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.
The final link of the Dakota Access Pipeline (DAPL) can now be built, thanks to a recent decision by the Army Corps of Engineers (although the Cheyenne River Sioux have filed a last-minute suit to stop it). In light of the disappointing but unsurprising federal approval of the pipeline, it is worth pausing to ask who and what DAPL is good for.
Who needs the pipeline? There are four main answers: three are silly and one is dangerous.
Silly answer #1 is that the ravenous ego in the White House needs a continual flow of evidence that he is always a winner and his enemies are all losers. Indian tribes and environmentalists can get in line next to Muslims and Mexicans as obstacles, which he shall overcome, to the huge success of making America some kind of great again.
Answer #2, only slightly less silly, is that Energy Transfer Partners (ETP), the company that built the pipeline, has $3.8 billion invested and won’t earn a dime on it unless the pipeline is finished. ETP is a well-connected company – at least until recently, Rick Perry was on its board of directors and Donald Trump was one of its stockholders. Surely that’s irrelevant to the recent decision.
But it is well established in economic theory that people who make bad investments should lose money on them. Milton Friedman, the forefather of conservative free-market economics, was emphatic on this point. As Friedman might have asked, why is DAPL a worthwhile investment that deserves to make money? Who actually needs this pipeline?
Answer #3 is only silly if you pay attention to the numbers. Building a pipeline creates jobs. Good, high-paying jobs making and laying pipe. In fact, building anything creates jobs. Building a bridge to nowhere or a pipeline that no one needs will create jobs – but building things that people need can create even more jobs. An in-depth study of alternatives to the proposed Keystone XL pipeline found that the host states could gain many more jobs by investing in much-needed infrastructure for clean water and natural gas distribution.
Moreover, almost all the jobs created by building DAPL have already happened, because the pipeline is almost complete. It makes no sense to count past jobs as future benefits. If construction jobs are an important benefit of the pipeline, I hope you enjoyed them; they’re all but over. Once a pipeline is completed and in operation, it needs very few workers to keep it going.
Finally, the dangerous answer is that DAPL would be useful to keep oil flowing if the price of oil was much higher than it is today. The danger involves the factors that might cause higher prices. But first, a little back story.
DAPL was planned in early 2014, at a time when the price of oil had been above $80 per barrel, often closer to $100, for the past several years. Oil production in North Dakota was booming, and there were early signs of a shortage of pipeline and rail capacity to carry the state’s oil.
Then, in the second half of 2014, the price of oil collapsed. Since the beginning of 2015, the price of oil has been below $60 per barrel, occasionally far below. Oil production in North Dakota has slumped, and the volume of oil carried out of the state by pipeline or rail transport has plunged so low that there is no hint of a capacity shortage.
North Dakota is among the most expensive on-shore locations for oil production in North America. Several oil experts have estimated that the break-even price for North Dakota oil is $60 per barrel or more. In my own study of the state’s data, I found that North Dakota oil production tends to go up when the price has averaged more than $61.50 per barrel for the last few months. The flip side is that North Dakota output tends to drop when the price of oil lingers below $61.50 – as it has done for the last two years, ever since early 2015.
So DAPL will only be needed for oil transport if the price of oil goes, and stays, much higher than it is today. Here comes the dangerous part: suppose that an out-of-control White House was inflaming conflict in the Middle East, threatening bad relations or even war with major oil producing nations. If OPEC countries cut off oil shipments to the United States, the price of oil will soar, North Dakota’s oil boom will resume, and DAPL will become key to Fortress America’s oil supplies.
Normal diplomacy would prevent that, of course. But normal diplomacy is so 2016.
The practical question in Washington today is not whether regulations will go, but whether anything will replace them
A ray of light may be piercing the cloud of gloom that settled over climate policy after the November election. It comes from an unexpected source: grand old men of the Republican Party and prominent conservative economists. In same-day op-ed pieces in the Wall Street Journal and New York Times, they unveiled a climate strategy that aims to win support on both sides of the aisle, uniting environmentalists, growth advocates, libertarians and populists around a common cause.
