Election 2016

I don’t like asking for presents or favors from friends or acquaintances, but this is something that is really important to me, you, and everyone alive now and in the future. I beseech anyone reading this to go out and make sure that Hillary Clinton gets elected president. Right now, the election is nearly a dead heat and she needs all the help she can get. Please sign up at https://www.hillaryclinton.com/forms/volunteer/ and if you’re too lazy to go outside in person, you can help from home at https://www.hillaryclinton.com/calls/. We have only 48 days (or fewer) left until the election.

I am not trying to sensationalize here, but this year will be the most important presidential election of our lifetime. It really hurts me when I hear people say things like “we’re screwed no matter what” or “it doesn’t make a difference in my life” or “there’s nothing I can do.” The first two statements are blatantly untrue, and as long as these falsehoods are believed by reasonable people, this country could well fall to a bloviating misogynistic, bigoted, clueless megalomaniac. This man has made a mockery of any semblance of human decency. His political career was launched from a racist conspiracy about Obama’s birthplace and his presidential campaign started with a bigoted lie about Mexicans. Do not confuse his lack of filter for a modicum of honesty: 53% of Trump’s statements are rated as “False” or “Pants on Fire” by Politifact. That is not including the 18 lies he spewed on September 20 (https://twitter.com/ddale8/status/778375644321288192). On the other hand, Hillary Clinton’s statements have been rated “True” or “Mostly True” more than half of the time. There is no doubt that Clinton has been far more truthful than Trump.

The fact of the matter is, Donald Trump is a danger to you, a threat to peace in your country and your world, and an impending wrecking ball to your economy. You could well lose your job and not find a new one. The slow economic recovery from 2008 could be but a blip on a dizzying race to the bottom. You are not immune from the damage. If Trump gets elected president and all you’ve done is put in five minutes checking random boxes for California, you are going to have to live with that for the rest of your life and explain to your children and grandchildren that you let this happen. Do not stand by and let this happen without a fight.

I hear a lot that picking between Trump and Clinton is trying to find the lesser of two evils. That is not at all true. Hillary Clinton has been working for minorities, women, and the disabled her whole adult life. She was widely respected as both a senator and a secretary of state while she was in office. Has Clinton made mistakes? Definitely. Is she an eloquent speaker like her husband or Obama? Certainly not. Did she handle her emails very poorly? No doubt. Has she waffled on controversial issues when pushed? Unfortunately yes. But that is the mark of any politician. It is impossible to get anywhere in politics without deceit, lies, and false promises. Yes, even Bernie Sanders has done so and will continue to do so too. Obama is at all-time high popularity ratings despite not meeting most of his initial promises. If you like Obama, Hillary Clinton supports nearly all of the same policies. If you think that Obama has not been liberal enough, then you should not further enable a Republican Congress to get through its preferred policies of tax cuts to the rich and spending cuts on the poor. If you think Obama has embraced too much big government cronyism, then I am sorry, but a man who has made a career of political favors, bankruptcies, using eminent domain, and railing against more trade agreements than even exist is not the cure.

But maybe that’s not enough to convince you. You feel that even if Trump is worse than Clinton, we cannot continue to support the “establishment” any longer. Believe me, it can get a lot worse than the establishment, and far worse than it ever was under Bush. As Will Wilkinson writes for Vox, “From the improbably lofty height of a functional liberal democracy, the path of least resistance is definitely down. On the path up our mountain we push, always, an immense boulder, and it takes a monumental collective effort simply to hold it in place. […] If radicals for liberty and equality can’t be bothered to stop planning their trips to paradise with Gary Johnson and Jill Stein, if they don’t see the point of lining up behind this damn boulder and pushing like hell, we’ve already lost more ground than we know.”

My Thoughts on the "Ecomodernist Manifesto"

I don't really dispute the basic gist of this, but I feel that there is little this piece has to offer except evoke the ire of environmentalists. As provocative as this purports to be, I don't think even most strident environmentalists will disagree much with specific points about how much progress humanity has made as much as with the tone (and some solutions). I don't ascribe to a short-term Malthusian view of society (even with unabated climate change), but I still find the outlook too optimistic. 

"Urbanization, agricultural intensification, nuclear power, aquaculture, and desalination are all processes with a demonstrated potential to reduce human demands on the environment, allowing more room for non-human species. Suburbanization, low-yield farming, and many forms of renewable energy production, in contrast, generally require more land and resources and leave less room for nature."

