Economist's View

Republican Attacks on the EPA

The reasons behind the recent Republican attacks on the EPA are coming into focus:

Getting ready for a wave of coal-plant shutdowns, by Brad Plumer: Over the next 18 months, the Environmental Protection Agency will finalize a flurry of new rules to curb pollution from coal-fired power plants. Mercury, smog, ozone, greenhouse gases, water intake, coal ash—it’s all getting regulated. And, not surprisingly, some lawmakers are grumbling.

Industry groups such the Edison Electric Institute, which represents investor-owned utilities, and the American Legislative Exchange Council have dubbed the coming rules “EPA’s Regulatory Train Wreck.” The regulations, they say, will cost utilities up to $129 billion and force them to retire one-fifth of coal capacity. Given that coal provides 45 percent of the country’s power, that means higher electric bills, more blackouts and fewer jobs. The doomsday scenario has alarmed Republicans in the House, who have been scrambling to block the measures. Environmental groups retort that the rules will bring sizeable public health benefits, and that industry groups have been exaggerating the costs of environmental regulations since they were first created.

So, who’s right? This month, the nonpartisan Congressional Research Service, which conducts policy research for members of Congress, has been circulating a paper that tries to calmly sort through the shouting match. ... And the upshot is that CRS is awfully skeptical of the “train wreck” predictions. ...

The CRS report doesn’t try to evaluate the costs of the new rules, noting that it will depend on site-specific factors and will vary by utility and state. ... But, the report says, industry groups have almost certainly overstated the costs. ...

The CRS report also agrees with green groups that the benefits of these new rules shouldn’t be downplayed. Those can be tricky to quantify, however. In one example, the EPA estimates that an air-transport rule to clamp down on smog-causing sulfur dioxide and nitrogen dioxide would help prevent 21,000 cases of bronchitis and 23,000 heart attacks, and save 36,000 lives. That’s $290 billion in health benefits, compared with $2.8 billion per year in costs by 2014. “In most cases,” CRS notes, “the benefits are larger.”

Granted, few would expect this report to change many minds in Congress. Just 10 days ago, Michele Bachmann was on the campaign trail promising that if she becomes president, “I guarantee you the EPA will have doors locked and lights turned off, and they will only be about conservation.” ...

There's a generous interpretation -- Republicans are ideologically opposed to regulation and this is consistent with their general philosophy. There's also an explanation that isn't as generous that involves using a call for free markets to do what's best for those who provide campaign cash.

I think it's hard to deny that there is market failure in the electricity generation industry. The externalities are pretty clear. If this was about making markets work, then the debate ought to be about how best to force firms to internalize all of the costs of production (and if some firms are unprofitable when they are forced to pay all costs, then that's the market speaking and Republicans ought to listen). Should we impose a tax of some sort? Should we rely upon market-based regulation, or is command and control better in this instance? Is this a case where the market failures are so small that any intervention would do more harm than good? Is there a case for self-regulation given the history in this industry? And so on.

But that's not how the debate is carried out. It seems to be more of a knee-jerk reflexive defense whenever supporter's interests are threatened in any way. Politicians in particular hide behind a call for free markets without ever explaining how letting markets be free to fail, and fail badly, is the best choice for society (not in every case, of course, there are certainly those who are ideologically consistent). That leads me to suspect that while there are certainly people on the right who are interested in using things like carbon taxes to overcome these market failures, we shouldn't underplay the extent to which the opposition to the EPA and to regulation more generally is driven by other factors.

Stavins: Why Polarized Politics Paralyze Public Policy

Robert Stavins has put a lot of effort toward finding environmental policies that both Democrats and Republicans can endorse (e.g. the title of his previous post was "A Golden Opportunity to Please Conservatives and Liberals Alike"). And for the most part, at least from my impression, he has remained optimistic about making progress even if it does come in frustratingly slow fits and starts.

But he seems to be giving up hope:

The Credit Downgrade and the Congress: Why Polarized Politics Paralyze Public Policy, by Robert Stavins: There’s room for debate about whether U.S. government deficits justify Standard & Poor’s downgrading last week of long-term U.S. debt, but the more important factor cited in S&P’s report is that “the effectiveness, stability, and predictability of American policymaking and political institutions have weakened…”  ...

Although these S&P judgments were intended to refer exclusively to fiscal policy, they really apply to a much broader set of issues, ranging from economic to health to environmental policies. The key reality is this: there is a widening gulf between the two political parties that is paralyzing sensible policy action.

Political Polarization This increasing polarization between the political parties has shown up in a number of studies by political scientists... This ... disappearance of moderates ... has been taking place for three decades. The rise of the Tea Party ... is only the most recent vehicle that has continued a 30-year trend.

Why has this collapse of the middle taken place; why has party polarization increased so dramatically in the Congress over the past 30 years? In my view, three structural factors stand out.

Three Structural Factors First, there has been the increasing importance of the primary system, a consequence of the “democratization” of the nomination process that took flight in the 1970s. A small share of the electorate vote in primaries, namely those with the strongest political preferences – the most conservative Republicans and the most liberal Democrats. This self-selection greatly favors candidates from the extremes.

Second, decades of redistricting – a state prerogative guaranteed by the Constitution – has produced more and more districts that are dominated by either Republican or Democratic voters. ... Because of this, polarization has preceded at a much more rapid pace in the House than in the Senate.

Third, the increasing cost of electoral campaigns greatly favors incumbents (with the ratio of average incumbent-to-challenger financing now exceeding 10-to-1). This tends to make districts relatively safe for the party that controls the seat, thereby increasing the importance of primaries. ...

To a lesser degree, polarization has also taken place through the adaptation of sitting members of Congress as they behave more ideologically once in office. Such political conversions are due to the same pressures noted above: in order to discourage or survive primary challenges... A recent case in point is Senator John McCain, Republican of Arizona, who evolved from being a moderate ... to being a solid conservative ... in response to a primary challenge from a Tea Party candidate.

Long-Term Implications If the increasing polarization of the Congress is due to these factors, then it is difficult to be very optimistic about the prognosis in the near term for American politics. This is because it is unlikely that any of these factors will soon reverse course.

The two parties are not about to abandon the primary system to return to smoke‑filled back rooms. Likewise, no state legislature is willing to abandon its power to redistrict. And public financing of campaigns and other measures that would reduce the advantages of incumbency remain generally unpopular (among incumbents, who would – after all – need to vote for such reforms).

Other Factors? True enough, in addition to these long-term structural factors that have driven political polarization, shorter-term economic and social fluctuations have also had pronounced effects. In particular, significant economic downturns – whether the Great Depression of the 1930s or the Great Recession of the past several years – increase political polarization. ...

The Future So, it’s reasonable to anticipate – or at least to hope – that better economic times will reduce the pace of ongoing political polarization. However, in the face of the three long-term structural factors I’ve identified above – the increasing importance of primaries, continuing redistricting, and the increasing costs of electoral campaigns – it is difficult to be optimistic about the long-term prognosis for American politics. ...

The Not Smart Enough Grid

Via Scientific American, one more quick post before another day on the road:

The too-smart-for-its-own-good grid, MIT News: In the last few years, electrical utilities have begun equipping their customers’ homes with new meters that have Internet connections and increased computational capacity. One envisioned application of these “smart meters” is to give customers real-time information about fluctuations in the price of electricity, which might encourage them to defer some energy-intensive tasks until supply is high or demand is low. Less of the energy produced from erratic renewable sources such as wind and solar would thus be wasted, and utilities would less frequently fire up backup generators, which are not only more expensive to operate but tend to be more polluting, too.

Recent work by researchers in MIT’s Laboratory for Information and Decision Systems, however, shows that this policy could backfire. If too many people set appliances to turn on, or devices to recharge, when the price of electricity crosses the same threshold, it could cause a huge spike in demand; in the worst case, that could bring down the power grid. Fortunately, in a paper presented at the last IEEE Conference on Decision and Control, the researchers also show that some relatively simple types of price controls could prevent huge swings in demand. ...

Research scientist Mardavij Roozbehani and professors Sanjoy Mitter and Munther Dahleh assumed that every consumer has a “utility function” describing how inconvenient it is for him or her to defer electricity usage. While that function will vary from person to person, individual utility functions can be pooled into a single collective function for an entire population. The researchers assumed that on average, consumers will ... try to get as much convenience for as little money as possible.

What they found was that if consumer response to price fluctuation is large enough to significantly alter patterns of energy use — and if it’s not, there’s no point in installing smart meters — then price variations well within the normal range can cause dangerous oscillations in demand. “For the system to work, supply and demand must match almost perfectly at each instant of time,” Roozbehani says. “The generators have what are called ramp constraints: They cannot ramp up their production arbitrarily fast, and they cannot ramp it down arbitrarily fast. If these oscillations become very wild, they’ll have a hard time keeping track of the demand. And that’s bad for everyone.” ...

But minimizing the risks of giving consumers real-time pricing information also diminishes the benefits. “Possibly, when you need an aggressive response from the consumers — say the wind drops — you’re not going to get it,” Roozbehani says.

One way to improve that trade-off, Roozbehani explains, would be for customers to actually give utilities information about how they would respond to different prices at different times. Utilities could then tune the prices that they pass to consumers much more precisely, to maximize responsiveness to fluctuations in the market while minimizing the risk of instability. Collecting that information would be difficult, but Roozbehani’s hunch is that the benefits would outweigh the costs. He’s currently working on expanding his model so that it factors in the value of information, to see if his hunch is right.

As noted, it shouldn't be too hard to develop a pricing system that takes care of this problem. On the last point, getting information about demand elasticities, they have the data at hand -- over time they can see how people respond to these incentives and alter prices accordingly -- so I don't see why this is a such a big stumbling block.

"A Golden Opportunity to Please Conservatives and Liberals Alike"

Robert Stavins:

A Golden Opportunity to Please Conservatives and Liberals Alike, by Robert Stavins: ...It’s too soon to forget that a year ago the Senate abandoned its attempt to pass climate legislation that would limit CO2 emissions. In the process, conservative Republicans dubbed cap-and-trade “cap-and-tax.’’ But, as I’ve said before, regardless of what they think about climate change, conservatives should resist demonizing market-based approaches to environmental protection and reverting to pre-1980s thinking that saddled business and consumers with needless costs.

Market-based approaches to environmental protection should be lauded, not condemned, by political leaders, no matter what their party affiliation.  Otherwise, there will be severe and perverse long-term consequences for the economy, for business, and for consumers.

Will the Return of the Gang of Six End the Debt Ceiling Showdown?

The editors at MoneyWatch asked for a comment on the "Gang of Six" deficit reduction proposal:

Will the Return of the Gang of Six End the Debt Ceiling Showdown?: As I explain, I don't think so, but the Gang of Six proposal may help to guide the actual agreement, and the size of the immediate cuts in the proposal ($500 billion) is worrisome given the state of the economy.

Why Has the Reducing the Deficit Trumped Unemployment?

Why aren't politicians more concerned with the unemployed?:

Unemployment? Who Cares?: ...Why isn’t unemployment reduction front and center on the policy agenda? More specifically, why has the debate over deficit reduction shoved it aside?

Here are three possible reasons. First, unemployment is concentrated among the less educated, blacks and Hispanics who lack political or economic clout.

Second, high unemployment is not hurting overall business profits, which have soared to historic heights. ... Today, our largest corporations and richest investors are well positioned to take advantage of growing demand in emerging markets far from our shores...

Third, the jobless individuals, public employees and small-business owners who could, in theory, form a strong political coalition to support more active job creation are constantly subjected to a barrage of arguments that we should do nothing but cut government spending and hope for the best. ...

A conspicuously large repertoire of more targeted job-creation proposals could significantly lower unemployment... But political interest is low...

Wanted: Pain at the Pump

This research finds that "performance standards – such as CAFE standards – may be more inefficient than previously thought." Taxes appear to work much better:

MIT Sloan economist on “Pain at the Pump”, by Christopher Knittel , MIT Sloan: My latest research* looks at how consumers adjust to high gas prices by changing the kinds of car they buy, and the prices they pay. What launched this research was the debate around the effectiveness of a gas tax to reduce climate change...

I am not a granola environmentalist, but I do see a lot of inefficient policies out there, and as an economist that’s frustrating. And here’s the thing…

At the moment, the US relies on a variety of subsidies and “performance standards” to reduce greenhouse gas emissions from the transportation sector. On the fuel side, we have ethanol subsidies and the Renewable Fuel Standard, which is an implicit subsidy program. On the vehicle side, we have Corporate Average Fuel Economy Standards, or CAFE standards, which dictate the average fuel economy of an automaker’s annual fleet. The current standard for passenger cars is 30.2 mpg. The standard for light-trucks — a classification that also includes SUVs under 8,500 pounds — is 24.1.

On the electricity side, lawmakers also use the Energy Star program, which was created in the early 1990s, to force appliance makers to create more efficient products. ...

My research shows that performance standards – such as CAFE standards – may be more inefficient than previously thought, and that pricing instruments, such as a gas tax, would likely have a bigger impact on reducing greenhouse gas emissions.

My colleagues and I found that a jump in the price of gas causes a significant change in the kinds of cars that consumers buy and the price they pay for them. A $1 increase in the gasoline price changes the market shares of the most and least fuel-efficient new cars by +20% and -24%, respectively. Changes in gasoline prices also change the relative prices of the most fuel-efficient cars and the least fuel-efficient cars. For new cars, the relative price increase for fuel-efficient cars is $363 for a $1 increase in gas prices; for used cars it is $2839. (For comparison: a $1 increase in gas prices alters the budget of the average household by about $50 a month.)

I am not naïve, and I realize that no politician has ever been elected on a platform of: ‘I’m going to raise your gas prices,’ but by advocating alternatives, they’re promoting inefficient policies that simply hide these inflated costs. There’s a lot of resistance from consumers about the prospect of a gas or carbon tax, but I believe this is mainly because consumers are misled to believe that performance standards are cheaper.

The run-up in the price of gas in recent years has been substantial enough to make top auto executives give up their historic opposition to gasoline price taxes: some have even suggested that Congress should ... create a $4 floor for retail gasoline prices.

Mike Jackson, CEO of AutoNation, the largest U.S. dealership chain, told the Wall Street Journal: “We need more expensive gasoline to change consumer behavior. Otherwise, Americans will continue to favor big vehicles, no matter what kind of fuel-economy standards the government imposes on automakers.”

Four dollars a gallon, he added, ‘is a good start.’ Hear, hear.

* Pain at the Pump: The differential effects of gasoline prices on new and used automobile markets; Meghan R. Busse, Christopher R. Knittel, Florian Zettelmeyer; National Bureau of Economic Research; December 2009

The chance of an increase in the gasoline tax in the present political environment is zero, and that may be overly optimistic.

