Scoring Carbon Emissions.

A powerful social law suggests we often explain or do things the wrong way. This may be particularly true when we try to address Global Warming.

Gilling’s Law, one of the most powerful laws in the social sciences, states that the way you score the game shapes the way it is played.* A simple example is that once rugby was boring with a typical score of 9 to 6 – three penalties to two. Later the score for a try was raised from three points to five, bonuses were given for scoring a lot of tries (and also to a loser who gets close to the winner). The changed incentives led teams to take risks to score tries with the result of much bigger scores and a livelier game.

The law applies to many other social events besides sport. There were four instances, all in politics, on the day before I drafted this column. An article on India did not observe that while Nareeda Modi’s National Democratic Alliance won an overwhelming majority in parliament – 336 seats out of 543 –it won only 39 percent of the vote. (Indeed, the BJP party – the largest element of the coalition – won 52 percent of the seats with 31 percent of the votes.) Adjust for turnout and the NDA won 26 percent of those on the electoral roll (the BJP 20 percent). While the article, based on the seat score, said a lot about the power of the government, its underlying assumption that Modi had a majority of the country behind him was hardly compelling.

Similarly, discussions on Donald Trump’s support from the American public ignore that while he won a majority of the states to become president, more people voted for Hillary Clinton. Adjusted for turnout Trump won 26 percent of eligible voters.

The (confusing) Brexit discussions rightly observe that the Leaves won slightly more votes that the Remains but usually fail to mention that they won over only 37 percent of eligible voters. Yet, as in the previous cases, the commentators write as if the winner had the support of the majority (often they write as if it is the vast majority) of the population.

New Zealand’s political commentators do not make quite the same mistake because of MMP. But have you noticed how often they confuse party size with political outcome? I do not think they are doing so just because they support National which promotes a grievance that the largest party has not formed the government. It is also easier to score according to party seats (or, in opinion polls, potential party seats) than to think about coalition government. It is no surprise that voters switch among the three parties of the coalition; like the Red Queen they may well have six conflicting thoughts before breakfast. (Commentators on polls usually highlight shifts smaller than known sampling errors, scoring the numbers as if they are perfectly accurate.)

Once alert to Gilling’s Law, one sees its relevance in many places; a powerful social law should apply almost everywhere. For something entirely different, consider global warming arising from carbon emissions by human activities.

The scoring system arises from the obvious way to measure the carbon emissions is at the point where they are emitted. But the measure may not be the best way to think for analytical or policy purposes. Scoring on the measure can lead to some odd results.

For instance, New Zealand imports carbon in oil. When it is used as petroleum, the carbon emitted (mainly as carbon-dioxide) enters the atmosphere and contributes to global warming. The emissions are scored to us, not to the producers of the oil. Fair enough, you say. But why then do some object to drilling for oil since the output is not scored as an emission?

Won’t any hydrocarbons, if found, be used in New Zealand and so the carbon will be emitted here? But any domestically sourced hydrocarbons will displace imported oil and so not add to New Zealand’s emission score. (If the wells produce gas which displaces oil, the score will come down.) This is not to argue against the drilling ban; in my view there are moral (and prudential) reasons for discouraging searching for oil. The point is that the scoring system leads to paradoxes. 

An even more confusing instance involves our food exports. Recall that the carbon emissions from oil are not attributed to the oil producer but to the petrol consumer. In the case of foodstuffs it is the other way around.

New Zealand farms (let’s focus on dairying, the biggest emitter) generate carbon that contributes to global warming (the biggest source is methane from belching cows). So the calculation for the New Zealand’s carbon emission target includes farm carbon emissions.

But about half of farm product is exported (dairy is more like 85 percent). So half, or more, of its domestic emissions are attributed to a product consumed overseas. In what sense are we responsible for those emissions?

Contrast what happens to imports, the production of which may involve a lot of carbon emissions in their production. There is no penalty on the New Zealand consumer for this contribution to global warming. The parallel with oil producers is not exact, but you could argue that by analogy they should be scored with the carbon emissions their oil generates.

One of the consequences of this odd measure is that were New Zealand to stop dairy production, our total carbon emissions would decline. But the deficit in dairying would be made up elsewhere and, because that dairying is more energy intensive, the world’s carbon emissions would rise. The paradox arises because we have not thought through the difference between the best way to measure carbon emissions and what to focus on in order to reduce them. Measurement is undoubtedly best done on the production side but the reduction may well be better tackled on the consumption side – or on both. Note that pressures on the consumption side will not only have people choosing products with lower carbon emissions but their decisions will press back on producers, forcing them to seek technologies which lower their carbon emissions.

It is the scoring system which focuses us on the production side through an emissions trading scheme. Were we more consumption-oriented we would probably introduce a carbon tax on consumption based on the emissions generated producing the product. It would be rebated on exports and levied on imports.

I happen to be a fan for a carbon tax but I do not think we are going to get one. (The proceeds would be used for preparing for the consequences of the climate change that is going to occur, such as sea-level rising and storm surges.) A production side-scoring system, set by the international agreement, shapes the game in the wrong way. We are going to have to settle for 9 to 6 scores.


* Don Gilling, a personal friend, is a retired professor of accounting and finance. His law appears in various forms in overseas writings but none are as comprehensive or as elegant as his,