Uncharted Territory

December 4, 2009

Why Expedient Offers of Energy Efficiency Improvements must be Rejected at Copenhagen

Filed under: Concepts, Economics, Energy policy, Global warming — Tim Joslin @ 7:01 pm

Earlier this year New Scientist foolishly tried to grab readers’ attention with a cover proclaiming that “Darwin was wrong”.  He wasn’t, of course, and a right old furore was the inevitable result.  It seems misleading headlines are an inevitable symptom of the editing process employed by magazines and newspapers.  The journalist – perhaps keen to be accurate – relinquishes control to editors with entirely different priorities. A large part of their job is to tempt us to buy their product, and, once we have, to read articles they may not have had time to properly digest.

An article in this Thursday’s Guardian (p.11) caught my eye with: “India: Last of ‘big four polluters’ sets target of curbing CO2 emissions by a quarter”.  As I’m paying a lot of attention to the climate change negotiations, I realised that this seemed very unlikely, so read further (the online version linked to has a more sober title).  Many readers will no doubt have been misled by the headline.

It turns out, of course, that India is not offering to reduce carbon emissions at all:

“…[India] could curb the carbon emitted relative to the growth of its economy – its carbon intensity – by 24% by 2020.  … emissions would continue to rise… , but by less than currently predicted.”

This is similar to the action China is proposing.

The Copenhagen offerings to global public opinion from both China and India are entirely inadequate.

First, it’s not yet clear how binding the commitments are.

Second, the targets may not be difficult to meet. For example, I noted recently that:

“China uses four times as much energy as the U.S. per dollar of economic output, and more than 11 times that used in Japan.”

But simple gains in efficiency may even be counter-productive, as I’ve discussed before. In particular, Jevons’ Paradox, or the Rebound Effect, notes that as we improve the efficiency of a technology, the internal-combustion engine, for example, we tend to consume more of it, because we are increasing the value – measured in this case, perhaps, as the distance travelled – that we can obtain for one unit of resource (petrol, aka gasoline, say). Increased driving would, in this example, offset any efficiency gains, and, over time, could even exceed them!

The Rebound Effect considers demand for a technology. But the efficiency problem is worse than that. There is also a supply-side aspect. The more efficient a technology – the internal-combustion engine, for example – becomes, the greater the hurdle to replacing it, with electric engines, perhaps.

Martin Wolf, writing in the FT this week, refers to a paper from the Bruegel think-tank, which discusses the issue in depth. Wolf finds the paper’s argument that “merely raising prices on carbon emissions would reinforce the position of established technologies” to be “persuasive”. The paper, which is well worth a read, suggests that, as well as setting a carbon price at “an appropriately innovation-inducing level”, the “EU should stimulate new technologies more vigorously” by “subsidising the diffusion of existing technologies” and increasing its funding of green R&D.

It seems to me that the basic green technologies we are going to need already exist. They require “D” rather than “R&D”. And, as every entrepreneur knows, the best way to fund product development is through the income from sales. I’m somewhat sceptical that a few billion euros of government support will allow new technologies to overcome the refinements made possible by – depending on the technology in question – 10s or 100s of billions or even trillions of euros of historic sales of fossil-fuel based products.

Worse, why won’t we use both fossil-fuels and renewables? Dirty industries might simply become more and more efficient alongside green industries reliant on subsidies. We might simply consume all the fossil-fuel based and renewable energy that we can produce.

The only way to wean ourselves off fossil-fuels is to target their overall consumption, maybe by breaking the problem down into national allowances.

Until China and India are prepared to accept national limits on their emissions they will not be contributing to the task of avoiding dangerous climate change. Carbon-intensity targets are no substitute for emission cuts.

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2 Comments »

  1. The Bruegel paper is seriously deficient by not comparing policy *packages*. “A carbon tax” is a *component* of a policy package. Is this to be combined with running fiscal surpluses? Or government spending increases? Increase welfare payments (to whom?)? Or tax cuts?

    “Pricing Carbon” does not “deal” with the external cost in a meaningful way, particularly if money is ploughed back into the consumers’ pockets.

    The paper is basically saying that carbon fuel consumption is very inelastic, especially in the short term – unless you “subsidise innovation”. But inelastic consumption is exactly what you *need* if you are to collect a high level of tax in this way. The high carbon price brings major benefits in the abatement of harmful emissions of tax law – especially in the realm of VAT.

    So if we can move to a zero VAT society (GST/PST for Canadians), simply by avoiding R&D subsidies and collecting the carbon tax, I’m all for it!

    Put it another way, we are offered:

    Package 1: VAT 17%, Carbon Tax £13/tonne CO2, “appropriate” innovation subsidy

    Package 2: No VAT, Carbon Tax £200, no innovation subsidy

    it looks like a “no brainer”. Package 2 offers the opportunity to abolish a major bureaucracy and the costly jobs with it. It would expand the small business sector in place of mega-corps. It would cut fraud and black economy, level the playing field for food, houses, aviation. No more visits from the VAT inspector! What’s not to like?

    And of course if the policy is successful in eliminating VAT and carbon pollution, the taxable surplus will move onto land, monopolies etc, ensuring a robust tax base is maintained.

    Comment by Adrian Wrigley — December 9, 2009 @ 1:33 am

  2. The NY Times showed what China’s emissions will do under their proposed scheme and an independent projection of their economic growth. I posted the graphs and a link to the NYT piece yesterday:

    http://www.grinzo.com/energy/index.php/2009/12/07/chinas-intensity-pledge/

    Comment by Lou Grinzo — December 9, 2009 @ 2:26 am


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