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Peak Oil has grown up from on obscure theory of some weirdos (or so it was understood) into a mainstream theory - most disagreement is about the exact point in time of peak oil but not on the fact itself.

The Strategic Institute of the German Bundeswehr has now published a document on the implications of peak oil for security (more precisely: the study was leaked). The study is very well written and recommended as an essential read not only for geostrategist but especially for those involved in global sustainability questions. In fact, at least in wording the authors care about such diverse issues as environmental impact of unconventional oils and the impact of global-marked-induced land-use change on indigenous populations. It is worthwhile to have a closer look on some of their results:

•  While resource conflicts have existed before, peak oil poses a systemic risk for global economies as oil is required for a multitude of energy-related processes and for chemical purposes (e.g. as fertilizer).
•  Scarcity of oil is coupled with a concentration of remaining resources, notable in the Middle East.
•  Aggressive oil resource policy used to be expensive in terms of exploration and political costs (e.g. China in Africa). However, with rising oil prices, the ratio will change and benefit China. With concentrated resources, geopolitical leverage of oil-rich regions increases; this will be reflected in UN institutions.
•  Scarce resources are most efficienctly distributed via market mechanisms. However, morald hazard of national actors (trying to get preferred access to resources via bilateral agreements, and perhaps secret arrangments) may induce a straight forward prisoner's dilemma.
•  It is speculated that unconventional resources in environmentally-conscious nations are used as a strategic reservoir only (I don't see this is agreement with current exploitation of oil tar sands in Alberta).
•  Oil-dependend agriculture (both in terms of production processes and associated transportation of intermediate goods and products) means increasing food prices, impacting poor city populations globally, and - jointly with increased demand on "bio"-fuels - increased pressure on land use.
•  In fact, a sustained global food prices could be the most harmful outcome of peak oil.
•  Increasing oil prices induces (beside increasing food prices) higher coal prices, and higher demand on further electrification. The latter requires other resources (such as copper, lithium, etc.), possibly inducing further "peaks".
•  Finally, there is a risk of reaching a "tipping point" via peak oil, i.e. higher food and transport prices induce the crash of industries (such as the car industry), flashing out a global recession with banking crisis and whatever you don't want to think about.

The report has more to say on LNG and other crucial issues. As a bottomline, however, the report repeatedly calls for proactive countermeasures, notably a reduction of oil consumption and more efforts into  renewable energy (infrastructures). A conclusion founded in a security-centered analysis, and surprisingly in broad scope in accordance with both climate change and sustainability concerns. 

With the Tour de France all done for another year, it is time to look back and reflect on the latest instalment of the world's most famous cycle race. First up, congratulations to Alberto Contador of the Astana team, who claimed his third Tour win on Sunday and thereby rounded off a magical summer for Spanish sport, following on from national success at the World Cup and Wimbledon.

Surprisingly, no Tour de France cyclist tested positive for doping during this year's competition. From a welfare perspective doping does not really matter – to the first degree – because the costs of doping are internalized: it is the cyclist who suffers from an increased risk of dying early. To the second degree it becomes more interesting: the Tour de France may also incentivize non-professional cyclists to dope. However, this negative externality is probably outweighed by the positive externality of people being encouraged to cycle.

There are also other direct environmental benefits. Consider this study from Werner Scholz, from the Landesumweltamt Baden-Württemberg. It reports the reduction in air pollution in Karlsruhe on 8 July 8 2005. On this day, the Tour de France passed through Karlsruhe and major streets in the inner city were closed. As a result PM levels were reduced significantly, by a quarter below their usual value (NOx was reduced by as much as 55–70%). In public health costs this corresponds to a low five-digit number of euros. Similarly, some tonnes of CO₂ were not emitted, noise costs and perhaps accidents were reduced, and people gained access to additional public space. A full cost-benefit analysis, of course, needs also to account for reduced mobility in the centre of Karlsruhe. As a cyclist, however, I would not mind the Tour de France passing through Berlin next year.

