Neo-Malthusian

In an opinion piece in the New York Times is the current case for limits to economic growth: increasing energy scarcity and climate change.

Increases in energy prices, with the energy return on investment (EROI -- a new term for me that showed up in the comments section on this blog) falling from 25 to 1 to 15 to 1 over the past 20 years in the oil industry (EROI is 4 to 1 for the Alberta oil sands) used as evidence that the current runup in oil prices is not a blip. The increase in energy prices is combined with technological pessimism about people's ability to find alternative sources of energy. I need to do some homework on the EROI but long term trends in market prices are still a fine indicator of resource scarcity. My feel is that the EROI was developed by those who don't trust markets to provide appropriate price signals.

The money quote on climate change is:

For instance, a report prepared for the British government by Sir Nicholas Stern, a former chief economist of the World Bank, calculated that without restraints on greenhouse gas emissions, by 2100 the annual worldwide costs of damage from climate change could reach 20 percent of global economic output.

As we know here, Stern says that the costs might range from 5% to 20% with the 20% number arising from using equity weights to somehow account for the maldistribution of climate change impacts around the world.

My neo-Malthusian rule of thumb has always been to discount any argument that doesn't trust markets to provide appropriate price signals (except in the case of negative externalities and public goods) and says that technology can no longer keep up (the technological pessimists have always been wrong -- why should we expect them to be right this time). My newest rule of thumb is to discount (at a rate higher than 0.1%), like a big baby, any argument that solely uses the Stern Review's 20%-of-GDP cost of climate change.

Comments

[allen claxton]

A lot of times, I ask questions and I have an agenda behind them. I promise, this isn't one of those times.

Can you trust price signals in the energy market? Isn't it so far from being a free market (barriers to entry, political entanglement, protectionism, subsidies, externalities, cartels, and, it seems to me, an adherence to short-term thinking based around boosting comparative reserves on paper) that the price signals are likely to be untrustworthy?

On the other hand, I recognize that there are many different parts of the energy market, so I guess a cartel in one part (OPEC), doesn't necessarily mean that other parts (*waves hands* futures, or whatever) are tainted?

[John Whitehead]

Allen,

That's why I used the term "long-term" trends. All of the complications that you mention tend to provide short-term fluctuations around the long term trend.

Also, note that negative externalities of production has nothing to do with resource scarcity.

John

[J.S.]

Energy prices are severely distorted and have been for decades- so even in the long-term I think the wrong signals are present- these can only be corrected by government policy by making energy reflect its true cost. As to the NYT op-ed I'll still put my money on human ingenuity- in fact, I bet that the price of oil will decrease over the next 5-10 years.

J.S.

[Dano]

I may be grumpy today, but I don't see how better technology should be counted on when that technology still has to be attended to by humans. I don't see us getting any smarter or better at working out our problems (despite the recent American election results).

Best,

D

[joshua corning]

My neo-Malthusian rule of thumb has always been to discount any argument that doesn't trust markets to provide appropriate price signals (except in the case of negative externalities and public goods)

Because as we all know it is impossible for markets to produce any "public good" ever.

[allen claxton]

Also, note that negative externalities of production has nothing to do with resource scarcity.

No, but it has an effect on the price, right? So that if even if the resource signal is the same ("relative scarcity-->prices going up" or "relative abundance-->prices going down"), it's another skew.

[John Whitehead]

JS: OK, I'll give you subsidies.

Allen: Negative externalities have no effect on the price, unless there is regulation.

[joshua corning]

Negative externalities have no effect on the price, unless there is regulation.

But this in no way precludes the possibility that negative externalities are excepted because their costs are generally equally shared and the public goods far outweigh those externalities.

I think my hypotheticals are pretty well represented in energy markets. Notably oil and other carbon energy sources.

[allen claxton]

Negative externalities have no effect on the price, unless there is regulation.

*blinks*

Suddenly, I feel like I don't understand anything. Compared with what the price "ought" to be, doesn't the presence of a negative externality lower the price? Or suggest that the price would likely be higher, if the negative externality were accounted for?

[guest]

public goods far outweigh those externalities.

What "public goods"? A negative externality can only be offset by some countervailing positive externality - does oil have any?

[John Whitehead]

Allen,

Right. the price is higher if the negative externalities are accounted for (via some sort of regulation).

[joshua corning]

A negative externality can only be offset by some countervailing positive externality - does oil have any?

I guess you are right...i going right out and buy myself a horse because it works just as well as a car, and you know I am going to start heating my home with a nice wood stove...what the hell have we been thinking for the past 100 years?!?!?