The Carbon Crunch – book review

Dieter Helm has written a terrific book about energy policy and climate change, [amazon_link id=”0300186592″ target=”_blank” ]The Carbon Crunch: How We’re Getting Climate Change Wrong and How to Fix It[/amazon_link]. I’d recommend it to everyone, no matter what their prior views. Helm has the clarity of analysis and respect for evidence that characterises the best empirical economists, combined with an understanding of the messiness of practical politics and the difficulties we all have in coping with great uncertainty about events far into the future.

His own conclusions and recommendations are clear, and clearly explained; but even readers who disagree with some of those views will get a lot out of the book, even if only by facing up to challenges to their own assumptions.

Helm accepts the mainstream scientific view that man-made climate change is likely to increase global temperatures by at least 2°C, so he will get off on the wrong foot with those who do not believe this. However, he shares with them a distrust of past arguments by green campaigners and the climate change ‘industry’ of officials and academics, not to mention certain industry lobbies truffling around for subsidies. This might make the book interesting even to readers who do not believe there is a climate change problem. (Indeed, it’s possible that it will most annoy some green campaigners!) According to The Carbon Crunch, green advocates and politicians have landed the UK, and the EU in general, with “one of the most expensive ways of generating low-carbon electricity known to man – intermittent offshore wind.” (p6)

The chapter on wind power makes a strong argument against the case for this form of generation, whether onshore or offshore. Helm points out that deriving 15% or 20% of our electricity from this source requires investment in a whole new generation, distribution and transmission system – it is not a marginal change to our existing infrastructure but will require tens of billions of pounds in investment year after year for decades. Wind doesn’t blow all the time, and there is less of it in the winter when the demands are highest. So investing in turbines has to be combined with investing in back-up generation. This will be more expensive than if it were the main source of power – for example, suppliers could not take out long-term contracts for gas imports if they are only required to generate power intermittently. A new system of wires connecting widely-dispersed turbines to the grid would be needed, a big investment. The number of turbines needed to contribute a significant proportion of our electricity is huge, and the environmental impact (including the roads built to construct them and service them) correspondingly large. And so on. I would be interested to see a ‘windy’ response to this chapter, but I found it persuasive. Solar is an even more expensive alternative and makes no sense in northern latitudes. Nuclear is a less unrealistic part of the generation mix, Helm argues, but new reactors cannot be built on a large scale quickly enough. With high initial capital costs and then very low marginal operating costs, the main obstacle is the political uncertainty involved in running nuclear power stations over many decades: Germany is a good example of how fickle governments can be, given that its politicians opted to switch from existing nuclear to dirty coal post-Fukushima. Helm is sceptical about the prospects for nuclear investment. (NB I’m on a stakeholder advisory group for EDF Energy until my term expires next March; it is planning to invest in new reactors.)

The book also points out how fanciful it is to rely on changes in people’s demand or behaviour to reduce CO2 emissions. As long as China and other developing countries continue to grow, emissions will grow too. Helm is scathing about European self-satisfaction over reduced emissions in the EU: this has only come about thanks to deindustrialisation and importing carbon embedded in imports from China, he points out. The EU also has mutually incompatible policies: a renewables directive that will bring about an increased supply of low-carbon electricity, reducing the price of carbon in the EU emissions trading scheme – which would encourage gas or coal generation: “Countries with large-scale renewables progammes will end up selling on their surplus emissions permits, so others can increase their emissions.”

As for energy efficiency, Helm is sceptical about the existence of large unexploited opportunities to use an expensive resource more efficiently. Besides, greater efficiency would reduce the price of energy, causing people to use more of it (the ‘Jevons Paradox’). Demand has increased steadily as countries grow richer. For example, the average house in Britain was kept at a temperature of 13°C in the 1970s, compared with 18°C now (a staggering increase – no wonder I remember always being cold when I was young!) And those houses are now packed with electricity-hungry gadgets.

However, the book does not end up in despair, but rather with some straightforward proposals. First, charge a carbon tax to increase the price we pay for anything carbon-intensive, whether coal-fired electricity or imports of aluminium from China. It won’t be perfect but will have a powerful effect on demand, as we saw in the 1970s energy crisis. “It cannot be stressed too strongly how powerful the carbon price is in underlining the carbon pork-barrel, and with it all the lobbying and vested interests that exploit government decision making.” (p179) Secondly, stop generators burning coal and instead switch to gas as a transitional fuel for power generation, with some new nuclear build – this is happening in the UK and US but other countries, notably Germany, have gone the other way, and China is still burning coal massively. Finally, invest in R&D into new forms of generation, storage, electric cars and so on – some of the investment won’t work out, but some will. Well, I’m an economist too, so using the price mechanism seems pretty sensible.

Too sensible? Helm’s final words: “World leaders have a lot to answer for, and it is unlikely that history will judge them kindly. There remains hope that, at this late stage, effective action will be taken. Climate change is a problem that can be cracked – but it won’t be on current policies.”

[amazon_image id=”0300186592″ link=”true” target=”_blank” size=”medium” ]The Carbon Crunch: How We’re Getting Climate Change Wrong – and How to Fix it[/amazon_image]

3 thoughts on “The Carbon Crunch – book review

  1. It’s nonsensical on the one hand to criticise offshore wind as too expensive and then to say that any gains from energy efficiency will be eaten up by Jevons since they’ll cause energy to be too cheap. Invest in offshore wind, get expensive carbon free electricity, and then get a demand response that will necessitate energy efficiency.

    • Well I think he would say raise the price of carbon-intensive energy, rather than have expensive low-carbon generation requiring many billions of upfront investment….

  2. Interesting post. Thanks. Helm is one of my favourites, so this is definitely going on my Christmas list.

    I’m an Engineer first and a wannabe Economist second, so I’ll be curious to see how the technical side of the analysis is done. I disagree with a few conclusions – the point about solar in particular. Panels, unlike, say, 5MW offshore turbines, lend themselves to mass production and competition. With the right financing structures, we will see grid parity across much of the world very soon, albeit possibly not in Aberdeen.

    More widely, I think there’s a lot to be said for the “tax the carbon and leave the market to it” approach, but the drawbacks are severe: the criticism of exporting emissions remains and the politics of doing so are pretty daunting. A good start would be a replacement of the 5% electricity VAT with a carbon tax raising the same amount from electricity producers. Why they haven’t done this yet is beyond me.

    Overall though, I think we’re depleting “free” natural capital at such a rate that we’ll fail to deal with the problem, regardless of the approach. Capitalism and democracy as they stand today just can’t play the long game required and the rising cost of providing services that were free will hamper our narrow minded view of growth for decades. It might be more efficient to deal with it through the good old “internalise the negative externalities” approach, but as long as the government can claim to be doing the right thing, and protect the view of a sleepy hamlet in Sussex from those “big ugly turbines” by paying 10x the price to stick them offshore, they will continue to bury their heads in the sand and the costs in the national accounts.

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