an institutional critique of new climate scenarios

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An institutional critique of new climate scenarios Lee Lane & W. David Montgomery Received: 15 January 2013 / Accepted: 30 August 2013 / Published online: 27 September 2013 # Springer Science+Business Media Dordrecht 2013 Abstract Leading climate analysts are designing a set of new policy scenarios that will be used to frame future climate policy analyses. This new exercise seeks to improve the realism of the scenarios used in climate policy analysis. In recent decades, rational choice institu- tionalism (RCI) has increasingly influenced several social sciences. A systematic effort to apply findings and concepts borrowed from RCI studies would offer three types of benefits to this scenario exercise. First, it would increase internal consistency within each of the projected scenarios. Second, it would enhance the realism of the entire suite of scenarios. Third, it would illuminate a range of factors, trends, and causal pathways than might otherwise be considered. These gains could be exploited best by engaging some leading RCI scholars in the scenario building process. 1 Introduction Climate policy has unfolded in ways not foreseen by most climate policy analysts. The concepts and methodology of rational choice institutionalism (RCI) could improve the realism of climate policy analysis. The process of building a new set of climate policy scenarios offers an opportunity for beginning to exploit RCI studies for climate policy analysis. 1.1 Elements of the scenarios This special issue describes a framework for development of new climate scenarios (Nakicenovic et al. Forthcomming Special Issue (2013)). In this framework, all scenarios will include socio- economic pathways (SSPs). Each SSP will include both a qualitative story line and quantitative characteristics of economic, demographic, and social futures. SSPs are business-as-usual (BAU) futures. That is they do not include the effects of climate policies beyond those now in place. Climatic Change (2014) 122:447458 DOI 10.1007/s10584-013-0919-9 This article is part of the Special Issue on A Framework for the Development of New Socio-economic Scenarios for Climate Change Researchedited by Nebojsa Nakicenovic, Robert Lempert, and Anthony Janetos. L. Lane (*) Hudson Institute, Washington, DC, USA e-mail: [email protected] W. D. Montgomery NERA Economic Consulting, Washington, DC

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Page 1: An institutional critique of new climate scenarios

An institutional critique of new climate scenarios

Lee Lane & W. David Montgomery

Received: 15 January 2013 /Accepted: 30 August 2013 /Published online: 27 September 2013# Springer Science+Business Media Dordrecht 2013

Abstract Leading climate analysts are designing a set of new policy scenarios that will beused to frame future climate policy analyses. This new exercise seeks to improve the realismof the scenarios used in climate policy analysis. In recent decades, rational choice institu-tionalism (RCI) has increasingly influenced several social sciences. A systematic effort toapply findings and concepts borrowed from RCI studies would offer three types of benefitsto this scenario exercise. First, it would increase internal consistency within each of theprojected scenarios. Second, it would enhance the realism of the entire suite of scenarios.Third, it would illuminate a range of factors, trends, and causal pathways than mightotherwise be considered. These gains could be exploited best by engaging some leadingRCI scholars in the scenario building process.

1 Introduction

Climate policy has unfolded in ways not foreseen by most climate policy analysts. Theconcepts and methodology of rational choice institutionalism (RCI) could improve therealism of climate policy analysis. The process of building a new set of climate policyscenarios offers an opportunity for beginning to exploit RCI studies for climate policyanalysis.

1.1 Elements of the scenarios

This special issue describes a framework for development of new climate scenarios (Nakicenovicet al. Forthcomming Special Issue (2013)). In this framework, all scenarios will include socio-economic pathways (SSPs). Each SSP will include both a qualitative story line and quantitativecharacteristics of economic, demographic, and social futures. SSPs are business-as-usual (BAU)futures. That is they do not include the effects of climate policies beyond those now in place.

Climatic Change (2014) 122:447–458DOI 10.1007/s10584-013-0919-9

This article is part of the Special Issue on “A Framework for the Development of New Socio-economic Scenariosfor Climate Change Research” edited by Nebojsa Nakicenovic, Robert Lempert, and Anthony Janetos.

