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.

Don’t Pay Polluters

Originally posted to Triple Crisis.

A little known greenhouse gas called HFC-23 made the news recently. Also called fluoroform, it’s a waste gas generated in the manufacture of refrigerants. Compared to carbon dioxide (CO2), HFC-23 is a minor greenhouse gas. Pound-for-pound, however, it traps more than 10,000 times as much heat.

The UN’s Clean Development Mechanism (CDM), set up under the Kyoto accord as a way for industrialized countries to “offset” their own CO2 emissions by paying for comparable actions in developing countries, counts destruction of one pound of HFC-23 as equivalent to prevention of 11,700 pounds of CO2 emissions.

The CDM pays large sums to coolant manufacturers in India, China and elsewhere to destroy the HFC-23 they produce. Indeed, these payments have become the largest single item in the CDM budget: this year, HFC-23 disposal is getting 50% more CDM money than wind power and 100 times more than solar energy.

The rub is that paying firms not to pollute gives rise to a perverse incentive. A firm that threatens to pollute more gets paid more. So manufacturers have upped their production of the refrigerants (themselves greenhouse gases, albeit less potent ones), in order to produce more HFC-23, so they can then get paid to destroy it.

It’s a great example of what economists E. K. Hunt and Ralph d’Arge once called capitalism’s “invisible foot”: when polluters are paid to clean up pollution, they create more of it, as if guided by an evil twin of Adam Smith’s invisible hand. Today some firms make half their total profits from HFC-23 disposal payments.

People living near the coolant factories don’t do as well. In the state of Gujarat in western India, residents of an adjacent village complain of skin rashes, birth defects, and damages to crops caused by a noxious fog that burns the eyes and lungs.

The European Union has halted further HFC-23 payments, prompting firms to threaten to release the gas into the atmosphere. A scientist at the Environmental Investigation Agency, which opposes the pollution subsidies, put the matter baldly: Attempting to force countries into squandering billions on fake offsets that actually increase production of greenhouse gases,” he said, “is extortion.”

The HFC-23 fiasco offers three crucial lessons for climate policy. Continue reading…

Breakthrough Institute Fails to Flatten Climate Economics

Why does the Breakthrough Institute insist that everyone else besides them who cares about the environment is wrong, wrong, wrong? Their latest, called “The Creative Destruction of Climate Economics,” is a swipe at those misguided souls who think putting a price on carbon emissions would help combat climate change.

Breakthrough, according to its website, aims “to modernize liberal-progressive-green politics” and to accelerate the transition to an “ecologically vibrant” future. They “broke through” into well-funded fame in 2003 with their attack on environmentalists for failing to emphasize the economic concerns of ordinary Americans, such as jobs – thereby alienating  the major environmental groups, who had been talking about jobs and the environment for years.

What’s wrong with pricing carbon emissions? This particular breakthrough rests on a mistaken reading of an academic paper in the American Economic Review, the most prestigious outlet for mainstream economics. That paper develops a simplified, abstract model of an economy that generates carbon emissions. Unlike some climate economics models, it assumes that public policy can affect the pace of innovation. Its conclusion, in the authors’ own words, seems quite balanced: Continue reading…

Carbon Cost Recalculation Reveals True Value of Emissions Reduction

New research exposes flaws in government estimate of social cost of carbon.

The U.S. government’s estimate of the social cost of carbon – an estimate of the damage caused by each additional ton of carbon dioxide emitted into the atmosphere – is fundamentally flawed and  understates the potential impacts of climate change, according to a new report released today by E3 Network.

The peer-reviewed report, Climate Risks and Carbon Prices: Revising the Social Cost of Carbon, authored by Frank Ackerman and Elizabeth A Stanton for E3 Network, finds that the true social cost of carbon is in fact more uncertain than the government’s $21 per ton estimate, a key policy-making factor in everything from power-plant regulations to car fuel-efficiency standards.

The entire range of new calculations arrived at in the report, reaching as high as $893 per ton in 2010 and $1550 in 2050, are all well above the government’s $21 estimate, bringing into question prior analyses of the benefits of reducing emissions and potentially current thinking on what policymakers will consider cost effective. Continue reading…

Climate Policy for Conservatives

Suppose you believe, as I do, in basic conservative principles (free enterprise and a market economy, limited government, and minimal change in established institutions that work well), but also acknowledge that anthropogenic climate change presents a sufficient danger that something needs to be done about it.  The risk is that even as little as 2° Celsius (about 3.6° Fahrenheit) of warming might push one of a number of different earth systems past a tipping point that is both catastrophic and irreversible.  In other words, the problem is one of risk management, in which prudence calls for taking action before it is too late to make a mid-course correction.  What would be a conservative response to this threat? 

It is unfortunate that the climate issue has been co-opted by liberals, because conservative policy prescriptions would not be the same as those that have been put forward by the Democrats and their allies among the environmental groups.  The Waxman-Markey cap-and-trade bill that passed the House in 2010 (then died in the Senate) was a 1400-page monstrosity; it catered to special interests, placed undue burdens on people with low incomes, and had no connection to a coherent US international negotiating strategy on climate.  Just as misguided is the EPA’s intention to regulate CO2 as a pollutant by executive fiat – a scheme that also is inefficient, non-transparent, and regressive.  Virtually all economists would agree that either approach is inferior to a well-designed carbon tax or auctioned emissions permits, with revenues returned to citizens on a per capita basis or used to cut other taxes.   Continue reading…

Long Live the Green Dividend

E3 Network economist, and Real Climate Economics blogger, Frank Ackerman is quoted in this article by Judith Schwartz  in Miller McCune. 

