Abstract

This paper is not about global/climate warming, which is a topic that cannot be competently discussed by persons who are untrained in the relevant branch of physics. It is about some economic issues treated – or not treated – at the Kyoto conference on the climate, and now at the Copenhagen Climate Summit. First and foremost I point out the inadequacy of the cap-and-trade (or emissions trading) approach that has gained an undue popularity, even though it has been denounced by – among others – the economist who introduced this procedure. In addition, I suggest that more attention should be paid nuclear energy, by which I mean that ‘marginal’ increases in nuclear capacity should take place in some countries.


Key words: Emissions Trading, Carbon Dioxide (Co2), Nuclear Energy

Several years ago I gave a number of energy economics lectures which included an insistence that the Kyoto conference on the environment was badly flawed. My reasoning turned on the neglect of nuclear energy, as well as the decision taken at that meeting to promote cap-and-trade (or emissions trading) as the main device for offsetting a too rapid accumulation of carbon dioxide (CO2) in the upper (or perhaps lower) atmosphere. I am glad to report that at least one improvement has occured, because with or without highly publicized conferences, it is absolutely certain that a nuclear revival has started.
Moreover, even if cap-and-trade craziness plays a big role in the Copenhagen meeting that started on December 7, 2009 (which was the 68th anniversary of the attack on Pearl Harbour), it no longer has a bright future. The most accredited scientific proponent of the war against anthropogenic (or man-made) global warming, James Hansen, now recognizes that emissions trading is a mistake, and also wants Copenhagen to fail. Someone else against cap and trade is the former CEO of British Petroleum, Lord Browne of Madingly, who at one time regarded its acceptance as a key ingredient in his firm’s green image. As icing on the cake, the Wall Street Journal (Aug. 13, 2009) reported that the ‘inventor’ of this nutty concept is now against it. The word “scam” was frequently used in their summary..
A number of economics misunderstandings associated with conclaves of the Kyoto and Copenhagen variety need to be examined in detail, but unfortunately I can only consider a few in this brief contribution. I can mention though that in recent years I have taken part in an intensive and protracted exchange of ideas on environmental topics in the forum EnergyPulse (www.energypulse.net), which specializes in matters related to the supply of and demand for electric power. Where energy topics are concerned, EnergyPulse and ‘321 Energy’ are the most important of all the internet sites, and on the average provide insights superior to those obtained in most university classrooms.
Although not easily explainable, a surprisingly large number of students and teachers of energy and environmental economics are at a loss when confronted with real-world enterprises and markets, and a similar though less sophisticated deficiency characterizes the expensive confusion in non-academic milieus and publications?
A partial explanation of this unfortunate state of affairs is that many articulate and/or influential consumers and producers believe that they have a rich choice of technological and economic means for optimizing their satisfaction in energy and environmental matters. In reality though, if cost is brought into the picture in a meaningful way, they have little or no choice. This is a message that even many members of the economic research community does not understand, because at several recent conferences I felt compelled to point out that despite the attempt by Swedish politicians and busybodies to convince bystanders that this country is a role model for unconventional energy investments, percentage-wise Sweden has made only slightly more progress than those Third World countries whose endeavors are just beginning.

