Energy Beyond Future – Can Business Save the World?

Fabian Böck, Böck Business News, July 2nd 2019

A Planet Heated Up

As history shows, human beings have repeatedly managed to overcome the toughest challenges imaginable—by the people itself, by politics, by innovation, and by economic progress. Once again, we face a problem big enough to wipe out the entire humankind.

The climate is changing, and there have been held numerous dinner speeches on whether human beings are responsible for that change or not. As far as we can see, several studies imply quite a considerable amount of human-related responsibility for that very process. You could argue whether there could be effective measures at all. However, if we can help to reduce the speed of this detrimental process, it might be a try worth taking—given that this threat might indeed affect planet earth irreversibly.

So, we are considered lucky because of the green surge in Europe and especially in Germany; which grows attention, gains political power, and calls for specific cuts. Deep cuts by the way. Banishing nuclear power, shutting down fossil fuels, imposing electrical transportation, and imposing an all renewable energy approach—energy to supply a fast-growing need for electricity, transportation, and heating. In the end, can the world take a deep breath? Wait–there's some doubt.

Green Energy Policies: In the Right Direction?

This is a business-related article–why focus on the general political framework? Exactly–that's the point that I will expand on later.

There might be no doubt on whether there is global warming; at least, we witness a significant shift in climate conditions. The planet is heating up and us disposing of CO2 into the atmosphere might add to that process substantially. Thus forecasts on human conditions and entire regions under this climate change are fairly negative. By the way, these problems will also affect parts of the world that might consider themselves safe—which means an inevitable challenge for each and everyone on this planet.

Even though it's obviously a good thing that there has grown awareness on this political matter, we witness a green thinking that is not reflecting on scientific issues comprehensively, and that has occupied the political mainstream all across Europe and especially in Germany. No other country has committed such political efforts to enable green technology like Germany. The overall reduction of CO2 emissions in Germany is substantial. So, everything is good?—at least people's feelings are. In fact, there are some studies on the effectiveness of green policies which might raise even the same level of concern as the actual global warming does.

"global CO2 emissions climb as reliable as a steam engine"

Despite all efforts, global CO2 emissions climb as reliable as a steam engine. This process has in the past only slowed down due to economic reasons—e.g., when the oil crises and financial crisis took place. Germany seeks to be upfront as a green pioneer but is only responsible for around 2% of overall CO2 emissions on the planet. One could have any reason to doubt that the US, China, or India would follow Germany's role model approach. On top of that, Germany now faces several issues which imply that there won't be a consistent base for an economic powerhouse only relying on renewables (volatility of sun and wind, buying foreign nuclear electricity, exploding energy costs). Many of these issues need economic understanding. Considering facts is what distinguishes reason from belief.

Ignoring Economic Science

"Huge effort, little result"—that's the verdict of German Professor Hans-Werner Sinn on how effective the current policies are in terms of economics. Professor Sinn is a public finance economist and taught environmental economics for decades. He is internationally renowned for his expertise. Well, he's got a particular one on this eco-economic matter.

There are three aspects I want to report on what we have learned from a lecture Professor Sinn has held. For further information, I recommend the video recorded at the London School of Economics (embedded below). The lecture pointed to several aspects which I found, particularly, three of them to be worth considering. They seem to be connected and even amplifying one another:

  • The Supply Side Approach
  • The Carbon Leakage
  • The Green Paradox

VIDEO "How to Fight Climate Change: Economic and Technical Challenges", Public Lecture by Prof. Hans-Werner Sinn, London School of Economics, 22 January 2018

Professor Sinn stated that one major problem of the current green policy measures is what he explains by using the term "Supply Side Approach". Actual policies do often only focus on reducing the demand for fossil fuels by making the purchase price-unattractive or by even restricting it. However, economists obviously cannot ignore the correlation between supply and demand. The substantial error, in this case, might be that reducing demand might only work with goods that are to be produced. It doesn't quite work with actual resources since they are subject to a scarcity price, as Professor Sinn explains. Still, plenty of fossil resources are waiting to be extracted—and there will be plenty of potential buyers.