Well, these are certainly to a great extent. But none of these are without significant tradeoffs. I'm not going to quibble too much with the point about urbanization, but even as an anti-NIMBY, I realize that there are still plenty of local problems with high density (local pollution, congestion, space) that may not always offset efficiency benefits. Agricultural intensification has led to greater short-term land use efficiency but also soil degradation (although there is more low/no-till farming now), higher chemical use, greater localized impacts (which they do mention), and generally more waste. While I certainly appreciate the benefits of modern agriculture and don't think we should be moving towards pesticide-free organic farming, as with urban density the choice is not always clear-cut where to draw the line. Aquaculture has its benefits but is not without significant costs to nearby local communities, and is not necessarily preferable to well-managed wild fishing. Of course, we need fish farming if we are to have any seafood in our diets, but the risks are still important to consider.

Nuclear is can be relatively land friendly, but it is more polluting than non-combustion renewables. Even without fanatical opposition, nuclear power is an expensive solution. France has successfully transformed its electricity grid, but there is little reason to think that even a full embrace of nuclear will lead to a global dominance in the energy mix.  The authors really don't like biomass, but I it can be a of the energy mix as it is quite clear that sustainable forestry is quite feasible (plus we can get a small amount from current waste). Wind is dismissed by many of the authors in other writings due to its land footprint, bird deaths, and intermittency. At reasonably low (and growing) levels of penetration, wind is quite competitive with any power generation source, and offshore wind can approach a 50% average capacity factor. The ground footprint of wind is quite small and unlike nuclear, it can be put directly in the middle of productive agricultural land. Nuclear power itself is not without its generation problems as it is very possible for there to be significant overproduction at night due to the difficulties (and more importantly the economics) of fast-ramping electricity supply. The manifesto implies that nuclear fusion will play a significant role in the future of energy, but there is little reason to believe that fusion will be found physically practical within the next century, if ever.

Desalination will always be highly energy intensive (although it will become better) and should not be employed unless there is no other economical choice (including severe drought surcharges). There are plenty of options (including wastewater reuse) that should be employed before desalination. It might make sense to employ desalination. in an extreme coastal desert (like Israel and Australia), but it is rather questionable to imply that environmentalists are destroying the planet by fighting large-scale projects in places like California. 

Generally, I think this is was too technologically optimistic and too dismissive of markets. This is the only mention of prices:"The long arc of human transformation of natural environments through technologies began well before there existed anything resembling a market or a price signal." I'm not an economic historian, but I believe that the very first instance of trade among individuals involved something "resembling a price signal." Markets are a big reason the environment is at its current state, for better and worse. Technology can certainly help use resources more efficiently, but it will not be the sole or even likely the primary driver of conservation. We need real price signals as well as activist pressure in some cases to help prevent deforestation, slow resource consumption, prevent groundwater overdraft, mitigate climate change, and more. Nuclear energy will not be economically viable in a free market dismissive of externalities, and CCS will have no future without a strong carbon tax. The authors state that "technological process is not inevitable," but they never really consider possible solutions to environmental problems if technology alone is not sufficient. 

It is also not enough to say that decoupling economic growth from environmental impact is critical without explicitly mentioning that targeting gains in GDP makes this near impossible. We need to move as a society away from materialism or environmental devastation will get much, much worse. I hope that in the not-too-distant future, everyone will have the opportunity to live in the comfort of a modern city, but it will not be sustainable if western (and not just American) materialism is the norm. And unfortunately it looks like China is emulating some of the worst of our habits. 

I think that the authors tread too closely to the environmental perspective of Bjorn Lomborg. If you subscribe to ecomodernism as it is described in the manifesto, then it seems your only major policy priorities are greatly increased R&D funding and reducing hurdles to nuclear and coal-gas fuel switching. The rest is just hoping for a breakthrough that will transform the energy sector forever. I a big believe in technological progress and human ingenuity, and I am sure that we will make great strides in the coming generation with respect to health, efficiency, safety, and comfort. But we cannot progress optimally as a society without making tough policy trade-offs on problems that have no easy answer.  

