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Economic Theory and an Unsociable Review of Some Aspects of the Global Warming Discussion

Professor Ferdinand E. Banks
Asian Institute of Technology, Bangkok; and Uppsala University, Sweden
June 14, 2007

By Professor Ferdinand E. Banks

Asian Institute of Technology (Bangkok) and The University of Uppsala

ABSTRACT – This article provides a brief and essentially non-technical evaluation of some aspects of the global warming discussion, mainly concentrating on the inadequacy of the Kyoto Protocol as a result of two oversights. The first is the failure of the Kyoto conference on the environment to encourage a larger deployment of nuclear energy in the main industrial nations, while the second is the bizarre promotion by that gathering of global emissions trading (or cap-and-trade schemes) as an efficient scheme for the large-scale reduction in greenhouse gases. Much of the argument in this article is an extension of the chapter on global warming in my new Energy Economics textbook (2007), however that chapter failed to foresee the recent decision by President George W. Bush to acknowledge scientific evidence relating to global warming. The sections are as follows: 1. Introduction. 2. Not the global warming movie. 3. Nuclear in the light of Kyoto. 4. Emissions trading blues. 5. Conclusions.


If the world were as rational as portrayed in most conventional economics textbooks, this contribution would be quite unnecessary. But as George Monbiot (2004) informed his readers: “The dismissal of climate change by journalistic nincompoops is a danger to us all”. I think that we can remove “journalistic” from that sentence (and substitute ‘eminent’), because I doubt whether, at the present time, the ladies and gentlemen of the press are much different than most of us where this topic is concerned. They too have become more sophisticated in that they are no longer willing to believe that ‘scientific truths’ retailed by self-appointed ‘gurus’ are worthy of their attention. It might also be useful to note that while the word “nincompoops”, or its equivalent, is not unknown in my daily conversation, I prefer another description for most of the persons that I occasionally encounter who believe it imperative to repudiate global warming: well meaning but slightly misguided believers in pseudo-scientific bunkum.

Under no circumstances do I regard my understanding of this topic as comprehensive or special, even though it takes up a fairly long chapter in my new energy economics textbook (2007), but I feel that one item deserves to be repeated to acquaintances and students until it becomes as ingrained as the General Orders that infantry recruits were compelled to learn in the United States Army when my ‘friends and neighbours’ voted me into that delightful club. There are still a few deluded scribblers in circulation who want us to believes that the overwhelming majority of scholars who say that climate warming is the real deal are anti-American loony-tunes, while the miniscule number of academic first-raters who insist that the talk about global warming is hysterical nonsense deserve to be honoured as paragons of scientific virtue!

As an example I turn to the superstar journalist Paul Johnson, whose intellectual firepower and sustained success puts him streets ahead of the know-nothings identified by Mr Monbiot as climate warming doubters. I must confess that from time to time I have greatly enjoyed what Mr Johnson has written, and strangely enough this also applied to his article in the Spectator (2004) in which he tells us to “pay no attention to scientific pontiffs” (in the matter of global warming) – unless, I suspect, they are ersatz scientific pontiffs. What I particularly liked about that fruitcake advice was that it furnished a modicum of proof that Johnson’s high intelligence and access to the corridors and restaurants of power did not make him a wiser human being than those of us who for one reason or another have come to roost much lower on the social scale.

To make a long story short, Johnson regards these scientific pontiffs as snotty neurotics who, because of their shortcomings in dress and/or manners, have no right to interfere in matters dealing with the climate. His principal negative roll models are the late Oxford University scientists Henry Tizard and Lord Cherwell, both of whom were scientific advisers to the UK prime minister Winston Churchhill during World War II, but who when summarily banished to academia after the war, morphed into bad-tempered misfits.

Tizard is a man whose life and longings are a complete mystery to me, but I know – which Johnson apparently does not – that Cherwell risked his life during the first world war to show that a spinning aircraft could be pulled out of a dive, and he was also a key player in the design of the UK air defence in the crucial years before the second world war. (I won’t bother to go into here what could have happened if that air defence had failed.) Johnson’s idea of a real scientist – or “boffin”, to use his language – is Bjorn Lomborg of Copenhagen Consensus fame, who is a total non-participant in the genuine scientific literature on any level, and whose recent appointments in the great world of Danish higher education suggests to me the kind of gratuitous welfare handouts that characterize Swedish higher education. As for The Copenhagen Consensus, this is a conclave of well-placed academics who were brought to wonderful Copenhagen on several occasions to discuss topics about which they knew little or nothing, and given their backgrounds and specialities cared less. The only consensus that could be associated with the participants in this half-baked charade was that travel and lodging at the expense of Danish taxpayers is even more gratifying than drinking beer in Copenhagen’s Tivoli on a summer evening.

