It is up to government to move towards a thorough clean-out of anti-environmental subsidies. In the energy market, major hidden – and not so hidden – subsidies exist, even more so if we emphasize that producers must face the full environmental cost of their decisions. The subsidy for fossil fuels has been estimated at $20–30 billion in the OECD countries, without counting externalities at all.18 Unless some of that money is directly and explicitly turned towards new technologies, innovation is likely to be blocked. Indeed, without substantial government intervention there is virtually no chance of effective transformation in electricity production. National grids are geared towards a centralized system of power plants; since cost reductions with new technologies usually take years to come about, there is a gap that capital markets cannot fill.19 Some of these factors also apply to transport, the fastest-growing source of emissions.
Against this backdrop, consider the example of the hyper-car, first proposed by Amory and Hunter Lovins.20 The hypercar aims to reduce fuel consumption by over 80 per cent and the emissions involved in making the vehicle by as much as 90 per cent compared to the most economical vehicles of similar capacity that exist at the moment. The machine would be made out of materials that reduce its weight to a fraction of the average vehicle today, without sacrificing its ability to withstand accidents. It would be modelled to reduce air resistance to a minimum and be powered by a hybrid-electric drive using hydrogen fuel cells. Trucks and cars made this way would be able to return from between 80 and 200 miles per gallon and they would be neither small nor sluggish.
The hypercar, the Lovinses argue, would transform other industries around it. It would displace one-eighth of the steel industry, saving that proportion of emissions. A wholesale move towards hypercars could save the equivalent of the total OPEC production of oil. It would also aid in introducing inexpensive fuel cells in other industries. In addition, hyper-cars would generate surplus electricity that could be fed back into the national grid.
At the moment, manufacturers are managing steadily to increase the overall economy of their vehicles, but nowhere near to the degree which is already in fact practicable. The main reason is the technological inertia bound up with an industry locked into existing markets and the surrounding structure of supply. Public policy is required to begin a transition to new networks and surrounding support systems. Such policy will have also to help ensure that the electricity consumed by low-emission vehicles itself comes from low-carbon sources.
How can government minimize the problem that the money spent funding best guesses for innovation might be wasted? One way is to support a range of technological possibilities, the equivalent of a portfolio approach in spreading market risk. Diversity in energy supply has additional benefits too, including provision of greater security should any one source become threatened. There is a downside, however, since there is a danger that subsidies and incentives may become spread too thinly to have their desired effects. Governments and businesses have to accept that some technologies may fail or prove to be a dead end, while others, perhaps even the most influential ones, may slip in from the side.
We should recognize also that it is not only large, established industries that can form lobbies which tend to act in favour of the status quo. The same can be true of smaller producers, especially where there is a clear mechanism of subsidy involved – the proponents of wind or solar power, for example, are likely to push their own cases forcefully. One responsibility of government is to make sure that state funding does not produce the equivalent of welfare dependency, where those who receive support come to treat it as a natural right and then resist change.
There are few technologies that do not have spill-over effects, so, in practice, government support of innovation has to be connected with broader concerns. Where spill-over effects are positive, they may need state support, or an appropriate regulatory framework, to have greatest effect. Thus, materials developed in the motor industry may have direct application to building more energy-efficient homes and workplaces if technology transfer is actively rewarded. For these reasons, holistic thinking is going to be essential in promoting technological innovation. Any fundamental technological breakthrough is going to be felt throughout society, as happened in the case of the internet. Urban planning and land regulation must be flexible enough both to promote and to respond to transformations of this sort.
Eco-towns might help explore the advantages and difficulties of future changes that later become more generalized. It is evident that innovative forms of technology could create complex problems of urban and rural land planning. The days when power stations could be located in the centre of cities, as used to be the norm in the early twentieth century, are long gone. Even in remote areas there may be deeply felt opposition to the building of nuclear power stations, which is why countries contemplating nuclear renewal are proposing to build on existing sites. Many citizens also have aesthetic objections to wind-farms.
Wherever new initiatives are made, whether in technology itself or in areas where its impact is felt, areas of uncertainty are created. A technology that is unproven has no confirmed price and it is difficult to cost the consequences of its widespread adoption, given all the factors just discussed. Take for an example a problem of far-reaching importance – the development of new ways of storing electricity. As in the case of the hypercar, the starting-point is likely to be a shared vision of what could be achieved, involving industry, government and other agencies.21
Creating new ways of storing electricity is an issue that goes well beyond solar power and other intermittent renewable energy sources. It could have an enormous impact upon the power grid, on transportation and other areas. For instance, it would help directly with one of the problems of some leading renewable technologies: that they only provide intermittent supply. Various means of electricity storage are conventionally recognized, such as batteries, fly-wheels and compressed air.22 A range of other possibilities exists, awaiting possible commercial development. These include flow batteries, lithium battery systems, supercapacitors and power conversion systems. Smartgrids, published by the European Commission, offers a vision of the future of Europe’s electricity networks that includes anticipating more effective storage technologies.23 It not only traces out the implications in a holistic way, but proposes how partnerships between governments and business can overcome early investment hurdles.
