In my experience, this meme shows up primarily among people who have studied biology, and who mistake human beings for Drosophila. Yes, under controlled conditions fruit fly populations will increase exponentially until they reach carrying capacity and crash. It’s a powerful image, and whenever an environmental issue comes up, there will be students of Drosophila, cultured bacteria and other life forms who tell us that, whatever we think the cause is, the real, underlying cause is overpopulation.
For the record, I think there are too many humans on the planet, and I hope population growth stabilizes quickly. There is certainly pressure on many natural resources because of our numbers, and we displace the habitats of other organisms in our zeal to maximize our exploitation of the planet. Besides, it would be nice to have more natural areas for solitude and recreation.
But this has little to do with climate change. The argument is essentially the same as in the previous post concerning economic growth.
We have to systematically reduce fossil fuel use until it hits zero by mid-century. Isn’t is obvious from simple arithmetic that the key variable has to be carbon consumption per capita and not the number of capita’s? Short of a mind-bending catastrophe, how can human population fall sufficiently over the coming decades to make a significant dent in greenhouse gas emissions?
In any case, humans aren’t fruit flies. Throughout history and what we know of prehistory we have regulated our reproduction in various ways. At this point, the majority of the world’s people live in societies that are at or near the final stage in the demographic transition—low death rate, low birth rate. There are still hundreds of millions that have yet to arrive, however, and of course they should be encouraged. The measures that have been shown to work are the extension of education and women’s rights, social welfare programs and economic growth, all of which are desirable in themselves. Stabilizing the world’s population at, say, eight rather than nine billion people would be a wonderful thing, but at best it could take us only about an eighth of the way toward reaching our carbon goals—and actually a lot less because demographic stabilization is way too slow.
Previous post
Next post
Tuesday, July 8, 2014
Climate Misconception #12: Economic growth is the underlying problem behind climate change
Two things stand out about this misconception. First, it is widespread and growing in popularity. A large swath of climate activists swear by it. Second, it is completely, indefensibly and obviously wrong. A little thought blows it away. How can you put these two facts together? Is it that relatively affluent environmentalists want to feel guilty? I don’t know, but let’s take a moment to see how deeply misguided this view actually is.
1. Start with this simple point: if economic growth is bad, recessions are good. The Great Recession that came down on us in 2008-2009 should have been a cause for celebration. Maybe we need to get slammed even more next time. Does this make sense to you?
2. The anti-growth crusade smacks of rich-country myopia. The majority of the world’s population has immense unmet needs. They desperately need an inclusive form of economic growth that allows for rising living standards and a margin of security. If the global economy does not grow over the next few decades, it will be a disaster.
3. Hostility to economic growth seems to be based on a fundamental misunderstanding of what the term means. GDP is the product of final demand, goods and services directly consumed by households or capital goods purchased by firms, and the prices they command in the market. (Government production of goods and services is valued at cost.) It’s by no means a perfect gage of anything, but there it is. One way GDP can grow is if an economy produces more “stuff”—more cars, buildings, electronic gadgets and so on. Another way is by producing more services—more education, more live music, more health care. A third way is by producing better, higher-valued goods and services—skilled craftsmanship, elegant design, innovative technologies. Only the first of these is tied to an environmental burden; the second two are largely burden-less and may even reduce the footprint our economy leaves on the natural world. This should be obvious.
In case it isn’t, let me show you two chairs. On the left is one you can by for $60 at a big box store. It is cheaply made, with lots of plastic and shoddy adhesives, and it will be junk within a few years. On the right is a beautiful, hand-produced chair made of sustainably harvested wood with a stunning design—built to last a lifetime. Of course, it costs $600. For the price of the chair on the right you can have ten of the ones on the left. If society used to produce five of the cheap chairs and now produces one of the expensive ones instead, that’s economic growth. In fact, as basic needs are met, there is a tendency in modern economies to shift toward higher quality rather than more stuff. We could have policies that encourage this shift to happen even faster.
4. Suppose, in spite of everything, you still want to end economic growth—how will you prevent it? Will you prevent people from starting businesses? Or buying what they want to buy? What exactly is the plan that’s going to prevent economic growth from occurring?
5. Ah, but now I hear that the anti-growth people aren’t really anti-all-growth, only anti the growth of bad, unnecessary things. That sounds more reasonable, but who gets to decide which items are “good” or “bad”? And how will you prevent people from making or buying the “bad” stuff? If we’re talking about climate change, “bad” ought to mean “uses fossilized carbon”, putting us back in the world of ordinary policy, like carbon taxes and caps. But that isn’t anti-growth, just anti-carbon. And it doesn’t impose anyone’s judgment of what items are “unnecessary” on anyone else.
6. Did I mention that, outside a small echo chamber of environmental enthusiasts, ideological hostility toward economic growth is political suicide? What coalition can you put together on this platform? The carbon budget timetable is very tight, and it would help to have a viable political strategy.
7. Finally, suppose it really is all about economic growth, and there’s no other way to stop the carbon juggernaut—by how much does the world’s economy have to shrink to do the job? Remember, we are talking about reducing total carbon consumption by about 2.5% per year, more in the rich countries, less in the poor ones. By mid-century we have to be at near-zero use. Seriously, how much impact will a few percentage points more or less of global GDP have on this immense change in fossil fuel consumption? Isn’t it obvious that the struggle is over what and how we produce, not whether the aggregate economic value is going up or down?
Previous post
Next post
1. Start with this simple point: if economic growth is bad, recessions are good. The Great Recession that came down on us in 2008-2009 should have been a cause for celebration. Maybe we need to get slammed even more next time. Does this make sense to you?
2. The anti-growth crusade smacks of rich-country myopia. The majority of the world’s population has immense unmet needs. They desperately need an inclusive form of economic growth that allows for rising living standards and a margin of security. If the global economy does not grow over the next few decades, it will be a disaster.
3. Hostility to economic growth seems to be based on a fundamental misunderstanding of what the term means. GDP is the product of final demand, goods and services directly consumed by households or capital goods purchased by firms, and the prices they command in the market. (Government production of goods and services is valued at cost.) It’s by no means a perfect gage of anything, but there it is. One way GDP can grow is if an economy produces more “stuff”—more cars, buildings, electronic gadgets and so on. Another way is by producing more services—more education, more live music, more health care. A third way is by producing better, higher-valued goods and services—skilled craftsmanship, elegant design, innovative technologies. Only the first of these is tied to an environmental burden; the second two are largely burden-less and may even reduce the footprint our economy leaves on the natural world. This should be obvious.
In case it isn’t, let me show you two chairs. On the left is one you can by for $60 at a big box store. It is cheaply made, with lots of plastic and shoddy adhesives, and it will be junk within a few years. On the right is a beautiful, hand-produced chair made of sustainably harvested wood with a stunning design—built to last a lifetime. Of course, it costs $600. For the price of the chair on the right you can have ten of the ones on the left. If society used to produce five of the cheap chairs and now produces one of the expensive ones instead, that’s economic growth. In fact, as basic needs are met, there is a tendency in modern economies to shift toward higher quality rather than more stuff. We could have policies that encourage this shift to happen even faster.
4. Suppose, in spite of everything, you still want to end economic growth—how will you prevent it? Will you prevent people from starting businesses? Or buying what they want to buy? What exactly is the plan that’s going to prevent economic growth from occurring?
5. Ah, but now I hear that the anti-growth people aren’t really anti-all-growth, only anti the growth of bad, unnecessary things. That sounds more reasonable, but who gets to decide which items are “good” or “bad”? And how will you prevent people from making or buying the “bad” stuff? If we’re talking about climate change, “bad” ought to mean “uses fossilized carbon”, putting us back in the world of ordinary policy, like carbon taxes and caps. But that isn’t anti-growth, just anti-carbon. And it doesn’t impose anyone’s judgment of what items are “unnecessary” on anyone else.
6. Did I mention that, outside a small echo chamber of environmental enthusiasts, ideological hostility toward economic growth is political suicide? What coalition can you put together on this platform? The carbon budget timetable is very tight, and it would help to have a viable political strategy.
7. Finally, suppose it really is all about economic growth, and there’s no other way to stop the carbon juggernaut—by how much does the world’s economy have to shrink to do the job? Remember, we are talking about reducing total carbon consumption by about 2.5% per year, more in the rich countries, less in the poor ones. By mid-century we have to be at near-zero use. Seriously, how much impact will a few percentage points more or less of global GDP have on this immense change in fossil fuel consumption? Isn’t it obvious that the struggle is over what and how we produce, not whether the aggregate economic value is going up or down?
Previous post
Next post
Monday, July 7, 2014
Climate Misconception #11: Done right, climate policy can be nearly costless
The politics are straightforward. Forces representing business interests and the free market crowd resist climate policy every step of the way, complaining that the economic cost is too high. The environmentalists fire back: wrong, they say, if we use the right tools we can achieve our carbon objectives at minimal cost. Some, invoking the Porter hypothesis, even claim that getting off fossil fuels can be a net economic boost—this without taking into account the economic costs of climate change itself.
It’s obvious why environmentalists would say this. I truly wish they were right. But they are not, and their evasion damages their credibility and muddles their politics.
Why does this big-payoff-at-little-cost meme persist? If you look at the arguments of people who promote it, they generally cost out programs that fall well short of meeting carbon budget constraints like the one proposed by the IPCC. They look at small carbon taxes or modest caps whose goal is to slowly ramp up to an annual emission target in 2050 or so. Recall, however, that it’s the area under the emission path, not its eventual settling point, that tells us how much greenhouse gas accumulation we’re going to have. If you do the calculation, you’ll see that these paths come in way over budget.
Here’s a demonstration. A clever website is trillionthton.org: you enter the maximum amount of global warming you’d like to allow and the amount of uncertainty you’re willing to accept, and the engine spits out the date on which the corresponding carbon budget is maxed out under business as usual, as well as the annual rate of emissions decline necessary to meet the budget constraint if we start right now. So let’s pick two degrees celcius and “cautious” with regard to uncertainty. The engine tells us a straight-line emissions path that adheres to these stipulations requires an annual decline of somewhat over 2.5%—this year, next, year, and essentially forever.
Now for some economic arithmetic. Obviously it won’t do to have every country in the world cutting its emissions at the same rate. Some, like the US, have immense legacy emissions that tip the scales against them, and it’s reasonable that poor countries, where energy use per capita is a small fraction of what it is in the rich ones, should have much looser carbon caps. To make things simple, suppose this means that, rather than reduce at the rate of 2.5% per year, the US has to cut back by 5%. To simplify further, let’s just look at oil. (Each fossil fuel needs to be considered separately, since the mix will change over time.) Suppose its use has to go down at this average rate, with coal going down faster and natural gas slower. There is great uncertainty over the long run price elasticity of demand for petroleum, but .5 is a plausible point estimate. Put it all together, and you have gas prices in the US needing to rise at 10% a year in real terms. Using the handy rule of 70, that’s results in about a seven year doubling time. If gas is $4 a gallon at the pump today, by 2028 it needs to be $16, not factoring in inflation.
But this is a low-end estimate. First, the US will not immediately begin to follow this reduction path, and the longer we delay, the faster we have to reduce. Second, a factor of two for the US compared to the global average is probably much too low. A large majority of the world’s population lives in low income countries, and their standard of living needs to rise. Barring some disaster, it is inconceivable that their combined fossil fuel consumption will actually fall over the next decade or two. Third, reduced consumption has to apply to all fossil fuel sources, not only oil, simultaneously. Fourth, there is no guarantee that elasticities will remain constant as we cut ever more deeply into fossil fuel use; on the contrary, they should probably go down, driving up costs that much more.
This will not be cheap.
It’s possible that increased investments in renewable energy can cap these costs. Perhaps substitutes can be found that will enable the US and other industrialized countries to convert to other energy sources at a less-than-astronomic price. It could happen, but at this point we don’t know. When it comes to energy costs, environmentalists should fess up.
