Ferraris for all

Andrew Simms, the policy director of the New Economics Foundation (NEF), provides a typical example of environmentalism’s phoney ambition in his New Year’s Day comment piece for Britain’s Guardian newspaper. In response to what he calls “climate upheaval” he urges readers to: “squeeze those eyes open to 2009, and history tells us great things are possible. We are still in control. We just need to build, rapidly, new energy and transport systems and change our behaviour.”

Simms is certainly right when he points to the great achievements of the Victorian engineers of the mid-nineteenth century. But their goal was to build huge amounts of railway track to enhance mobility. In contrast, he says in his article he wants to “get people out of their cars”. Although Simms says he supports cleaner transport as an alternative it is hard to avoid the conclusion that he is anti-mobility, or at least would like to see it restricted, given his opposition to cars along with the NEF’s emphasis on local communities. A similarly narrow attitude is apparent in the emphasis on renewable energy when more high technology sources are needed to provide the world with the energy it needs.

Labels: climate, economics, energy, environment, transport

Energise! (Beautiful Books) by James Woudhuysen and Joe Kaplinsky is finally out. The book’s starting point is the need to bolster the supply of energy if humanity is to meet its full potential. Not only does the content look excellent but the presentation and production quality look superb. A must read book.

Labels: book, economics, energy

An article in the Christian Science Monitor (19 November) on how an opinion poll in 21 countries shows support for more use of renewable energy sources even if it means higher prices in the short term. It talks favourably of President-elect Barack Obama’s plans to create jobs through the development of “clean technology” as well as the idea of a “green new deal”.

It is probably not yet clear to people that such a plan will mean substantially higher energy prices and the imposition of austerity.

Labels: America, climate, economics, energy, environment, work

Jeffrey Sachs’ call for a government bail-out of General Motors, the most troubled of America’s car-makers, in yesterday’s Washington Post is in line with the drive for a “green new deal” (see 7 November 2008 post). He concludes his article by arguing:

“We face an unprecedented financial calamity, energy crisis and environmental threat. A vibrant, growing U.S. automobile industry should play an essential role in solving all three. The technologies that will win the day are in sight; industry has already made important advances. A partnership with government is vital and should begin this week.”

Labels: America, economics, energy, environment, technology

The idea of a “green new deal” or “green recovery” is in desperate need of a critique. Such initiatives generally involve combining a shift to a low carbon economy with more “green collar” jobs. Proponents include the Center for American Progress, Britain’s New Economics Foundation and the United Nations Environment Programme. I do not have time to produce such a critique at present but the sooner one is done the better.

Labels: climate, economics, energy, environment

India’s lunar programme should be welcomed. India is sending an unmanned space probe to the moon and in the course of it explore the possibility of bringing helium 3 – the ideal fuel for nuclear fusion – back to earth.

It was inevitable that many would sneer at such a mission when India is still mired in poverty. But it is wrong to counter-pose missions such as India’s space programme with economic development. On the contrary, the same bold ambitious attitude is required of both.

Randeep Ramesh, the Guardian’s south Asia correspondent, claims he is not against the mission in principle but sees it as precocious:

“India is a nation with a proliferating development needs – the global hunger index ranks it below Laos and Burkina Faso. Hundreds of millions of Indians still openly defecate in fields, at roadsides and beside train tracks. Common tropical diseases easily overwhelm the country's poorly-funded public health system. Its roads, railways and airports all need money and managerial overhauls.”

He misses the point that looking to the stars cultivates the right attitude to solve problems on earth too.

Labels: Asia, energy, india, inequality, science, technology

The following comment by me appeared in this week’s Fund Strategy.

It seems virtually all politicians want to present themselves as enemies of "big oil". It is a pity they have forgotten the huge benefits of fossil fuels.

One of the less noticed passages of Gordon Brown's speech to the Confederation of British Industry in Scotland last week was his desire to "set a new ambition to free Britain from the dictatorship of oil".
Exactly how a physical substance can impose a dictatorship over people he did not explain. Rights are normally curtailed by governments, such as his own, rather than by chemicals. But he is far from alone in his hostility to oil.

Al Gore, the former American vice-president turned environmental campaigner, told the Democratic National Convention in Denver on August 28 that America needed presidential leadership to solve the climate crisis. He is also supporting a campaign demanding "electricity 100% clean within 10 years" (www.wecansolveit.org). Obviously, the term "clean" is open to interpretation but Gore made no secret of his distaste for "big oil and coal" in his speech.

Nor is criticism of oil interests restricted to those who might vaguely be defined as on the left. On the Republican side the new vice-presidential candidate, Sarah Palin, is portrayed by her opponents as a supporter of big oil. But she presents herself as a populist critic of corporate interests.

Few seem willing to put the case that fossil fuel has brought enormous benefits to humanity and, if allowed, is likely to continue to do so. It is a relatively cheap and highly flexible form of energy. That is why the International Energy Agency estimates it is likely to account for 84% of the overall increase in energy demand from 2005-2030. Without oil the world economy would not have grown nearly as fast over the past century.

