If thou repent, devils shall tear thee in pieces.
Making the necessary changes as painless as possible means, among other measures, making them as fair as possible. Even if we put the moral considerations aside, there is a good political reason for fairness. People are more willing to act if they perceive that everyone else is acting. In his book Happiness: Lessons from a New Science, Professor Richard Layard observes that
The only situation where we might willingly accept a pay cut is when others are doing the same. That is why there was so little economic discontent during the Second World War.2
George Orwell made a similar point in his essay The Lion and the Unicorn, published in December 1940.
The lady in the Rolls-Royce car is more damaging to morale than a fleet of Goering’s bombing planes.3
In other words, one of the criteria for success in cutting green house gas emissions by 90 per cent is that the cut applies to everyone. This would ensure that I was no longer confronted with the utter futility of buying an energy efficient bulb while Mr Meikle from Coalburn attaches a million Christmas lights to his house.
If we attempted to suppress climate change entirely by means of energy taxes, two things would happen. The poor would be hit much harder than the rich, as the costs took up a higher proportion of their income. And the rich would be able to carry on burning as much fuel as they could afford. In theory, you could design a tax and rebate system which ensured that money was transferred from the rich to the poor and which was constantly adjusted to maintain a steady cap on the amount of carbon the country produced. But while it would be no harder to implement than a rationing system, it would, because of the complex system of fees and rebates, be more difficult to explain. Complex ideas seldom do well in politics, as most people do not have the time or patience required to understand them. We are likely to react against one part of the package before we have grasped the whole idea.
An alternative approach is to draft new laws governing every move we make, before which, in theory, all men and women would be equal. We could have regulations governing when we could turn the lights on or how far we were allowed to travel. I don’t believe that many people would see that as an attractive option either. As the Allied powers’ economic planners found in the Second World War, there is a less coercive system, whose fairness is immediately apparent. It is rationing.
Rationing begins with a decision about the amount of carbon the world can emit every year. If, for example, it is correct to say that our 7 billion tonnes of current carbon emissions must be reduced to 2.7 by 2030, and if we want to make the biggest cuts sooner rather than later, we might decide that in 2012 the world should be producing no more than 5.5 billion tonnes. We divide that figure by the number of people we will expect to find on earth in 2012, and discover how much carbon everyone would be entitled to emit: it would be around 0.8 tonnes. Every nation would then multiply that figure by the number of people it contained, and this would become its national allocation.
This means that some countries, generally the poorest ones, would be allowed to raise their emissions: even in 2030, Ethiopia, if its population remained stable, could emit five and a half times as much carbon as it does today. But the overall effect would be an annual contraction of global carbon emissions, as the different countries converged towards the same amount per person. Unsurprisingly, this approach is known as ‘contraction and convergence’.4 It was devised by a man called Aubrey Meyer. He is one of those extraordinary people whose lack of relevant qualifications appears to work in his favour: he’s a concert viola player. Meyer was able to leap over the more constrained proposals of the professionals and produce an idea that was simple, based on science and fair.
Once a country has its allocation, it can then decide how its emissions should be parcelled out. In theory, you could simply hand everyone his or her global share: 0.8 tonnes of carbon, for example. But this, though at first it seems straightforward, would create an incredibly complex system. Everything you bought would need both a cash price and a carbon price. If, for example, you stopped beside the road to buy a punnet of strawberries, you would need to pay, say, £1 for it, plus 0.01588 per cent of your carbon entitlement – assuming that someone had worked out that the growing, transport and packaging of the strawberries had caused 127 grams of carbon to be released. It’s not going to work.
A much simpler system was devised by Mayer Hillman and refined by another independent thinker, a man called David Fleming. Both companies and people would need to use their carbon accounts when buying just two commodities: fuel and electricity.5 If, for example, the fuel and electricity that people consumed directly added up to 40 per cent of a country’s carbon emissions, then the citizens of that country would be given 40 per cent of its carbon budget. Everyone would get the same amount, and no one would have to pay. We would need to use our carbon allowance only when paying our electricity or gas bills or filling up our cars. (Fleming’s scheme could be extended a little, to cover aeroplane and train journeys as well.6)
If, then, the global carbon allocation in 2012 is 0.80 tonnes (800 kilograms) – of carbon per person, each of us would be given a carbon debit card entitling us to spend 40 per cent of that, or 320 kilograms.
