According to many (for example, see the advertisement by Jeremy Leggett below) peak oil has arrived:
http://www.theoildrum.com/files/20080324%20Time%20&%20Fortune%20mags.pdf
If true, then as Leggett says, "Profound economic dislocation will result. The challenge for human civilization will be how we rebuild post-peak.". Economic depression and huge social changes could easily result within the next 10 years.
It is puzzling how such a massive problem could have either been overlooked (or perhaps deliberately suppressed) by governments. Many oil people have been talking about peak oil for years – why has there apparently been no planning and preparation for it?
Economic growth increases per capita energy use and accelerates oil depletion. Growth also drives increases in greenhouse gas emissions, which in turn are causing climate change. Either of these problems on their own could be enough to cause economic collapse and ruin. A rational economic strategy would surely put risk reduction as a higher priority than economic growth?
So I've been puzzling about why politicians are so fixated on growth when there are so many reasons to pull back. I came across this interview of Dennis Meadows. http://www.euronatur.org/Interview_Dennis_Meadows.dennismeadows_en.0.html
Meadows was one of the authors of Limits to Growth. I print an extract here. The question he was asked was why is it so difficult for people to switch from quantitative to qualitative growth:
"Decision makers who have been extremely successful at producing and managing quantitative growth are the ones who rose to positions of power through corporate and government organizations during the past decades. Now those dominant decision makers do not wish to consider that the situation has made their skills and knowledge less relevant. They deny the need for a shift to qualitative goals. Also we have developed a variety of economic data systems and decision support systems that implicitly take quantitative growth as a goal. So the numbers we focus on automatically lead us to physical expansion."
I think this goes a long way to explaining why growth is still the number one economic goal, when it no longer makes any sense for so many reasons. It also might explain why peak oil has been ignored by the current generation of leaders. Peak oil doesn’t fit with their worldview, it’s an embarrassment, it puts economic growth into reverse and it makes their strategies look silly. They are leading us full speed into complete disaster, as if driving on the motorway, seeing a warning sign then putting your foot hard on the accelerator.
The book "Limits to Growth: The 30 Year Update" makes the case that exponential growth in a finite system must come to an end. We have reached and overshot the carrying capacity of planet Earth. Because the signal that we have reached the carrying capacity of the Earth is delayed, overshoot of the limits is likely. And because the limits are permanently eroded by the overshoot, collapse becomes likely - of both population and industrial production. So the conclusion is inevitable that continuing to try to grow the economy now is a very bad idea. Doesn’t self-preservation makes a managed retreat, even if only temporary, the only sensible strategy?
I think that working in the insurance industry has perhaps given me a different point of view than many others. Insurance is an area where growth is sometimes a very bad idea. Economic growth now feels about as sensible as growing premium volume when premium rates are going down. Of course people do it anyway even though it doesn’t make sense. There's a whole fascinating area of psychology to explore there about risk perception, heuristics, decision making under uncertainty, the herd instinct etc.
There is another argument against growth in the Limits to Growth book. Economic growth doesn’t even make sense on narrow financial grounds above a certain level. This is because pollution abatement costs rise non-linearly with percentage abatement – each additional percentage of abatement costs more than the last, with the last few percentage points of abatement being extremely expensive. Climate science now tells us that CO2 cuts have to be extremely deep – at least 80% by 2050, but probably more. Economic growth drives increasing CO2 emissions. There comes a point above which the cost of abatement exceeds the additional wealth generated by the growth.
So I draw the following conclusions:
a) pursuing economic growth now makes no sense from a risk management point of view, a managed retreat is the best strategy
b) it’s no good saying that we must have growth because the economic system depends on it – whether we like it or not peak oil means that growth will stop and go into reverse very soon anyway
c) governments need to plan and manage the downturn
d) so far their risk management has appeared to be non-existent.
