The Economist sheds crocodile tears for the poor

John Kane-Berman says jacking up energy costs post-Covid-19 not the best way to aid economic recovery

by John Kane-Berman

About ten days ago The Economist reported that a combination of Covid-19 and lockdowns could drive up to 420 million people into absolute poverty. Lockdowns, it declared, were “blunt instruments” that could cause “immense harm”. Among the poor were more than 800 million people who lacked electricity – “hence all that burning of traditional biomass”, including wood, peat, and dung.

These concerns did not stop the paper from proclaiming that “the world’s energy system must be transformed completely” over the next 30 to 50 years so that at least 90% of the energy currently derived from fossil fuels will come from renewables, nuclear, and fossil-fuel plants that bury their waste.

The world would then have a “good chance of keeping global warming, measured against the temperature pre-coal, well below 2 degrees Celsius”. Keeping it down is necessary because “the harm from climate change will be slower that the pandemic but more massive and longer-lasting”. Very handily, The Economist is planning a conference in October on “the threat from climate change”.

“Decarbonisation” – “as urgent as ever” – will have to be driven by governments. The purpose is to “change behaviour” by “making it expensive to use fossil fuels”. Carbon prices and carbon taxes will have to go up and be kept up. This will induce carbon companies to “invest in alternatives that are not yet competitive”.

Some of the revenues from carbon-pricing schemes could be used to “create a political lobby in favour of keeping them and expanding them”. Countries that are not members of carbon-pricing schemes must have tariffs imposed on their exports. To discourage governments from withdrawing from the Paris agreement to combat climate change, it will be “vital” to ensure that carbon emissions “carry a high price everywhere”.

Carbon pricing, The Economist worries, is by itself unlikely to create a “network of charging points” for the electric vehicles that are “still rare” but “at last poised for the mass market”. Nor will such pricing create the nuclear power plants that will be needed to “underpin the cheap but intermittent electricity supplied by renewables”. So subsidies and direct government investment will have to be part of the “big bang” in which governments “greatly expand their efforts” and “raise their game” to combat climate change.

Having labelled lockdowns as “blunt instruments”, The Economist urges the use of another blunt instrument – “decarbonisation” – to transform the world’s entire energy system. Coming from a paper that has long proclaimed the virtues of free markets, the demand that governments should manipulate them on a global scale in the belief that they will thus have a “good chance” of keeping global temperatures down to 2 degrees above “pre-coal” levels is bizarre. Also bizarre is the idea of raising taxes and prices to finance “political lobbies” to maintain and extend taxes and prices.

Even more bizarre is the notion that nuclear power plants should be built as backups for “intermittent electricity supplied by renewables”. The Economist describes as “stumbling blocks” the facts that “neither the sun nor the wind produces energy consistently”. A “stumbling block” that needs nuclear power to overcome it is quite some stumbling block!

The paper produces graphs to show that the costs of wind and solar have “tumbled’. But this information is misleading without information on the costs of the backup for when the wind and the sun decide not to be “consistent”.          

The paper says that the current pandemic “creates a unique chance to enact government policies that steer the economy away from carbon at a lower financial, social, and political cost than might otherwise have been the case”. It does not, however, even try to spell out these costs. The paper says that the “foundations of prosperity are precarious”, but it fails to explore the damage to economic recovery and growth likely to arise from higher and far more extensive energy prices and other components of government intervention in pursuit of the mirage of combating “climate change” and/or global warming”.

Even the Intergovernmental Panel on Climate Change (IPCC) has acknowledged that the energy transformations it desires could mean higher food prices - which of course always hit the poor harder than they do anyone else. The poor also have to spend a larger portion of their income on transport.

Higher energy costs brought about by carbon taxes will force up many other prices as well. And, of course, higher energy costs will also push up business costs. Just the thing millions of business around the world need as those that have survived struggle to get back on their feet in the wake of Covid-19 and the “blunt instrument” of lockdowns.

Higher energy prices would also delay the transition of poor households – including the 800 million cited by The Economist - from biomass to cooking and heating using electricity. They will have to endure many more years of both hardship and hazardous indoor pollution – all at the behest of people who live in comfort and have never themselves had to endure such conditions.

* John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom. Readers are invited to take a stand with the IRR by clicking here or sending an SMS with your name to 32823. Each SMS costs R1. Ts and Cs apply.