Archive for February, 2012

How should climate change be taught?

The external release of documents relating to the activities of the Heartland Institute has raised many questions, but an important issue that is now in the open again relates to the teaching of climate change in schools. How should this be handled and what should be taught? Is there justification in arguing that “both sides” of the issue should be covered? Are there “two sides” to this issue? If so, what exactly are the “two sides”, particularly in the context of a high school education?

My own experience with this issue is through the education of my son (now in his second last year of school in the UK). Climate change has seeped into a very wide variety of his subjects over the years, including chemistry, biology, geography and now economics. The message has been pretty consistent over time, i.e. “we are changing the composition of the atmosphere, that will have implications for future generations and here are some of the things that we might have to deal with.” This has resulted in a person with a pretty balanced view of the issue and some good insight into the economic thinking that supports carbon pricing within an economy. He is far from a climate zealot (not at all in fact) and is prepared to question the material he is presented with – which in turn leads to some interesting discussions between us.

But I remain unconvinced that the basic science has been taught with rigor, at least to the extent that there is a reasonable understanding of the atmospheric physics / chemistry at work. More focus on this aspect of the subject could do much to settle the issue of “both sides”. At least at this level there simply aren’t two sides. We know the earth behaves as a black body, we know that Plancks law applies to black bodies and even in high school it is possible to demonstrate that this doesn’t give us a correct answer for the calculation of the surface temperature of the planet (and I remember doing Planks Law in final year school physics myself). This then leads to an understanding that other processes are in play (trace gases in the atmosphere) and that we are now influencing those processes.

One of the difficulties with this subject is that it starts from a very small fact base of core physical principles and grows almost exponentially in both complexity and uncertainty. We then end up making very uncertain connections at the top, which not surprisingly raises the ire of some people. For example, there is plenty of imagery that links driving cars, flying in an aeroplane or even turning on a light with the threat of survival of polar bears (just to pick an example).

 

Then there is the link through many layers of climate science;

  • The release of CO2 into the atmosphere from the fossil fuel used to produce electricity (but not in France or Iceland of course);
  • The source of the fossil fuel and the CO2 released in its production and transport;
  • The wattage of the light bulb used and the time it is left on;
  • The change in radiative forcing as a result of additional CO2 in the atmosphere;
  • The sensitivity of the climate system to the additional forcing;
  • The impact that particulates released from the power station might have in changing the global radiative forcing;
  • The net temperature rise of the planet;
  • The impact the temperature rise has on Arctic ice in areas where the polar bear is most threatened;
  • The impact any ice reduction has on the longevity and reproduction cycle of polar bears in a particular area;

. . . . and so on.

Physics and chemistry today have delivered a high level of certainty regarding the behaviour of CO2 molecules in the atmosphere. But the fate of the polar bear is highly uncertain as are the precise causes of all the changes in its habitat. Yet, at least for younger students we tend to start with material that has high imbedded uncertainty and teach it as if it is fact, which of course it isn’t. This then leads to the call from some members of the community to present “both sides” of the issue, when in fact there aren’t any sides at all. The “both sides” call is then also interpreted by others as evidence that there is interpretation and uncertainty at the core of the issue, i.e. with the physics that underpins it, when in fact there is very little uncertainty. In a posting in July last year I recalled the speech given by Nobel Prize winning atmospheric chemist Mario Moilina (who unraveled the chemistry of CFCs and ozone) at an MIT event, where he started by saying “Since when was the Stefan Boltzman constant in dispute?” In fact it isn’t in dispute at all and we know with great precision how our planet radiates in the infra-red.

This issue isn’t just about school education, but also pertains to the education of the general public when it comes to establishing climate policy. It’s the same problem that occurs when a particular weather event is linked to CO2 emissions.

I am not a professional educator, but this line of reasoning seems to point to the need for the teaching of climate change issues at a much later point in the school curriculum and focusing more on the underlying science earlier on. We don’t teach maths by starting with chaos theory, calculus and complex numbers, rather we start with basic numerical techniques, then algebra, trigonometry and so on. This should perhaps also be true for climate change. The well understood processes that underpin the issue should be taught as a lead-in to the much broader discussion. Then at least the students can think about and debate the “two sides” for themselves.