Among other things, Johnson said the United States has done more research on “so-called” climate warming than the rest of the world put combined (which is almost certainly true), and this was why – he claimed – President Bush refused to comply with the Kyoto Protocol. Ostensibly, that very expensive research failed to establish a definite link between climate warming and man-made emissions.

Perhaps this described the situation when Johnson’s precious composition went to the printer, but it definitely is not the case at the present time. Just a few days ago President Bush said that “Science has deepened our understanding of climate change and opened new possibilities for confronting it.” It has also opened new “possibilities” for understanding certain related prospects that, according to Sir David King, the UK government’s chief scientific adviser, might eventually have the same ruinous impact on life and property as a succession of large-scale terrorist attacks. By that he was undoubtedly alluding to physical security and the overall economic outlook. This does not mean that the Chief Executive has become a partisan of the Kyoto ‘talkathon’, or accepted the scam known as ‘emissions trading’, but for one reason or another he has decided that he has enough on his plate without challenging the opinions of the overwhelming majority of qualified scientific expertise who reject scepticism in this matter.

One final observation needs to be made here. Monbiot labels the climate warming sceptics “tools of the fossil fuel lobby”. I’m not sure that he is correct with that designation, because according to the economics and finance that I teach, the oil and gas people do not need a “lobby” to go to sleep at nights with thousand watt smiles on their faces. On this point it is interesting to note how climate warming sceptics have a tendency to flaunt other strange beliefs, one of which inevitably focuses on what they think is the plenitude of energy resources. The gadfly Lomborg, for example, once declared that we do not need to start worrying about an oil shortage in the present century.

I can complete this introduction by confessing that global warming is a topic that I once considered removing from my new textbook – until I became aware of which way the wind was blowing. By that I am not talking about research grants or plane tickets, but the gradual acceptance by the present and the next president of the United States – regardless of his or her name – that global warming deserves serious reflection. I think that mainstream economic theory has no problem proving that the well-off (as a class) would be more discomfited by the melting of glaciers at Courchevel and the flooding of waterfront real estate in Carmel (California) than the poor, even if many footloose plutocrats were still able to afford apartments in e.g. Dubai that are on the block for five million dollars a room, or at the other end of the scale, cosy hideaways on the great south side of Chicago or in Soweto. Sergeant Christian Diestl in Irwin Shaw’s brilliant war novel ‘The Young Lions’ spoke of the US as “untouched and untouchable”, but as things now stand, some extremely choice properties in North America would be in the danger zone in the event of a severe climate meltdown.


“The mind that has feasted on the luxurious wonders of

fiction has no taste for the insipidness of truth.”

- Samuel Johnson

The purpose of this brief section is to exploit the presentation of global (i.e. climate) warming outlined in a recent book by David Goodstein, who is provost and professor of physics at California Institute of Technology (2004). Goodstein’s thesis, simply put, is that global supplies of fossil fuels (oil, gas, and coal) are limited, and will largely be exhausted during the present century. Even worse, the carbon dioxide (CO2) that they will generate during this exhaustion process could provide the basis for an environmental catastrophe that begins with excessive climate warming’ (i.e. the widely publicized ‘greenhouse effect’).

There have, of course, been traumatic catastrophes before, however a few decades or so usually sufficed to erase most of their visible traces. I’m thinking here of various plagues that swept across Europe during the Middle Ages, or even the physical and economic devastation that I encountered shortly after World War II when I was an unwelcome guest in Germany and Japan. But the catastrophe being referred to above might take a much longer time to go away. In fact, it is possible to envisage a drastic scenario where, for all practical purposes, it will play a decisive role in the entire future human experience.

The sub-title of Goodstein’s book – The end of the age of oil’ – is to some extent misleading, because the main issue is not oil but climate warming. But oil is important for the exposition, because the hypothesis being offered is that when it becomes clear that oil is a relatively scarce commodity, there could be a panicky rush into coal (which in theoretical work is sometimes labeled the backstop resource), and while there may not be enough economically attractive coal in the crust of the earth to keep the global economic machine operating at full blast for longer than the remainder of this century, there might be an amount that can produce a quantity of CO2 that is capable of throwing the climate of this planet into an undesirable state. (Remember also that e.g. motor fuel can be produced from coal.)

