Large-scale initiatives – and they don’t come any larger that trying to ‘decarbonise’ the global economy – often make sense on a broad scale, but the policymaking process tends to give some patently absurd outcomes. Consider just three examples: the EU Emissions Trading System, the prescription of renewables as the way to reduce emissions and the love affair with biomass.
First, the ETS. The objective of this is to reduce emissions of CO2 across the EU by assigning the right for a certain level of emissions to large energy users. In theory, by restricting the supply of permits in a so-called cap and trade system, a gradual tightening of supply would increase the price and give the appropriate economic incentive to reduce carbon intensity. A rather more efficient and effective way has been proposed by many economists: the introduction of a flat-rate carbon tax, escalating year by year, which would give the appropriate signal and let companies decide how best to minimise their tax burden, but the EU opted for the ETS on the principle that the ‘polluter’ pays.
The reality was predictable. National governments successfully lobbied for a generous allowance to help their domestic industries and permit prices generally remained lower than intended. Recession has since taken its toll of industrial and emissions have dropped accordingly, without plan or incentive; the carbon price has plummeted further. The ETS is as good as dead and it will take a massive effort of political will to revive it. The siren call of central planning has been shown to be false (yet again).
The setting of targets for renewables has proved to be a further costly own-goal. Renewable energy, from solar, wind or water is a perfectly legitimate option for emissions reduction, but by no means the only one. When the EU set itself policy targets, it chose the eye-catching 20:20:20 formula; 20% reduction in emissions, 20% energy savings and 20% of energy to come from renewables by 2020. Since the aim of the policy was to reduce emissions, setting an overall target was a sensible idea. A target for energy efficiency also makes sense, as using less energy in the first place is the most cost-effective route towards emissions reduction and represents a cost saving for the whole economy.
If these had been 20:20 targets, things would have been fine. Companies would have found the least-cost ways to make emissions reductions while also increasing energy efficiency. If wind or solar power was the most cost-effective way to cut emissions, then more capacity would have been installed, with no further incentives needed. But, in the real world, no new wind farms or solar panels would have been installed without some kind of subsidy; they are simply not economically competitive. At the same time, it is beginning to dawn on politicians that renewables are not all they are cracked up to be. Electricity bills are artificially inflated to pay for subsidies to their operators and emissions savings are less than projected because of the need to run conventional generating plant on standby.
By introducing this target at the behest of the renewable energy and environmentalist lobbies, the EU has made achievement of its emissions reduction targets both more difficult and more expensive than necessary. In a rational world, utility companies would have been free to use the most effective technical option, which is currently nuclear fission. If climate change turns out to be both as severe and as dependent on atmospheric carbon dioxide as the IPCC proclaims, then nuclear is the obvious way to achieve a real reduction in emissions. If, on the other hand, average temperatures fail to rise as far or as fast as projected, and CO2 turns out to be only one of several important drivers, at least Member States would have a secure and affordable electricity supply.
And so to biofuels in general and biomass in particular. Grid electricity, of course, only forms part of the overall energy needs. Heating and transport are also important; heating is the biggest overall energy user, and the transport sector looks set for continuing growth. Ignoring the sideshow of electric vehicles, which still look far from becoming mainstream despite major advances in design and performance, the main policy instrument to reduce emissions is the target of 10% biofuels use.
Although again a superficially attractive option, current biofuels have been heavily criticised because of their competition for grain which would otherwise enter the food chain, the release of greenhouse gases from soil ploughed to grow energy crops and their overall modest impact on emissions. The EU has already restricted the use of what it terms food-based biofuels to a maximum of 5% of transport fuel use. But biofuels from non-food crops constitute a rather small sector of the market and conversion of waste lignocellulosic biomass to liquid fuels is not yet economic. The sector has come in for particular criticism recently from Chatham House (The trouble with biofuels: costs and consequences of expanding biofuel use in the UK).
However, the main use for this waste biomass (straw and other crop residues in some cases, but mainly wood pellets) is burning it directly. Biomass is regarded as a source of renewable energy despite the fact that burning it releases large amounts of carbon dioxide, which is only removed from the air when an equivalent weight of wood has regrown. In the UK, the country’s largest coal-fired power station (Drax, in Yorkshire) is converting three of its six boilers to burn wood pellets.
Most of the wood will be grown in the USA and shipped over to three ports on the Humber estuary (Immingham, Hull and Goole). Associated British Ports is investing up to £100 million in facilities to fulfil a 15-year contract to supply Drax from 2016. Drax itself is expected to be receiving around £0.5 billion annually when the converted boilers are running. This is big business, but does it make sense?
Many environmentalists now oppose industrial burning of wood in this way, and the theoretical emissions reductions are limited by the need to harvest trees, turn the wood into pellets and ship this relatively low-density fuel thousands of miles across the Atlantic. More about this revival of wood-burning can be found in a recent Economist article: The fuel of the future – Environmental lunacy in Europe.
I leave you with a pertinent quote from the article. This may overstate the case a little, but the argument is difficult to brush aside. Tim Searchinger of Princeton University calculates that if whole trees are used to produce energy, as they sometimes are, they increase carbon emissions compared with coal (the dirtiest fuel) by 79% over 20 years and 49% over 40 years; there is no carbon reduction until 100 years have passed, when the replacement trees have grown up. But as Tom Brookes of the European Climate Foundation points out, “we’re trying to cut carbon now; not in 100 years’ time.”
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