Posted by: bmeverett | December 18, 2015

Alice in Climateland

‘Twas brillig, and the bureaucrats
Did gyre and gimble in the wabe…

(apologies to Lewis Carroll)

The issue of climate change is at its heart a scientific debate. This week, however, the focus has not been on the scientific uncertainties or the costs and benefits of carbon dioxide, but on politics. The December 13 New York Times ran the headline “Nations Approve Landmark Climate Deal” in large type. Sounds great, but what actually happened? Not much.

We’ve seen this movie before. The New York Times edition of December 11, 1997, proudly stated “Meeting Reaches Accord To Reduce Greenhouse Gases”. That headline trumpeted the Kyoto Protocol, which set a standard for climate negotiations with lots of noise and no substance. Kyoto set binding targets for the industrial countries plus Russia and some of the former Soviet states, known as the Annex I countries. The US signed, but did not ratify the treaty and thus avoided its obligations. The reaction from climate activists was to howl about American irresponsibility and ultimate guilt for the annihilation of mankind. In 2012, the end of Kyoto’s first assessment period, the Annex I countries announced that their targets had been met. Champagne sales soared and the backslapping could be heard around the world. In 1997, when the treaty was signed, carbon dioxide emissions from the Annex I countries (excluding the US) totaled 8.8 billion metric tonnes (mt) per year. By 2012, emissions had declined to, oh, wait a minute, increased to 8.9 billion mt annually. The only slight flaw in Kyoto’s otherwise successful performance was that there was no reduction in greenhouse gas emissions. How exactly did this miracle occur?

Kyoto was based on promises plus a number of accounting “slick tricks”, which allowed participating countries to meet their targets without actually reducing emissions. The most important slick trick was the use of 1990 as the base year for measurement. In 1990, the total emissions from the Annex I countries (ex US) were 9.9 billion mt, compared to 8.8 billion mt the year the treaty was signed. In other words, the Kyoto participants were credited with a reduction of 1.1 billion mt of CO2 emissions, which occurred before signature. Smart, no?

There were other tricks. The Clean Development Mechanism, for example, gave Annex I countries credit for projects in non-Annex I countries that helped those countries reduce their emissions. Sounds reasonable, but the system was easily gamed. In many cases, chemical projects were built solely to obtain the credits available for the destruction of greenhouse gas byproducts. In other cases, credits were taken for land use changes without any evidence that the changes had reduced greenhouse gas emissions.

Why would governments spend so much time and effort on an agreement like Kyoto with so little substance? The answer is the fundamental dilemma of climate policy. On the one hand, politicians, particularly on the left side of the spectrum, face a committed and vocal constituency of climate activists from environmental groups and academia, whose views are amplified by the media. On the other hand, the global economy has been weak ever since the 2008 recession and climate policies are all based on raising energy costs, which represent an additional impediment to a stronger economy. Climate activists are a pretty demanding lot, but all politicians know that the quickest pathway to losing power is a stagnant economy. Hence, the effort to craft a climate policy that looks good but has no teeth.

With this dilemma in mind, let’s look at what was agreed in Paris. According to proponents of the new agreement, its most important aspect is the number of countries that have agreed to sign on – supposedly 196. Each of these countries has agreed to its own individual voluntary program, called its Intended Nationally Determined Contribution (INDC). (Note: If climate negotiations produce nothing else, they certainly produce a lot of acronyms. My favorite is “common but differentiated responsibilities and respective capabilities or CBDRRC.) The agreement also commits rich countries to begin paying poor countries around $100 billion per year by 2020, although it’s not entirely clear what this means. Almost all of the 196 countries agreed to offer their voluntary targets only on the condition that they receive some of the money in return. Progress will be monitored, presumably by a new UN climate bureaucracy, and every ten years, the countries will meet again to review the targets and make even more serious commitments. A step in the right direction? Let’s have a look at the arithmetic.

