Transition to renewable energy: not quick but better if people are frightened

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

The latest climate change news includes both new engagements and enforcement of existing engagements. For instance, the new US commitment aims at reducing their emissions up to 40% (from 2008 to 2025), and increasing up to 30% the share of electricity from clean energy sources. Also, the European Union (EU) leaders agreed to develop innovative strategies for a new generation of renewable energies and increase energy efficiency through the European Energy Union, while China found it more interesting to enforce existing pollution regulation than taking new engagements.[1] However, the full energy transition maybe hindered by some constraints such as the availability of inputs (mostly rare materials) and the need of fossil fuels to produce solar panels or wind turbine as a self-reproducing photovoltaic cells or wind turbine is not possible.

Dato (2015)[2] considers the issue of energy transition in a theoretical growth model that involves both the decision of renewable energy adoption and that of investment in energy saving technologies. The results suggest that the sole adoption of the renewable energy is optimal only in the long run. This result is in line with the asymptotic energy transition argument that states that the transition to "clean" energy only happens in the long run. It may be a consequence of the impossibility of self-reproducing renewable energy. As the economy still needs fossil fuels to produce clean energy, it is efficient to progressively replace fossil fuels with a clean source of energy. Then, a quick and full energy transition is not optimal for the economy, and one should not expect any immediate transition to an economy that only uses renewable sources of energy. Dato (2015) suggests that economic instruments such as taxes on the "dirty" energy or subsidies on the "clean" energy should be designed to meet the requirements of a transition to a sole use of "clean" energy in the long run.

The results of the study also show that the economy that fears pollution is more favorable to the energy transition. This suggests that people must be more sensitized about the potential consequences of their use of fossil fuels. Clearly the “Under the Dome” video[3] does the job for China. What for Europe? For several hours on Wednesday last week, Paris was declared the most polluted city in the world. Scary isn’t it? Well, mainly due to exceptionally good weather conditions in Shanghai…and although car driving is banned on alternate days in Paris, there is still a lack of explanation and of sensitization.

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[1] See previous post in this blog (http://ethkf.blogspot.fr/2015/03/is-china-saving-world.html).

[2] P Dato (2015). Energy transition under irreversibility: a two-sector approach. FAERE Working Paper, 2015.05.

[3]  https://www.youtube.com/watch?v=T6X2uwlQGQM

 

Is China saving the world ?

It seems not. Were China really dealing with pollution then the rest of the world could be relieved because the PRC is really a big fish. But these days, China's Parliamentary Sessions are held in Bejing and nothing exciting about pollution came out so far. As stated by a title in the SCMP:¹ “China makes no new promises in battle to clear the day as it fine-tunes pollution targets”

This seemingly passive position is observed 5 days after the release of Chai Jing's viral documentary, “Under the Dome”.² This documentary is in some way the Chinese counterpart of Al Gore's “Inconvenient Truth”; however its presentation and the scientific facts it reports -such as the list of the chemicals brought by PM2.5 in the lungs- are more rigorous. It is sometimes over-emotional, when it takes the reference to the reporter's daughter. Sometimes, it is over-interpreted, for instance mixing correlation and causality or showing fake econometric models and it is not clear whether the data collected could allow a correct economic analysis. However it remains that it is a very impressive amount of work and of information. Notably, it points out that at least part of the smog issue in China comes from the absence of enforcement of existing regulation.

During the NPC Session, a clear commitment has precisely been made to now fight more illegal polluters as well as those who fail to properly carry out their supervisory duties. As mentioned by Li Yan, Head of Climate and Energy at Greenpeace East Asia "it is now time to convert the words into real actions". But last but not least, the fact that Chai Jing documentary has been released on the internet is maybe the largest proof that China is decided to do something against air pollution. This documentary features important government officers, companies leaders. It thus hard to imagine it can have been released without government approval. And in fact what best way than such a viral movie to make anyone ready to accept the implementation of constraining environmental measures? Eventually, China may well be doing a step towards saving the world.


Notes on what has happened since this post was online:
-  the new Environment Minister (Chen Jining) also declared that the government will go after illegal polluters: "We would publish activities of the government and enterprises, leaving no space for violators to hide from the environmental protection law", he said at a press conference for the thirs session of the NPC.
- after 200 million views, "Under ther Dome" has been deleted from major Chinese video websites (so far, the link below is still valid).

1 http://www.scmp.com/news/china/article/1730461/china-makes-no-new-promises-battle-clear-day-it-fine-tunes-pollution

2 https://www.youtube.com/watch?v=T6X2uwlQGQM for a version with english subtitles.

Non-environmental instruments to tackle environmental issues

Prudence Dato (IREGE/ University Savoie Mont Blanc)

There was a debate at the third conference of the Green Growth Knowledge Platform (GGKP) on "Policies and the Green Economy" in Venice two weeks ago on whether environmental policies are enough to escape the climate change trap. The discussion mainly focused on environmental fiscal policies, but also other important issues such as uncertainty, trust and beliefs, non-environmental instruments, etc. In fact, Greenhouse gas emissions, which cause planetary climate change, represent both an environmental externality and the overuse of a common property resource (atmosphere)¹. Green fiscal instruments, such as environmental taxes, tax incentives and subsidies for green technologies are crucial solutions to reduce those gas emissions and can also help to provide additional revenue for public expenditure.