What we are dealing with here is a theory and not a fact; but since I think that I am still in possession of enough thermodynamics to understand the basis of Goodstein’s reasoning, I have decided that it deserves more attention than the sort of thing that we constantly encounter in academic economics, where a few Nobel laureates and Nobel candidates in economics display a comprehensive lack of scientific literacy, and in some cases are little more than agents of various special interest agendas.

The “undesirable state” referred to above would be characterized by a great deal of privation, the consequences of which Goodstein wisely chooses not to consider at great length. However a recent study carried out under the direction of the US Department of Defence (i.e. the Pentagon) drew the conclusion that the television audience will not take kindly to the suggestion that they should assume a non-motor fuel state of mind, which would be highlighted by the need to exchange cadillacs for canoes in order to paddle down flooded roads to the nearest shopping mall. Instead, their political masters might conclude that a less objectionable lifestyle could be obtained if various military resources were used to expropriate the assets of neighbouring states, to include valuable bits of territory.

Goodstein opens himself to attack on two fronts: the first concerns this matter of the exhaustibility of fossil fuels, while the second has to do with the probability of a climate meltdown. I have discussed both of these topics to a limited extent in both my energy economics textbooks (2007, 2000), and in my opinion he is absolutely correct about the first. Fossil fuels are definitely scarcer than the popular imagination is prepared to concede, and it shouldn’t take much more than another decade to bring this distasteful fact home to the most obdurate flat-earth economist – as certain self-appointed energy experts are sometimes called. (Readers can also refer to the Organization for Depletion Analysis Centre (ODAC) for an exhaustive review of this topic.)

As for the second, there is still some question as to the magnitude of the probabilities that are appropriate – at least where I am concerned – because I cannot compel myself to entertain the degree of certainty enjoyed by Professor Goodstein. Let me make it clear though that if I were forced to choose, I would go with the overwhelming majority of world class scientists (and especially climatologists) who say that global warming is not science fiction, and steps must be taken immediately to reduce the output of greenhouse gases that result from various transportation and production activities. At the same time let me confess that I would not be optimistic about an arrangement in which the opinions of non-scientists, to include myself, were judged to be worth a great deal in this matter, other than when those opinions had to do with identifying certain kinds of charlatans – to include charlatans in the financial world who are manoeuvring for seats in the first-class coach of a possible emissions trading gravy train: the kind of scheme that is akin to the major defect in the blunder known as electricity deregulation.

Even if many academic economists are intent upon confusing theoretical contrivances and econometric overkill with scientific proficiency, a few of us have started to review the policies that are or should be adopted to deal with global warming. As alluded to above, this will require a much closer scrutiny of the effectiveness of marketable emissions permits as a tool for limiting the output of greenhouse gases, and also making a fair assessment of the advantages of using nuclear energy. A modicum of assistance may have been received from Hollywood in the form of a ‘scare’ film with the title ‘The Day After Tomorrow’, however even if Hollywood truth and objective truth are usually not the same thing, it should be appreciated that this film might help to introduce the general public to some of the background and vocabulary of climate warming.

Although I cannot imagine any enticement short of a very large cash payment that would cause me to personally view this film, I do not take the position of a past chairman of the Intergovernmental Panel on Climate Change (IPCC), which is that Hollywood has done the scientific community a disservice with this ‘project’. That gentleman once noted however that if we do not go far beyond what was achieved at Kyoto, then greenhouse gases will continue to increase in the next decade in the same way that they have in the past twenty years. Consequently, I infer that this might be the kind of outcome that is best explained to the voters by a Hollywood extravaganza, instead of a gathering of climate scientists and/or Nobel laureates, or on the other hand a crank congress like Bjorn Lomborg’s ‘Copenhagen Consensus’. Why do I think this? I think it because Sweden is one of the most literate countries in the world, and yet the ‘cream’ of international economists were unable to explain to the Swedish electorate that it was an enormous economic and social mistake to become a part of the European Union (EU), or to accept electric deregulation.