There is another dimension to this problem, however, that is largely off the radar. We have inherited a capital stock predicated, directly and indirectly, on relatively low-cost energy supplies. If energy prices begin to rise rapidly, what will happen? Economists usually assume that capital items will amortize according to plan, and that costs will be incurred only when new, possibly more expensive investments are needed to replace the old ones. That would be nice, but don’t count on it. Logically, there is a tipping point at which it becomes uneconomic to operate or maintain a capital investment when the costs of inputs go up or the value of outputs go down. In other words, serious carbon policy will require a portion of our capital stock to be written off.
How big a problem is this likely to be? It’s hard to say. If you want historical antecedents, one place to look is the oil price hikes of the 1970s. These were very large in percentage terms, but they were also temporary, one-time events and applied only to one energy source. They did trigger a pair of intense business cycle downturns, although capital stock replacement was mostly orderly.
Possibly a more relevant case is the Eastern European experience post-1989. For decades capital investments in that region were based on a closed trading system. If you wanted a car, and you lived in the Soviet Bloc, you had to buy a Trabi or a Škoda or a Lada; that’s what there was. Then the walls came down, and suddenly Eastern European automakers had to compete with western products. Quickly, it became apparent that the price cut needed if consumers were to buy one of their cars rather than a VW or a Ford was too great to justify any further production; so they shuttered their factories and laid off their workers. It’s not too far off the mark to say that the massive recessions of the early 1990s in the ex-Soviet Bloc, which cut output by 20-50% depending on the country, was the result of widespread capital writeoff of this sort. (Now some of these cars are back on the market, but produced with completely different technology.)
Question: how much of the capital stock of today’s industrialized countries would become uneconomic if the world were to shift to a fossil fuel path that adhered to the IPCC’s carbon budget? As far as I know, there are no economists at all studying this. They are all too busy debating whether the hypothetical social cost of carbon is a few dollars more or less per ton (and therefore whether we should try to meet the IPCC’s carbon target or not). There is scope for a change in priorities.
As we’ll see later, when we look into the political economy of climate policy, industrial interests are aware of this problem and intensely motivated by it. When they look at their own operations, they think they’re at risk. They are probably better placed than environmentalists to know their exposure. Meanwhile, it doesn’t make the political job of getting tough climate policies enacted any easier if supporters underestimate the sources of resistance.
Previous post
Next post
It’s obvious why environmentalists would say this. I truly wish they were right. But they are not, and their evasion damages their credibility and muddles their politics.
Why does this big-payoff-at-little-cost meme persist? If you look at the arguments of people who promote it, they generally cost out programs that fall well short of meeting carbon budget constraints like the one proposed by the IPCC. They look at small carbon taxes or modest caps whose goal is to slowly ramp up to an annual emission target in 2050 or so. Recall, however, that it’s the area under the emission path, not its eventual settling point, that tells us how much greenhouse gas accumulation we’re going to have. If you do the calculation, you’ll see that these paths come in way over budget.
Here’s a demonstration. A clever website is trillionthton.org: you enter the maximum amount of global warming you’d like to allow and the amount of uncertainty you’re willing to accept, and the engine spits out the date on which the corresponding carbon budget is maxed out under business as usual, as well as the annual rate of emissions decline necessary to meet the budget constraint if we start right now. So let’s pick two degrees celcius and “cautious” with regard to uncertainty. The engine tells us a straight-line emissions path that adheres to these stipulations requires an annual decline of somewhat over 2.5%—this year, next, year, and essentially forever.
Now for some economic arithmetic. Obviously it won’t do to have every country in the world cutting its emissions at the same rate. Some, like the US, have immense legacy emissions that tip the scales against them, and it’s reasonable that poor countries, where energy use per capita is a small fraction of what it is in the rich ones, should have much looser carbon caps. To make things simple, suppose this means that, rather than reduce at the rate of 2.5% per year, the US has to cut back by 5%. To simplify further, let’s just look at oil. (Each fossil fuel needs to be considered separately, since the mix will change over time.) Suppose its use has to go down at this average rate, with coal going down faster and natural gas slower. There is great uncertainty over the long run price elasticity of demand for petroleum, but .5 is a plausible point estimate. Put it all together, and you have gas prices in the US needing to rise at 10% a year in real terms. Using the handy rule of 70, that’s results in about a seven year doubling time. If gas is $4 a gallon at the pump today, by 2028 it needs to be $16, not factoring in inflation.
But this is a low-end estimate. First, the US will not immediately begin to follow this reduction path, and the longer we delay, the faster we have to reduce. Second, a factor of two for the US compared to the global average is probably much too low. A large majority of the world’s population lives in low income countries, and their standard of living needs to rise. Barring some disaster, it is inconceivable that their combined fossil fuel consumption will actually fall over the next decade or two. Third, reduced consumption has to apply to all fossil fuel sources, not only oil, simultaneously. Fourth, there is no guarantee that elasticities will remain constant as we cut ever more deeply into fossil fuel use; on the contrary, they should probably go down, driving up costs that much more.
This will not be cheap.
It’s possible that increased investments in renewable energy can cap these costs. Perhaps substitutes can be found that will enable the US and other industrialized countries to convert to other energy sources at a less-than-astronomic price. It could happen, but at this point we don’t know. When it comes to energy costs, environmentalists should fess up.
There is another dimension to this problem, however, that is largely off the radar. We have inherited a capital stock predicated, directly and indirectly, on relatively low-cost energy supplies. If energy prices begin to rise rapidly, what will happen? Economists usually assume that capital items will amortize according to plan, and that costs will be incurred only when new, possibly more expensive investments are needed to replace the old ones. That would be nice, but don’t count on it. Logically, there is a tipping point at which it becomes uneconomic to operate or maintain a capital investment when the costs of inputs go up or the value of outputs go down. In other words, serious carbon policy will require a portion of our capital stock to be written off.
How big a problem is this likely to be? It’s hard to say. If you want historical antecedents, one place to look is the oil price hikes of the 1970s. These were very large in percentage terms, but they were also temporary, one-time events and applied only to one energy source. They did trigger a pair of intense business cycle downturns, although capital stock replacement was mostly orderly.
Possibly a more relevant case is the Eastern European experience post-1989. For decades capital investments in that region were based on a closed trading system. If you wanted a car, and you lived in the Soviet Bloc, you had to buy a Trabi or a Škoda or a Lada; that’s what there was. Then the walls came down, and suddenly Eastern European automakers had to compete with western products. Quickly, it became apparent that the price cut needed if consumers were to buy one of their cars rather than a VW or a Ford was too great to justify any further production; so they shuttered their factories and laid off their workers. It’s not too far off the mark to say that the massive recessions of the early 1990s in the ex-Soviet Bloc, which cut output by 20-50% depending on the country, was the result of widespread capital writeoff of this sort. (Now some of these cars are back on the market, but produced with completely different technology.)
Question: how much of the capital stock of today’s industrialized countries would become uneconomic if the world were to shift to a fossil fuel path that adhered to the IPCC’s carbon budget? As far as I know, there are no economists at all studying this. They are all too busy debating whether the hypothetical social cost of carbon is a few dollars more or less per ton (and therefore whether we should try to meet the IPCC’s carbon target or not). There is scope for a change in priorities.
As we’ll see later, when we look into the political economy of climate policy, industrial interests are aware of this problem and intensely motivated by it. When they look at their own operations, they think they’re at risk. They are probably better placed than environmentalists to know their exposure. Meanwhile, it doesn’t make the political job of getting tough climate policies enacted any easier if supporters underestimate the sources of resistance.
Previous post
Next post
Climate Misconception #10: To set the proper climate policy we need to know the social cost of carbon
This comes right out of the Econ 101 playbook. To simplify, suppose there is just one fossil fuel whose use contributes to climate change. Further suppose that the demand curve for this fuel represents the marginal benefit (MB) society gets from burning each unit, and the supply curve represents the marginal cost to society of supplying it—except for the climate externality. Then we get the standard model:
The social cost of carbon (SCC) is the difference between the full marginal cost of the fuel, MC, and its supply curve S. (It changes as the quantity of fuel consumed changes.) Economic efficiency requires that we set output where MC=MB, at Q2, rather than at Q1 where the market alone would put it. There are two main ways we could do this. One would be to charge a production tax equal to the SCC; this would cause producers to raise their price by the amount of the tax, so that MC becomes the new S. The other would be to institute a carbon cap that limits fossil fuel production to Q2, which would lead to a higher price due to consumers’ willingness to pay at that quantity. Both require that you know what the gap is between S and MC or, somewhat equivalently, between Q1 and Q2. (I’ll get into the comparison between these two approaches in a later post.)
This explains why economists expend so much effort to estimate the social cost of carbon. If you don’t know what it is, how can you possibly have a rational, efficient carbon policy?
For starters, an analysis like the one above makes a number of standard assumptions, some of which are probably close to the mark and others far from it.
1. It assumes that the market is competitive and governed by economic self-interest. In fact, while there is quite a bit of competition in fossil fuel markets—even taking OPEC into account—most of the deposits are owned by governments, and those who set production policy are not necessarily the profit-maximizers you find in the textbooks. In particular, governments tend to be myopic, concerned with generating revenue in the short run without much interest in the rate at which their resources are depleted. For ample fuels, like coal and natural gas, that is probably not a big deal, but it’s a very big deal for petroleum. Even without climate change, petroleum prices are probably too low, because the effects of depleting the available deposits are not fully taken into account.
2. It assumes that the amount people pay for fuels is a proper measure of the benefit they get, and the social benefit is just the sum of these individual ones. That’s standard utility theory, but utility theory has little to no scientific standing. Ask any psychologist, whose day job is to study human behavior and indicators of well-being, what he or she thinks of it. One of my favorite examples of the failure of utility theory, by the way, is the evidence that, even considering the benefits of employment and residence opportunities, more commuting is associated with less well-being. These unhappy commuters, of course, are consuming fossil fuels for this privilege.
3. It assumes that there are no interaction effects between people or the things they make or buy that influence their production or consumption choices. In other words, it assumes that the choices they make separately are the same ones they’d make if they were able to consciously coordinate them. When you consider just the interaction-dense nature of location and transportation decisions, this can’t be true. If you thought the model above applied to both American and European commuters, for instance, you’d have to assume that Americans have a greater “preference” for (get more “utility” from) driving cars, while Europeans have a greater preference for taking trains. (Or you could compare commuters in the LA and New York metropolitan areas: more or less the same thing.) Maybe so. But maybe the difference in transportation modes reflects a greater degree of coordinated choice in some places and less in others.
These are generic arguments that apply to all economic models that try to shoehorn social well-being into a supply and demand diagram. What about carbon in particular?
Careful readers will have noticed that my introductory posts on climate science said almost nothing about the items economists focus on when they try to estimate the social cost of carbon. I did mention sea level rise and storm intensity a bit, along with passing references to drought and forest fires. There was no general discussion of the impacts on agriculture, however, or the comfort or discomfort of hotter weather, or effects on tropical diseases or temperate zone pest infestations. If you spend your waking hours calculating the social cost of carbon, these are important components.
There are three reasons why I skipped these issues. The first is that it is almost impossible to forecast these costs, not only because of the uncertainties of how climate change will play out, but also because of the potential for human activities to adapt. Take agriculture for instance. Most regions will be subject to stresses in the form of different distributions of degree days, precipitation and pests. Farmers, of course, will not plant the same old, same old. They will turn to new seeds, new crops and new production methods. How successful will they be in surmounting the effects of climate change? Hard to say. Or take sea walls. Economists put a price tag on sea level rise by comparing the cost of building a physical barrier to that of abandoning coastal infrastructure, which makes sense. But the best they can do is estimate them on the basis of today’s technology. If it begins to look like we will experience faster-rising seas than anticipated, maybe more effort will go into new materials or construction techniques that reduce the cost of protecting shoreline. Maybe these efforts will bear fruit, and maybe not. Costing out these economic impacts of climate change is a guessing game.
