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:


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.

Author: paulfrijters

Professor of Wellbeing and Economics at the London School of Economics, Centre for Economic Performance

12 thoughts on “Keep dreaming, boys…..”

  1. It’s going to be a lot of money. And it’s not going away. You have to take the trade off seriously. You didn’t say it, but you really just said that the tax payer is going to face those liabilities. Private profits, socialised costs.

    Please lift your game. Economics is the only way to solve this.


    1. Apologies for the tone of the last paragraph. Late night commenting, it wasn’t constructive ( oh for an edit button ). Still an exploration of how liabilities will eventually be funded would be more interesting to me than simply pointing at one unpalatable choice on a table filled with unpalatable choices and sneering. I can get that from Andrew Bolt.


      1. no worries.

        If you look at my previous blogs on the issue you will find a simple repeating message on the problem and what we need to do about it. In short, the collective action problems of carbon emissions trading, carbon taxation, or anything involving the ability to strongly interfere with self-interested energy choices in every corner of the world is beyond us. Cant be done technically or politically. So geo-engineering and adaptation are our best bet.

        You are too forgiving of these lala-land proposals though: the inability in certain environmental quarters to engage with politics as it is rather than as they fantasize it could be, basically means it takes longer for the unrealistic plans to leave the table.
        On the topic of liabilities, ask yourself who would have the power or the measurement ability to identify and enforce them. If the answer is ‘no-one’ then you also have the answer to your question who will fund these liabilities: no-one.


      2. Ok, So, first thing first, having unlimited liability for companies as a solution to climate change IS silly, no doubt. But your mention of it does raise my curiosity – I’m surprised it worked at all to make any difference (did it?, if it didn’t work that tells us something valuable too), and it makes me wonder what this says about the system in general. If they’ve done this work to model it, maybe smaller changes would have the same effect, what if it was only directors, or executive management or controlling shareholders? Could the same be applied to other common resource problems:- mine rehabilitation, or asbestos poisoning, or even financial stability – surely an argument could be made for investigating increased liability for executives, directors and controlling shareholders of companies deemed ‘too large to fail’, in order to offset moral hazard. And the fact that those questions spring to mind implies some use for the research, even if it’s just a jumping off point for not la-la land ideas.

        On the topic of liabilities, (please bear with me hear, I’m an engineer, which is to say an economic layman): If something causes economic damage to property, be it farmland, or housing or health, doesn’t it by definition have a cost. Surely that is an identity. If something has a cost, then that cost is bourne, by the individual or perhaps by the state. To say no-one will bear these costs, surely is incorrect. In terms of legal liability however I agree – suing BHP for your flooded house, dead stock or dead grandma seems far fetched, regardless of whether liabilities are limited. Like I said, it surprises me if it worked in their model.

        Having said that, improvements are being made with attribution all of the time, and realistically you wouldn’t be going after BHP, you’d be going after utilities, which are often state owned, and have good records of how much coal has been burnt. Again more questions, which aren’t uninteresting.

        I don’t understand why pigovian taxation is impossible technically or politically. Surely many countries are now pursuing such, and in Australia, at least for the time being, it is a reality. Realistically, to my mind, you only now need one more big player, the US. Sure, that’s going to be a stretch, but then it was a stretch here too in 2010. To my mind once the US taxes emissions, It will push china into doing the same, the two nations are itching for a trade war, and china with its horrible pollution and world leading alternative energy manufacturing has some upside. Anyway – just because a battle isn’t winnable doesn’t mean it’s not worth fighting.

        Adaption is a huge and interesting topic, and we should press you for more discussion on this in the future. I’ll get back to it later.

        Geo engineering. Riiiight. Okaay.

        Paul. Have you actually thought about this? I mean have you put any serious brainpower in, not in a blog sense but in a thrash out the issues with political scientists and physicists, with serious devils advocacy between groups? I like technical solutions. I’m a technical guy. But, I’m concerned that this may be where angels fear to tread.

