Category: Climate change

“The nation behaves itself well if it treats its natural resources as assets which it must turn over to the next generation increased, and not impaired, in value.” Theodore Roosevelt, American Museum of Natural History, New York City

Brexit dominates our waking thoughts.  Whether we are Leavers or Remainers, most of us are agreed on one thing: this is a crucial moment in history.  Our future, our children’s future, will be shaped by the events of the next few weeks.  Our jobs, our public services, our culture … for the British, there is nothing that is now more important.

Or is there?   Even in these dark days of national self-sabotage, something is happening that is deeper and more irretrievable than Brexit.  Which is?  Climate change and its consequences.

Scarcity value

Human-induced climate change epitomizes perhaps better than anything else the attitude to the natural world shown by the ‘developed world’ since the Industrial Revolution.  This attitude is that the natural world is there to be exploited for human benefit, and if the process of exploitation leads to any problems, then it’s up to people in the future to sort them out as they arise.  The subject of economics has given this attitude a theoretical legitimacy as follows: trading of goods leads to price formation; and if a good becomes scarce in the future, then the price will automatically tend to rise to reflect its ‘scarcity value’.  The rise in price will discourage further consumption of the good in question, and also to encourage alternative goods to be traded and consumed instead.

Armed with this economic framework, we have dug up coal, drilled for oil and natural gas, used them for heating, transport and electricity generation, and pumped carbon dioxide into the atmosphere, all the while ‘growing’ our economies and generally relying on market prices to keep demand and supply in balance.

There is however a snag: there is no guarantee, as a limited resource is gradually consumed and its price rises, either that it can be quickly replenished or that an alternative can be found.  In the case of fossil fuels, we have not really worked out how to replace them for space heating or for transport, though some progress has been made in replacing them with renewables for electricity generation. Meanwhile, a large proportion of the earth’s hydrocarbons that took around 2,000,000,000 years to form in the Earth’s crust has been consumed within a space of 200 years.  That’s an extraction rate which is 10,000,000 times as fast as the rate at which they are produced naturally.

All the while, prices for hydrocarbons have been modest, because they have not yet become scarce.  The legitimized tendency to use up limited natural resources until they become scarce can be seen in several other contexts.   For example, the Great Barrier Reef is thought to be around 500,000 years old, but half of it has now been destroyed by climate change in a period of 50 years, while the remaining half is thought to have another 30 years to go.  Arctic ice, Antarctic ice and equatorial rainforests might similarly disappear, perhaps not quite as quickly, but still within this century at current rates of change.  Natural systems simply cannot respond that quickly to human exploitation.  In the case of CO2, the oceans will eventually absorb the excess we release into the atmosphere, but ocean circulation is measured in hundreds or thousands of years, far too slow to keep pace with our economic activity.  By the time hydrocarbons become scarce or world temperature rise forces politicians into meaningful action (the ‘resource’ here being the atmosphere’s capacity to absorb carbon dioxide without spiralling temperatures), it will be too late.  Scarcity pricing does not work for natural limits.

Replacement value

Long before climate change was an international concern, Theodore Roosevelt identified the need to replace natural resources that we consume.  Somewhat ironically, his statue stands in a museum in New York City, surely one of the world’s leading icons of unsustainability.

It is never too late though, and we can translate Roosevelt’s sentiment from desired behaviour to practical economics by assigning not just scarcity value but also replacement value to our natural inheritance.  Here’s the idea: the price of a natural good should cover the cost of its replacement.  For oil, given its very long geological development time, such a cost would be very high indeed, meaning that the remaining stocks largely stay in the ground.  For biofuels, combustion of which still produces carbon dioxide, the price should take into account measures such as reforestation and carbon capture that are sufficient to suck CO2 out of the atmosphere just as quickly as the combustion releases CO2 into the atmosphere.  Remember it’s the rate that matters.

The practicality of how replacement value might be implemented in the context of greenhouse gas emissions is a big enough subject for a separate blog.  In the meantime, I’ll just finish this one with a few thoughts on motivation.

A new story

For continued human existence to be sustainable, we will need a series of technological miracles or we’ll need to alter the way we live.  Currently most of us are wont to believe in the former, not very scientifically, because the latter seems too much like hard work and to go against the grain of our nature.  But that in turn depends on the story we tell ourselves about how to be happy.  So here is a germ of a replacement story.

Depression is increasingly normal amongst both young people and old.  To rediscover happiness (and, incidentally along with it, a chance of long-term survival), we need to re-invent our concept of happiness.  It is not much use if we look with envy upon those who have big houses and fly around the world.  Somehow we need to write a new story for ourselves, one in which envy is replaced by bemusement and a certain amount of sympathy.  In this story, it is a lonely and unfortunate state of affairs to live in a large dwelling on one’s own, having to worry about burglars and upkeep.  Instead, a more sociable and communal lifestyle means more laughter as well as higher occupancy rates.  Holidays are exciting because they are relatively rare, not tediously frequent and repetitive.   Food, wine and material goods all retain their savour from moderation in consumption.  To have any of these in excess is not to be privileged, it is to be burdened.

