“If the deficit has little to with the wellbeing of our children and grandchildren, global warming has everything to do with it. We run the risk of handing them a planet without many of the fascinating features that we had the opportunity to enjoy (for example, coral reefs that are dying, plant and animal species that are becoming extinct, landscapes that are being transformed). Far more seriously, we face the likelihood of handing them a planet in which hundreds of millions of people risk death by starvation due to drought in central Africa, or through flooding in Bangladesh and other densely populated low-lying areas in Asia, as a result of human caused global warming.”

The point is that, in Baker’s words, “the main factor that will determine the economic wellbeing of our children and grandchildren will be the strength of the economy that we pass down to them”. A crucial part of this strength will be the state of the natural environment, which will in turn depend on the kinds of investments we make now.

Put these arguments together – (i) borrowing does not create a net burden, (ii) future welfare depends on the state of the economy, which is strongly influenced by investments today and (iii) the need to make investments that do not erode natural resources (what Partha Dasgupta calls genuine investment) – and you have the idea that Duncan Foley has put forward, that we can borrow now to cover the additional costs of low carbon investments. Future generations will be better off, even with the higher levels of debt, and we will not have to reduce consumption today. Overall, Foley’s position is that ”global warming presents no novel issues of the distribution of economic welfare between generations that are not already inherent in other investment choices”. The key issue in how far to pursue this approach is the value future generations place on a lower stock of GHGs in the atmosphere relative to conventional (high carbon) capital stock.

Foley’s approach may offend the moral principles of some – isn’t it wrong that future generations should have to pay for cleaning up the mess that we have made? However, the point is that future generations would still be better off than if we did nothing, and if borrowing makes it politically possible to act, then that has to be better than expecting additional costs to come out of the pockets of today’s consumers and hitting a political brick wall.

But take a look again, and the glass begins to look half empty. First, as many commentators point out, this agreement pushes legally binding action to reduce emissions so far into the future that it may well be too late to prevent warming of 3-4C. Second,  it’s important to remember that Durban was talks about talks, in which the only commitment made was to keep the international process alive. This is a bit like the opening of the Doha Round of trade negotiations in 2001, which are still shuffling forward, zombie-like, 10 years later. We do not know what will happen over the course of these new climate negotiations (which in the US could mostly happen under a Republican administration). Third, Scott Barrett’s classic analysis suggests that if a new agreement has the same structure of the Kyoto Protocol, it is likely to be too weak to be effective, but there is every reason to think that the focus will continue to be on targets, rather than incentives or enforcement (although see below). Last, a new agreement will have to be implemented, and especially if it has weak enforcement mechanisms, whether it can be enforced will depend heavily on domestic politics.

The interesting question at this stage is why agreement to negotiate a new agreement was reached, and especially why the two key players, China and the US, came on board. Clearly, the EU, G77 and AOSIS were the prime movers, but there would have been no meaningful deal without the big 2, and so far the climate imperative has not been powerful enough for them to overcome other forces. Of course part of the answer is that this agreement doesn’t require much of anyone. There are no emissions reductions targets, and no enforcement mechanisms. The US and China (and anyone else) could walk away from negotiations at any point (and they may well yet do that). But at least one important new principle lies at the heart of the new agreement – that new negotiations will lead to targets that will apply to all countries, and not just the current Annex 1 group, even if it is still ambiguous as to whether those targets will be legally binding. This is what the US wanted, so it is perhaps not hard to understand in the end why Todd Stern signed. But why did China agree, since it, along with India, has been the strongest voice against this principle?

The answer may lie in the possibility that the incentives in the collective action problem are slowly but surely shifting. In most accounts of the climate collective action problem, including Barrett’s, the incentives are to free-ride, because there are up-front costs to reducing emissions, while benefits are distant in time and uncertain. However, it is clear that for China at least, the incentives may now be changing. China has sunk considerable effort and cost into developing clean energy industries (and jobs), from wind and solar to electric vehicles, and it is even now beginning to show a bit of interest in carbon capture. To get a pay-off from this investment, China will need secure markets for these technologies abroad, so it does need the rest of the world, and especially OECD countries, to adopt sufficiently credible targets to drive those markets, which in the end means a meaningful international agreement. This will come at a domestic cost, because to achieve it (and especially America’s commitment), China will also have to sign up to binding targets. But China’s leaders may well see this as an acceptable cost, especially since reducing emissions can also offer energy security and local polllution co-benefits.

