THIS is a curious time to publish a biography of M. King Hubbert. The story of how this brilliant but irascible Shell geologist accurately forecast in 1956 that US oil production would peak and go into terminal decline by 1970 is by now well worn.

Worse, after the supply crunch of 2008 that sent the price soaring to $147 per barrel and was widely mistaken for the global peak, the world is now swimming in oil once more, and the price languishes at around $50.

In The Oracle of Oil, Mason Inman seeks to rehabilitate Hubbert, yet he struggles to make a convincing case. The book is nonetheless well written, deeply researched and rich in anecdote – Hubbert’s character and his intellectual achievements sing out.

Born to poor Methodists in hardscrabble Texas hill country, Hubbert sold his cow to go to college, was driven to science by his atheism, and later made donations to Martin Luther King. He achieved many breakthroughs with little more than a fierce intellect and a blackboard.

In 1953, he was the first to figure out how fracking worked, showing that the fractures caused by injecting fluid into rock would spread vertically not horizontally as industry experts then believed. Initially, they ignored him, convinced only after experiments involving a goldfish bowl, a soda bottle and a turkey baster.

Forecast battle

You couldn’t accuse this account of being pacy, though. It’s a good 100 pages before we come to Hubbert’s defining achievement: a revolutionary way of forecasting that introduced us to the idea that the rate of oil production would peak and start to fall long before reserves were exhausted, often as early as halfway through. On a graph this produced a roughly symmetrical bell curve with a central peak – hence the name.

Hubbert’s forecast pitched him into a running battle with many in the oil industry until he was eventually proved excruciatingly right during the oil crisis of 1973, and achieved “oracle” status while Jimmy Carter was president.

Inman plots Hubbert’s work and short-lived impact on US energy policy, until the geologist’s death in 1989, but his uncritical approach relegates any attempt to find current relevance for Hubbert to a 20-page epilogue. Even here, the author seems too much in love with his subject to confront the toughest conclusion raised by his own material – that Hubbert’s work may no longer matter.

At the start of this century, talk of peak oil flooded the energy debate. Surging demand in China, the invasion of Iraq and the upward march of the oil price suggested an impending crunch. This seemed to have arrived between 2005 and 2009, when global production stayed flat at between 82 and 83 million barrels per day (mb/d), sending the price spiralling to $147 per barrel – up 15-fold on the previous decade.

Many thought we had reached the limits of oil production and the global peak was nigh. But production started to grow again, and by 2014 had reached almost 89 mb/d, causing the price to slump from what appeared to be the new normal of around $115 to less than $30 by the start of 2016.

The irony is that peak oil of a sort did arrive in 2006, and Hubbert hit the bullseye, though Inman makes surprisingly little of this. In 1956, Hubbert forecast that global production of crude oil – oil found in pressurised reservoirs that flows freely up when wells are first installed – would peak “within about half a century”.

“In his lifetime, the oracle’s forecasts were always ignored or dismissed until it was too late“

Exactly 50 years later, crude oil production peaked at 70 mb/d, and because it then made up the bulk of oil supply, this caused the temporary plateau of global oil production that helped pitch the global economy into recession. Now the former naysayers, from the International Energy Agency to most major oil companies, admit that conventional crude production has indeed peaked. Hubbert’s forecast, made a lifetime before, again proved to be spectacularly accurate.

But then again, so what? Total oil production, including “unconventional” sources such as tar sands and shale oil, soon started to grow again. Of the 6 mb/d increase in global oil production between 2006 and 2014, almost a fifth came from the Canadian tar sands, and the rest from the US “shale oil revolution” driven by fracking. Inman misses another huge irony here: Hubbert’s forecast for the peak of global crude oil was bang on, but its full impact was deferred by the very production technique he had helped develop 60 years earlier.

Many economists would argue that this exposes the blind spot of Hubbert’s approach – it didn’t take into account the potential of technology to expand the oil resource we can extract. That has been demonstrated, but if tar sands and shale oil are what’s left, it may not give us much of a breather.

There is no knowing the future trajectory of tar sands output now that its production capital, Fort McMurray in Canada, has been devastated by wildfire after unusually dry weather some blamed on global warming. As Inman points out, in the US shale patch, fracking wells suffer vertiginous decline rates of up to 50 per cent in the first year; the sweet spots have been tapped already; and the industry is massively in debt and failed to cover its costs even at $100 per barrel. He might have added that even the International Energy Agency expects US shale production to peak in 2020.

