- Business Line, 23 November 2010
- Environment 360, 22 November 2010
One of the biggest challenges in our responses (or lack thereof) to climate change has to do with scale. Politicians have a temporal scale of interest ranging from a few weeks to a couple of years, with elections at the top of their agenda. Investors concern themselves with a few years at most to get their return - their large discount rates (cost of capital, they call it) makes it impossible for them to think very carefully about the long-term implications of the infrastructure they build. In spatial terms, even in our globalised world, attention is confined largely to the local, whether it is to one's city, state or country, and this is mostly true across the board, whether one is thinking of politicians and bureaucrats, businesses, or civil society.
Global warming, as its very name implies, however, is a large, slow-moving beast with actions and unforeseen consequences taking place over very large temporal and spatial scales. Carbon dioxide accumulated over a century and a half in the atmosphere and oceans is only now starting to show its effects on weather systems, glaciers and the rest of the geosphere. And all those changes will only intensify over time, unless urgent and fairly radical actions are taken. And the rapid break-up of glaciers in Antarctica and Greenland will flood our coasts, though we may not know how soon or by how much or be able to react until it is too late.
The insurance industry is meant to protect us from relatively low probability but high impact events, and it is they who are burdened with such challenges of managing risk across temporal as well as spatial scales. But they too seem incapable at present of truly appraising all the risks adequately. The Centre for Development Finance has just released a report (disclaimer: I am a co-author) showing that very large levels of value (up to Rs. 62 lakh crores, if one includes land value) are at risk in the Tamil Nadu coast due to sea level rise, not counting private investments in resorts, industries, shrimp farms and so on. Surely, similarly large numbers may be estimated elsewhere along India's long and heavily populated coastline, and going by Mr. Mukesh Ambani's lavish investment in his home, Mumbai may come out the winner.
And therein lies the puzzle...