Environment and conflict in Sudan

I've moved to the Sudan... and I'm sitting under a fan in Khartoum writing this... I've now been here a couple of weeks and am no longer totally lost. I've a new job as the UN Environment Programme (UNEP) Representative for Sudan. We hail from UNEP's Post-Conflict and Disaster Management Branch, which addresses the links between environment (or more specifically, 'natural resources') and conflict.

The Sudan programme has had a fantastic start through a two-year project to create a Post-Conflict Environmental Assessment for Sudan, which was published this year and is one of the best surveys of the challenges of a developing country environment you will find anywhere - a tribute to the energy and drive of Andrew Morton, who led the effort. The assessment develops some 85 recommendations, and our job here is to make as much of that happen as we can.
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Asking the wrong question - biofuels

I don't want to do a full scale critique of biofuels - not least because that would be to enter an already crowded field [see Biofuelwatch and Global Subsidies Initiative, for example]. But it's worth looking at how narrowly-focussed, bottom-up policy-making now means we have somehow put the most financial support into the worst ideas...

Instead of asking how to reduce transport emissions from road fuel substitution, we should be asking how to make use of land to tackle climate change in the most effective way possible. In coming up with the biofuels targets, policy-makers have asked, and answered, the wrong question. It's not hard to see why... transport policy-makers have to find transport policies. The results: waste, damage and lost opportunities to do better...
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Heads you win, tails I lose - the City explained

Imagine your job is taking huge gambles with other people's savings and pensions. Imagine also that the bets are arranged so that you are paid a fortune when things turn out well, but you don't lose anything much when they go wrong. How would you behave...?

I think you might rapidly develop a hog's appetite for wild risk taking. And that is, in essence, what is wrong about the financial markets - the incentives of individual traders and managers are not aligned with the interests of those whose money they manage. The pay system based on big bonuses creates a sharp asymmetry in rewards for success and penalties for loss. There are no negative bonuses that penalise big losses. The worst that can happen is a few months gardening and a pay-off that would dwarf most people's regular pay. The institution, its shareholder or investors take the pain - not the trader or manager.
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Buddy can you spare a trillion? The EU budget review

Way past bedtime on 17th December 2005, frazzled European leaders decided how to spend just under one trillion Euro. They set the EU's budget framework from 2007 to 2013 - and committed €947 billion or just over 1% of EU GDP over the period. The chart shows the breakdown of the 2007 budget by major theme - dominated as ever by agricultural subsidies and 'regional' policy or what is now known as 'cohesion' policy (spending in poorer regions of the EU, supposedly to bring them closer to the EU average).

The full budget from 2007-13 is in this spreadsheet [XLS] [source data]. You can also look at the 2007 Budget at a glance or expenditure by programme to see how the Commission describes it, and at an even more detailed material in the EU Official Journal if you want to risk insanity and blindness. Probably the best guide to how the budget is intended to be used is still the Commission's 2004 proposal, Building our common future.
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Don't ditch the Kyoto Protocol

My otherwise peaceful morning slumber was disturbed by a radio interview announcing that social scientists Steve Rayner and Gwin Prins want to 'ditch the Kyoto Protocol'. In a Nature commentary, Time to ditch the Kyoto Protocol, they have a go at the Kyoto Protocol and claim that 'political correctness' is inhibiting proper criticism and unnamed Kyoto supporters insist that Kyoto must remain the only game in town, sternly admonishing any dissenters to this orthodoxy. Luckily for us these fearless academics are ready to speak out. The trouble is, they have nothing much to say!

Yes, it is true that current efforts to control greenhouse gases are inadequate and that emissions are still rising and accelerating when they need to be slowing and falling - see chart [data from CAIT] - see also BBC item. So we do have prima facie evidence of failure. Or more optimistically, it's too early to see success in a multi-decade effort. But any failure so far is a reflection of insufficient political will and its wicked uncle, human short-termism, rather than the design of the Kyoto Protocol.
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Have a referendum... on EU membership, not the treaty

Am I alone in finding the phoney war over the EU treaty unbelievably annoying? I feel as though I'm caught in the midst of an Olympic synchronised lying event, where just about everyone is saying the opposite of what they think for reasons different to those they give. The government doesn't want a referendum because it will probably lose, so it is saying the treaty is very different to the constitution and therefore its earlier promise of a referendum no longer applies. The opponents say the treaty is the same as the constitution so the promise of a referendum must apply. But they want that because they think people will over-react to any vote on Europe and this will help to sink the EU or, amongst the most deranged, lead to our withdrawal. They are hoping to make political capital (or plain mischief) from Britain's deep Euroscepticism - see chart [YouGov polling data]. No side is bothering to make a thoughtful case for the treaty, or against it.

The real situation, at least as I see it, is as follows:

1. Main purpose: the treaty provides some much needed administrative streamlining and better 'machinery of government'. This should improve the quality of EU decision-making and accountability (a bit).It also does a few things that will help Europe in a globalising world. [see text / documentation / BBC guide / Guardian Q&A]

2. Transfer of power to EU; the treaty does pool some sovereignty (or transfer power) in some issues (many trivial, some important)... this happens because we give up some vetoes (unanimous voting) for majority voting. But the sceptics always think of loss of vetoes as a loss of power, and vetoes as 'surrendered'. This is wrong - often a move to majority voting means other countries can't block what we want to achieve through the EU. People think the power goes to 'Brussels', but it largely remains with the Council of Ministers. When we need to express power collectively (eg. in international relations or development) the removal of vetoes can give us more power.

3. It's the same. The amending treaty is little different to the constitution in its effect, though its form is completely different. The amending treaty is tediously defined as a series of textual amendments to the existing treaties (Rome, Maastricht, Nice etc), whereas one of the great benefits of the constitution was a consolidation into a single text, albeit a long and complicated text. In claiming it is different, the government is focussing on its form, not its function, and is being very disingenuous. The main difference is the dropping of a few symbols like the anthem etc. See European scrutiny committee report, especially Annex 1 (p.25) and BBC reporting of this for comparison.

4. Some of it is stupid and unnecessary. The Charter of Fundamental Rights is ridiculous and counter-productive (and UK has an opt-out of dubious resilience). The danger of defining too many rights that are not profound or deeply supported in society, is that the currency of rights becomes devalued. There is something troubling about a document that includes the rights to 'access to free placement services', 'right to social security' and 'family protection' in the same charter than protects the right to life and freedom from torture. It even seems to ban school kids having a Saturday job. We should stick with the European Convention on Human Rights, which deals with the rights that really matter, and make sure that really works.