But this is almost beside the point. Hubbert’s legacy will not be determined by a forensic scrutiny of his life or of the short-term outlook for US shale, but by what happens after shale peaks. If non-conventional production continues to meet growing global demand, Hubbert will fade into footnote. So too if demand for oil starts to fall sooner than supply, through improvements in efficiency and the electrification of vehicles. The chances of this have improved with the Paris climate agreement, as even Saudi Arabia seems to accept, having announced a $2 trillion fund to wean its economy off oil by 2030.

If, however, nothing turns up to replace shale, technologies fail to curb oil demand, and supply constraints finally bite, Hubbert may yet be proved broadly right. But his influence will probably still be negligible: as Inman makes depressingly clear, the oracle’s forecasts were always ignored or dismissed until it was too late.

This article appeared in print under the headline “The peak oilman”

DOOM-MONGERS of the climate variety might want to look away now – we apparently have more time to save the planet. A recent study published in Nature Geoscience suggests it will warm more slowly than feared, perhaps buying an extra decade for action.

There are other reasons to be cheerful. The (IEA) has just said nations can get back on track to keep warming below 2 °C at no net economic cost. President Obama is talking tough on emissions and the US and China, the biggest emitters of greenhouse gases, are, incredibly, collaborating on efforts to curb them.

So it all adds up to an unexpected opportunity to get ahead of the crisis – or at least catch up. Or does it?

The idea that preventing the worst of global warming might be not only sensible but also economically sound is not new: in 2007 the UK’s Stern review concluded it would cost just 1 per cent of global GDP. Of the recent developments, what is really surprising is the IEA’s suggestion that keeping the hope of 2 °C alive until 2020, when a new global treaty could come into force, can be achieved effectively for free.

Even more surprising, the IEA’s plan to achieve this rests on just four policies: improved energy efficiency; limiting use of the most inefficient coal-fired power stations; reducing methane leaks from oil and gas production; and phasing out fossil fuel subsidies. It says these could deliver 80 per cent of the reductions needed by 2020. Unfortunately it all looks like pie in the sky.

The biggest questionable assumption is the reliance on efficiency to deliver half of the projected emissions reductions. Of course, like motherhood or world peace, efficiency is hard to knock. But history suggests that in a straight fight with economic growth, it usually loses and emissions continue to rise.

There are exceptions. The latest points out that energy consumption in the industrialised world has fallen in four out of the last five years, and that in three of those four the economy grew. Last year, for example, energy consumption in the OECD countries, mainly advanced economies, fell 1.2 per cent while the economy grew 1.4 per cent. Apparently it is possible to loosen the ties between growth and energy consumption, but perhaps only when growth is feeble.

Unfortunately it is not true where it really matters. Since 2008, when the West plunged into recession, energy consumption in the OECD has been increasingly overtaken by the non-OECD nations, such as China, India and Brazil. They now claim 56 per cent of global energy. Great strides have been made in improving efficiency too, but these have been overwhelmed by growth. China has roughly halved its emissions per unit of economic output over the past 20 years, yet despite this its energy consumption and emissions have more than doubled as the economy boomed over the past decade.

In 2012 alone, the IEA notes approvingly, China’s energy efficiency improved 3.8 per cent – yet still its emissions rose by 300 megatonnes, contributing three-quarters of the entire global increase. In other words, global carbon dioxide emissions have climbed inexorably to record highs, and an atmospheric concentration of 400 parts per million, in spite of significant efficiency gains by the world’s biggest emitter and the OECD.

There seems little reason to expect these trends will change in the coming decade. China’s economy has proved resilient in the face of widespread slowdown, and per capita GDP and energy consumption are still a fraction of those in the West. A senior Chinese official said last year the country’s emissions would grow until per capita GDP had risen fivefold. In this context, it is hard to imagine the IEA’s efficiency measures – sensible as they are – making much of a dent.

Some of its other proposals – phasing out fossil fuel subsidies in the Middle East, for example, where dirt cheap petrol and electricity are vital to defending the thrones of local tyrants – look equally forlorn.

If the IEA’s plan looks unlikely to keep a 2 °C trajectory alive until 2020, it is not even clear that this is the right target, or that we have any “extra” time as has been suggested. On the contrary, many climate scientists, including James Hansen and Pushker Kharecha, argue that , and the increase must be limited to 1 °C.