As already stated, some of these technologies will turn out to be going nowhere, as is the case in all other areas where governments offer subsidies or incentives – or where private firms invest without such support. Failures can be accompanied by lessons, since they may generate significant knowledge along the way, and closing down possibilities can, in principle, lead to better focused investment. However, exit strategies should be in place from the beginning, at least as far as the state is involved, or there is the chance that good money will follow bad. Anyone who studies the history of early post-war planning will recognize that this danger is very real.
Promoting job creation
Job creation through the spread of renewable technologies sounds like a prime form of economic convergence – and so, in principle, it is. ‘Wind power has created thousands of new jobs’, it is often said of a given country – for instance, Germany. Yet put that way the claim is too simplistic, since jobs in new technology areas may come at the expense of others in more traditional energy industries where some workers, as a consequence, become unemployed. Moreover, most new technologies reduce the need for labour power. Wind and wave power, for example, typically employ fewer workers per unit of energy produced than coal-mining. Industrial policy planned with climate change objectives in mind cannot be based upon an easy equation between economic convergence and job creation.
In the environmental literature, lifestyle change is normally identified with reducing waste and profligacy. These emphases are no doubt correct, but there is no reason why other avenues of taste and self-expression should not open
up as new technologies develop. We live in a post-industrial society and that will not change whatever else happens. The transition to a low-carbon economy can be expected to create new jobs, but they are likely to come about as much through developments in lifestyle or taste as from changes in the energy industries as such. Who would have thought that, having put up with inferior coffee for years, US and British consumers were secretly longing for a better product and for numerous varieties of it? Well, presumably they weren’t, but an opportunity was spotted, and initiated a trend. Much the same is likely to happen, along a variety of dimensions, as the world moves towards low-carbon technologies and lifestyles. Just where the space for such initiatives will exist, however, is essentially unpredictable.
The United Nations Environment Programme (UNEP) has published a comprehensive analysis of how environment-friendly jobs might be created.24 In true UN style, it starts with a glossary of acronyms used in the text – no fewer than 182 of them (one of which is ‘UNEP’ itself). Such jobs are defined as work in agriculture, manufacturing, research and development and services ‘that contribute substantially to preserving or restoring environmental quality’.
The report says that employment will be affected in four main ways by an increasing concern with environmental quality, including responding to climate change. First, some additional jobs will be created without substituting for others, such as where pollution control devices are added to existing equipment. Second, certain jobs that are lost as new technologies advance will be directly replaced, as for instance where landfill or waste incineration are replaced by recycling. Third, others will disappear without being replaced – as where the production of packaging materials for manufactured goods is simply discontinued. And finally, yet others will be transformed and redefined, either through technological change or as the tasks involved are altered – such as in the construction industry. The report has the virtue of emphasizing that some industries will have to go through difficult processes of restructuring and there will be winners and losers.
The role of public policy, the report rightly continues, will be vital. Subsidies for environmentally harmful industries will have to be phased out, alongside the introduction or improvement of those promoting energy-efficient practices. Carbon taxes should be used to transfer the tax burden away from labour and towards taxing the sources of environmental pollution. Direct regulation is needed in many areas, in the shape, for example, of building codes, energy-efficiency standards, or the control of land-use and the eco-labelling of products. Governments should commission in-depth modelling and econometric studies to assess the likely consequences of investments and controls.
The proportion of workers currently involved in renewable technology industries is tiny, but will inevitably expand greatly. At present, some two million workers worldwide are estimated to be directly employed in such industries. About half of these are working in biofuels, mostly in growing and collecting the plants used to produce them. Since there are major worries about the implications of first-generation biofuels for food scarcity, this proportion may actually decline, at least in the short term. As far as other renewable technologies go, almost all the employment generated thus far is concentrated in a handful of industrial countries.
The problems of planning noted earlier apply with some force to environmental job creation. Innovations in renewable technologies cannot be predicted except in a general way, while by definition the implications of possible breakthroughs are unknown. There are huge gaps in available data about the environmental consequences of existing work practices and ways of life, especially as far as the developing world is concerned. In all countries, should environment-friendly jobs dramatically increase, there are major implications for education and training, knock-on implications for the work–life balance, pensions and many other areas.