Although Brown and others offer alternatives, their claims to be able to replace fossil fuel bear little relationship to reality. Brown supports more investment in renewables and atomic power - which is fine in principle - but on nowhere near the scale needed to meet future energy needs. And, contrary to the common misconception, greater energy efficiency is likely to lead to more energy consumption rather than less.

One-sided attacks on oil do not help promote a considered debate on the future of energy.

Labels: America, climate, development, economics, energy, Fund Strategy

Spiked has published an article by me on the row over Alistair Darling, the chancellor of the Exchequer, saying Britain is facing its toughest economic times for 60 years.

Also Real Clear Markets included a link to my Fund Strategy cover story on oil on Tuesday.

Labels: economics, energy, Fund Strategy, media appearances, spiked

The following comment by me appeared in this week’s Fund Strategy. It is related to my cover story on the rising trend in oil prices which you can read here.

Although this week's cover story is about oil it also helps explain why inflation is rising so strongly. It is not just that energy prices are rising - such an assertion simply begs the question of why energy is becoming more expensive. Insufficient investment in energy supply is a key factor in rising prices more generally.

Showing that inflation can largely be attributed to rising food and energy prices at present is simple mathematics. It can be seen by looking at the breakdown of various inflation indices that are available.

It is also clear that rising energy prices are a significant contributor to rising food prices. Energy is used to fix nitrogen from the atmosphere to make fertilisers and it powers farm machinery. The diversion of crops from food to biofuels is another related factor. There are other reasons for rising food prices (see 12 May 2008 cover story) but energy is key.

There may also be other factors pushing up inflation. And at other times a different explanation for rising inflation might be necessary. But at this juncture the energy sector seems to be central to the explanation.

As this week's cover story argues the broad story in relation to energy is that supply is not keeping up with rising demand. As developing economies grow they rightly want and need more energy. The challenge is to ensure there is sufficient investment to guarantee such needs are met.

In the abstract there should be no problem in meeting such needs. There is no absolute shortage of energy resources. There are ample reserves of oil, hundreds of years' worth of coal reserves, plentiful hydroelectric power sources and nuclear.

The problem is insufficient investment to exploit these resources fast enough. That in turn is pushing up prices as rising energy demand exceeds supply growth.

The obstacle is environmentalism in its broadest sense. It is not a question of a few "tree huggers" protesting outside proposed power stations.

Rather it is a culture that is reluctant to invest in energy supply. America, for example, has not built an atomic power station since the 1970s. In Britain too the investment in renewing the energy infrastructure is pitiful.

The best response to inflation would be to invest to make energy too cheap to meter.

Labels: apocalyptic, consumption, economics, energy, finance, Fund Strategy

The Wall Street Journal poses an important question in a column on energy published in America yesterday and today in Europe:

“Al Gore said the other day that ‘the future of human civilization’ depends on giving up fossil fuels within a decade -- and was acclaimed as a prophet by the political class. Obviously boring reality doesn't count for much these days. Even so, when Barack Obama wheels out an energy agenda nearly as grandiose as Mr. Gore's, shouldn't it receive at least some media scrutiny?” (original emphasis).

It also comes to a sensible conclusion:

“Consumption isn't rising because of wastefulness. The U.S. produces more than twice as much GDP today per unit of energy as it did in the 1950s, yet energy use has risen threefold. That's because energy use is tethered to growth, and the economy continues to innovate and expand. Mr. Obama seems to have other ideas.”

Despite a common misconception it is not true that energy efficiency means less energy use. On the contrary, it means even more energy can be used.

Labels: America, economics, energy, environment

Eric Rolston, an American science writer, has written a fascinating sounding book on carbon. Despite its sensationalist sub-title – “how life’s core element has become civilization’s greatest threat” – The Carbon Age rightly makes the point that carbon is the building block of life. Despite the element’s key role in the natural world it is strangely seen as a great threat to humanity nowadays.

Labels: book, energy, environment, science

There follows a news story by me from today’s Fund Strategy looking at the recent debate on rising oil prices. Three key reports on the subject have been published this month alone.

A key American government report has concluded that fundamental factors rather than speculation have driven up oil prices.* A task force from the Commodity Futures Trading Commission (CFTC) has reached the preliminary conclusion that: "Current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors".

Over that period, it notes, the world economy grew at its fastest pace for two decades while oil supply growth failed to keep up. Global oil consumption grew by 3.9 percent from 2004 to 2007, driven largely by rising demand from emerging markets. Over the same period production growth from outside the Organization of the Petroleum Exporting Countries (Opec) countries was well below its historical average. Indeed, output from America, Mexico and the North Sea fell over the period. This imbalance between supply and demand is enough to explain the price surge.

Geopolitical unrest in countries with large oil reserves exacerbated the supply shortage still further. These included disruptions in such countries as Nigeria and Iraq and the threat of disruption in Iran and Venezuela. The task force also concluded that futures trading has not pushed up prices. If anything, speculators would have benefited more from price decreases than increases in recent months.

The CFTC's conclusions are broadly in line with those of the International Energy Agency in its recent Medium-Term Oil Market Report (see Fund Strategy, July 7). In contrast, Opec in its World Oil Outlook 2008 argued, as have many prominent American politicians, that speculation is a key factor in pushing up prices (see Fund Strategy, July 14).

