Cop out in Glasgow

Greta Thunberg and The Queen may represent different ends of the age spectrum but in recent days both have expressed irritation that world leaders talk a lot about preventing climate change but do little about it. They have a point: The science of climate change has been known for a long time and economics offers solutions to mitigate the problems. Perhaps understandably, politicians are not willing to inflict on voters the costs required to fully price carbon emissions but it is a debate that societies around the world urgently need to have – and should have been having at least 20 years ago.

The scale of the problem has been known for years

Climate change is just one branch of a field of environmental science that has mushroomed in the past 50 years. The science behind climate change has been known since the nineteenth century but it was not until the early 20^th century that the first attempts were made to assess the impact of man-made activity. Efforts in the 1930s to calculate the future effect of rising CO₂ emissions on global temperatures turned out to be hopelessly optimistic because they underestimated the impact of economic growth[1]. However, in the 1950s, the physicist Gilbert Plass estimated that CO₂ concentrations would rise by 30% over the 20^th century and warned that temperatures would increase by 1.1^oC[2]. Although his calculations did not take into account some of the factors which we know today, his estimate that a doubling of CO₂ emissions would raise global temperatures by 3.8^oC is not far off today’s consensus estimate of 3^oC. Rather more disconcertingly he pointed out that if all known (at the time) fossil fuel reserves were burned, this would raise global temperatures by 7^oC.

Much of the early work remained within the narrow confines of the scientific community but the political agenda began to take note in the 1960s and 1970s, triggered initially by resource concerns. The environmental lobby was radicalised by the publication of Silent Spring by Rachel Carson in 1962 in which she highlighted the effects of agrochemicals on the environment. In 1968, the ecologist Garrett Hardin published his famous article in Science titled The Tragedy of the Commons, in which he argued that individuals acting in their own self-interest would result in sub-optimal social use of natural resources. It was around this time that modern environmental economics started off as a fringe discipline but by the mid-1970s it was rising very rapidly up the agenda.

It is not the intention here to go into any detail on the history of environmental economics. Instead, interested readers are referred to the literature review by David Stern and his co-authors, published in 2014. It is, however, worth highlighting the work of William Nordhaus and Nicholas Stern (no relation to David). Climate issues were first subject to economic analysis in the 1970s and by the 1980s Nordhaus[3] was producing scenario analysis and projections for future CO₂ emissions. Nordhaus can lay claim to being the most preeminent economist working on climate issues and he was awarded the Nobel Memorial Prize in Economic Sciences in 2018 for his work in the field.

One of the most important early policy works was the 2006 Stern Review. Although it met with a mixed reception from economists, it was highly influential and argued that climate change represented a major market failure. One of the basic recommendations was that the benefits of strong, early action far outweigh the costs of not acting and it proposed a number of economic solutions, including the application of environmental taxes, to correct for some of the failures.

Why has it taken so long?

In light of all this the fact that we find ourselves at “one minute to midnight on that doomsday clock”, to quote Boris Johnson at the opening of the COP26 summit in Glasgow, represents a potentially catastrophic policy failure. The summit is being touted as “humanity’s last and best chance to secure a liveable future amid dramatic climate change” and “as one of the important diplomatic meetings in history.” It comes six years after the Paris Agreement when 196 countries signed a legally binding treaty pledging to hold global temperatures no higher than 2^oC above pre-industrial levels, with an aspiration to limit the rise to 1.5^oC. However, Earth’s temperature has risen by 0.08°C per decade since 1880, and the rate of warming over the past 40 years is more than twice that: 0.18°C per decade since 1981 (chart below). Simply put we are running out of time to limit the temperature rise, if we have not done so already.

Although the Paris Agreement imposes binding constraints on countries’ carbon emissions, just three countries account for more than 50% of global emissions (China: 30%; US: 14% and India: 7%). For the record Europe accounts for 11%. However, whilst global CO₂ emissions rose by 59% between 1990 and 2019, European emissions fell by 25% (largely thanks to Ukraine); US emissions were broadly flat whilst those in the Asia Pacific region rose by a whopping 220% and the region as a whole has accounted for 92% of the increase in global emissions since 1990 (chart below).

Whilst the likes of Greta Thunberg rail at politicians in Europe and the US for not doing enough, it is China and India which have done so much to change the carbon balance. This is not to say that the industrialised world should not do much more – after all, a significant portion of Chinese emissions can be attributed to production for western consumers – but it is clear that so long as the rapidly industrialising economies in Asia continue to rely on fossil fuels, the prospect of limiting global carbon emissions appears remote. With Chinese leader Xi Jinping not expected to attend the Glasgow summit, the likelihood that COP26 will result in a global climate deal is next to zero.

What should happen at COP26?

