More trading does not always mean a better market


Carbon markets need some liquidity to provide efficient price signals, but low cost abatement is the ultimate objective, not more trading.

Carbon markets have become widespread because trading can allow emissions to be reduced at lower cost, providing flexibility to emitters and revealing information about where low cost abatement is available.  However, this does not imply that higher trading volumes should be an end in themselves.  Liquidity needs to be sufficient to allow for emitters to take advantage of flexibility and to understand their own costs in relation to others’.  Beyond this, large trading volumes may be a sign of difficulties, for example excessively volatile prices.

In particular, some have claimed that higher trading volumes imply that the EUETS is functioning better than the California scheme.  Trading volumes are indeed higher in the EU than in California relative to the size of the market, but this does not make for a more effective price signal.  Indeed the California scheme seems currently to provide the better price signal.

The chart below shows data from Bloomberg New Energy Finance (BNEF) on the ratio of trading volumes to the annual cap in the EU, California and China.  This data is for trading on secondary markets – it excludes the volumes from the original auctions.  In the EUETS trading is about three times the volume of the cap.  In California the volume of trading is slightly more than the annual cap, implying that on average allowances are bought and sold once after their original auction.  In contrast there are very few trades at all in the Guangdong or Shanghai pilot schemes in China, with only 5 and 2 million tonnes of recorded trades respectively (other Chinese pilot schemes show similar behaviour), about 1% of the annual cap.

Ratio of traded volumes on secondary markets to the annual cap in different emissions trading schemes in 2015


Source:  Bloomberg New Energy Finance

The low volumes of trading in the Chinese schemes indicate that the schemes are not yet functioning effectively to provide market-determined price signals in the way they would in Europe or the US, although this does not, of course, imply that the schemes are having no effect.  However the greater volume of trading in the EUETS is not the sign of a more efficient price signal than in California.

Trading in California seems clearly sufficient to allow higher cost emitters to purchase allowances rather than undertake expensive abatement, especially given that these trades are in addition to the original auctioning of allowances which in itself creates a market price.  The main reason that trading volumes are lower than California than in the EU looks to be that the auction reserve price in California has led to a stable market price, close to the reserve price, and this is likely to persist as the auction reserve price continues to escalate at its specified rate of 5% p.a. plus inflation.  In contrast, the EUA price continues to remain relatively volatile, creating more opportunities for trading (although price volatility is a feature of most commodity markets and not necessarily a sign of a badly functioning market).  Yet prices in California are both higher than in the EU (currently about $13/tCO2 in California compared with about $7/tCO2 in the EU), and more stable.  Higher, more stable prices give a better signal for companies looking at low carbon investment.

There are also some additional restrictions in the California scheme such as allowance holding limits, which are intended to prevent market manipulation and may affect some market participants.  However none of these rules seem likely to inhibit efficient price formation.

There continue to be some, especially in the EU, who object to price containment, such as auction reserve prices, in principle.  However these objections are not well founded.  In the California system additional opportunities for abatement below the auction reserve price lead to more abatement, rather than lower prices.  This is a more efficient outcome, and more in line with the way that normal markets work (see here).  Indeed, even the California price lies well below the social cost of carbon, so is still too low.

Markets are a means to an end: efficient emissions reduction.  Trading should serve this overall objective.  Suggesting that the EUETS is somehow a better functioning market than California because it has higher trading volumes misses the larger goal, which is efficient abatement, not increasing the number of opportunities for traders.

Adam Whitmore – 28th January 2016

Uses of revenues from carbon pricing

There are many worthwhile uses for revenues for carbon pricing.  In practice a mixture of uses is likely to be found. 

My previous post estimated that carbon pricing will raise around $22 billion worldwide this year, and suggested that this has the potential to grow by an order of magnitude.  This post looks at how revenues might be used.

Revenues from carbon pricing can be used for both climate change related purposes and more general purposes.  The main categories are summarised in the table, and described briefly below.

Summary of potential uses of revenue raised by carbon pricing

General fiscal and social goals Climate change related purposes
Support for vulnerable groups Adaptation
Reduction of other taxes Distribution to those affected by climate change
Government retention of revenues Support for further emissions reduction, including for innovation
Returned to citizens

Support for vulnerable groups

The introduction of carbon pricing is often accompanied by concerns about the effects on energy prices on lower income households.  Rises in electricity prices to households due to pricing of power sector emissions are of concern even under schemes such as the EUETS which do not directly cover households.

