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E.U.’s New Climate Targets for 2030 Plus More Rubbish on Competitiveness

One of the European Union’s saving graces is its relatively enlightened climate change policy. The push to decarbonise the European economies may be too slow but at least it is going in the right direction.

In this connection, an important set of E.U. reports, that together form the new climate targets out to the year 2030, was published on 22nd January. You can find them all here. The critical components of the 2030 policy are threefold:

  • 40% cut in greenhouse gas emissions (compared to 1990 levels)
  • To achieve at least a 27% share of renewable energy consumption
  • Energy efficiency to play a vital role, but no specific target at this point.

In this post, I prefer not to delve into the details of the targets, but rather want to take a brief look at energy costs. The dominant meme in the financial price is that renewables and carbon taxes are fatally undermining European competitiveness. As an example, read this article in The Financial Times titled “High Energy Prices Hold Europe Back“.

Whenever I hear a politician or titan of industry reaching for the word “competitiveness” to justify some self-serving policy action I make sure I have a sick bucket near. This is because the mere mention of the word “competitiveness” appears to preclude any further analysis and resort to actual facts.

My point here is that cheap energy prices are neither a necessary nor a sufficient condition for fostering a prosperous economy. Let’s take a chart of wholesale gases prices from the E.U.’s “Energy Prices and Costs Report” that was published along with the new 2030 targets (click for larger image).

Wholesale Gas Prices Globally jpeg

The first point to note is that the U.S. price of around $2 dollars was the absolute 2012 nadir in gas prices. We are now back up to around $4 and the U.S. Energy Information Agency see the price trending up toward $6 to $7 in order to make further shale gas development economically viable.

US Nat Gas Spot Prices Jan 14 jpeg

But this is not the key point I want to make. Rather, if you click on the global gas price comparison chart you will see that at the high price end of the spectrum we have three of the Asian Tigers: Singapore, Taiwan and South Korea. And how about that GDP growth monster China, which has been astonishing the world with consecutive 10% year-on-year annual growth rates up until very recently? Well, its gas price looks—how can I put it—European.

OK, what about electricity prices for industrial consumers (click for larger image)?

Retail Prices of Electricity Industrial Consumers jpeg

True, the price paid in some European countries is high, but the average is only marginally above that in China, Brazil and Turkey. And don’t forget that you would expect Europe to be somewhat higher since its advanced economies have higher wages and steeper land prices. So taking such costs into consideration, Europe looks pretty average.

So there are many paths to economic prosperity, and a cheap energy price is not the only one.

Links for the Week Ending January 19

  • Just as I am close to concluding my series of posts on technology and jobs (herehereherehere and here), The Economist places the topic on its front page with a picture of a tornado ripping through an office. Their editorial is here and briefing here. The times are a changing: there is no disdain for the lump of labour fallacy to be seen (surely a first for The Economist) and, indeed, a recognition that we have a major problem in finding enough jobs.
  • On a tangental theme, many academic economists have pointed to a structural change surfacing in the labour market from around the year 2000. Interestingly, an article in the weekend’s Financial Times sees a structural change in the U.K. housing market taking place at around the same time. In short, from the end of WW2 to the turn of the millennium, housing wealth broadened to encompass a growing share of the population, and since that time it has struck. A further symptom of the return to an Edwardian Downton Abbey-type economy? (Note, FT articles are free as long as you register.)
  • And for an upper middle-class lament on both housing and education affordability trends read this article by David Thomas in The Telegraph titled “We’ll Never Have It So Good Again“(it’s a few months old, but I missed it until seeing it referenced by The Browser).
  • The climate skeptic spin on the scientists stuck in Antarctic ice is too depressing for words, but at least I think this incident will be forgotten within a year or so. Nonetheless, strange things are happening to the Antarctic climate as this piece in The New York Times explains.
  • Still on climate, Michael Mann—he of the hockey stick controversy— has a fine op-ed (again in The New York Times) explaining why he gets involved in the bar fight that is climate change action advocacy. In his words: “How will history judge us if we watch the threat unfold before our eyes, but fail to communicate the urgency of acting to avert potential disaster? How would I explain to the future children of my 8-year-old daughter that their grandfather saw the threat, but didn’t speak up in time?” Bravo!
  • And don’t miss Gavin Schmidt’s talk and comments on the role of scientists in climate change advocacy available at Realclimate here.
  • For an angle on just how much we have left to do, read the International Energy Agency‘s Maria van der Hoeven’s  CNN Money piece on the inexorable rise of coal consumption. Disturbing reading. The IEA report on coal that sits behind this article is here.