The scientific consensus suggests that greenhouse gas emissions need to fall by anywhere between 25% and 50% over the next decade in order to have any chance of limiting the global temperature rise to 2^oC. This is arguably impossible in the absence of a carbon tax. According to the IMF around 80% of carbon emissions are unpriced and the global average emissions price is only $3 per ton. However it reckons that a three-tier price floor involving just six participants (Canada, China, EU, India, UK and US) with prices of $75, $50, and $25 for advanced, high, and low-income emerging markets, respectively could help achieve a 23% reduction in global emissions below baseline by 2030.

What is likely to happen?

Rather than such a grandiose plan COP26 is likely instead to result in a series of smaller resolutions, all of which mount up to something positive. The US commitment to supporting the Paris Agreement runs counter to the ill-judged actions of Donald Trump. There has also been a commitment to halt global deforestation over the next decade.  Even India has pledged to cut carbon emissions to net zero by 2070. Whilst this is the first time India has made such a commitment, it is not ambitious enough and it was hoped that COP26 would agree a global carbon neutral pledge by 2050. Here lies the nub of the problem as outlined by Garrett Hardin over 50 years ago: Nations acting in their own interest make the global problems worse. Whilst India does have a point that the industrialised nations need to do more because they have contributed far more to emissions over time, India also has a moral duty to its future generations to adopt the new technologies at a faster rate than currently planned – even China is aiming for net zero by 2060 (though China needs to do a whole lot more as well).

The simple truth is that politicians around the globe – and by extension, we the people – have been slow to recognise the need for change and are unwilling to pay the economic price for the action required. I hope I am wrong in my assessment that in 10 years’ time we will still be having the same debate. But with many countries having failed to turn the tanker around in time (the EU plus UK to some extent excepted), I fear that climate issues will get a lot worse before they get better. Still, I blame the dinosaurs. If they hadn’t got themselves fossilised, maybe none of this would have happened.

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[1] Callendar,  G. S. (1938) ‘The  artificial  production  of carbon  dioxide  and its  influence  on temperature’,  Quarterly  Journal of the Royal  Meteorological Society 64: 223-240

[2] Plass, G. N. (1956) ‘The carbon dioxide theory of climatic change,’ Tellus 8(2): 140-154 (here)

[3] Nordhaus, W. D. and G. W. Yohe (1983) ‘Future paths of energy and carbon dioxide emissions’, in T. F. Malone (ed.) Changing Climate: Report of the Carbon Dioxide Assessment Committee, National Academy Press, Washington DC. Chapter 2.1: 87-152

Automotive for the people

In 1979, Gary Numan had hits with two songs which topped the charts around the world: Are Friends Electric and Cars. Almost forty years later, societies are asking themselves whether electric cars are their new friends as policy makers in France and the UK propose a ban on the sale of petrol and diesel vehicles by 2040 in order to encourage the sale of electric vehicles.

According to the IEA around 17% of global CO₂ emissions derive from road transport – a figure which rises to 19% in non-G20 countries (see p35, here). It is thus understandable why governments want to take action. But there are lots of issues which need addressing before we accept that this is a “good” policy, and I do wonder how much of this policy has been thought through. For one thing, it will take action by more than just the UK and France to have much impact on global CO₂ emissions. When the US and China follow suit the policy will have a lot more resonance – or if it were an EU wide initiative, it would make more sense.

The big issue at the heart of the debate is that electric cars are simply not as green as many proponents would have us believe. Sure, they emit less CO₂ but the electricity to power them has to be generated somewhere and if all we do is build more coal-fired power stations it rather defeats the object. It is unlikely, of course, that the government would permit a return to coal, so how will we generate the additional power? Let us start by trying to understand the scale of the problem. The National Grid recently estimated that raising the number of electric vehicles could increase peak UK electricity demand by 8 gigawatts (GW). That is the equivalent of building three new power stations the size of the much-disputed Hinkley Point nuclear station. Admittedly, this does represent an extreme case, with greater use of off-peak charging likely to mitigate the scale of the problem, but it nonetheless makes the point that putting more electric cars on the road requires building more generating capacity.

Having determined that the UK will require up to an additional 8GW of electricity just to keep our cars on the road, how will we generate it? We could simply build another three Hinkley  Point-type nuclear stations, but given all the concerns regarding their cost – not to mention the perennial problem of how to get rid of the waste – this would be highly controversial. We could add more wind turbines but it would mean raising capacity by 50% and we all know how intermittent wind power can be. Solar is probably a non-starter in the UK. However, tidal may be an option with a barrage across the River Severn – which has the second largest tidal range in the word – potentially capable of generating 8GW at peak flow, which would be operational for 8 hours per day, according to a 1989 study. It would be costly (up to £34bn on one estimate, which is almost double the cost of one Hinkley Point) but potentially feasible.

