law by destroying communications subject to FOI
and most importantly have admitted that there has been no global warming for a decade.
Why do you not address these facts Matty rather than your Lefty bullshit storm?
The emails released to date substantiate the charges I and others have made for years.
The released emails are the equivalent of the Nixon tapes.
And yet all we get from Matty is more denialist bullshit.
But what else to expect?
Matty himself is a proven liar on the subject of global warming.
Liars, frauds, fakes, and they have admitted these things themselves.
There is no defense.
The Church of Global Warming has much truth as Scientology.
November 24th, 2009 at 5:07 pm
Isn’t the underlying problem that the skeptics don’t accept the data produced by the climate scientists? Without some measurement which both sides would agree would settle the bet, there’s no way to resolve it.
November 24th, 2009 at 5:13 pm
…and that tells you about politics w/r/t problem solving _____?
November 24th, 2009 at 5:19 pm
This could work to a limited extent, as long as we are prepared to monetize the costs of global warming. In that case, though, probably $0 would be assigned to the cost of a billion 3rd world deaths due to global warming. But in theory, persons with cost-risks associated with global warming could make it extremely expensive for the interests willing to bet against GW. Heck, maybe the US gov could take a long position. Let the skeptics bankroll the rest of us if they turn out to be mistaken.
November 24th, 2009 at 5:20 pm
Robin has some papers on trying to manipulate these markets. One problem is that other people bet against you, if there is money to be made, and no matter how rich you are, the market as a whole has enough money to bet against the would-be manipulator.
November 24th, 2009 at 5:30 pm
I liked liberals better when they didn’t fetishize markets more than even the republican party.
November 24th, 2009 at 5:30 pm
The released emails are the equivalent of the Nixon tapes.
A conspiracy!@###!!!!11 Or, it’s just scientists trumping up results for the sake of making their study look better. That can happen in any other scientific study, but there’s no wackos there to say “I told you so” when other scientists act unethically … That’s because their science usually doesn’t conflict with the vested interests of the industries, who spend a lot of money to manufacture your outrage. Looks like they’re doing a pretty good job.
November 24th, 2009 at 5:34 pm
If Koch manipulation was visible enough Soros and Gore and Branson could make vast amounts of money taking the other side and collecting.
November 24th, 2009 at 5:35 pm
And when the earth’s temperature is several degrees warmer, what shall I spend my winnings on? A really good air conditioner?
November 24th, 2009 at 5:37 pm
Are there no companies producing things to invest in? Fuck speculation and the fucking speculators who crashed the global economy. They gambled. They lost. But they lost other people’s money while richly rewarding themselves.
November 24th, 2009 at 5:38 pm
Tyler Cowen above says what I came here to say. If carbon interests are willing to put lots of money on loss-making positions, I’m sure I could find plenty of traders willing to profit from that. Which would have the simaultaneous effect of returning the market to it’s ordinary position.
I’m not sure about the predictive power of these markets more generally, but I don’t think this sort of scam would work.
November 24th, 2009 at 5:44 pm
This would all look less ridiculous without the little email leak, and Nasa’s ongoing refusal to release documents under FOIA to the Competitive Enterprise Institute. If this is a grave crisis, and it’s so clear that it’s grave, then why the reluctance to release documents that have been legally requested?
November 24th, 2009 at 5:48 pm
I’ve never been in a math class in which the teacher didn’t talk about a “trick” or even a “cheat” to solve a problem with fewer calculations. Some have, no doubt, but it’s definitely a commonly used term.
November 24th, 2009 at 5:51 pm
Any sources for these emails that aren’t Pajamas Media? I have no desire to give them a click…
November 24th, 2009 at 6:03 pm
When I get access to the Exxon-Mobil email archives (and the coal companies too), we’ll find out who is the greater trickster.
November 24th, 2009 at 6:07 pm
I’ve designed futures products for a living. There is no way this product will ever trade.
Who are the natural longs and shorts and what do they need to hedge? Who is going to speculate in this market?
What are the contract specs?
Markets do not just spring up from nothing. They are more difficult to build than buildings, harder to design than computer chips, and they fail to find sufficient liquidity 95% of the time.
If markets were efficient, then we would have more success with building new trading markets.
November 24th, 2009 at 6:10 pm
Derivatives usually end up controlling or distorting the underlying market and thus are a systematic negative. In this case the market is the market of ideas. The market of ideas doesn’t need any stinking derivatives and the world does not need yet another avenue for gambling.