These are the germs of a new story that may be poorer in respect of property and travel and richer in respect of time and meaning.  I will try to build this story up in future posts.

I have been asked to write a piece about carbon offsetting: in particular, its merits and demerits. So here goes.

Carbon offsetting is the practice of paying someone else to take action to reduce carbon emissions somewhere else in order to compensate for one’s own carbon-emitting activities. Offsetting may be done individually or collectively. I cannot do better than Google or Wikipedia when it comes to listing the ways it is done or the companies that will take your money. But what are the pros and cons?

Let’s begin with the pros.

The merits of offsetting

Greenhouse gas emissions are a global problem: what matters is the overall level in the atmosphere, not where they were produced. As such, it makes sense to tackle the problem by searching internationally for the cheapest and easiest abatement measures. If carbon emissions can be reduced in Brazil, say, for a small fraction of the cost of reducing them in Britain, then humanity should collectively take the Brazilian action first. (It does not have to be either/or of course.) It need not be Brazil that pays: in fact it seems fairer for citizens or shareholders in richer (and more polluting) countries to foot the bill. This, in principle, is what carbon offsetting achieves: cost-efficient emissions reduction funded by polluters around the world.

This is akin to the idea of comparative advantage in economics: if a particular nation is able to produce a good more easily and cheaply than other nations, due to having better natural resources, human resources, access to capital and/or infrastructure in place, then – assuming production of the good is beneficial overall – it makes sense for that nation to produce at least as much of it as other countries.

Offsetting measures are usually advantageous in themselves. Cleaner forms of electricity production, methane capture, water purification, efficient cooking stoves, tree planting: if carefully managed to ensure that individuals are not unfairly treated (e.g. landowners losing their land to a new electricity generation project), such projects are likely to increase net welfare.

After a while, the offsetting measure may be ‘used up’ or become more expensive and no longer be efficient from this global cost perspective. That’s fine – there is no reason why the choice of offsetting measures cannot be altered in future.

The problems with offsetting

But there are difficulties, the first of which is verification – verification both that the money is getting to the project and that the project is effective. Can it be demonstrated that the funds are not being siphoned off by corrupt officials? Can it be verified that the same project has not already been sold to others, due either to corruption or mismanagement? Can it be demonstrated that the offsetting scheme is successful in reducing carbon emissions? At the cost expected?

A more complex issue is called additionality. Can it be demonstrated that the offsetting measure is ‘additional’ in the sense that it would not have happened anyway in due course? If, say, a new hydro energy scheme is probably going to be developed whether or not it receives extra support in the form of carbon offsetting revenues, then these revenues increase the profit of the developer but fail to support an overall reduction in emissions. Additionality is hard to establish because it needs people to agree on what would have happened without offsetting.

Then there is an interesting debate to be had on the topic of moral hazard. If people feel protected or absolved from the consequences of actions that are risky or harmful, they may be more likely to engage in those actions. George Monbiot has compared carbon offsetting to the 16th century Catholic Church practice of selling indulgences. By giving money to the Church, people could buy pardons for perceived wrongdoing and without repentence shorten a nasty stint in purgatory. Analogously, paying for offsetting expiates the sins of a polluting lifestyle, allowing the purchaser to avoid the inconvenience of altering it.

From a practical viewpoint, the validity of this argument depends on whether the difference between the carbon footprints of the guilt-free offsetter and the remorseful non-offsetter exceeds the savings from the offsetting measure itself. If the lifestyle of the would-be offsetter is the same whether or not they make payment, then this argument is more of a moral one than a practical one. In an effort to make sure this is the case, some offsetting companies (in contradiction to the pure theory of comparative advantage) actively encourage participants to reduce their own emissions first, where they can, before they buy carbon offsets.

There is, however, a risk that in setting a monetary price for offsetting, companies establish a benchmark in people’s minds as to the value of climate change. To date, the price of offsetting has been relatively low – e.g. £7/tCO2, a price at which the additional cost of say a trans-Atlantic flight is relatively insignificant. Low prices create the false impression that we don’t need to spend much, and hence don’t need to change much, for serious climate change to be averted.

It is frustratingly difficult to know exactly what a carbon offsetting company does with the money one gives it. There is a need for more auditing of these companies. It feels that overall there is a place for carbon offsetting – that it should be ‘net positive’ – but it can never obviate the need for the Western world to change its ways.