Environmental Economics

Passive houses, active policies

The most-emailed NYT article for two days running has not been another explanation of the shaky housing market (that's #2), but rather a front-page story on solidly built "passive houses":

Using ultrathick insulation and complex doors and windows, the architect engineers a home encased in an airtight shell, so that barely any heat escapes and barely any cold seeps in. That means a passive house can be warmed not only by the sun, but also by the heat from appliances and even from occupants’ bodies. [emphasis added]

It's staggering how much energy can be saved this way:

Even on the coldest nights ...[the] new “passive house” and others of this design get all the heat and hot water they need from the amount of energy that would be needed to run a hair dryer.

And best of all,

passive houses cost only about 5 to 7 percent more to build than conventional houses.

The article doesn't say, but it shouldn't take long to recuperate that kind of investment with lower energy bills.

Unfortunately, that price comparison holds for Germany, where virtually every home has thick walls and double or triple-glazed windows, rather than having cheap wooden boards wrapped in Tyvek -- aka FedEx envelopes -- for some "insulation."

Of course, prices are coming down everywhere, once you start building to scale:

In Germany the added construction costs of passive houses are modest and, because of their growing popularity and an ever larger array of attractive off-the-shelf components, are shrinking. [emphasis added]

So how do you get builders to construct these homes? Providing the right incentives -- aka a price on carbon -- and the right information is one way:

There are now an estimated 15,000 passive houses around the world, the vast majority built in the past few years in German-speaking countries or Scandinavia.

Energy standards and building codes is another option, although they come with risks as well:

when California inspectors were examining the Berkeley home to determine whether it met “green” building codes (it did), he could not get credit for the heat exchanger, a device that is still uncommon in the United States. [emphasis added]

Standards and codes clearly need to be nimble to replicate the kind of explosive growth seen in central and northern Europe. In the end, the right policy will likely need to be a mix of all of the above: get the prices right (a cap on carbon), set the right standards and codes (nimble and all), and spread the word (front-page NYT articles aren't a bad start).

Lastly, of course, there's the question of demand:

[T]hose who want passive-house mansions may be disappointed. ... Most passive houses allow about 500 square feet per person, a comfortable though not expansive living space. ... "Anyone who feels they need that much space to live...well, that’s a different discussion."

Priuses are hot -- or cool, depending whom you ask. Let's hope passive houses aren't too well-tempered to achieve that kind of cult status.

Messrs. Laffer and Pigou, hand-in-hand

Tim's latest post chronicles Tom Friedman's entry into the gas tax column watch: Win, Win, Win, Win, Win .... Today's New York Times also features another, perhaps slightly more surprising, op-ed:

Supply-side godfather Arthur Laffer is throwing his hat into the gas tax debate. Much like with his very own Laffer-curve, he comes down on the wronge side of the argument (he prefers a gas tax to an actual cap on emissions), but it shows just how far along we are that even someone like Mr. Laffer would turn into a proud member of the Pigou Club:

We need to impose a tax on the thing we want less of (carbon dioxide) and reduce taxes on the things we want more of (income and jobs). A carbon tax would attach the national security and environmental costs to carbon-based fuels like oil, causing the market to recognize the price of these negative externalities.

It's no longer a question of if to cut greenhouse gas pollution and provide incentives for the right behavior. The debate now squarely centers on how to do it.

Friedman on the gas tax

Sometimes I really want to hug the guy (Win, Win, Win, Win, Win ...):

That is why I believe the second biggest decision Barack Obama has to make — the first is deciding the size of the stimulus — is whether to increase the federal gasoline tax or impose an economy-wide carbon tax. Best I can tell, the Obama team has no intention of doing either at this time. I understand why. Raising taxes in a recession is a no-no. But I’ve wracked my brain trying to think of ways to retool America around clean-power technologies without a price signal — i.e., a tax — and there are no effective ones. (Toughening energy-effiency regulations alone won’t do it.) Without a higher gas tax or carbon tax, Obama will lack the leverage to drive critical pieces of his foreign and domestic agendas.

...

Today’s financial crisis is Obama’s 9/11. The public is ready to be mobilized. Obama is coming in with enormous popularity. This is his best window of opportunity to impose a gas tax. And he could make it painless: offset the gas tax by lowering payroll taxes, or phase it in over two years at 10 cents a month. But if Obama, like Bush, wills the ends and not the means — wills a green economy without the price signals needed to change consumer behavior and drive innovation — he will fail.