Well before the arrival of the current financial crisis, US authors Michael Shellenberger and Ted Nordhaus had proposed a ‘New Apollo Project’, aimed at freeing the United States from its dependence on oil and at the same time creating new jobs. In a swingeing critique of America’s environmental movement, which they see as having been narrow-minded and negative, they argue for a strategy that will ‘create something inspiring’ and will ‘remind people of the American dream’. Together with others, they have put together a coalition of groups, involving business, labour unions and community agencies, to push forward their proposals, which involve large-scale expenditure on the part of government to advance low-carbon technologies and thereby create ‘millions of jobs’.25
In The Green Economy, Van Jones proposes that state-led investment in low-carbon energy and energy efficiency could be a means of involving the less well-off in the concerns about climate change.26 Many of the jobs involved in the two areas, he says, are not high-tech, but are middle skill ones. A detailed programme, centred on stimulating economic recovery, has been set out by others at the Center for American Progress. This involves public-sector spending in six main areas: improving the energy efficiency of buildings; expanding public transport and freight; setting up smart electricity grids; building wind farms; building solar power installations; and developing next-generation biofuels.27 According to its initiators, Robert Pollin and colleagues, the programme would help renew manufacturing and the construction industry and also be a major source of new jobs.
Unlike others who make such claims, Pollin et al. offer an analysis of the conditions under which job expansion can proceed without significant job loss elsewhere, at least in circumstances of recovery from recession. A $100 billion government investment programme, according to their analysis, could generate 1.7 (net) million new jobs. Like Van Jones, they stress that such investment will offer a substantial proportion of entry-level jobs as well as more skilled and technical ones.
I am in favour of such proposals, especially in an American context, since the US has so much ground to make up on most other industrial countries in terms both of emissions reduction and energy saving. However, care will have to be taken about how they are instituted and plenty of difficulties have to be resolved. If they are to work, training will have to be provided, at all levels, and on a substantial scale – this means up-front expenditure without any immediate pay-back. Investment in infrastructure will be crucial, and will have to be planned over a longer period than just at the time of economic recovery. Consistency of policy will be called for. There is not much point investing in renewables on the large scale if the effects on such investment are negated by policy decisions taken elsewhere. In the US, for example, a lot will depend upon what attitude the government takes towards the failing car industry, which is now demanding state support.
Most important of all, policy initiated to aid short-term recovery will have to be directed towards what happens later. The world financial crisis was not just a routine cyclical movement of the economy. I would see it as a ’1989 of deregulation’ – a transition perhaps as fraught with implications as was the collapse of Soviet communism, and as likely to be as protracted and complex in its consequences and implications. I have no quarrel with the view that there has to be a profound restructuring of financial markets themselves and of banking.
However, as with most forms of peering into the future, it isn’t at all clear at the moment just what actions will be taken. Moreover, we will have to be very careful not to revert to a traditional model of the state, or to throw away the benefits that complex market instruments offer, including derivatives and the hedging of risk. For instance, as is discussed later in the book, complex insurance mechanisms, which are all about risk transfer, will be essential to cope with adaptation to climate change. The state will never be able to provide more than a bare minimum of the cover that will be needed.
It is up to policy entrepreneurs to deploy the range of interventions against such an eventuality mentioned earlier in the chapter. Possibilities of job creation in conditions of recovery will, in my view, have to be much more broad-ranging than those men
tioned in the sources discussed above; and the knock-on consequences of job-creation strategies will have to be thoroughly examined. It is at least possible that an economy with a high proportion of its energy mix coming from renewables could be much more stable than one that depends on external energy sources. The best way of keeping climate change policy in the forefront will be to deploy the strategy suggested throughout this book – work to keep it at the cutting edge of economic competitiveness, integrate it with wider political programmes and avoid empty moral posturing.
Carbon taxes
Taxation regimes will play a significant part in stimulating innovation and, to some extent, in controlling its direction. Taxation is one of the main levers of state policy, and will of course have a broader role too in the struggle to reduce emissions. In the debate between writers who favour carbon emissions markets and those who place most emphasis on carbon taxes, I incline towards the latter, although obviously the two can coexist.
In what follows, I shall argue that we should not focus only on carbon taxes as such, but upon the consequences of a given fiscal system as a whole for outputs that are relevant to climate change. We should recognize that existing taxes which have not been devised for environmental purposes may nevertheless in some part serve them – in that sense, they are carbon taxes. For instance, taxes invested in railways can serve to reduce emissions in spite of the fact that such a concern was not what prompted them originally.
The reverse also applies. Taxes may have adverse, although unintended, effects as far as environmental issues are concerned. Such effects might be fairly obvious, as in the case of airline fuel being exempt from taxes applied to other forms of transport. But they can be more diffuse as, for example, where the location of a supermarket is left open to market forces, with no thought given to environmental implications.
The Politics of Climate Change Page 17
