Figure 7 Modern global renewable energy consumption,[24] measured in TWh per year. This data includes all renewable energy sources with the exclusion of traditional biomass. Here ‘other renewables’ includes modern biofuels, geothermal and wave and tidal.
It is true that substantial progress has been made on bringing down the costs of wind and solar, and increasing their technical capabilities. This has overwhelmingly been the result of heavy subsidies for mass production in China. There is a lot of scope in the next 30 years to push on with these cost reductions. But there are a couple of caveats. First, the cost reductions do not alter the fundamentals, and in particular the low density of energy that renewables produce; second, the fossil fuels have been showing remarkable technical progress too.[25] While the cost of solar panels has fallen, the cost reductions in shale and other non-conventional oil and gas, and in the conventionals, have been dramatic. Seismic technologies, robotics, artificial intelligence (AI), and the digitalisation of the oil, gas and coal industries have all had dramatic impacts.
These considerations lead to a general conclusion: the cost of energy has fallen for all technologies. There has been little relative gain in costs for renewables. Almost all have had absolute reductions across all energy sources. The cost of renewables has fallen, but so too has the price of oil. The oil price has maintained a long-term trend, gradually falling in real terms over the period since its inception as an industry in the late nineteenth century, with the exceptional interruptions of the 1970s and in the period running up to the peak in 2014. The renewables lobby is keen to argue that wind and solar are becoming grid-competitive. While they relied on a belief in peak oil this might well have turned out to be correct. But peak oil is nonsense: the renewables have not only to reduce their costs, but to do so faster than fossil fuels. The more successful renewables are, the lower the demand for oil, and hence the lower the price of oil as production centres on the incredibly cheap sources in the Middle East. The marginal cost of Saudi crude oil is about US$5 or less, compared with a much higher world price, even after the price falls in 2014 and 2020. There is a long way to fall.
The destruction of natural capital
While the fossil fuels have boomed and contributed the lion’s share of emissions since 1990, without much pressure from renewables, they are not the only cause of our climate problem. Climate change is a two-part act: the natural environment offsets carbon emissions with natural carbon sequestration through trees, vegetation, soils, peat and the marshes and oceans. The story here over the last 30 years is pretty bleak too – and, in a number of cases, because of the climate change policies we have naively been pursuing.
The fossil fuels on which we rely are themselves sequestered carbon, and for most of geological time this sequestration has been effectively permanent. This is ancient and stored solar radiation. Carbon is essential for photosynthesis and photosynthesis is what makes the planet work. It is also taken up by animals, as we can see in the seashells that litter our shores. Over time, these shells form the materials of the great limestone stores of carbon and what we use for cement.
Where these sequestration processes are allowed to play themselves out, a balance is established between oxygen and CO2 in our atmosphere. The planet started out with little oxygen, and plants made our world habitable for animals, including ourselves. At times, oxygen was much more abundant, allowing super-sized animals to flourish.[26] In the great carboniferous age, oxygen was abundant precisely because, as the name implies, this was an age of great plant flourishing, which ultimately led to the formation of vast coal deposits.
The most obvious loss of this vital carbon-sequestering natural capital is the forests. They still comprise around 30 per cent of the global land cover, but we are cutting into this number at an alarming rate. Since 1990 roughly 1.5 million square kilometres have gone, including around 10 per cent of the Amazon rainforest.
On average, an area of tree coverage the size of the UK was lost between 2014 and 2018 – 90 per cent of which was tropical forest. Plants can both temporarily and permanently sequestrate carbon, and offset both the natural production of greenhouse gases and those emitted by our actions. Most of the current policies encouraging sequestration are temporary – and especially those implemented over the last 30 years – and many have been counterproductive. Planting a tree takes up carbon, and burning it releases it. Using biomass as ‘renewable’ energy closes the process. Over the life cycle of the plant, the best that can be achieved is carbon neutrality, but in practice producing biomass emits a lot of carbon. Why? Because not only does the planting and management require energy (and this tends to be tractors and fossil fuel-driven machinery), but it usually displaces something else, and that something else usually sequestrates carbon too. This is why we should be wary of treating ‘bioenergy’ as renewable.
Take the disaster that is the explosive growth of palm oil plantations to produce a ‘renewable’ fuel. Vast areas of natural rainforest are cleared. In Indonesia, so great are the fires that burn off the rainforests that many Southeast Asian areas suffer an annual smog. Attention has been paid belatedly to the impacts on biodiversity, but little attention has been paid to the net carbon accounting. In Indonesia, the underlying peat is set on fire too, adding to the environmental carnage.[27] The growth of sugar cane to produce ethanol in Brazil is another example of bioenergy which is less benign than it might seem. The sugar cane takes up land that had other uses, pushing out cattle farmers onto more marginal land. In Brazil’s case this contributes to the destruction of the great Amazon rainforest. While Brazil’s energy mix looks among the greenest in the world because of hydro, the reality is rather different. In the UK, anaerobic digesters use maize and rye grass to produce ‘biofuels’, with similarly dubious carbon-accounting justifications.
