Some reflections on the Climate Policy Special Issue (vol 13, supp 01, 2013) “Low carbon drivers for a sustainable world”.
As a political scientist, I admit that I usually shy away from more technical academic papers, especially those including models. I therefore approached the proofs of this Special Issue with some trepidation. But I very soon became engrossed in my reading. The technical analyses themselves are accessible and highly informative, but most importantly for me, they also contain some very significant political messages. I’ll share some of these here – perhaps others will want to read the Special Issue, and offer their own comments on the blog. The Editorial can be accessed for free.
Firstly, the Special Issue underlines the daunting scale of the challenge involved in limiting temperature rise to 2 degrees, and yet the feasibility that still (just about) remains to do so. We learn from Kejun Jiang and colleagues that Chinese emissions would need to peak by 2025, and decline by 70% from 2020 levels by 2050. The authors argue that this remains technically possible. Perhaps. But is it really politically possible? Has any country ever achieved such a radical technological and economic transition in so short a time?
Again underlying the scale of the challenge, Special Issue authors (notably Mikiko Kainuma, Jim Skea and their colleagues) point out that, if nuclear power (and CCS) do not play a major role in the future energy mix (an increasingly likely proposition, given that the Fukushima incident has dampened enthusiasm for nuclear, and CCS remains largely on the drawing board) total global energy demand will need to fall radically to meet the 2 degree goal. David MacKay, in his wonderful book “Sustainability without the Hot Air”, makes a similar point about the pivotal (if unwelcome to many) importance of nuclear. The political choice seems clear: a large expansion of nuclear power, or radically reducing energy consumption. Which is more politically palatable?
Another key message I took from the Special Issue is the need for greater political courage on the part of governments. Respected modellers have shown that it is technically feasible to stay at 2 degrees: the ball now lies with governments to make good on this. Dominique Finon is explicit (if unfashionable) in making the point that seriously moving towards decarbonization in the electricity sector is simply not compatible with ever-greater liberalization and a reverence towards “market principles”. Read the article to find out why. I agree with him, and I would argue that his point applies not just to electricity, but to many other areas too. If we are to really get emissions down, we need more government regulation, not less.
Several of the articles also make clear that apparent foot-dragging on the part of business and industry to invest in low carbon options is based less on deep-seated resistance towards anything “green” (as might have been the case a decade or so ago perhaps), but rather on the reluctance to take on more risk than is strictly necessary. The financial crisis has, of course, exacerbated this risk aversion. Prospective investors see glacially slow international negotiations on climate change, and an EU-ETS carbon price that often sinks to under 3 Euros. Politicians say the right words about the urgency of climate change, but act as if the opposite were true. So why would investors take risks on a novel low-carbon project over a conventional and well-known high-carbon one? As Jim Skea and his colleagues put it, “Greater policy certainty for investors to ‘de-risk’ low-carbon technology is essential”. Only governments can provide that policy certainty.
A sign of what can be done with political courage – albeit in unwelcome circumstances – is provided in the Skea et al paper. The authors note that, following Fukushima and the consequent closure of nuclear power plant, “both Germany and Japan have demonstrated the capacity to turn round energy policy very quickly. Both have coped with the loss of considerable volumes of electricity generation output … it is possible to save significant amounts of energy very quickly in an emergency” (emphasis added). Is it not time to declare a climate emergency now, given that the window to a 2 degree world is rapidly closing?
And now, another theme in the Special Issue that really caught my attention. This is the historic opportunity that exists for climate action to be part of the solution to an immediate problem that – unlike long term climate change – governments cannot ignore: the global financial crisis and economic slowdown in the OECD. According to the Special Issue’s Editors “…‘low carbon’ does in fact provide possibly the only available positive vision of how to overcome the crisis – by investing in sustainable ‘green growth’ to build a global low-carbon society…”. The claim that investment in “green growth” or the “green economy” could help create jobs and boost flagging economies as part of an economic recovery package is not new. However, some of the ideas in the Special Issue go much further towards the radical restructuring of the financial system and the building of a climate-friendly architecture.
The frustrating thing about climate mitigation is that the bottle-neck is not the absence of low-carbon technology. Nor is it even the absence of hard finance. As Jean-Charles Hourcade andPriyadarshi Shukla show, on the basis of World Bank figures, the amount of up-front investment needed to redirect the world onto a 2 degree path is hardly outrageous: 0.6% of world GDP. And as they say, there are plenty of savings around, from the sovereign funds of some emerging economies to pension funds in the OECD. The key is to redirect those savings away from speculative investments (that are largely responsible for the financial mess we find ourselves in) towards far more productive low carbon projects, thus addressing the financial and climate crises in one fell swoop. Of course, it’s not that easy in practice, but Hourcade and Shukla’s idea for a “climate friendly financial architecture” that would increase investor confidence in low carbon projects is exciting. You will have to read their paper for the full details, but in essence, it would involve creating a new class of “carbon asset”, founded on an agreed “social cost of carbon”, that would basically generate new “carbon-based liquidity”. But what really interested me was the notion that carbon assets could be given the status of a new “reserve currency”, presumably to replace or supplement the dollar. There is clearly a demand out there for a new international reserve currency to replace or supplement the dollar, and among the limited options on the table – other national currencies, reformed SDRs, anything else? – carbon assets seem to tick the most boxes.
Of course, emissions trading has already assigned value to carbon, but that value is largely dependent on politically agreed targets, and therefore vulnerable (as the EU ETS price plunge has shown) to overly-generous allocations. We are talking here about something much more ambitious which, once established, should function independently of nervous politicians to truly and forever factor carbon savings into investment decisions.
I did a quick internet search to see if anyone else was thinking along the same lines, and I came across a whole soup of proposals to integrate carbon more fully into the financial system, although nothing much specifically on using carbon as a new reserve currency. The exception was Frans C. Verhagen, of the International Institute for Monetary Transformation, who has written a short piece advocating a carbon-based international reserve currency called the “Tierra”.
Tony Cooper at the Global Commons Institute, together with Molly Scott Cato of Green Audit, have also written a “Proposal for a Global Trading Currency Backed by Carbon Dioxide”, based on the work of the late Richard Douthwaite for an “environment-backed currency unit”, that would be based on the right to emit. Could carbon-based liquidity become the new big idea?
It is January 2013, nearly 20 years since the adoption of the Climate Convention, and our local library here in the UK still has single glazing. The radiators work overtime to compensate. It gets too hot away from the windows. The front doors get propped open to get rid of the heat.
None of the doors of our local takeaway restaurants shut properly against the cold, so that a gale often blows through their waiting areas. Many of them have electric radiators on full blast.
Our neighbour’s (rented) house has no insulation at all in the roof space. There is no financial incentive for either the landlord or the tenant to get that insulation installed (at what would be very little cost).
And this in a rich, reasonably well-organised OECD country. A low carbon society? It won’t happen by magic. Governments, be brave. There are some big ideas out there. It’s now or never.