1. AGAIN THE BAD NEWS

As noted in O’Sullivan and Sheffrin (2003), a large enterprise in the United States – American Public Service (APS) – elected to fulfil the environmental responsibilities introduced by the Climate Control Accord (of 1994) by paying for pollution abatement projects in China, India and other countries where abatement costs are lower than in its home state (Arizona). APS also financed a reforestation project in Mexico, which ostensibly will help to suppress global warming because forests (and large bodies of water) absorb some of the CO2 that is judged responsible for undesired climate change.
These abatement schemes are to some extent perfectly logical if we have a continuous global environment. Assuming this to be the case, then reducing pollution in e.g. China or Mexico would unambiguously benefit the good citizens of Arizona (and elsewhere). But regrettably, some of us recall that a possible outcome in an advanced ‘prisoners dilemma game’ is one in which restraint by one player could lead to excesses by others. Not “could” but probably does, because no matter what you have heard about the progress made in reducing undesirable emissions, the global output of CO2 into the atmosphere increased by at least two percent during 2008 (and almost 30 percent between 2000 and 2008).
According to Susanna Baltscheffsky (2009), a principal cause of this situation is economic growth in China and India, which is a secret that no longer has a great deal of value, because it has been completely absorbed by all except the most drowsy members of the TV audiences. What has not been absorbed is that regardless of what happens in Arizona or similar locales, the above two developing countries are under no obligation to entirely or even partially reciprocate the good intentions of distant polluters by lowering (or at least not raising) their own output of deleterious emissions. It is also a reason why the cap-and-trade approach to emissions suppression that is reportedly favoured by the new U.S. government is unlikely to succeed: it cannot be enforced globally. Of course, both the Chinese and Indian governments have indicated that they will take steps to conform to the environmental stipulations negotiated in Copenhagen, and I see no reason to believe that they are not serious, however serious or not this is unlikely to happen: the trade-off is lower economic growth!
Details of this nature are much less important for me than the often promoted assumption that if – IF - the good citizens of Arizona pay higher prices for electricity – which they would almost certainly have to do regardless of how or where APS abates a given amount of pollution – a (ceteris paribus) reduction in pollution in some exotic neighbourhood on the other side of the world would subsequently alleviate pollution in the U.S. by an amount close to that which would take place if APS’s pollution reduction expenditures had been made in or near Arizona.
Moreover, if this were not so, and investments on their part did not provide palpable local benefits, it would be very difficult for the citizens of e.g. Arizona to maintain their enthusiasm for international pollution control. In addition, if those expenditures were made in or near Arizona, they would provide additional benefits to Americans in the form of wages, salaries, and possibly training.
Sweden is a good illustration here, though in a perverse sort of way. Most of the electricity in this country is generated with nuclear energy and hydro, but even so, many Swedish politicians and environmentalists seem favourably disposed to the direct or indirect heavy taxation of a domestic output of emissions that happens to be one of the least intrusive in the industrial world. This official preference deserves special attention, because if the entire electricity generating world imitated Swedish environmental practices, meetings of the Kyoto and Copenhagen variety could be cancelled or reduced to insipid talk-shops where delegates attend amateurish lectures, and busy themselves with obtaining invitations to the next climate warming ‘happening’.
In a brilliant article, Lester Lave (1965) discussed how in repeated games – though under laboratory conditions – cooperation might come about if some players make a point of setting a good example. I certainly favour good examples on the environmental scene and elsewhere, because I can remember when Sweden was a shining example of a highly efficient ‘mixed’ economy. I also recall efforts to explain to myself and colleagues the virtue of setting good examples during long vacations with the U.S. Army in Japan and Germany. However things are changing. Now, in the land of the Midnight Sun, politicians and civil servants are less concerned with examples than becoming associated with silly international proceedings, in order to be rewarded with a dab of recognition when they slouch through the corridors of the European Union’s headquarters in Brussels. If this means that Swedish taxpayers must bleed, then their discomfort is one of the penalties for choosing to reside in Scandinavia instead of Pago-Pago or on the rim of the Kalihari..

2. BACK TO THE DESIRED FUTURE

As I just found out, there is little or nothing that I can or want to say about global/climate warming that I did not say in my book The Political Economy of Coal, written in Melbourne (Australia) about twenty six years ago (1985). Hardly anything has changed in the environmental drama that I believed was unfolding at that time, and some of the actors are still on stage. I will say however, that I felt and expressed more admiration for U.S. Congressman Waxman in that book than I did in some recent presentations at a workshop in Italy, where I described the climate initiative of that gentleman and his colleague Congressman Markey irrational and possibly destructive.
Although I am no longer au courant on most climate matters, I claimed in my coal book that bad signs were appearing in the form of a trend change in the increase of atmospheric carbon dioxide (CO2). Among the items I mentioned were that with the temperature in the Northern Hemisphere at about the same average level as today, a fall in the average temperature of about one degree (centigrade) in 1300 was enough to make ice skating on the Thames possible during a few weeks of the winter. Similarly, a one-degree average rise in the temperature might cause an ugly increase in the bacteria in our surroundings. Readers interested in this approach should examine two short articles by Barbier and Festrates in the French ‘weekly’ Lexpress (2009).
Anecdotes like the above have little or no scientific value, but the point is to suggest that for a civilization that is as fine-tuned to the present climate as ours may turn out to be, an average temperature change of only a few degrees, maintained over a long period, could have serious consequences. Baroness Thatcher, the former conservative prime minister of the UK, has commented on this predicament, saying that with or without our approval or knowledge, a dangerous experiment with the global environment is underway, due to the apparently unstoppable build-up in atmospheric CO₂.
Although I do not hesitate to declare myself completely unqualified to e.g. contribute to the discussions of the present topic that often – but not always – take place in publications like Scientific American, I am sufficiently qualified to dismiss the loony-tune contributions made by persons like the journalist Paul Johnson, the gadfly Bjorn Lomborg, and various English sceptics with half-baked scientific backgrounds who have burdened us with crank comments on climate matters over the last decade. In this last category I include an English know-nothing who claims that consensus views play little or no decisive role in science, although clearly this is not true in the academic world over the long run except on rare occasions, and here I include the kind of store-front university where I received some of my undergraduate training..
Economics students who ask me for advice are immediately told to study game theory, but not to pay more than minimal attention to game theory books that specialize in mathematical overkill. As I stated above, what we might be dealing with here is something like a prisoner’s dilemma game, which if developed properly might be capable of providing a systematic approach to the actions a country could and should take if strategic decisions are required in its dealings with other countries. This is much more complicated than the pseudo-scientific antics indulged in by Russell Crowe in the Hollywood travesty ‘A Beautiful Mind’, because most real life dilemmas cannot be modelled at the Rand Corporation or on the sound stage at MGM. Instead rational and irrational individuals and institutions participate in adversarial encounters in order to ‘score’ prizes like money and prestige.