Monday, May 26, 2008
Sunday, May 4, 2008
Public Meeting on the Climate Change bill - further thoughts
On 22nd April I attended the public meeting which was organised by Friends of the Earth to discuss the climate change bill. FoE have published a webpage with some details on their website
http://www.foe.co.uk/campaigns/climate/news/big_public_meeting.html
There were some interesting comments during the meeting which were not reported and I've written about some of these in my previous post on 27th April. In this post I've written some thoughts arising out of what was said in the public meeting. Also I look at the large gap which has opened up between the scientific advice, which clearly indicates that we already have a global emergency, and the scale of the government response to date.
Comments on the public meeting
The public meeting was partly encouraging and partly depressing. Most of what was said was fairly predictable. Hilary Benn defended the government’s record in reducing CO2 emissions by 16% since 1990. Steve Webb pointed out that if you add aviation and shipping in to the calculation, the reduction in emissions since 1990 has been just about zero.
I would think that if these guys were running the country then we’d be making more progress. Unfortunately they’re not and as Steve Webb memorably put it, in terms of the power of government departments, DEFRA is a “minnow among wolves”. I’m sure Gordon Brown thinks he is doing a good job by balancing environmental concerns against all the other issues of government. In the real world there is no balance. The laws of physics always win over the laws of economics, something I don’t think Brown takes into account.
The Conservative spokesman, Peter Ainsworth, said a couple of things which surprised me a little. The first was that he said that for the last 200 years since the industrial revolution we have treated the planet as if it was infinite and this has to change. It was great to hear him say that because it demonstrates that he understands the root cause of our problems.
The other slightly surprising comment to hear from a Conservative politician was that when someone in the audience asked about carbon rationing, Ainsworth said that it was “a good idea whose time hadn’t come yet”. The other 2 politicians agreed that the public would not accept carbon rationing yet. I think that it may help if non-politicians, perhaps intellectuals, academics, even celebrities, started saying what needs to be done.
The audience was mainly FoE members and I was a bit disappointed with the questions asked. Several people asked the same question about whether aviation and shipping should be included in the bill (Lib-Dem - yes, Con - after 5 years, Labour – yes but only after international agreement), but no-one asked about whether there should be binding annual targets instead of 5 yearly targets. No-one asked any questions about bio-fuels. No-one asked a question about what happens if the science says we need much bigger reductions in GHG emissions than are currently envisaged.
The target of the climate change bill is explicitly to keep the global temperature rise under 2 degrees Celsius, this was mentioned during the discussion. It is interesting to note that in his book published in January this year, David King (the ex-chief government scientist) has already given up on the 2 degree warming target as being “unrealistic”, because the changes necessary to hit that target are too big and just not politically possible. I am wary about accepting that for the following reason. When the Stern report was published David King recommended a CO2 equivalent stabilization target of 550ppm. He admitted in the Hot Topic book that he was wrong about the 550ppm target and he and now recommends a target of 450ppm. I think there is a good chance that he has picked the wrong target now just as he did back then.
Parallel with reserving for casualty insurance
I want to draw a parallel with a scenario of which I’ve got personal experience. That is a large insurance company setting reserves for casualty business, in a period when claims are increasing rapidly. Quarter by quarter it becomes more obvious that reserves need to be increased. Pressure on management to produce a given profit target constrains the reserve increases to less than is justified by the data. The gap between data and response gets larger and larger over time. Finally the gap becomes so large that action has to be taken, and a one-off reserve strengthening occurs, with a hit to profits. The point is that management may persist in avoiding the necessary reserve strengthening action long past the point when it is clearly necessary to any informed party.
Perhaps some lessons can be learned from the psychology of the reserving situation. Anchoring is probably involved i.e. reserve estimates are dragged towards the current value which slows down the rate of adjustment. Radical action may be postponed if a situation is getting gradually worse rather than suddenly deteriorating.
It strikes me that there are similarities with the situation the world is in now. The data is telling us that a particular course of action is necessary but so far politicians are not making the necessary changes. With every day that passes the gap between data and response gets larger, and it becomes more and more obvious governments are getting it wrong. They are not facing up to reality and are not dealing with the situation and frankly I’m sick of it.
