Tuesday, December 17, 2013

How to End Poverty, Help the Economy, and Save the Environment Part 2

I know that a while back I made a list of things that I would do if I was dictator of the US. I have mostly the same opinions with a few addendums. I don't have much to say about health care and Social Security.

  • Raise teacher salaries (a lot). I'm thinking paying public school teachers $100,000+ a year. More in cities, more in poorer districts.  (liberal)
    • Lest you think I think teachers deserve everything I think we should end tenure (conservative)
    • Also increase education requirements for teachers and make sure they get at least a Master's. Ideally, people will choose teaching over becoming a lawyer, doctor, nurse, or businessman/woman. (neither)
  • I don't really know enough to know whether vouchers are good or not (dunno)
  • Make sure everyone can afford college and doesn't need to work two jobs (hopefully at most one part-time job) to do so.  (liberal)
  • No affirmative action. However, for college admissions, poverty level/upbringing should definitely matter. (conservative)
  • Let colleges increase in size to meet the demand of a growing educated populace (neither)
Federal Economic Policy
  • Of course, implement a rising carbon tax (liberal but supported by conservative economists)
    • Read my other posts on it
  • End minimum wage and replace it with a guaranteed living wage that rises as necessary. Unlike some conservatives, I don't think this would necessarily increase economic efficiency (due to the necessary extra taxes to give out so much money), but it would actually be more progressive than current policy. (mostly conservative in theory)
  • Implement a VMT Tax and slowly phase out gas tax (liberal but supported by conservative economists and some politicians)
    • Driving has its own externalities, largely unrelated to pollution in America due to vehicle regulations (more to congestion, accidents, and road use)
      • use it to cover road use, congestion is addressed later
    • Carbon tax will mostly cover the pollution impacts for driving
  • End the homeownership tax credit (neither politically, supported by all economists)
    • absolutely no reason to subsidize buying houses. This is hugely destructive, encourages sprawl and disconnected communities, encourages people to live beyond their means, encourages driving, etc
  • Cut defense (liberal)
    • big time. Don't need so many wars
  • Cut wasteful spending (conservative)
    • A lot of spending is wasteful. Don't give local subsidies
  • No more highways (liberal)
    • We have enough roads. Maintain the ones we need, get rid of what we don't need
  • Don't waste money on high-speed rail if there isn't likely to be a demand for it (somewhat conservative although I'm not against all high speed rail)
  • End pretty much all corporate subsidies (liberal, but conservative in theory too)
  • End the ethanol mandate (both, but more of a conservative policy)
    • No brainer
  • Invest a lot in basic research (liberal, but some support from conservatives)
    • but be careful. Should be practical, but some spending should be on "cool stuff" like underfunded private space exploration, some high-risk, unlikely technologies
    • on this note, more government investments in GMOs!
  • End farm subsidies (liberal somewhat, but supported by small-government conservatives)
    • all of them. no price floors, no encouraging of American-made products
  •  Legalize marijuana (liberal/libertarian)
  • Jail reform-less jail, more rehab (liberal)
  • More non-military foreign aid (liberal) 
  • Spend money on adapting to climate change (whether infrastructure or innovative solutions) (liberal)
    • allow insurance companies to "price gouge" risky areas so people don't live there (conservative mostly)
Regional/Local Policy
  • Dynamic electricity pricing (liberal mostly)
    • Can smooth out grid, leading to lower infrastructure costs and fewer peaker power plants
    • however, not so necessary if storage is cheap
  • Encourage density
    • End restrictive zoning codes (like in Palo Alto) (liberal, but should be supported by small-government conservatives) 
    • new apartments are great, building up is good, mansions are bad
    • livable, mixed-use neighborhoods (liberal, but largely a problem of aforementioned zoning issues)
      • restaurants, shopping, and housing all together. I don't like Walmart, but a great example of mixed-use is a Walmart in DC that has apartments above it! Oh how great it would be to live in an apartment that is right above a grocery store (and not one owned by Carmel Partners!!!)
    • eliminate parking minimums but charge a market rate for parking. I would love to live in an apartment without parking and not own a car (again, liberal, but liberatarian in theory)
      • Empty lots are terrible. Eyesore, hurt walking/biking
    • transit
      • often a Bus Rapid Transit system may be the best option when rapid metro isn't feasible (liberal)
      • consider bike-share a form of public transit as well, but only implement it where there is enough density and if it will actually benefit the municipality (liberal)
      • encourage ride-sharing and carpooling. Work with employers to set up carpooling. Reduce taxi quotas and don't overregulate Lyft and Uber (liberal)
      • End transit subsidies (this might be more federal policies)-encourage people to live near where they work. No reason to subsidize suburbs (liberal, but again, smaller government)
      • again, high speed rail maybe, but density and regional transit are bigger issues.  (liberal)
    • Better biking infrastructure (liberal) 
      • look up to the Netherlands, not Portland, as an example of what ALL cities should strive for
  • Congestion charges (liberal, but some support from conservative economists)
    • same idea as parking-if there's high demand, people should pay more to use roads
  • again, don't waste money on roads (liberal, but smaller government)
  • adaptation to climate change (liberal)
    • may include evacuating some areas
  • encourage grey-market sharing economy (neither really, but smaller government)
    • organized local exchange of used goods, ride-share and car-share as mentioned, clothing rentals, Air-BnB type apartment rentals to compete with hotels, etc
  • Indoor air quality standards (liberal)
    • not something I had thought much of before, but it appears to be a major problem in homes, offices, and schools
Some additional general notes
  • Take advantage of technology but don't overuse it. We don't need "smart" everything. Sensors all over every location are going to cost a lot, not be extremely reliable, and may give people too much information. Not every parking spot needs a sensor for example, and not everything in a city needs to be interconnected.
  • Plan for what you (realistically) hope the future will become, don't straddle the past.
  • Density is good for the environment, Net-zero-energy single-family homes are not
  • I haven't mentioned health care or social security. Major problems, but not stuff I'm super interested in. I'll just use the same notes as last time: make social security slightly more progressive, raise retirement age, European-style healthcare