More generally, it's too bad that market fundamentalists who are also deficit hawks refuse to recognize that corrections of market failures through devices such as a carbon tax will make markets work better and raise revenue at the same time. The fact that these solutions are resisted by so called deficit hawks and market fundamentalists is yet another signal that this is more about ideological objections to the size of government than the deficit or the correction of significant market failures.

Why Not Pollution Taxes?

Brad Plumer hints at a change in the politics of a carbon tax:

If we need taxes, why not pollution taxes?, by Brad Plumer: Let's start with the obvious: Most Democrats (and, for that matter, most of the bipartisan deficit panels that are churning out endless white papers right now) agree that we can't tackle our long-term debt issues through spending cuts alone. Some sort of tax reform that raises revenue will have to get thrown into the ring. So why not do that through a tax on carbon pollution or other assorted environmental unpleasantries? After all, if we have to raise revenue, we may as well slap higher taxes on behavior we'd like to discourage (like pollution and congestion) rather than, say, labor, no?

At least in rarefied think-tank circles, that idea's gaining favor. Four of the six groups that recently sketched out deficit-reduction plans for the Peter G. Peterson Solutions Initiative ended up advocating a new carbon tax as part of their proposals — including, note, the conservative American Enterprise Institute. And here's another reason to consider a shift: According to a new IMF paper with the irresistible title, "Reforming the Tax System to Promote Environmental Objectives: An Application to Mauritius," the United States gets, by far, the lowest percentage of revenue from environmental taxation of any OECD country... [C]ompared with the rest of the world, we vastly undertax pollution. And changing this doesn't have to cripple the economy: Congress could always do things in a revenue-neutral manner, swapping in higher taxes on greenhouse gases (say) in exchange for lower payroll taxes. ... (This is different from a simple gas tax: Since a carbon tax is spread out evenly among the transportation, industrial and electric sectors, it tends to have a very modest effect on pump prices.) ...

Point is, there are plenty of options for green revenue boosters, and most of them have the advantage of boosting our overall quality of life (and nudging us away from environmental disaster) in addition to closing the deficit. They're just not getting a lot of attention at the moment. Maybe if there was some billionaire as savvy (and as obsessive) about pushing his or her pet issues into the mainstream as Peter G. Peterson has been, things might be different.

But, as he also hints, there's little chance of anything being done on in Congress to address climate change. Does anyone see that changing anytime soon?

"The True Cost of Carbon"

A reminder that, all things considered, energy costs are too low:

The True Cost of Carbon, by David Leonhardt: Michael Greenstone and Adam Looney, economists at The Hamilton Project, are releasing a new paper on the costs of American energy policy. They argue:

… our energy choices are based on the visible costs that appear on utility bills and at the gas pump. This system masks the social costs arising from those energy choices, including shorter lives, higher health care expenses, a changing climate, and weakened national security. As a result, we pay unnecessarily high costs for energy.

For example, Mr. Greenstone and Mr. Looney estimate that a coal plant must spent 3.2 cents to produce a kilowatt hour of electricity (and consumers then pay slightly more than this). This price appears to be a bargain, the economists write, but the true costs — once health costs, military costs and the like are taken into account — are more than twice high: 8.8 cents per kilowatt hour.

The paper calls for four steps that will be familiar to anyone who follows climate policy: a carbon tax or cap-and-trade system; more money for research and development; more efficient regulations; and negotiations with foreign countries over similar steps elsewhere. In the foreseeable future, all these steps all seem to be an enormous long shot. But the climate problem is not going away. ...

Describing the chances of action on climate policy as "an enormous long shot" seems optimistic in this political environment.

"Reasons to be Cheerful" about Climate Change

John Quiggin says the arrival of "peak gasoline" is good news:

Reasons to be cheerful, Part I, by John Quiggin: There are plenty of reasons to be gloomy about the prospects of stabilizing the global climate. ... But there’s also some striking good news. Most important is the arrival of ‘peak gasoline’ in the US. US gasoline consumption peaked in 2006 and was about 8 per cent below the peak in 2010. Consumption per person has fallen more than 10 per cent.

There are a couple of ways to look at this. One is in the standard economics terms of supply and demand. Given that oil production reached a plateau some time ago, and that demand from China and other developing countries is growing fast, equilibrium can only be reached if prices rise enough to limit the growth in Chinese consumption and generating an offsetting reduction in consumption elsewhere (I’m assuming little or no supply response, which seems consistent with the evidence).

We have of course seen oil prices rise substantially. The effect on demand depends on the percentage change in fuel prices and on the elasticity (a measure of responsiveness) of demand. Because the US has very low taxes on gasoline and other fuels a given change in oil prices produces a much larger percentage change in fuel price than in other developed countries. ... So, the US is the place to look for big price effects.

The big question is the elasticity of demand, that is the percentage change in demand arising from a 1 per cent change in price. In the short run, this elasticity is quite low, reflecting the fact that fuel is a small part of the running costs of a car. The short run elasticity (measured over periods less than a year) is relatively easy to estimate and is about -0.25, that is, a 1 per cent price increase will reduce demand by 0.25 per cent, and a 40 per cent increase will reduce demand by 10 per cent. That’s roughly in line with the observed outcome. However, given that factors such as income growth tend to raise demand, the observed reduction is a bit more than would have been expected with constant prices.

The long run elasticity is much higher, since in the long run people can change their driving habits, reduce their stock of cars, and choose more fuel-efficient cars. ... A sustained upward trend in prices will induce the development of energy-saving innovations... I suspect that the full long-run elasticity, including induced innovation, is near 1...

Finally, what does peak US gasoline imply about Peak Oil, which I’ll interpret as the point at which the current plateau in oil production turns into a clear, though gradual decline?

• First, we won’t really notice it happening (except as it’s manifested as a further increase in oil prices). Rather, we’ll have to look back at the stats to identify when the decline began

• Second, the adjustment will be a combination of many different processes (less travel altogether, less of that by car, more fuel-efficient cars) rather than one big shift

• Third, given that oil accounts for something like a third of all CO2 emissions, the sooner Peak Oil arrives, the better.

• Finally, oil output per person peaked in 1979. For most purposes, it’s output per person that matters. And the evidence is that, over the last 30 years, output of goods and services per person has risen substantially even as output of oil per person has fallen. That seems pretty conclusive as far as apocalyptic versions of the Peak Oil hypothesis are concerned.

See also "Good News on the Regulatory Front," by Robert Stavins. Good news or not, overall I remain pessimistic and hope that this type of thinking does not turn into an excuse to delay making the hard choices we will need to make to solve the climate change problem.

"Shale Gas Environmental Concerns"

When I was at the Milken Global Conference, several people who had been to a session on shale-gas extraction were very excited about the possibilities. One person insisted that we'd be a net exporter of energy within a decade or so (I was skeptical). I kept asking about environmental concerns, but they were generally brushed away, or, as one person told me, the need is large enough that politicians will make sure this moves forward despite any environmental problems. However, Jim Hamilton notes that recent evidence suggests the environmental problems are larger than we thought:

Shale gas environmental concerns, by Jim Hamilton: Technological breakthroughs in methods for drilling for natural gas have opened up the possibility of vast new supplies. However, environmental concerns may turn out to be significant.

Stuart Staniford has taken a look at a study of the effects of shale-gas extraction on drinking water recently published in the Proceedings of the National Academy of Sciences. The scatter diagram below summarizes 60 drinking water wells in Pennsylvania, with distance from a natural gas well on the horizontal axis and methane concentration in the water on the vertical axis. All of the water wells with concentrations above 28 milligrams of methane per liter of water were within one kilometer of active drilling.

[click to enlarge]

Methane concentrations as a function of distance to the nearest gas well for active (closed circles, defined as within 1 km) and nonactive (open triangles, defined as grater than 1 km away) drilling areas. Source: Osborn, et. al. (2011).

Stuart also tracked down the relevance of a 28 mg/l concentration:

A dissolved methane concentration greater than 28 mg/L indicates that potentially explosive or flammable quantities of the gas are being liberated in the well and/or may be liberated in confined areas of the home.

There are potential huge investments to be contemplated to try to take advantage of the new natural gas resources, for purposes such as electrical generation by utilities, gas-powered cars and trucks, and refueling stations. But uncertainties about potential future regulation and litigation must make anyone cautious. I think it's in the interests of everyone involved to identify right away where the contamination documented above is coming from and develop regulations to minimize it. ...

"Climate Change Stunts Growth of Global Crop Yields"

The other day, I posted a graph showing delining crop yields from Michael Roberts and wondered what is behind the growth slowdown. Here's one answer (also discussed by Michael Roberts in a follow-up post):

Cereal Killer: Climate Change Stunts Growth of Global Crop Yields, by David Biello, Scientific American: The people of the world get 75 percent of their sustenance—either directly, or indirectly as meat—from four crops: maize (corn), wheat, rice and soybeans. The world's rising population—now predicted by the United Nations to reach 10.1 billion by century's end—has been fed thanks to rising yields of all four of these crops during the past century. Humanity's predilection for burning fossil fuels, however, is now contributing to the slowing of such rising yields, cutting harvests of wheat 5.5 percent and maize 3.8 percent from what they could have been since 1980, according to a new analysis of yields.

"On a global scale, we can see pretty clearly significant changes in the weather for most places where we grow crops," explains agricultural scientist David Lobell of Stanford University's Woods Institute for the Environment, who led the analysis published in the May 6 issue of Science. "Those changes are big enough to sum up to pretty big losses for wheat and corn." ...

More troubling, further climate change is already locked in.... That means areas that have not been affected to date, such as the "corn belt" of the U.S., may soon see the same or worse impacts. ...

Scientific American: Seas Could Rise Up to 1.6 meters by 2100

News we should pay attention to, but won't:

Seas Could Rise Up to 1.6 meters by 2100, by Alister Doyle, Scientific American: Quickening climate change in the Arctic including a thaw of Greenland's ice could raise world sea levels by up to 1.6 meters by 2100, an international report showed on Tuesday.

Such a rise -- above most past scientific estimates -- would add to threats to coasts from Bangladesh to Florida, low-lying Pacific islands and cities from London to Shanghai. ...

"The past six years (until 2010) have been the warmest period ever recorded in the Arctic," according to the Oslo-based Arctic Monitoring and Assessment Programme (AMAP), which is backed by the eight-nation Arctic Council. ... Warming in the Arctic is happening at about twice the world average. ...

"It is worrying that the most recent science points to much higher sea level rise than we have been expecting until now," European Climate Commissioner Connie Hedegaard told Reuters.

"The study is yet another reminder of how pressing it has become to tackle climate change, although this urgency is not always evident neither in the public debate nor from the pace in the international negotiations," she said. ...

The AMAP study, drawing on work by hundreds of experts, said there were signs that warming was accelerating. It said the Arctic Ocean could be nearly ice free in summers within 30 to 40 years, earlier than projected by the IPCC. ...

Stiglitz: Gambling with the Planet

Joseph Stiglitz says we aren't the awesome risk managers we think we are:

Gambling with the Planet, by Joseph E. Stiglitz, Commentary, Project Syndicate: The consequences of the Japanese earthquake – especially the ongoing crisis at the Fukushima nuclear power plant – resonate grimly for observers of the American financial crash that precipitated the Great Recession. Both events provide stark lessons about risks, and about how badly markets and societies can manage them. ...

Experts in both the nuclear and finance industries assured us that new technology had all but eliminated the risk of catastrophe. Events proved them wrong: not only did the risks exist, but their consequences were so enormous that they easily erased all the supposed benefits of the systems that industry leaders promoted. ...

For the planet, there is one more risk...: global warming and climate change. ... The costs of reducing emissions pale in comparison to the possible risks the world faces. ...

In the end, those gambling in Las Vegas lose more than they gain. As a society, we are gambling – with our big banks, with our nuclear power facilities, with our planet. As in Las Vegas, the lucky few – the bankers that put our economy at risk and the owners of energy companies that put our planet at risk – may walk off with a mint. But on average and almost certainly, we as a society, like all gamblers, will lose. ...

Paul Krugman: The Truth, Still Inconvenient

Climate change denialism -- and the potentially catastrophic roadblock to action that comes with it -- hasn't gone away:

The Truth, Still Inconvenient, by Paul Krugman, Commentary, NY Times: So the joke begins like this: An economist, a lawyer and a professor of marketing walk into a room. What’s the punch line? They were three of the five “expert witnesses” Republicans called for last week’s Congressional hearing on climate science... — ...where do they find these people?

My favorite, still, was Ron Paul’s first hearing on monetary policy, in which the lead witness was someone best known for writing a book denouncing Abraham Lincoln as a “horrific tyrant” — and for advocating a new secessionist movement as the appropriate response to the “new American fascialistic state.”

The ringers (i.e., nonscientists) at last week’s hearing weren’t of quite the same caliber, but their prepared testimony still had some memorable moments. My favorite was the lawyer’s declaration that the E.P.A. can’t declare that greenhouse gas emissions are a health threat, because these emissions have been rising for a century, but public health has improved over the same period. I am not making this up.

Oh, and the marketing professor, in providing a list of past cases of “analogies to the alarm over dangerous manmade global warming” ... included problems such as acid rain and the ozone hole that have been contained precisely thanks to environmental regulation. ...

For years now, large numbers of prominent scientists have been warning, with increasing urgency, that if we continue with business as usual, the results will be very bad, perhaps catastrophic. They could be wrong. But if you’re going to assert that they are in fact wrong, you have a moral responsibility to approach the topic with high seriousness and an open mind. After all, if the scientists are right, you’ll be doing a great deal of damage.

But what we had, instead of high seriousness, was a farce: a supposedly crucial hearing stacked with people who had no business being there... [I]t’s terrifying to realize that this kind of cynical careerism — for that’s what it is — has probably ensured that we won’t do anything about climate change until catastrophe is already upon us. ...

Farmer on Williamson on Farmer and Kocherlakota

I asked Roger Farmer if he'd like to respond to a recent post from Stephen Williamson: (it will be helpful to read Williamson's post first):

Farmer on Williamson on Farmer and Kocherlakota: Thanks to Stephen Williamson for publicizing my work and to Mark Thoma for providing a link and invitation to respond. Stephen: in addition to the paper you cited, I just finished an empirical paper on how to explain data without the Phillips Curve, two theoretical papers on why fiscal policy works in the short run (but shouldn’t be used) two papers on rational expectations with Markov switching and a piece on stochastic overlapping generations models.

The papers you mention in your blog, by Narayana and me, were both presented at a conference in Marseilles last week with not one but two Fed Presidents in attendance: Jim Bullard also gave a paper. Jim presented work that draws on the Benhabib-Schmitt-Grohé-Uribe paper on the perils of Taylor Rules. He sees a real danger of a Japan style deflation trap happening in the U.S.. Narayana gave a paper that combines a liquidity trap model of bubbles in an overlapping generations framework with a labor market based on the idea from my 2010 book, Expectations Employment and Prices. This book provides a new paradigm that drops the wage bargaining equation from a labor contracting model and replaces it with the assumption that employment is demand determined. This is the same assumption taken up by Narayana in the paper he presented in Marseilles.

