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On Why Does Politics Keep Getting in the Way of Pricing Carbon? - Part 1

Nice survey of the conundrum, Jesse.

Let me point out for all that Resources for the Future and the Petersen Institute for International Economics have hosted interesting workshops/seminars where multiple analysts have chewed over the carbon pricing problems.

A summary of a workshop "Fiscal Reform and Climate Protection: Considering a U.S. Carbon Tax"sponsored by RFF and PIIE (no recordings unfortunately) is here: http://j.mp/1w90Zho.

This page has access to a report by RFF on The Role of a Carbon Tax in Tax Reform and Deficit Reduction as well as audio and video (link was broken today but may be restored) of a seminar discussing it: http://j.mp/UqRuLG.

What I take away from these protracted discussions, along with Jesse's present assessment, is that pricing carbon via tax or otherwise is one of those academic nostrums that seems to make eminent sense in theory but that has little to no feasibility in the real, contemporary world.

I confess, BTW, that I have not been immune to propounding such idealized fixes myself. In the 1970s, my paper proposing a renewable resources trust fund, financed via a tax on fossil fuels as well as other nonrenewable resources, was a finalist for the Mitchell Prize. (Lost out to John Holdren.) It was later published in a book: http://j.mp/1qcCXxY

My young brain was still partly saturated in those days with the welfare economics I had studied extensively in graduate. Live and learn, as they say.

One thing I learned, particularly from subsequent experience working in/for government, is that internalizing externalities is far easier said than done.

In this particular instance, the case for pricing carbon stands on shaky legs, even before considering dynamic political resistance.

For one thing, it presumes that the "social cost of carbon" -- on climate -- can be known and measured. Without getting into an exhaustive deconstruction of the substantial, inherent uncertainties in climate science and models, the fact is that measuring the tangible impacts of carbon -- that is, GHG and other industrial effluents, some which are not even carbon -- is extemely difficult and unreliable. Projecting climate trends and therefore impacts into the future is even more unreliable, and effectively impossible at the granular regional or local levels at which tangible effects would have to be assessed.

Related to those uncertainties is the dilemma of iatrogrenic illness. That is the treatment that winds up doing more harm than the disease it aimed to cure.

A carbon tax by itself solves nothing, nor is it intended to. Its rationale is to skew markets so that alternative, "carbon-free" energy sources achieve price parity or superiority to conventional fossil fuel options. Those alternatives are in effect medications that proponents think the body politic needs to take to "cure" the disease of AGW. The carbon tax is sort of a sugar coating aimed to make the medicine more palatable -- by making the candy, food, etc. people now are ingesting taste worse.

But there is, in reality, little clinical experience to "prove" that those recommended medications are both safe and effective. Indeed, as Miller, Cloete, and others have demonstrated repeatedly in this forum, the efficacy of many of those prescribed treatments is not so clear, while they come with their own negative side effects, or "externalities."

Related to that is the possibility that the cure for one malady may actually increase the patient's vulnerability to another, equally more more debilitating one. In economic terms, this might be construed as opportunity costs. This is not merely a hypothetical problem.

Consider, by analogy, the chemotherapy treatment that effectively destroys cancer tumors, but so damages the immune system that the patient is crippled or killed by infectious disease. That the consequences may be unintended does not make them more tolerable.

Actually, the Copenhagen Consensus Centre has sponsored multiple analyses by leading economists to remind the public and politicians that budget priorities come with opportunity costs -- a fiscal version of iatrogenic illness. Starting with the reality that governments/economies have only limited discretionary funds to invest in solving a multiplicity of problems, the CCC analyses have assessed what the relative benefits and costs would be of a fixed amount of money -- say, $70 billion -- allocated among several alternative programs aimed at improving social welfare.