5. There is no case for a referendum on the treaty (and there wasn't on the constitution). We are, rightly, sparing in what we ask people to vote on - we leave scrutiny of difficult legislation to elected representatives, and only bother people when the changes are fundamental - ie. in/out of EU, devolution, regional assemblies etc. The issues at stake here are no more significant than those considered in domestic bills and trusted to parliament. And many domestic bills shift more powers around than this treaty - eg. the recent terrorism legislation. We know people are hugely confused or wilfully ignorant about the EU and this treaty - see for example polling for the Sunday Times, from 2004 - which shows people believe that the EU has more power than it has and would take more than it will, and so it is unclear on what understanding people would base their answers to the simple question about whether you support the treaty. One might argue that a referendum will force politicians to explain the treaty properly. I strongly believe that any referendum should present people with strong clear choices that they can understand. The difference between 'yes' and 'no' for this treaty is very obtuse - to the point where few involved can actually explain it.

6. EU is an elite programme that needs a new mandate. The development of the European Union has long been a programme of the political and business elites - and current treaty is no exception. Ordinary folk have usually misread it from one extreme or another - either as a happy-clappy fellowship of nations with liberal values or as a sinister plot by power-crazed bureaucrats. It is neither. the EU provides cover for politicians to do what they know or believe to be right, but often find hard to sell to their electorates. That cannot continue for two reasons: firstly the EU institutions don't really like or understand the basic principles of 'subsidiarity', 'proportionality' and 'conferral' that supposedly underpin the balance of powers between member states and the EU. As a result it does too much, does it badly and does it with poor democratic accountability. It is right to be Euro-sceptic about this. Secondly, we need the EU to do more outward-looking things - be a global player on behalf of the member states... and that will require more pooling of sovereignty. This is where the EU needs more support and less scepticism. So big changes are needed, and the public will have to understand them and want them. In other words, the EU needs a renewed popular mandate based on what it now is and should become. The mandate secured in 1975 for continued membership of the 'Common Market' has run out.

7. Have a meaningful referendum in the next parliament. I think at some point the EU will have to stop being an elite programme and be respected and accepted by the wider public - a point we are far away from now - or we leave it. To do this, we need a proper vision and debate about the future of the EU, both in the UK and in the EU itself. The real future of the EU is obscured in the treaty and there is virtually no debate about what it will be doing in even 10 years (though the budget review might help with that). But this is what we should be discussing - not the cycle of Commission appointments or voting system for comitology or other arcane details. A referendum would present people with a stark in/out choice and force us all to examine what we want the EU for and where it is going.

To summarise: the treaty has virtually the same effect as the constitution and is a useful improvement to the EU. But it is not of such consequence that it justifies a referendum (and it never did). However, the popular mandate for EU programme from the British people has expired and needs to be regained. Legitimate scepticism and a bold outward-looking vision need to face down Euro-phobia and the globalisation-denial of the Little Englanders. I think the best strategy for the government would be for parliament to decide on the treaty in 2008, but for the government to promise a referendum on EU membership for the next parliament - and then present a vision and make the case.

Other political parties could declare for a referendum or even for leaving the EU in their election manifesto. Europe would be a central issue at the next election. It's about time it was taken seriously - the last time it was an election issue, it was William Hague pledging to 'save the pound'.

And that was quite enough of that sort of thing.
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Severn barrage - flawed economics

Note: this follows an earlier posting on: The case for the Severn barrage - does it hold water?...

Sometimes you can be wading through a report and hit something that abruptly tells you it isn't really worth reading on: the report is mad and you are wasting your time. And so it happened when reading through the SDC report Tidal Power in the UK, and coming across Table 33 on page 119 - see left.

This shows the cost of the Cardiff-Weston Severn barrage for different discount rates (the horizontal lines), compared to other low carbon technologies (the bars). The report declares:

...at an 8% discount rate, [the barrage options] lie at the higher end in comparison to other low carbon technologies; at 15%, they are well above the costs of all other technologies except wave power; but using low discount rates of 2 or 3.5% a barrage becomes highly cost-competitive.

Oh dear...! If you were also to assume a very low cost of capital (discount rate) for the other technologies, they get much cheaper too! So the costs given for offshore wind or nuclear, both highly capital intensive, would be much lower if they had 2-3% discount rates and the bars would shrink below the lines. The chart is distorting and meaningless, but it does rather betray the tendency to appraisal bias that pervades the report. About this there is more to say....
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The Merton Rule - an investigation

Once it was famous only for the '70s Mod-revival band, The Merton Parkas. And, frankly, it wasn't that famous even for them. But now the London Borough of Merton is famous for the eponymous 'Merton Rule'. As the map left shows, local government across the nation [list] is at various stages of implementing the Rule. The Merton Rule is a planning condition requiring on-site generation of renewable energy:

All new non residential developments above a threshold of 1,000sqm will be expected to incorporate renewable energy production equipment to provide at least 10% of predicted energy requirements [Merton council site][Merton Rule site]

The intention is to develop this to residential development over 10 units and possibly to increase the percentage to 20%. But a storm has erupted: the champions of the Merton Rule believe the government is about to put a stop to it in a craven capitulation to the building industry, which doesn't like the high costs of complying and has the government over a barrel on delivering targets for housing growth [see recent Guardian articles: Don't scrap green housing rule, urge campaigners and Green groups warn energy minister against U-turn]. The case for the defence has been developed and a petition opened on the No 10 web site. Let battle be joined!
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Useless scientific advice

I lifted the box to the left from the Wall Street Journal, a newspaper that has to be clear, concise and to the point in its communications or its busy and clever readers buy the Financial Times instead. If only the European Commission could choose where it gets its scientific advice, and the scientists involved felt some pressure to be clear, concise and to the point. Alas, I came to read the preliminary report of the European Scientific Committee on Emerging and Newly Identified Health Risks on the subject of smokeless tobacco [PDF]. This will inform European public health policy, and if it was barely competent, it would lead to the lifting of the absurd policy of banning 'oral tobacco' (smokeless tobacco) in the EU outside Sweden. However, despite hundreds of citations and pages of data, the report doggedly conceals, obfuscates and evades the most obvious and important conclusions.

My response to the Committee: Suffice to say, I have been driven to pen a response. This required two components: an on-line response to constrained questions set by the Committee (see here), and a fuller response (see here) covering the broader failings of the work.

Not stating the obvious, focussing on the obscure. Because smokeless tobacco is many times less hazardous than smoking and can substitute for smoking, there are potential large public health gains to be had (or more likely lost, if the stuff continues to be banned). Sweden has the highest rates of smokeless tobacco use and lowest rates of tobacco-related cancer, respiratory and cardiovascular disease. Instead we ban the product and prevent other countries benefiting in this way. You would have expected these insights to form the core of the assessment. I really don't know why they are avoiding this: I can only assume someone involved thinks they are duty-bound to ensure these tobacco products stay banned on the ultra-naive basis that banning something harmful must be progress. But how does distortion and evasion help protect anyone? Apparently, several of the external experts are fed up, perhaps to the point of a walk-out, with the clear bias and manipulation in the drafting of the report's conclusions. The most important part of any scientific assessment is the framing of the issues - my initial memo to the Committee in January 2006 addressed this. As I had expected, it was roundly ignored but I think this now accounts for the problems.