The new research cited by Harvey turns out to be a document called The Carbon Plan, basically yet another strategy document looking ahead to 2020, 2030 and 2050. Chris Huhne’s foreword does seem to put a similar gloss on the numbers: “By 2020 we will complete the ‘easy wins’ that have helped emissions to fall by a quarter since 1990.”

But this is really a piece of spin. Drilling down into the underlying figures (also available from the UK government), we find a slightly different story.

First, while greenhouse gas emissions emitted from within the UK are down by over 25% since 1990, carbon dioxide emissions are down by less than 17%, on the provisional 2010 data.  It is widely known that overall greenhouse gas emissions in the UK are down substantially since 1990, and it has been apparent that we would exceed our Kyoto target easily, but it has also long been thought that we would miss our own domestic target of 20% reduction in CO2 by 2010, and so it has proved (would have been worse without the recession). There is clearly some sleight of hand here, picked up by the Guardian and reproduced as “emissions fell by 25.2%”. This might sound like pedantry – surely its GHG emissions that count, so who cares? But the difference matters because it has proven much easier to cut other GHG (mostly methane) emissions in the past (down 54% 1990 to 2010), whereas it is carbon dioxide emissions that we really have to cut in the future. It is the latter that have to be cut if we want to show leadership. And of course the figures reported in the plan don’t include shipping and aviation. The other point on targets, as we have mentioned before, is that UK CO2 emissions on the more appropriate consumption basis (as opposed to the official production figures) are well  up since 1990, of the order to 20-30%.

A second issue is that, while there has indeed been some decarbonisation in the power sector, this all happened in the 1990s, the dash for gas period. Greenhouse gas emissions (almost all CO2) from power stations fell by almost 28% between 1990 and 1999. This was pre-emissions trading, and largely the result of privatisation and changes in the relative price of coal and gas. Since 1999, and over the period when climate policy started to come in more seriously, emissions from the power sector rose again by around 20% to the pre-recession height in 2007. Sure, we have built more renewables, but it hasn’t been enough to offset the resurgence in coal use.

Another odd thing is about the residential sector. Despite all the action on insulation and boilers, emissions from the residential sector are higher in 2010 than they were in 1990. This may have been due to the cold winter in the latter year, but pre-crash emissions were still about the same level as they were in the early 1990s. There has been some decline since the early 2000s, but it’s not earth-shattering.

The one sector that really has seen big declines in CO2 emissions (20% between 1990 and 2007) is the business sector.  According to a recent UK Energy Research Council study, this fall has been due to improvements in efficiency rather declining output or the loss of heavy industry (which had mostly happened by 1990). Unlike the power sector, most of the fall has been in the 2000s, not the 1990s. This is in fact the only part of the economy where the UK may have a claim to be walking the walk (transport emissions flatlined).

This is not a bad achievement in itself, but it gets lost in the noise. Government will spin the figures to exaggerate policy impact and protect its reputation. Environmentalists and various industry lobbies will also be selective and look for stats that make performance look bad. The recent exchange on the costs of offshore wind as a proportion of household energy bills is a good example. What we need is good reporting that can cut through both sets of bias and tell it like it is.

So far, so familiar. Indeed, the dramas of individual COPs have now become so repetitive, that it is surely worth standing back and reminding ourselves of why we already know, really deep down, before the event what will happen at Durban. It is also worth reflecting on the fundamental dynamics of the climate change  negotiations. For me, the best way of doing this is to turn to Scott Barrett’s essential analysis.

