The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  That prominence took on particular significance when in 2002 King delivered the Zuckerman Lecture, the most influential platform for discussing science policy in Britain. King’s topic was “The Science of Climate Change: Adapt, Mitigate or Ignore?” He clearly did not intend it to be ignored. He warned that in a business-as-usual case, rising levels of carbon would result in, among other things, “the eventual loss of global ice and hence also of our coastal cities.”

  The lecture crystallized policy in the UK. After a cabinet meeting, Blair said to King, “David, what you have to do is get around the world, and persuade the rest of the world. Britain cannot solve this issue by itself.” Before he wound up his time as science adviser in 2007, King would have given at least 500 lectures on climate change in Britain and around the world.

  In January 2004, in advance of a speech in the United States, King published an article in Science attacking the Bush administration for inaction on climate change. He also wrote that “climate change is the most serious problem that we are facing—more serious even than the threat of terrorism.”

  This greatly irritated the Bush administration, which, in partnership with Britain, had launched the Iraq war just ten months earlier as the linchpin of the war on terror. The American ire was conveyed to Blair, who himself was quite put out, since he had staked his foreign policy on his relationship with George W. Bush. Moreover, week after week, during the prime minister’s weekly Question Time in Parliament, Blair was tormented by a Liberal Democrat MP who kept asking him whether he agreed or disagreed with his science adviser that climate change was a bigger threat than terrorism.

  Despite the controversy, King pushed on. The threats of rising ocean and river levels from climate change would inevitably preoccupy an island nation. King’s office produced a report predicting that global warming might cause the dire floods that were expected only every hundred years—the so-called hundred-year floods—to now occur every three years. Soon Britain was spending half a billion pounds a year to shore up its coastal and inland defenses against floods and rising sea levels. 7

  Blair decided to make the issue of climate change the centerpiece on the agenda at the G8 meeting in Gleneagles. And it was not just the G8 leaders who were involved, for the meeting had been expanded to include the leaders of China, India, Brazil, South Africa, and Mexico.

  Despite the disruption of the London bombings, the Gleneagles Summit firmly established climate change in the framework of world affairs. It was now a major issue for world leaders, along with the other big issues on the international agenda.

  MAKING A MARKET IN CARBON

  The Kyoto Protocol had to be ratified by 55 countries to go into effect. In February 2005, just a few months before the Gleneagles Summit, Russia, with the signature of Vladimir Putin, became the fifty-fifth country to sign on to Kyoto. It was not that Putin was convinced of the risks from climate change; in fact, he had mused that a few degrees greater warmth would be welcomed in Siberia and would help Russian agriculture—and reduce the need for fur hats and fur coats. The Russian signature was seen as a trade in Russia’s quest for membership in the World Trade Organization. Additionally, Russia, with its reduced industrial output, could earn substantial revenues from selling “hot air” in the form of carbon credits.8

  So Kyoto was now in business. But how to establish the actual markets for clearing trades in carbon? As it turned out, work on a prototype had been going on for over a decade.

  Among those at the 1992 Rio Earth Summit conference was Richard Sandor, an economist, consultant, and part-time professor at Northwestern University. Sandor had a knack for creating markets where there were none before. In the 1970s he had been one of the inventors of the business of trading interestrate futures, initially an alien concept but now measured in trillions of dollars a day. Some of his ideas did not work out so well; he had once written an article on the futures market in plywood. In 1992 Sandor had gone to Rio to talk about creating financial markets and on how to set up such markets for emissions. After listening in on other sessions, he was “persuaded by the gambler’s ruin,” he said. “No matter how good the odds, never make a bet that could ruin you if it goes against you. Why take the risks on climate change if it could end in catastrophe?”

  As he sat one afternoon on the famed beach at Ipanema, he reflected on how to design a carbon market. “This can be done,” he said to himself.

  Sandor came back to Chicago determined to set up an exchange to trade carbons, what eventually became known as the Chicago Climate Exchange. The first decade was not easy. The venture almost ran out of money. Finally, he found an outside investor, a Jesuit group from Northern California, which put in $1.5 million—just enough to see them through an IPO. Sandor managed to get 14 participants, mostly companies, but also the city of Chicago, to set up an exchange to trade carbon among themselves. The experience demonstrated that a contract for trading carbon could be written—and that it would work. But this was really a practice, a prototype. The United States was not going to sign on to Kyoto. In a quest for a more sustainable business, Sandor created a sister venture called the European Climate Exchange. That made sense. For the action on climate change was now in Europe.

  Indeed, nowhere else was Kyoto, and its principles, so strongly supported as within the European Union. At Kyoto, the EU may have vehemently opposed trading; but thereafter, ironically, the EU fervently embraced the concept of trading. In 2003 Brussels formally established a cap-and-trade system called the European Union’s Emissions Trading Scheme, otherwise known as the ETS. In its first phase, meant to run between 2005 and 2007, prices for carbon moved with unexpected and astonishing volatility. But during those years the machinery was put into place—the exchanges, brokers, trading desks in companies, and a financial infrastructure—to support the ETS, centered in London. Meanwhile, Sandor’s Climate Exchange, the parent company, set up another joint venture in China, this with the Chinese National Petroleum Corporation, in the city of Tianjin, ninety miles from Beijing.

