Sunday, December 11, 2011

On environmental issues, businesses need government leadership

I've been wanting to write something about the Durban Climate Talks that was something more than the morbid curiosity with which I watch humanity choosing to cease to exist à la Easter Islanders by destroying all of the earth's natural systems on which we rely for survival. I like a lot the personal perspectives of my friend, Jo, who is attending the meetings. In the end, of course, countries decided to push our survival to the limit by agreeing to do something after 2020. Scientists say it will not avert catastrophic climate change and somewhat surprisingly for a country that already suffers extremely badly from the effects of climate change, India, were villains (who needs to drink water from the mountains anyway? and why should we care about monsoon patterns anyway?). All this is rather bad economics.

Thankfully, some companies are doing their best to go green despite a lack of Government leadership. But they are doing less than they otherwise would. One of the reasons is that they don't know what the standards will be and there are costs associated with setting standards only to have to change them. For this reason:

Of 300 bosses of big global firms recently quizzed by Ernst & Young, 83% said they wanted to see a legally binding multilateral deal struck in Durban to update the ailing Kyoto protocol and help to put a price on carbon emissions. But only 18% expect this to happen. The absence of a clear climate policy helps explain why, for example, investment in British clean technology fell from around $11 billion in 2009 to $3 billion last year. It would also suggest that any firm factoring a steep carbon price into its plans—as Shell does, assuming a notional price of $40 a tonne—should quietly lower it.

(see FULL ARTICLE in The Economist)

This applies in particular to new technologies such as that associated with electric cars. Israel is reportedly doing very well because the Government has already defined standards. Why invest in a system of recharging or changing batteries when the country may change standards? This partly explains why other countries are doing less well in this field.

A few companies fight against change. For example BA announced that an air duty rise will cost jobs. They are correct. But only in the short run and the alternative is far worse or, at least, far more expensive.

So there are two reasons why Government leadership is necessary: setting standards which are predictable and, applicable to everyone (fair competition) and forcing companies to adjust to the changes rather than fight them.

I recently read a book about the impact that humans have had on the environment and what the planetary limits are in different areas now and what can realistically be done. I recommend as essential reading The God Species: Saving the Planet in the Age of Humans by Mark Lynas. There is also an excellent interview with him on The Guardian's Science Weekly(I had pre-ordered this book in fact, and I plan to write a full review of it when I get time.)

He talks in great detail about the CFC (ozone layer) crisis. It is somehow seen today as if this was an easy one to fix but in reality it was far from easy. Governments needed to be strong armed into agreeing. Industry tried to resist saying that there was no alternatives.

Of course, any argument suggesting we could no longer have fridges or deodorants make people think twice. Indeed, I believe that all arguments saying that people's lives would be significantly worse following action to prevent climate change are doomed to failure. But this didn't happen. The industry developed new technologies and I am happy to report I as I write, I am sipping on a beer kept chilled in my fridge and smelling very nice, thank you very much.

The point is that clear legislation and leadership by Government gives industry an incentive to innovate. It gets around the short term profit motive. It gets around the risk of losing business if you go green but your competitor does not. It gets around the standards problem. Governments need to lead to avoid collective action failure (tragedy of the commons) and to create a level playing field.

And we need to have faith in human nature and the dynamism of the private sector to find solutions without lowering living standards. But this will only happen with Government leadership in the right areas (and, obviously, not interfering in business in the wrong areas).

One of the major justifications for having Governments at all is the ability to correct a collective action problem. In Durban they have failed and they all lose some legitimacy for this.

Tuesday, December 6, 2011

Apps for Climate

The World Bank has launched a competition: Apps for Climate

"This competition challenges participants to develop software applications related to climate change. The applications should serve to raise awareness, measure progress, or to help in some other way to address the development challenges of climate change. Submissions may be any kind of software application, be it for the web, a personal computer, a mobile handheld device, console, SMS, or any software platform broadly available to the public. The only other requirement is that the proposed application use one or more datasets from the World Bank Data Catalog available at or the Climate Change Knowledge Portal at" 

Friday, December 2, 2011

Exporting pollution and jobs

George Osborne had a few Green Concessions in his Autumn Statement, although maybe not enough - more words than actions but it is a good start as it at least acknowledges the importance of climate change for the economy.