So yeah, I'm pretty liberal. However, if you look at what I've proposed, most of it is endorsed at least in theory by conservative economists. And consider this tally:

Education: 3 conservative, 3 liberal

Federal policy: 12 liberal, 5 conservative. However, of the 12 liberal policies, 4 are endorsed by some to many prominent conservatives. And I count 11 out of 18 policies actually reduce the size of government, with 2 (VMT replacing the gas tax and replacing minimum wage with Basic Income) that are neutral or ambiguous. A carbon tax won't necessarily increase the size of government either if other taxes are reduced accordingly. Jail reform would hopefully reduce spending. Investments in scientific research are supported by many conservatives, although what constitutes "basic" research is a cause for debate. So spending money on climate change adaptation is the only truly liberal, big-government proposal (even conservatives who believe in climate change will say that the market will adjust with a proper carbon price. I would support things like forced relocation if it comes to that)

Local/Regional Policy
Again, much policy is involved with reducing regulations. Other suggested policies involve a setting a market price for goods (parking, driving, electricity). There is only one new proposed regulation (indoor air quality). There are some proposals for infrastructure spending (bike-share, public transit), but even there I think there is a strong place for corporate-funded transit (whether it be funding bike-share or corporate buses like Google buses)

My environmental policy:
1 area of new regulation (indoor air) that can't really be set up with a good market
3 new taxes/fees (carbon, congestion, parking)
1 reduced tax (gas, but also maybe income, payroll, and corporate taxes can be replaced with the above taxes)
3 elimination of subsidies/reduced spending (home ownership, transit, corporate subsidies, roads)
4 reduced regulations (parking, zoning, ethanol, insurance requirements)
3 increased spending (transit, adaptation to climate change, increased research)

So I guess I'm not that surprised, since I have read mostly economics. But despite the fact that I am overwhelmingly liberal and often come across as a supporter of big government, I generally want less government intrusion. I want to end many subsidies, including subsidies that generally help the poor. I am strongly supportive of wealth distribution, but I would like to see it heavily concentrated in education rather than a mishmash of inefficient subsidies. I would probably vote for a libertarian who only supported my small-government policies as long as they weren't openly hostile to other things that I strongly believe in. I am a big supporter of social engineering, but in reality, every government policy is a form of social engineering, the only question is, what are your priorities?

I think that the government should prioritize: equitable, strong education; efficient, dense communities; living wage for all, but this is obviously not a comfortable living; a healthcare system that focuses on keeping people healthy rather than curing sickness; a clean, safe living environment. I honestly don't think the government should prioritize job creation really. It should provide a realistic system of regulations that encourage the growth of business (without undue environmental destruction), but the government should not consider whether jobs will be created or destroyed. More jobs are not necessarily good, fewer jobs are not necessarily bad. Generally, the government should be there to maintain or improve the overall standard of living for Americans as well as foreigners. That said, there is perhaps a place for fiscal policy in times of boom or busts to moderate cycles.

I think the biggest thing that I have come to realize is that the best thing we can do for the environment is to promote density. Although I love electric cars compared to gas cars, I am hopeful that the future will involve almost no cars. Perhaps a self-driving taxi service charged at a rather high rate can provide emergency transportation, but I hope that the future brings cities closer to the Netherlands with biking, walking, and public transit. I believe that even today it is entirely possible to get by without a car in much of the Bay Area, if somewhat difficult. With kids, it is certainly more difficult-who is going to take the bus to a Little League game for example? But there will still be a place for private vehicles, just a reduced need, helped by ride-sharing, car-sharing, and autonomous vehicles. In addition to reduced transportation costs, density is a much better use of land and energy, allowing for more preservation of wildlife and lower overall pollution output per capita.

Thoughts? I think I have changed over the past few years. I have become much more conservative and skeptical of government. I will listen to you even if I disagree. I didn't used to support marijuana legalization and used to be a huge supporter of high speed rail. From my self-review, I can see that liberals aren't necessarily supporters of big government. That said, many of my views clash with prominent liberal groups (unions especially). There are many suburban "liberals" who don't want their neighborhoods to be turned into cities. Most liberals don't share my enthusiasm for regressive taxes. Many in both parties are unwilling to eliminate subsidies (home ownership, transit). Nearly all of my economic policy views are fairly noncontroversial among economists on both sides. That may be because I read a lot about economic policy. In practice though, there is incredible opposition to all of them (except maybe a VMT, but even that's getting flack from libertarians. And Bob McDonnell in Virginia wanted to replace the gas tax with a higher sales tax that exempted gasoline!).

