Technology And Economic Change

Climate change policy has boosted the renewables industry substantially, largely with the help of public funds or 'incentives', and will continue to do so. But the big winners have been, and will continue to be, hydro and gas compared with coal, and nuclear compared with all others, especially because it emits no GHGs and (unlike hydro) is not restricted by the availability of suitable sites while uranium ore is plentiful and nuclear fuel can be recycled or even produced from weapons-grade plutonium. Climate change simultaneously boosts renewables, gas and nuclear energy while providing a strong rationale for ending coal subsidies in European countries such as Germany. Moreover, it provides countries which have pursued high energy taxes for balance of payments reasons not just with political support for such unpopular measures, but with the opportunity to try to export their relative disadvantage by requiring through international treaty an effective tax on coal relative to other energy sources. Simultaneously, it provides political reinforcement for policies to redress energy security issues, which generally involve policy instruments that are politically unpopular.

Moreover, it provides a moral basis for attempting to spread the additional costs of energy security and competitiveness across trading partners. For example, the European Parliament called for the EU to launch 'initiatives' under the World Trade Organization to prevent countries that do not ratify Kyoto from gaining competitive advantages, especially in the energy products sector (Environment News Service, 6 July 2001).

Climate change politics thus entails a Faustian bargain for environmentalists because, while it provides a definite boost to renewable energy and conservation, such approaches ultimately cannot provide the answer to the energy needs of modern societies without substantial (and hence unlikely) changes to their economic bases. While the preferred technologies of environmentalists are undoubtedly advantaged, the nuclear industry, gas industry and oil industry are all advantaged compared with coal (in that order). To the extent that the Annex I parties to the Kyoto Protocol have different resource endowments, such that the economics of these various energy sources vary considerably, we can see that there are substantial differences in the national interests of each party. But it was also the way the nature of the energy systems of parties varied over time which was significant, because the selection of 1990 as the base year for emission reductions impacted differently upon different parties.

The choice of the base year of 1990 against which emission reductions would be measured constituted a major problem for Japan, among others. It was included in the FCCC non-binding collective Annex 1 commitment, where it was not particularly threatening, but it logically became established as the base year for individual, binding reduction commitments, and it created advantage and disadvantage when applied at the level of the individual nation. For example, poorly endowed Japan had made a concerted effort after the oil crises of 1973 and 1979 to improve energy efficiency, but this effort came before 1990 and as a result Japan had 'picked the low-hanging fruit' in energy efficiency and now found itself closer to the zone of diminishing marginal returns. In contrast, significant EU nations like Germany and the UK were advantaged by the selection of 1990 as the base year for emissions.

Germany was favoured by 1990 because the Treaty of Unification was concluded in October of that year, and reunification was followed by a dramatic collapse in the former, almost entirely brown coal dependent, East German economy (the East quickly shut down its nuclear reactors), with economic output contracting 23 per cent in the following year and total primary energy consumption falling by 30 per cent (Boehmer-Christiansen et al, 1993). This economic collapse produced a substantial windfall for Germany in terms of GHG emissions, and further reductions were facilitated by the inefficient base from which further reductions would be made in the east. Similarly, the post-1990 economic collapse of the former Soviet Union and other 'economies in transition' (EITs) has produced similar windfalls which these parties were keen to be allowed to trade under the provisions of Kyoto.

Similar factors were at work in the UK, still well endowed with fossil fuels but either approaching depletion or with very high costs, where 1990 was the year in which the electricity sector was privatized and Prime Minister Thatcher continued her political moves against subsidized, inefficient coal mining which had commenced with the miners' strike in the mid-1980s. Assisted by the relaxation of an EU directive limiting use of gas as a fuel for electricity generation, these factors resulted in a 'dash to gas' based on North Sea reserves. Between 1990 and 1995, 20 per cent of the fossil fuel-fired capacity in the UK was switched from coal to gas, which with modern combined cycle technology gives rise to 60 per cent lower emissions of CO2 for the same electricity output. As a result, emissions of CO2 in this sector fell by 12 per cent (Bantock and Longhurst, 1995). By 2000, Britain was generating 38 per cent of its electricity by gas, surpassing coal at 28 per cent and nuclear at 24.5 per cent (The Financial Times, 26 June 2001).

Much of the principled discourse emanating from the European Union ignored the self-interested nature of their position. Even within Europe, the UK and Germany attempted to assert moral leadership on the basis of windfall gains. For example, just prior to COP-6 bis, German (Greens Party) Environ ment Minister Juergen Trittin singled out his own country and the UK for praise, but said the rest of Europe was far from honouring its promises (The Times, 16 July 2001).

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