Why Are We Waiting?

If you want to read one book on climate change, which provides a balanced and comprehensive overview of the topic this is it. Nicholas Stern has been engaged in the issue for decades. In 2006 he produced “The Stern Report: The Economics of Climate Change” reviewing the economic implications of moving to a low-carbon global economy. The authority of the writer comes across from the start and builds as you read the book, which, for those that did woodwork, is not without its challenges.

IMG_1258The book came out just before the 2015 Conference of the Parties (COP21) in Paris. It set out a new approach to the global management of climate change moving away from top down, legalistic targets to an approach premised more on, effective measurement of emissions, individually set voluntary targets and regular review of these to establish more ambitious ones. In essence this seems to have been a recognition of the political reality that a) the US Senate would block any Treaty ratification and b) many of the emerging economies were unlikely to sign up to something that undermined their economic growth.

The title of the book aims to challenge the current complacency around the issue of climate change. Stern sees the next two decades as fundamental to determining whether the world can create a viable response to the threat of global warming. The reason for this is a combination of demographic, economic and infrastructure changes that are set to occur over the next twenty years.

Demographic projections between now and 2050 suggest the world’s population will grow from something over 7bn to just under 10bn. What is more, 70% of that population will live in cities compared with 50% now. Many of these people will be in the rapidly expanding emerging economies, notably China, whose growth is hugely energy resource hungry.

These mega trends have enormous investment and resource consequences, which, are intensified by the fact that the existing infrastructure of many developed nations is dilapidated and also requires significant investment. This means over the next twenty years there will have to be massive investment in developing new cities and improving existing ones.

How this investment is undertaken and its results will structure the world’s energy demands for the rest of this century and beyond. This is fundamental as the science makes clear we are now close to the limit of CO2 equivalent gasses (CO2e) that we can put into the atmosphere without creating an existential challenge to the future of the human race.

Currently, the world emits about 50bn tonnes of CO2e gasses annually. If we want to constrain the global temperature increase to no more than 2 degrees Celsius we need to reduce emissions significantly. Specifically by 2035 we need to be <35bn tonnes and by 2050 down to <20bn tonnes. Whilst the specific path might vary this level of reduction reasonably represents the scale of the challenge. A challenge magnified of course by the growth in the world’s population and in its wealth.

The book is well documented and provides a brief history of the underlying science relating to the impact of CO2e gasses on global warming. It charts the ups and downs of the international policy response since the establishment of the Intergovernmental Panel on Climate Change in 1988.

The arguments in the book are very balanced. Stern is not one for “sexing up” the evidence. He genuinely believes it speaks for itself. He is meticulous at presenting the positive progress that has been made in some areas. Indeed he thinks this is vital in convincing people the issue is something that can be addressed, as well as must be.

His emphasis, however, is urgency. He explains how the nature of the problem is such that it conspires to undermine effective policy action. Its scale, the risk and uncertainty surrounding it, the delays in consequences and the “publicness” of greenhouse gas emissions all undermine an appreciation of what is a clear and present threat.

The notion of the “publicness” of greenhouse gas emissions is worth a word. By this Stern means it does not matter where the emissions come from, it is the cumulative total which matters, and its main impact will not be distributed on the basis of who has contributed most to the problem. This raises enormous questions of equity given that the largest contributors to the problem to date have been the, rich, developed nations of the Northern hemisphere and, per head, this remains the case. Ironically the, poorer nations in the Southern Hemisphere, who to date have contributed least are those likely to face the earliest significant consequences of change.

It is partly because of this that one, if not the, key theme of Stern’s book is the need to link the issue of climate change and poverty reduction. As he puts it “… the two defining challenges of our century are overcoming world poverty and managing climate change.” If you think solving world poverty sounds a bit idealistic reflect on the following. The current level of global CO2 emissions is 7 tonnes per person. If we want to keep global warming to 2 degrees Celsius this needs to come down to 2 tonnes per head by 2050. Currently China, the largest national emitter of CO2, emits the equivalent of 9 tonnes per person. The United States on the other hand emits 20 tonnes per person.

People living in grinding poverty, or even at standards which are half those of a small minority of the planets population are unlikely to worry about the impact of climate change if those that have been the “winners” to date are not seen to be doing a lot of the heavy lifting. The eradication of global poverty is no longer just a moral issue it is tied to the long-term sustainability of the planet.

There is a technical section of the book which looks at the models used to predict the impact of climate change. Stern feels there are some fundamental flaws to some of these models. He argues, “The basic problem is that they have assumed underlying growth plus only modest damages from big increases in temperature, plus very limited risk.”

Because they ignore some significant “tipping point” risks and issues like potential migration patterns they lead to overly optimistic conclusions. So, for example, some of the models assume 2% annual growth and 20% damages from climate change over time. These end up showing the world to be 6 times better off economically even with 8% temperature increase. So the economy is fine, it’s just that all the people are dead.

The book is written in a very clear and persuasive manner. There are no flights of emotional rhetoric, no avoiding difficult questions. The evidence is laid out systematically and rigorously. Mr Stern clearly believes in the power of rational argument, which is much to his credit. I would be very loath to question his grip on international policy development. If I have one concern it is that he may underestimate the strength and resolution of those with a material interest in rejecting the risks associated with climate change.

