IPCC Fourth Assessment Report: Climate Change 2007
Climate Change 2007: Working Group III: Mitigation of Climate Change

2.2.6 Dealing with risks and uncertainty in decision-making

Given the multi-dimensionality of risk and uncertainty discussed in Section 2.3, the governance of these deep uncertainties as suggested by Godard et al. (2002, p. 21) rests on three pillars: precaution, risk hedging, and crisis prevention and management.

The 1992 UNFCCC Article 3 (Principles) states that the Parties should take precautionary measures to anticipate, prevent or minimize the causes of climate change and mitigate its adverse effects. Where there are threats of serious or irreversible damage, lack of full scientific certainty should not be used as a reason for postponing such measures, taking into account that policies and measures to deal with climate change should be cost-effective in order to ensure global benefits at the lowest possible cost.[5]

While the precautionary principle appears in many other international treaties, from a scientific perspective the concept of precaution is subject to a plurality of interpretations. To frame the discussions on precaution, three key points should be considered first.

First, ‘precaution’ relates to decision-making in situations of deep uncertainty. It applies in the absence of sufficient data or conclusive or precise probabilistic descriptions of the risks (Cheve and Congar, 2000; Henry and Henry, 2002) or in circumstances where the possibility of unforeseen contingencies or the possibility of irreversibility (Gollier et al., 2000) is suspected.

Second, in addition to that uncertainty/risk dimension, there is also a time dimension of precaution: the precautionary principle recognizes that policy action should not always wait for scientific certainty (see also the costs and decision-making sections of this chapter).

Third, the precautionary principle cuts both ways because in many cases, as Graham and Wiener (1995) noted, environmental choices are trade-offs between one risk and another risk. For example, mitigating climate change may involve more extensive use of nuclear power. Goklany (2002) has suggested a framework for decision-making under the precautionary principle that considers trade-offs between competing risks.

There is no single agreed definition of precautionary decision-making in the scientific literature.

The risk of catastrophes is commercially important, particularly for reinsurers that are large companies whose business is to sell insurance to other insurance companies (see IPCC, 2007b, Chapter 7, Box 7.2). In the context of globalization and consolidation, many reinsurers are actively developing new instruments to trade some of their risk on the deeper financial markets. These instruments include options, swaps and catastrophe bonds.

At the same time, governments are also developing new kinds of public-private partnership to cope with market failures, uncertainties and really big cataclysms. On a global scale, it can be argued that the best form of insurance is to increase the systemic resilience of the human society through scientific research, technical, economic and social development. This requires the broad participation of society in order to succeed.

Mills (2005) concludes that the future role of insurance in helping society to cope with climate change is uncertain. Insurers may rise to the occasion and become more proactive players in improving the science and crafting responses, or they may retreat from oncoming risks, thereby shifting a greater burden to governments and individuals.

  1. ^  Section 2.6 discusses the ethical questions concerning burden and quantity of proof, as well as procedural issues.