Duncan on why your conservation efforts are irrelevant
- <<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
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
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
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: