Title: British Energy Policy and International Political Economy in Climate Change
1British Energy Policy and International
Political Economy in Climate Change
- Stephen Stretton
- 19th April 2006
- Judge Institute of Management,
- Cambridge University
2Contents
- Part I) The Problem Global Warming and
international political economy - Part II) Positive Feedback in Climate and
Society. Increasing Returns to scale. - Part III) British Energy Policy. A Plan Zero
Carbon through Nuclear Energy.
3Part I The Problem
- Climate Change
- Impacts
- The Long View
- Should We Worried
- Why We Must Aim to Overreact.
- Institutions
- Welfare Economics Perspective
- Management Perspective
4Impacts of Climate Change
- Extent of anthropogenic Climate Change
- 0.6C warming already.
- 2-5C over next century
- Impact increases rapidly as temperature rise
exceeds 2C - Collapse of Global heat Circulation system
- Collapse of Ecosystems (e.g. Amazon Rainforest)
- Acidification of Oceans
- Irreversible melting of Greenland (final 7m final
sea level rise) and West Antarctic (also7m) ice
sheets - Massive changes in precipitation and temperature
leading to increased water and food stress
refugees, war.
5Impacts of Climate Change
- Widespread Desertification for a 5C increase in
average global temperatures
6Global Warming The long view
- Hottest time in Earths History
Paleocene-Oeocene Thermal Maximum - 55m years ago.
- Cause Perhaps a massive volcanic eruption
releasing greenhouse gases?. - Release of frozen Methane?
- Increase in atmospheric CO2 concentrations to
3000-4000ppm - Temperatures rose to 20C in Arctic Regions
- Acidification of oceans
- Widespread extinctions including large mammals
- Takes Earth 100,000 years to recover
7Should We be worried?
- GW is major threat.
- Rational ranking of risks GW ranks above nuclear
power risks. - Still uncertainty over final emissions, final
warmth, final outcomes - Russian roulette with our children?
- Collective action problem
- Mancur Olson (1982) ... If we finally get the
information that the ecosystem cant take any
more, then it is important that we have the
open-mindedness needed to change our views and
policies the moment decisive information arrives.
Those who shout wolf too often, and those who are
sure there are no wolves around, could be our
undoing - (Olson, M. Environmental Indivisibilities and
Information Costs Fanaticism, Agnosticism and
Intellectual Progress The American Economic
Review Vol 72, No 2. Papers and Proceedings of
the Ninety Fourth Annual Meeting of the American
Economuc Association (May 1982) 262-266)
8Aim to Over-react
- Threats to earth are severe
- To solve the problem requires a large change in
behaviour across earth - Everyone needs to change (unfortunately each has
particular circumstances) - Current trends going in opposite direction fast
- Need to show self-interested actors can convert
their economies. - Only by aiming to overreact do we have a chance
of making a sufficient difference.
9Institutions
- Utilitarian or cost-benefit analysis assumes
perfect institutions. - This is far from the case. There is no global
government. - Need to look where we already have institutions
- National self-determination, and national
ownership of future is key, except where there
are intrinsically global issues, like global
warming.
10Welfare Economics Perspective
- Have a Environmental Externality
- Need a Binding International Agreement so that
private costs social costs e.g. - Global Carbon Tax or
- Global Emissions Trading
- BUT
- No global government no taxation
- International agreement difficult
- Agreements are in any case not enough
- Incentives for countries to defect
11Management Perspective
- Have a Problem
- Need to find Solution
- Keep it simple!
- Importance of leadership.
12Part II Positive Feedback
- Climate
- Society War
- Society Hysteria
- Environment, Society Collapse
- Local and Global Environmental Problems
- Can we substitute?
- Technology
- Increasing Returns to Scale
- Tipping Points
13Positive Feedbacks in Climate
- Negative Feedbacks
- CO2 increases rate of growth of plants
- Positive
- Increased temperature causes collapse of
ecosystems, so sinks become sources - Reduction in albedo (so Earth absorbs more heat
directly from Sun) - Release of frozen Methane (greenhouse gas)
- Reduction in oceanic mixing due to changes in
thermohaline circulation
14Positive Feedbacks in Society War
- Benevolence of Nation-state for last 50 years in
the West is the exception rather than the rule.
In the Congo, mineral wealth fuels a Hobbesian
war. - Escalation in international conflict
15Positive Feedbacks in Society Hysteria
- Rational elements within society are fragile.