Derivatives of physical commodities, ie. futures which were perhaps the first derivatives, play a vital role in their trade which arguably makes their distortions acceptable. Ideas do not trade in an economic sense and certainly not in a physical sense like corn and thus putting a patina of economic markets on them is mistake.
November 24th, 2009 at 6:15 pm
Re Competitive Enterprise Institute
Certainly a very fine and upstanding organization well known for their high quality scientific approach to scientific issues. Not.
http://www.sourcewatch.org/index.php/Competitive_Enterprise_Institute
November 24th, 2009 at 6:18 pm
Never mind. Found the WaPo articles.
How on earth are some emails talking about the suckiness of Cato articles on AGW (which are indeed sucky) and offering to beat up some climate skeptic an anti-climate science smoking gun?
Jeebus. Talk about a non-story.
November 24th, 2009 at 6:23 pm
Why do we need a climate change futures market? The market for carbon dioxide emissions permits would fit the bill nicely: if you believe that the threat of global warming as perceived in 2009 is overblown, or if you believe that technological improvements in abatement will make carbon emissions less harmful, then I invite you to make a killing by selling short the right to emit a million tons of carbon in 2050. Oh, but to do that we’d need to have a tradable emissions permit scheme.
The most annoying thing about this debate is that the right will throw everything and the kitchen sink against the idea of regulating carbon emissions, but the policy proposal is to price those emissions, and none of their arguments weaken the case for doing that.
November 24th, 2009 at 6:39 pm
You don’t understand how markets work. ExxonMobile could spend every penny they have trying to manipulate the market. But GS, Buffett, Soros and every other speculator in the world would just be invited to take the other side of the trade.
November 24th, 2009 at 9:13 pm
The problem is that when coal and oil interests or the Koch family pays people money to mislead people about climate science or clean energy policies they are putting their money where their mouth is.
Well, I know I’d be happy to take a pile of money off rich conservative organizations. This is especially attractive if you can leverage up effectively.
November 24th, 2009 at 10:05 pm
Great idea. Futures market for climate change. I suggest he also start a futures market for the higgs boson. That would no doubt get to the truth of the matter. Yup. Because investors are a rich source of information on unified field theory.
November 24th, 2009 at 10:17 pm
A climate futures market makes no sense whatsoever. I mean, how exactly would you get paid out? Suppose I don’t believe in global warming, so I say the temperature in 2050 will be 0° higher. After I buy the weather future massive world wide efforts to reduce CO2 go into effect and geo-engineering takes place and so the temperature really shoots up.
On the other hand, imagine someone who believes in global warming, and puts money on the temperature going way up. Now all of a sudden they have a financial incentive in *not* seeing any global warming legislation. Or you assume that you’ll be successful in preventing it, so you bet on a zero degree increase, making it look as though no increase is expected.
This is one of the most poorly thought out ideas EVAR.
It’s almost as bad as the “Terrorism prediction markets” that would have given people a financial incentive blow things up.
(I suppose you could set things up to be a synthetic market where you take a bet on CO2 emissions vs. temperature curves, where you get paid out based on where the future point lies in relation to the curve, but that’s getting a little complicated.)
November 25th, 2009 at 12:18 am
Bob Zoellick talked about futures hurting world food prices. Commodities become an investment class, which adds a new layer of supply & demand. We’ve seen the divorce in oil futures for over a year. Oil use falls, while oil as a dollar hedge stokes higher prices.
Who knows what it’ll do to something like climate change? Will Wall Street securitize carbon credits, like mortgage backed securities?
November 25th, 2009 at 12:26 am
[...] Yglasias complains Climate Change Futures Markets would be [...]
November 25th, 2009 at 12:28 am
No! Manipulation should make such markets more accurate. I elaborate here.
November 25th, 2009 at 12:43 am
Our decadal forecast predicts an end to this period of relative stability after 2010. We project at least half of the years after 2009 will be warmer than the 1998 record.
I don’t really want to bet but if I had to, I don’t think that at least 5 of the next 10 years will be warmer than 1998. We’ll see I guess.
November 25th, 2009 at 2:50 am
[...] – Matt Yglasias on the possibility of manipulations. [...]
November 25th, 2009 at 6:40 am
Nah, they’re just putting their mouths where their money is. That’s different.
November 25th, 2009 at 8:12 am
These emails are the new Greek Columns. The new Tire Gauge. The new Bows to Japanese People.
The trick to understanding global warming denialists is to realize that it’s all a game to them. How can I make anything appear to support my preconceived notion?
November 25th, 2009 at 11:33 am
No, they were talking about something they published eleven years ago. You don’t know this because you’re stupid.
