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February 28, 2008 - Alice in Wonderland

Paul Ekins is an old mate of mine – indeed, a co-founder of Forum for the Future. He is now Professor of Energy and Environment at Kings College London.

Paul is a seriously rigorous academic, very focussed on whatever task is in hand, with very high expectations of himself and everyone he deals with. Despite all that, he is normally pretty mild-mannered and pragmatically recognises that we are in for a long haul when dealing with policy makers. So for Paul to fire off the following broadside for The Guardian a couple of weeks ago is really quite something:

“This is Alice-in-Wonderland economics. One can just imagine the White Queen, who taught herself to believe six impossible things before breakfast, saying: ‘we are on a low-carbon emissions trajectory because I say we are, and that means I can omit as much carbon as I like!’. When future generations, struggling with the multiple ills that climate change will bring about, look back on this sort of policy sophistry, they will realise just how comprehensively, and knowingly, this generation has sold them down the river”.

What’s got Paul so worked up is a new initiative from Defra that I would actually much prefer to be singing the praises of – namely, its decision to introduce a “shadow price for carbon” in the shape of a mandate for all public sector bodies (theoretically!) to include in any Cost Benefit Analysis they may be doing, a shadow charge for every tonne on CO2 that is emitted.

So far so good. But obviously it all depends on where you set the price: at £1 a tonne, who cares? At £100, that’s serious. Defra has gone for £26, claiming that this is what Sir Nick Stern recommends in his landmark report on the economics of climate change back in December 2006.

In fact, the Stern Report offers a range of prices, this one being the lowest, estimated on the assumption that the world will have succeeded in stabilising emissions of CO2 at around 550ppm by 2050 – thus reducing the risk of massive climate-related economic damage.

And that is why Paul is spitting tacks. Given where we are today, in policy terms, the chances of stabilising at 550ppm are literally zero. So, following the good old adage of “garbage-in, garbage-out”, that wholly unrealistic assumption results in a wholly unrealistic shadow price, which (surprise, surprise) promptly resulted in a wholly unrealistic (and indeed appallingly irresponsible) Cost Benefit Analysis which has concluded that a third runway at Heathrow will be “sustainable” as well as economically viable! Oh please!!

If Defra’s economists can’t do better than that, who is going to constrain DfT’s runway-building mania? Something of an own goal I would say.

Posted on February 28, 2008 1:05 PM | | Comments (2) | TrackBacks (0)

July 28, 2008 - How bad is the economic downturn?

There must be millions of people sitting around in the beautiful weekend sunshine pondering one simple question: just how bad is this “downturn” going to get? Will it turn into a “technical recession” (two quarters of continuous negative growth) from which we recover relatively quickly? Or are we in for a full-blown, thirties-style Depression? Or are we already over the worst?

One group of campaigners (authors of The Green New Deal report, published last week by the new economics foundation) are in no doubt: "we expect that the sub-prime debt crisis (in the US) will soon come to be seen as just the first domino to fall in a line of adjacent dominoes, threatening a systemic crisis. This will lead to a massive wave of corporate defaults. Because their profitability is too low to repay costly debts, these companies will likely default, tipping their lenders-banks and institutions such as Hedge Funds – into crisis."

Right or wrong, their analysis of how we’ve got into this mess is devastating: irresponsible deregulation of the financial services sector, leading to unethical, greedy and even fraudulent behaviour; a deliberately induced credit crunch, with financiers borrowing and lending almost without limit, leading to totally unsustainable asset inflation – particularly in housing markets; and a total failure to crack down on tax havens and dodgy accounting systems that allow corporates and the ultra-rich to prosper at the expense of the vast majority of citizens today. As Nicholas Sarkozy has said: "we have to put a stop to this financial system which is out of its mind and which has lost sight of its purpose."

The credit crunch is the first of three "crunches" that "The New Green Deal" brings together, the others comprising much more familiar territory around climate change and soaring energy prices driven primarily by an encroaching peak in oil production. Each of these crises could of course be addressed separately, but it is precisely their "perfect storm" convergence that renders contemporary capitalist economies so unprecedentedly vulnerable.

It’s also this convergence that makes the proposed solutions so compelling. Drawing deeply on the analogy with President Roosevelt’s New Deal in the early 1930s, when he dragged America out of the worst impacts of the Great Depression, the Green New Deal depends on two essential thrusts: re-regulation of financial services (including the reasserting of government control over credit and interest rates), and the re-flation of the economy through a £50 billion a year crash programme, over 10 years to reduce – dramatically reduce! – both emissions of CO2 and other greenhouse gases and our chronic dependency on fossil fuels. A new "carbon army" will create hundreds of thousands of jobs, "make every building a power station", eliminate forever the scourge of fuel poverty and severely curtail the worst activities of profiteering energy companies.

Crazy stuff? Possibly. But its worth bearing in mind that’s exactly what all the usual vested interests kept telling President Roosevelt as his New Deal set about rescuing the United States from one of the worst periods in its history.

Posted by Jonathon Porritt on July 28, 2008 4:31 PM | | Comments (4) | TrackBacks (0)

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