L. Lane (*)Hudson Institute, Washington, DC, USAe-mail: [email protected]

W. D. MontgomeryNERA Economic Consulting, Washington, DC

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SSPs will be linked to shared policy assumptions (SPAs). The SPAs will describe thefeatures of the scenario’s mitigation and adaptation policies. Clearly, the institutional andgovernance assumption of the SSPs and the SPAs should be consistent. Therefore, choosingSSPs and SPAs is not a matter of choosing one from column A and one from column B butof finding pairs with consistent underlying institutions. The purpose of this paper is tosuggest how RCI could help to improve the realism and usefulness of the SPA’s and SSP’swhen they are developed.

The new scenarios are cast in a two dimensional framework. One dimension reflects therelative ease or difficulty of adaptation. The other dimension reflects the relative ease ordifficulty of mitigation (O’Neill et al. 2013). However, defining scenarios across twodimensions requires more than assuming different damage functions and different marginalabatement cost curves. The scenarios should also provide guidance on what kinds of policychoices are likely to emerge and how far actual policy choices are likely to fall short of beingoptimal. This article suggests some options for enhancing the scenarios future policyrelevance.

1.2 The need for greater realism

Through most of the IPCC’s history, its policy studies have tended to assume that optimaltechnology solutions will be adopted universally. Much study has focused on uniform capand trade systems. Events have shown this assumption to be unrealistic.

Other social scientists working with rational choice models have “…begun to attend moresystematically to historical and institutional processes to better understand how actorpreferences have been fashioned and how institutions have introduced biases and otherdistortions (Katznelson and Weingast 2005). Climate policy analysis is belatedly joining thistrend, and the new scenario building exercise is a hopeful move in that direction. How big amove it proves to be remains an open question.

The root of the problem with climate policy analysis has been that the integratedassessment models (IAMs) that it uses ignore both transaction costs and institutions. Inconsequence, analysis based on these models is often blind to factors that, in fact, heavilyimpact both climate change and the responses to it.

The problem is most acute in the analysis of public policy. There, economists used toassume—and some still do—that governments would adopt policies that increase total socialwelfare; in reality, many policies cause net decreases in welfare, and policies are rarely, ifever, optimal (North, A Transaction Cost Theory of Politics 1990a). As Working Group 3itself observed in the fourth assessment report (AR-4) climate policies are far from optimal(Gupta et al. 2007).

Consider, too, that the neo-classical model of economic growth on which the IAMs arebased cannot explain the wide gap in per capita income that exists between rich countriesand poor ones (Olson 1996). Indeed, it even fails to explain why modern growth appeared(Mokyr 2004). Still less can it say why it appeared when and where it did rather than at someother time and place (Rosenberg and Birdsell 1986). This lack of insight into the roots ofeconomic growth is clearly a defect in models used to analyze climate policy.

Moreover, while technological change is a central factor in climate policy, institutions andpath dependence profoundly affect the pace and direction of technological change(Rosenberg 1994). In fact, modern science is itself the product of institutional change(David 2008). And changes to the institutions that govern innovative activity may lead toresults that are both unforeseen and unwanted (Nelson 2004). History also shows thatinstitutional constraints make it harder to transplant capital markets, corporate governance,

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and intellectual property rights across cultures than it is to transfer embodied technology perse (Kuran 2011). Even within advanced countries, public and private sector institutions andorganizations winnow research goals, strategies, and techniques; in doing so, they shape thepath of change (Nelson and Winter 1977).

In sum, because the neo-classical model ignores transaction costs and institutions, itcannot explain public policy choice, the pattern of economic growth, or the process oftechnological change. On the matter’s face, other tools are needed.

1.3 Key RCI concepts

RCI offers useful insights about factors at work in public policy, economic growth, andtechnology. RCI shares a common core of assumptions with neo-classical economics; hence,RCI results are consistent with the logic of the integrated assessment models. However, RCIalso extends and modifies some of the features of neo-classical analysis. RCI studies, forinstance, assume that transaction costs are positive and important. Institutions affect relativetransaction costs; therefore, they also affect agents’ incentives.