Do you mean the outlier dendrochronological trend from 1960 to 1980? Or do you mean the proprietary code that wasn’t theirs to release anyway?
Oh, that’s right: you don’t know.
Please show any evidence that data was destroyed. One email refers to a public set of data and says that if they FOIA that, we’ll have to destroy it!
Get it? No? Too bad. It’s funny if you’re not an idiot.
No, it shows them working with FOI compliance on a request that was denied.
Wrong decade, dumbass.
Is that it?
November 25th, 2009 at 11:35 am
No, they’re renting other people’s mouths with their money. After a few drinks, they rent still other bits of anatomy from still other people.
Free markets!
November 25th, 2009 at 12:53 pm
I don’t think this is true. If a hedge fund decides that there is a 70% chance that the climate change contracts will expire at $100 and not $0 (because the science says there is a 70% chance of global temperature averages exceeding X degrees in Year Y or whatever), then the hedge fund thinks the contract has an intrinsic expected value of $70. If CoalCo is willing to sell 100 contracts at $30 each, the hedge fund will happily buy all 100. If CoalCo is willing to sell 100,000,000 contracts at $30 each, the hedge fund will borrow as much money as it can and buy as many as it can and buy all 100,000,000, and the clearing price of the contracts won’t be affected. From the hedge fund’s perspective, CoalCo’s investment doesn’t affect the value of the contracts, it just provides the hedge fund an opportunity to make a million times as much money.
The amount CoalCo is willing to invest in exposure to bad climate change bets won’t affect the underlying contract price unless it is SO ASTRONOMICAL that it completely swamps worldwide credit markets. I doubt that’ll happen, and if I’m right, then the market will provide a good estimate of climate change likelihood regardless of CoalCo’s attempted influence.
In fact, CoalCo’s attempted influence might well backfire: the larger the climate change contract market, the more the hedge fund is willing to invest in researching the science, since a larger market means more potential gain from spotting an inefficiency and a greater likelihood of recouping the research cost.
November 25th, 2009 at 7:30 pm
Matt, you are correct.
Bidding markets, if they are to reveal true information, have to be based on bidding on true beliefs. Otherwise, its just a question of who has the most bucks.
Look at it this way: let’s say the American Petroleum Institute determines it will cost their members $200 billion to retrofit refineries due to a prospective CO2 policy. It assesses its members (including Exxon, of which I am a shareholder and customer) to bid in the auction. I a member of a weak, dumb and scattered class of individuals bid opposite. API bids up to its avoided cost; I bid also, but others do not bid who agree with me because there is a free rider problem–they get the benefit on my bid. So, fewer people on the otherside bid, and API wins. Truth is not revealed, only avoided costs.
November 25th, 2009 at 9:57 pm
How high was Enron’s stock before it crashed? Worldcom? How about Citibank? And that’s the actual stock market, where things of value are traded. Information was held from investors which suddenly, after a long time, came to light and the value of those companies evaporated practically overnight.
No gimmicks or complaints about big spenders tarnishing your message is going to make Cap & Trade popular, or even tolerable with the American public. The climate change debate is so poisoned now, it’s really pointless to go down this road. Liberals shot their wad on this issue, comparing skeptics to Holocaust deniers and such. Now, no politician interested in keeping his seat would touch ‘climate change legislation’ with a twenty foot pole.
Time to start over, go back to square one and look for a way to repackage this issue, approaching it from a dependance on oil/clean air and water approach. Liberals need to get off the stinking soapbox and think about the big picture.
I’m sorry but right now, if you bring up global warming, people look at you like you farted.
November 26th, 2009 at 1:41 pm
Sure, if coal companies manipulate the market, you can just bet against them and make more money. But if that was sufficient to make manipulation by disingenuous betting useless, then bluffing in poker would be useless. I’m not sure prediction markets stands up to behavioral economics scrutiy.
November 29th, 2009 at 7:19 pm
[...] promises to tell us not just what people are thinking, but how strongly they think it. Despite some concerns about market manipulation, Hanson’s research appears correct: the presence of price [...]
November 30th, 2009 at 12:07 pm
[...] Here at HeatingOil.com we talk a lot about futures markets (especially when it comes to heating oil futures), and we’ve talked a lot about climate change, so if someone puts into place a climate change futures market as proposed by economist Robin Hanson and supported by Nate Silver at FiveThirtyEight, we’ll be ready to cover it. But such a market wouldn’t necessarily be a transparent reflection of people’s true beliefs about climate change, as Matthew Yglesias of ThinkProgress points out. [...]