Category Archives: Economics

Monbiot on libertarianism and ecology

British journalist George Monbiot has written a good explanation of why the political philosophy of libertarianism is undermined by the reality of the ecological interdependence of all people:

The owners of coal-burning power stations in the UK have not obtained the consent of everyone who owns a lake or a forest in Sweden to deposit acid rain there. So their emissions, in the libertarian worldview, should be regarded as a form of trespass on the property of Swedish landowners. Nor have they received the consent of the people of this country to allow mercury and other heavy metals to enter our bloodstreams, which means that they are intruding upon our property in the form of our bodies.

Nor have they – or airports, oil companies or car manufacturers – obtained the consent of all those it will affect to release carbon dioxide into the atmosphere, altering global temperatures and – through rising sea levels, droughts, storms and other impacts – damaging the property of many people.

I have written about this before: The death of libertarianism.

See also: Why conservatives should love carbon taxes

Two tasks for 2012

The politics of climate change are pretty dismal right now. Canada is doing as little as it possibly can to combat the problem. The Obama administration in the United States is tied up doing other things, and regional initiatives like the Western Climate Initiative seem to be falling apart.

Given these challenging circumstances, it seems like a twofold strategy is justified for the year ahead.

First, it makes sense to work on rebuilding a political coalition calling for climate action. This is a complex undertaking that will involve everything from working to improve the electoral odds of parties and candidates who support climate action to raising the visibility of promising policy mechanisms like fee-and-dividend schemes.

Second, it makes sense to keep working to block projects that are triply-stupid, like the Keystone XL pipeline. When we build infrastructure that keeps us locked into a fossil fuel based economy, we are being wasteful in three connected ways. We are building infrastructure that will need to be scrapped when the world finally gets serious about stopping dangerous anthropogenic climate change. We are increasing the level of damage that climate change will do, both in terms of money and in terms of human suffering. Finally, we are forcing ourselves to build more appropriate energy infrastructure more quickly later.

By blocking inappropriate projects, we can avoid that triple waste. We can also show the world that there are at least some people in countries like Canada who are interested in protecting human lives more than in reaping oil profits.

It will probably be another difficult year, full of disappointments, but that is why it is necessary to keep applying ourselves to the problem with energy, creativity, and integrity.

Fossil fuel rationing

Virtually everyone agrees that putting a price on carbon would be an efficient way to start the transition toward a low-carbon global economy. Right now, there is no cost whatsoever to a person or business who uses the atmosphere as a dumping ground for greenhouse gas pollution. Putting even a small price on doing that – through a cap-and-trade system, a carbon tax, or a fee-and-dividend scheme – could effectively discourage the most wasteful polluting practices.

Problematically, even when it is perfectly just to do so, it is often wildly politically unpopular to make people pay for something that used to be free. This is part of what makes it so hard to get carbon pricing introduced in the first place, as well as to keep carbon pricing laws on the books once they are established. Cap-and-trade systems could also ‘lose their bite’ if emissions fell below the level of the cap.

What might be even harder politically would be raising carbon prices to the point where they produce emission reductions on the necessary scale. The world needs to be pushing aggressively toward carbon neutrality, and heavily polluting nations like Canada have an enormously long way to go. Getting a high enough carbon price in place to cut emissions to virtually nothing by mid-century is certainly a political challenge.

Perhaps it would be more honest and effective to focus the policy on rationing fossil fuel use, with prices as the mechanism for allocation. This is basically what the fantasy climate policy I wrote about before does: it sets up a mechanism that guarantees that pollution reduction targets will be met, though the carbon prices necessary to achieve that may be extremely high.

It may be no more politically possible to impose high prices as part of a rationing scheme than it would be as part of a carbon pricing scheme not explicitly linked to fossil fuel abandonment. At least a rationing scheme would point clearly at the problem and the ultimate solution – the elimination of fossil fuels from the global energy system.