Short summary: end restrictive zoning, end inefficient anti-urban subsidies and spending policies, more Pigovian taxes, pay teachers a lot more

Tuesday, April 23, 2013

Keystone is not so simple

The debate over the proposed Keystone XL Pipeline has burst into a shouting match between two sides that are both exaggerating their claims. The public is left in the dust with an assortment of half-truths that don't come together to give an accurate picture. One of the purveyors of misinformation gave a speech to my school's Environmental Club. I gave an effort to counter some of his claims, but I don't think anyone in the audience was convinced that he was wrong.

Garth Lenz has really taken some beautiful photography that you should check out: http://garthlenz.photoshelter.com/. I don't know how our tiny club was able to get him to come to Davis from Canada to talk to maybe 15 people on a Thursday night, but it was certainly an interesting experience to have such a personal conversation with an activist. I think that I come across as a skeptical conservative in the company of Environmental Club, despite the fact that I consider myself an enthusiastic supporter of environmental issues. I guess the difference is that I don't see saving the environment as a goal in and of itself, but mostly as a means to achieving human prosperity.

I am not going to dispute the validity of most of the following statements, but they are by themselves very misleading:

Oil from tar sands is much dirtier than oil from conventional reserves.

Yes, the process is very dirty, and the illustrations from Lenz's photography paint a bleak image of the devastating effect of mining tar sands. Lenz says that extracting oil from tar sands is twice as bad as extracting conventional oil, but he leaves out the fact that it is burning the oil that is most of the problem-the total GHG emissions from tar sands are only about 15% more. Another thing to keep in mind is that tar sands should be compared to other new sources of oil for a fair perspective since the supply for much of the easy-to-reach oil has already peaked and we aren't discovering much more.

Building Keystone would be game over for climate change.

I would actually say that in some ways, this is the best argument against Keystone, but not because the statement is right on its own. The fact is, if we're going to significantly limit climate change, we need to keep fossil fuel in the ground. But the Alberta tar sands are just a small portion of the fossil fuels in the world, and even if we left them all in the ground, it would hardly make a dent in climate change. In fact, they contain less than 1% of the world's emissions, hardly a cause for thinking that exploiting them would be the end of the world.

The key to reducing emissions is to reduce demand for oil. Of course, cutting off supply would lead to higher prices and thus reduced consumption, but it appears that the pipeline would be profitable even with a reasonable price on carbon. This brings me to another point: if we had an appropriate rising carbon tax, then we wouldn't need to worry about whether or not Keystone would be worth it given its climate change impacts. Lenz did acknowledge that a carbon tax would be the best environmental policy. I am glad that he supports the Citizen's Climate Lobby and its efforts to implement a revenue-neutral carbon tax. However, I feel that the Keystone activists would be much better off campaigning for it rather than dithering against a relatively benign pipeline. I understand the sentiment that if Keystone gets approved, then that will just open the door to more fossil fuel projects. I don't think that stopping Keystone would do enough to dissuade industry from proposing other pipelines though, at least as long as oil is so expensive. I don't think that it is worth it to take the risk that oil companies will simply ship the oil by train or build a pipeline to China instead. The fact is, people do benefit from cheaper energy, and the increase in supply will bring cheaper energy.

Another half truth: there is no benefit to building the Keystone Pipeline. Only a couple of thousand jobs are created, and nearly all of them are short-term. Also, most of the oil is going to China anyway, so it won't benefit us.

Okay, I will admit that if more people knew the above, support for Keystone would go way down. It's true that building the pipeline would not be a great stimulus. "Job creation" should not be the basis for evaluating the merits of an energy pipeline. The point of Keystone is to deliver cheaper energy in a more efficient manner than trains or ships. If it took more of an effort to build Keystone, then the energy is not really much cheaper. If more jobs were necessary to maintain the pipeline, then it may not have been a profitable endeavor in the first place. As far as providing cheaper energy, fewer jobs should be celebrated, not scoffed at. Of course, I realize that politicians and the American people would love for everything to create jobs with no negative effects. Politically, it makes sense to attack Keystone because it won't really add any jobs, but that is simply poor economic reasoning. I have no problem, however, with calling Republicans out for pretending that building Keystone will somehow magically add hundreds of thousands of jobs and repair the economy.

Garth Lenz really flustered me with some of his statements about what was going to happen to the oil. He said that it would be piped to the Gulf of Mexico and then shipped off to China, so we won't see the oil anyway. The reality is that we all benefit from cheaper energy. Sure, Keystone would be embraced more in the US if it directly impacted the price of oil and made gas 20 cents a gallon cheaper (in reality, maybe gas will be 1 cent/gallon cheaper worldwide). But the US is not the only country full of people in the world. I still cannot believe that he told me that if Chinese people are better off from Keystone, then it does nothing to help the US. I would think that someone who cares about the global environment and who isn't even from America would not be so jingoistic as to basically say that Chinese people are inferior.

I don't want to endorse Keystone, but a majority of economists do support it. And contrary to what some activists (including Lenz) may say, not all experts endorsing the pipeline are paid off by the oil companies. In fact, my economics professor does research on reducing energy use and his Skype handle is something like "Taxcarbon". There are real drawbacks of building the pipeline and even bigger costs to exploiting the tar sands that should be considered. This does not excuse misrepresenting and exaggerating either the costs or the benefits of the project. In the big picture, Keystone is neither going to tremendously boost the economy or completely end hope of limiting greenhouse gas emissions to a reasonable level. Keystone is not an easy decision, but it is not all that important either.

Monday, February 25, 2013

In some more positive news...