For example, should we be building more coal plants as fast as possible to expand access to electricity in Africa and India now, realizing that the short term potential gains to indoor health, sanitation, and health will be immense? Or should we put off economic development to a degree, realizing that it is becoming more and more likely that a much cleaner combination of natural gas (fossil and renewable) and renewable power may be more economic in the not-too-distant future? And how aggressively should nuclear be pursued in countries that don't have the expertise or even the government stability of already-skittish first-world countries, realizing that despite immense benefits, the more marginal the area of implementation, the more fat-tailed the risk? I have no idea and I doubt the very best models can come close to answering these questions. Ecomodernists rightly criticize environmentalists for ignoring tradeoffs, but they are loathe to admit that their preferred solutions are not guaranteed to work either.

So basically, technology is likely to be a great boon to human progress, but the costs and specifically the environmental impact of future technology is greatly unknown, and will be immensely dependent on the direction the world goes in politically, economically, and culturally. We need to view technology as a tool, not a savior as is argued by "ecomodernists" nor an enemy as seen by some environmentalists. We will not always agree on the best path forward, but both sides should strive to make life better for humanity in a way that will leave room for future generations and preserve the beauty of nature.

Republicans Support Big Government and Wealth Redistribution

This just keeps on coming up again and again, so I'm going to list some strange instances where so-called "conservatives" and even libertarians are opposed to free market principles. Let's start with perhaps the most justifiable meddling:

A lot of conservatives (libertarians at least) are opposed to eminent domain. This basically gives government (or possibly private companies) the ability to force landowners to sell their property. It seems onerous and unfair, but can be necessary for large infrastructure projects that may cross many different parcels. Eminent domain requires fair compensation (and this takes into account opportunity cost in possibly developing or selling the land for higher value). A Texas bill has recently advanced that would eliminate eminent domain. Fair enough if you are principally opposed to it. The problem is that the bill literally singles out a proposed privately built high speed rail line: https://www.texastribune.org/2015/04/08/bill-targeting-bullet-train-project-moves-senate-f/.

"Currently, hundreds of private firms have eminent domain authority in Texas, including pipeline companies, utility companies and telecommunication firms. More than a dozen private railroad companies also have that authority, according to an unofficial list maintained by the state comptroller."

An earlier bill opposing rail would require that any county that is along the route would have to approve of HSR in a referendum: http://www.bizjournals.com/dallas/news/2015/03/11/rural-lawmaker-files-a-bill-that-could-kill-texas.html?page=all .

Will Metcalf: “We need more roads for citizens to travel to ease our existing roadways. We do not need a High Speed Railway in Texas that will only benefit a few, while at the same time disturbing thousands of citizens within its path.”

Interesting considering that the train will be privately funded (no federal subsidies) while few roads are directly paid for by user fees. The exception to this is toll roads (which can also double as congestion pricing), but these have fallen out of favor among Republicans http://transportationblog.dallasnews.com/2015/03/texans-lawmakers-rally-for-anti-toll-road-legislation.html/. Conservatives are not unanimously opposed to toll roads though-the libertarian think tanks CATO and Reason are strongly support of tolls and congestion pricing.

Moving further along in transportation, many conservatives are opposed to any sort of free market with regards to urban policy. This means they support segregated zoning, minimum parking requirements, free on-street parking, density limits, and basically anything that could be perceived as smart growth even if involves removing onerous regulations. If you are interested in more, read Market Urbanism. Again I will point out that this isn't true for all conservative groups, as Reason is pretty consistent against regulation (CATO not so much). Ed Glaeser, a Chicago-school mostly conservative  economist, has written several books in defense of cities and density.

Back to local issues for a minute, Arizona's governor has just signed a bill banning cities from imposing any fees (or banning) any containers or Styrofoam boxes. I'm not supportive of bans but would support charging disposal fees, especially if there is evidence of significant presence. But even if this were only restricted towards bans, it is quite against small-government principles to prevent localities from making rules that have no harm outside their jurisdiction. 

It gets better though. Conservatives are opposed to high-speed rail, even when it is fully privately funded. Understandable when most HSR systems are government-backed, a less so when private Texans (likely backed by Japan's government though) are keen to build a profit-driven system. But what about other big infrastructure projects? You've already seen that many Republican politicians are fine with building more roads that aren't funded by user fees, but it doesn't end there. As I'm sure you know, California is in the midst of a massive drought. A free-market approach to this issue would be to establish clear property rights for farmers, allow for water markets, and set a high enough price for urban water to prevent massive shortages. Yet many Republicans want more supply, economics be damned. A water bond passed in California and Republicans complained that it wasn't expansive enough. Also some "conservatives" are complaining that California isn't doing enough to support desalination, even though it is usually the most expensive option for water supply.

