Tag Archives: Dieter Helm

Chart of the Day, 6 Feb 2015: Is Natural Capital a Helpful Concept?

Although David Cameron has come under criticism for his previous boast about running “the greenest government ever” in the UK, the coalition should be given credit for bringing some fresh thinking to the field of environmental economics. In particular, the concept of natural capital – the different elements of nature that provide value for people – has been lifted into the limelight (click for larger image).

Natural Capital jpeg

The idea of natural capital first popped up in E.F. Schumacher’s 1970s eco classic “Small Is Beautiful”. Only recently, however, has it migrated from academia to economic policy-making, most noticeably taking centre stage in the 2011 government white paper “The Natural Choice: Securing the Value of Nature”.

This white paper, in turn, gave birth to the Natural Capital Committee, chaired by the Oxford economist Dieter Helm, which has produced a series of three reports under the common title “The State of Natural Capital” (here).

So is this all “green crap” (the phrase attributed to PM Cameron when talking about energy bills)? At first glance, it looks eminently sensibly from a business perspective; that is, subjecting nature’s assets to the discipline of accrual accounting. Firms are comfortable with the concept that capital depreciates and that this is a cost. For a company to remain an ongoing concern, it can’t trash its balance sheet to the benefit of the income statement–at least not for long. Similarly, if we erode our soil or pollute our air, the benefits from these resources will gradually diminish.

Yet there are many problems. While we can sometimes back out the value of complex assets like shore-line ecosystems in terms of their functioning as flood defence, extending this approach to intangibles such as a picnic in a park is problematic.

Further, if we wish to prevent natural capital eroding, then we have to assign costs. Much natural capital suffers from the tragedy of the commons (certain economic actors secure profits but dump the costs associated with these profits on society as a whole), and getting the Office of National Statistics to compile natural capital accounts will be meaningless if enforcement isn’t given teeth. The record on climate change isn’t encouraging here. The economics profession is almost unanimous in recommending a carbon tax to make CO2 polluters pay, but few governments have thad the guts to implement one in the face of vocal opposition from vested interests.

Finally, natural capital accounting will live or die by how much you discount the future compared to the present. If we assign a high discount rate, then there is a rationale for gutting our children’s future in order to consume now. A low rate implies we care about coming generations. After the May elections, the incoming government will get to show how much it cares.

 

The Idiocy of Dieter Helm and Bridge Fuels to Nowhere

In U.K. policy circles, it has become increasingly fashionable to believe that we can rely on natural gas as a bridge fuel to a non-carbon energy nirvana some time in the indeterminate future. In the meantime, let’s dump renewables: just too expensive.

Shale gas has also become a neoclassical wet dream. Here is Dieter Helm, the most vocal supporter of shale gas in the U.K., in The Spectator:

Shale oil and gas were not the result of any radical technological revolution, but rather of a combination of advances in seismic information technologies, horizontal drilling and the ability to split open rocks at depth. Why did it happen? Part of the answer is the incremental process of innovation, combined with rising prices of oil and gas innovation plus markets.

Innovation plus markets: truly the neoclassical saviour of all our ills (and don’t forget that fracking technology was born out of government financed R&D, tax credits and infant industry support; see here). My frustration with this line of argument is that it claims to be based on markets, but makes no reference to actual market prices and volumes. If ‘innovation plus markets’ is our salvation then gas volumes will rise and prices will fall (or at least go sideways). Simple really.

In short, we now have a testable hypothesis: the hypothesis being that the bridge fuel of natural gas  at the right price and volume will part the Red Sea and give us 20 or so years of R&D time to transcend fossil fuels altogether. So, Dieter, give us a price and volume number to test your hypothesis. I search within his book “The Carbon Crunch” in vain. Some solid numbers to buttress his assertions: not a chance!

Meanwhile, Helm also says it would be nice to have a carbon tax (it would be nice if we could have peace on earth too, and the lamb lie down with the lion and….well, you get my drift).

Overall, his argument goes like this: gas should get sort of cheaper and therefore get sort of more plentiful, and therefore we sort of use less coal, and so we sort of don’t need so many renewables (which are expensive anyway), and R&D should sort of possibly come up with non-carbon energy alternatives at some vague time in the future. And meanwhile we sort of manage to introduce a carbon tax.

This must be the most pathetic policy prescription in the history of academia.

So what is actually frigging happening. First, U.S. natural gas production is going sideways. I blog on this each month.

