The Unassuming Economist

From the India Forum:

“Renewable energy capacity has expanded globally but this does not as yet mark a shift away from fossil fuels. On current trends, energy use from CO2-emitting fuels will continue to rise in the future. Talk of decarbonsiation of the world economy is premature.

In 2015, global carbon dioxide (CO2) emissions plateaued even as the world economy grew by about 3%. Emissions rose, but only slightly, the following year. There was much relief, even triumph, in the mainstream press and some scholarly literature, that the world economy had begun decarbonising. Reports suggested we were experiencing “a partial decoupling between the growth in CO2 emissions and that in the economy”.

Since 1970, CO2 emissions from fossil fuels―coal, oil, and gas―had grown by about 0.4% for every one percentage point rise in world GDP. But now writers surmised, they would stay flat or even decline while economic growth continued.

A second proposition, connected to the first, suggests we have been witnessing an energy transition worldwide: a shift away from fossil fuels and towards a huge expansion of renewable energy, led primarily by solar and wind power. Referring to one such fossil fuel, the energy analyst and executive chairman of Brookings India, Vikram S Mehta, wrote a couple of years ago, “Historians will look back on 2016 as the year of inflexion for the oil industry … the year the oil era began to slowly but inexorably hand over the energy baton to clean energy”(“Over the Barrel”, Indian Express, 6 February 2017). The climate change activist and writer Bill McKibben recently wrote approvingly “ … in the next few years, we will reach the peak use of fossil fuels, not because we are running out of them but because renewables will have become so cheap. … [Kingsmill] Bond writes that in the 2020s―probably the early 2020s―the demand for fossil fuels will stop growing.” ( “A Future Without Fossil Fuels”, New York Review of Books, 4 April 2019)

This essay probes whether, and to what extent, these two propositions hold water. It builds on arguments made by others that talk of an energy transition is misleading (Sweeney and Treat 2017) or very partial (Pirani 2018). Using the latest available data I show that whereas we are undoubtedly witnessing an expansion of renewable energy worldwide, it does not amount to a transition. Not as yet. For the concept energy “transition” also implies that we are transiting away from what was dominant earlier and relegating it to a small proportion of the energy landscape. That is certainly not happening with oil and gas. Whether we are even transiting from coal is moot.

What’s more, given the accelerating impacts of global warming in recent years, are we transiting away from fossil fuels at anywhere near the pace that the science demands? This question has acquired even greater salience with the eruption of the “Extinction Rebellion” and other movements in Europe and elsewhere, including India, by school students and others demanding sharp cuts in emissions and the declaration of a climate crisis, both in India and on a planetary scale.”

From the European Environmental Bureau:

“Is it possible to enjoy both economic growth and environmental sustainability? This question is a matter of fierce political debate between green growth and post-growth advocates. Over the past decade, green growth clearly dominated policy making with policy agendas at the United Nations, European Union, and in numerous countries building on the assumption that decoupling environmental pressures from gross domestic product (GDP) could allow future economic growth without end.

Considering what is at stake, a careful assessment to determine whether the scientific foundations behind this “decoupling hypothesis” are robust or not is needed. This report reviews the empirical and theoretical literature to assess the validity of this hypothesis. The conclusion is both overwhelmingly clear and sobering: not only is there no empirical evidence supporting the existence of a decoupling of economic growth from environmental pressures on anywhere near the scale needed to deal with environmental breakdown, but also, and perhaps more importantly, such decoupling appears unlikely to happen in the future.

It is urgent to chart the consequences of these findings in terms of policy-making and prudently move away from the continuous pursuit of economic growth in high-consumption countries. More precisely, existing policy strategies aiming to increase efficiency have to be complemented by the pursuit of sufficiency, that is the direct downscaling of economic production in many sectors and parallel reduction of consumption that together will enable the good life within the planet’s ecological limits. In the view of the authors of this report and based on the best available scientific evidence, only such strategies respect the EU’s ‘precautionary principle,’ the principle that when the stakes are high and the outcomes uncertain, one should err on the side of caution.

The fact that decoupling on its own, i.e. without addressing the issue of economic growth, has not been and will not be sufficient to reduce environmental pressures to the required extent is not a reason to oppose decoupling (in the literal sense of separating the environmental pressures curve from the GDP curve) or the measures that achieve decoupling – on the contrary, without many such measures the situation would be far worse. It is a reason to have major concerns about the predominant focus of policymakers on green growth, this focus being based on the flawed assumption that sufficient decoupling can be achieved through increased efficiency without limiting economic production and consumption.”

