Dieter Helm’s latest book The Carbon Crunch: How we’re getting climate change wrong – and how to fix is divided into three parts: Why should we worry about climate change? Why is so little being achieved? What should be done? There is no doubt that this is a timely book, it has stimulated welcome debate and is a powerful read. He is right that we need an accelerated change in our climate and energy system; however, his solutions support the conventional system and undermine those policies which are currently trying to engender that change.
The book reads of someone starting with a clean sheet but, of course, whilst easier, this is not what climate change policy is like. While not perfect, the climate change policies we have developed over the last 20 years have become a large, interwoven political, social, technical, commercial and institutional sector.
Any new policy has to develop from here with political buy-in and acceptance. Sweeping the current policies aside, or allowing them to wither would have a major negative impact in Britain unless the alternative outcome was absolutely certain – and this is just not the case with Helm’s solutions. By the end of the book, one is left think what was all the hullabaloo about?
Helm’s Critique and Solutions
Helm explains the drivers of increasing global energy use and carbon consumption and the scale of the climate change challenge. He then unleashes a powerful, and often unfair critique on the woeful failure of international governance to rein in those emissions and the current domestic low carbon climate and energy policies: the emission trading scheme, ‘current’ renewable energy which he sees as inefficient and expensive; energy efficiency, which he sees as a good thing; and to a lesser extent nuclear power, which he argues is expensive and has waste issues.
Fixing climate change would occur, according to Helm, if Britain implemented (1) a domestic carbon tax (with a learning-by-taxing process so that it is iteratively raised until it achieves a level of carbon emissions in line with a 450 ppm CO2 target to match a 2 degree C average global temperature rise – but with no details of how this will be achieved in detail); (2) a border tax with border carbon adjustments on imported carbon products; (3) a re-focussing away from spending money on current renewable energy and energy saving mechanisms to increased research and development expenditure (on improving current technologies, encouraging a convergence between communication and energy technologies, storage and battery technology and new electricity generating technologies).
Working virtuously together, these solutions would provide appropriate signals to enable the market to decide what direction to follow, and this would (4) lead to a move from coal to gas generation as a short to medium term transitional fuel, and then onto ‘future’ renewables when the impact of the increased R&D send kicks in.
Problems with the Analysis
There are concerns about Helm’s analysis which revolve around his overly negative treatment of renewable energy technologies; the fact his solutions incorporate fundamental misunderstandings about how technologies develop, including the needs of investors, the weakness of his implementation plan,; his failure to take account of political realities; and that ultimately his solutions do not encourage change, the key thing that is needed.
A remarkable aspect of the book is that while Helm is very critical of the green movement and its lobbying he does not mention the fossil fuel lobby at all. This failure to include an analysis of the impact of the fossil fuel lobby or incumbents who want to maintain the current system undermines his argument because the effect is to neglect a discussion of the difficulties of undertaking change within the current framework.
Given that renewable energy has been widely supported since 1990, there is a great deal of evidence about what policies are successful in terms of deployment; cost reduction and so on. We know that learning by doing through deployment and the market pull of technology specific policies creates a virtuous cycle when linked to R&D, so Helm’s focus on R&D without the market pull will be less effective.
We know innovation occurs incrementally. ‘Future’ renewable energy technologies will develop out of ‘current’ renewable energy technologies. The argument that somehow inefficient ‘current’ renewable can be put on hold until magically these ‘future’ renewable technologies develop from increased R&D is just not credible.
A sector wide carbon tax – whether domestic, European or Global - is not enough on its own to provide confidence for investors to invest in technologies. Investors need technology specific certainty. Thus, Helm’s carbon tax will lead to minimal investment; and will therefore not hook up with the increased R&D to lead to ‘future’ renewables. Nor is it possible to ‘buy in’ these future renewables from other countries because each technology requires an ‘enabling environment’ around it and that takes time to build up in an interwoven manner around the technology itself.
This undermines Helm’s solution that a carbon tax plus R&D will stimulate a move from coal to gas to future renewable. Future renewables will not be there; and therefore the combination of a carbon tax and R&D at root supports gas and the current, conventional energy system. Even were this not the case, it is extremely unlikely that the fossil fuel lobby would accept a change without a fight – but this goes unmentioned in the book.
Helm’s argument about the super-abundance of gas is also suspect. We know the recent shale gas finds have increased the global gas resource but we still do not know what either its environmental or economic costs will be. Moreover, if large swathes of the globe move to gas then domestic issues around security; price volatility and its impact on the fuel poor become important.
Implementation Issues
The Carbon Crunch does not spell out how the solutions will be implemented but it implies a radical change in current policies. We, the UK, would allow the EU carbon trading scheme to wither, and presumably replace it with a carbon tax – already in place domestically to a degree now – and then work towards a EU carbon tax.
This has been debated for two decades and the EU has plumped for a trading scheme because the political has not been there for a carbon tax, although has just announced an agreement that a carbon wide tax would be beneficial. Helm argues that gradually an international carbon tax would develop from a bottom up momentum of individual countries, driven by theincentive within border taxes to start to implement national carbon taxes. Again, there is no political reason why this would be the case, and a great many reasons to question why it might not be. Irrerspective of this, technical change occurs as a result of investment and carbon taxes do not provide sufficient confidence for investment in new technologies – they can reduce the use of something, for example petrol, but they are not a vehicle for change.
Helm implies that the domestic renewable energy and energy efficient policies would be wound back hard or removed and replaced by a ramped up R&D programme. He does not say whether this means also unwinding the Contract for Difference Feed in Tariffs currently being argued for to support low carbon energy, including nuclear power, in the Energy Bill.
The energy sector, for different reasons from Helm, have been arguing for a rethink in the energy bill but this seems very unlikely at this point. Even if the energy bill were pulled, there would be as much, if not more, criticism of Helm’s carbon tax / R&D solution as its current content.
But possibly the big point here is that Britain has slowly but surely built up a sustainable energy sector. To jeopardise this for ‘future’ renewables is politically unrealistic in the extreme. Not only will Britain have to pay fines if it does not meet its EU Renewable Energy targets (because we are legally bound by the EU Renewable Energy Directive), , but it is the success story that delivers the much needed change in the energy system, whether here in Britain or globally.
Moreover, it would be a parochial policy. It is not just Germany and Denmark which are following transitional energy policies, the opposite of Helm’s, based around renewable, efficiency and smart communication. This is the way a very large chunk of the world is going and we in Britain need to keep up with this as best we can. Cutting ourselves off from it in the short term in favour of increased R&D so that we can come back into it later on in an improved position is pie in the sky.
Conclusion
All in all, Helm, a very influential figure in the energy world, has written a book purporting to provide answers to the challenge of climate change. Because he misunderstands technology policy and investment requirements and does not situate his analysis in real-world policy making his solutions, de facto, support the status quo of the current energy system. This is not a book about ‘fixing’ climate change. This is a book arguing for theoretically efficient economic instruments rather than the political realities we have to live with.