Some proportion of revenue can be set aside to compensate vulnerable households.  This was a feature of the now repealed Australian scheme.

Reduction of other taxes

Other taxes can be reduced by an amount equal to the revenue raised from carbon pricing.  If this is done in full the carbon pricing scheme is usually referred to as revenue neutral.  This is a feature of the British Columbia carbon tax.

Government retention of revenues.

Governments can retain some or all of the revenue for general expenditure or deficit reduction.  This is, for example, the case in the UK, where the Treasury has a long history of viewing taxation and expenditure as a whole, and there is resistance to earmarking (“hypothecation”) of funds.

Returned to citizens.

An equal payment can be made to all citizens in a jurisdiction (see previous post).  The Swiss carbon tax currently returns a portion of revenue equally to all citizens.  Such an approach has been proposed as part of bills at federal and state level in the USA.


Measures to adapt to climate change can be funded either within the jurisdiction that raised the revenue or internationally.  For example, in its July proposals for the next phase of the EUETS, the European Commission included provisions for Member States to use some of the revenues from the EUETS to finance actions to help other countries adapt to the impacts of climate change.

Funds could be channelled through international institutions to provide funds to match national expenditure, potentially making a substantial contribution to meeting any funding shortfalls.

Distribution to those affected by climate change

Funds could be provided to those adversely affected by climate change.  There is a continuing debate on this issue and how it relates the “loss and damage” agenda within the UNFCCC process, including the large overlap with the issue of adaptation.  However there has been little practical progress on this to date.

Support for further emissions reduction and for innovation

Funds may be provided for measures such as retrofitting homes and businesses for greater energy efficiency, and the installation of renewable energy technologies.  Revenues may also be used to fund research, development and deployment of new low carbon technologies.  A number of schemes in North America include provisions of this type, including California, RGGI and Alberta.  The EUETS has also included support for new technology from the sale of 300 million allowances from the new entrant reserve (the “NER 300”).  However funds raised from this were less than originally expected due to lower allowance prices, and the allocation process has been delayed.  The EU is now planning an Innovation Fund in the 2020s, again to be funded by the sale of allowances.

So which should be preferred?

Many uses of funds have merit, and the choice will depend on local political and economic circumstances.  However some seem to have particular arguments in their favour, with a mixture of often likely to be preferred.

Supporting adaptation and potentially also providing recompense to those adversely affected by climate change has a strong appeal on grounds of justice, and may form a valuable element of some programmes.

Returning funds equally to citizens has advantages covered in my previous post.  This could be accompanied by providing additional support to some vulnerable groups.

Finally, using revenue to fund additional emissions reductions, especially with a component of assistance for the disadvantaged, has proved understandably attractive in a number of jurisdictions in North America and to some extent in the EU.  Deeper emissions cuts will require new technologies and large-scale investment.  This in turn requires progress to be made now, increasing in scope and extent over time.  Increased use of funds from carbon pricing to support such efforts seems likely to prove worthwhile.

Adam Whitmore – 10th November 2015

Material in this post, as well as my previous one, can also be found in the Carbon Markets Investment Association (CMIA) paper at

Revenue from carbon pricing

Carbon pricing already raises over $20 billion p.a. worldwide.  This has the potential to grow by an order of magnitude.  What to do with this money will be an increasing important issue.

As carbon pricing spreads around the world (see here) substantial amounts of money are now being raised.  The amounts depend on:

  1. The coverage of each scheme
  2. The number of allowances allocated free of charge (under an emissions trading scheme) or the extent of tax exemptions and rebates (under a carbon tax).
  3. The level of the price in each scheme

Estimating these parameters for each scheme around the world indicates that about $22 billion will be raised globally this year, excluding the value of free allowances, tax exemptions and rebates.  The breakdown of this total is shown in the chart below.  (The data is a rough estimate in some cases because summary data on coverage and rebates is not readily available for some schemes, especially carbon taxes in Europe.  Also, average prices for allowances over the whole of this year are not yet known.)

About three quarters of the revenue raised is in Europe.  Interestingly, revenues from auctioning of allowances under the EUETS are lower than those from other carbon pricing in Europe, which includes carbon price support in the UK and carbon taxes in France and Scandinavia.  This is in part because EUETS revenues have been reduced this year by the postponement of some allowance auctioning (backloading).