* Interim Report on Crude Oil. Available at www.cftc.gov

Labels: America, economics, energy, Fund Strategy

The New Economics Foundation is promoting a Green New Deal which it analogous to President Franklin Delano Roosevelt’s response to the Great Depression of the 1930s. Andrew Simms has also written about it on the BBC website.

Just some of the things wrong with it include:

• The assumption that the world is facing an economic crisis comparable to the Great Depression. I will publish a post on this tomorrow.

• The assumption there is only 100 months to act to deal with runaway climate change.

• The idea that the world is facing a problem of “peak oil”. More on this soon but I am coming to the conclusion that the key driver of surging prices is the lack of investment in energy supply.

• The idea that the problem to energy shortages lies in curbing demand rather than bolstering supply.

• The notion that there is any direct link between environmental problems and the financial crisis.

• The argument that financial problems are undermining the economy. This confuses cause and effect.

Labels: climate, consumption, economics, energy, finance

The following news analysis by me from Fund Strategy identifies the key factors in determining the oil price.

The big debate in relation to surging oil prices is whether speculators are to blame. There is a sharp divide between those who see speculation as a key factor in rising prices and those who point to more fundamental forces.

Before getting to the core of the argument it is worth dealing with the more lurid versions of the debate. This is necessary to avoid arguing at cross purposes.

The first problem is that the term "speculation" has different meanings. For some it conjures up conspiratorial images of evil oil sheikhs and rapacious hedge fund managers playing in a giant casino. But it is not necessary to indulge in such stereotypes to believe that speculation in some senses is going on. In the more sober sense "speculation" means that financial factors other than those related to supply and demand are affecting prices.

Another misconception is that speculation and fundamental factors are mutually exclusive. The key question is which ones, if either, are playing the dominant role.

There are also some factors on which there is a widespread consensus. For example, the weakness of the dollar has played some part in rising oil prices. Since crude is typically priced in dollars, if the American currency falls that alone makes oil more expensive.

Having disposed of some of the key misconceptions it is possible to get to the core of the argument. This involves looking at each of the key factors in turn - demand, supply and speculation - to try to work out the relative importance of each.

Demand: There is an almost instinctive sense among many pundits that rising demand must be the key factor in pushing up prices. Surging economic growth in emerging market economies is seen by some as self-evidently the main cause of rising prices. But it is wrong to make such an assumption before examining the evidence. On the contrary, it is conceivable that rising supply could outstrip rising demand so prices could fall even if more oil is being consumed. Nor can financial factors be ruled out before looking at the facts.

When it comes to examining oil demand it is easier to identify past trends than to predict the future. Peter Davies, until recently the chief economist at BP, said there was no evidence of significant shifts in medium-term growth trends in either supply or demand. In June he told a Lombard Street Research seminar on oil prices that: "The growth rate in demand is not out of the ordinary. There is a steady long-term trend overall."

What seems to be worrying the markets is not past demand but the prospect of a surge. Predictions are always fraught with difficulties, as they depend on assumptions about such things as economic growth rates and energy efficiency, but it looks likely that demand will continue to rise strongly. Although demand from the developed countries could dip in the short term, that from the developing world will continue to rise. The annual report from the Organization of the Petroleum Exporting Countries (Opec) estimates that 90 percent of the increase in global oil demand between 2006 and 2030 will come from developing countries.

Supply: If demand is often the focus of the discussion of the oil price the supply side is often neglected. Yet one should not be considered in isolation from the other.

Few industry experts argue that there is a shortage of oil in an absolute sense (although many environmentalists do). If there is a problem it is not to do with crude in the ground but with the investment needed to harness it.

Much concern is focused on non-Opec production. For example, the growth of Russian oil supplies peaked in 2003 and Mexican oil production is declining. Overall oil exploration rates are declining and fields are running out of oil.
In addition to the exploration and production side of the business it is necessary for oil to be refined before it can be used by consumers. In this respect capacity is not rising as fast as previously expected.

Over time the higher price of oil is likely to stimulate more investment in exploration, production and refining of oil. But such investment takes commitment and can have a long lead time. There could be a significant investment but long time lags are likely.

Speculation: Different sets of experts do their sums on supply and demand in different ways and come up with different conclusions. For the International Energy Agency (IEA) the supply-demand imbalance is enough to account for surging oil prices but for Opec it is not. The key missing element in the discussion is speculation.

Advocates of the importance of speculation point to the huge increase in oil futures trading. This is taken to indicate a rise in speculative activity. But others argue that there is no necessary reason why surging futures trading should affect oil's spot price.

The critics of the speculation thesis also point to other markets, such as iron ore, where prices have surged but there is no speculative market. Another argument is that speculation would be expected to push up inventory levels as those betting on higher oil prices hoarded physical oil. Yet there is no evidence in the available figures that inventories are at unusual levels.

Opec, in contrast, conceded that speculation should push up inventories in theory but points to limitations in the data. It says that lack of data could be hiding such increases. Others have even argued that keeping oil in the ground, rather than pumping it, could be seen as a form that inventories take.

