The richest 10% produce half of greenhouse gas emissions. They should pay to fix the climate

This is not simply a rich versus poor countries divide: there are huge emitters in poor countries, and low emitters in rich countries writes Lucas Chancel in The Guardian

‘At current global emissions rates, the carbon budget that we have left if we are to stay under 1.5°C will be depleted in six years.’ Photograph: Friedemann Vogel/EPA 


Let’s face it: our chances of staying under a 2C increase in global temperature are not looking good. If we continue business as usual, the world is on track to heat up by 3C at least by the end of this century. At current global emissions rates, the carbon budget that we have left if we are to stay under 1.5C will be depleted in six years. The paradox is that, globally, popular support for climate action has never been so strong. According to a recent United Nations poll, the vast majority of people around the world sees climate change as a global emergency. So, what have we got wrong so far?

There is a fundamental problem in contemporary discussion of climate policy: it rarely acknowledges inequality. Poorer households, which are low CO2 emitters, rightly anticipate that climate policies will limit their purchasing power. In return, policymakers fear a political backlash should they demand faster climate action. The problem with this vicious circle is that it has lost us a lot of time. The good news is that we can end it.

Let’s first look at the facts: 10% of the world’s population are responsible for about half of all greenhouse gas emissions, while the bottom half of the world contributes just 12% of all emissions. This is not simply a rich versus poor countries divide: there are huge emitters in poor countries, and low emitters in rich countries.

Consider the US, for instance. Every year, the poorest 50% of the US population emit about 10 tonnes of CO2 per person, while the richest 10% emit 75 tonnes per person. That is a gap of more than seven to one. Similarly, in Europe, the poorest half emits about five tonnes per person, while the richest 10% emit about 30 tonnes – a gap of six to one. (You can now view this data on the World Inequality Database.)

Where do these large inequalities come from? The rich emit more carbon through the goods and services they buy, as well as from the investments they make. Low-income groups emit carbon when they use their cars or heat their homes, but their indirect emissions – that is, the emissions from the stuff they buy and the investments they make – are significantly lower than those of the rich. The poorest half of the population barely owns any wealth, meaning that it has little or no responsibility for emissions associated with investment decisions.

Why do these inequalities matter? After all, shouldn’t we all reduce our emissions? Yes, we should, but obviously some groups will have to make a greater effort than others. Intuitively, we might think here of the big emitters, the rich, right? True, and also poorer people have less capacity to decarbonize their consumption. It follows that the rich should contribute the most to curbing emissions, and the poor be given the capacity to cope with the transition to 1.5C or 2C. Unfortunately, this is not what is happening – if anything, what is happening is closer to the opposite.

It was evident in France in 2018, when the government raised carbon taxes in a way that hit rural, low-income households particularly hard, without much affecting the consumption habits and investment portfolios of the well-off. Many families had no way to reduce their energy consumption. They had no option but to drive their cars to go to work and to pay the higher carbon tax. At the same time, the aviation fuel used by the rich to fly from Paris to the French Riviera was exempted from the tax change. Reactions to this unequal treatment eventually led to the reform being abandoned. These politics of climate action, which demand no significant effort from the rich yet hurt the poor, are not specific to any one country. Fears of job losses in certain industries are regularly used by business groups as an argument to slow climate policies.

Countries have announced plans to cut their emissions significantly by 2030 and most have established plans to reach net-zero somewhere around 2050. Let’s focus on the first milestone, the 2030 emission reduction target: according to my recent study, as expressed in per capita terms, the poorest half of the population in the US and most European countries have already reached or almost reached the target. This is not the case at all for the middle classes and the wealthy, who are well above – that is to say, behind – the target.

One way to reduce carbon inequalities is to establish individual carbon rights, similar to the schemes that some countries use to manage scarce environmental resources such as water. Such an approach would inevitably raise technical and information issues, but it is a strategy that deserves attention. There are many ways to reduce the overall emissions of a country, but the bottom line is that anything but a strictly egalitarian strategy inevitably means demanding greater climate mitigation effort from those who are already at the target level, and less from those who are well above it; this is basic arithmetic.

