Ecology and Economics

Global warming: legislating for temperance

Last week at the Oikos Blog I looked at global climate change in the context of Garrett Hardin’s ‘tragedy of the commons’ idea. In an unregulated common, each individual gains all the benefit from intensifying his or her use or pollution of it, while only facing a portion of the cost of that intensification. So everyone has an incentive to use and pollute it more, to the eventual detriment of all.

The tragedy of the commons is an example of what game theorists call a prisoner’s dilemma. I won’t go into detail (check out the wikipedia entry for a good explanation) but the general idea is that the game is set up so that it is in each player’s individual interest to cheat, so they all do, but that ultimately leads to everyone being worse off than if they’d all co-operated.

It seems to me that the current international negotiations about climate change are the ultimate prisoner’s dilemma. It is in each nation’s best (economic) interests to have each other country do something about limiting greenhouse gas emissions, but not do something themselves. If you take on costly measures to reduce your emissions and everyone else does too, that’s good. But better is if you avoid the cost and let everyone else do the work. Worst is if you take on the cost and no-one else does – you cop the economic hit to your industries of emission costs and you still get hit with the costs of global warming. So, individually, it’s in each country’s best interests to do nothing. Of course, collectively, that spells disaster for us all.

The way around this is by not acting in our own selfish interests, but getting together and agreeing on measures for every country to reduce its emissions – as Harding said ‘mutual coercion mutually agreed upon’.

In the early 1990s, 189 countries came to this realisation and signed the United Nations Framework Convention on Climate Change, which came into force in 1994. This provided for general measures such as compiling and sharing data about emissions and climatic changes. In 1997 this was turned into more concrete obligations through the Kyoto Protocol, which 84 countries – including the US and Australia – signed. The Protocol came into effect last year when ratified by countries with more than 55% of global greenhouse emissions. It has now been ratified by 163 nations. The US and Australian governments have had a change of heart since signing the Protocol and have said they will not seek to ratify it, which means they are not bound by it. The only other countries which have signed and then failed to ratify are Croatia, Kazakhstan, and Zambia.

So Kyoto has a good coverage of countries with only very few dissenters. Nevertheless, I think it’s fair to say that Kyoto looks vulnerable. The Australian and US governments have not only not joined - they seem to want to undermine it. The have claimed that Kyoto is unfair and ineffective because it does not place emissions limits on developing countries. Developing countries say it would be unfair to do so because they need to emit more in order to develop. They suggest that if industrial countries want them to reduce their emissions, they should assist them in developing cleaner energy. (That is already part of how Kyoto works – countries can gain credits by investing in emissions reduction projects in developing countries.)

And this impasse might be getting even more entrenched. Few countries have yet taken strong steps to reduce emissions and the countries which look like they may not be going to meet their obligations are rethinking their commitment – not least because they see the US and Australia getting away with thumbing their noses at the Protocol. Canada’s new government has taken some pot shots at the Kyoto Protocol and says Canada will not meet its targets, although for now it has said it will remain in the Protocol for the next commitment period beginning in 2012. The first round of obligations has set a very modest target of a 5% reduction from 1990 levels among industrialised countries. Even that may not be met and when developing countries are considered, total global emissions will have increased since 1990.

Meetings have just taken place in Bonn to start talking about targets for the second period, starting in 2012. These will need to be much stricter targets and the political will to take these on might be waning with Australia, the US and developing countries not taking on targets and countries such as Canada, New Zealand and Japan having trouble meeting even their first round targets.

To speculate about the way forward, the glimmers of hope seem to me to be:

• National action will become less important as local, state and regional governments and communities take bolder measures;
• International aid will be increasingly targeted at clean energy, helping to restrain emissions growth in developing countries;
• There will be modest technological advances which help decouple economic growth from emissions growth.