Among other things, these analyses have shown that "climate protection" schemes aimed at inducing lower GHG emissions have much higher costs and yield much lower benefits than several other ways of making the world better off. In particular, they show it is (or would be) more cost-effective to invest in solving problems associated with AGW "externalities" directly -- e.g., by reducing the incidence of malaria by providing mosquito nets and also investing in vaccine development in the near term -- than by curtailing global warming decades in the future, thereby marginally curbing the conjectured spread of malaria or other "social costs" much later rather than now.

Putting all that aside, we come to the imposing problems of implementing the proposed internalization scheme. In Jesse's assessment (among others) the supposed "willingness to pay" already seems far too small compared to the behavior-changing prices required. I suggest that the survey data used to gauge such willingness likely overstates it considerably. The simple reason, as sages through the ages have noted, is that "talk is cheap." Social scientists know, actually, that survey respondents will commonly say things they think are socially/politically acceptable that they don't really mean. New Year resolutions, not to mention marital vows, are among the many intentions people express that more or less exceed subsequent behavioral implementation.

Some hope to finesse that barrier by proposing a revenue-neutral tax that would either be refunded or reallocated to yield no increase in the overall tax burden. But the political palatability of that scheme hinges on the public's trust that that promise would be kept, that it's not a bait-and-switch finagle or other kind of manipulative deception, and moreover that the initiative will yield the promised benefits.

But those assumptions don't conform to the harsh political context that exists today. Consider that we recently observed the 50th anniversary of the passing of the landmark Civil Rights Act during Lyndon Johnson's administration. At that time, surveys showed that some 70% of the American public trusted government to do the right thing most of the time. In the course of the subsequent Vietnam War, that degree of public trust eroded down to around 30%. Today, expressed public trust not only in government but many other institutions is at historic lows. And not just in the US but most of the world as well.

The endemic cynicism resonates with the old joke about the three biggest lies: (1) That was my wife. (2) The check is in the mail. (3) I'm from the government and I'm here to help you.

Moreover, recent Pew Trust survey research shows that the political polarization that has calcified government into gridlock is intensifying in the US: Voters are migrating toward more rigid, intransigent Left and Right ideological positions. This ominously recalls Yeats: "Things fall apart, the center cannot hold."

Finally, while I am sincerely looking forward to the next parts of Jesse's essay, and his proposals, we need to consider whether it is realistic to expect the US federal government to do anything about much of anything for the foreseeable future. It really seems not.

Nor is that just personal pessimism. It is the view that seems to have taken hold among the most passionate, committed political activists. Tuesday's Washington Post reported this:

Code Pink activists have gone through the cost-benefit analysis and determined that making a scene outside of the Capitol isn’t worth it. Congress, it seems, has gotten so pathetic that even the protesters aren’t bothering to show up.

There is more here: http://j.mp/1kej2QE

 

 

July 24, 2014    View Comment    

On New EPA Carbon Regulation: What will the Impacts be on Consumer Power Costs?

This is a brilliant reality check by John Miller. 

My only criticism is that -- per Journalism 101 -- he buried the lead: "Consumers should probably expect their power costs to at least double within the next 15 years."

I would have liked to see that and the final paragraph summarized right at the beginning.

July 17, 2014    View Comment    

On Competent Leaders Need to Understand the Science of Sustainability

Obama was echoing a theme posed by Jonathan Chait in New York Magazine in an article titled "Why Do Republicans Always Say 'I'm Not a Scientist'?":

Asked by reporters yesterday if he accepts the scientific consensus that greenhouse gas emissions contribute to global warming, John Boehner demurred on the curious but increasingly familiar grounds that he is not a scientist. “Listen, I’m not qualified to debate the science over climate change,” the House Speaker said. ...

This particular demurral seems to be in vogue for the Grand Old Party. Florida governor Rick Scott (“I’m not a scientist”) and Senator Marco Rubio (“I’m not a scientist. I’m not qualified to make that decision.”) have both held up their lack of scientific training as a reason to withhold judgment on anthropogenic global warming.

