Hot Air Predicts Hot Times

Mr. Ramesh showed a steady hand on the tiller when he released India’s emissions forecasts for 2030. Only one of the five studies showed India’s per capita emissions for 2030 to be close to China in 2008, and none came close to even the best of the developed world. One was in fact modestly below the global 3MT per person that is supposed to halt climate change; the highest barely scratched 5MT, a level below today’s China. In the meantime China has insisted that its already high total and per capita emissions levels will grow till 2050, so the role of villain is cast for the climate change yakfest in Copenhagen.

Even the highest of the five studies gets to about 5MT per person is well below the best that the Americans are offering for their economy in 2030, which currently runs at 20MT per person. And the second highest estimate is by McKinsey and Co., so the uber capitalist US cannot object to shoddy, government led work. Jairam, well done on the PR wars which we have until recently been losing.

This is not about PR, but about the sad reality that climate change is here and is it here with a vengeance. It will not go away because there is no way that emissions will be cut quickly enough to make it go away. They cannot be cut because the economic, physical and political structures of the largest polluters are dysfunctional. It will not go away because there is already evidence of feedback events such as methane release from permafrost which will only make things much worse.

Let’s calculate. At the moment total GHG’s are about 30 Bn MT per year (back of the envelope). We get to 6, the Chinese get to 12, total 18. But the world needs to get to 15 to keep climate change below 2 degrees. So we and the Chinese still have to cut, and by the way the rest of the world, including the US, Europe, and Japan has to cease to exist because there is no room for them.

Climate change there will be; the problem is that we do not know how severe. What we do know is that India will be hit hard, and we had therefore better have a plan in place to mitigate what we know will be a slowly unfolding disaster. As with all long running disasters there will be blips of hope. Sell into these but do not be fooled into thinking the disaster has passed, unless we can find a way to make our society sustainable with huge changes to our climate, most notably a serious drop in annual rainfall and a depletion of ground water; plus the Chinese may cut off our rivers….

Mr. Ramesh and his crew, and the PM, have said that these peer reviewed studies do not reflect a business as usual view, and that sophisticated models have been used and have incorporated the effects of new technologies, paradigm shifts such as forest management and a load of other pap.

On the surface that looks correct. Today’s Indian per capita emissions are about 1.5 MT per person (there is even dispute around that number). Assume growth of 8% per year for 21 years to 2030, in line with GDP forecasts and we get 1.5*1.08^21 or 7.55 MT per person, except that population in 2030 is supposed to go from 1.15 Bn to 1.53 Bn, so on that calculation per capita emissions should be 33% higher i.e. 7.55*1.33 = 10.05MT. Against that ‘business as usual’ expectation of 10.05MT per head, forecasted emissions of between 3.0MT and 5.0MT look heroic.

But wait a minute, recalculate at a start point of 1.2MT and the 10.05MT becomes 8.04MT. Ah, the magic of compounding. There is plenty of other conjuring in these studies as well, mostly of the voodoonomics variety.

Digging around briefly in the methodology and the econometrics, dauntingly full of equations and correlations and other economic mumbo jumbo, I found the following nuggets.

1) Three of the five models that produced the lowest results did the following: 1) started with a lower base than 1.5, and 2) introduced economy-wide productivity improvements of 3%. Recalculate my back of the envelope model using base 1.2 and adjusting for productivity, and we get (1.2*(1.08-1.03)^21)*1.33 = 4.45 MT per person, right in the middle the 5 high-priced, high-work, forecasts.
2) The two higher output models, including one by McKinsey, did not use a productivity factor but were instead ‘ground up expert based’ where they used their knowledge of current industry trends in power hogging sectors to project efficiency. Hold left ear with right hand after passing behind back of head. Because they are based on the current knowledge of consultants in the here and now, they provide for lower productivity growth. It’s a bit like sitting in 1980 and predicting the future of IT based on the idea that minicomputers rule. I opt for the PC revolution and think that 3% productivity growth is a no brainer; actual per capita Indian emissions will be closer to the lower studies because recent Indian productivity growth has been at or better than 3%.
3) All the models use various assumptions for oil and gas prices and for the INR/USD exchange rate. Do you know anyone who has ever got those two elements right for 21 years on the trot? George Soros will give him a job.

Sadly, therefore, while they predict a reasonable trend, they do not do very much better than my little model above. But they are peer reviewed, as were the papers and models used as the backbone of the securitization spree that has left the world a bit poorer than it could have been.

We can safely assume that these models do indeed embed business as usual, just a more efficient business as usual which is something that one would rather expect at the beginning of the 21st century, when all eyes are on energy efficiency. For a ‘proof’ check QED on http://meanperson.blogspot.com/.

All that this hoopla predicts is merely the energy efficiency of India, assuming that we will take our place as a consuming nation, consuming more and more as we grow richer, with the objects of that consumption being the same as currently consumed in richer countries, just made better, faster and cheaper.

How 19th century. It is as if India decided in an age of Microsoft to be not Google, but US Steel. China has done the US Steel bit already, and has locked itself into an infrastructure heavy and low value added externally driven high pollution growth model from which it cannot escape because of institutional and monetary reasons. We know how US Steel ended.

This lock in is the same thing that has happened to the US and to the rest of the developed world, though some countries, mostly densely populated and rail friendly (Japan, Korea and Europe) generally have infrastructure and monetary systems that could adapt quickly and relatively cheaply to a low carbon imperative. That is why these countries accept high reduction targets and sit on the sidelines waiting to see what the big polluters will do.