The main idea is explained very nicely by one of the anonymous commentators on Stephen’s blog , who said:

“Think of it this way. With a centralized labor market, the real wage is pinned down by the intersection of labor demand and supply. With search, the labor market need not clear: the labor supply FOC is missing, and we need to add something else to close the model. One thing to add is an explicit bargaining model that effectively pins down the wage. An alternative is to say that output is demand-determined, and that the wage is the marginal product of labor at the demand determined level of output. Then firms are on their labor demand curve, but workers are not on their labor supply curve (but the beauty of search - unemployed workers will take a job at any positive wage).”

That’s exactly right. And once there are many possible labor market equilibria, there is room to close the model by bringing back the role of market psychology. That’s what I do in my work which has room for both involuntary unemployment and animal spirits; the two cornerstones of Keynes’ General Theory that are missing from the macroeconomics that emerged from Samuelson’s interpretation of Keynes.

Stephen professes not to understand the language of aggregate demand and supply. That’s not surprising given how many different ways it’s used. My own preferred interpretation is explained in a piece I wrote for the International Journal of Economic Theory in 2008.

The idea of aggregate demand and supply makes just as much sense as the notion of a microeconomic demand and supply curve as long as one works within a framework where the variables that shift one of the curves do not simultaneously shift the other. That is clearly not true in post-Lucas rational expectations models which is why the language went out of fashion. It is true in my work.

Republicans and Environmental Progress

J.S. at Environmental Economics is astounded at "the current Republican assault on the environment":

Republicans for Environmental Progress: An Endangered Species, by J.S.: For most of modern American history, the two major political parties in America have largely agreed on the desired long-term environmental outcomes for the country: there was a consensus among Republicans and Democrats that it was a good thing to press for cleaner air and water, less toxins in the environment, biodiversity preservation, and mitigation strategies for clean energy and, mostly recently, climate change.

The disagreements were largely centered around how to achieve these outcomes, and to some extent the pace of change and the absolute targets. Democrats by and large preferred a heavier regulatory approach (i.e. “command and control”) that set specific firm-level emissions limits, prescribed permissible technologies, and set industry-wide energy and fuel efficiency standards. Republicans tended to support more market-oriented policies, with cap and trade foremost among them.

Nowadays, the arguments are no longer over the methods to achieve environmental progress, but whether we should support such progress in the first place. This situation is unprecedented. Those who believed that divided government would lead Republicans to take a more moderate and constructive role have so far been proven wrong. It is hard to imagine the situation being much worse for America’s environmental quality, which is directly linked to the quality of life for all Americans.

The modern Republican Party has absolutely no affirmative environmental agenda whatsoever, and goes so far as to contest the entire rationale for continued environmental progress. Ironically, this extremely reactionary environmental agenda is coming at a time when the ideas that Republicans once championed are now widely accepted as the best ways to structure environmental policy. ...

I have been involved in environmental policy for almost 20 years and have never seen anything like the current Republican assault on the environment. It is truly astounding. To be clear, the Republicans leading this charge against environmental progress are in no way following conservative principles―they are doing the exact opposite. ...

There is absolutely nothing “free market” about letting polluters trash the environment for free. In fact, this fits the definition of a market failure, not a well-functioning capitalist system. What the Republicans are currently practicing is crony capitalism of the worst kind: rewarding industry at the expense of the public interest and future generations.

It is the Republican rank and file who should be the most offended by these policies. Public opinion polls consistently show that both Democrats and Republicans care deeply about the environment, and support clean energy policies and strong environmental safeguards. Unfortunately, the once proud environmental ethic of the Republican Party has been snuffed out by a small group of radical Tea Party extremists who are deeply confused both about true conservative principles and the proper role of government in society. And once moderate Republicans who supported sensible environmental policies are nowhere to be seen. Until true conservatives retake the Republican Party we will be left doing little more than damage control, and the chances of a new comprehensive affirmative environmental agenda are slim to none.

Yep.

Is Nuclear Power Still the Answer?

The embrace of nuclear power by the environmental community surprised me. About five years ago I wrote:

Lots of research says that I will overestimate the risk of events such as a core meltdown in a nuclear power plant. And I'm sure I do. But knowing and allowing for that, or trying, I still can't find a way to endorse a strong movement toward nuclear power. My hesitation to support nuclear power is not very green according to many environmentalists. But are we positive we can't find any other solutions? Should simply resign ourselves to the nuclear power age?

Here's my question. Will the events in Japan change this at all, or -- assuming in the end the radiation leaks are minimal -- will it be a testimonial to the safety of nuclear power plants (even with an unprecedented earthquake, the systems worked to prevent major radiation releases...)?

As you can probably tell from my remarks above, I hope it pushes us to develop alternative sources of energy besides nuclear. Knowing nuclear is there as a backup could have reduced to the push to innovate in other areas, and hopefully that will change. But I wouldn't bet the house on it (unless it was underwater).

“The Problem of the Commons: Still Unsettled After 100 Years”

Here's a summary of Robert Stavins' summary of his recent article in the 100th anniversary edition of the AER, "“The Problem of the Commons:  Still Unsettled After 100 Years” (I'm a proponent of the market-based approaches to regulation that he discusses):

Reflecting on a Century of Progress and Problems, by Robert Stavins: As the first decade of the twenty-first century comes to a close, the problem of the commons is more important to our lives – and more central to economics – than a century ago when the first issue of the American Economic Review appeared, with an examination by Professor Katharine Coman of Wellesley College of “Some Unsettled Problems of Irrigation” (1911).  Since that time, 100 years of remarkable economic progress have accompanied 100 years of increasingly challenging problems.

As the U.S. and other economies have grown, the carrying-capacity of the planet – in regard to natural resources and environmental quality – has become a greater concern, particularly for common-property and open-access resources.  In an article that appears in the 100^th anniversary issue of the American Economic Review (AER) – “The Problem of the Commons:  Still Unsettled After 100 Years” – I focus on some important, unsettled problems of the commons.

100 Years of Economic Progress and More Challenging Environmental Problems

Within the realm of natural resources, there are special challenges associated with renewable resources, which are frequently characterized by open-access.  An important example is the degradation of open-access fisheries.  Critical commons problems are also associated with environmental quality, including the ultimate commons problem of the twenty-first century – global climate change.

Small communities frequently provide modes of oversight and methods for policing their citizens, a topic about which Professor Elinor Ostrom of Indiana University has written extensively.  But as the scale of society has grown, commons problems have spread across communities and even  across nations.  In some of these cases, no over-arching authority can offer complete control, rendering commons problems more severe. ...

A key contribution of economics has been the development of market-based approaches to environmental protection, including emission taxes and tradable rights.  These have potential to address the ultimate commons problem of the twenty-first century, global climate change. [E]conomic theory – by focusing on market failures linked with incomplete systems of property rights – has made major contributions to our understanding of commons problems and the development of prudent public policies. ...

Conclusions

Although I hope you will read the full article – which is very accessible — I will summarize its conclusions here.

Problems of the commons are both more widespread and more important today than when Coman wrote about unsettled problems in the first issue of the American Economic Review 100 years ago.  A century of ... increases in income and population have ... greatly heightened pressures on the commons, particularly where there has been open access to it.

The stocks of a variety of renewable natural resources – including water, forests, fisheries, and numerous other species of plant and animal – have been depleted below socially efficient levels, principally because of poorly-defined property-right regimes.  Likewise, the same market failures of open-access – whether characterized as externalities, following A. C. Pigou (1920), or public goods, following Ronald Coase (1960) – have led to the degradation of air and water quality, inappropriate disposal of hazardous waste, depletion of stratospheric ozone, and the atmospheric accumulation of greenhouse gases linked with global climate change.

Over this same century, economics ... has gradually come to focus more and more attention on these commons problems...  Economic research within academia and think tanks has improved our understanding of the causes and consequences of excessive resource depletion and inefficient environmental degradation, and thereby has helped identify sensible policy solutions.

Conventional regulatory policies, which have not accounted for economic responses, have been excessively costly, ineffective, or even counter-productive.  The problems behind what Garrett Hardin (1968) characterized as the “tragedy of the commons” might better be described as the “failure of commons regulation.”  As our understanding of the commons has become more complex, the design of economic policy instruments has become more sophisticated.

Problems of the commons have not diminished, and the lag between understanding and action can be long.  While some commons problems have been addressed successfully, others continue to emerge.  Some – such as the threat of global climate change – are both more important and more difficult than problems of the past.

Fortunately, economics is well positioned to offer better understanding and better policies to address these ongoing challenges.  As the first decade of the twenty-first century comes to a close, natural resource and environmental economics has emerged as a productive field of our discipline and one that shows even greater promise for the future.

Real Environmental Justice?

Alan Blinder says a carbon is a "miraculous policy" that can cure all sorts of ills:

The Carbon Tax Miracle Cure, by Alan Blinder, Commentary, WSJ: In his State of the Union address..., President Obama called for a major technological push for cleaner energy: "the Apollo projects of our time." But when the details emerge, it is predictable that his political foes will object to the new government spending and decry the "heavy hand" of government in telling business what to do. Fortunately, there is a marvelous way to square the circle.

Under this policy approach, decision-making is left in private hands and the jobs created will be in the private sector. Furthermore, the policy would ... eventually reduce the federal budget deficit significantly. Plus, there are a few nice side effects, like reducing our trade deficit, making our economy more efficient, ameliorating global warming, and showing the world that American capitalism has not lost its edge.

What is this miraculous policy? It's called a carbon tax—really, a carbon dioxide tax—but one that starts at zero and ramps up gradually over time.

The timing is critical. With the recovery just starting—we hope—to gather steam, this is a terrible time to hit it with some big new tax. Hence, while the CO2 tax should be enacted now, it should be set at zero for 2011 and 2012. After that, it would ramp up gradually. ...

Think about what would happen. Once America's entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies, they will start investing right away—and in ways that make the most economic sense. ... Jobs follow investment, and ... many of the new jobs will be good jobs with good wages, just what America needs right now. ...

Up to now, our country has done approximately nothing to curb CO2 emissions. A stiff tax would make a world of difference. ...

I know this sounds like a pipe dream now. America has elected a Republican House of Representatives... These folks are not about to vote for a CO2 tax, even one starting at zero. ... But eventually we'll succumb to the inexorable logic of a phased-in CO2 tax. Just watch—if you're young enough to live that long.

Robert Stavins seems excited by California's approach to the problem:

Pursuing Real Environmental Justice in California, by Robert Stavins: California Governor Jerry Brown plans to move forward with the implementation of Assembly Bill 32, the Global Warming Solutions Act... Questions have been raised about the wisdom of a single state trying to address a global commons problem, but with national climate policy developments having slowed dramatically in Washington, California is now the focal point of meaningful U.S. climate policy action.

A key element of the mechanisms to be used for achieving California’s ambitious emissions reductions will be cap-and-trade, a promising approach with a successful track record, despite its recent demonization as “cap-and-tax” by conservatives and other opponents in the U.S. Congress. ... Experience has shown that cap-and-trade programs achieve emissions reductions at dramatically lower cost than conventional regulation.

Yet some groups in California have been very uneasy about the prospect of cap-and-trade. In particular, the Environmental Justice movement has opposed this approach, citing concerns that it would hurt low-income communities. ... The apprehension is not about greenhouse gases ... since these gases spread evenly around the globe... Rather, it’s about “co-pollutants,” such as nitrogen oxides, carbon monoxide, and particulates, which can be emitted alongside greenhouse gases.

Because a cap-and-trade system would reduce California’s overall greenhouse gas emissions, it would also lower the state’s emissions of co-pollutants. Still, it’s possible, though unlikely, that co-pollutant emissions would increase in a particular locality. But here it’s crucial to recognize that ... the most environmentally and economically effective way to address such pollution is to revisit existing local pollution laws and perhaps make them more stringent.

While much attention has rightly been given to the effects of potential climate policies on environmental conditions in low-income communities, it’s also important to consider their economic impacts on these communities. Reducing greenhouse gas emissions will require greater reliance on more costly energy sources and more costly appliances, vehicles and other equipment. Because low-income households devote greater shares of their income to energy and transportation costs than do higher-income households, virtually any climate policy will place relatively greater burdens on low-income households. But because cap-and-trade will minimize energy-related and other costs, it holds an important advantage in this regard over conventional regulations.

Moreover, a cap-and-trade system gives the public a tool for compensating low-income communities for the potential economic burdens: If some emission allowances are auctioned, revenues can be used to mitigate economic burdens on these communities.

All in all, cap-and-trade serves the goal of environmental justice better than the alternatives. ... Beyond helping the state meet its emissions-reduction targets at the lowest cost, it offers a promising way to reduce economic burdens on low-income and minority communities.

Any chance this will spread past California? I'm not counting on much if anything happening at the federal level.

Paul Krugman: Droughts, Floods and Food

Are we getting the "first taste" of the political and economic upheaval we'll face if we don't reduce greenhouse gas emissions?:

Droughts, Floods and Food, by Paul Krugman, Commentary, NY Times: We’re in the midst of a global food crisis — the second in three years. World food prices hit a record in January... These soaring prices have had only a modest effect on U.S. inflation, which is still low..., but they’re having a brutal impact on the world’s poor, who spend much if not most of their income on basic foodstuffs.

The consequences of this food crisis go far beyond economics. After all, the big question about uprisings against corrupt and oppressive regimes in the Middle East isn’t so much why they’re happening as why they’re happening now. And there’s little question that sky-high food prices have been an important trigger for popular rage.

So what’s behind the price spike? American right-wingers (and the Chinese) blame easy-money policies at the Federal Reserve, with at least one commentator declaring that there is “blood on Bernanke’s hands.” Meanwhile, President Nicolas Sarkozy of France blames speculators, accusing them of “extortion and pillaging.” ...

Now, to some extent soaring food prices are part of a general commodity boom... But ...  food prices lagged behind the prices of other commodities until last summer. Then the weather struck. ...

The Russian heat wave was only one of many recent extreme weather events, from dry weather in Brazil to biblical-proportion flooding in Australia, that have damaged world food production.

The question then becomes, what’s behind all this extreme weather?

To some extent we’re seeing the results of a natural phenomenon, La Niña— a periodic event in which water in the equatorial Pacific becomes cooler than normal. La Niña events have historically been associated with global food crises...

But that’s not the whole story. ... As always, you can’t attribute any one weather event to greenhouse gases. But the pattern we’re seeing, with extreme highs and extreme weather in general becoming much more common, is just what you’d expect from climate change.

The usual suspects will, of course, go wild over suggestions that global warming has something to do with the food crisis; those who insist that Ben Bernanke has blood on his hands tend to be more or less the same people who insist that the scientific consensus on climate reflects a vast leftist conspiracy.

