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Technological breakthroughs will make fossil fuels unburnable – not bureaucrats

Technological breakthroughs will make fossil fuels unburnable – not bureaucrats

The Governor of the Bank of England, Mark Carney, courted the wrath of the fossil fuel industry in a speech at the end of last month.  He argued that investors in the sector face ‘potentially huge losses’.  Actions by governments to try to head off climate change could make most reserves of coal, oil and gas ‘literally unburnable’.

Tougher rules and regulations on the use of carbon based energy, along with higher taxes, could leave the assets of fossil fuel companies ‘stranded’.   ‘Stranded’ is the new buzz word in climate change circles.  Assets may be left stranded in the ground because it is no longer practical to extract them at any meaningful rate.

A fascinating and closely argued paper by Ted Nordhaus and Michael Shellenberger of the California-based Breakthrough Institute puts a different perspective on how energy assets become stranded.  They give plenty of historical examples.  In the middle of the 19th century, Americans used 13 million gallons of whale oil each year, mainly to light their lamps.  Within two years of the first oil strike in 1858, the petroleum industry achieved that level.  Whalers quit their jobs to work in the oil fields.  The asset of whale oil was left ‘stranded’ in the whales in the ocean.  From the first stirrings of industry in England several hundred years ago to well into the 19th century, wood was the primary source of energy for our factories and blast furnaces.  Coal stranded the wood fuel industry.  In 1900, just 2 to 3 percent of England was covered by forests. Today, 10 to 12 percent is.

Nordhaus and Shellenberger argue that large scale asset stranding in the global energy context will remain, as it has always been, primarily driven by technological change. Whether from wood to coal in the nineteenth century or, as is currently underway in the United States, from coal to gas in the twenty-first, the primary driver of wholesale transitions to new sources of energy has been the fact that the new source of energy was cleaner, cheaper and more useful.

This is the classic concept of a disruptive technology put forward by the great Harvard economist Joseph Schumpeter.  Such technologies are so superior they simply sweep aside competition.  Within a few years of the coming of the railways, the prestige London to Edinburgh stagecoach service disappeared.  Humanity’s quest for more heat, light, and power has been the main driver of invention and innovation.  Only this month, Bill Gates announced a project to work with the Chinese government to develop a next-generation nuclear reactor that not only cannot melt down but also recycles waste as fuel.

The demand for energy, especially in the developing world and countries like India and China with their massive, aspirant populations, will continue to grow.   Carbon pricing, emissions caps, the whole paraphernalia of regulation which Western countries might bring in, will not alter this demand.  Fossil fuels may indeed become stranded.  This will happen not because of bureaucrats, but because of innovation and breakthroughs in nuclear and alternative energy technologies.

Paul Ormerod

As published in City AM on Wednesday 21st October 2015

Image: Nuclear power plant “Isar” at night by Bjoern Schwarz licensed under CC BY 2.0

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Obama allies lead the way on a positive approach to climate change

The fracking debate continues apace, with the announcement by the British Geological Survey that there are over 4 billion barrels of oil in the shale rocks of the South of England. The government has proposed new rules of access to land in order to speed up the exploitation of this oil, with payments of £20,000 being made to those living above the land where fracking takes place.

Opinions are highly polarised. In part, they reflect differences of views on climate change, with scepticism being much more widespread amongst the population as a whole than it is amongst scientists. But, perhaps paradoxically, the strongest opposition to fracking seems to come from those who are most vociferous about the potential threat which climate change poses to the planet. Many environmentalists appear to relish the idea of wearing the hair shirt, of making sacrifices to deal with the issue. They do not like the idea that technology might solve the problem.

In America, a much more pragmatic consensus is emerging, as Michael Shellenberger of the Breakthrough Institute in California points out. Shellenberger and his colleagues have argued for a long time that United Nations climate treaty efforts were doomed. Caps on emissions and other efforts that make fossil fuels more expensive would fail in world where competitive alternative fuels do not exist, and where billions of people need to consume more, not less, energy.

Two powerful allies have emerged in the shape of former senators Tim Wirth and Tom Daschle, close liberal and environmental allies of President Obama. Shellenberger draws attention to their recent essay in the widely-respected environmental magazine, Yale Environment 360. Wirth was lead negotiator for the Kyoto treaty, which was centrally focused on limits. Yet Wirth and Daschle now call for a completely different approach.

They argue that there should be a move away from global targets and restrictions to encouraging bottom-up measures to build cleaner and more prosperous economies. It is much easier to persuade electorates to adopt climate-friendly policies when they benefit from them, than when the policies impose costs. As Wirth and Daschle say “such a shift would change the psychology of the climate change issue from one of burden to opportunity, and change the likely outcome from one of hand-wringing about failure to excitement about tangible action to build a better world”.

In contrast, many green activists in the UK and the rest of Europe adopt a deeply reactionary stance, which denies the ability of innovation to solve climate problems, and which relies on the failed approach of global bodies trying to impose targets on individual nations. One of the worst offenders is the current Lib Dem Energy Secretary Ed Davey. As Shellenberger points out, major advances have come from polices inspired within countries, shaped in the national interest, and which bring direct benefits to electorates. The recent shift in America from coal to gas, the French programme of building nuclear power stations, increased resilience to tropical cyclones in India, these are all examples of this positive theme.

