The economics of the climate

Energy choices shape economies—and could reshape them



If delegates to the Glasgow cop fancy a day out, they could do worse than take a 50-minute train journey to Wemyss Bay and a 35-minute ferry journey across the Firth of Clyde to Rothesay on the Isle of Bute. 

Rothesay’s charms as a resort have faded, but its distance from the madding crowd and wonderful sea views remain. 

So do the lessons it holds about how fossil fuels became integral to industrial growth.

The first cotton mill in Rothesay opened in 1779, using the water that flowed out of Loch Fad to power a new type of spinning machine which was transforming the textile industry: Richard Arkwright’s water frame. 

But the stream proved fickle and underpowered. By 1800 the mill was running on steam engines based on James Watt’s design. But shipping coal to the island was pricey, and Rothesay’s industrial future looked increasingly bleak.

Robert Thom, an engineer, turned things round. In the 1810s he increased the water supply with a dam and drainage cuts to feed it, and installed an ingenious, self-acting sluice to govern the flow of water, ensuring its perfect evenness. 

The power for the mills doubled, and the steam engines were retired.

The school-book version of Britain’s Industrial Revolution is that the steam engine drove it by providing more power than previously possible. 

By the end of the 19th century that was true. 

But to explain the rapid take-up of coal in the late-18th and early-19th century only in terms of steam power is to put cart before horsepower. 

As Andreas Malm of Lund University in Sweden points out in “Fossil Capital” (2015), steam triumphed when there was still lots of untapped hydropower. 

Even in the 1830s industry was not taking out more than 10% of the water energy that was available in the English Midlands. 

Although watermills were an old technology, they were open to improvement by modern entrepreneurs like Thom. 

And unlike steam engines, they rarely exploded.

What set steam apart were several advantages which appealed to investors. 

The most important was the ability to build new steam-powered mills close to old ones in towns which already had textile industries, so long as a supply of coal was nearby. 

The cheeks of cloth-producing factories could run up against the jowls of garment producers. 

The owner of a new mill could get workers from old ones without having to move them to some faraway river.

The large industrial cities which this produced also encouraged the flow of ideas and skills that made it quicker and easier to improve steam. 

Watt’s development of the condenser did not just improve one particular mill and steam engine, in the manner of Thom’s changes at Rothesay. 

It made all subsequent steam engines better, and built improvement into the very idea of such things. 

What is more, however good water wheels might have become, they were never going to drive locomotives or ships, as steam had begun to do.

Putting that engineering culture into big cities spun it even faster. 

Alfred Marshall, an English economist, waxed poetic about this in the 1890s, noting that “The mysteries of the trade become no mysteries; but are as it were in the air.” 

As the 19th century wore on, growth was increasingly driven by the more systematic pursuit and application of technical knowledge, for which the steam engine provided the paradigm model. 

And it had ever greater amounts of energy at its disposal.

Coal-powered machinery may not have initiated the Industrial Revolution, let alone created the new attitudes to capital, growth and investment which underlay it. 

But it universalised what began as something peculiarly British and parochial. 

It allowed industry to be moved—indeed, when boilers and pistons were attached properly to appropriate wheels or propellers, to move itself—around the world. 

And as sustaining further growth required ever more energy, it was later joined by other fossil fuels, notably oil and gas.

Some, including Mr Malm, take the centuries of structural intimacy between fossil fuels and the capitalist system that was inaugurated by England’s mill-owners and mines to mean that one cannot get rid of the first without also demolishing the second. 

It is a matter of “Capitalism vs. the Climate”, as Naomi Klein, a writer and activist, puts it in the subtitle to her bestselling book “This Changes Everything” (2014). 

In this view the fossil-fuel industry’s insistence on putting its own profits ahead of the global risks posed by its effluent is not just a brake on sensible climate policy but a sign of a systemic inability to reach climate goals in a capitalist economy.

It is essential that the world proves this thesis to be wrong. 

Doing so means embracing the aspect of capitalism which most worries environmentalists: growth. 

