Finally some research has been done on the effects of bio-fuel crops on the ecosystem. As widely expected the research has shown that bio-fuels can be highly destructive on the environment as well as actually adding carbon into the atmosphere.

So much for being the replacement to fossil fuels.

This a prime example of doing something because it looks like the right or a good thing to be doing. Those people with prescriptive views on how we should live our lives rarely take the trouble to do the sums and that’s where the problem arises.

Until we start to price up environmental externalities and let them flow through the price mechanism we will not get to see the true cost. So we will keep doing things because they feel good to us or they remove some embedded guilt about the way we use the environment.

The market is working in an inefficient manner and the environment continues to suffer because of it. Many environmentalists have a big grudge against the market perceiving it to be a monstrous creation of the capitalist machine. They are sadly mistaken. The market is how we show the real value of the environment to everyone not just those who think humans are a stain upon it.

Now I don’t want to tar all bio-fuels with the same brush. Bio-diesel from algae for example is using a waste stream and an easily grown input. Large swathes of forest don’t need to be cut down for this process.

But until we see the costs flow through the system we just don’t know.

So finally the US capitulates and agrees to be part of talks in 2 years time that will look to make deep cuts in global emissions. Yet the reality, as reported here, is that not much has changed. The US still won’t budge on developing nations (read China and India) and still won’t provide any meaningful targets. It’s interesting that without Australia alongside they are looking very much alone on this issue.

Arguing over who is responsible and who must cut what is really a waste of time. It’s not an argument that can be won by either side. The simple question to be asked is whether global emission levels need to be reduced. If so then they need to be reduced through a global mechanism such as I have proposed in Climate Control where emissions will be reduced by virtue of a quota agreed at the point of extraction not use.

Otherwise we might as well stop wasting our time and focus on adapting and developing cheaper supplies of energy.

Martin Wolf writes an insightful piece here in the FT. If you can’t access it just register as its free.

He points to ingrained problems which are holding back progress:

- The free rider problem.

- Richer countries are responsible yet want poor countries to stop developing.

- The reality that the poorer countries will be worst hit by any further warming.

On top of that we still have disagreements of whether warming is taking place to the degree alluded to in the forecasting models. Scrutiny of forecasting processes and data management is throwing up some issues. Who can we trust? We know politicians always have their own agenda and a huge amount of political capital has been invested in the whole process.

Richer countries may feel that their best course of action is to simply adapt via new environmental technologies, building and planning. Developing countries (China and India) may feel that they didn’t cause this and so can carry on growing at a furious pace.

Poor countries simply have to bear it.

As Wolf notes we may need a real wake up call to make anything actually happen. He muses on the potential of a 2o degree increase as having the desired effect. We saw this scenario play out in the “The Day After Tomorrow” where the world gets a big wake up call but pulls through in the end.

For now though it seems like we will just stumble along from one conference to the next increasing emissions but having little real impact.

Today the IPCC released its synthesis report bringing together the work of the past few years. It’s clearly worse than expected suggesting that at current levels warming could be up to 6 degrees by 2030 which is above the 1-4 degrees by 2100 as previously predicted.

As reported it paints a grimmer picture using recent data and stresses the need for immediate action. Coming just before the Bali Conference on 4th December it’s a clear statement as to the direction the UN will be looking to take.

At the same time there are those who continue to decry these types of reports as another installment of fiction along the lines of the Da Vinci code.

So where are we left?

The costs of inaction are difficult to summarise regardless of serious estimation like the Stern Report. After all economics is hardly a science well known for its predictive ability.

Ignoring those who say climate change and global warming are a sham (and they should always be part of the debate), what is the best way to approach this?

Adaptation or restraint? How about Both/And? Why does it have to be one or the other. We need to keep refining our energy systems and the one we have now is incredibly inefficient, controlled by cosy cartels and unreliable nation states.

Climate change provides an opportunity to address the environmental impacts off our consumption processes as well as the way in which we access and generate energy.

Why argue the toss? Just do both and somewhere the right equilibrium will be achieved.

Nigel Lawson, the beloved monetary enforcer of Margaret Thatcher and the unwitting engineer of the Lawson Boom, is in NZ this week to apply the intellectual blowtorch to eco-fundamentalists and climate change doomsayers.

Clearly he is a sceptic but I was struck by his analysis of the situation saying people were “hostile to capitalism and globalisation” and wanted to “put a spanner in the works of capitalism”.

This is a good point. Whilst climate change can be seen as an outcome of unrestrained economic growth fueled by a monetary system out of control, it is still an environmental issue where we have realised that the industrialisation process has created side effects which have only recently come to life.

Plenty of global activist types have jumped on this bandwagon and this creates a blocking effect where the real debate is squashed between two extremes which are insistent on their position leave little room for rational debate.

He calls into question emissions trading schemes as well as noting the uncertainty of the science of climate change. I’m not sure he is telling us anything new but his full speech given at the NZBR will be worth reading to see if he has anything other than general irritation to offer us.

A couple of weeks ago I attended a PM forum in Christchurch. It was a chance to hear Helen Clark and her Ministers talk about the new Emissions Trading Scheme that they had just put out. I’ve tried to wean myself off climate change conferences because in the end they are all pretty boring and generally say the same thing: the world may end in a flood of seawater and we need to get cracking by x% right now.

What always surprises me is that no matter how many calls for action there are very little has been done to really restrain emissions. Why is this? Well quite simply this is a very tricky issue. Economic growth is not going to be sacrificed on the altar of environmentalism or, more to the point, an outcome where there is uncertainty. So it drags on. China continues to expand its economy at a fierce pace and shows little interest in reining in its emissions insisting that it’s full steam ahead.

So in come emissions trading schemes: carry on as normal but buy your way to heaven via a piece of paper saying “1 tonne of carbon”. If it sounds like a papal remission that’s because it’s pretty close.  It’s a piece of paper you get for money which blesses your wins away.

The problem is quantifying and packaging a tonne of carbon or equivalent. How can we be sure that people will get what they pay for. This is where certification comes in. We need an agreed international standard and a single market. After all there’s only one type of carbon just like there is one type of gold. Its not like crude oil where there are different prices for different types.

Another issue is the changing science. For example, if forests are used as credit generators because of their ability to sequestrate carbon, there is a possibility that the amount the sequestrate may change over time either due to ecological reasons or a change in the understanding of how and how much they actually lock up and over what time period.

As a business having to purchase carbon credits on paper I would be crossing my fingers and hoping it all works out otherwise i might be out of business.

There is also a concern about the over issuance of paper credits. As readers will know they fractional reserve money system we have started life in a similar fashion: an underlying quantity of a commodity on which paper bills were issued. We know the outcome of that, a money system with no control.

From what i have seen this issues haven’t been covered in enough detail. I can still envisage a scenario where the carbon credit market takes off but overall emissions are not reduced. The goal of all this is to reduce emissions not create a huge market in carbon. But for now its the easy way out and politically more acceptable. Trees can take the slack for now and maybe technology can takeover at a later date.