The United States government failed to ratify the Kyoto Protocol, but even so that country is such an impressive supporter of climate research that I cannot help believing that if the Kyoto Protocol made economic sense, then President Bush would not have any problem supporting it, since it was his father who signed into existence the Framework Convention on Climate Change, which initiated the process leading to Kyoto.

But to my way of thinking it does not make ANY economic sense at all , although for reasons that do not correspond to those originating in the West Wing. To begin, if the 2500 delegates to the Kyoto meeting had been serious people, then a large number of them would have insisted that immediate steps should be taken to reduce carbon dioxide (CO2) emissions, instead of waiting ten years to install what the prominent New Zealand economist Owen McShane has termed a pseudo market for trading emission permits. Insistence was not their way of doing things however, because first and foremost many of them did not want to risk not receiving invitations to subsequent global warming jamborees.

The Kyoto meeting also ignored the obvious beneficial effects that nuclear energy has in the matter of reducing the stock of atmospheric CO2. This unfortunate oversight can perhaps be indulged, because regardless of the personal beliefs of voters about nuclear energy, to include the fact that a majority of them are favourable, most politicians are capable of recognizing that (anti-nuclear) environmentalists often have an amount of political power that is completely out of proportion to their numbers, and this has been particularly true in countries like Sweden and Germany. I would like to suggest though that in the kind of world in which these environmentalists claim that they want to live, an increase rather than a decrease in nuclear based power might turn out to be the optimal strategy.

In the film referred to above, the son of the hero finds a place in the Manhattan Public Library to rest his weary bones from the havoc raging in the streets of ‘The Big Apple’. The implication is that in a library which contains a large slice of the world’s wisdom, it should be possible to uncover the kind of scientific knowledge that will keep New York City from ending up at the bottom of the Atlantic Ocean. But in my candid opinion it would have been more appropriate if that young man and his friends sought refuge in a phone booth with a direct line to people like Clint Eastwood or Bruce Willis, because there is nothing in any book ever written, or perhaps can be written, that is capable of explaining how to restore the kind of life that we enjoy today in the wake of a climate warming catastrophe. Instead, what we require is access to platoons of Eastwood/Willis ‘space cowboys’ or ‘astroid tamers’ – noble men and women who, assuming that they exist in the real world as well as on the silver screen, possess the kind of charisma, street smarts and metaphysical assets that would allow them to plunge down into the depths of the Gulf Stream and deal with nature on its own terms.

According to Marshall and Lynas (2003), every scientific institution and national government in the world now endorses the conclusions advanced by the IPCC that global warming is a major threat to the planet’s future. This sounds to me like a slight exaggeration, although it is compensated for by their presentation of a quotation by John Gray in his book Straw Dogs: “The mass of mankind is ruled not by its intermittent moral sensations, and still less by self-interest, but by the needs of the moment.” I completely agree, because exhaustive self-interest involves thinking ahead, and so the implication is that the “needs of the moment” will prevent even intelligent people from taking action on things like climate change until its effects are extreme. Of course, by that time, where this particular phenomenon is concerned, it will probably be too late. This is a major reason why I am against meetings of the Kyoto and Rio variety: they reinforce the impression that significant progress can be made in solving any problem merely if the right signatures are put on this or that document.

My recommendation where the climate warming issue is concerned is to go beyond mastadon conferences, and to work at the highest political level. The reason is that if this problem is not solved, we may eventually find ourselves confronting something that cannot be put right by the expenditure of trillions of dollars, or the ruining of tens or hundreds of millions of lives: something characterized by the kind of complexity that run-of-the-mill conference delegates without immediate access to the best available scientific expertise cannot possibly be expected to comprehend, even if by some miracle they were inclined to do so.

But should it happen that these delegates comprehended it perfectly, there is no guarantee that they would take the optimal action, because as Marshall and Lynas would probably suggest in a more comprehensive analysis, it might disturb the particularly acute form of self-denial that characterizes the people who foolishly paid for their plane tickets and hotel rooms of this travelling circus. My memory may be vague on this subject, but if I remember correctly the looks on the faces of men and women in the badly damaged cities of Germany and Japan were mostly expressions of confusion. They simply couldn’t figure out how things could have gone so badly for such wonderful people as themselves, although if they had asked and if I had known at that time (which I didn’t), I would have been more than happy to clarify the situation for them. I wouldn’t however have said that it was a matter of “implicatory denial”, or “cognitative dissonance”, to use the terminology of Marshall and Lynas, but simply referred to a famous old adage: when you dance, you eventually have to pay the piper – and this is true even if he is a rotten musician!