This year, the world will emit about 33 billion mt of carbon dioxide from energy use. According to a recent projection by the Energy Information Administration of the US Department of Energy, in the absence of new policy initiatives, emissions will increase to about 50 billion mt per year by 2050. The UN Intergovernmental Panel on Climate Change (IPCC), which is supposedly the font of all wisdom on climate science, states unequivocally that the world can stay below the dangerous level of global warming (2 degrees C above the pre-industrial level) only by reducing emissions to no more than 60% of the 2010 level by 2050. Emissions in 2010 were about 31 billion mt, so the maximum the IPCC thinks we can emit in 2050 is 20 billion mt (60% of 31). If true, the world has to find 30 billion mt of reductions in the next 35 years.

The four largest carbon dioxide emitters in the world in 2014 were China (10 billion mt), the US (6 billion mt), the European Union (3½ billion mt) and India (2 billion mt). Together, these countries accounted for 21½ billion mt or about two-thirds of the world total. What have these countries offered as their INDC’s?

Let’s start with the US. President Obama has committed the US to reduce its emissions 26-28% by 2025 versus 2005. Note the “slick trick”. He is measuring our emissions reduction over a 20 year period, half of which has already occurred. In 2005, US emissions were 6.5 billion mt, but have since fallen to 6 billion mt, an 8% reduction accomplished mainly by the substitution of natural gas for coal, a process many environmentalists oppose. The President’s 26% reduction by 2025 implies a target of 4.8 billion mt by 2025, or about 20% below today’s level. The latest projection by the Energy Information Administration shows US carbon dioxide emissions in 2025 of 5.5 billion mt without any further policy initiatives. The US is therefore proposing cuts of 0.7 billion mt (5.5 minus 4.8) or 2.3% of the amount the IPCC considers necessary to avoid disaster.

How about the European Union, the inventor of the Kyoto slick tricks? The EU INDC targets an impressive 40% reduction by 2030 versus 1990. Note the serious base year problem here. The EU’s carbon dioxide emissions have already declined by about 20% since 1990 from 4.2 billion mt to 3.4 billion metric tonnes, mainly because of the substitution of natural gas for coal in the UK and Germany and a prolonged economic slump. A 40% reduction by 2030 implies a further reduction of 0.9 billion mt to 2.5 billion mt. The EIA forecast assumes flat carbon dioxide emissions for the EU, so the net savings would be 0.9 billion mt.

The EU’s NIDC, however, carefully reserves the right to define the metrics of land use changes at a later time. In other words, the EU will be able to have a look at how they are doing and then introduce some fictitious land use credits if required.

China’s INDC includes three promises: (1) China’s carbon dioxide emissions will peak in 2030, (2) China’s carbon intensity (carbon dioxide emissions per dollar of GDP) will decline by 60-65% by 2030 compared to 2005 and (3) non-carbon technologies will contribute 20% of primary energy supply by 2030. These goals certainly sound substantive, and President Obama heaped lavish praise on China for making these important steps. Not so fast.

Some projections, including a 2011 study by the DOE’s Berkeley Lab in California, have concluded that China’s emissions are likely to peak around 2030 anyway. China is essentially promising to do what it already expects to do.

How about China’s energy intensity? First of all, notice the “slick trick” of using 2005 as the base year. According to the EIA, China’s GDP in 2005 was about $US5 trillion (purchasing power parity, $2005). With carbon dioxide emissions of 5 billion mt, carbon intensity was about 1 kilogram of carbon per $ of GDP. The DOE projections assume China’s GDP reaches $33 trillion by 2030. With carbon emissions projected at 14 billion mt, carbon intensity would be around 0.4 – a 60% reduction. In other words, China has once again promised to do pretty much what it expects to do anyway.

