5 Jun 2009 – LSE Conference, The Politics of Climate Change

On Friday 5th June 2009 the LSE hosted a conference on climate change. It was organised by the Policy Network, a centre-left thinktank. Speakers included Anthony Giddens, Tony Blair, Peter Mandelson, Adair Turner and Martin Rees. Videos of some of the speeches can be viewed on the conference website

http://politicsofclimatechange.wordpress.com/

Below are some notes of key points from the speeches and discussions. It is amlmost entirely just what the delegates said, there is very little of my own commentary.

Introduction by Anthony Giddens, Former Director of the LSE and Author of The Politics of Climate Change 

[Giddens made many interesting points, much of which was repeated from his speech at the Hay on Wye festival, I haven’t repeated the notes here, but I’ve picked out some key points that are worth repeating.]

We face an existential crisis which requires a revolution in thinking.

Climate change is unlike any problem humanity has ever faced before. It presents us with what he calls Giddens’ Paradox. It is a problem that can only be understood by learning about abstract ideas – the science. By the time it is a real problem affecting people’s lives, it’s too late to fix the problem.

People will not respond only to a negative story. Martin Luther King did not get the results he did by making a speech saying “I have a nightmare”. We have to produce a positive story for change. This is why the Centre for American Progress [an American thinktank for progressive politics] is doing a good job, because they have a visionary approach to solving our problems.

Climate change needs to be de-politicized. The left should not appropriate it as their issue or the right will reject it.

We need to move to a low energy economy. We need a new society with new forms of consciousness.

OPENING PLENARY SESSION: INCENTIVISING ACTION TO BUILD A LOW-CARBON ECONOMY 

Speakers:

Peter Mandelson, UK Secretary of State for Business, Enterprise and Regulatory Reform

Stelios Haji-Ioannou, CEO of the easyGroup

John Podesta, President of the Centre for American Progress and Co-Chair of the Obama Transition team

Terry Leahy, CEO of Tesco

Matthias Machnig, German Secretary of State for the Environment

Richard Lambert, Director-General of the Confederation of British Industry

Chair: Roger Liddle, Vice-Chair of Policy Network

Peter Mandelson

The mainstream green movement should embrace the passion of the radical greens without the anti-growth dogma.

John Podesta

There is a need for a public money to fund green energy and other projects. This will help to even out the fluctuations in fossil fuel prices.

Terry Leahy

Going against the grain of people’s desires is inefficient and unsustainable. Reward is better than penalising people for changing their behaviour. It will produce more sustained change. For example, Ireland has implemented a substantial tax on plastic bags, which reduced their usage. However, usage has started creeping up again. Tesco has introduced a reward (a penny per bag), which has reduced plastic bag usage very substantially.

Tesco is spearheading a move to green business. It sees itself as being in the vanguard of a revolution in the whole of business and it is driving the change throughout its supply chain.

To be green you have to grow. We have to make it cool to go green.

Richard Lambert

Most businesses want a cap and trade solution to reduce emissions. Because they don’t trust government to spend tax wisely. Especially they don’t trust cross-border agreements in tax.

Any policy framework must be certain and credible. Businesses will not sign up if renewables targets are seen to be incredible.

The CBI has a proposal for mandatory greenhouse gas reporting for all businesses.

Dieter Helm (speaking from the audience)

The levels of consumption that we enjoy are a consequence of not paying for the true cost of resources and pollution. The changes that are necessary will need massive investment. This will lead to lower consumption, a switch from investment to consumption.

Mike Mason (speaking from the audience)

There is general agreement that the world needs to cut global CO2 emissions by 80% by 2050 compared with 1990 levels. Currently about 15% of emissions arise from biotic processes related to food production. There are emissions from things like disused coal mines that we can do nothing about, they are a legacy of our development. Add up the emissions we cannot control and what it means is that we need to completely decarbonise our economy by 2050. We need to stop talking about cuts in emissions and start talking about decarbonising completely, otherwise wrong choices will be made – low carbon is not good enough.

 

Breakout session – Active industrial change – are clean energy, efficient infrastructure and economic growth compatible?

