Hard cash and climate change: repost from 2005

While thinking about decarbonizing transport, I dug out this old post from 2005. It’s interesting to see how the debate has evolved (or not) since then.

The big change has been that the prospects for technological alternatives like alternative energy sources and electric vehicles have improved dramatically. As regards transport, I don’t see much reason to change the analysis I presented in 2005. Unfortunately, while some progress has been made along the kinds of lines I suggested, it’s been very limited compared to the radical changes in electricity generation. So, we are only at the beginning of the process of decarbonizing transport.

Tim Worstall gets us past that pesky NYT paywall to link approvingly to a John Tierney column arguing that the way to encourage energy conservation in the US is not to fiddle with standards but to raise prices. Broadly speaking I agree. At a minimum, getting prices right is a necessary condition for an adjustment to sustainable levels of energy use. Nevertheless, the rate of adjustment and the smoothness with which adjustment takes place can be greatly enhanced by the adoption of consistent pro-conservation policies, or retarded by the adoption of inconsistent and incoherent policies.

This is as good a time as any to restate the point that, given a gradual adjustment, very large reductions in energy use and CO2 emissions can be achieved at very modest cost. Rather than argue from welfare economics this time, I’ve looked at the kind of adjustments that would be needed to cut CO2 emissions from motor vehicle use (one of the least responsive) and argued that price increases would bring this about over time, without significant pain.

With the price of gasoline in the US passing $3/gallon and most of the remaining sceptics now conceding the reality of human-caused climate change, it seems like a good idea to re-examine some fundamental assumptions in the debate over climate change. Rather than focus on the short-run arguments about the Kyoto protocol, it seems more useful to focus on the question of whether anything can really be done to stop climate change.

A common estimate is that to stabilise the global climate, we would need to reduce emissions of carbon dioxide by 60 per cent, and proposals to achieve this by 2050 have been put forward. Assuming only a limited role for alternative energy sources, it seems reasonably to look at a 50 per cent reduction in primary energy use.

It’s a widely-held view that the kinds of changes required to stabilise the global climate must imply a fairly radical reduction in our material standard of living. This view is shared by radical environmentalists, who see such a reduction as a good thing, and by opponents of such changes most of whom, at least in developed countries are on the free-market right.

The fact that radical environmentalists view the modern economy as critically dependent on unsustainable patterns of energy use is not surprising. On the other hand, supporters of the free-market generally praise the flexibility of dynamism. Currently, energy use accounts for about 6 per cent of GDP. The suggestion that reducing this proportion to, say, 3 per cent, is beyond our capacity seems to represent a very pessimistic view of our economic potential.

There’s a standard economic technique for giving a rough estimate of the economic cost of such a shift. Begin with the assumption that in the long run, the demand for energy is sufficiently flexible that a 10 per cent increase in costs will eventually produce a 10 per cent reduction is usage, relative to the underlying trend. Although energy use responds slowly to price changes in the short run this is a fairly conservative estimate of price responsiveness over periods of a decade or more.

Given this assumption, halving energy use would require a 100 per cent increase in prices (by coincidence this is about the change that’s been seen in US gasoline prices in the last few years). A standard economic calculation suggests that the reduction in economic welfare associated with such a tax would be somewhere between 50 and 100 per cent of the revenue raised, or between 1.5 per cent and 3 per cent of GDP. That’s about one year’s worth of economic growth. Remember that this estimate is not for the modest first steps required under Kyoto, but for a reduction in emissions on the scale required to stabilise climate.

Is such a broad-brush estimate reasonable? One way to check is to look in detail at the kinds of changes that would be needed to achieve such a reduction in the most sensitive single category of energy use, that of private motor vehicles.

Consider changes over twenty years, a period long enough for the vehicle fleet to turn over, and for people and firm to make adjustments to home and work locations, commuting and shopping patterns, and so on.

First, a significant reduction could be achieved simply by improvements in the technical efficiency of fuel use. The motor vehicle industry, although technologically mature, still exhibits steady improvements in the efficiency of engines and other aspects of vehicle design. When fuel prices are low, much of the effort is allocated to improving performance.

