Hot air: emissions reduction

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Hello and welcome to the intelligence on Economist Radio. I'm your host Shashank Joshi, filling in for Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. Somalia is a byword for instability, but its neighbour Somaliland, which declared independence 30 years ago today, is a quiet success story. Yet Somaliland remains a diplomatic outcast, unrecognized by most of the world. And higher share prices are normally a good thing for a stock exchange. But when Warren Buffett's Berkshire Hathaway went through the roof, it caused a bit of a panic. We look at the technological menace of big numbers. First up, though, the world is in a climate crisis. Addressing it will require coordinated action by governments around the world. To avoid the worst effects of climate change, it's necessary to limit global warming to well below 2 degrees Celsius and ideally 1 1/2 degrees Celsius relative to pre industrial temperatures. In 2015, 197 countries signed the Paris Climate Agreement and agreed to do just that. Central to that plan is for the world to reach net zero emissions by the middle of the century. It's a pledge that many world leaders have now signed up to.

Let's make it our collective commitment to get to net zero by 2050 to renewable energy by 2050.

On our journey to net zero by.

2050 net zero emissions to come by no later than 2050.

Today, the international Energy Agency, the world's energy watchdog, published a report. It gave its verdict on what it would take to meet that 2050 target.

So the IEA have laid out one of the first ever roadmaps to how the world might get to net zero emissions by 2050, which is looking at the kind of policies that would have to underpin countries climate change pledges.

Rachel Dobbs writes about climate change for the Economist.

It is a very, very ambitious path. They say that it is achievable, it is narrow, but it is theoretically possible. But it would have to take absolutely everything from all countries in the world, starting right now.

And Rachel, what does it mean to throw everything at the problem?

So the IEA is advocating for a massive shift towards renewable energy. By comparison, 2020 was a record year for renewable energy being added to the mix. 280 extra gigawatts. You would have to do four times that amount every between now and 2030 to even stand a chance of getting towards net zero emissions by 2050. That is roughly the equivalent of installing the world's largest solar park every day. So a huge shift towards solar and wind power. The electricity generation would have to essentially be net zero by 2040 and even earlier in advanced economies, because they would need to help developing economies, which sounds very, very daunting, but it is theoretically possible, according to the iea.

That sounds incredibly daunting. Presumably it also requires a fantastically dramatic shift away from fossil fuels, doesn't it?

Yes, it does. And one of the most dramatic things outlined in the IEA report was the idea that all new fossil fuel exploration projects would have to stop immediately, right now. No new oil and gas plants to be built, no new coal plants to be built worldwide. Only existing assets could be developed. The only role that they see for the use of fossil fuels would be very limited application in the production of plastics and in heavy industry at sites with carbon capture technology. That shift, particularly for the iea, is completely remarkable given that they are frequently accused of being too pro fossil fuels and not bullish enough on renewable energy projections. And is probably going to be a much greater decrease in the use of fossil fuels than any fossil fuel producers were expecting.

Rachel, how would you go about doing this? Persuading people, persuading companies, organisations to make that energy transition?

So you'd have to do it on a couple of levels. One would be legislation. So, for example, the Spanish Parliament last week passed a law basically saying that there can be no new oil and gas plants from now, but you would also be wanting to do it on a sort of individual incentive level. So carbon pricing, that would be incentivising people via price signals to, for example, retrofit their homes, to buy electric vehicles, to move away from gas boilers and combustion engines and things like that.

What role does the IEA say technology plays in this? Is there any kind of magical technological solution that gets us away from these horrible dilemmas?

So yes and no. The IAEA was very careful not to use any technologies that don't actually exist yet in their modelling. The initial shift will be done by existing technologies like solar and wind. But what they did use were technologies that are currently in the demonstration or prototype phase. And those, I think, will really come into play after about 2030, 2040. We're talking about things like direct carbon capture storage, hydrogen electrolysers, advanced batteries. All of these things will eventually, they think, have a big role in, in reducing carbon emissions. They do currently exist. They're not at market, which means that there has to be quite a lot of government investment in terms of research and development. There has to be enough money to really demonstrate these things in order to then attract private investment. And there needs to be simultaneous building of infrastructure to facilitate these technologies as they come to the market. Because as they come to the market, the price needs to go down and they need to be viable to be then deployed at scale.

You mentioned changes on the individual level earlier. Does it make a difference what you or I do to the overall emissions picture and how do we change those behaviours?

So it definitely does make a difference what you or I do. The IEA is predicting that 55% of cumulative emissions reductions will be down to consumer behaviour. Behavioural changes will also play a role. So replacing car trips with public transport, or walking, forgoing long haul flights for conferences, things like that. The picture that you're looking at here is that cities will not really see individuals with private cars. By sort of 2050, those sort of individual changes will contribute about 4% to cumulative emissions reductions. But that is still important. But the really, really important behavioural change here is going to be political will and public buy in to the programs that governments will undergo.

What you're describing here, what the IEA is demanding here, sounds astonishingly ambitious. Something that's going to take political collaboration of a speed and scale that is unprecedented. Is it all just fantasy?