That leaves us the third promise – increasing non-carbon technologies to 20% of total energy use by 2030. According to the EIA projections, China’s total primary energy consumption will increase from about 130 quadrillion British Thermal Units (quads) today to about 200 quads by 2030. Meeting their Paris promise would thus require 40 quads of non-carbon energy. The EIA projections indicate 10 quads of nuclear power and 22 quads of hydro and other renewable power for a total of 32 quads with no new policy initiatives. To keep its promise, China therefore needs an additional 8 quads of non-renewable power. Assuming that the Chinese accomplish this goal by switching 8 quads of energy from coal (the fuel with the highest carbon emissions) to a zero carbon fuel and assuming that coal emits 93 kilograms of carbon dioxide per million Btu, this switch would reduce Chinese carbon dioxide emissions by about 0.8 billion mt per year, equivalent to 6% of their projected emissions or 2.5% of the IPCC’s minimum required reduction.

Even if China were to take its INDC promise seriously and accomplish its goals, about 80% of Chinese energy demand in 2030 would be met by fossil fuels.

Finally, let’s look at India. India’s INDC is to (1) reduce the carbon intensity of its economy by 33-35% by 2030 compared to 2005 (slick trick!) and (2) increase the share of installed non-fossil power generation capacity to 40% by 2030.

According to the EIA numbers, India’s GDP in 2005 (purchasing power parity, $2005) was $2.4 trillion. With carbon dioxide emissions of 1.2 billion mt, carbon intensity was 0.5 kilograms of carbon dioxide per dollar of GDP. The EIA projections indicate that in 2030 India will have a GDP of about $13 trillion and carbon dioxide emissions of 2.7 billion mt per year. Carbon intensity would therefore be about 0.2 kg of carbon dioxide per dollar of GDP, less than half the 2005 level. India’s carbon intensity promise is therefore meaningless.

How about the promise of 40% of power generation capacity. The use of capacity as opposed to actual generation is another slick trick. With proper maintenance, a coal plant can operate 80-90% of the time. Thus, one kW of coal capacity can generate at least 7,000 kilowatt-hours (kWh) per year (24 X 365 X 0.9). Solar power, on the other hand, generates power only about 15% of the time, and not necessarily when you need it. A kW of solar capacity will therefore generate on average only about 1,300 kWh per year – less than 20% of what coal plant can produce. Wind is a little better, but 1 kW of wind capacity still generates on average only about 45% of what a coal plant can produce. In tracking India’s INDC, however, each kilowatt would be counted as the same.

Today, India has about 300 billion watts (GW) of installed electrical generation capacity. Of that amount, about 5 GW are nuclear, 43 GW hydroelectric and 23 GW other renewables, mostly wind. India’s starting point is thus about 24% non-carbon generating capacity. Note that the figures for generation look quite different. India currently generates about 1,200 billion kilowatt-hours (BkWh) of electricity, but only 190 BkWh or 16% is from non-carbon sources.

The EIA does not publish specific forecasts of electrical generating capacity, but the International Energy Agency in Paris does. According to their 2015 outlook for India, based on India’s official government plans and policies, generating capacity will increase from today’s 300 GW to about 750 GW by 2030. That amount includes 24 GW of nuclear, 83 GW of hydro, 102 GW of wind power, 100 GW of solar and 18 GW of other renewable energy. The total non-carbon is thus 327 out of 750 or 44%. India’s INDC promise is therefore their base case. It’s also worth noting that non-carbon generating plants would produce only about 30% of India’s electricity from 44% of its installed generating capacity. Even with these ambitious targets for nuclear and renewables, almost 90% of India’s energy in 2030 would be met by fossil fuels.

The INDCs of the US, the EU, China and India, which together account for two-thirds of global carbon dioxide emissions, would thus total 2.4 billion mt per year or just 8% of the IPCC’s minimum required reduction. In other words, the IPCC says that we have 35 years to reduce emissions by 30 billion mt per year, and the top emitters are promising 8% of that amount in the first 40% of the available time, assuming no slick tricks are applied to ease the way and assuming that countries bother even to try to keep their promises.

The Paris agreement also “strongly urges” rich countries to finance low-carbon energy in poorer countries to the tune of $100 billion annually between 2020 and 2025. Even if these funds are actually forthcoming, however, how significant would such a fund be?