This would mean leaving most known fossil fuel reserves alone, never mind the emerging unconventional resources such as shale oil and gas, the amount of which in the US was recently estimated by the country’s Department of Energy to be equivalent to 10 years of global demand. Given that we have already started exploiting non-conventional oil and gas sources, it would imply immediate and continuing cuts in fossil fuel consumption.

If this veto of reserves were enforced, it would saddle the industry with losses of trillions of dollars on untapped assets.

All of this underscores the fundamental weakness of the IEA approach. Combating global warming may be possible at no net economic cost, but meaningful change inevitably creates winners and losers. And the main losers must be the fossil energy companies, which cannot possibly coexist, at least in their current form, with a target of even 2 °C. The industry must be supremely confident, however, that no meaningful action is imminent, since it continues to invest some $700 billion per year developing coal, oil and gas reserves.

“Fossil energy companies cannot coexist in their current form with a target of 2 °C global warming”

About this the IEA plan has nothing to say. To be fair, it is intended only as a sticking plaster until a tough new treaty can be agreed and enforced. We had better pray that negotiators at the next big climate summit in Paris in 2015 tackle the real issues.

This article appeared in print under the headline “Reasons to be fearful”

THE world’s biggest carbon market, the European Union Emissions Trading Scheme, is now widely regarded as a basket case. The price of a permit to pump carbon into the atmosphere has collapsed. Europe’s parliament is to vote on an emergency rescue imminently – though few expect it to succeed. Yet new carbon trading schemes are being set up around the world, from Australia to Kazakhstan. Even China, the world’s biggest emitter, has just set up a pilot. If the EU market is such a shambles, how come?

To its critics, this crisis in the European market looks existential. The scheme, set up in 2005 to reduce carbon dioxide emissions from 12,000 power stations and other high-emitting industries such as steel and cement, has a history of controversy and price volatility. But the price of a permit to emit 1 tonne of CO₂, which peaked at around €30 in 2008, recently slumped to under €4, too low to deter even the most polluting activities. Coal-fired power generation, for example, has risen sharply. If this can’t be curtailed, say environmental bodies, why bother?

Schemes must be getting a better press further afield. States in the eastern US have had a system running since 2008, Kazakhstan launched a pilot in January, and the first of seven pilots was launched in China this month, which might develop into a national scheme after 2015. California launched full carbon trading this year, and is planning to link up with Quebec in Canada. South Korea is finalising details for an apparently ambitious version to be launched in 2015, and Australia plans to link its system to Europe’s in the same year. Even Russia and Ukraine are thinking about carbon trading. Clearly many countries still believe it has something to offer.

Could it be, therefore, that the European carbon market is not the abject failure many claim it to be? Prices are low for a good reason – the industries the scheme covers are almost certain to cut emissions by 21 per cent compared to 2005 during the current phase, which runs from 2013 to 2020. Encouraging such cuts is the very purpose of the scheme. There is less demand for permits and the price drops.

“Unless there is a big economic recovery the EU scheme will have no problem hitting its 2020 emissions reduction target,” says Konrad Hanschmidt, carbon analyst at Bloomberg New Energy Finance. So the scheme’s objective looks assured eight years ahead of schedule, and there is no need for a high carbon price to achieve it. “Low prices are not a sign of failure but a sign of success,” says Trevor Sikorski, carbon analyst at energy commodity consultant Energy Aspects.

That is not to say there are no downsides. If Europe’s carbon tax has done what it said on the tin, it is largely because of the unexpected windfall provided by the recession, which has cut energy demand dramatically. While the scheme’s 2020 target looks almost guaranteed, there is a catch – a carbon permit price of less than €4 gives industry almost no incentive to keep investing in low-carbon technologies. If the recession windfall is to benefit the climate, rather than just creating a decade-long pause in the transition to cleaner factories and power stations, reform is needed.

One proposal is to shore up the cost of permits by making less available now and more in later years when economic recovery and higher demand kick in – what’s called back-loading. The European Parliament narrowly rejected this in April, but its members will vote on a revised proposal in early July. It could raise prices to €10 or €15 in the short term – but that’s still too low to deter coal burning. Additionally this would do nothing to further reduce total emissions long term.