Arguably, any deviation from an egalitarian strategy would justify serious redistribution from the wealthy to the worse off to compensate the latter. Many countries will continue to impose carbon and energy taxes on consumption in the years to come. In these contexts, it is important that we learn from previous experiences. The French example shows what not to do. In contrast, British Columbia’s implementation of a carbon tax in 2008 was a success – even though the Canadian province relies heavily on oil and gas – because a large share of the resulting tax revenues goes to compensate low- and middle-income consumers via direct cash payments. In Indonesia, the ending of fossil fuel subsidies a few years ago meant extra resources for government but also higher energy prices for low-income families. Initially highly contested, the reform was accepted when the government decided to use the revenue to fund a universal health insurance and support to the poorest.

To accelerate the energy transition, we must also think outside the box. Consider, for example, a progressive tax on wealth, with a pollution top-up. This would accelerate the shift out of fossil fuels by making access to capital more expensive for the fossil fuel industries. It would also generate potentially large revenues for governments that they could invest in green industries and innovation. Such taxes would be politically easier to pass than a standard carbon tax, since they target a fraction of the population, not the majority. At the world level, a modest wealth tax on multimillionaires with a pollution top-up could generate 1.7% of global income. This could fund the bulk of extra investments required every year to meet climate mitigation efforts.

Whatever the path chosen by societies to accelerate the transition – and there are many potential paths – it’s time for us to acknowledge there can be no deep decarbonization without profound redistribution of income and wealth.

Are low oil prices here to stay?

 By Richard Anderson 

Business reporter, BBC News

Predicting the oil price is a bit of a mug's game.

There are simply too many variables involved to make any kind of meaningful, definitive forecast.

What we do know is that, despite a recent upturn, the price of oil has slumped almost 50% since last summer following the longest-running decline for 20 years.

And we know why - US shale oil, and to a lesser extent Libyan oil returning to the market, has pushed up supply while a slowdown in the Chinese and EU economies has reduced demand.

Add to the mix a strong US dollar making oil more expensive in real terms, pushing demand even lower, and you have a recipe for a plummeting oil price.

What happens next is a little harder to see.

With the booming US shale industry showing little signs of slowing, and growing concerns about the strength of the global economy, there are good reasons to suspect that the current slump in the oil price will continue for some time.

This is precisely when Opec, the cartel of major global oil producers, would normally step in to stabilise prices by cutting production. It has done so many times in the past, so often in fact that the market expects Opec to intervene.

This time it hasn't. In a historic move at the end of last year, Opec said not only that it would not cut production from its 30 million barrels a day (mb/d) quota, but had no intention of doing so even if oil fell to $20 a barrel.

And this was no empty threat. Despite furious opposition from Venezuela, Iran and Algeria, Opec kingpin Saudi Arabia simply refused to bail out its more vulnerable cohorts - many Opec members need an oil price of $100 or more to balance their budgets, but with an estimated $900bn in reserves, Saudi can afford to play the waiting game.

Opec now supplies a little over 30% of the world's oil, down from almost 50% in the 1970s, partly due to US shale producers flooding the market with almost 4 mb/d from a standing start 10 years ago.

"Given this scenario, who should be expected to cut production to put a floor under prices?" Opec argued last month.

Equally, Saudi is not prepared to sacrifice more market share while its competitors, not least US shale oil producers, prosper. Safe in the knowledge that it can withstand very low oil prices for the best part of a decade, it would rather stand back and, as Philip Whittaker at Boston Consulting Group says, "let economics do the work".

The implications of Opec's decision, therefore, go way beyond sending the oil price crashing even further.

"We have entered a new chapter in the history of the oil market, which is now starting to operate like any non-cartel commodity market," says Stuart Elliott at energy specialist Platts.

The fallout has been immediate in many parts of the industry, and promises to wreak further havoc in the coming months and, quite possibly, years.

'Serious risks'

Without Opec artificially supporting the oil price, and with potentially weaker demand due to sluggish global economic growth, the oil price is likely to remain below $100 for years to come.

The futures market suggests the price will recover slowly to hit about $70 by 2019, while most experts forecast a range of $40-$80 for the next few years. Anything more precise is futile.

At these kinds of prices, a great many oil wells become uneconomic. First at risk are those developing hard to access reserves, such as deepwater wells. Arctic oil, for example, does not work at less than $100 a barrel, says Brendan Cronin at Poyry Managing Consultants, so any plans for polar drilling are likely to be shelved for the foreseeable future.

