Archive for Economics

Review of The Carbon Crunch by Dieter Helm

Climate change is speeding up, exceeding the worst predictions of the IPCC. The arctic could be ice-free in summer within five years.  Without ice, the sea warms up more quickly, melting the undersea tundra, and releasing huge quantities of methane into the atmosphere.  Methane is a much more powerful greenhouse gas than carbon-dioxide.  We may  already have reached the tipping point beyond which lies catastrophe.  Two degrees of warming is inevitable, but six degrees, by the end of this century, is a real possibility — a level which threatens the continuance of our species, but if humanity does survive, there will be far fewer of us, living in very changed and worsened conditions on far less of the planet’s surface.

International attempts to tackle the problem have failed utterly. Emissions keep going up.  We Europeans were apt to be smug because we were meeting our Kyoto targets, but that had nothing to do with the EU emissions trading system, which is dead in the water. Our emissions went down because of de-industrialisation. If we take into account the carbon emitted in the goods we import, then UK emissions have gone up by around 20%. The conferences at Copenhagen and Durban were a disaster.  To quote Dieter Helm:

“what was ‘agreed’ was that the parties would try to agree by 2015 what they may do after 2020.  This really would be hard to make up!”.

So what is the way forward?  Is there a way forward at all?  Helm thinks there is and that is one reason to read this book. Another reason is if you are unsure how shale gas fits into the picture.  As a relatively low carbon fuel does it buy us time, or is the environmental cost too high? And finally, Helm is reputed (according to Simon Jenkins) to have the ‘ear of the Treasury’, which in itself makes what he has to say interesting.

Dieter Helm, Professor of Energy Policy at Oxford, has written extensively on climate change, but this is his first book for the general reader.  If he wanted to reach a wide audience, it was possibly a mistake to be so politically partisan, particularly in the early chapters. His centre-right perspective may give him more leverage with Conservative politicians, but it is off-putting if, like me, you are not so committed to one side of the political divide. While he painstakingly teases out the different strands of Conservative thought (basically Roger Scruton’s traditional Conservatism = good, Neo-Cons = regrettable), he has Scruton’s tendency to lump everyone else  together, as impossibly idealistic and often authoritarian socialists. Contrast Helm’s sympathetic treatment of  Nigel Lawson who, he tells us “found it hard to get his book on climate change published, even though he accepted that climate change was likely to occur” (and also showed a profound lack of understanding of the science, questioned whether climate change was in fact occurring, asking whether a 3 degree rise really mattered, called for the IPCC to be disbanded, and set up a climate change sceptic organisation), with Helm’s treatment of John Sauven, who is labelled intolerant for calling the delegates to Copenhagen ‘criminals’.  Although I’d agree that Greenpeace is  often intolerant,  an exhausted and frustrated lobbyist lapsing into hyperbole at the end of the Copenhagen debacle is not the best example.

Because solutions to climate change are long term, any realistic strategy must command  a large degree of consensus across the political spectrum. It would have been helpful for Helm to acknowledge the heterogeneity of environmentalism. They are not all socialists who want to ration carbon worldwide to one tonne  per person per annum. Helm thinks that almost everything  done so far has been either useless or counter-productive, but he would not have difficulty finding environmentalists who agree with his criticisms: nuclear is needed — ask Mark Lynas; wind turbines are an expensive irrelevance — try James Lovelock; solar power also —  George Monbiot agrees; carbon emissions trading has failed, and we need a carbon tax — widespread agreement; coal is the main problem — over the pond, James Hanson has been shouting it from the rooftops for years; insulating people’s home may reduce fuel poverty but won’t reduce emissions — try the Canadian Mark Jaccard, and so on.

Helm proposes a three-fold strategy to set us on the right track. Firstly we need shale gas as an interim transitional fuel. He stresses that extraction must be properly regulated (he is, unsurprisingly, pro-nuclear, but doesn’t see it making a significant contribution for another 20 years).  Secondly we need a carbon tax, charged at the point of consumption not production, which would include a tax on imports. Thirdly we need a major programme of R&D, funded by the carbon tax,  to find technological solutions.