Another, more fundamental, approach would be to reduce the number of permits permanently, so-called structural reform. There are several proposals, including one to strengthen Europe’s 2020 emissions reduction target from 20 per cent to 30 per cent, and tighten up the supply of permits to match. This would absorb roughly three-quarters of the current glut at a stroke and substantially increase cuts in emissions this decade. Prices would again rise only modestly, but this may prove the better bet.

Either way, however, it is easier said than done. Targets to reduce emissions and the price of carbon have always been highly political because of the potential economic impact. Members of the European Parliament threw out back-loading amid the worry that if carbon prices rise too high, European industry will be undercut by imports, and might even move abroad. That worry is compounded by recent shifts in energy markets, again threatening competitiveness against imports. Energy prices in Europe have risen substantially since the trading scheme started in 2005. They are now 20 per cent higher than those in Japan and 37 per cent higher than those in the US, according to figures from the European Commission.

Can these concerns be addressed? The Centre for European Reform thinks so. The think tank argues for carbon tariffs at the EU’s borders, with the money raised returned to the country of origin on condition it is used for emissions reduction. This would protect domestic industries from unfair high-emission competition, reduce the risk of trade wars and encourage low carbon investment abroad.

All of which provides lessons for those behind new carbon trading schemes. Carbon trading will only be truly effective when it is global; we need more of it, not less, and it must be interconnected. Until then it cannot be the sole solution, nor used as an excuse not to pursue other policies such as renewable subsidies.

“Carbon trading will only be truly effective when it is global; we need more of it, not less”

The politics are difficult; the European Commission faces battles over both back-loading and structural reform. And if in the end the system fails to deliver, it will not be the fault of the price mechanism but of politicians.

IN 2007 former US energy secretary James Schlesinger claimed the arguments in favour of peak oil – the key theory that global production must peak and then decline – had been won. With production flat and prices surging towards an all-time high of $147 per barrel, he declared, “we are all peakists now”.

Five years on and production has risen by 2.7 million barrels per day to 93 mb/d, prices have recently slumped to around $100 a barrel and those who dismissed the idea that the rate we extract oil from the ground must inevitably decline jeer in delight.

In June a much-touted – an Italian oil executive now at the , based at Harvard University and part-funded by BP – forecast that far from running out of oil, this decade will see the strongest growth in production capacity since the 1980s and a “significant, stable dip of oil prices”.

So is that it, panic over, as who once agreed with the peak view have declared on the basis of Maugeri’s report? Ironically, such shifts come just as some economists – traditionally hostile to peak theory – were coming round to it. Peakonomics, if you will. Unfortunately, any reasonable reading suggests Maugeri is wide of the mark.

The recent hysteria rests heavily on the rise of shale oil in the US, which was unforeseen and is significant. After four decades of decline, US oil production turned in 2005 and has generated the bulk of the global supply growth since then. But to brand this a “paradigm-shifter”, as Maugeri does, is wrong.

He forecast that this boom will lead to an astonishing 4 mb/d of additional US shale production capacity by 2020. By contrast, the US Department of Energy, usually optimistic, predicts total US shale oil production will peak at just 1.3 mb/d in 2027.

One reason Maugeri’s forecast is so high is that he assumes production from existing shale wells will decline by just 15 per cent per year.

Industry consultant puts decline rates at around 40 per cent. Analysis by Bob Bracket of US market analysts shows similarly steep declines, and also that the average shale well takes just six years to become a “stripper well” – producing just 10 to 15 barrels a day. Such declines are far higher than for conventional wells, effectively meaning the industry must drill furiously just to stand still. It is this factor that will limit future production growth.

It is distressing that Maugeri’s report – which appears to contain – got so much attention, but he insists the gist of his report is right. In contrast, an excellent in May received much less attention.

The IMF’s paper sets out to test the idea that the recent 10-year rise in the oil price – it hit a low of $10 a barrel in the late 1990s – can be explained by geological constraints. The team took an approach which expresses mathematically the idea that oil becomes harder to produce, the less there remains to be produced – the basis of peak oil theory. This is clearly right: why would we be scraping out tar sands if there were easy oil left?

When they combined this with the impact of global GDP and oil price, the results were striking. By testing their model against historical data, they found their production forecasts were more accurate than those of both peak oilers, who are traditionally too pessimistic, and authorities such as the US Energy Information Administration, which is generally far too optimistic.

