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The United Nations estimates the cost for ending world hunger to be $30 billion a year. That sounds like a lot, but in comparison, the world spent more than ten times that amount in 2012 on global warming mitigation, according to a recent Climate Policy Initiative study.
But the U.N. says the world needs to be spending even more on global warming mitigation – much more.
According to the U.N.’s draft summary for policymakers – last obtained by Reuters, and due to be released this April – the U.N. is calling on the world to invest an extra $147 billion a year in wind, solar, and nuclear power from 2010 to 2029. If we add that figure to CPI’s measure, the U.N wants the world to spend approximately $506 billion a year to mitigate global warming, or the same amount it would take to end world hunger for more than 20 years.
But the greater question is what sort of returns we can expect from these investments. Unfortunately, if any government could be relied upon to generate returns, it would have been at the forefront of investing in horizontal drilling and hydraulic fracturing technologies in the 1980s – and those investments would have proven to generate far and away the best returns both financially and in terms of carbon dioxide mitigation. According to a new report from the National Oceanic and Atmospheric Administration (NOAA), “CO2 emissions from U.S. fossil-fuel power plants were 23% lower in 2012 than they would have been” without the increased use of natural gas produced from hydraulic fracturing.
This is not just to harp on government. Most if not all of the five major integrated oil and gas companies (aka “Big Oil”) did not predict the boom in shale gas development as a result of a technological breakthrough with hydraulic fracturing. The pioneers of which was actually the industry’s small to mid-size companies.
Such facts truly underscore the unpredictability of our energy future. If the biggest and most successful oil and gas companies failed to predict the future of their own industry over a few decades, how could we possibly rely on the world’s governments to know where the next technological breakthrough will be in industries they presumably know nothing about, 50-100 years from now?
Ironically, not only does the U.N. call on the world’s governments to increase spending on renewable energy technologies and other global warming mitigation initiatives, they also want fossil fuel energy investments to be reduced by $30 billion annually. Despite the fact the latest energy breakthrough was a fossil fuel technology that’s doing more to lower carbon dioxide emissions than any other source.
Ideally, government investment in all energy sources would be reduced to zero. The consequence of which, also ironically, would expedite the next technological breakthrough. As Vaclav Smil wrote for Scientific American: “Governments cannot foresee which promising research and development activities will make it first to the free market, and hence they should not keep picking apparent winners only to abandon them soon for the next fashionable option.” Smil also says governments do this because they base their policy on wishful thinking rather than realistic expectations.
This could in part be attributable to how vague the “invest in low-carbon technologies” strategy really is. Imagine if you asked your financial adviser what to do with your retirement portfolio and all he or she told was to “invest in stocks.” You would probably then need to know: Which stocks should I invest in? How should I invest in them? And how much should I invest in them?
Going back to low-carbon technologies, we know the U.N.’s answer to the third question: A lot. But we don’t know the answer to the first two, which makes the overall “invest in low-carbon technologies” mantra pretty stale, if not dubious. Like with any other kind of investing, there is a right way and wrong way to do it.
A wrong way would be the U.S. Department of Energy’s Section 1705 Loan Guarantee program. A December 2013 Reason Foundation study found 22 of the 26 companies that received such loan guarantees were rated as “junk” grade investments or lower, and the other four were rated as low class. The researchers also found 83% of such “investments” went directly to solar, ignoring the commonly-accepted investment strategy of diversification by betting all of the available taxpayer funds on a single technology, which just so happens to have the least market share. When the researchers dug deeper to see how this came to be, they found the taxpayer funds were allocated in proportion to the receipt’s lobbying expenditure, indicting the loan’s allocation had more to do with political connections than the companies’ merit or sustainability.
If predicting our energy future has proven difficult for those who had the most incentive and the most expertise at their disposal, than government predictions of the future is hopeless. Ideally the government should divest from all forms of energy, but if there is significant political interest in energy, governments are better off investing in more established and therefore less risky forms of energy, rather than jumping from one fad to the next.
Taylor Smith (email@example.com) is a policy analyst at The Heartland Institute.