The remainder of revenues raised worldwide are from the various North American schemes and the (rather low) carbon tax in Japan.  There is no auctioning of allowances under the New Zealand or South Korean schemes, or in China, so they don’t yet contribute to the total.

Indicative estimates of revenue from carbon pricing in 2015

revenue chart

Notes: Estimates based on prevailing prices multiplied by volumes covered, excluding freely allocated allowances and tax exemptions and rebates.  Data is estimated from a variety of sources and totals may be lower or higher or than shown as assumptions have been adopted for coverage and rebates where data is not readily available.  Small variations in coverage can affect estimates significantly in individual jurisdictions because of high prices.The Mexican carbon tax is excluded as it does not price emissions from natural gas so more resembles an energy tax on some fuels.  Other Europe includes Portugal, Switzerland and Iceland.

Revenue is significantly higher this year than it was last year, when the total raised worldwide was around $15 billion.  This mainly reflects increases in:

  • prices and volumes of EUAs auctioned;
  • the level of UK carbon price support;
  • the price and coverage of the French carbon tax; and
  • the coverage of the California and Quebec schemes, which expanded to cover transport and other sectors in January this year.

The total revenue raised has the potential to increase vastly if:

  • new schemes are introduced, especially nationally in China as planned and in the USA, or coverage of existing schemes is expanded;
  • the amount of auctioning is increased, with the amount of auctioning in the planned national scheme in China especially important; and
  • prices rise under the major schemes, including the EUETS.

Indeed, over time revenue raised globally could increase by an order of magnitude or from current levels to reach into the hundreds of billions in the longer term.  However even if revenue grows to approximately ten times current levels over the next decade or more it would still represent only perhaps 0.2% of global GDP, and so remain only a small proportion of total flows within the world economy.

This is nevertheless a substantial amount of money, and there is likely to be increasing debate about how it might best be used.  I will return to this in my next post.

Adam Whitmore – 26th October 2015

A paper on revenues from carbon pricing including much of this material has been published by the Climate Markets and Investment Association (CMIA), see

The problematic governance of climate engineering

Deployment of climate engineering faces formidable and perhaps insurmountable governance challenges, even if it looks technically feasible.  This prospect should reinforce efforts to reduce emissions.

If climate change becomes too severe some might favour climate engineering  …

This post looks very briefly at governance of climate engineering – managing the total net solar radiation the earth absorbs (Solar Radiation Management), most likely by injecting particles into the stratosphere[i].  I’ll assume a highly favourable case in which deployment appears technically feasible, likely to be at least partly  effective and cheap; is gradual and modified in response to experience; and seeks only to moderate changes, for example by offsetting (say) half of the additional radiative forcing in order to reduce the risks[ii].

Whatever its merits, almost no one who has looked seriously as the issues thinks that climate engineering is a substitute for reducing emissions.  There are problems that climate engineering won’t fix, such as ocean acidification.   There are also likely to be severe side-effects, such as disruption to rainfall patterns.  And the full effects of deployment are impossible to know in advance, even after thorough research.

Despite these drawbacks, many are becoming concerned that slow progress in reducing emissions may require climate engineering as the least undesirable option – an emergency response to forestall imminent catastrophic climate change.

But the control of any “global thermostat” is likely to be contentious …

However, it is not at all clear how agreement would be reached to deploy climate engineering, and how the deployment would then be governed.  The effects of climate engineering will be global, so some kind of global arrangement will be necessary for general acceptance of its legitimacy.  But different parts of the world would be affected differently, with consensus about what constitutes an emergency unlikely[iii].  Some vulnerable countries might favour deployment even at a relatively low threshold.  Others may be more cautious.  Some are likely to be against deployment on principle.  There might also be demands by some for compensation for adverse effects that could be very difficult to agree.  And acceptance may need to go beyond governments to the public, which is likely to have widely differing views.

These difficulties are likely to be compounded because early action may be required to forestall an emergency, because of lags in the climate system.  However signals may not be sufficiently clear early enough, so any emergency may become irreversible before there is agreement on action.

Intergenerational effects complicate things further.  Climate engineering would commit future generations to certain pathways, and the legitimacy of this would be difficult to establish.