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Cathy Kunkel & Felix Creutzig

As the most dynamic world region, China is poised to become fully established as a global powerhouse. Challenges, however, are abundant, and macroeconomic policies need careful balancing to sustain "growth" while avoiding overheating, and keeping social and environmental frustrations from boiling over. The Chinese national government now considers introducing a real estate tax (Financial Times, June 11, 2010). Such a tax is motivated by a number of reasons:

• The Chinese real estate market is overheated, and property speculation may feed an unpleasant bubble.
• Being object to speculation, many flats remain empty (speculators simply wait for the right moment to sell again). A tax would provide incentive to utilize flats.
• Local government are heavily indebted by recent infrastructure investments. Currently they rely on new land development (appropriation and re-sale). A tax would provide a stable source of income.

The effects of a real estate tax are difficult to predict and also depend on other market forces and developments. For example, there is fear that if not well-handled, the property market could crash. Nonetheless, it is educational to also understand possible profound consequences of a real estate tax on other domains.

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Equality: 

A reduction of the rate of land appropriation directly benefits farmers who are not going to be expelled anymore. Furthermore, profit margins of speculators would be reduced. Money would be available locally to provide service also for migrant workers, up-to-now treated as "second-class citizens".

Environment and GHG emissions:

 The recent surge in GHG emissions was to significants parts driven by capital investments, such as land development and infrastructure building (Peters et al., 2010, and citations therein). A reduced rate in new constructions induced by a real estate tax would dampen GHG emission growth.

Recent development was, as indicated above, mostly motivated by the need of local governments to raise income, resulting in uncontrolled semi-dense sprawl - in many cases without public transit access. This lack of proper land-use is one of the main factors driving unsustainable urban transport (Creutzig et al., 2010). A real estate tax could, if well implemented, decelerate urban sprawl and provide funding for public transport and non-motorized transport infrastructure.

Finally, a quick reference to economic theory reveals the full scope of this instrument. The Henry-George Theorem claims that in a spatial economy public goods are optimally financed by land rents that decline with distance. One of the most impressive examples of its application is the Hong Kong MRT which finances public transport by highrise development on top of its station (and high quality pedestrian accessibility boosting ridership). As a rapidly developing and urbanizing world region, the application of the Henry-George Theorem seems to be ideally suited for China: Develop public transit and land simultaneously to reap the positive externalities of public transit provision.

Financial Times, June 11, 2010. Property tax offers to pave way to China's social reform, by Geoff Dyer

F. Creutzig, A. Thomas, D. M. Kammen, E. Deakin (2010) Transport Demand Management in Beijing, China: Progress and Challenges. In Low Carbon Transport in Asia: Capturing Climate and Development Co-benefits, edited by E. Zusman, A. Srinivasan, and S. Dhakal (Earthscan, London, 2010) ISBN 9781844079148

G. Peters, D. Guan, K. Hubacek, J. C. Minx, C. L. Weber (2010) Effect's of China's Economic Growth. Science 328:824-25

Delhi urban transport is surprisingly difficult to grasp. Delhi travellers can not only choose between cars, taxis, different sorts of busses, subway, bicycles or walking, but can also enter three-wheelers, such as auto rikshaws or bicycle rikshaws. The old city is so narrow and crowded with people that a single car suffocates street flow, putting riskshaws and hundreds of pedestrians on the hold. In contrast, South Delhi boasts wide avenues and immense space.

Delhi urban transport is also confronted with massive challenges. Rapid urbanization, and more crucially, rapid motorization cause constant congestion, asthma-provoking air pollution, honking-induced noise stress, regular accidents, and GHG emissions (not that this matters for local citizens). A number of recent articles addressed this issue. Sen et al. calculate the marginal external cost of urban transport in Delhi [1]. The marginal costs are dominated by congestion induced by private motorized transport, with air pollution coming in as a dominant second. Noise and accidents play a much smaller role. This is reminiscent of results from Beijing – where the urban transport induced air pollution produces about the same monetarized externalities as congestion does [2]. For citizens of Asian cities the massive consequences of air pollution may come as no surprise. Nonetheless, this observation is crucial for being different in European or US cities, and, hence, the particular focus of transportation planners on air pollution is needed in Asian cities.