The second is that the economics of climate change is all about time. With a decades-long lag between cause (burning fossil fuels) and effect, the numbers depend immensely on how you incorporate the time factor. This is referred to as discounting, where the formula for the value today of some cost C anticipated N years from now is
Here PV is the present value and r is the annual rate of discount. For instance, today’s level of climate change, which is the result of fossil fuel use over the past 200 years, has apparently destabilized the West Antarctic ice sheet, likely irreversibly. Its effect on sea level will be felt as soon as about 200 years from now and as late as a thousand. Let’s make the most favorable assumption (for costs) and assume that 200 years is the correct prediction. Suppose that the 12-15 foot sea level increase will cost our descendants a trillion dollars to cope with. Also suppose that an appropriate rate of discount is 3%, which is a measure of the value of putting off a given cost for a year. (This is in the range of commonly used discount rates.) Guess what? That trillion 200 years in the future comes out to around $2.7 billion today. Not as scary, is it?
In fact, there has been a raging debate among economists over how much, if anything, to discount future costs since the Stern Report of 2006. He outraged many of his peers by choosing a discount rate of 1.4%, which is about as low as one could go. If you read the debate that ensued you will find reasonable arguments on all sides; personally I don’t see a compelling case one way or the other.
But the larger question is whether this debate matters. Indeed, why should it matter? The reality is that almost any economic question of interest that far out into the future is completely beyond prediction, even probabilistically. Moreover, the question about how much weight to give today to impacts we are creating for future generations is not an economic question, but an ethical and political one. Think of it this way: suppose I say that there is a program that can eliminate a cost that will otherwise arise of $2.7 billion. This number could mean different things. It could mean, a bill will be presented to us this year for $2.7 billion and we’ll have to pay it then and there. Or it could mean, a bill will be presented to our heirs 200 years from now and they will have to pay $1 trillion. Question: is it immaterial for the policy question (whether to adopt the program) which of these is the actual case? If you believe in discounting, the answer is yes. My guess is that most people will see it differently.
The final point is the biggest—in fact it’s very big. The main worry about climate change is not that it is going to add this or that amount of economic cost to some everyday human activity, but that the entire carbon cycle will spin out of control. If human releases of fossil fuels heat the earth enough to trigger further releases of stored methane, the result could be beyond reckoning. Remember those alligators in the arctic. And if there is a tipping point we don’t know where it is.
From this perspective, programs to combat climate change are less like an investment with a rate of return (the social cost of carbon view) and more like insurance, an amount we should be willing to pay in order to rule out the risk of catastrophic harm. Obviously we can’t insure ourselves against everything. Some risks are too minute, and the cost of reducing their probability to zero is out of all proportion to the benefit. Climate change isn’t like that. The physics at a macro level are pretty well understood, and runaway feedback effects, while they might horrify, would not greatly surprise anyone who has studied the issue closely.
The bottom line is that, in trying to exactly calibrate carbon control costs to the economic impacts of climate change, economists have been chasing a chimera. It’s the wrong framework for thinking about the problem and leads to cautious, myopic policy recommendations. And a further tragedy is that, as we will see, there are truly urgent economic questions about climate policy and its impacts that almost no one is looking at.
Previous post
Next post
This explains why economists expend so much effort to estimate the social cost of carbon. If you don’t know what it is, how can you possibly have a rational, efficient carbon policy?
For starters, an analysis like the one above makes a number of standard assumptions, some of which are probably close to the mark and others far from it.
1. It assumes that the market is competitive and governed by economic self-interest. In fact, while there is quite a bit of competition in fossil fuel markets—even taking OPEC into account—most of the deposits are owned by governments, and those who set production policy are not necessarily the profit-maximizers you find in the textbooks. In particular, governments tend to be myopic, concerned with generating revenue in the short run without much interest in the rate at which their resources are depleted. For ample fuels, like coal and natural gas, that is probably not a big deal, but it’s a very big deal for petroleum. Even without climate change, petroleum prices are probably too low, because the effects of depleting the available deposits are not fully taken into account.
2. It assumes that the amount people pay for fuels is a proper measure of the benefit they get, and the social benefit is just the sum of these individual ones. That’s standard utility theory, but utility theory has little to no scientific standing. Ask any psychologist, whose day job is to study human behavior and indicators of well-being, what he or she thinks of it. One of my favorite examples of the failure of utility theory, by the way, is the evidence that, even considering the benefits of employment and residence opportunities, more commuting is associated with less well-being. These unhappy commuters, of course, are consuming fossil fuels for this privilege.
3. It assumes that there are no interaction effects between people or the things they make or buy that influence their production or consumption choices. In other words, it assumes that the choices they make separately are the same ones they’d make if they were able to consciously coordinate them. When you consider just the interaction-dense nature of location and transportation decisions, this can’t be true. If you thought the model above applied to both American and European commuters, for instance, you’d have to assume that Americans have a greater “preference” for (get more “utility” from) driving cars, while Europeans have a greater preference for taking trains. (Or you could compare commuters in the LA and New York metropolitan areas: more or less the same thing.) Maybe so. But maybe the difference in transportation modes reflects a greater degree of coordinated choice in some places and less in others.
These are generic arguments that apply to all economic models that try to shoehorn social well-being into a supply and demand diagram. What about carbon in particular?
Careful readers will have noticed that my introductory posts on climate science said almost nothing about the items economists focus on when they try to estimate the social cost of carbon. I did mention sea level rise and storm intensity a bit, along with passing references to drought and forest fires. There was no general discussion of the impacts on agriculture, however, or the comfort or discomfort of hotter weather, or effects on tropical diseases or temperate zone pest infestations. If you spend your waking hours calculating the social cost of carbon, these are important components.
There are three reasons why I skipped these issues. The first is that it is almost impossible to forecast these costs, not only because of the uncertainties of how climate change will play out, but also because of the potential for human activities to adapt. Take agriculture for instance. Most regions will be subject to stresses in the form of different distributions of degree days, precipitation and pests. Farmers, of course, will not plant the same old, same old. They will turn to new seeds, new crops and new production methods. How successful will they be in surmounting the effects of climate change? Hard to say. Or take sea walls. Economists put a price tag on sea level rise by comparing the cost of building a physical barrier to that of abandoning coastal infrastructure, which makes sense. But the best they can do is estimate them on the basis of today’s technology. If it begins to look like we will experience faster-rising seas than anticipated, maybe more effort will go into new materials or construction techniques that reduce the cost of protecting shoreline. Maybe these efforts will bear fruit, and maybe not. Costing out these economic impacts of climate change is a guessing game.
The second is that the economics of climate change is all about time. With a decades-long lag between cause (burning fossil fuels) and effect, the numbers depend immensely on how you incorporate the time factor. This is referred to as discounting, where the formula for the value today of some cost C anticipated N years from now is
Here PV is the present value and r is the annual rate of discount. For instance, today’s level of climate change, which is the result of fossil fuel use over the past 200 years, has apparently destabilized the West Antarctic ice sheet, likely irreversibly. Its effect on sea level will be felt as soon as about 200 years from now and as late as a thousand. Let’s make the most favorable assumption (for costs) and assume that 200 years is the correct prediction. Suppose that the 12-15 foot sea level increase will cost our descendants a trillion dollars to cope with. Also suppose that an appropriate rate of discount is 3%, which is a measure of the value of putting off a given cost for a year. (This is in the range of commonly used discount rates.) Guess what? That trillion 200 years in the future comes out to around $2.7 billion today. Not as scary, is it?
In fact, there has been a raging debate among economists over how much, if anything, to discount future costs since the Stern Report of 2006. He outraged many of his peers by choosing a discount rate of 1.4%, which is about as low as one could go. If you read the debate that ensued you will find reasonable arguments on all sides; personally I don’t see a compelling case one way or the other.
But the larger question is whether this debate matters. Indeed, why should it matter? The reality is that almost any economic question of interest that far out into the future is completely beyond prediction, even probabilistically. Moreover, the question about how much weight to give today to impacts we are creating for future generations is not an economic question, but an ethical and political one. Think of it this way: suppose I say that there is a program that can eliminate a cost that will otherwise arise of $2.7 billion. This number could mean different things. It could mean, a bill will be presented to us this year for $2.7 billion and we’ll have to pay it then and there. Or it could mean, a bill will be presented to our heirs 200 years from now and they will have to pay $1 trillion. Question: is it immaterial for the policy question (whether to adopt the program) which of these is the actual case? If you believe in discounting, the answer is yes. My guess is that most people will see it differently.
The final point is the biggest—in fact it’s very big. The main worry about climate change is not that it is going to add this or that amount of economic cost to some everyday human activity, but that the entire carbon cycle will spin out of control. If human releases of fossil fuels heat the earth enough to trigger further releases of stored methane, the result could be beyond reckoning. Remember those alligators in the arctic. And if there is a tipping point we don’t know where it is.
From this perspective, programs to combat climate change are less like an investment with a rate of return (the social cost of carbon view) and more like insurance, an amount we should be willing to pay in order to rule out the risk of catastrophic harm. Obviously we can’t insure ourselves against everything. Some risks are too minute, and the cost of reducing their probability to zero is out of all proportion to the benefit. Climate change isn’t like that. The physics at a macro level are pretty well understood, and runaway feedback effects, while they might horrify, would not greatly surprise anyone who has studied the issue closely.
The bottom line is that, in trying to exactly calibrate carbon control costs to the economic impacts of climate change, economists have been chasing a chimera. It’s the wrong framework for thinking about the problem and leads to cautious, myopic policy recommendations. And a further tragedy is that, as we will see, there are truly urgent economic questions about climate policy and its impacts that almost no one is looking at.
Previous post
Next post
Deeply Misunderstanding How Our Economy Is Measured
A complete muddle in today's New York Times, where Lew Daly of the Demos Institute demonstrates that he needs to book up on some basic economics. His motives are OK: he wants to show that the government plays (or at least should play) an important role in enhancing our economic well-being. Alas, he gets just about every concept wrong. To avoid overkill, I'll document just the biggest howlers:
1. GDP is not a measure of well-being. It's a measure of monetary flows through the economy. It was developed to tell us how fully employed our resources are, not how beneficially they are employed. It measures bigness, not goodness.
2. True, government services are recorded at cost. But there are no monetary flows beyond that as there are in the private sector (consumer payments).
3. Complaining that we don't recognize consumer expenditures financed out of transfer payments from the government is bonkers. If you want to do that you should also deduct consumption that would have occurred if not for tax payments. In fact, the economic definition of government spending used in GDP calculation excludes transfer payments, and taxes are measured net of transfers.
4. Economists measure the public capital stock (like publicly owned infrastructure) the same way they measure the private capital stock. (There are lots of data in Piketty about this, for instance.) But GDP is about the flow of income, not the stock of wealth. If you want to get the stock data you have to go to the Flow of Funds accounts assembled by the Federal Reserve. They measure balance sheets.
Well, at least we know that the right doesn't have a monopoly on nonsense. (But why does the right's nonsense cast so many more votes in Congress than the left's?)
1. GDP is not a measure of well-being. It's a measure of monetary flows through the economy. It was developed to tell us how fully employed our resources are, not how beneficially they are employed. It measures bigness, not goodness.
2. True, government services are recorded at cost. But there are no monetary flows beyond that as there are in the private sector (consumer payments).
3. Complaining that we don't recognize consumer expenditures financed out of transfer payments from the government is bonkers. If you want to do that you should also deduct consumption that would have occurred if not for tax payments. In fact, the economic definition of government spending used in GDP calculation excludes transfer payments, and taxes are measured net of transfers.
4. Economists measure the public capital stock (like publicly owned infrastructure) the same way they measure the private capital stock. (There are lots of data in Piketty about this, for instance.) But GDP is about the flow of income, not the stock of wealth. If you want to get the stock data you have to go to the Flow of Funds accounts assembled by the Federal Reserve. They measure balance sheets.