To develop while reducing dependence on fossil fuels—the only sort of growth with a real future—the poor world needs new technology and new investment. 

The growth supplied by capitalism is what provides both these things, which is why most economists see it as crucial to bringing the fossil-fuel age to an end. 

All that is needed is to find ways to ensure that growth does not have to be linked to rising CO2.

The issue is nicely summed up in a formula credited to Yoichi Kaya, a Japanese energy economist, which links the size of the economy, the scale of emissions and the amount of carbon in the energy system:


Emissions are the product of population, gdp per head, energy used per unit of gdp and carbon emissions from that energy. 

To reduce emissions one must reduce one or more of those four factors. 

Private and government action on the climate has concentrated on the last two: carbon emissions per unit of energy (decarbonisation) and energy use per unit of gdp (efficiency). 

But given insufficient progress, some say it is time to look at the first two.

The history of the 20th century shows that reducing population, though still spoken of as a long-term goal by some greens and predicted by demographers for much of the world later this century, is not a course of action that governments can effectively and decently pursue (though dealing with unmet contraceptive needs certainly is). 

That leaves gdp per head. 

When this grows, as it has by a factor of ten worldwide since the carbon needle began to tick up in the 19th century, energy efficiency and carbon intensity must improve merely to keep carbon emissions stable. 

If growth stops, the benefits from increased energy efficiency and reduced carbon intensity can go straight into reducing emissions.

The degrowth debate

Since the Paris agreement of 2015, discussion of degrowth has become an increasingly hot topic among some ecologists, heterodox economists and other scholars. 

Some see it as a strategy solely for the rich world, which they feel does not need any more affluence, while accepting the need for continued growth in poorer places. 

Others are dubious about the whole idea of sustained growth. 

Either version, though, has huge moral, political, and economic drawbacks.


The moral problem is that, fine though it may be for individuals to renounce increased consumption, it is not for them to impose their choice on others. 

There are specific things that societies can require people not to produce or consume, and there may be reasons for rationing some things during emergencies and in special circumstances. 

But production and consumption in general should remain matters of individual choice.

If those devoted to degrowth could persuade everyone else, their goal might conceivably come about as a voluntary, consensual moral revolution. 

Otherwise they would need to gain political power and impose their aims. 

And that raises the problem of political practicality. 

Governments can and do suppress growth in various ways. 

Often they do it through wrongheadedness, haplessness or as the result of capture by pernicious interests. 

Sometimes they do it as explicit policy—as in the austerity imposed on some countries in the early 2010s. 

But an overt policy of deliberately slowing, stalling or reversing long-term growth, even if presented as being for the good of the world, is a highly unpromising platform on which to win elections.

Even if it were not both wrong and impractical, enforced degrowth would still be a bad idea. 

Much of the increase in prosperity in poorer countries over the past 20 years has been driven by rising demand from rich countries. 

Remove that motor and the rate at which the world’s poor are raised out of poverty would slow. 

It would also hobble the fight against climate change. 

Rapid decarbonisation requires massive investment in renewables everywhere, but most of all in emerging economies. 

Much of the money must come from investors in rich countries seeking returns, even if rich-world governments commit resources too. 

Without huge amounts of investment, decarbonisation will take longer.

And without accelerated innovation it will be incomplete. 

The current system is not the only way to get from bright ideas to products used on a broad, even world-changing, scale. 

But it has the best record. 

A lot of innovations are still needed if the world is to speed up its decarbonisation—better ways of storing energy, of heating houses, of cooling houses, of processing crops, of growing crops, of powering large vehicles, of producing plastics and more. 

A contracting, low-demand, low-investment economy is not likely to provide any of these.

This case against degrowth does not necessarily mean business as usual, however. 

To serve the goal of decarbonisation, innovation must be directed towards specific goals with particular properties—it cannot simply roam freely in search of ideas that look profitable. 

Some of this purpose can come from founders and investors. 

Tesla is a good example: a company built up by Elon Musk to make both money and electric cars, and, by showing that it could do so, to establish the need for other carmakers to follow suit. 