But the evidence does, in fact, suggest that what we’re getting now is a first taste of the disruption, economic and political, that we’ll face in a warming world. And given our failure to act on greenhouse gases, there will be much more, and much worse, to come.

Is QEII Working?

It's great that QEII seems to be working, but let's not get overexcited here. According to this FRBSF Economic Letter, the effect on unemployment will be around 1.5% (and it won't happen overnight).

By 2012, the ... program's incremental contribution is ... 700,000 jobs generated ... by the most recent phase of the program. Increased hiring lowers the unemployment rate by 1½ percentage points compared with what it would have been absent the Fed's asset purchases... Based on other simulations, providing an equivalent amount of support to real economic activity through conventional monetary policy would have required cutting the federal funds rate approximately 3 percentage points relative to baseline from early 2009 through 2012, an obvious impossibility because of the zero lower bound.

That gets us down to 8% in 2012 (Update: as Ryan Avent notes, plus any change that would have happened anyway, but see the note below). We can argue about what "working" means, but if it means reducing unemployment to acceptable levels, to repeat a point I've made again and again, this alone is not nearly enough.

There is also more evidence on QEII beyond the FRBSF research. This paper by Heike Schenkelberg and Sebastion Watzka of the University of Munich finds positive effects of QE for Japan. Here's there introduction:

1 Introduction We study the real effects of Quantitative Easing (QE) in a structural VAR (SVAR) when the short-term interest rate is constrained by the Zero-Lower-Bound (ZLB). Using monthly Japanese data since 1995 - a period during which the Bank of Japan's target rate, the overnight call rate, has been very close to zero - and sign restrictions based on liquidity trap theory, we find that an increase in reserves leads to a significant 0.7 percent rise in industrial production on impact.

This rise lasts for about two years. On the other hand, our results indicate that the same shock has no effect on inflation. Thus our results provide mixed evidence on the successfulness of QE in Japan. Whilst real economic activity does seem to pick up after a QE-shock, this does not seem to affect inflation in such a way that Japan could exit its deflationary period through such a policy shock.

However, this conclusion strictly holds only under the usual caveat in SVAR- analysis that the monetary policy shock we consider must be a small one - one that is not allowed to change the policy regime or any other of the structural relations we estimate. Whilst we argue this is precisely the kind of shock that central banks currently inflict on our economies, we should be careful not to conclude that any more aggressive policy changes by central banks to escape the deflationary period of the liquidity trap are doomed to fail. ...

Finally, Bernanke said today that unemployment is still too high, inflation is still too low, QEII appears to be working (though again, what does working mean in terms of solving the big problem we face?), and that QEII will continue. (Wish I had more time to extract some of this, but I need to go find the gate for my flight, so I'll have to leave it to you.)

Update: Ryan Avent argues that a 1.5% change over such a long time period --around two years -- is, in fact, "working." Again, under my definition of what working means, this (less than 30,000 jobs per month) is far from fast enough and clearly indicates that the unemployment problem could use more help (and that help should already be in place) -- my main point. Ben Bernanke says it will be "several years" yet until unemployment returns to normal even with QEII. That is far from getting people working fast enough under any reasonable definition. Call that "working" if you like, but I don't see it that way.

Update: A few more comments from my oh so comfortable seat on the plane (writing this is supposed to take my attention away from the crying baby and the jabbing elbow next to me -- grrr -- both irritated and distracted as I try to write).

I am not saying that QEII did nothing, was worthless, anything like that. I'm just disappointed to see people patting the Fed on the back for a job well done when the Fed's actions were both far too late and far too small (why settle for 1.5% reduction in unemployment if inflation is not a worry? Why wait until after the election to do this when we knew unemployment was a problem long, long before that?). Furthermore, with the unemployment problem expected to persist for years yet, we have to worry that this optimism will translate into deficit reduction and interest rate increases that come far too early and create yet another headwind working against the millions seeking work. My reactions are partly conditioned on that worry. All along I've been arguing that the Fed could not put the unemployment rate on a satisfactory trajectory by itself, and Bernanke's comments about having years yet until unemployment returns to normal reinforces that view. Like the Fed, but even more so, Congress needed to do more than it has done, and do it much sooner. But that didn't happen. Yes, we got a bit more recently, and I am happy about that -- better than nothing -- but it's much too little and much too late relative to the optimal response.

I am very pleased that 700,000 more people will have jobs as a result of the Fed's actions in QEII (and the total QE affects were even larger, the 700,000 is only for QEII). But with millions and millions out of work still, I am not going to settle for this, say great job, pat the Fed and Congress on the back, and move on to other things (and it's important to realize the forecast for a 1.5% reduction is from model based simulations and hence there is quite a bit of uncertainty surrounding the forecast -- yet another reason not to relax just yet). It's time to keep pushing for more, we have years ahead of us before we are back to normal. If that means I'll have a hard time saying good job when perhaps it's warranted, and I will, so be it.

Ah, the cabin is a bit quieter. Yahoo.

"Loss of Reflectivity in the Arctic Doubles Estimate of Climate Models"

Global warming is a bigger problem than we thought -- and it was already bigger than we seem to be able to handle:

Loss of reflectivity in the Arctic doubles estimate of climate models, EurekAlert: A new analysis of the Northern Hemisphere's "albedo feedback" over a 30-year period concludes that the region's loss of reflectivity due to snow and sea ice decline is more than double what state-of-the-art climate models estimate.

The findings are important, researchers say, because they suggest that Arctic warming amplified by the loss of reflectivity could be even more significant than previously thought. ...

"Why Cancun Trumped Copenhagen"

Robert Stavins seems happy with the progress of the recent climate talks in Cancun:

Why Cancun Trumped Copenhagen, by Robert Stavins: ...After the modest results of the climate change talks in Copenhagen a little more than a year ago, expectations were low for the follow-up negotiations in Cancun last month. ...

But a funny thing happened on the way to that much-anticipated failure: During two intense weeks of discussions..., the world’s governments quietly achieved consensus on a set of substantive steps forward. And equally important, the participants showed encouraging signs of learning to navigate through the unproductive squabbling between developed and developing countries that derailed the Copenhagen talks.

The tangible advances were noteworthy: The Cancun Agreements set emissions mitigation targets for some 80 countries, including all the major economies. That means that the world’s largest emitters, among them China, the United States, the European Union, India, and Brazil, have now signed up for targets and actions to reduce emissions by 2020.

The participating countries also agreed – for the first time in an official United Nations accord – to keep temperature increases below a global average of 2 degrees Celsius. ... The Cancun Agreements on their own are clearly not sufficient to keep temperature increases below 2 degrees Celsius, but they are a valuable step forward...

The progress was as much about changing the mindset of how to tackle climate disruption. ... That they met this challenge owes in good measure to ... the tremendous skill of Mexican Foreign Minister Patricia Espinosa in presiding over the talks.

For example, at a critical moment she took note of objections from Bolivia and a few other leftist states, and then ruled that the support of the 193 other countries meant that consensus had been achieved and the Cancun Agreements had been adopted. She pointed out that “consensus does not mean unanimity.” Compare that with Copenhagen, where the Danish prime minister allowed objections by five small countries to derail the talks.

Mexico’s adept leadership also made sure smaller countries were able to contribute fully..., avoiding the sense of exclusivity that alienated some parties in Copenhagen. ...

It’s also vital to note that China and the United States set a civil, productive tone, in contrast to the Copenhagen finger-pointing. From the sidelines in Cancun, I can vouch for the tremendous increase in openness of members of the Chinese delegation.

The acceptance of the Cancun Agreements suggests that the international community may now recognize that incremental steps in the right direction are better than acrimonious debates over unachievable targets.

With Republicans taking control of the House, I will be pleasantly surprised if we make any progress on this issue domestically (I can imagine the GOP perhaps buying into tax cuts designed to encourage investment into research in this area, but not much else).

"Peak Oil is Stupid"

Tim Haab at Environmental Economics:

'Peak Coaler' just doesn't have the same ring, but I bet it raises the same vitriol for stupid economists: Time for some snark:

When will production of oil and coal peak? 

Better question: Who cares? 

Betterer question:  When will oil and coal run out?

Even betterer question: When will oil and coal reserves be depleted to the point that prices adjust to make investments in renewables make economic sense without the need for goofy (laymen speak for inefficient) government policies?

After the peak, production will decline because supplies are being depleted and no new sources are to be found. ...

Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. 

Terminal Decline? A sequel to a 1990's Charlie Sheen movie?

Optimistic estimations of peak production forecast the global decline will begin by 2020 or later, and assume major investments

in alternatives will occur before a crisis, without requiring major changes in the lifestyle of heavily oil-consuming nations. These models show the price of oil at first escalating and then retreating as other types of fuel and energy sources are used.

I think they just called me an optimist.

Pessimistic predictions of future oil production operate on the thesis that either the peak has already occurred, that oil production is on the cusp of the peak, or that it will occur shortly. 

Who cares?  Oh wait, I already asked that.

Must be time to update my semi-regular 'peak oil is stupid' rant.  So here goes...

I don't care when oil (OR COAL) peaks, I care when we run out, which we won't because, as production declines, prices WILL rise. As prices rise, people WILL figure out alternatives. They might not be happy alternatives. They might not be as productive alternatives. They might not support the same lifestyle to which we are accustomed. But there WILL be alternatives, forced by higher prices--and no other mechanism is that powerful. 

See, I'm an optimist.

It's the end of the world as we know it...

And I feel fine.

"Good riddance CCX"

Does the closing of the Chicago Climate Exchange say anything about the viability of cap and trade?:

Good riddance CCX, by Gernot Wagner: The Chicago Climate Exchange, one of the first voluntary cap-and-trade programs, is shutting down next month. That's bad news for the planet, isn't it? Just take a look at today's Wall Street Journal editorial page for an apparent confirmation. There the news is being celebrated as "cap and retreat." Check.

That should indeed be confirmation enough. Sadly, what's good for the Journal tends to be bad for the planet. ... The full editorial is behind a firewall. That's just as well. The rest is as wrong as the beginning. ...

There's also a much larger point here. The CCX was voluntary. Companies volunteered to sign up. It doesn't take a Ph.D. in economics to realize that the only companies who sign up for reasons other than marketing purposes are the ones that have allowances to sell. Those that need to buy them, stay as far away as possible.

No market can operate under these conditions. If anything, it's surprising the market held up as long as it did—no doubt due to companies' willingness to write off their participation as a marketing expense. ...

CCX did provide some valuable lessons for participants. Chief among them, how to implement such a trading system internally, how to minimize emissions and make money, and whether and how it would be different from SO2 trading...

But CCX was never meant to be anything other than a precursor for a U.S.-wide system. ...

"Does Inequality Make People More Conservative?"

Rising inequality is associated with a shift toward conservatism for both the wealthy and the poor:

Does Inequality Make People More Conservative?, Monkey Cage: Yes, according to some new research (pdf) from Nathan Kelly and Peter Enns. They rely on a a yearly measure of “policy mood” from 1952-2006. This is an omnibus summary of the public’s ideological leaning, liberal to conservative. (See the graph and corresponding Excel file at Jim Stimson’s homepage.) They also draw on a specific measure of the public’s support for welfare. The question is whether and how both measures respond to inequality.

Their first main finding: increases in inequality are associated with a conservative shift in mood and increasing opposition to welfare. (For more on why this would be true, see this paper (pdf) by Roland Benabou.)

Their second main finding: increases in inequality are associated with a conservative shift among both the wealthy and the poor.

One natural objection: perhaps some citizens, and especially poorer citizens, just do not realize that inequality has increased. But the third main finding contradicts this: over time, the poor are actually more likely to perceive increased inequality than do the wealthy.

Kelly and Enns offer some further speculation on why, in particular, the rich and poor respond in parallel to rising inequality:

Despite the fact that parallelism is not driven by lack of information about income inequality, we think it is possible that the way information about distributional outcomes is framed is important. This idea is rooted in Gilens’s …argument is that during good economic times news stories focus on individualism (enhancing opposition to welfare) and during bad economic times stories emphasize people being down on their luck (enhancing support for welfare).

Given that rising inequality since the 1970s has been driven in large part by gains at the top of the income distribution, media frames over this period may have increasingly emphasized stories of individualism, thus generating a negative link between rising inequality and public opinion liberalism. The decline in inequality prior to the 1970s, by contrast, was driven primarily by increasing incomes at the bottom of the income distribution and may have generated stories emphasizing government’s role in education and job creation. This could explain why declining inequality up to the 1970s pushed public opinion in a liberal direction.

See the paper for some further discussion and appropriate caveats.

That explanation doesn't ring very true to me, but I don't have anything better to offer. Any ideas?

(When you are puzzled by a regression result, the tendency is to question the statistical technique or the quality of the data. So, in that tradition, the autocorrelated error structure for the regressions in Table 2 where the results are disaggregated by income could be signaling a misspecified model. For example, citing the paper they cite to justify the correction for autocorrelation, "analysts should view autocorrelation as a potential sign of improper theoretical specifcation rather than just a narrow violation of a technical assumption." If the model is, in fact, misspecified then the results cannot be trusted. I'd also prefer to see the autocorrelation corrected by adding more lags to the error correction model rather than using the Prais-Winsten estimator as in the paper -- or at least try adding more lags as an alternative -- and see if it makes a difference for the results. That's the more usual correction to the autocorrelation problem in the applications of the error-correction models I'm familiar with.)

"Current Targets for Limiting Climate Change are Unsafe"

News on the urgency of combating greenhouse gases:

Research suggests climate change target 'not safe', EurekAlert: An analysis of geological records that preserve details of the last known period of global warming has revealed 'startling' results which suggest current targets for limiting climate change are unsafe.

The study by climate change experts at the University of Exeter has important implications for international negotiators aiming to agree binding targets for future greenhouse gas emission targets.

Professor Chris Turney and Dr Richard Jones ... have reported a comprehensive study of the Last Interglacial, a period of warming some 125,000 years ago, in the latest issue of the Journal of Quaternary Science.

The results reveal the European Union target of limiting global temperature rise to less than 2°C above pre-industrial levels shouldn't be considered 'safe'. ...

Professor Turney said: "The results here are quite startling and, importantly, they suggest sea levels will rise significantly higher than anticipated and that stabilizing global average temperatures at 2˚C above pre-industrial levels may not be considered a 'safe' target as envisaged by the European Union and others. The inevitable conclusion is emission targets will have to be lowered further still."

"All-Out Geoengineering Still Would Not Stop Sea Level Rise"

Are you counting on geoengineering to solve our greenhouse gas problem?:

All-out geoengineering still would not stop sea level rise, by David Biello, Scientific American: Mimicking volcanoes by throwing particles high into the sky. Maintaining a floating armada of mirrors in space. Burning plant and other organic waste to make charcoal and burying it—or burning it as fuel and burying the CO2 emissions. Even replanting trees. All have been mooted as potential methods of "geoengineering"—"deliberate large-scale manipulation of the planetary environment," as the U.K.'s Royal Society puts it.