While the natural sequestration process of plants and soils should be soaking up carbon, agriculture (including forestry and other land use) contributes around 25 per cent of the world’s greenhouse gas emissions.[28] Modern agriculture is a carbon disaster from start to finish, from the ploughing of the land releasing carbon stored in the soils, through to the final produce on the supermarket shelf, often wrapped in plastic. Ever since the discovery of the Haber-Bosch process to produce ammonia, fertilisers have been energy-intensive, and that energy has come overwhelmingly from fossil fuels. (China accounts for around 30 per cent of the world’s total fertiliser use, with an application rate among the highest in the world.)
The statistics on what has happened to agriculture since 1990 and its contribution to the increase in emissions are less well documented than those of the fossil fuel industries. Emissions from power stations, coal mines, oil platforms and cars and ships are relatively easy to measure – now increasingly from space. Measuring the loss of carbon in soils, calculating the loss of rainforests and the net impacts on emissions, and working out the gap between ‘biocrops’ and what would otherwise have been done with the land are all technically more difficult. Yet we are not entirely ignorant of what we have done and the damage we have caused over the last 30 years.
The position in 2020
The last 30 years have witnessed an environmental disaster for the planet. We have not had the great transition away from fossil fuels that the architects of the UNFCCC promised. Things have never been better for the oil, gas and coal companies. As for the renewables, they have played at best a very small bit-part, and almost all has come from hydro and bioenergy. Even here the impact of the dams and some of the biocrops has had some awful environmental consequences.
The last 30 years have also been the best for the agrichemical industries, but terrible for the soils and the peat bogs which store so much of our carbon. They have been great for the loggers, the palm oil plantation owners and cattle ranchers as the great rainforests have been cleared. The last 30 years have been beyond the travel industry’s wildest dreams, with the great middle-class boom first in the developed countries, but now with China added too, all flying around the world for holidays. For shipping, the globalisation of the world economy, with China at its core, has vastly exceeded the expectations of 1990. George W. Bush was right: without China capping its emissions, little progress would be made. Almost every dimension of the climate disaster has China’s name written all over it.
The 30 years have therefore been wasted from a climate perspective. Much more carbon has been emitted; the concentrations have marched ever upwards without so much as a blip, except for during the Covid-19 outbreak; the fossil fuel industries have boomed and natural sequestration has taken a nosedive.
How was this allowed to happen, when it was all supposed to be very different? That story is about the UN and Europe’s efforts after 1990 – Kyoto, Paris, and the EU’s carbon policies.
2
KYOTO AND PARIS
The last 30 years were meant to turn out very differently. The UN was going to sort out climate change from the top down, by getting the nations of the world together and agreeing targets for each to limit its emissions. These targets had to add up to an overall cap in emissions, sufficient to stop climate change getting out of control. For reasons of expediency rather than any sense of an optimal climate, this was set at 2°C warming, and subsequently revised down to 1.5° as part of the Paris Agreement. Getting the world’s nations together is what the UN does, and climate change gave it a whole new role. This is what the UNFCCC back in 1992, followed by the Kyoto Protocol in 2007, and the Paris Agreement in 2015, are all about.
Thought of in this way, the climate change problem is how to get the recalcitrants like the US, those with targets well outside the overall envelope, and those who are not really trying to meet their targets, to change their behaviours. Put simply, the US has to get on board; Brazil and its neighbours have to stop destroying the rainforests; China has to take serious steps to deal with its coal and fossil fuel demand; and Africa and India have to get serious about both targets and actions on the ground. Fix these, and the problem will begin to get solved.
Except it hasn’t and it won’t. Why? There are two basic flaws: the design of almost any top-down treaty framework; and the way in which the UN and the parties have gone about it.[1] Even if the former were not fatal, the latter would at best produce a series of temporary fixes, limping from one ‘agreement’ to the next. It would keep the UN in the climate change business, but not do much about the underlying problems.
The fatal flaw
The ambition of the UN has been to create a carbon cartel. All countries are supposed to agree to limit their emissions by committing to caps, and these caps are together supposed to add up to reductions that will deliver a 2°C warming limit.
As a cartel, it suffers from all the problems of conventional fixes to markets – and some more.[2] Think of all the corporate villains in history who have tried to rig markets. They have used a series of bribes, extortion and even violence to get their way. Many have been simply criminal, with the Mafia perhaps the most notorious. Others have been encouraged by the State to bring economies of scale and hence greater efficiency. OPEC stands out as the international example.
