COP21 daily report: Will we trust governments on climate?

Cabot Institute Director Professor Rich Pancost will be attending COP21 in Paris as part of the Bristol city-wide team, including the Mayor of Bristol, representatives from Bristol City Council and the Bristol Green Capital Partnership. He and other Cabot Institute members will be writing blogs during COP21, reflecting on what is happening in Paris, especially in the Paris and Bristol co-hosted Cities and Regions Pavilion, and also on the conclusion to Bristol’s year as the European Green Capital.  Follow #UoBGreen and #COP21 for live updates from the University of Bristol.  All blogs in the series are linked to at the bottom of this blog.

Whatever comes of the climate summit that kicked off Monday in Paris, the negotiations will be intense. Signatories of the UN’s Framework Convention on Climate Change meet every year, but this year is exceptional. The stakes are high, with governments and their negotiators seeking to finalize a landmark treaty that will guide the world’s actions for many years to come with respect to greenhouse gas emissions and the climate change they cause.

Despite the heat that the negotiations in Paris will surely generate, though, in a sense dealing with climate change could actually be… surprisingly easy. The world’s leading climate economist thinks it would cost only about 2% of GDP to get the world on track to avoid the worst effects. That’s not a lot to pay to solve perhaps the most serious challenge confronting humanity.

Why then is it proving so hard for us to buy a climate-friendly economy?

Part of the problem is that public opinion is pretty hostile to the number one thing that could get us there: making polluters pay taxes if they want to pollute.

The logic is simple. People buy less of something when it gets more expensive. Raising the price of polluting activities is therefore the most effective, direct, and time-tested way of getting people to live–produce and consume–in ways that cause less damage to the environment.

“Raising the price of polluting activities is therefore the most effective, direct, and
time-tested way of getting people to live–produce and consume–in
ways that cause less damage to the environment” ~ Malcolm Fairbrother.

In principle, there should be no reason for people not to like the idea. Governments can lower taxes on things that do no harm (income and labour) while raising them on things that do (emitting greenhouse gases, leaching waste into groundwater, driving a car on congested streets at rush hour). Tax shifts of this kind have no net effect on public finance, and at most a very small one on household budgets–but they can make a big dent in environmental degradation.

Take the case of Canada. In 2008, a right-of-centre government in the western province of British Columbia (BC) introduced a C$30/ton tax on carbon emissions. The rest of Canada did not. Over the course of the next several years, consumption of fossil fuels in British Columbia dropped significantly, while consumption elsewhere didn’t. Meanwhile, BC enjoyed faster economic growth than the average across the other provinces.

But cases like British Columbia’s are exceptional. In most places, public opinion has been too hostile to new taxes of any kind for governments to raise taxes even on pollution and the use of scarce resources. In 2013, for example, Australians voted out a government that had brought in a carbon tax much like British Columbia’s, and they voted in a government that repealed the tax. Earlier this year, the Swiss voted down new carbon taxes in a referendum.

Perhaps the biggest reason why people around the world don’t want green taxes is political distrust. Even though such taxes have a great track record, people simply don’t trust governments to make good use of taxes–of any kind. They worry that tax revenues disappear into the pockets of politicians and bureaucrats, never to be seen again. Some think it’s unfair to tax people for behaviours that are hard to avoid–like heating your home or catching a flight for the occasional family holiday. So they don’t like green taxes, and that’s true even though most people say they believe in the seriousness of climate change, and of environmental problems generally.

To illustrate the point, in an experiment I conducted in Britain last year, I randomly assigned survey respondents to different versions of a question about their willingness to pay higher taxes to protect the environment. People were much more open to the idea if they were told that other taxes they pay would be reduced to compensate. So it seems that revenue neutrality can win over a lot of people. But telling respondents that the offsetting cuts to other taxes were only a government “promise” reduced much of the positive impact of revenue-neutrality. Clearly, government promises don’t cut much weight, at least with Britons. (Experiments with other populations elsewhere are ongoing.)