The EU Energy Efficiency Target

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As I noted last week, there are intense negotiations underway in Brussels and Strasbourg as the EU Parliament heads towards a key committee vote on the Energy Efficiency Directive at the end of this month. All this has come about because of concerns that Europe will not meet the third leg of its well known 20-20-20 by 2020 target, i.e.;

  • A reduction in EU greenhouse gas emissions of at least 20% below 1990 levels
  • 20% of EU energy consumption to come from renewable resources
  • A 20% reduction in primary energy use compared with projected levels, to be achieved by improving energy efficiency.

 Understanding what the energy efficiency target actually is and what it means turned out to be much harder than I imagined. The third bullet above, after some Google searching, led me to COM(2006)545 final, COMMUNICATION FROM THE COMMISSION, Action Plan for Energy Efficiency: Realizing the Potential, within which was to be found:

This Action Plan outlines a framework of policies and measures with a view to intensify the process of realizing the over 20% estimated savings potential in EU annual primary energy consumption by 2020 (compared to baseline – see COM(2005)265 final of 22.06 2005). 

The last part of the above which pointed to a further communication was a footnote within the text. This next document (Green Paper) proved to be relatively easy to find (although the EU Commission link to it no longer functioned, but it was in EUR-Lex), but the baseline information was in an Annex, with the key assumption on GDP in a footnote within the Annex. In any case, the Annex provided the following information:

From the early 1970s until 2002, energy consumption in EU-25 rose by almost 40% – or 1% per year – while GDP doubled, growing at an average rate of 2.4% per year. Energy intensity, the ratio of GDP to energy consumption, therefore decreased by a third. However, since 2000, the improvement in energy intensity has been less substantial, reaching only 1% over two years. This Community average does not reflect the considerable differences between Member States caused by the differing economic structures (e.g. more or less energy intensive industry), the national currency exchange rate compared to the Euro and the level of energy efficiency that, by and large, is obviously much better in the EU-15.

If the current trend continues, gross energy demand could increase by 10% by 2020. Growth in electricity demand could also reach 1.5% per year. Today’s consumption in the EU could reach 1900 Mtoe within 15 years (2020), compared with 1725 Mtoe in 2005 (These predictions are made under the assumption of an average growth of GDP as foreseen to be 2.4% per year). . . . . .

. . . . . This Green Paper on energy efficiency envisages to launch the debate on how the EU could achieve a reduction of the energy consumption of the EU by 20 % compared to the projections for 2020 on a cost effective basis. With today’s most advanced technology, it is certainly possible to save around 20% of the energy consumption of the Member States of the EU Total consumption is currently around 1 725 Mtoe. Estimations indicate that, if current trends continue, consumption will reach 1 900 Mtoe in 2020. The objective is thus to arrive, thanks to energy savings of 20% at the consumption level of 1990, i.e.1520 Mtoe.

The 2020 goal is to limit energy consumption in Europe to 1520 Mtoe, but this is based entirely on projecting the early 2000s energy/GDP relationship out to 2020, assuming a continuous economic growth of 2.4% p.a. and then subtracting 20% from the final energy number. Measuring progress to date and comparing it with the original projection and the desired outcome reveals a very mixed picture.

Actual energy use in 2009 (latest IEA data) is well below the Green Paper projection and even just below the proposed pathway to 2020, but energy intensity (kgoe/$ GDP) is falling well short of the 2020 goal pathway. The issue of course is that the original growth projection of 2.4% p.a. bears little resemblance to reality. The EU has gone through a major recession, some parts of the EU remain in recession or worse and even the better performing economies are showing only minimal growth. There is also the possibility that this situation continues for some time.

This means that the EU really had four 2020 targets set in 2008, not three; 20% reduction in GHGs, 20% renewable energy use, 33% economic growth (2008-2020) and energy intensity of 0.09 kgoe/$ GDP. All this has been thrown off track by the lack of growth. The structural improvement in efficiency normally achieved as an economy grows and invests in new or replacement infrastructure has gone, the carbon price has collapsed due to a growing surplus of allowances (linked to both the lack of growth and the mandated investment in renewable energy) and while the EU is apparently on target for its renewable goal, there is pressure in these tight fiscal times to cut subsidies (with a drop in investment presumably following). Arguably, the target structure was only feasible under this one growth scenario.

But the Commission is trying to reboot the system through the proposed Energy Efficiency Directive. This calls for an even lower energy use by 2020 of some 1474 Mtoe p.a., which is presumably in line with a revised growth projection (assuming 0.09 ktoe/$ remains the goal then this appears to be <1% p.a. over the period 2009-2020). The draft Directive now also includes a proposed amendment to set aside allowances in the ETS, restoring confidence in that system as well.

