Fiddling whilst the plant burns seems to be infectious. With the global economy collapsing around their ears policymakers have never had a better opportunity to declare a move to a quota based system of fossil fuel extraction.

With oil prices at 5 year lows, down $115 from the highs earlier in the year, I am sure that producers would be willing to sit down and listen.

Whilst global demand is down there is an opportunity to slow emissions at source by setting a target as per the Sustento Framework and making it stick. All the talk of the last few years has been about increasing demand for fossil fuels and the impossibility of reigning that in.

Well right now any demand would be welcome. There has never been a better time to lay it on the line. It’s time to stop pissing around with talk fests and policies which will never actually reduce emissions in any meaningful way.

Set a target for global annual fossil fuel extraction and then stick to it.

Forgive me for wondering if that isn’t the whole point. First up it was the carbon charge which was dumped back in December 2005 and now the brand spanking new ETS which looked full of holes and now is barely recognisable as a piece of effective policy.

The main concern cited by “critics” is that higher costs may be passed onto consumers. Well the goal of the carbon charge and the ETS is to raise prices in order to lower demand. However, fuel prices are generally regarded as inelastic i.e. demand does not fall as prices rise, which consigns a price approach to the bin. Of course, there is some level of price at which demand will certainly fall. According the research it is when the price increase exceeds income rises i.e. the is the affordability as opposed to higher prices.

Or to put it more succinctly as long as money is available fuel will be purchased regardless fo the absolute price. So the supply of money is a major player in this equation. Now with the credit crunch bedding down money has become less available and so the impact of higher fuel prices is starting to kick in.

So given fuel prices have nearly doubled in the last 3 years, one would expect to have seen a huge fall off in fuel consumption. This has not been the case.

One can conclude that price measures will not reduce emissions and therefore any policy based on this approach is doomed to fail.

Why, you may ask, is no one clamouring for quotas to be implemented? The answer to that is very simple. It’s too hard.

So let’s keep pouring millions of $ into schemes that won’t do the job and keep the veneer of pretending to do something about climate change. They’d be better off spending the money on something important like child poverty and education.

No doubt they will all keep knocking this ball around until someone caves in. But why bother? It’s simply the wrong approach. At the moment we have a free energy market (actually its dysfunctional but that’s another story) where people can choose to buy what is offered. If we want to reduce greenhouse gas emissions we simply need to reduce the amount of fossil fuels available to create them.

Then just leave the market to operate as normal. Simple.

I know I’m restating my position on this but the longer this goes on the more clear it becomes

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.

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.

Eco tourism is all the rage these days and rightly so. We should always consider the impact of where we go and what we do. But as consumers of goods, services and exotic holidays we expect the price to reflect the cost of what we are paying for. If it doesn’t is that our fault or problem?

Well that’s where the consideration or “ethics” of your decision comes into play. I’m in favour of travel as it expands the mind. body and soul. It allows us to gain a different and newer perspective on the world. But do we dare look beneath the surface as Leo has done?

I’m reminded of the excellent Stephen Frears film “Dirty Pretty Things” about the  immigrant workers who keep London going at night whilst people sleep easy. Crap working conditions for service staff are nothing new so why should it be any different on holiday?

What should happen is that people get paid proper wages and work in decent conditions. Then it’s up to them whether to take a job or not. Madeleine Bunting deals with this issue quite well in her book “Willing Slaves” which also looks at the guest worker phenomenon.

My interest is more in the environmental sphere. Simply put we should be paying the Trucost of our activities. How we get that is a bit trickier but doable.  I’ve looked at this before and having been to the UK recently its clear that this issue is center stage.

We must move quickly to connect external environmental costs with the pricing mechanism. Once a cost has been calculated (carbon, nitrogen runoff, water) then that cost gets added in at the point of extraction, abstraction or manufacture. The EC (external cost) flows back to an Environmental Contingency Fund where it sits (in sovereign bonds) until it can be put towards paying for the exact cost that was incurred, whether that is planting some forests to sequester carbon, cleaning a river or fencing land or implementing new water management processes.

As much as we would like it to be, it isn’t (as yet) an exact science. But it will alert consumers to the true cost of the good and allow them to make more accurate purchasing decisions.

Then maybe we can actually enjoy our holiday instead of worrying about how much damage we’re doing to “the planet”.