The report actually does quite a good job of surveying the literature, but it is marred by misinterpretation and inappropriate conclusions drawn from the evidence. Glaring and important truths are ignored or sidelined (er, the very low levels of disease in Sweden hardly features) and great effort is expended on trivial detail - others more expert than me will no doubt tear its flawed inferences apart. But I'll highlight three major failings here that I think transcend the tobacco / public health issues:

1. Communicating risk. The report discusses at great length whether the use of smokeless tobacco is hazardous and addictive. It is. Everyone knows it is. But risk is only interesting if quantified in some way and set in context. Bacon is hazardous to health and coffee addictive. What is missing in this report is some sort of spectrum of risk - with common consumer risks at one end (eating meat), medicinal nicotine, smokeless tobacco - in all its various forms, smoking, drinking hemlock etc. That way, we would know how much to worry about a few extra people using smokeless tobacco that would otherwise have remained tobacco-free, compared to how much we might hope to gain if other people used smokeless tobacco instead of smoking. In fact, the risks of smokeless tobacco use vary markedly between products - but this range is compressed into one end of the spectrum that has combustible tobacco products clustered at the other end.

2. Communicating knowledge in conditions of uncertainty. Whether lazy or manipulative, scientists are often very poor at dealing with uncertainty - saying what is known, even if it is not known beyond reasonable doubt. There is a tendency to say 'no evidence' when what they really mean is that there are no randomised controlled trials showing significant results at greater than 95% confidence. But this is just an arbitrary, if widely used, convention in medical literature. In policy work, insights based on the balance of probabilities are often more important and a good scientific assessment will help policy makers through the difficulties of understanding knowledge where there is not high certainty. In trying to find a way of putting this to the Committee I came across the Intergovernmental Panel on Climate Change (IPCC) Guidance notes to lead authors on addressing uncertainties, which I think is an excellent guide and should be required reading for anyone working at the science-policy interface.

3. Burden of proof. Who should be doing the proving and what are the hypotheses? I think there is an in-built bias in so-called evidence-based policy making that favours the status quo. The problem is that high evidential hurdles are set as a pre-condition to justifying doing something new, but the case for carrying on with the current approach may not even be scrutinised and most probably questions never asked. The right way is to assess all the options including staying with the status quo taking a balance of probabilities approach. The ban on smokeless tobacco is an extreme case, but amazingly no-one seems to think it is important to justify the partial ban on smokeless tobacco in the EU - a bizarre intervention, and utterly without precedent, to ban a much less hazardous product variant than the market leader, in this case cigarettes.

One more small reason to despair at the European Union - to me, a completely vital institution in a globalising world. But it does too much of the wrong things, does too many things incompetently that it should do well, and does not do enough of what it really needs to do. A subject I'll be returning to....! ... continues. Read full post.

Case for the Severn Barrage - does it hold water?

There's speculation in the papers [last weekend's Guardian, earlier in the Independent] that the government is to back the Severn Barrage. This huge project would capture renewable energy in the tidal movement of water in the Bristol Channel - the tidal range is one of the highest in the world: up to 15 metres. There have been various designs and locations proposed, but the leading one is promoted by the Severn Tidal Power Group of major construction companies (see picture left and this 2006 presentation by the group making their case). The Sustainable Development Commission is shortly expected to produce its report on tidal power, and we should have much more data and analysis to consider at that point. But I thought I'd get my own thoughts on this straightened out in advance.

The inevitable question must be: "is this scheme bonkers?" In my view, bonkers would be too strong - but I can't see the case for the Barrage now.
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It could be worse - winter fuel payments

In my last post I asked for nominations for a worse policy than the proposed 'Health in Pregnancy Grant'. An anonymous contributor proposes the Winter Fuel Payment, which is designed to help pensioners fight off the cold over winter. I think 'anonymous' may be on to something...

As the chart shows, this unconditional payment has now reached about £2 billion per year, and over £12 billion has been spent on this since 1997 [data from PQ, 27 Jan 2007]. Payments of £200 are made to over-60s and £300 to over-80s [guide] ostensibly to see older people through higher winter fuel bills. So this shares with the pregnancy grant two characteristics: very poor targeting of the needy group and very poor link to the stated objective. But it is much larger, and therefore is a bad policy on a larger scale. Could this be done better? It could hardly be done worse...

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Is this the worst policy announcement ever?

There seems to be a plan to give pregnant women £200 and training in nutrition - it will be a 'Health in Pregnancy Grant' [Pregnant women to get healthy food grant - Telegraph] [BBC]. Despite the recently announced end of spin, this was spun in the media several days before its real announcement, in a speech by the Health Secretary. By the time of the speech, the payment was less precise - it would be "substantial" and "sufficient to help every mother eat healthily during her pregnancy". Perhaps some sums have been done...

I don't doubt that it would be good to improve diet and nutrition - and we should be worried about the rise of the tubby tots see chart [data from Dept Health]. There are also marked social class differences in child nutrition and prevalence of low-birthweight babies - see ONS The Health of Children and Young People Survey - chapter 3 on nutrition.

But it is one thing to recognise a problem but quite another to find a policy that will actually address it. And I think this announcement is just about the worst policy I can think of.

Let's set out some of the doubts one might have...

1. Untargeted - there is a huge 'dead-weight loss' as payments are made to all women, including many that don't need the advice or don't need the money. Who are the target group? Why aren't they targeted? If there is less than 100% uptake, will those not taking it be disproportionately part of the target group?

2. Wasteful - a high likelihood the £200 will be spent on anything but the intended outcome thus wasting money - there is no evidence that apples, broccoli and oat bran are the marginal purchase for poor families. Frankly, if I was a pregnant women I'd be taking a well-earned lunch at Quirinale. Why do they think the money will have the desired effect?

3. Expensive - I'll guess about £130m assuming England and Wales (based on about 640,000 births per year) for the payments and provision of 'nutritional advice'. God knows how much for administrating it, preventing fraud etc. Even for the NHS, that's a substantial sum. About half the additional funding the government is making available for new flood protection by 2010-11 (£200m).

4. No evidence - I couldn't see anything links the intervention with the hoped-for outcome ... and to be honest it seems unlikely and hangs on the value of the nutritional advice. What's the evidence that nutritional advice interventions change diets? How intensive does the intervention need to be? Does it make a difference if the person opts in voluntarily or attends under semi-coercive conditions to receive a payment?

