Keep dreaming, boys…..

Have a look at this just-published article in PNAS by Jerome Dangerman and Hans Joachim Schellnhuber on the topic of climate change:

Abstract

The contemporary industrial metabolism is not sustainable. Critical problems arise at both the input and the output side of the complex: Although affordable fossil fuels and mineral resources are declining, the waste products of the current production and consumption schemes (especially CO2 emissions, particulate air pollution, and radioactive residua) cause increasing environmental and social costs. Most challenges are associated with the incumbent energy economy that is unlikely to subsist. However, the crucial question is whether a swift transition to its sustainable alternative, based on renewable sources, can be achieved. The answer requires a deep analysis of the structural conditions responsible for the rigidity of the fossil-nuclear energy system. We argue that the resilience of the fossil-nuclear energy system results mainly from a dynamic lock-in pattern known in operations research as the “Success to the Successful” mode. The present way of generating, distributing, and consuming energy—the largest business on Earth—expands through a combination of factors such as the longevity of pertinent infrastructure, the information technology revolution, the growth of the global population, and even the recent financial crises: Renewable-energy industries evidently suffer more than the conventional-energy industries under recession conditions. Our study tries to elucidate the archetypical traits of the lock-in pattern and to assess the respective importance of the factors involved. In particular, we identify modern corporate law as a crucial system element that thus far has been largely ignored. Our analysis indicates that the rigidity of the existing energy economy would be reduced considerably by the assignment of unlimited liabilities to the shareholders.

For those not used to this kind of eco-econ vocabulary, allow me to translate in plainer econ English:

The world is stuffed because irresponsible big energy companies keep digging for cheap fossil fuels and refuse to put big money into renewables, preventing the emergence of a more sustainable world energy system. Part of the problem is that the shareholders of these big energy companies do not pay the costs to the planet of the burning of all this fossil fuel. We should make them pay by holding the companies and their individual shareholders legally to account for the use of the fossil fuels they dig up, if necessary impounding their individual assets.

What can one say of such day-dreaming which, if implemented, would mean every superannuation member in Australia that indirectly owns shares in BHP or other coal-digging companies is suddenly personally liable for climate change? There is a kind of charming naivety and optimism about such legalistic-bureaucratic ‘solutions’ to climate externalities. If only we can punish those nasty shareholders (i.e. most Australians over the age of 30) and finally have proper investments in renewables, all will be well!

But will we really self-destruct the capitalist system by taking away the limited liability construct that has underlain its financing for 400 years? And would full-liability entities (like governments) really do anything different from companies when it came to energy investments in the absence of some world climate police who made them comply with whatever some all-measuring central world committee decided was palatable? Don’t bet on it…

So what you are really looking at is yet another variation of the big world-bureaucracy solution to the climate-change problem, complete with transfer of national sovereignty to whomever decides on how high the externalities are and who is to blame for them, complete with the overthrow of the capitalist system. Keep dreaming, boys, but know this: allowing yourself to live in lala-land by pretending the world political system is yours to dictate does not help the planet’s ecosystem one iota.

23 thoughts on “Keep dreaming, boys…..

  1. I’m not really convinced that limited liability is as essential for the existence of market economies as you suggest, Paul. The concept may have been around for 400 years or so, but my understanding it was largely limited to church institutions for the first century or two, and only became the norm for commercial enterprises in the mid 19th century. It is the norm for companies these days, of course, but some sectors of the economy (e.g. the professions, as well as many small enterprises) still seem to function OK with unlimited liability partnership structures.

    That said, I agree that the proposal put forward in the article you’ve cited seems naive and unrealistic, not least because it’s not at all clear what the legal and financial liabilities for climate change will be, or why shareholders in particular (as opposed to say, industrial and domestic consumers of fossil fuels) will be held liable for them, or whether such liabilities are likely to come into existence during the lifetimes of present shareholders.

  2. I agree with Tim that limited liability can’t be justified on the grounds of its longevity. Belief that the earth was flat lasted even longer tha 400 years.

    We do need massive changes to our ways of living to combat the disaster of climate change. The overthrow of capitalism is just the start. Mankind has to be stopped from reproducing itself so much. The Chinese have made a start but even their one-baby law is nowhere near enough. The cessation of medical treatment to people once they turn 50 may have to be considered, so as to limit ever-expanding life-spans. Incentives for sterilisation at puberty should also be considered.