One thing: in the middle paragraph Friedman seems to equate two ways of raising the price of gas: a price floor and a tax. Both policies would raise the price and reduce the amount of gasoline used but the price floor is an inferior policy for two reasons. The government receives no tax revenue with a price floor, when it needs revenue, and price floors create shortages. The second of these two differences is the thing we most want to avoid. 

Also, both policies create a deadweight loss (i.e., inefficiency) but the loss is more than covered by avoidance of negative externalities.

But, another thing: the title of the piece is inaccurate (A gasoline tax “is not just win-win; it’s win, win, win, win, win,” says the Johns Hopkins author and foreign policy specialist Michael Mandelbaum.). There are no win-win policies. Any government policy creates benefits and costs, winners and losers. A gas tax generates benefits greater than the costs but there are still costs. Ignoring the costs simply makes passage of a gas tax more difficult.

My suggestion for a more accurate (although maybe not better) title? "Benefits much greater than costs."

Assume demand

The NYTimes editorial page asks the "if we build it, will they come?" question and answeres "no":

Yet for all the conditions attached to it, the multibillion-dollar aid package for Detroit’s carmakers approved by the White House (with Mr. Obama’s support) fails to address one crucial question: Who will buy all the fuel-efficient cars that Detroit carmakers are supposed to make?

The danger is that too few will, especially if gasoline prices remain low. Therefore, it might be time for the president-elect and Congress to think seriously about imposing a gas tax or similar levy to keep gas prices up after the economy recovers from recession.

And for you fiscal policy junkies:

A bitter recession is not the most opportune time to ratchet up the price of energy. But if the Obama administration is to meet its twin objectives of reducing the nation’s dependence on foreign oil and cutting its emissions of greenhouse gases, it needs to start thinking now about mechanisms to curb the nation’s demand for energy when the economy emerges from recession in the future.

Moral hazard

Matt Kahn on the impacts of the government bailout, er, fiscal stimulus of 2009:

I am arguing that the expectation of a “New Deal” may slow down and retard private investment, not due to crowding out due to higher interest rates, but due to rent seeking as industry seeks to look weak and needy.

Demand and supply for natural gas

From the WSJ ($$ - Low demand keeps natural gas cheap):

Frigid temperatures and winter storms have blanketed the country from New Orleans to Chicago this month, weather that usually leads to a spike in the price of the most popular fuel for home heating, natural gas.

But not this year.

Natural-gas prices remain in a slump because manufacturers, which are even bigger users of gas than chilly homeowners, have cut back their operations in response to the recession. And low demand means low prices.

The article goes on to detail some competing microeconomic effects:

1. The recession is keeping the demand for manufactured goods low, which reduces the demand for natural gas, keeping its price low.
2. Consumer demand has increased due to colder than normal weather

So far, #1 is greater than #2 and prices are low. As a result, the lower natural gas price is helping consumers, who are able to purchase more down along their inelastic demand curve (a change in quantity demanded).

Friday (Christmas) Beer Post

Dreaming of a green christmas

From those wacky Aussies:

SCIENTISTS have warned that Christmas lights are bad for the planet due to huge electricity waste and urged people to get energy efficient festive bulbs.

CSIRO researchers said householders should know that each bulb turned on in the name of Christmas will increase emissions of greenhouse gases.

Dr Glenn Platt, who leads research on energy demand, said Australia got 80 per cent of its electricity by burning coal which pumps harmful emissions into the atmosphere.

He said: "Energy efficient bulbs, such as LEDs, and putting your Christmas lights on a timer are two very easy ways to minimise the amount of electricity you use to power your lights."

He said the nation's electricity came from "centralised carbon intensive, coal-based power stations" which were responsible for emitting over one third of Australia's greenhouse gas emissions.

Dr Platt added: "For a zero-emission Christmas light show, you may consider using solar powered lights or sourcing your electricity from verified green power suppliers."

Bah Humbug!

From the inbox:

FYI, John, this report is due 12/29.

happy holidays

Craptacular!

In their green hero of 2008 nominee list Grist drops (cromulently) a Simpsons' neologism. See if you can spot it:

Many lefties will never forgive New York Times columnist (Thomas) Friedman for his Iraq War advocacy and blind devotion to globalization, but nobody has done more to make green mainstream. Friedman (The Mustache of Understanding to his friends) advocates for sustainability -- volubly, unapologetically, and on the big questions, accurately -- to an enormous, devoted audience. He's embiggening the tent.