  In 2008 the European Union adopted a very ambitious goal: to reduce by 2020 global greenhouse emissions, primarily CO2, by 20 percent, from 1990 levels. Trying to achieve that would ensure that carbon trading would become a very big business. How big? “Carbon markets are potentially the biggest commodity markets in the world, bigger than crude oil,” said Sandor. It was simple arithmetic. “After all,” he added, “carbon is released not only by oil, but also by coal and natural gas and other processes.”9

  In 2010 Sandor’s Chicago Exchange PLC, the parent of both the Chicago and European exchanges, was bought by the Intercontinental Exchange, the major global rival to the NYMEX for oil trading. The price was $600 million.

  THE POWER OF IMAGES

  In the meantime, despite appearances, the political terrain in the United States was already changing. In 2003 Republican senator John McCain and Democratic senator Joseph Lieberman had introduced a cap-and-trade bill in the U.S. Senate. It garnered a surprising 43 votes. Yet it did not have wide resonance and still seemed somewhat abstract.

  What was not abstract was what happened in 2005, when the devastating hurricanes Katrina and Rita struck the Gulf Coast of the United States. The media image of the hurricanes’ devastation—the desperate people in the Superdome and the refugees fleeing the submerged city—all this provided a grim metaphor for the storms and the ensuing destruction and chaos that could become more common with an increasingly more aggrieved climate.

  The next year a different kind of media education took place. It was a rather unlikely movie, An Inconvenient Truth—a documentary, more precisely; the setting to film of a slide show that former vice president Al Gore had been showing around since 1990. He had been reluctant to turn his slide show into a film, but the producers were persuasive. The film played to packed theaters, and it had an extraordinary impact on the public dialogue. Some of the footage was overpowering, most notably the melting glaciers and the giant sheets of ice falling into the sea—
the very kind of imagery that would have riveted John Tyndall and the other nineteenth-century pioneers of climate change research. An Inconvenient Truth became a global cinematic event. The British government had it distributed to secondary schools. And in February 2007 it won an Academy Award—a mighty achievement for a film that started as a slide show.

  That same month, February 2007, the IPCC began releasing its fourth assessment. Its most sophisticated calculations had been done on the supercomputers of the U.S. Department of Energy, the only computers in the world capable of handling the problems. This new IPCC report was the starkest yet. One of its consistent themes was how much the science had advanced since the third report, in 2001. It was “very likely”—over 90 percent probability—that humanity was responsible for climate change.

  But all this was only a prelude to the looming threat—a doubling of CO2 would likely lead to a temperature increase of 2°C to 4.5°C (3.6°F to 8.1°F). But “values substantially higher than 4.5°C cannot be excluded,” it ominously added. The report itself, if not its summary for policymakers, did identify a number of “key uncertainties”; for instance, “Large uncertainties remain about how clouds might respond to global climate change.” But overall, the confidence and definitiveness were much greater than in the previous reports.

  Moreover, an even more alarming specter threaded throughout the report—that of “abrupt climate change.” The consequences, said the IPCC, could be devastating—no time to adapt, no time to mitigate. The images of thousands and thousands desperately fleeing from Hurricane Katrina could be replicated on a much larger scale in Bangladesh or coastal China—or Florida.10

  The IPCC report had been preceded by a few months by another influential study, The Stern Review of the Economics of Climate Change. A couple of weeks after the Gleneagles Summit, the British government had asked economist Nicholas Stern to lead a team tackling climate change. The resulting thousandpage report argued that the costs of inaction on climate change would be enormous and that the costs of mitigating climate change would not be prohibitive by comparison. Stern declared, in economists’ language, that climate change was the biggest “market failure” of all time.

  The impact of the Stern report was far greater than anyone had anticipated. With a certain degree of understatement, the Economist summed up the reaction thusly: “Rarely has a report with so many charts and equations in it caused such a stir.”11

  The report set off a furious row among economists. Critics argued that Stern’s discount rate—the value of a dollar in the year 2100 as opposed to in 2006—was much too low, and that it was this choice of discount rates that drove the policy conclusions. Other economists who privately disagreed with the analysis felt peer pressure not to go public with any criticism. Stern’s rejoinder was that the critics did not understand that this was not a normal economic situation and that they failed “to appreciate the magnitude of the risks that the science was identifying.” But whatever the argument among professional economists, the report’s impact on policymakers, politicians, and the environmental activists, particularly in Europe, was very significant. It filled what turned out to have been a vacuum. For it built out an economic structure to complement the expanding edifice of the IPCC studies.12

  GREEN CREDENTIALS

  Companies were starting to demonstrate green credentials. For some that meant focusing on climate change, and figuring out how to adapt their businesses to a coming age of carbon regulation. John Houghton, formerly head of the UK Meteorological Office, was the coleader of the scientific assessment of the first three IPCC reports. In the mid-1990s he started a dialogue with BP. At one point he went to the BP office in London to meet with a group of senior executives. One way or the other, the same question kept coming up. “Could you prove it?” No, Houghton said. It could never be conclusive. But the evidence was overwhelmingly convincing.

