Thursday, July 3, 2014

Climate Misconception #3: Measures that reduce our dependence on fossil fuels mitigate climate change

Before launching into this topic, we have to define a couple of terms.  Climate specialists like to distinguish between two types of policies, those that mitigate climate change and those that facilitate our adaptation to it.  Mitigation is about taking measures that reduce the degree of climate change we’ll be exposed to, and adaptation is about reducing the human and other costs of whatever climate change we can’t avoid.  It’s like the distinction between slowing the progress of a disease and treating its symptoms.

Adaptation is extremely important, and it becomes even more important as we continue fossil fuel extraction that guarantees ever greater amounts of atmospheric carbon concentrations.  I don’t have too much to say about these kinds of policies, however, and will focus almost entirely on mitigation.

The vast majority of writing and policy wonking on climate change mitigation is concerned with expanding the use of noncarbon energy sources, promoting energy efficiency and taking other measures that wean humans from fossil fuels.  In my view, this is an immense confusion, but one which, because it has an element of truth, is more confounding than outright error.

This is easiest to explain with an example.  Consider the following hypothetical event: a proposal is made to increase investments in wind energy in order to increase its output by, say, 100 gigawatts (GW).  To persuade us, advocates convert this output to CO2 equivalents based on the fossil fuel that would otherwise have to be burned in order to provide the same energy.  Analysts writing about carbon policy then discuss what percentage of our carbon emissions this would eliminate, and you might see this and other renewable energy projects summed up in tables showing how far along we could be toward meeting some emission target in 2030 or whenever.  (The previous post went after the annual emission target business.)

But guess what?  In itself the wind project doesn’t have any impact on climate change at all.  Wind turbines don’t put any greenhouse gases (GHG’s) into the atmosphere, and they don’t take any out.  What does affect climate change is the amount of fossil fuel we extract and burn.

Ah, you say, by getting some of our energy from wind, we get less from fossil fuels, so why split hairs?  The reason is that the hairs are rather sizeable:

1. There is no law of nature or economics that says that humans must use a fixed amount of energy.  We can have more wind energy and more energy from fossil fuels.  In fact, in a growing, developing world we probably will.  No doubt investing in wind energy systems will reduce the fossil fuel consumption that would have otherwise occurred, but hardly one for one.  Simply treating renewable energy inputs as equivalent to fossil fuel reductions is wrong—but people do it all the time.

2. By increasing the supply of energy, renewable energy projects reduce the cost of fossil fuels below what their price would have been otherwise.  For every potential user of coal, oil or gas who switches over to a renewable source, there is that much less demand for the nonrenewable kind.  Ordinary forces of supply and demand will therefore cause some degree of price reduction (again, compared to what it would have been without the renewables) for carbon fuels and somewhat more compensatory demand for them.  One scenario which might come to mind is that consumers in wealthier countries will shift their demand to renewables, making it affordable for more people in lower income countries to get energy from coal and natural gas.  That’s good for energy equity, which I would hardly want to minimize, but it’s not good for the climate.

In short, energy efficiency and renewable energy sources have a complex, indirect relationship to actual reductions in fossil fuel use.  You can’t measure progress on the climate front simply by adding up the “wedges” you get from noncarbon energy boosts.  There is a simple way to measure climate progress, however: reductions in fossil fuel extraction that make it possible to keep our carbon budget in the black.

One way to think clearly about energy and climate is to change the box we put renewable and energy efficiency in.  As mentioned above, we typically see them as components of carbon mitigation policy, but it might make more sense to classify them as adaptation instead.  Why?  It’s true that they don’t further adaptation to climate change, but they do help us adapt to climate change policies.  Look at it this way: if we are to avoid catastrophic climate change, we have to dramatically reduce our consumption of fossil fuels.  The IPCC, for instance, gives us just over 400 gigatons to play with, period.  If we go on with business as usual, the world will hit that limit at around 2040, and anything other than cold turkey after that would be an adventure they advise us not to take.  This is a very tight constraint.

How can we adhere to this carbon budget without suffering a horrendous reduction in living standards?  That’s where renewables, energy efficiency, and other forms of decarbonization come in: they have the potential to enable us to live reasonably well despite the difficulties that phasing out fossil fuels will cause.  This is the sense in which they should be viewed as adaptations.

In another sense, their contribution is political.  As we’ve seen, it’s not easy to build popular support for tough carbon budget measures if the economic cost is viewed as severe.  Alternative energy investments reduce this cost and therefore lubricate the politics.

The upshot is that renewable forms of energy, energy efficiency and changes in what we consume to move away from energy-intensive products are all great and should be encouraged everywhere.  The one trap to avoid is to treat them as one-for-one reductions in fossil fuel use.  Measure that by fossil fuel use itself, directly.

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john c. halasz said...

A couple of points. If you reduce the demand for fossil fuels and thereby lower the price, yes, you would standardly increase the consumption demand. But you would also lower the profit potential per unit and hence lower the investment demand for fossil fuel production. And since, with the exception of coal, the costs of extraction are rising and the returns are falling in EROEI terms, demand reduction would tend to result in supply reduction tendentially, if not one-for-one.

The other point is that if we were to raise the price of carbon emissions by taxing them, that would, indeed, tend to decrease their consumption and thus facilitate a shift to non-carbon sources and methods of energy generation. But, with such a prospect in place, it would also have the perverse effect of accelerating fossil fuel extraction rates from existing reserves, especially for the lowest cost, highest rent producers, since they would no longer benefit from future appreciation of remaining reserves as supplies tighten, (such that unextracted reserves accumulate "interest in a bond-like fashion).

Of course, the full cost of reducing carbon emissions is not just that of shifting and replacing energy generation sources, but also that of changing energy using capital stocks and infrastructure to accommodate different energy generation sources. So long as the fossil fuel using stocks and infrastructure remains in place, the demand for fossil fuels will remain, if increasing desperately price constrained and relying on ever more extreme and costly methods of extraction. And I would suspect that the costs of replacing stocks and infrastructure is a very large part of the overall costs involved in energy transformation, exceeding by some measure "normal" rates of economic depreciation. If not managed well, the potential for stranded sunk-cost investment, financial disruption and their depressive effects is quite large.

Peter Dorman said...

I'm with you on #2, as you'll see later.