Their price forecasts were also far more accurate than traditional economic models that take no account of oil depletion, predicting a strong upward trend that closely fits what has happened since 2003. “When you look at the oil price [over the past decade], the trend is almost entirely explained by the geological view,” said , one of the authors, when .

The IMF paper also slays the belief that rising oil prices will liberate vast new supplies and vanquish peak oil. The team found that production growth has halved since 2005, and forecast that even the lower rate of growth will only be sustained if the oil price soars to $180 by 2020. “Our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade,” write the authors. In this context, shale oil is not a “game-changer” but a sign of desperation. “We have to do these really expensive and really environmentally messy things just in order to stand still or grow a little,” says Kumhof.

It is true that global oil production has not yet peaked, but that is almost beside the point. The people who fixate on this need to wake up and smell the fumes we are reduced to running on. The IMF paper shows clearly we are supply-constrained. The oil price itself ought to be a clue: persistently above $100 per barrel, 10 times higher than it was at the eve of the 21st century.

“People fixated on the fact that oil hasn’t peaked need to wake up and smell the fumes we are running on”

Price spikes in recent years and recessions are the inevitable outcome of rising competition from fast-growing developing economies for limited supplies. Domestic consumption among major producers such as Saudi Arabia is also soaring, reducing supply to others. While global production rose in the five years to 2010, global net exports fell by 3 mb/d, according to independent US geologist Jeff Brown. How much worse would you like it?

In the film No Country for Old Men, two lawmen find the aftermath of a drug deal gone bad, with corpses strewn about the desert. The deputy remarks, “It’s a mess, ain’t it, sheriff?”, to which the sheriff replies: “Well, if it ain’t, it’ll do til the mess gets here.”

Likewise, if peak oil has not yet arrived, what I call the last oil shock certainly has. It’ll do til the peak gets here.

Coverage of the gas leak at Total’s Elgin platform in the North Sea, off the UK coast, has so far focused on the potential for an explosion, and damage to sea life from sulphur contamination – the latter now discounted. But methane is a powerful greenhouse gas, so what about the global warming impact? Here’s what emerged from the back of my envelope.

A company spokesman is reported as saying about , based on the plume visible above the platform. Of that, around 90 per cent – or 180,000 m³ – is likely to be methane, according to gas expert John Baldwin, of . Total says it may take six months to drill a relief well to plug the original, so if the leak continues at its estimated rate, 32,760,000 m³ of methane would be emitted altogether. At about 1500 m³ per tonne, that amounts to roughly 22,000 tonnes of methane. What would that mean in warming terms?

The standard global warming potential of methane is 25 over 100 years, meaning it has 25 times the warming effect of carbon dioxide over that period. So 22,000 tonnes of methane is the equivalent of 550,000 tonnes of CO₂. That’s more than twice the annual emissions of the power station at the Sullom Voe oil terminal in Shetland, according to figures from the EU Emissions Trading Scheme.

However, scientists attribute methane with a much higher global warming potential over shorter periods, because it persists in the atmosphere for much less time than CO₂, so its impact is concentrated in the early years. The IPCC’s 20-year global warming potential is 72, and on that basis the Total leak would be the equivalent of 1,584,000 tonnes of CO₂ over six months. That’s almost at Dunbar, and more than a year’s worth of CO₂ from RWE’s power station at Staythorpe in Nottinghamshire, which serves almost 3 million homes.

Recent research has suggested methane should have an even higher short term global warming potential of 105, because it reduces the concentration of aerosols that cool the atmosphere. That would raise the emissions of a 6 month leak from Total to just over the equivalent of 2.3 million tonnes of CO₂ – roughly equal to the 2010 emissions of the massive Teesside Power Station. At 1875MW Teesside was – until its partial shutdown in 2011 – the largest combined cycle gas turbine power station in Europe, capable of supplying 3 per cent of UK electricity needs.

Of course, the Total leak might turn out to be smaller than 200,000 m³ per day, or it could be fixed in less than 6 months. But if the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010 is anything to go by, early estimates of the size of the leak from the operator may turn out to be a massive underestimate.

No wonder Michael Liebreich, chief executive of Bloomberg New Energy Finance, has tweeted suggesting Total should be obliged to buy carbon offsets to compensate for the emissions.

GREECE is going to default, one way or another, that much is clear. The bigger question is whether it will also leave the euro and what that would mean. What is so far underappreciated is that a Greek exit would have appalling consequences for the climate.

