Environmental Economics

"Surprise—Economists Agree!"

If you care about the climate, climate economics, or how economists in general are portrayed in the media, read: "Surprise—Economists Agree! A consensus is emerging about the costs of containing climate change. So why is no one writing that?"

Enter Eric Pooley: good thing someone is. Here's a longer blog post about Pooley's eminently readable academic paper on the same topic.

Cap v tax : BP v ExxonMobil

The cap v tax debate is slowly getting personal, or at least corporate:

A top executive with Exxon Mobil Corp. yesterday repeated a call last month by company CEO Rex Tillerson for a carbon tax rather than a cap-and-trade system that has emerged as the preferred approach of leading Democrats and President Obama. ...

"A carbon tax is better positioned than a cap and trade as a policy option," Dolan said at the Cambridge Energy Research Associates conference, adding it would help reduce emissions "without introducing the uncertainly of new financial intermediaries, the volatility of fluctuating prices, or the complexity of vast, new bureaucratic agencies."

Enter BP:

[E]arlier yesterday, BP PLC's chief executive, Tony Hayward, argued in favor of a cap-and-trade plan because it provides certainty based on an actual emissions cap, while a carbon tax does not guarantee that emissions will fall.

"Cap and trade is the best option because it gives environmental certainty based on an absolute emissions cap," Hayward said. "There is no guarantee that a carbon tax will limit emissions at all"

That's strictly speaking not news. "BP -- along with ConocoPhillips and Shell Oil Co. -- are members of the U.S. Climate Action Partnership, a coalition of businesses and environmental groups that back an economywide cap to slow, stop and reverse greenhouse gas emissions." So yes, we'd expect them to argue for a cap.

It's good to see the CEOs go at it themselves, though.

Geckos are to blame

Ever wonder were fat tails come from? Look no further. William Safire traces the source of the "fat tail" craze. Looks like we can blame the financial mess and much of our worries about climate change on geckos.

And I thought black swans were scary.

At least greed is still good, semantically speaking:

Newly risk-averse tycoons can rest assured that no semantic connection exists between the cheerful fat-tailed day gecko on our TV screens and the gimlet-eyed, greed-is-good financial villain named Gordon Gekko, played by Michael Douglas in Oliver Stone’s 1987 film, “Wall Street.”

Rob Stavins joins the fray

Harvard's Rob Stavins joins the blogging world, and he gets right down to business:

The only politically feasible approach that can make a real dent in the problem is a comprehensive, upstream cap-and-trade system to reduce carbon dioxide emissions 50 to 80 percent below 1990 levels by 2050. The declining cap will increase the cost of polluting, thereby discouraging the use of the most carbon-intensive fossil fuels and providing powerful incentives for energy conservation and technology innovation.

[...]

The bottom line is that getting serious about global climate change will not be cheap and it will not be easy. Beware of claims to the contrary. In the midst of a significant economic downturn, with businesses closing and unemployment on the rise, it makes sense for the new Administration to give its greatest attention to economic recovery. There is nothing wrong with sequencing policies. But if current predictions about the consequences of another few decades of inaction are correct, this defining moment provides an important opportunity for serious and sensible action.

The middle's worth a read too. Welcome, Rob!

Climate policy does wonders for your green-tech patent count

Innovation is the holy grail of climate policy. Without it, we are toast -- quite literally. Climate economists' efforts to quantify innovation, though, has more closely resembled something of a Monty Python goose chase than a deliberate pursuit. That elusive quest may have finally come to an end. A new study shows that Annex I countries that ratified Kyoto have had greater green tech innovation in the years after Kyoto than those that didn't ratify.

Two figures in the paper tell you pretty much all you need to know. The first, Figure 2, shows that the trend rate of patent filings appears to have risen for climate-related technologies relative to all technologies in recent years. The second, Figure 3, shows the divergence in the same period between Annex I countries that ratified Kyoto and the United States and Australia (yes, Australia ratified too, but much later).

Carbon tax is a poison bill

Grist, making my case:

This may piss off some people I respect a great deal. Nonetheless, after hearing it in several off-the-record conversations in D.C. last week, I believe it's something that needs to be said publicly:

The 111th U.S. Congress is not going to pass a carbon tax. Calls for a carbon tax, to the extent they have any effect, will complicate and possibly derail passage of carbon legislation.

It's possible that a carbon tax (and/or cap-and-dividend) bill will be introduced. One or both might even make it to a full vote, though I doubt it. But they won't pass. If you want carbon pricing out of this Congress, cap-and-trade is what you're getting. It follows that your energies are best spent ensuring that cap-and-trade legislation is as strong as possible.

