Hair shirts

February 10th, 2007

Now that nearly everybody (except US Republicans, of course) accepts the scientific evidence on global warming, the problem is to determine the best available response. As I’ve argued before, the main obstacle to action is the belief that we can’t protect the environment unless we are willing to accept a radical reduction in our standard of living.

Most of the arguments along these lines recently have been coming from anti-environmentalists, including some economists. We can add to the list Robert Samuelson who says

The dirty secret about global warming is this: We have no solution. About 80 percent of the world’s energy comes from fossil fuels (coal, oil, natural gas), the main sources of man-made greenhouse gases. Energy use sustains economic growth, which — in all modern societies — buttresses political and social stability.

Samuelson’s claims are notably lacking in any reference to supporting evidence beyond his gut feelings. The great majority of economic analysis suggests on the contrary, that market economies are entirely flexible enough to deal with an increase in the cost of any one commodity (in this case, the effective social cost of CO2 emissions) and that the cost of stabilising global CO2 levels at 550 ppm will be in the range of 1-3 per cent of GDP.

Unfortunately, the recent suggestions by Tim Flannery and Bob Brown that Australia should close down its coal industry only go to reinforce the claims of people like Samuelson. It’s notable that the Oz, which is trying, like others, to switch from outright denialism to a phony pose of moderation, jumped on these comments with glee.

There does seem to be, in parts of the Green movement, a “hair shirt” feeling that unless policy requires painful sacrifices, it can’t be doing any good**. So, we get opposition to the use of offsets to neutralise emissions, and a reluctance to look at possible options like carbon sequestration. Reader Robin Green raised this point with me in a lengthy email which I’ll quote a bit

Our intuitions may deceive us here. My crucial point is that while, greens are quite right to say that, for example, reduction is better than recycling, because it involves less energy and waste, not taking a flight should actually be equivalent (apart from network effects) to taking a flight and properly neutralising it – and should be seen as such, if we can work out the other problems I mentioned.

Hair-shirted arguments that “we MUST fly less” are likely to be seen as deceptive, and are likely to make some readers “throw the baby out with the bathwater” and switch off, in my view. This a great shame, because offsetting has great potential.

Far better that this hair-shirtism, surely, would be compulsory carbon neutralisation of all flights – spreading the burden equally, and increasing the incentive to develop more efficient ways of offsetting

There’s still plenty of doubt over whether emissions trading will work, and plenty of problems to be resolved. The same is true for CO2 sequestration, solar power, safe nuclear power, big improvements in energy efficiency, and all the other options we have to stabilise climate. But improvements in any of these directions will make us all better off. Neither a hair-shirt hope that nothing but drastic cuts in living standards will work nor a “what I have, I hold” insistence on doing nothing different from what we are doing now is going to be helpful here.

* Meanwhile, the Stern review has performed the useful service of showing how few people actually understand discounting. Here’s Samuel Brittan who imagines that the (almost) century-old neoclassical theory of interest developed by Ramsey and Fisher depends on new-fangled ideas about happiness studies.

** It’s not only Greens to whom this kind of thinking appeals. You can see a fair bit of it in certain economic rationalist circles (not all) when discussing economic reform, or in Austrian-influenced discussion of recessions.

Categories: Economics - General, Environment Tags:
  1. melanie
    February 10th, 2007 at 20:21 | #1

    Thanks for this post.

    Re Samuelson: “Energy use sustains economic growth, which — in all modern societies — buttresses political and social stability.”

    What he actually means is that ‘our economic growth will only create instability elsewhere and we can bear that (as indeed we have usually done)’.

  2. BilB
    February 11th, 2007 at 05:38 | #2

    The Brazillians proved the contrary. And they did it 25 years ago.

    By embracing ethanol as a motive fuel LED BY INVOLVED GOVERNMENT POLICY they have envigorated their agricultural and manufacturing industries, steadily improved their overall standard of living (from absolutely bleak to something near liveable), paid off their world bank debt, and annoyed the hell out of the United States.

    The glaring fact that is hidden by these self serving politicians is that alternative energy employs more people than coal or oil do. The cost of this extra employment is covered by the cost to the economy of huge quantities of imported oil.

    OUR POLITICIANS ARE NOT ACTING IN THE INTERESTS OF AUSTRALIA…….WHAT IS GOING ON.

  3. BilB
    February 11th, 2007 at 05:53 | #3

    And not surprisingly Brazil’s per capita CO2 emissions are one ninth of Australia’s.

    http://www.nationmaster.com/graph/env_co2_emi_percap-environment-co2-emissions-per-capita

    Alternative energy works.

  4. conrad
    February 11th, 2007 at 06:59 | #4

    Just out of intersest, if one assumes that market mechanisms are likely to be used to stabilize CO2 emissions, how is the cost of stabilization likely to differ across different countries in terms of a political solution? What I mean by this is that for some countries, like Australia, it should be easy to reduce emissions, since there is a huge amount of space and huge amounts of potential alternative supplies that could be used, but for other countries, space is very limited and they don’t have access to as many other easy power sources. If a flat rate is used, assuming all other things are the same, then countries like Australia will reduce emissions more than countries where it isn’t easy to generate non-CO2 based power. If a flat-rate mechanism based on outputs is used across countries, this doesn’t seem very fair to me, and I can imagine a lot countries wouldn’t sign up to such a scheme. How does one correct for this?

  5. February 11th, 2007 at 07:59 | #5

    To reduce Green House Gases we need investment in Green House reducing technologies be it ways of saving energy, or ways of producing energy without or with little green house emissions. The amount of investment in the big picture is not all that great and given the rate of potential increases in efficiencies for technologies to convert solar energy into other forms of usable energy we can expect that in the long run the technologies will be cheaper than burning fossil fuels.

    Carbon Credits have been invented as a method of controlling carbon emissions. The number of Carbon Credits issued reflects the amount of carbon emissions allowed. That is, Carbon Credits are a commodity which if we reduce the supply will reduce emissions. The problem with Carbon Credits is in limiting the supply and in distributing the money obtained from selling them and making sure the money is used to reduce Green House Gas emissions.

    One way of distributing and spending Carbon Credits is to invent a new currency which for sake of something to call it we will call Cleans. This currency can only be spent on infrastructure that will reduce Green House Gases. Examples are insulation for homes, solar hot water systems, investment in solar farms, etc. When Cleans are spent they are converted back to real currencies.

    Cleans can be created in different ways but have to be backed by real currencies. One way to create Cleans is to take the money collected from the sale of Carbon Credits and to convert it into Cleans. Another way is to put a surcharge on any energy that produces Green House Gases and to create some Cleans.

    Once Cleans are created then we have to give them to someone. Cleans can be given to people whose lifestyles generate few greenhouse gases or they could be given to anyone whose actions cause their creation. The important thing is to give them to a large number of people so that there will be many buyers in the market place for infrastructure to reduce Green House Gases.

    Cleans can be created today and do not have to wait for agreements on Carbon Emissions. They will cause an immediate reduction in GreenHouse Gas Emissions and will be a way to get most people involved in the reducing Emissions.

    I posted this idea in different guises in previous posts. The arguments on why Cleans will not work have been that it is too complicated and it is unnecessary because the increase in prices will do the job anyway. It is in fact simple to implement and we have many examples of special currencies that work well such as frequent flyer points. The point about markets is that it is not about increasing prices but it is about lots of people having money to spend and being able to choose between alternatives. That is why Cleans will work quickly and efficiently. Carbon Credits will be too slow to take effect and only address the price issue not the spending issue.

    The nice thing about Cleans is that it creates a market in sustainable infrastructure and “solves” the problems outlined by conrad above. It also solves the problem of waiting for global agreement on Carbon Emissions because you can get underway on a local basis immediately and you can use the approach to spend existing taxes on reducing green house gases rather than waiting for some government committee to decide how to spend the money.