For some contradictory statements, have a look at the current California Republican platform:
"Agriculture, California’s leading industry, exemplifies the free market at work... We support making cuts in wasteful state government spending in order to support state infrastructure investment in above-ground storage using general fund dollars." Lost is the irony in using general tax dollars to subsidize special interests.

Note that Republican apathy (at best) towards market-oriented solutions to water (and other natural resource issues) is long-standing, demonstrated in this WSJ op-ed from 19 years ago: http://www.wsj.com/articles/SB843602743228131500 (Google this page to view it without being a subscriber).

"Similarly, Republican leaders could have followed the lead of the Environmental Defense Fund and embraced water markets as a better way to govern the nation's water use. Or they could have turned power over local water issues to citizen groups such as Idaho's Henry's Fork Watershed Council. Instead, the House passed a Clean Water Act sculpted by special interests, designed to shield them from responsibility for pollution. And the Senate approved $700 million for the Animas-La Plata water project in Colorado--a classic pork-barrel project that will give farmers a $517 million irrigation system at a cost of only $20 million."

I will note again that the conservative ambivalence or outright opposition to free markets is not unanimous: see Reason, Greg Mankiw, and Econlib for some more sensible discussion.

Conclusions:

You can see through all these examples that "conservatives" love free markets-except for when they don't, they are all for local control-except for when it conflicts with their social prerogatives, and are all for limited government-except for when it supports their idea of the "right" infrastructure. There are plenty of other issues where Republicans are generally supportive of increased government, most notably in military spending, but this is at least justified by their outlook on foreign policy. There also seems to be a tendency of conservatives to make hated (by them) welfare programs less economically efficient by limiting choice. Similarly, Republicans cry out about market-based environmental policies that are less distortionary (eg more market-friendly) than regulations they have little real power to stop.

I have noted that the conservative support for big government is not unanimous, but economists and policy wonks are usually drowned out by political rhetoric. I have been careful here to not give too much attention to environmental externalities aside from the bag pricing, as there can be significant room for disagreement as to the "true" cost of these issues. Purely from an economically free market perspective, conservative politicians are quite often on the wrong side of things. So why is this? In my opinion, a lot of it has to do with culture. Consider this graphic from Pew:

Note that many of the issues I brought up have a very large urban and rural divide with respect to the distribution of costs and benefits. High speed rail is almost solely for the benefit of cities, and will likely serve no purpose for rural farmers unless there is somehow a provision for freight train usage of the tracks (unlikely). "Free market" policies in high-demand already-urbanized areas may result in greater densities and less driving, pushing the area closer to a liberal-friendly city. Congestion pricing may impose greater costs on dense urban areas, but it also would make driving more expensive and make carpooling (which means less "freedom"), telecommuting, mode shifting, and moving closer to work more attractive. Similarly, a market approach to water management will hurt conservative farmers and water-thirsty suburbanites, while making city living (with much lower per-capita urban water consumption) more economically attractive. 

In the end, it seems that Republicans, even Tea Party Republicans are not stalwart defenders of free markets and limited governments when it conflicts with ideal communities. They prioritize freedom to make conservative-friendly lifestyle choices, even when those choices are not economically sound. They are opposed to wealth redistribution-except when wealth is transferred to conservative communities. Of course, the Democratic party has plenty of flawed and contradictory economic positions as well, but its philosophy is less dogmatic and less homogeneous. Next time a conservative rants about burdensome regulations and big government, tell them to look in the mirror.

The Limits of Markets? A Personal Anecdote on Environmentally-Conscious Consumption

So, I have a lot of ideas lined up for future posts, but I would like to actually discuss something that happened to me tonight. My other posts require a bit more research, but I think this is still quite relevant, especially for those who take moral quandaries with them to heart in everyday life.

I was at the grocery store tonight knowing that I should probably get new dishwasher detergent. To most, this is a trivial problem. The smart person would probably have gotten the cheapest stuff available at Costco or Walmart, but they were closed and I am probably not going to go to Costco by bus any time soon or go to Walmart at all. We could have a whole debate about how ethical big warehouses are, Walmart in particular, considering its treatment of workers and its executives' political persuasion. I digress though, as that is not the issue I want to talk most about.