5. Untried - there's no sign that a pilot has been run - if there had it would have been part of the announcement. I've the evidence of my own eyes in seeing 'Healthy Start' vouchers exchanged for sweets and Coke in my local shop. Welcome to the graveyard of good intentions. Why can't they just try it and learn some lesson before they waste taxpayers' money?

6. Uncontested - There's no obvious consideration of opportunity costs or alternatives - what about strengthening supply side by improving the services available? Is pregnancy the best time for the intervention? Would a community-based intervention work better - eg. running an aerobics class with a wider focus on healthy living etc etc...

7. Unfocussed - What about bigger interventions aimed at fewer people? There's no recognition of the benefits of concentration - if, say, one-third are in the target group(the chav mums?), wouldn't a targeted £600 intervention work better that a £200 general intervention?

8. Implausible - I've yet to see what the training would amount to, but I'll be surprised if a lecture works - I suspect the problem is a skills deficit and confidence in cooking fresh food - linked with time poverty. Also, assuming one person can run 300 training session per year and there is a single training session per woman, that would require a workforce of about 2,000. Where are they?

9. Prudence - the old girl has had a quite torrid experience with this one. Where is the control and checks an balances on such poor policy-making? What is this government in a 'tight fiscal situation' doing? I hope the NAO and select committees are all over this.

Apart from that, it's a great idea. Nominations please, for a worse policy? Poll tax excepted.
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Land use and food security

One of the big questions for me is whether we devote too much land to farming and not enough to land use for wildlife, wilderness, woodland, places to walk and places to live etc. that is land for its 'amenity' value or for development. About 70% of England is given over to farming and only about 10% to development (see my earlier posting), yet surveys show most people think that much more land (>50%) is developed than really is (see Q1 in this survey for the Barker Review). The survey also shows that people have strong preferences for land for its wildlife and landscape value (Q3).

So, why don't we have more national parks, reforest large areas of rural England, get most of the sheep off the uplands, switch to extensive low impact agriculture producing high-quality and high-value foods, open up access to land, fill the countryside with helpful signposts and paths and let people enjoy living in England? I was out walking in the Thames Valley this weekend - very nice, but I did wonder why there was so much sheep farming going on what must be some of the most highly prized real estate in the land. An occasional sortie out of the city reveals just how much space there is given over to low value agriculture, even in crowded South East England.

The argument that usually comes back is some variation on 'we need domestic farming for food security' or worries about the loss of self-sufficiency in food production. We might become more dependent on food imports, and that would be A Bad Thing. So how credible is the food security argument? Indeed, what exactly is the argument? I think it takes us to the heart of the great debate about land use that there ought to be. In summary, I think the food security argument is entirely bogus, but a key question for land use policy becomes 'how much should we consider the international impacts of what we do domestically?' ...

What is food security?
Most definitions [here][Wikipedia] are based on people having access an adequately nutritious diet. But the concept spans a range from having sufficient calories to remain alive to maintaining affordable choice in the diet - kumquats in January and affordable Piedmont white truffles at all times. Although often expressed in terms of access, food security is really an economic concept - about having the means to buy food, and about being near enough people with the means to create a market. Even the worst famines rarely arise from absolute food shortages, but loss of purchasing power and market failures (See Economist on Niger famine, Amartya Sen, Poverty & Famines) and few people actually starve in a famine - rather they die through infectious diseases. The symptoms of food insecurity are high or volatile prices. We should be clear, food security is first and foremost a problem for the poorest developing countries and for poor people everywhere.

Promoting self sufficiency - but why?
Much is made of self-sufficiency in food production - for some the declining 'self-sufficiency ratio' (see chart above [Defra data Table 7.4]) is a crisis. The National Farmers Union (unsurprisingly) sees it as vital.

In 1996 we produced more of our own food, and for a higher population, than at any time since the mid-nineteenth century. But that level of self-sufficiency has been falling. In the last 10 years, overall self-sufficiency has fallen by 18% and self-sufficiency in indigenous foods by 15%, as a result of lower UK production, reduced exports and increased imports. The figures look stark... [From first page of the NFU's case for farming: Why farming matters - December 2006].

Actually, our self sufficiency depends on how you look at it. The lower chart is derived from the FAO Food Balances' (see here), but presented as calories per head per day rather than in prices. The food balance looks at production, exports, imports and consumption of food and as inputs, such as feed and seed. The self sufficiency ratio is domestic production divided by production + net imports. On this basis, we are 83% self-sufficient in calories. See my Google spreadsheet [XLS], which sets out the food balances for the UK and a few other countries extracted from FAO. The lower chart above summarises the spreadsheet for the UK - it breaks down self-sufficiency into different food groups.

We are self-sufficient in the most important food group in energy terms, cereals. Where we are a net importer, it is primarily for meat (New Zealand lamb, Danish bacon etc) where others have advantages in production, or for things we like but don't grow here (fruit, olive oil). We tend to import higher value foods - but these are to some extent the excitement and choice in our diet, not the raw energy content.

But so what if we do import food?
What would higher self-sufficiency actually do for us? Not much actually. Domestically produced food still gets more expensive when world prices go up - so it doesn't somehow protect our people. In fact we end up at greater risk that pest, drought or some other rural plague will strike down domestic supply. It would matter for the economy if we were a huge importer or exporter and the agricultural sector was a substantial part of the economy - in which case we might worry about terms of trade shocks or other bad things that world markets might do to us. But we aren't, it isn't and we don't need to.

Agriculture accounts for only 0.9% of UK GVA, about £9.6 billion, and it is the small player in the £80 billion UK food industry - food manufacturing accounts for £21 billion and distribution and services, such as restaurants, £49 billion. The agriculture net negative trade balance is £4.9 billion (ie more imports), but this is less than the £6.1 billion net imports of office machinery and computers. We are 22.5% important dependent in agriculture, but 52% import dependent in computers and office equipment. [Source: ONS Input-Output Analysis, 2006]

So should we be more worried about importing food or computers? Answer: neither.

Trade is the basis of food security
Trade enables us to buy more food, more cheaply and with greater choice. A very good report by a team in Defra makes this case extremely well [Food Security in the UK: an evidence and analysis paper]. Strangely this seems to have popped out just before Xmas 2006 - usually a sign that something is to be buried! Maybe it was that it came a few days after the NFU report on Why farming matters.

As the authors say: The conscious or unconscious identification of food security with self-sufficiency has often obscured the real issues... and ... a discourse centred on ‘UK self-sufficiency’ is fundamentally misplaced and unbalanced.

The importance of markets in securing food supplies is well illustrated in charts included in the report (left). For vegetables, countries within the EU have varying self-sufficiency. But the EU is overall almost self sufficient. For fruit, some countries barely grow it all, but the EU meets most needs (but can't grow much tropical fruit). Over time, the EU has become more dependent - but that probably reflects an increasing taste for fruit, lowering tariffs that allow access to lower cost producers, taste for more exotic fruits not grown in the EU.