    It can be done and we are trying to do it for Water where we call Cleans “Water Rewards”. You can see the ideas at http://www.waterrewards.org The main sticking point in implementing these ideas is that you have to have cooperation of governments and that gets mixed up in government processes for approvals. Our proposal on Water Rewards has been with the Federal government since last June with no idea on whether a decision will be favourable or not and no feedback on the worth or otherwise of the proposal.

  6. Austin
    February 11th, 2007 at 08:54 | #6

    “There does seem to be, in parts of the Green movement, a “hair shirtâ€? feeling that unless policy requires painful sacrifices, it can’t be doing any good”.

    I would just like to emphasise the word “parts” here.

    Is there any evidence to show that shifting the basis of energy production over a reasonable period (suggestions of 3 years have been shocking hyperbole) would cause any considerable “pain”? I really thought that the evidence today shows that it would be more “painful” not to do so.

  7. February 11th, 2007 at 09:44 | #7

    JQ – “There does seem to be, in parts of the Green movement, a “hair shirtâ€? feeling that unless policy requires painful sacrifices, it can’t be doing any good**.”

    There is a lot of confusion regarding the “hair shirt” as well. A lot of pro development people are deliberately confusing energy efficiency with reductions in the standard of living.

    Increasing energy efficiency does not mean a reduction in living standards. There are a lot of measures that can drastically reduce energy use without impacting on the comforts to which we have become accustomed.

    However it is fairly obvious that the lifestyles we lead are not sustainable in the long run if more than the 20% of the Earth population try to emulate us.

  8. BilB
    February 11th, 2007 at 10:52 | #8

    Conrad,

    http://www.solar-thermie.org/hintergruende/documents/cspnow.pdf

    Download the pdf. This is the European solution. Look at the map bottom left of page 3.

    Europe is investing in concentrating solar plants as indicated on the map along the north African sun belt. The power crosses the Med in 3 places into the European grid. This plan has many advantages. It supplies CO2 free power for all EU countries to by, it creates much commerce and employment for these African nations, and it reduces the pressure of refugees into Europe.

    Europe are the leading manufacturers of wind power technology. Small countries can be the builders of equipment for the solution. Europe has some capacity for methane and ethanol production. Further ethanol they can buy in place of petrol (great for Australia if we get off our Coalition butts and make some) on the open market.

    If you check the per capita CO2 emissions for the different countries (see link in my earlier post) you will find that for most other countries their emissions are lower so their challenge is not as difficult. There are many, many solutions. Most take a little work, but work is commercial activity which contributes to growth. Fixing the problem is all good, in every body’s eyes but JH and GB, oh and MT.

  9. Pete from Perth
    February 11th, 2007 at 11:43 | #9

    The way forward isn’t by mandating solar power plants, it’s mandating solar hot water systems and one or two solar panels on every rooftop. It’s simple and cheap stuff like that which will reduce the load on the power grid and Australia’s carbon emissions.

    Could it be done in three years? Nope, but, three years is a good ambit claim. Certainly, it’s achievable in six.

  10. chrisl
    February 11th, 2007 at 12:59 | #10

    So how is your solar power generation going over in Perth, Pete?

  11. February 11th, 2007 at 13:20 | #11

    chrisl – “So how is your solar power generation going over in Perth, Pete?”

    Whether or not Pete from Perth has a solar hot water system is not the point. He has the right idea – sometimes it takes time and help to achieve your goals. I am in this position at the moment. I do not have solar hot water or solar electric however instead of either aquiring a large boat or 4WD I am going to use some of my house equity to purchase and install 1kW of grid tie and a evacuated tube solar hot water system.

    The point is that all of us need help and education to overcome the large capital costs of solar technology. This is where revenue from a carbon tax can be used effectively. How many compact fluoro lights do you have? They can reduce your electricity consumption by up to 10%. Simple measures like this can make a large difference.

    BTW I am prepared to share my plans for free.

  12. BilB
    February 11th, 2007 at 13:24 | #12

    Pete from perth

    No-one is mandating solar power plants, to the contrary, some-one (a very small one) is trying to mandate nuclear power plants. What a winner!!!

    If you think a little more laterally you will come to the conclusion that the future for domestic is in solar powered air conditioning/water heating. These units are base on the old fashioned kerosene fridges modernised to run on gas, or more significantly heat. Heat can come from many sources particularly heated oil from rooftop collectors. This is not difficult to achieve.

    ANY INNOVATIVE ARCHITECTS OUT THERE LISTENING???????
    ********HUGE ENTREPRENEURIAL OPPORTUNITY HERE**********

    The beauty of this approach is that when the sun ain’t shinin and you’ve run out of stored hot oil, flick it over to gas, carry on. Further more this concept is compatible with the NZ made WhisperTech gas powered sealed unit sterling cycle (40,000 hour running life) electricity generators (selling like bagles in Europe).

    http://www.china.org.cn/english/scitech/58813.htm

    http://www.sanyoaircon.com/generic_pages/pressroom/pressroom_popups/pr/pr_2003/pr_2003_08_29a.html

    http://pittsburgh.bizjournals.com/pittsburgh/stories/2006/10/23/focus2.html

    http://www.treehugger.com/files/2006/06/solar_powered_a.php

    The only problem with all of this is that our buildings are not designed for rooftop clip ons. They tend to look ugly and are not a big draw card. My solution is to Mansard the roof to create a flat portion (or well) in the middle where solar collectors can be istalled out of sight from the ground. To this end I am trying to stimulate a national design competition to find innovative roofing solutions for the new solar world.

  13. February 11th, 2007 at 16:14 | #13

    I don’t think economists have done enough with respect to climate change.

    Has anyone calculated what effect market distortions and subsidies have on CO2 emissions? Or how bias against GMO reduces reforestation and increased CO2 sequestration? Or how local enforcement of private property rights would make global negative externalities from coal and nuclear reduced? What about a comparison in CO2 emissions per kilowatt hour in privately and publicly owned energy generators and distributors?

    Anyway, a trading system should be instituted only after such welfare reducing and pollution enhancing policies are removed, of course after a positive CBA analysis.

    I have good reason to believe that a programme of further microeconomic reform will decrease CO2 emissions in addition to increasing general welfare, possibly making carbon trading unnecessary.

  14. derrida derider
    February 11th, 2007 at 18:52 | #14

    You’re right about Green puritanism. And it really is Puritanism – the belief that all earthly pleasure is sinful and impure. For some Greens it is the pleasure from consumption rather than any incidental effects that is to be deplored.

    We really need to make the point hard to people that both the deep Greens and the denialist industry lobbies are wrong – a high level of consumption is quite compatible with stabilising greenhouse gases. But it depends on getting the policy right.

  15. Mike Pepperday
    February 11th, 2007 at 19:30 | #15

    The puritanism is not just Green – it’s a general tendency of leftism and it was ever thus. Here’s Thomas Macaulay:

    “The Puritan hated bear-baiting, not because it gave pain to the bear but because it gave pleasure to the spectators.�

  16. February 11th, 2007 at 19:52 | #16

    derrida derider – “You’re right about Green puritanism. And it really is Puritanism – the belief that all earthly pleasure is sinful and impure. For some Greens it is the pleasure from consumption rather than any incidental effects that is to be deplored.”

    Well now you are really talking through your arse. As is usual from the right when confronted by a problem it is preferable to pull down the opposition rather that think of a solution. Thinking is obviously well beyond you.

    Speaking for a person who has been in the Greens and now is in Labor this is nothing like the motivation of the people that I talked to. It is simply the realisation that all the population of the Earth cannot have our present standards of waste. To enable the third world to develop AND have enough resources to go around we need to start exporting a vastly more efficient lifestyle.

  17. February 11th, 2007 at 20:39 | #17

    I agree Ender, it is a pretty desperate ploy to paint Greens as Puritan. Anyway I thought they were supposed to be doped out tree loving hippys. Maybe derrida derider needs to get along to a few Green organised parties. They don’t involve religious readings,hair shirts and quiet whispers but are pretty ‘full on’ , I can assure him. This from me as an invited non-member.

