Beyond Copenhagen?

This past month all eyes have been on Copenhagen and the ideological battle between the two climate camps has raged across the media. Although consensus is continuing to shift in favour of the climate change camp, it is worth bearing in mind that even if Copenhagen had exceeded expectations, it would not have been enough to prevent widespread global warming. What is the cause of our inaction? Personally, I believe that it is mainly due to the reflexive and often tribal nature of human psychology. Our brains were not designed by evolution to make decisions which will have consequences 50 or a 100 years down the line and so we naturally discount the future in favour of the present. It also takes courage and true statesmanship to put aside narrow short-term national interests and look to the future of the planet. Rightly or wrongly, China has been accused of failing significantly in this regard and has in some quarters received the dubious honour of being the country most responsible for the lack of progress at the Copenhagen. If true, then it suggests that despite its massive efforts to push towards greater use of renewables and higher energy efficiency standards, Chinese officials expect their country to be a net importer of carbon credits or to be heavily penalised by a tighter global carbon regime.

It is also clear that China cannot hold all the blame. This is for two reasons. First, its newly acquired status as the world’s largest carbon emitter is largely the result of its role as the world’s factory. Its per capita emissions are still extremely low compared to the US or European average. Secondly, the failure of the US to table meaningful near-term carbon reductions, owing to its ponderous legislative momentum and the ongoing war of words between lobbyists and proponents of the climate change movement and their sceptical counterparts

Returning to the subject of the role of the human element, it is worth thinking about how it affects the management and investment decisions of the world’s power industry. In particular, I’m thinking of the often noted tendency for people to value something in terms of the amount of time and energy they have invested, as opposed to its actual value or profitability. Left unchecked, this way of thinking stifles innovation and can blind people to the true direction of the market. The fall of Nick Leeson is a testament to the dangers of actively betting against the trend.

As far as the power industry is concerned, public opinion is firmly behind renewables, and although the sector is partially insulated from its weight, this and a multitude of other factors, such as the drive towards decarbonisation and the growing issue of resource depletion, is making the case for “green” sources for energy increasingly compelling, even if you completely discount the possibility of global warming. Given the vast sums spent on securing oil in the Middle-East and Africa, it make a great deal of sense to look at the natural, inexhaustible resources right on our front door step.