The 2008 Energy & Climate Package would appear to be an over-constrained target framework, lacking in the flexibility needed as the economy twists and turns in unexpected ways over the duration of the time window (15 years). It argues for a more back to basics approach for deployment which simply imposes a carbon price on the economy through the cap-and-trade system. This then guides the way forward, providing the driver for renewable energy investment, greenhouse gas reductions and energy efficiency improvement (due to the cost penalty imposed on fossil fuel derived energy).

The Commission will almost certainly persist with the current framework through to 2020 and may yet have to administer other fixes, but post 2020 should be a new story. With the design of the next phase of the European energy journey looming, a back-to-basics carbon market approach is all that is really needed for the main deployment effort rquired in the economy.

 

A set-aside for the EU ETS

Interest in the EU Emissions Trading System (ETS) is high at the moment in the European Parliament. MEPs are being asked to support a key amendment to the proposed Energy Efficiency Directive which will see the removal (set aside) of a substantial number of allowances from the Phase III auctions. Such an action would bolster the EU carbon price. Not surprisingly, the upcoming ITRE Committee (Industry, Research and Energy) vote has polarised business groups. I have written about the need for such action in the past, but thought it would be useful to outline the case once again.

A Baseline Correction for the EU ETS

The EU Emissions Trading System (ETS) is the flagship instrument within the EU energy and climate policy framework, and is designed to deliver emission reductions at lowest cost to the economy and provide the necessary price signal for the development of low-emission energy technologies. But the EU ETS is now faced with issues of real environmental improvement and international credibility.

Compliance with the EU’s 2020 target, of a reduction of greenhouse gases to 20% below 1990 levels, is almost a given as a result of a growing surplus of allowances in the system. This hasn’t come from real changes in the EU energy mix driven by the carbon price, but from a combination of industrial downturn and compliance with an increasing number of overlapping energy and environmental policies at both EU and member state level.

The market that develops as a result of an ETS is unlike other commodity markets, in that it is an artificial construct with a fixed supply of allowances determined by the desired emissions cap. Supply cannot naturally adjust when major changes to the system take place, such as in the current economic circumstances.

The underlying purpose of an ETS is not simply to meet an arbitrary target, but to impose a certain level of ambition on the covered sectors to catalyze the transition to a low-emission economy. If those sectors undergo a macro-level change, so too should the ETS to ensure that this level of ambition is maintained. Otherwise, there is no incentive for any underlying environmental improvement, because demand reduction hits the system. A similar argument could also be made for the case of a macro change that significantly increases demand, where the economic penalty on the system would otherwise become burdensome. This is also no different to the baseline changes that companies make when measuring emissions against a voluntary target, as would be dictated by, for example, the Greenhouse Gas Protocol.

Supply-side measures to enable such a baseline change are now required in the EU ETS. The current allowance surplus (now around 1.4 billion allowances) needs to be removed from the system to restore the ambition level, or scarcity, originally intended. A set-aside of allowances from the auctions in Phase III (2013–20) is the only short-term option available. There exists an opportunity through the discussions on the proposed Energy Efficiency Directive to do this, thereby restoring value to the system. The original system design rewarded action in Phase II (2008-12), on the expectation of scarcity in Phase III; this needs to be reintroduced.

With limited experience in operating trading schemes, it was difficult to foresee that predicting emissions would be so challenging. Most systems have therefore not been designed with sufficient supply-side measures to ensure the required robustness. This is a key learning point and should feed into EU policy formation as design discussions for Phase IV get underway in the coming years.

However, this would be a one-off measure. A longer term fix to the system is necessary. There is a body of literature that argues in favour of combining certain features of both price-based and quantity-based instruments, to create so-called hybrid policies. A recent example[1] concluded that trading schemes with price-like features, such as an reserve price below which allowances are not auctioned, should be considered to support carbon prices. An auction reserve price could be established for Phase IV of the EU ETS, thereby giving a long-term carbon price signal and providing companies some certainty over the return on investment in abatement technologies. Furthermore, an EU ETS auction reserve price would remove the need for EU member states to act unilaterally in this direction, such as recently done by the UK with its introduction of a carbon price floor.

Some may argue that a period of financial uncertainty is not the time to act, with some businesses struggling and unemployment rising. However, sectors exposed to international competition are given a transition period through the allocation of free allowances up to 2020 and are aware of Europe’s requirement to move towards a competitive low-carbon economy. Taking this opportunity to adapt to such an economy is vital for the future success of EU manufacturing as other regions and jurisdictions start to see the value in this new business opportunity. As recognised by the International Energy Agency, the EU ETS is the most cost-effective way for EU companies to meet climate change targets while remaining competitive, which then ensures energy costs and goods remain affordable for consumers.