The thing to take notice of is that in a situation where dancing and its joys is a metaphor for an increasing rate of consumption of increasingly scarce fossil fuels, an illogical faith in renewable energy, a sanctimonious rejection of intrinsically safe nuclear energy, a naive resort to gimmicks like emissions trading, and the counterproductive tolerance shown climate-change deniers who confuse the issue by calling world-class climate scientists propagandists and myth-makers, paying the piper could easily involve something bordering on bankruptcy for a large part of the human race, particularly if the global warming wolf turns up at the door in his take-no-prisoners mode.


Several years ago I published a paper in Geopolitics of Energy with the title ‘Some aspects of Nuclear Energy and the Kyoto Protocol’ (2000). On the first page of that issue, the editor of the publication at that time, Vincent Lauerman, asked the following very relevant question: “Is ‘Kyoto’ a lost cause without the mass deployment of nuclear power plants? He added that “the current debate on this topic is long on ideology and short on reason.”

That almost sums it up. ‘Almost’ because basically what we are dealing with here is a shortage of the kind of information that would encourage not the “mass” but the optimal employment of nuclear facilities. (Optimal is a very important term in mainstream economics. It means choosing the best patterns of affordable consumption or production, given the presence of adequate information about available choices, and enough rationality to distinguish between different (e.g. good and bad) outcomes. In the real world, where inter-temporal considerations dominate, this is asking for a great deal.) In any event, in theory, the general public’s uncertainty where nuclear safety and waste disposal are concerned must be respected, while at the same time recognizing that a majority of this same public desires inexpensive and reliable electricity, as well as the absence of a potentially dangerous accumulation of greenhouse gases. In particular, an excessive output of carbon dioxide (CO2) is to be avoided. When all restraints are taken into consideration, we have an optimization problem that is analogous to those in e.g. your favourite intermediate level microeconomics textbook.

Ordinarily my approach to this quandary would begin with a reference to the greatest of all scientists, William Shakespeare: “Time’s glory is to calm contending kings, to unmask falsehoods, and to bring truth to light.” The riddle here is whether we will have time to bask in the truth and its raptures before we take to the roof tops. My research has often focused on the ugly things that could happen due to e.g. electricity deregulation and an unexpected shortage of oil, but these are trivial as compared to a global warming calamity. It has been said that in confronting the problem of global (or greenhouse) warming, “the choice is between action and delay”, and as far as I am concerned, “action” means giving more weight to the nuclear option, beginning immediately.

Not everybody is prepared to entertain this kind of language or reasoning. Several years ago the presiding European Union (EU) environmental minister, Ms Margot Wallström, stated that it would be possible to fulfil the stipulations of the Kyoto Protocol without resorting to nuclear energy. She was in some sense echoing the twisted beliefs of her previous colleague the Swedish prime minister, who on several occasions referred to nuclear energy as “obsolete”. It would appear that an investigation of some sort had been published which Ms Wallström and/or her staff scrutinized, and in this document it was claimed that a carefully selected combination of carbon taxes and emissions trading can prevent such inconveniences as floods and excessive temperatures. Unless I am mistaken, at least one version of this idea originated with a gentleman to whom I taught mathematical economics many years ago, however regardless of its source, the only thing that it has to recommend it is that it has caught the attention of some movers and shakers in Brussels.

What is the main shortcoming of this new proposal? My answer is that suppression programs for greenhouse gases that exclude or downgrade nuclear energy, and also an urgent, extensive and direct regulation and/or elimination of these ‘pollutants’ by whatever means are necessary, are little more than an elaborate lottery: the kind of lottery for which innocent bystanders own a ticket whether they know it or not – at least until the water starts rising on the Reeperbahn or Canal Street. The basic problem is that well-meaning persons like Ms Wallström and her advisors have grossly overestimated the practical value of various pollution suppression schemes that are featured in the speeches of politicians or for that matter the learned journals of economics. These digressions offer very little that is applicable to the real world.