His main focus is always to step back from the hysteria and hype and look more pragmatically at the problem. I would say this is a sensible approach though it’s hard to ever get sensible debate when it comes to the environment.

Nothing else quite allows people to represent themselves as good or worthy and label others as bad or dirty.

Lomborg is not into saving the planet. He’s into calm reasoning and tries to stay within the remits of his expertise as a statistician. Interestingly enough Al Gore has been getting a judicial working over in the UK over his alarmist portrayal of the situation.

The moral of this story is that we need to make reasoned policy based on what we know and can observe. That a warmer climate presents severe challenges is not without doubt but let’s keep a clear head whilst working out what, if anything, we can do about it.

Letting issues like this develop into a battle between good and bad just leads to reactive approaches. Lomborg falls somewhere in between and is worth listening too even if just to disagree with.

It’s not too late to have another look. Many Kyoto advocates have told me there is too much time and money invested in it to change tack now. Well that’s not good enough. If Kyoto is not going to work then it should be set aside. It doesn’t mean a step back but a step forward.

So i’m dusting off my proposal based around Montreal. I think it’s time to realise that major reductions can only come from the supply side.

See Climate Control and also have a look at Oliver Tickell’s proposal Kyoto 2.

We know in our hearts that we need to consume less and make better. We don’t do it because we are time constrained as we slave away in our jobs to pay off huge mortgages, large rents and all the bills we have incurred in our consumption binge. If we really knew the true cost of our goods and services we may change our behaviour with increased speed.

And yet see the seething anger when petrol prices go up……we may be in position to control and destroy the planet but it may well do that to us first. Anyway this may or may not resonate. See what you think:

March 2004.

‘Greens take us back to the Dark Ages’ screams the Business Round Table. ‘Business doesn’t care about anything apart from money’ whines the Green Party. Sound familiar? This is generally what passes for debate between the official representatives of the economy and the environment. It is reminiscent of a long running stand off between a teenager and parent. Will the environment and business ever resolve their disagreements live together in sustainable harmony?
To answer this question we need to explore how the economy and the environment interact. The word economics is derived from the Greek ‘Oikonomos’ meaning household steward or home economist in modern diction. In ancient times, the household was the central functioning unit of any economy and most economic activity took place within that framework. Now the household is a place where we live and sleep but rarely do we produce anything that is identified as part of the economy, reflected by GDP. Business is now the place where most economic activity takes place and it is now the steward of the environment.
Our technological capabilities have also moved on giving us DVD recorders, microwaves, mobile phones and other similar gadgets but they are still all built from materials taken from the same source as thousands of years ago. As, John Muir, the founder of the modern ecology movement, said “When we try to pick out anything by itself, we find it hitched to everything in the universe”. In simple terms, the economy is simply a subset of the environment, and economics a framework for understanding our transactions with the environment. They are one and the same, not distinct and separate entities as often portrayed in the media.
We have become expert in transforming natures’ goods into new products to satisfy our ever increasing desire for material consumption. At the same time, the waste products from manufacturing, some 90% of actual inputs, are becoming harder to absorb and process. Whilst nature provides obvious goods in the form of wood, minerals and fossil fuels, little attention is paid to the crucial services it provides in acting as a both a source and a sink for economic activity. These services include waste processing, climate regulation, water supply and regulation, soil formation, nutrient cycling, food production, erosion control, pollination and even recreation and cultural values.
The value of these services has been largely ignored by the mainstream economics profession rather like the value of unpaid labour in the economy. A mother who goes out to work and hires a nanny to look after her children suddenly finds out the monetary value of her work in the household. Previously no value was attributed to looking after children but as soon as someone is employed formally then the value is recognized. Of course anyone who has children knows too well the value of unpaid labour in the home.