See below for a report on the UK government’s response to climate change from the Benfield UCL Hazard Research Centre, published in 2007. This report shows that unless changes are made the UK Governments plans for GHG reductions are “doomed to failure”. A 30% cut may not be reached until 2050. As far as I’m aware not much has changed since this report.
http://www.benfieldhrc.org/climate_change/uploads/Greenwash_Report.pdf
http://www.channel4.com/news/articles/dispatches/greenwash+executive+summary++report/267708#fold
How much is it worth paying?
In his review of the economics of climate change 18 months ago Nicholas Stern recommended that the world spend 1% of GDP to avoid climate change. Since we could not expect very poor countries to spend much, this surely must mean that he was recommending that rich countries spend more than 1% of GDP?
Recently Stern admitted that he underestimated the risk from climate change in his review.
http://uk.reuters.com/article/domesticNews/idUKGOR65702120080416?sp=true
Surely a corollary of that is that he now believes it is worth spending more than 1% of world GDP on this problem. How much more? 5%, 10%, 20%? It would be interesting to ask him and find out what he thinks now. Shouldn’t there at least be a public debate about whether it is better to deliberately postpone consumption and redirect and mobilize the economy to fight this problem, rather than wait until an economic collapse is forced on us? No-one seems to want to say the obvious i.e. it is entirely logical that we in the rich world should pay a big slice of our incomes as an insurance premium against catastrophe. That means we will get poorer in the short term but it is a price worth paying.
Since I wrote the above I read an apposite article in Time Magazine, in a special edition devoted the environment; http://www.time.com/time/specials/2007/article/0,28804,1730759_1731383_1731363-1,00.html.
The article suggests that the US economy should be refocused to fight the war against climate change in a way reminiscent of the "overnight conversion of the World War II". It also suggests spending 2-3% of US GDP on the problem "for some time". It's great to see a mainstream publication like Time publishing such an article.
http://www.foe.co.uk/campaigns/climate/news/big_public_meeting.html
There were some interesting comments during the meeting which were not reported and I've written about some of these in my previous post on 27th April. In this post I've written some thoughts arising out of what was said in the public meeting. Also I look at the large gap which has opened up between the scientific advice, which clearly indicates that we already have a global emergency, and the scale of the government response to date.
Comments on the public meeting
The public meeting was partly encouraging and partly depressing. Most of what was said was fairly predictable. Hilary Benn defended the government’s record in reducing CO2 emissions by 16% since 1990. Steve Webb pointed out that if you add aviation and shipping in to the calculation, the reduction in emissions since 1990 has been just about zero.
I would think that if these guys were running the country then we’d be making more progress. Unfortunately they’re not and as Steve Webb memorably put it, in terms of the power of government departments, DEFRA is a “minnow among wolves”. I’m sure Gordon Brown thinks he is doing a good job by balancing environmental concerns against all the other issues of government. In the real world there is no balance. The laws of physics always win over the laws of economics, something I don’t think Brown takes into account.
The Conservative spokesman, Peter Ainsworth, said a couple of things which surprised me a little. The first was that he said that for the last 200 years since the industrial revolution we have treated the planet as if it was infinite and this has to change. It was great to hear him say that because it demonstrates that he understands the root cause of our problems.
The other slightly surprising comment to hear from a Conservative politician was that when someone in the audience asked about carbon rationing, Ainsworth said that it was “a good idea whose time hadn’t come yet”. The other 2 politicians agreed that the public would not accept carbon rationing yet. I think that it may help if non-politicians, perhaps intellectuals, academics, even celebrities, started saying what needs to be done.