The goal, of course, is to cool the planet by remove heat-trapping gases in the atmosphere or reflecting sunlight away. But rising temperatures is just one impact of our seemingly limitless emission of greenhouse gases, largely carbon dioxide, into the atmosphere. Arguably a more devastating consequence would be the rise of the seas as warmer waters expand and melting icecaps fill ocean basins higher, potentially swamping nations and the estimated 150 million people living within one meter of high tide. Can geoengineering hold back that tide?

That's what scientists attempted to assess with computer models in a paper published online August 23 in Proceedings of the National Academy of Sciences. In their words, "sea level rise by 2100 will likely be 30 centimeters higher than 2000 levels despite all but the most aggressive geoengineeering." In large part, that's because the ocean has a lot of thermal inertia: it only slowly warms as a result of increasing greenhouse gas levels—and it will only slowly cool down again. ...

Perhaps the only way to reduce warming enough to minimize the rise of the oceans is an all-out effort that also includes burning biomass as fuel (either to replace coal or gasoline or both) and pairing it with CO2 capture and storage. Together, they could suck down greenhouse gas levels by 180 ppm—more than enough to bring us below pre-industrial levels. As a result, sea level rise is held to just 10 centimers by 2100, according to the author's modeling.

Such extensive geoengineering seems impractical given its economic (and environmental) cost. But interfering with the planet's carbon cycle—something we're already doing by adding so much CO2 to the atmosphere—appears to be the better bet, even if only by curbing current CO2 emissions. Otherwise, we're leaving our descendants one heck of a mess or, as the authors put it, "substituting geoengineering for greenhouse gas emission abatement or removal constitutes a conscious risk transfer to future generations."

"Making Sense of the Climate Issue"

Jeff Sachs:

Making Sense of the Climate Impasse, by Jeffrey D. Sachs, Commentary, Project Syndicate: All signs suggest that the planet is still hurtling headlong toward climatic disaster. ... Yet still we fail to act.

There are several reasons for this... First, the economic challenge of controlling human-induced climate change is truly complex. Human-induced climate change stems from two principal sources of emissions...: fossil-fuel use for energy and agriculture (including deforestation...). Changing the world’s energy and agricultural systems is no small matter. ... We need a practical strategy for overhauling two economic sectors that stand at the center of the global economy and involve the entire world’s population.

The second major challenge in addressing climate change is the complexity of the science... This scientific understanding is incomplete, and there remain significant uncertainties about the precise magnitudes, timing, and dangers of climate change. The general public naturally has a hard time grappling with this complexity and uncertainty, especially since the changes in climate are occurring over a timetable of decades and centuries...a

This has given rise to a third problem in addressing climate change, which stems from a combination of the economic implications of the issue and the uncertainty that surrounds it. This is reflected in the brutal, destructive campaign against climate science by powerful vested interests and ideologues, apparently aimed at creating an atmosphere of ignorance and confusion.

The Wall Street Journal, for example,... has run an aggressive editorial campaign against climate science for decades. ... Major oil companies and other big corporate interests also are playing this game... Their general approach is to exaggerate the uncertainties of climate science and to leave the impression that climate scientists are engaged in some kind of conspiracy to frighten the public. ...

If we add up these three factors – the enormous economic challenge of reducing greenhouse gases, the complexity of climate science, and deliberate campaigns to confuse the public and discredit the science – we arrive at the fourth and over-arching problem: US politicians’ unwillingness or inability to formulate a sensible climate-change policy. ...

When Barack Obama was elected US president, there was hope for progress. Yet, while it is clear that Obama would like to move forward on the issue,... special interest groups have dominated the process, and Obama has failed to make any headway.

The Obama administration should ... try ... an alternative approach. Instead of negotiating with vested interests in the backrooms of the White House and Congress, Obama should present a coherent plan to the American people ... for phasing in ... changes over time, and demonstrate that the costs would be modest compared to the enormous benefits.

Strangely, despite being a candidate of change, Obama has not taken the approach of presenting real plans of action for change. His administration is trapped more and more in the paralyzing grip of special-interest groups. Whether this is an intended outcome, so that Obama and his party can continue to mobilize large campaign contributions, or the result of poor decision-making is difficult to determine – and may reflect a bit of both.

What is clear is that we are courting disaster as a result. Nature ... is telling us that our current economic model is dangerous and self-defeating. Unless we find some real global leadership in the next few years, we will learn that lesson in the hardest ways possible.

"Conservatism’s Death Gusher"

This from a member of the Linguistics Department at UC Berkeley:

Conservatism’s Death Gusher, by George Lakoff, Berkeley Blog: The issue is death — death gushing at ten thousand pounds per square inch from a mile below the sea, tens of thousands of barrels of death a day. Not just death to eleven human beings. Death to sea birds, sea turtles, dolphins, fish, oyster beds, shrimp, beaches; death to the fishing industry, tourism, jobs; and death to a way of life based on the beauty and bounty of the Gulf.

Many, perhaps a majority, of the Gulf residents affected are conservatives, strong right-wing Republicans, following extremist Governors Bobby Jindal and Haley Barbour. What those conservatives are not saying, and may be incapable of seeing, is that conservatism itself is largely responsible for what happened, and that conservatism is a continuing disaster for conservatives who live along the Gulf. Conservatism is an ideology of death. ...

It was conservative laissez-faire free market ideology... Cost-benefit analysis only looks at monetary costs versus benefits, case by case, not at the risk of massive death of the kind that has been gushing out of the Gulf.  Death, in itself, even at that scale, is not a “cost.” Only an outflow of money is a “cost.” This is what follows from conservative laissez-faire market ideology, an ideology that continues to sanction death on a Gulf scale. ...

The conservative worldview says man has dominion over nature: nature is there for human monetary profit. Profit is sanctioned over the possibility of massive death and destruction in nature. Conservatives support even more dangerous drilling off the coast of Alaska and are working to repeal the President’s moratorium on deep water drilling. Nature be damned; the oil companies have a right to make money, death or no death. ...

A great many self-identified conservatives are actually what I’ve called “biconceptuals,” who have both conservative and progressive worldviews, but on different issues. They actually share a progressive view of nature: they love the beauty and appreciate the bounty of the Gulf, as it was before the Death Gusher. They want to save the environment of the Gulf and the way of life as it was. But shift the issue to the culpability of laissez-faire markets, the absolute right to profit from nature and profit-maximizing corporate practices, and their conservative worldview is activated. They will not be able to see the causal role of conservatism itself in the Death Gusher, and in the conservative ideology of greed and death that has given us the global warming disaster we now face worldwide.

Incidentally, there are bi-conceptual Democrats who share the conservative view of the market. Their views have led to many of President Obama’s problems with Democrats in Congress.

Finally, there is what progressive Democrats see as a contradiction: conservative advocates of smaller and weaker government and critics of governmental power trying to pin the Death Gusher Disaster on Obama for not having and using enough government power to prevent or lessen the disaster — even though the government has no capacity to plug oil wells.

The contradiction is logical, from a progressive point of view, but not from a conservative point of view. The highest value in the conservative universe is to preserve, defend, and extend conservatism itself. Anything that helps, or fails to harm, Obama contradicts this highest principle, since Obama’s deepest values on the whole fundamentally contradict conservative values. Conservatives, on principle, cannot let a major opportunity to criticize Obama go by. Of course, it also helps conservatives politically.

Those who are not held captive by the conservative worldview should be able to recognize the causal role of conservatism in the Death Gusher in the Gulf. Many progressives do, but keep it to themselves.

Progressives have been much too kind to conservatives on this matter. They have largely accepted the Bad Actor Frame, criticizing BP but not the whole industry and its practices. No one should be drilling miles under the sea, where oil comes out at 10,000 pounds per square inch. No matter how much profit is involved.

Conservatism gushes death — and not only in the Gulf of Mexico.

I think there are two different ways to characterize market fundamentalism, a distinction I tried to get at in Markets are Not Magic. One is the belief that markets have desirable properties when the right conditions are in place (i.e. the conditions that ensure that markets are competitive). I think it would be fair to say that most economists hold the belief that markets function well under the proper conditions (and note that the markets described above clearly do not satisfy these conditions).

The second type of market fundamentalism is the belief that markets perform best when government is involved the least -- the less government the better -- and this includes the belief that market failures will self-correct. Markets will take care of any problems an their own, so government intervention is not required.

Almost all economists recognize that there are some market failures that must be corrected by government intervention, the disagreement is over their prevalence. Some economists see widespread and costly market failures, and that government can intervene effectively to overcome them. Thus, an active, interventionist government is required to ensure that markets are functioning correctly. More libertarian types tend to both see fewer market failures and, more importantly, believe that government is not very effective in intervening to correct problems. It's only very large, very obvious cases where government can help, and those are far and few between. Some never see them at all.

So I would characterize the problem slightly differently. It wasn't market fundamentalism per se, it was the wrong type of market fundamentalism. There was too much of the second type, and not enough of the first. That is, those who believe that markets function poorly when there are substantial deviations from ideal market conditions and that government is needed to correct these problems lost the ideological battle several decades ago to those who believe in the second type of market fundamentalism -- one that minimizes government involvement in the economy. We see this in the gulf, we see this in the financial crash, and we see it in other areas of the economy as both economic and political power has been concentrated in fewer and fewer hands. And there has been little, if any resistance from regulators charged with ensuring that markets are free from the problems that can result from such concentrations.

I want government to intervene as little as possible, but the movement in this direction that began in the 1970s has gone too far. I thought the financial crisis would change this, that public and professional opinion would move back toward a more interventionist posture, and that the problems in the gulf would reinforce the change. But the tide hasn't turned as much as I expected. Perhaps this power is entrenched to a degree where it will be a long and difficult battle to reverse it, and it was too much to expect that things would change dramatically in such a short period of time. But it's still disappointing.

Paul Krugman: Who Cooked the Planet?

Why did climate change legislation fail?:

Who Cooked the Planet?, by Paul Krugman, Commentary, NY Times: Never say that the gods lack a sense of humor. I bet they’re still chuckling on Olympus over the decision to make the first half of 2010 — the year in which all hope of action to limit climate change died — the hottest such stretch on record. ...

So why didn’t climate-change legislation get through the Senate? Let’s talk first about what didn’t cause the failure, because there have been many attempts to blame the wrong people.

First of all, we didn’t fail to act because of legitimate doubts about the science. Every piece of valid evidence ... points to a continuing, and quite possibly accelerating, rise in global temperatures.

Nor is this evidence tainted by scientific misbehavior. You’ve probably heard about the accusations leveled against climate researchers —... “Climategate,” and so on. What you may not have heard, because it has received much less publicity, is that every one of these supposed scandals was eventually unmasked as a fraud concocted by opponents of climate action...

Did reasonable concerns about the economic impact of climate legislation block action? No. ... All serious estimates suggest that we could phase in limits on greenhouse gas emissions with at most a small impact on the economy’s growth rate.

So it wasn’t the science, the scientists, or the economics that killed action on climate change. What was it?

The answer is, the usual suspects: greed and cowardice.

If you want to understand opposition to climate action, follow the money. The economy as a whole wouldn’t be significantly hurt if we put a price on carbon, but certain industries — above all, the coal and oil industries — would. And those industries have mounted a huge disinformation campaign to protect their bottom lines.

Look at the scientists who question the consensus on climate change; look at the organizations pushing fake scandals; look at the think tanks claiming that any effort to limit emissions would cripple the economy. Again and again, you’ll find that they’re on the receiving end of a pipeline of funding that starts with big energy companies, like Exxon Mobil, which has spent tens of millions of dollars promoting climate-change denial, or Koch Industries, which has been sponsoring anti-environmental organizations for two decades.

Or look at the politicians who have been most vociferously opposed to climate action. Where do they get much of their campaign money? You already know the answer.

By itself, however, greed wouldn’t have triumphed. It needed the aid of cowardice — above all, the cowardice of politicians who know how big a threat global warming poses, who supported action in the past, but who deserted their posts at the crucial moment.

There are a number of such climate cowards, but let me single out one in particular: Senator John McCain.

There was a time when Mr. McCain was considered a friend of the environment. Back in 2003 he burnished his maverick image by co-sponsoring legislation that would have created a cap-and-trade system for greenhouse gas emissions. He reaffirmed support for such a system during his presidential campaign, and things might look very different now if he had continued to back climate action once his opponent was in the White House. But he didn’t — and it’s hard to see his switch as anything other than the act of a man willing to sacrifice his principles, and humanity’s future, for the sake of a few years added to his political career.

Alas, Mr. McCain wasn’t alone; and there will be no climate bill. Greed, aided by cowardice, has triumphed. And the whole world will pay the price.

Why is the Obama Administration Blaming Environmentalists for Its Failures?

Michael Perelman is puzzled by the administration's attempt to blame environmentalists for the failure of climate change legislation:

 Politico reports that the Obama folk blame the Greens for the failure of its energy bill because it was THEIR responsibility to lobby...  So, here is the story: misinformed Greens voted for Obama for change, but the change was that it was the responsibility of the Greens to create the change.

Of course, the White House needs a strong grassroots movement to fight powerful interests, but it also has the responsibility to lead that movement rather than make deals with those whom the grass roots people oppose. ...

Here's the part of the story linked above the raised Michael's ire:

...The blame game has already begun. One exasperated administration official on Thursday lambasted the environmentalists – led by the Environmental Defense Fund – for failing to effectively lobby GOP senators. “They didn’t deliver a single Republican,” the official told Politico. “They spent like $100 million and they weren’t able to get a single Republican convert on the bill.”

But many say it was Obama who didn’t do enough to make the climate bill a big enough priority, allowing other monster big-ticket items like the economic stimulus, health care and Wall Street reform to suck up all the oxygen and leaving environmentalists grasping for straws too late in the game – well past the expiration date for other big accomplishments during the 111th Congress.

“The absence of direct, intense presidential leadership doomed this process,” said Eric Pooley... Going back to Day One, Obama never turned his campaign proposals into formal legislative text, leaving lawmakers to shoulder the load. And when Obama spoke publicly about the issue, it was only with a vague call for “comprehensive energy and climate” measures that did little to help win votes. ...

The leadership from the administration on climate change has been about as effective as its leadership on additional stimulus and job creation. At least they aren't blaming the unemployed for their failure to lobby effectively for a jobs bill. It's not possible to give the administration a passing grade for effort in either case, let alone for results.

In fairness, this is one official speaking, I don't think the administration more generally is pushing the line that the failure of climate change legislation is due to lack of effective lobbying by environmental groups. I suppose it can be argued that these groups couldn't even move the administration to effective action, but I doubt that's an argument the administration will want to make. In any case, it has more to do with the administration's misguided notion that bipartisan, centrist victories will be anything more than Pyrrhic – if they can get them at all –  than it does with lack of attempts from the left to get the administration to pursue these objectives.

