Cooking The Books: Saved by the slump? (2009)

The Cooking The Books column from the April 2009 issue of the Socialist Standard

When the last report of the Intergovernmental Panel on Climate Change (IPCC) was published two years ago, we pointed out that its assumption of a “very rapid economic growth” between now and 2010, on which the more realistic of their assumptions was based, was unrealistic:

“Ironically, the only thing that may save the world from the problems that a 2.8 percent rise [in average global temperature] would cause is that the economic growth and technological innovation will not be as rapid as the IPCC report assumes.( . . . ) The assumption that there will be no world economic slump or prolonged period of stagnation between now and 2100 is quite unrealistic. Given capitalism, something like this is bound to happen during this period, so that the use of fossil fuels won’t be as rapid as this IPCC’s scenario assumes.” (Socialist Standard, March 2007)

We must confess that we didn’t expect to be proved right so soon.

There is, however, another side to this. While the current interruption of growth is reducing energy consumption it has also made coal relatively cheaper compared to its non-CO2-emitting alternatives, nuclear and the renewables (wind, tide, solar, etc). Not so long ago, burning coal was less profitable than burning natural gas (which gives off less CO2) – the non-renewables don’t get a look in here – but now the situation has changed:

“The margin earned from burning coal, according to Société Générale, is about €15 per megawatt hour, compared with €7 from natural gas. ( . . .) At Deutsche Bank, Mark Lewis, the head of carbon research, fears that the price may have fallen to a level at which some utilities may be tempted to invest in conventional coal-fired power stations” (London Times, 18 February).

The slump is also wreaking havoc with the EU’s “carbon trading” scheme, which was touted as the market way to reduce CO2 emissions. Under it power stations are given an allowance of how much CO2 they can emit without being penalised. If they succeed in reducing their emissions to below this level they can sell the unused part of their allowance to other firms that want to exceed theirs. These allowances are in effect licences to pollute and a market in them was supposed to develop, and did tentatively.

What is happening now is that, with the reduction of production and so of energy consumption, power stations can easily reduce their emissions below their allowance and so have been trying to sell them. As most of them are in the same position, supply is exceeding demand and the price of these licences to pollute has collapsed. According to the Times, “in July a tonne of carbon sold for €35, but today it fetches less than €9”. Which means, of course, that it’s now cheaper to pollute.

That’s the way the market works. As the current depression is confirming, the market is far from being, as taught in textbooks and proclaimed by businessmen and politicians, the most efficient way of allocating resources. The magic of the market is a myth. The madness of the market is nearer the truth.