Energy & Environment

People still aren't understanding climate change


What's worse, it's the people insistent that they know all about climate change who are getting it wrong at a basic logical level. As ever here, we'll start from the idea that the IPCC is correct, that we've a problem, we're causing it and we should do something. Even then these people are still wrong.

In a comprehensive new study published in the journal Nature Climate Change, researchers propose a limit to future greenhouse gas emissions--or carbon budget--of 590-1240 billion tons of carbon dioxide from 2015 onwards, as the most appropriate estimate for keeping warming to below 2°C, a temperature target which aims to avoid the most dangerous impacts of climate change.

The study finds that the available budget is on the low end of the spectrum compared to previous estimates--which ranged from 590 to 2390 billion tons of carbon dioxide for the same time period--lending further urgency to the need to address climate change.

This is simply the wrong way to be calculating things. For once we've accepted the IPCC (sure, many don't, but for the sake of argument here we are) then we move over into economics. And economics is about costs and benefits. This is the very point that the Stern Review addresses, also the associated works of William Nordhaus, Richard Tol and so on.

The calculation is: how much damage will be caused? What will it cost to avoid that damage? The amount of work and effort we should put into avoiding that damage cannot, on any logical grounds, be more than the damage we avoid by doing that work and effort. To do so would be to make us all, and the future, poorer to no good reason. Thus all of our conversations have to be about the costs of doing whatever it is.

And that's when we get into problems with the sort of calculations above. Because quite obviously it costs more to change things quickly than it does to do so slowly. Partly because it takes time to develop new technologies, partly because there's a capital cycle to deal with. It's hugely cheaper to replace emitting technologies when we're going to replace them anyway than it is to insist on closing down assets now and replacing them. What's a cheaper way of introducing electric cars? Insisting everyone junk their current ones today or insisting that they get an electric one when the current one falls apart?


The problem with insisting that we've got to do everything faster is that it means that we've got to do everything in a more expensive manner. And thus, logically, that we should actually be averting fewer emissions over time rather than more. Because we are doing it in that more expensive manner.

All of the economists who look at this economic problem keep insisting that we should not have a temperature nor emissions target. We should and must have a cost target. So why is it that the rest of the world keeps charging up this wrong path?

New report: The UK and the World in 2050


Britain will use fast-growing trees to capture and store atmospheric carbon dioxide by 2050 and most of Britain’s energy needs will come from gas, solar and nuclear power, not wind, according to a new monograph released today (Monday) by the Adam Smith Institute. The paper, Britain and the World in 2050, by Adam Smith Institute President Dr Madsen Pirie, looks at trends in scientific research and makes predictions about how new technology will change how ordinary Britons live their lives and solve the energy, environmental and health problems currently facing Britons.

People in the UK will be earn twice as much in real terms by 2050 as they do today.  An average 2% annual growth rate will achieve this.  The people of 2050 will live at the standard of today's millionaires.

Agriculture will have experienced a green revolution, with genetically modified crops that are self-fertilizing, pest-resistant, saline tolerant, drought resistant, altitude capable, heat tolerant and cold tolerant, and ones that can grow on land previous thought insufficiently fertile.  Many of these will be developed in UK laboratories and universities, as will trees that can mature in 6 years instead of 50. Tree cover will be many times what it is today.

New genetically hybridized vegetables will be available to eat, the paper says, as will inexpensive lab-grown meats, bringing an end to factory farming as we know it and delivering substantial environmental gains, as well as freeing up large amounts of land for recreational use. Micro-organisms will be developed to produce nourishing food very cheaply and in abundance.

Looking at healthcare, the paper suggests that the NHS will have been radically reformed by 2050. The state will own no hospitals outright, nor employ any doctors or nurses.  People will choose state-funded healthcare from a variety of private institutions, many non-profit and some for profit.

Driverless electric vehicles will be the norm, with petrol and diesel engines banned from cities.  They will be free to re-charge.  Inside they will not have two rows of forward-facing seats, but some will be customized as extensions of the home or office, some even with folding beds.  People will be prepared to commute longer, given such comforts, and this might make city housing less attractive and therefore less expensive.

