© Robert I. Bell 2015 THE HOPE/DOOM RATIO
Although promoters of green energy have made significant progress, the promoters of fossil fuels have done much better. For every dollar invested in renewable energy, fossil fuel promoters have thrown four dollars into their activities. And they have done so despite an overwhelming scientific consensus that we have maybe 20 years to hold global warming to a tolerable limit.
Worldwide, renewable energy investment slid in 2013, for the second year in a row, falling to $254 Billion, according to the Financial Times of 25 June 2014. In contrast to the declining capital expenditure for renewable energy, since 2011 International Energy Agency data shows that, for fossil fuels, investment has increased, approaching $1 Trillion by 2013.
So, for every dollar bet on hope, there are four dollars bet on doom. This is the Hope/Doom Ratio. Doom signifies “to hell with the kids,” in the sense of Louis XV: “After me, the deluge.”
The Hope/Doom Ratio is easy to compute, using data generally accepted, and issued, by the fossil fuel industry itself, the governments to which they are linked, and the main green energy analysts.
Not surprisingly, the current Hope/Doom Ratio reflects and entrenches the driving force of global warming, and has for a long time: “Today’s share of fossil fuels in the global primary energy mix – 82%, according to IEA data– is exactly as it was 25 years ago,” notes the International Energy Agency’s 2014 World Energy Outlook, (p52). The Intergovernmental Panel on Climate Change has looked forward 25 years, and warns that we may not even have that much time to hold the planet’s temperature increase to the much discussed 2 degrees Celsius above what it was at the time of Louis XV. To do so, says the IPCC, requires reducing carbon emissions by 70% from 2010 levels.
It is not yet clear whether the current collapse in the oil price will materially change the Hope/Doom Ratio. Although investment in renewable energy has gone up a bit in the past few months, we can’t yet count on that continuing, or on investment in fossil fuels going down for any period of time. On 15 December 2014, when oil was still $60 a barrel, the Financial Times reported that Goldman Sachs estimated that the drop in the oil price would result in the cancellation of some $1 Trillion worth of exploration and development projects over the next ten years. But the oil majors, Total, Shell, EXXON, etc., may simply use the money to buy up money losing or bankrupt oil prospects from less fortunate firms and hoard them for a later day.
The only possible way to save the climate without reverting to a pre-French Revolution life-style is to reverse the Hope/Doom Ratio. According to the International Energy Agency, investment in renewables has to be four times its current size, reaching $1 Trillion each year in renewables and energy efficiency by 2030, to save the climate. In other words, the current Hope/Doom Ratio of one to four must change to at least four to one — or better.
This financial metric also instantly puts the focus on a positive—investment–and thus takes it away from a negative, taxes–whether in the form of the now largely discredited cap and trade system or the direct, but probably politically unachievable carbon tax.
Former French Prime Ministers Juppe and Rocard jointly proposed a widely discussed carbon tax for France—roughly €30 per ton of CO2. Ex-President Sarkozy proposed less than half the amount, and then abandoned it in the face of hostile fire. The current French administration itself abandoned the Sarkozy administration’s tax on heavy vehicles in the face of stiff local opposition. Instead of taxing emissions, governments could “simply” tax fossil fuel inputs, which are already known and declared for income tax or government royalty purposes. Assuming burning 3 barrels of oil produces roughly one ton of CO2, a tax of 10 euros per barrel would yield a figure close to the proposed 30€ per ton. But since the oil and gas companies would then simply pass the tax along, this probably wouldn’t resolve the political problem.
Instead of a carbon tax or cap and trade, as an emergency measure to save us from global warming, simply detax all profits on renewable energy investment to encourage a massive flow of investment into it. But emergencies shouldn’t last forever. The Hope/Doom Ratio could be the formula for deciding when to tax renewables again. The law to detax it could be written with a provision to remove the tax when the Hope/Doom Ratio materially improves. If the Hope/Doom Ratio becomes 4 to1 for a number of years instead of the current 1 to 4, then profits from renewable investment could be treated as are most other corporate profits.
By then, investment would be working to get us out of global warming, instead of accelerating us into the Deluge.
About Robert I. Bell Robert I. Bell, Ph.D. is a Professor in and the former Chair of the Finance and Business Management Department, Brooklyn College, City University of New York. A frequent speaker at international conferences, he gave a keynote speech at the G20 in Seoul, Korea, advocating Green Redemption Funds to save the planet from global warming. He has authored several books, including La Bulle Verte (Paris 2007), published in New York as The Green Bubble (2008). In 2013 he coauthored, with former French Environment Minister Corinne Lepage, Project Volt Gas Volt for the French energy transition. In late 2012 and early 2013, he exposed to French readers the financial problems of US shale gas, in Les Echos and La Tribune.