But ultimately I think our biggest saviour may just be peak oil. Oil’s not going to run out any time soon but it seems like it will get gradually more expensive to produce as the cheapest sources are exhausted. I don’t know if oil prices will stay at current levels, go up or go down, but I doubt they’ll return quickly to less than US$30, where they were only a couple of years ago. At current levels, a whole range of alternative energy sources become commercially viable (see this article from The Economist).

Hardin’s solution to the tragedy of the commons was to all agree to limit how many cattle we graze there. We’re having trouble doing that, so it might be a good thing that we seem to be slowly running out of cows.

Blogging the Sustainable Energy Forum

Today Ethan Heitner at TomPaine.common sense wrote a post about last weekend's Peak Oil and the Environment forum.

… The Sustainable Energy Forum … represented a convergence—the top minds of environmental science, economics, and geopolitics discussing the same problem, with a few politicians, businessmen, historians, and journalists, from a wide variety of angles. Peak oil, the term used to describe the problem of running out of the main fuel of our economy for the past hundred years, and climate change—the description of the costs of that economy. … There was a consistent message: our current way of life is neither desirable nor sustainable. The environment is not a luxury good.

Of course, within that consensus, there are debates. Brian Schweitzer, the Democratic governor of Montana, was there to plug coal-to-gas liquification and carbon sequestration as solutions. He's frequently vilified by those who argue convincingly that simply replacing one fossil fuel for another is not viable. Yet even he agreed that the only solution available to us right here, right now, immediately to mitigate the alarming effects of our problems is to sharply, dramatically reduce not just oil consumption, but energy consumption. "Make conservation cool. How low can you go?"

Meanwhile, straight-up economists like Herman Daly argued that our underlying economic goals need to be rethought [PDF, Brian Czech and Herman Daly]. The "American dream" as defined by Enron’s Ken Lay as "living a very expensive lifestyle" doesn’t work any more.

... Jack Santa Barbara … summed up the conference's agreements:

A full environmental impact is needed for all solutions ... Whatever we do now will be scaled up and done by others, repeated again and again ... Even renewable energy sources can be used unsustainably ... It's not an oil addiction—it's an addiction to high per-capita energy consumption ... We have to get the goals right. Is it a high GDP or high human wellbeing?

His optimistic advice?

We already have many of the tools available to us now ... A theory of a steady-state economy ... We already ban substances that are harmful ... we already have a system of ecological taxes ... all that is needed is political will. ...

Also: The Oil Drum has several posts on the conference: here, here, here, (lots of comments too) with more to come. Stay tuned!

Political Economic Commentary on "Biomass Movement"

John Deutch is former Director of Energy Research and Undersecretary of Energy in the Carter administration, former Director of the CIA and Deputy Secretary of Defense in the first Clinton administration, and is now a Professor of Chemistry at MIT. Deutch is optimistic about prospects for biomass as an energy source and believes it can make a significant contribution to our future energy needs, but he does not see it as a "long-term solutions to our oil problem." He is more negative on prospects for economical production of ethanol.

Biomass Movement, by John Deutch, Commentary, Wall Street Journal, [5/10/06]: President Bush has made the welcome point that the U.S. needs "to move beyond a petroleum-based economy," and has lent his support to the need to develop energy from biomass... This is popular with the public and also enjoys significant support in Congress. Unfortunately, congressional subsidies for biomass are driven by farm-state politics rather than by a technology-development effort that might offer a practical liquid fuel alternative to oil. Meanwhile, major oil and chemical companies are evaluating biomass and investors are chasing biomass investment opportunities. But how much of this is practicable? ...

Today, we use corn to produce ethanol in an automobile fuel known as "gasohol" -- 10% ethanol and 90% gasoline. Generous federal and state subsidies, largely in the form of exemption from gasoline taxes for gasohol, explain the growth of its use; in 2005, over four billion gallons of ethanol were used in gasohol out of a total gasoline pool of 120 billion gallons. Politicians from corn-states and other proponents of renewable energy support this federal subsidy, but most energy experts believe using corn to make ethanol is not effective in the long run because the net amount of oil saved by gasohol use is minimal.