His account is pretty simple. To work, binding environmental agreements have to involve an incentive to participate. In the case of the Montreal Protocol, addressed at stopping the growth of the hole in the ozone layer and on which the Kyoto protocl was modelled, the incentive for North American and European leaders was political pressure from publics worried about skin cancer. For the developing world, it was the (relatively small) side-payment they got for phasing out CFCs and HFCs over time. In the case of climate change, it’s not at all so clear what the incentives are. As we have frequently said in the past, concern about climate change is widepread, but not a priority (outside of the climate community). Future generations will be the worst affected, and they don’t have a vote. Latterly, countries like China and maybe India have started to see some benefit to exporting clean energy technologies to a global market driven by an agreement, but they are not quite ready to sign up, and obviously the US is worried about ending up importing all that kit (looks like a two-way action in the WTO is looming).

A second issue is enforcement, which for Barrett is the most important factor. He noted that “the focus of the Kyoto negotiations was on the setting of targets and timetables. When the treaty was first negotiated, little attention was given either to compliance or participation”, and the same looks like it will be true of any successor. Again, the Montreal Protocol tied compliance to trade sanctions. Barrett argues that this same approach would not work for a climate agreement. the main contender for a mechanism, border trade (or carbon) adjustments are too open to political manipulation, accusations of protectionism in disguise and would rub up against the WTO.

Where does that leave the prospects for an agreement, now and in the future? As for the now, we seem to have lapsed into a dynamic that the eminence grise of game theory, Thomas Schelling, actually recommended as long ago as 1998:

Thomas Schelling’s proposal is characteristically singular in its approach. It explicitly eschews international enforcement. It would also abandon the targets and timetables approach, relying instead on the implementation of policies and measures—that is, on actions rather than outcomes. Schelling would invite countries to pledge to adopt policies and measures, and open these to international review. The policies and measures proposed might create a kind of yardstick by which countries would be judged—providing a small incentive, perhaps, for mitigation beyond the non-cooperative level. Without international enforcement, however, his proposal cannot effect substantial mitigation.

Barrett’s answer is different. With very weak incentives, he argues, the only solution is to reduce costs, and the way to do this is through technological development. As he argues, an agreement dominated by targets, like Kyoto, cannot do this on its own:

Like Montreal, Kyoto is meant to provide a “pull” incentive for R&D. In capping emissions, Kyoto raises the cost of polluting, and so creates a demand for carbon-saving technologies, just as Montreal created a demand for CFC substitutes. The difference between the two situations, as already shown, is that the cost of substituting for CFCs was low. The cost of climate change mitigation will be much higher, and this matters. When the costs of supplying a global public good are high, the incentive not to participate is high, and the burden on enforcement very great. If the treaty cannot support that burden, the result will be very weak incentives for innovation and diffusion of new technologies.

Instead, argues Barrett, we should be aiming for an agreement that commits countries to serious support to R&D for low carbon technoloogies and action in areas such as technological standards, making an agreement look less like the Montreal protocol and more like the MARPOL agreement on shipping pollution.

Many people in the climate world will have read Barrett’s book, so why are they at Durban? Maybe it is just the buzz, getting to watch Bono and Angelina doing their thing, and hitting the surf afterwards. Precisely because they are so stark and simple, the underlying dynamics of the UNFCCC aren’t nearly so sexy, but we forget them at our peril.

Nice bit of satire from the delightfully named Men With Day Jobs – thanks to John Macgrath via Duncan Green.

The PEx argument raises a number of challenges. First, it presents a dilemma to those (like us) sympathetic to the perspective of The Breakthrough Institute (TBI) who have been arguing since the mid-2000s that carbon pricing will never work as a strategy to tackle climate change, because climate change isn’t a classic polllution problem. Its causes are too systemic, and we do not have existing cheap enough low carbon alternatives, so carbon pricing will just raise costs and piss people off. Instead, we have to invest in clean energy technology development and get breakthroughs that will provide us with big cost reductions. The dilemma arises because if large scale deployment of renewables (when they are still expensive) is a crucial part of bringing costs down in the long run (TBI and Joe Romm of Climate Progress had a major exchange about this), these costs may also piss people off.