A conservative plan for climate action
Recalling President Ronald Reagan’s advocacy for the 1987 Montreal Protocol, the international treaty that protects the Earth’s delicate ozone layer, George Shultz and James Baker (who served in Reagan’s cabinet as Secretary of State and Secretary of the Treasury, respectively) call in the Wall Street Journal for “the Grand Old Party to once again lead the way” in rising to the greatest environmental challenge of our era.
In the New York Times, Harvard economists Martin Feldstein and Gregory Mankiw (who chaired the Council of Economic Advisers under presidents Reagan and George W. Bush, respectively) and Ted Halstead, founder of the Climate Leadership Council, write that rather than simply repealing climate regulations left by the Obama administration, Republicans should embrace a “repeal and replace” strategy that protects the climate in a way that’s “pro-growth, pro-competitiveness, and pro-working class.”
The centerpiece of their strategy is carbon dividends: recycling revenues from a carbon tax back to the American people as equal quarterly dividend checks. For a family of four, dividends from a $40/ton carbon tax would amount to about $2,000/year.
To protect the competitiveness of American producers, they call for border price adjustments: fees on the carbon content of imports from countries that do not have comparable carbon pricing, and rebates on carbon taxes paid by exporters to such countries.
Obama-era regulations made unnecessary by the carbon tax would be eliminated, including the Clean Power Plan, which the Trump administration already has vowed to repeal.
Echoing an argument long made by climate policy advocates, the proponents maintain that the strategy would promote robust economic growth by encouraging innovation and investment in new energy sources.
Early reactions to the proposal have been mixed. Predictably, Breitbart News was having none of it. Ronald Reagan “is reaching for the celestial sickbag over this absurd proposal,” a commentator jeered within hours of the op-eds, urging the Trump administration to tell the Republican elder statesmen, “in the nicest possible way, exactly where they can shove their carbon tax.”
Former Republican presidential candidate Mitt Romney lauded it on Twitter as a “thought-provoking plan from highly respected conservatives to both strengthen the economy & confront climate risks.”
The Nature Conservancy immediately released a statement applauding the plan. The president of the Natural Resources Defense Council was less positive, telling the Washington Post that while a carbon price could be important in a comprehensive climate policy, it should not replace existing regulations.
Pricing v. regulation?
In principle, carbon pricing and regulation can co-exist. California’s cap-and-trade program, for example, complements state regulations rather than substituting for them. The cap-and-trade program for sulfur-dioxide emissions from power plants, created by the 1990 Clean Air Act amendments under President George H.W. Bush, likewise supplemented regulatory standards rather than replacing them.
Yet, many existing carbon regulations were introduced by the Obama administration as a fallback alternative in response to the failure by Congress to pass legislation that would have put a price on carbon.
There may be good reasons to maintain some existing regulations or even craft new ones. For example, fuel economy standards for automobiles that mandate a 54.5 miles/gallon average for the 2025 model year may inspire manufacturers to accelerate investments in innovations, including electrified vehicles, that yield high payoffs in years ahead.
Regulations can also be important in preventing “hot spots” where hazardous co-pollutants that are emitted along with carbon impose unacceptable risks on local populations. A one-size-fits-all carbon price does not take into account how public health benefits vary across pollution sources.
But it would require a considerable leap of faith to imagine that no regulations would be rendered superfluous by carbon pricing. For example, the Clean Power Plan’s carbon emission standards for power plants could become redundant once a serious carbon price is in place.
Moreover, all signs emanating from Washington are that the power plan will be scrapped by the new administration. If so, the practical question is not whether regulations will go, but whether anything will replace them.
The idea of carbon dividends originated more than a decade ago with the entrepreneur Peter Barnes, whose visionary book Who Owns the Sky? made the case for carbon dividends on the grounds that the atmosphere’s limited ability to absorb carbon emissions belongs to the people, and that everyone should share in payments for use of this scarce resource.