What all have in common is the need to confront a basic incentive problem. In any cartel, each party has an incentive to encourage the others to restrict output (in this case, carbon) and benefit from the collective gains from a better outcome for all (less global warming). But each party also faces the costs of doing this. Hence the killer incentive: get others to do the hard graft, promise yourself to join in and then cheat. You get the benefits, but not the costs. It is what in economics is called the free-rider problem.
This perverse incentive is endemic in such agreements, and it is naive to pretend otherwise. All cartels and collusive agreements are designed with this incentive problem in mind, and, as we shall see, Kyoto and Paris are no exceptions. Most fail, and, to see why, let’s think about how the incentive problem could be cracked.
The first (and for the UN an important) option is to appeal to common mutual universal human interests, beyond those of the countries and companies that form the parties to the agreement. In the case of the Mafia, it is an appeal to family loyalty, but it breaks down when there are other families in the game. That is why they keep killing each other. In the case of OPEC, it includes an appeal to Arab unity, and to the interests of the Arab peoples over and above the specific Arab nations. The trouble with this one is that Sunnis and Shia do not see themselves as part of a common cause, and OPEC needs Russia and now the US to at least tacitly fall into line, as witnessed in early 2020. The results for OPEC are obvious: every time the Saudis try to jack up the price of oil, everyone else starts cheating, with the US and the North Sea as key examples. All OPEC efforts to create and sustain an oil cartel have run into difficulties, except in the very short run. For climate change and a carbon cartel, it is the medium and long term that count, and despite all the claims to the contrary, the UN’s carbon cartel has fallen flat. That is why emissions keep going up.
The appeal to universal interests
The initial cheerleader for what became the Kyoto Protocol was the US, and Bill Clinton in particular. In the heady days after the collapse of the Soviet Union, the zeitgeist was captured by Francis Fukuyama’s bestseller, The End of History and the Last Man.[3] The theme of the book is the recognition that, after trying almost everything else, including socialism, the rational enlightenment had produced its final end-product: liberal democracy. All nations would eventually converge on this model. Politics is a rational business, and to the extent that people are organised into nations, they would all come to share the democratic model, with markets to allocate most resources. Political dialogue would determine the success of this paradigm as it swept all other competing options away. Except it hasn’t.
At the time, with the tearing-down of the Berlin Wall, and the resulting extension of freedom and democracy across Eastern Europe, the nightmare of the Cold War and the threat of nuclear annihilation gave way to a universalism which left less room for nation states. There would be diversity, but all within a rational framework. As people got richer, because liberal markets worked, they would lend their support to the liberal model. They would not, it was easily assumed, act parochially and nationalistically, as the old nationalisms of the past withered away. There would be no Donald Trumps, Vladimir Putins and Xi Jinpings, and no Marine Le Pens or Viktor Orbáns.
Behind this end-of-history thesis lay a deeper intellectual idea, one that was instrumental in the very creation of the UN. It was that rationalism would prevail, with a universal appreciation of the rights of all people, wherever and whenever they lived. It would find its expression in Nicholas Stern’s The Economics of Climate Change.[4] Stern is a utilitarian who cannot see why we should discriminate between current and future people. It is easy to see why he thinks this. All humans are equal, and there is no moral reason to discriminate against any of them in favour of others.
The trouble with this particular argument and the rationalism on which it is based is that it is not how we humans behave. It is not what makes us human. We are partial, not universal, in our concerns. We do not transfer much of the GDP of developed countries to developing ones. We do not care about starving people in the Sahel as much as we care about our own children, our neighbours and our country. The UK struggles to persuade its voters to transfer just 1 per cent of GDP to those who could use it to much better effect than us – indeed, who could use it to stay alive. Climate change is partly a moral challenge, but it will not be solved by demanding conduct for which there is no evidence that we will entertain. Saints might, but not the bulk of the population who will be required to pay the costs.
In the heady triumphalism of the 1990s, and after the First Gulf War, it was not ridiculous to imagine that Russia would itself become a liberal democracy, and even join NATO and the EU. As for China, it was an easy assumption to make that capitalism and the liberalisation of its economy would usher in unstoppable demands for political liberty too. It might take longer for rogue states like North Korea, and even the religious regime in Iran, to fall into line. These countries in any event mostly depended on the protection of larger countries. As the government kingpins of Russia and China fell, they would find it hard to continue their authoritarianism.
Except it all turned out very differently. By 2019 there was Trump’s ‘America First’; Orbán’s ‘illiberal democracy’; Brexit; and Putin’s determined grip on power in Russia – and especially on its fossil fuel industries. For anyone not carried away with the liberal democratic paradigm, the signs were there much earlier. Tiananmen Square, to anyone who watched the Chinese Communist Party’s brutality in action, demonstrated that it was not going to lose its grip on power, and in due course Xi Jinping would consolidate power on a level parallel with Mao. Hong Kong and Taiwan are the next targets.