So let us assume that we can generate the electricity. What about the technology – is it good enough to supersede the internal combustion engine?  Only this week, Tesla handed over its first Model 3 which costs $35,000 and has a range of 220 miles (350 km) – about one-third what a larger diesel-engine vehicle is capable of delivering. A longer range version will do 450km on one set of batteries but it costs a third more and is still more limited than cars can do today. In order to manage a 900 km journey across Europe, the standard model requires two charges which, given current battery technology, is not going to be a quick process. Perhaps we could swap over the battery rig, with fully-charged batteries replacing the old ones. This would mean making a couple of quick stops whilst the batteries are swapped but it is not dissimilar to the current process of refilling our cars at a filling station. So far, so possible (at least not too impossible).

But what happens during the transition process towards our 2040 cut-off point? Relatively few people will want to buy a new petrol or diesel car after 2030 given the lack of resale value, so we will need to see significant advances in electronic car technology by then in order to convince people that the transition will happen. That is just 13 years away. And will there be a scrapping scheme to help individuals make the switch (that will be costly)? Will car companies be able to ramp up production to meet likely demand – the likes of Ford argue that Tesla will struggle to increase production on the scale required?  Indeed it is possible that until many of these questions are answered, many Brits (and French) will act like the Cubans by keeping their old cars on the road for longer than they would otherwise do (assuming that petrol stations are not phased out). And how will the oil companies respond? How will governments fill the revenue gap left by the fall in fuel duty which they currently levy on the motorist?

One standard response to these objections is to cast your mind back to 1994 to a pre-internet age when many of the things we take for granted today seemed like science fiction. But the difference is that the technology evolved, and was not imposed upon us. We can still go down to the High Street rather than rely on Amazon deliveries, but the policy as currently portrayed is a bit like abolishing the practice of letter writing in favour of email. Clearly, there are more questions than answers.

Most people are prepared to do their bit to help save the planet but we need a properly thought out response to the questions raised. Announcing a plan then saying we will work out the details as we go along is not a sensible policy strategy. Let us not forget that in the UK, it was new environment minister Michael Gove who announced the death knell of vehicles fuelled by carbon. This was the same man who was fabulously short on detail as to how Brexit would work. There again, he can always go back to his team of experts to help him out – if he hasn’t had enough of them.

Trump's climate clanger

Although much of the current media attention is focused on Donald Trump’s rather unfortunate comments in the wake of the latest London terror attack, his decision last week to withdraw the US from the Paris Agreement on climate change was a much bigger deal. To recap, the agreement was drawn up in the first place in a bid to limit global greenhouse gas emissions in order to curb the rise in global temperatures and thus prevent some of the worst effects of climate change from causing even more environmental damage. There are 195 signatories to the treaty, with only Syria, Nicaragua and the Vatican not having signed up. However, the US decision to withdraw not only drives a coach and horses through global cooperation efforts on climate change, but it raises question marks against the commitment of the US to a whole range of international agreements.

Turning first to the climate issues, I am not a climate scientist so I am bound by the consensus of expert opinion which has done the work and drawn the conclusions. What everyone agrees on is that the earth is warming rapidly – global temperatures are around 2 degrees higher than when measurement commenced in the late nineteenth century. We also know that the amount of carbon dioxide in the atmosphere is at unprecedented levels (see chart, courtesy of NASA). 

The Intergovernmental Panel on Climate Change (IPCC) reckons that “anthropogenic greenhouse gas emissions … are extremely likely to have been the dominant cause of the observed warming since the mid-20th century.” Note that it does not say with 100% probability that climate change is man-made, but “extremely likely” is the sort of language scientists use when they are fairly sure. It may be that they are wrong, but until such times as the world’s most reputable scientists change their minds I’ll go with what they know, rather than wwhat various interest groups believe to be true. And even if the scientists are wrong, it is a better insurance policy to take offsetting action rather than ignore them and find out they were right.

The science of climate change also suggests that global warming will have significant impacts on weather patterns, crop growing cycles, access to water and has the potential to disrupt the way we live our lives (for an overview of all these issues, see the Stern Review, which reported in 2006). As Stern pointed out, climate change “entails costs that are not paid for by those who create the emissions … Questions of intra- and inter-generational equity are central. Climate change will have serious impacts within the lifetime of most of those alive today. Future generations will be even more strongly affected, yet they lack representation in present-day decisions.”

Trump’s decision is the ultimate in short-term thinking designed to satisfy a tiny proportion of his country’s electorate whilst ignoring the wider consequences for their children (viz the wonderful response by Emmanuel Macron to Trump’s decision). Quite what better deal Trump has in mind for American workers by pulling out of the agreement is hard to fathom. After all, there are fewer people employed in coal mining in the US than in the green tech sector so it is not exactly a rational response to domestic issues. It is also a wider abrogation of duty to the rest of the planet, for as Stern also pointed out, solutions to the climate change problem require a global response.