Over the years this idea gained modest political traction, notably in the cap-and-dividend bills proposed by Senators Maria Cantwell (D-Wa) and Susan Collins (R-Me) and by then Congressman (now Senator) Chris Van Hollen (D-Md).
However, bipartisan support for climate policy instead coalesced around cap-and-trade plans that would have awarded free carbon permits to polluters (rather than auctioning the permits as in cap-and-dividend). In this case, the revenue from the carbon price paid by consumers would have gone to corporations that got free permits, a windfall that proponents of the policy thought would neutralize opposition by the fossil fuel industry.
That hope proved unfounded. Successive cap-and-trade bills — McCain-Lieberman (2003), Lieberman-Warner (2007), and finally Waxman-Markey (2009) — all failed to survive the legislative gauntlet on Capitol Hill. Part of the opposition came from fossil fuel lobbyists whose preferred option turned out to be no policy at all, and from industry-funded climate change denialists.
But opposition also came from centrist Republican politicians who did not want to back a tax that would spark voter resentment. “By imposing a tax on every American who drives a car or flips on a light switch,” declared House Speaker John Boehner in opposing the Waxman-Markey bill, “this plan will drive up the prices for food, gasoline and electricity.” Democrats contested this argument, memorably claiming that the cost to the average American would be “about the price of a postage stamp per day.” But, in fact, Boehner was right. The postage stamp number came from a Congressional Budget Office study that estimated the cost of clean energy and efficiency investments to reduce emissions. Boehner was talking about the price that consumers would pay for emissions that are not reduced, much of which would have wound up as those windfall profits for energy companies.
Carbon dividends do not clear the political hurdle posed by the vested interests of corporations who do not want their fossil fuel reserves turned into stranded assets. But dividends do surmount the hurdle raised by Boehner, by turning the tax (a regressive one at that) into a net financial gain for the majority of Americans, benefiting low-income households and protecting real incomes of the middle class.
Carbon dividends could even dent opposition from those who doubt that climate change is real since, as its proponents note, the plan’s economic benefits “accrue regardless of one’s views on climate science.” Indeed James Baker says he’s still uncertain as to whether humans are responsible for climate change. But in the face of uncertainty, he and George Shultz write in their op-ed that “the responsible and conservative response should be to take out an insurance plan.” For most Americans, whose dividends would exceed what they pay in higher fuel prices, this insurance policy would not only be free, it would pay them.
Setting the carbon price
A key feature of any carbon pricing policy is whether the price is high enough to drive the necessary reductions in fossil fuel consumption within the necessary time frame. A price of $40/ton would be a good start, but it would need to rise over time. The question is how.
This is one reason why some carbon dividend backers (myself included) have favored a carbon cap over a carbon tax. Under a cap with auctioned permits, as in the Regional Greenhouse Gas Initiative of the northeastern states, the number of permits is fixed by the cap and their price can vary. Under a tax, the price is fixed and the quantity can vary. Apart from this, the two are equivalent. Because the precise relationship between price and quantity cannot be known in advance — no one can say exactly what price will reduce emissions by a specified amount, especially over the medium and long run — a cap that “gets quantities right” is the better way to hit the target.
Carbon tax proponents worry, however, that fluctuations in permit prices would impede long-range planning by investors. They also worry that cap-and-permit systems could be opened to permit trading and market speculation, or weakened by “offsets” that offer polluters alternatives to buying permits.
One way to address the concerns on both sides of this debate is to combine a cap and a tax in a hybrid policy. For example, changes over time in the tax could be calibrated to the quantity of emissions, rising automatically whenever reductions fall short of the targets. This strategy was implemented in Switzerland’s carbon levy on power plants.
The case for carbon dividends
In the past, support for carbon dividends has been limited by competing preferences of carbon pricing advocates. Among conservatives, the go-to option has been to use carbon revenue to cut other taxes, especially corporate income taxes, in the belief that this would spur economic growth. This belief is grounded in the orthodox doctrine that income taxes necessarily impose an “excess burden” on the economy, lowering total output by reducing supplies of labor and capital. This supply-side theory is taught as gospel in most graduate economics programs, despite the widespread phenomena of unemployed labor and idle capital – in other words, excess supply of both factors of production – in the real world.