The point is that markets and trade deliver food security, diversity and resilience in the supply system. The report concludes:

International trade has long been a central feature of UK food supply, and has remained critical even during times of emergency. There is no reason to suggest this will be less in future. At the very least, UK food security is tied up with the EU single market and, ultimately, the efficiency of the world trading system.

I think the big question about land use in England is how much we care about the international impacts of decisions we make about UK self-interest... there are two in particular: the international environmental footprint and the impact of our land choices on the food security of others.

Exporting environmental footprint...
I hope you might be convinced that 'self-sufficiency' in food isn't a worthwhile objective in its own right, and may even be harmful - it certainly has little to do with food security. But what about the argument that we are simply exporting the environmental footprint associated with food production? We could turn England into a pristine green and pleasant national park with all industrial farming removed. But food production, fertilisers, water pollution, biodiversity impacts and all the rest would go abroad.

The first thing to note is that this is absolutely the norm - we do this for manufacturing, mining and other high impact activities. Much of our polluting is done elsewhere. At the heart of this is the theory of comparative advantage and our preferences. Rich English people have a high and increasing preference for good environments (articulated collectively through numerous laws, codes, the planning system). Other countries may relatively favour more aggressive and polluting activities and prefer money raised through production of goods to sell to us. We have traditionally respected this as a matter of 'national sovereignty' and resisted what some would call 'environmental imperialism'.

I think this reluctance to impose extra-territorial standards will and should continue, with an expectation that food standards and costs will rise globally and that more countries will emulate the EU and set high environmental standards as they become more prosperous. But I think there should be one exception to pure national sovereignty - where the impact is on a 'global public good' ie. something we should all bear responsibility for protecting because it's value is global and it has characteristics of a public good. If the system behaved in such a way that for every hectare of land taken out of agriculture in England a hectare was felled in the Amazon or Borneo, I'd be troubled. I'm not sure it would behave in that way, but the challenge there is to develop global collective action to provide global public goods.

PS. we should be very sceptical about 'food miles' arguments (see my earlier posting: Food miles... wrong idea, stop using it!)

Impact on the poorest...
If we use UK land for producing 'non-marketed' goods that we have high demand for (like leisure, views, woodland walks and biodiversity), then we are adding to the pressure on available productive land to meet food and energy needs globally. That doesn't hurt us too much, as we simply buy access to the necessary land through international trade. But does it hit those who are the poorest? To be honest, I don't know...

How it could make things worse...
Pressures on land may grow - fuelled by population growth, economic growth, a tendency to consume more protein with increasing wealth, demand for biofuels and climate change and other pressures degrading the available land. This would be globally serious if agricultural productivity growth (increasing yields per hectare) did not keep pace with these pressures. Land prices and agricultural commodity prices would increase and the poor may be unable to afford sufficient food. In fact, the productive capacity of the land may be globally insufficient to support the world population. The poor would be the inevitable losers.

Why it might easy to overstate the problem...
If land and food became scarce, we might expect those poor countries with agricultural economies to benefit from rising prices - just as oil producers (in theory at least) benefit from rising oil prices. A new green revolution might boost productivity and food production might shift, with perhaps Ukraine and Russia becoming bread-baskets of Europe, for example. As prices rise, there may be reconfiguration of the diet - perhaps with less resource-hungry protein consumption. Famine is rarely caused by absolute food shortages - and there is unlikely to be a global food shortage in absolute terms. Richer poor countries would have a better grip on their food security.

The international consequence are a critical question for land-use strategy
As I suspect is apparent, I'm not really sure how the international consequences of domestic land use choices would or should really play out. But what I am sure about is that these are critical questions for a future land use strategy. At the moment we generally do not act on these consequential impacts (in fact we usually wilfully ignore obvious damage caused by key farming policies like the CAP). But is this hard-headed and basically right, or does it belong to a pre-globalisation era of narrowly defined national interest?
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Saying stupid things with fake sophistication

If you want to say something absolutely jaw-dropping in its idiocy, then you need to cloak it in lots of fake sophistication. And this is what ASH Scotland has done with its new position paper on smokeless tobacco.

No less than 266 references are used to support the truly stupid idea that smokeless tobacco, which can substitute for cigarettes and is far less hazardous, should be banned. Smokeless tobacco is far less dangerous because there is no, er, smoke to draw into the lungs. The red hot particles, volatile gases and thousands or organic products of combustion ingested deep into the body do the harm.

If you put that idea to any normal person they look at you as if you've lost your mind. Only in the insular world of 'tobacco control' do these ideas survive for longer than it takes to express them. In fact, there is a wealth of evidence that it is, as you would expect, a truly stupid thing to do - not least because the place where it is most widely used (Sweden - see chart) has much lower rates of smoking related deaths....

The chart shows male lung cancer mortality rates in some major countries [Source: IARC / WHO Cancer Mortality Database CANCERMondial]. One country stands out: Sweden. And Sweden also has lower rates of oral cancer and other smoking-related diseases. The difference between Sweden and the others is that a high proportion of its tobacco use in Sweden is in smokeless form [view]. One of Europe's especially ludicrous policies is to ban most forms of 'oral tobacco' [Directive 2001/37/EC Art 8], though not in Sweden.

So the main ASH Scotland policy idea is that other countries should be prevented by law from reaching a position where more of the tobacco use is through far less harmful forms of tobacco consumption and that addicted individuals should be prevented by law from having access to lower risk products. What next? A ban on anti-lock brakes? Cycle helmets? Ropes while rock climbing? Any risk reduction measures at all while engaging in inherently risky behaviour? There's the warped logic of the overweening health planner behind all this... if you make a risky activity much safer, then people might not stop doing it altogether.

Confused about burden of proof
Apart from the unsettling coerciveness of such positions, there are simplistic errors in the analysis - concerned with the handling of scientific uncertainty when making policy. Science can (and should) reserve judgement indefinitely or use 'beyond reasonable doubt' tests of evidence. But policy making requires decisions whatever the available evidence - and a decision includes "maintaining the status quo". This requires the policy-maker not to demand perfect knowledge but a 'balance of probabilities' assessment of available evidence. Throughout the document, the authors draw conclusions of the form: "there is not enough evidence [for doing something sensible]" and so decide to stick with doing something stupid, as if there is conclusive evidence to support the stupid ban. Which there isn't and they don't pretend there is, or even seem to recognise that there ought to be. All they've done is set a high or impossible evidential hurdle for the thing they don't like and not applied any evidential challenge whatsoever to maintaining the ban, which they do like. But what if the ban, by denying people less hazardous alternatives, is actually killing more people? It's at least plausible. And given the position in Sweden, where it isn't banned and many fewer people die, you might think that was a good starting point and expect some evidence to show that bans aren't just making everything worse. For me, the burden of proof is on those supporting the utterly insane idea of banning much less hazardous substitutes for very deadly products. Look through the ASH Scotland paper and you'll find no evidence to support a ban or give any confidence that it isn't doing more harm than good.