The remaining 60 per cent of the country’s carbon budget would belong to the government. It keeps some for itself and auctions the rest either directly to companies wanting to buy fuel or electricity, or to carbon brokers, who would then sell the entitlements to other corporations or to people who cannot stay within their budgets. The price, like that of any other commodity, would depend on the competition for the resource, which in turn would depend on its scarcity. So by the time you stop to buy the punnet of strawberries, the carbon required to produce it would already have been incorporated into its price, and you need to pay only in pounds. The more carbon-intensive a product is, the more expensive it will be.
But in creating a carbon rationing system, you are, in effect, creating a new currency. The entitlement to pollute will be accounted, saved, spent and exchanged much as money is today. As far as I can discover, no one has yet given it a name, except the rather dull ‘carbon units’. So for want of a better term, I will call the new currency icecaps, in the hope that the name will remind people what the system is for: it enables us to cap our carbon emissions to keep the planet cool.
The icecaps you are given can be traded with other people. If you reach the end of the year and find you haven’t used all your allocation, you can sell the remainder to someone else. Or if you’ve used too much, you can buy the extra icecaps you need. You can buy or sell the unused rations in your local post office or bank, or from electricity companies, filling stations and travel agents. So can visitors to the country, who will not have been given any entitlements by the government.7 Of course, if everyone is trying to do the same thing, the price becomes very high indeed.
What this means is that the lady in the Rolls-Royce car might still be driving around, but only after she has transferred a good deal of money to people who are poorer or more abstemious than she is. Economic justice is built into the system.
It is a much fairer plan than, for example, the European Union’s Emissions Trading Scheme. This system, which has been running since the beginning of 2005, began by handing out carbon dioxide emissions permits, free of charge, to big European companies. By and large, those who produced the most carbon emissions were given the most permits: the polluter was paid.8 This handout was so generous that, in May 2006, the British government’s consultants calculated that power firms would be making a windfall profit from the scheme of around £1 billion, while doing nothing to reduce their emissions.9 The Emissions Trading Scheme is a classic act of enclosure. It has seized something which should belong to all of us – the right, within the system, to produce a certain amount of carbon dioxide – and given it to the corporations.
While rationing is, of course, a matter of deprivation and restraint, it offers greater freedom than the competing means of reducing carbon emissions. If, as I have suggested, the government sought to hold our emissions down to the necessary level by means of separate regulations, it would have to police our behaviour relentlessly. We would need to be punished for failing to turn our televisions off at the wall, or for leaving the lights on when we go to bed. Some technologies would have to be banned outright. But under a rationing scheme, as long as you either stay within your allocation or are prepared to buy extra icecaps, you can do whatever you want. If you can afford it, you can burn your entire ration in a single carbon orgy, then buy what you need for the rest of the year from other people. You can watch television all day long, and make up for it by swapping your fridge for a super-efficient model. It doesn’t matter. What counts is that the country as a whole will not be exceeding its share of carbon dioxide.
The market created by carbon rationing will automatically stimulate demand for low-carbon technologies, such as public transport and renewable energy. In other words, in every respect this proposal needs be less statist than its competitors.
It is not quite as simple as this, however. While in general there is a direct relationship between wealth and energy use, it doesn’t hold all the way across society. In the United Kingdom, for example, 30 per cent of the very poor (those who live in the poorest one fifth of households) use more energy than the national average.10 The main reason for this is that they live in terrible houses. Some people have to burn so much fuel to keep warm that they would scarcely be worse off if they lived in the open air. A carbon rationing scheme, in other words, cannot be just unless it is accompanied by a massively accelerated programme to improve the condition of the poorest people’s homes.
The poor might also be living in places which are badly served by public transport: they need taxis or old bangers in order to get to work or to the shops. Again, help is needed – a better public transport system, for example – if the poorest people are not to be faced with a choice between food and energy. In other words, simply creating a market and expecting it to solve the entire greenhouse gas problem is like asking the people of the slums of Manchester in the 1840s to sort out their own sanitation. There were some things they could do, if they could afford them: boiling their water, washing with soap, changing their clothes more often. But they could not build sewerage and clean water systems by themselves and – because they were poor – no one had a financial interest in providing them. The massive investment in new services which carbon rationing demands must, in some places, be assisted by either funding or guidance from the state.