With unilateral action a severe risk …

Failure to reach some kind of global agreement might lead to a single country, or small groups of countries, deploying unilaterally whatever the doubts about the legitimacy of such actions.  This would be very likely lead to international tension and potentially to conflict as states saw their vital national interests threatened.  This conflict would likely be exacerbated the problems of dealing with climate change, including, for example, threats to food supplies and large-scale migration.  This could in turn reduce trust and political co-operation, making agreement even more difficult.  It is hard to say how serious such a scenario would be, but it is not a welcome prospect and could potentially become an immensely dangerous threat to global political and social stability.

But no clear route to building the necessary frameworks to ensure legitimacy of  deployment …

All of this implies at the very least the need for strong frameworks – international treaties and processes, perhaps underpinning new institutions – to manage any deployment and reduce the risks of conflict.    There is currently very little in place.  Some existing laws and institutions are relevant, and initial regulation is likely to build gradually drawing on some of these[iv].  For example, states that are party to the UN Convention on Biological Diversity have adopted a decision that explicitly restricts implementation of climate engineering that may affect biodiversity (which is in practice all likely cases) until a scientific basis exists to justify it taking account of the risks.  However this is not intended for broader decisions making.  The Convention on Long Range Transboundary Air Pollution (CLRTAP) may require Environmental Impact Assessments (EIAs) to be made.  In some cases the Convention on the Prohibition of Military or other Hostile use of Environmental Modification Techniques (ENMOD) may be relevant.  The UNFCCC could play a role, although does not appear to be doing so to date, as could UNEP and international forums such as the G20.  The UN Security Council could get involved in the case of conflict.  Lessons from outside environmental governance may be helpful, such as those from nuclear non-proliferation.

However none these arrangements appear sufficient for wider governance of climate engineering deployment, or to be likely to grow into something adequate.  This implies the need for a new institution or at least a set of formal arrangements for global governance, which at the very least substantially expands the remit of current institutions and treaties.

The precedents for effectiveness of any such regime do not look promising.  The UNFCCC has over 20 years failed to reach adequate agreement on mitigation pathways, despite reduction of emissions being unambiguously a good thing, although potentially costly.  Whatever agreement is reached in Paris in a few weeks it looks likely to remain inadequate to the required task.

Indeed there does not appear to be an example of global agreement to effectively manage a problem anything like as consequential, difficult, and diverse and extensive in its impacts as climate engineering.  For example the Montreal Protocol on ozone depletion dealt with a much more tractable problem.  Effective arrangements for governing climate engineering may simply prove impossible to realise.

Some sorts of global emergency might arise that is so clear cut that all major nations can agree that the only remaining possibility is deployment of climate engineering.  But this sounds more like international panic than international governance.

Implying all the more need for greater emissions reductions …

It is often said that the technological problems and risks of climate engineering imply that there in every need to put as much effort as possible into emissions abatement.  This is true.  But governance also matters.  The lack of good prospects for adequate and effective governance of climate engineering, as much as any technical challenges it may raise, should reinforce concentration on efforts to reduce emissions.

Adam Whitmore – September 2015

Thanks to Carlos Munoz Browning, who provided me with his research, on which some of this post draws .


[i] A good review of such techniques and their application is provided in the US National Academy of Sciences recent report at

[ii] For more on this type of scenario see:  A temporary, moderate and responsive scenario for solar geoengineering, David W. Keith  & Douglas G. MacMartin Nature Climate Change 5,  201–206 (2015)

[iii] For a fuller discussion of some of these points see Climate emergencies do not justify engineering the climate, Jana Sillmann, et al. Nature Climate Change 5, 290–292 (2015)

[iv] For a discussion of some of these possibilities see Options and Proposals for the International Governance of Geoengineering, Bodle et al. (2013)

Development of carbon pricing could benefit from a two hundred year old idea

Cap-and-dividend and tax-and dividend arrangements, where proceeds from carbon pricing are returned equally to all citizens, at least in part, are already in place in Switzerland, and under discussion elsewhere.  They could help gain support from a wider constituency to enhance carbon pricing. 