Many RCI scholars distinguish between institutions and organizations. ‘Institution’refers to the laws, rules, customs, and norms that govern social behavior. ‘Organization’refers to groups of actors that operate under formal or informal rules and norms. AsNorth phases the distinction, institutions are the rules of the game; organizations are theteams that play it (North, Institutions, Institutional Change, and Economic Performance1990b).

North places institutions into three classes. Formal institutions consist of written consti-tutions and laws. Informal institutions are norms and codes of conduct. Enforcementpractices set the terms for when and how institutions are (or are not) applied ( North 1999).

Williamson has proposed a four level hierarchy of institutions (Williamson 2000). In it,informal customs, norms, mores, and taboos stand at the top of the hierarchy. Next are basicformal structures like constitutions, laws, and property rights systems. Below that level,public and private governance structures seek to dampen conflicts and realize mutual gains.At the base of the hierarchy are stand the individual, rules, procedures, and practices thatmanage specific transactions.

Williamson’s hierarchy suggests some of the factors that make institutional change pathdependent. He points out that change becomes slower and less subject to intentional controlwith each step up the hierarchy; moreover, each level tends to constrain change in the levelbelow it and to be constrained by the level above it (Williamson 2000).

Other factors also contribute to path dependence. Current institutions affect the relativepower of interest groups; they determine the extent of networks; they induce actors to investor disinvest in specialized capital, and they cause the content and depth of shared beliefs towax and wane (David 2006). In effect, the presence of a given structure of institutions at onepoint in time will constrain the adoption of future institutions, policies, or technologies(Kuran 2011).

While change is path dependent, it is not biased toward the selection of more efficientinstitutions (North 1981). Path dependence often preserves institutions that greatly degradeproductivity (North 1990a). Furthermore, although agents are “intendedly rational,” theirknowledge, cognition, and attention are limited (North 1999). Shared mental models ofsocial reality are often highly inaccurate. Yet social pressures can reinforce these mentalmodels even as evidence builds against them (Kuran 1995). These ideologies are oftencharged with strong feelings of right and wrong, and, for they have been known to buttressdysfunctional institutions for long periods of time (North 2005).

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Attempts to change higher level institutions have been fraught with risks of unwelcomesurprises. Pierson explains that designing such structures almost always involves bargainingamong competing interests with multiple issues at stake. The passage of time alters thecircumstances as it does the identities of the actors. Hence, institutional design seldom turnsout as its authors intend (Pierson 2004).

Thus, a persistent gap separates actual policies from optimal ones. The structure of asociety’s institutions can, though, expand or shrink the size of this gap (North et al. 2009).Where the ruling coalition imposes high entry barriers to markets and to organized politics, itcan capture economic rents and use them to buy the support that it needs to retain power.However, where entry barriers to markets and politics are low, freer markets spur economicgrowth, and more open politics limit the scale of destructive rent seeking. The economygrows, and growth legitimates the society’s institutions.

More open societies adapt better to change. However, the process of opening markets andpolitical systems to freer entry can be destabilizing (Weingast 2010). Violence may ensue,and it can forestall and even reverse the emergence of a stable open access order. Hence,only 15 % of the world’s population lives in advanced democracies that have adopted the fulllogic of open access (North et al. 2009).

1.4 Power structures and global institutions

Scholars have used RCI to elucidate political economics among states as well as withinthem. A key concept in these studies is that of the ‘regime.’ Stephen Krasner describesregimes as sets of principles, rules, norms, and procedures. The UN Framework Conventionon Climate Change is a regime as is the World Trade Organization.

Major states organize regimes in order to reduce the transaction costs of cooperating withother states (Keohane 1984). However, regime building entails transaction costs. The morediffuse the distribution of power among the relevant states, all else being equal, the higherwill be the transaction costs of building and managing a regime (Gilpin 2001).

By inference, regimes exist to serve the preferences of one or more major states.However, institutions are typically much less constraining between states than they arewithin them (Krasner 1991). Therefore, regime rules often change when the preferences ofone or more major states change or when power balances among those states alter.