Another problematic factor would be the fact that if certain countries like Germany reduce their demand for fossil fuels, the world market price will drop and lower the entry level for other countries to seize this cost-efficient opportunity. Economists label this effect "Carbon Leakage" and state that there is not only little effect when waiving on these resources, but also great harm in therefore increasing the purchase ratio of fossils by depressing the world market price. What remains is good will, however. The US, for instance, will send us a warm "Thank You".

"oil sheiks, coal barons, and gas oligarchs do for sure not lack business awareness"

Finally, both increasing and accelerating is how the third factor might be contributing. Professor Sinn has examined another phenomenon which he named "The Green Paradox" and which he dedicated a whole book to. He found a striking correlation between green policies and economic behavior as in increasing the extraction of fossil fuels, the more burning them will be restricted. For example, although in Germany only small amounts of lignite resources (brown coal) can be found, this very Germany has by far the most significant extraction ratio of all countries around the world. As Professor Sinn puts it, oil sheiks, coal barons, and gas oligarchs do for sure not lack business awareness. When they anticipate imminent threats for their markets, they might want to ensure the trade of as much of their goods as possible. This procedure results in an increased extraction ratio, which eventually adds to global warming.

As for actual and intended economic approaches, these three factors determine specific issues in current policy measures. Carbon taxes, for example, won't work as long as they only affect separate parts of the world or will—at least—not change the world market price significantly. Well, and there's some doubt that we will be able to implement a sufficient global emission trading system. The world is not that green we want it to be.

Economic-wise source taxes and property assurances could be an answer, as Professor Sinn finds. Technology-wise there is sequestration and afforestation, for example. Other than that, Professor Sinn—and other experts alongside—recommend taking into consideration an act that Sweden has conducted: Exit from the exit of nuclear power. I will expand on several projects in another article.

Again, this essay is not about stating green policy by itself was wrong—of course not, there's definitely a need to act—, nor those predictions, Professor Sinn presented would necessarily turn out to be all true. However, I think these findings are at least worth to be taken into account, which is not the case in public debates so far. Green thinking has become part of a moral high ground which is hard to reason with. So, what to do now?

Business Opportunity: Save the World!

Opening up this topic from a German perspective, we find this dilemma exceptionally exposed in our country. While there is obviously an urgent need to take action immediately, there are many aspects to doubt the current green policy measures to be effective in the intended way. Moreover, while scientists cannot reason against deep political belief anymore, the question remains: Who then will solve the problem?

The answer might seem unconventional: Let both the political wishes and scientific explanations aside and find a way around this problem. That's what humankind did from the very beginning; problem-solving at its best. So, I think it is time for a third factor to take responsibility: Business.

"shifting the mindest, or even better–shifting the action"

You could argue: Isn't our economy doing enough already? Aren't great companies trying to develop revolutionary products, regardless? Or, is it a mistake, business-wise, to react to the market and deliver exactly the product people currently demand—even if it is not solving the problem in the long term? All true. However, as a publisher on economics, as one who thinks of business as solving problems and adding value, I want to clarify that our society—especially in Germany—will supposedly not solve these climate-related energy problems only in the context of current mainstream policies. So, there might only be this business incentive left to fill the gap, which is what this essay is trying to help: Shifting the mindset, or even better–shifting the action.

In a free world, entrepreneurial endeavors always have the power to change the whole planet. Entrepreneurs and inventors have several times proved the ability to come up with ideas so disruptive to change the world for the better. Industrialization, transportation, the internet, to name only a few. Now the time has come for energy.

Whether we find the solution in how to generate emission-free energy in a completely different way, how to handle CO2 emissions effectively, how to increase the degree of efficiency of renewables, or how to mass store energy–there are various angles to approach the problem.

Especially for Germany, I consider this opportunity to be historical. Nowhere else on the planet you can find this very culmination of political urgency and technological skill. Of course, the first one who solves this global problem will not only be rewarded with unprecedented success by creating a product that is needed everywhere on the planet but is also rewarded with the honors that humankind made a giant leap as not seen many times before. For energy—beyond future.

Read on