I’m not competent to make a detailed critique of what he proposes, but there is one glaring problem — that of persuading  the public, and governments, that carbon taxes are necessary.  Recent history is not encouraging.  In the UK the Labour government was forced to back down on road charging.  In Canada, the Liberal Party’s ‘Green Shift’ manifesto, which proposed a carbon tax, lost them an election. In the current US presidential race neither candidate dares even mention the subject of climate change. Helm is critical of leftist greens for making politically unachievable demands. but on the other hand, he is critical of governments for misleading the public by telling them that we can tackle climate change without any cost.  He wants politicians to come clean and admit that it will cost money and jobs, and cause a drop in standard of living for us all. Given the public reaction to austerity budgets, what chance is there that any government that tries to impose a carbon tax will stay in power?

To allow import taxes on carbon, Helm proposes WTO rules should be amended if necessary.  How many decades would it take to get international consensus for that?

If Dieter Helm does have “the ear of the Treasury”, I’d love to be a fly on the wall  to hear the conversation. It follows from Helm’s position that Britain should vote to implement the EU Fuel Quality Directive.  I hope he points that out, and the government listens. It is a small thing, but something they can do without angering the electorate.

For a more informed review than mine — by development economist Simon Maxwell — see here.

The Carbon Crunch by Dieter Helm - link to Amazon.co.uk

Leave a Comment

Chris Huhne and Shale Gas

I am neither for, nor against, the exploitation of Britain’s shale gas.  I haven’t made up my mind yet, but I think the issue is more complicated than the way it was put by Chris Huhne in The Guardian this week.

There’s the question of whether shale gas is a lower carbon fuel than coal.  There have been two studies by Cornell university which contradicted each other, one showing that shale gas had  higher greenhouse gas emissions than coal, the other that the emissions were half.

This matters.  Firstly,  there’s James Hanson’s argument that to prevent dangerous climate change, we cannot afford to take all the fossil fuels out of the ground. Therefore it makes sense to leave those with the highest carbon content, which means leaving the unconventional oils and coal. So the difference between a carbon content higher than coal and one half of coal, is the difference between leaving it in the ground, and exploiting it.

The level of emissions also affects the viability of using CCS, that is carbon capture and sequestration. In his article Chris Huhne advocates the use of CCS with shale gas.  So far, pilot CCS projects such as the one at Sleipner  seem to be showing that CCS is possible but expensive.  It is only economically viable for fuel sources with relatively low CO2 content (at Sleipner the natural gas has 9.2%), and in combination with a carbon tax. So, if shale gas actually has higher emissions than coal, then it is probably not viable, even with CCS.

Chris Huhne’s article did not mention the question of water use and possible pollution of aquifers.  Possibly he accepts the reassurances of the energy industry on this issue. Personally, I don’t know who to believe. On the one hand, I accept that the campaign against shale gas in North America is characterised more by hyperbole than hard facts, but I’m equally skeptical about the statements from the energy industry.

What concerns me most is the way we seem to be rushing to exploit our shale gas reserves.  It’s not as if the gas is going anywhere, and getting this decision wrong could have serious environmental effects for the UK. I’d like to see a slower and more considered approach; preferably a public enquiry to report on the viability of exploiting the reserves, economic, environmental and otherwise.

Leave a Comment

Executive Pay

I’ve just listened to Any Questions, broadcast from the kleptocracy they call Great Britain, discussing the question of executive pay, in the light of the 50% rise enjoyed by the leaders of Britain’s failing companies this year.  Much hand-wringing from the panel, but of course “it is difficult to see what can be done” (I think it was Jeremy Browne who said that).  Same reaction as the government.  In fact, something could be done.  We impose minimum pay levels on employers by law, why not maximum pay levels?

What is the obstacle?  We’re always being told that we have to tread on eggshells not to upset the titans of industry, for fear of losing their talents, but what is wrong with demanding that they actually show some talent before they reap the rewards? We’re told that shareholders won’t question the pay awards, however unjustifiable, because that would cast doubt on their confidence in the company.  If that’s so, then it makes sense to make executive pay dependent on performance, by law.

I’m feeling the same anger that millions of other British people must be feeling today. What happened to the idea that the misery should be shared?

29th Oct, altered Question Time to Any Questions (which isn’t available in Canada).  Got my Dimblebys muddled up.