I often discuss this subject in terms of the situation in Finland. For the last forty years the school children of that country have been at or close to the top of the OECD in academic achievement, and in 2006 they were first of all the children in all the world according to a UN survey. This tells me that the government of that country is less likely to make a mistake in the matter of choosing the correct energy inputs than e.g. the bureaucrats and voters in some principality on the rim of the Kalihari. In addition, two major natural gas suppliers can be found close to the western and eastern borders of Finland, but they were ruled out on economic and perhaps environmental grounds. As for nuclear energy being obsolete, many scientists have called the nuclear reactor the most important scientific discovery of the 20th century, but regardless of its distinction, it is clear that an enormous degree of upgrading will eventually be possible on nuclear equipment in regard to the processing of fuel and nuclear waste. It might also be useful to mention that the reactor that is under construction in Finland, which is the largest in the world, should have a life of at least 70 years. In 70 years natural gas in quantities large enough to keep the people of that country warm during those long sensual Finnish nights could be selling for the same price as gold and diamonds

Returning to the first paragraph of this section, we are entitled to ask if an increased deployment of nuclear assets can ‘save’ ‘Kyoto’ – or more correctly, the United Nations Framework Convention on Climate Change that was broached at Kyoto, Japan, in December, 1997. The conclusion presented in my new textbook is that nothing can save ‘Kyoto’ except its (formal or informal) abandonment, and replacement by a more realistic alternative. As I pointed out elsewhere, “finding compromises that can satisfy all participants in the environmental wars must be as frustrating as the search for the Holy Grail (or the Fountain of Youth), but had the delegates at Kyoto genuinely believed that global warming (due to increasing atmospheric concentrations of greenhouse gases) constitutes a clear and imminent danger, they would also have realized that the final document served up to them was inadequate, and unless a radical extension of its provisions can be adopted (and implemented) in the very near future, greenhouse gases will continue their build-up in the same way that they have during the past few decades” (2000c).

(Something else those delegates would have done if they had been serious persons capable of comprehending the subtler aspects of global warming, was to insist on the immediate adoption – if only in a token sense – of measures that were absolutely and without any doubt capable of reducing atmospheric pollution. As bad luck would have it,, most of them were too busy trying to ensure that they qualified for a ticket to the l998 climate warming get-together in Buenos Aires to become heavily involved with theoretical niceties.)

Will the present or an accelerated build-up of greenhouse gases be instrumental in bringing about a collapse of our civilization and the destitution of coming generations? A large majority of our scientific elite say that many ugly realities and surprises might have to be accommodated unless there are some drastic alterations in our outlook and behaviour. Once again I would like to emphasize that to me this means doing something about the uncertainty mentioned earlier, which in turn calls for a greater reliance on nuclear energy. With nuclear energy we know what we are getting. We are not investing in a CO2 lottery! Most of the other approaches – and particularly playing games with emissions permits – maintain or increase uncertainty via the fabrication and retailing of unproved hypotheses and/or conclusions.

In the very long run, of course, we are moving toward what could be an exciting panorama of renewables and quasi-renewables. Whether this will turn out to be a comprehensive or even fragmentary paradise on earth remains to be seen, although I for one have some problem believing that on a global scale, the corpus of economic and social losers will greatly diminish in size. The thing to remember is that according to the OECD, two-thirds of the increase in energy demand between 2000 and 2020 will come from developing countries, where as already mentioned several billion persons lack an adequate or reliable supply of electricity. Some question should then be asked whether the persons experiencing this shortage prefer their future well-being to depend on renewables or traditional sources of energy – where traditional in the present context means uranium or fossil fuels. If they choose the latter, then we might be talking about irreparable damage to the environment – and this could happen even if fossil fuels are quickly exhausted. (See Goodstein (2004) for an elementary examination of some aspects of this quandary.) But if that happens, then we are worse off than ever because of the steady increase in global population.

In a short article in The Spectator (2004), Rod Liddle said that according to the UK Royal Academy of Engineering, nuclear is the least expensive way to generate a unit of electricty: on average, it is one-half the cost of coal, and about 40% less than the cost of gas.

A similar conclusion was arrived at in France, where a former prime minister, Lionel Jospin, organized a study to clarify the competitiveness of gas with respect to nuclear energy. Jospin’s instructions were to take all costs into consideration, to include those of an external nature (e.g. environmental costs). The verdict was that there would not be great cost differences between gas and nuclear as long as there was no escalation in gas prices. As things turned out though, not long after the contents of the report had been fully digested by anxious readers, the price of gas almost doubled. Thus, another potential controversy involving ‘greens’ and their adversaries could be removed from the government’s table, although those persons with a “no thanks” approach to nuclear power continued to be unimpressed or for that matter uninterested in arguments with a pronounced reliance on facts and figures.