Unless there is a massive technological breakthrough on carbon capture and storage the reducing CO2e emissions path set out above is probably the only viable way to limit the increase in global temperatures. The implications of this are that somewhere between 65% and 80% of the known fossil fuel reserves currently in the ground have to stay there. That is a lot of pain. Pain, which would be felt by some of the most wealthy and thus powerful people on the planet. I am not sure how far rational argument will go along that line.

I started by suggesting that if you only want to read one book on climate change “Why are we waiting?” should be it. I would conclude by saying don’t read one book on climate change, read two. Read Nicholas Stern in conjunction with Naomi Klein’s “This Changes Everything”. Stern and Klein have very different views about who will play the leading role in addressing the issue of climate change. For Stern the private sector has to be mobilised. For Klein it is an effective state energised by local activism. Whatever their differences they are both attempting to inject a much-needed level of urgency into the issue of climate change. They both provide insight and illumination. A Kein/Stern synthesis would be tremendous until then the effort of reading two substantial books will not be wasted both are excellent in their different ways.

Nicholas Stern. Why  Are We Waiting. MIT Press 2015

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Unprecedented does not mean unexpected

The word of the moment is unprecedented. First we had unprecedented rain in Cumbria, then unprecedented rain in Lancashire and the latest unprecedented rain is in Yorkshire. In a few days we may well have more unprecedented rain. Everyone knows that we cannot control the weather therefore we can hardly be critical of government when mass flooding is the result of unprecedented rain.

This sounds a bit like the bankers comments about unprecedented debt default in 2007/08. But if your risk strategy is based upon calibrating future risk based upon past events you are always in danger of being caught out by changed circumstances. If default levels were low at times when credit was only provided to people who could afford to repay it one cannot use risk levels based on this when you start giving debt to anybody that asks for it, indeed to many who did not even ask for it.

In relation to the unprecedented rain levels they should not have some as a surprise to any government. Earlier in December 195 countries from around the world got together to talk about how collectively they were going to tackle climate change. Reports of the Intergovernmental Panel on Climate Change and the International Energy Agency have provided reports making it quite clear that our weather is now and will be more and more affected by climate change. Earlier this year Committee on Climate Change provided a report to the Government warning of precisely the problems we are now facing. The government chose to ignore it.

If you are told that unprecedented weather is likely to become the norm it is not good enough, once that weather comes, to say it is unprecedented as if this provided an excuse. Governments are supposed to have an eye to the future they should be preparing for what is going to happen not what has happened. The last government was much criticised for “failing to mend the roof when the sun was shining”. Ironic that we now have a government who seems to have done the same only rather more literally.

The truth of the matter is the government were unprepared for events which global, international and national agencies have warned about increasingly loudly for years. Expressions about our hearts going out to the victims of this devastation and the sterling work of our brave emergency services and armed forces does not cut it. This government needs to get real about climate change and recognise that it is going to cost serious amounts of money for sustained periods. The longer we pretend this is not the case the worse it will be in terms of personal upset and disruption and societal cost.

There is one important thing we should not lose sight of and that is the low number of casualties and very low fatalities resulting from these floods. This is in large part a testament to the improvements in weather warnings issued by the met office and Environment Agency. Timely warnings have enabled, in the main, contingency plans to be put in to operation. It is ironic we are so dependent on the micro-forecasting capability of climate scientists whilst we continue to treat the macro warnings with such a cavalier attitude.

Climate of Change

In December this year, in Paris there will be the meeting of the 21st annual Conference of the Parties (COP21). The parties concerned are those that are signed up to the United Nations Framework Convention on Climate Change (UNFCCC). This is the convention agreed at the Earth Summit in Rio de Janeiro in 1992 aimed at stabilising greenhouse gases in the atmosphere to prevent dangerous interference with the climate system. It was the 16th session of the COP at Cancun that went further and agreed that future global warming should be limited to 2 degrees centigrade above pre industrial levels.

Given this is the 21st Conference you may think it is just another of those climate change conventions that seem to confirm things are getting worse, talk about what progress is being made with renewable energy and what urgent action needs to be taken and end in a diplomatic fudge. Given the track record it is probably right to be sceptical.

There is just a chance however that it might start to gain some traction in the mind of the public as the deadlines for action start to close in. In 1992 when the issue of climate change was still relatively new and the science hotly contested, talking about issues which may have an impact in the middle of the next century was unlikely to generate much public concern.

The situation is different now. The International Energy Authority (IEA), an autonomous agency established in 1974 to promote energy security among its 29 member countries, has written a report in advance of the COP21. It is an interesting read.

In terms of the tone of the document think of Blackadder, yes the Rowan Atkinson one. Imagine the kind of report that Captain Darling might have written to Lord Melchitt about the success to date and prospects of the strategy adopted by the British Generals in World War One. Explaining to an irascible and unwilling superior who might have you shot for dissension why the strategy adopted to date is probably not going to cut it.