Confused about individual rights
But I think the thing I find most troubling about this sort of posturing is what it means at an individual level. In effect, these remote health planners are saying to a person who smokes cigarettes that they should not have access to a much less risky alternative. Where did the acquire the authority and the bare-faced arrogance to do that? How did they become so sure of themselves that they feel qualified to restrict the harm reduction options available to someone struggling with addiction? So on those estates in Glasgow, where smoking prevalence can be as high as 70%, ASH Scotland says 'no' to lower risk alternatives. You must quit. And if you don't quit - well, you might as well die.

Wrong questions
ASH Scotland solemnly poses questions like should smokeless tobacco be given a "legal designation as a harm reduction product in the UK? Eh? There's no such thing. It's a tobacco product - just much less dangerous than the norm. Or they state a preference for use of NRT for harm reduction or stopping smoking - but what if others find smokeless tobacco more effective or don't want or wont use a medicalised approach? What is the case for reducing the available options for quitting or reducing smoking? They prefer other interventions such as smoke-free places legislation and bans on advertising. All good ideas, but they don't explain explain why these are mutually exclusive with policies that reduce the harmfulness of the tobacco that is sold or why removing smoke would have a beneficial supportive 'denormalising' effect. Or why there wouldn't be additional benefits from reducing passive smoking exposure, role modelling and fire risk.

With top epidemiologists predicting 1 billion premature deaths from tobacco in the 21st Century, one might think that all options would be in play- especially as the smokeless products have done so much to keep the carnage down in the one place where they are widely used.

So for the next edition of this position statement:

1. please provide evidence that the ban you favour maintaining isn't doing more harm than good at population level by denying smokers access to much less hazardous products and opportunities to manage nicotine addiction, in the way it appears to work in Sweden. We know that even if a few extra people used it that were never going to be tobacco users or would have quit anyway, the extra harm would be small.

2. please outline your ethical basis for denying a person access to an alternative product that is much less dangerous than the one they may be addicted to. You might think it will save the lives of others (I don't, and you can't show it will), but what about that person's individual rights? Do they count for nothing in the face of your bossy prescription?

3. please explain why it would be good policy to provide legal protection to the cigarette makers in the market for tobacco and a barrier to entry to potential competitors offering much lower risk products. This is an especially stupid idea now being aggressively pioneered by health campaigners in the United States through their seedy and desperate deal with tobacco giant Philip Morris to support a Bill to pass regulation of tobacco to the FDA. Expect many dead.

Read this instead...
For a decent review of the evidence, don't spend too long watching ASH Scotland struggle with basic epistemology. See Brad Rodu and Bill Godshall in Harm Reduction Journal 2006, 3:37; and the collection of 50 best papers on the International Harm Reduction Association tobacco section. Even tobacco companies provide better and more balanced analysis than this effort by ASH Scotland: see this account of Experience from Sweden by Swedish Match - or this literature review by United States Smokeless Tobacco.
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When rich countries make emissions cuts in poor countries

Yvo de Boer, head of the UN Framework Convention on Climate Change (UNFCCC) argues that richer countries should be able to buy as much as all their emissions reductions through investments in emission reductions in developing countries [see BBC / interview]. Given the global atmosphere is indifferent to where on the surface the reductions take place, there is an argument that countries with obligations to cut should make the emissions cuts where it's most cost effective. As long as the rich countries do the paying, then they would not be shirking their responsibilities. Or so the argument goes. And this argument is more plausible than its critics admit - the polluter is still paying, but in theory paying where the cuts are most efficient and thus squaring equity and efficiency objectives. However, the argument is also wrong. The main problem is long-term structural change...
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Escaping the reckless EU renewables targets

The Guardian exploded with indignation this week [Revealed: cover up plan on energy target; leader; letters], at the discovery of a leaked government memo discussing how the UK might wriggle out of a European Union renewables target - to reach 20% of EU energy consumption from renewables by 2020. In fact, the real story is different and more worrying than the Guardian has it. The real problem is how this target ever was agreed in the first place and the negative consequences for climate change that will flow from it. It might seem counter-intuitive to see a highly 'ambitious' renewables target that way, but I think these targets an own-goal that will discredit the EU, cause negotiating sclerosis, distract from more important objectives, and fail to deliver what would in any case have been the wrong approach, whilst missing renewables targets for 2010 by miles. I think this is bad policy and the civil servants are right to be looking for a way out, so let me explain why...
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Cap and trade for cigarettes?

If a country wanted to reduce tobacco use to a level that meant it was comparable with other public health risks, then why not simply reduce the amount that can be sold or number of customers they can have, by allocating quotas to manufacturers and allowing trade in quotas? This proposal has surfaced in the US as a legislative proposal: Help End Addiction to Lethal Tobacco Habits Act (geddit?) [full text] by Senator Enzi. This is partly in response to the pointless industry-sponsored Family Smoking Protection and Tobacco Control Act , which mystifyingly also attracts support form big US public health campaigns. I think have vested misplaced faith in regulation and regulatory bureaucracies. The Enzi approach is an alternative and the idea also has people talking in the public health world [article in New Zealand Herald and here]. But does it make sense? I'm not so sure... here are a few tentative thoughts (and I'd welcome responses from those promoting the idea)....

1. What does cap and trade add compared to increasing taxation on tobacco? Both systems tend to raise prices and bring supply and demand into line. Taxes, however, have the great benefit that the premium paid flows to the government, rather than the tobacco company (unless the quotas are auctioned, which I would recommend as an amendment to the Enzi Bill, in which case the premium flows to the government, but adds a lot of complexity).

2. The 'allocation programme' is cumbersome. Based on historic market share, Enzi's proposal grants important rights (effectively access to market) to incumbents. Again it could be improved by auctioning quotas, but adds nothing to cigarette taxes. The Enzi proposal actually makes the number of users the regulated quantity... but given the great heterogeneity in what makes a user and how much this changes over time, this is a really poor idea for a regulatory base.

3. Control of price volatility will dominate quota setting. This is a major problem with cap and trade systems (and we are suffering from this in the EU Emission Trading Scheme)... Whilst it is possible to set, quotas as Senator Enzi does, that give a desired outcome with certainty, in practice politicians are not indifferent to price hikes in widely used products. The result will be a fudge on quota setting that effectively guarantees that the price volatility is manageable. An economist's view is one thing, but these ideas have to be seen in terms of political economy.