Well, at least we know that the right doesn't have a monopoly on nonsense. (But why does the right's nonsense cast so many more votes in Congress than the left's?)
MaxSpeak . . . It's alive!
At maxspeak.net (or .org).
May not be quite as technical as this site and its learned contributors. Subject matter will be more wide-ranging.
May not be quite as technical as this site and its learned contributors. Subject matter will be more wide-ranging.
When The Rate Of Return And The Rate Of Growth Do Not Matter Much For Piketty
So, I have finally gotten around to reading Piketty's monumental book. Something struck me right away that I think many ignore, at least I have seen no one comment on it. His emphasis on the importance of r > g, (rate of return on capital as he defines it greater than GDP growth rate) seems overblown. Now I must admit that he repeatedly warns that the path of the distribution of income and wealth is hard to predict and that many factors are involved. But it is also the case that he makes little of how often the direction of change does not correspond with the direction of change in this simple equation, that its effect is overwhelmed by other factors.
This can be seen by considering the first two figures in the entire book, which appear in his Introduction and that he declares are the most important in the book, what he is trying to explain ultimately. The first shows the share of the top decile of the US income distribution from 1910-2010 and the second shows the ratio of capital to income for Britain, France, and Germany from 1870-2010. What is striking is how often changes in these have little to do with changes in r-g. As it is, he argues in the book for the near constancy of r in all these nations over a long period of time, which means effectively that it is changes in g that largely drive this gap.
So, what do we see? For the US the top decile starts out well off in 1910, reaching a peak just before the Great Crash, then it falls to the 1970s after which it rises again, reaching nearly its 1920s level by 2010. However, what is not discussed much is that nearly all of the decline in inequality occurs in one tiny period: World War II. He spends almost no time in this large book focusing on that peculiarity. It is true that g was high in this period, but not that much higher than during the 1960s or for that matter the 1920s. In the 1960s there was little change in this top decile share, which essentially got as low as it was going to go by 1945 and basically bounced around after that not moving much until it took off after 1980 or so. And in the 1920s rather than falling, the top decile share actually rose rather then fell. It fell initially at the beginning of the Great Depression when g fell hard.
He does provide an explanation of the 1920s and early 30s, but it goes against his basic story about g. What led to the peak at the end of the 20s? A sharp rise in capital gains income. And the following decline was the reversal of this with the stock market crash. OK, that is almost certainly correct, but it goes against the story about g. And how is it that essentially all of the decline in income inequality from 1931 to the 1970s occurred in the early 1940s? He really does not focus on this, but he does indicate what is up, and it is important for his policy discussion at the end of the book. That is when the US federal tax code went into its most progressive state, with the top marginal income tax rate moving up to the 90+% level in 1940, just in time for the war, where it would stay until the mid-1960s tax cut. Of course there was a surge of g, and we know that increased employment of women and minorities helped lower inequality, but it is striking how much change in inequality was in these five years alone.
The story in Europe is slightly different, and, of course, it focuses on wealth rather than income. There, with some minor differences between the three countries, wealth compared to output starts out very high in 1870 and stays there until World War I, then only to massively collapse in all three countries, although not quite as much in the UK as in Germany and France. Capital makes a slight recovery during the 1920s, when g was up compared to the previous decade (ooops, going the wrong way), only to decline after 1930 steadily, reaching a minimum in 1950 for all three. For France and Germany it starts rising again, steadily in the case of Germany and continuing until now. With Britain it sits at the same level 1950-1970, and then starts rising.
But here is the catch. During the 50s and 60s, economic growth was much higher in both France and Germany than in the previous two decades, and also it was higher than in Great Britain, which put in a sclerotic performance during those decades. But if a higher g is supposed to be associated with less wealth inequality, that is the exact opposite of what we see here. Wealth inequality declines during the troubled 30s and 40s, only to reappear in the high growth 50s and 60s in France and Germany, while failing to do so in the more stagnant UK.
Now he does provide quite detailed stories of what was going on in these nations, although his focus is most detailed for France. War, inflation, and bankruptcy destroy fortunes, although the direct damage of war is not really all that important. The end of all this allows for capital to reaccumulate, at least in France and Germany, if not Britain. But this simply emphasizes how these other factors can easily overwhelm what is going on with g.
Indeed, the vast majority of the decline is not in the Depression or the much more physically destructive World War II, but in the decade of World War I. Here is where capital simply plunges, falling by more than half in both France and Germany, and by about a third in Britain. What is curious is that the largest part of this decline is in foreign holdings, which simply collapse. His discussion of the increase in foreign assets in the nineteenth century involved the colonial empires of these nations, although this was not so important for Germany, which he really does not discuss. But, while Germany lost its foreign empire, if anything those of Britain and France increased due to WW I, reaching their peaks in the 1920s as they picked up former colonies of Germany, as well as ones in parts of the former Ottoman Empire. Piketty simply never acknowledges this.
What else happened? Oh, the Bolshevik Revolution, which led to the repudiation of tsarist Russian debts, many of whose bonds were owned in these countries, and also the expropriation of foreign company holdings in Russia. Needless to say this has nothing to do with g.
So, a number of critics have argued that policy really drives all this more than his grand dynamics of r and g. Offhand looking at his own numbers, this would appear to be the case. In many decades what is happening to distribution is going in quite the opposite direction from what should be the case if one just looks at r and g (mostly just g). If it is not policy that is causing this, it is some exogenous shock.
Of course for his current policy discussion, he argues that everything is now working to increase inequality. The growth rate has fallen and policy has moved to favor the wealthy and those who inherit (particularly in the US on the latter). So, policy must be changed if we are not to end up a patrimonial capitalism. On that he probably is correct, but he may well have overstated the role of his grand dynamics and understated the role of everything else in his discussion, even as he provides many caveats on this point.
Barkley Rosser
This can be seen by considering the first two figures in the entire book, which appear in his Introduction and that he declares are the most important in the book, what he is trying to explain ultimately. The first shows the share of the top decile of the US income distribution from 1910-2010 and the second shows the ratio of capital to income for Britain, France, and Germany from 1870-2010. What is striking is how often changes in these have little to do with changes in r-g. As it is, he argues in the book for the near constancy of r in all these nations over a long period of time, which means effectively that it is changes in g that largely drive this gap.
So, what do we see? For the US the top decile starts out well off in 1910, reaching a peak just before the Great Crash, then it falls to the 1970s after which it rises again, reaching nearly its 1920s level by 2010. However, what is not discussed much is that nearly all of the decline in inequality occurs in one tiny period: World War II. He spends almost no time in this large book focusing on that peculiarity. It is true that g was high in this period, but not that much higher than during the 1960s or for that matter the 1920s. In the 1960s there was little change in this top decile share, which essentially got as low as it was going to go by 1945 and basically bounced around after that not moving much until it took off after 1980 or so. And in the 1920s rather than falling, the top decile share actually rose rather then fell. It fell initially at the beginning of the Great Depression when g fell hard.
He does provide an explanation of the 1920s and early 30s, but it goes against his basic story about g. What led to the peak at the end of the 20s? A sharp rise in capital gains income. And the following decline was the reversal of this with the stock market crash. OK, that is almost certainly correct, but it goes against the story about g. And how is it that essentially all of the decline in income inequality from 1931 to the 1970s occurred in the early 1940s? He really does not focus on this, but he does indicate what is up, and it is important for his policy discussion at the end of the book. That is when the US federal tax code went into its most progressive state, with the top marginal income tax rate moving up to the 90+% level in 1940, just in time for the war, where it would stay until the mid-1960s tax cut. Of course there was a surge of g, and we know that increased employment of women and minorities helped lower inequality, but it is striking how much change in inequality was in these five years alone.
The story in Europe is slightly different, and, of course, it focuses on wealth rather than income. There, with some minor differences between the three countries, wealth compared to output starts out very high in 1870 and stays there until World War I, then only to massively collapse in all three countries, although not quite as much in the UK as in Germany and France. Capital makes a slight recovery during the 1920s, when g was up compared to the previous decade (ooops, going the wrong way), only to decline after 1930 steadily, reaching a minimum in 1950 for all three. For France and Germany it starts rising again, steadily in the case of Germany and continuing until now. With Britain it sits at the same level 1950-1970, and then starts rising.
But here is the catch. During the 50s and 60s, economic growth was much higher in both France and Germany than in the previous two decades, and also it was higher than in Great Britain, which put in a sclerotic performance during those decades. But if a higher g is supposed to be associated with less wealth inequality, that is the exact opposite of what we see here. Wealth inequality declines during the troubled 30s and 40s, only to reappear in the high growth 50s and 60s in France and Germany, while failing to do so in the more stagnant UK.
Now he does provide quite detailed stories of what was going on in these nations, although his focus is most detailed for France. War, inflation, and bankruptcy destroy fortunes, although the direct damage of war is not really all that important. The end of all this allows for capital to reaccumulate, at least in France and Germany, if not Britain. But this simply emphasizes how these other factors can easily overwhelm what is going on with g.
Indeed, the vast majority of the decline is not in the Depression or the much more physically destructive World War II, but in the decade of World War I. Here is where capital simply plunges, falling by more than half in both France and Germany, and by about a third in Britain. What is curious is that the largest part of this decline is in foreign holdings, which simply collapse. His discussion of the increase in foreign assets in the nineteenth century involved the colonial empires of these nations, although this was not so important for Germany, which he really does not discuss. But, while Germany lost its foreign empire, if anything those of Britain and France increased due to WW I, reaching their peaks in the 1920s as they picked up former colonies of Germany, as well as ones in parts of the former Ottoman Empire. Piketty simply never acknowledges this.
What else happened? Oh, the Bolshevik Revolution, which led to the repudiation of tsarist Russian debts, many of whose bonds were owned in these countries, and also the expropriation of foreign company holdings in Russia. Needless to say this has nothing to do with g.
So, a number of critics have argued that policy really drives all this more than his grand dynamics of r and g. Offhand looking at his own numbers, this would appear to be the case. In many decades what is happening to distribution is going in quite the opposite direction from what should be the case if one just looks at r and g (mostly just g). If it is not policy that is causing this, it is some exogenous shock.
Of course for his current policy discussion, he argues that everything is now working to increase inequality. The growth rate has fallen and policy has moved to favor the wealthy and those who inherit (particularly in the US on the latter). So, policy must be changed if we are not to end up a patrimonial capitalism. On that he probably is correct, but he may well have overstated the role of his grand dynamics and understated the role of everything else in his discussion, even as he provides many caveats on this point.
Barkley Rosser
Sunday, July 6, 2014
Climate Misconception #9: Investing in clean technologies will solve the climate problem
Here we continue with Misconception #3, with a few more wrinkles to consider.
It has become popular in some circles to say that a fixation on reducing the use of fossil fuels—the thou-shalt-not approach to carbon policy—is a political non-starter. No one will support a movement that’s so negative. Instead, they say, we should emphasize the positive. Let’s ramp up investment in clean technologies, provide lots of green jobs, and fossil fuels will take care of themselves.
I’ve already tried to explain why generating more renewable energy is not the same thing as reducing fossil fuel use by an equivalent amount, so I won’t repeat myself. Here I’d like to broaden the focus and consider energy-saving technology in general.
The first point to make is that it isn’t always clear what the energy-saving technology is or how much it saves, once we take account of all the upstream inputs that go into it. On a mundane level, this has come up in the debate over local laws that mandate the use of paper rather than plastic shopping bags at retail stores. It’s a complicated problem of industrial ecology, and the answer is not likely to be the same in each city. But this difficulty arises in nearly every technology choice, such as which materials to use for auto parts, what criteria should determine LEED (green building) certification, and so on. This is our old friend the economic calculation problem: modern interconnected production systems are just very complex. If we ever put a significant price on carbon, the price mechanism will tell us where net carbon savings actually lie.
