The Politics of Climate Change (22 page)

Figure 6.1  Selected indicators and top five countries in terms of renewable energy sources

Source:
REN21, 2010. Renewables 2010 Global Status Report (Paris: REN21 Secretariat)

The first could involve interventions such as placing shields or deflectors into space to reduce the amount of solar energy reaching the earth. The second would mean either removing greenhouse gases directly, or using the natural world to do
so – for example, by seeding the oceans with substances that would cause them to absorb more CO
₂
. Some place faith in the possibility of constructing a technology that will extract CO
₂
from the air and allow it to be stored.
¹¹
Small-scale models of such ‘scrubbers' exist. Just as in clean coal technology, the CO
₂
would have to be sequestered – which, given the quantities involved, is a problem. It will be a mammoth task to develop the technology on the scale needed to make a meaningful impact. Yet its potential is large, since it is the only technology known at the moment that could actually reverse the causes of global warming.

The Royal Society notes that there are no major programmes of research on any of the methods considered, and proposes that such programmes be instituted, since, otherwise, discussions of geo-engineering will remain wholly speculative. International scientific organizations should coordinate a programme of research that would provide concrete evidence about what might be feasible.

As there are no guaranteed technological solutions, radically increasing energy efficiency has to be high on the agenda. The constructing of eco-homes and other environment-friendly buildings is likely to be very important for the future. The German
Passivhaus
has such high levels of insulation that it can be heated by the warmth of the human body alone, even in sub-zero temperatures. Dramatically heightened energy efficiency is the essence of Amory Lovins's notion of ‘natural capitalism', which he defines as capitalism that includes a full economic valuation of the earth's eco-systems.
¹²
It involves ensuring that natural resources – not just energy, but also minerals, water and forests – stretch many times further than they do today. His ultimate aim is not just to reduce waste, but to eliminate it altogether. In closed production systems, every output would either be returned to the ecosystem as a nutrient or become an input for another manufacturing product. A further objective would be to move away from the usual notion of making goods for consumers to purchase; instead, they would rent them. At the end of a given period, the producing company would buy them back. Manufacturers would thereby have an interest in concentrating on the durability of their products;
when they are exchanged against new ones, they would be wholly recycled.

These ideas may sound unrealistic, but in some ways and contexts they are closer to being realized than most of the hoped-for technological innovations, since they have already been put into practice. For example, a large glass-clad office tower in Chicago needed a major renovation some years after it was built. The glazing was replaced by a new type that let in six times more daylight than the old units, while reducing the flow of heat and noise fourfold. The need for lighting, heating and air-conditioning was reduced by 75 per cent. Lovins claims that in the US there are some 100,000 office towers of a similar type that are due for renovation, where the same order of saving could be made.

In terms of the near future – the next 20 years – it seems certain that a diversity of energy sources will be required to reduce emissions and break dependence on oil, gas and coal. In a now well-known article published in
Science
magazine, two Princeton professors, Robert Socolow and Stephen Pacala, identified 15 energy ‘wedges' that, combined with one another, could stabilize world emissions over the next 50 years.

They calculated that, given current patterns of economic development, emissions must be reduced by about seven gigatonnes to hold the increase in world temperatures at or below 2 per cent. Each wedge could reduce emissions by one gigatonne, so, all other things being equal, seven of the wedges out of the substantial number they identify would be enough to reach that end. The wedges include factors such as the successful deployment of CCS technology, nuclear power, increased fuel economy for vehicles, and improvements in building insulation.
¹³

The issue for governments is how best to encourage technological innovation without prejudging where the most relevant and profound innovations are likely to occur. Subsidies are
needed to provide a platform, since virtually all new technologies are more costly than fossil fuels. Innovation, however, is obviously not all of a piece. In a classic study, Christopher Freeman distinguishes a number of different levels of innovation, each of which might have to be dealt with in a different way as far as industrial policy is concerned.
¹⁴

There can be incremental improvements in a given technological context, based upon improved design and efficiency, as in the case of the evolution of jet engines. This situation can be distinguished from new inventions, which alter the nature of a product – as when those engines were invented in the first place. On a more comprehensive level, changes in a technological system can occur when innovations are made which affect that system as a whole – an example would be the impact the computer has had on office work. Finally, changes can be introduced whose effects are felt in almost all fields of social and economic life, as has happened with the coming of the internet. Those in the final category are, by definition, the most significant, but they are least predictable and hence the most difficult to encourage by active policy.

Analysis of the economics of innovation helps suggest where government might be effective in its interventions.
¹⁵
For instance, new processes or inventions may not become cost-effective until significant investment is made and experience developed as to how they might effectively be applied. An industry might wait around for someone to take a leap of faith, which might not happen, with the result that the industry (and consumers) remain locked into old technology. This point is one at which state-provided subsidies, in the form of challenge schemes, for example, could promote a breakthrough. Another major area is patenting, since companies will be reluctant to innovate unless they receive protection against their competitors simply taking over what they have pioneered. Government must look for an appropriate balance. If patents are too strong, innovation may in fact be discouraged, since other firms will find it difficult to build on the work of the originating company. Much the same applies on the international level, where safeguarding intellectual property is more difficult. Allowing poorer countries to bypass patents will be vital. Yet a similar dilemma to that operating
nationally applies here too. If the international regime is too loose, it could militate against much-needed technological advances.

Of particular importance will be what happens in the power industry, especially given its history of widespread deregulation over the past three decades, as described in
chapter 2
. Power supplied through national grids is a public good, but in the 1970s and 1980s governments took the decision to turn much of it over to private firms – with the UK leading the way. Planners emphasized quantity first and foremost, having in mind issues of security, which were uppermost in policy-makers' minds; cost was a secondary consideration. Following privatization, these emphases were in effect reversed. Once the major companies had been privatized, prices were pushed down towards marginal costs, leading, in effect, to a writing-off of the sunk costs. Much-needed investment was put off or scrapped, and the concentration on extracting the maximum from existing assets meant there was little capacity to cope with external shocks. Moreover, electricity generation became caught up in the more extreme edges of financial speculation, with consequences seen most spectacularly in the case of Enron in the US. Enron's troubles came from the corrupt activities of its leadership, but these developed when the complex system of trading in deregulated energy markets, which Enron set up, failed, creating a ‘regulatory black hole'.
¹⁶

One of the results of the sweating of assets in power generation is the low level of R&D in the industry generally – a major problem now the emphasis has swung so heavily in favour of innovation. In earlier days, state-owned industries invested a good deal in R&D, drawing upon an indigenous manufacturing base that was much stronger than is now the case. The proportion of turnover spent on R&D varies in a major way between different industries. In the big pharmaceutical companies in the UK, as of 2007, R&D intensity was 15 per cent. A survey of power-generating firms found the average to be only 0.2 per cent. In-depth studies have shown that the decline in R&D corresponds closely with electricity reform.
¹⁷

As elsewhere, the response cannot simply be a return to top-down measures on the part of the state or the regulators appointed by the state. Policies that encourage consumers to
become active partners in the supply chain are very likely to be important in terms of innovation; among other advantages, they create markets for smaller firms to enter. Yet, as elsewhere, wholesale decentralization would not work. A system like an electricity grid has to have organized coordination mechanisms, especially if smart grids are to be introduced.

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.