    • You are joking, I hope?

      If not, it is precisely these kind of dictatorial power-fantasies that I so object to in this debate. They are completely out of touch with political realities. Do you really think that we are going to cull the human population? Who is going to decide who lives and who dies? You?

      • “You are joking, I hope?”

        Unfortunately, he’s probably not joking. I’m reasonably certain on Hammy’s previous, utterly humourless form that he believes this shite.

        There really are monsters out there who want to hurt untold millions of people in the name of their environmental millenarianism. It’s just a small step to the left for these guys to become full-blown eco-terrorists.

        But, of course, they’re the good guys, ’cause they’re saving us from ourselves. You know: breaking eggs, yada yada.

        • Fyodor,

          Settle down you old drama queen. From Hammy’s profile:

          ” I strongly believe socialism will have a surging comeback after recovering from the disaster that Reagan forced illegally onto the blessed USSR.”

          Hammy is a whimsical performance art installation.

    • Why fifty?

      Surely if you are serious you will need to get those about to breed, not those who have already done it.

      Similarly, those in their eighties and over are hardly seen at airports, or hooning round in hot cars, and they don’t need great energy gulping McMansions.

      It would certainly solve the housing shortage. And if the cull were concentrated so that those left were close to public transport, it would save on commuting as well. Rural communities could be culled so that only productive persons producing for the export or city market were left.

  3. Paul, I’m in sympathy with your reaction to the article, which is, as you say ‘la la land’. The idea that it’s all the shareholders’ fault but not the consumers’ fault is a kind of logical conclusion to the rise and rise of the rights of man since the French Revolution.

    But limited liability is a bit of a red herring. The ‘solution’ they propose would work almost as well just by degrading the value of BHPBilliton shares down to their point of limited liability (zero). Come to think of it, that mightn’t work too badly with banks!

    • yes, the limited liability thing is a bit of a red herring, though it is their red herring. As I say in the post, the real sting here is the central world bureaucracy that would have the power to set fines at any level they wanted on companies anywhere in the world on the basis of calculated externalities, for which you basically need a transfer of sovereignty as well as an imposing measurement operation.

    • An even better solution, of course, is to charge BHPBilliton the cost of that externality and leave it’s profit motive, limited liability, etc unchanged. Pricing carbon is not so much a necessary as a sufficient condition for solving the problem.

      Which brings us back to the original collective action problem of imposing such a price. I’m beginning to think on this that Paul is right – “defect, defect” is such a clear Nash equilibium in this prisoner’s dilemma game that we’re forced to adopt it ourselves, despite the payoff to “co-operate, co-operate” being far less negative for everyone.

  4. A bit off topic, but I imagine the real problem which a lot of these companies will face in the probably not so distant future are things like this: http://www.forbes.com/sites/peterdetwiler/2012/12/26/solar-grid-parity-comes-to-spain/ . I assume that if the price of renewables really is dropping to grid parity and hence presumably under in the future, we will end with a big oversupply of coal being dug up even if renewables only gobble up smallish amounts of the market. I guess that’s too bad for Australia but presumably good for most other people. I guess we can thank China and Euroland for this.

    • Conrad,

      I had a good look at solar a while back: http://clubtroppo.com.au/2012/04/20/an-update-on-geo-engineering-and-solar-power-prices/

      The key number that came out of that blog and the discussion thread is 25%: the cost of solar power generation has to be only 25% that of conventional power generation before it becomes economically viable for the grid. Until then, it is just not cheap enough. The essential problem is that batteries are too costly to store large amounts of solar power for the long dark winter days and nights, meaning that one would still need to have the fossil fuel stations, and the fixed-costs of those stations (ie their mere existence and continued readiness for use) amounts to roughly 75% of their lifetime costs. So parity is nowhere near cheap enough.
      If the cost of energy transport were to drop to something like 1 to 10% of what they are now, solar grids that overcome this battery problem also get into view. Long way to go hence still, I am afraid.

      • Actually the fixed connection charge for the grid is starting to make going off the grid look feasible , least in OZ rural areas. Our heating is wood (and a wet back for hot water is well practiced tech) – if it was not for the difficulty of where to place solar (for summer) hot water on a two story terrace house roof oriented the wrong way, east west, we would have provably already done so. As it is the connection charge is already at least 1/3 of the total bill and rising .