Links for the Week Ending 12 January 2014

  • A segment on 60 Minutes bashing Cleantech entitled the Cleantech Crash has caused a lot of controversy around the web. I will just say a couple of things. First, biofuels, the woeful under-performers, are not the only thing in Greentech; successes in electric cars, wind and solar have been many. Second, the development of fracking technology took many decades, went up a lot of dead ends, and has cost a lot of tax-dollars through government support (see here). Grist has a good response to 60 Minutes here, and Robert Rapier of the blog R-Squared Energy, a contributor to the programme, has the backstory of how the segment was made here.
  • With floods in the UK and freeze in the US, now is a good time to revisit a Skeptical Science post explaining the jet stream (here), whose recent volatility is the likely driver of all the turmoil. Ironically, Australia has just finished its hottest year on record (here) and has had a record-shattering start to 2014 as well. Ditto Argentina (here).
  • I’ve been talking a lot about technology munching jobs recently, and am intrigued that this issue is popping up in the most unexpected places. Adam Jones in the management section of The Financial Times tells us how technology and globalisation are creating lives for white collar workers of angst and alienation befitting a Bruce Springsteen song. In the face of such burgeoning job insecurity, he advises the middle class to detach their identities from their jobs if they wish to avoid the psychological damage suffered by blue collar workers of the Springsteen-land rust belt in the 1970s and 80s.
  • I if you were to read only three non-academic articles on the subject of technology and job destruction they would be these: 1) Martin Ford’s “Could Artificial Intelligence Cause an Unemployment Crisis” (yes, we have a crisis), 2) David Rotman in the MIT Technology Reviews’s “How Technology Is Destroying Jobs” (could perhaps be a crisis), and 3) Ben Miller and Robert Atkinson’s  “Are Robots Taking Our Jobs, or Making Them?” (definitely no crisis).
  • I did a post a couple of months back on the Red Queen syndrome with shale gas production (here). Here is Rune Likvern writing over at Fractional Flow on the same theme but with respect to tight oil.

Links for the Week Ending 5 January 2014

Taking a short break from my “Hiding from the Computers” posts, here are a few links that have caught my eye over the last week.

  • If you are to read one thing this week, then it should be the short 6-page report by Andrew Flowers of the Atlanta Fed entitled “The Productivity Paradox: Is Technology Failing or Fueling Growth?“. The arguments are nothing new to readers of this blog, but it is nice to have them restated so succinctly all in one place.
  • Robert Gordon’s 2012 paper “Is US Economic Growth Over?” was a watershed in bringing this issue out of the closet since Gordon is one of the most-respected growth economists in the world. Indeed, the outgoing Fed Chairman Ben Bernanke dealt with the stagnation hypothesis head on in a speech entitled  “Economic Prospects for the Long Run“; the talk referenced both Robert Gordon and Tyler Cowen. Bernanke also brought up the productivity conundrum in his last speech as Fed chair on 3rd January 2014.
  • Yves Smith from Naked Capitalism is one of my favourite bloggers, but she can be infuriatingly uneven at times. But here are 10 of her best posts from 2013. As an ex-investment banker and consultant, she is a past master at unveiling the bullshit espoused by certain sectors of the financial sector.
  • And another of my favourite bloggers, Stuart Staniford of Early Warning, is back after a long hiatus. He kicks off with an update on the oil market. I like his last chart showing crude and condensate production flat-lining since 2004. I don’t take this as irrefutable proof that the peak oilers are/were right since if an alternative liquid functions as an oil substitute (or at least partially functions) then in economic terms it is oil. Nonetheless, I am an advocate of the modern peak oil argument championed by Colin Campbell and Jean Laherrere in an incredibly prescient 1998 Scientific American article entitled “The End of Cheap Oil”. Campbell and Leherrere said: “The world is not running out of oil—at least not yet. What our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend.” Average price of Brent crude in 1998: $12.76 per barrel. Average price of Brent crude in  2013: $108.41—the third year in a row above $100 per barrel. Why? Because all incremental growth in oil production is now coming from non-traditional (i.e. expensive) sources as Staniford’s chart shows, and Campbell and Laherrere predicted 15 years ago. In short, Campbell and Laherrere were spectacularly right, the darling of the global financial press Daniel Yergin—who has for years preached technology-led oil abundance—was spectacularly wrong.
  • Finally, at one stage I contemplated doing a post at the end of 2013 entitled “Reasons to Be Cheerful”. This is a blog that highlights tail risk, so by definition it focuses on the negative (no apologies for this—I am from a profession that regards such an approach as good risk management). However, certain negative tail risks sometimes get a little less negative. One such, I thought, was climate sensitivity to a doubling of CO2. In the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4) in 2007, sensitivity was given as 2°C to 4.5°C. The latest report published in late 2013, AR5, slightly reduced sensitivity to 1.5°C to 4.5°. However, it is going to be a long time until we have the final word on sensitivity. A new study by Sherwood et al on the impact of clouds provides evidence that the top end (bad end) of sensitivity could be worse than AR5. Such uncertainty over the sensitivity number is, in itself, a big risk. has a lot more on this issue this week.