As you might expect the report starts with an emphasis on the positive. It talks about the sustained level of investment in renewables at $270bn per annum. It also talks about the fact that 2014 seemed to indicate a decoupling of growth from increases in carbon emissions i.e. whilst the global economy grew by 3% CO2 emissions stayed flat.

It then goes on to say what sterling work nations around the world are doing with things called Intended Nationally Determined Contributions (INDCs). It is worth just pausing to analyse the terms in this concept. “Intended” – we will do our best but we cannot guarantee. “Nationally Determined” – we will decide if we want to participate in saving the world, not some international busy body. “Contributions” – we are not doing this on our own, if you don’t we wont.

Perhaps a bit harsh as there has been genuine progress with e.g. the European Union pledging to cut green house gas (GHG) emissions by 40% by 2030 relative to 1990 levels.

However, we now turn to the bit about walking towards machine guns. The report points out that “With INDCs submitted so far, and the planned energy policies in countries that have yet to submit, the worlds estimated carbon budget consistent with a 50% chance of keeping the rise in temperature below 2 degrees C is consumed by around 2040 – eight months later than is projected in the absence of INDCs.”

In essence if we continue as we are, even with the mitigation strategies in place that we have, in 25 years time we either stop burning fossil fuels all together (one can see the whiskers of the Oil Industry Melchitts starting to twitch at this point) or drop the 2 degrees C target and accept the risks that flow from that.

The IEA propose building on the INDC’s position to create “a “virtuous circle” of rising ambition”. This is Captain Darling speak for “What you are doing is nowhere near working and you have to get real.”

In a rather convoluted fashion they call on “political leaders of the highest level” to make clear their commitment to low carbon development. They identify four pillars to support that achievement. Captain Darling like, they set these proposals out at a level of abstraction which they hope will hide their radical implications.

1) Peak in Emissions – set the conditions that will achieve an early peak in global energy-related emissions.
2) Five Year Revision – review contributions regularly, to test the scope to lift the level of ambition.
3) Lock in the Vision – translate the established climate goal into a collective long-term emissions goal, with shorter-term commitments that are consistent with the long-term vision.
4) Track the transition – establish an effective process of tracking achievements in the energy sector.

Having got this far without being shot Captain Darling gets on a bit of a roll and proposes a “bridging strategy” to deliver a peak in energy related emissions by 2020, 5 years from now. The Bridge Scenario relies upon 5 measures:

1) Increasing energy efficiency in the industry building and transport sectors;
2) Progressive reduction of the least efficient coal-fired power plants and banning construction;
3) Increase investment in renewables from $270bn to $400bn in 2030
4)Phasing out of fossil fuel subsidies by 2030
5) reducing methane emissions in oil and gas production
These measures involve “putting a brake on growth in oil and coal use within the next 5 years…” Oops I think I hear the sound of a firing squad being drawn up.

Whilst the report is written as diplomatically as possible the underlying reality shines through. Burning fossil fuels as we are and expecting to prevent global warming is as rational as marching soldiers towards machine guns to win a war. The reality is we have to stop using fossil fuels, and quickly. Whilst the worst of the consequences are some time off the time we have to take effective action is now.

There are signs that the issue is starting to move up the agenda of politicians and policy makers. In 2014, as recorded in the FT, the then energy secretary Ed Davey “called for tougher rules to be applied to companies holding “risky” fossil fuels assets that could plunge in value because of global action to tackle climate change.” Mr Davey went on to talk about some analysts who were estimating such actions could cost the fossil fuel industry over $28trn in lost revenue over the next two decades.

Earlier this week Mark Carney warned investors that they may face “huge” climate change losses. With almost a 5th of the FTSE 100 industries being natural resources and extraction companies this is a matter of come concern. The carbon budget the world can use if it is to secure its 2 degrees C temperature increase target amounts to between one fifth and one-third of proven reserves of gas and oil.

To be clear, this suggests that somewhere between four fifths and two-thirds of the current reserves, which are giving value to extraction company balance sheets, may be “stranded” in the ground.

Some investors are already alert to this issue. The heirs to the Rockefeller fortune and Stanford University have started to sell out of oil and coal shares. It may of course be there is some ideological driver to those that divest early. However if politicians “at the highest level” start to take actions along the lines set out in the IEA report mentioned above, then serious investors, concerned only with financial returns, may start to move. If this happens it will have implications for everyone. Who’s pension does not have shares in BP? There is no easy option here and the longer the issue is left the worse the options become.

At the moment there are plenty of urgent issues to deal with: ISIS; the Russian intervention in Syria; Austerity; the slowdown of the Chinese economy; and potential crisis in developing economies. Whilst these issues demand attention our leaders cannot ignore the growing crisis that global warming might represent. The science seems to be overwhelming and certainly sufficiently clear to require the adoption of the precautionary principle given the stakes.

Mr Cameron is always telling us about the difficult choices he is willing to make. Is he going to tell the fossil fuel industry that its business model is broken, or gamble with the future of the planet. That may be a particularly difficult choice…for him

Sources:

Energy and Climate Change World Energy Outlook Special Report; FT 11 December 2014; FT 29 September 2015