US Dry Gas Production January 2013 jpeg

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Shale Gas (Part III): A Brave New World?

In this post, we will switch from a look at the shale gas outlook in the US to that globally. Again, the starting point is a forecast of total energy consumption out into the future, and then a discussion of what amount of gas would be needed to produce a true energy transformation. The latest set of forecasts we have are those from BP’s Energy Outlook 2012, just released this January. The report can be found here.

Interestingly, there is not that much difference between the aggregate energy numbers produced by the major organisations that predict energy supply and demand into the future (IEA, EIA, OPEC, BP and Exxon Mobile). I think that this is because they generally start with a GDP growth (and energy intensity) assumption and then work backwards to produce supply and demand forecasts. (The question of whether growth drives energy or energy drives growth is a topic for another post.)

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Shale Gas (Part II): Tooth Fairy Economics

In my last post, I noted how a whole host of reports have been trumpeting shale gas as the ultimate ‘get out of jail free’ card from any kind of energy constraint and, indeed, the need to invest in renewables to protect the planet from climate change. Here is Mortimer Zuckerman talking of a shale gas ‘revolution’ in the Wall Street Journal.

America’s soaring natural-gas production has already helped cut our share of oil consumption met by imports to 47% last year from 60% in 2005, according to the Energy Information Administration. The shale-gas revolution, with proper safety practices, can be expected to continue this trend while addressing three longstanding concerns of the energy business: energy scarcity, energy security, and environmental risks. In a word, we have a chance to remake our energy future.

Note that an awful lot is being asked of shale gas if it going to help solve scarcity, security and environmental risks all at once. We are in effect asking it to do three things: 1) allow total energy consumption from all energy sources to grow in order to solve the problem of scarcity, 2) enable us to switch away from coal in the generation of electricity in order to blunt (but not stop) CO2 emission growth and so ameliorate environmental risks, and 3) facilitate a transport revolution that allows us to stop importing oil from geopolitical hotspots. Continue reading

Shale Gas (Part I): Energy Cornucopia's Great Fight Back?

The idea that resource constraints pose a limit to growth (one version of which is Peak Oil thoery) is subject to constant attack, with economists of a neo-classical persuassion frequently leading the charge. As such, those who believe in resource cornucopia, or at least that resources pose no impediment to economic growth, deserve a close reading since the victors of this debate will define how our world evolves over the next 50 years.

As I mentioned in my last past, it adds nothing to the debate when many mainstream economists begin their analysis by misconstruing the arguments of their opponents. Take a careful note of three things that modern Peak Oil theorists are not suggesting: they emphatically are not stating that 1) price doesn’t matter, 2) there are no more reserves to be found and 3) technological advances are irrelevant. If you don’t believe this statement, then I urge you to actually read the landmark article by Campbell and Laherrere in Scientific America (here) that brought the topic of Peak Oil back into the public domain. Or, at the very least, read the excellent summation of Peak Oil thought that ends their article:

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.

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The Limits to Growth, Urban Legends, Economists and Dieter Helm

At the heart of economics is the idea of scarcity—or rather scarcity in the face of infinite wants. Yet scarcity is an issue that touches upon us all, and thus draws the interest of different scientific disciplines. So if we take the idea of scarce oil (let’s call it Peak Oil), we should not be surprised that chemists, physicists, engineers and geologists would want to take a view.

Nonetheless, many economists appear to believe that they have a unique and superior understanding of how scarcity evolves through time (using the tools of supply, demand and price); and they often also behave as if no non-economist could ever hope to gain such insights. As such, we may criticize them for being arrogant—but not as necessarily wrong (and at this point I have to declare that I am an economist by training). But wait a minute, if the arguments of mainstream economists are so evidently correct, why do many of them appear to have a pathological need to misconstrue the arguments of their opponents?

Probably the most enduring urban legend (or urban myth if you prefer the term) of them all in the study of resources is the common interpretation of The Limits to Growth report to the Club of Rome published in 1972. Surely, everyone knows that the report’s forecast of resource exhaustion by the year 2000 turned out to be nothing but a huge joke. And if we don’t know this directly ourselves (having not read through the report because frankly who has the time, and where would we find a copy anyway these days), we know because high profile journalists and media pundits have told us of the report’s spectacular failure on TV, in newspapers or over the internet (or someone in a pub or bar said that is what the report said). Continue reading