Almost everywhere in the world, the life of existing nuclear installations are being extended, and new facilities are being planned. For instance, life extensions are also almost certain for the bulk of the UK’s nuclear capacity, especially since the outgoing prime minister, Tony Blair, has said that “if you are serious about climate change, then it’s wrong to close the door on new nuclear development.” A group in Sweden called “Environmentalists in favour of nuclear energy” would almost certainly agree with this evaluation, even if the sheep-like passivity of Swedish consumers allowed misfortunes like electricity deregulation and the dismantling of the nuclear sector to begin.. Another item that is relevant in this context is that natural gas not only contains CO2 (though not nearly as much as oil), but methane, and some researchers say that if very large quantities are involved, methane can pose environmental dangers on the order of excessive CO2 .

At the 1998 European Nuclear Conference, Dr Hans Blix – who later became heavily occupied in the search for ‘weapons of mass destruction’ in Iraq – provided delegates with a series of highly relevant queries and observations. These included or should have included a number of facts, where one of the most interesting was that in France, which generates close to 80 percent of its electricity in nuclear installations, the emissions of CO2 per kilowatt hour were about 64 grams, while in the UK, which had a much smaller amount of nuclear, and as a result uses a considerable gas and coal, emissions were 10 times larger. Similarly, in Sweden, where nuclear and hydro generated most of the electricity, the figure was 58 grams/kilowatt-hour, as compared to Denmark – which even at that time had a large inventory of wind turbines, but relied for the most part on coal – the figure was 917 grams/kilowatt-hour.

What is not generally understood is that the Danish resort to wind-power can be justified by the high cost and pollution that characterizes their dependence on coal. This situation does not apply to neighbouring countries, and in particular Sweden and Norway. It is also interesting to note that the use of wind-power appears to be peaking at the present time, which may be due to the inability to fit it into the deregulated Danish electricity market – which, like most deregulated electricity markets on the face of the earth has encountered considerable difficulty in honouring its promises to the households and firms of that country. This might also be the place to inform coal intensive Denmark that a 1000 MWe coal-fired power plant releases almost 100 times as much radioactivity into the environment as a comparable nuclear plant. In addition, as the World Nuclear Association pointed out, “if all the world’s nuclear power were replaced by coal fired power, electricity’s carbon dioxide emissions would rise by a third”.

While on this subject it can be noted that according to Liddell, 18 million tonnes per year of CO2 is avoided because of the presence of the UK’s nuclear energy, which he states is equivalent to five car-free days per month. For Europe as a whole, Dr Blix says that nuclear power helps to avoid the emission of approximately 700 million tonnes of carbon dioxide a year. This is a very large number, and one would like to think that had it been circulated to the several thousand delegates at Kyoto, or the 60,000 at Capetown for the so-called ‘World Summit’, enough of them would have been sufficiently motivated to abstain from their eating and drinking long enough to realize that there were passages to environmental sanity that did not involve the uncertainties implicit in the ‘green message’.


In a recent article in the Financial Times (June 1, 2007), Phillip Stephens states that according to IPCC studies, the economic costs of curbs on carbon dioxide are relatively small when weighed against the danger of inaction. This was certainly true at the time of the Kyoto burlesque, and it may be true today. He also says that the answer is to fix a “realistic international price for carbon through a cap-and-trade system.” President Bush has rejected this harebrained solution, although unfortunately he may change his mind when enough journalists, economists and pollsters insist that this bogus setup has some scientific merit and/or political merit. Here we are dealing with exactly the same kind of naiveté, ignorance, greed and/or hypocrisy that preceded the deregulation of electricity in California and Sweden, and which in Sweden (and probably elsewhere) is still tormenting ratepayers..

At the Kyoto meeting, nuclear energy was by and large overlooked, and probably was not even on the agenda, however it was decided that a market would be established for the trading of emission permits. For some reason this crazy concept has roused the enthusiasm of the low-and-powerless as well as the high-and-mighty, and once this emissions bazaar is fleshed out with confused buyers and sellers of permits, as well as bright-eyed young people functioning as market makers and/or brokers, it will take its place in the cavalcade of serviceable falsehoods In many respects it will likely be similar to the uniformly inefficient establishments and schemes that were introduced to enable the risk associated with electricity deregulation to be hedged.