Objection: problems with Kyoto

Every time there is a Conference of the Parties (COP) of the United Nations Framework Convention on Climate Change (UNFCCC), people who want Canada to continue to do little or nothing about climate change bring up the flaws of the Kyoto Protocol as an argument against action.

This argument is flawed. The problems with Kyoto make it more important to develop an effective global agreement now, and that requires countries like Canada to lead the way in reducing their domestic greenhouse gas pollution.

The UNFCCC and Kyoto

To explain briefly, the 1992 UNFCCC is a framework convention that sets out the world’s general objective when it comes to climate change: preventing dangerous anthropogenic interference with the climate system. The 1997 Kyoto Protocol was the first major attempt to make concrete progress toward that objective. Some (rich) states got emission reduction targets which they agreed to meet by 2012. Other (poorer) states did not have targets, but there were systems established to encourage them to reduce emissions as well, partly through financial help from richer countries directed through institutions like the Clean Development Mechanism (CDM).

Kyoto was an experiment in coordinated global action on climate change, and many things have gone wrong with it. The United States never joined the agreement. Some countries (like Canada) have ignored the targets they agreed to and are now producing much more pollution than they were meant to at this point. Countries like India and China, which had no targets, have seen their emissions grow rapidly. There have been problems with the CDM, such as dubious transactions involving HFC-23. Kyoto also ignores the major issue of pollution that is effectively ’embedded’ in imports.

Whole books could be (and have been) written about the flaws of Kyoto. That being said, it is wrong to see those flaws and conclude that it is no problem for Canada to ignore its Kyoto obligations, or for the UNFCCC process to fall apart. The fact of the matter is that dealing with climate change requires global action. Countries like Canada have become rich on the basis of burning fossil fuels, and currently produce an excessively high level of greenhouse gas emissions per person. It makes sense that countries like Canada lead the way on emissions reduction – a general policy known as contraction and convergence.

The challenge of climate change

If the world continues on the path of carbon-intensive economic activity, we are setting ourselves up to dramatically transform the planet’s climate by the end of this century, with severe consequences for people all over the world. Preventing dangerous or catastrophic climate change requires limiting how much greenhouse gas pollution gets added to the atmosphere; that, in turn, requires that the world abandon fossil fuels and move on to zero-carbon forms of energy. Achieving that transition will be challenging and costly, but so is our continued dependence on fossil fuels. Instead of spending billions developing deepwater oil fields off the coast of Brazil, fracking shale gas in North America, or exploiting Canada’s oil sands, we could be investing our money and effort on the transition to a renewably-based zero-carbon economy of the sort described by David MacKay.

In summary: yes, there are problems with Kyoto. But that doesn’t mean we can ignore climate change. Dealing with the problem requires coordinated international action, and it requires that countries like Canada:

  • (a) take responsibility for the harm they have already caused by altering the climate through fossil fuel use,
  • (b) take the lead in developing a domestic energy system that is compatible with a stable climate, while phasing out fossil fuels, and
  • (c) help the rest of the world to achieve the same transition.

Doing our part in a fair global deal requires a willingness to compensate countries that will suffer from the climate change we have caused, and help them to develop on a safer trajectory than we did.

Our current approach doesn’t even make sense from the perspective of pure economic calculation. At some point in the future, the world as a whole will finally realize just how damaging and dangerous climate change is. When that happens, there will be a collective realization that extracting fossil fuels from shale gas and the oil sands is absolutely the last thing we should be doing. The billions of dollars invested in the technology and the infrastructure used to do that will be wasted when those facilities are forced to close down. On top of that, we will suffer the expense of the additional climate harms that arise because of our delay. Finally, we will need to deploy a zero-carbon energy basis for our economy on a compressed timeline, which is sure to be more expensive than undertaking the task over a longer span of time. It is far more intelligent to build the right thing in the first place than it is to:

  • build the wrong thing (at great expense),
  • suffer the consequences of that choice (at great expense),
  • and then build the right thing in a hurry (at great expense).

