Free market disciples are understandably incensed that governments around the world are sending thousands of bureaucrats around the world on junkets (Copenhagen, Durban, etc) to negotiate a framework between governments to impose emissions limitations to solve an issue (manmade climate change) that may or may not cause huge economic, social and geopolitical problems in the future.
From the Mail:
Countries agreed to a deal today to push for a new climate treaty, which will cut emissions in poorer countries, costing British taxpayers £6billion.
Energy Secretary Chris Huhne hailed the £64billion deal as a ‘significant step forward’ which would deliver a global, overarching legal agreement to cut emissions.
But environmental groups said negotiators had failed to show the ambition necessary to cut emissions by levels that would limit global temperature rises to no more than 2C and avoid ‘dangerous’ climate change.
My position on climate change is as follows:
I don’t really have any problem with the idea that a highly active and productive species like human beings can heavily influence our climate. In fact, I think there is a good deal of circumstantial evidence to suggest that we have been doing it for millennia.Over thousands of years a small uptick in greenhouse gases (from agriculture) has warmed the Earth, staving off new glaciation and thereby creating conditions beneficial to the development of modern civilisation.
So my real problem is with the view that somehow humanity can accurately predict future climactic trends via simulations and models. The idea that economies are simply too complex to accurately model applies even more to climates, which are vastly more complicated systems.
While we can’t reliably predict what the precise results of this will be, keeping global greenhouse gas levels close to the pre-industrial ones seems to be a good insurance policy.
Imposing emissions limitations using carbon credits which can then be traded on exchanges is no such thing. Why?
- It does not address atmospheric greenhouse gas levels; it merely affects emissions. Stabilising greenhouse gas levels requires removing gases from the atmosphere, either through traditional means like planting new forests, or through exotic technologies like carbon-scrubbing.
- It creates systemic financial fragility; imposing an artificial cap on emissions in an economy which is still heavily-carbon based will in all-likelihood lead to some form of carbon derivatives bubble. A widespread transition to alternative energy — supposedly, what is to be encouraged — would reduce the value of carbon credits, which would mean big losses for speculators. It is entirely plausible that this could lead to bank failures.
Essentially, the bureaucrats at Durban are wasting their time and taxpayers’ money. Eventually, as the global economic situation worsens, governments will cotton on to the fact that a quick and easy way to create new growth is through spending money on developing renewable energy infrastructure, and the removal of carbon dioxide from the atmosphere through traditional means (planting trees), and non-traditional ones (carbon scrubbing). Unemployed people will be put to work on such schemes.
While this is not particularly sound economics it is significantly better ecologically than the current proposals, because it actually concentrates on the issue at hand (atmospheric CO2) rather than producing a bureaucratic framework that nations can (and will) just flout.
Ideally, we would have a free market where such technologies and systems can organically develop based on economic utility. In reality, we have a global energy market rigged by US military largesse — oil is the global standard, and America spends trillions to keep it cheap and plentiful. Alternative energy cannot compete with a petrodollar hegemon.
Usually, government money is problematic because it misallocates capital. Very occasionally it does something really worthwhile, and anything that works toward getting America off its oil addiction has the potential to be worthwhile. NASA is another example of successful government spending — every dollar invested in the Apollo program yielded $23 of benefit to the wider economy°.
Whatever happens, I’m fairly certain that the meetings, the treaties, and the desperate scrabble for “consensus” won’t be responsible for anything other than wasted time and money.
° Chase Econometric Associates: “The Economic Impact of NASA R&D Spending,” prepared under NASA contract NASW-2741, April 1976
azizonomics 
Good food sources equals increase in size of most organisms
Dinosaurs were quite large.
Fossil Fuels are carbon stored
Burning Fossil Fuels restores CO2 levels to ancient levels
It can be inferred that CO2 is beneficial.
It is amazing what a little repetitive propoganda “Carbon is bad” can do. The masses are accepting this climate change propoganda with open arms.
Buddy, greatly increased CO2 levels might be great if you are a dinosaur or a tree fern, but those species and the Earth they lived on are long gone. The world we live on now will find the effects from increased CO2 levels to be highly disruptive and destructive.
Although, I have heard the unsettlingly cynical view expressed that humanity is nothing more than Gaia’s way of unlocking the carbon in a big way….which I hope is not true. If it is, we will likely be found redundant and dispensed with upon job completion.
Aziz, I fully agree that if governments realize that people can be put to work fixing things, it will be a very good thing. Let’s hope it happens before the last of the oil is frittered away, or we may find ourselves without the capability to make the transition.
