Jul 1st 2008

The case for climate change optimism

by Angus McCrone

Angus McCrone is chief editor of New Energy Finance, a London-based specialist provider of information and research to investors in renewable energy, low-carbon technology and the carbon markets.


Finding grounds for optimism in the global warming debate isn't easy. But Angus McCrone points out that investment in clean renewable energy sources is rising much more quickly than human CO2 emissions. And game theory suggests that nations will eventually take unilateral steps to curb their carbon emissions

Put a panda in a room with a bald eagle, a bear, a kangaroo, a tiger, a Dachshund, a bulldog, a cockerel and a green pheasant and what do you get? The answer is a lot of noise, violence, feathers and fur − and very little harmony. Much the same can be said of international talks on climate change. Put the representatives of the countries symbolised by these animals in the same room and the results tend to be noise, division and recrimination.

The issue of how the world will curb its carbon emissions has, over recent years, certainly caused a huge amount of bickering. Everyone has insisted that others need to make much more painful sacrifices than they themselves have committed to. Meanwhile, human CO2 emissions have gone on climbing − according to the International Energy Agency (IEA) world emissions are likely to rise from 26.6bn tonnes in 2005 to 41.9bn tonnes in 2030, unless current policies are changed.

Against this backdrop, a mood of pessimism over climate change has become entrenched; no wonder, with Asian giants, the US and western Europe all calling each other names while failing to stem the construction of coal-fired power stations, the logging of rain forests or the spread of low cost airlines.

But it can be dangerous to bank too heavily on the pessimistic view simply because it is so widespread. Arguing the more optimistic side of the climate change debate can be lonely past time, but there are two good reasons for doing just that.

The first concerns the dynamics of how international negotiations are likely to play out over the long-term − and not just at international summits or high-profile conferences. Applying a branch of economics called game theory raises a number of unexpectedly optimistic possibilities. The second reason reflects the fact that the carbon emissions chart is not the only one with an upward sloping line. There is another chart, concerning investment growth in renewable energy, that's much steeper. More about that later.

But first, let's deal with the apparent intractability of international climate change negotiations. Attempting to view the negotiating positions of Europe, the US and the developing world through the prism of the "Prisoner's Dilemma" − a game theory scenario first described in 1950 − yields some interesting insights. Applying the Prisoner's Dilemma admittedly suggests that we can expect selfish short-term behaviour from the negotiating partners. This reflects the likelihood that, in theory, two prisoners will probably rat on each other under interrogation to avoid the worst outcome. That outcome being a long sentence made worse through refusing to talk and also finding out later that the second prisoner has, in any case, spilled the beans.

That kind of behaviour is clear enough to spot in climate change negotiations. The US and the developing world have each been avoiding a deal on curbing emissions. Each fears that signing up would open up a risk that the other side would refuse to sign, and would therefore gain economic advantage.

The good news about the Prisoner's Dilemma, however, is that this cynical calculation does not work well when repeated over the medium-term. If both the US and the developing world avoid cutting emissions, then both lose out because climate change intensifies. The breakthrough should come when the players begin to fully appreciate this.

Such potential catalysts appear to be growing more numerous. The Stern Review in November 2006, for example, reported on the potential cost if no one curbs emissions − at 5% to 20% of GDP, far higher than the 1% of annual GDP cost of tackling climate change if the main parties work together. Then, in November 2007, the Intergovernmental Panel on Climate Change warned: "Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level." Future effects, it said, would include increased disease, "water stress" and loss of bio-diversity in parts of every continent on Earth.

The greater the scientific consensus about the causes of climate change, and the greater the incidence of freak and threatening weather, the stronger will be the pressure on all the parties to take unilateral action. There is already evidence of this. In March 2007, for instance, the European Union targeted a 20% share of renewables by 2020 in its total energy use. Last September, China announced a $265bn investment plan for lifting renewable energy use to 15% of its total, also by 2020. And a whole string of US states have announced "renewable portfolio standards" to force electricity utilities to buy clean rather than dirty energy.

Apart from taking unilateral steps, countries will also find that it achieves good results in the long-term if they adopt an approach that is "retaliatory, forgiving and clear". In other words, when another country takes a negative step, be prepared to retaliate with trade policy or another sanction. When an erring country returns to the fold, countries should be forgiving and welcome it back. And the policies adopted to tackle climate change should be clear, so that others do not misinterpret the intention.

It could well be that this process never results in a formal international treaty, setting out precise actions for everyone. Diplomatic complexity and local political pressures may make that impossible. But this need not worry those who are concerned about climate change as the self-interest of each economic bloc will always be best served by eventually taking action and in seeing that its peers do the same.