I'll try this again now. I was at Safeway to buy dishwasher detergent. The typical student would probably just grab the first thing they saw. A smarter student would have done some research and figured out which brand is cheapest. Either way, it wouldn't take more than a minute before they mindlessly purchased something and went on their way. However, being a semi-eco freak, I gave a lot of thought to the environmental impact of my decision. Should I get liquid, tablet, or powder? Which brand? And should I get the "green" stuff even if it's more expensive? How do I know that "biodegradable" is really important at all and not just a pseudoscientific buzzword designed to lure the eco-conscious shopper? Of course, a true hippie would not even buy anything at a store, and certainly not a "Bright Green" branded (AKA Safeway branded) product. I don't, however, necessarily think that all chemicals are evil or that GMOs are inherently bad or that the "eco-friendly" choice is even the best option for society.

In the end, I brought the "green" stuff after several minutes of deliberation. But I don't really know whether my decision was right, even for the planet. Perhaps the higher cost reflects a greater energy input, or perhaps it does not clean as well, meaning even greater material use and water use necessary to clean dishes. Or maybe it is actually better since the regular stuff requires greater inputs to clean our lakes and rivers. The "right" decision may even have a location dependence since some areas may be more at-risk to human-caused toxicity than others.

I highly doubt that even a fraction of a percent of consumers think about any of these issues, and I don't really think my choice was more educated than anyone else's. I feel the same struggle when deciding on what food to buy, what clothing to buy, or what computer to buy. Often I choose not to purchase anything at all, and if this meets my needs, it is almost certainly the most eco-friendly decision. For food, I make my life easier by being a vegetarian. But I know that I am oversimplifying things-not all vegetables are exactly good for the environment or even for animals. If I really cared, I would be mostly a vegan and avoid energy-intensive fruits and vegetables whenever possible. That still doesn't tell me whether I should buy organic or fair-trade, or local, or in bulk, or avoid quinoa. In principle, these all sound good, but organic can be more energy-intensive and land-intensive, fair-trade could just be higher cost for little benefit in conditions, local tends to mean small-scale and inefficient, bulk could just be large-scale and destructive, and why should we criticize quinoa over growing rice in drought-ravaged California? I don't have all the answers and don't want to think about such dilemmas all the time.

So where does economics come into play here? Basically, in an ideal world, I wouldn't really have to make a decision. The final price tag would include all possible environmental and social impacts, so the only thing I would have to care about is performance. However, this would only be possible with a multitude of taxes based on local environmental impacts. It would also mean that there should be no advertising, other than listing the performance per unit input. Of course, then the decision would be easy and there would be no need for branding and product differentiation. But that is not the real-world, where externalities are usually untaxed, advertising is rampant, and people are drawn in by catchy logos. A preferred libertarian solution is proper allocation of property rights (for example, detergent providers would be responsible for the runoff they create), but this is not really any more easily applicable than taxes.

Sometimes the only way to make sure that we are not completely destroying the planet is through sensible regulation-of water, of air, of soil. For dishwasher detergent, phosphorous was essentially banned, so even the regular stuff I could have gotten would not lead to eutrophication. But at what point should the regulation stop? Clearly our lives are filled with toxic, environmentally destructive products, even in EPEAT gold electronics and vegan shoes. Education is hardly the answer-no one can be expected to put in even 5% of the thought I do, and I still have no idea if I made the moral choice. If anyone has a practical and helpful way to solve these quandaries, I'd love to know, but I don't think there is always a good answer as there are always tradeoffs. I should have a later post devoted to my feelings on the term "sustainability" as it relates to our economy and way-of-life. For now, I'll leave you to ponder all the intricacies of your next purchasing choice, big or small. The only thing you'll likely learn is that you really have no clue and should just go back to blithely buying whatever the heck you want.