A stake for all in the atmosphere …

Over two hundred years ago the political philosopher and campaigner Thomas Paine wrote a pamphlet called Agrarian Justice.  It was an extraordinarily farsighted document (see notes at the end for relevant extracts).  He identified natural resources as the common property of humanity, with rights distinct from those of private property created by labour.  He thus distinguished between the value added to land by the work of proprietors and the common value of land, implicitly arising from its scarcity, which he linked to the idea of a ground rent.  He recommended that the natural property rights in the land that are owned by all citizens should be recovered for all, most conveniently in the form of a payment into a fund on inheritance of land.  He proposed redistributing this fund equally to all adults in the form of a payment when they turned twenty-one, and a universal old age pension.

Something very like this idea seems to offer a constructive way forward in the development ofcarbon pricing.  The atmosphere is common property to a greater extent even than land, because it is continually mixed and globally mobile.  It therefore, following Paine’s argument, belongs equally to all.  Anyone making use of that property by emitting greenhouse gases should pay for that right in the form of a payment (a carbon price) into a fund.  Again following Paine’s argument, the proceeds would then be distributed to all citizens equally, most likely as an annual payment.  Eventually this should be to all of the world’s people, but starting with one or more jurisdictions would establish the approach.  This is usually referred to as cap-and-dividend or tax-and-dividend, depending on the type of carbon pricing scheme – it can work well as part of either an emissions trading scheme or a carbon tax.

Such a mechanism is already in place in Switzerland, where part of the revenue from the Swiss carbon tax is returned to citizens.  In the USA bills for such schemes have been proposed at both Federal and State level, with current proposals introduced in the state legislature in Oregon (see notes at the end for details).

Has many advantages …

Such an arrangement has number of advantages.

It gives citizens a direct stake in higher revenue from higher carbon prices, which may help carbon prices reach levels sufficient both to reflect the cost of damage and to provide adequate incentives for the scale of investment required for the transition to a low carbon economy.  At present prices are too low to do either.  (There is an implicit assumption here that citizens benefit from tighter caps and higher prices – e.g. a 20% reduction in the cap is likely to raise prices by more than 20%.  There might come a point when revenue is increased by higher emissions as elasticities fall below one, but we seem a long way from that, and indeed that point may never be reached.)

It also give citizens a direct stake in wider coverage of carbon pricing, , which would be likely to increase the economic efficiency of abatement.

It automatically provides compensation to residential consumers for higher energy bills due to carbon pricing.  Poorer consumers who on the whole have lower energy consumption would see a larger net benefit, especially as revenue would be raised from non-domestic consumers.  There are some exceptions to this – people on low incomes but with a large heating load for example – but further protection for vulnerable households can still be provided.

It also funds a basic income or “citizen’s dividend” to all.  The payment would currently be rather small but not insignificant.  With price of $40/tonne and global average current greenhouse gas emissions of about 7.5 tCO2e per capita this would provide an income of up to $300 per year.  As emissions reduce the dividend might also reduce, but rising prices may more than offset this.

There is an argument made in the environmental economics literature that a lump-sum dispersal to citizens is suboptimal, because it is better to use funds to reduce other taxes and so reduce distortions.   There is little if any empirical support for this argument as far as I am aware.  But in any case the view that citizens own those property rights makes the limitation of the argument clear.  Not providing citizens with the proceeds from sale of allowances (or a tax on emissions) is in effect a 100% tax on everyone for that revenue.  This is indeed non-distortionary, but a fixed per-capita tax is not regarded by governments or their citizens as a good idea anywhere, for sound reasons.

Although there are other compelling calls on uses of funds  …

There are also powerful arguments for using revenue to adapt help and compensate those adversely affected by climate change.  However this has proved enormously difficult to achieve.  Cap and dividend can go some way towards providing benefits for all as carbon pricing continues to spread around the world, especially if emissions per capita gradually converge.  Indeed it provides a way of institutionalising benefits for all, which has until now proved unachievable.  Nevertheless further compensation and help with adaptation is likely to be needed for the poorest, and reducing impacts on future generations and on the biosphere will be a continuing challenge.

There are also good arguments for regarding the atmosphere to be as a joint, indivisible resource to be managed for the common benefit.  This goes further than Paine’s perspective in arguing for joint property rights, in part because of the different characteristics of individual land holdings and the global atmosphere.  The Pope’s recent encyclical on climate change adopts this type of perspective (see Section VI of the encyclical).  However, institutions for optimally managing common assets at the required global scale are weak or non-existent – if they were not the climate change problem would probably be well on the way to a solution by now.  Cap-and dividend falls short of an optimal approach, but nevertheless marks a practical step towards better management for all.