This criticism might have more credibility if it also acknowledged how commonly climate activists dismiss the arguments of politicians, analysts, and even scientists who dare to openly challenge some of the desperate claims made in the name of "climate science." Consider just a few examples:

Why has there been such a buzz about FiveThirtyEight and Roger Pielke Jr.? Likely because Pielke has a history of climate claims which have been criticized by scientists -- not the type of hire many of us expected by the FiveThirtyEight team. Dr. Pielke, a political scientist (not a climate scientist), was recently called out by Dr. John Holdren for statements he made to congress on droughts.--  John Abraham, in Huffington Post http://j.mp/1rusBh8 

You all do realize that this guy isn't even a climate scientist, he's an economist. It's sad that they can't even find scientists that discount AGW to try to "debunk" the consensus. -- comment on report that Richard Tol had resigned in protest from an IPCC panel. http://j.mp/1rutXse

The BBC received a well-organized deluge of complaints — some of them, inevitably, from those with a vested interest in renewable energy — accusing me, among other things, of being a geriatric retired politician and not a climate scientist, and so wholly unqualified to discuss the issue.-- Nigel Lawson, Global Warming Policy Foundation http://j.mp/1ruvPkN  

James Taylor  — a professional denial propagandist. He not a climate scientist or even a scientist in any way. He’s a lawyer paid by the Heartland Institute to write climate change denial propaganda.-- blogger J. Jerrald Hayes http://j.mp/1ruwNgY  

Fox News and Fox Business Network frequently host Joe Bastardi to comment on climate change. But Bastardi, who is a weather forecaster, not a climate researcher, has made inaccurate claims about climate science on multiple occasions and is not seen by experts as a credible source of climate information.-- Media Matters http://j.mp/1ruxgj3  

...the rest comes from a retired TV weatherman named Anthony Watts (who's not a climate scientist), who runs the climate denier blog WattsUpWithThat. Watts was on Heartland's payroll last year for a $44,000 project to undermine climate change evidence gathered from weather stations, funded by Heartland's billionaire "anonymous donor," Barre Seid.-- Polluter Watch http://j.mp/1ruyieT  

Freeman Dyson isn't a climate scientist, and agnosia is only a cloak for denial. -- comment on Shaping Tomorrow's World blog http://j.mp/1ruAUta  

The frequency of these sorts of attacks may explain why some politicians and others opt to recuse themselves from engaging in arguments about climate-related science. In effect, they may be preempting the criticism by conceding it and using it as license for silence.

July 10, 2014    View Comment    

On Solar Energy at Grid Parity in Utah, a Coal State With No RPS

Kudos to Donovan, Wilson, and others here for thoroughly discrediting, once again, this "grid parity" canard.

June 27, 2014    View Comment    

On Barclays Just Threw Gasoline on the Fire that is the Battle Between Utilities and the Solar Industry

Kudos to Bob Meinetz and Nathan Wilson for exposing what are truly "absurd" arguments by Hinckley and friends.

In his rebuttal, Hinckley criticizes the pseudonymous Claven making "un-referenced assertions." 

Well.

Pause to consider a bit of history about Barclays, the source of Hinckley's iconoclastic "intelligence," and in particular its role in the recent LIBOR scandal:

In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the scandal.

More broadly, there is this in Barclays' pedigree:

The company has become embroiled in a number of controversial subjects such as aggressive investment trading, tax avoidance schemes and close relationships with large investors in the Middle East.

The shadows over Barclays' past don't necessarily invalidate the judgment of a single Barclays analyst, T.C. Koh. But they don't inspire blank-check confidence either.

Here's what the Wall Street Journal's Marketwatch had to say about Koh's call:

Does the building momentum for solar mean regulated electric utilities will be destroyed? In short: no way.

Even Koh made clear that his analysis of the sector was “too early,” and this trend can take a long time to hurt electric utilities. Many customers won’t be able to spend thousands of dollars up front to install a solar-generation system. It will take more than just matching or dipping slightly below the cost for electricity from a utility to get people to switch to solar.

