A Climate of Capitalist Dominance

by Peter Dorman, member green economist of the E3 network

reposted from EconoSpeak







(New York City; DigitalGlobe)

We’ve now had a chance to see the second column on climate change by the new NY Times voice on the right, Bret Stephens, and unlike the first (which reasoned—sort of—back from its conclusions in true hackish fashion), this one isn’t so bad.  He argues that government action on climate change has done as much harm as good, pointing to the biofuels fiasco and shortcomings in the European (Carbon) Trading System (ETS) and Germany’s Energiewende as cases in point.  I agree.  What he says about these programs deserves to be said, especially since too many self-styled progressives won’t.  There’s a lot of really sketchy climate policy out there.

So what does he miss?  The first omission, and it’s an important one, is that he considers only the failures of government, not those of business and the market.  Above all, the continued operation of, and even investment in, a fossil fuel-based economy in the face of what we know about climate risk, is a massive fail, greater than every error committed by governments.  That doesn’t justify bad policy, but it puts government malfeasance in perspective.

To see the second omission we need to drill down a bit.  Consider the three examples Stephens brings up; what do they have in common?

Biofuels: Rather than taking action to remove fossil fuels from our energy base, government policy boosted a supposed “green” energy source derived from commercially grown crops.  This generated substantial profits for agribusiness, but, as Stephens rightly argues, it did little if anything to forestall greenhouse gas accumulation while producing a number of serious economic and social costs.

The ETS: Despite howls of protest from the scientific community, European politicians made decision after decision that eviscerated their carbon pricing system, handing out carbon permits for free, setting meaningless targets and removing large sectors of the economy from regulation.  The system has essentially broken down, but not before, as Stephens mentions, bilking European households of billions in energy costs, which went directly into corporate coffers.

Energiewende: While the achievements of solar and wind energy promotion in Germany are remarkable, the overall strategy prioritizes expansion of renewables and avoids taking any action to simultaneously restrict carbon fuels.  The result is that Germany has both record-setting increases in renewable capacity and hardly any reduction in carbon emissions.

All of these examples have a common theme: governments seem unable to frame climate policy in any terms other than subsidies for corporate investment and profit.  A biofuels initiative is easy to advance, since it funnels public money to agribusiness.  The only ETS element that had any effect is the one that temporarily increased electricity prices and allowed privately-owned utilities to reap all the profits.  Energiewende supports firms that invest in the renewable sector but overlooks firms that continue to profit from burning carbon.

The common denominator is overweening capitalist power.  Climate policy is constrained by the determination of wealth-holders to protect and expand their wealth.  An effective response to the threat of a climate catastrophe, on the other hand, would unavoidably deplete their wealth—not only the stranded assets of the fossil energy sector but a range of other investments that would be devalued by a rapid shutdown of oil, gas and coal.  (I’ve done a back of the envelope estimate that the wealth hit to non-energy assets would be approximately as great as that to carbon energy.)

So I’m on board with what Stephens is against but not what he’s for.  Rather than dismiss all action on the climate front as misguided, I would like to see the non-wealth-obsessed interests in society mobilize to overcome capitalist power.

Rent in a Warming World

By Jim Boyce, originally posted at Triple Crisis.

What’s rent got to do with climate change? More than you might think.

Rent isn’t just the monthly check that tenants write to landlords. Economists use the term “rent seeking” to mean “using political and economic power to get a larger share of the national pie, rather than to grow the national pie,” in the words of Nobel laureate Joseph Stiglitz, who maintains that such dysfunctional activity has metastasized in the United States alongside deepening inequality.

When rent inspires investment in useful things like housing, it’s productive. The economic pie grows, and the people who pay rent get something in return. When rent leads to investment in unproductive activities, like lobbying to capture wealth without creating it, it’s parasitic. Those who pay get nothing in return. Continue reading…

Our Kristen Sheeran Talks Climate Change and Resilience with Al Jazeera

What would it take to create a truly resilient solution to climate change? Our Director, E3 Economist Kristen Sheeran discusses the long standing implications of global climate change on Al Jazeera.

Ecotrust and E3 network’s Kristen Sheeran Talks Climate Change and Resilience with Al Jazeera from Ecotrust on Vimeo.