In the U.S., cultivation of corn is highly energy-intensive and a significant amount of oil and natural gas is used in growing, fertilizing and harvesting it. Moreover, there is a substantial energy requirement -- much of it supplied by diesel or natural gas -- for the fermentation and distillation process that converts corn to ethanol. These petroleum inputs must be subtracted when calculating the net amount of oil that is displaced by the use of ethanol in gasohol. While there is some quarreling among experts, it is clear that it takes two-thirds of a gallon of oil to make a gallon equivalent of ethanol from corn. Thus one gallon of ethanol used in gasohol displaces perhaps one-third of a gallon of oil or less.

A federal tax credit of 10 cents per gallon on gasohol, therefore, costs the taxpayer a hefty $120 per barrel of oil displaced cost. Surely it is worthwhile to look for cheaper ways to eliminate oil.

The economics are not the same in other countries. Brazil is a well-known example, where sugarcane grows in the tropical climate and conventional fermentation and distillation readily yields ethanol. Ethanol is said to provide 40% of automobile fuel in Brazil and compete with gasoline without government subsidy. Depending on the future world price of sugar and the lessening of trade restrictions on both sugar and sugar-derived ethanol, Brazil could become a net exporter of this biofuel.

The situation in the U.S. is quite different for cellulosic biomass, because much less petroleum is used in its cultivation. There are two paths to convert this material to liquid fuel. In the chemical approach the cellulosic feedstock is gasified with oxygen to produce synthesis gas -- a mixture of hydrogen and carbon monoxide. This "syngas" can be converted by conventional chemical techniques into liquid fuel suitable for transportation use. The cost, although uncertain and dependent upon local production conditions, is in the range of $50 to $70 per barrel of oil, which explains why, until now, it has not attracted a great deal of attention.

The biotech approach, by contrast, seeks to produce new enzymes that will break down the difficult-to-digest cellulosic feedstock into simple sugars that can be fermented into ethanol or other liquid biofuels products. This approach merits genuine enthusiasm, especially as one can imagine engineering an organism to produce enzymes that (a) break down the cellulosic material, as well as (b) more efficiently ferment the sugars into ethanol. Realizing this exciting prospect will not be easy. Many hurdles must be overcome: Biotech experts need to assemble the gene "cassette" and the organisms, and talented engineers need to demonstrate a cost-effective process. Most importantly, an integrated bioengineering effort is required to develop a process that: reduces the harsh pretreatment required to dissolve the solid cellulosic feedstock; increases the concentration of ethanol that is tolerated by the enzymes; and achieves an efficient process to separate the ethanol from the product liquor.

Success will require a sustained research effort; it is too early to estimate the production costs of this method, because process conditions are unknown. However, the expected fossil energy inputs for cellulosic biomass will be much less than that of gasohol, because the energy cost for cultivation is less, and because the portion of the cellulosic material not converted to ethanol can be burned to provide process heat -- thus substantially lowering the implied cost of federal tax subsidies per barrel of oil displaced.

I will be astonished, but delighted, if the cost of ethanol or other biomass-derived chemicals proves to be less than $40 per barrel of its oil equivalent, and if large-scale production can be accomplished in six years.

Critics of biomass argue that the conversion of sunlight into plant material is "inefficient," and that impractically large amounts of land would be required to produce significant amounts of transportation fuel. Both arguments are overstated. We should be humble about calling natural photosynthesis "inefficient" -- especially since we clever chemists cannot accomplish any artificial photosynthesis in the lab. At present, artificial photosynthesis is not an option, but it is an important basic research goal.

As for the land required to support significant biofuel production from a dedicated energy crop, switch grass offers a basis for estimation. ... [L]and ... needed to displace one million barrels of oil per day (about 10% of U.S. oil imports projected by 2025), is 25 million acres (or 39,000 square miles). This is roughly 3% of the crop, range and pasture land that the Department of Agriculture classifies as available in the U.S. I conclude that we can produce ethanol from cellulosic biomass sufficient to displace one to two million barrels of oil per day in the next couple of decades, but not much more. This is a significant contribution, but not a long-term solution to our oil problem.