The world currently consists of about one billion people in wealthy countries and 6 billion in poorer countries who would benefit from the fund. $500 billion over five years is thus about $83 per person. Experience tells us that the bulk of this money would be stolen or wasted, but let’s assume it all goes to energy infrastructure development. If the poor countries rely on fossil fuels for their energy supply, the International Energy Agency estimates that they will need roughly $25 trillion in energy infrastructure investments over the next 20 years to provide adequate electricity, oil and natural gas for their populations that are growing in both number and wealth. That works out to roughly $4,000 per capita. The climate activists in Paris are asking poor countries to base their economic growth on an energy supply system which is 3-4 times as expensive as the traditional fossil-fuel system, suggesting that a non-carbon economy will need energy infrastructure investments of $75-100 trillion or $12-16,000 per capita by 2035. In return, the wealthy countries promise to finance roughly 0.5% of that amount. Seriously?

In summary, the world has just negotiated a climate agreement that provides negligible carbon reduction without any binding obligations or enforcement mechanism. Rich countries promise to toss in a few bucks 5 years from now to encourage poor countries to participate. The reply of the climate activists to this criticism is twofold. First, Paris is just a first step. After 10 years, countries will come together and agree to even more stringent carbon reduction targets. In other words, we have made a promise to make a real promise in the future. Remember that Kyoto, which was signed 18 years ago, was also supposed to be a first step.

The second argument is that this agreement sends a “signal to the marketplace”. This argument is valid, but not in the way climate activists think. Businesses, investors and consumers respond to two signals: (a) regulations with the force of law and (b) price. The Paris agreement contains neither of these things. In fact, the agreement signals to the marketplace that governments have no intention of making serious efforts to decarbonize the economy. That allows corporations to green up their reputations by supporting an effort that carries no real risk for them. More than 70 companies have now signed the White House’s American Business Act on Climate Pledge. Why not? ExxonMobil’s experience has already taught them that opposing the climate agenda can hurt your brand.

Governments have kicked the can down the road because they understand that carbon mitigation is prohibitively expensive and has no upside. Perhaps 10 years from now the pause in global temperatures will have ended, the global economy will be growing rapidly, budget deficits will have disappeared, entitlement programs will have been fully funded and radical new technologies will be available to provide zero carbon energy at low cost. Under any circumstances, almost all the politicians who negotiated the Paris agreement will have retired, and the problem of keeping and extending the climate promises will fall on someone else.

For the last 40 years, US energy policy has been a long string of broken promises, starting with Richard Nixon’s 1974 promise of US energy independence by 1980. In 1980, Jimmy Carter promised 2 million barrels per day of synthetic fuels within five years and commercial fusion energy by the year 2000. The synthetic fuel program was abandoned in 1985, and we still can’t make a fusion reactor that really works. In 2007, George W. Bush promised commercially viable cellulosic ethanol by 2017. We’re still waiting. In 2011, President Obama promised one million electric cars on the road by 2015. We will miss that target by 65%.

Politicians have come to understand that the real value of these promises is in their short-term political impact. They create an impression of action, which will last for a little while anyway. By the time the promise comes due, most people (and the media) will have forgotten all about it, and the promise will already have served its political purpose.

In a sense, the US is a true leader in climate policy. We have shown the world that most climate activists can be appeased with strong talk and symbolic actions. The Chinese and Indians, who have never bought into the climate change agenda, have learned this lesson well. The US is asking them just to talk the talk, and they are happy to oblige, provided there’s a little cash in it for them.

The Paris agreement is not a disaster, just a waste of time and money. Most of us would prefer an honest policy debate about real risks and trade-offs, but both politicians and climate activists have avoided such a debate like the plague. If the public fully understood the immediate benefits of carbon dioxide, the non-existent science behind climate catastrophe and the damage to their living standards implied by serious attempts at decarbonization, the climate change agenda would evaporate. If a meaningless international agreement is all it takes to keep the climate activists happy, they are welcome to it. The rest of us can get on with our lives.


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