Existing order can be overthrown. - Perceived inability of governments to protect
people could lead to mass panic. - Panic further stretches government resources.
16Positive Feedbacks of Society AND Environment
- World is potentially already overpopulated for a
5C world. (Land, Water Energy shortages). - Massive time delay (50 years) between decisions
and their effects. - At each stage, future environmental constraints
do not bind existing behaviour. - Existing needs, however, will become more
pressing at each future time. - Democratic governments will be more pressed to
service needs of existing generations in the
future. - Air-conditioning and desalination require more
energy in a hotter climate rather than less.
17Local and Global Environmental Problems
- Local environmental problems require local
knowledge and local institutions - Impossibility of central planner having
sufficient knowledge to solve them - Hence we rely on local institutions, including
but not limited to property rights - Global environmental problems require global
knowledge and global institutions CO2 is a
commodity. - Ecological Macroeconomics?
18Can we substitute?
- Can we substitute physical capital for natural
capital? - Perhaps not
- There are critical commodities with limited
substitution possibilities e.g. - Water
- Land
- Energy
- Property rights require peace which may be
lacking if critical commodities become short.
19What is technology?
- A set of patterns used to solve problems.
- Technological improvement produces economic
growth - Technologies can be copied
20Positive Feedback in Technology
- Learning by Doing effects Increasing Returns
to Scale - Adoption of technology reduces uncertainty for
future investors - Network externalities advantage of having a
unique standard
21Constraints on CO2 emission
- Conventional oil gas production constrained by
monopolistic behaviour and by finite reserves - (Non-clean) coal produces local environmental
problems (SO2 NOx) - Governments require a secure source of energy.
22A Tipping point?
- Increasing price of oil will encourage investment
in - Extracting unconventional oil and gas
- Non-carbon technologies
- Government needs to do enough to ensure that
option (2) is dominant
23Part III British Energy Policy 2006
- Background DTI Energy Review
- Main Goals
- CO2 Reduction Target
- Security of Supply
- Economic Efficiency
- Future Energy Mix
- Fossil Fuels
- Renewables
- Nuclear
24CO2 Reduction Target
- UK Target CO2 emissions 60 reduction on 1990
levels by 2050 - Sweden recently adopted same target
- Significant progress (30 reduction) by 2030
- Aim is that such cuts, if adopted worldwide,
would avoid Dangerous Climate Change - Follows recommendations of Royal Society
- More recent evidence suggests even deeper cuts
may be required - Some countries may not cooperate, so perhaps UK
cuts need to be even deeper to compensate/lead? - Is a near-zero carbon economy economically
feasible?
25Security of Supply
- North Sea oil and gas are running down.
- Natural Gas provides a large and increasing
proportion of our supplies - Britain now net importer of gas
- Possible Fuels
- Natural Gas from Algeria, Russia...
- Oil from Middle East
- Coal reserves are local (but most mines have
closed environmentally very damaging). - Uranium from Australia and Canada.
26Economic Efficiency
- A solution that maintains material prosperity
- People wish to maintain a comfortable standard of
living - British policy will be more influential if we are
seen to be prosperous - Balance of payments
- Sustainability and demographic transition
requires genuine saving (capital investment).
27UK is uniquely placed to lead
- Strong Scientific Community
- Member of EU so called Transatlantic
Alliance, - Historical Cultural links with China India
- International Outlook
- Amenable Philosophical tradition
- Large Economy
- London as a global city
- Needs an Energy Policy for national
self-interest, independently
28A Plan to Save the World? Go fully nuclear!
- 100 GW of new nuclear capacity in UK
- Cost 10bn pa over 10 years
- Electricity market design to encourage private
investors in nuclear. - Some direct public investment?
29British Energy
- British Energy currently de facto nationalised
- Since social benefits of new build greater than
private benefits, public ownership and control is
no bad thing. - National industries capable of greater
investment. - Problem Cost Control in Nationalised industries
- Solution Duopoly in public provision e.g. also
consider Advanced CANDU
30Conclusion Positive Effects of this Plan
- Economies of scale ensure investment would be
repaid - Britain would have secure sufficient low cost
energy for 40-50 years - Learning by doing would reduce price of nuclear
worldwide. In particular, nuclear would become
more attractive to market investors in US. - Britain would give a moral example on CO2
emissions to the rest of Europe and world.
(Sweden has adopted same CO2 target already). - Market Design innovations would aid US policy
makers