But without the certainty of a price on carbon to constrain their sense of the possible, it is asking too much of private innovators to expect them to provide all the tools needed.


Making good the lack requires governments not just to help the private sector through tax credits targeted at innovations which decarbonise—one of the parts of President Joe Biden’s climate package that seems most likely to pass—but also to find ways to bridge the gap between research and development and full scale deployment with a more serious commitment to large-scale demonstration projects.

The ways in which the emission-free technologies to hand and yet to be developed reshape the energy economy will be less marked than those seen with the advent of coal. 

In an increasingly electrified world, sources of energy are less distinctive and more fungible. 

The plug does not care where the socket gets its power. 

An example is the way today’s grid-linked gigawatt world of skyscraper-topping turbines and solar farms spreading over cropland and desert alike has little place for the putatively innate characteristics which first attracted greens to solar panels and wind turbines in the 1970s and 1980s. 

They saw them as “appropriate” technologies suited to decentralisation, self-sufficiency and the living of less industrialised lives.

But if renewables no longer have the smallness once seen as beautiful, they have special characteristics that come to the fore the more that grids depend on them. The most obvious is intermittency. 

The flows powering renewables are familiar to the farmer more than to the industrialist. 

They change with the passing of clouds, the turning of Earth, the rolling of weather fronts, the succession of seasons and the differences between good years and bad.

Dealing with this variation will require new ways of balancing flows of energy and storing it for later use. 

As Robert Thom discovered, you need to have both storage and a careful approach to regulating flows through the system. 

But those principles must be applied on scales both local and continental, and measured in both split seconds and years. 

Grids need to become larger, to make up for shortfalls in wind or sun, and smarter, to balance demand to supply rather than always working the other way round. 

To what extent markets can be designed to provide all this remains an open question. 

But it seems a fair bet that a more centrally planned approach will often be necessary.

In return renewables promise to provide grids and their customers with a new resistance to scarcity. 

The overweening power of coal-miners and oil ministers alike will be broken. 

With energy freed from physical fuels things will be far harder for would-be rentiers. 

As in Rothesay, once you have invested, you have guaranteed power with minimal operating expenses and minimal risk.

And they should allow a new form of energy-abundant environmentalism.

Environmentalist worries about growth are not limited to relationships between carbon emissions and gdp. 

There are deeper worries that the demand will break nature’s bounds in other ways. 

But in a world of copious clean energy the demands industrial civilisation makes of the natural world may in principle be curbed through reuse and recycling. 

What some call the circularisation of the economy could be spun round more quickly and smoothly. 

Clean energy need not undermine the capitalism that commoditised fossil fuels built. 

It could still change its complexion, its political economy and its geopolitical setting.

But it is unlikely to do this in the time demanded by Paris. 

So the world needs more than an energy system without emissions. 

It also needs innovation and investment to reverse them.

Beijing vs bitcoin: why China is cracking down on crypto

Supporters champion a digital currency beyond the control of a central authority — but an authoritarian government is putting that idea to the test

Ryan McMorrow 

© Pâté



How to become a bitcoin millionaire” is a common theme of videos on TikTok, the app built by Beijing-based company ByteDance. 

In clip after clip, young influencers teach others how to follow in their footsteps, showing off lifestyles funded by crypto wealth.

Yet the experience when I open ByteDance’s Chinese sister app, Douyin, is a contrast. 

As I search for Bitebi (Chinese for bitcoin), the platform cues up negative videos for me to watch.

In the first, racks of whirring computers mining bitcoin are captioned with a note informing me that, annually, they consume more power than 100 countries. 

In another, the speaker ends a bitcoin monologue: “Why don’t we just play with a bunch of air instead? 

You buy mine and I’ll buy yours.”

Why are the two apps so different? 

It is not that young people in China are so different from their foreign peers. 

But Beijing controls what content they can see and ByteDance must censor its sites in line with the government’s priorities. 

Increasingly, that means closely monitoring content related to digital coins such as bitcoin. 