And it does seem as if a credible committment to deployment at some scale is needed to bring in the sort of investment that may eventually reduce costs. This can be seen clearly in the case of offshore wind in the UK, where the commitment of successive Secretaries of State have now brought in large players like Mitsubishi and Siemens with investments both in production of turbines and R&D facilities. This is a weakness in PEx’s argument about technology policy, since many studies show that demand-pull is as if not more important than supply-push in innovation, and that learning-by-doing and economies of scale are key for reducing costs in manufacture and installation. Deployment at scale is needed for that. PEx also have what looks like a deliberately naive proposal that we could meet the targets through on-shore wind, but they know as well as the rest of us that planning would make that impossible. Offshore wind is partly the price we pay for not wanting onshore wind.

However, it still leaves the political dilemma. The experience of countries like Germany and Spain is relevant. Germany has over 1 GW peak of solar PV (equivalent to about 100 MW of baseload generation), and this has helped bring down the costs globally of PV, and built up a domestic manufacturing industry (although this is now threatened by Chinese competition). But this hybrid technology/industrial policy will cost the German public somewhere in the region of €70 billion. Spain’s subsidies were so generous they sparked a huge surge in PV investment, but were ultimately politically unsustainable and were reversed. Is technological breakthrough just as politically difficult as carbon pricing?

But the PEx argument also contains a potential trap. It may be cheaper to reduce emissions in the UK to 2020 by relying on gas and nuclear instead of offshore wind (although gas prices may not fall from currently high levels, and the costs of new nuclear are opaque. But the argument from some (e.g. WWF) is that this won’t help us after 2020 when we will increasingly need renewables to meet much more stringent targets. The gas industry argues that gas with CCS will be a key post-2020 technology, but this is still untried, and to depend on it would be highly risky. This is an important argument. Gas and nuclear are powerful commercial lobbies, and much of the current critical noise about renewables looks very much like the gas industry in particular trying to compete for some kind of commitment from Government about gas in the future electricity mix.

There are two real dangers here. One is that delaying the development of renewables in the UK (especially those, like offshore wind, in which the UK is an important market) will kill them off (which is indeed a likely objective of gas and nuclear lobbies). The second is that if the UK builds a lot of gas-fired capacity now, and CCS for gas turns out not to work, it will nevertheless very hard politically  for a future government to turn that capacity off. Again, a policy like a future emissions performance standard has an underlying credibility problem.

Where does all this leave us? First, it’s not clear how serious any of this is, in terms of actual influence on policy. So far Huhne has been robustly defending offshore wind, and although Osborne made some comments at Tory Party Conference about competitiveness, he hasn’t blocked  Huhne on recent decisions (indeed he has just released £103 m to the Scottish Executive for clean energy projects. Across the broad population, renewable energy does remain popular.

But that doesn’t mean it shouldn’t be taken seriously. The gas lobby and the Mail and Express will doubtless continue to chip away at the issue. There is some evidence of limited willingness to pay for renewables. Policy could change very quickly if there were a change of Minister, or if the economy deteriorated (which it looks like it will). So what should be done?

The most fundamental point is to keep renewables options open. Most renewables technologies are still much younger than gas and nuclear, and if they are pushed out now, we will never know how far their costs can be reduced. Nuclear fusion in particular received vast subsidies, and there is a strong case for continuing and expanding support to renewables to level the playing field. Of course, innovation in renewables won’t happen just in the UK, and we are already benefitting from lower cost Chinese solar PV, but there is a case for the UK playing a role in developing the renewables technology in which the UK may be a major market.

Thus the biggest problem with the PEx argument is that it seems to assume away all political economy. There may still be a role for gas looking ahead, but only if credible ways way can be found to avoid future lock-in and the squeezing out of renewables options. I’m not sure if this can be done, but if it can, it’s a subject for another post.