Among liberals, the go-to option typically is to earmark the carbon revenue for worthy public purposes, especially clean energy investments. At first blush this may seem like a way to speed the transition from fossil fuels, but as long as the policy includes quantitative limits on emissions it could affect only how the emission targets are met, not total emissions. For example, if the money is used to subsidize more efficient electrical appliances, this frees more space for emissions from other sources like transportation fuels.
Liberals also often contend that any payments to shield consumers should be means-tested, with eligibility restricted to the needy. While this would mitigate the regressive impact of carbon pricing, it would raise administrative cost. Dwarfing this concern, however, may be the political cost of excluding the middle class. Much as the universality of Social Security and Medicare has safeguarded these programs from rollback attempts over the decades, universal dividends could safeguard climate policy over the decades needed to complete the clean energy transition.
For many conservatives and liberals, dividends may remain second to their favorite alternatives. But given that neither side has the political muscle to prevail on its own, dividends may define the scope for a political compromise that brings an effective carbon price. To their credit some prominent conservatives have figured this out. It remains to be seen whether they can enlist significant support from their fellow Republicans, and whether their liberal counterparts will figure it out, too.
Dollars & Sense’s political economy of the environment anthology, The Economics of the Environment, 2nd ed., incorporates both current material relevant to today’s most controversial environmental issues, while still including many seminal “standard” articles with strong pedagogical value. The articles contained in the anthology are written in a clear and accessible manner and are concise so they will not overwhelm undergraduate readers.
The topics covered in the book include market failure and roles of government, resources and rents, climate change, agriculture and sustainability, and visions of a sustainable future. This reader is designed to accompany a fine text in environmental economics (Goodstein, Harris, et al.). Chapters in the reader, however, will fit nicely with most undergraduate environmental-economics texts, adding real-world context to the often-abstract analytical discussion. It can also be used as a “stand alone” primer to facilitate discussion on a broad scope of environmental issues. Articles from James K. Boyce, Timothy A. Wise, Robin Broad and a host of others make this edition of The Economics of the Environment particularly rich in content and scope. Continue reading…
Marc Lee is a Senior Economist with the British Columbia office of the Canadian Centre for Policy Alternatives and researcher with E3 Network’s Future Economy Initiative. Marc joined the CCPA in 1998, and is one of Canada’s leading progressive commentators on economic and social policy issues. Since 2008, Marc has been the Co-Director of the Climate Justice Project (CJP), a research partnership with the University of British Columbia, funded by the Social Sciences and Humanities Research Council.
The narrative on climate change this fall is a familiar one: global greenhouse gas emissions hit another record high last year; extreme weather events are causing record damages; and yet we face an impasse in global negotiations for a new climate treaty, and a relentless push for ever more fossil fuel extraction – seemingly because there is no alternative. On the other hand, demands for action at events like the Peoples’ Climate March, and the growing calls for divestment from fossil fuels, there is a growing movement joining the climate scientists in their call for humanity to change course. But this movement needs more good news stories to counter-balance the gloom, and to start reimagining a sustainable and equitable future.
Around the world cities have asserted a leadership role in wrestling with climate action. Where I live, in Vancouver, British Columbia, my federal and provincial governments are deep in denial, enamoured by fossil fuel riches, but my city aspires to be the greenest of them all. Cities ostensibly have a more limited policy toolbox than senior governments, yet decisions on land use planning, buildings and urban infrastructure can have a powerful long-term impact on their carbon footprint.
