Thursday, March 13, 2008

C&C, German style

It cannot be that nations that make big cars are punished more than countries that make small cars.
-- Angela Merkel.

(It has been said that the Chancellor has embraced contraction and convergence.)

P.S. UK government approach is not much more promising. See Ministers challenged over backing for coal-fired power station.

P.P.S. Dieter Helm has a fiery commentary on current European and U.S. approaches in a letter in the WSJ titled Sins of Emissions:
The U.S. and Europe refuse to acknowledge that halting the relentless rise in the concentrations of greenhouse gases in the atmosphere will take a significant slice out of economic growth. It will probably mean living standards will have to be cut if our consumption is going to be environmentally sustainable. We are simply living beyond our -- and the planet's -- means.

This is not a welcome message for politicians to give to their voters. But it happens to be what is required to tackle this global crisis. Not since the late 1930s, in the run-up to World War II, has such a massive restructuring of major economies been required. Nobody told the British or American people then that the challenge of creating a wartime economy was going to be cheap. They should stop pretending that the enormous challenge of decarbonizing the major economies can be done on the cheap, either.

1 comment:

John said...

Helm repeats a long discredited notion, that GDP, energy use, and emissions are tightly connected, implying that one can't lower emissions without reducing energy use and crippling the economy. This was the received wisdom before 1973, and was believed to be well supported by econometric studies showing very low price elasticities of energy demand. All this was decisively shown to be wrong after 73. Before that, energy prices had been very stable and were generally falling in real terms. No surprise, people used more, and the correlations between energy and GDP were impressive. Electric utility officials used to joke that forecasting was as simple as ruling a straight line through a (semi-log) plot of past power production -- the future would be unending exponential growth. Of course, as soon as prices rose people found creative ways to use less energy while still meeting their needs for warm showers and cold beer (as Amory Lovins says). The utilities found themselves with power plants they could not pay for (and sought government bailouts). Meanwhile, between 1973 and 1984, when oil prices collapsed, energy use in the US fell substantially while real GDP rose sharply.

Those, like Helm, who repeat this canard are violating the most basic principles underlying the free market philosophy that allegedly guides the guardians of capitalism such as the Wall Street Journal: that rational people use less of what is dear and more of what is cheap, and that high prices and the profit opportunities they create induce technical innovation and behavior change that solves scarcity and leads to progress and prosperity. In fact, those claiming an iron link between fossil fuel use and prosperity reveal themselves to be profoundly pessimistic about the ingenuity of the human race and the ability of people to adapt to higher prices. One can only wonder what misunderstandings and motives might lie behind such a strategy. One widespread misunderstanding is the inability to imagine a future significantly different than the past, to imagine the innovations and changes that new circumstances induce, to understand the power of the positive feedbacks of learning, scale economies, network effects, and so on that are, as you read this, driving the costs of carbon-free renewables down as demand for them explodes. One can only speculate as to motive, but many with vested interests in the status quo fear that their investments in the old infrastructure will lose value if carbon was priced fairly and so seek to sow fear among the public so as to prevent or at least delay the transformation of the economy that would harm their assets. True advocates of the free market and the power of capitalism to respond to the challenges we face don't stand in the way of creative destruction. True advocates of the market would first get prices right by internalizing the full costs of energy, then let the market work its magic, not fight tooth and nail to preserve the market failures that have brought us to the present crisis.