However, it is also true that supporters of renewable energy policy need to stop simply saying we have to deploy renewables just because we have a European target, and start making a case for renewables policy on particular grounds. This could be  technology development, green growth or even building a new interest group for clean energy policy  (in Germany, the development of renewable industries also provided a new political constituency to support renewable and wider climate policies). It could also possibly as a global public goods policy: if Japan (solar PV), Denmark (wind), Germany and Spain (wind and solar) can all play their role in helping to bring technologies down the cost surve, a rich country like Britain should do as well (although this may not work so well in times of economic crisis). Some in the environmental movement do have a more sophisticated account of renewables policy, but some don’t and need to get one.  We have to be doing this for a reason, and PEx and others are right to say that doing it just to cut carbon now doesn’t actually stand up.

That policy should also be fit for purpose. If it is about creating more technological options and bringing down costs, then it should be defensible as well-designed, and not excessively expensive in itself.  What this means in practice is paying more attention to the principle that both demand pull (deployment) and supply push policies (R&D support, tax credits, infrastructure support etc.) should be designed within a single integrated framework, with all the elements working together (this is the approach proposed by The Breakthrough Institute in a recent set of proposals for the US). It also means having a full range of support mechanisms, especially through the valley of death. There has been an increasing amount of funding going to offshore wind RD&D, both via the ETI and NAREC. But we still don’t have a working publicly-funded test site for new offshore turbine designs. It looks like we may eventually get one next year, but it’s been a long time coming. Waves of deployment should be more closely associated with the phasing of development of new generations of turbines, and experience gained with construction of platforms, than a timetable determined by targets.

Lastly, options within renewables policy should be kept open – including meeting targets through heat as well as electricity. Offshore wind costs could come down sharply if there are unexpected breakthroughs in materials, in turbine design, or in construction techniques. But equally, there may be unexpected breakthroughs in other smaller-scale technologies. Solar PV has fallen more quickly in cost in the last five years than was expected. It is not easy, but the Government has to steer a path between credible deployment policies and a flexible approach that responds to technological change.

In the end, the backlash in itself may be self-limiting. If gas prices stay high, then concern about the additional costs of offshore wind may be easier to stoke up, but it is also les easy credible to present gas as a cheap alternative. If gas prices do fall sharply, then concerns about the costs of renewables is likely to drop away. But if it leads to clearer thinking and more robust arguments for supporting renewable energy, then it will have played a useful role.

But the underlying politics is now coming back to bite them in the bum.

On Monday night Panorama screened a programme asking whether renewables are unaffordable, and whether we wouldn’t be better off cutting carbon emissions more cheaply through gas and nuclear. The programme is based on a KPMG report, out this week. It follows on from two recent reports from the right-of-centre think tank Policy Exchange  (2020 Hindsight and Climate Change Policy – Time for Plan B) arguing pretty much the same. Dieter Helm from Oxford University has had this position for some time. The Daily Mail and Daily Express are hammering away at the issue with a frequency that starts to alarm ministers, and the renewables programme is unpopular with the right wing of the Tory party. In September David Cameron’s two energy and climate advisors wrote a letter to him briefing him on the risks. Chris Huhne has been sufficiently concerned to mount a defence of renewable energy policy.

In terms of whether the cost of offshore wind matters or not, we have the usual situation of different sides using different stats. The wind industry argues that offshore wind currently makes hardly any difference to electricity prices that are high because of the price of gas (to which might be added a not very transparent retail market). Critics of offshore wind focus attention on future costs, which could rise substantially if deployment is ambitious.

The core of the argument is that the UK’s commitments under the EU’s 2020 renewable energy targets are arbitrary and expensive, and that a far cheaper way of reducing emissions to meet the UK’s 2020 emissions reductions targets under the Climate Change Act would be to build new gas fired and nuclear power stations rather than lots of offshore wind. The UK should abandon renewable energy deployment targets and mechanisms, and instead put in place a credible and stable carbon price to drive cost-effective abatement.

