Notes from Jean-Marc Jancovici keynote on climate change and decarbonisation

I just spent most of the afternoon watching, pausing and taking notes from this presentation by Jean-Marc Jancovici (who was introduced to me by my friend Emmanuel Fayet). The talk, in French, is titled ‘James Finance against Doctor Carbon’ and can be found here.

Jancovici has the ability to explain science in a context anchored in economic, social and political reality. He’s also got a sharp sense of humor and doesn’t hold back. 

The takeaways from his talk:

• We’re in deep trouble, the next 20 years have already played out, and we’re behind if we want to limit the impacts of climate change
• Our children and grandchildren will have a fraction of the carbon budget we've benefited from
• We are overestimating the impact of renewable energies, especially if we account for their total cost of implementation at a scale which would move the needle
• Companies should focus firstly on educating their leaders on the physical and economic realities of climate change and decarbonisation, and secondly on fully accounting for their energy and carbon footprints

I haven’t included the Q&A which is also good (that may be for next weekend if there’s demand for it) but he makes a strong case that when it comes to decarbonisation our biggest lever is nuclear power.

Note: I am paraphrasing Jean-Marc Jancovici plus translating from French to English so any errors factual or otherwise are mine, not his. I am doing this because it’s useful to reinforce my own learning and also on the off chance that I can get at least one person to discover him and others with similar messages. I urge you to go to the source and find one of his many videos (mostly in French but not all) or articles. I’ve not included any of his graphics since I don't have permission but they add a lot to his message, another reason for going to the source.

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Notes from ‘James Finance contre Docteur Carbone’, Jean-Marc Jancovici keynote at Atlanti Forward Thinking Series in Geneva, YouTube video, Sept. 19, 2020.

What we're doing to mitigate climate change isn't working and the consequences will be grave and long lasting

Renewables, digitalisation, global gatherings and targets, and everything else we’ve attempted, have not reduced global emissions which are in fact still rising. 

Dioxides require energy to be broken up, no spontaneous process exists to break them up. Nature has two processes which adjust atmospheric CO2 levels, first by transferring it from the air to oceans (but that can go the other way) and second through photosynthesis (e.g. the sun’s photons applying energy to break up CO2 in carbon and oxygen).

Because of the above, any CO2 surplus takes a long, long time to disappear. If we stopped emissions today 50% would remain after 100 years, 20%-30% after 1000 years and 10% after 10,000 years.

Therefore two unavoidable facts: we’ll never see pre 1700 levels again and climate instability is here to stay no matter what we do. 

This also means that no matter what we do, the next 20 years of emissions are already determined. 

Climate stability was an enabler of sedentary life (food production, shelter construction, etc.) and that is over. 

Our democracies, institutions and companies are not adapted to deal with this, they don’t match the global scope and time cycles. In other words we’re working on today’s economic problems and not dealing with our grandchildren’s environment. 

That’s the reason that in the finance sector, the first to react were pension funds as they have longer time horizons than most.

Climate change is a scientific fact and the impact is non-linear

Greenhouse gases (GHG) emissions are causing global warming and the impact is non-linear. A rise of two degrees Celsius is not two times worse than one degree. Our experience with local and even temporal temperature variations (e.g. morning vs. afternoon temp in one place) can’t be compared to the impact of a 1-2 degree variation of the global average. 

Just 20,000 years ago we were in the last ice age. Scandinavia and Canada were below 3,000 meters of ice and ocean levels were 120m below today. 

Our current climate resulted in an increase of 4-5 degrees Celsius in 10,000 years. A 4-5 degrees temperature increase vs. today over the course of 100 years would provoke a dramatically chaotic world with food insecurity, massive migration and political instability. 

With +4 degrees the equator becomes uninhabitable for long parts of the year (the body’s natural cooling mechanism doesn’t function at temperatures over 35 degrees and humidity over 100%), e.g. populations from Brazil, Nigeria, India, the Philippines would relocate in order to survive. 

A warmer climate causes more evaporation but precipitation is unfortunately uneven. Some areas, such as northern Europe will see much more rain, others, such as the mediterranean, will see much less. 

Two degrees means increased food insecurity globally. The number one cause of revolts and upheavals is hunger. 

For example, a two degree increase means 20% drier soils in the mediterranean region, which means more imports for countries which already important most of their food, and when that’s no longer possible there’s another Arab Spring but worse. 

Again on linear thinking: the physical world is non-linear. For example our bodies are non-linear systems; a 5 degree fever is not 5 times worse than a 1 degree fever, it’s lethal. 

Consequences of global warming are non-linear as well. Two degrees is not two times worse, it’s probably 50 times worse and three degrees is probably 1,000 times worse. Each degree adds as much bad consequences as the sum of all previous increases.

Recent fires in Australia burned across the equivalent of ca. 1/3 of the area of France. Similar issues in Siberia, Brazil, California and parts of Africa. Simulations for 2040 show similar fire risks extending to large parts of France. 