Perhaps, then, the United Nations should takes this on board and spend less time trying to negotiate an all-encompassing treaty that may well prove impossible to obtain. Instead it should encourage each bloc to take the right negotiating positions that will encourage others to make unilateral curbs in emissions. Advancing towards a global solution to the greenhouse gas problem through a long series of small steps, in both individual countries and trading blocs, may prove far more effective.

But, as briefly mentioned earlier, there is a second reason for optimism. While the IEA forecasts that energy related CO2 emissions will rise by 1.8% per year for many years ahead, another trend is also underway and the gradient of its line is far steeper than that. This trend reflects investment growth in clean energy.

New investment in renewable energy and energy efficiency was estimated to be $33.4bn in 2004. This figure includes venture capital and private equity investment in newly formed clean energy companies, money raised by quoted companies from stock market investors, debt and equity finance raised for clean energy projects, research and development funded either by governments or by large companies (such as the oil majors and the utilities), and small scale projects − such as warehouses placing solar panels or their roofs, or farms building a micro-wind turbine.

From that modest base, investment in clean energy has been accelerating fast. Research suggests that this investment figure rose by 76% to $58.7bn in 2005, by 58% to $92.6bn in 2006, and is estimated to have ended up at $148.4bn in 2007 − up 60% on the previous year.

If policies such as obligations on electricity providers and tariff incentives for non-CO2 emitting power, are put in place by governments to enable those hefty growth rates to continue, then it shouldn't take too many years before clean energy generation reaches a scale where it begins to eat meaningfully into the IEA's carbon emission forecasts.

There are other factors at work that can further encourage this process. Renewable energy and efficiency technologies are improving very fast, as entrepreneurs and aggressive larger companies compete for dominance in markets which are expected to boom in the years ahead. The result should be much lower prices for clean energy hardware, making it easier for utilities and other buyers to choose the non-fossil fuel option in the next decade.

Supply and demand issues should also aid several of the key renewable technologies, and hit that key fossil fuel − oil. The cost of wind and solar power is at the moment being held up by shortages of hardware like turbines and such materials as silicon. Once production rises to meet these shortages, their cost competitiveness will improve. Meanwhile, global oil demand is growing, while supply from existing and new fields is likely by 2015 to be under pressure. The IEA admits that "a supply crunch" by then cannot be ruled out, boosting demand for sources of alternative energy.

So, against the backdrop of pessimistic media reports on climate change, there is a case for optimism. Although it's important to remain realistic − there is a high likelihood that, despite growing global efforts to curb greenhouse gas emissions in the next few years, there will still be substantial damage to the environment. It now looks almost certain that there will be a loss of plant and wildlife species, the degradation of many natural habitats and changing weather patterns that could hit vulnerable human communities hard. But there are also grounds for tempering today's almost universal mood of pessimism.


This article was provided by EUROPE'S WORLD.

See also GLOBAL WARMING - MAN-MADE OR NATURAL by Kenneth Rundt on this site.

If you wish to comment on this article, you can do so on-line.

Should you wish to publish your own article on the Facts & Arts website, please contact us at info@factsandarts.com. Please note that Facts & Arts shares its advertising revenue with those who have contributed material and have signed an agreement with us.