It is not possible at this stage to give a definitive answer on the relative importance of different factors pushing up oil prices. More work on the demand-supply imbalance is necessary before reaching firmer conclusions. But it does look likely that the difficulties in bolstering supply are a relatively underdeveloped part of the discussion.

Labels: economics, energy, Fund Strategy

I have no doubt that the Guardian - and reportedly the World Bank - is wrong in attributing 75% of global food price rises to biofuels. I am sure that that drive towards biofuels is contributing to higher prices but the increases are not caused by the technology itself. The American government is giving huge subsidies to the production of a particularly inefficient form of biofuels (corn ethanol) as a result of its obsession with energy security. More efficient ways of producing biofuels already exist, for example from Brazilian sugar cane, and no doubt better forms will emerge in the future.

Labels: energy, food

The Economist has published a special report on energy in its current (19 June) edition.

Labels: economics, energy

spiked has run two particularly interesting articles on energy over the past couple of days. Both show how the irrational character of environmentalism leads to arbitrary distinctions.

For example, Rob Johnston, a freelance science writer, argues that:

“Try to sink one 15,000 tonne oil platform in the North Sea (as Shell attempted with the Brent Spar platform in 1995) and Greenpeace will vilify you, but announce a plan to plant 7,000 concrete and steel pylons - each weighing 2,000 tonnes - on the seabed and you will be an eco-hero. Pour 60million tons of concrete across the Severn Estuary to build an energy-generating tidal barrage and Sir Jonathon Porritt and his Sustainable Development Commissioners will carry you in triumph through Jerusalem.”

Meanwhile, James Woudhuysen, professor of forecasting at De Montfort university in Leicester, concludes his article by looking at the UK Department for Business Enterprise & Regulatory Reform (BERR):

“BERR’s ‘Energy Group’ of 29 civil servants is enough to cause concern. Just two of them look after ‘Emerging Energy Technologies’ and ‘Cleaner Fossil Fuels & Hydrogen’. The others deal in strategy, planning, bills, market instruments, regulatory framework, consultations, licensing and liabilities.

“In short, BERR is a department devoted to everything - except actually doing something serious about energy supply.”

Labels: energy, spiked

Nuclear fusion is virtually forgotten in the popular discussion of energy yet it offers the prospect of abundant, clean power. For that reason the FUSION NOW! exhibition at the Rokeby gallery in London till 20 December, curated by JJ Charlesworth of the Manifesto Club, is particularly welcome. There is also an accompanying text (PDF) with contributions from Charlesworth, Professor Mike Dunne, Joe Kaplinsky and James Woudhuysen and James Heartfield.

Labels: energy, environment

My comment in the latest Fund Strategy argues that the increase in energy demand should be a cause for job rather than gloom.

The 2007 World Energy Outlook from the International Energy Agency describes the rapid growth in energy demand as "alarming". A better phrase would be "wonderful".

Greater energy use should be welcomed because it is closely correlated with rising affluence. As the world becomes richer it uses more energy. Peasant farmers, with no access to running water or electricity, use little energy. The average westerner, in contrast, uses much more. Unless we are happy for billions to remain in poverty we need to generate much more energy.

Some might object that it is better to increase energy efficiency rather than energy use. But this argument is flawed. Greater energy efficiency leads to more energy use rather than less. The world has become far more energy efficient since the oil crisis of 1973-4 while also using much more energy. What energy efficiency means is that people can use even more energy more cheaply.

Environmentalists will sound dire warnings about climate change and resource shortages. But these too are misplaced. For a start they should recognise that curbing the growth in energy demand means leaving billions mired in poverty. If they are willing for this to happen they should say so openly.

Also there are plenty of technologies that do not emit greenhouse gases or depend on supposedly scarce resources. These include hydroelectric power and nuclear power. Technology for using fossil fuels can be made cleaner too. Other forms of energy, such as nuclear fusion, should also become feasible.

Strikingly it is often those who complain about climate change who most loudly resist other technologies that do not lead to climate change. They warn of the dangers of nuclear power and argue that hydroelectric power damages the environment.

It is hard to resist the conclusion that what such critics really abhor is modernity itself. They would rather the bulk of the population lives in near feudal conditions than have access to modern amenities with the attendant energy use. They already insist we spend inordinate amounts of time sorting through our rubbish and curbing domestic energy use.

Of course the most vociferous environmentalists would not want to live in such conditions themselves. There is no way the Prince Charles or Al Gores of this world will forsake their palaces or mansions. They just favour austerity for the rest of us.

Labels: energy, Fund Strategy

There follows my attempt to grapple with the complex subject of carbon markets in Monday’s Fund Strategy.

Last week's Financial Times investigation into carbon markets raised fundamental questions in an area where the City hopes to become world leader. They go beyond whether manipulation is taking place.

The FT says there are many examples of "carbon credit" projects yielding few if any environmental benefits. Credits are often worthless and do not lead to reductions in carbon emissions. Many companies profit from doing little. And companies as well as individuals are often charged excessively for European Union (EU) carbon credits.

Two factors seem to be behind such alleged malpractices. First, governments have made available a gross oversupply of permits in the official EU market. Wholesale prices for permits have plunged as a result. Second, many of the companies involved in the carbon offset market have minimal expertise and their activity is often unverified.

