Schizophrenia at HKSAR Environment Bureau

On December 16th, KS Wong who is the Secretary for the Environment in HK made an announcement following the news that tariffs for CLP Power[1] customers will rise by 3.1% next year: "Using clean energy[2] to reduce carbon emissions and improve air quality will inevitably increase pressure on power companies to raise electricity tariffs […]. The two power companies, together with the Government, have tried to have various means to stabilize the price. At the same time, we have to consider various means, including the stabilization fund so we can have a certain reserve of a reasonable percentage, and we can then have a more stabilized situation over the time." . This is a quite surprising announcement[3], coming from HK Secretary for the ENVIRONMENT !

Enquiring further allows for more comments. In fact, there are three “departments” in the Environment Bureau (see http://www.enb.gov.hk/en/top.html): environmental protection, energy, and sustainable development. And looking at the energy policy objectives, the first one is price, then come safety and reliability and then…environmental concerns. How can it be? First it seems that until quite recently, with cheap energy imported from Mainland China there was no real need for an energy policy so it has been put under the responsibility of the Environment Bureau because it had to be put somewhere. Second it so Hong Kong style to have price concerns before anything and it is quite revealing that it is even the case at the Environmental Bureau.

However, there is a more optimistic view on KS Wong statement. Energy price is a big concern for HK business and HK population. Everybody knows that a cleaner energy will be more costly and this rises an important issue of policy acceptance. What if, to deal with that issue, KS Wong was manipulating expectations by paving the way for further electricity price increase due to cleaner energy? He would be using his “energy policy hat” to deal with environmental policy acceptance? Maybe not such a bad idea: fuzzy information has proven efficient for monetary policy, why not using it for the environmental policy? There is room for economic analysis, here.

 

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[1] On of the two companies providing electricity for HK.

[2] HK is turning for more gas and less coal for electricity generation.

[3] See also previous post on how the fall in oil prices is a bad news for climate change.

Is renewable energy really inexhaustible?

By Prudence Dato, prudence.dato@univ-savoie.fr, IREGE/University of Savoie (France).

  There exists a myth about renewable energy (RE) and the large benefit that our society could gain from renewable energy. Usually, we heard that renewable energy-let say solar energy or wind energy- is a clean energy and also a good alternative for oil because it is not polluting environment and is inexhaustible. It is true that our society could not escape the climate change consequences without adopting renewable energy which is seen as a promising solution. We always avoid some characteristics of solar/wind energy may be because we want to be optimistic. Those characteristics are for instance, the availability of inputs that could serve to produce renewable energy (solar/wind, metals, etc.). We commonly assume that solar/wind is always available (it is not so true), but clearly one should care about the availability of rare materials such as metals that need to be used to produce solar panels or wind turbines. For instance, Alonso et al. (2012) [1] projected that neodymium demand for wind turbines could grow by as much as 700 percent over the next 25 years; demand for dysprosium, also needed for wind turbines, could increase by 2,600 percent. Moreover, the production of 4 gigawatts (GW) of peak power using thin-film cadmium telluride photovoltaic requires 340 tons and 390 tons of cadmium and tellurium, respectively. However, it represents 2% and 82% of 2008 estimated world refinery production of cadmium and tellurium from primary sources[2]. The issue of exhaustibility of RE is close to the entropy pessimist view or strong sustainability arguments developed by Ayres (2006)[3] in the sense that a self-reproducing industrial system producing PV cells is not possible.

 For many centuries ago, the society was thinking that non-renewable energy such as oil was abundant and consequently they did not need to care either about its depletion or about the pollution it induces. At the end of the day, we get ourselves trapped by the challenge of climate change. So, now that we hope that an alternative is possible to escape the drama, are we going to get ourselves into the same situations as before? How are we going to produce renewable energy if in the future we completely deplete all the rare metals (that exists in a limited quantity)? Are we not just moving the problem of oil depletion to that of metals depletion? Also, note that all the manufacturing processes of solar panels or wind turbines are energy-intensive and partly rely on “dirty energy sources” with potential negative environmental implications.[4]Although, energy transition to clean energy is the ultimate solution for sustainable growth, we should start looking for how to optimally design the materials that serve to produce renewable energy in order to reduce the pressure on rare metals. Otherwise, the opportunity cost is going to be high in the case our society solely relies on renewable energy and misses rare materials.