Along the line of Wilson's assessment here, solar without storage still costs much more than cost-effective central generation, especially using increasingly abundant natural gas, and needed storage adds even more to the cost. Subsidies and other government market manipulations may make the prices of solar or other 'renewable' options seem lower than they really are. But the costs of those distortions eventually have to be paid by consumers-cum-taxpayers.

So solar may indeed pose a threat to the stability of the electric utility sector. But even when and where it does, it's naive to believe that utilities -- and notably their customers and hence voters -- won't fight back.

In fact, they already are starting to, in Europe and the US. As consumers and voters increasingly come to understand the costs that will befall them from undermining the grid system, they will likely become more inclined to support efforts to push back -- to counter or reverse the negative impacts of solar subsidies. In Arizona, as noted elsewhere in this venue, a movement is afoot in the state legislature to force solar adopters to pay the costs they impose by effectively freeloading on the grid to provide backup when needed. 

On a parallel track, there is a growing movement in several states to impose extra taxes on owners of hybrid or electric vehicles to help pay for roads they use but don't pay for through traditional fuel taxes.

Either the costs of systemic disruption get internalized, to be paid by those who cause the disruption, or the disruption will proceed toward socially very unhappy, even disastrous results. The California electricity crisis of 2000-2001, which started the state on a long downward spiral to prolonged bankruptcy, is a model of what can happen.

June 24, 2014    View Comment    

On Chinese Adviser's Carbon Cap Remarks: Promising But Overblown?

Ladislaw "...said last week that U.S. action on climate change was critical to shoring up confidence from other nations...." The emptiness of this canard is exposed by looking for examples where US leadership has effectively leveraged action by other nations. It is hard to find any. The US stands almost alone in its perstistent support for Israel. US leadership for 'regime change' in Syria has had no visible effect.

Nations act in what their governments perceive as their self-interest, not in American interests unless the two happen to overlap.

Revkin provided a useful reality check. China will continue to seek to expand its wealth and power, which is not yet consistent with any significant cap on carbon emissions. That will only happen when new, more advanced technology can deliver clean, reliable energy at a cost comparable to that of fossil fuels..

June 13, 2014    View Comment    

On Beyond Paris, Part 1: Humans are Changing the Climate for the Worse

I broadly agree with Matt's recommendation of an innovation-focused strategy for dealing with AGW.

But the title of this piece is exaggerated and misleading. There is broad agreement among scientists and other analysts that human activities have been affecting the global climate. On average over the last century or so, global surface temperatures have increased. Most scientists believe that most of the average increase can "very likely" be attributed to human greenhouse gas emissions.

But the increase in average surface temperature did pause for about 17 years recently, as the IPCC's latests reports concede. And the comprehensive Berkeley Earth Surface Temperature (BEST) study showed that while average temperatures increased in about 2/3 of measuring stations over a span of several decades, temperatures actually declined at about 1/3 of the places measured. Similarly while sea level has been rising on average the change is greater in some places and less in others. Some coastal areas are actually rising out of the sea faster than the increase in ocean volume, while others are sinking as fast or faster because of land subsidence.

So it is a leap to say that the apparent change in climate is "for the worse." The latter is a value judgment that lies outside the domain of geophysics and the subject of IPCC's inquiries. Changes are diverse and vary over time and from place to place. Some are beneficial and some may be deleterious. And benefits or damages are distributed unequally among different countries, regions, economies, industries, and so on.

For instance, Tim Havel raises a germane issue in his comment: "...the destruction of ecosystems caused by a physical environment that is changing faster than they can adapt." That is the sort of widely repeated worry that, while possible in some circumstances, may also be wrong. Contrast it with this excerpt from an essay on "Adaptation, Global Warming and Evolution" by Katy Horder (Cambridge U.):

So there is precedent for rapid climate change leading to catastrophic extinction events but there is some evidence that the rate of evolution may increase as the earth heats up.