Such malpractices should not come as a surprise. In the climate of extreme moral righteousness over global warming many people are so desperate to demonstrate environmental credentials they are ripe for manipulation. In addition, the "markets" for carbon trading are not really markets at all. They are the artificial creations of governments that control how many permits are issued.

The problem at the heart of so-called carbon markets is their acceptance of the polluter pays principle. Although this principle has a superficial appeal - individuals or companies should pay for their pollution - it is divisive and damages innovation.

While it is true that industry, for example, can create environmental costs it also generates huge social benefits. Carbon markets create a way of levying a charge on companies for such costs. Yet there is no equivalent mechanism for paying them for the non-commercial benefits that result from their business.

As a result companies have an incentive to be cautious about innovation. New products or production processes will incur environmental costs. Therefore companies hold back on innovations that could have enormous social benefits.

The costs of pollution should be borne by society as a whole rather than individual firms. Since we all benefit from economic activity the costs of dealing with pollution should be managed collectively.

Carbon trading embodies a principle that is divisive and damages innovation. In addition, it is open to manipulation and involves creating "markets" that are entirely artificial.

Labels: climate, economics, energy, environment, Fund Strategy

Decisive evidence that the arch-capitalists of Wall Street have gone green. Private investors who are paying almost $45bn to take over TXU, a Texas utility, have accepted stringent environmental conditions. Instead of building the 11 coal-fired power stations that TXU had originally planned it will only build three. Articles in the Christian Science Monitor and the Economist put this into the context of Wall Street increasingly accepting the environmentalists’ case on global warming. The fact that humanity needs substantially more energy production rather than less does not seem to have entered the discussion.

Labels: climate, economics, energy, environment, technology

Another sign of the shift in the climate change debate towards a “pro-mitigation” consensus (see dispatch of 15 August 2006). Exxon, often reviled by environmentalists, has subtly shifted its position according to todays’s Wall Street Journal Europe (subscription required to read articles):

“The changes in Exxon's words and actions are nuanced. The oil giant continues to note uncertainties in climate science. It continues to oppose the Kyoto Protocol, the international global-warming treaty that limits emissions from industrialized countries that have ratified it. It also stresses that any future carbon policy should include developing countries, where emissions are rising fastest.

“Still, the company's subtle softening is significant and reflects a gathering trend among much of U.S. industry, from utilities to auto makers. While many continue to oppose caps, these companies expect the country will impose mandatory global-warming-emission constraints at some point, so they are lining up to try to shape any mandate so they escape with minimum economic pain.

“Exxon has stopped funding the Competitive Enterprise Institute, a Washington-based think tank that last year ran television ads saying that carbon dioxide, the main greenhouse gas, is helpful. After funding them previously, Exxon decided in late 2005 not to fund for 2006 CEI and "five or six" other groups active in the global-warming debate, Kenneth Cohen, Exxon's vice president for public affairs, confirmed this week in an interview at Exxon's headquarters in Irving, Texas. He declined to identify the groups beyond CEI; their names are expected to become public in the spring, when Exxon releases its annual list of donations to nonprofit groups.”

Labels: climate, corporations, energy, environment, television

An interesting article defending flying as one of the greenest ways to travel in today’s Guardian. Among the arguments put forward by Giovanni Bisignani, the director-general and chief executive officer of the International Air Transport Association:

* Air travel currently accounts for only 2% of global carbon emissions.

* The International Panel on Climate Change estimates the proportion could rise to 3% by 2050.

* Fuel efficiency has improved immensely over the past 40 years.

* European air traffic control wastes fuel because there are 34 different navigation providers.

* 28m jobs and $3 trillion in economic activity (8% of global GDP) would disappear if airline flights were stopped - never mind foreign holidays.

Labels: climate, energy, environment, transport

It looks like good news. Tomorrow ministers from the world’s richest and largest countries are due to sign an agreement to spend huge sums on an experimental nuclear fusion reactor. According to article on the BBC website:

“On 21 November ministers from Europe, Japan, the People's Republic of China, India, the Republic of Korea, the Russian Federation and the United States of America meet in Paris to sign an agreement to construct an international experiment on the scale of a fusion power plant - Iter (International Thermonuclear Experimental Reactor; "the way" in Latin) in the South of France.”

Nuclear fusion is the reaction that powers the sun and other stars. It relies on the fusion of two isotopes of hydrogen - deuterium and tritium – to produce large amounts of energy. If it can be harnessed in a controlled reaction it has the potential to provide huge amounts of plentiful energy for humanity.

Labels: energy

The Economist, often seen as the house journal of free market economics, seems to be taking a dim view of the market and a positive view of environmentalism. Its lead comment, on alternative energy, in the current issue (18 November) says “society should rejoice that greenery is in vogue”. In the same article it predicts that many investors will lose substantial money on alternative energy technology.

No doubt it is true that the market is far from perfect and many investors could lose out on green technology - although it is interesting the Economist’s view of the market is so jaded. But the enormous harm that mainstream environmentalist ideas can do to economic growth is entirely missed.

