Category: environment

Overview of EU ETS phases

Recently, I was teaching on emissions trading and the EU Emission Trading System (ETS). In preparation for this it took me quite a while to get a good overview of the different phases of the EU ETS. So I thought I’d share my overview table here:

EU ETS Phases

If you have any suggestions for improvement, I’m quite happy to update it.

 

Big cuts in France’s nuclear energy portfolio due to EDF state ownership?

A majority of French parliamentarians has signalled that they would agree to a law stipulating the reduction of nuclear energy in France’s energy mix from 75% to 50% until 2025. Instead, energy efficiency and renewables shall receive more support. The national assembly is due to vote on the new law on 14 October 2014.

France has historically seen much less public resistance to its huge nuclear power installations than Germany. Why does it now seem so easy to announce such drastic cuts?

A major factor could be that most nuclear reactors belong the EDF, an energy corporation whose vast majority of shares are still held by the French government. In the French case, the government still controls one of the “commanding heights” of the economy and is thus far less affected by private sector lobbying.

Nuclear power is a technology that corresponds well to centralisation, as it is based on big projects and needs a lot of security measures in place. The question is now whether France will follow such a centralised approach in the case of renewables, which lend themselves much better to decentralised approaches than nuclear power. If the road of decentralisation is chosen, this may well result in the emergence of a stronger lobby group for renewables.

Hopefully, the French government retains control over EDF until its energy portfolio is much less nuclear than today. Otherwise, a strong lobby force, blocking the transition from nuclear to renewable power, may result.

Were countries on target during the Kyoto Protocol’s 1st Commitment Period?

Yesterday I taught the seminar “Climate Change Policies in Comparative Perspective” and one of my students asked me whether the countries who have emissions targets under the Kyoto Protocol had actually been on target during the first Commitment Period (2008-2012). I knew that they were within the target range overall, yet I didn’t have a good overview of which individual countries had actually been on target and which hadn’t. Realising this I trawled through the net and it actually took me a while to come up with a good overview. The document I finally found states that

…complete and detailed official data regarding the countries’ emissions and transactions of carbon credits in 2008-2012 was not available until April 2014.

So until recently it wouldn’t have been possible to produce an authoritative overview. Now that I found the document, here I provide a screenshot of the relevant overview page with a link to the original report.

Kyoto Compliance

Canada, who had the greatest overshoot, had dropped out before the end of the first commitment period. Japan, with a much smaller overshoot, has withdrawn from the second committment period.

Interestingly, Norway also had a sizeable overshoot. I wonder if that’s a factor behind the country’s heavy engagement with the establishment of Reduced Emissions from Deforestation and Degradation (REDD) programmes.

Without the economic crisis Spain would certainly have been even less on target.

As I understand it, these numbers don’t take into account the use of flexible mechanisms (offsetting and emissions trading). Thus, they cannot really provide the whole picture in terms of compliance. All in all, a handy overview.

Climate and health: the joint case for restricting animal antibiotics use

Climate change mitigation and the preservation of antibiotics effectiveness are two of today’s greatest public policy challenges. Each call for a similar measure, wherefore they should be considered in a joint perspective:

This friendly cow is sourced from Wikimedia Commons: http://commons.wikimedia.org/wiki/File:CH_cow_2.jpg

First, the looming threat of climate change calls for concerted action. Among the vast array of different measures, reducing methane emissions from farm animals could make a great contribution. Also, the pressure to convert land to produce food for animals reduces the availability of carbon sinks. Thus, reducing demand for animal feedstock can contribute to climate change mitigation efforts.

Second, the routine use of antimicrobials/antibiotics for increasing animal growth or preserving animal health is likely to lead to the to the development of infections resistant to antibiotics treatment in humans. While the case for banning the use of antibiotics for maximising animal growth is particularly strong, there are also good arguments for further restricting its use even for preserving animal health. Antibiotics have been the „wonder drugs“ of the 20th century, saving immeasurable lives. Yet, today their effectiveness is becoming more and more diminished due to the development of resistant bacteria strains. Trading human health off for animal health is problematic. Even more, in today’s industrialised farming the living conditions of animals are often dismal, necessitating the standard use of antibiotics in the first place. If farm animals had more decent lives, the need for antibiotics would decline. This is reflected in the limitations on the use of antibiotics in organic agriculture.

By looking at the joint benefits of policy responses to these problems, the argument base for taking action to address any of them is broadened and the costs calculus changes:

If antimicrobials use on animals were rigorously restricted, it would have strong implications for the dairy and meat industry. Animals couldn’t be crowded together as extremely as they are today, thus reducing feedstock input and methane emissions output per land unit. Feedstock is often sourced from abroad, the demand for which is adding pressure to turn more biodiverse and CO2 storing land into agricultural land. Letting cows graze on grassland is associated with lower emission than intensive grain feeding. Thus, under the assumption that not simply more land will be used for putting animals on the pasture or in the barn, limiting animal antibiotics use can have a double climate policy benefit: less methane and less pressure to convert land for feedstock supply.