4. Physiology. Smokers control their nicotine dose from smoking and, within limits, can get their fix from fewer cigarettes. This effect is already seen with poorer smokers, who will often smoke fewer cigarettes but achieve a higher blood-nicotine level by smoking more intensively. This is an issue for taxation of course, but proponents should remember that there isn't a linear relationship between a quota (whether number of sticks or number of users) and health impact.

5. Gaming. With complex regulation and definitions, there always comes the scope for innovative gaming. And you would surely expect that here. If the quota is users, can some new product be designed that takes them out of the user definition? Can users be encourage to lie to surveys? If the quota is measured in product terms, can longer cigarettes be introduced?

6. Scope of responsibility. It's generally a good principle of regulation to give organisations duties or targets only for things they have control over. Tobacco companies don't control the number of users, they are just one influence - health care support for quitting, taxation, public health advertising, smoke-free policies, marketing restrictions are all more important. They can control the quantity of product they sell and its price.

7. Legal constraints. The slightest sign that the allocation regime disadvantages importers or foreign brands, then a challenge at the WTO would be expected. In fact, it would happen just to get in the way. Anti-trust law or other consumer protection principles might be expected to be deployed by those disadvantaged in the market carve up. What would happen when people wished to bring in cigarettes they'd bough overseas?

8. Distraction. This could tie up administrators in knots and expend valuable political capital to little purpose. I think there is only a limited role for supply-side interventions in reducing harm from tobacco. these are primarily by:

• raising the price through taxation that keeps pace with growth in incomes, and so reduces affordability of tobacco use over time;
• differentiating the tax rates according to the harm. I strongly support a much lower tax rate for smokeless tobacco products and no tax differentiation between smoked products (eg. by tar or nicotine yield) as there is no real health difference between smoking products, whatever you've been led to believe about 'lights' etc.
• giving meaningful information to tobacco users about relative risk of products - again, especially about the vast difference in risk between smoking and smokeless tobacco.

More important are the measures designed to act on the demand side - smoke-free policies, advertising bans, support for quitting, counter-advertising being the most effective.

9. Finally, an advantage. Where taxation is a dirty word and political non-starter cap and trade systems can have much the same economic effect (raising the price at the margin) but may be more easily implemented than a tax. Something similar happened with the US Master Settlement Agreement in which State Attorneys general sued the companies for health care costs, won $250 billion settlement, causing the companies to raise prices by 40-50 US cents to pay for it. Not far off taxation, but a lot of lawyers got rich too. I think lawyers would do well from a cap and trade system too... and that's never a good sign.

Of course... I very much doubt Senator Enzi's proposal will go anywhere, but always worth discussing innovative ideas.
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Achieving culture change

An excellent new publication from the Prime Minister's Strategy Unit, Achieving culture change: a policy framework. It's open for discussion until 31 August and will be finalised once they have had views in. It's an important area because many policy objectives depend on influencing, or are thwarted by, deep-seated attitudes and entrenched behaviours... environment, skills and employability, anti-social behaviour, and public health to name a few.

This develops work on 'behaviour change' (see my posting on soft paternalism for a discussion) to reflect the idea that behaviour is embedded in culture: a stock of attitudes and beliefs - and that behaviour is conditioned by culture, but that changed behavioural norms are eventually consolidated into culture (see graphic from report). If that sounds either obscure or so obvious it isn't worth stating, I think it is worth having a read of the report - it's an excellent synthesis of the knowledge and experience in this area with some good analytical tools...

I attended the launch of this report and was asked to give some remarks in response. My six main points were as follows:

1. Death of 'rational man' economics. As soon as real world behaviour and culture are examined, it is obvious that the key assumption of utility maximising behaviour (where utility is usually erroneously conflated with income) fails. One quite (I suspect inadvertently) amusing part of the report is on page 58, where a list of behavioural 'biases' are noted in which human behaviour departs from the rational model. In most of science, when the model is different from reality, we usually conclude the weaknesses and biases are in the model, not the real world! Only economics can suspend humility I recently read The Origin of Wealth, by Eric Beinhocker a fascinating challenge to the highly deterministic and reductionist assumptions of classical economics, in favour of 'complexity economics' comprising system dynamics and emergent behaviour, agent interactions, networks, and evolutionary models for innovation and markets. But much policymaking rests on the simplistic and wrong assumptions of neo-classical economics - in fact it is elevated to the status of religion in some quarters. If not time to bin it, then it's time to recognise its limitations - I'm arguing its approach is sometimes necessary (eg. getting prices right), but rarely sufficient to deliver desired outcomes.

2. The importance of time. The report is a manifesto for 'slow wins' - substantial changes achieved over a long period, in which interventions to change behaviour become self-sustaining and consolidated into culture. Time is much underrated in policymaking but it is critical in reducing transition costs and allowing everyone to adapt. So for example if there was a desire to apply a high carbon tax (say £50/tCO2) it could be introduced over 10-15 years. There has been a steady culture change effect around domestic violence - once the police deciding to ignore 'domestics', implicit societal permission to thwack the wife was withdrawn, and domestic violence has fallen very substantially over time. Most of the great changes in society have been realised over many years: slavery abolition, universal suffrage, the Enlightenment rejection of religious dogma, human rights, etc.

3. The moving policy frontier. Attitudes and culture change over time, and what is impossible at one point, may become acceptable as time passes and attitudes change. The 40-year effort to restrict smoking in public places is a good example (see post on lessons) and there is a good discussion of this in the report. With recycling there has been a steady change in attitudes, and ideas that were ahead of their time just five years ago, are under discussion now. See PM Strategy Unit 2002 report Waste not, want not, which recommended charging households for the amount of rubbish produced and caused a storm at the time, but see 2007 Defra announcement and BBC.

4. Credibility and consistency. If long term culture change is the objective, then everything done needs to show the direction is consistent and the intention credible - otherwise the signal is mixed. Perhaps this problem afflicts us most in responding to climate change... the language on climate change is strong, but in other policy areas the signals about climate change are are mixed - eg. housing, transport and even energy. I think was done well with drink driving, where detection, penalties, advertising etc all lined up with a single clear message. Culture eventually changed and no-one jokes any more about driving home because they are too drunk to walk. One argument I made for consistency reasons was to build on, not replace, the behaviour change model of the 2005 Sustainable Development Strategy: Securing the future, chapter 2.