An Open Letter to Republican Politicians

Dear Republicans,

I am not going lie here: I am a liberal. I'm atheist, pro-abortion, pro-gay marriage, pro-socialized medicine, pro-gun control, etc. But I am no socialist, I recognize that markets are generally the best way of maximizing welfare. I don't like onerous regulations, pet-project spending, and needless giveaways, even to companies or causes that I support. I would be willing to cast aside my opinions on other issues if you will just do one thing: support a carbon tax. Nay, not just support it, make it the centerpiece of your campaign. I keep on hearing that there are Republicans out there who secretly believe that climate change is real. Go ahead, come out of the closet. I will support you and so will many other "liberal" environmentalists. We're not all preordained to believe that markets are inherently evil and that Wall Street is the devil incarnate. Listen to the companies you so champion and the economists that you employ. 

You all say that a carbon tax is a massive government intervention, but it's not. It can easily be revenue neutral (ie a per-capita dividend and/or lowering of other taxes), an approach supported by Al Gore and the burgeoning Citizen's Climate Lobby. I will fully support a carbon tax you propose that is coupled with the phasing out of all renewable energy subsidies and standards, all fuel economy standards, all efficiency mandates. The only caveat is that it must be a high and rising tax that will enable us to seriously put a dent in our carbon emissions. That is a tough sell, I know. But it is something that is supported by a great many of your own economists, and championed by former Bush and Romney advisory Greg Mankiw. A carbon tax is also supported by the late great Nobel-Prize winning University of Chicago economist Gary Becker. Multiple other highly important Republican advisers have championed the cause, from Bush Treasury Secretary Hank Paulson to Reagan Secretary of State George Shultz. Many of the businesses you purport to champion are fully embracing of the necessity of cutting CO2 emissions. They include some of the big businesses that you say you support: Monsanto, Exxon, BP, Shell, Coca Cola, Dupont, Nestle, Unilever, Microsoft, Duke Energy, and others have publicly stated multiple times that they support a revenue-neutral carbon tax. Do you really think that the largest energy, tech, chemical, and consumer service companies in the world want to implement a socialist, economically crippling policy?

Look, I am not going to pretend that it will be easy. A carbon tax will impose real costs on energy consumers and producers and may not grow GDP. But if you believe that climate change is real, it is worth it. You're right, coal is dying and the industry could undergo a slow demise with carbon pricing legislation.  If properly monitored, natural gas from fracking (well-regulated and monitored) has the potential in the midterm to slow the rise of CO2 emissions. And gas exports can help emerging economies in India, China, and Africa get access to electricity without destroying the air in all of their cities. Where renewables or nuclear energy are not economically viable, fossil fuels may still play a role with carbon sequestration. A carbon tax would level the playing field between all technologies instead of favoring solar, wind, and biofuels as is the case today. Essential to any carbon tax proposal would be the removal of all GHG policies currently in place, thus limiting the bureaucratic overreach of the EPA. If you actually are willing to negotiate, you could help lower corporate income taxes and labor-taxing revenue streams. You could help compensate and retrain working-class families in polluting industries who may lose their jobs. Obviously nothing will perfectly satisfy both sides, but there is a lot for you to gain on issues that Democrats would otherwise be unwilling to negotiate. 

You may have heard the news about the Climate March and thought that it was just an assortment of activists who want to impose a new socialist order. I assure you that not all of us think this. But when the only choices for environmentally conscious citizens are subsidies for renewables or a party that supports subsidizing coal, oil, logging, and gas with no regard to pollution, habitat, or climate change impacts, we don't really have much choice. But don't listen to me, listen to all of the employers and conservative economists who are otherwise your stalwart allies.

Respectfully,

Naor Deleanu

The Follies of Zero Net Energy

Zero Net Energy is here! I lived in it last year in fact. Except it's not sustainable. Or really net-zero.

West Village hasn't really achieved its goals (generating 87% of the energy it uses), but the numbers are worse than that really. Look at the model. Zero-net energy refers to the operating energy costs. That doesn't include the construction cost of utilities, homes, roads, solar panels, etc. The building costs are typically 7-9% of residential energy impacts, but I would guess that the number here is actually much higher. This is a new development that required new roads, a new bike bridge, and new utility poles, and it is designed to be more much more energy efficient than the typical new development. So that means we are at likely under 75% of total energy impacts covered by on-site generation. Even considering generation, the "net-zero" label is rather dubious. The model assumes only 50% occupancy in apartments for 1/6th of the year. The apartments are solely for students, so perhaps this is not unreasonable for purely accounting purposes. However, it's not like students are not going to use energy if they are away from home. Encouraging higher occupancy should be a goal, not an impediment of sustainable design.