Speakers: Laurence Tubiana, Director of the French Institute of Sustainable Development and International Relations

Paul Ekins, Professor of Energy and Environment Policy, King’s College London

Jos Delbeke, Deputy Director General for the Environment, European Commission

Dieter Helm, Professor of Economics at the University of Oxford

Mike Mason, Managing Director of JP Morgan ClimateCare

Chair: Eric Beinhocker, Senior Fellow at McKinsey Global Institute and author of The Origins of Wealth

Eric Beinhocker

We can divide people into 3 general categories in the way they think about climate change:

  1. Those that think that climate change solutions are a throwback to central planning and should therefore be resisted.
  2. Those that think that moving to a low carbon economy will create more jobs than it destroys. That we need a clean energy revolution.
  3. Those that think we are kidding ourselves, that the premise of the question is flawed. Economic growth and emissions are linked. We have a planetary emergency. Our Western economic model which depends on ever higher consumption is flawed and only radical change will save us.

Dieter Helm

Helm is sceptically convinced that we have an existential crisis. This is not just climate change, but also in environment, biodiversity. The fact that we have to accommodate 3 billion more people on this planet before the population stabilises.

To date virtually nothing has been achieved. Emissions are accelerating. We are likely to pass 550ppm within our lifetimes. Ultimately we are on course to reach 750ppm.

Politicians have all promised to do things to reduce emissions. We only get positive messages in politics, politicians are not allowed to give downbeat messages. Why has so little been achieved?

The Kyoto treaty was measured in production not consumption. The real issue is about our consumption.

Britain is likely to meet its Kyoto target. However, this is because a lot of emissions are not counted within the Kyoto deal. Helm has estimated that if emissions are counted correctly, the UK’s emissions have been rising not falling. Emissions are up 19% compared with 1990 levels (this approximately agrees with other studies).

Our consumption levels are way out of line with what is sustainable, not just for climate change but also in respect of our ageing population, we need much more saving (investment). The crass Keynesianism that has been carried out during the global financial crisis is completely the wrong answer. Instead of trying to keep consumption levels from falling we should squeeze them further by increasing investment. Our standard of living needs to fall substantially. By not paying our way, we are writing a cheque that will have to be paid by the younger generation.

Some people have argued that our situation demands that economic growth must stop. This is nonsense. Stopping economic growth means that you stop human progress.

What is needed is a change in the basis of measuring economic growth. Sustainable economic growth can continue. After a painful adjustment to a lower standard of living has been accomplished, living standards may sustainably rise again.

Stern estimated in his review that the cost of beating climate change may be around 1% of GDP, he is now talking about 2%. However, the damage function is much higher than Stern estimated and the transition cost of moving to low carbon is much higher. For example, offshore wind power is extremely expensive. We need to spread the message that the transition can only be accomplished by spending a lot.

The situation we are in is analogous to being in 1940 and moving from no Spitfires to many Spitfires.

The premise of the Copenhagen negotiations is wrong. There may be an agreement but it probably will not have much impact on emissions.

The price of carbon is very important. It is also important to avoid doing stupid things. To set a target to go from 5% wind power generation to 35% in 10 years is not credible, this target will not be believed.

Mike Mason

About 200 years ago the world faced an energy transition. It spent 50 years debating this. Some said it was imperative to retain the old energy source, that our economies would suffer too much if we got rid of the old energy source. However, eventually slavery was abolished.

There is plenty of renewable energy available in the long term for economic growth.

An 80% cut in emissions worldwide means 100% cut in fossil fuel use, because around 20% of emissions result from biotic processes and legacy issues which cannot be avoided. We need to talk about total decarbonisation, zero fossil fuel use. We cannot negotiate with the laws of physics.

Mason is an engineer by training, he thinks that it is useful to look at climate change from an engineering perspective.

Removing the last ton of carbon emissions is by far the hardest and most costly. It requires deep infrastructure changes. Many infrastructure decisions have a very long lifetime. For example, the first engineering sketches for the Boeing 747 were made in 1963. Boeing are still building 747s. A 747 will have a flying lifetime of about 50 years. Therefore the product lifecycle of the plane is about 100 years. The product lifecycle for the fossil fuel powered motor car is about 150 years.

So, the timescale to implement the solutions is greater than the timescale to fix the problem. Hard decisions about infrastructure changes need to be made now.