When fuel prices are high, and policy is oriented towards reducing energy use, innovations that improve fuel economy are favoured. Over 20 years, and with support from publicly funded research, it seems reasonable to anticipate a 20 per cent improvement in fuel economy, for all types of vehicles, relative to the ‘business as usual’ trend.

Second, some shift towards alternative fuels could be anticipated. While radical alternatives such as ethanol and hydrogen and alternatives to internal combustion such as electric cars have so far proved disappointing, an increase in the effective cost of petrol would encourage greater use of existing alternatives such as LPG and diesel, which are more efficient in terms of carbon emission.

Yet further improvements could be achieved with measures to reduce traffic congestion, including purely technical innovations such as more sophisticated management of traffic lights and market innovations such as congestion charges.

Next, the mix of vehicles in the fleet would change over time. The gain from this source can be illustrated by a simplified example. Suppose that half of fleet uses 10l/100km, and half uses 5l/100km, yielding an average of 7.5l/100km. If the proportions changed to 25:75, the average would fall to 6.25,and fuel use would fall by 15 per cent. Most of this change would arise as a result of consumer responses to changing prices. However, existing policies that favour the use of large, inefficient vehicles (such as the special treatment of SUVs in US fuel economy regulations) should be scrapped, and replaced by policies pointing in the opposite direction.

A small further saving, say 5 per cent, could be achieved through discretionary decisions on which vehicle to use for a given trip. Given high fuel prices, a household with a small car and a 4WD might be more inclined to use the small car when dropping the kids off at school, for example.

A similar small change, say a 5 per cent reduction in fuel use, could be achieved through improved driving habits. These include stricter adherence to speed limits on open roads, and avoiding excessive acceleration and braking in urban areas.

So far, we’ve considered changes which involve no change at all in travel patterns (with the exception of congestion pricing, which would actually improve things), and only marginal adjustments in lifestyle. The biggest single change, in the fleet mix, would do little more than restore the mix prevailing in, say, 1980. Yet taken together, these changes would be sufficient to reduce energy use by between 30 and 40 per cent and CO2 emissions by an even larger amount.

Now consider some changes in travel patterns. The most important single variable is the distance travelled by each person. To get an idea of feasible magnitudes let’s consider a 20 per cent reduction in distance travelled. For commuting, the biggest single use of time, this could be achieved if people chose to live a little closer to work, to rearrange schedules to allow a four-day week, or to telecommute one day each week. Similar savings could be made on shopping and leisure travel with only modest costs.

The fuel cost of travel also depends on the extent to which people share cars. The average occupancy of cars has declined steadily reaching about 1.1 persons per vehicle for commuting trips in the US in 2000, and about 1.5 persons per vehicle for all trips. A partial reversal of this trend, raising occupancy to 1.65 persons would reduce fuel use by 10 per cent for a given number of person-km travelled.

Finally, there’s public transport and alternatives to cars like bicycles and walking. Doubling the share of these would reduce the number of vehicle trips by around 10 per cent, though the reduction in fuel use would be smaller since mostly short trips would be avoided.

Adding all of these modest changes together would yield a reduction in fuel use of more than 50 per cent Some of these changes would be imperceptible, others would require marginal adjustments over a couple of decades. Taken all together, they would be barely noticeable relative to the changes in lifestyle that most people experience over such a period.

You might think that adding together a whole lot of small changes in the same direction is stacking the deck in some sense. But this is the way markets work. An increase in the effective cost of some commodity generates adjustments on many different margins, all in the direction of economising on that commodity.

It is also the way coherent public policy works. If a goal of reducing energy use or CO2 emissions is properly embedded in public policy, it will be reflected in modest shifts in many different dimensions of policy, producing a significant aggregate impact.

The combination of price responsiveness and public policy can be seen working together in the reduction in tobacco use over the forty-odd years since the link between smoking and cancer was first officially recognised in the US in the Surgeon-General’s report of 1964. At the time, the proportion of men who smoked was 52 per cent and smoking among women was rising rapidly as older social taboos lost their effect. In 2000 the proportion who smoked was down to 25 per cent for men, and 20 per cent for women and was declining for both groups.

Admittedly, the health risks of smoking are borne mainly by the smoker, so the link between giving up and receiving benefits is direct and personal. Against this, nicotine is possibly the most addictive drug known to humanity. Giving up smoking requires an effort far greater than the modest changes discussed above.