It is a significant U-turn for a country that, five years ago, accounted for 90 per cent of the world’s bitcoin trade

Last month, the People’s Bank of China and nine other agencies, including the public security bureau, made all cryptocurrency transactions illegal. 

Major exchanges where investors buy and sell digital currencies began to cut ties with their Chinese users. 

This continued a campaign started earlier this year, where Chinese authorities shut down the country’s power-hungry computer farms where bitcoin are mined.

It is a significant U-turn for a country that, five years ago, accounted for 90 per cent of the world’s bitcoin trade. 

Until this spring, almost half of the world’s bitcoin was mined by computer farms in China, while digital wallets in the country received $150bn worth of cryptocurrency in the first half of the year, second only to the US, according to data provider Chainalysis.

The crackdown in China pits the unlimited power of an authoritarian government against a key selling point of cryptocurrencies — that the decentralised networks of computers that run digital currencies put them beyond the control of any central authority.

From Beijing’s perspective, bitcoin allows Chinese citizens to skirt the country’s strict capital controls limiting transfers abroad to $50,000 a year. 

Even domestically it affords ordinary people the ability to transfer money or make investments without government oversight. 

At one time it was possible to buy a coffee in the Chinese capital with bitcoin.

When Beijing first banned cryptocurrency exchanges in 2017, the online centres for trading digital coins fled offshore. 

Loopholes allowed Chinese users to continue buying and selling bitcoin with a few extra steps added in. But the latest rules have spurred the websites and apps serving them to move on their own to cut off Chinese users.

Perhaps in fear that their China-based employees could be targeted, offshore exchanges have begun turning away Chinese clients. 

And several digital wallets, where individuals store cryptocurrency, are disconnecting mainland users. 

Douyin is just one of the many Chinese media platforms now filtering what users can learn about digital coins. 

Another leading site ChainNode is notifying users of an “upgrade” that will change its focus. 

Posts on its forum about cryptocurrencies, such as a list of Beijing establishments that accept bitcoin, have disappeared. 

In any case, the deleted content seems to have been behind the times. 

At the top of the list was a Beijing coffee shop in the heart of the city’s tech hub, which was once famous for accepting bitcoin. 

But a barista there told me it had been several years since customers could pay with it. 

“You can’t even come here to talk about it,” he says. 

“We used to have bitcoin events but the government doesn’t let us any more.”

While it remains possible for Chinese users to send bitcoin to each other, validating crypto believers’ faith in the distributed network of computers that maintain the currency, the larger question is whether people will continue to bother. 

Beijing has been very successful at marginalising ideas that don’t fit its narrative.

Meanwhile, on Douyin online influencers are much more positive about the new digital renminbi, an electronic currency being rolled out by China’s own central bank, which is likely to give authorities an unprecedented ability to trace transactions.

When I speak to a Chinese official, he tells me the country no longer needs bitcoin. 

“We have our own digital currency now,” he says.


Ryan McMorrow is the FT’s China tech correspondent

Why Has Biden Surrendered to the Left?

There are three possible explanations, and they won’t help Democrats in 2022.

By Karl Rove

President Biden delivers remarks on the debt ceiling and infrastructure package in the White House, Oct. 4. / PHOTO: TASOS KATOPODIS - POOL VIA CNP/ZUMA PRESS


There was no grand ceremony on a battleship, no general handing over his sword as a band played “The World Turned Upside Down,” no signing of a document in a simple country house witnessed by a victor in a mud-splattered uniform. 

Nonetheless, what we saw last week was an unconditional surrender by President Joe Biden to the demands of his party’s left wing. 

He’ll set the bipartisan infrastructure bill aside until Sen. Bernie Sanders ’ $5.5 trillion welfare state expansion is signed into law. 

(The usual estimate of $3.5 trillion assumes its programs will be allowed to expire, which they won’t.)

Mr. Biden’s capitulation was utterly unnecessary. 