Receding Glaciers of the Greater Himalaya

[I was going to post this yesterday, but Brad's post disappeared while I was doing this, so I decided to wait. It's back now. I should have also noted that Brad's post has excerpts from David Leonhardt's Overcome by Heat and Inertia discussing the options and prospects for climate change legislation.]

Brad DeLong shows changes in the Qori Kalis Glacier, Quelccaya Ice Cap, Peru between 1978 and 2002. Here's another example:

Kyetrak Glacier in Tibet in 1921 and 2009

Here are two more:

West Rongbuk Glacier, Northern Slope of Mt. Everest, in 1921 and 2008

East Rongbuk Glacier, Northern Slope of Mt. Everest, in 1921 and 2008

And for even more, see the interactive, comparative photography, and video links here.

Will Geoengineering Make Things Better or Worse?

Is geoengineering the answer to our global warming problems?:

Is the cure (geoengineering) worse than the disease (global warming)?, by David Biello: If there's one thing more potentially contentious than the international politics of global warming..., it's the politics of the most radical suggestion to solve it: geoengineering. ...

Geophysicist Kate Ricke of Carnegie Mellon University and her colleagues show that one of the more feasible geoengineering methods—injecting reflective particles into the atmosphere to mimic the world-cooling effects of a volcanic eruption—will have effects that vary from place to place. So, for example, India might be rendered too cold (and wet) by a level of particle injection that's just right for its neighbor China while setting the levels to India's liking would toast the Middle Kingdom.

What's worse, the computer models that show that such injections might work in the short term also show that they will change global weather patterns by making part of the atmosphere more stable—and therefore less likely to promote storms. That means less rainfall to go around—and these side effects become worse with time. ...

Engineers used to show up in comments and tell me that, unlike economists, they know how to build systems in ways that prevent the chance of catastrophic collapse like we had in the financial system. Then the oil spill in the gulf happened and they've become much more scarce. Even if the models said this will work without any worrisome side effects or geographic differences, the stakes are too high to use that result as an excuse to delay action on the global warming problem. We need to start solving this problem now and if we are lucky, we won't have to depend upon the geoengineers to prevent catastrophic effects from global warming.

Will the New Transport Rule Gut Cap and Trade?

Reblogging John Whitehead'a reblog of RFF:

It's like smaller hot dogs at lower prices, Environmental Economics:

When Sen. Lindsey Graham recently declared cap and trade “dead” he may have been more right than he realized. He was referring to the political prospects for carbon pricing in this Congress, but cap and trade has been the tool of choice for limiting emissions of other pollutants—like sulfur dioxide and nitrous oxides—for almost 20 years. The EPA proposed a rule yesterday that could sharply limit the role of trading in markets for those pollutants.

The proposed “transport rule” would replace the existing Clean Air Interstate Rule (CAIR). Both are aimed at reducing emissions that affect air quality not locally, but in downwind area (hence the “transport” and “interstate” in their names). CAIR was issued under the Bush administration but comprehensively rejected by the D.C. Circuit Court (in North Carolina v. EPA, 531 F.3d 896). CAIR has been in effect since the ruling, but as a zombie regulation. The EPA needs to replace it with a new rule that fits the court’s view of the agency’s powers under the Clean Air Act. The Transport Rule released yesterday is the agency’s attempt to do this. The rule is massive—1,300 pages—and reads like a long-form response to the court’s opinion.

So what does this have to do with cap and trade? Among the court’s major objections to CAIR was the inability of the EPA to guarantee each state would reduce its emissions sufficiently to prevent interference with air quality downwind. The emissions trading systems set up by CAIR was to reduce emissions overall, and prevent problematic transport of pollution generally but the EPA couldn’t promise, as the court read the statute to require, that each and every state would reduce emissions sufficiently. The reason for this is interstate trading. CAIR would have allowed emissions sources in different states to trade with each other. This has obvious benefits, as a bigger market is generally more efficient, but it is impossible to know in advance where the emissions reductions will occur. If it is unexpectedly cheap to reduce NOx emissions in Ohio and unexpectedly expensive in Kentucky, trading will happen and Ohio will make deeper cuts. Knowing in advance where reductions will be cheaper is hard (this lack of information is the reason for having a market in the first place). Generally, this lack of foreknowledge is not a problem, since the overall cost of emissions reductions is lower. Under the court’s reading of the Clean Air Act, however, the agency has to know the outcome in advance, at least at the state level.

The transport rule responds by largely eliminating interstate trading. Intrastate trading is still allowed, but the rule would only allow interstate trading at the margin—within relatively narrow “variability limits.” The EPA seems to be doubtful that even this small amount of interstate trading will be permitted by the courts. The new rule lists alternative options that do not include interstate trading at all. 

It looks like we’ll be lucky if the final version of the new rule includes any interstate trading at all. Without interstate trading, the emissions reductions achieved by the new rule will be more expensive than they otherwise would be – possibly a lot more (I look forward to analysis from economists on exactly how much). Since the transport rule would replace both of the major cap-and-trade programs currently in operation in the U.S.—the Title IV SO2 program and the NOx SIP Call—this would mean an end to interstate emissions trading, at least for the 31 states affected by the new rule. It’s only a slight overstatement to say that cap and trade as we now know it would end.

via www.rff.org

I'm don't fully understand the reasoning behind the D.C. Circuit Court ruling. Can anyone help? Can Congress fix this with new legislation? Actually, is there any hope left for meaningful legislation? Spending on R&D to encourage new technologies seems quite likely, but meaningful measures to reduce carbon emissions do not. I thought there was a chance at one time, but I'm more pessimistic now.

When Sen. Lindsey Graham recently declared cap and trade “dead” he may have been more right than he realized. He was referring to the political prospects for carbon pricing in this Congress, but cap and trade has been the tool of choice for limiting emissions of other pollutants—like sulfur dioxide and nitrous oxides—for almost 20 years. The EPA proposed a rule yesterday that could sharply limit the role of trading in markets for those pollutants.

The proposed “transport rule” would replace the existing Clean Air Interstate Rule (CAIR). Both are aimed at reducing emissions that affect air quality not locally, but in downwind area (hence the “transport” and “interstate” in their names). CAIR was issued under the Bush administration but comprehensively rejected by the D.C. Circuit Court (in North Carolina v. EPA, 531 F.3d 896). CAIR has been in effect since the ruling, but as a zombie regulation. The EPA needs to replace it with a new rule that fits the court’s view of the agency’s powers under the Clean Air Act. The Transport Rule released yesterday is the agency’s attempt to do this. The rule is massive—1,300 pages—and reads like a long-form response to the court’s opinion.

So what does this have to do with cap and trade? Among the court’s major objections to CAIR was the inability of the EPA to guarantee each state would reduce its emissions sufficiently to prevent interference with air quality downwind. The emissions trading systems set up by CAIR was to reduce emissions overall, and prevent problematic transport of pollution generally but the EPA couldn’t promise, as the court read the statute to require, that each and every state would reduce emissions sufficiently. The reason for this is interstate trading. CAIR would have allowed emissions sources in different states to trade with each other. This has obvious benefits, as a bigger market is generally more efficient, but it is impossible to know in advance where the emissions reductions will occur. If it is unexpectedly cheap to reduce NOx emissions in Ohio and unexpectedly expensive in Kentucky, trading will happen and Ohio will make deeper cuts. Knowing in advance where reductions will be cheaper is hard (this lack of information is the reason for having a market in the first place). Generally, this lack of foreknowledge is not a problem, since the overall cost of emissions reductions is lower. Under the court’s reading of the Clean Air Act, however, the agency has to know the outcome in advance, at least at the state level.

The transport rule responds by largely eliminating interstate trading. Intrastate trading is still allowed, but the rule would only allow interstate trading at the margin—within relatively narrow “variability limits.” The EPA seems to be doubtful that even this small amount of interstate trading will be permitted by the courts. The new rule lists alternative options that do not include interstate trading at all. 

It looks like we’ll be lucky if the final version of the new rule includes any interstate trading at all. Without interstate trading, the emissions reductions achieved by the new rule will be more expensive than they otherwise would be – possibly a lot more (I look forward to analysis from economists on exactly how much). Since the transport rule would replace both of the major cap-and-trade programs currently in operation in the U.S.—the Title IV SO2 program and the NOx SIP Call—this would mean an end to interstate emissions trading, at least for the 31 states affected by the new rule. It’s only a slight overstatement to say that cap and trade as we now know it would end.

via www.rff.org

Rogoff: Can Good Emerge From the BP Oil Spill?

Kenneth Rogoff says anger among twenty somethings might "be the ticket to rekindling interest in a carbon tax":

Can Good Emerge From the BP Oil Spill?, by Kenneth Rogoff, Commentary, Project Syndicate: Perhaps it is a pipe dream, but it is just possible that the ongoing BP oil-spill catastrophe in the Gulf of Mexico will finally catalyze support for an American environmental policy with teeth. ...

The fact is, the BP oil spill is on the cusp of becoming a political game-changer of historic proportions. If summer hurricanes push huge quantities of oil onto Florida’s beaches and up the Eastern seaboard, the resulting political explosion will make the reaction to the financial crisis seem muted.

Anger is especially rife among young people. Already stressed by extraordinarily high rates of unemployment, twenty-somethings are now awakening to the fact that their country’s growth model – the one they are dreaming to be a part of – is, in fact, completely unsustainable, whatever their political leaders tell them. ...

Might a reawakening of voter anger be the ticket to rekindling interest in a carbon tax? ... Why might a carbon tax be viable now, when it never has been before? The point is that, when people can visualize a problem, they are far less able to discount or ignore it. Gradual global warming is hard enough to notice, much less get worked up about. But, as high-definition images of oil spewing from the bottom of the ocean are matched up with those of blackened coastline and devastated wildlife, a very different story could emerge.

Some say that young people in the rich countries are just too well off to mobilize politically, at least en masse. But they might be radicalized by the prospect of inheriting a badly damaged ecosystem. Indeed, there is volatility just beneath the surface. Modern-day record unemployment and extreme inequality may seem far less tolerable as young people realize that some of the most cherished “free” things in life – palatable weather, clean air, and nice beaches, for example – cannot be taken for granted.

Of course, I may be far too optimistic in thinking that the tragedy in the Gulf will spur a more sensible energy policy... A great deal of the US political reaction has centered on demonizing BP and its leaders, rather than thinking of better ways to balance regulation and innovation.

Politicians understandably want to deflect attention from their own misguided policies. But it would be far better if they made an effort to fix them. A prolonged moratorium on offshore and other out-of-bounds energy exploration makes sense, but the real tragedy of the BP oil spill will be if the changes stop there. How many wake-up calls do we need?

The response to the financial crisis from Congress has been disappointing, and it's hard not to let that color thoughts about climate change legislation. I'm not optimistic. But if there is action, I doubt it will be through a carbon tax. People may be angry, but the anger is at specific targets, e.g. BP. There are attempts to say "you, the American public caused this by your insatiable demand for energy," but I think that will backfire. especially if it can be linked to PR from BP. People don't think it's individually their fault that the oil spill happened, and while they are more than willing to make other people pay for it -- those who are responsible -- I'm not so sure they are ready to place the burden on themselves. The same goes for climate change policies more generally. I just don't see a carbon tax in the cards.

Update: Richard Green:

Ken Rogoff thinks the BP spill might produce a groundswell for a carbon tax...: ...but Mark Thoma is not so sure [Rogoff's take is here].

I am actually more inclined to agree with Rogoff on this one. When environmental problems are easily visible, they seem to generate political consensus for action. The air quality in Los Angeles, which was obviously awful 30 years ago, if much better currently--the vast majority of days are quite clear now(although we still have the problem of invisible small particulates). The 1952 smog disaster led to major policy changes in the UK. The BP disaster could similarly mobilize policy.

Mark could still be right about this--I just hope he is not.

"The Real Options for U.S. Climate Policy"

Robert Stavins says climate change legislation is still possible and, after an extensive review of all the "real options for climate policy in the United States," he concludes that the best available alternative is an economy-wide cap-and-trade system. (It's hard for me to envision an economy-wide cap-and-trade system finding the political support it needs to be enacted, but I hope I'm wrong. This is quite a bit shorter than the original and, in addition, the original is dense with links to supporting documentation.):

The Real Options for U.S. Climate Policy, by Robert Stavins: The time has not yet come to throw in the towel regarding the possible enactment in 2010 of meaningful economy-wide climate change policy...  Meaningful action of some kind is still possible, or at least conceivable.  But with debates regarding national climate change policy becoming more acrimonious in Washington as midterm elections approach, it is important to ask, what are the real options for climate policy in the United States – not only in 2010, but in 2011 and beyond.  That’s the purpose of this essay.

Federal Policy Options Let’s begin my considering Federal policy options under two distinct categories:  pricing instruments and other approaches.  Carbon-pricing instruments could take the form of caps on the quantity of emissions (cap-and-trade, cap-and-dividend, or baseline-and-credit), or approaches that directly put carbon prices in place (carbon taxes or subsidies).  Beyond pricing instruments, the other approaches include regulation under the Clean Air Act, energy policies not targeted exclusively at climate change, public nuisance litigation, and NIMBY and other public interventions to block permits for new fossil-fuel related investments.  I will discuss each of these in turn. ...

A Quick Reminder about Cap-and-Trade In brief, there are four principal merits of the cap-and-trade approach to achieving significant reductions of carbon dioxide (CO₂) emissions.  First, this approach achieves overall targets at minimum aggregate cost...  Second, the allowance allocation under a cap-and-trade system can be used to build a constituency of political support across sectors and geographic areas without driving up the cost of the program or reducing its environmental performance.  Third, we have significant experience in the United States with the use of this approach, including during the 1980s to phase out leaded gasoline from the marketplace, and since the 1990s to cut acid rain by 50 percent.  Fourth, and of great importance, a domestic cap-and-trade system can be linked directly and cost-effectively with cap-and-trade systems and emission-reduction-credit systems in other parts of the world...

Three principal concerns have been voiced about cap-and-trade systems in U.S. debates.  First, while a cap-and-trade system constrains the quantity of emissions, the costs of control are left uncertain (although such cost uncertainty can be limited — if not eliminated — through the use of safety valves, price collars, or related mechanisms).  Second, in the wake of concerns regarding the role that financial markets played in the global recession, there have been many fears about the possibilities of market manipulation in a cap-and-trade system.  A third concern – in a political context – is that this cost-effective approach to environmental protection, pioneered by the Republican administration of President George H. W. Bush, has – ironically — been demonized by conservatives in current debates. ...

