How climate-change “revolutionaries” could reap the whirlwind
Last Friday, May 7, the price of emission allowances passed €50/tonne for the first time ever. That had been a foregone conclusion, for very good reasons: record amounts of money are flowing from hedge funds, utilities, and investment funds, because they are all betting that the climate-change policies adopted will be radical. No matter how high emission quotas are priced today, they will be higher tomorrow.
Crude oil is at present hovering around $70/b, with summer prices forecast to be nudging $80/b. Some drivers are market-based—notably the expected travel boom and economic recovery with the end of the pandemic. Governments in the European Union and the United States predict that herd immunity will be reached in mid-summer, which will mean an upswing in energy and fuel consumption.
Consumption of copper and lithium—as well as various rare-earth metals—has skyrocketed with the application of climate-centred low-carbon or carbon-free technologies (wind power generators, photovoltaics, batteries, CO2 capture technologies, energy efficiency). So these have become “safe-investment havens”. Concurrently, price volatility in metals, lumber, energy and digital currencies is attracting the attention of speculators and the media, as companies try to get bigger pieces of the pie.
As carbon quota prices spin out of control, it becomes impossible to plan costs in GHG-emitting companies—not only for the companies themselves, but also for the regulators and government institutions charged with steering the ship of state between the boon and the bane of climate policies.
So what to do? There are two options:
The first is a mass shutdown via insolvency—which is feasible, since most thermal power stations have negative capital—followed by a write-off of losses to the tune of 5 billion leva. Large-scale Imports of electricity will become indispensable to balance demand and supply.
The second is a 70-100% jump in electricity prices for households and for industry.
An essential rule in managing technological change is that those who are subject to it and are supposed to benefit should experience a positive profit-loss balance for most of the period of transition from old to new technologies. If the shift is too radical—that is, “revolutionary”—the negative balance between value-destruction and value-creation will end in cataclysm.
As in a giant accelerator during the journey to the carbon-free economy, negative trends are likely to interact and mutually enhance their impact, eroding the EU’s edge as the global ideological hub of climate change.
To mitigate climate policy shocks, the European Commission and EU states’ governments have made provisions for billions of euros in grants and soft loans to act as buffers.
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