It has been shown that bodily functions of squid living in warmer water become faster allowing greater levels of reproduction, meaning that there is a larger population with the potential for greater genetic variation due to random mutation events. It follows that with increased genetic variation in the population and increased pressure to adapt, evolution by natural selection should occur faster, always providing that temperatures do not increase so drastically that the entire population dies.

Looking at past events can often be useful in predicting the future, and it appears that an increase in temperature 50 million years ago resulted in a great diversification due to an increased rate of evolution in insects and bats. This is in fact thought to be the point at which several types of bat evolved aviation and sonar abilities to seek out their newly evolved insect prey.

While blurring these nuances may make for a catchier headline, it may undermine the credibility of the valuable policy case the authors are aiming to make.

 

June 10, 2014    View Comment    

On Jobs: The Number One Word Clean Energy Advocates Should Be Using

Other than from Doering's, the critical comments here did an excellent job of exposing how erroneous the argument in this article is. I will add a bit more.

Dennin's article states: "According to a 2011 report by the Brookings Institution, the clean energy industry actually employed more workers than the fossil fuel industry, around 2.7 million people." But what the source he links to actually attributed those jobs to was that the clean economy, not the "clean energy industry."

Moreover, the Brookings summary Dennin links to contains no direct link to the actual report. The report itself notes that defining what constitutes a "clean" job is extremely difficult and inconsistent across multiple sources. The report then notes that its authors defined a "green" job as one in any activity, whether commercial or government, that confers what its authors (subjectively) deem to offer "an environmental benefit." It appears from the ensuing discussion in the report that the authors did not attempt to assess net environmental benefits, but seemed more concerned with intentions that actual impacts.

So, for instance, any job involved with the production of solar (PV) panels was considered "green" by the Brookings study. As Cloete notes here, China dominates PV manufacturing, and the serious pollution generated by Chinese production practices has been widely reported.

By the same logic, many jobs in the fossil fuel industry should have been (but evidently were not) classifed as "clean." Not only have major oil companies made substantial investments in various kinds of renewable energy technology. But the vast increase in natural gas production enabled by fracking, horizontal drilling, and related industry innovations has facilitated a substantial shift in electicity generation from coal to gas -- accounting for a major share of the observed reduction of the overall "carbon footprint" in the US and elsewhere.

Indeed, as other critical comments here note, by providing comparatively cheap and reliable energy, the fossil fuel industry has enabled a massive increase of wealth throughout the economy. And there is a clear correlation globally between national wealth and environmental protection. So if any environmental benefit equates to a "clean" industry, per the Brookings report's definition, then all jobs in the fossil fuel industry arguably should be considered "clean."

More broadly, the comments here emphasing the quality of jobs were on target. Related to that, a 2008 study done of "green jobs" by Pollin et al. was about the only one to that time that attempted to account for the net contribution to employment of green initiatives like solar energy, after accounting for jobs displaced elsewhere. While that study too concluded that green activities (also arbitrarily defined) did add to overall employment, it showed that the quality of the jobs was poorer: for instance, reflecting a shift from jobs with good pay, benefits, and security in manufacturing, fossil-fuel businesses, etc. to more service oriented jobs with lower pay, benefits, often temporary, part-time, or intermittent -- such as installing solar panels..

This should not be surprising. The world has historical experience with an economy in which nearly all people were engaged in vigorous labor, and in which all energy was renewable and all jobs were "green." It was called the Dark Ages.

June 6, 2014    View Comment    

On What the Farmers Insurance Suit Tell Us About Climate Change

From the Christian Science Monitor report on this:

"Chicago says it is already spending heavily on infrastructure to adapt to changing weather and has a comprehensive Climate Action Plan.

"But the city's foresight may have made it a target, said Verchick, since Farmers cites the document as evidence officials were aware of the risks."

In other words, this kind of litigation could have the effect of discouraging communities from making plans to cope with climate change.

Moreover, Washington-based climate adaptation specialist Bill Rohring has pointed out: "...the rainfall was within the current 100-year plan and the system should have been able to handle it. If that is true, then that points to a 'simple' negligence case." (He also notes that in court, 'simple' can get complicated.)

