CLIMATE CRISIS: CHOOSING POLICIES FOR A NEW FUTURE

Andrew McKillop
December 2009

Basic Complexity of the Issues

On December 7, some 56 leading newspapers in 45 countries took the unprecedented step of

publishing a common joint editorial. The reasons for this were described by these papers as due to
humanity facing a profound emergency. The editorial said that unless there is worldwide and
vigorous common action, climate change will 'ravage our planet and with it our prosperity and
security'. The same editorial gave examples of the grave menaces that it says have been building
for a generation. It said :'Now the facts have started to speak: 11 of the past 14 years have been
the warmest on record, the Arctic ice-cap is melting and last year's inflamed oil and food prices
provide a foretaste of future havoc'.

In the same way, and with a little more creative networking of ideas, global warming and climate
change can be blamed, or heavily implicated in many other fields. These can include erosion,
salination of agricultural lands, high building land prices, global spread of seasonal and other virus
diseases including influenza, economic migration from poor countries to rich - but not, for
example, low natural gas prices or low interest rates.

Given the intensity of world mining, fishing, agriculture, industry, transportation and urbanization
it would be surprising if there was no anthropogenic climate change, or human-intensified natural
climate change. As the 'climate sceptics' say, world climate change has always existed: our
problem, today, is accelerated climate change joining other long-term processes making a secure
and prosperous future less and less likely. Among these, mineral depletion and bioresource loss or
species extinction are major long-term features of the 'environmental pessimists' agenda, and a
constant challenge to technological optimists.

Single and Multiple Causes

The search for key causes, or even unique causes, is constant but it is constantly frustrated by
complexity, which itself has a one-way tendency to increase. This can be explained by the present
global crisis issue of climate change. This change is certain, while global warming is not certain. The
identification of CO2 as the overwhelmingly most important, or even the nearly unique driver of
both global warming and climate change is also uncertain and theoretical, although saying this is
not politically correct.

CO2 is at least the driver that we can act on, reducing CO2 emissions by large or massive amounts
in a short period - which could or should also stop oil prices from rising, if oil demand is also
capped or reduced. If we find that reducing CO2 in the atmosphere (or in fact, slowing its growth)
does not slow climate change, but appears to reduce global warming, and helps slow the growth of
world oil demand and limits oil price growth, and also helps launch "the green economy", this
could be considered a large if partial victory. This might be the situation by let us say 2025.

In turn however this will demand the implementation and pursuit of very large alternate energy
spending. This will particularly concern carbon capture and sequestration at coal fired electric
power stations, which worldwide supply around 55% of all today's electricity. These already
complex, high cost and uncertainly feasible long-term actions focused in the energy sector, we can
call 'energy levers for CO2 reduction', but several other sectors are also clearly concerned. These
include agriculture, forestry and other land use, where many accompanying measures and actions
will be needed, also on a long-term basis, if we want to achieve the first goal of a final cap on
global CO2 emissions, perhaps around 2025-2035, before moving on to large and reliable annual
reductions in total CO2 emissions.

The dates are of course "fuzzy". Media and political attention is riveted on the renewable energy
sources, where bigger and bigger targets are announced. Satisfying even 5% to 7% of world total
commercial energy demand from non-hydro renewables like wind farms and solar photovoltaic
power plants, by 2030, would however be quite a heroic task. This particular goal is costed by
myself in published studies at around US $ 11 trillion in 2006 USD value, over 20 years. Many other
spending and investment scenarios exist, and new ones are published almost daily. Amounts
proposed are always increasing - but the most effective framework assumption of quickly achieving
zero growth in world energy demand, then reducing it, is as yet rarely considered.

The reasons for this careful avoidance of the 'zero option' are so evident we do not have to list
them, but can simply take the 'per capita' argument used by Chinese and Indian leaderships for
refusing global, immediate and binding CO2 emissions cuts. If or when these two countries
achieved even one-haf the present oil or gas intensity (demand per capita in barrels or barrel
equivalent) of the OECD in 2009, their combined CO2 emissions from oil and gas burning would
make any chance of capping global emissions impossible. The 'zero option' for both OECD and
nonOECD countries is therefore latent, and certain in the future, but for the present is not
politically correct.

This in turn and however generates further powerful complexities. Some of them are evident and
others less so. Missing a certain key target, either national or global for a key date may make the
set of options and policies related to attaining or achieving those goals obsolete or inapplicable.
This is similar to problems in range finding and targeting of artillery fire, missile fire control, or
celestial mechanics - exactly the bases of cybernetic science. Systems theory is needed for planning
various 'critical paths' with various levels of redundancy, at various levels of confidence.

