Note: This is the second in a three-part series on the impact of time horizons in equity valuation, climate change and U.S. public debt.
What is the appropriate time horizon for responding to climate change?
Some argue that the transition to renewables must happen as soon as possible, using all tools available: government mandates, climate accords, innovation, carbon taxes, wealth transfers, incentives, subsidies, and preferably all the above. The time for action, the relevant time horizon, was yesterday. Call this the regnant orthodoxy.
To assess this urgency, let’s assume as true the science presented by the United Nation’s Intergovernmental Panel on Climate Change (IPCC) in its latest report, the so-called 5th Assessment, published in 2014. Adopting the IPCC viewpoint as the authoritative source on climate change helps in examining a contentious subject.
The crux of the issue is that commonly held beliefs about climate change are at odds with the IPCC’s research. Even the IPCC contradicts itself at times. By the time the information reaches politicians, we are left with pure slogan: Halt climate change now, at any cost, or die.
Scientists seek to answer a fundamental question: What will be the impact on steady-state world temperature if there is a doubling in atmospheric carbon? In the literature, this is the ubiquitous ECS, or “equilibrium climate sensitivity.” When long-term feedback loops are incorporated, it is the closely related measurement, effective climate sensitivity (called “S”). Formally, S is “system behavior during the first 150 years following a (hypothetical) sudden quadrupling of CO2.”
In magnitude, the IPCC answer has been roughly the same for the past forty years. In the 5th Assessment, the IPCC features four independent scenarios as representative of the “300 baseline scenarios and 900 mitigation scenarios” in the climate-change literature. The low-end scenario assumes stringent mitigation, resulting in a forecasted rise in temperature of 0.3-0.7°C. At the high end, which assumes “very high growth” in carbon and related emissions, the range rises to 2.6-4.8°C. The two intermediate scenarios range from 1.1-3.1°C.
Herein lies the problem, well known to climate experts: Way back in 1979, when climate science was in its infancy, Jule Charney chaired a study that estimated ECS at 1.5-4.5°C. The science in the intervening years has improved in quantum leaps, but the range has not been narrowed, nor can the relative likelihood of one scenario versus another be assessed more accurately.
In other words, the most recent IPCC global-warming forecast is a set of long-term temperature outcomes estimated to the year 2100, tied to four “representative” scenarios of unknown relative likelihood. As a judge once said in a different context, the range is wide enough to drive a herd of cattle through.
In July 2020 a group of leading scientists published a review of all the available data — including IPCC, independent computer models, recent historical data, and paleoclimate research dating as far back as 3.3 million years ago — asserting with 66 percent confidence that the true range is 2.6-3.9°C, with a median of 3.1°C. Importantly, they reached this narrowed range by measuring the impact over 150 years.
So the time horizon for analyzing the long-term impact of climate change is at least 80 years (per the IPCC) and as high as 150 years (per the most recent comprehensive review of the literature).
Despite this long time horizon, politicians speak of imminent catastrophe.
In the words of Joe Biden, “Climate change is the existential threat to humanity. Unchecked it is going to actually bake this planet. This is not hyperbole. It’s real.”
During the presidential campaign, Bernie Sanders stated that we have “less than 11 years left to transform our energy system away from fossil fuels to energy efficiency and sustainable energy, if we are going to leave this planet healthy and habitable.”
Not to be outdone, Prince Charles in 2019 set the bar: “I am firmly of the view that the next 18 months will decide our ability to keep climate change to survivable levels and to restore nature to the equilibrium we need for our survival.”
While the scientific time horizon for combating climate change is 80-150 years, the political time horizon is 1.5-10 years. Ten years is an ideal framing window for demanding immediate action. It is close enough to justify urgency, but sufficiently distant (and outside the election cycle) so as never to be provably wrong. That is the strategy employed repeatedly, if illogically, since the 1980s.