There are also major additional benefits associated with an early transition away from fossil fuels: greater geopolitical stability, less air pollution, less water pollution, less destruction of land, etc.

The failure of the Kyoto Protocol to curb the growth in global emissions means we face a bigger problem now than in 1997 and that we have less time to deal with it. The way to do that is to engage constructively with the international community and help drive the emergence of a fair deal, while taking meaningful steps domestically to decarbonize our economy. What we absolutely not do is use the problems with Kyoto as an excuse to continue on a carbon-intensive path of economic development that sacrifices the vital interests of future generations for the short-term profit of those alive and making decisions right now.

What might turn the tide?

All over the world, there is evidence of ongoing climate change. The evidence is physical, in the form of things like retreating glaciers and Arctic sea ice. It is also chemical and nuclear, as specific isotopes of carbon can be identified in ever-greater quantities in the atmosphere. It can also be seen biologically, as the ranges of species change, the timing of flower blooming changes, and so on.

While the evidence is ample and interconnected, it seems fair to say that the evidence that climate change is really harmful remains less clear-cut for now. There is every reason to believe that will eventually change, as more and more people realize that weather conditions that used to be exceptionally uncommon have become relatively commonplace.

How some corporations could come to support mitigation strongly

When that happens, the common front that currently exists among corporations is likely to be fragmented. Right now most corporations only see the costs associated with taking action on climate change. They do not see the costs associated with continuing on this dangerous path. As a result, Chambers of Commerce everywhere tend to be fierce opponents of carbon pricing, and the only corporations endorsing strong climate policies tend to have a clear self-interested reason for doing so. For example, they may be manufacturers of solar panels and dependent on feed-in tariffs for their profits.

Corporations must be expected to behave in self-interested ways, which is what makes it interesting to speculate about how the world will chance when climate change becomes a major and obvious cost for many of the world’s corporations: insurers dealing with losses from extreme weather events, agricultural corporations trying to deal with increasingly unpredictable precipitation patterns, and so on.

There may come a time when powerful corporations with large numbers of employees and large amounts of political clout actually become strong advocates of solving this problem by keeping fossil fuels in the ground. If that happens, real progress may result, well beyond the limited successes of carbon pricing here and there and the efforts through the Kyoto protocol and UNFCCC. The inadequacy of our efforts to date is proven by the fact that global emissions continue to rise. Solving the problem basically requires global emissions to fall to zero.

Of course, corporations that become newly serious about the risks of unrestricted climate change will be opposed by fossil fuel corporations whose entire business models depend on a world that continues to burn hydrocarbons – but we do have other energy options, and the fossil fuel companies are not all-powerful. As the rest of the economy comes to really understand the risks associated with climate change (and the opportunities associated with zero-carbon energy), the blocking efforts of the worst delayers should eventually fail.

We may not get a ‘warning shot’

Whether that change in behaviour can come quickly enough to prevent catastrophe may depend on how quickly the first big negative effects of climate change are felt by those who are rich and influential. Generally speaking, human beings do not have a great record when it comes to perceiving the suffering of those in distant places and taking meaningful action to help. For example, based on our behaviour it is fair to say that basically nobody in North America or Europe cares about the plight of people in the Democratic Republic of Congo who have been suffering from appalling violence for decades. We are equally unlikely to care about climate refugees in Bangladesh, or at least to care enough to alter our lifestyles to lessen their suffering. It may only be when people who we see as similar to ourselves begin to suffer seriously that we will feel our concern about the risks from climate change growing stronger than our love for cheap energy and unfettered use of fossil fuels. It may be a sad fact of human nature that we only take a danger seriously when we ourselves feel vulnerable.

The scary possibility is that there will not be a generous lag between the first serious effects of climate change in the rich world and utter climatic disaster. We may only get a major warning once the process is too advanced to substantially retard. That possibility is the major reason why politically engaged citizens need to keep pushing for action on climate change now, before we get a personal taste of the worst things it may involve. Taking preemptive action may be the only way to avoid locking ourselves into a deeply undesirable future characterized by radical climatic instability.

