12 December 2009

Climate change and the global energy policy nexus

A fine piece. News Kontent does not endorse paranoia and denial and asks if its the climate science community or the owners of fossil carbon infrastructure who have the biggest incentive to muddy the debate. We think the later.

by Andrew McKillop
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission
December 9, 2009

Basic Complexity of the Issues

On December 7, some 56 leading newspapers in 45 countries took the unprecedented step of publishing a common joint editorial. The reasons for this were described by these papers as due to humanity facing a profound emergency. The editorial said that unless there is worldwide and vigorous common action, climate change will 'ravage our planet and with it our prosperity and security'. The same editorial gave examples of the grave menaces that it says have been building for a generation. It said :'Now the facts have started to speak: 11 of the past 14 years have been the warmest on record, the Arctic ice-cap is melting and last year's inflamed oil and food prices provide a foretaste of future havoc'.

In the same way, and with a little more creative networking of ideas, global warming and climate change can be blamed, or heavily implicated in many other fields. These can include erosion, salination of agricultural lands, high building land prices, global spread of seasonal and other virus diseases including influenza, economic migration from poor countries to rich - but not, for example, low natural gas prices or low interest rates.

Given the intensity of world mining, fishing, agriculture, industry, transportation and urbanization it would be surprising if there was no anthropogenic climate change, or human-intensified natural climate change. As the 'climate sceptics' say, world climate change has always existed: our problem, today, is accelerated climate change joining other long-term processes making a secure and prosperous future less and less likely. Among these, mineral depletion and bioresource loss or species extinction are major long-term features of the 'environmental pessimists' agenda, and a constant challenge to technological optimists.

Single and Multiple Causes

The search for key causes, or even unique causes, is constant but it is constantly frustrated by complexity, which itself has a one-way tendency to increase. This can be explained by the present global crisis issue of climate change. This change is certain, while global warming is not certain. The identification of CO2 as the overwhelmingly most important, or even the nearly unique driver of both global warming and climate change is also uncertain and theoretical, although saying this is not politically correct.

CO2 is at least the driver that we can act on, reducing CO2 emissions by large or massive amounts in a short period - which could or should also stop oil prices from rising, if oil demand is also capped or reduced. If we find that reducing CO2 in the atmosphere (or in fact, slowing its growth) does not slow climate change, but appears to reduce global warming, and helps slow the growth of world oil demand and limits oil price growth, and also helps launch "the green economy", this could be considered a large if partial victory. This might be the situation by let us say 2025.

In turn however this will demand the implementation and pursuit of very large alternate energy spending. This will particularly concern carbon capture and sequestration at coal fired electric power stations, which worldwide supply around 55% of all today's electricity. These already complex, high cost and uncertainly feasible long-term actions focused in the energy sector, we can call 'energy levers for CO2 reduction', but several other sectors are also clearly concerned. These include agriculture, forestry and other land use, where many accompanying measures and actions will be needed, also on a long-term basis, if we want to achieve the first goal of a final cap on global CO2 emissions, perhaps around 2025-2035, before moving on to large and reliable annual reductions in total CO2 emissions.

The dates are of course "fuzzy". Media and political attention is riveted on the renewable energy sources, where bigger and bigger targets are announced. Satisfying even 5% to 7% of world total commercial energy demand from non-hydro renewables like wind farms and solar photovoltaic power plants, by 2030, would however be quite a heroic task. This particular goal is costed by myself in published studies at around US $ 11 trillion in 2006 USD value, over 20 years. Many other spending and investment scenarios exist, and new ones are published almost daily. Amounts proposed are always increasing - but the most effective framework assumption of quickly achieving zero growth in world energy demand, then reducing it, is as yet rarely considered.

The reasons for this careful avoidance of the 'zero option' are so evident we do not have to list them, but can simply take the 'per capita' argument used by Chinese and Indian leaderships for refusing global, immediate and binding CO2 emissions cuts. If or when these two countries achieved even one-haf the present oil or gas intensity (demand per capita in barrels or barrel equivalent) of the OECD in 2009, their combined CO2 emissions from oil and gas burning would make any chance of capping global emissions impossible. The 'zero option' for both OECD and nonOECD countries is therefore latent, and certain in the future, but for the present is not politically correct.

This in turn and however generates further powerful complexities. Some of them are evident and others less so. Missing a certain key target, either national or global for a key date may make the set of options and policies related to attaining or achieving those goals obsolete or inapplicable. This is similar to problems in range finding and targeting of artillery fire, missile fire control, or celestial mechanics - exactly the bases of cybernetic science. Systems theory is needed for planning various 'critical paths' with various levels of redundancy, at various levels of confidence.