Yet there is no science to support a 10-year time horizon for assessing climate sensitivity. The best the IPCC can offer is that a 20-year time horizon may be relevant for addressing select, non-systemic “short-term” climate-change issues. This is a question of policy, not science. The science is in ECS, which the IPCC unequivocally puts at 80 years, or the minimum realistic time frame for CO2 concentration levels to double, or at least increase substantially.
When the IPCC quantifies interim impacts, it states that relative to 1986-2005, the 20-year increase from 2016 to 2035 likely ranges between 0.3°C and 0.7°C. Since this includes an approximate 0.2°C increase for the period 1986-2005 to 2006-15, the net IPCC forecast over the next two decades approximates 0.1°C to 0.5°C. No one argues that such an increase threatens the earth’s existence, or that it would even be readily detectable.
The next-most-prominent climate-change deadline calls for zero carbon emissions by 2050. Why 2050, why zero? The sole basis articulated in the International Energy Agency’s World Energy Outlook 2020 is that “A rising number of countries and companies are targeting net-zero emissions, typically by mid-century.” That is not science; it is a boot-strapping scheme. Adopt a politically determined time frame, then back into the scenario that achieves the pre-ordained result. Unsurprisingly, Biden has made 2050 net-zero emissions a centerpiece of his energy agenda.
The last of the major efforts to inject urgency into the climate debate is the 2016 Paris Climate Agreement. Its signatories agreed to limit the global temperature increase to 1.5°C above pre-industrial levels, but artfully avoided specifying the time frame or the science supporting this goal. The furthest they go is to call it a “long-term temperature goal.” To advance the timetable sub rosa, IPCC in 2018 published a “Special Report”, entirely based on the 5th Assessment, that analyzes the impact of an arbitrary 1.5°C increase in global temperature. Why 1.5°C? The answer again is politics, not science: The IPCC calibrated its research to the Paris Agreement.
The 5th Assessment provides the full scientific rebuttal. No 1.5°C target exists, except as within a possible range of 2100 outcomes. If the science supported a doubling in CO2 in the imminent future, the relevant time frame for climate science would have been set at 10 to 20 years, not 2100 by the IPCC, or 2170 based on the latest science as of July 2020.
So here is the science, based on the IPCC. Climate change is real and the worst-case scenarios pose significant harm to the earth. But the time frame for action to slow the growth of atmospheric carbon is long. Per the IPCC, the computed mean range of warming in its four scenarios approximates 0.1°C to 0.4°C per decade, to 2100. Per the most recent climate science, as of July 2020, the likely range is narrowed to 0.16°C to 0.26°C per decade, with a mean of 0.21°C, stretching out 150 years.
The slow workings of climate change are an unalloyed blessing, giving the world ample time to limit CO2 concentrations in a cost-effective manner that takes full advantage of technological advances.
On the demand side, electric cars are a reality. It is only the pace of substitution that is at issue. But while energy will become more efficient, total demand nonetheless rises in all climate forecasts due to population growth and increased GDP (both viewed, one hopes, as societal goods).
On the supply side, there are realistic low-cost substitutes. The two best available alternatives are nuclear and combined-cycle gas, with carbon-sequestration solutions on the horizon.
Solar will play a vital role in the future, but difficult issues must be resolved. While glass-panel costs have fallen considerably, sunlight is an intermittent and variable power supply thanks to nighttime, clouds, regional intensity and seasonality (unless an Elon Musk figure can beam solar power from space). The solution requires utility-scale and distributed battery-storage technology, still in early development phases, as well as expensive, intelligent (i.e., two-way), transmission and distribution systems. While the challenges are daunting, time and technological advances are a great ally here.
The underlying point is that the world needs baseload power to supplement solar, especially power that can meet ramping electric-car demand and displace coal. And the answer, unequivocally and uniquely, is current fourth-generation nuclear.