Here is a part I found interesting:

"We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers," Osborne said, announcing the expected rebate. "All we will be doing is exporting valuable jobs out of Britain."

From an economic perspective, I dislike it - it smacks of protectionism and subsidising some sectors when British society and developing societies would all be better off if British steel mills, aluminium smelters and paper manufacturers did indeed shut down and we imported these goods from other places.

But I do agree that from a climate change point of view, he is probably right. Brits will not stop consuming these goods - they will just be imported. The pollution will just be shifted elsewhere. Here is some excellent analysis from The Oil Drum blog which shows that carbon emissions can decline in, say, the UK, but it gets shifted to, say, China (HT: MM). The planet as a whole does not benefit. Indeed, due to transport and the fact that China is less energy-efficient there may be a short term negative impact (but perhaps longer term positive one thanks to learning to be more energy efficient).

This is not a sufficient argument for bad economics though. Instead it means that it is the consumers and not the producers of carbon who need to pay for it. Shifting dirty production abroad and importing the goods is just cheating. It should also imply that taxes in the West help to pay for industrialising countries to become more energy efficient.

Why I carbon offset my last personal flight and why it should not have been a choice

I took some personal flights over the last (Thanksgiving) weekend and I just got around to doing my carbon offsetting through MyClimate

I don't think I should have had to choose to do this or make additional effort to do so. Fuel taxes should be higher to ensure that the full cost to humanity is integrated into the price of the ticket. At the moment, when I fly, I pay for the ticket which includes the cost of the fuel. But the pollution has a cost for more people which I am not paying for. The pollution I am causing is resulting in floods, droughts, crop failure, lost work days, increased sickness and many other bad things for other people. They are paying for a part of my flight and most of them live far more difficult lives than I do. (So, thank you for subsidising my flight - I appreciate it.) 

Just as for driving, fuel prices should reflect the full cost to humanity. It is true that the price would be higher if I had to pay the full cost and I would not fly so often. But that is part of the point - pollution would go down as I choose to take only more essential flights that I think are really worth it. I would still have the option to fly but I would have to value it highly enough to justify some negative impacts on other people. In addition, the increased taxes should go towards footing the bill for climate change in the poorest countries which are most effected and towards schemes to reduce climate change - call it 'offsetting' if you will.

Here is a nice video of the full effects of fuel for cars:

I don't think doing this offsetting should be my choice - I think it should be integrated into the ticket prices for everyone. As this article says "the big problem with voluntary donations is that they do not encourage airlines to demand cleaner planes or fly cleaner routes" (article in French-HT: KG). But till then it would be nice if airline companies made it easy to do this. Unfortunately, BA did not seem to make it obviously easy for me whilst purchasing tickets or on board but at least they did not pretend to, unlike some awful competitors. I think that is a pity.

West should pay for climate change

“The cost of adapting a integrated farming system in a village in Nepal could be US$20,000 per year, that of a rain-fed maize system in a district of Malawi’s US$55 million, and protecting the entire livestock sector of Tanzania could cost up to US$280 million — with all costs likely to treble by 2030."

Developing countries have to pay the price for western pollution but convincing people in the west that we have to pay for this is difficult. The Daily Mail for example, seems to feel that it is both a waste of taxpayer money and a way to manipulate African governments. I think that it is a good use of taxpayer money to pay developing country governments to be greener. The economic costs of climate change are high and it makes sense for wealthier countries to foot the bill. You can make your own personal contribution so that the Ecuadorian government does not rip up the rain forest to pump oil HERE.  As for manipulating African governments. Well, maybe. In the same way as I am manipulating potential smokers by taxing cigarettes. Or manipulating manufacturers by choosing what I buy. I think I can live with that.