Another paper by Woodstock et al. dealing with the health effects of alternative urban transport in London and Delhi uncovers an additional dimension [3]. The main finding is that a combination of reduced reliance on motorized traffic and increased active travel (pedestrain and cycling modes) produces huge health benefits. Crucially, in the two cities, but even more so for Delhi, the health benefits are dominated by active travel itself (reductions in ischaemic heart disease, cerebrovascular disease and diabetes). Air pollution reduction benefits are, however, also very significant. For Delhi, the burden of road traffic injuries would also be reduced in this scenario, compared with business-as-usual.

Han et al. calculate the benefits for a shift from indivudal motorized transport to mass rapid transit in Delhi [4], recommending an acceleration of the development of the rail-based system, increasing fuel taxes and lower priority for road extension. In contrast, coming from an external cost perspective, Sen et al. recommend market-based mechanisms, such as road pricing [1].

Delhi municipality is of course cogniscitant of the challenge. Already by 2002 the public transport fleet had alreadby converted from diesel to CNG [5], improving air quality. The metro system is rapidly expanding, with 190 km of track expected to be open for the CommonWealth Games in September [6]. The network is expected to span 413 km in 2021. Delhi also constructed the first bus rapid transit line in the city. Arguably, the municipality does its share in the domain of public transit investment – again similar to Beijing. However, and sharing this experience with Beijing, too, mass rapid transit, that mostly induces additional transport demand, is in times of rapidly increasing motorization not even enough to leave a dent in the increase of the massive generalized congestion costs. To make the city more liveable, cars need to be restrained, by physical or financial disincentives. A newspaper from May 11, 2010, suggests that Delhi municipality is heading into this direction: a congestion charge is under discussion [7]. Implementing this more aggressive measure, Delhi would seriously move towards sustainable transport and would leapfrom cities like New York and Beijing.

[1] Sen et al. (2010) Estimating marginal external costs of transport in Delhi. Transport Policy 17: 27–37

[2] Creutzig and He (2009) Climate change mitigation and co-benefits of feasible transport demand policies in Beijing. Transportation Research D 14: 120–131

[3] Woodstock et al. (2009) Public health benefi ts of strategies to reduce greenhouse-gas emissions: urban land transport. Lancet 374: 1930–43

[4] Han et al. (2010) Assessment of Policies toward an Environmentally Friendly Urban Transport System: Case Study of Delhi, India. Journal of Urban Planning and Development 136: 86–93

[5] Clean Air Initiative, CNG busses in Delhi, retrieved 13 May 2010

[6] Washington Post, New Delhi residents cheer arrival of new Metro system 11 May 2010

[7] ExpressIndia, Congestion charge for cars to clear air, govt weighs options 11 May 11 2010

As insights from climate sciences become more and more policy relevant, dominate international negotiations and begin to reshape industrial policies of advanced as well as developing economies, these insights become themselves a political issue. In recent months, some errors in the latest IPCC Assessment Report have been rightly uncovered, and there is appropriate pressure on climate scientists to work even more accurately. Yet these shortcomings have also been used to attack the credibility of (climate) sciences per se. To understand these public relations campaigns, a book published last autumn--i.e. before the campaign's start--is of some interest. Entitled Climate Cover-Up - The Crusade to Deny Global Warming written by James Hoggan and Richard Littlemore, the book accumulates valuable insights on the backdrop to what they call "crusade".