The reduction in smoking was achieved by a combination of higher taxes, aggressive public information campaigns and public policies that gradually limited smoking in various public places, but without any radical changes or any element of compulsion comparable to Prohibition of alcohol or of the many drugs that are currently illegal.

What is true for driving and smoking is even more so for other forms of energy use, particularly in business and industry. Given a consistent upward trend in prices and a coherent set of public policies, massive reductions in energy use would follow as surely as night follows day.

142 thoughts on “Hard cash and climate change: repost from 2005

  1. @ZM

    Yes, meat is a problem but if you suggest to society t”hey cannot have meat to save the planet for future generations” they will say – I want my meat and I don’t care about future generations.

    The same argument applies to cars, iphones, computers, air travel and etc etc.

    Meat production accompanied with deforestation introduces 700 kg CO2e over 20 years per kg of carcass weight (C.W.).

    On cleared land it is over 20kg pa per kg C.W.

    See: Meat CO2e

    Even if meat consumption is reduced to 50kg pa – this still equates to over 1 tonne CO2e per person.

    This is 8 GT co2e when population is 8 billion.

    There is the argument that all of the CO2e in meat comes from grass that draws CO2 from the atmosphere and not from fossil fuels. It therefore only returns what it extracted and cannot add to atmospheric CO2.

    This is a weak argument.

  2. Further to my reply to Ronald Brak above, I have found a chapter of what seems to be a standard economics textbook. It tells me (rendered into English) that;

    Elasticity in demand = percentage change in quantity demanded of product X
    percentage change in price of product X

    Therefore in the oil case;

    E(d) = 24% / 80%
    E(d) = 0.3125

    Of course, I haven’t even taken into account the mid-point formula let alone possibly more arcane factors I am not aware of. Also, I have no knowledge context for the concept of price elasticity. The bare bones of the above suggest to me that any price change at all can be accommodated in supply-demand theory since there can always be a unique elasticity in demand assigned. This has interesting implications for knowledge claims in such a theory but I better not float any theories at this point.

  3. Ikonoclast, the “otherwise people might think you are a bit of a looney” remark was not a jibe directed at you. It was part of a conditional statement about how people may percieve you, or anyone, who does not make their position clear at the start of a discussion. It was not referring to “you” personally or making any assumption about what “you” personally may think.

    That said, I do realise that many people do take use of the word personally even when the context indicates that it makes no sense to do so. And my use of the word “you” in a way where its meaning is highly dependant upon context is probably one of the reasons why I have no friends who speak English. Since you have indicated that you apparently don’t like it, I will attempt to remember to use the word “one” instead of “you” in those types of constructions in comments here in the future.

  4. @Ikonoclast

    Iko: Re your plea – “January 26th, 2016 at 09:16 | #17
    As a general question, I want to ask the economists here, ..”

    Your data (2008, 2015/16) do bear that out approximately. They show major oil undersupply in 2008 relative to market demand, for instance. Right now, that situation has been reversed and prices are lower.

    Yes, in part this (2015/16) would reflect the ‘almost monopolist’ stance of OPEC re oil and their lifting of output quotas, perhaps in some attempt to wipe out fossil fuel competitors. It also could be influenced by the expectations of market participants (eg buyers) – they expect more oil to be coming from Iran for instance.

    Buyers may also be being influenced by current GNP levels and by their expectations of future demand being attenuated by almost global efforts to reduce consumption of fossil fuels and hence greenhouse emissions (with a view to helping preserve an (almost?) liveable planet.

    Paris was pretty clear about that, and since then there’s have been flurries and flurries of actions commenced or strengthened in that regard.

  5. Ikonoclast, you wrote, “…a massive price change of $143.45 to $29.82 has occurred. This is an 80% drop in price in round numbers. I think my question is reasonable. Can or do standard supply-demand models explain this?”

    Yes. When people want oil they bid the price up. And then when more oil is produced than people were using it becomes a matter of how low a price are the producers willing to accept before they cut production. When oil was $147 US a barrel people were will to pay $147 rather than make do with one barrel of oil less. Now that oil production has increased without an equal expansion in demand, oil producers are willing to go as low as $31 a barrel before enough of them start to decide they would be better off leaving oil in the ground and reducing the amount of oil available. It’s simple.