  18. Hermit
    February 11th, 2007 at 20:48 | #18

    I think a smooth transition to a low carbon economy will require either a dictatorship or an unlikely degree of social cohesion. I don’t see people en masse trading in their Landcruiser for a Yaris. In fact our society seems to admire contrarianism, be it global warming, peak oil or recycled effluent. So rather than smooth transitions by increments we will see influence groups hold out against change until overtaken by events. Thus I predict the coal industry will be unscathed for many years to come. Perversely they have an ally in green utopians who hold out for technofixes or voluntary actions that may never happen. As Stern says, the longer the fix is postponed the bigger it needs to be.

    Therefore I think we will lurch from crisis to crisis at a cost to trendline GDP larger than 5% when things get serious around 2020. If somebody could quantify the optimistic scenario with some nice graphs we could look at the assumptions in detail. I expect economic turmoil, that’s why I’m a hermit.

  19. February 11th, 2007 at 21:09 | #19

    I want to believe that reducing emissions by 60-80 per cent will cost just a few per cent of GDP, I really do, but my gut feeling (sorry) is that its a hopelessly unrealistic expectation.

    This ain’t Montreal part deux. We’re not talking about regassing fridges and spray cans here, we’re talking about substituting the energy sources that have powered our civilisation for a century. This is going to be hard, really hard. If you want to know just how hard I recommend George Monbiot’s “Heat”.

    Sure, its possible that the less-energy intensive economies of western Europe will be able to slowly reduce emissions while still growing their economies. It might even be possible to stabilise emissions in the U.S. and Australia (if you exclude the contribution made by our fossil-fuel exports) but all of this is insignificant compared with the growth of emissions in China.

    Until someone tells me how we’re going to stop China building a new coal-fired power station every week, I’m with the “hair shirts”.

    The depressing truth is that even if Australia stopped exporting coal it would make little difference, the Chinese have huge reserves of their own, and they’re unlikely to sign up to Kyoto II even if President Obama and Prime Minister Rudd do.

  20. MP
    February 11th, 2007 at 21:38 | #20

    Something missing in the above discussion is the point that there are a number of emission reductions strategies that actually improve net welfare (tho they have losers, on most reasonable estimates society as a whole is better off). These are sometimes known as no-regrets policies.

    These could include:
    * Abolishing the FBT concession for cars
    * Replacing some of the excise on fuel with tolls on roads that reflect congestion
    * Switch to interval metering for electricity
    * Abolishing all of the piecemeal policies imposing costs on emissions (including the MRET and some of the excise on fuel) and replacing with an emissions tax that applies to all emissions

    A combination of these policies has the ability to reduce emissions substantially and at the same time improve GDP and/or welfare.

    It is a pity that extremely high cost options are being promoted by many sides of the debate, when significant negative cost options are available.

  21. February 11th, 2007 at 21:55 | #21

    “The way forward isn’t by mandating solar power plants, it’s mandating solar hot water systems and one or two solar panels on every rooftop. It’s simple and cheap stuff like that which will reduce the load on the power grid and Australia’s carbon emissions.”

    Pete from Perth, I’m also with you on this. It’s a practical suggestion that is already ‘sought of’ in the pipeline. You could go out tomorrow and buy the gear…….. if you had the money. If the government was prepared to provide an at cost loan for purchase and installation of say $15,000 over say ten years, my bet is people would be queuing to join the grid or rely on their own little store.

  22. still working it out
    February 11th, 2007 at 22:46 | #22

    “Has anyone calculated what effect market distortions and subsidies have on CO2 emissions? Or how bias against GMO reduces reforestation and increased CO2 sequestration? Or how local enforcement of private property rights would make global negative externalities from coal and nuclear reduced? What about a comparison in CO2 emissions per kilowatt hour in privately and publicly owned energy generators and distributors?”

    If you’re going to say in Liberatarian code that government is causing extra C02 emmissions could you come up with a libertarian solution to global warming while you’re at it? I am genuinely curious what the libertarian solution to GW is. Its been a little discrediting to libertarianism as a whole that they do not seem to have addressed the issue with anything but denialism.

  23. Todd
    February 11th, 2007 at 23:03 | #23

    For the libertarian perspective, this is interesting http://blog.mises.org/archives/006243.asp

    The comments are worth reading as well.

  24. observa
    February 11th, 2007 at 23:06 | #24

    “I want to believe that reducing emissions by 60-80 per cent will cost just a few per cent of GDP, I really do, but my gut feeling (sorry) is that its a hopelessly unrealistic expectation.”
    Never a truer word said and that’s why when Brown farted openly in public about stopping mining coal, Rudd and Howard were immediately bosom buddies. Fortunately they don’t drink that funny tea university professors drink in the staff room. You know, that tea all the way from China in sailing ships, along with Puff the Magic Dragon and strings and sealing wax and other fancy stuff. All inside their air conditioned, concrete, steel and glass cocoons, mined with picks and shovels, ground with water and windmills, cooked up in the sun and brought to them by workers with ox carts, who pedal or ride rickshaws to the job each day. I suppose we could turn all this into an ethanol based economy, providing an awful lot of us don’t mind not eating. Still obesity would sure be a thing of the past. As for 40% of school leavers hanging about for 3-5 yrs at uni, supporting parents and unemployment benefits, the age pension and the like, well…ummm…errr? Don’t Howard and Rudd make an awfully nice duo?

  25. observa
    February 11th, 2007 at 23:35 | #25

    “If you’re going to say in Liberatarian code that government is causing extra C02 emmissions could you come up with a libertarian solution to global warming while you’re at it? I am genuinely curious what the libertarian solution to GW is. Its been a little discrediting to libertarianism as a whole that they do not seem to have addressed the issue with anything but denialism.”

    swio, there are enormous changes we can make to the constitutional design of our marketplace, whilst still relying fundamentally upon free market solutions. It is the same old troglodytes who are circling now, with their lust for quantitative controls, that is the overarching worry for us all. We need to be ever vigilant for their disastrous and tired old recipe. That is where the healthy skepticism springs from.

  26. wbb
    February 11th, 2007 at 23:47 | #26

    The hair-shirt charge is unwarranted. I’m sure you could find a few stereotypical deep-green misanthropes if you had to, but the Australian Greens are a serious political party representing 10% of the electorate and do not promote policies driven by resentment of human health and happiness.

    We live on a planet that is failing to expand in size in spite of the exponentially growing human population. Our biosphere is finite. We do not understand it. And we cannot buy a new one. These are fundamentally practical considerations. If the choice is between wearing a hair-shirt and fighting to the death over cashmere – I’ll settle for the former.

    If the science has got it right, then great caution is called for. Great caution. Not convenient half-measures.

  27. wbb
    February 11th, 2007 at 23:57 | #27

    On the other hand – I do take the point about the hair-shit thing – all I meant to say above, before getting carried away, is that phasing out coal is not to don a hair-shirt but a sensible and practical measure to reduce co2 pollution. Can’t think of a better measure.

    And it won’t reduce our standard of living. There is currently a lot of fat in the material well-being of Australians and so we can afford to trim here and there without suffering any actual lowering of living standards. The numbers may look different – but that is not a true reflection of prosperity and health.

  28. Pete from Perth
    February 12th, 2007 at 00:34 | #28

    chrisl Says: “So how is your solar power generation going over in Perth, Pete?”

    Solar hot water systems are very popular over here. Solar power cells would be equally so once the economies of scale kick in and the units are cheaper.

  29. foo
    February 12th, 2007 at 05:56 | #29

    Don’t underestimate the Chinese. They have been destroying their environment locally for a number of decades now, and the Communist party is beginning to notice a problem. China is like a large supertanker, it takes some time time to change direction, but eventually it gets around.

    For us in Western democracies, we should worry about our own emissions. Pointing fingers at other countries is just changing the subject.

    I am not Australian, and find it very puzzling that a climate change denier can stay in power in a country that is so environmentally fragile and that stands to lose more than most from climate change. The coal lobby must be extrememly powerful. (This bodes ill for Cananda, because the oil sands industry (that makes coal look clean) is gaining in power and has the current govt in its pocket – still a minority govt, but teetering on the verge of a majority.)

