Tuesday, January 16, 2007

Stern explains climate change "discount rate" dilemmas on the FT

The FT interviewed last week Sir Nicholas Stern, the author of the Stern Review, which the UK Treasury issued in 2006 and which had a major impact around the world. This article is very clear and explains very clearly why his critics are wrong. Interestingly, the reason has nothing to do with economics, but rather with ethics.

These critics said the Stern Review chose a "discount rate" that was too low. The discount rate is used to translate the probable future costs and benefits of climate change into a value for today. This, they say, makes action look more urgent than it is.

In the interview with the FT, Sir Nicholas said that a higher discount rate, such as used in some other economic models, made little sense in this case because it placed too low a value on the lives of future generations.

What he said:

"We made it very clear in the review that a pure time discount rate is going to influence whether you put a lot of money into climate change or not. A pure time discount rate of 1 per cent essentially takes out, if you look forward a hundred years, two-thirds of the benefit, irrespective of the wealth of future generations. So you are telling a grandchild who is 60 years younger than you: 'You are only worth half'.

"If you want to argue for a very high pure time discount, then give me a reason. I haven't heard a good one. And this is an ethical discussion we should have."

"For me the most persuasive argument is to describe those risks [of climate change] in some detail, look at the costs in different parts of the world, and then present yourself and decision-makers with the question: 'Would you be prepared to pay this amount to take those kinds of risks away?' And you don't need to do detailed aggregation to come to grips with that -question."

Monday, January 15, 2007

Exxon & U.S. in possible U-turns on climate, and more European news

The past few days have been very eventful.... Exxon Mobil has started "denying its climate change denial" arguing that its position on climate has been "misunderstood".

The company claims it has stopped funding climate change denial lobbies such as the Competitive Enterprise Institute, which have been extremely active over many years in generating misleading information on climate science in the US and around the world. However, it remains to be seen whether it has really stopped funding this group, and whether the company will do the same with other smaller denial lobby groups it has been financing. However, the fact they are now willing to start discussing climate change policy options is a major step forward in this debate.

The UK's Observer reported on Sunday that the US is on the verge of a U-turn on climate change policy (this would be a logical step, given the US position against any regulation of greenhouse gases has been largely determined by the position of the strongest industry lobbies such as ExxonMobil). However, this is being denied by the US government, according to the New York Times.

As anticipated in the earlier post, the EU has also announced its new energy measures and a proposal for a long term climate target, which has received a lot of media coverage and which I have briefly outlined in another post on Europe, Planet Earth.

Another announcement that got slightly less attention was that in two weeks (24 January) the EU Commission will put forward proposals for binding legislation to reduce carbon dioxide emissions of new cars sold in the 27-nation trading bloc to an industry average of 120 grams per kilometre in 2012.

Currently car makers are subject to a voluntary agreement to reduce CO2 emissions to an industry average of 140 g/km by 2008, but they are set to miss that target. Asian manufacturers have until 2009 to meet the voluntary target, Reuters reported. The car industry is opposed to mandatory legislation, arguing that that voluntary agreements are better than mandatory ones (except that they are missing the current voluntary target largely because they chose to produce bigger and heavier cars and SUVs, which is why the Commission is now considering making the target mandatory).

Tuesday, January 09, 2007

European Commission to issue energy policy reccomendations Wednesday

This post also appears on another blog, Europe Planet Earth , which I co-write.

European Union (EU) commissioners are reportedly struggling to reach a final agreement on the detail of the forthcoming package of policies on EU energy, to be published Wednesday. The package will include proposals on issues such as coal, carbon capture and storage, renewables, and long term climate change targets.

A preliminary analysis of the leaked documents, most of which I've seen, indicates that some of the documents will be heavily drawing on the UK government’s Stern Review report issued in 2006, which warned of massive economic and social damages if the world failed to tackle climate change.

In an apparent contradiction, though, there appears to be considerable debate on whether and how renewables should continue to grow. There has been much debate on whether this target should be expressed solely as a general energy target, or whether there should also be targets for electricity, heating and cooling, and transport. The current system includes targets for electricity and transport, and discussions were underway to set targets for heating and cooling. The renewable energy industry and environmental groups have been extremely alarmed about these attempts to change a system that is working well. The EU Parliament voted in December to keep and strenghen these sectoral targets.

The Commission will also issue league tables assessing how member countries are doing in meeting their existing renewable targets. Eight countries well on track on their renewables target, and some will exceed it. The UK is among the countries that are not on track and which may need to change their policies, the draft says.

The draft proposals also say global emissions should be halved by 2050 compared with levels in 1990 and that the EU should show world leadership on the issue. The documents mention the need for long term targets beyond 2012, as required by the Kyoto Protocol. There is considerable debate on how high this target should be, and we can expect a big battle later on how to achieve this target and what it includes.

Other issues covered in the draft proposals include:

-measures to promote so-called carbon capture and storage (CCS), a technology to store Carbon Dioxide underground, with the possibility of ten demonstration CCS plants by 2015 and a requirement for all new coal plants capture ready.

-the possibility that in the future the EU might put in place measures to tackle shipping emissions.

-the EU Commission modeling assumes that nuclear power will grow. However, nuclear power in Europe has stalled for decades and it is hard to imagine how this trend will be reversed. It is possible, although not certain, that there will no specific proposals leaving Member States to decide on this (also, most EU member states do not have plans to expand nuclear power and many do not have any nuclear capacity at all).

-proposals to liberalise energy markets further. According to a Reuters story Competition Commissioner Neelie Kroes and Trade Commissioner Peter Mandelson had pushed hardest for liberalisation of the sector while Industry Commissioner Guenter Verheugen and Transport Commissioner Jacques Barrot, who are German and French respectively, opposed radical changes.

-measures to improve management of oil and gas stocks and better interconnectivity of power grids among EU countries. There are hopes this would potentially give the bloc one voice in dealing with third countries.

-proposal for a a major international agreement on saving energy with the aim of signing it during the Olympic Games in Beijing in 2008, as reported by Reuters.

The energy ministers of all 27 Member States will meet on 15 February to discuss the package, and environment ministers will meet five days later. On 8 and 9 March, all heads of state will meet to make final decisions on it.

Wednesday, January 03, 2007

New Year, New Hopes, New Rythms!

During the Christmas season, the Financial Times published a remarkably good editorial on climate change which outlines very clearly the challenges and hopes for 2007.

Meanwhile, I am very happy because I received as a Christmas present a great CD called Rythms del Mundo - Cuba. The CD includes music by the likes of Coldplay, Arctic Monkeys and Dido, but adapated to include a Cuban son rythm. It also includes the last recording by Cuban legend Ibrahim Ferrer.

No, I haven't gone off topic....this is still relevant, and a rare opportunity for me to write about something very different from policy!

Sales of the CD will help to fund projects of a new climate change charity - Artist Project Earth.

Some of the tracks on the album are great (with the possible exception of one track, which really doesn't work well for me), and mild criticism of this CD that I read on magazine Songlines was definitely undeserved.

The alarming thing I did notice however was that there is no information on climate change in other languages besides English. This CD is likely to sell well in Spanish speaking countries so not having a translation was a missed opportunity to reach new audiences.