      • Thanks — yes I remember that article. However, I wasn’t really thinking of full-scale replacement of energy systems (sorry, I wasn’t clear from the previous reply). I was really wondering how much these sorts of systems would need to take to cause an oversupply of coal due to a reduction in the need to get power from coal plants. Surely this would be a good marker for when the “lock-in pattern” above would begin to break down because you couldn’t make much money from digging up coal anymore (at least for power).

        For example, let’s say these big system like those in Spain turn up more commonly, and lots of little individual people start sticking solar panels on their roofs (I can’t help but notice they are all over the place in some cities when I fly in — I assume they might well be good value for individuals trying to avoid retail prices). It’s easy to see this sort of thing gobbling up some percentage of what would otherwise be sold, especially if you add a few big nuke plants in China. So what percentage reduction would be needed to kill the coal price? This would presumably be a good first target rather than worrying about replacing everything.

        • that’s a tougher question since it depends on whether the marginal cost of digging up coal is likely to go up as the easiest seams are taken out. It is the sort of question I doubt anyone has a good answer for.

          If you look at the sheer volume of world fossil fuel use (basically a straight upward line ever since the 80s which a minute hickup in the first year of the GFC) then it is clear that the increased use of renewables as a cottage energy provider has so far not made any impression.
          The article grossly exaggerates the lock-in effects though. The electricity grid can be fed any source of electricity and you can chuck all kinds of things in cars and local generators. It is also a bit disingenuous in that it belittles all the efforts made over centuries to find and improve energy generation from other sources. It negates the fact that hundreds of independent entities (including whole countries) independently make up their mind about these things and experiment. To shove all that under the carpet and talk about the world energy system as a kind of sinister arrangement between the organisers of capitalism is just a dressed-up conspiracy theory.

          John,
          sure, niche markets for renewables are there. Solar panels for remote places and emergency phones on the highway. Windmills for remote farms. Some particular industrial processes that can cope with intermittent electricity availability. The odd geographical anomaly allowing for hydro. Those niche markets are also important for their existence means there have been incentives for a long time to keep improving them. By the same token, the lack of major progress in some of them (particularly wind, but also nuclear or fusion) makes it hard to believe the big technological breakthrough is just around the corner, but we live in hope.

        • In the context of your comment conrad, and this article, it will be interesting to look at similar graphs after the end of this summer to see whether PV is making a dent when it gets hot – and stays hot.

      • Re ‘niche markets’ one of the biggest drivers of gold plating is meeting demand for air-conditioning on 35c+ days in the western suburbs of Sydney, surely banging solar voltaic on house roofs , when you add in the saved transmission losses and reduced need for overcapacity , would have to be competitive?

  5. I am not completely sure that shareholders exist in the traditional sense. Large companies have managements and boards that are essentially self-appointed and a very high proportion of shares are held by institutional investors who are themselves large corporations with self-appointed boards and executives. The average individual shareholders have minimal input. I agree that an international agency levying fines left, right and centre is a fairly bad idea. I just find it a little archaic that we are speaking about shareholders as if they were the ordinary character in the street clutching a couple of share certificates.

    It is really by no means uncommon to introduce things other than shareholder value into the objects of corporations. German law includes employees and customers as stakeholders. Ditto even Singapore. What we are seeing is not the ultimate ascent of the rights of man and the citizen. It is actually the much more recent idea of ‘Shareholder value rules, okay!’, an iniquitous idea described by Jack Welch as ‘the dumbest idea in the world’ that dates from ancient times. Well, okay 1976.

  6. Bumping off the over 50+s is a good idea but lacks a certain elegance and fun aspect.

    I’m more inclined to whack the 30 – 45 years olds in Northcote, Thornbury Carlton, Fitzroy, St Kilda, Elwood, Prahran, South Melb, Yarraville etc mob and bulldoze about 30% (or 34.5%) of their houses to make an inner circle green wedge and veggie gardens.

        • In that case they belong to the class of long lived slow breeders than can be pushed into a slow mass extinction by a very small increase in annual mortality from say 49 p/a to 50p/a- suggest we might encourage them to speed a bit more often.

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