Note further that it is impossible to predict local impacts of AGW (other than maybe SLR), or to attribute particular weather events to AGW. Actuarial risk is based on historical data, and the assumption that statistical trends will continue. Insurers purchase reinsurance to protect them against unusual events outside the norm. Insurers are supposed to set their premiums at a level that will enable them to cover the costs of their actuarial risks. If Farmers failed to charge adequate premiums to meet its obligations, the fault for any deficit would seem to be with insurance company, not with the local governments.

Insurers normally give premium discounts to customers who undertake risk-mitigation measures -- such as installing sprinklers in a factory to deter fire damage. But the insuree is not obligated to do so. Again, the premiums are supposed to reflect the actual risk, not the ideally mitigated risk. It also is normal practice for insurers to deny policies to customers who pose excessive risk.

Per Rohring's observation though, if the local governments failed to provide proper infrastructure protection in accordance with their own plans, and moreover failed to accurately communicate the efficacy of the flood control infrastructure to the public and to insurers, they might be considered negligent. However, they may be immune from legal liability. For instance, following Hurricane Katrina, investigation revealed the flood walls that failed to protect New Orleans were improperly constructed and other infrastructure was not properly maintained -- a failure attributed to a combination of bureaucratic incompetence and endemic corruption. Nevertheless, a federal judge eventually dismissed the many lawsuits against the US Army Corps of Engineers, upholding the latter's claim of immunity.

Addressing the general question of whether governments can be held liable for failure to adapt to climate change, Prof. J.B. Ruhl, Vanderbilt U., has written:

"On the other hand, when public authorities have already provided protective infrastructure at some scale, their knowledge that the infrastructure is inadequate to protect against known increased risks has in some cases led to liability for negligence, though some courts have held there is no inherent duty to upgrade facilities. See e.g., City of El Paso v. Ramirez, 349 S.W.3d 181 (Tex. App. 2011) (city aware of potential for overflow from retention pond was negligent in not taking measures to prevent such overflows); Coleman v. Portage County Engineer, 2012 WL 3734459 (Ohio Aug. 29, 2012) (failure to upgrade is different from failure to maintain and is subject to local immunity). One recent example is Livingston v. Virginia Department of Transportation, 2012 WL 2036936 (Va. June 7, 2012), in which the court held the state transportation agency could be held liable for flooding during an extraordinary storm event based on its failure to maintain a dredge channel it had modified. As with the federal flood liability litigation discussed above, federal and state sovereign immunity law will be an important factor in determining the scope of public liability in such “failure to adapt” cases."

Either way, any liability in the Minnesota case should be considered a matter of normal risk management, not related to climate change.

May 30, 2014    View Comment    

On IPCC: "Rebound Effects Cannot Be Ignored"

I made a similar argument in my book, Energy Innovation. However, I suggested that a better metaphor than "rebound" may be "water balloon": Like the latter, constriction in one place leads to expansion somewhere else. Along the line Garrett suggested, at least partly, there is a tendency to conserve gross energy consumption in relation to economic growth. That may not be inconsistent with evidence that economic energy efficiency -- in terms of BTUs per dollar of GDP -- has improved in a number of industrial economies. So greater efficiency seems to lead to relatively greater gains in the economic standard of living. But it doesn't seem to dampen the appetite for overall energy consumption.

May 28, 2014    View Comment    

On IPCC: "Rebound Effects Cannot Be Ignored"

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May 28, 2014    View Comment    

On IPCC: "Rebound Effects Cannot Be Ignored"

I wouldn't say Garrett's article constitutes a proof, but it is a provocative argument that economic growth globally requires a constant increase in energy input.

Garrett's article can be found here: 

http://link.springer.com/article/10.1007%2Fs10584-009-9717-9

 

Note that Garrett felt that two critical articles published in the issue were unfair:

http://www.inscc.utah.edu/~tgarrett/Economics/Criticisms.html

May 28, 2014    View Comment