Taken from Daneen Cowling’s Blog
March 4th GSI hosted a special joint seminar between the GSI Policy Network and the Economics and Energy Innovation and Systems Transition Group. Simon Sharpe gave an insightful and important talk on context and consequence of how governments make decision around policy, and how this shapes our effectiveness of addressing climate change. Given the speed required to act and the challenges that surround the need to globally decarbonise, a different approach of decision making is required. Simon Sharpe discusses the changes required.
Simon Sharpe is Deputy Director at the UK Government’s Cabinet Office COP26 Unit, where he leads on international campaigns to accelerate low carbon transition. He has had an extensive career collaborating internationally leading on climate change strategy and how governments can assess climate risk. Simon is also a Research Fellow at the Institute for Innovation and Public Purpose at UCL, a Policy Fellow at the Centre for Science and Policy at Cambridge University, member of the UCL Policy Commission on the Communication of Climate Science, and on the advisory board of the Centre for the Understanding of Sustainable Prosperity.
Simon introduced how decisions are shaped in government, laying out that a changing global economy that needs to change 5x faster to satisfy the Paris agreement, relies on the policy decisions. This amounts to 3 questions for decisions making:
- Whether to act at all?
- How much effort to make
- Where to direct effort
These questions have been asked for most policy decisions, but responding to the requirements of climate change action is creating new assumptions and principles around these questions with new evidence contrasting to what was previously practiced.
Whether to act at all
Whether to act was previously asked in terms of whether the economy is changing and/or whether it can be optimised. Simon explained how the industrial strategy was to not act, with the assumption that unless there is market failure the economy is at an optimal state. Evidence opposes this, showing that constraints can actually accelerate innovation. For example; energy efficiency standards pushed prices down from the innovations that addressed new requirements. Simon highlighted that this not only shows the economy is therefore not in a optimum state, but also that tougher standards can achieve higher investment into innovation.
We can also see that economies change through their allocation (how quantities and prices defined) and formation (how economy emerges and grows). Through human history has witnessed an economy transition from stones to spaceships, as well as a secular increase in goods and services diversity. Simon then presented the idea that economy could be viewed as an evolving ecosystem. With a dynamic evolutionary view, constraints can shift resources from ecploitation to exploration – instead of creation distortion and inefficiency as argued in the static view. This creates the following:
- Economy has no optimal state
- Always changing
- Policy can influence the rate and direction of its evolution
- Act to prepare for change that is likely
- Act to bring about change that is desirable
- Act to avoid change that is undesirable
How much effort to make
Simon then explained how traditionally the decision of how much effort to make was devised, on the basis of a ‘machine’ economy that was predictable and made up of parts with one purpose. This was set on the principles to maximise the ratio of cost and benefit, and assess as single dimensions. With assumptions that future costs and benefits were predictable and quantifiable, and that value can be objectively converted. The realities of climate change contrast these ideas, especially as climate change impacts and solutions and technological advancements are uncertain. Further, value is contingent on the user, use and context. As a result, Simon puts forwards new assumptions and principles that adhere to this policy decision:
- Important future costs and benefits are uncertain
- Value is contingent not intrinsic
- Assess risks and opportunities as well as costs and benefits
- Assess outcomes in multiple dimensions
Where to direct the effort
Simon then discussed the final decision making question. Traditional principles and assumptions assessed options individually with minimal focus in effort application, as environments and relationships were unchanged by policy and economy was in equilibrium. In reality, the economy is a complex system of different component parts that are influenced by interactions and feedbacks. ‘Systems thinking’ helps understand this in a better way, to identify leverage and tipping points. Hence, a targeted carbon price approach is needed to reach tipping points in different industries. This creates new sets of principles and assumptions:
- Behaviour systems emerge from interactions between components
- The economy is in disequilibrium
- Assess policies in combination
- Assess effect of policy on process of change
- Act on points of greatest leverage
A subset of where to direct effort is concerned with what technological advancement to choose – which traditionally was done in a way to apply effort to be ‘technology-neutral’, and that the market will discover best available technologies and so policies can be neutral. Once again Simon exposed a different reality, that the economy is path dependent and emerges from it’s technologies, which as a result means no action is neutral. All actions have capacity to influence future pathways and possibilit8ies of the economy, therefore it’s important to choose deliberately, and not unconsciously.
Simon has made clear that the way we approach and undertake decisions concerning the economy require new thought and consideration, especially in the context of climate change. Old assumptions do not stand up to the realities we are having to address. Decision makers must understand the nature of the problems, which may not fit their previous practices. Urgency to do this right is clear, becoming more clear with how impactful policy change can be. There seems to still be hope yet!
To watch the seminar given by Simon as well as the Q&A session followed, you can view it here.
More information about Deciding how to Decide can be found in the working paper.
Keep up to date with the EEIST Project on their website.