Climate Change, Nukes, and Geoengineering

By Robin Hahnel.

On November third James Hansen signed an open letter addressed to environmental organizations urging them to demonstrate “real concern about risks from climate damage by calling for the development and deployment of advanced nuclear energy.”

Like Hancoolingtowersen and some notable long-time environmentalists who have recently come out in support of nukes, I am desperate. I am desperate because, like them, I know we we have very little time left to pull off the greatest technological “re-boot” in human history, turning global fossil-fuel-istan into global renew-conserve-istan before it is too late. That is why I recently sent my own open letter to those in the climate justice movement who argue that green capitalism is an oxymoron and climate change can only be solved by economic system change. In my view those who argue that greener capitalism is a false hope and not worth pursuing have no sense of time. They have no sense of how fast irreversible climate change is coming compared to how fast we can marshal support for economic system change. However, I find it sad that people like Hansen are caving on nukes when we do not need dangerous or new technologies to solve the problem. Continue reading…

Costs of Inaction: Popular Climate Econ Model Needs Major Overhaul

Another in the series on the costs of inaction – what we’ll pay if climate change continues unabated.

True or false: Risks of a climate catastrophe can be ignored, even as temperatures rise? The economic impact of climate change is no greater than the increased cost of air conditioning in a warmer future? The ideal temperature for agriculture could be 17oC above historical levels?

All true, according to the increasingly popular FUND model of climate economics. It is one of three models used by the federal government’s Interagency Working Group to estimate the “social cost of carbon” – that is, the monetary value of the long-term damages done by greenhouse gas emissions. According to FUND, as used by the Working Group, the social cost of carbon is a mere $6 per ton of CO2. That translates into $0.06 per gallon of gasoline. Do you believe that a tax of $0.06 per gallon at the gas pump (and equivalent taxes on other fossil fuels) would solve the climate problem and pay for all future climate damages?

I didn’t believe it, either. But the FUND model is growing in acceptance as a standard for evaluation of climate economics. To explain the model’s apparent dismissal of potential harm, I undertook a study of the inner workings of FUND (with the help of an expert in the relevant software language) for E3 Network. Having looked under the hood, I’d say the model needs to be towed back to the shop for a major overhaul. Continue reading…

Costs of Inaction: The True Cost of Coal

Another in the series the Costs of Inaction – what we will pay if climate change continues unabated.

There is so much emphasis on greenhouse gas pollution from coal plants that we can sometimes lose sight of the other social and environmental impacts of burning coal. A recent report calls attention to the real cost of coal and what we should be paying to derive electricity from coal-fired power plants.

Researchers at the Center for Health and the Global Environment at Harvard Medical School estimated the external costs of coal across its life cycle – extraction, transport, processing, and combustion. Their results, published in the Annals of the New York Academy of Sciences, finds that the annual costs of coal borne by the general public range from $345-$523 billion. If those external costs were accounted for, the price of coal generated electricity would increase by as much as 17.8-26.9 cents per kilowatt.

The study estimated the health impacts from coal-fired power plants at $187 billion annually; mercury emissions at $29 billion; and climate change damages at $206 billion. To arrive at their estimate of climate damages, the researchers assumed a very conservative social cost of carbon of $30 per ton. The social cost of carbon measures the dollar impact from every ton of carbon dioxide that goes into the atmosphere; many economists have argued that research supports much higher social costs of carbon estimates.  

You can read the full report here.

Costs of Inaction: Not Only a Problem For the Poor

This is another in a series of entries focused on the costs of inaction – what we will pay if climate change continues unchecked

In a recent article in Newsweek, Nobel laureate economist Thomas Schelling argues that one of the greatest obstacles to addressing climate change is persuading the non-poor in the developed world to take the problem seriously. As he states:

Estimates of lost world product due to climate change are moderate because the poor have so little to lose. More than a billion people, maybe 2 billion, are estimated to live on less than the equivalent of $2 per day. If a billion of those poorest people lost half their income, it would be an overwhelming tragedy, a true catastrophe, worse than all the earthquakes, floods, tsunamis, landslides, and fires of the past decade happening every year. But those billion people together would lose only $365 billion per year. That is less than 1 percent of world income! They have so little to begin with that what they can lose doesn’t amount to much of a statistic. But they can lose tragically. (Schelling, Newsweek)