The paper argues that behavioural change is secondary in solving social problems after technological adaptation. Environmental challenges are better overcome by investing in new technologies than in trying to make people consume less, the paper says.

Commenting on the paper, the Executive Director of the Adam Smith Institute Sam Bowman said:

“Futurology can often tell us as much about the present as it does about the future. In this paper we have shown just how many of our current problems are on their way to being solved, not by changing people, but by changing the world around us. Dr Pirie’s vision for the future is an optimistic one that sees human ingenuity as the key to improving people’s lives around the world. The future often looks bleak because we focus on the negatives – but the reality is that things are getting better, much better, all the time.”

Read the paper here.

Gosh, what a wonderful idea legislation about mandatory technology is


Some may recall the fuss that surrounded the banning of incandescent light bulbs here in the European Union. Our view, driven by the detailed industry knowledge of one of us*, is that this was something that could be taken care of by the market unadorned. If these compact fluorescent bulbs were all they were cracked up to be then people would adopt them voluntarily. And if they weren't then why should they be forced to? That was not the general view and the ban came into effect variously between 2009 and 2012, dependent upon the power rating of the bulb. Sadly, it was not in fact possible to simply swap bulbs: in order to get reasonable lighting effects many had to upgrade or alter, at some capital cost, their lighting systems as a whole. But still, no matter eh, because in this dim and flickering future of the CFL we'd all be saving so much money on electricity that we'd be happy anyway.

It's even possible that that could have been true. Except the CFL is now a redundant technology and everyone who did adapt their systems is going to have to do so all over again:

By the end of the year, GE will cease production and sales of compact fluorescent lights (CFLs), the manufacturer announced this morning. Moving forward, the company's focus will fall entirely on halogen incandescents and on high-efficiency LEDs.

"CFL's kind of been the light bulb that everybody loves to hate," explained John Strainic, chief operating officer of GE Lighting, citing the history of complaints about CFL dimmer compatibility, brightness delay, and quality of light. Strainic says that the industry has come a long way, but admits that the perception of inferior performance lingers. "Ultimately, LED offers a better solution at a comparable price."

Amazing, eh? The technology becomes redundant a mere four years after we're all forced to use it. The current replacement one, LEDs, was simply not ready for prime time those short few years ago. So aren't we lucky that we all got to be forced into this technological dead end for those years. Just what would we do without those Wise Solons telling us all how to light our own homes?

Other than, you know, being richer, freer and able to make the useful and important technological leap from incandescent to LED without having to mess around with CFLs in the interim?

The lesson from this being that when politicians try to mandate the technology we must use they should be met with a volley of that Anglo Saxon invective which so enriches the English language. And we do, so much that it hurts, look forward to the studies on how much this lunacy has cost us all, that forced investment in a technology to be superseded in less than the claimed lifetime of one of those CFL bulbs.

*No, no direct impact here, the interest is in halogens, the fourth technology not affected by any of this.

Even if we were Mariana Mazzucato we wouldn't have chosen this example.


Talking about Labour's "rock star" economists and their tour of the UK to tell all how neoliberalism is not longer where it's at, Anne Perkins gives us this:

On Tuesday night, the economist of the Entrepreneurial State, Mariana Mazzucato, wondered, in the course of a brilliant inaugural lecture in a Labour-backed series of talks to fire up a conversation about the state and the economy, what food was necessary to turn timorous business folk from gerbils into lions.

Her answer is mission-oriented public investment, which sounds very much like rocket science until you realise that actually she is pointing at the way entrepreneurs very often ride off the back of state investment.

She argues that we need a way of recognising and talking about this unacknowledged role of the public sector, and points at the way Germany has tackled greening the economy. It’s not just building wind farms, it’s investing massively in research and technological development too


If we're honest about this that just isn't the sort of example we would have chosen. No, not even if we were Ms. Mazzucato herself. Because if we're going to have a government spraying around 40-45% of everything the country produces in a year then we're really certain that we could find a better example than a pro-renewables policy which has led to the reopening of the appallingly filthy lignite mines and power plants.

No, really, we're really quite sure that government can manage one or another thing better than that, even if we're not quite sure what it is.

