EU Climate Policy after the Crash of 09
It is now plain that something has gone badly awry with the European Union’s policies and views on the issue of climate change. Plain to any observer, it seems, other than the EU Commissioner for Climate Action Connie Hedegaard, and her colleagues inside the shiny towers of the Brussels quartier européen. They continue to assert in a triumph of hope over experience that it will all come good with more of the same polices that have just failed.
The EU Emissions Trading Scheme and associated promotion of so-called “cap and trade” carbon trading has crashed and is burning. The carbon price had already crashed twice before the present time. That isn’t to say that nothing is happening: much is. A false market in the non-emission of carbon has been created by fiat and is having a dampening effect on already fragile EU economic recovery. But it is fertilising a luxuriant undergrowth of consultants and ‘carbon traders’, rather in the way that speculators in other classic ‘bubble’ markets have been enriched in the past.
‘Bubble’ markets are quite familiar and the motives driving them never change. In 1841 Charles Mackay observed in one of the first works of modern sociology, entitled Extraordinary Popular Delusions and the Madness of Crowds, that greed, ingenuity, credulity and the capacity for self delusion are pretty constant in human nature. Famous examples of bubble markets were for tulip bulbs in the Netherlands in 1636, or the Mississippi Scheme of John Law in France in 1719-20 or the best known – the South Sea Bubble a couple of years earlier in England. By the way, the promoting motive of the South Sea Company has a cautionary contemporary ring in post-Brownian Britain today as we are told of ever-promised and never materialising ‘green growth’: it was supposed to pay off the government’s debt painlessly, by privatised venture.
The EU ETS therefore has a long pedigree. What has it achieved materially, so far? It has, for example, enriched Chinese manufacturers of the pollutant CFC-23, manufactured to be destroyed in order to sell the certificates for so doing to Japanese and European businesses as ‘carbon off-sets’, thereby enabling them to meet their EU targets without changing their own activities. There is a developing scandal over ‘revolving door’ relationships between the certifiers of off-set schemes in the poor world, and their promoters. The EU ETS has been the medium for the biggest VAT “carousel” scam in modern times. Major European corporations have mainly engaged it in the twin modes of tax avoidance (relocating out of its reach) or exploiting subsidy-funded markets, however silly. So we end up with German solar panels or British wind-mills in inappropriate places and the growing threat of future energy shortages. When the subsidies are withdrawn, as happened recently for the Spanish solar industry, the sector implodes. When forced, corporations have paid protection money. But their hearts are quite evidently not in it, especially now that ‘climate action’ has fallen and continues to fall steadily from popular concern. Mrs Merkel’s posture on the topic is a useful bell-weather of this. As Chancellor of a European country that still makes and exports things, when the rubber hit the road in December 2008 this former German environment minister demanded – and got – exclusions for German exporting industries. Since then she has distanced herself still further from what looks like a loser’s policy.
“So whatever it has done materially – and unintentionally we must assume – the EU Climate Policy has failed to become a world leading model for ‘climate action’.”
So whatever it has done materially – and unintentionally we must assume – the EU Climate Policy has failed to become a world leading model for ‘climate action’. Especially now that ‘cap and trade’ is dead in the USA for the foreseeable future with the failure of Obama’s climate policy to thrive in Congress, whatever is done about anthropogenic carbon world-wide will clearly not be done the EU way.
Not that this is much loss, because the EU policy produced no discernable real world evidence of accelerating the natural rate of decarbonisation in Europe. The European rate is no faster than that of the USA, which has never been party to the broken ‘Kyoto Protocol’ approach of top-down target setting. So the challenge to Ms Hedegaard is the reverse of what she thinks. Can she courageously admit failure and change to proven policies that actually work?
Some of us have argued for over twenty years that it would likely all end like this for the top-down ‘command’ approach. But until 2010, our case (a multi-dimensional analysis that has blossomed over time and that is soon to be published in a collection of essays from the 1980s to the present, entitled The Hartwell Reader) has not been being clearly heard. Now it is beginning to be so, especially in Asia and the Americas.
Our reasons for predicting that the EU ETS/Kyoto Protocol approach had no chance of achieving its stated goal of accelerating decarbonisation were most recently explained in The Hartwell Paper, published in May. This is the fruit of a collaboration of thirteen scholars and practitioners worldwide, which presents the first coherent blueprint of a radically different and radically pragmatic way of accelerating decarbonisation without alienating voters or damaging, depressing and distorting our economies, but instead, doing the opposite. My self-evident scepticism about the EU method and my hostility to the arrogance with which it is being driven on regardless of the evidence, arise in large part from my eagerness to get on with decarbonisation. So those who do not like what I write here do not have the easy escape of condemning me as a ‘denier’ whose views they can therefore ignore in a fragrant cloud of self-righteousness. This is at root a business case, not a religious debate.