He vanquished the Democratic left in the 2020 South Carolina primary, with 49% to Mr. Sanders’s 20% and won a majority of the convention delegates by June 5, even before the last eight states and three territories held primaries.

Mr. Biden went on to win the general election by promising to heal America’s “soul,” not by advancing a radical agenda. 

He kept it simple: President Trump had bungled the response to Covid; Mr. Biden said he’d get it right and, in the process, make Washington normal again.

Yes, there were more than 100 pages of policy recommendations negotiated by Biden and Sanders supporters in July. 

But while lauding their work and praising party unity, Mr. Biden’s campaign pointedly said they’d be “reviewing” the suggestions.

So why cave now? 

It can’t be because of electoral politics. 

Henry Olsen of the Ethics and Public Policy Center made the point Monday that, despite winning independent voters by double digits in November, Mr. Biden is underwater by 13 points with independents, 52% of whom disapprove of his performance. 

If Mr. Sanders’s proposals were so popular, this wouldn’t be the case among independents, who will decide the 2022 midterms.

The White House has bought the democratic socialist line that America will cheer the $5.5 trillion bill’s passage, because it polls well when the proposals are framed as abstractions with no costs. 

But voters don’t consider sections of legislation in a vacuum or by slogans only. 

As with the Affordable Care Act, they’ll reach their conclusions after examining the bill’s pluses and minuses, with their views influenced by their own attitudes and values. 

There’s the problem for Democrats: Mr. Sanders’s mega-spending bill strikes many voters as too radical, too expensive, and being sold on slick promises too good to trust.

After nearly five decades in Washington, Mr. Biden must understand that a president can enact big changes only when he has substantial margins in Congress and at least some bipartisan support. Mr. Biden doesn’t have either. 

So why does he persist?

There are three possible explanations. 

The first is that the Democratic establishment is spent. 

After the presidencies of Bill Clinton and Barack Obama and the defeat of Hillary Clinton, the traditional leadership of Democrats may have run out of ideas, energy and self-confidence.

This failure of nerve and imagination has left extremists in charge. 

Mr. Biden is like the French politician during the Revolution of 1848, who, perhaps apocryphally, said: “There go my people. 

I must find out where they are going so I can lead them.” 

The president is bowing to what he believes is inevitable—a party led by Mr. Sanders and the Squad, with him as the frontman. 

If you aren’t sure where this will end, look at what Jeremy Corbyn’s rise did to the British Labour Party.

A second explanation is that many traditional Democrats fear their rowdy left-wing base, which is big enough to win primaries and deep-blue congressional districts, but not purple or red territory. 

This may help explain the large number of Democrats in swing districts retiring from Congress.

A third explanation is that after eight years in the Obama White House being marginalized, ignored and treated as a kindly, lovable goofus, Mr. Biden likes being cheered by Democrats and media as potentially the most transformational president since FDR.

Perhaps it’s some of all three. 

Still, Mr. Biden may regret striking his colors. 

He could have won a victory on the infrastructure bill, then fought for whatever elements of Mr. Sanders’ monstrosity he wanted. 

Instead, he may end up with no bills. Even if Congress passes both, his fumbling manner and unilateral surrender have set his party up for defeat in 2022.


Mr. Rove helped organize the political-action committee American Crossroads and is author of “The Triumph of William McKinley” (Simon & Schuster, 2015).

Biden's Border Crisis

After trying to minimize the fact that apprehensions at the US-Mexico border are reaching historic highs, President Joe Biden's administration is now faced with an influx of Haitian asylum seekers who have already entered Texas. It must accept that "containment" has failed, and change course.

Jorge G. Castañeda


MEXICO CITY – Since the first days of Joe Biden’s presidency, his administration has insisted that the growing number of migrants being apprehended at the US-Mexico border is not a “crisis,” but rather a normal, seasonal spike. 

US officials have even argued that the controversy was concocted entirely by former President Donald Trump and other Republicans.

While the Biden administration was not totally wrong about Trump, reality has since rebutted its claims. 

The situation on the border today is indeed a crisis, both for the United States and Mexico. 