Again, if we're fair, we would in fact use this example to bolster our own case about public investment. It's wasteful, inefficient and in almost all, but not entirely all, cases there's a better way of doing it. Or, of course, just deciding not to do it at all.

We're not sure we'd take this bet about fracking and oil


We should make it clear that we have absolutely no expertise in, nor even knowledge of, the various costs associated with the different methods of extracting conventional and fracked oil. However, we do know some bits about the wider world in general and that makes us think that we probably wouldn't take the bet that Saudi Arabia is:

The slide came after Opec said persistently low prices would finally begin to bite for rival producers in 2016, forcing the US and Canada to cut back on production this year.

n its latest monthly review of the oil market, the group said non-Opec supply would shrink by 660,000 barrels a day this year, above previous estimates of just 270,000. The forecast seemingly vindicates the cartel's landmark decision to ramp up production in order steal a march on higher cost producers such as US shale. But shale drillers, as well as producers in Canada and Russia have proven resilient in the face of the 18-month price crash - which is now the worst in the post-war era. Non-Opec production grew by more than expected in 2015 to 1.23m barrels a day, said the report, which predicted that 2016 was finally the year markets began to rebalance.

Our point being that the cost structure for conventional oil is that normal one for resource extraction. Go find some lake of the stuff and stick a pipe in it. There's only so many lakes and that's the difficult part, finding one. Shale or tight oil has a completely different structure. Where it is is well known. That there's vast amounts of it is well known. The difficulty is in bringing extraction costs down to a number that makes sense. It's also a short term proposition: a shale well produces for a couple of years at most. It's also a low capital spend business, a few million dollars will bring a well online. As opposed to the decades and multi-billions for conventional oil.

Tight oil is thus better regarded as being a manufacturing process rather than a resource discovery and extraction one. Indeed, it has been called "manufrackturing" in a report or two.

And this very much changes things: because one thing we know about this combination of capitalism and markets is that it drives manufacturing costs down relentlessly. It might be possible that a sustained drop in the oil price today will drive many of those American firms out of the market. But in the medium term we would probably bet that those fracking extraction costs are only ever going to go down as the process becomes more efficient.

Thus we'd probably not take the bet of driving them out of business: if their cost base keeps going down then attempting to bankrupt them becomes ever more expensive in terms of the low conventional oil price required to do so. It's that switch from the economic model of conventional resource extraction to something much more akin to the brutally competitive and cost reducing world of manufacturing that does it.

The EU's method of dealing with climate change always was insane


There have always been multiple layers of insanity to the way that the European Union and various layers of bureaucracy have tried to deal with the problem of climate change. Assuming, for the sake of argument, that there is a problem that needs solving. It is still true that the actual system of attempting to deal with it is, well, doolally. As this little example from Drax shows:

Drax's hopes of securing lucrative subsidies for its biomass conservion have suffered a setback after the European Commission launched a full state aid investigation over concerns the payments may be too generous. The Yorkshire-based power plant is in the process of switching from burning coal to biomass, and was awarded a £1.7bn Government subsidy contract in April 2014 for the third of its six units - subject to state aid approval. The contract would see Drax paid a fixed price of £105 for every megawatt-hour (MWh) of biomass-fired power the unit generated until 2027 – well over double the current market price. Drax shares fell 5pc on Tuesday after the European Commission said it was concerned that the rate of return from the subsidies "could be higher than the parties estimate and could lead to overcompensation".

The first level of nonsense is that they've decided to pick and choose between different technologies. Some, those favoured, will gain subsidy. And that subsidy will be different for each technology. No, bureaucracies are not good at choosing between technologies. Further, if there is to be subsidy it should be one flat rate subsidy for all technologies. Those that can make that standard succeed: those that cannot do not. Without people being able to lobby for just a little bit more subsidy if they can catch the ear of the bureaucracy (as the absurd Swansea Barrage has).

The second level of loopiness is in the actual technologies that have been chosen. Outside those who consume or grant subsidies there's no one at all who thinks that shipping 2.4 million tonnes of low energy wood pellets across the Atlantic is going to do anything at all to reduce either emissions or climate change.