California's cap-and-trade program appears to be working better:

"The market clearing price for a “current” vintage 2013 allowance was $13.62, nearly $3 above the auction reserve price of $10.71.  All the “current” vintage allowances available for sale were sold."

Friday, February 15, 2013

In Praise of a Politician Part 3

Obama says that we should get rid of the penny:

Not that there should be any controversy about pennies, but lest you think that government will actually do something productive:
"The penny is an example of something that I need legislation for," he added. "Frankly, given all the big issues that we have to deal with day in and day out, a lot of times, it just doesn't, we're not able to get it."
On another note, DFTBA (don't forget to be awesome)
Watch Vlogbrothers.  Good stuff

Thursday, February 14, 2013

In Praise of a Politician Part 2

I'll let this one speak for itself:
"The Sanders-Boxer bill would impose a $20 per ton tax on carbon or methane equivalent, rising 5.6 percent each year for 10 years, on the nation's largest fossil fuel producers. Imported fossil fuels from countries that do not impose a similar tax would also pay.

The tax would raise an estimated $1.2 trillion over a decade and reduce greenhouse gas emissions 20 percent from 2005 levels. Three-fifths of the tax would be rebated to "every legal U.S. resident," which might make it more politically feasible than if it went to the government."
Why should Republicans support this? "'The Environmental Protection Agency is poised to go down that path,' Morris said. 'Those who have an aversion to regulation should take heed. If you want a market-based solution, do it now.'"


Thursday, February 7, 2013

In Praise of a Politician

Cuomo Seeking Home Buyouts in Flood Zones

"Gov. Andrew M. Cuomo is proposing to spend as much as $400 million to purchase homes wrecked by Hurricane Sandy, have them demolished and then preserve the flood-prone land permanently, as undeveloped coastline."

"For the 10,000 or so homes in the 100-year flood plain that were substantially damaged by Hurricane Sandy, Mr. Cuomo would offer owners the pre-storm full market value of their houses. Homeowners who chose to relocate within their home county would receive a 5 percent bonus above the market value, as part of a government effort to encourage them to stay nearby. State officials said they were planning for the possibility that 10 to 15 percent of those eligible would take the buyout."

The homeowners make money, government (AKA taxpayers) doesn't have to spend as much on future disaster relief, and there is more of nature to admire.  Win-win.

Wednesday, January 30, 2013

Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change


Oh no, it's by someone from Harvard!

I seriously suggest that you read the paper.  It is really more of a philosophy piece attacking economics than an economic paper, but it is very convincing.

Although Weitzman was skeptical of the low discount rate and high cost of carbon from the Stern report, he sought to justify a higher cost of carbon on the premise that the uncertainty can increase the risk of a low-probability catastrophe.  His first argument is that we have already exceeded the maximum carbon dioxide levels in the last 800,000 years.  Conventional climate economics yields an optimal policy of stabilization at around 700 ppm while the previous high was 300 ppm.  This could potentially be very dangerous.

Of course, vastly increasing carbon dioxide does not necessarily mean that global temperatures are going to be unmanageable, but the greater the concentration, the greater the risk.  The IPCC had only modeled warming up to 4.5 degrees Celsius.  Depending on the type of curve projecting warming, the probability of low-probability events can be significantly different.  Using a pareto (power) distribution, the probability of high-warming is significantly greater than using normal distribution.  This lies in the "fat tail" of a power distribution that yields higher probability for extreme events.

There are real reasons for having concern for catastrophic warming.  A big concern among climate scientists is the possible release of massive amounts of methane.  We have large methane deposits stuck in permafrost that may slowly leak out methane as the permafrost melts from higher temperatures.  This positive feedback could be potentially devastating.  This article was written before the shale gas revolution, but there is concern now about methane leakage from natural gas deposits negating the lower carbon dioxide emissions from natural gas relative to coal.

Another concern is that the damages of catastrophic warming are underrepresented in standard models.  For William Nordhaus' damage function, 10 degree warming in only supposed to lead to a 19% decline in world output.  Over 200 years, this would mean only an average of 2% decline in output per year, not quite world-ending.  Weitzman posits that some standard assumptions for economic modeling may not hold with extreme warming.  He mentions that substitutability of goods.  I am not quite sure that I understand, but there is a difference between utility being multiplicatively separable and additively separable.  For example, material wealth is not easily substitutable for biodiversity.

The final concern is the discount rate.  Weitzman says that the choice of discount rate is largely normative (not scientific).  Discounting future value means that damage in the future is not as important as damage today.  If you don't know what I'm talking about, think of putting $50 in the bank today.  You expect it to be worth more in 50 years, so its future value in 50 years is much higher.  We will probably have a stronger, more robust economy in 50 years that is better able to deal with climate change, so there is economic sense in not doing everything today.  How much we should discount though is the difference between saying that we should do nothing to having a carbon price of $300 per ton of carbon dioxide, which I think is about $3 per gallon of gas.

Weitzman's analysis also divulges into a discussion of infinity.  Essentially, the possible damages from catastrophic climate change can be thought of as unbounded (eg complete destruction).  Thus, people's willingness-to-pay to avoid climate change can also approach infinity (or at least a very large number).  Weitzman has a "dismal theorem" on the importance of fat tails-if the probability of catastrophy is increased even slightly, then the WTP increases significantly.  Some other jargon is VSL or value of a statistical life (willingness to pay).