Just three months after a second bailout, Greece is failing to deliver its end of the bargain and bond markets are signalling that it will not repay all its debt. The International Monetary Fund, the European Union and the European Central Bank are struggling to deliver a third rescue package.

Even if that succeeds, the wild card remains Greek politics. The country is wracked with strikes, riots and protests. Deep cuts to jobs, wages and pensions were passed by a slender majority, and it would not take much of a political shift for Greece to abandon its debts – and the euro.

Departure would be economic suicide, though. Paul Donovan, a London-based economist at UBS investment bank, calculates the Greek economy would shrink by half in the first year. Moreover, a Greek exit would likely trigger a domino effect. Ireland, Portugal, Spain and even Italy could go too. It would be a short step to the break-up of the euro and a continent-wide credit crunch.

The climate always takes a back seat when economies turn sour, but the impact of a euro break-up would be profound. Any country leaving the euro would also breach the treaties of Maastricht, Lisbon and Rome, and therefore be forced to leave the EU. A euro break-up is likely to shatter the EU, and with it the hard won architecture of climate policy.

For a start, the Emissions Trading System would be unlikely to survive. True, the ETS has been widely criticised as ineffectual, but the system at least imposes an international framework which could be strengthened and expanded. That would all be swept away, along with any obligation for countries to deliver their 2020 targets on emissions, renewables and energy efficiency.

On one level that matters little. Given the scale of the likely economic collapse, emissions would fall far below the targets and could stay low for years. The collapse of the EU, so long in the vanguard of climate policy, could ironically be seen as a desirable outcome. In fact, nothing could be further from the truth. Emissions might fall dramatically, but so would our ability to do anything about the remainder.

The Intergovernmental Panel on Climate Change says holding global temperature increase to 2 °C means cutting emissions by up to 85 per cent by 2050. That would require an investment of $18 trillion by 2035, according to the International Energy Agency. It is hard to imagine governments in the midst of a depression mobilising anything like enough money or political will.

There is much more riding on the outcome of the Greek crisis than the future of Europe or even the world economy. The danger is that a euro collapse could destroy the capital and institutions needed to combat climate change.

It is bitterly ironic that the meltdown of a minor economy that has little to sell but sunshine could condemn the planet to uncontrollable global warming.

Europe’s energy consumers will find themselves paying a high price for Germany’s decision to get out of nuclear power

FOR decades, Germany has had some of the most enlightened energy policies in Europe. It has long been admired for setting world-leading growth in wind and solar. But its decision to ditch nuclear by 2022 will set back efforts to decarbonise the electricity supply by 10 crucial years, and could prove expensive for every household in Europe.

Germany’s abrupt about-turn, like all decisions on nuclear, was highly political. Last year the government, headed by Angela Merkel, made the sensible but unpopular decision to extend the life of Germany’s nuclear plants to 2036 as a “bridge technology” towards “the age of renewable energy”. But after the disaster at the Fukushima Daiichi nuclear plant in Japan, public hostility intensified and Merkel retreated. The U-turn may help her in the 2013 federal elections but it is a major reversal for the climate.

Around 23 per cent of Germany’s electricity comes from nuclear and 17 per cent from renewables. That’s a 40 per cent share for zero-carbon in total – one of the highest in the European Union.

The German government has admirable plans to raise renewable electricity to 35 per cent of consumption by 2020. But even this planned increase falls 5 per cent short of filling the hole in zero-carbon electricity left by abandoning nuclear.

How will Germany fill that hole? With coal and other fossil fuels. It has plans to build 20 gigawatts of fossil-fuel power stations by 2020, including 9 gigawatts of coal by 2013. The government now describes fossil-fuel power stations – apparently without irony – as “the new bridging technology”. Some of this may never be fitted with carbon capture and storage because German environmental campaigners don’t like this technology either.

So it looks as though by the end of the decade Germany will at best have about the same amount of zero-carbon generation as today – 40 per cent – and probably less. Had Germany retained its nuclear capacity and achieved its renewables target, the zero-carbon share would have been 58 per cent. We are told this decade is crucial for our emissions reduction trajectory. For Germany it will be a lost decade during which emissions from its electricity generation are likely to rise.

“By the end of the decade Germany will probably have less zero-carbon energy than it does today”

Trevor Sikorski, head of environmental market research at London investment bank Barclays Capital, calculates that Germany will emit an extra 300 million tonnes of carbon dioxide between now and 2020. That is more than the annual emissions of Italy and Spain combined under the EU’s emissions trading scheme (ETS).