  One who was certainly convinced was John Browne, then the chief executive of BP. Much influenced by the IPCC reports, Browne decided that BP should take climate change seriously and act on it. In May 1997 he delivered a speech at Stanford University. “It would be unwise and potentially dangerous to ignore the mounting concern,” he said. “We must now focus on what can and should be done, not because we can be certain climate change is happening, but because the possibility can’t be ignored.”13

  This was the first time that a major figure in the oil industry—and possibly in the whole energy industry—had so publicly and personally taken that position. Others in the industry said that “BP is going green,” which seemed to be borne out when the company expanded its logo to mean not only British Petroleum but also the slightly mysterious “Beyond Petroleum.” The speech triggered initiatives within the company: reducing CO2 emissions, developing alternative energy, establishing an internal BP CO2 trading system. It also set off an argument with Royal Dutch Shell, which, pointing to its most recent annual report, said that it had been the first international oil company to identify climate change as a risk.

  Meanwhile, most of the American energy companies remained aligned with the Global Climate Coalition, which continued to challenge the IPCC scientific view and to lobby against climate change initiatives. The coalition argued that “radical reductions in the United States could cause “severe unemployment, decreased competitiveness of U.S. goods, and other grave economic disruptions.”

  By the beginning of the new century, climate change was gaining attention on corporate agendas. General Electric’s businesses run the gamut from gas turbines to nuclear reactors and locomotives to lightbulbs. It had also recently acquired a wind-turbine business. In 2004 GE’s CEO, Jeff Immelt, convened, at the company’s educational campus at Croton-on-Hudson, New York, a meeting of electric-utility executives and environmentalists to discuss major energy issues. Over the preceding year Immelt had been hearing a recurrent refrain from his own senior executives: that customers were talking more about wanting “clean” or environmentally enhancing solutions. He called the Croton meeting to try to sort out thematically what was happening, and what was changing.

  The conference was organized as pretty much of a free-for-all teach-in. Immelt himself sat in one of the upper rows in the tiered classroom, jumping into the discussion. While the “environment” was its overall topic, climate clearly moved to the front of the discussions in the lecture hall. That day helped set the stage for GE’s launch of a wide-ranging “eco-imagination” campaign and accelerated a refocusing of much of GE’s business around these themes.

  The corporate lineup was definitely changing. A large number of companies made a focus on the environment part of their corporate strategies. In 2007 nine leading industrial companies and utilities, including both BP and General Electric, along with four environmental organizations, converged to form the U.S. Climate Action Partnership—USCAP—to promote climate legislation. By 2009 the membership had grown to twenty-five companies. Meanwhile, the Global Climate Coalition, which had opposed any climate regulation, dissolved itself in the face of defections and dissension among its members.14

  THE NOBEL PRIZE

  Nothing else so truly epitomized the accession of climate change as a global issue than what happened in Oslo City Hall on December 10, 2007. On that day, a committee of the Norwegian parliament awarded the Nobel Peace Prize jointly to Al Gore and to the Intergovernmental Panel on Climate Change, the IPCC.

  “We must begin by making the common rescue of the global environment the central organizing principle of the world community,” said Gore in his acceptance speech. The world, he declared, faced “a planetary emergency.”15

  Gore, of course, was eminently recognizable in the photographs from Oslo. But who was that other person, standing next to him, somewhat incongruous in a Nehru jacket, with his long black hair merging into a black-and-white beard who described himself as “the bearded face of the IPCC”?

  This was Rajendra Pachauri, an Indian economist and engineer who was accepting the award on behalf of the IPCC bec
ause he was its chairman. Pachauri coordinated a complex international network that involved the work of 450 lead authors, 2,500 scientific expert reviewers, and 800 contributing authors, representing altogether 113 countries—along with the representatives of those governments, all of whom had to acquiesce at least to the overall summary.

  Pachauri’s role also clearly indicated a growing engagement by the developing countries. After an undergraduate degree from the Indian Railways Institute of Mechanical & Electrical Engineering, Pachauri had begun his career as an engineer, designing diesel locomotives. But then, earning Ph.D.s in both engineering and economics at North Carolina State University, he had switched to energy economics. In 1982 he had become director of TERI, one of India’s leading research institutions.

  Not long after, he had begun to investigate climate change. In 1988 he was elected head of the International Association for Energy Economics. “The greenhouse effect is no longer an abstract theory,” he had declared in his 1988 inaugural address. “We can postpone a deeper interest in this subject only at the risk of a continuing insularity and myopia.” His remarks were greeted with incomprehension—and worse. “People thought I had lost my mind,” Pachauri later said. In the years that followed, he became one of the most prominent advisers on environmental issues to the Indian government and increasingly active internationally on climate change.