He concludes that the risk of inaction is great if his "fat-tail" assertions are correct.  Carbon dioxide emissions languish in the atmosphere for hundreds of years, so if we put ourselves on a path of destruction there is no turning back.  This means that we should be more willing to start reducing emissions now if there is a higher chance of catastrophe than current estimates.  Overall, a little dense, but mostly understandable and highly provocative.

Tuesday, January 29, 2013

Stern Review

Note that this report came out in 2006.  It was reading for my class, but a pretty important (and controversial) body of work.  I'll try to be brief in going over some of the highlights and criticisms.

I think most of you know the basics of climate science, so I will not harp on that nor try to convince anyone of the reality of climate change.  According to the Stern Report, there is between a 77% chance and 99% chance of 2 degree warming.  Just recently, Stern has said that the chances of limiting our losses to only 2 degrees are much lower; we should prepare for closer to 5 degrees Celsius warming.  Here are some of the economic costs mentioned:

  • Melting glaciers and rising sea levels will lead to greatly increased flooding (200 million permanently displaced by mid-century!)
  • Food production will go down due to warming, leading to increased malnutrition
  • Diseases like malaria will become more prevalent
  • Possible mass extinction, destruction of ecosystems (including hurting fishing)
  • Possible collapse of ice sheets
One tragic consequence is that climate change is going to affect poor people more.  The very poor depend more on farming and cannot afford to adapt to rising temperatures. This means that climate change will exacerbate global inequality.

The Stern Report predicts future GDP losses of 0-3% with less than 2 degree warming and 5-10% with 5-6 degree warming.  It warns that we need to take into account potentially catastrophic warming that will completely devastate the planet (keep this in mind for a later post).  Some would say that the projected impact is overblown.  Stern takes it further by stating that "estimates, based on modelling a limited increase in this responsiveness, indicate that the potential scale of the climate response could increase the cost of climate change on the BAU path from 5% to 7% of global consumption, or from 11% to 14% if the non-market impacts described above are included." This is taken even further to 20% if inequality is included.  

A second major contentious point lies in Stern's estimate of the cost of drastic emission reduction.  He states that in order to stabilize carbon dioxide at 550 ppm, GHG emissions would have to be 25% lower than today by 2050 (and 70% lower to achieve 450 ppm).  There are four ways of reducing emissions: reducing demand, increasing carbon sinks (reforestation instead of deforestation), increasing energy efficiency, and increasing clean energy.  Stern estimates that only 1% more of GDP must be spent on emissions-reduction in order to stabilize at 550 ppm.  He states that "[t\he power sector around the world will have to be least 60%, and perhaps as much as 75%, decarbonized by 2050 to stabilize at or below 550 ppm CO2e."  Even though solar energy is getting much cheaper, I don't think that it will be easy to make a fairly rapid transition to a mostly zero carbon economy.  Unfortunately, a resonating note is a warning as to the impact of inaction. The longer we wait to do something, the more it will cost us.  Stern mentions benefits to technological change and lower emissions, including energy security and health benefits due to likely lower air pollution.

Stern estimates the 2006 social cost of carbon to be $85 per ton of carbon dioxide (or about $300 per ton of carbon), far more than most economic literature.  Famed environmental economist William Nordhaus puts the cost of carbon at closer to $30-$40 per ton, about 1/10th of Stern's estimate.  Stern argues that uncertainty means that we should use a higher carbon price than the estimated average due to uncertainty in risks.  

Stern's basic policy proposals are fairly noncontroversial among economists: "Policy to reduce emissions should be based on three essential elements: carbon pricing, technology policy, and removal of barriers to behavioral change."  Stern recommends a massive increase in incentives for innovation, 2 to 5 times the ~$30 billion spent in 2006.  He appears to endorse efficiency standards and labeling as effective tools for behavioral change.  An important section is given to the need for adaptation, as some impacts are unavoidable.  We need to plan for climate warning (unlike North Carolina, which just outlawed sea level rise) and develop in a sustainable manner.

The rest of the report focuses mostly on international cooperation.  We need a global carbon market, global regulations rather than varying regulations by country, aid to developing countries for mitigation and adaptation, and removal of trade barriers to low carbon technology.  (Oops, Obama imposed a tariff on Chinese solar panels just last year.  Another example of the fruitless pursuit of preserving American jobs at the expense of the global economy and the environment).

Monday, January 21, 2013

Inauguration Speech and Climate Change

I didn't really intend to watch the inauguration, but Obama did talk a little about climate change, so I will devote some time to giving my analysis of it. Of course, it was lacking in specifics, but it did hint at some future actions and I am not too impressed.

We really need a price on carbon and Obama hasn't shown a willingness to expend political capital on pushing for it, even saying that carbon taxes are only an option if Republicans push for them. I am also disturbed by this quote: "But America cannot resist this transition; we must lead it. We cannot cede to other nations the technology that will power new jobs and new industries – we must claim its promise." Climate change is not a jobs issue or something that should lead to us trying to defeat China. We should welcome cheaper emission-reduction technology and clean energy no matter where it comes from, not ensure that every policy must increase US jobs.

Bottom line: it is good lip service to the issue, but I don't see any indication that he'll force legislation through a hostile Congress, even though it could lead to fewer regulations and lower taxes than his current economic proposals.  Instead, he seems willing to push for increased spending on clean technology and linking it to employment, increased regulations from the EPA and new efficiency standards, and increasing trade regulation with China.  Of course, the last policy will increase costs and increase emissions, like this tariff on Chinese solar panels.  If Obama is serious, he won't pay as much attention to where the technology is coming from as to how we can reduce emissions in the least-costly way possible.