However, at the moment there is a policy of sliding emissions targets, with targets slowly getting more stringent e.g. x% cut by 2020, x+10% cut by 2030 etc. This is a seductive way of thinking because it leaves us thinking that we can do the right thing by planning on a given amount of cut at a given timescale.

Markets are good for finding the lowest average price for a given target for change. However, markets cannot do everything. If we set the price of carbon too low, we will not achieve the scale or speed of changes that we need. By the time the price signal is right, it is too late to implement the changes needed. What will happen instead is that the wrong assets will get built. We will get 70% cuts when we actually need 100% cuts.

Companies can’t plan 30 years ahead. They can’t build infrastructure based on targets 30 years in the future because that infrastructure will not pay its way now.

If we set the price of carbon very high now, e.g. 100 per ton, companies that can make easy cheap changes to get emission reductions will get windfall profits.

We have to start thinking like engineers, not economists or politicians. We need to project plan the changes. We need to estimate the cost correctly. What happens with engineering projects generally is that if you over-estimate the true cost of a project, you tend to get a slightly higher cost than if it had been costed correctly. But if you under-estimate the cost, then the outturn cost is much higher than it could have been.

Paul Ekins

The underlying assumption in the title of the session is that carbon intensive energy is compatible with economic growth. That is a big assumption, if Dieter is right then we face an existential crisis. From about 2030 onwards, the assumption is wrong. The perception of growth as the usual state of affairs will be revised. The comparator to the low carbon economy will change.

Moves to a low carbon economy will not stop growth. Various estimates for the cost of moving to low carbon have been produced. At the top end, perhaps 10% of global GDP. If the world economy grows by 3% per year, by 2030 it will be 80% larger. If switching to low carbon takes 10% of GDP then the world will still be 70% richer, if we face an existential crisis, this is a no-brainer.

The composition of the economy will change, with much less consumption and more investment. This is a very important shift, not yet argued for politically.

What will the oil price be in future? If it moves >$100 per barrel again, the cost of moving to low carbon shifts. Eco-taxation is needed. If society is disciplined enough then this can even out the volatility of fossil fuel prices. Otherwise energy producers will get much richer and energy consumers poorer.

Technology will affect the cost of moving to low carbon. All the signs are that if we move to low carbon we can still have some economic growth. If we do not move to low carbon then it will be difficult to have any civilization at all.

Question and answer session

Q. What will the effect of switching to low carbon be on the jobs market?

A. Mike Mason. There are very many jobs which cannot be exported. E.g. Housing refurbishment. Creating a decentralised energy system. There are not that many jobs available in fossil fuels.

Q. Crispin Tickell
[Comment as well as question]

The impression is that we are like a ship at sea with no instruments functioning. The question is what does economic growth mean, it has not been defined in this session? The Chinese have redefined it. It is important to get terms right. We need entirely new measuring devices for our economy. President Sarkozy is issuing a report next month which will redefine economic growth. It is important to abandon incorrect economics.

A. Dieter Helm. The current measures of economic growth are not suitable. This is not a new problem. What we need is alternative national accounting where the environment and natural resources are counted as assets on the balance sheet, to the extent that they are run down, they will reduce the true measure of national wealth. Do not make crass assumptions that it is easy to substitute one factor for another (e.g. that we can exterminate sparrows or cuckoos, replace them with ipods and be just as content). If we had net national accounting then we might not have depleted our North Sea oil in the way that we did.

Money is a crucial issue. How much is the North going to pay the South not to develop in the same way that it did? Is Obama really going to pay this?

It is naïve to think that the lack of oil will save us from climate change. There is plenty of oil left. If arctic ice melts, there is vast quantities of carbon that can be obtained from above the arctic circle.

Mike Mason

Is the UK capable of project planning the transition? No!

Say if we wanted to renovate all 23 million dwellings in the UK. Would take maybe 10 million man-hours. At the moment there are no training programs to train the trainers to train workers to do this. There is currently no strategic thinking.

We need to answer fundamental questions like redesigning the heating of our homes, switching to electricity, expanding the electricity supply to replace gas central heating. Since the 1970’s we have dismantled the visionary capabilities. The French do it better. You would not design an Airbus by the market, it takes planning.