The third level of madness is that having designed such a system the bureaucracy is taking archaeological ages to manage to make any decisions. Market economies, heck, successful economies, do not allow 20 months for the papershufflers to even start hemming and hawing about what is going on. That it's an entirely ridiculous project is true: but that there's simple paperwork delays of this length will strangle any and every activity in the economy. It's better, by far, for there to be the wrong decision, the wrong investment or activity even, than the entire economy grind to a halt while waiting for permission.

This is why we here at the ASI have always been in favour of a carbon tax. We know very well that, whatever the reality of climate change, some fool somewhere is going to do something. So, let's make sure that what is done is minimally damaging and might even have some useful side effects. If emissions have externalities then tax the emissions and let the market sort out the rest of it.

As, actually, Lord Stern recommended. It's just that having taken the argument that something must be done from that Stern Review everyone has rushed off to do exactly the thing that the Stern Review said don't do. Do not use this as an excuse to plan the economy. Rather, use this as a reason to adjust market prices and then use that most efficient human discovery, that market, to make all subsequent changes.

Whether or not something must be done is an entirely different argument from what should be done if something must be. We should not, for the sake of our own future wealth, and that of our children, confuse the two. Yet we've ended up doing what the argument that says something must be done proves should not be what we're doing.

This is simply insane.

On this idea of stranded fossil fuel assets


We were really very surprised indeed to see this assertion being made:

Fourth, in a fast-changing, post-Paris world, we need a real focus on assets. Oil companies are valued on their reserves: but as clean energy technologies such as solar and wind become cheaper and better, how many of these will ever be extracted? To hit climate change targets, an estimated 80pc of the world’s fossil fuel reserves have to stay underground.

That's from Nigel Wilson, who runs L&G, the UK's largest equity investor. And what surprises us is that it's self-evidently wrong. And yet it's also a very popular view: Mark Carney at the Bank of England has been known to sign on to it. The implication being that if the world won't use fossil fuels off into the distant future, the oil companies have reserves that won't be used in that distant future, therefore the oil companies are worth much less than the market currently says. So, of course, sell now!

But it is, as we say, self-evidently wrong. Shell's reserves look like some 6 billion barrels, BP's some 17 billion. Shell is currently valued at $130 billion odd, BP at $64 billion. We're just not seeing the connection there. With oil at $40 a barrel those valuations should be more like $250 billion and $680 billion.

And it's not even true in theory that the oil companies should be valued at the current oil price times their reserves. That is, even if we do try to value them by their reserves. Rather, they're to be valued at the value of those reserves discounted to net present value using the market interest rate.

A reasonable guess at the market interest rate is the yield on stocks, some 4-5% or so at present perhaps. So, discount something of value in 30 years time to the net present value at a 5% interest rate's worth absolutely nothing today, isn't it, to any reasonable level of accuracy?

This does of course speak to the whole point of Lord Stern's Review. We humans are subject to hyperbolic discounting: we discount things in the far future too much. This is why we must use special, lower than market, interest rates to think about said far future. But if we are going to do that with one part of said future, the damages from climate change, then we really do need to use the same technique when thinking about other parts of that future, the values of reserves. Or, alternatively, we could acknowledge that that discounting at market interest rates has made the future value of those reserves spit in terms of today's corporate valuations and thus the worries over stranded reserves is simply because no one is understanding the settled economic science about climate change.

We are strongly persuaded that it's that latter. For we know that it's terribly unfashionable to do so in either political or agitating circles but we are prepared to take those economic arguments seriously in all their implications. Not to assert that they are correct you understand, but to think through what they are telling us if they are correct.

And if Lord Stern is correct about discount rates, which he is in theory as all economists agree even if there's all sorts of arguments from Nordhaus, Tol, Dasgupta, Weizman and the rest about the details of exactly what the rate should be, then there simply cannot be a problem with the value of far future reserves being incorporated into current fossil fuel company valuations. The assertion that we suffer from hyperbolic discounting means that the net present value of the far future is near nothing: and if the assumption of hyperbolic discounting is not true then climate change is something we should do absolutely nothing about at present.

It is, of course, entirely possible to believe in both: both that we must expend great effort today to deal with climate change and also that the oil companies are grossly over valued for the same reason. It's obviously possible because large numbers of otherwise sensible people do believe it. It is not however logical or reasonable to believe in both at the same time.