Sunday, January 20, 2013

Viewpoints: Cap and trade should look to broader goals

This is another discussion of California's cap-and-trade program that I think I have read a while back.

Although it is great that California is a leader in reducing carbon dioxide emissions, no one should kid themselves into thinking that AB 32 will make a difference in limiting climate change.  I think that someone at the conference said that California and Australia produce the same amount of GHG emissions, just over 1% of the world's total.  Even eliminating our emissions would barely make a dent.

There is not much substance to the piece; it is mostly a call for conservatism and moderation.  If California shows that it can significantly reduce GHG emissions while maintaining a thriving economy, then perhaps the rest of the world will be more willing to undertake market-based climate policy (eg a carbon tax or cap-and-trade).  In addition, California can collaborate with other nations and develop a collaborative carbon price.

The key here is that other countries need to follow our lead in developing a policy that will reduce emissions. If California screws up and cripples its economy or just creates massive leakage, there is little prospect in advancing the case for action.  Fortunately, there did seem to be a realization at the carbon pricing conference at the need for cooperation.  Hopefully California will be fairly successful, although even the best-designed carbon pricing schemes have (British Columbia's revenue-neutral carbon tax) failed at getting majority support.

California Law Tests Company Responses to Carbon Costs

Sorry (Naor), but it might be a while before I type up a good response to the carbon pricing conference (don't worry, I have tons of notes, so unless I lose my notebook, I won't forget anything).


I believe that I read this in December, but I might as well summarize it here anyway.

California's climate change bill AB 32 went into effect January 1st, so businesses needed to start preparing earlier.  After a relatively dispassionate effort at repealing the bill (little support from oil companies even), companies had to find a way to comply.  Unfortunately, there are some unavoidable consequences of such a far-reaching bill, namely the prospect of leakage.  Some companies may cut production or move elsewhere as higher energy costs lead them to lose competitiveness.

In order to make the transition to lower emissions easier, large polluters have been given free permits at the beginning in the hope that they would be able to pay for energy efficiency upgrades and other pollution-reduction measures and remain profitable.  The article highlights Morning Star, a tomato processing company subject to the cap-and=trade regime.  It expects costs to rise and needs to spend $75,000 in the next few years to comply with the law.  For now, California controls most of the tomato-processing market in the US, but China may take over if companies like Morning Star have to raise prices too much to stay in the US.

Overall, this was a good summary on the prospect of leakage from regional climate-change regulation efforts. There was just one sentence I had a problem with: "But many economists said they think such a cost-centric analysis ignores the jobs and economic activity that the law could generate." I don't think that environmental economists view this as a benefit.  Actually, more jobs means that compliance is more expensive.  Clean jobs are a byproduct of increased environmental protection, not an explicit goal.  Of course, any environmental legislation will destroy "dirty" jobs and increase "clean jobs," but the projected effect on employment should not dictate policy.

Tuesday, January 15, 2013

Carbon Pricing Conference-Brief Thoughts

I will have a more detailed post later, but here are some quick observations:

  • There was no mention of a possible nationwide carbon pricing scheme in California
  • There were very few economists; also most didn't seem to view a carbon price as the centerpiece of climate change legislation, only a supplement to traditional regulation.  I am curious what the economists think of that assertion.
  • Fran Pavley, author of AB 32, mentioned lowering energy prices while increasing efficiency and increasing jobs.  I wanted to question her more about this, because I feel strongly like environmental legislation should focus on helping the environment (at least as long as the marginal social benefit is worth the cost), not on necessarily increasing jobs.
  • There was some interesting discussion of linking different carbon trading schemes.
  • There was a clear support of cap-and-trade over a carbon tax.  The people were mostly regulators, lawyers, investors, and it's interesting that none seemed to be more strongly supported of a clear price.
  • Carbon offsets and accounting for offsets was an interesting topic that I actually did learn something about.
  • There was a lot of support for government spending, but this might have been skewed because of the people present (regulators, investors, government officials).
Overall, I am worried that there is not enough of a sense of energy and not nearly enough support for a global price on carbon, which is really necessary in order to limit our contribution to climate change.

By the way, this was the agenda: http://policyinstitute.ucdavis.edu/files/general/pdf/2013-01-05_Final-Agenda.pdf .  Again, more to come later.

Monday, January 14, 2013

US- Australia Dialogue on Carbon Pricing Agenda

Super exciting. I actually signed up to go to a conference on carbon pricing that I'm going to tomorrow: http://policyinstitute.ucdavis.edu/files/general/pdf/2013-01-05_Final-Agenda.pdf.  I'm pretty nervous since there are going to be a bunch of diplomats (Australia, Canada, US) and actual policymakers talking about carbon taxes, cap-and-trade, and more.  Perhaps I'll even be able to ask questions.  I will be sure to take whatever notes I can.

Utility Buys Town It Choked, Lock, Stock and Blue Plume


This was before Citizen's United by the way. It is eye-catching to read that American Electric Power literally bought the town it was polluting for $20 million.  Residents had had enough with the local coal power plant when it started expelling blue smoke on occasion. This is an interesting real-world application of the Coase theorem.  After likely causing permanent damage to the livelihoods and health of the residents of Chesire, Ohio, the utility literally kicked them out, payed them handsomely, and made them promise never to sue.