The main points can be summarized as follows:

• A number of fake grassroots organiziations (so-called astroturfs) produce and distribute documents and press releases featuring doubts on results from climate sciences.
• Grassroots organizations and higher level think-tanks (such as the Cato Institute of the Heartland Institute) are said to receive funding from the oil and coal industries.
• Initial focus is on provincial media that doesn't have resources to do research on their own.
• A number of so-called climate "experts" are employed who typically lack expertise in climate science but - as a relevant qualification - know the PR business and how to frame messages.
• A main strategy is to induce doubts rather than to produce valuable counter evidence. Rather than winning the argument it is sufficient to keep climate science from winning the argument.
• The media is then overwhelmed with information and - rather than trying to understand the scientific literature itself - prefers to present a two-sided story with "experts" from different sides. Joe Romm specifically critizes The Washington Post and The New York Times for this. These two media should have sufficient resources to do real science reporting.

Another piece of strategy is labeled "The O.J. Simpson Moment" by Bill McKibben [see footnote below]. Altogether, Climate Cover-Up accumulates valuable information and evidence of how the public perception of climate change is formed by public relation agencies. On the downside, Climate Cover-Up is a sometimes tedious read - more a small encyclopedia on climate misconception than a brilliant piece of journalism. However, one can appreciate the author's effort to gather this information as it provides the reader with the tools to understand the current wave of media outbursts. Of course, the dynamics have already changed again in the last months. It seems that rather than focusing on inducing doubts on climate facts, the post-Copenhagen game is now on to induce doubts on climate science institutions such as the IPCC. Finally, Climate Cover-Up focuses mostly on North America. However, it would be interesting to read about the European side, too.

Footnote "If anything, [O.J. Simpson's defense team] were actually helped by the mountain of evidence. If a haystack gets big enough, the odds only increase that there will be a few needles hidden inside. Whatever they managed to find, they made the most of: in closing arguments, for instance, Cochran compared Fuhrman to Adolf Hitler and called him "a genocidal racist, a perjurer, America's worst nightmare, and the personification of evil." His only real audience was the jury, many of whom had good reason to dislike the Los Angeles Police Department, but the team managed to instill considerable doubt in lots of Americans tuning in on TV as well. That's what happens when you spend week after week dwelling on the cracks in a case, no matter how small they may be. Similarly, the immense pile of evidence now proving the science of global warming beyond any reasonable doubt is in some ways a great boon for those who would like, for a variety of reasons, to deny that the biggest problem we've ever faced is actually a problem at all. If you have a three-page report, it won't be overwhelming and it's unlikely to have many mistakes. Three thousand pages (the length of the latest report of the Intergovernmental Panel on Climate Change)?  That pretty much guarantees you'll get something wrong."

As by volume the most relevant renewable fuel standard world wide, a closer look at the details of this regulation is worthwhile - to understand the issues behind decarbonization policies in transport.  The RFS2 details that

“EPA is making threshold determinations based on a methodology that includes an analysis of the full lifecycle of various fuels, including emissions from international land-use changes resulting from increased biofuel demand. EPA has used the best available models for this purpose, and has incorporated many modifications to its proposed approach based on comments from the public, a formal peer review, and developing science. EPA has also quantified the uncertainty associated with significant components of its analyses, including important factors affecting GHG emissions associated with international land use change.”

Specific lifecycle GHG emission thresholds for each of four types of renewable fuels were established, requiring a percentage improvement compared to lifecycle GHG emissions for gasoline or diesel. One of these fuels, ethanol produced from corn starch produced at a new natural gas facility using advanced efficient technologies will meet the 20% reduction threshold compared to the 2005 gasoline baseline (says EPA). Other fuels meet the 50% or 60% benchmark.

Iowa harvest 2009 (Bill Whittaker, licenced under GNU free documentation licence)

While the life cycle methodology of the EPA if fairly comprehensive, a few important caveats were noted in a review of the RFS2 by Richard Plevin:

