The Carbon Crunch: How We're Getting Climate Change Wrong - and How to Fix It

Dieter Helm is a leading economist, but not one of those who is besotted with mathematical functions. He is deeply interested in the economics of energy, and this book was clearly prompted by what he sees as the economic illiteracy of leading climate policies and of some green groups. He argues that the economic frailties of contemporary policies feed climate scepticism because the proposed “solutions” manifestly fail to work. The Kyoto Protocol has not brought about any overall worldwide diminution in greenhouse-gas emissions - far from it - and there are no agreements in place that are likely to address this fact any time soon. And among the key reasons for this, he says, are economic ones.

Some of his concerns lie close to home. He is sceptical about the economics of large-scale wind power in most of Europe and particularly of off-shore turbines. He summarises the key points here, noting - for example - that wind makes most economic sense if one assumes steeply rising energy prices, which, as described below, he does not. Similarly, he argues that a commitment to wind increases capital costs because one has to have a large installed spare capacity for occasions when the air is still. Helm is also dismissive of what he sees as exaggerations in the supposed gains from insulation. One should not waste heat of course, but insulation may be used to enjoy warmer homes rather than to cut emissions.

But his main arguments lie further away. The first is about the growth of the Chinese economy and its dependence on coal. If China’s growth plans for the next decade are to succeed, it is likely that two new coal-fired power stations will be added every week, and this much coal-burning is desperately bad news for the climate. But the underlying story is even worse because China’s performance is linked to ours. In part, China grew so rapidly in the past decade precisely because of high energy costs in Europe. Europe’s embrace of Kyoto stoked deindustrialisation and moved dirty production overseas.

This means two very unfortunate things. The first is that the UK, for example, has met its Kyoto obligations in significant part because we no longer generate carbon dioxide from steelworks and heavy engineering here. But we haven’t forsworn these goods; we simply buy them from China and elsewhere. Consequently, we are still responsible for the carbon entering the atmosphere but not in a way that registers in the Kyoto Protocol’s measurements. Sadder still is the possibility that these things are now made using overwhelmingly coal-generated electricity, which would not be the case for UK production. Thus to have bicycles or boats manufactured in China is to have them made in the most carbon-intensive way. At a global level, therefore, Kyoto has probably increased carbon emissions while, locally, our hard-won emissions reductions are swamped by China’s (and others’) increases. Our virtue counts for little.

Helm’s other main argument is perhaps less familiar. It is that the assumptions about declining gas and oil reserves have to a significant degree been confounded by the recent exploitation of shale gas and tar sands. North Americans have pushed ahead with these new sources, finding cheaper ways to maintain their conventional energy systems and profiting, at Europe’s expense, from not being tied to the Kyoto Protocol.

This all leads up to Helm’s remedy. His “fix” is: hasten the switch to gas through a carbon tax - to get out of coal - and then wait for investments in the next generation of renewables to pay off. Given his merciless view of existing policies, his solution appears lacking in detail and political realism. But this is a provocative analysis and well worth the discomfort it will likely engender.