  30. February 12th, 2007 at 06:17 | #30

    Instead of putting a tax on greenhouse gases through selling carbon credits we can put a surcharge on energy that creates greenhouse gases. The surcharge is money that is still under the control of the buyer. We also restrict the use of the money saved so that it can only be invested by the owner in capital infrastructure that will reduce greenhouse gases.

    Owners will invest in the ways to get the best return on their money. Initially it will be mainly in things that reduce energy consumption and products or systems such as solar hot water heaters which give a high return on investment. Some will invest in companies like wind farms or geothermal projects that give a good return on investment. As solar technologies become more efficient so people will move to those technologies. As methods of producing liquid fuels from water, carbon dioxide and energy become more efficient so money will move to the capital works to produce these products.

    The cost to the economy is the difference in the long term return on the capital works between investment in greenhouse gas reducing or neutral energy technologies and the return on investment in energy infrastructure that produces greenhouse gases.

    This difference will decrease as the alternative technologies develop and if – for example – solar silicon cells have a similar efficiency improvements as other similar technologies such as chip manufacture then the difference will small.

    The critical issue is to get investment in the green house gas free technologies.

    The system is to have compulsory savings that have to be invested in greenhouse free technologies. The mechanism to achieve this is to create a new currency like frequent flyer points but for greenhouse gas free technologies.

    This system concentrates on the spending side of the money raised through putting a cost on carbon emissions. That is it is how the money obtained from carbon emissions is spent that is important – not the emissions price side.

    With existing technologies my conservative back of the envelop calculations show that in Australia a 30% surcharge on energy that produces greenhouse gases will give enough investment dollars to completely replace all greenhouse gas producing energy infrastructure with greenhouse gas free technologies within ten years.

    As we can set the surcharge to whatever value we like the economic impact can be adjusted. We can start low (5%) and see the effect. If it works and we need to speed it up then we increase the surcharge.

    The surcharge can be introduced tomorrow or even yesterday if we convert some of the existing taxes collected on fuel and return it to consumers as compulsory savings.

    It would capture the imagination of the population and get everyone involved in reducing greenhouse gases as they would have some money to spend on reducing greenhouse gases. The cost of a system to do this would be a fraction of a percent of the money to be distributed.

  31. February 12th, 2007 at 08:08 | #31

    “If you’re going to say in Liberatarian code that government is causing extra C02 emmissions could you come up with a libertarian solution to global warming while you’re at it? I am genuinely curious what the libertarian solution to GW is. Its been a little discrediting to libertarianism as a whole that they do not seem to have addressed the issue with anything but denialism. ”

    If Government policy causes extra CO2 emissions (it does, look at electricity subsidies to aluminium production), shouldn’t we end those policies and then impose a cap and trade scheme only if it is necessary?

  32. February 12th, 2007 at 08:16 | #32

    Anyone figured out how we’re going to stop China building a new coal-fired power station every week? Anyone?

    I’ve come to believe the only way Australia can make a significant contribution to reducing global greenhouse gas emissions is by ceasing coal exports. As Bob Brown says today in the Oz:
    Coal is Australia’s largest source of greenhouse gas emissions. In 2005-06, the total emissions from our coal exports were the same as the combined emissions from all our electricity, coal, gas, water, mining, agriculture, forestry, manufacturing and households.

    We can make a small contribution now by stabilising our own emissions, ratifying Kyoto, and increasing the political pressure on the U.S., China and others to do the same. In the long term we can make a (potentially significant) contribution by developing and exporting low emission technology, but the only way we can make a global impact within the next decade is to dramtically reduce coal exports. Anyone who says otherwise is kidding themselves.

  33. gordon
    February 12th, 2007 at 08:35 | #33

    I would certainly agree with Prof. Quiggin that reduction of emissions of GHGs need not entail “a radical reduction in our standard of living�. The Stern estimates of 1-3% of global GDP have been quoted before by Prof. Quiggin and bear out the view that we need not revert to medieval forms of production (and levels of poverty) in order to reduce emissions. Indeed, as Stern also suggests, the need to reduce emissions could and should stimulate technological innovation.

    Nor is Samuelson really a “hair shirterâ€?. His point is about the very long lead times required to reduce the amount of GHG in the atmosphere, and the deceptiveness of promises by politicians and some businesses to “do somethingâ€?, as though action today could produce results tomorrow. He knows that any actions which could produce quick reductions in GHG concentrations would be intolerably restrictive, and that reducing GHGs is going to be a long-term exercise. That is his real point – as I read it, anyhow. He advocates R&D and a carbon tax which might substitute for existing taxes on wages and profits. He mentions the IEA’s alternative scenario, and points out that it won’t fix all our problems – but doesn’t say it’s worthless.

    But I suspect that Samuelson really upset Prof. Quiggin when he said: “But in practice, no plausible “cap and trade” program would significantly curb global warming. To do that, quotas would have to be set so low as to shut down the economy. Or the cost of scarce quotas would skyrocket and be passed along to consumers through much higher energy prices. Neither outcome seems likely. Quotas would be lax. The program would be a regulatory burden with little benefit. It would also be a bonanza for lobbyists, lawyers and consultants, as industries and localities besieged Washington for exceptions and special treatment. Hello, influence-peddling and sleazeâ€?.

    Samuelson is saying that “cap and trade� isn’t a short-term fix, and because of what amounts to political corruption, may never work at all. How upsetting for an advocate of carbon trading and offsets, like Prof. Quiggin.

    I am very sceptical about carbon trading and offsets schemes. The Kyoto “Clean Development Mechanism� scheme was invented at the last minute at COP6 (Bonn, 2001) in a desperate effort to get the Americans to sign up to Kyoto – now the Americans have “unsigned� and the rest of the world is stuck with it. Last August, the Australian State Premiers released a discussion paper on a proposed Australian carbon trading scheme. This comment is already too long for a critique of that paper, but I found it unimpressive. And recently The Rodent released a little carbon trading paper of his own, full of questions about “how to best protect Australia’s economic competitiveness� and similar. In Australia, at any rate, these guys just aren’t serious.

    What is really missing from the Australian debate is any sort of comprehensive approach to GHG emission reduction. Isolated proposals for nuclear and carbon trading just aren’t good enough. We need to combine all possible approaches, including conservation, review of subsidies, regulation (eg. design standards), R&D, renewables, decentralised generation and education. And maybe carbon trading too, if an effective and non-corrupt scheme can be invented.

    Maybe Prof. Quiggin is working on one.

  34. February 12th, 2007 at 08:51 | #34

    You guys crack me up. This is what Samuelson says about the IEA’s alternative scenario:

    Nor will existing technologies, aggressively deployed, rescue us. The IEA studied an “alternative scenario” that simulated the effect of 1,400 policies to reduce fossil fuel use. Fuel economy for new U.S. vehicles was assumed to increase 30 percent by 2030; the global share of energy from “renewables” (solar, wind, hydropower, biomass) would quadruple, to 8 percent. The result: by 2030, annual carbon dioxide emissions would rise 31 percent instead of 55 percent.

    The climatolgists say we need to reduce emissions by 60 to 80 per cent (some say 90 per cent) by 2030. An increase of 31 per cent probably won’t cut it :)

    Come on people, who are we kidding?!

  35. February 12th, 2007 at 09:03 | #35

    Who says we need to cut our emissions by 90% in 23 years?

    What about net emissions? If you want to cut net emissions, you want more forestry. Advances in agricultural productivity have allowed this to happen, as less land is monopolised to produce more food. Freeing up GM and so on is one way to mitigate CO2 accumulation.

  36. jquiggin
    February 12th, 2007 at 09:21 | #36

    If the examples quoted for the IEA scenario are among the leading initiatives, I’m not surprised they won’t have much effect. To say that they are lame is putting it mildly. The fuel economy target wouldn’t even bring the US circa 2030 into line with Europe today – we are likely to see a much bigger adjustment in response to the fuel price increases that have already taken place.