The audience was mainly FoE members and I was a bit disappointed with the questions asked. Several people asked the same question about whether aviation and shipping should be included in the bill (Lib-Dem - yes, Con - after 5 years, Labour – yes but only after international agreement), but no-one asked about whether there should be binding annual targets instead of 5 yearly targets. No-one asked any questions about bio-fuels. No-one asked a question about what happens if the science says we need much bigger reductions in GHG emissions than are currently envisaged.
The target of the climate change bill is explicitly to keep the global temperature rise under 2 degrees Celsius, this was mentioned during the discussion. It is interesting to note that in his book published in January this year, David King (the ex-chief government scientist) has already given up on the 2 degree warming target as being “unrealistic”, because the changes necessary to hit that target are too big and just not politically possible. I am wary about accepting that for the following reason. When the Stern report was published David King recommended a CO2 equivalent stabilization target of 550ppm. He admitted in the Hot Topic book that he was wrong about the 550ppm target and he and now recommends a target of 450ppm. I think there is a good chance that he has picked the wrong target now just as he did back then.
Parallel with reserving for casualty insurance
I want to draw a parallel with a scenario of which I’ve got personal experience. That is a large insurance company setting reserves for casualty business, in a period when claims are increasing rapidly. Quarter by quarter it becomes more obvious that reserves need to be increased. Pressure on management to produce a given profit target constrains the reserve increases to less than is justified by the data. The gap between data and response gets larger and larger over time. Finally the gap becomes so large that action has to be taken, and a one-off reserve strengthening occurs, with a hit to profits. The point is that management may persist in avoiding the necessary reserve strengthening action long past the point when it is clearly necessary to any informed party.
Perhaps some lessons can be learned from the psychology of the reserving situation. Anchoring is probably involved i.e. reserve estimates are dragged towards the current value which slows down the rate of adjustment. Radical action may be postponed if a situation is getting gradually worse rather than suddenly deteriorating.
It strikes me that there are similarities with the situation the world is in now. The data is telling us that a particular course of action is necessary but so far politicians are not making the necessary changes. With every day that passes the gap between data and response gets larger, and it becomes more and more obvious governments are getting it wrong. They are not facing up to reality and are not dealing with the situation and frankly I’m sick of it.
See below for a report on the UK government’s response to climate change from the Benfield UCL Hazard Research Centre, published in 2007. This report shows that unless changes are made the UK Governments plans for GHG reductions are “doomed to failure”. A 30% cut may not be reached until 2050. As far as I’m aware not much has changed since this report.
http://www.benfieldhrc.org/climate_change/uploads/Greenwash_Report.pdf
http://www.channel4.com/news/articles/dispatches/greenwash+executive+summary++report/267708#fold
How much is it worth paying?
In his review of the economics of climate change 18 months ago Nicholas Stern recommended that the world spend 1% of GDP to avoid climate change. Since we could not expect very poor countries to spend much, this surely must mean that he was recommending that rich countries spend more than 1% of GDP?
Recently Stern admitted that he underestimated the risk from climate change in his review.
http://uk.reuters.com/article/domesticNews/idUKGOR65702120080416?sp=true
Surely a corollary of that is that he now believes it is worth spending more than 1% of world GDP on this problem. How much more? 5%, 10%, 20%? It would be interesting to ask him and find out what he thinks now. Shouldn’t there at least be a public debate about whether it is better to deliberately postpone consumption and redirect and mobilize the economy to fight this problem, rather than wait until an economic collapse is forced on us? No-one seems to want to say the obvious i.e. it is entirely logical that we in the rich world should pay a big slice of our incomes as an insurance premium against catastrophe. That means we will get poorer in the short term but it is a price worth paying.
Since I wrote the above I read an apposite article in Time Magazine, in a special edition devoted the environment; http://www.time.com/time/specials/2007/article/0,28804,1730759_1731383_1731363-1,00.html.
The article suggests that the US economy should be refocused to fight the war against climate change in a way reminiscent of the "overnight conversion of the World War II". It also suggests spending 2-3% of US GDP on the problem "for some time". It's great to see a mainstream publication like Time publishing such an article.
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