Happy cows, healthier humans, and a more stable climate: restricting the use of antibiotics on animals can support all of this.

 

 

 

 

BP’s Energy Outlook 2035: betting on dangerous climate change

Will humanity be collectively able to avert dangerous tipping points for climate change? Probably not, according to BP’s Energy Outlook 2035. Sadly, this may well be true. Is it good news for BP? Yes, rather so.

Is BP’s Energy Outlook 2035 an objective assessment of reality? Only to an extent.

BP Energy Outlook presents itself as a realistic assessment of reality, yet it is

  • a reality that BP actively shapes and
  • it creates a perception of reality that is beneficial to BP.
  • It also wittingly or unwittingly aids the perception that industrialising countries are responsible for emissions reaching a level that makes dangerous climate change likely, thus generating a sense that climate action in OECD countries will only have a limited impact.

When presenting the BP Energy Outlook 2035 at University College London on 1st April 2014, BP’s Group Chief Economist and Vice President, Christof Rühl, left no doubt that he considers climate policy to be low on the agenda of policy makers. According to the Outlook climate change policies will remain too lax for staying within the emissions confines recommended by scientists: “Global CO2 emissions from energy use grow by 29% or 1.1% p.a. over the forecasting period. Policies to curb emissions continue to tighten, and the rate of growth of emissions declines, but emissions remain well above the path recommended by scientists.”
What if climate policies would become stringent enough for staying within the 2 degree limit? Following HSBC 25% of BP’s proven and probable reserves would be ‘‘unburnable’’ under a low carbon policy environment consistent with a scenario (‘‘450’’), which limits global warming to 2C, with “BP’’s value at risk from unburnable reserves [being] equivalent to only 6% of its market value as most of the ‘‘lost’’ reserves are low margin. “ . This doesn’t sound too bad. Yet BP is still investing into more exploration and extraction, ensuring that their interests continue to be pitted against the successful implementation of a low carbon regime with extensive coverage.

BP does’t just assess what would be the most likely future developments in energy markets, it also actively shapes them. According to BP its Outlook “is based on a “most likely” assessment of future policy trends.”Is BP just responding to markets signals and expectations of regulatory developments? Past investments, “sunk costs”, mean that “oil companies are unlikely to stop extracting oil, even if they invest in renewable energy”. If “exit” is not likely, “voice” is: lobbying and the shaping of perceptions. Standard economic approaches treat firms as solely responding to government intervention. Yet firms such as BP actively invest in politics . Big oil and energy intensive industries want a world with a low carbon price. Others, e.g. renewable energy companies, energy efficiency pioneers and the concerned public, want a high carbon price. What BP tells us in its Outlook is that they think they will win.

BP’s Energy Outlook creates a perception of reality that is beneficial to BP. BP is a publicly traded company. A threshold carbon price can benefit BP as oil and gas gain in desirability when coal’s higher carbon intensity drives it to the sidelines. While a carbon price high enough to stay within a tolerable degree of global warming would also hurt BP it would still hurt oil and gas companies far less than coal companies. BP could probably manage the transition. Its suggestions of substituting gas for coal in the mid-term make sense. However, for BP loosing 6% of its market value doesn’t sound like an enticing proposition. A scenario compatible with a reasonable likelihood of averting dangerous climate change threatens the profitability of BP’s assets. Acknowledging this would presumably not have the most benign effects on its share price. Concerning the argument that some of BP’s assets may prove to be unburnable, they write “we believe that the unburnable carbon approach to assessing the impact of potential climate regulation on a company’s value oversimplifies the complexity of the issue and overstates the potential financial impact.” Creating an impression that the future will be benign for big oil may yet turn out to be delusional for investors at large but is still good for current shareholders. The situation could be overdetermined: BP may not have much of a reason to assume that stringent climate policies will be put in place. Yet, even if they had reason to assume it, it wouldn’t be in their interest to admit it. Currently, the markets don’t price in the risk that climate regulation stringent enough to ward off dangerous climate change could impact on fossil fuel companies’ share prices. If BP recognised a low carbon scenario in their outlook as a realistic possibility, it would raise the question of how such a scenario would impact on their assets, entertaining the prospect that some might become unburnable or “stranded”. This could change market perceptions, with some investments moving out of more and some into less carbon intensive forms of energy. If BP included the possible impacts of a low carbon scenario on market demand in its Outlook it would become apparent that BP is actively investing on the assumption that this is not going to realise — that they bet on a future that entails dangerous climate change.