Dieter Helm

No sensible person believes in true laissez-faire capitalism. Even stock markets are highly regulated. Markets and planning are both needed it is not one versus the other. The focus must be on switching from consumption to investment. It is similar to 1945, when consumption was squeezed even further after the war ended in order to provide investment for rebuilding. We should cut consumption now, in the recession, similarly. Conventional consumption based Keynesianism will not work. Over 10 years the savings needed will be about £0.5 trillion.

Beinhocker signed off the session with the following comment

Today the world produces about $740 of GDP per ton of carbon used. If the world economy continues to grow, in order to achieve the emissions cuts necessary, by 2050 the world will need to produce $7300 per ton of carbon, a 10 times improvement in productivity. This may seem far fetched, but it has happened before, from 1750 agricultural productivity improved 10 times.

PLENARY SESSION TWO: SEEKING GLOBAL FRAMEWORKS TO REINFORCE

BUSINESS AND NATIONAL ACTION

Introduction: Victor Phillip Dahdaleh, Honorary President and Chairman of the Advisory Board, the Centre for the Study of Global Governance, LSE

Speakers:
Tony Blair, Former UK Prime Minister

David M Cote, Chairman and CEO of Honeywell

Jonas Gahr Støre, Foreign Minister of Norway

Chair: Fiona Harvey, Environment Correspondent at The Financial Times

Tony Blair

[Tony Blair got the kind of rock star reception you would expect at a conference organised by a centre-left think tank. He got a glowing introduction from Dahdaleh. Blair started by thanking Dahdaleh for his generous introduction, and then saying that he obviously didn’t remember him very well, which caused a few chuckles in the audience.]

Blair began by saying that we need a revolutionary change in our behaviour.

In the developed world we need cap and trade.

China and India will not move unless the developed world move first.  Therefore interim carbon targets, important in themselves, are also very important, otherwise the signal to the developing world is that developed countries are not serious.

A revised Clean Development Mechanism must generate funds without constant renegotiation, otherwise it will never get anywhere.

In the Copenhagen negotiations don’t make the best be the enemy of the good.

The American commitment to reduce emissions to 1990 levels by 2020 may be seen to be inadequate, but it is actually a very radical and tough target.

We need a radical but realistic programme for Copenhagen. If a deal is achieved, it is good for the environment. It would also be an extraordinary boost to multi-lateralism. It will be a stimulous to confidence that the world can come together and get a fair solution to its problems.

David Cote

He started by saying that existing (Honeywell!) technologies can reduce emissions by 15-20%. Why isn’t the world already using these technologies?

He gave 6 impediments to adoption of technologies and 7 solutions:

Impediments:

  1. Consumers are focused too much on the initial purchase price, not the total cost of ownership.
  2. Businesses usually use a 1 year payback period to determine whether to buy energy saving technology. Most energy efficiency technology needs 3 years to pay back, even with high energy prices.
  3. Benefit of housing insulation accrues to tenants of housing not landlords, hence landlords have no incentive to insulate.
  4. Businesses account for cost of energy saving technology as debt. This is not true of government which uses cash based accounting, hence government take up may be greater.
  5. Intertia. In the USA there have been 3 separate executive orders on energy efficiency over the last few decades, they have caused little improvement.
  6. Utilities are in the business of selling more electricity not less.

Solutions:

  1. Achieve energy efficiency and economic growth. Do not tell people that either they or their children will have a lower standard of living than in the past.
  2. Achieve certainty in regulation so businesses can plan.
  3. Move towards energy security, use this objective as an important part of the
    conversation about the environment.
  4. Government should be technology neutral, not try to pick winners.
  5. Incentivize utilities
  6. Create a government agency for energy research, similar to the defence agency that
    initiated the internet e.g. ERPA (Energy Research Projects Agency)
  7. Do not let the perfect be the enemy of the good

Jonas Gahr Støre

Set out what Norway is doing in respect of tackling climate change. Norway is committed to being carbon neutral by 2020. However, it is a big exporter of natural gas. It is trying to do more, beyond its borders e.g. in deforestation, arctic research etc.