Whist ecosystem services have always had value they have never been recognized in monetary terms and therefore incorporated into the economic framework. In 1997, a study, led by Robert Costanza at the University of Maryland, attempted to value global ecosystem services. The findings estimated very conservatively the value of ecosystem services to be in the region of 2-3 times global GNP. In 2000, a study into the external costs of UK agriculture by Jules Pretty at the University of Essex, showed a value of ₤2.3bln, based on actual financial costs incurred. This equated to ₤208 per hectare of arable and permanent pasture. Again this was a conservative estimate of all agriculture related externalities.
What these and other studies have shown is that there is a real and attributable value to these services previously taken for granted. If any business has any doubt about the relevance of these costs, they should have another look at their insurance bill. Munich Re, one of the world’s largest re-insurance companies, puts the annual global costs of climate change at US$300bln by 2050. Even the Pentagon, a normally conservative institution, is recognizing the potential security issues of serious environmental changes. One thing Greens need to recognize from their side is that without security, law and order, the issue of environmental damage is likely to be an irrelevance.
Actually incorporating external costs at the company level has proved difficult. However Trucost Plc, a London based but Christchurch born company has designed an external cost calculator and an environmental rating system, which incorporates the externalized costs of any organization into their actual accounts. Initially there was strong resistance from some in the environmental movement, concerned about placing a value on nature. However, now there is an understanding that if you don’t value something then it will be treated as if it has no value. It is an unashamedly anthropocentric view to place a monetary value on nature but one which in the long run will lead to a more sustainable economy. Mainstream economics needs to acknowledge the importance of externalities and not spend so much time pouring over inflation statistics. Economics is fundamental to how society organizes itself and surprisingly can be fun and understood by anyone, as demonstrated by Diane Coyle in her recent book, “Sex, Drugs and Economics”, which succinctly analyses everyday activities in simple language.

Whilst the economics profession needs to wake up, the environmentalists must also acknowledge that expecting society to make a wholesale change of consumption habits without strong financial incentives is naïve. The only way to make them change their current ‘unsustainable’ consumption patterns is for goods and services to properly reflect the externalized costs that make them unsustainable in the first place. The true sustainable business is one which internalizes all its costs, instead of passing them to the taxpayer to pick up at some future date. Therefore, in order to create a sustainable economy, we must recognize the value of the environment in real terms. Then maybe business and the greens can redirect their energies to work out smarter and cheaper ways of living well and enjoying life.

Let’s start with the basic problem. Governments are controlling the issue and yet governments do not create greenhouse gases. Who does? People and organisations do (ok and so do some animals) and they need to deal with it. Then we need to ask who provides the polluting items? Fossil fuel companies in the main (ok farmers and cement manufacturers as well) are the providers of the feedstock.

Added to that we have the other side of the equation which is the sequestration system, our rainforests, soils, other vegetation, oceans and whatever else sucks up greenhouse gases.

So we have a certain volume of fossil fuel feedstock coming into the system to be combusted in various forms to provide energy in the main (as well as a multitude of petrochemical based products) and we know where the major changes in land use occur so we know the net volume of greenhouse gases added in any given period.

What we don’t know is the tolerable limit of greenhouse gases in the atmosphere. It could be 400ppm, 500 or 600 (using carbon dioxide equivalents). No one knows and quite frankly the models we have are really best guesses. We do know that there is likely to be a tipping point over which we will have some severe and irreversible impacts. Hopefully our science will get better and allow us to forecast accurately but we are still learning about our systems and as yet cannot be certain as to where this level is.

So at some point we have to pick a number. Let’s say 500ppm. We are now at 380ppm so we can plot out a course for getting there. We must have a global cap on emissions or we are wasting our time. Forget about national limits..they are a complete red herring and unworkable unless governments want to control the sale and use of all fossil fuels within their own region. Given global trade that is simply not possible.

Once we have a global cap we can work out an annual quota for fossil fuel production. Then the fossil fuel companies can compete for the right to produce. One suggestion is that rights are grandfathered in but a better one is that the rights are auctioned off annually and the receipts put into a global environmental contingency fund. This has been suggested by Oliver Tickell through his proposal Kyoto2. You can read about that here www.kyoto2.org.

Once annual quotas are put into place the market will adjust prices to meet demand at the appropriate supply level. I have proposed a complete reorganisation of the global energy market to increase efficiencies and therefore lower prices.

Then we can forget about all the attempts to somehow finesse this problem. We just have to work out how much we can use and then carry on as normal. If prices go up then renewable and alternative energy will be sought out. Either way we need to adjust our behaviour.

This is the most likely way of achieving that. Governments can help negotiate the process like they did with Montreal but ultimately this problem can be solved easily by the fossil fuel companies taking charge like the CFC producers did before them.

Give people the freedom and the incentive to change and they will.