When we see something is wrong, our natural inclination is to fix it. At a domestic level, this is usually fine: item fixed, job done. However, as the scale gets bigger, so do the consequences, and not always the intended ones. In the UK, classic examples arise with depressing frequency from the government’s attempts to improve key services. As people complained about declining educational standards, league tables of exam results were introduced to encourage schools to perform better. Unfortunately, the natural human response in too many cases has been to make exams easier to pass and for pupils only to sit less demanding subjects. By raising the pass rate, the overall standard of education has, arguably gone down.
Similarly, it seemed to make sense to introduce national records systems for the Health Service and tax authorities. However, this meant specifying, developing and introducing complex, bespoke computer systems. Couple that with civil servants with little experience in negotiating contracts or controlling massive projects of this sort, and expensive disaster was inevitable.
Now go up a further level, to international policies and agreements. There are examples of good results, in particular, removal of many trade barriers, brought about by agreement via the World Trade Organisation, has boosted economic growth around the world. But when things go wrong at a global or regional scale, the consequences are that much bigger. Given the high priority so many governments are currently giving (or, at least, appearing to give) to climate change mitigation, it’s hardly surprising that many things are not going well.
We might start with the whole concept of cap and trade schemes for emissions reduction. The European Emissions Trading Scheme (ETS) is the biggest and longest-running of these and has been little short of an unmitigated disaster. An oversupply of credits, exacerbated by a fall in energy demand caused by the economic slowdown, has seen the permit price fall to around €7 per tonne, with little sign of a significant increase in coming months. This contrasts with a price of about €20 per tonne in 2008.
The result is that, far from encouraging investment in renewable energy (already done via various other complex national subsidy schemes, of course) the low carbon price has encouraged greater use of coal-fired stations. In the UK, this means that a number of older stations, allowed to operate for only a limited number of hours in total before a closure deadline of 2023 under the Large Combustion Plants directive, are burning through their hours much faster than anticipated, driven by the relative price of coal and gas. This raises emissions not only of CO2, but also of harmful pollutants such as sulphur dioxide. Moreover, it brings the crunch point, where decommissioning of power stations leaves a supply gap, that much closer.
Add to this the windfall profits made by energy companies when emissions permits were issued free at the start of the ETS, the creation of a profitable business for middlemen who simply trade carbon permits, the large amount of fraud uncovered in the system and the use of the Clean Development Mechanism to pay Chinese companies large amounts of money to stop producing refrigerants (which they would have done without European money anyway), and the consequences of such market rigging can be seen as largely negative.
Perhaps even worse is the story of biofuels. The idea of replacing some petrol and diesel by equivalent fuels made from agricultural crops is not in itself a bad one, but both the EU and US government have set rising targets for their use in road transport, without considering knock-on effects. The problem is, once again, the unintended consequences of pushing through a policy without enough thought.
The only fuel made from renewable resources which currently makes sense is bioethanol from sugar cane, produced for many years in Brazil without subsidy and, despite its drawbacks (lower energy density and tendency to pick up water and encourage corrosion, in particular) it is widely used at high levels. Sugar cane grows fast in the tropics and gives high yields, and sugar is easily extracted and can be directly fermented by yeast. The biggest energy cost comes from distillation to remove the water.
Translate that to Europe and North America, however, and the situation is very different. Sugar beet is more expensive to grow, and the obvious alternatives are cereals. This has led to a significant proportion of the American corn (maize) crop being bought for conversion to ethanol, itself a fairly energy-intensive process because of the need to gelatinise starch before it can be turned to sugars and used as a fermentation feedstock. Demand from fuel suppliers (under pressure from fuel companies needing to fulfil government-imposed quotas for biofuels) has helped to push up grain prices, along with those of other food commodities. This resulted in food riots in 2008 in Mexico, Indonesia and Egypt.
As with bioethanol, so with biodiesel, for which the biggest market is Europe. In this case, palm oil is often the preferred feedstock. Since this is also used for food, prices are again driven up. But, whatever the crop used as feedstock, all current biofuels ultimately compete with food supplies and use land and water which could better be used to grow food. Peter Brabeck-Letmathe, head of Nestlé is highly critical of this (see Nestlé blames biofuels for high food prices).
Speaking at a conference last week (see last week’s newsletter Solving the world’s problems in Oxford), some of Mr Brabeck’s remarks were reported by the BBC thus “He says biofuels are only affordable because of the high subsidies they receive, particularly in the US. ‘It is absolutely unacceptable and cannot be justified,’ he says.”
The consequences of the drive for biofuels were clearly unintended, although hardly unforeseeable. It is inevitable that mistakes will be made in any field, not least in government policy, but the important thing is to learn from experience and not to make the same ones twice. But rather than abide by this simple lesson, governments are compounding the problem by raising biofuel targets year by year. As Alexander Pope might have said if he had lived today, to err is human, to forgive divine, to change direction is vital.
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