5. Where does the mandate come from? Intervention in behaviour and culture change can be paternalistic or appear paternalistic. How does the government secure a mandate from the public to do this? The report p30-32 gives a characterisation based on liberal principles governing the case for government intervention (though the 2-dimensional space drawn on p32, doesn't reflect the case where people cannot exert full 'agency'). However, I think this is only part of the story. It gets to the heart of the relationship between a government and its electorate. I recently attended the Green Alliance summer garden party and debate: Is it up to politicians to save us?, which was excellent - but the question begs a careful answer. I don't see politicians as simply aggregating public opinion - we usually elect them to lead us, and lead us beyond where we currently think we are or want to go. That is, we place some trust in them. We give them a metaphorical tow-rope and ask them to tow us along in what looks like the right direction. Sometimes they can go too fast or be excessively libertarian, authoritarian or paternalistic, and the tow-rope reaches its elastic limit and then snaps - in a 'crisis' (like the fuel protests, too much immigration etc.). If we trust the politicians less, we reel in the tow-rope and give them much less scope. the important thing is that the public ultimately controls the 'permission' it gives to politicians, but politicians can act in such a way that they enjoy greater just and more slack... consistency, credibility, taking times, avoiding excessive intervention, listening etc.

6. Where is the space for this sort of policy work? Chapter 4 (p66) sets out a seven part policy framework for operationalising the ideas in the report (see diagram below - click to enlarge). My observation is that this sort of work is a very substantial undertaking, and it's far from obvious to me that the civil service is geared up to do this. I think it needs: ministerial buy-in and patience, multidisciplinary teams, time and resources, developing a programme of policy-focussed research, clear agreement on problems and scope.



The fat tax - my confession... I also offered the meeting a confession - it was me that penned the infamous 'fat tax' concept into the PM Strategy Unit's earlier work in this area [Report: Personal responsibility and behaviour change] causing the report to be changed following another media storm (see The Times, BBC). I thought I was being clever by saying that it would be a tax on food not bodyweight!

Needless to say, this idea is eventually percolating into the mainstream - exactly as you would expect as concern mounts over obesity [see recent articles: Doctors call for Fat Tax, Institute of Fiscal Studies report, Fat tax could save thousands of lives, Fat tax would be a throw back to the nanny state: so what?, Shouldn't we tax fatties? ]. I suppose the lesson from this is that the government should allows others to make the running (even if it is egging them on), so that an idea seems to be a natural progression of policy. This was an example of stretching the policy frontier too far, too quickly... but given this frontier is moving, it's time will surely come.

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Urban flooding - 15 things to do

We've had some horrible urban flooding impacts recently. But the outlook is pretty bleak too - the chart is from the 2004 Foresight Report Future Flooding, showing both potentially high future costs (rising from £270m to up to £15 billion) and large uncertainties involved. Now we have been reminded how bad it can be, what's to be done? Let me set out some views on the problem, which is far from straightforward and little to do with flood defences, and then 15 ideas for how to respond...
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Is the UK flooding down to climate change?

As an employee of the Environment Agency, I am increasingly asked "what an earth is going on with all this flooding?".

Is climate change to blame?
Maybe, but only maybe - and maybe not. There has been highest rainfall in parts of England since records began in 1766 (Met Office stats), but many have leapt in with rather more certainty than is justified to attributing this to climate change - citing the usual formula (to paraphrase) that "no single event can be attributed to climate change, but this is consistent with the predictions".

Actually the picture is far less clear than even this. Whilst the global picture on climate change is ever clearer, characterising climate change impacts at small geographical scale (ie. English regions or cities) is very difficult. This is done by the UK Climate Change Impacts Programme (UKCIP). In the most recent (2002) UKCIP assessment, Climate Change Scenarios for the United Kingdom, the modelling finds more intense rain in the winter, but that:

Intense rainfall events become rather less frequent in summer just about everywhere. (p. 55)
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Emissions trading - notes on a scandal

Another day, another broadside against carbon emissions trading. The FT's Martin Wolf offers advice to the new Chancellor, including:

While simplifying tax, he should also take a close look at green taxation. Simple taxes that apply across-the-board are what is needed. The grant of valuable rights to big polluters through systems known as “cap-and-trade” is a scandal. [here]

This is an increasing theme, with even American giants like Alan Greenspan and Paul Volker coming out against cap 'n' trade and in favour of a carbon tax [see article]. I have to say I'm ever more swayed by this view, see my posting To Cap or to Tax.

But is the EU system 'a scandal', as Martin Wolf says? You can certainly make the case - the permits are given away to businesses, but they are valuable because they are scarce 'property rights' - the right to use the atmospheric sink for carbon. It's hard to put an exact value on these permits - see charts of the market price for EU allowances from Point Carbon showing the collapse of price in 2007 but a steady price of about €20 so far for the future price of 2008 EUAs... but in total they are worth a great deal.

€billions for what purpose?
So if, say, €20/tCO2 is used to give an illustrative value of the ETS price, the value of the rights to emit over 200MtCO2 to UK industry comes to over €4.3 billion. To the power sector alone, it comes to €2.7 billion (see numbers in this Google spreadsheet based on 2005-06 ETS results [XLS]. The power sector is especially annoying because it actually passes these costs on to the consumer, even though it doesn't actually pay for the permits, which are mostly given away in the EU system. They have adopted this as an accounting convention, reflecting the opportunity cost of holding the allowance for each unit of electricity sold. They can pull this trick off because they are an oligopoly and don't face competition from producers outside the system. So even allowing for the permits that they have to buy because they are given fewer allowances than they need, the power companies profit from this by €1.8 billion... and the bigger and dirtier they are, the more they make, because allowances are given to them in proportion to their historic emissions! What exactly is the public purpose served by transferring billions from energy consumers to energy company shareholders in approximate proportion to how polluting they are? Is that a scandal? Well you could defend it by saying that it was necessary to get the system off the ground - an argument that works if and only if the system is changed as soon as possible. Alternatively, you could see it as gullible fearful governments and bureaucrats being outsmarted at every turn with the poor public bearing the cost for nothing.

What to do?
This does in fact partially implement the polluter pays principle, in that the consumer is effectively 'taxed' for their pollution through this system because the permit costs are passed on. It's just that the 'tax' revenue goes to the companies not the government - and therefore the scope to do something useful with €4+ billion in the UK is lost. The answer is to auction the permits so that the government gets the revenue. The international competition arguments against making them buy their right to pollute are mostly hogwash and really apply only with force where the industry is energy intensive and highly traded internationally. Excellent analysis by Grubb & Neuhoff summarised by the Carbon Trust, [here] suggest that competitiveness is a minor concern and only aluminium should be a worry. There should be no question of violating the polluter pays principle, options include ideally reaching international sectoral agreements through the Kyoto Protocol or tax adjustments at borders to correct for ETS costs for trade across EU borders.

A novel approach for aviation in the ETS...
My suggestion is to bring as much EU aviation as possible into the system but give the sector no initial allowances at all. This would mean it would have to buy CDM credits or allowances from other emitters in the EU system. This has the equivalent effect of making 'carbon offsetting' mandatory for all flights. It's economically equivalent to taxing aviation and spending the proceeds on reducing emissions in developing countries.

This lot needs to be agreed in time for the third phase of the EU ETS - which starts after 2012, but is under discussion now.
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