OIL, GAS, AND COAL WILL EVENTUALLY RUN OUT

I am speaking this coming week at the Dubai Global Energy Forum. The focus of the Forum is on long term sustainable energy supply for the world. It is an important question.

We will, some time or other, possibly when most of those alive today have departed, run out of oil, gas, and coal.

While it is the case that known reserves of fossil fuel are increasing, not reducing, thanks to new technologies (like shale gas and horizontal drilling), the reality remains that fossil fuels are inherently finite. 

They will run out.

We just do not know whether it will be in two, or four or more, generation’s time. But run out they will...eventually.

Gulf States, like Dubai, Saudi Arabia, and Kuwait have substantial renewable energy potential, especially for use of solar panels, whenever solar energy becomes competitive on price with coal, oil and gas. This will happen, but there is a lot more research and development to be done.

RENEWABLE ENERGIES DO NOT YET COMPETE ON PRICE, BUT SUBSIDIES ARE JUSTIFIED

  

I saw one estimate of the present price of electricity from different sources. It was suggested that

• Natural gas and coal could produce electricity at around £50 per megawatt hour
• Onshore wind could produce it at £100 per megawatt hour  
• Offshore wind could produce it at £160 per megawatt hour and
• Roof top solar could produce it at £240 per megawatt hour.

This is why, for the time being, renewable energy needs some form of subsidy.

This subsidy is economically justified for two reasons

1. Oil, gas , and coal will eventually run out
2. The normal supply price of coal and gas does not include any sum to cover the long term financial damage caused by the climate change generated by coal and gas burning.

CO2 EMISSIONS ARE SPEEDING UP, NOT SLOWING DOWN

Climate change caused by the burning of fossil fuels is a huge problem. Substitution of natural gas for coal will slow down, because it generates less CO2, but it  will not reverse the progressive increase the amount of CO2 in the atmosphere.  This has  grown from 

•  355 ppm in 1990,
•  to 370ppm in 2000,
•  to 390ppm today. 

Despite all the Summit conferences, the rate at which CO2 is being emitted is now speeding up, not slowing down.

And we can see the results in the melting of the Arctic ice cap and the weird and unpredictable effects it is having on our weather. 

RENEWABLE ENERGY PRODUCTION WILL INCREASE TOO SLOWLY TO STOP CLIMATE CHANGE

Renewable fuels will not, for the foreseeable future, provide an answer to this problem.  This is because global demand for energy is growing so fast, far faster than renewable energy development.

Even assuming a carbon price of $80 per tonne (assumed to be eventually put in place by Governments to disincentivize fossil fuel use), one estimate I have seen suggested that

•  wind power use in electricity will increase sevenfold by 2040, from just 2% of global energy production today to just 7% by 2040, because demand will have increased so much.
• solar power use will increase twenty fold, but will still only provide 2% of global electricity by 2040, again because it will not increase fast enough to keep up with electricity demand.

And, politically, we are today far away from putting a global $80 per tonne price on carbon . The United States, with its newly discovered resources of oil and gas would resist this bitterly.

In most countries, including the United States, no charge at all is levied for pumping CO2 into the atmosphere. In some countries (including some Arab countries) the production and use of fossil fuels is actually subsidised. Taking such subsidies away would be very unpopular.

In the EU, where there is a charge for a permit under the Emission Trading Scheme, it is only at $8 per tonne at the moment, because governments insisted, when the Scheme was being introduced, on issuing so many free permits to their heavy industries. It is far below the price needed to encourage large scale substitution of renewable energy for fossil fuels.

ELECTRICITY WILL BE THE BIG CULPRIT

The biggest increase in CO2 emissions in future will come from electricity generation. Global electricity demand will grow by 85% by 2040. Heavy industry will be a big user, but so also will the Information Technology sector. Digital Warehouses already use the equivalent of the electricity that would be generated by 30 nuclear power stations.

And the decision by countries, like Germany, to abandon nuclear power will increase their use of coal to generate electricity.