Labels: energy, environment

There follows a review by me of George Monbiot’s Heat (Allen Lane 2006) from the 13 November issue of Fund Strategy magazine. James Heartfield also did a particularly astute review of the book for spiked.

It is almost possible to feel sorry for George Monbiot. The government's Stern report on the economics of climate change has overshadowed the climate campaigner and Guardian columnist's book on the same topic. The report is more thoroughly grounded in mainstream science and certainly more rigorous in its economics.

Nevertheless, there are reasons why it is worth reading Monbiot's book, Heat, alongside Stern. Whereas Sir Nicholas Stern is constrained by diplomatic considerations - he has to be guarded in what he says as his is a government report - Monbiot can be blunt.

Arguably Monbiot is more honest about the impact of a strategy based on curbing energy demand than Stern. Both Stern and Monbiot argue a broadly similar line, although the details and some of the conclusions they draw are different.

Monbiot's starting point is the incorrect assumption that there is a trade-off between popular prosperity and curbing climate change's impact. His premise leads to the conclusion that austerity and authoritarianism are needed to deal with global warming:

"For the campaign against climate change is an odd one. Unlike almost all the public protests which have preceded it, it is a campaign not for abundance but for austerity. It is a campaign not for more freedom but for less. It is a campaign not just against other people, but also against ourselves" (p215).

If humanity's survival depended on accepting austerity and dictatorship, perhaps these twin evils could be justified. But any such case would have to be incredibly strong since the strategy proposed by Monbiot, apart from anything else, would leave much of the world in dire poverty.

It should not be forgotten that, according to World Bank figures, a billion people still live on less than one dollar a day and 2.7 billion live on less than two dollars. Such poverty has terrible consequences for the health, longevity and well-being of the bulk of the world's population. In addition, rationing and curbing democracy are objectionable in principle.

As it happens, Monbiot's science is rather ropey. His argument that by 2030 the rich countries need to cut carbon emissions by 90% seems to be based on calculations by Colin Forrest, "who is not a professional climate scientist but appears to have done his homework" (p15-16). Monbiot does not say who Forrest is but, judging from a search on Google, he appears to be a member of Friends of the Earth in Scotland.

But even if the 90% figure is correct, it does not follow that Monbiot's strategy is right. Imposing austerity means, by definition, making the world poorer. But the reality is that the richer we are, the better a position we will be in to tackle climate change.

Monbiot is wrong to argue that global warming should be seen as a priority above all others. It is not an isolated challenge but linked to the more general struggle for social progress. Mass affluence is good in its own right, while also enabling humanity to have greater control over nature.

The need for more prosperity is particularly acute in the developing world. Not only would the abolition of poverty be good in itself but it would also put such societies in a better position to tackle global warming. They would have more resources at their disposal and more diversified economies.

But Monbiot uses the poor as an argument for austerity in the West. "By turning on the lights, filling the kettle, taking the children to school, driving to the shops, we are condemning other people to death. We do not see ourselves as killers. We perform these acts without passion or intent" (p22). Such moralising is unhelpful and off-putting.

Contrary to Monbiot's argument, it is both possible and desirable to promote prosperity and tackle climate change at the same time. Indeed, the two are inextricably linked.

The key challenge is to find ways of substantially bolstering energy supplies while controlling greenhouse gas emissions. Fortunately, such technologies already exist. Although no doubt they could be considerably improved, it is already possible to supply far more power with existing technology. Scientists and engineers are in the best position to identify the best mix of technologies, but an outline of possibilities is already feasible.

Nuclear power is likely to play a role. Although care must be taken when disposing of the waste, it has the potential to provide huge amounts of electricity without greenhouse emissions.

Further into the future, it might be possible to generate power from nuclear fusion (fusing together atoms) rather than fission (splitting atoms apart). Fusion's advantage is that its waste is water, not heavy radioactive materials.

Hydroelectric power is another existing form of energy that does not emit greenhouse gases. It has lost popularity in recent years as environmentalists have campaigned against it. But in many places it can provide abundant electricity.

Even fossil fuels can be made more green. Carbon capture and storage means emissions can be removed from power stations that use fossil fuels. They can then be stored underground or under the sea bed.

More prosperity would also provide the resources to help humanity adapt to climate change's effects. For example, Bangladesh could have modern flood defences similar to those already used in the Netherlands. Human settlements could be moved to higher ground if threatened by flooding in their present locations.

Monbiot's misanthropic outlook means he either downplays these possibilities or ignores them completely. He has a dim view of human beings and their capacity to use ingenuity to transform their environment for the better.

Rather than seeing the promotion of mass affluence and tackling climate change as contradictory, they should be viewed as part of the same challenge. The drive for popular prosperity puts humanity in a better position to deal with environmental problems.

Labels: book, energy, environment, Fund Strategy, health, review, spiked

You might think the construction of a £1bn purpose-built clean coal power station would be a cause for celebration among environmentalists. According to a piece in yesterday’s Times a plant which is expected to be built in Teeside will have its emissions syphoned off and stored under the North Sea. However, a spokesman from Greenpeace was quoted as saying:

“This plant will lock us into another 50 years of wasted energy. Like all our outdated, crumbling power stations, this proposed plant will waste two thirds of the energy it generates as thrown away heat.”