World's top oil producers, 2014 (million barrels a day)

• US: 11.75
• Russia: 10.93
• Saudi Arabia: 9.53
• China: 4.20
• Canada: 4.16
• Iraq: 3.33
• Iran: 2.81
• Mexico: 2.78
• UAE: 2.75
• Kuwait: 2.61

Source: IEA

North Sea oil production is also at serious risk, certainly in terms of new wells that need an oil price of about $70-$80 to justify drilling. Indeed in a recent interview with Platts, the head of Oil & Gas UK said at $50, North Sea oil production could fall by 20%, dealing a hammer blow not just to the companies involved but to the Scottish economy as a whole.

Exploration into unproven reserves in regions such as Southern and West Africa will also grind to a halt.

Questions are also being asked about fracking. Costs vary a great deal, but research by Scotiabank suggests the average breakeven price for US shale producers is about $60. At the same price, energy research group Wood Mackenzie estimates that investment in new wells would halve, wiping out production growth.

"The vast majority [of US shale wells] just don't work at $40-$50," says Mr Cronin.

Oil majors are already suffering, having announced tens of billions of dollars of cuts in exploration spending. But while the share prices of BP, Total and Chevron are all down about 15% since last summer, the majors have the resources to see out a sustained period of low oil prices.

There are hundreds of other much smaller oil groups across the world with a far more uncertain future, not least in the US. Shale companies there have borrowed $160bn in the past five years, all predicated on selling oil at a higher price than we have today. Banks' patience can only be tested so far.

Oilfield services companies are also "feeling severe pain", according to Mr Whittaker, with share prices in the sector down an average 30%-50%. Last month, US giant Schlumberger announced 9,000 job cuts, some 8% of its entire workforce.

But it's not just oil companies that are being hit by lower oil prices - the renewables sector is suffering as well.

In the Middle East and parts of Central and South America, oil is in direct competition with renewables to generate electricity, so solar power in particular will suffer at the hands of cheap oil.

Fuel price calculator 

Elsewhere, falling oil prices are helping drive down the price of gas, the direct rival of renewables. Subsidies, therefore, may have to rise to compensate.

Indeed lower oil and gas prices undermine a fundamental economic argument propounded by many governments to support renewables - that fossil fuels will continue to rise in price.

The impact is already being felt - shares in Vestas, the world's largest wind turbine manufacturer, are down 15% since the summer, while those in Chinese solar panel giant JA Solar have slumped 20%.

Lower oil prices are also a grave concern for electric carmakers, with sales of hybrids in the US falling while those of gas-guzzling SUVs surge.

'Profound impact'

The knock-on effects within the energy industry of a sustained period of lower oil prices are, then, both widespread and profound.

But while Saudi Arabia's decision to call time on supporting the oil price marks an important milestone in the industry, oil's self-stabilising price mechanism remains very much intact - prices fall, production drops, supply falls, prices rise.

As a direct result of lower prices, exploration and production will be curtailed, and while it may take a number of years to filter through, supply will fall and prices will rise. After all, while there may be hundreds of new small suppliers entering the fray, there are still too few big players controlling oil supply for a truly free market to develop.

But real change is on the way. There is a growing realisation that fossil fuels need to be left in the ground if the world is to meet climate change targets and avoid dangerous levels of global warming.

Against this backdrop, it is only a matter of time before a meaningful carbon price - hitting polluters for emitting CO2 - is introduced, a price that will have a profound impact on the global oil market.

Equally, for the first time oil is facing a genuine competitor in the transport sector, which currently accounts for more than half of all oil consumption. Electric vehicles may be a niche market now, but as battery technology in particular advances, they will move inexorably into the mainstream, significantly reducing demand for oil.

The oil market is undergoing significant transformation, but more fundamental change is on the horizon.

Should government reward 'good' businesses?

By Robert Peston on the BBC
A happier, more cohesive society would be filled with businesses that offer rich and fulfilling employment, don't pollute, don't impose big risks on taxpayers, pay taxes that more than cover their net drain on social resources, train the younger generation for life in an uncertain economic world, and so on.



It's a lovely ideal that the market hasn't delivered, because the market doesn't always reward those businesses that do good things, or penalise businesses that do bad things.