I think we probably do have to engage with the possibility that warming may have some beneficial effects, as well as negative ones. The dangerous thing is that we just don’t know, which is why I think maintaining atmospheric CO2 close to pre-industrial levels should be done as an insurance policy.
Of course, “ecological Keynesianism” is economically unsound, and will lead to more Solyndra-style corruption, but I think it is rather inevitable (we are in a depression, remember) and so long as it actually achieves a moderation in atmospheric CO2 and methane (etc) it will certainly have done some good.
Only through sound economics can this be achieved. Using it to achieve wealth distribution, centralization, or social change will come at massive economic cost, as it must. Governments should provide the right incentives to seek new energy solutions, but not by simply penalizing oil into a luxury good, making the poor poorer.
We have to somehow to find a way to level the playing field between oil and everything else, seeing as it is patently obvious that US foreign policy turns the energy market into a rigged game. I certainly don’t agree with punitive taxes and redistribution. I think ultimately that government investment in alterative energy infrastructure — although not strictly a sound economic policy — may offer the solution in that regard.
Gaia…. Now that is compelling. Just like rubbish pollution and waste is natural, and part of evolution.
Unless you form the view that humans are an Alien experiment in DNA splicing with the apes of Earth.
Nothing would surprise me in this regard. Humanity does seem quite alien to this planet.
SpruceGoose,
I agree we evolved a few hundred million years later, but if we can survive in humid climates, and it is proven that the temperature did not exceed the tolerance for today’s life, then why not try?
As an Accountant, I feel the Carbon Taxes are just a way of taxing the nessesities of life, as opposed to luxuries and taxing economic activity- income tax, capital gains and Value Added Taxes. With low economic growth (read lower taxes) Governments have an interest to tax energy.
Your last paragraph is very true. I do not like the first paragraph so much; I live in a cold country like England because I like the climate!
A very balanced and sensible opinion, Aziz. Avoiding the old left/right paradigm shows common sense and objectivity.
When you consider that we have surpassed outstanding global derivatives of $700 trillion when global GDP is barely $60 trillion, and this represents an entirely new derivatives ponzi scheme, you know it’s a rort. It’s an unholy alliance between the left and the notionally right. The left get control, and the right get the money. Everyone else gets screwed.
Why should it necessarily be a bad thing if these will be traded on exchanges (as some would want for CDS) and marked to market daily/instantly? There will be losses for both sellers and buyers so no incentives in any direction. Yes, they don’t remove what’s already there but limiting future emissions should be a good thing, right? I mean, this would also put pressure on various entities to develop alternate energy sources.
The last crisis grew out of banks securitising abstract worthless bullshit and creating a humungous credit bubble using it as collateral. Carbon trading is the exact same thing, and actually works to disincentivise developing alternative energy, because oil obsolescence would make all the carbon credits worthless, crash the market and cause a depression.
Hmm, so you’re saying that it’s bad because it would necessarily lead to obfuscated derivatives based on them which would hide various vested interests. Not sure I necessarily agree, this might mean that we shouldn’t trade anything on markets. I’d rather have markets properly regulated though.
The real point is that carbon credits disincentivise switching to alternatives, because doing so would crash an already highly-leveraged market.
In terms of their place in the market, carbon credits are a totally synthetic financial product. Even mortgage-backed securities were linked to a real-world asset, even if that real world asset was inevitably defaulted upon. That’s not to say that derivatives cannot be totally synthetic, but surely the governments are acting counterproductively in creating a totally new class of synthetic product when we know the damage that can be done by such things?
OK, I understand you’re saying these certificates will become an end in and of themselves and will work against their original purpose. But consider that it will take decades to wean ourselves off oil, so who knows, maybe if done right anything can help.
There’s a million people working on alternative energies. Anyone who can get it right can become a billionaire. Unfortunately, most are less greedy which perversely creates incentives for government grants and subsidies instead, creating ‘solutions’ which are uneconomical and contribute to collective economic costs instead of benefits.
When oil truly starts to run out, such alternative incentives increase greatly and can provide the benefits on their own without perverse government-sponsored market distortions.
Furthermore, if the greenies were serious, they would be clamouring to fund research into fusion power or cold nuclear such as thorium but they prefer expensive power to enforce energy austerity among the great unwashed. Instead, they’d rather rob poor people in rich countries to give to rich people in poor countries, as they’re trying to do in Durban right now.