Advocates for better environmental policy have typically focussed on getting the word out about the seriousness of the problems the policies are meant to address. But, in another recent study, I conducted a head-to-head test of the scope for expanding public acceptance of environmental taxes if only one of (a) concerns about environmental problems or (b) political trust were to increase. Because there is already a lot of concern about environmental problems, but not a lot of political trust, it turns out that the potential impact of the latter looks much greater in most countries.

For that reason, along with alerting people to all the ways in which people are doing serious harm to the environment globally and locally, it would also be good to get the word out about the many environmental policies that have been tremendously successful. Globally, we’ve built a regime to stop depleting the ozone layer; many countries have reduced acid rain dramatically; some formerly endangered species are no longer endangered. If more people thought about how much good past environmental policies have done, they might be more inclined to support efforts to do more.

This blog is written by Cabot Institute member Dr Malcolm Fairbrother, from the School of Geographical Sciences at the University of Bristol.  This blog has been reposted with kind permission from Policy Trajectories, the blog of the American Sociological Association’s Section on Comparative and Historical Sociology.
This blog is part of a COP21 daily report series. View other blogs in the series below:
Monday 30 November: COP21 daily report

My ‘Climate Shock’ from a talk by Gernot Wagner

Sadly, the climate change rhetoric can sometimes feel a bit like the announcements at an airport; a little monotonous and irrelevant. Most of us have been guilty of tuning out, turning a blind eye and continuing with our life thinking the announcement isn’t really for us; we’re getting a different flight.

Sitting down for the hour long talk by Gernot Wagner at @Bristol on Tuesday evening was a little like hearing the last boarding call when you’re at the other end of the airport in a day dream. It was a shock.

‘Climate Shock’ was an hour of uncomfortable truths and mind boggling economics. As a scientist I am regularly exposed to the raw figures: Temperature in degrees, CO2 in parts per million, mean sea level increase. Never before had I been faced with the human implications of climate change in such stark and uncompromising terms.

The talk was run by Bristol Festival of Ideas and supported by the University of Bristol’s Cabot Institute and slotted in comfortably with Bristol’s position as green capital of the Europe. Gernot Wagner walked us through his recent book ‘Climate shock’, co written with Martin Weitzman. At each turn of the page (or change of the slide) there was a new, fresh perspective on the climate change debate. Instead of seeing the problem and solution in science, Wagner saw it in economics.

With the cool detachment of a mathematician, Wagner attempted to communicate the uncertainties in our climate change predictions. Despite a considerable accumulation of knowledge, we are still powerless to predict the exact effect on our fragile planet. Wagner pointed out that, should temperatures rise by 6 degrees, the effects would be catastrophic. We are only a fraction of the way down the slippery slope of temperature increase and despite an escalation in extreme weather we still aren’t digging in our heels and climbing back up. With any other predictable, large-scale disasters we work tirelessly to insure and mitigate. Why, Wagner asked, are we not doing the same for climate change?


Using economics to convey the potential impacts, Wagner stated plainly that for every $1 we spend on CO2 producing activities, it is actually costing us $0.40 in future damages. We are already a planet in debt.

Wagner’s solution was atypical. Instead of sending us forth from the room as eco warriors, recycling like our lives depended on it, he emphasised a different message. He said the way to mitigate global warming is to harness the economic power of supply and demand.


His case study was Sweden. He introduced it with a single figure: $150.

This is the Swedish tax on each ton of CO2: as the price of CO2 went up, demand went down. Now, Wagner claimed, Sweden is nearly carbon neutral. His argument is that policy is the way to save the world- far more so than individual effort.

The realism of his suggestions made his talk fascinating. For the first time I not only grasped the terrifying toll that climate change is taking, but also felt hopeful that there might be a solution. While the solution might be unpopular in our short sighted capitalist society, it is absolutely essential for maintaining long term economic stability.

The moral of the story? The best investment you will ever make is in our planet.
This blog is written by Cabot Institute member Keri McNamara, a PhD student in the School of Earth Sciences at the University of Bristol.

Public opinion: What is it really worth?

