Category: Climate change

In the weekend’s Financial Times, Bill Gates outlines his green manifesto for corporate action. He lists four categories for the urgent attention of CEOs: investment, procurement, R&D and political dialogue. Companies can invest in green capital; buy their supplies from green providers; support green research; and express green opinions to their political representatives. He also suggests actions for policy makers, including proper carbon pricing.

Hard to disagree with any of that. But the elephant in the room, or perhaps I mean in his room, is our level of consumption.

Although he avoids mentioning it in the article, Gates is on record as saying that reducing consumption is not going to solve global warming. Which is not a surprise. We all justify our own choices; and someone who owns private jets is not going to take kindly to the suggestion that it would be helpful to get rid of them.

Instead, he offers up the idea that aviation emissions can be sorted out by switching to biofuels. Apparently he spends about $400 per tonne of emissions in purchasing biofuels to offset his plane trips; and he maintains that if enough wealthy individuals were to copy his example, prices would fall to a level that is more practical for normal impecunious travellers.

Up until this point, his article is refreshingly realistic. He points out, for instance, that trees have limited impact – that to offset American greenhouse gas emissions from tree planting, it would be necessary to cover over half of the Earth’s landmass with forests dedicated to the purpose. And that Americans make up just 4% of the global population, so even if such geo-engineering were internationally agreed upon, how could trees offset the other 96% of humanity?

It is understandable, if a little ironic, that this global realism fails him when he switches to the related topic of biofuels for aviation. But just as the Earth simply isn’t big enough for tree planting to offset the Western lifestyle, so biofuels are unlikely to meet the sector’s current energy demand, let alone a demand level that is inflated by widespread use of private jets.

A practical manifesto

A more realistic manifesto would tackle our levels of consumption. Reducing our usage of energy and materials is something most of us can do straightaway, without waiting for new technologies, economic frameworks or government policies. (The natural world is not waiting for them either.) If a large proportion of us consumers were, for the sake of argument, to knock a third off our current demand for fossil fuels, the impact would be greater than from any single technology or any government action, national or international.

People ask: what about jobs? what about tax-funded services like the British NHS? If we don’t ‘consume’, i.e. spend money, then the economy and social services will collapse. Or so goes the argument. The simple truth is that we could live in a world where we are materially poorer, in which jobs are greener and less well paid but not necessarily fewer in number, and in which welfare expenditure is protected, even if that means it uses up a higher proportion of our income than it does today.

We might even be happier. But because we are reluctant to give up what we have – even if it provides little enjoyment – we tell ourselves it is unreasonable, even economically naive, to ask people to consume less; that Gates is right, and salvation lies in technology.

Perhaps a reduction in the usage of energy and resources will result from meaningful (i.e. many times higher) carbon prices, which indeed he advocates. Timing is against us though; we cannot really afford to wait for politicians to agree on the economic mechanisms required to deliver these eye-watering prices or taxes.

Mathematicians and logicians like to distinguish between conditions that are necessary and conditions that are sufficient. In this language, Bill Gates might be correct that reducing our consumption levels will not be sufficient to halt global warming – and hence his manifesto; but, short of technological miracles, it is a condition for the survival of future generations that is almost certain to be necessary.

In Thinking, Fast and Slow, Daniel Kahneman describes his research into the following quirk of human nature. If we obtain something desirable, and then lose it or have it taken away some time later, we are unhappier than we would have been had we never received it in the first place. The ‘something’ could be anything we like – money, property, a partner, a friendship, work status, … even perhaps a reduction in our energy bill.

At the time of writing, Ofgem might be experiencing an acute sense of the truth of this observation. On Friday, the regulator announced an increase of £96 in the price cap for default energy consumers, with a new level of £1,138 (based on typical household consumption of electricity and gas) applying from 1st April 2021. This made national headlines, with many emphasizing the cruelty of a significant increase in these Covid-affected times.

Less attention was given to the fact that last summer Ofgem reduced the price cap by £84 for the winter 2020/21, or that this current level is the lowest since price caps were introduced two years ago. Several interpretations of this fact are possible: one might infer, for instance, that the price cap could have been lower to begin with. The point being made here is simply that Ofgem warned, repeatedly, that the current level might not last. In July, they stated that Covid had led to a fall in demand, hence a fall in wholesale prices and costs, and the opportunity had arisen to reduce bills significantly; they also stated that the reduction was temporary – that if costs returned to pre-pandemic levels, the cap might have to rise again. This was re-stated in October. In November, they warned that the cost associated with unpaid bills had escalated, which might place further upward pressure come the spring.

Fair to say the warnings have been a little submerged in some of the recent media reports.

Suppose the price drop in October had not occurred. Ofgem would now be reporting an increase of around £12, or 1%, roughly the same percentage as the Consumer Price Index movement over the last 12 months. It could have been announced as “price cap held fixed in inflation-adjusted terms”. Not much of a story there. The media would have been uninterested.

And yet customers on default tariffs would have been worse off because they would be paying more for electricity and gas in these winter months. Worse off in money terms that is, but probably happier because they would not have received a benefit (price reduction) that would be subsequently removed in the spring.

Equality and the environment

Fuel poverty is an emotive topic. To express any sympathy for Ofgem’s position runs the risk of being branded as middle-class and out-of-touch with the brutal reality facing thousands of households that have to choose between feeding their families and heating their homes.

Fuel poverty is serious. Its very existence is evidence of social and political failure. The state of the environment is also serious: as Mark Carney reminded us in a BBC interview two days ago, not that we should need reminding, climate change is likely to lead to many more deaths and much more hardship around the world than coronavirus.

A sound principle is that the price of a product should reflect the damage caused by its consumption. If David Attenborough is right and we are on the verge of another mass extinction – this time caused by humans via global warming – then energy consumption should be not cheaper but more expensive for most of us.

If we then say the fuel poor should be exempt or compensated, how do we define the fuel poor and how do we administer exemptions or compensation? No easy answers here, as successive governments of different colours have found.

If only we had a more equal society – or at least one in which everyone had a basic level of income. Then we could move on from the debate about fuel poverty, put an environmentally fair price on energy, and and give the proper economic support to a greener way of life we so desperately need.