Power relationships, however, vary with context (Gilpin 1975). Thus, on some issuessome cases states have ‘go-it-alone’ power; that is they can act either alone or together tochange the status quo (Gruber 2000). Thus, a hypothetical Washington Beijing pact todeploy solar radiation management would have great go-it-alone potential. But the sametwo powers would still need the cooperation of many other states to implement effectiveGHG controls.

Finally, some states on some issues have coercive power. That is they may use sanctionsor the threat of sanctions to change the behavior of other states. Coercion, though, is oftencostly to the states seeking to deploy it, and if attempted against a major power, it often fails.

2 RCI and climate policy scenarios

RCI studies, then, can clarify some aspects of issues that are highly relevant to climatepolicy. Yet past climate policy scenarios have made little use of this resource. Most recently,at a 2011 Conference in Boulder, leading climate policy analysts developed an initial sketchof the narrative components of new development pathways (SSPs). Whether or not the new

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SSPs follow these early sketches (see O’Neill et al. in this issue for the most recent sketches),it is useful to critique them from the perspective of the RCI. As described below, this critiquemay prove helpful as climate policy analysts continue to develop the SSP narratives in thefuture.

2.1 General comments on new climate scenario story lines

The initial Boulder story lines are, in some respects, more nuanced than were those of earlieranalyses. Yet, they take no explicit notice of the effects of transaction costs, institutions, andpath dependence. Four themes apply across the entire suite of story lines:

First, since institutions differ so much from country to country, social responses to a givenevent or trend will also differ greatly (Acemoglu and Robinson 2012). The distinctionbetween societies based on open access and those based on limited access is especiallypronounced. Thus, even events that have global impacts are likely to elicit highly variedresponses. And differences are likely to exist not only among regions but also within them.Few patterns will prevail across the entire globe.

Governance is of prime importance to adaptation; hence, models will need to distinguishbetween open access and limited access societies. Yet, today, most of the regions used inintegrated assessment models include both types of societies. This fact will pose anothermajor challenge for modelers.

Second, few trends last for a full century. The entire era of modern economic growthcovers only about 200 years. Within that era, many important trends have seesawed back andforth. For instance, the tide of economic integration has surged and ebbed more than once,during the modern era (Findlay and O’Rourke 2007). And during this era, global hegemonshave risen and others been displaced (Gilpin 1981). Scenario builders, therefore, should lookfor forces that might halt or even reverse initial trends. The fully developed scenarios may beless uniform through time. But the initial story lines all run on like clockwork through theremainder of this century.

Third, while the initial proposed story lines are strikingly irenic, in many societies, themaintenance of order and control over violence remains the most pressing single problem; inother cases, governments maintain order only through corruption and entry barriers withwhich they buy social peace (North et al. 2013). Either the threat of violence or the effects ofcorruption and entry barriers interfere with the prospects for sustainable economic growth.These constraints are major forces impeding both economic development and efforts toadapt to climate change.

In a similar vein, great power rivalries remain a major factor in world politics. Andchanges in the structure of the global state system can raise or lower the intensity of suchrivalries. Climate politics will certainly not be exempt from the effect. Periods in which afuture challenger is gaining power relative to an incumbent hegemon have sparked intenserivalry and even armed conflict (Gilpin 1981). Story lines that entail GDP convergencebetween the PRC and the United States are implicitly assuming such a ‘power shift.’ Theinitial story lines ignore this factor.

Fourth, climate policy as in other realms, states are of highly unequal importance. Trendsin big economies and major world powers matter disproportionately. Thus, climate policyscenarios should study the institutions of those states in much greater depth and specificity.Scenarios, therefore, should focus on how trends that arise in the major states and aretransmitted by trade, technology or other flows to other parts of the global system.

Beyond these general problems, all of the individual initial proposed story lines involvespecific features that are ahistorical or otherwise doubtful.

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2.2 Initial SSP 1 story line: a triumph of post-materialist values?