Taken from BP Energy Outlook 2035, p. 80
Taken from BP Energy Outlook 2035, p. 80

The Outlook can also be interpreted as suggesting that industrialising countries are responsible for emissions reaching a level that makes dangerous climate change likely. When commenting on Christof Rühl’s talk, environmental economist Paul Ekins, Professor of Resources and Environmental Policy and Director at the UCL Institute for Sustainable Resources, pointed out that the BP forecast graph depicting emissions by regions (see above) may be taken to suggest that the emissions cuts (compared to a baseline scenario) necessary for being in line with the International Energy Agency scenario “consistent with the goal of limiting the global increase in temperature to 2°C” (IEA 450 scenario) would need to come from non-OECD developing countries. Yet, in order to make limiting emissions palatable for developing countries, OECD countries clearly need to take the lead.
Considering that the OECD member countries have a joint population of 1,257 million in 2012, with the global population exceeding 7 billion , a mere stabilisation of OECD emissions seems hardly adequate. Differences in capabilities as well as historical responsibility clearly mandate a pioneering role in decarbonisation for industrialised countries. While lower demand from industrialised countries for fossil fuels makes them cheaper and thus raises incentives for industrialising countries to rely on them, lower prices also make future exploration and extraction efforts less attractive. As investment for renewables increases in industrialised countries, prices also fall for industrialising countries. It is far from clear that OECD countries’ climate action would be insufficient for remaining below the 2C target. Even if the target was exceeded, such action would be far from futile. If rich countries pioneer low carbon infrastructures, this will also help industrialising countries to rein in their appetite for fossil fuels.

The BP Energy Outlook 2035 suggests to solely give a realistic forecast. Yet BP forecasts a reality it helps to create. And its forecast further bolsters investments into this kind of reality. BP’s sense of realism is a confidence in its own prospects. While much can be learned from the data, the way it is presented supports fatalism, helps to keep up share prices and aims to provide legitimacy to further fossil fuel exploration and extraction. It provides the rationale for betting on dangerous climate change.

Fisheries: voluntary self-regulation as a model for bold trade policy reform

Voluntary self-regulation by organisations such as the Marine Stewardship Council promises to make fishing more sustainable. While self-regulatory efforts are a great start, it is questionable whether they alone suffice to tackle the task of making the world’s fisheries sustainable again. But they have a great – as of yet underappreciated – potential: complementing and facilitating government action by providing orientation for bold trade policy reforms.

Overfishing has led to the depletion or even collapse of many fish stocks. States have found it difficult to respond to the challenge of overfishing. Even within the EU, with its extraordinary level of inter-state cooperation, until recently fishing reform had been an extremely sluggish process .

While state inaction left the seas free to overexploitation, in the 1990s a private initiative promised to provide the much-needed responsibility. It took the collapse of fishing stocks to alert Unilever, one of the world’s biggest buyers of frozen fish, to identify overfishing as a threat to its business. Unilever soon teamed up with the World Wildlife Foundation (WWF) to initiate what would become the Marine Stewardship Council (MSC): a non-profit organisation which sets a standard for sustainable fishing and allocates the right to use its label to those found to behave in accordance with it .

According to the MSC its certification scheme now covers “over 10% of the annual global harvest of wild capture fisheries” . While there has been criticism levied at MSC standards and compliance with it, it is largely considered to be a successful scheme.

Personally, I always look out for the MSC label when I buy fish but I’m never quite certain whether this actually makes much of a difference or just has a feel-good effect. For while my individual purchase might come from more sustainable fisheries it would still add to the aggregate global demand for fish. When the MSC’s Chief Executive, Rupert Howes, gave a presentation at the UCL Institute for Sustainable Resources (20 Feb 2014) I raised the question if, instead of consciously limiting my fish consumption, he would actually encourage me to buy more (certified) fish. He replied along the lines that increased demand for MSC certified fish actually makes MSC certification and thus the adherence to sustainable fishing standards more attractive to fishing companies.

WATCH THE PRESENTATION
Feeding the world and maintaining the productive capacity and integrity of marine eco-systems Rupert Howes, Chief Executive, MSC

I think his point is a very good one. Yet some doubts persist. While buying MSC certified fish may help to raise incentives for fishing companies to comply with sustainability standards, its purchase still keeps alive what I would call “a culture of fish consumption“: people will praise the taste of fish dishes, put up photos of them on the internet and floods of saliva will pour forth from their friends mouths. Now the saliva is there, moral virtue is supposed to rein it in. More expensive, certified fish is deemed “good”, while the cheap, “dirty” and unsustainable fish is “bad”. Those who can afford or prioritise “sustainable” fish can feel good about themselves, at ease with the world, while the consumers of non-certified fish should — in order to boost the market for sustainable fish — at least feel some slight unease around their taste buds. While ecological economists don’t tire to preach that the environmental costs of products should be reflected in their prices, here — like so often — the reverse holds true: one has to pay a premium for sustainably sourced fish.