Anti-nuclear campaigners have argued that the market will come to the rescue: the permits that enterprises must buy to be allowed to emit carbon will become more expensive, encouraging emissions savings elsewhere. But this argument is hard to support, certainly in the short term.

To start with, the price of carbon permits has slumped since Germany announced its nuclear policy in early June. Sikorski says the price will rise as German utilities are forced to buy more permits to cover their increased emissions, but not by enough to impel matching reductions elsewhere. That’s because there are still far more permits in circulation than carbon being emitted, for which the recession is only partly to blame.

In the longer term, the carbon market may well do its job – but at a price to all of us.

The outcome depends critically on the success or failure of the EU’s new . This calls for energy companies to implement efficiency measures that will reduce the amount of energy they supply by 1.5 per cent per year. This could cut emissions by 335 million tonnes by 2020.

Barclays Capital estimates that if the efficiency drive works, the trading system will still have surplus permits in 2020. But efficiency gains are notoriously difficult to sustain across an entire economy because of economic growth and the “rebound effect”, where greater efficiency leads to even greater consumption. For instance, improved insulation makes it cheaper to heat a house, encouraging residents to turn up the thermostat and consume more gas.

But if Europe fails to cut emissions by raising efficiency, by 2020 the trading system will have a shortage of permits equivalent to 120 million tonnes of carbon, according to Barclays Capital. If so, on the basis of today’s fossil fuel prices the carbon price would be forced up to €70 per tonne.

It is then that the supporters of the German nuclear shutdown may wish to reconsider. Had Germany kept its reactors going, the ETS would have had surplus allowances even without the efficiency savings. “Germany will make it more expensive for everybody else. They are requiring a market price to be higher to meet the same reduction target,” says Sikorski.

Even if the efficiency target is achieved, Europe will still have a price to pay. As things stand, the trading system would then have some 200 million tonnes in surplus allowances. Had the German reactors continued to generate, the surplus would have been some 500 million tonnes, meaning carbon prices and energy bills would be significantly lower. “Prices will be higher under any scenario than if Germany had kept its nuclear plants running,” says Sikorski. “We are all going to have to pay more for our power.”

It is widely agreed the cost of carbon is too low and needs to rise to spur more abatement. But the effect of the German decision is to raise unnecessarily the cost of achieving existing targets.

And let’s not forget the climate. If EU members do somehow succeed in reducing emission by 335 million tonnes through energy efficiency, all that effort will almost entirely be negated by Germany’s additional 300 million tonnes.

Thank you, Mrs Merkel.

Germany’s clean, nuclear-free future may have a difficult birth.

Chancellor Angela Merkel’s government claimed to be “ushering in the age of renewables” as German MPs passed legislation this week to phase out nuclear power by 2022 – but the basic arithmetic of the energy-switch policy suggests the country will struggle to fill the hole left by nuclear power.

The vote means that by early next decade Germany will lose 20 gigawatts of nuclear power, which supplied the country with 23 per cent of its electricity last year. Renewables supplied Germany with 17 per cent of its electricity in 2010, so the country generated 40 per cent of its electricity from zero-carbon sources.

Under existing targets, which pre-date the nuclear U-turn, the government plans to double renewable electricity to 35 per cent by 2020. In fact, in its submitted to the European Commission last year, Germany projected that renewables could deliver almost 39 per cent by that date. That was on the basis that gains in energy efficiency would cut demand by almost 9 per cent, which may not be achievable in a growing economy.

Either way, however, it seems unlikely that electricity from renewables alone can completely cover the 40 per cent of electricity now generated from a combination of nuclear and renewables before the last nuclear station closes. That’s because renewables requires far more generating capacity than the technology it replaces as wind and solar are intermittent.

Germany will plug the gap by building coal and gas-fired power plants with a combined capacity of 20 gigawatts for cloudy or windless days. Opposition to carbon capture and storage in Germany – where the technology is seen as an – means the carbon emissions from these plants may not be collected.

So it appears that the country will at best have about the same level of zero-carbon generation in 2020 as today – 40 per cent – and that emissions may rise in the interim. Had Germany been prepared to retain its nuclear capacity and achieved its renewables target, the zero-carbon share could have risen to 58 per cent.