    Another way to look at it would be to assess the cost of these initiatives relative to the range of 1-3 per cent being discussed here. Given the time scale, the cost of the fuel economy target might be 5 per cent of average cost for motor vehicles, which comes out at around 0.2 per cent of US GDP, or less than 0.1 per cent of world GDP, though once externalities are taken into account there could actually be net benefits. On the energy sources, I’d guess a doubling is pretty much inevitable given the progress that has been made on wind and the rising price of natural gas, so we’re looking at a further 4 per cent increase from policy. On the assumption that this is 50 per cent dearer than existing sources, it comes out at a cost of less than 0.1 per cent of GDP. In other words, we’re looking at initiatives that are an order of magnitude less costly than those being discussed in serious analyses of the problem.

  37. February 12th, 2007 at 10:00 | #37

    Who says we need to cut our emissions by 90% in 23 years?

    George Monbiot for one.

    What about net emissions? If you want to cut net emissions, you want more forestry.

    Frankly this is little more than greenwashing. It has allowed the Howard government to claim that Australia is on target to meet its Kyoto targets, but as you can see in the table linked below (from the Australian Greenhouse Office) emissions from the energy sector and industry will be 50% above 1990 levels in 2010. It is only a reduction in land clearing that has made any significant difference.
    Greenhouse emissions 1990 and 2010

  38. February 12th, 2007 at 10:10 | #38

    Is Monibot a climatologist?

    Why do people assume that trees are no longer important? If we had enough foresation in the first place, gross emission rates would have been irrelevant, as the trees would bring down the net rate.

    Why isn’t less clearfelling seen as a success?

    If trees and natural sequestration don’t matter, we should then have zero emissions.

  39. February 12th, 2007 at 10:33 | #39

    Is Monibot a climatologist?

    No, but IMO his book is a brutally honest assessment of what’s required to tackle climate change … and I don’t see a lot of honesty from either side of the climate change debate these days.

    Why do people assume that trees are no longer important?

    Don’t get me wrong, I strongly believe we should stop all clearfelling, but planting trees is never going offset our emissions from burning fossil fuels.

    A few points:
    - Planting trees means not planting – or not leaving – something else on the same land. You have no means of knowing what, in twenty years’ time, might have stood in their place. If the answer is other trees, then to determine the real carbon uptake caused by your actions, you would have to subtract the carbon that might have been from the carbon that is
    - a large tree might absorb a tonne of carbon, but it will take 50 years to do so.
    - a tonne of carbon saved today is far more valuable, in terms of preventing climate change, than a tonne of carbon saved in 50 year’s time.
    - a forest can burn down, die from drought, or take up land that would require another forest to be felled elsewhere.

    In other words, if you emit a tonne of carbon you can be sure the damage is being done, but by planting a tree there are no guarantees you will completely offset your emissions, and even if you do, it will take 50 years.

  40. February 12th, 2007 at 10:47 | #40

    The fuel economy target wouldn’t even bring the US circa 2030 into line with Europe today

    Short of a major oil price shock there is very little chance that U.S. will increase average vehicle fuel economy by 30% by 2030.

    Some reasons:
    - Oil is very price inelastic. Americans would sooner eat garbage than give up their SUV and drive-thru lifestyle.
    - Track record. U.S. average fuel economy has been static for 20 years. “Overall fuel economy for cars and light trucks in the U.S. market reached its highest level in 1987, when manufacturers managed 26.2 mpg (8.98 L/100 km). The average in 2004 was 24.6 mpg”.
    - It takes 10-15 years to turn over an entire vehicle fleet. Even if a 30% reduction in fuel consumption were mandated tomorrow it would a decade or more before that figure was achieved.

  41. February 12th, 2007 at 11:49 | #41

    “though once externalities are taken into account there could actually be net benefits”

    Actually there are large benefits to using less energy – it costs less!!! Major corporations already have saved millions of dollars by using less energy and polluting less and improving their bottom line. A lot of the scare tactics used are just plain wrong.

    Read this “CLIMATE: Making Sense and Making Money”
    http://www.rmi.org/images/other/Climate/C97-13_ClimateMSMM.pdf

    “Eight classes of regulatory, organizational, and informational failures, perverse incentives, distorted prices and investment patterns, and similar barriers
    are costing the American economy about $300 billion every year. This waste pervades even well known and well-managed companies that have been saving energy for decades. Some alert corporate leaders, however, are now starting to break through these barriers to enrich their shareholders by combining careful attention with powerful innovations
    in design and technology. Many examples illustrate how each of the obstacles to such
    energy-saving practices can be turned into a lucrative business opportunity, making climate protection a boon for enterprise, innovation, and competitive
    advantage.”

    One of the problems is that on the whole energy is too cheap. Companies now have reached a balance where the cost of energy is balanced by the cost of saving energy. The sweet spot between energy use and energy savings however still has lots of waste as it costs more initially to save energy and the cost is hard to justify when energy is so cheap.

    The idea of carbon taxes or volume pricing of energy is to change the balance so energy saving becomes more lucrative with companies wanting to improve their bottom line. If energy starts becoming a large cost on the balance sheet then there will be incentive to save energy to reduce it. While the cost is small it can and is ignored except where the CEO etc has a particular crusade for whatever reason. The money from the taxes can be used to help to overcome the higher capital cost of the more efficient plant equipment.

    A prime example is inverter air conditioners. A 6 star inverter air conditioner can use less than 500W of electricity to produce 2000W of heating or cooling. This is because the motor used to power the compressor is an efficient variable speed AC motor or brushless DC motor that can be varied in speed depending on load. Less efficient and/or older air conditioners use single speed motors that are either on or off and cannot adjust to load thereby wasting a lot of energy. Of course the inverter types are a lot more expensive so more people buy the cheap ones from K-Mart because they seem better. Apply this to the whole of industry as well, as the same sort of mentality applies, and you can see the potential for savings. Refrigeration, including air conditioning, is a huge part of overall demand and savings here can make a difference without impacting GDP at all.

  42. stephen bartos
    February 12th, 2007 at 13:48 | #42

    I’m surprised so many in this thread have accepted the premise of Samuelson’s argument – that “Energy use sustains economic growth”. It implies energy is really important for growth (as opposed to just necessary, but small). Admittedly, this is an ambiguous statement; energy is needed for the economy in the same way as other physical inputs such as land, minerals, agricultural products etc. But it is a physical input – a commodity if you like – and the experience of the last 100 years is that these are less and less important to economic growth. Still necessary, but a lower proportion of the overall cost of production; whereas intellectual input – ideas, innovation etc. – have been growing strongly as a proportion over the same period. The consequence? Because it is less important as a percentage, we can quite happily afford to price it higher, use less of it, and still prosper by finding substitutes and alternatives. There are plenty of examples – not just CFCs (which in some ways were a smaller problem) but also other physical inputs to economic activity such as asbestos (successfully phased out of the building industry – but once was one of its underpinnings), DDT, arsenic, mercury (mainstay of the millinery industry when hats were in fashion) and so on. There seems to me in an age of the knowledge economy there is no good reason why we can’t both decrease use of CO2 emitting energy sources and continue to grow. To illustrate: think of the relative proportion of energy from carbon going into endeavours like this exchange vs. the mindpower of the numerous contributors? Say we double the price of energy involved by using renewable sources instead of coal fired electricity; then maybe it costs an additional fraction of a cent to read the postings. Will this drive John Quiggin and his numerous readers away? Then take the example and multiply it into thousands of other transactions across the service economy worldwide.

  43. jquiggin
    February 12th, 2007 at 14:43 | #43

    Carbonsink, the track record supports the opposite to your claim. Average fuel economy almost doubled between 1975 and the mid-1980s, a much greater improvement than IEA considers in less than half the time. This can be explained by an active policy push and higher prices.

    The fact that things went the other way after the 1980s is unsurprising – policy was relaxed (through the light trucks exemption) and fuel prices fell in real terms.