I recently attended a session at the House of Commons co-hosted by the All-Party Parliamentary Climate Change Group (APPCCG) and the Centre on Innovation and Energy Demand (CIED). The session tackled the topic of the UK’s “energy efficiency revolution”, and whether the UK is living up to the high standards expected by successive governments.
Energy efficiency is what is known as a demand-side measure in the language of energy policymakers. Making devices that use energy more efficient is one way of reducing demand for energy overall, and thus bringing the UK closer to its carbon reduction goals. Indeed, increasing energy efficiency is often regarded as one of the most cost-effective methods of carbon reduction.
An area of great interest to researchers in this field is human behaviour; how can people be induced to behave in a way that reduces their carbon emissions?
The ‘default’ reaction of governments when attempting to change the behaviour of their citizens is to provide financial incentives to encourage adoption of the desired behaviour. This is based on simple economic theory, and depends on the assumption that the average rational citizen will immediately drop undesirable habits as soon as it becomes financially worthwhile to do so.
An alternative view is that people are not swayed as heavily by financial motives as they are by their fundamental beliefs; if somebody is a firm believer in the cause of tackling climate change, they can be relied upon to adopt energy-saving behaviours sooner or later.
There is a fundamental tension between these two views of how humans behave. Energy policymakers often find themselves caught between these viewpoints, and this can cause delays and poor policy decisions. This is a question that clearly needs to be addressed by researchers.

Let’s take a closer look at this problem by using a simple mathematical model. Imagine that there is a new behaviour, perhaps a form of recycling, that the government is keen for people to adopt. Since it is brand new, almost nobody has heard of it, and even fewer people have actually adopted it.

In order to make this behaviour the norm, the government allocates some of its limited resources to the problem. These resources can either be spent on advertising, to win people over to the behaviour on ideological grounds, or can be spent on direct financial incentives. The government has to choose what proportion of the resources go towards advertising and incentives, based on the objective of full adoption of the behaviour as quickly as possible.

In our model, a certain proportion of the population choose to adopt the new behaviour each day. That proportion is a function of the number of ideological believers (which I will henceforth refer to as ‘public opinion’) and the financial incentive available. Money spent on incentives therefore provides an immediate boost to the adoption of the new behaviour, whereas advertising has an indirect effect. The effect of advertising is to convert a certain number of people each day into ideological believers, making them far more likely to adopt the new behaviour.





So what are the results of this simple model? It’s clear that using financial incentives causes the time needed to reach full adoption to become shorter. Therefore, should the government should always use financial incentives in order to reach its stated objectives as quickly as possible?
Unfortunately it isn’t that simple. While it is true that the objective of full adoption is met quicker by using mostly financial incentives, the gap between ‘economic’ and ‘ideological’ adopters is large; it’s possible that many of the people who have adopted the behaviour will return to their old ways as soon as the incentives are taken away. It’s also worth considering the possibility that ideological adopters might also be easier to convince when it comes time to introduce the next energy-saving behaviour, whereas economic adopters would need to be paid off from scratch.
I should say at this point that this model is meant as a means of communicating a concept, and is an oversimplification of the way technology and belief adoption actually works. I’ve also chosen parameters for the model arbitrarily – choosing a different set of parameters or tweaking the model could result in radically different outcomes.

Nonetheless, the underlying tension remains; should we invest in changing people’s opinions, even if it’s a longer, costlier process? What is public opinion really worth?

It’s my sincere hope that researchers, be it from CIED, Cabot Institute or elsewhere, will be able to answer these questions in the years to come.
This blog is written by Cabot Institute member Neeraj Oak, the Chief Analyst and Energy Practice Lead at Shift Thought.


Neeraj Oak

Deep impact – the plastic on the seafloor; the carbon in the air

We live in a geological age defined by human activity.  We live during a time when the landscape of the earth has been transformed by men, its surface paved and cut, its vegetation manipulated, transported and ultimately replaced. A time when the chemical composition of the atmosphere, the rivers and the oceans has been changed – in some ways that are unique for the past million years and in other ways that are unprecedented in Earth history. In many ways, this time is defined not only by our impact on nature but by the redefinition of what it means to be human.