The government might also need to hold back part of the national allowance as an extra ration for people on low incomes who find themselves in trouble during a hard winter. It could function much as cold weather payments do in northern European countries today: when the temperature drops below a certain point, governments give an allowance to the poorest people to help them pay their fuel bills.11
Of course, the more energy the carbon ration allows us to use, the more politically acceptable the scheme becomes. If a 90 per cent carbon cut means a 90 per cent energy cut, it is hard to see how any democratic government could make it happen. We must seek, as far as possible, to break the link between carbon and energy. If, for example, the entire electricity network were somehow to be supplied by renewable power, then we wouldn’t need to hand over any icecaps to keep the lights on. The purpose of this book is to find the most politically effective means both of cutting our energy use and of reducing its carbon content.
None of this automatically solves the political problem. As every government strives to minimize the restraint upon the lives of its citizens, international climate negotiations have so far been detached from what the science is saying. There is still no global target for greenhouse gas concentrations in the atmosphere. The cuts agreed under the Kyoto Protocol – 5.2 per cent by 2012 – bear no relationship to the cuts the problem demands. The Kyoto Protocol resembles the European Emissions Trading Scheme: a country’s entitlement to pollute relates to the amount of pollution it already produces. The dirtier you are, the bigger your entitlement.
But while adopting the principle of contraction and convergence would not mean an end to the political arguments, they would no longer take place in a moral and intellectual vacuum. The negotiators would have a target – an equal division of the planet’s capacity to absorb pollution – which is both factual and fair. The best estimate of the planet’s total carbon sink in 2030 will change as the science improves, but the target can change with it. With an equal global carbon allocation, countries will no longer be able to claim that they can’t act because others are not obliged to join in. They might not like this proposal, but they cannot deny that it is even-handed.
The argument deployed most often against a global carbon reduction of this kind, whether it is brokered by rationing or any other system, is that the cure is worse than the disease. Just as Dr Faustus was told that if he repented, devils would tear him apart, we are told that the economic decline it would cause would outweigh any losses imposed by climate change.
This position has been most famously advanced by the Danish statistician Bjørn Lomborg, whose work delights the media on both sides of the Atlantic. In his book The Skeptical Environmentalist, which is thorough and well-referenced, Lomborg argues that the cost of doing nothing about climate change – of letting nature take its course – is US $4,820 billion. The cost of stabilizing global temperatures at 2.5° above the 1990 level would be $8,553 billion; and the cost of stabilising them at 1.5° above the 1990 level (roughly what I am seeking to achieve here) would be $37,632 billion – nearly 38 trillion dollars.12 He warns that
With the best intentions of doing something about global warming we could end up burdening the global community with a cost much higher or even twice that of global warming alone.
It would be better to use our money to make investments with higher returns, leaving ‘future generations of poor people with far greater resources’.13
I could seek to counter Lomborg’s case, as many economists, including the British government adviser Sir Nicholas Stern, have done, by arguing that he and the economists upon whose figures he relies are wrong: that the economic costs of letting climate change happen greatly outweigh the economic costs of tackling it. But I will not do so for this reason: it is an amoral means of comparison.
We can determine, for example, that the financial costs of Hurricane Katrina, which may have been exacerbated by climate change, amount to some $75 billion,14 and we can use that number to help derive a price for carbon pollution. But does it capture the suffering of the people whose homes were destroyed? Does it capture the partial destruction, in New Orleans, of one of the quirkiest and most creative communities on earth? Does it, most importantly, capture the value of the lives of those who drowned?
In other words, is it possible to place an economic price on human life? Or on an ecosystem, or on the climate? Could such costs, when rolled out around the world, really be deemed to amount to $4,820 billion, give or take the odd dollar? If you believe the answer is yes, then I charge that you have spent too much time with your calculator and not enough with human beings.
When economists have tried to cost such things, they have simply exposed the limitations of their science. In 1996, for example, a study for the Intergovernmental Panel on Climate Change estimated that a life lost in the poor nations could be priced at $150,000, while a life lost in the rich nations could be assessed at $1.5 million.15 The researchers produced these figures by estimating how much people would be prepared to pay for the adaptive measures that would save their lives. Unsurprisingly, they discovered that the lives of rich people were worth more than the lives of poor people. Their figures were not just wrong; they were meaningless.