Global Warming versus No Global Warming

If there is no global warming (GW) why support actions to prevent or limit human-caused
emissions of GW gases and particulates or aerosols ? Unfortunately for the sceptics, both sides in
the climate change debate have substantial theoretical credibility and supporting scientific
evidence. Modelling and forecasting planetary change of a 'simple thing' like daily weather
requires the largest computing power outside the world's military. Weather forecasts are not
always right, and usually there are few excuses offered by national and world weather forecasting
institutions when they get their daily forecast scenarios wrong. In no way does this mean we lose
all faith in computing power, and return to bark strips or tea leaves for weather forecasting,
although removal of 'offending' tree ring data by GW researchers and theorists, because its
'performance' in showing constant GW was disappointing, is also too radical.
Exactly the same applies to intervention or non-intervention in global, regional and national energy
economies. This can use a business application of systems thinking: the "marginal" concept used in
business planning, which starts with a comparison of risks and probabilities for each action, at and
for a certain time, and with various degrees of investment spending or intensity of action. If we
take actions to reduce greenhouse gases, but find later on that human GW was actually
insignificant or less than we feared, our net loss would be the cost of these actions, as well as
hypothetical alternate uses for the same resources through the same period.
We however have another and much more certain driver for transiting away from fossil fuels and
developing alternate and renewable sources and systems: Peak Oil, qnd the sure and certain
depletion of the easiest and largest reserves and sources of oil, coal and gas. As with population
control to limit the demographic crisis, this is another politically incorrect, carefully avoided driver
for alternate energy, but in no ways prevents it from being real. Large spending to force energy
transition away from fossil fuels and other resource conserving features of "the green economy"
will also generate the benefit of earlier substitution of non-renewable resources in the economy,
causing a situation very similar to that when coal started substituting wood as a major industrial
heat source, or petroleum oil started substituting whale oil for street lighting.
If we take no action, the laisser faire path, there will inevitably be higher future monetary costs,
and lost options, for correcting or mitigating the higher level of accumulated damage to our planet.
Running out of oil will no longer be a theoretical graph curve, but a reality. Comparing the
consequences of these two extreme alternatives (no action versus massive action) it is very
apparent that the most basic lever for change - depletion of fossil fuels and need for alternate
energy - will become more critical and costs will rise radically, if we do not soon act to replace non-
renewable fossil fuels. This will probably be joined by action to cap and then reduce world total
commercial energy utilization, preceded by this option becoming politically correct and able to be
discussed. Not taking action, now, only pushes forward the date when we, or our descendents will
have to take action. Calculating the 'opportunity cost' of different policy sets or ensembles will
tend to show we have plenty to gain with little to lose by taking action now.

Policy Making for Transition

Current and recent policy making across the wide, interdependent and converging fields of energy-
economy-environment and climate has always been sector isolated, often short term, many times
ad hoc. This applies not only to public policy, but also corporate private enterprise and other
entities and groups, all of which, however, have a common interest in a managed, optimized and
predictable future. When results do not match expectations, locating the causes, bottlenecks,
conflicts and interference between different policies, or elements of operated policies is usually
difficult. Those responsible for setting policy of course seek 'overall best fit' or good 'system
performance', but the areas where they should focus their effort are not necessarily clear, nor their
actual choices. They are often left with no choice but to rely on ad hoc methods, on intuition, or
abandoning current policies without attempting to bridge conflicting goals with various critical
path modelling techniques. Doing this, could enable lower cost and effective reforms and
modifications to be made, without abandon of the policy implementation structures and any
cumulative positive results obtained.
This challenge will be especially strong as energy-economy-environment become more welded
together, less easy to dissociate and treat separately. Negative feedback from incompatible and
divergent policy mixes will rise quickly in cost, and could threaten overall progress towards the
highest levels goals: preventing runaway climate change and substituting first oil, then gas and coal
in the global energy mix.
Examples of this are easy to give. The long and hesitant process of generating recovery in OECD
economies and elsewhere has included, or still includes government subsidies, cash gifts or soft
loans to car buyers. Cars purchased are almost exclusively oil-fuelled, if somewhat higher fuel
efficient than the traded in, and often scrapped cars, in some countries often including cars less
than 6 years age. Given that car lifetimes in OECD countries are usually above 13 years, this
economic recovery policy has at least two negative impacts. Future oil demand for private road
transport tends to be maintained, and future subsidies needed to encourage trade in of these
'economic recovery cars' and replacement by electric or hybrid cars will have to be higher, than in
the absence of the state aid to buying cars. To be sure other negative impacts can be included, for
example subsidies given to private car buying make it difficult to also give subsidies to urban mass
transit development, or intercity high speed rail.