From a certain distance and perspective, the transformation of our planet can be considered beautiful. At night, the Earth viewed from space is a testament to the ubiquitous presence of the human species: cities across the planet glow with fierce intensity but so do villages in Africa and towns in the Midwest; the spotlights of Argentine fishing boats, drawing anchovies to the surface, illuminate the SW Atlantic Ocean; and the flames of flared gas from fracked oil fields cause otherwise vacant tracts of North Dakota to burn as bright as metropolises.

Environmental debates are a fascinating, sometimes frustrating collision of disparate ideas, derived from different experiences, ideologies and perspectives.  And we learn even from those with whom we disagree.  However, one perspective perpetually bemuses and perplexes me: the idea that it is impossible that man could so transform this vast planet. Of course, we can pollute an estuary, cause the Cuyahoga River to catch fire, turn Victorian London black or foul the air of our contemporary cities.  We can turn the Great Plains into cornfields or into dust bowls, the rainforest into palm oil plantations, swamplands into cities and lowlands into nations.  But these are local.  Can we really be changing our oceans, our atmosphere, our Earth that much?

Such doubts underly the statements of, for example, UKIP Energy Spokesman Roger Helmer:

‘The theory of man-made climate change is unproven and implausible’.

It is a statement characterised by a breathless dismissal of scientific evidence but also an astonishingly naive view of man’s capacity to impact our planet.

There are places on Earth where the direct evidence of human intervention is small. There are places where the dominance of nature is vast and exhilarating and awe-inspiring.  And across the planet, few places are entirely immune from reminders – whether they be earthquakes or volcanoes, tsunamis or hurricanes – that nature is vast and powerful.

But the Earth of the 21st century is a planet shaped by humans.


A powerful example of humanity’s impact on our planet is our Plastic Ocean.  We generate nearly 300 billion tons of plastic per year, much of it escaping recycling and much of that escaping the landfill and entering our oceans. One of the most striking manifestations of this is the vast trash vortex in the Northern Pacific Gyre. The size of the vortex depends on assumptions of concentration and is somewhat dependent on methodology, but estimates range from 700 thousand square kilometres to more than 15 million square kilometres.  The latter estimate represents nearly 10% of the entire Pacific Ocean.   Much of the plastic in the trash vortex – and throughout our oceans – occurs as fine particles invisible to the eye.  But they are there and they are apparently ubiquitous, with concentrations in the trash vortex reaching 5.1 kg per square km*.  That’s equivalent to about 200 1L bottles.  Dissolved.  Invisible to the eye.  But present and dictating the chemistry of the ocean.

More recently, colleagues at Plymouth, Southampton and elsewhere illustrated the widespread occurrence of rubbish, mainly plastic, on the ocean floor.  Their findings did not surprise deep sea biologists nor geologists; we have been observing our litter in these supposedly pristine settings since some of the first trips to the abyss.

My first submersible dive was on the Nautile, a French vessel that was part of a joint Dutch-French expedition to mud volcanoes and associated methane seeps in the Mediterranean Sea.  An unfortunate combination of working practice, choppy autumn seas and sulfidic sediments had made me seasick for most of the research expedition, such that my chance to dive to the seafloor was particularly therapeutic. The calm of the deep sea, as soon as we dipped below the wave base, was a moment of profound physical and emotional peace.  As we sank into the depths, the light faded and all that remained was the very rare fish and marine snow – the gently sinking detritus of life produced in the light-bathed surface ocean.

As you descend, you enter a realm few humans had seen…. For a given dive, for a given locale, it is likely that no human has preceded you.