These days, economists are less prepared to expose themselves to ridicule. So anything that cannot be quantified is simply excluded from the balance sheet. What this means is that the loss of all the really important things – a functioning ecosystem, human communities, human life – is overlooked. Because they aren’t counted, they don’t count.
It would be wrong to blame only Bjørn Lomborg and the economists whose work he promotes for taking this line. Even those who claim to want to do something about climate change can’t help themselves: they feel obliged to attach a price tag to global catastrophe. The British government, for example, has decided that the ‘social cost’ of carbon emissions is somewhere between £35 and £140 per tonne, with a middle value of £70.16 We might reasonably ask what the heck this means. Does the government really believe it can put a price on the Amazon? On Bangladesh? This must, in other words, be a moral decision, not an economic one. Either we decide that it is right to spend a lot of money seeking to prevent catastrophic climate change or we decide that it isn’t, but we must make that decision on the grounds of how much we value people and places as people and places, rather than as figures in a ledger.
This does not relieve me, however, of the need to work out how much the proposals in this book might cost.
When I say that this isn’t easy, it would be an understatement to call it an understatement. I haven’t come across such wildly varying claims in any other field. Bjørn Lomborg’s extraordinarily precise figure – $37.632 trillion – occupies one extreme; at the other are people who claim that cutting carbon emissions will actually make us money, as the requirement to invest in new technologies will stimulate economic growth, and energy efficiency will lead to financial efficiency. The British government, for example, estimates that saving 37 per cent of the energy currently used in our homes would also save around £5 billion.17
In between these extremes, you can take your pick. The European Commission chooses studies suggesting that stabilising carbon dioxide emissions at 550 parts per million by 2100 would cost the world somewhere between $1 trillion and $8 trillion.18 Keeping them below 450 parts per million would cost between $2.5 trillion and $18 trillion. The economist Christian Azar and the biologist Stephen Schneider have produced a similar figure for a completely different target: stabilizing carbon dioxide emissions at 350 parts would cost about $18 trillion.* 19
These are all stupendous amounts of money. My first reaction on encountering them was that, though they were generally lower than Bjørn Lomborg’s costs, they were still completely unaffordable. But as Azar and Schneider point out, this would be true only if we had to pay them all at once. If we spread the cost between now and the target date, it would hurt us much less. The modellers who have frightened us with such huge sums also predict that the global economy will keep growing by 2–3 per cent a year through the twenty-first century, which means it will be in the order of ten times bigger in 2100 than it was in 2000. Holding down carbon emissions at a cost of trillions or even tens of trillions of dollars would merely delay the point at which we became ten times richer than we are today by a few years. ‘To be ten times richer in 2100 AD versus 2102 AD,’ Azar and Schneider point out, ‘would hardly be noticed.’20 My target date (2030) is much closer than theirs, however, so the economic impacts would be felt more keenly.
I could claim that my proposals would cost a total of $10 trillion, or 20 or 30, or I could create the impression that I knew exactly what was going to happen, by telling you that they will cost $14.739 trillion. But you could trust any one of those estimates only as far as you could trust all the assumptions – about economic growth, discount rates, energy prices, new technologies, government policy – that lay behind it. Because the assumptions range so widely as to render each other almost meaning less, any single figure I offered would be an arbitrary one. But what I can do is to try to give you some idea of the economic hardship which might be caused.
One means of doing this is to compare the way prices might be expected to change under the proposals in this book with price fluctuations in the past. Again, as Chapters 5 to 7 will show, this is difficult, as the estimates of the costs of energy produced by different means also vary widely. But roughly speaking, my proposals are likely to raise the wholesale price of electricity and heat, in real terms, by something in the order of 100 per cent by 2030. This sounds like a lot, until you see it in context. Between November 2004 and November 2005, the average wholesale price of electricity rose from 2.1 pence to 3.6 pence – by 71 per cent. In the twelve months to February 2006, the wholesale price of natural gas in the United Kingdom rose by 75 per cent.21 In the three years to that date, it rose from under 20p a therm to 70p – an increase of 350 per cent.22 The rate by which the price of gas has risen is thus roughly twenty-eight times greater than the rate of increase in energy prices which would be caused by my proposals. The new gas prices have caused some pain, but they have not led to economic collapse.
