Managing the Risk of Energy Uncertainty

AMID frustrated messages from my colleagues on the lack of meaningful progress in the latest round of UN climate talks, which closed last week in Bonn, there were two partly related headlines that caught my attention. The first was a widely reported and extensive Stanford University study. It concluded that in the coming decades, summers globally are likely to become permanently hotter if greenhouse gas emissions continue to rise. In the tropics, “unprecedented summer heat” could become permanent in the next 20 years. Gulf residents might argue that +45°C or +50°C doesn't make a big difference since people already rarely leave their air-conditioned spaces for long periods of time during this season. Globally, however, higher summer temperatures could translate to soaring food prices, important health risks, and ecosystem deterioration, as noted by one of the authors of the study. Even in the Gulf,  projections for rising food prices should sound the alarm bell; import dependence here is currently estimated at 60 per cent.

The other piece dealt with peak oil. According to The Guardian, the British Department of Energy and Climate Change (DECC) had already warned the government in 2009 about the possibility of “significant negative economic consequences” in the near term, caused by peak oil-related energy shortages. After initial reluctance to publish the report, the DECC has now been forced to post a summary on its website. The report, originally drafted in 2007, states that the Department of Energy and Climate believes a global peak in production is not likely to take place before 2020. Wikileaks documents from late 2010 point to Saudi reserves being a big bubble, exaggerated by up to 40 per cent. Oxford scientists argued earlier this year that global oil reserves are overstated by as much as a third thanks to Opec’s reserve data inflation. These make for worrying reading alongside the DECC report (although the Saudi source in the WikiLeaks item later argued that particular claim was based on misunderstood terminology).

A common characteristic with these future projections of climate change impacts and energy trends is uncertainty - levels of which differ but the sheer complexity of the issues makes it very difficult to accurately assess the levels of risk involved.

Instead of arguing how much hotter it will get or whether Hubbert was right, I think it would be much more productive, from a policy-making perspective, to focus on the nature of the potential threat. Which is more dangerous: a severe, short term, energy-induced economic crises? Or an unpredictable, long-term destabilisation of the Earth’s climate? (Of course these need not necessarily be contrasted -- ambitious climate change abatement can also reduce reliance on diminishing oil reserves).

In the case of energy, potential future crises have to do with pressures and threats that are manageable: the available supply of conventional fuels (oil most prominently), geopolitics, or the cost of associated technologies. Solving these might involve economically and politically costly choices, but solutions already exist. A recent Intergovernmental Panel on Climate Change (IPCC) report, for example, found that renewable technologies could supply 80 per cent of the world’s energy needs by 2050.

Climate change science bears an uncertainty of a different type: policy advice derived from it is largely grounded in the precautionary principle. It’s a bit like the principle of preemptive warfare that rose to prominence after 2001. International climate change mitigation is based on the same sort of thinking: we need to act despite (or maybe because of) uncertainty about so many things, ranging from scales of temperature and sea-level rise, or the nature, density and intensity of droughts, natural disasters, freak weather, and so on.

Peak oil has its challenger in peak demand advocates, most famously perhaps the former Saudi oil minister Sheikh Yamani. Climate change too has a competing narrative -- scepticism -- but this has been fast fading in the past years probably everywhere but in the United States. Presently, the main obstacle to preventing dangerous climate change is arguably the gap between rhetoric and political action. It's as simple as that. Uncertainty is an excuse used by politicians afraid of electoral defeat. Instead of fixating for two weeks on making inconsequential tweaks to the wording of policy documents, climate negotiators should have been shifting from the multilateral blame-game to much needed implementation of those policies.

As long as anything other than the precautionary principle guides policy-making, we'll be stuck with competing laissez-faire narratives, contestation, and inaction--just like with peak oil, albeit with potentially much more disastrous consequences.