I. The Need for Fundamental Reframing
During the last months of 2009, two watersheds in the general public perception of climate policy orthodoxy were crossed, one political and one scientific. The political watershed was crossed on 18th December with the confusing and disjointed ending to the climate conference in Copenhagen. Not only had no agreements of any consequence been reached, but the very process of multi-lateral diplomacy through large set-piece conferences had been called into question. The scientific watershed was crossed on 17th November with the posting of more than a 1,000 emails from the University of East Anglia Climatic Research Unit. These emails offered prima facie evidence that scientists were acting outside publicly recognised norms of science. None of the inquiries undertaken to date have been able to show that this was not so. Not long after this, and partly as a consequence, the Intergovernmental Panel on Climate Change (IPCC) also came under increased scrutiny as a consequence of errors and sloppiness in its 2007 Fourth Assessment Report. In consequence, the legitimacy of the institutions of climate policy and science are no longer assured.
The climate emails debate has shown the limits of trying to use science to tame the acrimonious politics of climate change and has induced a more honest narrative of scientific uncertainty. Copenhagen has shown the limits of what can be achieved on climate change through centralising and hyperbolic multilateralism.
These failures stem from a fundamental framing error. Climate change was represented as a conventional environmental “problem” that is capable of being “solved.” It is neither of these. Yet this framing has locked us into the rigid agenda that brought us to the dead end of Kyoto, with no evidence, despite vast investment of time, effort and money, of any discernable acceleration of decarbonisation whatsoever: not anywhere; not in any region.
However that dominant current approach has acquired immense political momentum because of the quantities of sunk political capital.
So how to extricate ourselves? The co-authors of The Hartwell Paper believe that a good crisis should not be wasted. To move forward, a startling proposition must be understood and accepted. It is now plain that it is not possible to have a ‘climate policy’ that has emissions reduction as the all-encompassing and driving goal. The co-authors advocate inverting and fragmenting the conventional approach: accepting that decarbonisation will only be achieved successfully as a benefit contingent upon other goals that are politically attractive and relentlessly pragmatic. These criteria rule out a methodology of binding targets and aspirational timetables which has, in any case, not worked, as I noted in my introduction.
Without a fundamental re-framing of the issue, new mandates will not be granted for any fresh courses of action, even good ones. The core of the problem is epistemological. Open systems of high complexity and with many ill-understood feed-back effects, such as the global climate, produce no self-declaring indicators which tell the policy maker when enough knowledge has been accumulated to make it sensible to move into action—even less the type of action that ought to be taken. Climate change is best understood as a persistent condition that must be coped with and can only be partially managed more – or less – well.
II. Human Dignity and The Climate Change Condition
In the ‘Hartwellite’ opinion, the organising principle of our effort should not be sin but virtue. Atonement is not an efficient animator of action. The division of the world into ‘Annex 1’ and ‘Non-Annex 1’ Countries in the Framework Convention on Climate Change (UNFCCC) may have expressed the heady ethos of the Rio Earth Summit; but it made no provision for emerging economies to graduate from one list to the other. Furthermore it has perpetuated a negotiating environment in which apportioning blame for the past frequently seems to be more important than finding pathways for the future. So instead, the co-authors advocate the raising up of human dignity and in that pursuit, re-frame primary goals. First is an access goal: to ensure that the basic needs, especially the energy demands, of the world’s growing population are adequately met. Second is a sustainability goal: to ensure that we develop in a manner that does not undermine the essential functioning of the Earth system. Third is a resilience goal: to ensure that our societies are adequately equipped to withstand the risks and dangers that come from all the vagaries of climate, whatever their cause.
Energy policy should focus on securing reliable and sustainable low-cost supply, and, as a matter of human dignity, attend directly to the development demands from the world’s poorest people, especially their present lack of clean, reliable and affordable energy.
Present estimates suggest that about 1.5 billion people lack access to electricity worldwide. Many scenarios for the “successful” implementation of mitigation policies leave what the Hartwellites believe is an unacceptable number of people literally in the dark. For instance, the IEA’s 2009 scenario has global emissions on a trajectory to stabilisation at 450 ppm carbon dioxide; yet 1.3 billion people worldwide remain without access to electricity. If energy access is to be expanded to include those without access today while meeting expected growth in global energy demand in the rest of the world, the unit costs of energy will necessarily have to come down. But the higher quality fossil fuels are in already tight markets. If the attempt is made to satisfy new demand using these fuels, then costs will rise. Alternatives to fossil fuels must be made cheaper. For this to happen, innovation is required.