I hope that I am not revealing my basic frame of mind in this matter when I say that emission permits are one of the worst ideas ever formulated, and the cost – both in dollars and millions of tons of CO2 propelled into the atmosphere – would make it a distinguished non-starter if there had not been a small group of academic economists, and a large group of finance professionals, who expected to gain personally from their introduction.

I doubt whether all readers of this exposition will appreciate merely being told that emissions trading is a silly misadventure. Rather than ignore these ladies and gentlemen, let me suggest that they should ask their favourite economics teacher for a deeper insight into the interior logic of this undertaking, and given the high probability that he or she won’t have a clue, they should also consult the superb microeconomics textbooks that are now available, or better examine the easy-to-read articles of David Victor (2000) and Ruth Greenspan Bell (2006), and the short note of Taylor and VanDoren (2006). Like myself and Professor William Nordhaus, Jerry Taylor is “sceptical of emissions trading regimes that might result from international agreements”, and prefers a global carbon tax. It is also my happy obligation to inform readers of this paper that all the pages in all the textbooks and articles that have been written since Adam and Eve will not provide them or anyone else with the expertise required to convince intelligent persons that emissions trading has any genuine merit. As President Putin was summarily informed by one of his experts, “it’s a scheme to make money, and has nothing to do with suppressing pollution.” Let’s put this another way: by adopting emissions trading instead of a direct and systematic program for reducing greenhouse emissions (via e.g. nuclear energy, and carbon taxes and perhaps subsidies), we have another situation in which we express our preference for a lottery instead of a sure or near-sure thing.


“The environment is not a machine It is full of surprises.”

- Professor Bert Bolin

If the rationality mentioned in the first sentence of this paper prevailed, that pretentious ‘outfit’ for relentlessly bilking the unwary, the Nordic Electric Exchange (NORDPOOL), would have had its doors closed and nailed shut years ago, and not only electricity but emissions trading would strictly be a topic for term papers at storefront universities in Boston and New York. But sadly that would not have alleviated all of our electric and environmental worries.

In Ross Gelbspan’s book ‘The heat is on’ (Addison-Wesley, 1997), he makes the following brilliant remark: ”Scientists do not know what hidden thresholds lie ahead. They do not know what feedbacks will take effect, or when. They do not know at what point an unstable climate will become a cascade down a steep slope. They cannot yet predict whether or when the rate of warming will accelerate. So those who are trying to avert the crisis are left groping in the dark, forced to choose arbitrary emissions-reduction targets that are determined more by their political viability than by their correspondence to the actual situation.”

He is talking about non-linearities here, so what does he want done? One option is to convene another elephantine talk-shop, and keep it in session until it gives the impression that significant progress can be made in reducing environmental hazards if the right signatures are affixed to this-or-that document. The opinion here however is that decisions having to do with liquidating the global warming threat should be made by heads of state – where these decisions include actions that should be taken in the event of non-compliance. By actions I am not thinking of gunboats, but economic restrictions. The thing to appreciate is that we are not dealing with brownouts or irksome increases in motor fuel prices, but if things go wrong, possible disasters that in earthquake terminology belong at or above the top of the Richter scale.

One of the most brilliant and influential physicists of the 20th century, Niels Bohr, once said that ”true expertise comes only after making all possible mistakes.” By way of contrast, I think it wise to accept that in the matter of global warming it might be a good thing if we avoid certain types of mistakes, since this expertise might have to be demonstrated in a world with a new and disagreeable economic and political structure – a structure that is not particularly responsive to the application of traditional know-how, behaviour and aspirations, but is punctuated by the sounds of gun-ships and assault rifles.

All of the above and a great deal more should be taken specific note of by those persons who have become receptive to the arguments of the small but strident group of dissidents who allege that global warming is a hoax, or the deregulation buffs who insist that showy but impotent departures like emissions trading have a serious role to play in slowing climate change.

*This article is a substantial upgrading and rewriting of a paper that was presented at the University of Luleå (Sweden), and published under another title in EnergyPulse ( I can also mention climate warming sceptics and semi-sceptics like S.F.S. and S.B-C, who gave me a few things to think about while I was waiting for President George W. Bush to “get on the right side of history”, according to Edward Luce and Andrew Ward’s quoting of a former administration official (2007).

Professor Ferdinand E. Banks
Asian Institute of Technology, Bangkok; and Uppsala University, Sweden
June 14, 2007


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