When the sun emits more energy the stratosphere gets warmer (due to ultraviolets) as does the atmosphere. When human activity provokes the greenhouse effect there is increase in atmospheric temperatures. Reflections are captured which otherwise would have warmed the stratosphere. Measurements since the 70’s show that the stratosphere is indeed getting colder. There are other markers but this one is undeniable, there is no question that human activity is the cause of current global warming. 

This temperature difference is also what’s provoking more extreme weather events. 

Greenland is melting and the process is self-reinforcing: ice melting means more dust gathering which makes the surface darker which captures more heat; ice melting means the surface is lower which means higher temperatures; as the ice floe melts, the more reflective ice is replaced by the more absorbing water surface which increases temperatures which in turn melt more ice. This is irreversible and will mean 3-6 meters higher oceans in the coming centuries. 

In a world with higher temperatures, ocean flows are modified. The poles will get warmer faster than the equator will, which means the temperature differences between the poles and the equator will be lower. This modifies the gulf stream as well as the polar vortex (which sends cold air southward) which erodes the barrier between the poles and tropical areas which in turn explains sudden and violent swings in temperature. Positive temperatures were recorded at the North Pole in January in 2017/18.

Pathogens such as the corona virus like higher temperatures…

We have never made a climate experiment on this scale, with a planet of 8+ billion human beings, and the only thing for sure is that we won’t predict all possible consequences. 

Greta Thunberg is right, we know more than enough and we should act. 

What are the implications, economically, socially, politically?

What will this cost? Anywhere from zero to infinity.

The climate is not factored in any of our pricing or value mechanisms. There isn’t a single stock price which integrates the fact that the climate exists. When an asset is free if it’s damaged then that is not reflected in any price / cost. 

There are attempts to predict the impact of climate change on Gross Domestic Product but these are wild guesses.

A recent article from the U. of Chicago says that the average cost of all carbon ever emitted (total cost/cummulative emission) is between $10,000 and $600,000 per ton (2000 pounds or ca. 0.9 metric tonnes) with a convergence toward $100,000. 

[Jancovici points out the irony of this coming from one of the bastions of the free market economy where all information is and always has been reflected in the price of things, ref. Milton Friedman.]

“The ultimate cost of carbon” article here.

The CO2 footprint of an average French person is 15 tonnes. At $100,000 per US ton (or roughly $300,000 per tonne) that’s a cost of $4.5M vs. a GDP per capita of $40K…

Another way of putting it is that the costs of the damages will be beyond anything our economies can sustain.

There are 2,250 billion tonnes of cumulative CO2 emissions as of 2018. We’re good for 1.5 degrees Celsius temperature rise no matter what we do and no matter what was signed in Paris. 

[Side note: 2,250,000,000,000 tonnes = 2,250 Gt and we're emitting ca. 50 Gt-e of CO2 annually, see this great infographic from informationisbeautiful.net here.]

If we’re to stop at 2 degrees we have a ‘budget’ of 3,000 billion tonnes of which 2,250 tonnes are already in the atmosphere, so we have 750 billion tonnes left to 'spend'.

In simplified terms that means that for the coming century we have about a one third of the carbon budget as we had the previous century with a 2-3 times smaller global population.That means a child born today has lifetime carbon footprint budget between 1/6th and 1/10th as their grandparents did. 

Where do emissions come today?

All this means that GHG emissions must get to zero by the 2050. Where do emissions come from today?

19% coal plants (half of which are in China)

7% gas & fuel oil

7% cement factories

10% other industries (direct emissions)

6% buildings

14% transport (6% cars, 4% trucks, 2% ships, 2% airplanes)

20% agriculture (cows & rice plantations, animal waste, fertilizers)

10% deforestation (mostly to make space for agriculture, palm oil / soya / small farming)

7% other (waste treatment, refrigerants)

So 30% is food related (ag & deforestation) and in total ca. 40% of global emissions are not energy related, none of which renewable energy will solve.

Side note on hydrogen: Producing hydrogen works by adding lots of heat (typically from natural gas, which itself produces CO2) to Methane and water vapor then carbon is attached to oxygen which also produces CO2, double whammy.

Current hydrogen vehicles produces as much CO2 over its total value chain than a gasoline powered car. So European obsession with hydrogen is misplaced.

What is energy?

Three wrong answers then the right one.

A) Not economic costs, energy represents 5% of global GDP

The ‘weight’ (economic or physical) of something doesn’t represent it importance (brain is 2% of body weight, testicles even less, yet they both impact behavior a lot…)

Yet 100% of what makes us live depends on energy.

B) Not renewables, they play a negligible role in our current consumption and will not get us to the declared political targets. (carbon based energy has been stable at 80% since mid-60’s).

To meet current targets means to reduce our energy consumption. And can we do that without significantly reducing our economic activity? Answer coming later.

C) 100% renewable has worked in the past but we scaled with fossil fuels

Renewables worked on a planet with 500M global population, a 30 year life time and sailboats, horses, bulls, windmills, water mills, etc.

We had a renewable world, why did we change? 