In advocating this approach I recognise that there are many other potential uses for revenue raised by carbon pricing, such as funding research and development of low carbon technologies.  Each has arguments in its favour, in many cases good ones, and a balance will need to be struck in practice between different uses of funds, with not all proceeds being paid as dividends directly to citizens.

And political obstacles remain …

Opposition in some quarters to the idea of a citizen’s dividend is likely to be strong.  National treasuries, for example, may resist the loss of control.  However the measure is fundamentally one that benefits everyone.  It will be a struggle to gain acceptance, but it is a struggle Thomas Paine would have relished.

Adam Whitmore – September 2015


Thomas Paine, Agrarian Justice (1795)

Paine includes the following passages.  He first distinguishes between natural and artificial property:

There are two kinds of property. Firstly, natural property, or that which comes to us from the Creator of the universe—such as the earth, air, water. Secondly, artificial or acquired property—the invention of men.  In the latter, equality is impossible; for to distribute it equally it would be necessary that all should have contributed in the same proportion, which can never be the case; and this being the case, every individual would hold on to his own property, as his right share. Equality of natural property is the subject of this little essay.  Every individual in the world is born therein with legitimate claims on a certain kind of property, or its equivalent.

He seeks to recover the value of this common property from the current owners into a fund.  This is conveniently done at the time of inheritance:

Every proprietor, therefore, of cultivated lands, owes to the community a ground-rent (for I know of no better term to express the idea) for the land which he holds; and it is from this ground-rent that the fund proposed in this plan is to issue.

He then suggests the fund should be distributed equally to all adults:

To create a national fund, out of which there shall be paid to every person, when arrived at the age of twenty-one years, the sum of fifteen pounds sterling, as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property: And also, the sum of ten pounds per annum, during life, to every person now living, of the age of fifty years, and to all others as they shall arrive at that age.

He emphasises that this is a matter of respecting rights, not a humanitarian initiative:

In advocating the case of the persons thus dispossessed [from their natural rights to land], it is a right, and not a charity, that I am pleading for. 

Proposed Cap and Dividend Bills

Van Hollen Cap and Dividend Bill was proposed in the US Congress in 2009.  It proposed a cap with auctioning of 100% of allowances and border adjustments to prevent US industry being at a competitive disadvantage.  All auction proceeds would be returned in the form of a dividend to every lawful resident of the United States with a valid Social Security number.

More recently two bills have been proposed in the Orgeon House of Representatives.  HB3176 would charge fossil fuel sellers a fee (starting at $30/ton) for each ton of pollution.  All the money would go into a Trust Fund. Each September, the Department of Revenue would pay every Oregon taxpayer and taxpayer dependent a check for an equal share of the money.   HB3250, instead of creating a set fee, it would auction a capped number of allowances.


54 billion tonnes p.a. of total GHG emissions (source: EDGAR), over 7.2 billion people is 7.5 tonne per capita.  $40/tonne is an illustrative figure close to the US EPA estimate of the Social Cost of Carbon.

Property rights

The subject of who, if anyone, owns the atmosphere is far too large a subject to go into here.  I will note simply that Paine’s view seems to have far more force that the notion due to Locke that permanent ownership of land is conferred by labour on that land, and in any case Locke’s proviso that common property can be owned provided  “… there is enough, and as good, left in common for others” clearly does not hold in the case of climate change.  The attempts of modern libertarian philosophers to deal with this issue, as for example Nozick does by denying that a free market system will actually run foul of the proviso, seem to me to be wholly inadequate.  None of which should imply I entirely agree with Paine’s characterisation of property rights either.

The IEA’s Bridge Scenario to a low carbon world again underestimates the role of renewables

In this, my last post until September, I take a quick look at the IEA’s latest renewables projections.  The IEA has just produced its World Energy Outlook Special Report on Energy and Climate Change, which is intended to describe how the energy sector can transition to being part of a lower carbon world.  It includes a new Bridge Scenario which emphasises what can be done over the next decade or two.  There is much that is good in the report, including its mention of the potential to reduce methane emissions from the energy sector, a subject which I’ll return to in a future post.  However its renewables projections are less satisfactory.

I previously noted how the IEA has vastly underestimated renewables growth in the past (see here), and that their current projections show future rates of deployment of renewables slowing substantially from present levels (see here).  I had hoped that, especially given its topic, this latest report would include a more realistic outlook for renewables.  However even the Bridge Scenario projections continue to look much too pessimistic.