I mean, it will be very, very difficult. International climate agreements are incredibly hard to come by. The fact that it's theoretically possible will hopefully incentivise countries. But if you're going to have to have buy in from every economy in the world, that's very difficult to do. Spain have passed a law that is sort of moving in this direction simultaneously. Angela Merkel has said that Germany is not going to look at moving forward their coal phase out to this year. So it's a bit of a mixed picture at the moment. It doesn't seem like the overarching political will is there, but it will be very interesting to see how this kind of modeling and the IE A's ideas play at both the COP conference in November and earlier than that at the G7 conference in Cornwall in June, which climate is going to be a very big focus and to see if these ideas are starting to be discussed at the very high diplomatic level.

Rachel, if you were a betting woman, how would you assess the prospects of meeting that 2050 target and with it the hope of limiting global warming to 1 1/2 degrees above pre industrial levels?

I'm afraid to say that I wouldn't be putting a huge amount of money on it. I would absolutely love the world to meet the 2050 target, but I think that international collaboration thus far has shown that that seems to be unfeasible. Although I do hope that as these ideas are being discussed more, you will really start to move in that direction. But keeping global warming to 1.5 degrees above pre industrial levels is basically out of reach. Even if all of the pledges that have currently been made were met, you would be looking at 2.1 degrees of warming which would still have huge impacts across the world. So 1.5 I think is pie in the sky, I'm afraid.

Rachel, thanks very much.

Thanks. Shashank.

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Today Somalilanders will celebrate 30 of peace. The country of four and a half million people declared independence from Somalia on May 18, 1991. Since then, Somaliland has enjoyed stability, especially when compared to its neighbor. Its independence has been an inspiration for the country's musicians like Sara Halgan. But Somaliland's sovereignty remains unrecognized and its next 30 years may not be as successful as the last.

So if you think of what makes a state a state, it's about having internal control over what's going on within your borders and it's about being recognized by the rest of the world.

John McDermott is the Economist's chief Africa correspondent and he recently travelled to Somaliland.

Somaliland, in the Horn of Africa has the first, but not the second. The world sees Somaliland as part of Somalia even though it declared independence from it 30 years ago.

And why does the world not recognize Somaliland?

There's a lot of buck passing going on. Rich countries say it wants Africa to figure out Somaliland's status. The African Union, which represents the continent, says it wants the region to figure it out. And the region defers to Somalia. Unsurprisingly, Somalia, which is a rather fractious and obstreperous place, says no, in case the other regional separatists within its borders get ideas of their own.

And so, in the absence of international recognition, what's the political situation like inside Somaliland?

Somaliland has a well earned reputation for peace and stability, and that goes back to its origin story. After the ouster of the Somali dictator siad Barry in 1991, Somaliland's clans got together, often underneath desert stars, underneath trees, in a series of confabs to work out how to share power. And since then there's been periodic presidential elections. And for the most part, while the country is poor, it has developed and it has brought a relative amount of democracy to the region. And all of this of course contrasts with the chaos in neighbouring Somalia, where foreigners have lavished money and guns upon a country which is in effect a failed state.

So perhaps not in name, but to all intents and purposes, Somaliland is acting like and looks like a state, and.

Increasingly so because its diplomats, such as they are, are increasingly active. It has attracted a lot of new friends over the past couple of years, most prominently in Berber, which is a town on the Gulf of Aden, the United Arab Emirates, through a company called DP World, which is a Dubai based maritime firm, has a big investment there and they're hoping that it will be their foothold ultimately in The Horn of Africa. And they're also opening a diplomatic office in Hargeisa, the capital. And it's not the only one. Taiwan, another sovereignly challenged country, has a regional representative based in Hargeysa. And Ethiopia, which is a landlocked country of 100 million on Somaliland's border, is part of the port development which will run from Berber to its hinterland, increasing its access to trade and ultimately the rest of the world. So Somaliland is increasingly active in terms of its foreign policy, even if that is not necessarily bringing recognition.

On your recent trip, John, did you get a sense of how Somaliland citizens feel about the direction their country's headed.

In 30 years on from independence? Many people told me that Somaliland was at a crossroads. Essentially everybody votes according to their clan and this has delivered stability for the country. However, when it comes to who gets political jobs, who gets government contracts, what matters isn't who's the best person or the best business for the job, but what clan they belong to. And that matters because it's holding the economy back. And when there's 70% youth unemployment, those younger Somali landers are increasingly thinking, my parents generation brought me peace, brought me stability, but are they going to bring me prosperity in the future?

My name is Suad Odawa or Suad Army Odawa as I've known here.

One person I spoke to was a lady called Sukhad Odawa, who like many Somalilanders went into exile during the fighting in the 1980s. She went to London and there she led a relatively normal life, a modern life. But she wanted to come back to Somaliland, open a business, a restaurant, and ultimately run for office.

This seed that I'm fighting to get belongs to a tribe. It doesn't belong to a political party. The problem is that tribe that owns that seat, are they going to allow women to represent them? And that is no.

