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Wednesday, November 7, 2012

Strategic CSR - Climate Change (II)

The article in the url below is a review of a book by Dieter Helm of Oxford University titled The Carbon Crunch. The book’s goal is to provide:

“… a cogent account of how self-defeating current global climate-change policies are turning out to be.

The core idea of the book counters the perception that it is a failure of political will that accounts for worldwide inaction on climate change. Rather, Helm argues that it is a failure of misplaced priorities and economic incentives gone awry that are the main problems:

They have caused people to focus on the most expensive ways of mitigating climate change, rather than the cheapest, imposing high costs for little gain.

Two points the review highlights about the book stood out for me. First, is the idea that, while Europe continues to focus on reducing its own carbon emissions (and feeling very proud of itself in the process), it continues to promote an economic model that relies on imports from many countries that rely on carbon intensive production processes:

Since Chinese and Indian manufacturing is usually dirtier than Europe’s, the real upshot of Europe’s choices has been an increase in global emissions.

Second, the review explains in clear terms why alternative energies, such as wind, have failed to establish themselves as a viable economic alternative to more traditional energies:

Wind-power generators are expensive. But this is only part of the problem. They are also intermittent. One day last February, wind power produced almost a third of German electricity; four days later, nothing (it was a calm day).

The result of this is that wind-generated energy is highly unreliable. While this is problematic in itself, it has significant consequences for the rest of the energy sector:

Nations have to build lots of spare capacity for windless days. This was fine when wind farms were marginal, but now they produce a tenth of Germany’s electricity and their output is rising fast. To make matters worse, wind messes with the economics of the spare capacity, too. When the wind blows, the extra energy is free. Other forms cannot compete and the standby generators have to close. But other sorts of power stations are not designed to be switched on and off: they are supposed to run all the time. Since energy cannot yet easily be stored, wind farms are making other forms of energy uneconomic.

The result is a corrupt process that is highly inefficient and unproductive:

The system therefore relies on a panoply of subsidies which, as night follows day, has produced an enormous industry to compete for them—wind and solar firms, lobbyists, NGOs and politicians. The entire renewables sector, Mr Helm argues, has become an orgy of rent-seeking.

Take care

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How to fix it
The Economist
October 20, 2012