5 november 2012

Ways through the world’s ‘wicked problem’

Review by Pilita Clark, The Financial Times, November 4, 2012

An adviser on energy policy is an influential advocate of using border taxation to establish a global carbon price

The Carbon Crunch: How We’re Getting Climate Change Wrong – and How to Fix It, by Dieter Helm, Yale University Press, RRP£20

If you had to choose an energy policy for the 21st century, would you prefer a system based on “contracts for difference”, with a single-party counterparty, a levy control framework and a capacity market? Or would you go for “premium feed in tariffs”, with an appropriate tariff degression mechanism and a strategic reserve?

Not sure? Neither are a lot of energy ministers on their first day in the job. So think of their relief when they come across someone like Dieter Helm. This extensively published Oxford professor of energy policy is an economist with firm ideas about how to design an affordable, climate friendly electricity sector that he can readily explain in plain English.

That is one reason why Prof Helm’s advice has been sought over the years by every institution from the European Commission to the Polish and British governments, and the occasional investment fund. Lately, he has turned his agile mind to one of the great problems of our age: why the world’s efforts to curb the carbon dioxide emissions behind global warming have gone so wrong, and how it can do better.

He is far from being the first to tackle the issue, but he is among the more influential and, as he demonstrates in his new book, The Carbon Crunch, one of the more readable.

For all that, this book shows why social scientists call climate change a “wicked problem” – a dilemma so hopelessly messy, complex and open to subjective interpretation that there is no definitive solution, only a series of better or worse responses.

Prof Helm adroitly identifies many of the reasons we have failed to address climate change so far. But it is not clear whether his proposed solutions, which include a temporary dash for gas and border carbon taxes, would be any easier to implement.

He is right to begin by saying that there are three reasons at the heart of the climate problem: “coal, coal and coal”. The threat of climate change will not be addressed until we come up with a cleaner replacement for the coal-fired power stations that are a mainstay of so many countries’ economies.

The trouble is, however, that coal-fired plants are much cheaper than low carbon alternatives such as nuclear reactors, and much more reliable than even the most powerful of today’s renewable energy sources, such as offshore wind farms.

As a first step, Prof Helm would replace as many coal stations as possible with new gas power plants, because gas is cleaner than coal. There are serious objections to this, he admits, not least that it would lock in another fossil fuel for years, but he contends that it would still be better than locking in more coal.

Just as controversially, he proposes diverting subsidies for existing renewables towards research into a fundamental breakthrough in clean energy generation.

This seems an odd idea given that, as Prof Helm says himself, at the upper end of projections the dangers of climate change “could be very large in ways that we cannot fully comprehend now”. So why slow the pace of deploying the renewables we already have in order to spend more on a breakthrough that might be years away, or never come at all? And if the climate threat is potentially so dire, shouldn’t we spend more on both R&D and green subsidies?

His third idea is more appealing: establishing a global carbon price through border carbon taxation. This would require countries to impose a charge on goods, depending on how much carbon was emitted to produce them. Countries that already have carbon pricing systems, such as the EU’s emissions trading scheme, could impose the tax on goods imported from countries without such measures. Those nations would be encouraged to follow suit and the world would eventually have a global carbon price. Or so the argument goes.

Versions of this idea have been championed by European countries such as France in the past, and by some influential members of the US Congress. It would certainly seem a good adjunct to the flawed 1997 Kyoto protocol, which obliges some countries to cap their carbon emissions – but not the world’s biggest economy, the US, nor the two emerging giants of China and India, which are now on track to build the equivalent of three new coal power stations a week between them.

Prof Helm admits that such border taxes might shrink global trade. And it might take a brave energy minister to endorse a measure that many would decry as unvarnished protectionism. But big greenhouse gas emitters are protected at present by the absence of a global carbon price and, given the dismal record of curbing emissions to date, border taxes are an idea well worth considering again.

The writer is the FT’s environment correspondent

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