1000 cubic meters of air blowing at 80km/hr through a modern windmill produces the same amount of energy as 3 milliliters of gasoline…

One wind powered kWh (without storage) costs 6-8 Euro cents (25 to 50 with storage) vs. 0.3 Euro cent for gasoline (with full control of use), so petroleum is 50 to 100 times cheaper than wind. 

And note that modern windmills are built using fossil fuel energy. The above costs would not be the same without steel masts, components transported from China, cement production, etc. Would be easily 20x more expensive without. 

Do not make the mistake of extrapolating what is marginal to a civilisational scale. 

--> The right answer to “what is energy?”

D) Ironman in components

Energy is a physical magnitude which helps quantify the amount of change of state in a system. 

To use energy you need a system to change, so you need a converter, e.g. a machine. So energy is like chicken nuggets for machines. 

Ironman components: your left arm is a tractor, your right foot is a truck, your right ear is a satellite, your nostril is a vacuum cleaner, etc.

If you ever climbed 4,000 meters on foot you managed to produce 1 kWh of mechanical energy, your legs produced 100 W and your arms 10 W.

• A soup mixer consumes 400 W, meaning 4 sets of legs climbing
• Vacuum cleaner 1 kW, 10 sets of legs
• Tractor 60kW 600 pairs of legs
• Hydraulic excavator 100kW, 10,000 pairs of arms. Semi truck 400kW, 4.000 pairs of legs
• Industrial rolling mill, 100MW, 10,000,000 pairs of arms

Global production is done by machines. We humans don’t produce any more. 

An 80kg person carrying 10kg backpack who climbs 2,000 meters produces 0.5kWh. If you do this every other day for one year you produce 100kWh/year.

If you dig a 6 cubic meter hole every other day for one year you produce 10kWh/year.

10 kWh is the same as the thermal content of the combustion of 1 liter of gasoline, which translates to 2-4 kWh of mechanical work.

So 1 liter of gasoline is equivalent to 10 - 100 times the work of one human being! At a tiny fraction of the cost: minimum wage 200 €/kWh vs. 0.4 €/kWh (at 1.5 €/liter).

That is why our buying power is what it is, why middle class exists and why we can have lives which would have been unimaginable to peasants a couple of centuries ago in exchange for a 40 hour work week. 

And that’s also why slavery ended. Machines are more efficient and cheaper.

We use 20,000 kWh per person per year, equivalent to 200 ‘energy slaves’. Thanks to energy and machines, the global GDP is 200 times higher. 

Without machines we would need 1,600 billion people to produce the same (chairs, smartphones, etc.).

The foundations of economic thinking are based on the scarcity of labor and capital. Since 2008 throwing more capital and labor at the growth problem has not solved anything. 

There are other limiting factors.

- Natural resources

- Work = a few people and a lot of machines = energy

That’s why there isn’t a single macro economic model in the world which is predictive. 

Why structural long term growth is a joke, GDP will contract with or without our help

GDP history:

• No growth for first 1000 years AD. 
• 1800 years almost no growth.
• Exponential growth since machines. 

The concept of “structural long term growth” is a joke. The planet has always had a diameter of 13,000km and always will. 

The best existing predictive model is a graph GDP (y axis) vs. machines in use (x axis). R squared of 0.98797 (correlation where 1 is perfect). “Machines in use” = energy consumed. 

Exactly the same with a CO2 emissions graph, R squared of 0.98385.

So it is impossible to consume less energy without contracting GDP. Impossible to reach 2 degrees targets without contracting GDP. 

GDP will contract anyway so we have a choice between managing the contraction or waiting for catastrophes to do it for us.

On the correlation of oil production and GDP per capita

See World Energy Outlook 2018 report. “Global conventional crude oil production (meaning excluding shale oil) peaked in 2008 at 69.5 million barrels per day and has since fallen by around 2.5 mb/d.”

Overlaying graphs of oil consumption since 1970 and GDP per capita shows almost perfect correlation. Energy consumption is the best predictor of GDP, no other model comes close. 

Oil prices are totally inelastic. Graph of oil production vs. price looks like a drunk bug. So if oil production goes down it’s not reflected in oil price. 

If oil volume goes down, prices go up short term but then Ironman slows down, production slows, consumer spending power goes down and oil consumption goes down, GDP goes down. 

Conclusion and what companies should do

In conclusion we’re facing either physical risks or transition risks. Jancovici likes the doughnut analogy, at the outer edge are physical limits (the earth won’t allow it) and inner edge are social limits (population and wealth go down, fast, and people revolt).

Any company which is serious about understanding the above must:

1. Educate its managers, at least 20 hours of education. Start by ensuring everyone understands the problem.
2. Implement carbon accounting (physical accounting). Today’s financial reporting says nothing about any of the above problems.

Jancovici's keynote was to bankers so he concludes by saying: his company calculates impact of green bonds, understand the drivers but we shouldn’t have *some* green bonds, we should have *only* green bonds which means total carbon accountability. Banks are the biggest consumer of IT & services and it would cost 1% of their IT spend to establish carbon accountability.