Consider another subsidy for oil – this time on national level, but for every nation – infrastructure spending. All the roads built by the govt are essentially subsidies to car traffic. Well, railroad, ports or airports may also get money from the government but only proportional to votes, not economical needs. After all it makes big positive difference for a person stuck in traffic to get a new road, that for some time relieves the problem. He might vote for the guy that built it. While, on the other hand person that would rather use public transport, or might consider switching if it was better, will hardly see spending more for roads as a blow to public transport. Why would he vote against it?
Cars are enormously inefficient as means of mass transit. At rush hour you get avg 1,1 person per car. After all you would need to live very close by, work very close by and have the same schedule to drive with someone else to work. It won’t happen very often. They also compete with buses for space. If cars clog the city it’s clogged the same for buses. Bus lanes work… but you need to reserve entire lane for them! All the land that is covered up by roads, or buffer zones around them is out of use. If density of land lost for communication is high, density of actual useful services or housing is lower and it has to spread even further and needs even more communication. Another cost is derogatory influence of roads on nearby space. They are noisy and smelly… Bus or tram is not noiseless either but you get one for dozens of cars.
If cost of lost space, damage to surrounding property, full cost of construction and maintenance of infrastructure would all be proportionally billed to end users cars might get mighty expensive.
Infrastructure is not the first, nor the second item in the budget so it’s not the kind of money to make car traffic prohibitively expensive but it could make a difference.
Also if land used up for communication was not considered sacred by the planners and economical market factors decided for it’s use – significant number of roads might get scrubbed. Let’s say there’s a row of restaurants and services looking at a busy road near the city center. If car traffic is prohibited patrons will need to get to these by public transport, so there’s a problem with starting the process. In car loving countries like US there’s even national resistance. But in every city, the first part of it to switch is at a disadvantage. After all if center is car free, another high density area banning cars will be joining already efficient network of public transport. The first neighborhood to do it has to bear added costs. But aside from this costs, you improve value of your property as it’s not polluted by wide road jammed with cars and reclaim land that can be used for some new purpose, or maybe for public space to improve value of the area even more. In current system by scrubbing car traffic you are fighting the drivers and they vote against it. It’s done anyway (in Europe at least), but slowly so you don’t upset to many voters before. After all you need to stay in seat to reap benefits of improvements that will come only after a few years. In free society someone would have to own the road and land below it and economize best use for it. Would this difference be enough to close off all city centers or maybe all big enough cities for cars? Or maybe even in free society at this level of technological progress we would still have wide and full roads in the cities, because door to door transport is just worth more than all these (now hidden) costs. I don’t presume to know, but would like to find out. At least the costs would be paid for by ones taking the benefits.
I agree. Look at Moscow for example. Its Communist planners organised a mass transit system, but now the Moscowvites suffer from Western Individualism.
When people want to vote for their vested interest (Independent go anywhere transport i.e. cars) and commercials promote high performance luxury we have a crisis in oil consumption and mass gridlock (Lost value of time and wasted fuel)
Most roads are made from bitumen asphalt. What happens when the oil runs out? How will electric cars move? Will we resort to expensive energy intensive concrete?
Piotr’s theory plays out. The state role in the subsidisation of oil is deeper than I realised.
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The following link is an example of Government Bureaucracy and economists meddling in the private sector.
If someone invented a device that saved me money, I would calculate the cost benefit ratio. Bankers may fund me a loan if they see that I am a good credit risk (i.e. I will use the savings to pay off the loan in a reliable manner)
Economists can not model the real world. The amount of waste going into the administration and advertising of these climate schemes is a travesty.
https://www.rec-registry.gov.au/swhCalculatorResult.shtml
@Piotr : “After all you would need to live very close by, work very close by and have the same schedule to drive with someone else to work. It won’t happen very often”
Perhaps the most efficient legislation to combat oil dependency is mandated work hours, so employees can leave on time, and share a lift.
Ay last, a civil discussion. Thank you for your post, Mr. Aziz, and thanks to everyone for your comments.
As far as how much oil we may have left and other matters, your attention is invited to: http://video.google.com/videoplay?docid=-3294010431021068736#.
It is a little long (approx. 100 minutes) but well worth the time. To preview: it is a review of the characteristics of the exponential function and its application to energy, by Dr. Albert Bartlett of the University of Colorado at Boulder.
Regarding the effects of climate and temperature change, we humans are the top of the food chain: it appears that as atmospheric CO2 levels increase more CO2 dissolves into the oceans; as CO2 dissolves, ocean acidity increases; plankton ( the bottom of the food chain) are sensitive to ocean acidity levels; and current acidity levels are close to being dangerous to plankton (see 350.org).
I am convinced we (humanity) are in big trouble.