My case study looks at Vancouver BC’s Neighbourhood Energy Utility, and its repurposing of district energy as a key ingredient in urban planning and greenhouse gas mitigation. At its core, district energy is primarily the use of centralized boilers to provide heat and hot water to multiple buildings. It’s comparatively technocratic and boring, with appeal among engineers and energy economists. And it’s old, with examples of steam systems (powered by fossil fuels) in downtowns across North America going back more than a century. Continue reading…
By Jonathan Ramse, I-PhD student in Economics at the University of Missouri-Kansas City. As part of a team with two colleagues, Julia Poznik and Ruchira Sen, Jonathan has been investigating the role of multiple anchor institutions as stakeholders in economic development as a researcher with E3 Network’s Future Economy Initiative.
It has been apparent for some time now that the economic theories and policies considered business as usual have simply failed. But this is no reason to give up hope quite yet. Meet the new economy! There are numerous innovative models, business and strategic plans, community organizers, and agricultural and waste management techniques that are breaking new paths into a better world. This movement of innovation is not centrally planned and not coordinated by a set of power elites, but is springing up organically in different locations across the country and the world. One of those places is Cleveland, Ohio where the Greater University Circle Initiative (GUCI) is shaping a new way of thinking about and a new way of doing urban economic development.
The GUCI is the focus of our team’s case study. The journey there was not one we expected. Like most everything, the research process is buffeted by uncertainty and unexpected turns. As our research team set off to better understand innovations in Cleveland, our intent was to study the Evergreen Cooperatives. However, we found that doors we thought were open to us were in fact closed. Our timing was off as Evergreen was about to embark on a significant internal assessment which made external review unwelcome. This required a little “on-the-fly” adjustment for our team as we shifted the scope and focus of the project to the GUCI. The GUCI is a multi-anchor institution based development model that encompasses Evergreen in addition to several other projects. As a whole, the initiative attempts to align the interests of three wealthy institutions with the impoverished neighborhoods that surround them. Continue reading…
By Anders Fremstad, Ph.D. candidate in economics at the University of Massachusetts Amherst and researcher with E3 Network’s Future Economy Initiative. Anders’ current research focuses on the economics of cooperation and the sharing economy.
The “sharing economy”, which is receiving a lotofattention, is built on a simple technology: online platforms. The internet makes it easier for people to buy a used couch, borrow a power drill, or find a place to spend the night. In economic terms, online platforms reduce the transaction cost of borrowing, lending, buying, selling, and giving stuff. This future economy innovation allows people to better allocate durable goods, so that they flow more freely from people who aren’t using them to people who could put them to use.
There is little data on the economic, social, and environmental impacts of the sharing economy, but established platforms have already transformed the way people consume some goods. Consider Craigslist’s impact on the market for secondhand goods. Craig Newmark first launched Craigslist in San Francisco in 1995, and the website now serves hundreds of locations and the vast majority of Americans. Craigslist changed the way people find jobs and apartments, but its greatest impact has probably on how people buy, sell, and give away used items. Continue reading…
By Mark Paul, Ph.D. candidate in economics at the University of Massachusetts Amherst and researcher with E3 Network’s Future Economy Initiative. Mark’s current research focuses on the link between sustainable agriculture and development.
“I certainly don’t earn a fair wage, but it’s farming. It’s labor of love”
– CSA Farmer
CSA farms are expanding at a rapid pace, with operations in every state and a six-fold increase in farms since 2001, but it is questionable whether this innovative farming model is delivering the goods. Proponents claim CSA are an active process of re-embedding market exchanges in social relations, with benefits to the local food economy that include the availability of healthy fresh local produce, sustainable agriculture production, increase in biodiversity, regional economic development through sustainable supply chains, and a vibrant community space that promotes the sharing of knowledge, ideas, and leisure. But is the CSA delivering on these promises? Continue reading…
Meet the new economy; it’s not the same as the old one. It’s true that communities throughout the United States are still affected by the aftermath of the 2008 economic crisis: foreclosures, unemployment and high inequality are just three of the symptoms. But there’s also something else afoot: an array of innovations taking place nationwide with the potential to change economic life as we know it. The E3 Network is proud to announce the Future Economies Initiative, devoted to carefully documenting, describing and analyzing these innovations around a common framework and set of research questions. Continue reading…