Browse articles by author

More Current Affairs

Sep 11th 2021
EXTRACT: "That long path, though, has from the start had within it one fundamental flaw. If we are to make sense of wider global trends in insecurity, we have to recognise that in all the analysis around the 9/11 anniversary there lies the belief that the main security concern must be with an extreme version of Islam. It may seem a reasonable mistake, given the impact of the wars, but it still misses the point. The war on terror is better seen as one part of a global trend which goes well beyond a single religious tradition – a slow but steady move towards revolts from the margins."
Sep 11th 2021
EXTRACTS: "Is it not extraordinary that in a country that claims to be as enlightened and advanced as ours, the combined wealth of three individuals – Amazon founder Jeff Bezos, Microsoft founder Bill Gates, and investor Warren Buffett – exceeds the total wealth of the bottom half of Americans? One has to return to the days of the pharaohs of Egypt to find a parallel to the extreme wealth inequality that we see in in America today." ...... "The top tax rate remained above 90 percent through the 1950s and did not dip below 70 percent until 1981. At no point during the decades that saw America’s greatest economic growth did the tax on the wealthy drop below 70 percent. Today it is somewhere around 37 percent. President Biden’s American Families Plan would increase the top tax rate to 39.6 percent – a fairly modest alteration, albeit in the right direction. It is true that there was a time when the top marginal tax was even lower than it is today: in the years leading up to the Great Depression it hovered around 25 percent."
Sep 7th 2021
EXTRACT: "But Biden can’t be blamed for the rise of the Taliban, or the fragile state of a country that has seen far too many wars and invasions. The US should not have been there in the first place, but that is a lesson that great powers never seem to learn."
Sep 4th 2021
EXTRACT: "The world is only starting to grapple with how profound the artificial-intelligence revolution will be. AI technologies will create waves of progress in critical infrastructure, commerce, transportation, health, education, financial markets, food production, and environmental sustainability. Successful adoption of AI will drive economies, reshape societies, and determine which countries set the rules for the coming century." ----- "AI will reorganize the world and change the course of human history. The democratic world must lead that process."
Sep 1st 2021
EXTRACT: "Although the Fed is considering tapering its quantitative easing (QE), it will likely remain dovish and behind the curve overall. Like most central banks, it has been lured into a “debt trap” by the surge in private and public liabilities (as a share of GDP) in recent years. Even if inflation stays higher than targeted, exiting QE too soon could cause bond, credit, and stock markets to crash. That would subject the economy to a hard landing, potentially forcing the Fed to reverse itself and resume QE." ---- "After all, that is what happened between the fourth quarter of 2018 and the first quarter of 2019, following the Fed’s previous attempt to raise rates and roll back QE."
Sep 1st 2021
EXTRACT: "Today’s economic challenges are certainly solvable, and there is no reason why inflation should have to spike."
Aug 27th 2021
EXTRACT: "To be sure, they have focused on their agenda, which is totally misguided—not by our own account but by the account of the majority of the American population, who view the Republican party as one that has lost its moral footing to the detriment of America’s future generations, who must now inherit the ugly consequences of a party that ran asunder."
Aug 21st 2021
EXTRACTS: "Now that so many sad truths about Afghanistan are being spoken aloud, even in the major media – let me add one more: The war, from start to finish, was about politics, not in Afghanistan but in the United States. Afghanistan was always a sideshow."--- "....the 2001 invasion was fast and apparently decisive. And so it rescued George W. Bush’s tainted presidency,..." --- "Bush’s approval shot up to 90% and then steadily declined,..."
Aug 17th 2021
EXTRACT: "The Taliban’s virtually uncontested takeover over Afghanistan raises obvious questions about the wisdom of US President Joe Biden’s decision to withdraw US and coalition forces from the country. Paradoxically, however, the rapidity and ease of the Taliban’s advance only reaffirms that Biden made the right decision – and that he should not reverse course. ...... The ineffectiveness and collapse of Afghanistan’s military and governing institutions largely substantiates Biden’s skepticism that US-led efforts to prop up the government in Kabul would ever enable it to stand on its own feet. The international community has spent nearly 20 years, many thousands of lives, and trillions of dollars to do good by Afghanistan – taking down al-Qaeda; beating back the Taliban; supporting, advising, training, and equipping the Afghan military; bolstering governing institutions; and investing in the country’s civil society. .... Significant progress was made, but not enough." ....... "That is because the mission was fatally flawed from the outset. It was a fool’s errand to try to turn Afghanistan into a centralized, unitary state. "
Aug 6th 2021
EXTRACT: "But even in the US, which is more lenient than most countries, the principle cannot be absolute. Inciting imminent violence is not permitted. Donald Trump’s speech on January 6, urging the mob to storm the US Capitol, certainly came close to overstepping this boundary. It was a clear demonstration that language can be dangerous. What the internet media has done is raise the stakes; “fighting words” are spread around much faster and more widely than ever before. This will require a great deal of vigilance, to protect our freedom to express ourselves, while observing the social and legal bounds that stop words from turning into actual fighting. "
Jul 27th 2021
EXTRACT: "When it comes to the Chinese economy, I have been a congenital optimist for over 25 years. But now I have serious doubts. The Chinese government has taken dead aim at its dynamic technology sector, the engine of China’s New Economy. Its recent actions are symptomatic of a deeper problem: the state’s efforts to control the energy of animal spirits." ---- "... the Chinese economy, no less than others, still requires a foundation of trust – trust in the consistency of leadership priorities, in transparent governance, and in wise regulatory oversight – to flourish. --- Modern China lacks this foundation of trust ."