The greater impact is one that will not really be ‘felt’. It is the effect upon what we might have been able to do had the restraints I am advocating not been in place. The money which needs to be spent to tackle climate change and the economic opportunities which have to be foregone are regularly confused – sometimes, I think, deliberately – by those who wish to prevent us from taking action. At the moment, all of us suffer from the economic constraints imposed by the fact that we are not allowed to buy psychotropic drugs. If this trade were legal, it would have enhanced the pace of economic growth, which means that on average we would be slightly richer today than we are. But, with the exception of a few people who have been hoping to sell these items without fear of prosecution, we do not walk around under a cloud, lamenting the fact that money which might have entered our pockets has been denied to us. The impact of this constraint is real, but it has not been felt by us. No one’s bank account is emptied by what might have been.
Having taken the plunge into comparative economic pain, the system I propose has one self-limiting characteristic. There is a pay-off between the price of energy and the price of icecaps. If we invest heavily in renewable electricity, for example, and therefore weaken the link between energy and carbon, every kilowatt hour of electricity will cost more. This is because – at the moment – most renewables are more expensive than coal or gas. On the other hand, we can consume more electricity while staying within our carbon ration. As fewer people will then need to buy extra rations, the price of icecaps will be suppressed. As this lower price feeds through the economy, it counteracts the inflation caused by higher electricity prices. The overall cost of energy would be higher than it is today, but to some extent it holds itself down.
None of this means, however, that I can give myself a free hand in suggesting how climate change might be tackled. In every case I must seek the cheapest way to cut carbon emissions, for the reason that a pound spent on an inefficient process is a pound not spent on an efficient one.
But there is a further question we should ask. If these changes are to cost money, on whom or on what will the cost be imposed?
One of the arguments made by those who claim that we should take no action is that if the same amount of money were spent on relieving hunger, or supplying clean water, or preventing AIDS or tuberculosis or malaria, it would save more lives.23 This approach tends to overlook the fact that climate change is likely to cause more hunger, more water stress and more communicable disease, thereby raising the cost of addressing them. But this is not the principal argument against it. Behind this case is an unfathomable assumption: that money spent on preventing climate change is money not spent on foreign aid. In other words, it supposes that the climate-change budget is in direct competition with the rich countries’ foreign aid budgets, rather than with any other kind of spending.
If the rich countries were already doing everything in their power to help the poor and were, as a result, now running out of money, this argument might carry some weight. But it is hard to think of a national exchequer which has ever been endangered by its foreign aid spending. The governments of Europe have agreed that by 2015 – a mere thirty-five years after the date they first set for themselves – they will give 0.7 per cent of their national income in foreign aid. The United States currently spends 0.17 per cent of gross domestic product – just over $19 billion – on aid.24 The United Kingdom spends 0.36 per cent, or £4.3 billion.25
In other respects these governments are rather more open-handed. The United Kingdom’s budget for the widening of the M1 motorway is £3.6 billion.26 This is nearly seven times as much as it is currently spending every year on tackling climate change.* Altogether it has set aside £11.4 billion for building and widening roads. Given that the government has – or had – a policy of reducing road traffic, it is hard to see how this spending can be justified.