Comments (4)

Economics

One day last week I sat down to watch a debate on the world financial crisis on BBC World News, featuring half a dozen world class economists on stage and a lot of other experts in the audience. About half way through, I realised that the only feature of the programme I was engaging with, was Christine Lagarde’s elegance, and in particular the mystery of how a woman over 50 endures 4 inch stilletoes, or why she wishes to do so.

It’s not that I don’t understand what is being said by economists, but I do have difficulty engaging critically with the debate and making up my mind who is right and who is wrong. Also the questions I really want answered are not the ones that ever get discussed.  So, here they are, and maybe someone will provide me with the answers:

First – inflation.  You keep telling me that the aging population is a problem.  Us baby-boomers are going to be making increasing demands on the economy.  But, us baby-boomers are currently looking aghast at our life-savings devaluing by the day, which means we are going to be even more of a drain on public resources in the future.  So, how can QE, which is printing money, which creates inflation, be a good thing? When our government prints money they just give it to the banks who sit on it, or give it away in bonuses, anyway.  I get the point that inflation will magic away a large chunk of the national debt, but it will also create a lot of state dependent people, who will make it more difficult to keep our deficit down in the future.  So, what is actually achieved in the long run?

Second — deflation.  Before I started getting fixated on Christine Lagarde’s shoes, I heard her say the real danger was deflation, and go into  her “lost decade” routine.  I understand this deflation prediction is based on the idea that history repeats itself, specifically the nineteen thirties, or Japan’s “lost decade”. I’m sceptical. The nineteen thirties did not have diminishing oil  and other mineral reserves.  It had a smaller world population, and not the same pressure on food prices. It did not have massive economic growth in China and India competing for resources. It did not have climate change creating costly weather catastrophes. All of those factors seem inflationary to me.   So, please explain why you think we are about to revisit the nineteen thirties?

Third – deflation again.  Why is deflation bad?  People put off purchases because they think stuff will be cheaper if they wait. That acts as a drag on economic growth.  Anything else? Because I can think of a few advantages.  Such as, all those baby-boomers, me included, would recoup the savings they have lost and be able to support themselves in their old age. Housing would get cheaper and more affordable for first time buyers. A combination of lower prices and lower consumption should mean that the level of household debt, which has been at unsustainable levels, will fall, but by being paid off instead of magicked away. Of course, it also means us baby boomers losing out on the value of our homes, but that seems a reasonable quid pro quo to me.

Fourth — growth.  The IMF’s global forecast of 6.4% in developing countries and 1.6% in advanced economies, doesn’t seem that terrible to me.  It certainly doesn’t look like the crisis of capitalism, that  Marxists seem to think it is. There is a strong argument on environmental grounds for reducing the pace of  growth in the advanced economies (which only averages 2.5% in the UK anyway). What happened to the idea that we should stop measuring a country’s success by GDP?  Apart from the economy, we have an environmental crisis caused by the failure of the advanced economies, notably the USA, to develop meaningful strategies for combating climate change. Surely a decade in which emissions are restrained by sluggish economies might be a good thing in the long run?

Comments (2)

Bookmark from the original Age of Austerity

My husband has just found this bookmark in  his first edition of Karl Popper’s The Open Society and Its Enemies (pub. 1945):

Ian habitually overfills the kettle. I’m hoping this bookmark from the original age of austerity will have more effect than my nagging has done.

Leave a Comment

Easy Questions

I’ve just listened to the BBC Radio 4 Analysis programme on Radical Economics, which mostly involved sane people.  However, there was one economist interviewed about her research, who explained that she’d wanted to ask people a question about their finances they could easily understand, so she asked them: if their mortgage was an animal, what would it be?

Oh, I dunno.  A Bactrian camel, because my mortgage has bad breath?  My pension fund, on the other hand, is definitely an African grey parrot, while my current account is probably a Thompson’s gazelle. By now I’ve backed out of the room, so I can make a sprint for safety.

According to the economist, she was reassured that most people named a domestic animal, which she interpreted as meaning that they regarded their mortgage as safe and manageable (and presumably nicknamed it Tiddles).  On the other hand it could be, that being asked a daft question, they reached for the most familiar animal to them and said cat or dog.  I bet more country dwellers than town dwellers said cow.

Leave a Comment

Follow

Get every new post delivered to your Inbox.