CLIMATE CHANGE
IN DECEMBER 2009, as the Copenhagen climate conference fell apart, the chairman of Greenpeace UK, John Sauven, said “the city of Copenhagen is a crime scene tonight, with the guilty men and women fleeing to the airport.” His remark captured some of the salient characteristics of climate policy: the importance of treaties and regulation; the central role of politicians, advocacy groups and non-governmental organisations such as Greenpeace; the pervasive moral certainty; and, though this was only in the background, the commitment to renewable energy, especially wind and solar power, as the primary means of cutting carbon emissions.
For many people, the great problem of climate change has been a failure of regulation and political will. If only, they say, the obligations of the Kyoto accord had been more comprehensive, the regulations stricter, or if more money had gone into renewables. Then the world might have reined in the temperature rise and the public would not have become so sceptical about climate change.
Not so, says Dieter Helm of Oxford University. It is not the failure of the regulations that is the problem but their basic design. They have caused people to focus on the most expensive ways of mitigating climate change, rather than the cheapest, imposing high costs for little gain. Moreover, by concentrating on their own carbon production, and how to reduce it, Europeans have ignored the impact of their continued demand for goods made using carbon- intensive processes. Since Chinese and Indian manufacturing is usually dirtier than Europe’s, the real upshot of Europe’s choices has been an increase in global emissions. The regulatory approach, argues Mr Helm, has got the worst of all worlds. It is expensive, it has not cut emissions and its treaties are unworkable. No wonder the public is growing sceptical.
The heart of Mr Helm’s book is an examination of the economics of renewable energy. Take wind farms. Wind-power generators are expensive. But this is only part of the problem. They are also intermittent. One day last February, wind power produced almost a third of German electricity; four days later, nothing (it was a calm day). This, argues Mr Helm, has damaging consequences. Supplies are unreliable so wind does not really add to the security of a nation’s energy supplies though proponents argue that it does. Nations have to build lots of spare capacity for windless days. This was fine when wind farms were marginal, but now they produce a tenth of Germany’s electricity and their output is rising fast. To make matters worse, wind messes with the economics of the spare capacity, too. When the wind blows, the extra energy is free. Other forms cannot compete and the standby generators have to close. But other sorts of power stations are not designed to be switched on and off: they are supposed to run all the time. Since energy cannot yet easily be stored, wind farms are making other forms of energy uneconomic.
The system therefore relies on a panoply of subsidies which, as night follows day, has produced an enormous industry to compete for them—wind and solar firms, lobbyists, NGOs and politicians. The entire renewables sector, Mr Helm argues, has become an orgy of rent-seeking.
Green activists, politicians and NGOs will hate this book. But Mr Helm has done a service to everyone else by describing what a global climate-change mitigation regime would look like if one took economics seriously. You would start, he says, with the cheapest way of reducing carbon emissions (not the dearest), meaning gas, especially abundant shale gas. Gas produces less than half as much carbon per unit of energy as coal and about 50% less than oil. But the French government wants to ban shale-gas production.
Second, you would introduce a carbon tax, rather than (as now) a carbon price. These sound similar, being different ways of embodying in the price of a good the real cost of the carbon it takes to make. Actually, a tax is better. To see the difference, consider an extremely toxic substance such as mercury. Even a small amount in a river can do immense damage, so this is a case for strict permits, which should be tradable to encourage efficiency. You want fixed amounts and a variable price. Carbon is different. A small amount extra makes little odds. But miscalculating the cost of reducing emissions, as the world is doing, is expensive. In this case it would be better to fix a price (ie, a tax) and let the quantities vary. Third, Mr Helm argues, some of the money that goes on renewables would be better spent on future clean technologies such as carbon capture, energy storage and electric vehicles.
This prescription is unrealistic. Europeans are too committed to their regulatory approach to change now. But Americans, Chinese and Indians would learn a lot from Mr Helm about cutting carbon emissions rationally. And all readers will get a cogent account of how self-defeating current global climate-change policies are turning out to be.