Another excerpt from the climate chapter of my book-in-progress, Economic Consequences of the Pandemic. Comments, constructive criticism and compliments all appreciated.
Economists have long been enamoured of simple and universal solutions to the problem of greenhouse gases emissions. The key to these solutions is imposing a price on emissions, through a carbon tax or an emissions trading scheme. With a carbon tax, firms are required to pay a fixed price for each ton of carbon they emit. In an emissions trading scheme, firms are required to use a permit for each ton of carbon they emit. The permits are initially auctioned, and can then be bought and sold, so that the price is determined by the cost of reducing emissions.
The appeal of a carbon price is that it does not require governments to ‘pick winners’ by determining the most cost-effective way of reducing emissions. Energy using industries will pick the cheapest source of energy, and the carbon price will ensure that low-emissions technologies are preferred. Similarly consumers don’t need to perform complicated calculations about their carbon footprint or the food-miles embodied in their groceries – products that embody lots of carbon emissions will be more expensive than alternatives that don’t.
If carbon pricing had been adopted when it was first proposed in the 1990s, it would have worked by now to greatly reduce emissions. Even the somewhat half-baked and mismanaged system introduced by the EU has put the continent well on the way to eliminating coal-fired electricity. For most of the world, however, including the US the reality is that the time for relying on a single global solution is past. Pricing carbon emissions is still important, but it will not work fast enough on its own.
Similarly, while political action is essential, the crisis is too urgent to be left to the slow processes of government, particularly in a deadlocked system like that of the United States.
What is needed now is, in basketball terminology, a full court press. The normal practice in basketball is for the defensive team to guard a zone around their goal, allowing the offensive team to bring the ball up from their half of the court. By contrast, in a full court press, the defenders seek to block opposing players for the full length of the court. The full court press enables a team with small, but energetic, players to compete against taller teams with better shooting skills.
At the beginning of the campaign to reduce CO2 emissions, the protagonists were very unequally matched. The most formidable opponent was ExxonMobil, the most valuable company in the S&P 500 until as recently as 2013. Beyond the power that naturally goes with such wealth, ExxonMobil had recruited teams of lawyers, propagandists and mercenary scientists, many of whom had previously worked for the tobacco industry.
Exxon’s oil money was a powerful force, but the initial phase of the struggle to decarbonize the economy has focused on coal. Until coal-fired electricity generation is ended, there is little chance of reducing global emissions. The next big step in decarbonization, electrification of transport, will only work if electricity generation is decarbonized first.
As recently as 2010, the task of getting the global economy off coal appeared unachievable, even though the cost of solar PV and wind was steadily declining. Coal was still the primary fuel for electricity generation in nearly all countries, and coal-fired power stations were being built at a rapid pace in China and India. A huge and complex network was (and still is) deeply involved in coal, including:
coal mining companies;
electricity generating utilities;
heavy engineering companies building power stations and supplying coal mining equipment;
railways and ports on which coal is shipped;
global banks and insurance companies that provide financial services;
institutional investors that provide equity capital;
international development banks which provide loans on favorable terms to
national export credit agencies which support exports of coal technology
national development strategies premised on exploiting resource endowments,
As the New York Times observed in 2018
coal is a powerful incumbent. It’s there by the millions of tons under the ground. Powerful companies, backed by powerful governments, often in the form of subsidies, are in a rush to grow their markets before it is too late. Banks still profit from it. Big national electricity grids were designed for it. Coal plants can be a surefire way for politicians to deliver cheap electricity — and retain their own power. In some countries, it has been a glistening source of graft.
The essence of the full court press has been an attack on every node in this network, turning its apparent strength and resilience into multiple points of vulnerability. The environmental movement has challenged every corporation, investment fund and government agency involved in promoting coal, with considerable success.
The most striking success has been the push for financial institutions of all kinds to divest from coal. A hundred of more global banks, insurers and reinsruers, pension funds and other institutional investors have announced divestment policies and gradually tightened them . Although the push to divest began in Europe and North America, it has now extended to include Japan, South Korea and Singapore. Coal mining and coal-fired power are increasingly dependent on Chinese institutions for funding.
New coal mines have been resisted both because of their damaging local environmental effects and because of their contribution to greenhouse gas emissions. Any proposal for a new coal mine even in developing countries, can count on vigorous resistance, and many proposals have been abandoned.
The millions of deaths caused by coal-fired power generation, poorly understood until recently, have become a focus of political resistance. Power stations near major cities like Beijing and Delhi have been closed, and others are likely to follow.
Heavy engineering companies have faced pressure to withdraw from destructive coal projects. This has been most effective in the case of diversified firms like GE, Siemens and Toshiba, where the reputational damage associated with coal harms their position in other markets. All three have announced their withdrawal from building coal-fired power stations.
Proposals for rail and port developments to facilitate coal exports have been resisted with some success. The Lummi Nation fought successfully to block a coal terminal proposed for Seattle in 2016 https://www.seattletimes.com/seattle-news/environment/tribes-prevail-kill-proposed-coal-terminal-at-cherry-point/ Oakland
In Australia, some major coal port proposals have been stopped. There is a continuing struggle over the Adani Group’s (fn Bravus) Carmichael project, involving a new coal mine and railway line along with an expansion of Adani’s existing coal port at Abbot Point.
As the end of coal has come into sight, attention has turned to oil and gas. The initial focus has been on the most destructive processes for producing these fuels, such as fracking and tar sand extraction, as well as on the protection of particularly precious areas such as the Arctic National Wildlife Refuge.
The time has come, however, to demand an end to any activity that is inconsistent with the goal of zero net carbon emissions by 2050. That includes an end to new gas-fired power plants, electrification of all kinds of transport and the replacement of industrial processes that rely on burning carbon in any form. Governments need to commit to this goal and set phase-out dates for all such activities, as many have already done for coal and some for internal combustion engined vehicles. The pledges already made by financial institutions to stop funding coal should be extended to ensure that only projects compatible with decarbonization can attract capital investment, operating finance, and insurance.
It is too late to prevent severe damage, but there is still time to avoid climate catastrophe. If we tackle the problem with the same urgency with which at least some of us addressed the Covid pandemic, we have all the resources of skill and technology needed to limit warming to 2 degrees or less.