A frequent response to these arguments I have heard in the green movement has been to say that we have to expand renewable energy because we have European 2020 targets to expand renewable energy. This is a weak defence. Citing a target is not the same thing as citing a reason for the target (and citing it as European doesn’t play well in the UK at the moment).

This position seems related to the fact that some in the green movement don’t seem to get the distinction between carbon pricing and technology policy. The first of these is aimed at correcting the environmental externality – when I emit carbon emissions these have a negative effect on others but I don’t have to pay for the damage I do. The second is aimed at the idea that the private sector, left to itself, will undersupply innovation in new technologies, since any one firm can’t capture all the benefit from inventions or new business practices, even with patents (a different kind of externality). The Stern Review is good on this distinction, or there is the classic paper by Jaffe and Stavins.

Renewables policy is hard to defend simply as a short-term carbon abatement policy. Most renewables are nowhere near competitive with gas, coal or petrol, even with a carbon price. Although some, like solar PV, are falling in price impressively quickly, they are still expensive. Onshore wind is one of the few which is becoming near competitive on a technology cost basis, but is made more costly and limited in scope in the UK because of the difficulty of getting planning permission. The whole idea of a renewables technology policy is that supporting innovation (both in new technologies and in better ways of making existing ones), prices will come down to the point where renewables are competitive. Thus rather than defending renewable energy targets on the basis that we have some agreed EU targets, we should be thinking about whether they are defendable as technology policies.

This is where another part of the Policy Exchange critique kicks in. PEx argue that a renewable technology policy does make sense, but not the one we have. They want to scale back deployment targets, especially for more expensive renewables like offshore wind, and focus instead on more upstream interventions, like R&D credits, prizes, capital grants and government procurement programmes.

In part 2 – the dilemmas posed by the backlash, whether it matters and what to do about it. Up shortly.

The answer to this is similar to the answer to the question of why gas supply to Western Europe from Russia has actually been very reliable for 50 years. A consumer of energy need not worry too much about security of supply if its supplier cannot supply anyone else. Russia currently has gas pipelines only to Europe. If it starts building new supply routes to China or India, then Europe should start worrying more seriously. But Russia is heavily dependent on gas and coal revenues from Europe, and especially Germany and Italy. This is why these countries have never had any serious supply interruptions, even throughout the decades of the Cold War.

The electricity relationship with North Africa would be even closer. The proposed concentrated solar power investments in the Sahara would produce more power than local markets would be able to absorb, but would be wired in only to Europe. These will provide valuable new revenue streams to the fledgling democracies now emerging in the region, which they will not be able to get by selling the electricity anywhere else, simply because the infrastructure to do so will not exist. Effectively, in electricity terms, North Africa and Eastern Europe will become one, much as Scotland and England currently are.

Thus Gore’s Climate Reality gig, though no doubt heroic, seems curiously at odds with the current mood. A disastrously crap summer in Europe – from any standpoint you care to choose – will almost certainly push us into a chilly winter of deep discontent, where the Mail’s version of reality will be much closer to most people’s than Al Gore’s. In this context, we won’t so much be concerned about climate sceptics as about the widely shared lack of interest in the realities of a changing climate.

Behind the FT’s pay-wall, Simon Kuper also neatly summarised climate politics (Climate Change: Who cares any more? 17 September). He repeats the US political scientist and Breakthrough associate Roger Pielke Jr’s iron law: ‘When policies focused on economic growth confront policies focused on emissions reductions, it is economic growth that will win out every time.’

In facts it’s wrong to argue that people don’t care about climate change and that they don’t want to pay towards climate policy. On the contrary, in IPPR’s recent consumer workshops (in fact focusing on renewable heat and so buried in this report) there was no repetition of the climate sceptic line, much support for ‘doing something’ and a willingness to contribute. But many people’s attention is likely to be focused elsewhere.

The challenge for campaigners and Al Gore is to take the debate to where people are and not continue to argue as if most people would make a priority out of tackling climate change if only they knew the truth about the science. It didn’t work during the good times and our times are not good any more.