IEA: Cross Silo Thinking

Posted on 09 October 2009

In 2008, the Financial Times columnist Gillian Tett was named best Business and Finance Journalist in the British Press Awards and was highly commended in the Reporter of the Year category for her coverage of the credit crunch. She also authored the book “Fool’s Gold” about the origins of the global financial crisis. We find her worth listening to.

Her column today in the FT (Insight: Dangers of Silo Thinking) describes, citing a new book by Larry McDonald, how the Fixed Income unit of Lehman was, for several years before the firm’s collapse, so alarmed by the American real estate market that they were hunting for ways to go “short.”

However, “while one department of Lehmans was exceedingly bearish, other departments, such as the mortgage securitisation team, were so aggressively bullish that they were increasing their exposure” – and the different departments were in such rivalry that they barely knew what the other was doing, with disastrous consequences.

“[It is] a saga that raises a wider moral, not just for bankers, but investors too. In recent months, vats of ink have been spilt to explain all the macro-economic and regulatory reasons for the financial crash.” She goes on to point out other examples of silo thinking.

The column reminded us of another very recent example of what we observe to be a break from “silo thinking” involving climate change, energy supply, and the upcoming Copenhagen global climate talks.

The International Energy Agency or IEA releases its World Energy Outlook or WEO in November each year. Last year in November the WEO-2008 marked a turning point for the IEA in that it acknowledged for the first time the likelihood of “Peak Oil.” In the forthcoming WEO-2009, the WEO will be making an even more controversial break with the past by saying

“continuing current energy policies would have catastrophic consequences for the climate.”

The report will advocate policies to limit the build up of greenhouse gasses to 450 parts per million. (Meanwhile, expect to see another group, 350.org, mount demonstrations on October 24 to call attention to the need to set the limit lower at 350 PPM instead.)

These shifts were disclosed earlier this month at a press briefing in Bangkok at UNFCC talks where the IEA released an excerpt of the WEO-2009. The excerpt was prepared and released a month early in order to make it available ahead of the Copenhagen talks.

In Bangkok, Nobuo Tanaka, the IEA Executive Director, noted that, due to the global recession, carbon dioxide emissions could fall in 2009 by as much as 3% versus 2008. He cited this as an opportunity now, ahead of renewed GDP growth, for the world to adopt policies and make investments that would limit energy-related global emissions (estimated at 28.8 Gigatons (Gt) in 2007) to only 6% above the 2007 level by 2030 (or 30.7 Gt in 2020), falling to 26.4 Gt in 2030. Without the proposed policy changes, emissions in the Reference Scenario are projected to rise to 34.5 Gt in 2020 and 40.2 Gt in 2030. The full WEO will no doubt receive extensive analysis and commentary when released November 10 in London.

Back to the dangers of silo thinking, where we began.  Traditionally, the IEA has kept to its respective silo of energy analysis, with little regard for source of the primary fuel or its impact on the world.

The IEA, founded during the oil crisis of 1973-74, is supposed to be an energy policy advisor to its 28 member countries.  As the IEA describes itself:

“With a staff of around 190, mainly energy experts and statisticians from its 28 member countries, the IEA conducts a broad programme of energy research, data compilation, publications and public dissemination of the latest energy policy analysis and recommendations on good practices.”

To say that the IEA including analysis on global emissions and climate change is “mission creep” would be an understatement.  We find this departure to be more “mission leap” and remarkable that world’s top energy analyst would advocate policy that puts the consequences of current energy production ahead of the primary challenges of simply meeting growing energy demand.

For once it is refreshing to see an example of “cross silo” thinking by Tanaka and his staff.  The question now becomes whether the rest of the world will do the same, or are we fated to repeat the mistakes of Lehman with energy instead.