The second point is that innovation is difficult to forecast. Often the methods and products that prove to be the most successful were not the ones you would have bet on during the early stages of R&D. This is not an argument against promoting research in green tech, but it suggests we need a large portfolio of research projects, anticipating that most will lead to a dead end. Public R&D needs to be as entrepreneurial as private—perhaps more so, since the stakes are higher. But the portfolio approach leaves us in doubt regarding the pace and direction of technological development. We simply can’t know going in what and how much we’re going to get out of it.
And that leads to the main consideration, which is time. As discussed earlier, what matters for climate change is the accumulation of greenhouse gases in the atmosphere. Every day we extract and burn more fossil fuels, this accumulation goes up. A brilliant breakthrough that lowers the economic cost of transitioning away from fossil fuels doesn’t help very much if it occurs decades into the future, after we have already surpassed our carbon budget.
To put it bluntly: the physics of climate change imposes a timetable on us, summarized in the form of a carbon budget. The longer we delay, the faster we have to reduce future fossil fuel consumption. If we delay too long, no plausible transition path will keep us under budget. But the development of new technology has its own timetable, which we can’t know for sure going in. If nature’s schedule moves at a faster pace than technology’s, which it almost certainly will, we have to make a choice: more climate change or more economic disruption. The point of our whirlwind tour of climate science at the beginning was to convince you that nature really calls the shots.
Consider an example. One large contributor to fossil fuel use is air travel. If you fly a few times a year this is probably your biggest individual carbon consumption item. Living within the IPCC’s carbon budget means that, within a few decades, we have to get to near-zero use—and the path has to head downward sooner rather than later. What will this mean for air travel? With current technology the picture is bleak. Biofuels can be used to power jets, but only at much greater cost, and if we try to substitute biofuels for hydrocarbons in all uses their cost would go through the roof. There’s no getting around it: with today’s technology there needs to be a lot less flying. Maybe future technologies can get around this; I really hope they can. But if we take climate change seriously we can’t afford to wait for new technology before cutting back on air travel. I realize this is not the positive message that, according to marketers, has the biggest political appeal, but the climate problem is inconvenient on many levels.
The upshot is that it would be great to increase investments in green tech. In the current macroeconomic environment, with unused productive capacity and rock-bottom interest rates, it’s crazy not to. But this is primarily about helping people adapt to the demands of fossil fuel reduction; it’s not a substitute for it.
Previous post
Next post
It has become popular in some circles to say that a fixation on reducing the use of fossil fuels—the thou-shalt-not approach to carbon policy—is a political non-starter. No one will support a movement that’s so negative. Instead, they say, we should emphasize the positive. Let’s ramp up investment in clean technologies, provide lots of green jobs, and fossil fuels will take care of themselves.
I’ve already tried to explain why generating more renewable energy is not the same thing as reducing fossil fuel use by an equivalent amount, so I won’t repeat myself. Here I’d like to broaden the focus and consider energy-saving technology in general.
The first point to make is that it isn’t always clear what the energy-saving technology is or how much it saves, once we take account of all the upstream inputs that go into it. On a mundane level, this has come up in the debate over local laws that mandate the use of paper rather than plastic shopping bags at retail stores. It’s a complicated problem of industrial ecology, and the answer is not likely to be the same in each city. But this difficulty arises in nearly every technology choice, such as which materials to use for auto parts, what criteria should determine LEED (green building) certification, and so on. This is our old friend the economic calculation problem: modern interconnected production systems are just very complex. If we ever put a significant price on carbon, the price mechanism will tell us where net carbon savings actually lie.
The second point is that innovation is difficult to forecast. Often the methods and products that prove to be the most successful were not the ones you would have bet on during the early stages of R&D. This is not an argument against promoting research in green tech, but it suggests we need a large portfolio of research projects, anticipating that most will lead to a dead end. Public R&D needs to be as entrepreneurial as private—perhaps more so, since the stakes are higher. But the portfolio approach leaves us in doubt regarding the pace and direction of technological development. We simply can’t know going in what and how much we’re going to get out of it.
And that leads to the main consideration, which is time. As discussed earlier, what matters for climate change is the accumulation of greenhouse gases in the atmosphere. Every day we extract and burn more fossil fuels, this accumulation goes up. A brilliant breakthrough that lowers the economic cost of transitioning away from fossil fuels doesn’t help very much if it occurs decades into the future, after we have already surpassed our carbon budget.
To put it bluntly: the physics of climate change imposes a timetable on us, summarized in the form of a carbon budget. The longer we delay, the faster we have to reduce future fossil fuel consumption. If we delay too long, no plausible transition path will keep us under budget. But the development of new technology has its own timetable, which we can’t know for sure going in. If nature’s schedule moves at a faster pace than technology’s, which it almost certainly will, we have to make a choice: more climate change or more economic disruption. The point of our whirlwind tour of climate science at the beginning was to convince you that nature really calls the shots.
Consider an example. One large contributor to fossil fuel use is air travel. If you fly a few times a year this is probably your biggest individual carbon consumption item. Living within the IPCC’s carbon budget means that, within a few decades, we have to get to near-zero use—and the path has to head downward sooner rather than later. What will this mean for air travel? With current technology the picture is bleak. Biofuels can be used to power jets, but only at much greater cost, and if we try to substitute biofuels for hydrocarbons in all uses their cost would go through the roof. There’s no getting around it: with today’s technology there needs to be a lot less flying. Maybe future technologies can get around this; I really hope they can. But if we take climate change seriously we can’t afford to wait for new technology before cutting back on air travel. I realize this is not the positive message that, according to marketers, has the biggest political appeal, but the climate problem is inconvenient on many levels.
The upshot is that it would be great to increase investments in green tech. In the current macroeconomic environment, with unused productive capacity and rock-bottom interest rates, it’s crazy not to. But this is primarily about helping people adapt to the demands of fossil fuel reduction; it’s not a substitute for it.
Previous post
Next post
Climate Misconception #8: Local direct action against carbon-emitting projects will stop climate change
Before I say another word, I should make it clear that activism on behalf of serious climate policy is needed at every level, from global summits down to your own neighborhood. One level does not take the place of another; we need all of them.
The misconception that bothers me, however, is one that has become rather widespread in the grassroots climate justice movement. It opposes political action at the top and puts all its faith in direct action, hoping to end fossil fuel use one pipeline, rail line and mine at a time.
The problem is not the direct action, but the illusion which some have that this action is the policy itself and not just the politics to get there.
The first counterargument is the obvious one that there are simply too many pipelines, rail lines and mines; there aren’t enough local movements in the world to shut them all down. Even if you could, the process would be driven by which fossil fuel operations are the most vulnerable to mass demonstrations, and the phaseout would be extremely disruptive from an economic point of view. It will take decades to slowly turn off the carbon tap, and which sources continue to operate, for how long, and where the fuel goes are matters that should be subject to economic rationality, not the ups and downs of local politics. (That said, the very high-carbon energy sources, like the Alberta oil sands, are candidates for immediate closure, and if direct action can bring this about, fine.)
Second, there are many sources of fossil fuel supply and a global demand to be served. If you shut down one source, demand is likely to shift to others. Unless direct action encompasses the whole system, the result is more likely to be displacement than an actual reduction in extraction.
Given the time frame available to us to meet carbon goals, there is no way to come close except through stringent laws at the highest possible levels. Direction action can help create momentum to enact these laws and hold them accountable to environmental and social objectives, but they can’t substitute for laws all by themselves.
Previous post
Next post
The misconception that bothers me, however, is one that has become rather widespread in the grassroots climate justice movement. It opposes political action at the top and puts all its faith in direct action, hoping to end fossil fuel use one pipeline, rail line and mine at a time.
The problem is not the direct action, but the illusion which some have that this action is the policy itself and not just the politics to get there.
The first counterargument is the obvious one that there are simply too many pipelines, rail lines and mines; there aren’t enough local movements in the world to shut them all down. Even if you could, the process would be driven by which fossil fuel operations are the most vulnerable to mass demonstrations, and the phaseout would be extremely disruptive from an economic point of view. It will take decades to slowly turn off the carbon tap, and which sources continue to operate, for how long, and where the fuel goes are matters that should be subject to economic rationality, not the ups and downs of local politics. (That said, the very high-carbon energy sources, like the Alberta oil sands, are candidates for immediate closure, and if direct action can bring this about, fine.)
Second, there are many sources of fossil fuel supply and a global demand to be served. If you shut down one source, demand is likely to shift to others. Unless direct action encompasses the whole system, the result is more likely to be displacement than an actual reduction in extraction.
Given the time frame available to us to meet carbon goals, there is no way to come close except through stringent laws at the highest possible levels. Direction action can help create momentum to enact these laws and hold them accountable to environmental and social objectives, but they can’t substitute for laws all by themselves.
Previous post
Next post
Saturday, July 5, 2014
Climate Misconception #7: The goal is for every organization to become carbon neutral
Has the carbon neutrality fad subsided? It seemed a few years ago that every business, agency, college or other outfit wanted to achieve that vaunted status. One hears less today.
Perhaps this post is unnecessary, but in case there are other carbon neutralists in the audience, a few points deserve consideration.
First, carbon accounting suffers mightily from the economic calculation problem. It is difficult, bordering on impossible, for any fairly complex operation to determine its direct and indirect draw on fossil fuels. One would need to know all the inputs into the inputs, and the inputs into them, and so on all up the line. In practice carbon accountants rely on standardized measures of the carbon content of various items, but these are approximate at best.
Second, many of the accounting ploys in this line of work violate the strictures of the carbon cycle, as described in previous posts. You can see this from the claim that arises from time to time that a particular enterprise is carbon negative. No it’s not, at least not unless it engages in long-term sequestration of carbon that exceeds its own use, and no one I know of does that.
The carbon negative folks treat carbon uptake of vegetation like a simple deduction from the impacts of their other activities, thereby isolating this one moment of carbon flux from the larger cycle of which it’s a part. (My own college does exactly this, by the way.) It’s like saying that an airport must have a big population because so many people arrive there each day.
And of course the carbon accounting exercise often makes use of offsets, where the organization that purchases them gets credit for the carbon uptake of vegetation growth somewhere else–again in isolation from the carbon cycle as a whole.
The good news is that the carbon neutrality business is nearly carbon neutral. It’s an unproductive use of human intelligence, but not much more than that. The opportunity cost, however, is in what this intelligence could have accomplished if it were directed toward a more consequential goal. Above all, organizations should give attention to how a significant shift in climate policy would affect their own operations—they should forecast and prepare.
Take my college, for instance. They send students out to measure tree circumferences in the campus forest so they can broadcast their climate bona fides. What they aren’t doing is examining what a dramatic rise in fossil fuel prices would do to their ability to attract students, especially commuters and those who come from out of state. How would it affect their conference business? The cost of their academic schedule compared to alternative start and end dates? As we’ll see later on, there will be substantial, unavoidable economic dislocation if and when we ever start to get serious about phasing out fossil fuels. Why not plan ahead?
Previous post
Next post
Perhaps this post is unnecessary, but in case there are other carbon neutralists in the audience, a few points deserve consideration.
First, carbon accounting suffers mightily from the economic calculation problem. It is difficult, bordering on impossible, for any fairly complex operation to determine its direct and indirect draw on fossil fuels. One would need to know all the inputs into the inputs, and the inputs into them, and so on all up the line. In practice carbon accountants rely on standardized measures of the carbon content of various items, but these are approximate at best.
Second, many of the accounting ploys in this line of work violate the strictures of the carbon cycle, as described in previous posts. You can see this from the claim that arises from time to time that a particular enterprise is carbon negative. No it’s not, at least not unless it engages in long-term sequestration of carbon that exceeds its own use, and no one I know of does that.