The most rapid increase of all in coal fired electricity generation is taking place in China, although China is also leading the world in renewable energy development. Coal fired plants emit  32 times as much CO2 as gas fired plants, according to one estimate I have seen.

LONG TERM PROJECT FINANCE IS NEEDED

The tightening up of credit following the financial crisis has also made it more difficult to deal with the impending climate crisis. The funds are not available to finance the big structural changes that are necessary.  Renewable energy, and improving energy efficiency by using lighter materials, and recycling them, will require large capital investment. The new Basel 3 rules for banks, and the EU’s new Solvency 2 rules for insurers, will make it impossible, or at least very difficult, for these two sectors to be funders or investors in long term infrastructure projects.

Pension funds could be a source of long term funding for renewable infrastructure, but they have little expertise in the field.  This is a market that Ireland, with its established expertise in the international asset management and funds industries, is seeking to serve through the Green IFSC. Finding a way to provide long term finance for renewable, and energy efficiency enhancing, investments should be a top priority of the EU.

AND A LONGER TERM SOLUTION....PUTTING A REALISTIC PRICE ON CLIMATE DAMAGE

The response to the financial crisis has reminded us that knowing we have a problem, and doing something about it, are two very different things. 

The problem, of a huge build up of credit in some euro area countries and consequent huge payments imbalances, was known to EU policy makers as early as 2003, but nothing was done about it until recently. A financial and banking crisis was first needed, to create enough anxiety among the public, to give policy makers space to take action. It took the collapse of Lehman Brothers, and a stop in Europe’s banking system, to generate a willingness to do something about the underlying  economic and fiscal imbalances in the developed world.

Notwithstanding our level of unemployment in the developed world, the EU still taxes labour more heavily than carbon emissions. A global shift away from labour to resource taxation on the scale necessary would be politically very difficult because it would redistribute prosperity quite substantially  in favour of those of working age to the detriment of others. It would require a real climate change generated crisis to make this politically feasible. Perhaps major flooding in low lying highly populated areas of the coasts of the United States of Europe may be needed.

What might happen then?

It  would become politically possible to consider radical solution,  such as a carbon tax, with an accompanying levy or tariff on the carbon content of imports. A carbon tax in the EU, without some levy on imports would simply penalise EU industry.

Such a proposal would get no support at the moment. But its time may come.

HAS THE HEALTH OF THE IRISH WORKING AGE POPULATION REALLY DETERIORATED BY ALMOST 100% SINCE 1986?

As a proportion of the Irish population of working age, those who have been claiming  benefit because they have been certified as permanently  too sick to work, has doubled since 1986.

The proportion of the workforce in this position remained steady from 1986 to 1996, but shot up from 1996 to 2002, and has continued to rise steadily since then.

From 2006 to 2012, 53,000 extra people left the work and claimed disability due to a physical disability, and 27,000 extra people did so because of a diagnosed emotional or   psychological disability.

These figures were highlighted in a recent article in the “Irish Independent” by the economist David McWilliams, who claimed that this had happened despite the fact that, in general, the population had become younger and healthier since 1986.

It is worrying that, despite the big increase in health spending since 1986, the health service has been failing to keep the working population well enough to continue working.  

Why is this? I do not know the answer, but the Departments of Health and Social Protection should find out.

ILLNESS CLAIMS BY THOSE OF WORKING AGE COSTS TAXPAYER  2.6 BILLION EUROS

The total cost of payments of those too sick to work comes to 2.6 billion euros per year, consisting of 

+1109 million euros for  Disability Allowance(means tested),  which has 102,000 recipients, 

+  854 million euros for Illness Benefit( not means tested but based on social insurance) which has 73,000 recipients and 

+ 606 milllion euros for Invalidity  Pension ( payable those  of working age with a sufficient social insurance record who are deemed permanently unable to work), which has 50,000 recipients.

The basic rate of Disability Allowance in Ireland is 188 euros per week, as compared to an equivalent of 150 euros per week in the UK.