Rising real prices of oil and natural gas reflect in part the progressive decline in low-cost reserves, and signal the wisdom of preparing now for a long transition from our petroleum-based economy. … Biomass should, properly, be considered along with nuclear power and coal conversion with carbon capture and sequestration as important options for future energy supply.

Peak Oil: Problem Overblown?

The Economist recently ran a story airing Peak Oil concerns from "pessimists" and counters from "optimists." NPR ran a similar spot May 2.

FINANCE & ECONOMICS
The oil industry
Steady as she goes [$]
Apr 20th 2006 | BAKERSFIELD, CALIFORNIA, AND CALGARY, ALBERTA
From The Economist print edition

Why the world is not about to run out of oil
…For years a small group of geologists has been claiming that the world has started to grow short of oil, that alternatives cannot possibly replace it and that an imminent peak in production will lead to economic disaster. In recent months this view has gained wider acceptance on Wall Street and in the media. Recent books on oil have bewailed the threat. Every few weeks, it seems, “Out of Gas”, “The Empty Tank” and “The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel”, are joined by yet more gloomy titles. Oil companies, which once dismissed the depletion argument out of hand, are now part of the debate. Chevron's splashy advertisements strike an ominous tone: “It took us 125 years to use the first trillion barrels of oil. We'll use the next trillion in 30.” Jeroen van der Veer, chief executive of Royal Dutch Shell, believes “the debate has changed in the last two years from 'Can we afford oil?' to 'Is the oil there?'”

But is the world really starting to run out of oil? And would hitting a global peak of production necessarily spell economic ruin? Both questions are arguable. Despite today's obsession with the idea of “peak oil”, what really matters to the world economy is not when conventional oil production peaks, but whether we have enough affordable and convenient fuel from any source to power our current fleet of cars, buses and aeroplanes. With that in mind, the global oil industry is on the verge of a dramatic transformation from a risky exploration business into a technology-intensive manufacturing business. And the product that big oil companies will soon be manufacturing, argues Shell's Mr Van der Veer, is “greener fossil fuels”.

The race is on to manufacture such fuels for blending into petrol and diesel today, thus extending the useful life of the world's remaining oil reserves. This shift in emphasis from discovery to manufacturing opens the door to firms outside the oil industry (such as America's General Electric, Britain's Virgin Fuels and South Africa's Sasol) that are keen on alternative energy. It may even result in a breakthrough that replaces oil altogether.

To see how that might happen, consider the first question: is the world really running out of oil? Colin Campbell, an Irish geologist, has been saying since the 1990s that the peak of global oil production is imminent. Kenneth Deffeyes, a respected geologist at Princeton, thought that the peak would arrive late last year.

It did not. In fact, oil production capacity might actually grow sharply over the next few years (see chart 1). Cambridge Energy Research Associates (CERA), an energy consultancy, has scrutinised all of the oil projects now under way around the world. Though noting rising costs, the firm concludes that the world's oil-production capacity could increase by as much as 15m barrels per day (bpd) between 2005 and 2010—equivalent to almost 18% of today's output and the biggest surge in history. Since most of these projects are already budgeted and in development, there is no geological reason why this wave of supply will not become available (though politics or civil strife can always disrupt output).

Peak-oil advocates remain unconvinced. A sign of depletion, they argue, is that big Western oil firms are finding it increasingly difficult to replace the oil they produce, let alone build their reserves. Art Smith of Herold, a consultancy, points to rising “finding and development” costs at the big firms, and argues that the world is consuming two to three barrels of oil for every barrel of new oil found. Michael Rodgers of PFC Energy, another consultancy, says that the peak of new discoveries was long ago. “We're living off a lottery we won 30 years ago,” he argues.

