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Duncan on why your conservation efforts are irrelevant

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  • Gervas Douglas
    Message 1 of 1 , Mar 3, 2008
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      <<Are you one of the millions of people "turning to 30" when you load
      your washing machine? Or maybe you are heeding Gordon Brown's advice
      and going green by spurning the supermarket's free plastic bags?

      Are you thinking of swapping your gas-guzzler for an energy-efficient
      Toyota Prius, or following the example of David Cameron and putting a
      wind turbine on your roof?

      If you are doing any of these things, there is a question that you
      ought to be asking yourself. Why?

      There are, of course, plenty of good motivations for taking all of
      these actions. The reality is, though, that the most compelling
      reasons have nothing to do with notions of "saving the planet" and
      have everything to do with saving our own money and with avoiding
      needless waste.

      These incentives should have become all the more powerful in a week
      that has seen crude oil prices once again soar above $100 a barrel,
      and – on some measures at least - breaking the real-terms records set
      in the late 1970s and early 1980s.

      Yet, if one were to ask consumers why they are washing their clothes
      at a lower temperature, or switching to a more fuel-efficient car, the
      reasons that most would give would be all about ecology, rather than
      economy.

      By acting on the green sales pitches of savvy manufacturers who have
      latched on to tackling global warming – a cause rapidly becoming an
      article of faith across the West – millions of us hope that we are
      helping to eliminate the threat to mankind's future from climate
      change. By cutting back our own energy use, we hope to curb carbon
      dioxide emissions and keep the planet's temperature down.

      Sadly, there are persuasive reasons to believe that all the energy
      being put into this effort is itself going to waste and that Western
      efforts to conquer climate change by curbing our fuel use are likely
      to be in vain.

      The fundamental, and possibly fatal, flaw in all these well-meaning
      personal efforts and well-intentioned government initiatives to tackle
      global warming is that the West's entire strategy is based on
      restraining demand for, and use of, fuels. Yet this strategy will
      prove entirely futile unless the result is that the extraction and
      supply of these fossil fuels falls back as reduced demand puts
      downward pressure on their price.

      Moves by "green" consumers and nations to cut energy use will prove
      pointless if oil-producing states simply maintain production even as
      prices fall, so that other countries more careless of the dangers of
      global warming then buy, and burn, all the fuel saved, enjoying an
      implicit subsidy from the West as they do so. Just as we are all
      "turning to 30", the growth-hungry powerhouses of China and India will
      be stepping up their carbon-intensive policies of rapid economic
      expansion, while Americans will be able cruise their freeways in SUVs
      even more cheaply.

      Unfortunately, the perverse politics and economics of energy supply,
      and of the world's oil-producing states, mean this is exactly what
      will happen.

      These crucial implications of the neglected supply side of the climate
      change debate are compellingly mapped out in a new analysis by
      Hans-Werner Sinn in the latest annual report from the European
      Economic Advisory Group of Munich's CES-Ifo think-tank.

      Consider the economics first. It may seem odd to suggest that even as
      reduced energy demand leads to lower prices, oil producers will
      maintain their existing output. The reason why this can be the case is
      the unusual economics of a resource that is finite and non-renewable.

      The economic motivation of oil producers is to maximise the total
      amount they can earn from reserves they control. This means that, as
      they decide how much fuel to supply, they will consider not just
      present prices, but how much they can earn based on future price
      levels. They have to make a choice between pumping out resources now
      and investing the proceeds in financial markets, or keeping the oil in
      the ground in the hope of higher future prices.

      Oil producers must reasonably suppose that, as global warming
      continues and provokes ever-greater concern, restrictions on demand
      will grow tighter. Further alternative energy sources are also likely
      to be developed. So they are likely to perceive high probability of
      downward pressure on prices in future. The result is a strongly
      enhanced incentive to extract and sell resources now, to whichever
      country will buy them, and then to invest the proceeds. Producers may
      even step up production.

      Professor Sinn argues persuasively that this "green paradox" may help
      to explain why, despite the Kyoto climate-change treaty and the
      environmental efforts of many countries, fossil fuel use and CO2
      emissions have continued to climb unchecked. He makes the case that,
      unless energy-consuming nations can form a largely loophole-free
      united front – which seems improbable – this paradox will make a
      nonsense of policies such as emissions trading.

      Worse, the report highlights how the unstable politics of
      oil-producing states in the Middle East and South America reinforces
      their rationale to keep pumping oil for whatever price the market
      sets. Since these nations' rulers cannot be sure of staying in power
      indefinitely, they face an extra incentive to cash in while they can.

      The planet's fate in the face of global warming may not, alas, be in
      the hands of such well-intentioned leaders as Mr Brown, Angela Merkel,
      the German Chancellor, and California's Arnold Schwarzenegger, but
      instead may lie with the likes of Venezuela's Hugo Chávez, Iran's
      President Mahmoud Ahmadinejad and rapacious Russian oligarchs.

      "Turning to 30" and the like may give the West's consumers a warm
      feeling, but tackling climate change effectively may require a wholly
      different focus on science-based measures to store carbon or remove it
      from the atmosphere, through policies such as reforestation.>>

      You can read this at:

      http://business.timesonline.co.uk/tol/business/columnists/article3472008.ece

      Gervas
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