The people got about three times the original value of their homes ($150,000 per home).  Some thought that it was a good deal, while a minority thought that the company got off easy.  The utility was certainly a lot better off than it would have been had it been sued for health damages.

The power plants in questions actually had been cleaned up significantly to meet environmental standards, but still posed a health hazard.  A large part of the reason is that it still used high-sulfur coal, which is much cheaper (but dirtier) than the alternative.  Rather than fight a legal battle the town agreed to (literally) sell out to the utility.  This probably left everyone better off (except lawyers) than if a legal battle had ensued.

While this is a case that no doubt validates the premise of the Coase theorem, it is a rarity that companies and citizens will come to an agreement like this.  In fact, this was the largest deal of the sort ever, with 221 people involved.  Most cases involving unwanted externalities involve many more people and companies that might be willing to go through litigation and fight it.  So while it may be ideal to spur regulations and taxes for bargaining, it is usually not practical aside from a few small, local cases. It certainly will not happen with something as big as climate change.  I fear that establishing property rights will just lead to more conflict and more lawsuits.  Like many economic theories, the Coase theorem is idealistic and works in a vacuum, but the right conditions for it to be beneficial are too rare for it to make much of a difference.

Sunday, January 13, 2013

Markets and the Environment Chapter 4: The Efficiency of Markets

I purchased the book, but I won't be getting it in time to read this chapter.  Fortunately, the majority of it is again available for viewing online, this time with Google Preview.

In an ideal scenario, the market would take care of environmental issues.  There are some on the right who say that if the environment were a concern at all, the free market would take care of it.  There are some idealistic individuals (like Armory Lovins) who say that companies would boost profits by growing green.  Clearly this is not always the case.  Unfortunately, there are many times where the most efficient outcome is not achieved--that is, marginal social cost is not equal to marginal social benefit.

I don't think I learned anything new in terminology, but it couldn't hurt to review that markets are an exchange  of goods, not an auction.  They are decentralized (unlike an auction) and not government-controlled.

The rest of the chapter just goes over basic supply/demand and consumer/producer surplus.  Some common environmental economics jargon: the demand is marginal benefit is the price consumers are willing-to-pay and supply is marginal cost is the price producers are willing-to-sell.

Recall the three necessary tenants for an efficient market: perfect competition (no ability to manipulate prices, marginal benefit equals marginal cost), perfect information (everything freely available for consumers to see), and the market must be complete (all costs and benefits accounted for).  I presume that we focus primarily on the last condition; problems arise when not all environmental costs are included in the price of goods.

Wednesday, January 9, 2013

Markets and the Environment Chapter 1

I think that this book is a fairly basic overview of environmental economics, but perhaps I could use a better primer on the topic.  Just FYI, if you're seeing an ECN 125 label, the post is mostly for my energy economics class.

I don't have the book yet, so I didn't get through all of the first chapter.  It doesn't appear that the book is math-heavy.  It's probably not worth the $20 it costs to buy, but I might get it anyway.  Of course, the central premise of environmental economics is how we can use economic approaches to mitigate environmental issues.  The basic idea is to measure the costs and benefits of various policy options and choose the best one.  Easier said than done of course.  One big contrast between environmentalists and environmental economists is their differing views on free markets.  Environmentalists say that markets are the problem leading to so much pollution today.  Economists counter that the problem is that there is no market for pollution/environmental destruction.  If companies actually could profit solely by improving the environment, then they would.  Generally, markets are thought to be more efficient at achieving the same goals than increased regulation.

There is one interesting point mentioned about climate change economics. Keohane and Olmstead propose that climate change abatement is a public good-that is, something that is freely enjoyed by everyone regardless of their contribution.  This means that countries that don't reduce emissions will still benefit while other countries may sacrifice economic benefit for environmental gain.  Of course, this creates a prisoner's dilemma where the Nash equilibrium involves no attempts to mitigate climate change, making everyone worse off.  Unfortunately, the reality is that few countries are willing to make the effort necessary to significantly limit warming, and the countries that are doing their part are not going to offset the increased emissions from the rest of the world.

World Energy Outlook


Again, this is going to be a lot of summary.  The big takeaway is that our current growth is unsustainable, led mostly by developing countries.  However, even here and Europe, energy use and water use is going to rise if we do not take drastic policy measures to conserve.

If you've read some of my previous posts on energy, this shouldn't come as a surprise.  China, India, and the Middle East are projected to grow fast and use a lot more energy, mostly from fossil fuels.  In developed countries, coal is giving way to natural gas and renewables, but coal is still projected to be a major source of energy in 2035.

Lo and behold, the US is projected to be a net energy exporter by 2030.  So I was wrong, right?  Ah, the next paragraph clarifies.  Of course there's no way we'd actually be energy independent: "there is no immunity from global markets."

Energy efficiency is going to increase, but not nearly enough in most places.  The authors recommend more regulations and incentives for energy efficiency.  I'm not sure if that's more from engineers or economists.  Interestingly, I am also taking a class on building energy performance/efficiency, so I will be looking at booth perspectives.  Unfortunately, the prospect of limiting climate change to 2 degrees (Celsius) is looking bleak without huge changes very soon.  "No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2 °C goal, unless carbon capture and storage (CCS) technology is widely deployed."