The carbon negative folks treat carbon uptake of vegetation like a simple deduction from the impacts of their other activities, thereby isolating this one moment of carbon flux from the larger cycle of which it’s a part. (My own college does exactly this, by the way.) It’s like saying that an airport must have a big population because so many people arrive there each day.
And of course the carbon accounting exercise often makes use of offsets, where the organization that purchases them gets credit for the carbon uptake of vegetation growth somewhere else–again in isolation from the carbon cycle as a whole.
The good news is that the carbon neutrality business is nearly carbon neutral. It’s an unproductive use of human intelligence, but not much more than that. The opportunity cost, however, is in what this intelligence could have accomplished if it were directed toward a more consequential goal. Above all, organizations should give attention to how a significant shift in climate policy would affect their own operations—they should forecast and prepare.
Take my college, for instance. They send students out to measure tree circumferences in the campus forest so they can broadcast their climate bona fides. What they aren’t doing is examining what a dramatic rise in fossil fuel prices would do to their ability to attract students, especially commuters and those who come from out of state. How would it affect their conference business? The cost of their academic schedule compared to alternative start and end dates? As we’ll see later on, there will be substantial, unavoidable economic dislocation if and when we ever start to get serious about phasing out fossil fuels. Why not plan ahead?
Previous post
Next post
Climate Misconception #6: People who drive SUV’s are causing climate change; people who drive electric cars are the ones helping to solve the problem
This one is really just a corollary to the previous post, but it is so widespread it deserves its own moment in the sun.
1. There are lots of sensible reasons to drive an SUV. They tend to be comfortable, if that’s what you’re looking for. With their high clearance they are good for rutty Forest Service roads, which is often where you need to go to get to an interesting campsite or trailhead. They are adept at hauling a trailer. They can carry more passengers and hold more gear. Why second-guess the moral standing of every SUV driver you meet on the road?
2. Can you be sure that an electric car is a climate change lightweight? First, focusing only on the direct relationship between your car and the atmosphere as you roll down the road falls into the climate-change-as-pollution trap discussed as Misconception #1. Yes, there are no fossil fuels being burned in your car. But your electricity has to come from somewhere, and the impact you have on the climate depends on the fuel source of the electric utility. In fact, it may be more complicated than this. Even if you are drawing power from a facility that uses only renewable energy, you might be displacing some other customer who has to switch to electricity from a fossil fuel source. Without a rather detailed analysis it’s hard to say.
And then there’s the matter of the energy used up, directly and indirectly, in the production and maintenance of your car. We are speaking here not only of the consumption of fossil fuels in the assembly process, but also the parts, and the parts of the parts, and the machines that make all these parts, and minerals that have to be extracted, processed and shipped for all of the above, and for the infrastructure that gets the juice into your car when you need it.
This is the economic calculation problem in spades. If we ever get a real climate policy and carbon prices rise to where they ought to go, you’ll simply find out what the score is.
3. This post is not a diatribe against electric vehicles, any more than it is a defense of SUV’s. And it’s completely agnostic on electric SUV’s. The point is: don’t look for a solution to climate change based on shopping. True, a vehicle is an expensive investment, so you might want to plan ahead and consider how you’ll be affected by climate policy, under the optimistic assumption that society will get its act together. But if you want to do your thing to save the planet, get political, not shoppy.
Previous post
Next post
1. There are lots of sensible reasons to drive an SUV. They tend to be comfortable, if that’s what you’re looking for. With their high clearance they are good for rutty Forest Service roads, which is often where you need to go to get to an interesting campsite or trailhead. They are adept at hauling a trailer. They can carry more passengers and hold more gear. Why second-guess the moral standing of every SUV driver you meet on the road?
2. Can you be sure that an electric car is a climate change lightweight? First, focusing only on the direct relationship between your car and the atmosphere as you roll down the road falls into the climate-change-as-pollution trap discussed as Misconception #1. Yes, there are no fossil fuels being burned in your car. But your electricity has to come from somewhere, and the impact you have on the climate depends on the fuel source of the electric utility. In fact, it may be more complicated than this. Even if you are drawing power from a facility that uses only renewable energy, you might be displacing some other customer who has to switch to electricity from a fossil fuel source. Without a rather detailed analysis it’s hard to say.
And then there’s the matter of the energy used up, directly and indirectly, in the production and maintenance of your car. We are speaking here not only of the consumption of fossil fuels in the assembly process, but also the parts, and the parts of the parts, and the machines that make all these parts, and minerals that have to be extracted, processed and shipped for all of the above, and for the infrastructure that gets the juice into your car when you need it.
This is the economic calculation problem in spades. If we ever get a real climate policy and carbon prices rise to where they ought to go, you’ll simply find out what the score is.
3. This post is not a diatribe against electric vehicles, any more than it is a defense of SUV’s. And it’s completely agnostic on electric SUV’s. The point is: don’t look for a solution to climate change based on shopping. True, a vehicle is an expensive investment, so you might want to plan ahead and consider how you’ll be affected by climate policy, under the optimistic assumption that society will get its act together. But if you want to do your thing to save the planet, get political, not shoppy.
Previous post
Next post
Friday, July 4, 2014
Climate Misconception #5: Personal change will solve the climate problem
Whatever the political issue, there seems to be a tendency for people to personalize it—to believe that if only each individual would look in the mirror, recognize how her behavior contributes to the problem and vow to mend her ways, the world can be set right again. I will skip how this mindset operates in other contexts and consider it just in relation to climate change.
We are talking about a shape-shifting mentality that shows up in many forms. There is the flat out claim that the solution to climate change is in each individual heart; don’t wait for governments or other organizations to take action, just do what needs to be done yourself. Then there is the moralistic stance according to which the world is divided into good people and bad people, where the good people are the ones who live their lives in an ecologically responsible fashion, and the bad people are everyone else. (You know, them.) And even among those who understand that collective action is necessary to avoid the worst that climate change has to offer, there are arguments like, “Al Gore (or Jim Hansen or whoever) should have the integrity of his convictions and stop flying to conferences/meetings/demonstrations.” Each person’s individual action must thus be judged and found consistent with Right Living or condemned.
There is more to be said about individualist ideology, and especially its moralistic embellishment, than I can take on here, but a few points specific to climate change policy and the political movements we need to enact them cry out to be made.
1. Climate change is a collective action problem. Let’s cue the prisoner’s dilemma here. If you are familiar with the PD, you know exactly where I’m going and can skip ahead. If not, let’s suppose that there are two people in the world, Arthur (A) and Everyone Else (E). (We fold everyone else up into a single person to make it easier to discuss.) There are two options for both A and E, to personally refrain from every sort of fossil fuel use or to use these fuels when convenient. We will call the first option cooperation (C) and the second defection (D), which is the game theory convention. (Cooperation is whatever is in the interest of the other player.)
Each player has two influences on his or her well-being, lifestyle convenience and forestalling climate change. Let’s say that, of the two, forestalling climate change is more important, but convenience still matters. Finally, whether or not climate change takes place depends entirely on what E does, since there are billions of people and A is just one of them.
There are four possible outcomes for A:
(1) no climate change, personal convenience
(2) no climate change, personal inconvenience
(3) climate change, personal convenience
(4) climate change, personal inconvenience
Given what we’ve said about personal values above, the listed order is the order of preference. Now we have everything we need to construct a “payoff matrix”:
Here I’ve included only the payoff to A, since each individual in the Everyone Else group can be viewed as an A when they make their own choices. You can check these payoff entries by going back to the list of outcomes to make sure that each outcome results from the cooperation and defection choices of A and E.
Best for A is to defect when E cooperates; this means that climate change will be stymied by the voluntary self-denial of the multitudes of others, but A gets to continue to drive, eat frozen seafood flown in from distant locations, and all the other nice things that E abjures. This is the free rider effect. Worst is to cooperate while E defects—the worst of both worlds. As you can see, no matter what E does, A is better off defecting. But the irony of the situation is that if every single person is in A’s situation, each will tend to make the same choice, to defect, with the result that the whole planet ends up in the lower right-hand cell. Indeed, that’s pretty much where we’re at these days. (There are wrinkles in the prisoner’s dilemma that allow for shared cooperation to emerge over time, but they aren’t likely to materialize when there are so many anonymous participants, and the costs of denying oneself all the conveniences of a carbon-fueled lifestyle are so large.)
The moral of this story is that there are many things in this world that require cooperation between people; they won’t come about on the basis of individual, disconnected action. Ending the use of fossil fuels is one of them.
2. Connected to this first point is a different collective action problem. Many of the alternatives to a high-carbon lifestyle themselves require collective action. It’s a lot easier to give up driving if there’s a train going where you want to go, but individuals acting separately don’t have magic wands that make trains appear. The same goes for smart grids and job opportunities in walkable, dense urban neighborhoods. Markets can sometimes overcome economies of scale and interaction effects (nonconvexities), and sometimes not. In any case, each individual faces only those choices that are available at the moment, not necessarily those they dream of.
3. When people talk about choices that feed or counter climate change, they assume that the consequences are self-evident. Drive a car, burn the gas. Fly in a plane, burn the jet fuel. Turn on the air conditioner, and your electric utility is probably burning something or other. So far so clear. But lots of choices are extremely complex. Take one that’s trivial but typical: which causes more climate change, cleaning and reusing your plastic bags or throwing them out and getting new ones? It’s not obvious. On the one hand you have the energy consumption that goes into heating water for cleaning, on the other the fossil fuel feedstock for the plastic the bag is made of. As a consumer, how are you supposed to know?
And that’s a relatively easy one. Is it better to buy a new car with high gas mileage or stick with your old clunker? This means trading off fuel efficiency for the fossil fuels that go into producing a new car. And it further depends on how much you drive, how the car was made, and how the machines that made the car were made, and so on. In fact, when you think about it, the carbon content of every good you buy is truly complex if you take into account all the indirect upstream costs—the stuff that goes into the stuff that goes into the stuff that produces and ships the final good to your doorstep.
This is an old conundrum in intellectual history, the economic calculation problem. It surfaced during the 1920s and 30s, when economists debated whether a nonmarket economic system could be tolerably efficient. The answer, which most people who’ve studied the matter have come to accept, is no. It’s simply too hard to try to calculate in advance the entire interconnected system of production and consumption effects. But the same is true for carbon. Using today’s state of the art techniques, we can sort all our goods and services into a few hundred sectors, measure the direct carbon use of each and its contribution to the other sectors and crank out a rough estimate of the total carbon cost of each item. Unfortunately, the economy doesn’t have a few hundred goods but millions of them, and there are practically an infinite number of options available to produce each one a bit differently—for instance if the prices of fossil fuels change.
In the end you can guess but you can’t know for sure. Even if you wanted to be the Saint of Carbon Self-Denial, there’s no set of instructions you can follow that tells you how to do it. At some point policies have to be enacted that put a significant price on carbon, and then, through the normal operation of prices, you’ll find out about that plastic bag and the rest of the carbon mysteries.
4. Finally, let’s take a quick look at that morality business. What does it mean, for instance, to say that people who fly in airplanes are evil, or at least are guilty of contradicting their stated principles? There are lots of perfectly good reasons to want to fly places. The world would be better off if more people had international experiences that enlarged their vision and helped them form friendships with others whose customs and languages are different. Science, the arts, and just about every other field is enriched when smart, creative people come together from all over for meetings, expositions, and symposia. Why shouldn’t students be able to attend far-away colleges and universities, including those in other countries? What about touring musicians? Athletes? And why is it so bad to travel to magnificent scenery or historic wonders or just visit friends and family? What makes any of this immoral?
It is true that serious action to prevent catastrophic climate change will require restrictions on the extraction of fossil fuels and that, with existing technology, this will greatly curtail the amount of air travel that can occur. If and when that happens, we will have to adjust. In the meantime, whether or not you or I take a plane trip next month will have negligible impact on the climate but large impacts on everything else that matters to us individually. What’s with the blame thing?