In the initial SSP 1 story line discussed at Boulder, a strong will to global cooperationsomehow emerges. The Millennium Development Goals are met. All urban growth becomesplanned. Technological change and transfer accelerate. The material intensity of consump-tion falls. People eat less meat. Average income per head converges across countries. Policyseeks “sustainable development.” Fossil fuels are spurned (O’Neill et al. 2012).

Why all these drastic changes should occur remains a complete mystery. We have foundonly one theory that seems to offer a partial rationale. It is Ronald Inglehart’s thesis of agradual social shift toward ‘post-materialist values.’ Survey data show that high levels ofhigh economic security over several generations cause post-materialist values to largelysupplant materialist ones (Inglehart 1997). Inglehart’s post-materialist values are at leastbroadly consonant with the changes envisioned in the initial SSP 1—although his very longtimeline for the trend is not.

On further thought, though, problems arise. Historically, materialistic values have been awellspring of innovation (Mokyr 2004). Hence, where materialism wanes, economic growthmay well flag. Then too, survey data has shown that recessions reverse the trends towardpost-materialism (Kroh 2008).

Thus, the initial SSP 1 story line carries within itself forces that limit its growth. Its valuesweaken the motives for the innovation that sustains growth. And recessions revive materi-alism. A trend toward SSP 1 may be possible; its continuation for a century is not. PerhapsSSP 1 should be redesigned to incorporate a shift into reverse.

Inglehart’s studies also link post-materialism to a weakening of instrumental rationality(Inglehart 1997). In other words, as environmental concerns rise, the cost-effectiveness ofthe measures meant to assuage them, falls. And, the greener parts of the EU and the U.S.,where post-materialism runs high, are also prone to bar use of nuclear power and hydraulicfracturing of natural gas wells.

2.3 Initial SSP 2 story line: current trends continue

The initial SSP 2 story line that was proposed at Boulder assumed continuation of currenttrends. Rather than commenting here, Section 3.1. below presents an RCI- based business-as-usual story line.

2.4 Initial SSP 3 story line: other regions copy the EU

In the initial proposed SSP 3, regional blocs emerge. The appearance of blocs is no surprise.That the blocs would be regional is one. Inter-state rivalries are often sharpest withinregions. Think of India and Pakistan, Iran and Saudi Arabia, or China and Japan.

Where blocs do form, except for the EU, the important ones are rarely regional. Rather,they revolve around global power balances. The pattern of China, Russia, North Korea, Iran,Syria, and Venezuela engaged in “soft balancing” against the United States is a case in point.The same motives, coupled with ideology, animated the earlier Cold War alliances. Historysuggests, therefore, that blocs will reflect global power balances, intra-regional rivalries, andperhaps ideology.

In effect, the actual pattern of international alliances reflects balance of power politics.But the Boulder story lines, like all climate scenarios before them, ignore that logic. Thescenario instead projects a unique path dependent European trend onto the world. The resultis a future that is at odds with both current trends and diplomatic history.

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2.5 Initial SSP 4 story line: Marx’s nightmare come true

The initial proposed SSP 4 story line portrays a highly unequal world. One trend towardinequality plays out at the global system level. The other unfolds at the unit level, but it isuniform across all units. Some trends in the global labor market do suggest that globalizationis depressing some wages in the developed countries.

But the story line’s absence of strong political backlash is puzzling. Even as incomeinequality grows, no populist movements arise. In the initial version of SSP 4, the populistpolitical entrepreneurs, with which today’s world teems, have vanished. Yet in reality, partlybecause of such a backlash, the failure of the Doha Round seems to presage a loss ofmomentum for trade liberalization, and mercantilist industrial policies are much in evidence.It is equally hard to see how the world’s well-to-do maintain their class confusion in the faceof national and intra-elite conflicts. Certainly, in early modern Europe just such competitionforced elites to bid for non-elite support and, in the process, to make major concessions toegalitarianism (Ertman 1997).

2.6 Initial SSP 5 story line: development aid finally works

The initial proposed SSP 5 story line envisions a global “development first” agenda. Thatscenario foresees eradication of extreme poverty and universal access to education, safedrinking water, and modern energy before mid-century”.