    On your final point, note that the IEA is looking at a phase-in of a marginal improvement so slow it won’t be completed until around 2045 (new cars are to be more efficient by 2030). Far from being an “aggressive program”, this is better described as a program that George Bush might perhaps consider an adequate figleaf for doing nothing.

  44. Peter Wood
    February 12th, 2007 at 16:33 | #44

    “Unfortunately, the recent suggestions by Tim Flannery and Bob Brown that Australia should close down its coal industry only go to reinforce the claims of people like Samuelson.”

    If Australia was to adopt a carbon price signal on domestic emissions, and continue to export coal to countries which do not adopt similar policies, the negative externality of that contribution to global warming will not be addressed.

    According to ABARE, Australian black coal exports in 2004-05 were worth $10.8 billion, and contributed 6591 PetaJoules of energy. Most black coal fired power plants emit about 1.0 t CO2-e per TeraWatt hour. My back of envelope calculations suggest that this amounts to 1830 Mt CO2-e per year, about 3.8 times as much as Australian domestic emissions. To close down our coal export industry would therefore cost $5.90 per tonne CO2-e in lost exports, which I think is a pretty good price.

    Of course shutting down our coal export industries would upset some sectional interests in Australia’s economy, cause job losses, provide comfort to those who argue that climate change abatement will be too inconvenient, and probably be politically unachievable. A more sensible alternative would be to address this externality by inclusion in an emissions trading scheme, or by applying a carbon tax to coal exports. The very large amount of emissions associated with Australia’s coal exports mean that addressing this issue requires serious consideration.

  45. still working it out
    February 12th, 2007 at 16:42 | #45

    Thanks for the link, Todd.

    Its a bit depressing really. Watching intelligent people resort to denialism and fantasy. You would think they might at least be driven to starting to come up with a coherent position by the possibility that GW is real. Instead they resort to calling everyone else idiots.

  46. Richard Tol
    February 12th, 2007 at 20:19 | #46

    Hair-shirt economics indeed. Samuel Brittan uses happiness studies, that argue that the utility function should be different, to argue that the utility discount rate should be different.

  47. February 12th, 2007 at 20:50 | #47

    JQ, I did say “short of a major oil price shock” and that’s exactly what happened in the late 1970s. Unless we see a similar price shock (which is entirely possible, Cantarell anyone?) I doubt we’ll see much improvement in average U.S. fuel economy through government policy alone. Policy might have relaxed from the 1980s onward, but I think low oil prices during the 80s and 90s had far more to do with the lack of progress on CAFE than policy.

    Look at what’s happening in our own car industry. Holden just spent a billion bucks on the new Commodore which is heavier, faster but no more efficient than the previous model, and Wheels just awarded it Car of the Year! And this is the platform Holden will be using for a decade.

    stephen bartos wrote:

    There are plenty of examples – not just CFCs (which in some ways were a smaller problem) but also other physical inputs to economic activity such as asbestos (successfully phased out of the building industry – but once was one of its underpinnings), DDT, arsenic, mercury (mainstay of the millinery industry when hats were in fashion) and so on

    In some ways were a smaller problem?! That has to be the understatement of the century. All of the above were easily substituted. The problem with fossil fuels, particularly oil, is there ain’t no easy substitute.

    Peter Wood wrote:

    My back of envelope calculations suggest that this amounts to 1830 Mt CO2-e per year, about 3.8 times as much as Australian domestic emissions.

    So … if the Australian electorate were given a choice between reducing domestic emissions (meaning higher petrol, electricty and gas prices) or shutting down coal exports and having 4 times the impact on climate change, which would they choose?

  48. jquiggin
    February 12th, 2007 at 21:55 | #48

    Well, maybe we’re not disagreeing. Clearly a carbon tax or cap-and-trade scheme will raise the price of all fossil fuels, so it will have the same effects as an oil price shock, only more so. As you say, that is what is needed.

    So, if your point was simply that we need price measures rather than trivial interventions like those discussed by Samuelson, I’m fully in agreement. That said, the IEA analysis, by showing that such trivial measures could reduce demand by 14 per cent relative to BAU, supports the conclusion that serious measures, with a cost of 1-3 per cent of national income, could achieve the 60 per cent reduction in emissions needed for stabilisation at 550ppm.

  49. February 12th, 2007 at 22:34 | #49

    An emissions trading scheme that produces the same effects as a 1970s oil-price shock is probably not the kind of emissions trading scheme our politicians had in mind :) BTW, what percentage of national income did the oil shocks of the 1970s cost?

  50. observa
    February 12th, 2007 at 22:48 | #50

    What has happened swio is those early adopters of the theory of GW are still pointing accusing fingers at the early skeptics and denialists. Their problem now ironically enough, is that they are in denial themselves as to the costs of remedial action and in any case whether there is any point to it, if any national sacrifice is simply squandered by others internationally.

    If you don’t think people who believe in 1-3% cost to GDP to reduce GG to 40% of their 1990 levels mantra target are in denial, ask yourself why in God’s name so many govts around the world haven’t beaten a path to their prescription door. Why wouldn’t John Howard make a nice guy of himself with the punters for that paltry cost eh? While you’re at it, you might like to find a country that currently enjoys per capita GG emissions that are 40% of Australias per capita emissions in 1990. If you do, I’ll bet you all the tea in China, noone’s risking the lot in leaky boats or the like to get there.

    For boofheads with short memories, let me jog the neurons just a little bit. Been to a flea market and seen all the hand saws, hand drills, brace and bits to give away? In the building game nowadays if it doesn’t go in with a cordless driver or a nail gun then it must need welding. They don’t dig footings and plumbing with picks and shovels for one and six a foot either. Seen all those strange bobcats, mini-excavators, ditch witches, directional drilling machines, backhoes, etc? Apart from brickies mortar, they don’t shovel sand, cement and gravel into concrete mixers anymore. Have you taken any notice of those funny rotating barrels on the back of big trucks coming out of the batching plants lately? And when they get to site the big truck with those pipes to pump it all around? Wheelbarrows you say? Streuth, they haven’t reduced bagged products to 20kg just for OHS these days. It’s because you can’t get this generation to lift what grandad did anymore. (seen anyone lifting hay bales, wheat bags or even your rubbish bin lately?) The remote control generation is why there’s such a shortage of tradesemen these days. Besides they’re all off listening to the likes of JQ telling them how simple it will be to save the planet and still enjoy the good life.

  51. observa
    February 12th, 2007 at 23:26 | #51

    Time to state my own conclusions to date. GW is upon us and remedial action is needed and soon. That will have a very large impact on our material well being and as such it will be impossible not to address the concomitant equity problem. Further, in the likely absence of international agreement and cooperation on remedial action, any proposed remedy by one country or a group of countries would need to bring inexorable pressure to bear on the others to follow suit. We need a vanguard country and what better than ours eh? After all we ate the GST reforms for breakfast.

  52. jquiggin
    February 13th, 2007 at 06:45 | #52

    “f you don’t think people who believe in 1-3% cost to GDP to reduce GG to 40% of their 1990 levels mantra target are in denial, ask yourself why in God’s name so many govts around the world haven’t beaten a path to their prescription door.”

    Observa, this and your next comment suggests you really haven’t been paying attention. Australia and the US are laggards here. All other countries of any significance have ratified Kyoto, and the EU is already pushing for a 60 per cent reduction, and implementing policies that are (admittedly initial) steps towards reaching it. Once the US comes on board (about March 2009) we will be left like a shag on a rock.

  53. jquiggin
    February 13th, 2007 at 06:56 | #53

    The oil shock was a consequence, not a cause of the macroeconomic disruption of the 1970s. The crucial event was the collapse in 1971 and 1972 of the Bretton Woods system in the face of high inflation. This inflation eventually (1973 and 1974) spilled over into commodity prices. There were some second round macro disruptions from the recycling of petrodollars, bad loans and so on.

    So, the economic costs of higher oil prices per se were modest. The assumption that energy is central to a modern economy is a myth that is almost impossible to dispel. Of course, energy inputs are essential, but the same is true of labour, capital land, water and every other factor of production. As Stephen Bartos points out above, information is what matters in the end.

