Uncharted Territory

October 31, 2009

“Carbonomics” Critique, Part 1

I began reading “Carbonomics” by Steven Stoft late yesterday. I’m only just starting Chapter 3 (of 31) but I can already reach a conclusion.

My very first impression was that “Carbonomics” brings some logical thinking to the debate. I see no reason to change my view: there is no doubt a lot of good material in the book.

But within minutes I could see that Stoft’s overall prescription, sadly, is in dreamland.

I’m posting my initial thoughts immediately whilst I am still in a state of shock.

The history of thought is littered with discarded, but complex and sophisticated, bodies of knowledge, from scientific theories – the Ptolemaic universe perhaps, to political programmes – communism, for example; indeed more than bodies of knowledge, entire institutions, even civilisations, all built on foundations that later proved to be constructed of no more than intellectual straw.

Some of the foundations of “Carbonomics” consist of no more than straw.

I am indeed stunned. I started reading and first came across some encouraging comments in the Preface (a chapter which should never be skipped). The author notes the inefficiency of current policies to improve energy security and global warming and promises to “fix energy policy”. He will be guided by the story of physics, and produce Mr Tompkins in Wonderland for economics. “The hardest part of learning new ideas is giving up misconceptions”, he writes.

I must admit that by this point I was already starting to feel a little uneasy. I don’t, for example, believe that “physicists have a tradition of explaining advanced ideas to the public just because they find the concepts fascinating.” No, they do it to try to prove how clever they are (except for a small number who simply have Asperger’s syndrome). And, given that their belief system doesn’t hang together (relativity and quantum physics are as yet unreconciled) they hope that the more positive feedback – or pats on the back – they can extract from their audience, the truer what they have told them will become. Stoft notes that Einstein “found the uncertainty of quantum mechanics… so disconcerting that he never accepted it”. Quite right. Einstein was a holistic thinker. That was his genius. All the facts had to be taken into account, however alien a theory eventually resulted. He understood that all may not be as it seems, but he could not accept contradictions into his world view, even if others could live with them. So in asserting that “God does not play dice”, Einstein was not being a stick in the mud, but demonstrating he was on the side of the good guys. Even if he didn’t have the whole answer, at least he knew there was a question.

I labour the point because it soon became apparent that Stoft’s thinking is not sufficiently rigorous. He is not prepared to accept inconvenient truths.

It’s a shame, because Stoft starts so well with an excellent account of the effects of the 1970s oil price spike. When the Great Depression is so often mentioned as the worst of economic times, I often feel that the discourse is US-centric – cultural domination perhaps. For the 1970s was as decisive for modern Britain as the 1930s was across the Pond. Inflation and unemployment, a pervasive sense of decline tinged with incipient anarchy. The Punk Era, swept away by the Thatcher Revolution.

Never mind, my point is that Stoft’s prescription will fail. Reading his first chapter I assumed Stoft would urge measures to keep the oil price high. But it suddenly dawned on me that his prescription is the precise opposite!

There’s a why Stoft is wrong, which owes something, I feel, to a US-centric world view.

And then there’s the how Stoft is wrong. I’m afraid to say he has not followed his own prescription in the last line of his Preface, to “pay close attention to the way governments and markets really work”.

Stoft, it seems, still bears grudges against OPEC. On page 4 he explains how he wants to avoid “paying OPEC another trillion dollars in tribute”. He writes of how, by 1986 “OPEC had been crippled”. On p.5 he notes how he will explain “how to crush OPEC again”. On page 6 he reminds us that “conservation… crushed OPEC in the early 1980s”. There’s a bit of a lull while he advocates a “consumers’ cartel” to counter OPEC and worries about how to deal with “free rides”…

Powerful stuff. Where have I heard this sort of thing before? Oh, yes, I remember now – it’s eerily reminiscent of Russia railing against NATO. Yes, that’s right, Russia’s demon is a mutual-defence pact. To many in Russia (unfortunately many of those in positions of power), the idea of Ukraine or Georgia joining NATO – to ensure, as sovereign nations, their own defence – is little short of an invasion of the Motherland itself. I wonder, I just wonder, if OPEC members feel the same way. Let’s just step into Wonderland for a moment. Maybe they feel they have a right to the riches under the desert (or wherever). I know, I know, I’m of the view that oil wealth is a fortunate (or often not so fortunate) windfall. But the actual state of affairs is what we have to deal with – and de facto those countries endowed with generous fossil-fuel reserves are determined to maximise the value of those reserves.

