It’s time for governments to stop bluffing and show their carbon cards. We’re less than two weeks away from the UN’s big climate change conference in Copenhagen. The European Commission is in political overdrive, President Obama is urging the Chinese and Indians to show goodwill, and British Prime Minister Gordon Brown, in his ponderous and clunky style, has warned us that it’s the last chance to do something before the end of the world. We must all come together and sign up to: What?
Fortunately, an accuser recently pointed a finger at Europe’s leaders and exposed their policy nakedness. He wasn’t a mischievous emerging-world leader baiting the old world for its carbon gluttony, nor was he a rabid Republican senator bashing the communist greenies. He was Tony Hayward, CEO of BP, the oil company that most wanted to be green, the one with the tag line “Beyond Petroleum.”
In a recent speech in London, Hayward poured cold water on the potential for renewable energy sources. The transition to a low-carbon economy will take decades, he said. Even the most optimistic forecasts predict that solar power, wind and other renewables, which now fulfill only 1% of world energy demand, will supply just 10% by 2030. What we need from governments, he said, is a clearer road map of how to get to this low-carbon economy—even if that includes more, not less, regulation.
Hold on, wasn’t emissions trading—the solution most beloved by pro-free-market economists—supposed to have us well on the way by now? The European Union launched its Emissions Trading System (ETS) in 2005. It allows companies to buy and sell emissions allowances. Each allowance lets them emit one tonne of carbon. In theory, that should give companies incentives to cut their CO2 output: Heavy polluters would have to buy lots of allowances or invest in new technology; modern, cleaner companies could sell their allowances and reap a windfall. Governments would set a cap on total emissions.
But the system is struggling. Too many allowances were issued in the first phase of the ETS, which closed at the end of 2007, causing the price to collapse. The second phase, which ends in 2012, has been knocked askew by the recession—if a company reduces production, it reduces emissions, whether it has cleaned up its act or not. Allowances have been trading for about 14 euros lately—less than a quarter of the price reckoned to prompt investment in technologies such as clean coal.
Britain, which once earned plaudits for its ambitious carbon reduction targets, is now beginning to look ridiculous. The EU figures its member countries can get 20% of their power from renewables by 2020. Britain wants to generate 40% of its electricity from renewables, nuclear power and clean coal. Note that all of Britain’s nuclear plants need to be replaced over the next 10 to 15 years. No prizes for guessing who will blame whom if the lights go out.
In October, the German utility giant E.ON said it would not build a planned coal-fired power station at Kingsnorth in Britain. E.ON was in a competition with two other proposed plants to secure government funds for carbon capture and storage (CCS) technology. But E.ON said that, in a recession, the economics of CCS no longer make sense without huge subsidies. Environmentalists cheered the defeat for coal. Britain’s Department of Energy and Climate Change was forced to delay the CCS competition.
Fed up with policy puffery, Wulf Bernotat, E.ON’s chief executive, said that Britain’s target for renewables was naive and unachievable. He berated politicians for “setting out these targets without really taking the effort to square it with industry.”
Meanwhile, Paolo Scaroni, the boss of ENI, the Italian oil multinational, said that renewables had insufficient energy density to replace hydrocarbons. Too many windmills and too many solar panels would be required. He added that the ETS is not delivering the visible and stable carbon price needed to curb consumption and allow businesses to plan. “A carbon tax is a better bet than complex cap-and-trade mechanisms,” said Scaroni.
This is uncanny: the bosses of three titans of global capitalism calling for more regulation, more government interference in free markets and more taxes.
It’s easy to see how policies went awry. For decades, governments ignored energy. Until the 1970s, OPEC was weak and big oil was strong. So long as oil barons delivered the goods, no civil servant dared lecture them. Now, governments are worried: Supplies are uncertain and we are told that greenhouse gases are a problem. Companies want a clear policy road map, but politicians want the impossible: fuel at low cost without hydrocarbons.
Faced with an insoluble dilemma, the politicians are gibbering. Copenhagen promises to be a cacophony of meaningless policy and pointless posturing. We should ignore this farce and listen to the energy companies.