Oil use is expected to increase largely because of trucking (road freight) and some because of more cars.  I didn't realize that trucking would increase that much.  Another interesting tidbit: "Non-OPEC oil output steps up over the current decade, but supply after 2020 depends increasingly on OPEC."  Unless we (and other countries AKA China) do a lot to reduce demand, we're going to rely on evil Middle East dictators for global energy supplies.  Iraq is actually projected to become a huge supplier of oil (to the tune of 8 million barrels a day in 2035).

Natural gas of course is going to be an increasing part of the pie, largely due to fracking.  Unfortunately, China and India are going to use a lot more coal first.  Nuclear energy is still expected to increase, but at a much lower rate than projections pre-Fukushima.  Renewables are expected to be about 1/3 of the electricity mix, but largely due to subsidies to the tune of $240 billion.

Poverty is expected to remain high by 2030, with 2.6 billion people lacking clean cooking and 1 billion lacking electricity.  Of course, if this ends up being lower, then we'll be using even more energy!  Perhaps a bigger concern is water: water demand is supposed to double.  Many of our water resources are already scarce and many people lack clean water.

The Lie Factory


 “Sure, those quotations were irrelevant,” Baxter later said. “But we had one objective: to keep him from becoming Governor.” --the crux of political smear campaigns

To get things started, we delve into an insightful piece on the beginning of modern campaign firms.  For all of you who remember US History, the victim is Upton Sinclair, famous author of The Jungle, that book about working conditions in factories that you always heard about but never read.  Apparently he also wrote a fictional account called "I, Governor of California", which became the basis for his actual campaign for governor.  He successfully garnered the nomination for the Democratic Party.  It was an interesting time in 1933 in the middle of the Great Depression-there was not a single Democrat in statewide office.

Anyway, Sinclair, a socialist ran an anti-poverty campaign (End Poverty in California).  He easily got the nomination, but got walloped in the general election, spawning a truthful essay, "“I, Candidate for Governor, and How I Got Licked.”  The brunt of the blame is tied to the ominous-sounding Campaign Inc led by Clem Whitaker and Leone Baxter.  Now, Sinclair had had his clashes with the big corporations of the day (eg Standard Oil).  Naturally, Baxter and Whitaker happened to be publishers for the California League Against Sinclairism. The Democratic Party did however begin its ascendance in California politics in winning seats in the state legislature, so maybe two people weren't enough to buy every election.

Of course, the drama in California didn't end there.  Campaign Inc was later hired to fight an early start at social security ($30 a week to people over 50 AKA Ham and Eggs Referendum).  “In a typical campaign they employed ten million pamphlets and leaf-lets; 50,000 letters to ‘key individuals and officers of organizations’; 70,000 inches of advertising in 700 newspapers; 3,000 spot announcements on 109 radio stations; theater slides and trailers in 160 theaters; 1,000 large billboards and 18,000 or 20,000 smaller posters.”  Ouch.  They also ran an advertising firm and printed editorials that could be mistaken for news columns in some papers.  They made hundreds of thousands of dollars way before that was cool for anyone other than the best baseball players, if them.  I'll let them speak for themselves and you can see if you like this:

“We assume we have to get a voter’s attention seven times to make a sale,” Whitaker said. Subtlety is your enemy. “Words that lean on the mind are no good,” according to Baxter. “They must dent it.” Simplify, simplify, simplify. “A wall goes up,” Whitaker warned, “when you try to make Mr. and Mrs. Average American Citizen work or think.”
“We need more partisanship in this country,” Whitaker said. Never shy from controversy; instead, win the controversy. “The average American doesn’t want to be educated; he doesn’t want to improve his mind; he doesn’t even want to work, consciously, at being a good citizen,”
Whitaker and Baxter were not always popular, even among their clients.  Earl Warren, famed liberal Supreme Court head, was once a Republican.  He wanted universal health care for California, and of course this was unacceptable then just as it is now.  They ran a blitzkrieg campaign against it, including a postcard saying "That system was born in Germany—and is part and parcel of what our boys are fighting overseas. Let’s not adopt it here."  Later, they tried to impeach him from the Supreme Court.

Then there was this gem opposing Medicare: "Hitler and Stalin and the socialist government of Great Britain all have used the opiate of socialized medicine to deaden the pain of lost liberty and lull the people into non-resistance."  Sound familiar?  Baxter and Whitaker were pioneers in political consulting, and by Nixon's time, everyone was in the game.  The duo dismissed their campaigns as "grassroots organizing", perhaps foreboding the "grassroots" Tea Party movement of today.

I personally would like public campaign financing, which does a lot to even out the playing field.  Unfortunately, SuperPACs have taken hold and unless Citizen's United can be reversed multimillion dollar campaigns will remain the norm.  Lest you think though that during the 1950s, everyone cooperated and politicians didn't lie so much to get elected, that was not true at all.  Mudslinging has been happening ever since the first democracy and extremist rhetoric has always been commonplace.  Anyway, this is certainly an interesting read and my summary/assortment of quotes is not comprehensive.  Plus, it's The New Yorker.  Great Stuff.

Sunday, January 6, 2013

Get Ready for a Flurry of Posts

So I am taking a class this quarter called "Energy Economics" that will require me to read a lot of articles.  I think I will summarize and analyze everything I read here, mostly for my own benefit, but feel free to follow along.  Also, I will hopefully be attending a conference on carbon pricing with representatives from Australia, Europe (cap-and-trade), CARB (AB 32), and Chevron.