Will consumers shift to certified fish quickly enough to save fishing stocks from collapsing and maritime life from severe disruptions? Perhaps it’s going to work. But it’s a risky bet. And if it doesn’t work – who is to blame? Consumers, because they didn’t buy the right fish? Or not enough of the right fish?

The success of the MSC labelling scheme shows that consumers are not just interested in the mere physical qualities of fish but also in the process by which it landed upon their platter. It demonstrates that market pull in one place can change fishing practices in another. It’s a testing ground for standardisation and monitoring activities.

All this makes a good case for revisiting the possibility of applying trade measures against the import of fish which sourcing doesn’t qualify as sustainable. The World Trade Organisation (WTO) is extremely wary of the introduction of “discriminatory” measures whose rationales can be interpreted as fig-leafs for protectionism. This translates into strong scrutiny towards restrictions on the basis of the process or the method by which a good is derived rather than by its mere physical qualities. Yet, the jurisdiction on the possibilities for enacting import restrictions based on “non-product-related processes and production methods (PPMs)” is far from exhaustive. Private standard setting and monitoring exercises such as those conducted by the MSC can help to demonstrate that “non-discriminatory” import restrictions on the basis of “non-product-related processes and production methods (PPMs)” can be designed and monitored .

What I suggest here is an appreciation of the pioneering role of private sector initiatives such as the MSC. Governments should draw on these foundations and insist on the adherence to similar standards as a precondition for market entry. The regulatory “pull” from a giant market such as the EU’s would be able to exert beneficial effects at far greater scale than what can currently be accomplished by private sector initiatives.

Once the, admittedly, giant leap of making the adherence to criteria of sustainable fishing a condition for market-entry is taken, fishing companies all over the world might develop an interest in lobbying governments to strengthen regulation and to cooperate in order to make their fishing grounds pass sustainability criteria.

Voluntary private self-regulation can be a model for the introduction of sustainability criteria in trade policy. Once private initiative is followed up by trade policy, the main worry about fish will hopefully be of culinary nature.

 

 

Why the reform of US GDP calculation just announced is not bold enough

According to the Financial Times the US Bureau of Economic Analysis is going to revise the calculation of US GDP. Next to incorporating royalties from creative works the revised GDP measure will also take into account spending on research and development (R&D). This is thought to push a new international standard, with the US being one of the first adopters.

So, what difference does that make?

First of all, let’s have a look at how GDP is calculated: There are three ways of determining GDP – based on production, income and expenditure. In the expenditure approach GDP (Y) is Y = C + I + G + (X − M); a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).

This article by Businessweek makes clear that, until now, government and personal spending on education and “[a]cademic and government spending on research and development … go into the consumption bin”, whereas business R&D spending and worker training expenses mostly go into the intermediate output bin – and the items from the intermediate output bin are not counted towards GDP “because it’s assumed that they’ve been rolled into either consumption or investment”.

Thus, a large part of what could actually be deemed an investment simply disappears from GDP! This is what the US Bureau of Economic Analysis (BEA) wants to reform now.

However, once the BEA is about to reform GDP calculations, one might also ask whether it is appropriate to count government and personal spending on education and academic and government spending on research and development towards the consumption bin and not also towards the investment bin. Well, of course, at least it is counted towards GDP and doesn’t just vanish somewhere along the calculation. However, the categories of consumption and investment do carry different meanings in  macroeconomic policy discourse. And here it would be highly questionable whether it is justified to privilege private firms’ R&D expenses over academic and government R&D and those incurred for the education of individuals. In a standard economics textbook Samuelson and Nordhaus [zotpressInText item=”{GD4QAZZT,525}” format=”(%d%, %p%)”] state that

saving and investment… play a central role in a nation’s economic performance. Nations that save and invest large fractions of their incomes tend to have rapid growth of output, income, and wages … By contrast, nations that consume most of their incomes … experience low rates of growth of productivity and real wages.

Taking this into consideration, it doesn’t seem to make a lot of sense to treat spending on education and research and development as “consumption”.

Also, and perhaps most fundamentally, the announced reform of US GDP calculation raises the question whether it would not be about time to also take into account factors relating to the preservation or destruction of the environment into the calculation of economic performance. If this remains excluded, one may well find that today’s economies float atop a string of fragile bubbles whose bursts will be rather unsettling — to put it mildly.

In recent years, there has been quite a lot of debate surrounding either ecological adjustments to the GDP or the establishment of “satellite” indicators [zotpressInText item=”{2PTHW3AE},{DVPSW2US},{SAAZGWMG}”].


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While certainly less flattering than adding investments into creative works and R&D to the GDP, efforts to take the interactions between the economy and the environment into account would provide for a more realistic picture of long-term human development.

Bibliography

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