• EPA performs its analysis in a projected 2022 world, assuming a variety of technology changes. This is similar to accounting for today’s emissions from coal power plants as if they had implemented anticipated CCS technology. In 2012 all and in 2017 most corn ethanol pathways analyzed by the EPA do not meet the 20% GHG reduction requirement, or even produce greater GHG emissions than the gasoline baseline.
•  In the EPA model corn ethanol achieves productivity gains without additional use of fertilizer. The peak of corn ethanol production is achieved in 2016 -  inducing most ILUC - while productivity assumptions refer to 2022 with additional 9.4% crop yield. Hence, ILUC are systematically underestimated.
•  EPA attributes large soil carbon sequestration to biodiesel, most likely for increased used of no-till. However, no-till may increase N2O emissions (Six et. al). There is uncertainty on this issue, but EPA treats net soil carbon sequestration as a fact.
•  Cellulosic ethanol obtains a low GHG rating by co-product credits generated by electricity from biochemical cellulosic refineries that displaces the average US grid electricity. Taking the average US grid as benchmark is a courageous assumption. More detailed analysis could significantly change the life cycle emissions.
•  An additional supply of biofuels reduces the world market price of petroleum, by this increasing its demand. In one study, the global petroleum effect is estimated to be around 27% implying that each MJ of biofuel replaces 0.73 MJ of petroleum (Stoft, 2009). Hence, biofuels that are less then 27% below gasoline baseline could have a net positive global warming effect. This effect is acknowledged but not modeled by EPA.

In summary, EPAs carbon accounting should be taken with some care. In particular, today’s corn ethanol may have higher than baseline gasoline GHG emissions (e.g., Hertel et al., 2010). By focussing on potential 2022 technologies, this emission disbenefit is insufficiently reflected. Some policy maker pressure the EPA with respect to corn ethanol, arguing that corn ethanol production decreases energy independence and produces jobs. However, from this perspective, pro-corn ethanol policies should be designed from the perspective of jobs and energy independence, rather than using the RSF2 as camouflage.

References

Hertel, T. W., A. Golub, et al. (2010). “Global Land Use and Greenhouse Gas Emissions Impacts of U.S. Maize Ethanol: Estimating Market-Mediated Responses.” BioScience 60(3): 223-231.

Plevin, R. J., M. O’Hare, et al. (forthcoming). The greenhouse gas emissions from market-mediated land use change are uncertain, but potentially much greater than previously estimated, UC Berkeley.

Six, J., S. M. Ogle, et al. (2004). “The potential to mitigate global warming with no-tillage management is only realized when practised in the long term.” Global Change Biology 10(2): 155-160.

Stoft, S. (2009). “The Global Rebound Effect Versus California’s Low-Carbon Fuel Standard”    

Carbon dioxide is not the only greenhouse gas. Coemitted air pollutants also significantly affect global climate. By various interactions, their absolute effect can be complicated to evaluate. In principle, however, most air pollutants have a relatively short time span in the atmosphere, and hence, can be classified as short lived species. Many air pollutants, including organic aerosols have a global cooling effect, whereas black carbon and ozone contribute to global warming.  The effect of the short lived species is not marginal. In fact, their combined radiative forcing may outweight that of carbon dioxide (Forster et al., 2007). In view of this observation, there is increased attention on the mitigation potential of some air pollutations, such as ozone and black carbon, short lived species with high radiative forcing. On the other hand, there are other aerosols, excluding black carbon, which exert a cooling effect that may have masked about 50% of the global warming by GHG. The fight against air pollution and for public health can, hence, have an unwanted impact by inducing accelerated global warming. Starting with this background, Unger et al. from NASA ask in PNAS in their article Attribution of climate forcing to economic sectors the following question: How is the total radiative forcing effect organized according to economic sector, the drivers of emissions?

The authors point out that emissions of black carbon (positive RF) and organic aerosols (negative RF) are often coupled. Hence, the ratio between both emittants is important to evaluate the total radiative forcing in a specific sector. An analysis of sectors according to this ratio reveals significant differences across sectors:

•  There are sector such as the power industry that have high emissions of species with both positive and negative radiative forcing.
•  Other sectors, such as road transport, are dominated by species with positive radiative forcing. More specifically, the ratio between black carbon and organic carbon aerosols is relatively high in road transport.

The accumulated climate impact over all sectors is visualized in the figure below (Source: Unger et al., 2010). In fact, in the short term (2020), road transport dominates the accumulated climate impact. In the long run (2100), the power sector dominates as greenhouse gases persists significantly longer in the atmosphere than short lived species.