The IEA endorses carbon pricing

The International Energy Association is now saying what many environmental economists have been saying for years:

The world will lock itself into an “insecure, inefficient and high-carbon energy system” if it does not adopt a “bold change of policy directions,” the International Energy Agency has warned…

“There is a need for an international legally binding agreement to put a price on carbon, to put in place some new regulations,” said Fatih Birol, the IEA’s chief economist.

Companies are making bad investment decisions because the price of the harm done by greenhouse gas pollution is not recognized by the market. By putting a price on carbon – through a carbon tax or a cap-and-trade system – firms can be encouraged to invest more efficiently.

Some firms stand to lose out substantially from carbon pricing, but that is only because the current regulatory regime allows them to impose unlimited suffering from climate pollution on other people, with no financial penalty to be paid. Allowing them to continue to profit by harming others is both inefficient and unethical.

Yergin on the necessary scale for CCS

Anyone who thinks it would be cheap and easy to bury the carbon dioxide pollution arising from coal-fired power plants would benefit from reading a passage from Daniel Yergin’s The Quest: Energy, Security, and the Remaking of the Modern World about the scale of that undertaking:

And the scale here would be very, very large. It would really be like creating a parallel universe, a new energy industry, but one that works in reverse. Instead of extracting resources from the ground, transporting, and transforming them, and then burning them, the “Big Carbon” industry would nab the spent resource of CO2 before it gets into the atmosphere, and transform and transport it, and eventually put it back into the ground. This would truly be a round-trip.

Indeed, this new CCS industry would be similar in scale to that of existing energy industries. If just 60 percent of the CO2 produced by today’s coal-fired power plants in the United States were captured and compressed into a liquid, transported, and injected into the storage site, the daily volume of liquids so handled would be about equal to the 19 million barrels of oil that the United States consumes every day. It is sobering to realize that 150 years and trillions of dollars were required to build that existing system for oil. (p. 402, hardcover)

Personally, I wonder whether it is really worth going through such a song and dance in order to keep coal viable as a source of energy. After all, it would still be producing large volumes of toxic air and water pollution, it would still require the destruction of mountains to dig up the raw matter to burn, and it would still ultimately be an exhaustible resource.


Daniel Yergin on peak oil

Many journalists and energy analysts speak of ‘peak oil‘ as an inevitability. This is the idea that world oil output will peak soon and decline sharply thereafter, pushing prices up substantially.

Daniel Yergin’s book The Quest: Energy, Security, and the Remaking of the Modern World. devotes quite a bit of space to arguing that there is considerable scope for further oil production increases, especially given that high prices drive exploration and investment:

The world has produced about 1 trillion barrels of oil since the start of the industry in the nineteenth century. Currently, it is thought that there are at least 5 trillion barrels of petroleum resources, of which 1.4 trillion is sufficiently developed and technically and economically accessible to count as proved plus probable reserves. Based upon current and prospective plans, it appears the world liquid production capacity should grow from about 93 million barrels per day in 2010 to about 110 mbd by 2030. This is about a 20 percent increase. (p.239 hardcover)

He also argues that rather than being followed by a sharp decline, the peak in global oil production is likely to be followed by a plateau of relatively stable production.

The overlapping uncertainty between peak oil and climate change is an important thing to consider, when trying to project what the world’s energy and climatic futures look like. If Yergin is right – and there is lots of oil left to burn – the need to develop and implement effective policies for reducing greenhouse gas pollution is even greater, since scarcity may not do much of the work for us.

The imperilled international consensus to act on climate change

Preventing dangerous or runaway climate change requires all major economies to reduce their usage of fossil fuels and therefore their production of greenhouse gas pollution. Some jurisdictions, including the European Union and Japan, have taken the lead in implementing carbon prices and other policies to achieve those outcomes. Other jurisdictions, including Canada and the United States, have done very little about the problem.