As of late September, some 15,000 migrants and asylum seekers, most of them Haitian, are sheltering from the sun under the International Bridge in Del Rio, Texas. 

They have brought the migration issue roaring back to the fore.

All summer, US immigration authorities waited for the numbers at the border to fall, but they kept rising, even as the excruciating heat kicked in. 

Monthly apprehensions topped 200,000 in July and again in August – their highest level since 2000. 

The sudden appearance of thousands of Haitians on the American side of the border (rather than in the Mexican towns of Matamoros, Reynosa, or Tijuana to the south) demonstrates that the flow is not easing.

This was all foreseeable. 

The situation in Haiti, terrible even in good years, became catastrophic with the chaos that followed the assassination of the country’s president in July. 

The subsequent political turmoil was soon followed by an earthquake and a series of hurricanes and tropical storms that have left the country as battered as it has ever been. 

Haitians have been departing for years, first to Brazil and then to Chile. 

But as the economic and legal situation in each of those countries has grown less hospitable, they have begun to drift toward the US. 

And owing to the events of this summer, their numbers have surged.

The crisis on the US border is only part of the story. 

Tapachula, a Mexican city of 350,000 along the Guatemalan border, now shelters (in squalid conditions) 50,000-100,000 asylum seekers, roughly half of whom are Haitian. 

Mexican authorities are forcing migrants to remain there while their claims are processed. 

But that process can take over a year, and migrants are increasingly seeking to break out and travel north. 

Several caravans, each comprising hundreds of refugees and migrants, have departed in recent weeks, leading Mexican immigration officials to herd them back to Tapachula. 

There have been reports of family separation, extortion, and beatings (some of which have been caught on video).

Despite such brutality, asylum seekers of several nationalities have continued to amass on the US-Mexico border, demonstrating that containment is not so simple. 

Although Mexico’s defense ministry says that it has deployed more than 14,000 troops to “stop all migration,” the truth is that the country lacks the financial resources and manpower to carry out a sustained mission of that kind.

When US President Barack Obama asked Mexican President Enrique Peña Nieto for help blocking migrants in 2014, Mexican authorities complied willingly, but only for a couple of years. 

By 2017, Mexico’s deportation numbers had declined again, and America’s apprehensions and deportations had begun to rise – a trend that is reaching its peak today.

The same pattern is likely to be repeated. Mexican efforts are obviously insufficient, even if they are significant and often humiliating. 

The US cannot simply turn away the Haitians in Del Rio. 

Nor are the solutions on offer devoid of costs. To resolve the latest border crisis, Biden will have to turn a blind eye to Mexican President Andrés Manuel López Obrador’s disastrous mismanagement of the economy and the pandemic, as well as his subversion of the rule of law and Mexico’s incipient democracy.

The best immediate fix is to grant temporary protected status to the Haitians who have already entered the US. (Though TPS is theoretically temporary, it would probably last indefinitely in practice.) 

Biden also should ask the transit countries – mainly Chile, Mexico, and Panama – to furnish migrants with proper asylum and work papers and allow them to remain under humane, hospitable conditions.

Such a request obviously must come with resources to help these countries foot the bill for hosting the remaining Haitians. 

The only question, then, is where the money can best be spent – on Haitian migrants in the US, or in Chile, Panama, and Mexico?

Granting TPS to the Haitians at the border would probably encourage others to come. But the trend would not last forever. 

As with the Haitian boat people in the 1990s, such flows eventually stop for various economic, social, and cultural reasons. 

And while this approach might also encourage Cubans, Hondurans, Salvadorans, and others to travel north and try their luck, the overall numbers would be on a scale that the US, a rich country with 330 million inhabitants, could easily manage.

As for the political fallout and the Democrats’ electoral prospects in 2022 and 2024, a more humane approach is certainly no worse than the alternative of forcing Haitian children onto planes and flying them back to a country in the throes of discord, destitution, and despair.


Jorge G. Castañeda, a former foreign minister of Mexico, is a professor at New York University and author of America Through Foreign Eyes.