Links for the Week Ending 8 December

  • The rapid release of methane over northern latitudes has been identified as a major source of climate change risk. David Archer, over at, reviews a couple of major recent papers on the subject. His conclusion from the findings of these papers is that methane releases remains a concern but should not usher in the apocalypse (at least for a few hundred years or so yet).
  • The cover of The New Scientist last week was “Climate Slowdown: Is It Time to Stop Worrying about Global Warming?” (Hint: the answer given was “No”, sort of.) Unfortunately, the lead editorial and main article is behind a paywall, but has a synopsis here. The main explanation for the current warming hiatus is the transfer of heat to the deep ocean, but we still haven’t pinned down the contribution of sulphur aerosols (I really don’t understand why satellites can’t calculate the solar radiation reflected by aerosols back into space and thus the earth system energy balance more accurately). For how long heat could be transferred down from the earth’s surface to the deep ocean in sufficient quantities to maintain the hiatus also appears to be a known unknown—could this go on for years more, or even decades? Obviously, eventually a change in temperature gradient would stop this heat transfer, but my guess would be that the aggregate heat transfer required to do this would be vast given the size of the deep ocean. So the determining factor is ocean current variability (which we don’t know much about)?
  • By the way, the UK’s Met Office also tackled the some subject, the deceleration in rising temperatures, in a series of reports back in July; here, here and here.
  • Regardless of the science, society (and politics) has made climate change almost a taboo subject. The Climate Outreach and Information Network (COIN) has a paper out on the subject of climate silence and how to tackle it here
  • Last week I did a post on income inequality. One of the leading US scholars working on this problem is Lane Kenworthy. Here is an article he did back in July on how governments can tackle the problem.
  • I talk a lot on the secular-stagnation-of-the-West thesis (Tyler Cowen, Robert Gordon, etc). But here is an alternative explanation by Daniel Davies at Crooked Timber for our travails based on a policy decision to accommodate globalisation and the rise of China. Interesting.

Links for the Week Ending 1 December

  • There has been a lot of press comment (including Martin Wolf of The Financial Times here) on a talk of Larry Summers (who was recently pipped by Janet Yellen for the Federal Reserve Governor nomination) at an IMF panel early in November; in particular, Summers’ concern that US employment has barely budged over the last four years and that there has been no growth catch-up. Best in such a situation to go to the source of the chatter, which is his speech here (his main argument starts at 2:15 minutes). Just as a heads up, Summers basically believes that the growth problem lies in a lack of monetary policy efficacy at the zero interest rate bound; I think the problem is much more structural in nature. Listen to the speech (only 16 minutes long).
  • Unlike The Daily Mail, the UK’s right-leaning Telegraph can, on occasion, report environmental issues without following a strict party line. (Indeed, on The Telegraph‘s roster is Geoffrey Lean, one of the best writers on green issues in the UK.) But last week I was most surprised by an article written by Ambrose Evans-Pritchard on global soil depletion.  Evans-Pritchard usually saves his passion for economic and financial issues, so I was pleased to see him focus on land degradation. And here is the original paper in Science that the article was based on.
  • I have a bunch of books by Vaclav Smil on my bookshelf, and am currently reading “Harvesting the Biosphere”. Smil is an extraordinary polymath and a favourite of Bill Gates. Given Gates’ close association with Wired Magazine, it is not surprising to see a good interview with Smil in Wired here discussing energy and a lot more else.
  • Two of my favourite blogs on energy depletion, The Oil Drum and Early Warning have gone dormant over the last year (the former permanently, the latter I hope temporarily). However, Gail the Actuary is still posting at Our Finite World. I don’t always agree with her analysis but boy do we need more such commentary challenging the cornucopian consensus.
  • William Nordhaus, the doyen of economists looking at climate change, has a new book out called “The Climate Casino: Risk, Uncertainty and Economics for a Warming World“, which I flagged in ‘Links’ a couple of weeks ago. Put it on your Christmas wish list, but if no-one is obliging enough to buy it for you, then at least read this article by Martin Wolf (again) in The Financial Times, which captures the essence of Nordhaus’ thinking.