Mud volcanoes form for a variety of reasons, but in the Mediterranean region they are associated with the tectonic interactions of the European and African continents.  This leads to the pressurised extrusion of slurry from several km below the bottom of the sea, along mud diapirs and onto the seafloor. They are commonly associated with methane seeps; in fact a focus of our expedition was to examine the microbes and wider deep sea communities that thrive when this methane is exposed to oxidants at the seafloor – a topic for another essay. In parts of the Mediterranean Sea, they are associated with salty brines, partially derived from the great salt deposits that formed in a partly evaporated ocean about five and a half million years ago.

And all of these factors together create an undersea landscape of indescribable beauty.
On these mud volcanoes are small patches, about 20 cm wide, where methane escapes to the seafloor.  There, methane bubbles from the mud or is capped by thick black, rubbery mats of microorganisms.  Ringing these mats are fields of molluscs, bouquets of tube worms, great concrete slabs of calcium carbonate or white rims of sulphide and the bacteria thriving on it. Streaming from these seeps, down the contours of the mud cones, are ribbons of ultra-dense, hypersaline water.  The rivulets merge into streams and then into great deep sea rivers. Like a photonegative of low-density oil slicking upon the water’s surface, these are white, high-density brines flowing along the seafloor.  Across the Mediterranean Sea, they pool into beautiful ponds and in a few very special cases, form great brine lakes.

And two kilometres below the seafloor, where humans have yet to venture our rubbish has already established colonies. Plastic bottles float at the surface of these lakes; aluminium cans lie in the mud amongst the microbial mats; between those thick slabs of calcium carbonate sprout colonies of tube worms and the occasional plastic bag.

Image from Nautile Dive to the Mediterranean seafloor.  Shown are carbonate crusts that form where methane has escaped to the seafloor as well as tube worms thriving on the chemical energy available in such settings.  Plastic debris has been circled in the upper right corner.

We have produced as much plastic in the past decade as we have in the entirety of the preceding human history.  But the human impact is not new.  On our very first dive, we observed a magnificent amphora, presumably of ancient Greek or Roman origin and nearly a metre across, half buried in the mud.


Today the human footprint is ubiquitous. Nearly 40% of the world’s land is used for agriculture – and over 70% of the land in the UK.  Another 3% of the land is urbanised.  A quarter of arable land has already been degraded.

There are outstanding contradictions and non-intuitive patterns that emerge from a deeper understanding of this modified planet.  Pollinators are more diverse in England’s cities than they are in our rural countryside.  One of the most haunting nature preserves on our planet is the Demilitarized Zone between North and South Korea – fraught with landmines but free from humans, wildlife now dominates. And of course, although global warming will cause vast challenges over the coming centuries, that is largely due to one human impact (greenhouse gas emissions) intersecting with another (our cities in vulnerable, low-lying areas and our borders and poverty preventing migration from harm).   And on longer timescales, we have likely spared our descendants of 10,000 years from now the hassle of dealing with another Ice Age.

Glyptodon, source Wikipedia

But there can be no doubt or misunderstanding –  we have markedly changed the chemical composition of our atmosphere.  Carbon dioxide levels are higher than they have been for the past 800,000 years, perhaps the last 3 million years.  It is likely that the last time the Earth’s atmosphere contained this much carbon dioxide, glyptodons, armadillo-like creatures the size of cars, roamed the American West, and hominids were only beginning the first nervous evolutionary steps towards what would eventually become man. Methane concentrations are three times higher than they were before the agricultural and industrial revolutions.  Also higher are the concentrations of nitrous oxides.  And certain chlorofluorcarbons did not even exist on this planet until we made them.

The manner in which we have changed our planet has – at least until now – allowed us to thrive, created prosperity and transformed lives in ways that would have astonished those from only a few generations in the past.  It is too soon to say whether our collective impact has been or will be, on the whole, either ‘good’ or ‘bad’ for either the planet or those of us who live upon it. It will perhaps never be possible to define such a complex range of impacts in simple black and white terms.  But there is no doubt that our impact has been vast, ubiquitous and pervasive.  And it is dangerous to underestimate even momentarily our tremendous capacity to change our planet at even greater rates and in even more profound ways in the future.