A Populist Approach? Populism has emerged as a major theme in recent electoral politics in the United States, both from the left and from the right.  What might be characterized as a populist approach would be a cap-and-trade system with 100% of the allowances auctioned and the auction revenue returned directly “to the people.”  Although this is a standard variant of cap-and-trade design, contemporary politics — with its demonization of the phrase “cap-and-trade” — might well argue for a name change:  how about “cap-and-dividend?”...

The merits of this approach include its simplicity, appearance of fairness, and related appeal to the populist mood.  Concerns, however, include the proposal’s relatively modest environmental achievements (according to an analysis by the World Resources Institute), its overall cost due to restrictions on trading, and its apparent political infeasibility, given its lack of visible support in the Congress. ...

Direct Carbon Pricing A carbon tax system would be similar in design to an upstream cap-and-trade approach.  There is some real interest in this approach, mainly from academics, and there is also what I would characterize as “strategic interest,” principally from those who recognize that once the focus is on carbon taxes rather than other instruments, political debates will inevitably result in less ambitious targets or, in fact, no policy at all. ...

In this regard, it is important to note that what has frequently been interpreted as hostility to cap-and-trade in the U.S. Senate is actually – on closer inspection — broader hostility to the very notion of carbon pricing (or any climate change policy).  Surely, the political reception to a carbon tax would be even less enthusiastic than the reception that has greeted recent cap-and-trade proposals. ...

Climate Change Regulation under the Clean Air Act Regulations of various kinds may soon be forthcoming – and in some cases, will definitely be forthcoming – as a result of the U.S. Supreme Court decision in Massachusetts v. EPA and the Obama administration’s subsequent “endangerment finding” that emissions of carbon dioxide and other greenhouse gases endanger public health and welfare.  This ... identified carbon dioxide as a pollutant under the Clean Air Act...

However, regulatory action on carbon dioxide under the Clean Air Act will accomplish relatively little and do so at relatively high cost, compared with carbon pricing.  ...  Indeed it is reasonable to ask whether this is a credible threat, or will instead turn out to be counter-productive (when stories about the implementation of inflexible, high-cost regulatory approaches lend ammunition to the staunchest opponents of climate policy). ...

Does the Path to National Climate Policy Need to Go through Washington? With political stalemate in Washington, attention may increasingly turn to regional, state, and even local policies intended to address climate change.  The Regional Greenhouse Gas Initiative (RGGI) in the Northeast has created a cap-and-trade system among electricity generators.  More striking, California’s Global Warming Solutions Act will likely lead to the creation of a very ambitious set of climate initiatives, including a statewide cap-and-trade system...  The California system is likely to be linked with systems in other states and Canadian provinces under the Western Climate Initiative. ...

An important question is whether there can be sensible sub-national policies even in the presence of an economy-wide Federal carbon-pricing regime?  The answer is surely yes, partly because other market failures will continue to exist that are not addressed by carbon pricing. ...

In the meantime, in the absence of meaningful Federal action, sub-national climate policies could well become the core of national action.  ...

The Path Ahead Conventional politics clearly disfavors market-based (pricing) environmental policy approaches that render costs obvious or at least somewhat transparent, despite the fact that the costs of these same policies are actually less than those of alternative approaches.  Instead, conventional politics favors approaches to environmental protection that render costs less obvious (or better yet invisible), such as renewable portfolio standards, and — for that matter — all sorts of command-and-control performance and technology standards.

But carbon pricing will be necessary to address the diverse economy-wide sources of CO₂ emissions effectively and at sensible cost, whether the carbon pricing comes about through an economy-wide Federal cap-and-trade system or through a Federal carbon tax.  It is inconceivable that truly meaningful reductions in CO₂ emissions could be achieved through purely regulatory approaches, and it remains true that whatever would be achieved, would be accomplished at excessively high cost.

So, although it is true – as I have sought to explain in this essay – that there are a diverse set of options for future climate policy in the United States, the best available alternative to an economy-wide cap-and-trade system enacted in 2010 may be an economy-wide cap-and-trade system enacted in 2011!

"The Obama Plot for a Carbon Tax"

Robert Reich:

The Obama Plot for a Carbon Tax, by Robert Reich: ...Tuesday night, President Obama did not call for a tax on carbon. He didn’t even ask the Senate to pass the cap-and-trade legislation that emerged from the House. Instead, he said there were lots of good ideas out there and he’s willing to consider any of them — which seemed more like a way of declaring cap-and-trade dead.

But maybe the President has a more subtle strategy in mind. Here’s what New York Magazine’s John Heilemann thinks may be going on:

Lacking the 60 votes necessary for cap-and-trade, the administration plans to get behind a more modest conservation measure in the Senate, then push for a carbon pricing mechanism during the conference committee merger with the House bill — and do so during a lame-duck session after the midterms, when victorious Democrats will find it easier to make a tough vote and losing ones will be freed of political constraints.

It’s plausible. ... But if that’s his strategy it’s a curious one considering Obama’s great gift ... to stir the nation and mobilize it behind him. ... Closed-door conference committees, back-room deals, and lame-duck sessions keep the public out. And when the public is shut out, the big guys have even more clout.

Yet hard-boiled Washington hands I talk with disagree. They point to the $80 billion back-room deal that bought off Big Pharma for health care. They claim there’s no other way to do business in Washington now because public opinion is too easily manipulated. They say ... deal-making behind closed doors ain’t pretty but the ... only way to get close to a carbon tax or anything else that’s good for America is to buy the bums off.

Maybe. But when the bums are paid off the public gets stuck with the tab. We’ll be paying far more for our drugs under the new health care law than otherwise because of the deal with Big Pharma. Remember the back-room deal that bailed out Wall Street? ...

Call me old fashioned but I still think democracy is better than corporatist negotiation. And when we have a president as articulate and thoughtful as the one we now have — more capable than almost any occupant of the Oval Office in modern times to educate the public about real challenges and real solutions — he and his advisors do a disservice to the American people when they make the important deals in secret.

I thought the problems in the gulf might make passage of greenhouse gas legislation easier -- for one, those who argue that technology can always solve human induced environmental problems before they do much damage ought to be reexamining that belief -- but that doesn't seem to have happened. If anything, the chances of passing meaningful legislation have fallen recently. We may get some action from Congress, enough to allow them to claim in election ads that they did something. But I think it will take a clear signal that the world is warming up, some consequence that is obvious to everyone, before there is significant change.

"President’s Obama’s War on Error"

Alex Tabarrok at the NY Time Room for Debate:

Carbon Taxes, by Alex Tabarrok: President Obama lost his cool last week when — sounding like the old president — he said he was looking for some “ass to kick.” He didn’t regain any lost cool in Tuesday’s oil speech, which also made him sound like his predecessor: “Make no mistake: we will fight this spill with everything we’ve got for as long it takes,” he said, emphasizing “We will make BP pay….” Call it President’s Obama’s war on error.

Turning to energy, the president called for innovation and hard choices but offered little new or courageous thinking of his own. ... Most important, nowhere did the president mention two hard ideas that the public must accept if we are to move to a cleaner energy future: nuclear power and carbon taxes. Nuclear power is among the cleanest sources of energy, power plants can be built when and where needed and the combination of nuclear-generated electricity and hydrogen can serve virtually all of our energy needs. Is nuclear power safe? Oil spills and coal-mine disasters should remind us that safety is always relative.

The oil spill isn’t really a new event. It’s simply another reminder that not all of the costs of oil are reflected in the price; whether it’s climate change, environmental disaster or the financing of anti-American governments, cheap oil is a lot more expensive than it appears at the pump. A tax on oil — and carbon more generally — would make the price of oil better reflect its true costs thus making our choices more realistic and rational. Moreover, a carbon tax would do more than any other policy to spur energy conservation and innovation.

No one likes taxes but Al Gore was right when he said we should tax burning not earning. A tax shift — not a tax increase — away from labor and toward carbon would increase the incentive to create jobs and to use less carbon. Both changes would be welcome at the present time.

We needed bold but unfortunately the president mostly gave us old.

I was on the fence before and not really sure whether to go with the seemingly emerging consensus that nuclear power is the answer to our energy needs, there were always nagging doubts, but the problems in the gulf make me hesitant to embrace nuclear power despite assurances that the risks are minuscule. Should nuclear power play a large role in the solution to our energy problems?

"It is Time for Asia to Rewrite the Rules of Capitalism"

This argues that the "western economic model, which defines success as consumption-driven growth, must be challenged," and Asian countries are in the best position to lead the way:

It is time for Asia to rewrite the rules of capitalism, by Chandran Nair, Commentary, Financial Times: The 20th century’s triumph of consumption-based capitalism has created the crisis of the 21st century: looming catastrophic climate change, massive environmental damage and significant depletion of natural resources. ... The western economic model, which defines success as consumption-driven growth, must be challenged. Asia, while apparently promising most for this model’s continuation because of its large population, is paradoxically the region best placed to do this.

Advocates of the western model tend to play down its dramatic effects on natural resources and the environment. ... Instead, they argue that human ingenuity aided by innovations in the markets will find solutions. This is rooted in an irrational belief that we can have everything: ever-growing material wealth and a healthy natural environment. ...

Imagine a world in which, by 2050, four to five billion Asians are consuming like Americans. The result would be catastrophic, yet this is what Asians are being told to aspire to. ... Asian political leaders must demonstrate leadership. The western emphasis on markets, technology and finance cannot deliver..., politicians must recognize that technology cannot provide all the answers. Blue fin tuna, if fished to extinction, cannot be recreated in a petri dish. Nor can business be expected to lead the way in this area. The new rules needed to change the way people consume may spell the end for some companies, and they will fight to prevent change.

This is why Asian governments must intervene. Limits must be placed on various forms of consumption... This starts with access to resources and the rights to various forms of consumption. Their core task is to rewrite the rules of capitalism – by putting resource constraints at the centre of policymaking.

Governments have two key mechanisms at their disposal. First, negative environmental externalities ... must be priced in through ... taxes and fees... Second, caps must be put on the use of resources that are being overexploited, including, where appropriate, outright bans on use. ...

Policymakers need to challenge the vested interests arguing that consumption-driven capitalism is the only course and that any alternative will lead to poverty and unemployment. ... Asian governments must take responsibility for current and future generations. ... Suggesting a future in which economic policy is framed around limits, restraint and restrictions is to invite controversy, but Asian governments ... have no choice. ...

How do non-authoritarian governments impose highly unpopular, restrictive policies and survive in the long-run?

Remarks by the President to the Nation on the BP Oil Spill

In case you have comments on tonight's speech:

Remarks by the President to the Nation on the BP Oil Spill, Whitehouse.gov [video]: Good evening. As we speak, our nation faces a multitude of challenges. At home, our top priority is to recover and rebuild from a recession that has touched the lives of nearly every American. Abroad, our brave men and women in uniform are taking the fight to al Qaeda wherever it exists. And tonight, I’ve returned from a trip to the Gulf Coast to speak with you about the battle we’re waging against an oil spill that is assaulting our shores and our citizens.

What Should the Price of Gasoline Be?

Barkley Rosser:

What Should the Price of Gasoline Be?: In today's WaPo Business section, in "Think gas is too pricey? Think again," Ezra Klein reports on a recent study by Ian Perry of Resources for the Future that attempts to estimate the cost of all the externalities arising from the use of gasoline in vehicular transportation. At the time of the report, the average price of gas in the US was $2.72 per gallon, but after adding in (in order of estimated costs), 52 cents for traffic congestion, 41 cents for auto accidents, 30 cents for energy security, 20 cents for climate change, 12 cents for local pollution, and 10 cents for oil dependence, this brings a supposedly more efficient prices of $4.37 per gallon. It is unclear if that 12 cents for local pollution was estimated before or after the BP oil spill in the Gulf of Mexico happened.

And Up from the Depths Came a Bubblin' Crude

Use the play button at the bottom to avoid triggering the pop-up.

Any comments on the spill?

"Put Jobless Young People to Work Cleaning Up BP’s Mes"

Robert Reich has a wish:

Put Jobless Young People to Work Cleaning Up BP’s Mess and Order BP to Pay, Robert Reich Friday’s job report was awful. For most new high school and college grads finding a job is harder than ever. Meanwhile, states are cutting summer jobs for disadvantaged young people. What to do with this army of young unemployed? Send them to the Gulf to clean up beaches and wetlands, and send the bill to BP. ...

[W]e’ve got hundreds of thousands of young people sitting on their hands right now because they can’t find jobs. Many are from affected coastal areas, where the tourist and fishing industries have been decimated by the spill.

The President should order BP to establish a $5 billion clean-up fund, and immediately put America’s army of unemployed young people to work saving the Gulf coast. Call it the new Civilian Conservation Corps.

(The old CCC — created by FDR at another time of massive unemployment and environmental stress — gave millions of young Americans jobs and training to reforest lands that had been degraded, provide emergency flood relief in the Ohio and Mississippi valleys, and build the infrastructure for our national parks.)

This isn't exactly what he has in mind, but it's along the same lines. John Whitehead:

Green jobs: "Unemployed Hired to Clean Affected Beaches":

via www.deepwaterhorizonresponse.com: The Unified Command in Mobile announced today the first deployment of the Qualified Community Responder (QCR) program that will put unemployed individuals to work in the counties that may be affected by the oil spill. Working closely with the Alabama, Mississippi, and Florida unemployment offices, unemployed workers have been hired to help with the cleanup effort.  A similar program exists in Louisiana.

Starting today some 400 QCR workers in Florida and Alabama began cleaning affected beaches....

The plan is to train more than 4,500 workers in the three states in the Mobile Sector (1,500 in Alabama, 1,500 in Mississippi, and 1,600 in Florida). To date there are 2,946 people trained and ready to be deployed (978 in Alabama, 1,500 in Mississippi, and 468 in Florida). 

I'm assuming that these states will send a bill to BP, they should, and if they do then it is even closer to what Reich has in mind. With respect to Reich's idea, if we go that route I'd prefer to have the government in charge of the clean-up rather than BP, with BP billed later. And I don't see any reason to cap the bill at $5 billion. It will take whatever it takes to clean up after this mess (as though we can simply wash away the damage), and BP should pay the entire bill. If it bankrupts BP, too bad, they should still pay as much as possible with the government making up any shortfall in the amount needed to do the clean up job properly.

Rogoff: The BP Oil Spill’s Lessons for Regulation

Kenneth Rogoff frets over our ability to regulate complex emerging technologies:

The BP Oil Spill’s Lessons for Regulation, by Kenneth Rogoff, Commentary, Project Syndicate: As the damaged BP oil well continues to spew millions of gallons of crude..., the immediate challenge is how to mitigate an ever-magnifying environmental catastrophe. ... The disaster, however, poses a much deeper challenge to how modern societies deal with regulating complex technologies. The accelerating speed of innovation seems to be outstripping government regulators’ capacity to deal with risks, much less anticipate them.