The table below shows a comparison of the IEA’s wind and solar PV projections for the 2020s with actual installations for last year and expected rates for this year.  It shows that the IEA projects installation rates for the 2020s at about last year’s level and below levels expected for this year, implying a stagnation or contraction of the industry rather than continued growth, even as measures to reduce emissions are increased.

Annual average installation rates for wind and solar PV (GW)

  2020s IEA Bridge scenarios (annual average) 2014(Actual) 2015 (estimated by Bloomberg)
Wind 55 51 63
Solar PV 42 43 58


Notes: Historic data is taken from Bloomberg, BP, and the Global Wind Energy Council (GWEC).  Data for wind installation in 2014 is similar at 49 GW, 52GW, and 51 GW respectively according to each source.  Different data sources give somewhat different values for the amount of solar PV installation in 2015.  BP shows solar PV at around 40GW, Bloomberg around 45GW.  I have taken the mid-point of these two values. There are various possible explanations for the difference, for example different estimates of which projects were completed by the end of the year.   Previous years’ estimates for the amount of solar PV installed are very similar between the two sources (within a GW or so).

The chart below (an update from my previous post) shows this data graphically, and compares it with history and the IEA’s 2014 World Energy Outlook New Policies Scenario.  It shows welcome but limited increases in the rate of installation of both wind and solar PV projected by the IEA.  There is still a clear trend break between history and the projections.


Note:  IEA projections are for 2012 or 2013-2020 and for each 5 years thereafter, and are shown at the mid-point of each interval.  

The IEA seems to continue to be concerned about the costs of renewables, leading them to be very cautious in their projections.  But with costs falling, pressure for action to reduce emissions increasing, and penetration of both wind and solar PV globally remaining well below saturation levels, continued growth in the rate of deployment seems much more likely than stagnation or decline.

The IEA’s work is widely respected and quoted.  This makes it all the more important that their renewables scenarios become more realistic.  Currently they serve mainly to distort the public debate on pathways to decarbonisation, and detract from the other good work in this area that the IEA does.   The time for the IEA to improve its projections for renewables seems long overdue.

Adam Whitmore – 27th June 2015

When Margaret Thatcher and the Dalai Lama agree

Environmental protection forms part of the mainstream of the Anglo-American conservative political tradition.  Policy debate on climate change should recognise this.

Climate change is often seen as a politically divisive issue, with those on the left more active and concerned than conservatives.  And indeed there is much evidence that those with different values perceive the issue differently[i].  However, concern about climate change can be placed firmly in the mainstream of the conservative tradition[ii].

Traditional conservatism has long emphasised the need for people to safeguard for future generations that which they have inherited.  Edmund Burke, widely regarded as the founder of modern conservatism, put this case in the context of the French revolution, arguing that people:

“should not think it among their rights to cut off the entail or commit waste on the inheritance by destroying at their pleasure the whole original fabric of their society, hazarding to leave to those who come after them a ruin instead of an habitation.”[iii] 

Environmental damage was far from being a hot political issue in Burke’s time, but it is a small step to apply this idea of safeguarding an inheritance to environmental conservation.  Republican US President Ronald Reagan again did exactly this when he said:

“What is a conservative after all but one who conserves, one who is committed to protecting and holding close the things by which we live … And we want to protect and conserve the land on which we live — our countryside, our rivers and mountains, our plains and meadows and forests. This is our patrimony. This is what we leave to our children. And our great moral responsibility is to leave it to them either as we found it or better than we found it.”[iv]

Another Republican US president, Richard Nixon stressed the need to safeguard the natural environment, and that freedom does not include the right to impose costs on others:

“Restoring nature to its natural state is a cause beyond party and beyond factions … Clean air, clean water, open spaces—these should once again be the birthright of every American. We can no longer afford to consider air and water common property, free to be abused by anyone without regard to the consequences.  Instead, we should begin now to treat them as scarce resources, which we are no more free to contaminate than we are free to throw garbage into our neighbor’s yard.”[v] 

Such sentiments have in the past been translated into action by conservative politicians.  The 1956 Clean Air Act was passed by a Conservative government in the UK, and the US Environmental Protection Agency was founded in 1970 during the Nixon presidency.