They will do nothing much for years, so India has to take unilateral steps to protect itself. Paradoxically, these very steps will give even more room for the dysfunctional to spew. It doesn’t matter – where would you rather work? Google or USS?

India therefore has to do a mix of things, some proactive and most for danger avoidance. The former are acts that will make things better, and the latter as those which we have to avoid, so as to not lock ourselves into structures that cannot become GHG efficient. We must avoid building the wrong infrastructure now, as we really begin our development, because that infrastructure will still be there and spewing gases 50 years from now. To replace it with better product will never make sense economically or politically. Coal power, cars and suburban living are the long term killers and ought to carry health warnings.

Herewith my two pice worth or what should work:

1) Agriculture needs to be rescued by doing four things:
a. Move to (at least semi) organic farming as soon as possible, including multi-cropping and lots of local water storage. This will:
i. increase incomes of farmers even if the terms of trade between town and country do not change.
ii. increase employment in farming because organic farming substitutes labour for pesticides; this reduces our need to create entry level jobs by doing low value added manufacturing for Walmart.
iii. reduce water use, waste and pollution and also once again make our land fair.
iv. increase forest cover.
1. Driving through most of India in May is to recall the US dustbowl of the depression. 45 years ago parts of North India looked like Switzerland.
v. We can also use organic agriculture standards to lock out imports without busting through WTO rules so long we tax our own pesticide and fertilizer laden produce equally.
b. Get road connectivity, power and the internet to our villages in order for those economies to grow in situ around a cluster of large towns and cities. Connect those large towns by rail. This will also stop the overcrowding of our old cities of Mumbai and Delhi.
i. The old argument for cities as a place for the clever to gather is kind of old given connective technologies like the mobile and the internet.
c. Blow away the traders and middlemen and agricultural transportation rules that impoverish farmers, gouge city people and make 30% of our crop go waste. We can decide who gets the bounty, town or country.
2) Use all the local gas we have to produce power; not fertilizer. The latter is robbing our tax revenues and laying waste to our land. We can buy plastic and other shippable stuff that is made with gas from the Arabs. This way we do not lock ourselves into long lived coal fired plants that are really bad for us (GHG’s, particulates, ash and radiation are just some of the problems).
3) Set petrol and diesel prices and city car access charges at nose bleed levels. This is not anti poor as the rich will use enough for us to collect a lot of tax which can be used to better highways and public transportation. The trucking industry can afford a tripling of diesel price if we go inter-modal and increase truck size and speed up journeys by cutting all the useless border checks and corruption that slow our transport sector to a crawl.
4) Go for solar thermal and forget other alternative energy technologies, especially wind, because India is a pretty wind free country.
a. The whining about needing technology to go green applies mostly to cars which are devilishly difficult to turn green.
b. Solar thermal made by Indians using only public domain material will at most be 5% less efficient than the state of the art stuff being used in the US.
i. Indian prices, if one compares boilers (the active ingredient in solar, so to speak), are 40% of US prices; we should be able to do solar at an efficiency adjusted 50% of US cost.
ii. Order BHEL to make off the shelf 5MW solar thermal power plants available and ship them off to villages where there is not enough industrial night demand to matter that Solar without storage works only till about 9 pm on a sunny day. Lights and fans can be made very energy efficient and run off inverters, a commonplace in rural India already. No one in rural India will complain about guaranteed 12 hour power.
iii. When storage to run solar 24 hours (expensive stuff) becomes reality we can buy the technology, or maybe we won’t need to because we will have enough gas power to get us through the night.
5) Mass transit, mass transit and mass transit. Rail, rail, rail. And give a thought to pavements which are eco friendly diabetes reducers as they promote exercise and use no energy.
6) Do not change our labour laws to make them excessively employment friendly, because there is nothing that destroys the environment faster than labour intensive modern industry. We are not talking of M Gandhi’s charkhas when we extol the virtues of T shirt manufacture. We are talking of water intensive cotton, power intensive spinning, pollution intensive dyeing. The energy used to make a square metre of cloth is about the same as in four litres of petrol; that is without the stitching, distressing, washing, containerising, shipping to store etc. Put cheap labour into the fields instead.
7) Many of these steps will cut our usage of imported oil hugely helping to repair our balance of payments and increasing the value of the rupee, which will not need to be low because we will not need to peddle T shirts.
a. World trade will wither in terms of value, but not its efficacy, if anything at all like the true price of transport GHG’s is charged to shipping. Anyway much of the current reason for excessively high world trade has to do as much with outsourcing pollution and reducing the share of labour in Western industry’s cost structure (behave, or you’re Bangalored) as with relative cost. Higher costs and a rebalancing of capitalism with work together to cut trade.
b. The only things worth shipping will be expensive things, which is as it should be. We should therefore concentrate on making expensive things for export.

Follow this list and everyone in the world will want to invest in India. The evidence is conclusive that what is required for growth is investment, labour and a (historically domestic) market – trade has not been shown to matter one whit to economic growth.

Let them come, but allow only equity, or rupee debt, not debt in foreign currencies. There will be no Dutch disease here because even a doubled currency cannot make this country uncompetitive, so long as we start the rise now, so that entrepreneurs create businesses that will thrive with a strong currency. And every time there is a run on the currency outside investors will pay, making them very, very careful about what they do. Just look at China, afraid to beat up the dollar too much lest they lose their bundle.

We will get to a very European standard of living on quite low power, but we will do so with the dough in our pockets to buy our way out of some of the problems that are inevitable with climate change.