The parallels between the oil spill and the recent financial crisis are all too painful: the promise of innovation, unfathomable complexity, and lack of transparency (...we know only a very small fraction of what goes on at the oceans’ depths.) Wealthy and politically powerful lobbies put enormous pressure on even the most robust governance structures. It is a huge embarrassment for US President Barack Obama that he proposed – admittedly under pressure from the Republican opposition – to expand offshore oil drilling greatly just before the BP catastrophe struck.

The oil technology story, like the one for exotic financial instruments, was very compelling and seductive. Oil executives bragged that they could drill a couple of kilometers down, then a kilometer across, and hit their target within a few meters. Suddenly, instead of a world of “peak oil” with ever-depleting resources, technology offered the promise of extending supplies for another generation. ... Some developing countries, most notably Brazil, have discovered huge potential offshore riches.

Now all bets are off. ... Will Brazil really risk its spectacular coastline for oil, now that everyone has been reminded of what can happen? What about Nigeria, where other risks are amplified by civil strife? ...

The basic problem of complexity, technology, and regulation extends to many other areas of modern life. Nanotechnology and innovation in developing artificial organisms offer a huge potential boon to mankind, promising development of new materials, medicines, and treatment techniques. Yet, with all of these exciting technologies, it is extremely difficult to strike a balance between managing “tail risk” – a very small risk of a very large disaster – and supporting innovation.

Financial crises are almost comforting by comparison. Speculative bubbles and banking crises have been a regular feature of the economic landscape for centuries. Awful as they are, societies survive them. ... If ever there were a wake-up call for Western society to rethink its dependence on ever-accelerating technological innovation for ever-expanding fuel consumption, surely the BP oil spill should be it. ...

Economics teaches us that when there is huge uncertainty about catastrophic risks, it is dangerous to rely too much on the price mechanism to get incentives right. Unfortunately, economists know much less about how to adapt regulation over time to complex systems with constantly evolving risks, much less how to design regulatory resilient institutions. Until these problems are better understood, we may be doomed to a world of regulation that perpetually overshoots or undershoots its goals.

The finance industry already is warning that new regulation may overshoot – that is, have the unintended effect of sharply impeding growth. Now, we may soon face the same concerns over energy policy, and not just for oil. ...

The balance of technology, complexity, and regulation is without doubt one of the greatest challenges that the world must face in twenty-first century. We can ill afford to keep getting it wrong.

Just one comment. If the risks of too little regulation are very large -- catastrophic oil spills, financial crises, and the like -- much larger than the potential costs from too much regulation stifling innovative activity -- then there should be a bias toward erring on the side of too much rather than too little regulation. Thus, the fact that "new regulation may overshoot" is not worrisome, it is optimal, and it seems to be we could have used what would have appeared to be overshooting prior to the recent financial and oil spill crises.

In addition, suppose that regulation had prevented the recent meltdowns and accidents. We never would have known -- catastrophic events that don't occur are not observable -- and there would have been considerable pressure to ease the regulations that were in place. There would have been argument after argument about regulatory overshooting, and considerable pressure from the "loan, baby, loan" and "drill, baby, drill" crowds to ease off (see Obama opening up offshore areas to drilling). I can even imagine Rogoff writing a Project Syndicate piece making the argument that financial markets are unduly constrained. So I am not particularly persuaded by worries that we will overshoot. As I said, we could have used a little more of what would have been called overshooting prior to the recent crises.

"Why Obama Should Put BP Under Temporary Receivership"

Robert Reich says the federal government should take over BP until the oil leak in the gulf is stopped:

Why Obama Should Put BP Under Temporary Receivership, by Robert Reich: It’s time for the federal government to put BP under temporary receivership, which gives the government authority to take over BP’s operations in the Gulf of Mexico until the gusher is stopped. This is the only way the public know what’s going on, be confident enough resources are being put to stopping the gusher, ensure BP’s strategy is correct, know the government has enough clout to force BP to use a different one if necessary, and be sure the President is ultimately in charge.

If the government can take over giant global insurer AIG and the auto giant General Motors and replace their CEOs, in order to keep them financially solvent, it should be able to put BP’s north American operations into temporary receivership in order to stop one of the worst environmental disasters in U.S. history.

The Obama administration keeps saying BP is in charge because BP has the equipment and expertise necessary to do what’s necessary. But under temporary receivership, BP would continue to have the equipment and expertise. The only difference: the firm would unambiguously be working in the public’s interest. As it is now, BP continues to be responsible primarily to its shareholders, not to the American public. ...

Five reasons for taking such action:

1. We are not getting the truth from BP. BP has continuously and dramatically understated size of gusher. ... Government must be clearly in charge of getting all the facts, not waiting for what BP decides to disclose and when.

2. We have no way to be sure BP is devoting enough resources to stopping the gusher. BP is now saying it has no immediate way to stop up the well until August, when a new “relief” well will reach the gushing well bore... August? If government were in direct control of BP’s north American assets, it would be able to devote whatever of those assets are necessary to stopping up the well right away.

3. BP’s new strategy for stopping the gusher is highly risky. It wants to sever the leaking pipe cleanly from atop the failed blowout preventer, and then install a new cap so the escaping oil can be pumped up to a ship on the surface. But scientists say that could result in an even bigger volume of oil – as much as 20 percent more — gushing from the well. At least under government receivership, public officials would be directly accountable for weighing the advantages and disadvantages of such a strategy. ...

4.  Right now, the U.S. government has no authority to force BP to adopt a different strategy. ... The President needs legal authority to order BP to protect the United States.

5. The President is not legally in charge. As long as BP is not under the direct control of the government he has no direct line of authority, and responsibility is totally confused. ...

The President should temporarily take over BP’s Gulf operations. We have a national emergency on our hands. No president would allow a nuclear reactor owned by a private for-profit company to melt down in the United States while remaining under the direct control of that company. The meltdown in the Gulf is the environmental equivalent.

I've wondered if BP's attempts to close off the leak also try to preserve the ability to tap the well again in the future. Are there other things that could be tried that might work better, but make it impossible to use the well again (and hence are last resort measures from the company's point of view, but no the public's)? Perhaps that's not the case, I don't have enough technical expertise to assess the options, maybe the public relations fallout, prospects of fines, lawsuits, etc., make the company do all it can to stop the leak in any case. But it's hard not to wonder given the present structure of responsibility for stopping the leak (including limits on financial responsibility). If the government were to takeover until the leak is stopped, this worry would be lessened (as would others).

However, if the administration does take over, then it will also take over responsibility for what happens. If the well continues to leak until August, and if the administration has taken BP into receivership, the administration will take the direct blame. It has that problem now, of course, the blame will be there in any case, but presently BP absorbs some of the fallout from the failed attempts to plug the leak and the administration can at least try to deflect some of the blame in BP's direction. If the administration takes over, it also takes full responsibility from that point forward, and it's not clear they want that, especially given the present prospects for stopping the leak (though, again, do we know the full spectrum of options, no matter how costly they are?).

So, in general, it's unlikely that an administration will want to take over a company when the problems are particularly hard to solve. It will take over when quick victory is assured, but why take the political risk when the problems are really hard? Better to blame the company.

I'm struggling a bit with this one. I am not very comfortable recommending a take over. I don't feel like I've thought it through enough to call for a government take over of BP, such take overs should be last ditch measures to prevent severe damage (which may justify a takeover in this case). They should not become government habits. I'd prefer that the prospects of charges for damages, fines from the EPA, lawsuits from people whose livelihood depends upon the fisheries, and so on give BP an unambiguous incentive to stop the leak as soon as possible, that its life would be just as threatened as the life in the gulf is threatened if the leak is not plugged relatively soon. There would still be a need for strict government oversight, and it would be important that the government have the authority to force or prevent certain actions and to force disclosure of information. But at least I'd be more sure that the company is doing everything it possibly can -- devoting every possible resource (and asking for government help if more resources are needed) -- to getting this fixed as soon as possible. However, it's not at all clear that the company has these incentives, and even if it did, I would still have doubts about its actions.

Again, maybe all that can be done is being done, but I'd be more confident that's the case if the company faced more consequences than it appears that it will, and if the company itself wasn't running the show and determining, at least to some extent, what I do and don't know about its options and actions.

No matter who is technically in control of the company, i.e. receivership or not, the one thing that is needed is for the government to have the authority it needs to force the company to fully disclose all the information it has about the leak, and about how to stop it. It also needs to be able to force the company to take particular actions to stop the leak even if the actions demand so many resources it results in the company going bankrupt. This is where the case for a take over seems to be the most compelling to me. Suppose that two strategies for stopping the leak exist, one that will work with near certainty and costs 1 billion, another that may or may not work that costs 200 million. If the company can adopt the 1 billion dollar strategy only by liquidating its business, but can possibly survive trying the 200 million method, it may waste valuable time trying the riskier strategy first, especially if it doesn't face the full costs of the damage it is causing (because there are externalities, or because there are legal limits on the damages it has to pay). If the potential damages are well in excess of 1 billion, enough to make the 1 billion dollar attempt the only logical choice from society's perspective, then the government should step in and force the company to finance the higher cost method of stopping the leak even if it means the company must liquidate itself. (If, say, the company only has 800 million in assets, then it can't choose the less risky option in any case. Here the government could force liquidation, and then add the extra 200 million needed to ensure the leak is stopped and the greater than 1 billion dollars saving in environmental damage is realized.)

I'm obviously unsettled on this one (and talking without enough thought behind it). Maybe you can help in comments?

"BP Advertisement from 1999"

[via Information Processing]

"Towards a New Ethics of Nature"

Paul Collier says opposition to the plunder of natural resources is often based upon romantic environmentalism or self-denying utilitarianism. But these ethical structures do not provide the "simple common ethics of nature" that is needed to motivate collective worldwide action to stop this plunder from occurring. Instead, he says, we should adopt an ethical principle common among most societies, one that says our obligation to the future is "to pass on equivalent value for the natural assets we deplete":

Towards a new ethics of nature, by Paul Collier, Commentary, Financial Times: Natural assets are valuable and they are vulnerable. The current frontier for their exploitation is the quarter of the earth’s land surface home to the bottom billion: hence the new scramble for Africa..., but much of it is weakly governed. Advances in technology will open up those natural assets beneath the oceans and the poles... The governance of these huge areas is even weaker.

Ungoverned natural assets are subject to plunder... Plunder can only be avoided by robust collective action..., ultimately it can only rest on a common understanding by citizens, society by society. ...

 In popular debate the high moral ground has been seized by romantic environmentalists who define our ethical obligation as preservation. Even in the west this can never be more than a minority view. Meanwhile, in the more rarefied technocratic debate, the high ground has been occupied by economic models. The models judge choices about the future by an austere utilitarianism in which future people, however remote, count for just as much as we do. ...

[A] more practical common ethics of nature, around which majorities could mobilize, is latent in most societies. ... Economists should be bringing the insight that natural assets matter not because of their intrinsic purity, but because they are valuable. Our obligation to the future is not to preserve purity but to pass on equivalent value for the natural assets we deplete. If, by converting natural assets into more productive assets, a poor society can escape poverty, then it should do so. ... In an impoverished society, the future will prefer to inherit schools and cities rather than to remain in impoverished purity.

This simple ethical test of whether we are infringing the rights of the future is much closer to how we see our obligations than either utilitarianism or romantic environmentalism. Respecting the rights of the future is manifestly more compelling than basing decisions on the esoteric sanctity of the infinite-horizon utilitarian calculus. Recognizing that the future may want us to use nature rather than preserve it distinguishes humane environmentalists from romantics: we are the custodians of value, not the curators of artifacts. ...

Whereas the ethics of romantic environmentalism and self-denying utilitarianism are both eccentric, the idea that natural assets oblige us to be custodians of value is common to widely differing cultures. ... The struggle to prevent the plunder of nature will be fought mainly in the societies of the bottom billion, which control the current frontier, and in the international conference halls that must regulate the future frontier. Neither is a promising venue. Rallying around a simple common ethics of nature would improve the chances.

Drill, Baby, Drill. Spill, BP, Spill

It looks like the oil spill in the gulf is much larger than we've been led to believe. BP deserves it's share -- a large share -- of the criticism for what has happened, but has the administration done everything it could do to help with the oil spill problem. Has it mobilized all possible resources, taken control of the response, etc.? Or has it left too much of the task to BP, and, as convenient, accepted lowball estimates of the magnitude of the problem hoping somehow it would go away?  Are you satisfied with the administration's response? I'm not:

Size of Oil Spill Underestimated, Scientists Say, by Justin Gillis, NY Times: Two weeks ago, the government put out a round estimate of the size of the oil leak in the Gulf of Mexico: 5,000 barrels a day. Repeated endlessly in news reports, it has become conventional wisdom.

But scientists and environmental groups are raising sharp questions about that estimate, declaring that the leak must be far larger. They also criticize BP for refusing to use well-known scientific techniques that would give a more precise figure.

The criticism escalated on Thursday, a day after the release of a video that showed a huge black plume of oil gushing from the broken well at a seemingly high rate. ...

The figure of 5,000 barrels a day was hastily produced by government scientists in Seattle. It appears to have been calculated using a method that is specifically not recommended for major oil spills.

Ian R. MacDonald, an oceanographer at Florida State University who is an expert in the analysis of oil slicks, said he had made his own rough calculations using satellite imagery. They suggested that the leak could “easily be four or five times” the government estimate, he said. ...

BP has repeatedly said that its highest priority is stopping the leak, not measuring it. “There’s just no way to measure it,” Kent Wells, a BP senior vice president, said in a recent briefing.

Yet for decades, specialists have used a technique that is almost tailor-made for the problem. With undersea gear that resembles the ultrasound machines in medical offices, they measure the flow rate from hot-water vents on the ocean floor. ...

Richard Camilli and Andy Bowen, of the Woods Hole Oceanographic Institution in Massachusetts, who have routinely made such measurements, spoke extensively to BP last week... They were poised to fly to the gulf to conduct volume measurements.

But they were contacted late in the week and told not to come, at around the time BP decided to lower a large metal container to try to capture the leak. That maneuver failed. They have not been invited again. ...

The issue of how fast the well is leaking has been murky from the beginning. For several days after the April 20 explosion of the Deepwater Horizon rig, the government and BP claimed that the well on the ocean floor was leaking about 1,000 barrels a day.

A small organization called SkyTruth, which uses satellite images to monitor environmental problems, published an estimate on April 27 suggesting that the flow rate had to be at least 5,000 barrels a day, and probably several times that.

The following day, the government — over public objections from BP — raised its estimate to 5,000 barrels a day. ...

BP later acknowledged to Congress that the worst case, if the leak accelerated, would be 60,000 barrels a day, a flow rate that would dump a plume the size of the Exxon Valdez spill into the gulf every four days. BP’s chief executive, Tony Hayward, has estimated that the reservoir tapped by the out-of-control well holds at least 50 million barrels of oil. ...