The narrative does not explain why OECD countries should make these commitments.Historically, large scale acts of global altruism are rare (McNeil 2008). Nor is there anobvious reason for such behavior in the near future.

Moreover, even were spending on aid to increase, why would aid programs become moreeffective than those of the past? Sixty years of such efforts have, by and large, failed(Easterly 2006). Many governments among the countries receiving aid are inefficient,predatory, or both. Efforts to reform them, though, meet stiff resistance. As noted earlier,reform threatens the power of local elites, and it can even trigger violence (Weingast 2010).

3 Alternative scenario ideas

RCI suggests a number of ideas that might be used as building blocks of more realisticclimate scenarios.

3.1 A business-as-usual story line

A business as usual narrative should assume that the number of societies allowing openaccess to markets and politics would remain small. No major states would transition fromlimited access institutions to open ones or vice versa. In such a world, catch-up would stillallow non-OECD economies to record some per capita income growth. The institutions ofthe advanced industrial democracies would sustain them as the main engines of globaltechnological progress.

In most important states, domestic institutions and power structures militate againstadoption of effective GHG controls. Thus, U.S. institutions erect many veto points(Tsebelis 1995). As a result, enacting broad uniform proposals has proven to be infeasible.The policies that have been put in place ostensibly for GHG control typically serve rentseeking or other goals and display low cost-effectiveness (Ellerman 2012).

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In the People’s Republic of China (PRC), the state-owned enterprises (SOEs) dominatethe energy intensive sector. The SOEs’ soft budget constraints and protected markets grantthem de facto exemption from any future market-based GHG controls (CENTRATechnology, Inc., and Scitor Corporation 2009b). In India, too, climate policy commandsa low priority (CENTRA Technology, Inc. and Scritor Corporation 2009a). In Brazil,confused land tenure engenders deforestation (Alston and Mueller 2010).

Given the preferences of the major powers, no GHG control argues against the prospectsfor building an effective regime. Recent studies find that expert communities’ influence isoften marginal (Drezner 2007). Moreover, the states with the most power to limit emissionshave the weakest motives for doing so; conversely, the states most at risk from climatechange have very little bargaining power (Bosetti et al. 2009). Given the relative costs ofclimate change and those of coercive diplomacy, the use of the latter as a tool for building aGHG control regime is unlikely.

Thus, the primary response to climate change will be adaptation. Moreover, muchadaptation may take place on the individual level; therefore, adaptation is an easier problemthan GHG control (Mendelsohn 2011). However differences in the quality of governancewill cause generic adaptive capacity to vary widely among countries. Comparatively speak-ing, the industrial democracies will have greater generic adaptive capacity. Some middleincome states, the PRC is an example, also possess fairly high adaptive capacity (CENTRATechnology, Inc., and Scitor Corporation 2009b).

Climate change will pose its greatest challenge in poor tropical countries with poorgovernance. Where markets are efficient, they will enable the use of exchange as a toolfor coping with climate change and climate variability (Agrawal and Perrin 2009). But manygovernments impede market entry, and others have hopelessly muddled property rights bytrying to reform them (Bates 2010). Such policies will pose major barriers to adaptation(Montgomery 2011).

3.2 Institutional disruption of the Asian giants

RCI analyses suggest several possible futures for the growth of the PRC. Some analystsbelieve that the PRC’s version of federalism provides enough protection for property rightsand markets to sustain high rates of economic growth (Qian and Weingast 1997). Otheranalysts disagree arguing that the PRC’s failure to adopt full liberalization could threaten tostall growth as the PRC’s lack of technological dynamism leads to its being caught in amiddle income trap (Acemoglu and Robinson 2012). And still others note that an attempt atpolitical liberalization could itself be destabilizing (Pei 2006).

One recent analysis shows that a serious disruption of China’s economy would have largepotential impacts on the global emission trajectory (Tol 2012). While one cannot know theprobabilities of these outcomes, the potential impacts on both emissions and adaptation aresignificant andworth considering in a scenario exercise. Such a scenario would profoundly affectglobal economic growth, emissions, domestic institutions in China, and global power balances.