 

CLOSING PLENARY SESSION: A LOW-CARBON STRATEGY FOR BRITAIN

 

Speakers:

John Monks, General Secretary of the European Trade Union Confederation

Vincent de Rivaz, CEO of EDF Energy

Martin Rees, President of the Royal Society

Andy Duff, CEO of RWE Npower

Adair Turner, Chairman of the UK Financial Services Authority and Chairman of the UK Government’s
Committee on Climate Change

[Ed Miliband was going to attend but is now on paternity leave]

 

Chair: Vicky Pryce, Joint Head of the UK Government
Economic Service and Director General of Economics at BERR

Adair Turner

We need 3 things for a low carbon strategy:

  1. Aims of the strategy
  2. Measures to determine whether it is being achieved
  3. The public policies to do the things necessary

The aim of the strategy is to achieve an 80% cut in CO2 equivalent emissions versus 1990 levels.

How will this cut be achieved? By:

  1. Changing our lifestyles
  2. Energy efficiency
  3. Decarbonising our energy sources

We are likely to need much more electricity than at present. And we need to decarbonise electricity generation. At present 1 Kilowatt-Hour of electricity produces 500g of emissions, we need to reduce that to 50g by 2030.

We can then use the decarbonised electricity to decarbonise other sectors. For example, by using electricity for heating instead of gas.

How far can we depend on the carbon price to drive change? We have to recognise limits, the carbon price will not do everything. For energy efficiency it is often better just to regulate. E.g. low energy lightbulbs – people do not usually switch because of the cost of electricity. For many positive NPV projects, to encourage people to do them would require a carbon price so high that it would cause poverty.

Anther area where the markets will not provide the whole solution is electric cars. It is a chicken and egg situation. Electric cars need power points for charging. The private sector will not build power points for charging until there are many electric cars on the roads. People will not buy electric cars in large numbers until there is an infrastructure of charging points. There is a need for a government strategy for electric cars.

Housing stock is another area where its not clear that markets will do the job. Retrofitting housing is difficult. We may need a more strategic vision.

We need Adam Smith but we also need Colbert.

[I assume that Adair means Jean-Baptiste Colbert http://en.wikipedia.org/wiki/Jean-Baptiste_Colbert not Stephen Colbert http://www.colbertnation.com/home, although we can always use a laugh!]

Andy Duff

Reminded us of how far we have come in a short time regarding the perception of climate change. It was only 4 years ago that he took evidence that climate change was real and man-made to his board. Now RWE are committed to reducing their carbon intensity.

Energy companies have had a very hard time due to volatile energy prices. They make small single digit margins, so they have huge risk from volatile prices. They don’t have full freedom in pricing because there is a social element in the product they provide.

RWE is building 1000 MW of offshore wind. It is building £6 bn of nuclear plants. We should remember that 50% of electricity generating plants are due to retire by 2020. Without nuclear power, we can’t come close to meeting the targets.

We need an integrated climate/energy/transport plan with a unified vision. For example, electrifying all rail transport. We need a partnership between business and government not seen since the post-war reconstruction.

The UK can be among the first for new nuclear, he commended Tony Blair for taking this step.

There is a concern that the short term cost of the investment needed is immense. We need to have an honest discussion with the public about this.

Last year fuel costs rocketed. The political response to this encouraged people to think that they have a right to cheap energy. This was a missed opportunity. A survey carried out 2 years ago (before the ramp up of oil price) showed that 45% of people believed that low energy prices are the primary aim of government energy policy. That percentage is likely to be at least as high today.

People suspect that something is wrong but they don’t know what exactly. People don’t trust politicians – or energy companies. This is not going to change unless the public are told the truth. All the necessary measures are going to be expensive and painful. Costs must be seen as investments. If we allow unconstrained consumption and do not invest sufficiently, then the costs will be much higher in the future.

Hopefully, honesty about the problems will bring public support. We know we can do it. We’ve done it before, with the post-war reconstruction, and with the development of North Sea oil and gas. But leadership requires courage.

Martin Rees

[Rees repeated several points he made in his Hay on Wye appearance, just a few key points are repeated here.]

Climate sensitivity is uncertain. We need to guard against the possibility of a dramatic climate shift. Prepare for the worst as an insurance policy. An example of this is the Thames Barrier, which cost more than £1 billion.

It is a truism that the rate of change tends to be overestimated in the short term but underestimated in the long term. We should bear this in mind when thinking about the likelihood of meeting what seem now to be very tough long term emission reduction targets.

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