And two more points. First, if by flying in a fuel-sucking jet a climate campaigner can move forward the moment of serious, effective policy adoption by a single minute, it’s worth it. Second, a political philosophy that leads people to classify almost all of their fellow citizens as immoral is not a very helpful guide to building a winning coalition.
In the end the reason we have a climate problem is not that there is a stain on the human heart, but because there is an unfortunate side effect to using fossil fuels that would otherwise be wonderful resources. It’s an effect that occurs in the aggregate and has to be met at that level.
Previous post
Next post
We are talking about a shape-shifting mentality that shows up in many forms. There is the flat out claim that the solution to climate change is in each individual heart; don’t wait for governments or other organizations to take action, just do what needs to be done yourself. Then there is the moralistic stance according to which the world is divided into good people and bad people, where the good people are the ones who live their lives in an ecologically responsible fashion, and the bad people are everyone else. (You know, them.) And even among those who understand that collective action is necessary to avoid the worst that climate change has to offer, there are arguments like, “Al Gore (or Jim Hansen or whoever) should have the integrity of his convictions and stop flying to conferences/meetings/demonstrations.” Each person’s individual action must thus be judged and found consistent with Right Living or condemned.
There is more to be said about individualist ideology, and especially its moralistic embellishment, than I can take on here, but a few points specific to climate change policy and the political movements we need to enact them cry out to be made.
1. Climate change is a collective action problem. Let’s cue the prisoner’s dilemma here. If you are familiar with the PD, you know exactly where I’m going and can skip ahead. If not, let’s suppose that there are two people in the world, Arthur (A) and Everyone Else (E). (We fold everyone else up into a single person to make it easier to discuss.) There are two options for both A and E, to personally refrain from every sort of fossil fuel use or to use these fuels when convenient. We will call the first option cooperation (C) and the second defection (D), which is the game theory convention. (Cooperation is whatever is in the interest of the other player.)
Each player has two influences on his or her well-being, lifestyle convenience and forestalling climate change. Let’s say that, of the two, forestalling climate change is more important, but convenience still matters. Finally, whether or not climate change takes place depends entirely on what E does, since there are billions of people and A is just one of them.
There are four possible outcomes for A:
(1) no climate change, personal convenience
(2) no climate change, personal inconvenience
(3) climate change, personal convenience
(4) climate change, personal inconvenience
Given what we’ve said about personal values above, the listed order is the order of preference. Now we have everything we need to construct a “payoff matrix”:
Here I’ve included only the payoff to A, since each individual in the Everyone Else group can be viewed as an A when they make their own choices. You can check these payoff entries by going back to the list of outcomes to make sure that each outcome results from the cooperation and defection choices of A and E.
Best for A is to defect when E cooperates; this means that climate change will be stymied by the voluntary self-denial of the multitudes of others, but A gets to continue to drive, eat frozen seafood flown in from distant locations, and all the other nice things that E abjures. This is the free rider effect. Worst is to cooperate while E defects—the worst of both worlds. As you can see, no matter what E does, A is better off defecting. But the irony of the situation is that if every single person is in A’s situation, each will tend to make the same choice, to defect, with the result that the whole planet ends up in the lower right-hand cell. Indeed, that’s pretty much where we’re at these days. (There are wrinkles in the prisoner’s dilemma that allow for shared cooperation to emerge over time, but they aren’t likely to materialize when there are so many anonymous participants, and the costs of denying oneself all the conveniences of a carbon-fueled lifestyle are so large.)
The moral of this story is that there are many things in this world that require cooperation between people; they won’t come about on the basis of individual, disconnected action. Ending the use of fossil fuels is one of them.
2. Connected to this first point is a different collective action problem. Many of the alternatives to a high-carbon lifestyle themselves require collective action. It’s a lot easier to give up driving if there’s a train going where you want to go, but individuals acting separately don’t have magic wands that make trains appear. The same goes for smart grids and job opportunities in walkable, dense urban neighborhoods. Markets can sometimes overcome economies of scale and interaction effects (nonconvexities), and sometimes not. In any case, each individual faces only those choices that are available at the moment, not necessarily those they dream of.
3. When people talk about choices that feed or counter climate change, they assume that the consequences are self-evident. Drive a car, burn the gas. Fly in a plane, burn the jet fuel. Turn on the air conditioner, and your electric utility is probably burning something or other. So far so clear. But lots of choices are extremely complex. Take one that’s trivial but typical: which causes more climate change, cleaning and reusing your plastic bags or throwing them out and getting new ones? It’s not obvious. On the one hand you have the energy consumption that goes into heating water for cleaning, on the other the fossil fuel feedstock for the plastic the bag is made of. As a consumer, how are you supposed to know?
And that’s a relatively easy one. Is it better to buy a new car with high gas mileage or stick with your old clunker? This means trading off fuel efficiency for the fossil fuels that go into producing a new car. And it further depends on how much you drive, how the car was made, and how the machines that made the car were made, and so on. In fact, when you think about it, the carbon content of every good you buy is truly complex if you take into account all the indirect upstream costs—the stuff that goes into the stuff that goes into the stuff that produces and ships the final good to your doorstep.
This is an old conundrum in intellectual history, the economic calculation problem. It surfaced during the 1920s and 30s, when economists debated whether a nonmarket economic system could be tolerably efficient. The answer, which most people who’ve studied the matter have come to accept, is no. It’s simply too hard to try to calculate in advance the entire interconnected system of production and consumption effects. But the same is true for carbon. Using today’s state of the art techniques, we can sort all our goods and services into a few hundred sectors, measure the direct carbon use of each and its contribution to the other sectors and crank out a rough estimate of the total carbon cost of each item. Unfortunately, the economy doesn’t have a few hundred goods but millions of them, and there are practically an infinite number of options available to produce each one a bit differently—for instance if the prices of fossil fuels change.
In the end you can guess but you can’t know for sure. Even if you wanted to be the Saint of Carbon Self-Denial, there’s no set of instructions you can follow that tells you how to do it. At some point policies have to be enacted that put a significant price on carbon, and then, through the normal operation of prices, you’ll find out about that plastic bag and the rest of the carbon mysteries.
4. Finally, let’s take a quick look at that morality business. What does it mean, for instance, to say that people who fly in airplanes are evil, or at least are guilty of contradicting their stated principles? There are lots of perfectly good reasons to want to fly places. The world would be better off if more people had international experiences that enlarged their vision and helped them form friendships with others whose customs and languages are different. Science, the arts, and just about every other field is enriched when smart, creative people come together from all over for meetings, expositions, and symposia. Why shouldn’t students be able to attend far-away colleges and universities, including those in other countries? What about touring musicians? Athletes? And why is it so bad to travel to magnificent scenery or historic wonders or just visit friends and family? What makes any of this immoral?
It is true that serious action to prevent catastrophic climate change will require restrictions on the extraction of fossil fuels and that, with existing technology, this will greatly curtail the amount of air travel that can occur. If and when that happens, we will have to adjust. In the meantime, whether or not you or I take a plane trip next month will have negligible impact on the climate but large impacts on everything else that matters to us individually. What’s with the blame thing?
And two more points. First, if by flying in a fuel-sucking jet a climate campaigner can move forward the moment of serious, effective policy adoption by a single minute, it’s worth it. Second, a political philosophy that leads people to classify almost all of their fellow citizens as immoral is not a very helpful guide to building a winning coalition.
In the end the reason we have a climate problem is not that there is a stain on the human heart, but because there is an unfortunate side effect to using fossil fuels that would otherwise be wonderful resources. It’s an effect that occurs in the aggregate and has to be met at that level.
Previous post
Next post
Climate Misconception #4: Reforestation can play a big role in combating climate change
Enlarging forests is one of the big topics in climate change policy. The literature on carbon uptake by trees and soils is immense, and one of the few functioning global agreements is REDD, Reducing Emissions from Deforestation and Forest Degradation, which has funneled nearly $200 million into programs to reduce greenhouse gas concentrations by bulking up forests. On a smaller scale, many of the carbon offsets people purchase when they do things like air travel go to pay for tree planting. The idea is that forests store carbon, and more carbon in the forest means less in the atmosphere.
Before going under the hood to look at the actual carbon flows involved, I should take a moment to mention a couple of important problems with REDD and similar programs. First, whatever their impacts on atmospheric carbon, forests happen to be places where lots of people live. To manage forests strictly for their carbon fixing potential frequently means disrupting traditional ways of life or even turning forest dwellers into carbon policy refugees. Read, for instance, this recent report by Oxfam of the expulsion of thousands of forest inhabitants in Uganda.
Second, forests are more than carbon repositories. They are habitats for plant and animal species, sources for food and medicine, bulwarks against soil loss, and intricate water management systems. Alas, single-minded policies to promote tree growth often result in turning forests into plantations of fast-growing trees. In many regions, for instance, reforestation projects favor eucalyptus trees, which, although native to Australia, grow rapidly in a variety of climates. And so one sees a profusion of eucalyptus monocultures which allow their growers to sell lots of carbon credits, but often have negative effects on the other functions that forests should perform.
Still, what about all that carbon that forest projects claim to fix? Aren’t there significant climate benefits to weigh in the balance?
Answering questions like this is where we begin to see big payoffs from moving beyond immediate carbon flows and thinking about carbon cyclically. In a way, this misconception is the same as the pollution one I described previously, but it involves carbon leaving the atmosphere rather than entering it.
Consider what happens when you purchase a carbon offset and someone plants a tree. As advertised, the tree draws carbon from the atmosphere as it grows. At some point, however, the tree stops growing: either it is harvested, or it burns in a forest fire, or it dies from some other cause. Then most of its carbon makes its way back to the atmosphere. (Some may settle in the soil, but there is carbon exchange between soil, water and atmosphere too.)
One immediate effect of this series of events is that some carbon temporarily makes its home in the tree rather than in the atmosphere. This could be beneficial if we are trying to buy time for other policies to take effect, but it is essentially building up a carbon debt that will have to be repaid later on, ready or not. Whatever you think of this transaction, it is not a simple reduction of greenhouse gases, as your offset coupon may claim.
More to the point, the best way to think about carbon storage in forests is to compare steady states before and after the tree plantings. Carbon is fluxing from atmosphere to forest and from forest to atmosphere, but what matters is the average amount of carbon fixed in the forest over time. If a forest used to store X tons of carbon but now stores 2X in perpetuity, it does indeed represent a reduction in greenhouse gases. This is what I referred to as tweaking the carbon cycle in an earlier post.
But how do we find out how much today’s actions, like planting trees, alters the steady state carbon storage of a forest? Good question. It’s not easy at all. First, we have to know quite a bit about forest ecosystem dynamics. For instance, fires, storms and other disturbances, which burn up or knock down lots of trees, are part of the equation. Another consideration is whether particular forest interventions, like the planting of eucalyptus monocultures, are sustainable. (Degradation of mycorrhizae, on which trees depend for nutrient uptake, may result from changes in forest composition.) An enormous uncertainty, however, is climate change itself. The various habitats that make up this planet are not going to be the same in fifty years as they are today. Many regions will lose forest cover no matter what we try to do about it. Planting more trees in such locations is simply useless.
And finally, of course, there is us. To guarantee that a forest will arrive at a new, higher steady state of carbon storage means to guarantee that people will not cut or burn its trees for generations to come. And how do we guarantee this?
In short, projects that claim to offset the use of fossil fuels by growing more forests are promising more than they can deliver. This is not an argument “against forests” or their protection, but it suggests that there are no loopholes that enable us to live within our carbon budgets but allow us to continue burning fossil fuels.
Previous post
Next post
Before going under the hood to look at the actual carbon flows involved, I should take a moment to mention a couple of important problems with REDD and similar programs. First, whatever their impacts on atmospheric carbon, forests happen to be places where lots of people live. To manage forests strictly for their carbon fixing potential frequently means disrupting traditional ways of life or even turning forest dwellers into carbon policy refugees. Read, for instance, this recent report by Oxfam of the expulsion of thousands of forest inhabitants in Uganda.