First, let me dispel the myth that "zero-net energy" has any real economic or environmental meaning. Consider two scenarios

1.  New solar powered zero-net energy house. I'm just going to throw a random number out there, but let's just say that it costs an additional $12,269 (this is from West Village). They don't include the cost of solar panels, but they estimate a 21,126 savings in energy use (including solar water heating).  This comes out to about $0.039/kwh (assuming 20 year service life and 3% discount rate as stated in energy modeling for West Village SFH in Davis). Not terrible, but something to consider for later: the "new" (actually 2008) building standard for California gives a usage of more than 31,000 kwh/household/year. This is actually much greater than the average household usage of 18,000 kwh. Keep that in mind for later discussion in a future blog post.
2. Invest that money in energy efficiency upgrades for more homes. Estimates of energy-efficiency programs center on values of $0.03/kwh saved. Clearly, this is a better value than getting a super efficient house to that magical "net-zero." 

Obviously the second situation isn't net-zero. So what? It's a lot more important. We don't have unlimited resources, so we need to prioritize investments. Even the most enthusiastic supporters admit that there are some upgrades that are much more expensive (such as residential solar panels, not even mentioned as part of the economic analysis of energy savings for homes at West Village). And there is a point where energy-efficiency upgrades are not going to pay off. 

Let me add another point about "net-zero." Why the focus on "zero"? Why can't it be net positive energy? I think the focus on generating exactly as much energy as you consume has something to do with utility pricing (you can't get paid for using less energy), but if net-zero made actual economic sense, so would net-"negative" energy use in some circumstances. After all, the costs and benefits of energy efficiency and solar depend on local weather conditions (climate, humidity, sunlight, etc). 

I have another huge problem specifically with West Village, one that might easily be replicated in future ZNE developments. The reason why residents consumed far more energy than projected is not because of our laptops and iPhones: it's because electricity was free. None of that $100 million in development costs could have gone towards a real innovative energy pricing program, perhaps as a research project for a UC Davis economics professor who studies the subject? I've heard that utility regulation stops the developer from charging for energy consumption. That's a load of BS. Perhaps it hurts the economics, but I'm sure that $17 million in incentives plus full access to university-owned land. 

Some people may think that because all electricity is generated on-site, it doesn't matter how much energy is consumed. That is not true at all. The true environmental and social cost of energy is largely tied to the marginal cost of production. The residential solar provides a very small portion of electricity that is on the grid. If less energy is consumed, then there is more electricity available on the grid, meaning that fewer high-marginal cost power plants have to operate. The solar panels provide mostly the same benefit no matter where they are supplying energy. There are environmental benefits of both solar energy production and energy efficiency, but they are in no way related to one another. 

I hope that the future does not look like West Village. The apartments are unaffordable luxury (definitely not built for the middle class) and the complex is surrounded by a giant parking lot. It's already bad, but the rest of it is going to be even more unsustainable (see more in my next post). Zero net energy is generally a meaningless goal, and building everything as such would cost more than saving the same amount of energy through a combination of energy efficiency and innovative electricity pricing.

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.

Education

• 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

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.

In some more positive news...

California's cap-and-trade program appears to be working better:
http://energyathaas.wordpress.com/2013/02/25/california-holds-its-second-cap-and-trade-auction-signs-of-a-maturing-market/

"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."

In Praise of a Politician Part 3

Obama says that we should get rid of the penny:
http://www.youtube.com/watch?v=uef6XckoIMw

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

 

In Praise of a Politician Part 2

http://www.sfgate.com/politics/article/Boxer-s-push-is-a-twist-on-carbon-tax-4277210.php

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.'"

Bingo.

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.

Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change

http://scholar.harvard.edu/files/fattaileduncertaintyeconomics_0_0.pd

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.

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).

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.

Viewpoints: Cap and trade should look to broader goals

http://www.sacbee.com/2012/11/02/4956023/cap-and-trade-should-look-to.html
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).

http://www.nytimes.com/2012/12/25/business/energy-environment/california-manufacturers-weigh-costs-of-new-greenhouse-gas-rules.html?pagewanted=all

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.

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.

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

http://www.nytimes.com/2002/05/13/us/utility-buys-town-it-choked-lock-stock-and-blue-plume.html?pagewanted=all&src=pm

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.