Not-so-green economics

I’ve been mulling over some statements in  by Alexander Klose. He says logistics has become the “third largest sector of the economy”. That in Germany 10% of energy use is accounted for by data centres – and that there are more than 5 million worldwide, whose CO2 emissions (from their production and use) is approaching those of global air traffic.

[amazon_image id=”0262028573″ link=”true” target=”_blank” size=”medium” ]The Container Principle: How a Box Changes the Way We Think (Infrastructures)[/amazon_image]

A modest amount of rooting around online hasn’t enabled me to verify these rather eye-opening facts, if they’re correct. Does anybody know of sources for such figures? (This Scientific American article reports some signs of decoupling of CO2 emissions from growth in the aggregate; prior to 2000, the energy-intensity of GDP growth had apparently been declining.)

 

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Shock tactics

by Gernot Wagner and Martin Weitzman is an impressive (and concise) book. It recognises that it’s a minority view that governments need to take significant steps now to reduce GHG emissions, as even people who are not climate change denialists would rather not have to bother with doing all that much about it. So the book aims to do two things: explain clearly the risks of the economic (and social) impacts if climate change is as bad as all the scientists expect; and persuade people that insurance against those risks is quite a good idea.

[amazon_image id=”0691159475″ link=”true” target=”_blank” size=”medium” ]Climate Shock: The Economic Consequences of a Hotter Planet[/amazon_image]

It’s actually a very sobering read. A one in ten chance of “catastrophic” sea level rise, anyone. And as the authors point out, “What we know is bad, what we don’t know is worse.” Having said that, the book tries to end on an upbeat note. We can make personal changes such as cycling more or recycling more. Better still, we have power as consumers and citizens to get businesses to do an environmental audit of their supply chains and start to de-carbonise them, and to get governments to take bolder decisions: yes, the price of energy will have to rise, to incentivise “green” technological innovation. Those of us who live in democracies will get what we deserve, so if you care, campaign and debate, the book says. It sums up the advised actions as : scream, cope and profit. Make sure businesses you buy from and politicians you might vote for know your views. Don’t build your house on a flood plain or by the ocean. And invest in businesses and innovations tackling the problem because it will prove financially beneficial.

Chapters in the book look at economic aspects of the problem of reducing emissions, including free riding, and co-ordination issues. It discuses financial aspects of changing energy technologies, and prospects of innovations such as geoengineering. Above all, the book explains the risks and the range of potential impacts associated with them. It gives very clear explanations of the economic issues – very useful for students as well as general readers.

The sense of urgency is palpable in the writing: “The debate around whether to act should be over. To some extent even the debate around how to act is over. … The ultimate goal is clear: for governments to set a mandatory price on carbon pollution. … Dare we say that anyone who pretends otherwise is wilfully blind?” There are those wilfully blind people around, of course. And hence the book goes on to what the clearer-minded people can do about insuring against the consequences of the risks posed by climate change. So now you know.

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Living on the never never

I’ve been looking through an interesting book by UBS economist Paul Donovan and Julie Hudson, . It starts with the simple point that people were relying on credit in two ways, using both financial and environmental resources for current rather than future consumption. In some cases the credit-financed consumer boom before the crisis accelerated the consumption of environmental resources, and in other cases had positive environmental benefits. More consumption clearly uses more of some materials and more energy; but has also encouraged investment in additional infrastructure (to use water more efficiently, for example) or innovation. In either case it’s important to note that the two are related, when thinking about what the crunch after the crisis implies for financial and environmental sustainability.

[amazon_image id=”1849714142″ link=”true” target=”_blank” size=”medium” ]From Red to Green?: How the Financial Credit Crunch Could Bankrupt the Environment[/amazon_image]

The bulk of the book looks in detail at different issues to explore the interactions between red and green credit. For example, a chapter on food discusses what actions could increase agricultural productivity while protecting biodiversity and soil quality, how the credit crunch is affecting the outlook, and also what changes in behaviour might be desirable . So declining real incomes could lead to reduced consumption of meat and less food waste, but these depend on changed consumer habits and changed practices in the food retailing business. On the other hand, there is less funding for R&D in agriculture and food production – unless the corporate sector concludes that it needs to do more to limit its exposure to supply chain risks like the horse meat scandal. Other chapters look at water, energy, infrastructure, housing, human health, and consumer goods.

The detail is all fascinating, and the book obviously covers a wide territory. It seems to offer a very practical and fruitful approach to turning the crisis to some longer term benefit by getting people to focus on specific actions to reduce the economy’s reliance on financial credit and at the same time economise on natural resource use and preserve natural assets. Ever since writing  a few years ago I’ve been obsessed with the chronic short-termism of modern economies. So a book about what people can do right now to safeguard future living standards – written by a City economist too – was bound to appeal to me. Any investors who are genuinely interested in long-term returns rather than quarterly results will find it very interesting. However, although the advice in  is practical and specific, it does highlight how much needs to be done by many people to lengthen the economic time horizon.

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