From a VoxEU post by Giovanni Peri, and Akira Sasahara:

“Though the economic consequences of climate change will be felt across the globe, not all populations will be affected equally. This column examines the impact of rising temperatures on migrant communities. Using historical data from three decades (1970-2000), it finds that higher temperatures increased the number of rural-to-urban migrations in middle-income countries while decreasing rural-to-urban migrations in poor countries. The prospect of climate change leaving large rural populations trapped in poverty adds urgency to the case for addressing the asymmetric effects of global warming. 

The annual average temperature is projected to increase by up to 4° Celsius in the coming century (World Bank, 2018). Rising temperatures have been shown to influence various aspects of our economies, including GDP growth (Dell et al. 2012), local conflicts (Bosetti et al. 2018), mortality (Burgess et al. 2014), and agricultural and non-agricultural productions (Burke et al. 2015, Garcia-Verdu et al. 2019). Given the economic effects of weather shocks, we can expect the rise in temperatures to significantly affect migration patterns. The goal of this column is to provide new insight on expected migration responses to climate change by exploiting historical variations in temperatures and migrations.

Net migration rates at the grid cell level

We employ grid cell level data at the 0.5 x 0.5 degree resolution, where one grid cell covers the area of 56 km x 56 km at the equator for three decades: 1970-1980, 1980-1990, and 1990-2000. Decennial net migrations (the number of in-migrants minus the number of out-migrants) come from de Sherbinin et al. (2015) and population data are obtained from Yamagata and Murakami (2015). We define net migration rates by dividing net migration during the decade by the population at the beginning of the decade. Figure 1 shows a map of Europe describing net migrations during the 1990s. Red-coloured cells indicate positive net migration rates (meaning that in-migrations were greater than out-migrations) while blue cells indicate negative net migration rates.”

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From the IMF’s latest report on Grenada:

“Grenada has made significant strides to counter climate change but meeting the daunting remaining challenges will require domestic policy actions and sustained international support. Climate change is an existential threat to Grenada. Increasing frequency and intensity of coastal storms threatens infrastructure and livelihoods, as do increased risk of coastal flooding and drought. Notably, Hurricane Ivan in 2004 caused damages of over 200 percent of GDP. Grenada has recognized this by placing climate resilience at the center of its policy making and forging strategic alliances with key global climate finance providers. However, the challenges facing the country remain daunting and will require large increases in international support, both financial and technical, to assist the Grenadian authorities turn their impressive resilience plans into action.

This Climate Change Policy Assessment (CCPA) takes stock of Grenada’s plans to manage its climate response, from the perspective of their macroeconomic and fiscal implications. The CCPA is a joint initiative by the IMF and World Bank to assist small states to understand and manage the expected economic impact of climate change, while safeguarding long-run fiscal and external sustainability. It explores the possible impact of climate change and natural disasters on the macroeconomy and the cost of Grenada’s planned response. It suggests macroeconomically relevant reforms that could strengthen the likelihood of success of the national strategy and identifies policy gaps and resource needs.

General preparedness for climate change. Grenada has made significant strides in preparedness. Its Nationally Determined Contribution (NDC) sets out an ambitious agenda for mitigation. The Climate Change Policy and National Adaptation Plan (NAP) provide costed detailed plans for adaptation and resilience building. The establishment of the Ministry of Climate Resilience in 2017 has further promoted mainstreaming of climate adaptation. However, implementation capacity remains a huge impediment to meeting NAP goals, particularly given Grenada’s tight fiscal constraints. Post-disaster activities and responsibilities are well-articulated but require formalization and more progress is required on financing. A Disaster Resilience Strategy (DRS) drawing on the recommendations of the CCPA and summarizing and synthesizing actions from other plans and strategies would help Grenada improve its readiness to cope with future disasters.