The UK Climate Change Act was passed in 2008 with cross party support, with only five Members of Parliament (less than 1%) voting against.  Going further back, the UNFCCC was signed by British Conservative Prime Minister John Major and by Republican US President George Bush, along with the representatives of over 160 other governments.  The Hadley Centre, one of the world’s leading climate research centres, was established in 1990 under a Conservative government led by Margaret Thatcher, who opened the centre herself.

Indeed Margaret Thatcher was among the first senior politicians to talk about the need to reduce greenhouse gas emissions and spoke eloquently about the consistency between environmental protection and conservative values.  In 1988, the same year the Intergovernmental Panel on  Climate Change was established and four years before the UNFCCC was signed, she said to the Conservative Party conference, talking about a range of environmental problems including climate change:

It’s we Conservatives who are not merely friends of the Earth—we are its guardians and trustees for generations to come.  The core of Tory philosophy and the case for protecting the environment are the same. No generation has a freehold on this earth. All we have is a life tenancy—with a full repairing lease. This Government intends to meet the terms of that lease in full.[vi]

This metaphor of the earth as our home of which we are guardians, and which it is our duty to protect, is common among those who otherwise hold widely differing points of view.  The Dalai Lama has said that:

“The earth is our only home … If we do not look after this home, what else are we charged to do on this earth?” [vii]

There is, and should be, much debate about the specific details of climate change policy.  But there should be no debate about the necessity and value of the objective of safeguarding the earth.  When Margaret Thatcher and the Dalai Lama can express almost the same idea in almost the same terms, people can surely develop a sense of common purpose about preventing severe climate change.  This has never been more necessary.

Adam Whitmore – 11th June 2015

[i] See here for a discussion of this.

[ii] I talk in this post about traditional conservatism.  A discussion of the more difficult case of libertarianism and climate change will need to await another post, but even there I think common ground can be found.  I also recognise that the actions of the Republican Party in the USA at the moment often diverge from traditional conservatism.  There is also a strand of thinking on the left which has in the past neglected environmental issues, but this is less prominent than it was.

[iii] Edmund Burke, Reflections on the Revolution in France, 1790

[iv] Remarks at dedication of National Geographic Society new headquarters building, June 19, 1984   (A good selection of Reagan’s other remarks on environmental protection can be found at

The next passage of the same speech, less often quoted, emphasises the validity of exploiting natural resources for human ends, in a responsible way, making explicit reference to a religious rationale:

“But we also know that we must do this with a fine balance.  We want, as men on Earth, to use our resources for the reason God gave them to us — for the betterment of man.   And our challenge is how to use the environment without abusing it, how to take from it riches and yet leave it rich.”

This view is taken further by some in their advocacy of man’s right to exploit nature, often justified in terms of a passage in the Bible that refers to man’s dominion over nature, Genesis 1:26-28:

26 And God said, Let us make man in our image, after our likeness: and let them have dominion over the fish of the sea, and over the fowl of the air, and over the cattle, and over all the earth, and over every creeping thing that creepeth upon the earth. 27 So God created man in his own image, in the image of God created he him; male and female created he them. 28 And God blessed them, and God said unto them, Be fruitful, and multiply, and replenish the earth, and subdue it: and have dominion over the fish of the sea, and over the fowl of the air, and over every living thing that moveth upon the earth.

However many interpreters of the Christian tradition argue for the stewardship that is implied by dominion, for example citing Genesis 2:15:

15 And the Lord God took the man, and put him into the garden of Eden to dress it and to keep it. 

Pope Francis, among others, appears much more inclined to adopt the perspective of a Christian duty to safeguard God’s creation.

[v] State of the Union Address, January 22, 1970

[vi] Speech to Conservative Party Conference, 1988 Oct 14 Fr.  For other examples of her views on climate change and environmental issue see: Speech to the Royal Society (1988 Sep 27), Speech to Conservative Party Conference (1989 Oct 13), Speech to United Nations General Assembly, Global Environment (1989 Nov 8) and Speech at 2nd World Climate Conference (1990 Nov 6).  See for the full text of each speech.  In her later writings she expressed scepticism about the motives of some advocating action on climate change, but that should not detract from her well-informed concern and advocacy of action while in office.

[vii] The universe in Single Atom, Dalai Lama (2005), Chapter Nine.  This statement was in the context of the need to respect the Earth’s biological heritage.