        Let me give you a hypothetical.

        The year is 2050, and you are a leading economist at a public policy think tank. There are 10 billion people in the world, China has surpassed the US in terms of GDP, although not without hiccups, and the two are still circling each other like wary dogs. Russia is sowing seed in newly thawed permafrost. Europe is still arguing with itself. There is no arctic ice, sea levels have risen by a foot, strong cyclones are commonplace, most of the farmland in western NSW and Victoria was wiped out in the last drought and the desert is heading east. it’s January and Melbourne has just had a scorching heatwave, the worst on record with a week of over 49 degree days including two where the mercury hit 52, made worse when the latrobe power station overheated and shut down, bringing down the city’s power for 13 hours. There are a lot of people in very crowded hospitals, and a number of deaths.

        Prime minister Wyatt Roy rings you up and says, “Listen Paul, cabinet and I have been thinking about it and we’ve decided that we’re going to bite the bullet and unilaterally sow the upper atmosphere with Sulphur Dioxide. Why not? we now have a GDP 10 times that of the US when they did the manhattan project after all. One thing: somebody suggested that we get public liability insurance for changing the weather patterns of the entire world. Can you just quickly work out how much insurance we need. I need it for Monday.”

        So do you answer:
        a) Thank god! The government is finally taking this policy item I have been pushing for forty years. A government changing the weather. Managed by a government agency. Based on computer models of airflow. What could possibly go wrong? I’ll calculate the public liability for you by Monday, and I want to be one of the nodding heads behind you when you announce that the government of Australia will be putting gas into the stratosphere above every nation in the world.

        or b) “Actually erm, would it be too late to change my mind?”

        People aren’t yet used to fluoride in drinking water, or needles that make them not die of measles, or the idea that putting an inert gas into the atmosphere might change stuff. If they can’t agree that a 10% electricity tax isn’t the end of the world, just wait until you tell them that somebody else’s government is going to put poison gas in their sky, but don’t worry it will be okay, because their scientists said so. Maybe.

        Really? Really really?

        Call me skeptical. I think that every lawyer would be licking their lips and every farmer born with a two headed calf would be knocking on that government’s door with their hand out. (as well as the russian farmers back in the permafrost, anybody who had a house damaged in a rain storm, because the government said they’d fixed the problem). And that’s if it doesn’t go catastrophically wrong, which simple changes to complex systems sometimes do.

        If we get to the point where any rational politician seriously puts geoengineering of this sort on the table for action, things would have to be very very bad, adaptation would have to have been a failure (otherwise why bother), and abatement through market measures will have been long gone as an option. It won’t fix ocean acidification, It will have to be updated continuously and forever, as the SO2 falls out fairly quickly, and even then only gives us a couple of decades if CO2 levels are still rising and the CO2 forcing drowns out the SO2 dimming. We should probably have serious thought about this now, because if we get there, and it turns out actually to have been politically undoable, there won’t be a plan B.

        Are you really, really sure that this proposal is realistic? Is there even the smallest chance that this particular policy item might have a touch of the academic lala-lands about it? Because if it does, you shouldn’t be advocating it as public policy.

        Anyway, back to adaptation. Adaptation should get talked about more. Firstly it’s inevitable. Even if we stopped emissions tomorrow, there’s still like a fifty year lag before the whole thing settles down, people need to know this.

        Second, well it’s going to be expensive and messy. We’re kind of undergoing it now – I kind of think of the Brisbane floods. A hundred year rain event, rising tides, yeah. Even if you can’t easily attribute single events to climate change, well that’s what it looks like.
        Some of the costs were bourne by the tax payer, some by the insurers and some by the individuals, especially through falling house prices in flood affected areas.

        Thirdly there’s a real rising scale to it. Adapting to two degrees is going to be really expensive, Adapting to four might be 10 times more so. More research needed I guess.