Links for the Week Ending 24 November

  • Every political movement is a broad church: no ideology can capture the shifting subtleties of a range of policy prescriptions. As a fellow traveller in the Transition Network movement, I see this truism vividly revealed when it comes to nuclear (and perhaps also GM, but that is another story). Transition attracts many former New Agers who have an anti-science bias coded into their DNA. Yet is also appeals to highly educated free-spirited techies who prefer Wired Magazine to healing crystals. The New Agers don’t take kindly to articles such as this in the New York Times advocating the case for nuclear, but personally I think nuclear should play an integral part in protecting the planet—surely the core New Age belief.
  • On my bookshelf is a text on economics and forecasting by Robert Pindyck, a famous MIT economist. Pindyck recently stepped into the fray on climate change by publishing an NBER working paper called “Climate Change: What Do the Models Tell Us?” In the article, he attacks 1) climate sensitivity models for their inability to grasp the uncertainties in feedback loops (I don’t really agree with this) and 2) the poor state of damage functions that model climate change economic impacts (I almost completely agree with this). At first glance, this plays to the climate skeptic meme of “the models are useless, so we shouldn’t take any action” (and I am sure this is how they will spin the paper). Yet Pindyck’s conclusion is that we should still enact a carbon tax since the cost of adverse outcomes could be unacceptably high—even if, as he states, this is based on a subjective evaluation. The journalist Robert Samuelson gives a short commentary on Pindyck’s arguments here (if you don’t want to wade through the original NBER paper).
  • The Financial Times had an excellent series of articles at the beginning of the week on the job prospects of the new cohort of graduates called “Class of the Crunch”. It makes chilling reading, with new graduates facing a combination of fewer graduate level jobs, lower starting salaries for the jobs that do remain and, of course, a big debt burden even before entry into the workforce.
  • That said, the job prospects of those without tertiary qualifications are far worse. The OECD’s flagship report on educational statistics across member states, “Education at a Glance 2013” starts with an editorial documenting the growing gap between those with high and low educational attainment between 2008 and 2011–although systems with a vocationally orientated secondary education systems such as Germany have managed to control this gap to a certain extent.
  • The Independent newspaper led its front page on Monday with “Exposed: The Myth of the Global Warming Pause“. For reference, the original article that underpins The Independent‘s reporting can be found here.  Personally, I am highly sceptical that any one paper will suddenly transform our knowledge and understanding of a particular phenomenon overnight (although this does on occasion happen). That is why the regular “New Paper Disproves Global Warming” type headline favoured by Watts Up with That and its climate skeptic ilk is of such low intellectual worth. Quite probably, measurement error accounts for some of the temperature hiatus, but I think it more likely that we have a number of layered factors causing the pause. I could be wrong, but I would prefer to make my mind up on the strength of more than one paper (and one newspaper headline).

Links for the Week Ending 17 November

  • A must read for anyone trying to navigate the future is Tyler Cowen’s 2011 book “The Great Stagnation“, which tackled the two critical modern economic challenges of slowing growth and rising inequality against the backdrop of changing technology-driven productivity. Cowen is now back with a follow-up called “Average Is Over“. For a gist of his latest thinking read this interview for The New Yorker, or better still listen to the hour-long EconTalk podcast with Cowen here.
  • American Prospect’s “The State of Work in the Age of Uncertainty” contains some great graphics showing how the trends Cowen elucidates go back decades. The one US politician who has written most eloquently on this issue is Elizabeth Warren in books such as “The Two Income Trap“. At the minute, her guns are focussed on Wall Street, but I wouldn’t be surprised if the explosive issue of inequality takes her all the way to the White House in the future.
  • In the UK, the question of rising inequality in a modern economy has also moved front and centre of the political debate for both the left and right. The UK government’s recently released “State of the Nation: Social Mobility and Child Poverty in Great Britain” reflects many of Cowen’s themes, particularly two fundamental changes: 1) “growing insecurity among average income families, not just lower income ones” and 2) the fact that “child poverty is overwhelmingly a problem facing working families, not just the workless”. If you don’t want to wade through the report, here is a speech addressing the key issues given last week by Alan Milburn, the former Labour cabinet minister but now the coalition government’s social mobility tsar.
  • I have generally been skeptical that shale oil and shale gas are the “game changers” portrayed in the media. Here is Menzie Chinn at Econbrowser popping another over-hyped aspect of shale—its ability to spark a US manufacturing renaissance.
  • The climate change pressure group has had some success in pushing university endowments to disinvest from fossil fuel. Accordingly, the statement by Drew Faust, President of Harvard University, refusing to consider such action has caused a huge rumpus. Here is Drew’s “Fossil Fuel Divestment Statement“. I don’t agree, but that deserves a blog post.

