Environmental Economics

What's being off by a factor of 10 among friends?

If the original statement wasn't dated March 24, 2009, it could easily be construed as an April Fool's joke. Last week, the National Republican Campaign Committee sent out a press release claiming:

The administration raises revenue for nationalized health care through a series of new taxes, including a light switch tax that would cost every American household $3,128 a year.

The "light switch tax," of course, refers to cap and trade. That's a flat out misrepresentation, but it could at least be defended as a cutesy marketing gimmick. The claim that the administration would like to fund health care through climate legislation, on the other hand, is flat out wrong. The "$3,128" figure is in a different league altogether. It's "nearly 10 times the correct estimate which is approximately $340," according to a letter published today by John Reilly, one of the authors of the MIT study misquoted in the press-release.

Even more disturbing, Alexander Lane at PolitiFact caught the NRCC in a flat out lie. He checked with Reilly directly:

"It's just wrong," said John Reilly, an energy, environmental and agricultural economist at M.I.T. and one of the authors of the report. "It's wrong in so many ways it's hard to begin."

Not only is it wrong, but he told the House Republicans it was wrong when they asked him.

"Someone from the House Republicans had called me (March 20) and asked about this," Reilly said. "I had explained why the estimate they had was probably incorrect and what they should do to correct it, but I think this wrong number was already floating around by that time."

If that isn't enough, the NRCC repeated the $3000 lie in another press release sent out yesterday.

Get the full story from Think Progress (HT: Climate Progress) or EDF's Truth Squad.

"A place to turn cod into Ph.D.'s"

If you want to take a break from today's Waxman-Markey climate bill excitement but still can't wean yourself away from cap-and-trade entirely, read Michael Lewis's take on Icelandic banking in Vanity Fair. It's a morbidly humorous take on the madness, which led a perfectly fine nation that gave us Björk on a roller-coaster ride to financial ruin.

Along the way we learn about the "charming lack of financial experience in Icelandic financial-policymaking circles," the male-dominated macho world of high finance and the combination of the two: Iceland's leaders these past few years "are the guy driving his family around in search of some familiar landmark and refusing, over his wife’s complaints, to stop and ask directions."

One regulatory lesson we can take from Iceland is how to combat overfishing:

Fishermen...are a lot like American investment bankers. Their overconfidence leads them to impoverish not just themselves but also their fishing grounds. Simply limiting the number of fish caught won’t solve the problem; it will just heighten the competition for the fish and drive down profits. The goal isn’t to get fishermen to overspend on more nets or bigger boats. The goal is to catch the maximum number of fish with minimum effort. To attain it, you need government intervention.

The solution?

[P]rivatized the fish. Each fisherman was assigned a quota, based roughly on his historical catches. ...Before each season the scientists at the Marine Research Institute would determine the total number of cod or haddock that could be caught without damaging the long-term health of the fish population; from year to year, the numbers of fish you could catch changed. But your percentage of the annual haul was fixed, and this piece of paper entitled you to it in perpetuity. Even better, if you didn’t want to fish you could sell your quota to someone who did. The quotas thus drifted into the hands of the people to whom they were of the greatest value, the best fishermen, who could extract the fish from the sea with maximum efficiency. You could also take your quota to the bank and borrow against it, and the bank had no trouble assigning a dollar value to your share of the cod pulled, without competition, from the richest cod-fishing grounds on earth. The fish had not only been privatized, they had been securitized.

Voilà: cap-and-trade for fish -- aka "Individual Transferable Quotas" -- was born. Rob Stavins provides a good summary of how the system works in his blog post this week.

It has certainly done wonders for Icelandic fisheries and for Iceland itself. Lewis surmises that:

This insight is what led Iceland to go from being one of the poorest countries in Europe circa 1900 to being one of the richest circa 2000.

Of course, it also had its problems. With all the riches from fishing, Iceland became "a place to turn cod into Ph.D.'s," who eventually figured that banking was the way to go, which led Iceland to become Ground Zero of the global financial meltdown.

Lest anyone uses this roundabout logic to blame cap and trade for Iceland's de facto bankruptcy, I'd say there are still much bigger fish to fry as we try to use the same principles to solve overfishing around the globe -- and design sensible cap-and-trade legislation to combat climate change.

Climate economics news, New York Times edition

You know something's up, if "All the News That's Fit to Print" seems to be all climate all the time. Today's New York Times contains no fewer than six articles that have climate change and climate economics as their central themes -- and that doesn't even count the Magazine cover story. A quick reader's guide:

Andy Revkin starts us out with a balanced look at climatic "tipping points": is it gradually getting worse, or should we be even more worried about sudden, unexpected changes?

Next up, some individual activism during "Earth Hour" last night, when much of Times Square, the Empire State Building and many other monuments around the world turned their lights off in a rolling, intentional, international blackout to create some "political energy."

That energy seems to be radiating straight from the White House, which announced a series of meetings among key countries to address the climate challenge globally.

While governments are debating how to set up the necessary policy frameworks to guide the world onto a low-carbon development path, even loggers are already doing their part by looking at more sustainable ways of doing business and, at the same time, "creat[ing] jobs in places accustomed to losing them."

Investors, in the meantime, should rightfully be worried what climate uncertainty means for equity returns.

Leave it to Tom Friedman to put it all together in a look at Mother Nature's Dow, which ends with the mother of all climate solutions: "'we need a price on carbon.' Polluting the atmosphere can't be free."

Amen to that.

That list doesn't include one of the cartoons in the Week in Review Section. It's funny, but it confuses weather and climate. And it doesn't include the New York Times Magazine cover story on physicist and climate skeptic Freeman Dyson. It's not as funny, but should get your blood boiling nonetheless. Dyson provides an important reminder on scientific honesty and ultimately highlights the most crucial of points in the entire climate debate: the importance of decoupling economic development from greenhouse gas emissions.

The Truth Squad's in the House

Have you heard the one about climate legislation costing every U.S. household $5000? Turns out it's far from the truth, but that didn't stop Heritage from putting the number on its blog.

EDF's new Climate Vote Truth Squad sets the record straight on this one:

The median impact on GDP from capping carbon for 2030 of analysis done by independent organizations such as the EIA and EPA is 0.58% (less than two-thirds of one percent). This figure is so small that even the differences between GDP forecasts overwhelm the impact that any of them predicts from a federal climate policy.

Sadly, we have several other posts up already -- grouped into economic scare tactics, Trojan horses and red herrings, and just plain junk science.

Cap as the next stimulus

FT.com highlights an impressive flash annimation on the greenness of recovery packages. Spoiler alert: China's trumps the United States' package 2:1.

Green stimuli are important, but they are not the full answer. Obama’s stimulus package contains provisions to the tune of $100 billion in direct appropriations and tax breaks for green energy and energy efficiency. Even that number is dwarfed by the needs.

McKinsey estimates that the United States alone will require one trillion dollars in added investment by 2020 to guide it onto a low-carbon pathway and meet climate policy goals. This translates into one stimulus bill per year, every year between now and 2020. Government spending alone will not generate the required investment.

Clinton goes to Asia

Climate starts a minute into the clip: Hillary Clinton correctly emphasizes that the United States must lead, and equally correctly says that everyone needs to pitch in. Bon voyage.

Two billion (clean) cars

Daniel Sperling touted cleaner cars, and his book, on last night's Daily Show:

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Sperling's hopeful on the vehicle side. The fuel side and supporting infrastructure is another story. That's where concerted government action needs to play a role to overcome the classic collective action problem.

Fortunately, John Stewart is his reassuring self: "Eventually, we'll get there."

"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.”