As published in City AM on Wednesday 28th May

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Energy and Emissions: Taxation or Technology?

Energy prices are in the news. The recent actions of some of the energy companies can plausibly be described as provocative, no matter how well founded their decisions might be. They run the risk of provoking the ire of both the Opposition and the Government.

One interesting aspect of the debate is that it has become even clearer that decisions taken by Ed Miliband himself in the Brown government are partly to blame for our high energy bills. The plethora of green taxes and subsidies has become very expensive for consumers.

But how effective have such policies been? Not very much, seems to be the answer. Max Luke of the Breakthrough Institute in California has looked at the global numbers very carefully.  Since 1950, he finds that natural gas and nuclear technology together prevented 36 times more carbon emissions than wind, solar, and geothermal. Nuclear avoided the creation of 28 billion tons of carbon dioxide, natural gas 26 billion, and geothermal, wind, and solar just 1.5 billion.

The Breakthrough Institute has an interesting bunch of people, with an eclectic mix of views which are neither dogmatically Right or Left, pro- or anti-market oriented solutions. So, for example, they point to the crucial role of the public sector in enabling innovative technologies such as fracking to be developed in the first place.

But then they go on to show that fracking in the United States has been incredibly effective in cutting energy consumption and greenhouse gas emissions. Between 2007 and 2012, for example, the share of electricity generated from natural gas in America increased from 21.6 to 30.4 percent, while electricity from coal declined from 50 to 38 percent. Changes which they describe as taking place at ‘light-speed in a notoriously slow-moving, conservative sector’. In contrast, both the use of coal and carbon emissions continues to rise inexorably in Germany, a country lauded by environmentalists for its commitment to renewable energy.

Green taxes and higher prices caused by allowing huge subsidies for green technologies do reduce energy consumption and carbon emissions. But even the current levels which we see in the UK and much of the rest of the EU have not been sufficient to cut the absolute level of such emissions. In order to achieve this, prices would have to rise so much that it is hard to see any government getting re-elected which allowed this to happen.

Investment in innovation and new technologies seems to be by far the most effective way of dealing with the problem of climate change. France and Sweden have done so over the past 40 years by investment in nuclear technology and hydro-electric power. And, to the rage of environmentalists, it is America which is leading the world in reducing emissions.

Al Gore starred in the film An Inconvenient Truth about climate change.  It is an inconvenient truth for progressives like Gore that on this topic, the Right seems to have the best tunes.  Natural gas and nuclear are the best ways to save the planet.

As published in City AM on Wednesday 23rd October 2013

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Prisons, incentives and how to save the planet

Criminals are refusing to leave Portugal’s prisons.  According to the International Herald Tribune, prisoners are starting to want to serve the full amount of their sentences rather than be released on parole.  This is despite the fact that there is record over-crowding and conditions inside are reported to be dire.  Motoring offenders are increasingly failing to pay fines, opting instead to serve three or even six month sentences.

This is a remarkable illustration of the effect of economic incentives.  Portugal’s economy is now in its fifth successive year of crisis.  In prison, people are at least guaranteed accommodation, clothes, hot water and three full meals a day.  Outside, many of them would be unemployed and struggling to pay for even the bare essentials.

The Coalition government is banking in the fact that people will respond to incentives in an even more straightforward way when it comes to energy.  The changes announced last Friday will eventually quadruple the charges levied on consumers to help support electricity generation from low-carbon sources.  And higher prices should mean that people will consume less.

This controversial policy is entirely in keeping with the trend in energy policy not just in the UK but in the rest of Europe.  If we want to reduce emissions, we make energy expensive.

But is it the best approach?   Unlike in the natural sciences like physics, it is hard for social scientists to conduct real-life experiments.  However, in the case of emissions, a massive experiment is being played out before our very eyes.

Europe wants to try and solve the problem by making energy expensive.  In complete contrast, the US is making energy more affordable.  And it is the American way which is delivering the better results.  Since 2006, US emissions have declined by 8 per cent, the largest drop in any country in the world.  This is quite unconnected with the economic crisis.  Energy consumption is also connected to the total amount of economic activity.  But GDP in the EU is only some 2 per cent higher now than it was in 2006, and in the US it is 6 per cent higher.

America has done this by technological innovation, by making things more efficient and, above all, by developing cheaper energy sources.  Michael Shellenberger at the Breakthrough Institute in California points out that significant investment by both government and the private sector has made solar and wind energy much more efficient.  Even more dramatically, the development of shale gas in America has led natural gas prices to fall by 80 per cent.  So gas rather than coal is used to make electricity.

Innovation is the driving force behind the stupendous increase in living standards across the world over the past 200 years.  Economics, with its emphasis on equilibrium, finds it hard to cope with the concept, because innovation means change.  But it is innovation rather than incentives which will solve our emissions problems.  To save the planet, invest in making energy cheap.

As Published in City AM on Wednesday 28th November 2012

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