This is what will happen to solar tariffs everywhere, eventually


Interesting news from Nevada: the state now has solar feed in tariffs on a rational economic structure. It's still not all the way there but the structure is now sensible: and this is the way that all such tariffs will end up to. Simply because it's the only rational way, economically, to do it. Instead of getting the retail price for whatever electricity they feed into the grid, panel owners now get:

This summer, NV Energy, Nevada's largest utility and a subsidiary of Berkshire Hathaway , had asked for a rate structure that included a monthly service charge, a demand charge (based on a home's peak demand), and an electricity charge. For homes with solar, it proposed paying 5.5 cents per kWh for the electricity they send to the grid, well below the 11.6 cents per kWh that customers are paying for electricity.

This is simply the way that it has to be, in the end at least. Leave aside any concerns about whether it should be yet or not and consider the underlying economics of this. The grid needs to exist if we're to share power at all. And thus it needs to be paid for: a standing charge doesn't seem like a bad idea as a method of paying for such infrastructure. And the size of that charge needs to be determined by peak drawdown (or perhaps feed in to it) as that is what determines how the grid is built.

And then, yes, everyone should be paid the current value of what they are feeding into said grid. And with solar that's only ever going to go down. As there's more solar on the grid then of course there's more of the grid that is all producing at the same time: that's how sunshine works across geographic areas. In the end, instead of being paid the wholesale price for power people are going to be paid the marginal price for power at that time. Something that the more the technology becomes as a percentage of total supply is only ever going to go down.

This isn't just a "Har, Har, Hippies!" argument: the only economically rational manner, in the long run, of paying for a grid that contains solar, or indeed any other local and or intermittent source, is going to be this one. A charge for the grid, scaled to the size of the connection, with production gaining moment by moment marginal value, consumption possibly based again on that marginal value. It's really going to change how things are done: and if we don't move to something like this then the system is going to go bankrupt instead.

Thus, obviously, it is going to happen: the only question is when.

We really need to get this story about rivers and flooding straight


That there's terrible flooding in the North of England is true. But before we decide what we're going to do about prevention in the future we do need to work out why there is terrible flooding. And here there's two very different tales. One is that this is climate change and so we had all better stop driving anywhere and huddle in the gloaming of low wattage lamps as we proceed, full speed, to the middle ages. The other is that the bureaucrats have been deliberately designing the flow of rivers so that floods do occur. We are not so cynical that we would insist that the second explanation must be true just because bureaucrats. We are sufficiently cynical to think that it could be the correct explanation.

Here is one such bureaucrat on the BBC:

Speaking to Radio 4's Today programme, Mr Rooke said the UK was moving from a period of "known extremes" of weather to one of "unknown extremes" - something which a government review of flood defences would consider before reporting next summer. Asked if the UK needed a new response to flooding, he said: "I think we will need to have that complete rethink and I think we will need to move from not just providing better defences - and we've got a £2.3bn programme to do that over the next six years - but also looking at increasing resilience." This would mean "when properties do flood, that they have solid floors, waterproof plaster, more electrics up the wall - so that people can get into their houses and businesses more quickly".

Quite clearly, more flooding because climate change and we'd better just make waterproof houses and just live with it. There's also someone called Gaia Vince (surely a spoof name, this is Mr. Cable in retirement, no?) in The Guardian telling us much the same thing. We've also a Dutch expert telling us that we should be changing what we do with rivers:

When more than 1,800 people died in the wake of the 1953 North Sea flood in the Netherlands, the national reaction was: never again. The resulting Delta programme to close off the south-western river delta from the sea was so bold that its name became synonymous with dealing with a crisis. If an issue needs a major response, you can be sure that a Dutch politician will call for a “Delta plan to tackle X”. It is time that the UK took some of that attitude and got a Delta plan to tackle flooding.

Sounds like a plan really. We're on board with it. And then comes this, about the earlier Cumbria floods:

Amid all the devastation and recrimination over the floods in Cumbria hardly anybody mentions one factor that may not be the sole cause, but certainly hasn’t helped.

That is the almost complete cessation of dredging of our rivers since we were required to accept the European Water Framework Directive (EWF) into UK law in 2000.