*Moore, C.J; Moore, S.L; Leecaster, M.K;
Weisberg, S.B (2001). “A Comparison of Plastic and Plankton in the North
Pacific Central Gyre”. Marine
Pollution Bulletin
 42 (12): 1297–300. 
doi:10.1016/S0025-326X(01)00114-X. PMID 11827116.

This blog is by Prof Rich Pancost, Director of the Cabot Institute.

Prof Rich Pancost

Your planet needs you!

We are under attack. Our assailants threaten to kill millions of people, destroy our homes and wipe out our crops. Who are these fiends?


The latest report from the Intergovernmental Panel on Climate Change (IPCC) focusses on how we can stop runaway climate change before it’s too late.  Despite our “best efforts”, anthropogenic greenhouse gas emissions have continued to increase at an alarming rate. The IPCC estimates that without any additional effort to reduce emissions, we’re looking at a rise in temperature of between 3.7 and 4.8°C by 2100, although variability in the effects of climate change mean the rise could be as high as 7.8°C. Anything over 2°C means we risk runaway climate change with catastrophic effects felt around the world.

A call to action

The UK energy secretary Ed Davey responded to yesterday’s IPCC press conference by stating,

“we need a worldwide, large-scale change to our energy system if we are to limit the effects of climate change”

and called for an international effort to reduce carbon emissions by 2015.

The question is, are politicians willing to put in the effort needed to reduce emissions by 40-70% in the next couple of decades? It’s hard to put a price on the cost of mitigation, but as Professor Ottmar Edenhofer, co-chair of the IPCC team, stated “Climate policy is not a free lunch”. His colleague Professor Jim Skea was more optimistic, saying that,

“it is actually affordable to do it and people are not going to have to sacrifice their aspirations about improved standards of living”.

That’s the kind of thing that politicians like to hear.

Change doesn’t happen unless something dramatic happens to force us to act. The increasing frequency of extreme weather events doesn’t seem to be working, so what would? As the IPCC brief states, “Emissions by any agent (e.g. Individual, community, company, country) affect other agents”. We need to invoke some Blitz mentality; we ARE facing a deadly enemy and we ALL need to do our part to stop it.

How to mitigate climate change

The IPCC used 10,000 scientific references to ensure that their models are properly founded in science and all the uncertainty that entails. The IPCC defined mitigation as “a human intervention to reduce the sources or enhance the sinks of greenhouse gases”, and look at a range of scenarios to find the most effective and efficient methods.

The report particularly favoured low carbon energy sources as a major way to reduce emissions, using natural gas as a transition fuel into renewable energies. Encouragingly, renewable energy comprised over half of all new electricity-generating developments globally, with wind, hydro- and solar power leading the way. The costs of renewable energies are falling, making them viable for large scale deployment in many areas, and Professor Skea enthused that

Renewables are going to be ubiquitous no matter which part of the world you look at”.

Cities will play a big part in reducing CO2 emissions too; a combination of better urban planning to incorporate public transport and compact walkable city centres will be vital. The report also recommended high speed rail networks between cities to reduce short haul air travel and its associated high emissions.

Replanting forests will be an important way to remove CO2 from the atmosphere. Plants take in CO2 for use in photosynthesis, but can also be used to remove pollutants from the air and soil, as well as preventing soil erosion and providing important habitats for other plants and animals.

It is important for all nations that mitigation does not mean a halt to economic development. Dr. Youba Sokona, IPCC team co-chair, said, “The core task of climate change mitigation is decoupling greenhouse gas emissions from the growth of economics and population”. This will be the main challenge for governments around the world, but the overwhelming message from the IPCC is that mitigation is affordable, whilst doing nothing is not.

Social justice

There has been an undercurrent of unease alongside the IPCC report; the sticky question of who, exactly, is going to pay for this mitigation? A few days before its release, pressure from unspecified developed nations led to the removal of a section in the IPCC report stating that developing countries should receive billions of dollars a year in aid to ensure that they grow their economies in a sustainable way.