  54. February 13th, 2007 at 08:12 | #54

    JQ, regardless of whether cause or consequence is there any economic analysis of the costs of the oil shocks themselves?

    As you say, energy may not be central (and is becoming less important) but it is still essential. Oil in particular is essential with no obvious substitutes on the horizon. This notion put forward by many economists that we will easily transition from oil to some future energy source just as we did from wood to coal to oil, is nonsense. Despite what economists believe, energy will not be magically created just because the price is right. What matters ultimately is net energy — if it requires more energy to extract the fuel than the fuel produces, no-one will make the investment.

  55. jquiggin
    February 13th, 2007 at 09:10 | #55

    Carbonsink, there is essentially unlimited (if expensive) solar energy available to us, even after netting out energy embodied in production. So, economists are exactly right in saying that energy will be created if the price is right. Of course, prices have another magical-seeming effect. If the price is high enough, uses of energy that seemed to be essential will be found to be dispensable.

    My guess is that solar is not going to be the cheapest option (taking emissions costs into account) for some time to come. But the cost of going solar across the board (large in absolute terms, but small relative to GDP) provides an upper bound showing that the problem can be solved without destroying the economy.

  56. February 13th, 2007 at 09:26 | #56

    Taken to its logical extreme you are correct, but we are very, very long way from running our economy on exclusively solar energy. It would require (among other things) electrification of our transportation infrastructure, and a solution found for base-load power which solar cannot currently provide. Sure, we may get there given a lot of time, but climate change and oil depletion may mean we don’t have that luxury.

  57. February 13th, 2007 at 12:41 | #57

    jquiggan – “So, economists are exactly right in saying that energy will be created if the price is right.”

    Energy cannot be created. Economics can create energy converters to convert forms of stored or available energy to other more useful forms. Right now the car you drive cannot use solar energy except stored solar energy that has been refined into a form, petrol, that your present car can use. A car sitting around in the sun will not work no matter how much money you throw at it. If you spend money on a different energy converter and convert your car to run on solar power, that is not creating energy. It is just using a different type of energy converter – an electric motor, batteries and solar panels instead of a oil well, oil refinery, petrol station, gas tank and internal combustion motor.

    If one or more elements of the energy converter are not available for whatever reason and you lack the expertise or cannot get the expertise to create it then all the money in the world will not create the energy converter. So economics cannot create energy.

  58. February 13th, 2007 at 14:22 | #58

    What JQ is saying is that if the price of energy is high enough then renewables (essentially inexhaustible engergy sources) become economically viable, and the investment to develop these energy sources will follow. Thus energy is “created”.

    As JQ says, this is the upper bound of the problem. Once renewables are viable, the economy will “create” all the energy it needs (a worrying thought in itself). The question remains, can we get there with the minimal economic pain (1-3 per cent of GDP) as JQ suggests? I suspect the answer lies in how fast we have to make the transition.

    Perhaps my biggest argument with the market-will-provide-when-the-price-is-right premise, relates to oil substitution. Standard economic theory says that once a commodity becomes too scarce or too expensive it will be substituted for another. IMO, this falls down with oil. All of the possible substitutes have serious problems wrt climate change (biofuels, tar sands, coal-to-liquids). Of course, in the distant future we could electrify transport and run it on renewables, but that would cause massive economic upheaval if it had to happen quickly (less than 3 decades). In fact, there are some modes of transportation (such as jet-powered aviation) for which there are no viable substitutes for oil, no matter how high the price.

    Ultimately physics trumps economics whether economists like it or not :)

  59. February 13th, 2007 at 15:34 | #59

    Ultimately physics trumps economics whether economists like it or not.

    Keep it civil, carbonsink.

  60. jquiggin
    February 13th, 2007 at 16:25 | #60

    Ender, thanks for the correction, but this doesn’t get you very far. Since the total quantity of energy in the universe never changes, this cannot be a relevant variable in any decision we make. Of course, as you say, what matters is usable energy, and there are no binding physical limits here.

    “If one or more elements of the energy converter are not available for whatever reason and you lack the expertise or cannot get the expertise to create it then all the money in the world will not create the energy converter.”

    If I replace “energy converter” with “house” or “Pepsi-Cola” or any other good you care to name this statement is equally true. So, economics cannot create usable energy, except when it can.

  61. February 13th, 2007 at 19:18 | #61

    jquiggan – “If I replace “energy converterâ€? with “houseâ€? or “Pepsi-Colaâ€?”

    No because a house is not an energy converter. The economy is based on energy conversion. You can have energy without a house but not a house without energy. A human building a house by hand is using plants as an energy converter to generate energy assemble a house.

    So why did Roman economics not develop fossil fuels? They certainly has a lot of money and a huge economic system so therefore as their civilisation approached the limits of water power their economy should have created fossil fuel energy converters. If economics can create energy why did it no happen then? I am sure as available streams etc were exploited the price of water power must have increased so by your reasoning when the price got high enough the Romans should have invested their money into coal power.

    So what am I missing?

  62. jquiggin
    February 13th, 2007 at 20:01 | #62

    “The economy is based on energy conversion.”

    This is begging the question – that is, assuming what you are supposed to be proving. Of course energy is essential but so are water, air, labour, land, information, mineral resources and so on. All of these are in finite supply, and supply and demand for all them is driven by economic forces. There is nothing special about energy.

    As regards the Romans not exploiting coal, in fact they did. But it’s dirty and difficult to handle, so in the absence of a lot of associated innovations people preferred to use wood (first converted to charcoal for many purposes). When wood became scarce in Britain, coal was used as a substitute. Over time, with improved furnaces and so on it became the preferred source of energy.

    There’s an exactly similar story with natural gas, which used to be burned off as a nuisance associated with the extraction of oil.

  63. February 13th, 2007 at 22:56 | #63

    Thanks – will have a think about it.

  64. observa
    February 14th, 2007 at 00:29 | #64

    “Observa, this and your next comment suggests you really haven’t been paying attention.”

    OK, that point was a bit sloppy, because the demands on signatories to Kyoto are sloppy too(try India). Put it another way. Basically there are more people (via their govts) that want to relieve the guilty guzzlers of fossil fuels(MDCs)of their guilt faster than the guilty can dispose of it. That’s probably because this guilt declines with declining GDP, but there are the new denialists who don’t think so, or rather, prefer to believe the question won’t have to be asked of them.

  65. February 14th, 2007 at 08:10 | #65

    JQ, I’m aware that the energy sector is declining as a percentage of GDP in modern economies. I’m aware of Simon-Ehrlich wager that suggests that in the long run commodity prices decline. But I can’t shake the feeling that we’re heading for a disconnect in the energy sector where all the old rules get thrown out the window … and frankly when economists tell me “the market will provide when the price is high enough”, it gives me very little comfort. It strikes me more as an article of faith than anything else.

    Nothing illustrates this disconnect more than the aviation industry. Currently passenger numbers are booming, airports are being expanded around the world, flights seem to get cheaper and cheaper, but how can this possibly continue in a carbon-constrained and oil-depleted world? You can’t fly jet planes on solar, or biofuels or hydrogen. There is simply no substitute for kerosene. Nothing else has the same energy density and stability across a range of temperatures.

    How will the market provide an alternative to kerosene?

  66. jquiggin
    February 14th, 2007 at 09:41 | #66

    Regardless of what we do about global warming, it seems unlikely that the trend to ever-cheaper air travel can continue, given that the price of oil seems set to rise. There are some adjustments that can be made. For example, most discussion of the Airbus A380 focuses on all the room for lounges, bigger seats and so on. I suspect we’ll see them packed as tight as existing jumbo jets soon after they come into service, which will make them considerably more fuel-efficient per person.

    But the point I’m trying to make is that there is a huge difference between “we can’t go on exactly as before” and “we will experience a sharp decline in our standard of living”. Some things will get dearer, others will get cheaper, overall we will be marginally worse off than if the problem magically disappeared.

