Tuesday, November 22, 2022


Historic guilt and reparations are a hard sell, for obvious reasons, but self-interest points in the same direction. But aid will have to be consistent with climate-related objectives.


COP27 has just ended, and the failure to do better on targets for phasing out fossil fuels will be widely regarded by many as a possibly disastrous failure for humanity. Its most substantial success appears to have been in recognition of the necessary financial transfers from rich nations to poorer ones. Even this, however, faces some serious headwinds in implementation, based, as it has been, on the linked concepts of “reparations” and “historic responsibility”. Neither will be straightforward.


Beginning with historic responsibility, this should clearly be a measure of cumulative emissions, but there are multiple hard to resolve questions. One is, in a world of international trade, whether responsibility lies with the country where the fossil resource was extracted, where it was refined or converted, the domicile of the owners of energy industries or their bankers, or where the final products were consumed. In other words is it producers or consumers who are responsible? In a world of complex supply chains, this is problematic.


A second question, for the legitimate assignment of responsibility, is to choose an appropriate starting date from which to measure cumulative emissions? The date matters a lot in terms of assigning responsibility, particularly for the relative contribution of China and India. 


1992 was the year of the first earth summit in Rio de Janeiro, which led to the establishment of the United Nations Framework Convention on Climate Change (UNFCCC).  1990 was the baseline chosen for the Kyoto Protocol targets. So it equates, approximately, to the time when the climate science began to offer irrefutable evidence of the causes and dangers of unmitigated climate change, and their recognition by governments.  


Arguments that measurement should start from earliest recorded history ignore the uncomfortable truth that energy use, especially via electricity, is responsible not just for economic growth but for most of the positive features of the modern world, including science and medicine, as well as its problems. Without those advances in science and measurement we would not even be aware of the problem we have.


As difficult as measuring historic responsibility is the assignment of moral responsibility, at the level of the nation state, for historic events. Apart from factors such as migration, are individuals really responsible for their nation’s past? And what responsibility do we assign for current and past population growth, the elephant in the room for political discussions, but a prime cause for a substantial part of actual emissions growth over recent decades, as well as “baked in” future emissions? 


Finally a massive share of responsibility for current atmospheric concentrations rests with those parties, governments (most notably of fossil-rich states), businesses, other vested interests, and individuals, who have sought to subvert and delay effective action. Few of them are volunteering to make “reparations”. In the case of businesses, the feasibility of extracting compensatory sums on any scale is low or negligible.


For all these reasons the terminology of reparations and historic guilt will make transfers a hard sell politically in the developed world, and even more so given perceptions of energy and financial inequality even within that world.  A more easily justifiable and politically more saleable argument for financial transfers from rich to poor, though, should be simple self-interest. 


We are facing the increasing likelihood, post COP27, that targets for cumulative emissions consistent with a liveable human environment will not be met, and the only remedy left will be direct extraction of carbon from the atmosphere.  Inevitably the only parties capable of mustering the financial resources for this are the same wealthy nations called upon to pay for “loss and damage”. 


But viewed in cost benefit or cost effectiveness terms, the promotion of clean development will almost always prove to be much cheaper than having to pay for direct air carbon capture (DACC), the ultimate fall-back as climate change becomes an existential threat. A good example is provided by the theoretical case for financial support of rural electrification to limit use of charcoal and firewood, a major source of both emissions and environmental degradation across developing economies, and the subject of a previous post. This is easily justified in global cost benefit terms, but of course with a global externality like CO2 emissions, the benefits are global, but the costs local.


What this means is that there is a clear self-interest for the wealthiest countries to provide financial support for clean development. Of course it also means that donors will want to ensure that support is directed towards climate related objectives, and not seen simply as a payment in compensation for loss and damage. This could have major implications for the governance and direction of any new dedicated fund, as donors will demand a say in how funds are spent, but the likely outcome is perhaps that there will be relatively few specific alterations to processes and priorities due to “loss and damage” per se.

The massive tasks of mobilising aid and finance for mitigation, adaptation and clean development, much of which is “behind the scenes”, should, and indeed must, continue.


Sunday, November 20, 2022


A long term theme in this blog has been the exploration of markets and governance in the power sector. For most of the last 30 years the dominant paradigm, largely controlling public debate, has been an idealised model of competitive markets, private ownership, and the complete absence of any form of state planning. The UK was for a long time seen as the exemplar, the model that Brussels encouraged other EU countries to pursue, and a model that was promoted by the World Bank in its work in developing economies.


The reality has been somewhat different. In practice many EU countries, most notably France, were extremely reluctant to follow the UK model. The World Bank has become much more sceptical of the value of its privatisation mantra. There have been catastrophic failures in some of the exemplars of this neoliberal model, such as ERCOT in Texas. In the UK, although lip service has continued to be paid to the market ideal, the pendulum has swung back to more and more emphasis on state coordination and almost every aspect of investment decision taking in generation has been heavily influenced by government, whether through guaranteed feed-in tariffs or underwriting of long term contracts.


There are many reasons for this gradual reversion to a historical norm, in which the sector is dominated by vertically integrated and regulated monopolies, public or private, and requiring careful coordination. These include:

·      the imperatives for a low carbon economy, and the absence of adequate market signals to drive that

·      the fact that low carbon generation is not really compatible with the kind of market rules that were appropriate to fossil generation 

·      the close coordination required in low carbon systems to ensure both a balanced mix of investment and efficient and reliable operation

·      conventional financing issues around infrastructure and long-lived assets

·      perceived failures of reliance purely on markets to deliver acceptable outcomes


The result, however, has been the rise of state coordination and the decline of reliance on markets. This theme is explored in a recent piece by myself and Jose Maria Valenzuela, which, for the next 50 days or so, can be reached via the link below.


Jose has injected a social science perspective, and we combined partly as a result of our mutual collaboration in the Oxford Martin School Integrate programme. An interesting reminder for economists was the observation that monetarism persisted for so long because early failures were interpreted as success. Similar factors were evident in the energy sector.




Energy Research & Social Science. December 2022,