Cap and trade is dead — long live the Green Dividend.

That was the consensus of a conference on pricing carbon held late last year at Wesleyan University that produced the “Wesleyan Statement,” a kind of working manifesto on carbon-pricing principles.

According to the resulting statement, an effective pricing strategy would be “upstream” (i.e. paid by the supplier), calibrated to reach emissions levels recommended by climate scientists, and steadily rising so that businesses and individuals can plan.

Speakers advocated a direct, transparent price on carbon as an economic incentive for reducing fossil fuel use, with revenues returned to U.S. taxpayers. Up for debate was whether this would be in the form of a direct payment (a “green check”) or tax reduction (“tax shift”).

Read the rest of the article here.

Did Environmentalists Kill Climate Legislation?

This post first appeared on Triple Crisis.

Climate legislation, even in its most modest and repeatedly compromised variety, failed last year. And there won’t be a second chance with anything like the current Congress. What caused this momentous failure?

Broadly speaking, there are two rival stories. It could be due to the strength of opposing or inertial forces: well-funded lobbying by fossil fuel industries, biased coverage by increasingly right-wing media, the growth of the “Tea Party” subculture and its rejection of science, dysfunctional institutions such as the U.S. Senate with its filibuster rules, and the low priority given to climate legislation by the Obama administration.

Or it could be because environmentalists screwed up and shot themselves in the foot. Continue reading…

House Committee Hears Pessimistic View of Climate Economics

Paul  Baer is writing in response to the recent hearing by the House Committee on Science, Space, and Technology on climate science and policy. The hearing featured the testimony of only one economist, David Montgomery, who has long expressed pessimisim about the economic impacts of climate policy in previous testimony and publications. This is Baer’s reaction to Montgomery’s testimony.

Why is  the Conventional Wisdom of Climate Economics So Pessimistic?

The House Committee on Science, Space, and Technology held a hearing yesterday on climate change science, economics and policy. It was fascinating to listen to, and will no doubt provide much rich food for thought and discussion (for starters see Andy Revkin, or Chris Mooney, or Steve McIntyre for a skeptic’s view). The witnesses included two climate scientists (Kerry Emmanuel and John Christy), a physicist turned climate researcher (Richard Muller), a corporate lawyer (Peter Glaser), a business school expert on forecasting (J. Scott Armstrong), and a respected economist (David Montgomery). Several of the witnesses are quite well known, and each is worth a story, or several. However, I will focus here only on Montgomery and his testimony.

Montgomery, now an independent consultant, was one of the principals for many years of Charles River Associates, an economics consultancy that is generally business friendly; he is frequently published in the peer reviewed literature, and has taught at prestigious universities. He and some of his former colleagues at CRA specialize in climate-economy models, and have consistently produced policy analyses that are relatively pessimistic about the economic costs and benefits of GHG mitigation. His testimony yesterday did not focus on his own modeling results but essentially suggested – by criticizing more optimistic studies in various ways – that any direct regulation of CO2 emissions by the EPA could only be economically harmful. He in fact relied more on economic theory and historical example than on specific modeling results in making his arguments. As a consequence a rebuttal is necessarily an exercise in describing and criticizing the theoretical and empirical assumptions he makes. Continue reading…

Lessons of the Montreal Protocol for Climate Policy

It is both remarkable and disheartening that the example of the Montreal Protocol on Substances that Deplete the Ozone Layer has not played a more prominent role in the climate policy debate. The Montreal Protocol has been extremely successful in eliminating almost all production and consumption of ozone-depleting substances (ODSs); it has achieved universal participation by the nations of the world; and it has demonstrated the possibility of cooperation in funding and technology transfer between the rich and poor nations to achieve a global environmental objective. The Montreal Protocol was negotiated and implemented as a precautionary measure, before depletion of the ozone layer had reached crisis proportions. What lessons does Montreal offer for climate policy?  Continue reading…

Climate Defeat Comes from DC, Not Copenhagen or Cancun

Originally published by Grist

What should we learn from the dual disappointment of Copenhagen and Cancun? The climate policy war isn’t over, but those who are fighting to cut global emissions haven’t won the last few rounds. The decisive defeat in this latest battle, however, did not occur at an international conference. Rather, it took place in Washington, D.C.

Although the Kyoto Protocol tried to prove otherwise, there isn’t any hope of a meaningful climate agreement without the participation of the United States. With one-fifth of the planet’s emissions and a big share of the global ability to pay for mitigation and adaptation, the world’s surviving superpower has to be on board if negotiations are going to go anywhere. (In an ideal, or even sensible, world, the United States would take the lead on climate protection.)

The enormous advance build-up of expectations for Copenhagen reflected the fact that it would be the first world climate summit after George W. Bush left the White House. It was true that a post-Bush administration was necessary for climate progress; unfortunately, it was not sufficient. In the two years when President Obama and the Democrats were strongest, they were unable to pass even a weak, compromised climate bill. Now the momentum in Washington is shifting back toward science-deniers, who plan to hold more hearings on the possibility that the Intergovernmental Panel on Climate Change and the global scientific consensus are a gigantic fraud.

Read the rest at Grist