Yet until then, for all of recorded history, it almost went without saying that a watercourse needed to be big enough to take any water that flowed into it, otherwise it would overflow and inundate the surrounding land and houses.

Every civilisation has known that, except apparently ours. It is just common sense. City authorities and, before them, manors and towns and villages, organised themselves to make sure their watercourses were cleansed, deepened and sometimes embanked to hold whatever water they had to carry away.

Christopher Booker and Owen Paterson have said much the same thing about the Somerset Levels floods of a couple of years back: given that that area is below sea level drainage and pumping is really rather important. So what's changed?

But all this changed with the creation of the Environment Agency in 1997 and when we adopted the European Water Framework Directive in 2000. No longer were the authorities charged with a duty to prevent flooding. Instead, the emphasis shifted, in an astonishing reversal of policy, to a primary obligation to achieve ‘good ecological status’ for our national rivers. This is defined as being as close as possible to ‘undisturbed natural conditions’.

‘Heavily modified waters’, which include rivers dredged or embanked to prevent flooding, cannot, by definition, ever satisfy the terms of the directive.

So, in order to comply with the obligations imposed on us by the EU we had to stop dredging and embanking and allow rivers to ‘re-connect with their floodplains’, as the currently fashionable jargon has it.

We don't claim that this is absolutely right as an explanation. We're willing to admit that there might be the occasional subject upon which we are not entirely perfectly informed. But we most certainly think that it is an entirely possible, could even be probable, explanation. Flood plain management changes, we get lots more floods. Not a huge logical leap to think that there might be a connection.

The solution might therefore be to go back to managing the landscape as our forefathers did. Oh, and stop building on flood plains as the current planning system encourages. That is, as is so often true, the correct solution to a problem that government claims it is trying to solve is to stop government doing the damn fool things it is already doing.

It's remarkable how often that is the correct answer.

Recycling costs an awful lot more than you think it does


As we have noted here many times before, society is in the grip of a collective mania. That we must recycle ever more. If recycling something makes a profit then of course, that should be done: making a profit is the very definition of adding value by your activities. Making a loss is equally, by definition, evidence that the activity is making everyone poorer. Yes, there's also cases where there are externalities, where some effect is not included in market prices. But there's also externalities to this insistence upon recycling everything:

Households have been warned they could end up in court if they fall for a growing criminal industry of “Facebook fly-tippers” who pose online as legitimate waste removal companies but then dump the rubbish on the streets. With fly-tipping rates rising, councils are bringing prosecutions against people who pay a man-with-a-van to remove bulky items of rubbish – only for it to be fly-tipped and then traced back to them. Households have been warned they could be fined up to £5,000 and left with a criminal record if they use what the Government has dubbed “waste cowboys” - even if they pay them in good faith.

All of that, the gangs of white van men, the council actions, the court fees, the bizarre notion of the State scrabbling through the rubbish, are costs of that recycling mania. By raising the costs, for no very good reason other than that mania, it creates, just as with the illegality of drugs leading to smuggling, high excise taxes leading to, err, smuggling, that reaction, of littering the countryside.

And we do not include those costs in our pricing of recycling but we should: just like we should include externalities in any environmental argument.

It should, of course, be possible to design a better system. In fact, at least one of us has seen such in a continental country. Household rubbish, including furniture, building rubble and the rest, is placed beside the usual collection bins beside the roads. People pick over that rubbish for whatever might be of value and recycle it. The rest of it is picked up by the local council and dumped in a hole in the ground.

We even know of one continental town where the mayor adamantly refuses to set up an EU approved recycling scheme. His argument being that they have one, essentially the modern day rag and bone men that perform the function in the private sector.

Government is not, as is sometimes said, the things we do together. It's the things that we do with the compulsion of the State. And where the compulsion is unnecessary, why bother to employ it? Especially where the compulsion raises costs so much that it exacerbates, not alleviates, the original problem?

"All the tradespeople we employ – builders, plumbers, electricians, carpet layers, gardeners, tree surgeons and more – should have a waste carrier licence to take away the rubbish and recycling from the work they do in our homes."

More holes, less recycling, that's what we need to beat fly tipping.