However, there exist other measures that could be taken to improve the performance of those environmental policies. For instance, it is important to account for non-environmental market-failures (information problem, incomplete property rights, split incentives, etc.), which have environmental implications, by using non-environmental instruments such as signals (Ecolabels), incentives mechanisms and regulation of the housing markets, etc. Generally, labels provide information on the quantity of pollution that a product can generate (green car) or its energy consumption (energy efficiency). They are signals and can be misreported. Then, one needs to additionally use incentives mechanisms to control for this information problem. On top of that, decision-makers also need to trust the information that is revealed through the label. Otherwise, the label will be a useless gadget…In residential sector for instance, split incentives² can hinder energy efficiency. One solution could be a regulation of the housing markets (OCDE, 2007)³ by introducing minimum standards (Gillingham, 2012⁴ and Charlier, 2014⁵).

Another issue is uncertainty or volatility that can limit pro-environmental actions. Sometimes, an environmental instrument can be inefficient due to underestimation of the associated environmental externalities because of lack of awareness and understanding of risk and uncertainty (Hasset and Metcalf, 1995)⁶, There exist many other non-environmental policies (in agriculture, transport, infrastructures, etc.) that could be mixed with environmental instruments to achieve both environmental effectiveness and economic efficiency. Does it mean that environmental economics needs to broaden its scope or that any economist should tackle environmental issues?

1 Harris, J., Codur, A., Institute, G. (2012). Economics of climate change. Retrieved from http://www.eoearth.org/view/article/151943.}

2 For example, when a landlord would bear costs related to investments in energy efficiency improvements, while the benefits of that investment would accrue to the tenant (OECD, 2007).

3 OECD (2007). Instrument Mixes for Environmental Policy, OECD Publishing, Paris.

4 Gillingham, K., M. Harding, and D. Rapson (2012). Split Incentives in Household. Energy Consumption, Energy Journal, 33(2): 37-62.

5 Charlier, D. (2014). Split Incentives and Energy Efficiency: Empirical Analysis and Policy Options. Working papers, ART-Dev 2014-07.

6 Gilbert E. Metcalf. "Energy Tax Credits and Residential Conservation Investment: Evidence from Panel Data (with Kevin Hassett)" Journal of Public Economics 57 (1995): 201-217. Available at: http://works.bepress.com/gilbert_metcalf/19

Smog around Climate Change II: environmental economists should learn about the dimming effect

 Not only fighting air pollution differs from fighting climate change (see previous post November 21^st, 2014), it could imply the reverse! China has never been so concerned with air pollution (Hong Kong starts being upset as well, see SCMP January 25^th 2015)[1] and calls for actions have become even stronger since the “Apec blue”. General opinion seems to view this concern as being rather consistent with the fight against climate change and this is also what is suggested by the recent US-China climate agreement (November 12^th, 2015). As we mentioned in our previous post, it is not that straightforward. In fact it may prove even worse than we thought!

There is now a growing literature on the “dimming” effect that had been observed in the period 1950s–80s:  the decline in surface solar radiation due to aerosol and particles pollution may have outweighed increasing atmospheric downwelling thermal radiation from enhanced greenhouse gases and effectively counteracted global warming (see Wild, 2012).[2]  Notably, such an effect was already reported in 2005 by European scientists in Nature[3]  and is particularly well-known for particles emitted through volcanic eruptions (see the figure below[4]).

A corollary is that too much aerosol removal generates a “brightening effect” that enhances climate change. Such an effect has been recently documented by O’Dowd et alii., 2013 that argue (they demonstrate the direct link between aerosol emissions, concentrations, and surface radiation) that the clean air policies might have resulted in higher temperatures.[5]  

 

Does this mean that we should not worry about pollution generated by fossil fuel since it generates both GHG and particles? It rather calls for more effort to fight climate change because IPPC predictions that do not account for the brightening effect underestimate future climate change. And it will be become worse. Consistent with the intuition, there has been a renewed dimming in China after a phase of stabilization during the 1990s (Wild, 2012). When looking at the air pollution, we can expect -and hope- that China now reduces efficiently air pollution, that will generate a significant brightening effect (note that this provides a fresh perspective on US-China agreements…) which enhances the need for GHG reduction.

 

In the meantime, the dimming effect is clearly ignored by economists. First, to my knowledge, they have never taken it into account explicitly. Second, they often consider that  fossil fuel use directly generates climate change (see van der Ploeg et alii., 2012 for instance,[6] or my work[7]).  It might in fact be crucial to distinguish between GHG and particles that both need to be reduced but affect climate change in opposite ways.

 

 

 

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[1] South China Morning Post, “Every breath you take” January 25^th 2015, Post Magazine. http://www.scmp.com/magazines/post-magazine/article/1689002/air-pollution-practical-tips-how-cope-it

[2] Wild, M. 2012: Enlightening Global Dimming and Brightening. Bull. Amer. Meteor. Soc., 93, 27–37 http://journals.ametsoc.org/doi/pdf/10.1175/BAMS-D-11-00074.1

[3]Meinrat O. Andreae1, Chris D. Jones & Peter M. Cox,  Strong present-day aerosol cooling implies a hot future Nature 435, 1187-1190 (30 June 2005) | doi:10.1038/nature03671

[4] Seminar by Prof. Johnny Chan at City University of Hong Kong,  January 9^th, 2015, http://www.cb.cityu.edu.hk/cityseminar/past/20150109.html

[5] Colin O'Dowd, Darius Ceburnis, Aditya Vaishya, S. Gerard Jennings and Eoin Moran “Cleaner air: Brightening the pollution perspective?” AIP Conf. Proc. 1527, 579 (2013); http://dx.doi.org/10.1063/1.4803337

[6] Van der Ploeg R. and Withagen C. Is there really a green paradox? Journal of Environmental Economics and Management, Volume 64, Issue 3, November 2012, Pages 342–363

[7] Ayong le Kama A. and  Pommeret A., 2015 « Adaptation and mitigation are not enough : turning to mitigation abroad “https://drive.google.com/file/d/0B563l-M03kqnTU9pdlI1R2dQWmc/view?usp=sharing