Since the EU ETS is a leading symbol of the effort to tackle global climate change and reach Europe’s environmental targets, it is critical that the European institutions take decisive action now, with a baseline correction by setting aside and cancelling allowances from the Phase III auctions, and the introduction of an auction reserve price from Phase IV. These two measures would enable the EU to achieve the dual energy mix and emission goals that it has, but importantly still relying on the energy markets as the force for change.



[1]  Fankhauser, Samuel and Hepburn, Cameron and Park, Jisung (2010). Combining multiple climate policy instruments: how not to do it. Climate Change Economics 1 (33), pp. 209-225. ISSN 2010-0078

 

Science, risk management or just politics?

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An opinion piece that appeared in the Wall Street Journal (Europe) on Tuesday (a few days earlier in the USA) presented the views of sixteen scientists on the issue of climate change under the heading “No Need to Panic About Global Warming“. Unfortunately there isn’t much in the way of science discussed, but there is some discussion on the response to the issue. Following the “no panic” theme of the heading, they argue that;

“There is no compelling scientific argument for drastic action to “decarbonize” the world’s economy. Even if one accepts the inflated climate forecasts of the IPCC, aggressive greenhouse-gas control policies are not justified economically.”

Although there are those that call for a complete transformation of the energy economy in just a few years (not really possible anyway), the current reality is that many governments around the world are taking a step by step response to the issue, developing policy approaches, implementing them in a measured way and learning from the experience. There is no panic, no drastic action and no aggressive control, just practical risk management through careful policy design.

Look at just one example. Over the last twelve months a very prudent approach has been implemented in Australia, with the gradual introduction of a carbon price across the economy. Initially it is a fixed price but in three years will transition to a market responsive price, although even that will have a collar.

Further to this, the sixteen scientists argue that the only reason action is being taken at all is so that it;

“. . . . offers an excuse for governments to raise taxes, taxpayer-funded subsidies for businesses that understand how to work the political system, and a lure for big donations to charitable foundations promising to save the planet.”

Again, the reality is very different. Continuing with the above example, Australia has used the money flowing from the carbon price mechanism to reduce taxes and ensure that trade exposed industries are kept whole, rather than being competitively disadvantaged. In the EU where climate policy has been well established for nearly a decade, member state governments have collected very little in additional revenue. Under the EU Emissions Trading System allowances have been grandfathered in the early years with only minimal auctioning. Although this will change from 2013 onwards, there has been no unseemly rush for revenue. Rather, significant sums of money have been channeled into renewable energy development, CCS and energy technology R&D.

Charitable foundations have also played an important role in supporting think-tanks and policy forums, not with the view of “saving the planet”, but with a clear and transparent agenda aimed at climate change policy development, design and implementation. Many such organizations have participated in and even led the development of policy instruments such as cap-and-trade, low carbon fuel standards and renewable energy targets.

Apart from the EU and Australia, a modest carbon pricing policy is in place in New Zealand, California, many US North East States, Alberta and British Colombia, with discussions and consultation underway in South Africa, South Korea, China and numerous other countries and states (click here for a map).

Meanwhile the scientists and economists at MIT, one of the USA’s premier universities frames the issue in terms of risk and uncertainty, rather than absolutes. Their Greenhouse Gamble wheels were developed by the Joint Program on the Science and Policy of Global Change to better convey uncertainty in climate change prediction. Their roulette-style spinning wheels depict the estimated probability, or likelihood, of potential temperature change (global average surface temperature) over the next 100 years, with policy implementation as the principle variable between the two. The policy framework necessary to move between the two is more substantive than that which we see today, but the path forward being taken by many nations is at least aligned with the required direction. This state of affairs is likely to persist for much of this decade, but is nevertheless still a critical capacity building phase for the future. Certainly if all nations moved forward with the types of efforts described above, the risk profile of the second wheel becomes achievable.

 

There is a closing argument that calls for doing nothing at all and focusing on economic growth for the benefit of all. The letter states;

“. . . . and it is likely that more CO2 and the modest warming that may come with it will be an overall benefit to the planet.”

According to MIT, doing nothing gives us around 1-2% chance of modest warming, i.e. less than 2°C, and something in the region of 30% chance of 5-6°C warming. Betting on this feels more like politics at play than any rational approach to risk management.