The lack of action from some major economies is undermining the prospects for cooperative action. The European Commission and Japan are both considering adopting less ambitious climate goals, given inaction in the United States and elsewhere.

If all states do nothing, the world commits itself to a suicide pact. For basic reasons of fairness, countries that have not yet taken substantial actions must start to do so. This is especially true for prosperous countries like Canada.

Furthermore, taking action now makes good economic sense. When countries and companies continue to make investments that ignore climate change, they are putting billions of dollars into investments that are not compatible with the low-carbon future we need to achieve. At some point, people will realize how serious a problem climate change is, and see the need to build low-carbon infrastructure. Countries that built high-carbon infrastructure first will need to wastefully scrap it, then make the necessary investments for a low-carbon future. It would be far more efficient to get things right the first time.

Climate change and layered uncertainty

One of the trickiest things about making projections about climate change is that what it will end up being like is intertwined with the question of how a number of other important trends develop. For instance, there is the question of how long conventional reserves of coal, oil, and gas will last. Related to that is the question of whether prices of those conventional fossil fuels will increase considerably with scarcity, fall as they are eclipsed by new forms of energy, or something different. Tied to those questions is the unknown future development pathways of all the world’s major economies. Will rapid growth continue in China? If so, what implications will that have for climate and energy? What will the pace of development and deployment be for renewable energy, particularly given different potential policy approaches.

It is possible to imagine many possible global trajectories. In some, climate change impacts prove serious earlier. In others, effects only emerge later. In some, those effects are concentrated in some geographic areas. In other scenarios, different parts of the world experience the largest changes.

We will not be able to ‘wait and see’ how major trends develop, before making our choices about how to deal with climate change. Rather, we need to choose in the face of layered uncertainty. Given that inevitable situation, I would argue that the only prudent approach is to pursue a set of strategies that would prevent disastrous outcomes from occurring, regardless of which predictions prove accurate on various important questions. We cannot, for instance, simply assume that renewable energy, or nuclear energy, or some other energy source will automatically become inexpensive and widely deployed enough in time to prevent the worst effects of climate change. We must also be prepared for scenarios in which conventional fossil fuels become scarce more rapidly than expected, unconventional sources prove uneconomical or slow to deploy, and prices rise substantially.

Avoiding disastrous outcomes requires pursuing a resilient approach that can deal with surprises. It requires investing in numerous technologies and approaches, with the knowledge that not everything will work and the humility to recognize that we cannot know in advance which technologies will be successful and which will not be. That means driving investment and innovation in every major energy source that has the potential to serve humanity’s energy needs in a low-carbon or carbon-neutral way. This clearly includes renewables and nuclear fission. It also includes biomass for stationary power generation and biofuels for vehicles. It includes basic research into promising but speculative technologies like nuclear fusion and space-based solar power. It includes continued and expanded work on energy efficiency.

In addition to all of those things, we need to stop assuming that the world of the future will basically be like the world of today. It may not be the case that energy use will be at the same level fossil fuels have allowed us to reach, either in absolute or per-capita terms. It may not be the case that the most energy-intensive aspects of our current lifestyle will be able to continue. At the same time, there are many benefits that could be realized though the transformation of our energy systems. Fossil fuels produce large quantities of deadly air and water pollution. They also contribute to conflict and geopolitical instability.

If we succeed in moving from a world that runs on dirty, climate-altering fossil fuels to a world that operates much more efficiently using energy that largely comes from renewable sources, we will have achieved one of the most remarkable and positive transformations in the broad sweep of human history. We will also have set humanity up to endure indefinitely, without undermining the relatively stable climate that has accompanied and facilitated the emergence of human civilization. Exactly how we can do that remains unknown, but it will require us to confront layered uncertainty and develop portfolios of effective strategies that allow us to progress to that goal.