Those who thought that politics would treat foreigners as of equal moral status to residents, and that religious strife and conflict would become a thing of the past, should explain why religion and ethnic origins remain so potent in Europe and the US, and especially explain the heightened tensions between Saudi Arabia’s Sunnis and Iran’s Shias and their allies. The old threat of serious global conflicts has not gone away. The US and China may well come to blows over Taiwan and the South China Sea, and Ukraine looks like a powder keg placed on the fissure between Russia and the EU. Climate change will impact on these nationalistic concerns, but it will not make them go away, and they will not be put aside for the greater good of tackling global warming. Nationalism is the context within which global warming has to be tackled.
Appeals to a wider environmental conscience and for countries to act in mutual global interests – when the national self-interest incentive to free-ride remains – are not working, and they are not going to work. Such appeals make for great political speeches, and UN climate events are full of them. Hot air has so far been spectacularly ineffective, as witnessed by the continuing and relentless rise in carbon concentrations in the atmosphere.
Measuring emissions
Perhaps there is some other way around the free-rider problem? Take a look again at the conventional cartel dilemma. To fix output it has to be measured. Quotas have to be assigned to the parties; cheating has to be detectable, and the cheats have to be punished.
You can see where this is going. While we can measure the global concentration of carbon in the atmosphere, and while new satellite technology is getting better at seeing what is going on, it is work-in-progress to measure each country’s emissions. Some bits are pretty easy, such as power stations and vehicle emissions. But what about all the non-fossil-fuel emissions? What about losses from the soil and peat bogs? What about all those forests being cut down? Soil, with four times the carbon of the atmosphere, really matters. Yet if you go to the Outer Hebrides in the UK, the landscape is littered with plastic bags full of peat cut for heating and even cooking. The peat bogs of Ireland still supply peat not only to the horticultural industry, but even to be burnt in power stations. The English Fens give off carbon on an industrial scale. Light a fire in your garden, or watch farmers burning crops outside Delhi. Who measures these contributions of Scotland, England, Ireland and India to carbon emissions? And who measures national carbon sequestration?
Preventing cheating
Measurement is slowly getting fixed. Preventing cheating is altogether harder, and in practice unenforceable for the major contributors. It requires threats and bribes which are credible: to impose enough pain and pay enough to offset the costs of action. A moment’s reflection tells us that forcing the US, China, Russia, India and many African countries to reduce their emissions is a non-starter. What exactly is Europe, for example, going to do? Trade sanctions against Brazil? Possibly. Direct action against China, Russia and the US? Unlikely, in a world of China First, Russia First and America First.
A recent example demonstrates how difficult this is. The EU has negotiated a new trade deal with Latin America, the Mercosur Agreement.[5] It has been called the ‘cows for cars’ trade deal. As will be explored further later on, the ‘cows’ are partly coming from clearing Brazil’s rainforests. Even if we could measure the consequences of the burning, and not just for emissions from the flames but also the loss of natural carbon sequestration, what exactly is Europe going to do about it? For the ‘cars’ represent jobs in export markets, and so punishment would be costly for both the EU and Brazil. Post-Covid-19, these export markets matter even more.
Brazil is a significant country, but not a great power. It is just possible to imagine it being bullied into submission. It could simply say that it accepts its global responsibilities and it is going to protect the rainforests. There is, however, no evidence that it is going to do so, and certainly not before a lot more damage (and emissions) has been caused.
Is there another way? Brazil thinks so: pay us to stop doing it. Its argument is simple and compelling: you, the developed world, put all the carbon up in the atmosphere as part of the process of transforming your economies so that you enjoy the standards of living to which we, the poorer Brazilians, aspire. Rather than threats and punishment, bribe us. If the developed countries do not pay up, then you will suffer from climate change, and you can’t hit your 2°C target without us. The carbon cartel issue is therefore simple: transfer from the rich to the poorer countries whatever it costs to avoid the emissions that would otherwise enable the poorer countries to develop.
This way of thinking brings us to the old north–south divide, and the origins of the Brundtland sustainable development principle.[6] The Brundtland Commission was all about the distributional questions, and these are at the heart of the politics of the UN. Subsequently, the UN has tried to tack monetary transfers and funding arrangements onto climate change. So far it has failed, and for two reasons. The rich countries (and their electorates) don’t want to pay up; and there is no credible way to make sure the money is spent on decarbonisation. Indeed, the incentives are even more perverse: Brazil could add to the extortion game by threatening to increase the damage unless the rich countries pay up. As we shall also see, this problem besets the carbon-offsetting opportunities: Brazil could get companies to pay to stop them cutting down more trees, rather than planting additional trees for natural sequestration.