There is thus general agreement that Trump’s strategy is self-defeating with regard to climate issues. But an equally serious concern is that an America first strategy runs counter to the rules-based system which underpins the world economic architecture and which has served the US so well for the past 70 years. An America which does not adhere to the treaty commitments to which it has signed up cannot expect others to play by the rules which the US flagrantly ignores. It may “only” be climate change, the implications of which will not become fully evident until after Trump is long gone, and in any case the US can always sign up again under a different president. But can the US expect all countries to adhere to the rules on global trade if for some reason it does not suit them? To what extent can the US’s military allies in Asia or Europe rely on its support?

International diplomacy is a game of give and take. Unfortunately, Trump appears to see it as a game of winner takes all. Moreover, he has not yet demonstrated that he understands the notion of cooperation on global issues (not that the British government is in any position to cast aspersions). But if Trump has any pretensions to providing leadership on a global scale, the climate change policy needs to be rethought. Future generations of voters may thank him for it.

The haze of regulation

Having posted previously on the subject of incentives (here), and how important it is to ensure they are set correctly in order to avoid unintended consequences, the recent spate of warnings regarding pollution levels in London over the winter months brought the issue to mind once again. There are many contributory factors to high pollution levels in urban areas with climatic conditions exacerbating the problems caused by central heating systems and wood burners (one of the recent scapegoats). But one of the factors rising up the worry list in London is the problem caused by emissions from diesel engines (see chart).

Ironically, it is not long ago since diesel engines were hailed as the great new clean technology which would save us from the choking carbon dioxide emissions of petrol engines. Beginning in the early-1980s, UK excise duties on diesel were set lower than those on petrol, though since the late-1990s they have remained the same as those on unleaded fuel. From a fuel consumption perspective diesel engines are more efficient than their petrol equivalents, so even if the duty per litre is the same, the tax paid per mile (or kilometre) travelled is lower for diesel than for petrol. Successive governments were happy to encourage the switch to diesel engines because – we were told – they emit less carbon dioxide than petrol, and this switch was seen as one of the arrows in the quiver designed to reduce CO₂ emissions in line with international agreements. Unfortunately, diesel engines emit more nitrogen oxides and small particulate matter, which is even worse for human health than CO₂. Moreover, the evidence appears to suggest that their average CO₂ emissions are no better than petrol engines.

The chemistry associated with the burning of diesel is not new. So how is it that governments across Europe have encouraged this trend? According to the academics Cames and Helmers (here) one argument is that “the European oil industry co-initiated the shift to diesel cars in the 1980s and 1990s in order to find outlets for middle distillates” which had collapsed as natural gas displaced heating oil as a fuel used in electricity generation. In addition, the increased use of nuclear power for generating purposes further increased the downward pressure on distillate demand.  Whatever the reason, across most European countries, diesel cars received favourable tax treatment at the expense of petrol-engined cars. If governments were indeed using the switch as a cover to promote the need to reduce CO₂ emissions it was at best misleading, and if the claims advanced by Cames and Helmers are true, it points to collusion between the interests of the oil industry and government.

This goes back to the point I made recently (here) about how there is evidence to suggest that interest groups can have undue influence over government policy which may not always be in the best interests of voters. Perhaps the most egregious example of this is the policy towards obesity in the western world. It has become accepted wisdom that the problem is caused by too much fat in the diet. However, as long ago as 1972, a scientist called John Yudkin wrote a book claiming that there is a clear correlation between the rise in heart disease and a rise in the consumption of sugar, and questioned whether there was any causal link between fat and heart disease. But the food industry struck back, led by a scientist called Ancel Keys who – aided and abetted by the sugar industry – proceeded to discredit Yudkin’s work. However, the work spearheaded in recent years by prominent scientists such as Robert Lustig, suggest that Yudkin had been right all along.

This was not a simple academic spat: It was an issue of fundamental scientific importance with implications for human health. It also highlights the problem that if a particular interest group funds research which is unequivocally accepted by government, and is used as the basis for public policy, there is an incentive to distort the research to ensure the desired outcome. I am not endorsing the claims of Cames and Helmers with regard to the influence of the oil industry. But the very fact that it has been hinted at indicates that the line between genuine scientific research and that conducted for ulterior motives is at best blurred.

As it happens, European countries have a pretty good track record in preventing dodgy research from slipping through the net – think of the good work done by the drug regulatory authorities. However, it is crucial that these high standards are maintained, which is something else for the UK government to think about as it embarks upon Brexit. And as the diesel and sugar episodes remind us, it is also important to think about the longer-term effects of today's policy choices. Failure to think long-term can - quite literally - be fatal.