  67. gordon
    February 14th, 2007 at 09:48 | #67

    Prof. Quiggin’s rough estimate of the cost of the IEA’s “Alternative Scenario� for energy production and use concludes “…we’re looking at initiatives that are an order of magnitude less costly than those being discussed in serious analyses of the problem�. This actually looks like still being an overestimate of costs of the Alternative Scenario (World Energy Outlook 2004, Ch.11), because the IEA estimates the net global costs of their set of alternative policies as zero. This is because they project that reduced generation costs in non-OECD countries would roughly equal increased demand-side costs in OECD countries. This doesn’t mean that financing wouldn’t be a problem, particularly for non-OECD countries, but is is a zero-net-global-cost projection.

    And for OECD countries, projections of CO2 emissions in the Alternative Scenario reach a turning point at about 2020, then start to decline. The projection horizon is only 2030, so no estimate of 2050 emissions is given (the Blair Govt. for example has a target of 60% reduction in CO2 emissions below (I think) 1990 levels by 2050). Projections for developing countries are poorer, with CO2 emissions continuing to rise thoughout the projection period, but more slowly than under the Reference Scenario.

    So this zero-net-global-cost Alternative Scenario won’t solve all our problems, as I said in my earlier comment, but it goes some of the way and projects a turning point in emissions – at least for OECD countries. That is very important. Now if we spend some real money…

  68. February 14th, 2007 at 10:19 | #68

    Air travel is at the sharp end of the global warming problem, primarily because its monumentally damaging to the atmosphere (10 tonnes of CO2 emitted for a return trip to Europe). Despite this the long term trend is for cheaper air travel. Something has to give. Either the long term price trend reverses dramatically, or some low-emission renewable alternative to kerosene magically appears.

    Cramming a few more bums onto an A380 is not going change any of this.

    If there’s one thing any of us can do to reduce GHG emissions it is: Don’t take that flight. I can see a time in the not too distant future when flying will be as socially unacceptable as drink-driving is today.

    BTW, the idea that you can offset a flight to Europe by planting trees is preposterous. A large tree will absorb around one tonne of CO2 over its lifetime. Say the tree lives 50 years, that’s 20kg of CO2 per year. If you fly to Europe once a year you would need to plant 10,000 / 20 = 500 trees every year.

    So I think the problem is more than “Some things will get dearer, others will get cheaper”. While we may be marginally worse off in economic terms, there may be things we simply cannot do any more, like fly around the world, or commute 100kms to work every day, or heat the swimming pool through the winter.

  69. frankis
    February 14th, 2007 at 10:21 | #69
  70. February 14th, 2007 at 11:50 | #70

    Those crazy Russians :)

    Both Hydrogen and LNG have a much lower energy density by volume than kerosene:
    Liquid hydrogen: ~8 MJ/L
    LNG/LPG: ~22 MJ/L
    Kerosene: ~33 MJ/L
    These are fundamental physical limitations that cannot be overcome by economists :)

    Both liquid hydrogen and LNG require very large, very strong tanks that must withstand huge differences in air pressure and temperature. Because the tanks are larger the planes will have to be larger producing more drag, which means the planes will have to fly at higher altitudes. Problem is, burning hydrogen produces 2.6x as much water vapour as buring kerosene resulting in larger contrails, which are known to trap heat in the atmosphere, particularly at night.

    There are road blocks everywhere you look. That’s why those crazy dudes at the IPCC concluded:

    There would not appear to be any practical alternatives to kerosene-based fuels for commercial jet aircraft for the next several decades.

  71. February 14th, 2007 at 20:11 | #71

    carbonsink – “There would not appear to be any practical alternatives to kerosene-based fuels for commercial jet aircraft for the next several decades.”

    The sensible answer is to restrict air travel. The very very dirty option is to use coal to liquids.
    http://featured.matter-mag.com/2006/11/can-coal-clean-transportation-fuel.cfm

    Now which solution do you think will be chosen?

  72. February 14th, 2007 at 21:25 | #72

    Now which solution do you think will be chosen?

    Obviously coal-to-liquids. There is not a politician in the world with the courage to say you can’t fly anymore, or make it so expensive than only the super rich can fly. Its taken 30 years for air travel to become accessible to (almost) everyone. What politician in their right mind is going to reverse that trend?

    This is what bugs me when people tell me the adjustment will be easy — just a few percent of GDP — sounds nice and painless doesn’t it, but that doesn’t reflect the fact that the aviation industry really needs to shrink to a fraction of its current size.

    Of course, some will say we’ll keep flying and keep using kerosene, but that means even deeper cuts in other sectors, as if a 60% reduction 1990 levels wasn’t ambitious enough.

  73. Peter Wood
    February 14th, 2007 at 21:33 | #73

    I have just been reading the link posted by Ender: “CLIMATE: Making Sense and Making Money” I highly recommend checking it out. carbonsink asked : “BTW, what percentage of national income did the oil shocks of the 1970s cost?” I’m not sure what the answer to that question is but C:MS&MM states (p. 9):

    During 1979, in the wake of the second oil shock, America got nearly five times as much new energy from savings as from all net expansions of supply, and 14% more energy from sun, wind, water, and wood but 10% less from oil, gas, coal, and uranium. By 1986, CO2 emissions were one-third lower than they would have been at 1973 efficiency levels. The average new car burned half the fuel of 1973 models (4% of that gain came from making cars smaller, 96% from designing them smarter) and emitted almost a ton less carbon per year. Annual energy bills fell by ~$150 billion. Annual oil and gas savings grew to become three-fifths as large as OPEC’s capacity. In those seven years, GDP rose 19% but energy use shrank 6%.

    A recent study by Barclays Capital seems to arrive at similar conclusions. I havent been able to find it on the web, but check out:

    http://news.independent.co.uk/business/news/article2248811.ece

    When environmental measures such as reducing lead in petrol, CFCs, SO2 etc have been flexible, they have cost less than expected and provided unforseen opportunities. There are likely to economic benefits from the efficiency improvements caused by a carbon price signal, but it is hard to predict how much they will be, and how much they will balance the costs associated with reducing emissions. This will probably make it harder to estimate a carbon price from an emissions cap in a cap and trade scheme. The carbon price in the EU Emissions Trading Scheme has now slumped to 1.50 Euro, becuase the cap was too high. The lavel of the cap proposed in the National Emissions Trading Taskforce Discussion paper (the state based one) may repeat this mistake – it is not very different from BAU in the first few years. If other market barriers and market failures which prevent energy efficiency are addressed, then the carbon price will be lower, and global warming mitigation will be cheaper.

  74. Peter Wood
    February 14th, 2007 at 21:39 | #74

    It may be that Australia will have to reduce its GHG emissions by more than 60% by 2050 if we are to cooperate in achieving a stabilisation level of 550 ppm CO2-e. Countries with high per capita emissions will probably need to reduce their emissions more than countries with low per capita emissions. If Australia was to reduce its emissions by 60%, they still will only be marginally lower per capita than present per capita emissions in the UK. The Stern Review (p. 474) cites a study by Hohne et al which looks at various options for a global framework for reducing greenhouse gas emissions.

    The study discusses four options for different countries to reduce greenhouse gas emissions, it does not provide figures for Australia, but does for the United States, which also has high per capita GHG emissions. The results for the US are emissions 20-40% less than 1990 levels in 2020, and 70-90% less than 1990 levels in 2050. This is for a 450 ppm CO2 concentration, which corresponds to somewhere around a 550 ppm CO2 equivalent concentration. If we want to mitigate more of the low temperature increase effects of climate change, such as severe coral bleaching of the Barrier Reef, we will probably have to aim for a lower stabilisation target than 550 ppm CO2-e.

    My preferred way for Australia to mitigate climate change would be for an emissions trading scheme and complementary measures for dealing with domestic emissions, and a carbon tax on coal exports, which will perhaps be somewhere around $5.90 per tonne CO2-e. If Australia can provide effective emission reductions, and reduce coal exports through a price signal, we will be setting a good example. If we can also achieve some economic benefits through efficiency increases, others may even want to imitate us.

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