Global Warming versus No Global Warming

If there is no global warming (GW) why support actions to prevent or limit human-caused emissions of GW gases and particulates or aerosols ? Unfortunately for the sceptics, both sides in the climate change debate have substantial theoretical credibility and supporting scientific evidence. Modelling and forecasting planetary change of a 'simple thing' like daily weather requires the largest computing power outside the world's military. Weather forecasts are not always right, and usually there are few excuses offered by national and world weather forecasting institutions when they get their daily forecast scenarios wrong. In no way does this mean we lose all faith in computing power, and return to bark strips or tea leaves for weather forecasting, although removal of 'offending' tree ring data by GW researchers and theorists, because its 'performance' in showing constant GW was disappointing, is also too radical.
Exactly the same applies to intervention or non-intervention in global, regional and national energy economies. This can use a business application of systems thinking: the "marginal" concept used in business planning, which starts with a comparison of risks and probabilities for each action, at and for a certain time, and with various degrees of investment spending or intensity of action. If we take actions to reduce greenhouse gases, but find later on that human GW was actually insignificant or less than we feared, our net loss would be the cost of these actions, as well as hypothetical alternate uses for the same resources through the same period.
We however have another and much more certain driver for transiting away from fossil fuels and developing alternate and renewable sources and systems: Peak Oil, qnd the sure and certain depletion of the easiest and largest reserves and sources of oil, coal and gas. As with population control to limit the demographic crisis, this is another politically incorrect, carefully avoided driver for alternate energy, but in no ways prevents it from being real. Large spending to force energy transition away from fossil fuels and other resource conserving features of "the green economy" will also generate the benefit of earlier substitution of non-renewable resources in the economy, causing a situation very similar to that when coal started substituting wood as a major industrial heat source, or petroleum oil started substituting whale oil for street lighting.

If we take no action, the laisser faire path, there will inevitably be higher future monetary costs, and lost options, for correcting or mitigating the higher level of accumulated damage to our planet. Running out of oil will no longer be a theoretical graph curve, but a reality. Comparing the consequences of these two extreme alternatives (no action versus massive action) it is very apparent that the most basic lever for change - depletion of fossil fuels and need for alternate energy - will become more critical and costs will rise radically, if we do not soon act to replace non-renewable fossil fuels. This will probably be joined by action to cap and then reduce world total commercial energy utilization, preceded by this option becoming politically correct and able to be discussed. Not taking action, now, only pushes forward the date when we, or our descendents will have to take action. Calculating the 'opportunity cost' of different policy sets or ensembles will tend to show we have plenty to gain with little to lose by taking action now.

Policy Making for Transition

Current and recent policy making across the wide, interdependent and converging fields of energy-economy-environment and climate has always been sector isolated, often short term, many times ad hoc. This applies not only to public policy, but also corporate private enterprise and other entities and groups, all of which, however, have a common interest in a managed, optimized and predictable future. When results do not match expectations, locating the causes, bottlenecks, conflicts and interference between different policies, or elements of operated policies is usually difficult. Those responsible for setting policy of course seek 'overall best fit' or good 'system performance', but the areas where they should focus their effort are not necessarily clear, nor their actual choices. They are often left with no choice but to rely on ad hoc methods, on intuition, or abandoning current policies without attempting to bridge conflicting goals with various critical path modelling techniques. Doing this, could enable lower cost and effective reforms and modifications to be made, without abandon of the policy implementation structures and any cumulative positive results obtained.

This challenge will be especially strong as energy-economy-environment become more welded together, less easy to dissociate and treat separately. Negative feedback from incompatible and divergent policy mixes will rise quickly in cost, and could threaten overall progress towards the highest levels goals: preventing runaway climate change and substituting first oil, then gas and coal in the global energy mix.

Examples of this are easy to give. The long and hesitant process of generating recovery in OECD economies and elsewhere has included, or still includes government subsidies, cash gifts or soft loans to car buyers. Cars purchased are almost exclusively oil-fuelled, if somewhat higher fuel efficient than the traded in, and often scrapped cars, in some countries often including cars less than 6 years age. Given that car lifetimes in OECD countries are usually above 13 years, this economic recovery policy has at least two negative impacts. Future oil demand for private road transport tends to be maintained, and future subsidies needed to encourage trade in of these 'economic recovery cars' and replacement by electric or hybrid cars will have to be higher, than in the absence of the state aid to buying cars. To be sure other negative impacts can be included, for example subsidies given to private car buying make it difficult to also give subsidies to urban mass transit development, or intercity high speed rail.