Schelling’s quote is a telling example of why GDP is a flawed metric for communicating the risks of climate change. In a world characterized by gross income disparities, treating a dollar’s worth of impact in a poor country the same as a dollar’s worth of impact in a rich country is a surefire way to mask the real impacts of climate change. Yet, this is what almost all economic models of climate change do, and many economists think it is necessary to avoid value-laden comparisons. Attaching greater weight to impacts in poor countries would cause global estimates of the economic damages of climate change to rise substantially.  Continue reading…

Costs of Inaction: The Price of Ice

This is another in a series of entries focused on the costs of inaction – what we will pay if climate change continues unchecked

Source: NASA

Arctic sea ice extent averaged over Januray 2011 its lowest recorded levels since satellite records began in 1979. It was 19,300 square miles below the record low of 5.25 million square miles, set in 2006, and 490,000 square miles below the 1979 to 2000 average.

Climate change, the crisis many hoped we could ignore for decades, is here. Ice and snow that covered the vast frozen northland for 800,000 years is disappearing rapidly. As countless square miles of the Arctic turn from reflective white to heat-absorbing dark, the result is an acceleration of global warming. And this is not just a problem for polar bears. The Arctic acts as the air conditioner for the entire planet.  And it is starting to break down.

A co-author and I estimated the economic impacts of this breakdown. What is the price of a melting Arctic? Trillions of dollars in global economic damages. Continue reading…

Costs of Inaction: Energy, Water, Infrastructure

This is another in a series of entries focused on the costs of inaction – what we will pay if climate change continues unchecked.

In a previous installment, we introduced integrated assessment modeling as one approach economists take to answer the question: how much will we pay if climate change continues unabated? Today we’ll explore an alternative, bottom-up approach.

A bottom-up approach provides a detailed accounting of climate damages in specific sectors, building upwards from historical data. These bottom-up studies have the advantage of being less dependent on modeling assumptions. The disadvantage is that sectoral estimates cannot be added up to represent the cumulative impact of climate change on the economy of a country or a region.

This approach is used in case studies of the impacts of climate damages on specific sectors of the economy or on states or regions. While it cannot provide a complete picture of the costs of inaction, it can produce compelling snapshots of the magnitude of potential damages from climate change. Preventative measures to limit warming may be justified on the basis of these snapshots alone.

Bottom-up analyses usually assume that the baseline for comparison is a “business-as-usual” approach to climate change in which emissions continue to grow and no efforts are taken to mitigate emissions or to adapt to the impacts of warming. Assumptions about changes in sea-levels, precipitation patterns, temperature increases, agricultural productivity, and the like are typically based on reputable and widely cited emissions and climate scenarios presented by the UN IPCC and/or the US Global Change Research Program (US GCRP).

Below we present a sampling of just some of the best available estimates of the costs of climate change for US sectors. We rely mostly on a widely cited 2008 study by Frank Ackerman and Elizabeth Stanton on the impacts of climate change for US energy supplies, water systems, real estate and infrastructure. Continue reading…

Costs of Inaction: The Economics of High End Warming

Another in the series, The Costs of Inaction – What We Will Pay if Climate Change Continues.

Perhaps nowhere is the contrast between the science and economics of climate change as great as in the dueling metaphors governing the impact of high end warming: “Collapse” (following Jared Diamond) versus “Reductions in the Rate of Growth” (following all standard integrated assessment models in economics, including those of Nicholas Stern and the IPCC).

By way of reference, mid-range estimates of business-as-usual warming are currently around 4 degrees C. During the last Ice Age, global temperatures were only 4.5 degree C colder then they are today. Many climate scientists, I would argue, believe that high end warming (> 4 degrees C) will likely impoverish much of humanity.

By contrast, economic models calmly integrate this warming of greater than Ice Age magnitude, only in the opposite direction, into scenarios assuming continued growth, albeit at reduced levels.  Stern, for example, provided an integrated estimate of the costs of climate change, forecasting likely reductions in global output as high as 20% below the baseline. This is a big number, justifying immediate and large cuts in emissions on a benefit-cost basis. Continue reading…