Labels: climate, energy, environment

There follows an editorial by me from the 6 November issue of Fund Strategy on green taxes. Mick Hume wrote an article on a similar theme on spiked on 31 October.

The Stern review on the economics of climate change has brought renewed calls for the extension of green taxes. There are several reasons why such a move should be opposed.

For a start they are a restriction on personal freedom. In a free society it should not be up to government to try to influence how much we drink, drive or how many plastic bags we use. As long as we do not harm others we should be free to do what we want. The fact that such arguments are rarely raised shows how widely state intervention into our personal lives has become accepted.

Sadly, many individuals seem to find it acceptable that governments should interfere in our personal behaviour.

Many would counter that such intervention is necessary to "save the planet". But green taxes cannot possibly help to achieve such a grandiose objective.

Green taxes are generally justified on the grounds of reducing externalities. For example, a driver does not incur the environmental costs of his car when he buys or runs it. Green taxes ostensibly raise the price of the car to incorporate these additional costs.

One problem with this argument is that it ignores the fact that externalities can be positive as well as negative. The huge expansion of physical mobility, which cars have played a key role in creating, has enormous benefits.

It means that individuals are no longer largely confined to their local areas. People can drive to work, school, the shops, on holiday or simply for pleasure. Penalising these activities with a punitive tax is undesirable.

In any case curbing demand for energy is the wrong way to tackle climate change. On the contrary, what is needed is a massive increase in energy supply. The richer we are and the more energy we have the better a position we are likely to be in to counter the effects of global warming.

Much of the technology to achieve this objective already exists, although no doubt it could be improved with more investment. Neither nuclear power nor hydroelectric power emit greenhouse gases. Even fossil fuels can be made clean with the use of carbon capture and storage technology.

The rapid economic growth that the investment in such technology could promote would provide further resources to help tackle global warming.

But instead of investing substantially in such technology, the government is likely to take the easy option of imposing a few green taxes.

It is far easier to make grandiose statements on climate change and start taxing the use of plastic bags than take the necessary action to deal with the problem.

Labels: climate, economics, energy, environment, Fund Strategy, spiked, technology

There follows a news analysis I wrote for the 6 November issue of Fund Strategy on the Stern report on the economics of climate change. Rather than taking a polemical line it simply outlines some of the key concepts in the report:

Despite the massive coverage of the Stern review on the economics of climate change, many of its key arguments have hardly been scrutinised. The discussion tends to focus on scary scenarios of what climate change could mean and proposals for solving the problem.

Relatively little attention has been paid to the link between the perceived problem and the proposed solutions. Yet economic reasoning, especially in relation to risk and uncertainty, is central to the discussion.

From the first page onwards there are striking claims that have not been properly investigated. On the first page of the main report the premise of its argument is stated baldly: "Climate change presents a unique challenge for economics: it is the greatest example of market failure we have ever seen."

Such a claim would have been inconceivable a few years ago. In the days of the battle between capitalism and socialism it is hard to imagine a British government report conceding such a massive market failure.

Of course, Sir Nicholas Stern, the main author of the report and a former chief economist at the World Bank, is not advocating the replacement of the market with a socialist society. But his premise leads to the conclusion that intervention is needed to mitigate the impact of climate change.

This market failure takes the form of the existence of massive externalities related to climate change. For the benefit of those who have notstudied economics, an externality is a cost that is not embodied in the price of a good or service. For example, it could be argued that the environmental cost of carbonemissions from a car does not reflect the price paid to purchase and run the vehicle.

Externalities have gone from a relatively marginal concept in economics to centre stage. Both free marketeers and people who would regard themselves as more to the left often see externalities as central to their economic analysis nowadays. The debate tends to be more on how to reduce such externalities rather than on whether they are a useful way to conceptualise the impact of climate change.

From these assumptions the proposals put forward to tackle the problem of climate change follow logically. Stern proposes three sets of measures to mitigate the impact of change:

• Carbon pricing through tax, emissions trading or regulation. The effect of pricing is to make users pay the full costs of their energy use. For example, a green tax could raise the amount spent to run a car in line with the full environmental costs.

• Technology policy involves the use of new forms of low-carbon technology to reduce carbon emissions. For instance, forms of energy such as hydroelectric, nuclear, wind power and solar do not emit greenhouse gases. Technology is also available to capture carbon dioxide - for instance, at power stations - and store it.

• Public education to change behaviour. This includes all sorts of measures to encourage people to use energy in a more frugal and efficient way.

Although it has received little attention the report also sees a role for adaptation in coping with global warming. Such measures could include building modern flood defences and moving human settlements to higher ground. Although such moves would not stop climate change, they would reduce its impact on humanity.

Getting these policies implemented on a global scale is examined as a "collective action problem". In other words, although everyone has an interest in mitigating climate change, individual nations also have an interest in "free riding" on others. Britain, for instance, could bear the costs of tackling climate change while another country could decide to let others take the burden. To examine this question the report enters arcane academic areas such as game theory and the prisoner's dilemma game.