Them's the facts.

McKinsey's crack at showing the world how to limit the damage from climate change

Marc Gunther puts it best:

The very brainy people at McKinsey & Co. have figured out how we can to cope with global warming.

All we have to do is:

1. Make buildings, cars, trucks, trains planes and factories a whole lot more energy efficient.

2. Generate 70 percent of global electricity from low-carbon fuels, including wind, solar, hydro, nuclear, and so-called clean coal which doesn’t (yet) exist.

3. Avoid the deforestation of 170 million hectares of forest, equivalent to twice the land area of Venezuela, and plant new forests on 330 million hectares of currently marginal land.

And what would that accomplish? Here’s what a new McKinsey report says:

You can't eat GDP, depression edition

GDP godfather Simon Kuznets was the first to warn about its limitations: "The welfare of a nation can...scarcely be inferred from a measurement of national income as defined above." He wrote that during the last depression. What's really depressing is that we still haven't found something better, and not for a lack of want.

Today's Financial Times analysis leads with one of the worst reasons why GDP shouldn't be used as a measure of how well we are doing as a nation:

Across the world, standard measures of economic performance are suddenly producing terrible results. Maybe it is time to change them.

Fortunately, it gets a lot better from there. The article surveys one of Nicolas Sarkozy's lesser known initiatives:

a 24-member commission of prominent economists led by Joseph Stiglitz and Amartya Sen, both Nobel prize winners, is due to report in April on ways of improving our economic bookkeeping. The aim is to render economic data more comprehensive, more intelligible to the public and more relevant for policymakers by taking into account such factors as environmental degradation and quality of life.

I wouldn't hold my breath for the April report to have all the answers, but who knows, perhaps it takes another depression recession to come up with a better GDP measure.

"He said, she said" reporting mangles climate economics story

What do you get when you give a respected journalist an academic fellowship? A new species entirely: a readable academic paper. Eric Pooley, former managing editor of Fortune and a writer for Time magazine spent his fall semester at Harvard. The result is an eminently readable report on "How Much Would You Pay to Save the Planet? The American Press and the Economics of Climate Change."

The conclusions are sobering. Most reporters treat the story as stenographers, engaging in "he said, she said" reporting, instead of serving as honest referees of the issues. As a result:

1. The press misrepresented the economic debate over cap and trade. It failed to recognize the emerging consensus among economists that cap and trade would have a marginal effect on economic growth and gave doomsday forecasts coequal status with nonpartisan ones. In other words...The press allowed opponents of climate action to replicate the false debate over climate science in the realm of climate economics.

2. The press failed to perform the basic service of making climate policy and its economic impact understandable to the reader and allowed opponents of climate action to set the terms of the cost debate. The argument centered on the short-term costs of taking action -- i.e., higher electricity and gasoline prices -- and sometimes assumed that doing nothing about climate change carried no cost. In fact, economists overwhelmingly agree that business as usual will lead to greatly increased societal costs as the impacts of climate change set in. These costs were often left out of the story.

3. Editors failed to devote sufficient resources to the climate story. In general, global warming is still being shoved into the “environment” pigeonhole, along with the spotted owls and delta smelt, when it is clearly to society’s detriment to think about the subject that way. It is time for editors to treat climate policy as a permanent, important beat: tracking a mobilization for the moral equivalent of war.

The report's well worth a read, not least because it heavily features the Environmental Defense Fund and our comprehensive report on the cost of climate action.

HT: Joe Romm

Dispatch from Beijing

Today I traded facing a few million Americans, who have descended upon Washington DC for the inauguration, for a city where a few million on the street during morning rush hour is just another Tuesday.

Not that it matters to anyone but myself, but I kind of like the symbolism of spending this historic day talking climate in Beijing. Well, perhaps it's just me justifying the carbon footprint of the flight for a half-day meeting or simply not being in DC right now. The symbolism, though, certainly didn't pass by my Chinese hosts either.

It's still very much true that we cannot solve the climate crisis without Washington. A US cap is the first, second, third, forth and fifth priority for any international deal to emerge. But Beijing is another key player, if not the next most important one.

Beijing certainly has done a lot as a city. The subway system is nothing short of impressive. It's a lot closer to Singapore's or to the best of the European capitals' than what you can find in many major U.S. cities. Tom Friedman talks about how, when you compare the Berlin train station to Penn Station in New York, you don't know who won World War II. Well, when you compare Beijing airport to JFK, it seems pretty clear who has a good shot at winning this century.

Then again, we've got Obama!