It is true that the big firms are struggling to replace reserves. But that does not mean the world is running out of oil, just that they do not have access to the vast deposits of cheap and easy oil that are left in Russia and members of the Organisation of Petroleum Exporting Countries (OPEC). And as the great fields of the North Sea and Alaska mature, non-OPEC oil production will probably peak by 2010 or 2015. That is soon—but it says nothing of what really matters, which is the global picture.

When the United States Geological Survey (USGS) studied the matter closely, it concluded that the world had around 3 trillion barrels of recoverable conventional oil in the ground. Of that, only one-third has been produced. That, argued the USGS, puts the global peak beyond 2025. And if “unconventional” hydrocarbons such as tar sands and shale oil (which can be converted with greater effort to petrol) are included, the resource base grows dramatically—and the peak recedes much further into the future. {emphasis added}

Upcoming Forum: Peak Oil and the Environment

Sustainable Energy Forum 2006 Peak Oil and the Environment
May 7-9, 2006
Marvin Center, Washington, D.C.
Sponsor: The University of Maryland’s Sustainable Development and Conservation Biology Program

Sustainable Energy Forum 2006 will bring together scientists, policymakers and advocates from government, environmental NGO's and civil society groups to identify the challenges and opportunities for a sustainable energy future.

Our recently diagnosed "addiction to oil" has reignited interest in energy independence:

Global warming, geopolitical instability, and high oil prices have focused awareness on our need for energy alternatives. However, resource constraints may pose more proximate threats to human well-being on a global scale.

The Department of Energy, US Army, major oil companies, and the NY Times have recognized the widespread implications of reaching the maximum rate of global oil production: Peak oil will present unprecedented challenges to ecological sustainability and economic resilience, regardless of the peak’s timing.

These are a few of the key issues regarding peak oil and its implications that will be addressed during SEF 2006:

• What are the geologic and production constraints implicit in peak oil?
• What are the geopolitical implications of reaching the peak?
• What are some options for transportation fuel alternatives and their viability?
• What are the environmental implications of the energy alternatives being pursued?
• How much time do we have to implement alternatives?
• What does net energy have to do with how we respond?
• How much energy is needed for human well-being?
• What options do we have for reducing demand?
• What policy approaches are critical to moving forward?

Our current energy trajectory is unsustainable: How the world responds to peak oil will determine how much energy is available to meet human well-being in the future.

Addiional background information:

SPEAKERS & PANELISTS:

Roscoe Bartlett    U.S. Congressman, 6th District Maryland

Roger Bezdek   President, Management Information Systems, Inc

David Blittersdorf   President, NRG Wind Systems

Lester Brown President, Earth Policy Institute

William Catton   Professor emeritus, WSU; Author, Overshoot

Cutler Cleveland   Director, Energy and Environmental Studies, Boston U

Robert Costanza   Director, Gund Institute for Ecological Economics

Herman Daly   Professor, Public Policy, University of Maryland

Julian Darley   Founder, Post Carbon Institute; High Noon For Nat. Gas

Kenneth Deffeyes   Professor, Geology, Princeton University

Claudio Filippone   Director, Center for Advanced Energy Concepts, UMD

Charles Hall   Professor, Environmental Science, SUNY Syracuse

James Hansen   Director, NASA Goddard Institute for Space Studies

Richard Heinberg   Author, The Party's Over, Powerdown

Michael Klare   Professor, Peace & World Security, Hampshire College

Daniel Lashof   Deputy Director, NRDC Climate Center

John Marano Adj. Professor, Energy Systems, University of Pittsburgh

Bill McKibben   Author, The End of Nature, Enough

Pat Murphy   Executive Director, The Community Solution

David Pimentel   Professor, Agricultural Sciences, Cornell University

Megan Quinn   Outreach Coordinator, The Community Solution

Mona Sahlin   Minister for Sustainable Development, Sweden

Jack Santa Barbara   Director, Sustainable Scale Project

Brian Schweitzer   Governor, State of Montana

Art Smith   CEO, John S. Herold, Inc

Joseph Tainter   Author, The Collapse of Complex Societies