To put it in highfalutin' economic terms, there are plenty of externalities generated by companies: these are the various impacts that companies have on society and the economy that aren't captured by the pricing mechanism.



That is one reason why we have government, to deal with those externalities. Right now, for example, the current government is amending the tax system to impose bigger penalties on large emitters of carbon dioxide. And it has already imposed a special levy on banks, because of its view that the financial risks taken by banks impose a potential cost on taxpayers, for which the banks have not been paying.



These judgements about the good and bad that companies do are never simple to make or uncontroversial. Think about the threats that heavy energy users and banks have been making about jobs going abroad if the special tax burdens they face aren't lifted.



In recent times, governments have tended to penalise negative externalities - like pollution - while ignoring positive externalities. And the reason is largely to do with history: providing state rewards for businesses that are deemed to be good is felt to be uncomfortably close to the failed industrial policies of the 1960s and 1970s of picking so-called winners.



So should government play a more active role in rewarding the good that companies do, while also imposing new penalties on a wider number of bad effects?



The Labour leader appears to think so. Here is an extract from the official briefing notes for the speech he is to make later today at his party's annual conference:



"Ed Miliband will call for radical changes in the way businesses are rewarded to create a something for something deal in our economy.



"He will challenge the idea that all businesses are the same and will call for rewards and incentives linked to the long-term value they create and the wealth they build.



"He will say businesses which secure governments contracts will be required to offer young people apprenticeships. And he will open up the prospect of major reforms to the tax and regulation system to create incentives for companies that make a wider contribution to the economy, e.g. through long-term investment or building skills."



In concrete terms, what he means is "Rolls-Royce good, Southern Cross bad".



He wants to support companies that win large export orders, collaborate with universities to develop valuable intellectual property and provide highly skilled manufacturing jobs in Britain (like Rolls). And he wants to penalise those that place big financial bets, where the winnings (if any) are restricted to a few well-heeled owners, and losses fall on innocent bystanders.



Which is all very well, except that it is hard to create general rules that define all the good businesses and all the bad businesses in a fair and accurate way.



For example, even if a Labour government wished to discriminate against businesses owned by private equity, on the basis that it believed they were more likely to invest too little in training and R&D, that would not necessarily have spared the residents of Southern Cross's care homes from heartache and anxiety - because it was listed on the stock market at the time that it collapsed.



What is more, not all private equity businesses take the kind of extreme financial risks that Southern Cross took when it was owned by private equity. And if your bugbear happens to be another species of debt-financed institution, the hedge funds, don't forget that some of them have been more effective than regulators at spotting dangerous bubbles in markets.



Also, judgements about the merits of businesses and business leaders are subject to change. So for example I understand that in an early version of his speech, Ed Miliband was going to say that it was wrong of the last Labour government to reward Sir Fred Goodwin - widely seen as responsible for the calamitous near-failure of Royal Bank of Scotland - with a knighthood (he may yet say this).



But this is to forget that until Royal Bank of Scotland became obsessed with growing bigger and bigger from 2005 or so and onwards, Goodwin was widely seen as one of the more talented British business leaders - who had overseen a highly effective and long overdue modernisation of NatWest's systems and network.



Which is why Mr Miliband will - I am sure - resist the temptation to argue that ministers should reward or punish companies, with special grants or exceptional taxes, on a case by case basis.



That would almost certainly be the road to industrial desertification and corruption.



Does that mean there is nothing government can do to encourage sustainable long term wealth creation?



Well, there is evidence that the tax rewards accruing to debt finance have encouraged banks, property companies, hedge funds and private-equity businesses to take dangerous risks, while discouraging long-term investment as opposed to short-term asset trading, and also shrinking tax revenues paid by the corporate and financial sectors.



This was an argument that George Osborne, the chancellor, took seriously in opposition, but seems to have subsequently discarded - although the Independent Commission on Banking recently flagged up the tax advantages of so-called leverage or borrowing as a contributor to the lethal explosion in the growth of banks' balance sheets relative to their capital resources.



So finding a way to enhance the rewards of equity-financed investment, and reduce the rewards of debt-financed investment, could go some way to reducing the most toxic of externalities afflicting our economy - namely an urge to borrow that has foisted record debts on the British economy and hobbled its ability to grow.