But she's found it really difficult moving from a highly modern society to one where these traditional clan based institutions are still very powerful.

The system we now have in terms of politics, that based on tribe, will not allow somebody who's from a minority tribe to ever become a president in Somaliland. And that's not democracy.

Despite all of the problems you've outlined, on balance, do you think Somaliland does deserve international recognition then?

I do. And I think there's a number of reasons for that. The first and simplest is that the vast, vast majority of Somalilanders want it. The second reason is that 70% of the population is under 30. So they've known no other world. They don't know what it's like to be in a country that hasn't declared independence. And thirdly, recognizing Somaliland would be recognizing borders that actually existed for a long time. When it was British Somaliland, it had the same borders as it did now. So this is not a situation like you had a decade ago with South Sudan where an entirely new map was drawn. So the people who are rightly often reluctant to redraw borders, especially in Africa, don't really have a point when it comes to Somaliland.

Somaliland seems to have had a relatively good 30 year run. What do you think the next 30 years has in store for it?

I think Somaliland deserves huge praise for the fact that it has brought a modicum of democracy and a lot of stability to a troubled region. However, that political system that brought it this success is probably no longer fit for purpose. So unless it's going to move away slowly but surely from that clan based system, Somaliland may unfortunately struggle to make the next 30 years as spectacular as the first 30 years.

John, thank you very much.

Thank you, Shashank.

It's always exciting watching a counter tick over a car driving its hundred thousandth mile or the hundredth customer entering a shop. But for the engineers working on one big board, the Nasdaq, watching the share price of Warren Buffett's Berkshire Hathaway tick up and up was less exciting and more worrying.

The NASDAQ pricing systems that offer price quotation for the system for NASDAQ subscribers was unable to keep up with the value that Berkshire Hathaway's Class A stocks reached.

Glenn Fleischman is a writer with the Economist.

Because it exceeded their internal capability of counting that high.

And how exactly does a sophisticated computer system fail in that way?

Well, every computer program is designed to store numbers, right? This is one of the fundamental things about computers, is they execute code and they store numbers. Computers work instead of in base 10 like our fingers, in groups of 10, they work in base 2 binary digits, bits which are 0 or 1. And so everything is counted by 2. So 2, 4, 8, 16, 32 and so forth, up to very large numbers. Programmers have to think about what numbers they need to work with in any given system they program. So the number that the NASDAQ programmers had used to count stock prices was a 32 bit number which represents a very high value. Over 4 billion is the actual number that can be counted. But in NASDAQ system, four of those digits are to the right of the decimal point. So the Largest number is just under $430,000. And so when Berkshire Hathaway's stock crossed about $430,000, that exceeded the ability for that number to hold it. It was higher than the capacity of that 32 bit number's counting ability.

So Glenn, how did no one at Nasdaq see this coming? Isn't the point for stocks to reach dizzying heights?

Yes, although NASDAQ systems were developed the current generation around 2000. And apparently they said, well, how high could a stock go? And I don't have discussions from them. This is speculation, but programmers have to think about this. And surely people inside the project management department said, well, surely a stock would never go higher than $429,496.72.95. That would be absurd. So let's use a 32 bit number that can represent that with four digits of decimal precision.

Glenn, using a 32 bit system might have saved on processing power. But why hasn't the limit ever been hit before?

Berkshire Hathaway is always an outlier. The stock's been rising steadily for 60 years. Warren Buffett has his own particular investment strategy others have tried to mimic. And he also doesn't believe in stock splits. Very few stocks rise and rise and rise without splitting to make them more approachable and more listable. So Berkshire Hathaway is a real outlier here on US Stock markets in terms of their trading value. The number two company is NVR Incorporated, which does construction and mortgages, and their stock doesn't trade far above $5,000. So Berkshire Hathaway, you know, it's not a black swan event, but it is a kind of unique character among all stocks that are listed in US Markets.

And Glenn, so what have NASDAQ done now to address the problem and ensure that other high flying stocks don't run into the same numerical buffers?

Well, they very carefully refactor their code, which is when you go through existing code base and say, hey, where do we do this one thing we're trying to change? And it can sometimes be riddled like Swiss cheese. Throughout a piece of code they found all the instances in which their pricing feeds used 32 bits. And as far as I can tell, they've updated them all to 64 bit, which is the next logical unit. I should point out Berkshire Hathaway is listed on the New York Stock Exchange. It continued to trade all along, but pricing systems broke down. And Nasdaq, that was the one where they had to suspend listings for a bit there back in place with the ability to represent a much larger number.

And so, with a generous 64 bits, do we know how high Berkshire Hathaway can now soar before it breaks the system again?

Yes, it could conceivably hit 1,000,000,000, 844,674,407,370,954 and 16.15 before Warren Buffett pushes NASDAQ over the edge again.

Okay, I'll be on the phone to my broker. Glenn, thank you very much for joining us.

Than you.

That's all for this episode of the Intelligence. If you like us, leave us a rating and a review and you can subscribe to the economist@examiner.com intelligenceoffer. The link is in the show Notes. See you back here tomorrow.