Climate impact of economic sectors in 2020 and 2100.

From this technical analysis, effective  climate change mitigation can most easily be obtained in on-road transportation - with significant co-benefits as air pollutants from transport are more harmful than from other sectors. This is for example due to a higher intake fraction (fraction of pollutants that is inhaled, e.g. Marshall et al., 2005), but can have more general benefits for public health and overall mobility (Creutzig and He, 2009). However, from a climate perspective road transportation is underregulated. For example, in Europe road transport is not part of the emission trading scheme, and, by this, is positively discriminated against electrified rail transport. A clever mix of instruments that prices the harmful parts of mobility while increasing its beneficial aspects (e.g. accessibility, thence, could have a near and long term positive impact).

Thanks to Jan Minx for pointing out the PNAS article.

References

Forster P, et al. (2007) Changes in Atmospheric Constituents and in Radiative Forcing, in Climate Change 2007: The Physical Science Basis, Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, eds Solomon S, et al. (Cambridge Univ Press, New York)

Unger, N.,  Bond, T. C., Wang, J. S., Koch, D. M., Menon, S., Shindell, D.T., Bauer, S. (2010) Attribution of climate forcing to economic sectors PNAS 2010 : 0906548107v1-6

Marshall, J.D., Teoh, S.K., and Nazaroff, W.W. (2005) Intake fraction of nonreactive vehicle emissions in US urban areas. Atmospheric Environment 39 (7), 1363

Creutzig, F. and He, D. (2009) Climate change mitigation and co-benefits of feasible transport demand policies in Beijing  Transportation Research D 14: 120-131

"Global Sustainability - a Nobel Cause", is the title of a book that just has been published by Cambridge University Press. A number of nobel price winners and eminent scientists in sustainability research gathered to write up their thoughts on sustainability. This book certainly does not fulfill coherent scientific standards (peer-reviewed, novel insights) but is very promising in bringing some relatively simple but profound thoughts together. Also, as a clear pro: this book is freely available online, and individual chapters can be downloaded as pdf.

What can we, then, learn from this book? Let us start with Geoffrey West's observation that current scientific endeavors have, to a large degree, failed to come to grips with the essence of the long-term sustainability challenge: the pervasive interconnectedness and interdependency of energy, resources, environmental, ecological, economic, social, and political systems (West, 2010; see also Creutzig and Kammen 2009). My own specific example of this statement (Creutzig and Kammen, 2010) looks at the specific examples of biofuels, rephrasing the by now established view that a simple-minded view of biofuels as zero-carbon sources of energy misses the point, as a) the carbon content can be not only significant but even surpassing that of conventional fuels and b) a number of additional sustainability issues such as biodiversity loss, deforestation and food insecurity threaten to diminish any feasible positive impact on the climate change front.

So what is the possibility and challenge of using a coarse-grained systemic approach that builds on, but also goes beyond, piece-meal wise investigations? Wolfgang Lucht calls for the enterprise to construct new mental images of the whole - or taking a crude look at the whole as Murray Gell-Mann says - that must be founded in rational analysis and, equally important, cultural production (Lucht, 2010). In fact, according to Lucht, a controlled transition in the interlinked social-environmental world system is to be achieved, only by making transitional progress not just in the environmental domain, where the impacts have to be lessened, but also in the social domain, where the problems have their origin. This transitional progress building on rational-scientific insights (that transcend the techno-economic totalitarian aspects of enlightenment) then could enable a sustainable transition path as depicted in the figure below.