3. FINAL COMMENTS

In case any questions come up about the above topics, or for that matter similar topics not taken up in this short paper, the absolutely and totally correct answer should begin as follows: A NEW ENERGY ECONOMY MUST EVENTUALLY BE PUT INTO PLACE BY COUNTRIES LIKE, FOR EXAMPLE, SWEDEN AND THE UNITED STATES, AND SO IT MAKES LITTLE OR NO DIFFERENCE IF AGW (ANTHOPOGENIC (I.E. MANMADE) GLOBAL WARMING IS REAL OR AN ELABORATE FICTION. Personally, I have never at any time felt an urge to get to the bottom of this issue, however the present climate debates and the direction in which they have taken are a good thing, because they will contribute to an earlier realization of the indispensible new energy economy.
With a little luck, those efforts might reveal that while attempting to solve energy and environmental problems with things like ‘clean’ coal and natural gas might be useful in some circumstances, for the most part they will be counter-productive if those efforts are carried to extremes. At the same time let me say that if I am present in a conference, or a seminar, or a McDonald’s when announcements are made that undesirable emissions should be combated with nuclear, I immediately tune out, because at the present time the optimal approach is often – though not always – ‘additional’ nuclear, and a very large increment of renewables and/or non-conventional devices, liquids, approaches and thinking. Put another way, the emphasis should be on diversity.
When the topic is the presence or absence of AGW, we have a situation where politics and psychology play a key role, which means that we cannot always call on altruism or ‘models’ or statistics or differential equations to launch us on the road to optimal conduct. Yes, increasing numbers of people are prepared to sacrifice a modest amount of money and/or comfort in order to help keep the environment in a seemly condition for the human family and its descendents; but when the bad news might materialize dozens or hundreds of years in the future, of unknown extent, involving societies whose compositions are unknown, then taxpayers and their political masters can be expected to find it difficult to be enthusiastic about even relatively small expenditures. As Professor John Kay once pointed out, “the burden of caring for all humanity, present and future, is greater than even the best-intentioned of us can bear.”
It has certainly become greater than I can bear or contemplate. For this reason I would be more than happy if the complicated task of devising tactics and strategy for the battle against global-warming was never thrust into my caring hands, and instead turned over to high ranking politicians and technicians and civil servants – hopefully bypassing mastodon and sterile meetings of the Kyoto-Copenhagen variety, where the majority of participants are completely and totally without a relevant technical or scientific background, lack a minimal training in energy economics, and in many cases are uninterested in climate warming except as a means to further careers and expand bank accounts.
As a result, when sitting in the quiet of my lonely room, my thinking on this topic usually turns to some conclusions I reached when presenting a short course on environmental economics at the Australian School of the Environment (Brisbane, Australia); the basic issue is rationality! It has to do with whether voters and serious politicians – or for that matter non-voters and political hacks – are really and truly willing to adopt or accept or tolerate political and economic programs that are consistent with their ambitions in life, love, and the pursuit of money or power. It should be accepted that this is asking those ladies and gentlemen for a great deal.
Some time ago I was informed that even the very conservative ‘think tank’, the Cato Institute, has come to the conclusion that nuclear is a lost cause, citing all sorts of subsidies that it requires to make it work. The same sort of ignorant contention has been advanced by the highest energy bureaucrat in Sweden, Professor Thomas Kåberger of the Swedish Energy Authority (Energimyndigheten). Frankly, I would be very surprised if this were true for the United States, however I want to make it clear that it is blatant nonsense and without the slightest empirical foundation where Sweden is concerned. As a group, Swedish taxpayers have not paid a penny to subsidize nuclear energy.
However it is clear to me why the Cato researchers would provide the faithful with this screwy message: the knowledge of energy economics possessed by many energy researchers, their employers and almost all of their readers is not even as great as my knowledge of mathematics and physics was when the Dean of Engineering at Illinois Institute of Technology (Chicago) called me to his office, and before expelling me for poor scholarship, informed me that in those two subjects I was completely and totally hopeless. He of course was somewhat mistaken, because although my memory of that splendid occasion may not be as accurate as I would like, I failed more than those two items during my first two semesters at his establishment, and in addition failed them twice.

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*  Uppsala University (Sweden)