Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. While I do make mistakes, I try hard to do my analysis thoroughly, and to make sure my data are correct (old habits die hard!) Also, don't ask me why I called it "Volewica". It's too late, now.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Tuesday, March 14, 2017

Policy vs statistics

My last post was about how 2017 might actually be hotter than 2016.  So let’s look at the chart again, only, this time with two trend lines drawn in.  I haven’t used statistical methods to fit the trend lines, I’ve just drawn them in by eye, doing what I would for share prices or stock market indices.  And we don’t really have enough data yet to draw a new trend for the last 4 or 5 years.  But some points are instructive.  First, this is the biggest breakout above the 50-year trend in 50 years. Second, after the last big El Nino in 1998, temperatures in the subsequent year fell sharply.  This time, they might not.  A statistician or climate scientist would be cautious about forecasting a change in trend based on 5 years of data.  They’d point out that we need 25 or 30 years to be sure of the trend.  And they’d be right.

But what happens if you are a politician, entrusted with the welfare of your fellow citizens and of your country?  Indeed, what if you are a citizen, with just your vote, and you're concerned about the welfare of your children and grandchildren?  Do you wait for certainty?  Temperatures have on average risen a bit less than 0.2 degrees C per decade since the 1970s.  So that is very likely to be the minimum trend increase over the next 20 years, unless we stop pumping CO2 into the atmosphere.  But what if in fact the trend has possibly doubled, to 0.4 degrees per decade?  This makes action far more urgent than was agreed at the Paris conference.

The scientists would, rightly, say we don’t have enough data to forecast with any certainty that the trend increase in global temperatures has risen.  But policymakers have to face a different calculus.  They have to assess risk and the probability of worse-case scenarios.

Back in the 80s and 90s, global temps hadn’t risen a lot, and the costs of renewables were far greater than the costs of business as usual (BAU).  Taking action against relatively uncertain risks was expensive, especially for poor countries.  Only the countries most concerned about environmental risks, like Denmark and Germany, actually made any serious moves to green their electricity system.  And we thank them for it, because they pushed us down the renewables learning curve, making renewables cheaper for the rest of us.

But what is the position now?  Well, the evidence of the last 50 years is unambiguous. Remember, the chart isn’t from those “leftists” and “greenies” at NASA, NOAA etc.  It’s from Berkeley Earth, a totally reconstructed series going back 200 years.  And then there’s some credible risk that the trend has accelerated, based on the data, probably driven by malign doom-loop feedbacks from the rapid disappearance of Arctic sea ice to the melting of methane clathrates in the Arctic.  Meanwhile instead of being much higher, the costs of renewables are now lower than the costs of fossil fuels.  Batteries are plunging in cost too, and there are a whole plethora of new storage technologies popping up everywhere.

Whereas the costs of acting in the 80s and 90s relative to the certainty of rising temps was high, now it is extremely low.  The risk/cost equation has blown out dramatically.  Scientists might urge caution, but policy makers have to act now.

We can’t wait til 2050 to reach zero emissions.  We now need to try and get there in 15 or 20 years,  not in 35 years.  How?

  • Aim to increase the renewables percentage in generation by 5% a year
  • A carbon tax, starting low but increasing inexorably year by year, or a cap-and-trade program with the cap declining by 5% a year
  • Taxes on imports from countries which do not have similar initiatives
  • Subsidies for EVs funded by raising taxes on petrol and diesel
  • Encouraging behind-the-meter batteries for homes and businesses
  • An end to forest clearing and burning in the Amazon, Indonesia, etc.

Cost declines are already moving us towards a 100% green energy system.  My fear is that we'll be too slow; that vested interests will try to stop or slow that move.  We put a man on the moon in just 10 years -- an extraordinary technical and technological achievement.  We can de-carbonise our economies rapidly too, if we wanted to.  Do we want to?  Will the recent rises prompt a rethink?   What do you think, readers?

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