Broadening the range of management strategies beyond those conventionally defined as “mitigation” would have other benefits, which, together with their climate change relevance, justify the actions needed to achieve the alternative scenario.
“Broadening the range of management strategies beyond those conventionally defined as “mitigation” would have other benefits, which, together with their climate change relevance, justify the actions needed to achieve the alternative scenario.”
Eradicate emissions of black carbon. Black carbon (or soot) is a public health hazard. Around 1.8 million people die every year from exposure to black carbon through indoor fires. Black carbon also warms the atmosphere at regional and global scales, contributing between 5 and 10% of the total human forcing of the climate system. It is feasible nearly to eradicate emissions of black carbon through targeted and enforced regulation. The environmental pay-back here is relatively quick, with huge public health benefits, especially for the poorest in developing countries.
Reduce tropospheric ozone. Poor air quality in urban environments is exacerbated by emissions of carbon monoxide, nitrogen oxides, methane and other volatile organic compounds. These gases react in the troposphere to form ozone, which is toxic to humans and to plants including crops. Tropospheric ozone contributes between 5 and 10% of the total human forcing of the climate system. Rigorous implementation of air pollution regulations, together with a move towards more efficient urban transportation systems, could more than halve these emissions of ozone precursor gases.
Protect tropical forests. Tropical forests are a key asset for humanity’s future for reasons that extend well beyond their function as a carbon store. Rather than seeking to lock tropical forest management into an all-embracing climate convention, and thus get snarled up in the complexities of reducing industrial carbon emissions, forests should be managed in ways which recognise the integrated value of these ecosystems. Issues of deforestation should be de-coupled from the Framework Convention on Climate Change.
Accelerate energy efficiency. Energy efficiency offers an important avenue for short- to medium-term progress. Efficiency saves money, makes industry more productive and attains other worthwhile objectives. This makes it worth doing irrespective of the benefits to carbon policy. This strategy is also harmonious with economic growth, which is a prerequisite for any sort of political traction in major economies.
A focus on efficiency in turn means recognising the importance of reducing energy intensity, which is most effectively achieved by the systematic application of a sectoral approach that concentrates efforts on the most energy intensive sectors first, pre-eminently power production, aluminium, cement and steel production. These are also sectors that are prime movers in modern economies.
We need to stimulate new thinking for enabling societies better to manage climate risks that they face today. All societies – rich and poor – are mal-adapted to climate to varying degrees, for example by locating expensive buildings in flood plains or human settlements on the very edge of the shoreline. All must evolve technologies, institutions and management practices which address the avoidable costs and damages wrought by climate. These initiatives and the sharing of good adaptation practice make sense irrespective of views on the degree to, and rate at which climate risks are being changed by human activities. Adaptation policies should be untethered from those focused on decarbonisation.
III. Direct Decarbonization
Parallel actions to advance these three goals will be deservedly popular. They can also command the broadest assent and achieve the quickest results and thus build a constituency of public trust based on delivered performance, not windy rhetoric. That is an absolute prerequisite for securing the most arduous but most indispensable task: radical improvements in the unsubsidised cost and performance of zero or very low carbon energy supply.
The Hartwellites are aware that in a complex world, the solutions they propose are rather clumsy. They see this as a virtue. They propose no grand bargain.
Desired consequences often flow indirectly from strategies pursued for multiple reasons. China is currently increasing its deployment of renewables and nuclear plants, but it is understandably doing so for more than CO2 abatement reasons, including increasing its energy security, reducing its air pollution, and expanding its market leader status. France and Sweden have decarbonised more than any other nation through public deployment of nuclear power and hydro, respectively.
A. Innovation is Essential
There will be insufficient progress in accelerating the decarbonisation of the global economy until low carbon energy becomes reliably cheaper and provides reliability of supply. This will require significant, step-change improvement to currently available low carbon technologies. In short, we need to ignite effort to achieve an energy technology revolution in all the currently active areas and to stimulate new research without trying to pick winners beforehand because that leads to distorted markets and counter-productive results. That has been the bane of recent EU efforts.
“We need to ignite effort to achieve an energy technology revolution in all the currently active areas and to stimulate new research without trying to pick winners beforehand because that leads to distorted markets and counter-productive results.”