Naturally, India’s institutions differ greatly from those of China. Nor is it likely thatevents in the two countries will run in parallel. Again, though, institutional trends raise thepossibility of perhaps disruptive, institutional changes. Political competition has tended toemphasize the distribution of private goods, and the economy is hampered by a chronicundersupply of public goods (Bardhan 2010). Economic conditions among India’s states arediverging and partisan competition for interest group favors have weakened the centralgovernment’s capacity for control (Khan 2011). As with the PRC, disruptive institutionalchange would affect both emissions and the prospects for adaptation.

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3.3 A dearth of macro-inventions

Within the developed world, separate analyses Robert Gordon argues that the pace at whichmacro inventions will appear has slowed (Gordon 2012). (Macro-inventions are those withlarge direct social impacts or those that lead to many subsequent innovations.) Gordonspeculates that this slowdown will lead to much slower U.S. economic growth. His argu-ments imply a similar outcome in much of OECD. Gordon supports this speculation with alist of social trends that are likely to impede efforts to restore the last century's growth rates.

Other social trends might also reinforce this same effect. The rise of post materialistvalues poses a potential barrier to innovation. Already, some survey data suggests that U.S.voters are prone to credit extreme environmental pessimism (Caplan 2007). Moreover, socialpressures can often lead to the triumph of beliefs that rest on extremely weak evidentiaryfoundations or on none at all (Kuran and Sunsteain 1999). Efforts of this kind have sparkedmuch of the U.S. controversy over hydraulic fracturing (Groat and Grimshaw 2012). Theseforces might either slow the rate of innovation or deflect it from energy or materials intensivetechnologies.

3.4 A hypothetical RCI mitigation narrative

Climate policy modelers are aiming to build a suite of scenarios some of which wouldinvolve GHG control. It should be clear from the above analysis that many RCI studies castdoubts on the realism of such scenarios. Nonetheless, RCI could in principle encompassGHG controls.

There has been no single path along which all states evolved toward open access tomarkets and political participation. To the contrary, such paths have been highly idiosyn-cratic and often take surprising turns (North et al. 2013). Thus, it remains possible that overthe next several decades China, India, or both might make major strides toward more openmarkets and politics.

History suggests that such a process would cause these countries’ urban middle classes togrow in numbers, affluence, and political influence. In such a case, Beijing and New Delhiwould be politically able to accept GHG controls. At the same time, U.S. policy makers’belief in democratic peace theory would dampen U.S. anxiety about global power shift(Friedberg 2011). A quasi-global agreement on GHG control would become possiblealthough no grounds exist for expecting that it would be based on first best policy tools.

Hence, an internally consistent and at least marginally historical RCI scenario couldencompass GHG control. Such a scenario, though, would be premised on the confluence of anumber of low probability events and a multi-decade delay. An RCI approach, therefore,implies that the key to GHG control is tightly bound up with the institutional futures of themajor states of East and South Asia.

4 Scenario building based on RCI

Although much of climate policy analysis has simply ignored institutions and transactioncosts, the new scenarios have the advantage of explicitly recognizing them. Past scenarioshave sought to define future story lines with no regard to the constraints on the realm of thepossible that are suggested by RCI. The result is a body of analysis that conveys to policymakers a highly misleading view of the possibilities and the likely course of events. Themisperceptions that are likely to result can have a deleterious effect on policy making.

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To achieve a degree of realism and appreciation of the logic that makes some scenarioassumptions compatible and others not, it is useful to let RCI-based research guide scenariobuilding. Where empirically supported theories suggest links—positive or negative—amonginstitutions, policies, and outcomes, scenarios can make use of these patterns.

This agenda requires more than applying published findings of RCI to climate scenarios. Itwould involve at minimum a synthesis of work in RCI to identify and describe the mapping ofSSPs, SPAs, and likely growth paths onto institutions. It would likely suggest new research toaddress questions not before considered by RCI scholars. This is a substantial project, and isunlikely to succeed unless done as a collaborative effort between interested scholars in RCI andthe integrated assessment community. One way to start that collaboration might be to convene adiscussion and critique of the program proposed in this paper.

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