The argument centres on whether developing nations should have the right to exploit fossil fuels to expand their economies, as developed countries were able to do. Dr. Chukwumerije Okereke, one of the lead authors of the report, said that this “is holding them down from developing”, believing that “this is reinforcing historical patterns of injustice and domination”. I would argue that with the impacts of climate change predicted to affect those in developing countries most drastically, perhaps we should adopt the mentality that we are all in this together and help each other to overcome the problem.

Act now

The take home message from the IPCC is that if we act now, we can probably prevent hitting the 2°C temperature increase that would have disastrous consequences for us all. The mitigation strategies suggested are affordable and certainly cheaper than dealing with the consequences of climate change. Will politicians and all the rest of us do our parts to drastically reduce carbon emissions? Only time will tell. A lot of hope rests on the 2015 United Nations Climate Change Conference, which is hoped to yield a global agreement on climate to avoid passing the 2°C safety threshold.

Cross your fingers and turn off your lights.


This blog is written by Sarah JoseCabot Institute, Biological Sciences, University of Bristol


You can follow Sarah on Twitter @JoseSci 
Sarah Jose

The carbon mountain: Dealing with the EU allowance surplus

It’s not news that the EU emissions trading system (EU-ETS) is in trouble. A build-up of surplus emission allowances has caused dangerous instability in the carbon market and a plunge in prices since the economic slump in 2008 began (See Figure 1, courtesy of David Hone).

Figure 1, courtesy of David Hone

The discussion at the All Party Parliamentary Climate Change Group’s (APPCCG) meeting on the 28th of January centred on the causes and consequences of the EU-ETS allowance surplus. The majority of speakers at this session had a background in the discipline of economics, so inevitably the exchange of views was… frank.  The panel were in agreement that EU-ETS is in crisis; but can and should it be saved?

Emissions trading schemes, of which EU-ETS is a canonical example, are an attempt to allow market forces to correct the so-called ‘market failure’ that is carbon emission. From the point of view of a classical economist, the participants in carbon emitting industries do not naturally feel the negative effects their activities cause to the environment. Emissions trading forces carbon emitters to ‘purchase’ the right to pollute on a market. In effect, they pay to receive permits (or allowances) to emit a certain level of emissions. If they do not reach this level of emission, the excess can be sold back onto the market, allowing others to make use of it. The prices of permits are determined by market forces, so cannot be fixed by the EU. The quantity of permits is within the control of the EU, and this is where the problem lies.

In the aftermath of the 2008 slump, a surplus of allowances began to build up, leading to a crash in the price of allowances. Many commentators blame EU economic forecasting for this problem, as the recession and consequent reduction in economic activity was not factored in to the EU-ETS control mechanism. Criticism has been forthcoming for the economic models used, and some go as far as to liken the mismanagement of EU-ETS to the ‘wine-lake and butter-mountain’ days of the 1980s, where the Common Agricultural policy was allowed to consume over 70% of the EU’s budget. Perhaps the models are too simple – James Cameron, a speaker at the APPCCG event, spoke of the ‘premium on simplicity’ that exists in creating policy. Maybe that approach has extended itself into the mathematical models used to predict the performance of EU-ETS, rendering them over-simplistic?

Personally, I see things a little differently. It’s clear that economic models are often far from perfect; however, I’m not sure that’s where the problem lies. In the implementation of policy, decision makers have to draw on the implications of many separate models; for instance, they must consider the GDP growth of EU member states, their adoption rate of new energy efficiency standards and the relative industrialisation of their economies. To my mind, the greatest source of error is in the gaps and interfaces between these economic models. Policy makers must make decisions on how to interpret the way economic predictions will interact with one another, and these interpretations are always subject to value judgements. What we need is a more joined-up approach.

Climate science has long used ‘macro-models’ to incorporate a variety of physical processes into their predictions, an approach that could be adopted by economists as well. While the first economic macro-models may not achieve even a fraction of the accuracy of climate models, that is not to say they cannot be improved through collaboration and quantitative criticism. Perhaps now is the time to make a start?

This blog is written by Neeraj Oak, Cabot Institute.



Neeraj Oak