Because fossil fuels remain cheap, such innovation efforts must be led by the public sector. Indeed, virtually every existing low carbon technology was developed by the public sector, not the private sector. As the cases of France and Sweden show, governments must not only push innovation through research, development, demonstration and deployment (RDD&D); they must also pull new energy technologies into the market through their role as large, early-adopting purchasing customers. Indeed, the role of governments—especially the U.S. Department of Defence—as a customer for emerging technologies has been a key catalyst – arguably the key catalyst – for technological innovation across most of the important areas of new technology since World War II, from aircraft and jet engines to telecommunication systems and information technologies. The key lessons here overall are that very large investments in energy technology innovation will be necessary, and that such investments can lead to benefits coincident with the primary goal of decarbonization—most importantly, economic growth from the creation of new, highly competitive and innovative industries.
B. How to Pay
Recent accumulating experience suggests that it hasn’t proved possible to create carbon pricing regimes that are simultaneously efficient in reducing demand or in stimulating innovation and that are accepted or even well tolerated by democratic electorates. Or put bluntly, people who propose green taxes when in government tend to get voted out of power.
“The Hartwell strategy is more modest and specific. It proposes that nations fund innovation aimed at direct decarbonization through a very modest hypothecated (dedicated) carbon tax.”
The Hartwell strategy is more modest and specific. It proposes that nations fund innovation aimed at direct decarbonization through a very modest hypothecated (dedicated) carbon tax. Such a tax has the useful political and economic advantages of avoiding negative growth effects. The co-authors are aware that as a general rule politicians and Ministries of Finance hate the principle of hypothecation, because it ties their hands. But they see that as one of the virtues of hypothecation, because it removes the issue from the political arena, and by doing so, may help to restore public trust at a time when the stock of politicians is not high in many of the democracies. And hypothecation is not hypothetical. In the February 2010 Union Budget, the Indian Minister of Finance, Pranab Mukherjee, established a National Clean Energy Fund to support RDD&D and to be funded by a tax of Rupees.50/ton on both domestic and imported coal.
Given the prevalence of sub-Keynesian assumptions that taxation is about modifying consumer behaviour, it must be stressed that the proposed (initially modest) hypothecated tax would not be designed to do this. It would be used to conceive, develop and demonstrate and even purchase low-carbon or carbon-free technologies. It would provide a dependable and secure means of financing RDD&D essential to decarbonisation.
Arrangements will be needed to manage the tax revenue and direct investment. There are innovative models to be studied. It may well be that national politics require independent national approaches. It may also be that the competitive nature of having different national approaches will yield the most rapid progress. But there are other models worth exploring, especially those that build on multilateral and public-private partnerships. Examples include the Global Fund to Fight AIDS, Malaria and TB, which has managed high-risk R&D in a way that allows progressive focus on successful approaches while discontinuing failure, and the Consultative Group on International Agricultural Research, the set of then-innovative regional research centres that provided the scientific and technological foundations of the Green Revolution.
But I return to where I began. The success of an hypothecated tax will depend largely on the ability of policy-makers to recognise past mistakes, adopt a low tax that voters can accept, convincingly hypothecate the tax revenues and equally convincingly support and permit innovative institutions to manage that investment effectively. On the evidence of Ms Hedegaard’s statements, we seem to be sadly some way from that in EU policy circles.
“To reframe the climate issue around matters of human dignity and political pragmatism is not just noble and necessary. It is also likely to be more effective than the approach of framing around human sinfulness—which has failed.”
To reframe the climate issue around matters of human dignity and political pragmatism is not just noble and necessary. It is also likely to be more effective than the approach of framing around human sinfulness—which has failed. Securing access to low-cost energy for all, including the very poor, is truly and literally liberating. Building resilience to surprise and to extremes of weather is a practical expression of true global solidarity. Improving the quality of the air that people breathe is an undeniable public good. Significant public investment in direct decarbonisation of the global energy system is the most ambitious goal but is, in the Hartwellite view, only likely to be attained by an indirect approach. The good news is that there are good reasons to believe that such a radically reframed policy can work where the current EU policies have failed. But that depends entirely upon accepting that this is the case. So my plea to Ms Hedegaard and her colleagues is the same that Oliver Cromwell made to the Church of Scotland in 1650. “I beseech you in the bowels of Christ, think it possible you may be mistaken”
About the author
Professor Prins is a Research Professor at the London School of Economics & Political Science. He began researching topics in climate history in the 1970s and has been advising and publishing on climate policy matters since 1986, most recently as co-ordinating co-author of The Hartwell Paper: A new direction for climate policy after the crash of 2009 (LSE Mackinder Programme/INSIS, University of Oxford) published on-line on 11th May 2010. This article summarises its main arguments. Footnote references to all statements in this article may be found there.
 This article is written in a personal capacity and opinions expressed do not necessarily represent the views of other co-authors of the Hartwell Paper, whose proposals it describes