        Maybe governments should tie their carbon taxes to disaster relief and adaption funds. Build up a fund, the fuller the fund, the lower the tax, so if adaption turns out to be easy, the tax turns off, but if things get biblical the government of the day doesn’t have to trash its bottom line or put in place special levies.

        Sure you’d get the odd disaster that wasn’t carbon related, but is paying for an earthquake with carbon tax economically any worse than paying for it with income tax, I wouldn’t have thought so.

        That way you don’t have to worry too much about attribution, you still get the pigovian tax based abatement, and you have a better accounting of adaption costs.

        Like I said, I’m not an economist. I’m just trying to think outside the box and add something constructive to the conversation.


      3. Baz/Ben,

        You raise a couple of important points:

        1. Measurement: to what extent can we actually measure carbon use and thus attribute particular uses to particular entities?
        2. Politics of geoengineering: how would it go? Who takes the first steps; where would the decisions be made; how far can one experiment; what would it solve?
        3. How to adapt, finance it, etc.

        All great questions that show you are thinking about how this would actually pan out and where they key issues lie. They are covered extensively in my previous blogs on the subject, to be found by trawling through the archives of Core, including links to conference presentations, lectures, and learned reports on the issue.

        Damages are costs, liabilities are legal things.


  2. I don’t see how those with complete faith in the market to solve this problem are in any less of a LaLa Land than the authors of the PNAS paper. You too seem to have fantasies about how the market actually operates within “politics as it is”.

    A free market will never do it, because the short term cost for a far-distant gain will never happen. And I get the feeling the neo-liberal economists would never allow the level of regulatory intervention in the market that is required to fully address climate change in the time scale we have available.

    This is a spectacularly snarky post by Frijters that, frankly, makes it abundantly clear why we’re in this pickle. Outright rejection of any proposed solutions to the problem on the basis that it is fantastical. I don’t know if you’ve looked at the science lately, but tinkering around the edges ain’t going to save us.


    1. Dr Nick,

      you didnt bother to look up my previous posts about this, did you? I doubt you will find many economists who have ‘complete faith in the market to solve this problem’. We all recognise it is a public good problem that needs action by the collective. We are discussing the means that might be succesful versus those not.
      We are in this pickle because people want economic growth. As usual, our hope has to lie in technological solutions, not legal fantasies of how some super-bureaucracy goes after hundreds of millions of share-holders.


      1. You are, obviously, completely correct that economic growth is the key driver behind all of this. It would be more encouraging, however, if our national leaders, and perhaps the leaders of some other countries, could acknowledge this. I can’t imagine Wayne Swan getting up in front of the Press Club and saying we’re stoked with figures showing lower growth. (And yes, obviously any shift towards a no-growth economy needs to be accompanied by society-wide changes, not just a drop in economic activity).

        But I think you’re wrong to say our hope can only be in technological solutions while simultaneously dismissing the role of other things that influence behaviour. Surely the scale of the problem is such we ought to be investigating every possible avenue to reduce the systemic trashing of the environment that is inherent in our system. Throwing dollars at scientists and engineers is a good idea, but why not also look at how, for example, the incentives with the Corporations Law are contributing to the problem?

        That’s exactly what the authors of the PNAS paper have done, and its disappointing that your view of the problem appears to be so narrow.

        And no, of course I did not read you previous posts, so who knows what you said in those. Believe it or not, I don’t have unlimited time to browse your blog. No offence. But I do like this blog – it gives me food for thought.


  3. Funny. In the archives of Troppo in 2007 you can find my first post on this issue, directly tackling the question of whether it is politically possible to go into no-growth mode and what type of political system one would need to make it possible. In short: forget about anything that goes up against growth in a world with competing countries. You can neither do it, nor on reflection should you want the demise of the growth fetish for it comes with many good things. The challenge is to how to combine undimished economic growth with a better environment.


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