Financing Global Energy Transition

One essentially avoided critical issue, at present, is financing what will inevitably be a worldwide transition away from fossil fuels. Although heavily implicated in, and basic to transition away from fossil energy to green energy, the linkage is presently not formal and open. More important for operation of what can only be a massive, long term and global process, no explicit energy transition fund or funding framework exists. Many reasons exist for the absence of decision leading to creation of a 'global energy transition fund'. These range right across the spectrum from scientific and technological, to industrial, economic, monetary and other factors, even political ideology, opposed to multilateral 'big government' or world government action. This type of action we can note is usually reserved for post-catastrophe, postwar situations. Climate crisis plus oil depletion have as yet to achieve that status. If we believe the statements of leading G20 politicians on the climate issue, this is an oversight that is now being corrected.

As noted by myself in previous articles (www.financialsense.com/editorials/mckillop/2009/0930.html)
we already face what will become radical either-or decisions in global energy financing due to spiralling needs for conventional oil and gas capex, versus ever growing estimates of what is needed in alternate and renewable energy spending. Choosing both is likely impossible even today, and will become yet more impossible by as early as 2020, notably because of further capex needs due to oil depletion being joined by gas depletion and global coal infrastructure limits by that date. Action to mitigate climate change by massive investment in renewable and alternate energy, as noted above, only jumpstarts certain inevitable longer term investment and spending decisions, not only in the energy sector.

This is a complex issue, not easily brought into the political arena, but planning ahead is always appreciated when it delivers proven, and provable results. To this end, therefore, financing frameworks will enormously benefit from systems-based design, definition and implementation. Upstream from this, the needed global policy mixes or ensembles for ensuring best possible 'system performance' will necessary include the consideration of energy, economy and environment as fundamentally linked and convergent.

A Few Conclusions

The pace of events in climate change alarm, and G20 government climate-related energy and economic policy (with environment soon to enter), all tend to underline the critical lack of coherent and mutually-reinforcing policy sets or ensembles. In addition, the lack of any real global financing framework or system for green energy transition will likely deliver even lower success or 'bang for the buck', than the complex, speculative, limited and specialized 'semi private', but in fact public-private, financing frameworks typified by emissions cap-and-trade. This could be called a worst case mix of public policy irresponsibility and incompetence, and private sector opacity and greed.

To be sure every possible financing method and process can be suggested. Mass issuance of 'citizen energy credits' is suggested by several NGOs and associations. The other extreme is similar. The two extremes meet in an increasingly possible IMF-managed creation and issuance of a new world money, the "CO2 Bancor", at least nominally restricted to energy-and-climate financing, but also designed to relieve pressure on the US dollar as world reserve money.

Green energy financing by strict market-only mechanisms is unlikely, now, simply because public expectations have risen fast with political grandstanding by G20 leaders, and because oil depletion will not wait another 5 years or more, for trial-and-error to eliminate inefficient and low net energy candidates, such as crop base fuel ethanol. By 2015, loss of world oil export capacity could reach 2.5 Mbd a year, about the present total import need of South Korea or Germany, yet world biofuels production growth is at best a few hundred thousand barrels/day each year. We are forced to conclude that costs and time requirements for free market trial-and-error policy and programme selection are too high. This is due to accumulated impacts of past inaction, notably the long period of cheap oil through 1986-2000, and through market mediated wrong choices, shifting too many resources to poor energy performers, while starving potential high performers of resources needed for their sustained development.

Probably the key factor for ensuring sufficiently rapid and reliable transition away from the fossil fuels and global capping of greenhouse gas and particulate emissions by around 2035 is policy. Present policy making in the energy, economy, and environment plus climate fields remains sector focused, often firewall separated, generating mutual antagonism and weakening of initiatives and programmes implemented. Apart from not attaining initial goals, programme costs are raised by unnecessary duplication of single-sector policies that soon lose credibility. The default solution is often abandon of the policy, major financial and economic loss, and the start of a new cycle of ad hoc 'solutions'.

The real answer is simple to identify but difficult to apply: coherent policy ensembles of convergent or non-antagonistic programmes, implemented only after comprehensive study of all single policy interactions and elimination of unproductive policy sets. Regional and national effort will be prime in setting these ensembles, with regional and national financing and funding mechanisms dovetailed into global frameworks, for example through reinforced versions of currently emerging climate-related aid and assistance to most affected low income countries. In this way, the goal of setting and achieving long term transformation and transition of the economy and society will have a higher chance of being realised.

© 2009 Andrew McKillop



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