Illness benefit is also 188 euros per week, compared to  119 euros per week in the UK.

Some might say that the increase in illness claims of various kinds might be explained by the general reduction in the availability of work in Ireland since 2008, but the big increase in claims of permanent disability highlighted in David McWilliams article actually seems to have been  between  1996 and  2002, when there was no jobs shortage.

Serious questions have to be asked of the medical profession and the health service, both in terms of their effectiveness in keeping people well, and in terms of the care they take in certifying people as unwell.

IMPLICATIONS OF THESE FINDINGS FOR USE MEDICAL CERTIFICATION AS A BASIS FOR ABORTION

Each person who claims disability has to get a certificate from their doctor, who is obliged, by his or her professional ethics, only to write the certificate if the medical condition is genuinely one that would prevent someone from working.

Some are now suggesting that medical certificates about a woman’s mental state should be sufficient to allow the deliberate ending of the life of her unborn child.

The fact that there has been such a big, and unexplained, increase in certification by doctors, since 1996, that  their patients have a  permanent inability to work due to illness,  highlighted in David McWilliams article, should be examined very carefully indeed , before the use of medical certification as a basis for abortion is even contemplated.

THE NATIONAL COALITION OF 1973 TO 1977

I attended a small dinner in Leinster House recently of Fine Gael members of the Dail during the term of office of the National Coalition Government of Fine Gael and Labour ,  which was headed by Liam Cosgrave, as Taoiseach, and  which held office from  March  1973 to July 1977.

The dinner was hosted by Charles Flanagan, chairman of the Fine Gael  parliamentary party, whose father, Oliver J Flanagan, was from 1976 Minister for Defence in the National Coalition.

One of the   attendees was the current Taoiseach, Enda Kenny, who was elected to that Dail in a by election in 1975.

Notable attendees included Richie Ryan (Minister for Finance), Peter Barry(Transport and Power and later Education), Pat Cooney( Justice), Dick Burke(Education), and Tom O Donnell(Gaeltacht) .

The Government came to office after a General Election at the end of a period of 16  years of  single party  Government by Fianna Fail.

Fine Gael and Labour had a 14 point pre election pact, which enabled them to win the election, despite the fact that their combined  first preference vote was less than it had been in the  1969 election. In 1969, the Labour party had campaigned on the basis that it would not enter coalition and, as a result, the transfer of second preference votes between Fine Gael and Labour was much less, and thus  the seats won by both parties less than in 1973.

The term of office of the Government was dominated by two phenomena, the oil crisis of  1973 and its consequences for the economy, and the murder campaign of the IRA on both sides of the border.

The oil crisis meant high inflation, and restricted government revenues. The Government introduced food subsidies, and removed VAT from food .It also introduced new capital taxes, which proved controversial. Farm incomes rose substantially as a result of EU membership, and this led to urban/rural tensions of a kind not seen before or since. Social Welfare benefits were extended and new benefits introduced, such as for unmarried mothers. Education was reformed, with the removal of compulsory Irish from the Leaving certificate

The long, and pointless, campaign of violence by the IRA was at its most intense during the period of this Government.

Liam Cosgrave, Pat Cooney, and Conor Cruise O Brien and all the other Ministers of the National Coalition resolutely opposed the IRA by every legal and persuasive means at their disposal.

Liam Cosgrave negotiated the Sunningdale  Agreement in  1973, which in substance was as advanced  as the Good Friday Agreement of 1998. Unfortunately, many people had to die ,in the  quarter century it took the IRA to realise that  this was the maximum obtainable, given the demographic and political realities of Northern Ireland.

I served as Parliamentary Secretary to the Minister for Education (1973 to 1977), and to the Minister for Industry and Commerce (1975 to 1977), in the National Coalition.

One of the strengths of the Government  was the good personal relationship between Liam Cosgrave and the Tanaiste and Leader of the Labour party, Brendan Corish. They had served together in the Dail for long time previously and had shared interests, including horse racing.