There's not really $22 trillion in savings from giving cities lots of money


Another day, another new report on how if we just spend squillions on pet schemes then more than squillions will be saved and we'll all become rich! As reported:

Putting cities on a course of smart growth – with expanded public transit, energy-saving buildings, and better waste management - could save as much as $22tn and avoid the equivalent in carbon pollution of India’s entire annual output of greenhouse gasses, according to leading economists.

So, to the report itself:

Even with this focus on the low-carbon options that could be adopted or promoted by local government, and with conservative and time-limited estimates of costs and benefits, the analysis finds a compelling economic case for significant low-carbon investment in cities. In the “medium” scenario, the gross global costs of these investments would be US$977 billion per year in 2015–2050 (equivalent to 1.3% of global GDP in 2014), but they would reduce annual energy expenditure by US$1.58 trillion in 2030 and US$5.85 trillion in 2050 (see Table 2 for further information).

Well, yeees. We would rather like to see this benchmarked against the predicted costs and benefits of earlier schemes and their out turns. Given the rather large variance between predictions and outcomes we're not convinced that a 1.5 return is enough to span the gap on what people have been given the money to do so far. But we're afraid that this report does get worse than this:

Beyond those built into the International Energy Agency (IEA) 4DS scenario, this estimate of carbon saving potential does not take into account rebound effects, where savings from improved energy efficiency are used to access more energy services rather than to achieve energy demand reduction.

Ah, yes, so we're aware of the Jevons Paradox, where greater energy efficiency leads to greater energy use because it's cheaper, but we've decided not to include it because it makes our sums look bad. And:

While we must acknowledge potentially significant opportunity costs,

They don't include any opportunity costs at all in their calculations, that is their full acknowledgement. And an economic report that doesn't consider the most important part of economics isn't worth the paper this report isn't printed on, is it? Finally:

The main findings are based on a central or “medium” scenario where real (i.e. after inflation) energy prices rise by 2.5% per year, real interest rates are 3% per year, and the technological learning rate for each measure is low.

That is, we've magicked in that all this new technology will be really easy to work out and install (umm, like Edinburgh's tram for example?) and energy is going to rise in price really strongly off into the future. Do note that that assumption about energy prices makes energy double in price every 28 years. Not, to put it mildly, the experience of the past couple of centuries where, with blips of course, energy has been getting cheaper. Seriously, their model says easy alternative technology and vast energy prices: why would any action other than market forces be needed in such a scenario?

So, grossly unrealistic assumptions, a determined ignorance of the two main economic points that should be under discussion and even then a return well under the ability of the public sector to screw things up....well, would you invest on this basis?

Finally, two things. Firstly, if energy is going to go up in price in that manner then absolutely no public action is necessary. Because a doubling of real energy prices every generation will mean that people will quite naturally move to different technologies. And secondly, there's absolutely nothing here that could not be better achieved by instituiting a carbon tax, so as to move prices to make sure that people do indeed do so.

No, we think not. Into the roundunderthdeskreportfile for this one.