In solving the problem of global warming (and energy security) we have to deal with the world as it is, not how we would like it to be.

Maybe I can lay down something of a more specific principle here. Short of war, there will only be progress in international negotiations if win-win situations are created. Sorry about the cliche. Maybe I can get rid of it. Because, actually, we’re in a multilateral situation and we need win-win-win… in fact a win superscript n, win raised to the power of the number of interest groups.

Stoft is writing from the US. Let’s put to one side that he hasn’t even convinced his own country’s body politic to take the problem seriously yet, let alone of his particular approach. Let’s pretend he manages to do that. Even if that were to happen, I’ve got news for him. The world out there is not full of buddies who will be happy to participate in a “consumers’ cartel”. In fact, it may be unfair only to Canada & Australia to say that the US has only one reliable sidekick with any clout at all on the world stage. Yeap. Be nice to the UK. OK, I’m being facetious – there is some alignment of national interests, at least with the EU and Japan. But the problem is that several populous developing countries show no clear sign of wanting to play ball.

I feel I’ve written moreorless enough for a first reaction, so it’s fortunate that how Stoft is wrong has already been touched on in previous episodes of Uncharted Territory.

The general problem is the Displacement Fallacy, though I appreciate that Stoft intends to avoid this through international agreements, starting with China. Good luck, mate, but I don’t think you’ll manage it.

Reflections on Oil supplemented by Reflections on Reflections on Oil considers how the oil market will react to attempts to choke off demand. The important point is that the oil producers themselves will act as buyers of last resort.

Before I sign off I should mention that Stoft’s discussion of a tax on fossil-fuel and an “untax” (general distribution of the tax revenues) will not work as he seems to expect for imported products. Stoft is clearly unaware of the Man in the Wardrobe fallacy. Oil at $80 + $20 tax (Stoft’s example in ch.2, on p.21) will not have the same outcome as oil at $100. In the first case, the importing country still has $20 to spend, perhaps on more oil imports or perhaps on other goods, the sellers of which can themselves then afford to import more oil.

I haven’t read enough yet to determine whether Stoft is aware of the rebound effect or Jevons’ Paradox, whereby using a resource more efficiently can actually increase consumption in the long term. The signs aren’t good, though.

Although I’m disappointed with Stoft’s overall vision, I will read on, because large parts of Stoft’s analysis are sound. The first part of chapter 2 shows, for example, how cheap it would be to move away from reliance on fossil fuels.

Watch this space.

—–
As an unreferenced endnote, I admit hypersensitivity to inaccuracies or ambiguities and two have been particularly irritating:
– in Ch.2, footnote 1, p.19 Stoft writes of a policy “that would ‘cap the long-term concentration of greenhouse gases [GHGs]… at 450 [ppm]’. We are now just over 380 ppm.” CO2 alone is at “just over 380 ppm”. I can only guess whether the policy proposal referred to is to keep all GHGs at a CO2 equivalent level of 450ppm or to keep CO2 below 450ppm – which, it’s now becoming clear, would be too high.
– at the start of Ch.3, on p.21 Stoft remarks that: “Back in the 1800s… Jevons predicted peak coal in England”. Maybe it’s a cultural thing, but to me “the 1800s” refers to the decade 1800-9, inclusive. Stoft means “the 19th century”, here. Jevons in fact wrote “The Coal Question” in 1865 (Wikipedia). And, btw, he was probably talking about Britain, not “England” (Wikipedia thinks so). No offence taken.

