There’s something a little disappointing about the response of many of the world’s top economists to the issue of climate change and the move away from carbon fuels.
There seems to be a lot of sympathy for the views expressed by Nigel Lawson in his book, An Appeal to Reason – a real cynic’s view of global warming.
The cost of fighting the terror of climate change is so great that it would be cheaper just to accept it, or so goes the gist of the argument put forward by many of the land’s top economists. See it this way. Take into account the cost of global warming by deducting an interest charge from future costs. So, assume the rate of interest is 5 per cent. It would for example only be worth forking out £100 now for something that will be worth £105 next year. And it will only be worth forking out £100 now for something that will be worth £1,000 in fifty years’ time, and just over £10,000 in a hundred years’ time.
So let’s assume the cost of climate change in one hundred years will be £1 trillion. Assuming an annual rate of interest of 5 per cent, one could only justify spending £10 billion now on avoiding it, but no more.
So that may explain some of the cynicism.
The debate is polarized, however, because on the other extreme, you get those who say we need to change the way we live. They say the quest for economic growth is the root of all evil, and that we all need to live a more sustainable lifestyle. Presumably, they have in mind a lifestyle which involves us all living in mud huts, and sitting around a fire in the evening listening to stories.
But both sides of the debate are wrong. It is possible to be pro economic growth, in favour of the forces of capitalism, and yet be in favour of the world embracing a sea of changes to fight climate change. Being pro the environment and pro economic growth are not mutually exclusive.
And economic theory provides the reason why this is, too. So when economists talk about the cost of fighting climate change, they ignore the very toolkit they cling on to when making other pronouncements about the importance of free trade and globalisation.
And to illustrate why this is so, consider a report in the New Scientist magazine this week. If the conclusion of the report is right, we are close to passing a major stepping stone on the route to a cost effective alternative to burning carbon fuels.
The trouble with wind power and solar power is that they are not predictable. One moment it is windy, the next becalmed. One moment the sun is out, the next a dirty big cloud gets between you and it. Besides, even in areas where the sun is more predictable, such as the Sahara, it doesn’t tend to shine much at night-time.
So that’s the snag. With wind and solar power you may have ample supply on some occasions, but not enough on others; so you need an alternative, more reliable source of supply as back up. It is even argued that because you can’t just turn energy generated by carbon fuels on and off as if by a tap, these alternatives need to be there all the time, permanently creating energy. For that reason, it has been argued that although Denmark is one of the best endowed countries for wind turbines per capita in the world, it is still over reliant on traditional means of generating power.
The problem can be cracked if we come up with better means of storing electricity, so we can store all that excess energy created when it’s windy or sunny, and use it when the sun goes in or the wind stops blowing.
Take lithium batteries. They employ dense lithium cobalt oxide. This is heavy, and the heavier an object, such as a car, the more energy required to power it. This is the big snag with electric cars.
But according to New Scientist, Peter Bruce at the University of St Andrews, working in conjunction with scientists from the Universities of Strathclyde and Newcastle, has come up with a new idea, employing technologies used in hearing aids. The idea is for a kind of air battery, that takes oxygen from the air, saving on the need to store the oxygen in the battery. Apparently, the prototype has the potential to have a power to weight capacity which is eight or even ten times greater than in normal batteries.
So what has this to do with economics?
Economic theory says one of the key building blocks of wealth creation is specialisation. That is why trade is important, it facilitates specialisation. Adam Smith was the first economist to realise this, and the principle has become almost sacrosanct within the discipline of economists.
The more we do something, the better we are at doing it.
The old way of generating power has had billions, even trillions of pounds invested into it. We have become rather good at it. That is why methods of creating energy via burning carbon are so effective.
The problems associated with renewable energies are all fixable. But for that to occur, we need to invest. The more we invest, the greater our degree of specialisation in the generation of renewable energies, and the most cost effective they become.
According to the May 2008 edition of Scientific American: “The energy striking the Earth for 40 minutes is the equivalent to global energy consumption of a year.”
Once our production of renewable energy reaches a certain level that we can see the benefits of specialisation, the cost will drop like a stone, and could ultimately become a cheaper source of energy than carbon.
That is why economic growth and the quest for a sustainable way of living can be one and the same.
© Investment & Business News 2013