Jul 25th 2021
EXTRACT: "It seems that they are, as the last 18 months have seen a remarkable expansion of the central banks’ fields of activity, largely driven by their own ambitions. So they have moved into the climate change arena, arguing that financial stability may be put at risk by rising temperatures, and that central banks, as bond purchasers and as banking supervisors, can and should be proactive in raising the cost of credit for corporations without a credible transition plan. That is a promising new line of business, which is likely to grow. ---- Central banks are also trying to move into social engineering, specifically the policy response to rising income and wealth inequality, another hot button topic with high political salience."
Jul 25th 2021
EXTRACT: "The EU’s ambitious unilateral climate strategy will transform Europe into a trade fortress, encourage green protectionism worldwide, and give other regions the opportunity to develop using cheaper energy. And without China, India, and the United States on board, other countries will be careful not to follow the EU in its self-appointed role as the world’s green guinea pig. If Europe is not careful, it will risk finding itself in a climate club of one. "
Jul 9th 2021
EXTRACT: ".... ruminants belch and fart methane, an extremely potent greenhouse gas. As a result, rearing beef cattle brings about, on average, six times the contribution to global warming as non-ruminant animals (for example, pigs) producing the same quantity of protein. ..... if projected to 2050 [beef production], would use 87% of the total quantity of emissions that is compatible with the Paris climate agreement’s objective of staying below a 2° Celsius increase in temperature."
Jul 8th 2021
EXTRACT: " .... while China’s leaders never mention it, they are just as embittered over Russia’s theft of Chinese territory in the nineteenth century as they are over the West’s imperial predations. With Western imperialism having been largely rolled back, it is Russia’s continued occupation of historic Chinese territory that stands out the most to ordinary Chinese observers. For example, the city of Vladivostok, with its vast naval base, has been a part of Russia only since 1860, when the tsars built a military harbor there. Before that, the city was known by the Manchu name of Haishenwai." ---- "There is also a demographic argument for Putin to consider: the six million Russians spread along the Siberian border face 90 million Chinese on the other side. And many of these Chinese regularly cross the border into Russia to trade (and a good number to stay)."
Jul 7th 2021
EXTRACTS: "According to a new analysis by researchers at Brown University, America’s two-decade war in Afghanistan cost it nearly $2.3 trillion. Now, Afghanistan’s neighbors – Pakistan, Iran, China, India, and the Central Asian countries – are wondering just how much it will cost them to maintain security after the United States is gone." ----- "After clandestinely supporting the Taliban as a means to undermine the US war effort, Russia now fears broader destabilization in Central Asia and beyond." ---- "Similarly, after having made nice with the Taliban, China also now fears the greater regional instability that the US withdrawal may incite. In addition to disrupting Chinese President Xi Jinping’s Eurasia-spanning Belt and Road Initiative, a revitalized Taliban could re-energize the Islamist extremist threat in China’s western Xinjiang province."
Jul 1st 2021
EXTRACT: "When former Fed Chair Paul Volcker hiked rates to tackle inflation in 1980-82, the result was a severe double-dip recession in the United States and a debt crisis and lost decade for Latin America. But now that global debt ratios are almost three times higher than in the early 1970s, any anti-inflationary policy would lead to a depression, rather than a severe recession. ---- Under these conditions, central banks will be damned if they do and damned if they don’t, and many governments will be semi-insolvent and thus unable to bail out banks, corporations, and households. The doom loop of sovereigns and banks in the eurozone after the global financial crisis will be repeated worldwide, sucking in households, corporations, and shadow banks as well. ---- As matters stand, this slow-motion train wreck looks unavoidable."
Jun 19th 2021
EXTRACT: "Xi Jinping’s call for friendship gives us an opportunity to examine Chinese politics on both the domestic and international stage. On the face of it, it suggests the possibility of rapprochement between the rich liberal democracies represented by the G7 and the authoritarian Chinese state. However, despite appearances of a call for a closer relationship, there is more than one way of being friends – and Xi’s idea might be somewhat different to what many in countries attending the G7 might expect."
Jun 12th 2021
EXTRACT: "China’s recently published census, showing that its population has almost stopped growing, brought warnings of severe problems for the country. “Such numbers make grim reading for the party,” reported The Economist. This “could have a disastrous impact on the country,” wrote Huang Wenzheng, a fellow at the Center for China and Globalization in Beijing, in the Financial Times. But a comment posted on China’s Weibo was more insightful. “The declining fertility rate actually reflects the progress in the thinking of Chinese people – women are no longer a fertility tool.” "
Jun 12th 2021
EXTRACT: " I remember recounting fellow leaders of the story of a Rwanda schoolboy caught up in the genocide of the 1990s and now immortalized in the Kigali Genocide Memorial museum, where, in a section devoted to children, one can find his photograph and a plaque that reads: ----- David, age 11 ...... Ambition: to be a doctor ...... Favorite sport: football ...... Favorite hobby: making people laugh ...... Death: by mutilation ...... Last words: the UN are coming to save us ----- In his idealism and innocence, David believed the international community would save him and his mother. We didn’t. "