The report suggests several ways to overcome the collective action problem. These include developing a shared understanding of long-term goals for climate policy, building institutions for cooperation and creating conditions for collective action. Building on existing arrangements, such as the UN Framework Convention on Climate Change and the Kyoto Protocol, is seen is an important part of the process.

[Separate article in box]

Change or Catastophe?

One of the most confusing things about the discussion of global warming is the muddling of climate change with climate catastrophe. There is a broad scientific consensus that the earth is warming and that humans have played a role in the process. The idea that we are on the verge of a climate catastrophe is more controversial among scientists.

Even more confusingly, the British government and the Stern review do not agree on the question of climate catastrophe. The government, virtually unnoticed, has publicly committed itself to the idea of catastrophe. Tony Blair, along with his Dutch counterpart, Jan Peter Balkenende, recently wrote an open letter arguing that: "We have only 10-15 years to take the steps we need to avoid catastrophic tipping points."

In contrast, the Stern review uses the scientific notion of feedbacks rather than the popular idea of a "tipping point". It is also far more tentative than the government in its conclusions: "In the future, climate change itself could trigger increases in greenhouse gases in the atmosphere, further amplifying warming. These potentially powerful feedbacks are less well understood and are only beginning to be quantified" (p10). So for the Stern report the existence of feedbacks is uncertain rather than settled.

However, Stern comes to similar conclusions to Blair by invoking the precautionary principle in relation to uncertainty. Although the existence of powerful feedbacks is unclear, it is seen as prudent to act as if the world is facing catastrophe. Therefore, for Stern it makes sense to act as if a catastrophe is imminent even though it may not be. As the report argues: "Uncertainty is an argument for a more, not less, demanding goal, because of the size of the adverse climate change impacts in the worst-case scenarios" (pxvii).

Labels: economics, energy, environment, Fund Strategy, technology

An inspiring look into a possible future for air travel. The BBC website has an article on a plane, developed by the Cambridge-MIT Institute, with a revolutionary “blended wing” design. This shape enables the plane to be far quieter and more efficient than existing models. Sadly the current climate of risk aversion means that the aircraft will take a long time to be developed and it may never be produced on a mass scale. But it shows the potential for developing aircraft technology in a way that does less damage to the environment.

Labels: energy, science, technology, transport

Spiked has published my article on the British government’s Stern Review on the economics of climate change. My piece can be viewed here.

Labels: Africa, climate, economics, energy, environment, spiked

Mark Lynas has a cover story in the New Statesman on the need for carbon rationing which at least has the virtue of logical consistency. Rather than use euphemisms such as “mitigation”, as many environmentalists do, he is explicit in his demand for austerity. Like George Monbiot and Joss Garman – between them the three run the turnuptheheat website – he argues that the need for austerity is given by the science of climate change:

“Defeating global warming must be our priority today, or we will lose this war, and with it our very existence as a civilisation.

“At an international level, some variant of rationing is nothing less than a mathematical inevitability.”

What this misses, among other things, is that there are alternatives to rationing. For example, nuclear power and hydroelectric power do not emit greenhouse gases. Carbon sequestration can take carbon dioxide out of the atmosphere. We can adapt to the effects of climate change by such measures as building modern flood defences. Over the long-term there are also other possibilities such as geoengineering (weather modification) and nuclear fusion as a source of energy.

In any case it should not be taken as given that the worst case scenario in relation to climate change put forward by Lynas is correct. In addition, it needs to be remembered that rationing would literally leave billions of people mired in poverty.

Labels: climate, energy, environment

Some interesting views from the oil industry on why the world is unlikely to run out of crude. Abdallah S Jum’ah, the president and chief executive of Saudi Aramco, gave several reasons why oil supplies are likely to last another 140 years at present rates of consumption. In a speech to the third international seminar of the Organisation of Petroleum Exporting Countries (Opec) on 13 September he outlined how technological development is bolstering oil production:

• Computer power is increasing rapidly. This makes the exploration and production of oil more efficient.
• Oil recovery rates from known fields are improving.
• Exploration and production costs are falling. It is becoming easier for oil companies to operate in deep-water, extreme cold and other difficult conditions.
• Unconventional oil resources are being developed including extra-heavy oil, tar sands and bitumen.
• Advanced technology is lowering the environmental costs of oil production.

Similar points were made by Rex W Tillerson, the chairman and chief executive of Exxon Mobil, in a speech on the same day.

Labels: economics, energy, environment

One of the things I intend to do in my book is to use economic history to show readers how much the world has benefited from growth. In that respect the work of Brad De Long , a professor of economics at the University of California at Berkeley and a former Treasury department official, is useful. His semi-daily journal outlines the key readings for his economic history courses. One of the most interesting is The Conquest of Nature, an introduction to world economic history by Greg Clark. The introduction has a graph showing global output per person stagnant until about 1800 and then rising sharply after that.

De Long also includes a references which reminds me how degraded the discussion of economic growth has become. It includes a 1987 article by Jared Diamond , an environmentalist and best-selling author, arguing that the agricultural revolution was a mistake. Apparently we were all better of as hunter-gatherers.

Labels: energy, growth, progress