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7 Comments »

  1. What does ‘win-win’ mean in the context of oil prices? Surely a rise in oil prices is a win for the oil producers and a lose for the oil consumers and vice versa (mutatis mutandis)?
    Isn’t the problem inequality of market power? At present we have a cartel in oil production but none in consumption (and none in coal production). With two (or more) competing cartels, the quantity of oil produced would be driven down much more solidly than any sort of cooperation between mutually incompatible interests.
    Therefore I respect Stoft’s attempt to organize the oil importing countries, and wish him luck. It’s a hard job, and it’s good that someone is trying to do it. It’s not the only approach that couldk be tried, but has a certain amount of logic to it.

    Comment by Stephen Stretton — November 1, 2009 @ 12:54 pm

    • Lots of things have “a certain amount of logic” to them. That doesn’t mean they’re the best solution or that they’re going to work in the real world. And if they’re not actually going to work they stop us progressing approaches that might.

      What “‘win-win’ means in the context of oil prices” is what needs to be explored. If oil consumers think they can solve the GW problem and pay less for oil, then that sounds to me like the consumers solving all their problems at the expense of the producers! That seems neither pragmatic nor realistic to me.

      Especially as much of the world holds the US in considerably less esteem than OPEC!

      I don’t respect Stoft’s position and don’t wish him luck. I think his proposition is very dangerous.

      We need a solution that everyone can support, even oil producers.

      The problem with the current climate change negotiation process is that we’re not negotiating about what to do about climate change – the development agenda is driving the climate change agenda. These different agendas should be used for different meetings.

      For Stoft it seems another agenda has crept in – US self-interest – politely referred to as “energy security”. This leads to something other than the best solution to the GW problem.

      Comment by Tim Joslin — November 1, 2009 @ 6:10 pm

  2. I’ve just noticed that the subtitle of “Carbonomics” is “How to Fix the Climate and Charge it to OPEC”. I guess I was distracted by the polar bear on the front-cover and/or managed to ignore the subtitle in the interests of approaching the book with an open mind! It does what it says on the tin, I’ll give Stoft that. Even if his prescription won’t work.

    Comment by Tim Joslin — November 2, 2009 @ 3:31 pm

  3. But my point is that maybe the question of fossil fuel rents is largely a zero sum game.
    Surely a loss for OPEC is a gain for OPIC (or whatever we should call it)? There isn’t much ‘cooperation’ to sharing out money. You win I lose. That’s it.
    Or have I missed something?

    Comment by Stephen Stretton — November 2, 2009 @ 6:46 pm

    • It’s not really a case of “sharing out” rents, since Stoft wants to dramatically reduce the rents.

      This is not smart for all kinds of reasons – for example, it undermines US & others’ export markets, so would tend to reduce global economic growth rates, i.e. it makes OPEC countries poorer but doesn’t make us richer, likely poorer also – but mainly because OPEC controls what happens to the resource, i.e. oil. If they can’t sell it abroad, they’ll simply sell it to their own citizens (check out the price of gas in Venezuela or Iran).

      It might also be worth bearing in mind that OPEC was only ever very effective once, in the 1970s. Oil prices didn’t spike in 2008 because OPEC is a cartel, they spiked for simple supply and demand reasons – despite OPEC, in fact.

      Comment by Tim Joslin — November 2, 2009 @ 7:34 pm

  4. […] the money saved! I won’t go into all this again – my most recent post on the topic is here). After you’ve insulated the loft and put in the low-energy lightbulbs – and anyone who […]

    Pingback by Some Contrarian Climate Change Ideas « Uncharted Territory — November 5, 2009 @ 2:52 pm

  5. […] Energy policy, Global warming, Markets, Regulation — Tim Joslin @ 5:41 pm I’m still reading “Carbonomics” and, whilst mulling over some of Stoft’s (plot spoiler alert) somewhat unconvincing arguments […]

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