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[1] Alonso, E., Sherman, A. M., Wallington, T. J., Everson, M. P., Field, F. R., Roth, R., & Kirchain, R. E., 2012. Evaluating rare earth element availability: A case with revolutionary demand from clean technologies. Environmental science & technology, 46(6), 3406-3414.

[2] http://pubs.usgs.gov/circ/1365/Circ1365.pdf

[3] Ayres, R. U., 2007. On the practical limits to substitution. Ecological Economics, 61(1), 115-128.

[4] Tsoutsos, T., Frantzeskaki, N., & Gekas, V., 2005. Environmental impacts from the solar energy technologies. Energy Policy, 33(3), 289-296.

Bad news : Oil prices are falling !

Why is there this general feeling that the current persistent fall in oil prices is a bad thing? Thinking back to the 70’s, when the oil shock was made responsible of all the economic turmoil, it can be surprising.

For developed countries, some people (like Mario Draghi) are afraid that it may cause deflation or at least feed self-fulfilling deflation, by generating the feeling of deflation (see NYTimes). But it may simply serve as an excuse for central banks that argue not to be responsible for the deflation. For developing countries, it may hinder their growth provided they are oil exporters (see SCMP).

However, the most important issue to me has a worldwide scope: these low prices affect fossil fuel consumption and climate change. Renewable sources of energy are too expensive but their opportunity cost becomes even higher with cheap oil. Moreover, low prices indicates (at least partly, there may be action from the demand side as well) an abundant supply, meaning that economists should remove the exhaustibility constraint from their models that in some way was helping to mitigate climate change (since D’Arge and Kogiku; RES 1973).

Anyway let’s keep hope: you can always find engineers that are convinced that the peak oil is something relevant … and even very frightening!

Link to the New-York Times: http://www.nytimes.com/2014/12/05/upshot/falling-oil-prices-create-a-central-banking-conundrum.html?_r=0&abt=0002&abg=0

Link to the SCMP: http://www.scmp.com/business/commodities/article/1649741/free-fall-oil-prices-may-cut-both-ways-emerging-markets

D’Arge, R. and K. Kogiku (1973). Economic growth and the environment, Review of

Economic Studies, 40, 61-77.

Green Growth for the Energy Transition (the French law on energy transition). Act I: what and when?

By Prudence Dato, prudence.dato@univ-savoie.fr, IREGE/University of Savoie (France).

In a series of notes, we will present an economic analysis of the energy transition law in France. 

Act I, scene 1: Ambitious objectives (setting the drama)
- Looking for energy efficiency : France intends for instance to reduce its final energy consumption by 50% by 2050 in relation to the 2012 benchmark and increase the annual rate of reduction of final energy intensity by 2.5% between now and 2030.

- Looking for green energy: the law also proposes a reduction in final energy consumption of fossil fuels by 30% by 2030 in relation to the 2012 benchmark and bring the proportion of renewable energies to 23% of gross final energy consumption.

- Tackling waste is also considered together with the promotion of circular economy from product design to recycling.



Act I, scene 2 : The fundings (when usually troubles start)
Financial resources to support the action plans will come from incentives from both public financial players, local authorities and private sector. The hope is to generate 100,000 jobs in three years thanks to green growth, building and new energies. So troubles have not really started. Is it because the exact means to reach the green objectives …and the 100,000 additionnal jobs are not very precise? Therefore nobody is severely hurt.



Act I, scene 3 : The happy (temporary?) development
This French law with its 64 articles and almost 500 amendments has been adopted (314/219) in a special commission by French Parliament the 14th of October 2014.
This happy result comes from the “nobody hurt” feature so we can expect real troubles to come later in the play…
France is joining other European countries like Germany (Energiewende in 2011), UK (2013) and Danemark (2012) that have implemented their own law on energy transition. We hope that cooperation and coordination between European states will help make the energy transition a success in Europe.

For more details, see (pdf) and http://www.developpement-durable.gouv.fr/-La-transition-energetique-pour-la-.html (in french).