Links for the Week Ending 10 November

  • One of the few things heterodox economists‘ share is a rejection of neoclassical economic theory. Consensus neoclassical economists, in turn, generally ignore heterodox economists, accusing then of a lack rigour or worse (which basically means heterodox economists are accused of not being able to understand neoclassical economics). Herman Daly is a slightly more difficult target to skewer. Although a leading heterodox economist, Daly also has an impeccable training in neoclassical economics. Here is Daly setting out 10 policy prescriptions for ‘steady state’ economics.
  • Thankfully, some aspects of the heterodox agenda have already entered the mainstream, including ‘happiness studies’. The OECD, for example, has just issued its second “How’s Life, Measuring Well Being Report”. You can find the full report here and a presentation on the report here.
  • My last post took issue with George Marshall of the Climate Change Denial blog (although I am in broad agreement with his approach to the psychology of climate change communication). A previous post of Marshall’s looked at an interesting paper in Nature estimating the year in which the globe would see a new normal in climate (a year when the coldest possible temperature likely to be recorded would be above the current hottest recorded temperature), and suggested this approach could provide a useful narrative in the climate change debate. The article is behind a paywall, but you can see a 25 minute presentation on the paper’s thesis here.
  • Meanwhile, for those living in Europe, a new report by the Norwegian Meteorological Institute looks at how extreme weather events will unfold in the coming decades. Given the lack of progress in mitigation, the risk averse should try to keep fully abreast of such reports with a view to adaption in Europe.
  • In last week’s links I picked up on a couple of leading economists who have focussed on the decline in economic growth. This week I want to flag an article published a few weeks back by Nobel Laureate Joseph Stiglitz in the New York Times looking at inequality. Stiglitz piece, in turn, draws heavily upon the work of Branko Milanovic and his book “The Haves and the Have Nots: A Brief and Idiosyncratic History of Global Inequality. Milanovic has tracked growing income inequality since the 1980s and an introduction to his findings can be found in this short IMF article here.

Links for the Week Ending 3 November

  • The relationship between technological progress on the one hand and economic growth and income inequality on the other has exploded as a topic of debate over the last couple of years. Here is Brad Delong speaking (with characteristic style) on the issue at the Berkeley Festival of Ideas. Delong quotes Larry Summers on how many men are becoming increasingly superfluous in the modern age:

“My friend and coauthor Larry Summers touched on this a year and a bit ago when he was here giving the Wildavsky lecture. He was talking about the extraordinary decline in American labor force participation even among prime-aged males–that a surprisingly large chunk of our male population is now in the position where there is nothing that people can think of for them to do that is useful enough to cover the costs of making sure that they actually do it correctly, and don’t break the stuff and subtract value when they are supposed to be adding to it.”

  • Summers’ April 2012 Wildavsky lecture entitled “Economic Possibilities for Our Children” is fascinating in itself and can be found here (Summer starts at 10 minutes into the video). And, for balance, take a look at Joel Moky’s more optimistic outlook here.
  • I’ve been very disappointed with the media reception to the Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC). The climate change outlook has continued to darken since 2007 when AR4 was published, but this message has just not come through to the general public. As an example, here is Stefan Rahmstorf  on the Real Climate blog explaining how AR5’s sea level rise estimate is substantially more pessimistic than that in AR4. Does the general public know or care that their children and grandchildren will have to deal with a large rise in sea level: probably not.
  • At the centre of any bullish forecast of global oil production is the continued recovery in Iraqi oil output. For example, the last published International Energy Agency (IEA)’s World Energy Outlook sees Iraqi output rising from 3 million barrels per day (bpd) in 2012 to 6 million bpd in 2020. This is, of course, premised on the security situation remaining stable in Iraq. Unfortunately, 2013 has seen a marked deterioration. The blog Musings on Iraq provides a grisly table of deaths here. In this connection, The Brookings Institution‘s Iraq Index  publishes an authoritative source of statistics on Iraq’s security situation. The last release was in July 2013 and showed the beginnings of the uptick in bombings and attacks; I expect the next release to chronicle the continued deterioration in political stability.