A new 2 gigawatt (GW) nuclear plant can run for 60-80 years, during which time it can generate 0.9-1.2 trillion kilowatt hours (kWh) of electricity without emitting pollutants. In the future, researchers anticipate lifespans exceeding 100 years. Four advanced nuclear plants will be completed this year in the UAE at a cost approximating $5,000 per kw, or $10.0 billion for a 2GW plant. On these one-off economics, lifetime nuclear costs fall in the highly competitive range of $0.08-$0.1/kWh.
To meet the demands of climate science, the world needs roughly 1,500 new nuclear plants over 50 years, which represents a highly manageable 30 plants per year worldwide, compared to 450 plants currently in operation. At this scale, nuclear plants using current technologies can provide the world with zero-emission baseload electricity at low delivered cost, with the promise of even better to come with small modular reactors and ultimately fusion power.
What about safety? Next-generation nuclear plants are now designed with “defense in depth” — system upon system of independent checks to prevent radiation release. Three notable incidents aside, the world’s current nuclear plants have compiled an unparalleled record of safety in the process of generating 10 percent of global electricity. And since 1980, new technologies have made plants significantly safer, an advance akin to that between today’s supercomputers and a 1980s Tandy computer running DOS.
As for nuclear waste, it is a solid, which dramatically reduces the risk of contamination, and it is produced in incredibly small quantities. All the nuclear waste produced in the cumulative history of U.S. nuclear plants, which number approximately 100, would fit on one football field at a depth of 24 feet. Adding 500 feet in height would account for the 80-year lifetime waste of 1,500 new plants.
The half-life of immaterial radiation for most of the waste is around five years. Two elements remain, cesium and strontium, that are dangerously radioactive for some 270 years. The balance are long-lived elements, principally uranium and plutonium, with half-lives in the thousands of years, but radioactivity low enough to preclude serious harm and allow reuse or storage.
Lastly, it is important to bear in mind that solar carries environmental harms, too. The battery mining and manufacturing involved in solar energy produce greenhouse gases, solar farms require intensive land rights (current technology requires 10 acres of land per megawatt of solar capacity), and transmission lines are subject to complex permitting and environmental impacts.
Between nuclear, solar, and gas, with incremental growth in wind and hydro, the preponderance of coal power plants globally can be retired in the next 30 to 40 years — well before climate change imposes irrevocable damage.
In sum, we should be optimistic about climate change. There’s plenty of time, and we have access to a broad array of affordable, low-cost, low-emission options, not to mention potential breakthroughs in carbon sequestration and alternative fuel sources. At least that’s what the science says.
All that said, the reality is that politicians don’t like nuclear, except in China. The more likely scenario is that existing nuclear plants will be prematurely retired when instead their useful life should be extended.
Nothing remotely close to 1,500 plants, or even 100 plants, will ever be built, certainly not without a consensus across the full political spectrum — an unlikely scenario. Such are the costs of promoting renewables prematurely.
Politicians and an army of rent-seekers sell doom to win elections and attain billions, if not trillions, in government subsidies and transfers. On that path, connected elites will prosper at the expense of the global poor and middle class.
Vital investments will be crowded out by massive, wasteful spending. Technology will not be allowed to mature. A world overburdened with debt will spend ever more, in the process limiting nations’ ability to respond effectively. Energy costs, taxes and regulatory burdens will rise, translating to higher prices and reduced incomes, especially on the middle class. All as unelected, unaccountable transnational entities manipulate a false crisis to consolidate power and control.
If there is one overarching message, it is that abuse of climate science is a pernicious, deeply anti-democratic phenomenon. For the many who embrace climate change as a progressive cause, watch in the coming years for who benefits, cui bono. It was Cicero who in 80 BCE first said, ‘Such is the way of the world: no man attempts to commit a crime without the hope of profit.”
Climate science is real, but by falsely accelerating it into an immediate crisis, it will prove to be the greatest avoidable burden imposed on the world, ever.