(taken from Lucht, 2010, partially based on Schellnhuber, 1999) 

The small problems left are (1) to fill these grand themes with contents and (2) to integrate the findings into the "societal self constructions that dominate human processes" (Lucht, 2010). Regard the first issue, my blogging colleague Carey King suggests to look at EROI - energy return on energy invested -, noting that EROI is lower for renewables than for fossil fuels with respect to human time scales, and that a future lower EROI implies a reduction in societal complexity (this conjecture requires more thoughts though). Geoffrey West points at the fundamental nature of time scales, explaining the supra-linear scaling of agglomerations, and hence supra-exponential growth that requires an ever accelerating rate of innovation (not sustainable). These spotlights indicate the pressing need for a consistent growth theory which includes natural capital degradation (and appropriate ressource flow exploitation), agglomeration dynamics and structural change, the clear definition of a perspiciuous welfare function of sustainability, and finally a proposal for a non-catastrophic deceleration of the human socio-economic system.

References

Bettencourt, L. M. A., Lobo, J., Helbing, D., Kühnert, C. and West, G. B. (2007) Growth, innovation, scaling, and the pace of life in cities. Proceedings of the National Academy of Sciences of the United States of America, 104(17), 7301- 6.

Creutzig, F.,  Kammen, D (2009) The Post-Copenhagen Roadmap Towards Sustainability: Differentiated Geographic Approaches, Integrated Over Goals INNOVATION, Vol 4 (4): 301-321

Creutzig, F.,  Kammen, D (2010) Getting the carbon out of transportation fuels. In H. J. Schellnhuber, M. Molina, N. Stern, V. Huber & S. Kadner (Eds.), Global Sustainability - A Nobel Cause. Cambridge: Cambridge University Press, UK.

Schellnhuber, H. J. (1999). Earth System Analysis and the Second Copernican Revolution. Nature 402, Suppl., C19 - 23.

West, G. (2010) Integrated sustainability and the underlying threat of urbanization. In H. J. Schellnhuber, M. Molina, N. Stern, V. Huber & S. Kadner (Eds.), Global Sustainability - A Nobel Cause. Cambridge: Cambridge University Press, UK.

Prices of solar energy and wind turbines are dropping world wide. This article in the New York Times highlights the role of China in this market. The bottom line is as follows: China by now is the world leading manufacturer of solar panels and wind turbines. By this is achieves economics of scale and can offer products at a relatively low world market price.

There are two immediate consequences:

1. Installation of renewable energies becomes cheaper worldwide 
2. Manufacturing competitors in other countries have a tough stand competing against Chinese manufacturers

Why could China get into this position in first place? The NYT article delivers the following explanation:

"China's biggest advantage may be its domestic demand for electricity, rising 15 percent a year [...] In the United States, power companies frequently face a choice between buying renewable energy equipment or continuing to operate fossil-fuel-fired power plants that have already been built and paid for. In China, power companies have to buy lots of new equipment anyway, and alternative energy, particularly wind and nuclear, is increasingly priced competitively."

In other words: in the US and Europe, renewable energies have to compete against existing energy supply, in China they don't have to: there is enough space for both rapid expansion of coal power plants, and renewable energy. Practically unlimited demand requires expansion of energy supply across the board. Another reason the low prices, of course, is the lower labor costs in China.

An interesting exercise is to consider the consequences of this observation the other way around. If saturated economies decided to phase out conventional power plants - coal and nuclear - rapidly, there could be room for economies of scale in renewable energy supply locally, too. However, such a decision can only be made politically as those who would massively invest into renewable energy supply are the current owners of existing coal plants.

Understanding the dynamics of this game (and the relevance of the argument above) is of high relevance for OECD countries. For example, in Germany the phase-out of nuclear plants is renegotiated, with stakeholder arguing that longer running time of nuclear plants serves as a 'bridge' towards a renewable energy future. From a different perspective the nuclear power plants pose a barrier towards economies of scale in renewable energy supply with the two consequences of (a) losing an edge advantage in international economic competition in renewable energy technologies and (b) getting the intertemporal optimization wrong. The intertemporal optimization point is that investing now into renewable helps to get the prices down quicker, and have lower abatement costs in the future (this argument is so central that is deserves another blog).

The debate pro/con nuclear power from the climate perspective is still open. The Chinese evidence of the economies of scale, however, provides some quantitative indication in favor of phasing out conventional plans rapidly.