Monday, 1 June 2015

Why the oil companies' call for carbon pricing may not be what it seems

It may seem quite a breakthrough to get a bunch of oil companies to sign up to climate action, but I would definitely  look this gift horse in the mouth. This is for the simple reason that the policy instrument to which they give so much prominence (carbon pricing) is one that will act more in their interests rather than the interest of implementing energy efficiency and renewable energy. Examine the key phrase in the document, issued by the Climate group, namely:

'If governments act to price carbon, this discourages high carbon options and encourages the most efficient ways of reducing emissions widely.....' See

Now I'm not saying carbon pricing is a bad thing, but it is very tendentious to suggest that it will lead to 'the most efficient ways of reducing emissions widely'. That, most certainly, will not happen! It is paraded as a 'market based' instrument but in fact has three fundamental market 'inefficiencies' built into it.

 First, it increases the price of energy for everybody regardless of whether they are in a position to replace their existing energy equipment with equipment that produces lower carbon energy services - so it angers people who have to make their savings simply by cutting their levels of energy services. As a result it builds pressure to limit the extent of carbon pricing.In that sense it is politically self-defeating. I have heard energy establishment figures call for carbon pricing before rather than embrace technology-specific measures that would advantage techniques (such as energy efficiency and renewable energy) that would not benefit the fuels and power stations with which they are associated. 

Second, carbon pricing is a very short term device because nobody can be certain that a given carbon price will be in place long enough to justify people spending lots of money on desirable types of new low carbon equipment. (Just look at the variations in recent UK policy on carbon pricing!). Desirable low carbon technologies are usually capital intensive meaning that you have to spend most of the money at the start to install the equipment (rather than fossil fuel intensive operations). Examples of capital intensive low carbon plant include replacement lighting systems, more energy efficient new buildings than would otherwise be built, a windfarm, a solar farm etc. 

Instead, and here's the third fundamental flaw, in practice carbon pricing encourages switching to different fossil fuels rather than energy efficiency or renewable energy. Carbon pricing encourages short term thinking of saving fuel costs in the short term - in particular from coal to oil and gas. And here is the rub, that can explain why the oil (and gas corporations) have a keen interest in carbon pricing rather than various other techniques. 

In the short term you can fuel switch from coal to oil and gas, especially in the power sector. Carbon pricing discriminates in favour of such superficial short term changes and against investments with a longer term payback such as energy efficiency and renewable energy. This is because there is uncertainty in the longer term about the level of the carbon pricingIn order to incentivise energy efficiency and renewable energy you need to change regulations and give renewable energy schemes local term contracts to be paid guaranteed levels of return for energy produced- power purchase agreements (PPAs). 

Regulations and instruments such as feed-in tariffs are much more efficient means of promoting decarbonisation since 1) They encounter much less political resistance because for a given addition of low carbon technology they involve much lower general increases in energy prices compared to just using carbon pricing.  Hence a lot more actual decarbonisation can be achieved. 2) They encourage much more systemic change through encouraging new capital intensive technologies. Third they incentivise much greater carbon reduction as opposed to mere short-term fuel switching between different fossil fuels (often simply between existing fossil power power plant)

I don't see any reference to this type of policy instrument in the oil company statement, which is not a surprise. 

What we do often see quite a lot is a lot of nonsense about how using natural gas reduces carbon emissions in sectors like the British power sector. So the argument goes, it is cheaper than renewable energy (energy efficiency usually doesn't get a mention here by the way). The gas lobby get away with this by finessing away the fact that the average carbon content of British electricity supply is about the same as that from a natural gas power station. They manage to avoid the obvious fact that adding another gas fired power station will not reduce the carbon content of the electricity supply. 

The gas lobby manage to achieve this sleight of hand by always comparing the carbon content of their gas power station with that of an existing coal fired power station. But this is an arbitrary, self-serving, comparison. In practice people are choosing to 'replace' their existing lighting systems, choosing whether to have a more or less energy efficient new building, whether to replace a nuclear power station (let's leave aside the arguments about that for a moment) or even whether to repower an existing windfarm etc. So the point is that your new gas fired power stations might just as easily be replacing an alternative investment in a low carbon energy technology as much as coal. The choice, in effect, is not between replacing an old coal fired power station with a gas power station (or anything else) but with replacing the average carbon content of the electricity services with something else. So in these terms replacing the average carbon content of electricity services that is consumed with average carbon content (the gas power station) doesn't reduce carbon content at all. 

The French philosopher Foucault argued, essentially, that truth is created by power, and clearly power in our society is dominated by the energy establishment. They will always insist that their truth is disseminated in periodicals, reports etc influenced by the establishment. Getting an alternative, in this case ecologically sustainable, truth into power is a struggle, and involves creating alternative centres of power. That is what we should do and we should treat the oil companies apparent conversion to climate action as simply a manifestation of where their best interests lie - to sell more oil and gas.

Whilst I realise that there is a lot of sincere endeavour amongst participants in the Climate Group, I feel they may be placing too much reliance on the the oil companies' statement. We are taking one step forward, but three steps back.  Instead of focussing the real measures to promote clean technologies we are being railroaded into what is at best an irrelevant discussion about a carbon pricing system that will, if anything, delay the adoption of clean energy systems and benefit the oil and gas companies.

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