Harry Clarke On economics, politics & other things

January 28, 2013

Restricting carbon supply & climate change

Filed under: climate change — hc @ 10:43 pm

The attractive feature of supply-based restrictions on the extraction of carbon-based fuels is that they raise the price of such fuels globally.  Demand restrictions that are created, for example, by carbon taxes can, in a setting where they are imposed unilaterally, lead to carbon leakages because, in part, of  an induced reduction in the global price of such fuels when mitigating countries reduce their carbon demands.  I favour restricting the development of low productivity high cost coal deposits immediately and eventually phasing out (partly by using buyouts at their net social value) the use of all coal where this is politically possible.  Certainly there is no case for government assistance to “gassy” coal miners as is the case with the current Australian Government carbon pricing package. Demand restrictions are a useful adjunct policy provided they lead to lower overall use of carbon fuels but they are not the whole story.  Societies should seek to phase out the use of coal entirely over the next few decades unless CCS technologies prove robust and commercially viable. My earlier post on  Bard Harslag’s “Buying Coal”  - an ingenious contribution on supply-based policies for addressing climate change – is here.

That oil deposits are finite and subject to increasing costs is a blessing for those concerned with climate control and not-at-all something that we should worry about.  Higher petrol prices would have been a desired target of policy were not “peak oil” a very practical fact of life that made such targetting redundant!  Scarcity will drive higher prices that limit the use of these polluting carbon fuels. A difficulty with this optimistic assessment is the increasing inclination to use environmentally destructive low-grade oil resources such as the enormous tar sand deposits in Canada as a substitute for conventional oil deposits.  Tar sands have 3-times the carbon footprint of conventional oil deposits and now, as Fred Pearce writes in New Scientist,  President Obama seems about ready to approve a massive pipeline project that will transfer these resources to Texas where they can be redirected into local petroleum supplies and made available for export. If he does he will lose most of his dwindling environmental credentials and show that he is captive to both limited vision and Big Oil.

The main cost of such substitutions is the harm created for the global climate but this proposed pipeline will also have numerous local US costs as well.  The possibility of leaks cannot be ruled out and it will pass through the largest aquifer on the plant – the Ogallala –  which supplies water to the “Dust Bowl” parts of the US. Pearce suggests allowing these pipelines only if individual shareholders are made responsible for all consequent environmental damages. Thus shareholders would  not to be protected by “limited liability” of public shareholdings.  Of course he hopes that such investments would then be infeasible.  Maybe that’s right. I don’t have the means to check this claim out – such liability would capture the effects only on local pollution damages not global climate effects – and I imagine the large oil corporates would find ways of either preventing this from happening anyway or of thwarting the intention of such policy.

I like Pearce’s main contention that the key issue here is one of inertial political dependence on the vision of our energy future dished out by politically-influential Big Oil.  Big Oil is acting very much like Big Tobacco in seeking to retain outputs that are highly socially-damaging. The public sector focus should be on plans that will end the use of carbon based fuels entirely not to use increasing quantities of even more polluting low-grade substitutes. Hysterical global reactions to higher oil prices are misplaced.  

Australia is not exempt from analogous prescriptions with respect to coal rather than oil.  Australia cannot point to sleaze-ball  environmentally-destructive corporate greed merchants in the US if it continues to offer unending support for the Australian  coal industry in the absence of definite evidence suggesting that CCS (carbon capture and storage)  will work.  Yes coal  is a big industry (3.5% of GDP) and yes it does boost our export incomes (coal provides 15% of  exports).  But restricting Australian coal exports by initially limiting the development of “dirty” low productivity mines will put at least some pressure on world coal prices.  Longer term (here 30 rather than 100 years), unless CCS becomes viable, Australia should not export coal and should not use carbon-based fuels to generate its electricity. As Harslag points out the more countries engage in such restrictions the greater will be the global impulse to phase out coal – even among environmentally irresponsible rogue nations that are unconcerned to act on climate.


  1. Twas brillig, and the slithy toves
    Did gyre and gimble in the wabe;
    All mimsy were the borogoves,
    And the mome raths outgrabe.

    And so much for what is politically possible when it comes to extractive industries everywhere except Scandinavia. Indeed, they make and break governments and the political process is just a sideshow. Therefore, this whole discussion is lovely to have inside your comfy proctorial chambers, sipping on a sherry but not in the realpolitik world.

    Second point – the same owners of coal mines in Australia operate mines in countries, say in Africa, where they can totally dictate to corrupt administrations which are not in the slightest answerable to ANY political process, that is to say, even more so than in our country.

    Third point – shares in mining conglomerates wherever they may mine are owned by super funds, local governments, influential individuals, self-funded retired mums and dads and your dentist. And you talk about what is politically possible.

    Comment by Sir Henry Casingbroke — January 29, 2013 @ 9:28 am

  2. Well Sir Henry at least Australian governments might be motivated not to hand out assistance to “gassy” coal mines as they now do.

    Australia is a significant coal exporter. It is true that coal mining is carried out in many countries. But as coal demands rise prices will rise most if opportunities to exploit high cost coal deposits are reduced. The Harslag paper is worth reading.

    You are reciting the message of Big Oil and (some) Big Coal in terms of what is regarded as conventional wisdom. Even coal producers are now accepting AGW and seeking to promote CCS. The world’s largest coal exporter (BHP-Billiton) assumers CCS will become a reality. I am less sure.

    Comment by hc — January 29, 2013 @ 9:39 am

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