Financing Global Energy Transition

One essentially avoided critical issue, at present, is financing what will inevitably be a worldwide
transition away from fossil fuels. Although heavily implicated in, and basic to transition away from
fossil energy to green energy, the linkage is presently not formal and open. More important for
operation of what can only be a massive, long term and global process, no explicit energy
transition fund or funding framework exists. Many reasons exist for the absence of decision leading
to creation of a 'global energy transition fund'. These range right across the spectrum from
scientific and technological, to industrial, economic, monetary and other factors, even political
ideology, opposed to multilateral 'big government' or world government action. This type of action
we can note is usually reserved for post-catastrophe, postwar situations. Climate crisis plus oil
depletion have as yet to achieve that status. If we believe the statements of leading G20 politicians
on the climate issue, this is an oversight that is now being corrected.

As noted by myself in previous articles

(www.financialsense.com/editorials/mckillop/2009/0930.html)
we already face what will become radical either-or decisions in global energy financing due to
spiralling needs for conventional oil and gas capex, versus ever growing estimates of what is
needed in alternate and renewable energy spending. Choosing both is likely impossible even today,
and will become yet more impossible by as early as 2020, notably because of further capex needs
due to oil depletion being joined by gas depletion and global coal infrastructure limits by that date.
Action to mitigate climate change by massive investment in renewable and alternate energy, as
noted above, only jumpstarts certain inevitable longer term investment and spending decisions,
not only in the energy sector.

This is a complex issue, not easily brought into the political arena, but planning ahead is always
appreciated when it delivers proven, and provable results. To this end, therefore, financing
frameworks will enormously benefit from systems-based design, definition and implementation.
Upstream from this, the needed global policy mixes or ensembles for ensuring best possible
'system performance' will necessary include the consideration of energy, economy and
environment as fundamentally linked and convergent.

A Few Conclusions

The pace of events in climate change alarm, and G20 government climate-related energy and
economic policy (with environment soon to enter), all tend to underline the critical lack of
coherent and mutually-reinforcing policy sets or ensembles. In addition, the lack of any real global
financing framework or system for green energy transition will likely deliver even lower success or
'bang for the buck', than the complex, speculative, limited and specialized 'semi private', but in fact
public-private, financing frameworks typified by emissions cap-and-trade. This could be called a
worst case mix of public policy irresponsibility and incompetence, and private sector opacity and
greed.

To be sure every possible financing method and process can be suggested. Mass issuance of
'citizen energy credits' is suggested by several NGOs and associations. The other extreme is similar.
The two extremes meet in an increasingly possible IMF-managed creation and issuance of a new
world money, the "CO2 Bancor", at least nominally restricted to energy-and-climate financing, but
also designed to relieve pressure on the US dollar as world reserve money.

Green energy financing by strict market-only mechanisms is unlikely, now, simply because public
expectations have risen fast with political grandstanding by G20 leaders, and because oil depletion
will not wait another 5 years or more, for trial-and-error to eliminate inefficient and low net
energy candidates, such as crop base fuel ethanol. By 2015, loss of world oil export capacity could
reach 2.5 Mbd a year, about the present total import need of South Korea or Germany, yet world
biofuels production growth is at best a few hundred thousand barrels/day each year. We are forced
to conclude that costs and time requirements for free market trial-and-error policy and
programme selection are too high. This is due to accumulated impacts of past inaction, notably the
long period of cheap oil through 1986-2000, and through market mediated wrong choices, shifting
too many resources to poor energy performers, while starving potential high performers of
resources needed for their sustained development.

Probably the key factor for ensuring sufficiently rapid and reliable transition away from the fossil
fuels and global capping of greenhouse gas and particulate emissions by around 2035 is policy.
Present policy making in the energy, economy, and environment plus climate fields remains sector
focused, often firewall separated, generating mutual antagonism and weakening of initiatives and
programmes implemented. Apart from not attaining initial goals, programme costs are raised by
unnecessary duplication of single-sector policies that soon lose credibility. The default solution is
often abandon of the policy, major financial and economic loss, and the start of a new cycle of ad
hoc 'solutions'.

The real answer is simple to identify but difficult to apply: coherent policy ensembles of
convergent or non-antagonistic programmes, implemented only after comprehensive study of all
single policy interactions and elimination of unproductive policy sets. Regional and national effort
will be prime in setting these ensembles, with regional and national financing and funding
mechanisms dovetailed into global frameworks, for example through reinforced versions of
currently emerging climate-related aid and assistance to most affected low income countries. In
this way, the goal of setting and achieving long term transformation and transition of the economy
and society will have a higher chance of being realised.

COPYRIGHT ANDREW MCKILLOP 2009