In his book Perverse Subsidies, published in 2001, Professor Norman Myers adds the direct payments US corporations receive from the government to the wider costs they oblige society to carry, and arrives at an annual figure of $2.6 trillion.28 This is roughly five times as much as the profits they were making at the time his book was written. As well as the annual $362 billion the thirty richest governments were paying their farmers when Perverse Subsidies was published, they were spending some $71 billion on fossil fuels and nuclear power and a staggering $1.1 trillion on road transport. Worldwide, governments pay companies $25 billion a year to destroy the earth’s fisheries, and $14 billion to wreck our forests.29
The Energy Policy Act the Bush administration pushed through Congress in 2005 handed a further $2.9 billion to the coal industry and $1.5 billion to oil and gas firms.30 According to the Democratic congressman Henry Waxman, the oil subsidy ‘was mysteriously inserted in the final energy legislation after the legislation was closed to further amendment’.31 Most of the money, he discovered, would be administered by
a private consortium located in the district of Majority Leader Tom DeLay… The leading contender for this contract appears to be the Research Partnership to Secure Energy for America (RPSEA) consortium… Halliburton is a member of RPSEA and sits on the board, as does Marathon Oil Company…
In short… taxpayers will hire a private consortium controlled by the oil and gas industry to hand out over $1 billion to oil and gas companies. There is no conceivable rationale for this extraordinary largesse. The oil and gas industry is reporting record income and profits. According to one analyst, the net income of the top oil companies will total $230 billion in 2005.32
In the European Union, according to the European Environment Agency, direct and indirect subsidies for the coal industry amounted to €13 billion in 2001, and subsidies to the oil and gas industry to €8.7 billion.* 33 Germany made direct payments to the coal industry of over €4 billion that year, which equates to €82,000 for every job in the mines it saved.34 The United Kingdom supports its oil and gas industry by holding down value added tax on its products, at a cost to the Treasury of about €1.4 billion a year.35
At the beginning of 2006, Joseph Stiglitz, the former chief economist at the World Bank, and Linda Bilmes, an economist at Harvard, calculated that, on ‘very conservative’ estimates, the war in Iraq had so far cost the United States between $1 and $2 trillion.36
When you remember that only a smallish proportion of the cost of dealing with climate change will be borne by governments, it becomes clear that this is not a choice between state spending on climate change or state spending on foreign aid and essential public services. It is a choice between state spending on climate change or state spending on coal, oil, roads, farm subsidies, environmental destruction and unprovoked wars. We would do well to ask why governments seem to find it so easy to raise the money required to wreck the biosphere, and so difficult to raise the money required to save it.
Most of the cost, though, will be carried not by states but by corporations and citizens. It means that some of the money we might otherwise have spent on other goods and services will have to be spent instead on more expensive energy. While the evidence is mixed, this is likely to counteract some of the increase in employment which would otherwise have happened as a result of greater economic growth.37 This assumes that our governments are correct in predicting continued economic growth this century if we carry on as we are. But that assumption is beginning to look unsafe.
It is now becoming pretty clear that within the lifetimes even of the late middle-aged people alive today, global petroleum supplies will peak and then go into decline. There is a great deal of dispute about when, within the next thirty years, this will happen. At the time of writing, some analysts are claiming that it might already be happening, and will only become visible in retrospect, as oil prices start to rise almost exponentially.38 Others, who appear to be just as well qualified, maintain that it is unlikely to happen until 2037.39 But there is little dispute about the proposition that it will take place.
In 2005 the US Department of Energy released a report called Peaking of World Oil Production: Impacts, Mitigation, & Risk Management.40 The department’s consultants, led by the energy analyst Robert L. Hirsch, concluded that
without timely mitigation, the economic, social, and political costs will be unprecedented.41
It is possible to reduce demand and to start developing alternatives, they said, but this would take ‘10–20 years’.
Waiting until world oil production peaks before taking crash program action leaves the world with a significant liquid fuel deficit for more than two decades… the problem of the peaking of world conventional oil production is unlike any yet faced by modern industrial society.42
The International Energy Agency estimates that a $10 increase in the price of a barrel of oil causes the rich nations to lose 0.4 per cent of their gross domestic product.43 Asia loses 0.8 per cent and sub-Saharan Africa over 3 per cent.44 An oil peak could raise the price by $100, $200 or almost any amount of money. It could, as Hirsch suggests, precipitate the worst economic depression the modern world has ever known. Several of the measures I propose in this book are of the kind that we should be pursuing even if climate change were not happening, in order both to delay the peaking of world oil supplies and to reduce the economic impact when it happens. When the oil peak is taken into account, it seems to me that judicious spending on reducing climate change is at least as likely to prevent a recession as to cause one.
But even without the oil problem, there can still surely be only one answer to the question of whether preventing catastrophic climate change is worth the sacrifice of a proportion – even a large proportion – of our predicted economic growth over the twenty-four years between now and 2030. If we in the rich nations do not act to prevent it, we are likely, over that period, to have more money in our pockets than if we do. We could spend that money on – well, on what exactly? More cars, more flights, more Barbie dolls, more tiger prawns? More roads, more farm subsidies, more wars? In either case it is hard to see how these delights will compensate for the damage to our lives that climate change will cause. I could put it another way, but someone else already has.
For vain pleasure of twenty-four years hath Faustus lost eternal joy.45