Mitigation. Grenada plans to progress on its mitigation pledge for the Paris Agreement in the near term by expanding the share of renewable energy in the power generation mix and by adopting energy efficiency measures including in the transport sector. However, progress has been slow and a finalized legal and regulatory framework is needed to provide incentives for this to occur. In addition, Grenada could consider using upstream fuel excise-based carbon taxation to reinforce price incentives towards energy efficiency paying due attention to distributional impacts, administrative efficiency and competitiveness. Feebates (tax-subsidy schemes integrated into existing excises) could further reinforce mitigation incentives.

Adaptation. Grenada’s adaptation strategy—the NAP—covers all infrastructure sectors, land, agroforestry, agriculture, fishing, food security, water, mangrove, marine, coral, health, and zone management. An estimated one-third of capital expenditures in 2019 budget already goes to resilience-building projects. However, progress is hindered by capacity constraints, in particular in investment project execution. Progress is being made on supporting policies and regulations but implementation and enforcement need to be strengthened, notably with regard to building codes and draining maintenance.

Financing. Grenada faces huge financing challenges to meet its ambitious climate change policy. The authorities have estimated financing needs at about US$500 million, equivalent to over 40 percent of 2018 GDP. Even if most mitigation investment can be financed by the private sector, the required adaptation investment of at least US$340 million out of the $500 million estimated by the authorities is difficult to reconcile with fiscal constraints and other priority needs, including general infrastructure maintenance and development. Proposed reforms to the Fiscal Responsibility Law (FRL) may open some space for increased revenue and loan-financed investment in resilient infrastructure but maintaining a safe debt level means that this will be limited. Maximizing use of available grant financing is therefore crucial for Grenada to ensure long term fiscal sustainability while meeting climate adaptation goals. Grenada has made some progress in beginning to access global climate financing and needs to build on this to maintain progress. However, as the availability of these funds for Grenada may be limited they will need to be supplemented by domestic revenue mobilization, available concessional loans and increased private sector participation remain key to any resource mobilization strategy.

Risk management. Grenada has well identified disaster and climate risks but does not yet have a comprehensive risk and contingent liability assessment. The authorities have put in place a number of elements of a comprehensive natural disaster risk layering strategy, including establishing contingency funds, participating in regional parametric insurance schemes and including a hurricane clause in debt restructuring agreements. However, indemnity and catastrophe insurance is underused in both the public and private sectors and Grenada has not established contingent lines of finance. Fiscal buffers also fall short of desirable levels. Grenada could enhance its risk management by putting place a National Natural Disaster Risk Financing Strategy as a key element of the broader DRS. This would guide future policy making on risk transfer and retention, including trade-offs between options and provide a framework for seeking increased international support.

National processes. The establishment of Ministry of Climate Resilience has helped to further strengthen the mainstreaming of climate-related projects. Climate resilience has been built into the public sector investment program framework as a key screening element, but in practice the weight given to climate resilience project prioritization and selection process is not yet clear. Weak project management capacity is a considerable drag on Grenada’s public investment management system. Grenada should establish an asset registry which would be the foundation for well managed asset insurance and disaster loss assessment.

Priority needs. To meet its mitigation plan, Grenada will need to rely heavily on private investment. Investment needs for adaptation require using as much grant and concessional financing (including contingent financing for natural disasters) as possible to maintain debt sustainability, while also creating space for private sector participation and increasing, where possible, domestic resource mobilization. Expansion of insurance coverage should also play a role but cannot substitute for investments in resilient infrastructure. Capacity building will also be crucial including for public investment management and to help complete the DRS, move toward carbon taxation, and enhance implementation of sectoral adaptation plans.

From Conversable Economist:

“Global primary energy grew by 2.9% in 2018 – the fastest growth seen since 2010. This occurred despite a backdrop of modest GDP growth and strengthening energy prices. At the same time, carbon emissions from energy use grew by 2.0%, again the fastest expansion for many years, with emissions increasing by around 0.6 gigatonnes. That’s roughly equivalent to the carbon emissions associated with increasing the number of passenger cars on the planet by a third.” Spencer Dale offers these and other insights in his introduction to the the 2019 BP Statistical Review of World Energy. It’s one of those books of charts and tables I try to check each year just to keep my personal perceptions of economic patterns connected to actual statistics.  Here are a few figures that jumped out at me.

One main drive of the rise in world energy use is economic growth in emerging market countries. The horizontal axis of this figure shows average energy use per person. The vertical axis shows the cumulative share of total world population. The yellow line shows the pattern for 1978, while the green line shows four decades later in 2018.”

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