Second, forests are more than carbon repositories. They are habitats for plant and animal species, sources for food and medicine, bulwarks against soil loss, and intricate water management systems. Alas, single-minded policies to promote tree growth often result in turning forests into plantations of fast-growing trees. In many regions, for instance, reforestation projects favor eucalyptus trees, which, although native to Australia, grow rapidly in a variety of climates. And so one sees a profusion of eucalyptus monocultures which allow their growers to sell lots of carbon credits, but often have negative effects on the other functions that forests should perform.
Still, what about all that carbon that forest projects claim to fix? Aren’t there significant climate benefits to weigh in the balance?
Answering questions like this is where we begin to see big payoffs from moving beyond immediate carbon flows and thinking about carbon cyclically. In a way, this misconception is the same as the pollution one I described previously, but it involves carbon leaving the atmosphere rather than entering it.
Consider what happens when you purchase a carbon offset and someone plants a tree. As advertised, the tree draws carbon from the atmosphere as it grows. At some point, however, the tree stops growing: either it is harvested, or it burns in a forest fire, or it dies from some other cause. Then most of its carbon makes its way back to the atmosphere. (Some may settle in the soil, but there is carbon exchange between soil, water and atmosphere too.)
One immediate effect of this series of events is that some carbon temporarily makes its home in the tree rather than in the atmosphere. This could be beneficial if we are trying to buy time for other policies to take effect, but it is essentially building up a carbon debt that will have to be repaid later on, ready or not. Whatever you think of this transaction, it is not a simple reduction of greenhouse gases, as your offset coupon may claim.
More to the point, the best way to think about carbon storage in forests is to compare steady states before and after the tree plantings. Carbon is fluxing from atmosphere to forest and from forest to atmosphere, but what matters is the average amount of carbon fixed in the forest over time. If a forest used to store X tons of carbon but now stores 2X in perpetuity, it does indeed represent a reduction in greenhouse gases. This is what I referred to as tweaking the carbon cycle in an earlier post.
But how do we find out how much today’s actions, like planting trees, alters the steady state carbon storage of a forest? Good question. It’s not easy at all. First, we have to know quite a bit about forest ecosystem dynamics. For instance, fires, storms and other disturbances, which burn up or knock down lots of trees, are part of the equation. Another consideration is whether particular forest interventions, like the planting of eucalyptus monocultures, are sustainable. (Degradation of mycorrhizae, on which trees depend for nutrient uptake, may result from changes in forest composition.) An enormous uncertainty, however, is climate change itself. The various habitats that make up this planet are not going to be the same in fifty years as they are today. Many regions will lose forest cover no matter what we try to do about it. Planting more trees in such locations is simply useless.
And finally, of course, there is us. To guarantee that a forest will arrive at a new, higher steady state of carbon storage means to guarantee that people will not cut or burn its trees for generations to come. And how do we guarantee this?
In short, projects that claim to offset the use of fossil fuels by growing more forests are promising more than they can deliver. This is not an argument “against forests” or their protection, but it suggests that there are no loopholes that enable us to live within our carbon budgets but allow us to continue burning fossil fuels.
Previous post
Next post
Thursday, July 3, 2014
Climate Misconception #3: Measures that reduce our dependence on fossil fuels mitigate climate change
Before launching into this topic, we have to define a couple of terms. Climate specialists like to distinguish between two types of policies, those that mitigate climate change and those that facilitate our adaptation to it. Mitigation is about taking measures that reduce the degree of climate change we’ll be exposed to, and adaptation is about reducing the human and other costs of whatever climate change we can’t avoid. It’s like the distinction between slowing the progress of a disease and treating its symptoms.
Adaptation is extremely important, and it becomes even more important as we continue fossil fuel extraction that guarantees ever greater amounts of atmospheric carbon concentrations. I don’t have too much to say about these kinds of policies, however, and will focus almost entirely on mitigation.
The vast majority of writing and policy wonking on climate change mitigation is concerned with expanding the use of noncarbon energy sources, promoting energy efficiency and taking other measures that wean humans from fossil fuels. In my view, this is an immense confusion, but one which, because it has an element of truth, is more confounding than outright error.
This is easiest to explain with an example. Consider the following hypothetical event: a proposal is made to increase investments in wind energy in order to increase its output by, say, 100 gigawatts (GW). To persuade us, advocates convert this output to CO2 equivalents based on the fossil fuel that would otherwise have to be burned in order to provide the same energy. Analysts writing about carbon policy then discuss what percentage of our carbon emissions this would eliminate, and you might see this and other renewable energy projects summed up in tables showing how far along we could be toward meeting some emission target in 2030 or whenever. (The previous post went after the annual emission target business.)
But guess what? In itself the wind project doesn’t have any impact on climate change at all. Wind turbines don’t put any greenhouse gases (GHG’s) into the atmosphere, and they don’t take any out. What does affect climate change is the amount of fossil fuel we extract and burn.
Ah, you say, by getting some of our energy from wind, we get less from fossil fuels, so why split hairs? The reason is that the hairs are rather sizeable:
1. There is no law of nature or economics that says that humans must use a fixed amount of energy. We can have more wind energy and more energy from fossil fuels. In fact, in a growing, developing world we probably will. No doubt investing in wind energy systems will reduce the fossil fuel consumption that would have otherwise occurred, but hardly one for one. Simply treating renewable energy inputs as equivalent to fossil fuel reductions is wrong—but people do it all the time.
2. By increasing the supply of energy, renewable energy projects reduce the cost of fossil fuels below what their price would have been otherwise. For every potential user of coal, oil or gas who switches over to a renewable source, there is that much less demand for the nonrenewable kind. Ordinary forces of supply and demand will therefore cause some degree of price reduction (again, compared to what it would have been without the renewables) for carbon fuels and somewhat more compensatory demand for them. One scenario which might come to mind is that consumers in wealthier countries will shift their demand to renewables, making it affordable for more people in lower income countries to get energy from coal and natural gas. That’s good for energy equity, which I would hardly want to minimize, but it’s not good for the climate.
In short, energy efficiency and renewable energy sources have a complex, indirect relationship to actual reductions in fossil fuel use. You can’t measure progress on the climate front simply by adding up the “wedges” you get from noncarbon energy boosts. There is a simple way to measure climate progress, however: reductions in fossil fuel extraction that make it possible to keep our carbon budget in the black.
One way to think clearly about energy and climate is to change the box we put renewable and energy efficiency in. As mentioned above, we typically see them as components of carbon mitigation policy, but it might make more sense to classify them as adaptation instead. Why? It’s true that they don’t further adaptation to climate change, but they do help us adapt to climate change policies. Look at it this way: if we are to avoid catastrophic climate change, we have to dramatically reduce our consumption of fossil fuels. The IPCC, for instance, gives us just over 400 gigatons to play with, period. If we go on with business as usual, the world will hit that limit at around 2040, and anything other than cold turkey after that would be an adventure they advise us not to take. This is a very tight constraint.
How can we adhere to this carbon budget without suffering a horrendous reduction in living standards? That’s where renewables, energy efficiency, and other forms of decarbonization come in: they have the potential to enable us to live reasonably well despite the difficulties that phasing out fossil fuels will cause. This is the sense in which they should be viewed as adaptations.
In another sense, their contribution is political. As we’ve seen, it’s not easy to build popular support for tough carbon budget measures if the economic cost is viewed as severe. Alternative energy investments reduce this cost and therefore lubricate the politics.
The upshot is that renewable forms of energy, energy efficiency and changes in what we consume to move away from energy-intensive products are all great and should be encouraged everywhere. The one trap to avoid is to treat them as one-for-one reductions in fossil fuel use. Measure that by fossil fuel use itself, directly.
Previous post
Next post
Adaptation is extremely important, and it becomes even more important as we continue fossil fuel extraction that guarantees ever greater amounts of atmospheric carbon concentrations. I don’t have too much to say about these kinds of policies, however, and will focus almost entirely on mitigation.
The vast majority of writing and policy wonking on climate change mitigation is concerned with expanding the use of noncarbon energy sources, promoting energy efficiency and taking other measures that wean humans from fossil fuels. In my view, this is an immense confusion, but one which, because it has an element of truth, is more confounding than outright error.
This is easiest to explain with an example. Consider the following hypothetical event: a proposal is made to increase investments in wind energy in order to increase its output by, say, 100 gigawatts (GW). To persuade us, advocates convert this output to CO2 equivalents based on the fossil fuel that would otherwise have to be burned in order to provide the same energy. Analysts writing about carbon policy then discuss what percentage of our carbon emissions this would eliminate, and you might see this and other renewable energy projects summed up in tables showing how far along we could be toward meeting some emission target in 2030 or whenever. (The previous post went after the annual emission target business.)
But guess what? In itself the wind project doesn’t have any impact on climate change at all. Wind turbines don’t put any greenhouse gases (GHG’s) into the atmosphere, and they don’t take any out. What does affect climate change is the amount of fossil fuel we extract and burn.
Ah, you say, by getting some of our energy from wind, we get less from fossil fuels, so why split hairs? The reason is that the hairs are rather sizeable:
1. There is no law of nature or economics that says that humans must use a fixed amount of energy. We can have more wind energy and more energy from fossil fuels. In fact, in a growing, developing world we probably will. No doubt investing in wind energy systems will reduce the fossil fuel consumption that would have otherwise occurred, but hardly one for one. Simply treating renewable energy inputs as equivalent to fossil fuel reductions is wrong—but people do it all the time.
2. By increasing the supply of energy, renewable energy projects reduce the cost of fossil fuels below what their price would have been otherwise. For every potential user of coal, oil or gas who switches over to a renewable source, there is that much less demand for the nonrenewable kind. Ordinary forces of supply and demand will therefore cause some degree of price reduction (again, compared to what it would have been without the renewables) for carbon fuels and somewhat more compensatory demand for them. One scenario which might come to mind is that consumers in wealthier countries will shift their demand to renewables, making it affordable for more people in lower income countries to get energy from coal and natural gas. That’s good for energy equity, which I would hardly want to minimize, but it’s not good for the climate.
In short, energy efficiency and renewable energy sources have a complex, indirect relationship to actual reductions in fossil fuel use. You can’t measure progress on the climate front simply by adding up the “wedges” you get from noncarbon energy boosts. There is a simple way to measure climate progress, however: reductions in fossil fuel extraction that make it possible to keep our carbon budget in the black.
One way to think clearly about energy and climate is to change the box we put renewable and energy efficiency in. As mentioned above, we typically see them as components of carbon mitigation policy, but it might make more sense to classify them as adaptation instead. Why? It’s true that they don’t further adaptation to climate change, but they do help us adapt to climate change policies. Look at it this way: if we are to avoid catastrophic climate change, we have to dramatically reduce our consumption of fossil fuels. The IPCC, for instance, gives us just over 400 gigatons to play with, period. If we go on with business as usual, the world will hit that limit at around 2040, and anything other than cold turkey after that would be an adventure they advise us not to take. This is a very tight constraint.
How can we adhere to this carbon budget without suffering a horrendous reduction in living standards? That’s where renewables, energy efficiency, and other forms of decarbonization come in: they have the potential to enable us to live reasonably well despite the difficulties that phasing out fossil fuels will cause. This is the sense in which they should be viewed as adaptations.
In another sense, their contribution is political. As we’ve seen, it’s not easy to build popular support for tough carbon budget measures if the economic cost is viewed as severe. Alternative energy investments reduce this cost and therefore lubricate the politics.
The upshot is that renewable forms of energy, energy efficiency and changes in what we consume to move away from energy-intensive products are all great and should be encouraged everywhere. The one trap to avoid is to treat them as one-for-one reductions in fossil fuel use. Measure that by fossil fuel use itself, directly.
Previous post
Next post
Subscribe to:
Posts (Atom)