    If you want to get into the specific reasons of things like just exactly why Saudi Arabia decided to increase production and hasn’t decided to decrease it yet, yeah, I’m not going into that. For one thing it’s boring. Secondly, people’s personal opinions come into these sorts of discussions and I hate those things.

  6. Thanks Ikonoclast, but I think someone actually came up with the whole supply and demand thing a long time ago. But… since the Noble Memorial Prize can only go to the living, and if one hasn’t been given for that yet… Yes! Yes, it’s my idea! All mine! I am very well preserved! Give me the money!

  7. @TerjeP

    You are correct in guessing that John Quiggin was not suggesting that Trump has outdone the intellectual appeal of libertarians. What John Quiggin was asserting, roughly, is that Trump has outdone the anti-intellectual appeal of libertarians.

    I am confident that you don’t associate libertarians with an appeal to anti-intellectualism, but I am also confident that John Quiggin does.

  8. Ivor,

    I think people could cut down on meat and other animal products without too much inconvenience or sense of deprivation. I was a vegan for a few years when I was a teenager, before being a vegetarian for a while, then eating meat again, to now being vegan again.

    Plant based recipes have really improved a lot since the 90s, and while it might be too much to ask of a lot of people that they give up animal products all together I don’t think it would be so difficult for people to think of animal products as more of a special occasion food than the basis of a diet, which is what it has been traditionally.

    This would have health benefits as well as environmental benefits, and I think might also encourage a move away from intensive livestock production as less livestock is farmed, as I think intensive animal farming is not a very good way for animals to live their lives, although I am aware that is a different issue from the environmental impacts of livestock.

    My understanding is that there are farming techniques that decrease the greenhouse gas emissions from animals, which should be encouraged, but that an overall decrease in numbers is needed to get benefits like a .5 degrees decrease in average temperature rise.

    I think this is an area where there has actually been some good movement in consumer demand and production methods since around 2005 as well.

    I think there was momentum for action on climate change around 2004, 2005, 2006 before the financial crisis when it stalled a bit, at least in the political arena. But I think trends in food have continued moving in a direction that is more sustainable, with farmers markets, local production, community gardens, etc and plant based options are more readily available from cafes and restaurants now

  9. @ZM


    Switching to no-meat will cut CO2e emissions.

    But how does this progress continue so that residual meat use is less than in 1920 or thereabouts?

    This is the problem.

  10. Ivor,

    I think there is a range of things. On the demand side there is raising awareness among household consumers, and also among the hospitality industry and food retailers who are sort of in the interface of consumption and production.

    On the production side I think it is important to raise awareness as well, but also I think this will need government assistance in some way — both in terms of measurements and accountability, and also in terms of helping more vulnerable farmers and businesses transition or get some sort of compensation if they can’t or don’t want to transition.

    In the interests of disclosure I started volunteering in a non-profit last year which has the mission to raise awareness of greenhouse gas emissions among consumers, but my internet comments are just on my own behalf and my own personal views about things.

    As someone who is a citizen of Victoria I also think there is a role for administrative justice in this, in terms of ensuring that the Planning and Environment Act objective of sustainability is met in how land is used and developed in Victoria, and ensuring other laws are fulfilled as well, such as the public trust doctrine which should ensure that common pool resources like the air and the climate and the oceans are maintained in good condition for the benefit of the whole public, now and into the future. I really think this is a rule of law issue — there are a number of laws that have objectives of sustainability and protection of the environment, and the fact that these laws are not being adhered to raises some questions about the rule of law in Australia, although of course we have quite good rule of law in many other areas and are lucky to be a safe and stable democracy.

    In regards to this I made a submission at a recent VCAT case last year about the proposed development of a broiler farm in my Shire here. I looked at a few academic science articles about the greenhouse gas of broiler farms, including one meta-analysis. I think that my figures are correct, but am happy to be told anything that needs amending.

    In my submission I used figures from one U.S. article and one meta-analysis article, for the range of figures of greenhouse gas emissions associated with broiler poultry per tonne up to the farm gate (emissions associated with the poultry continue past the farm gate via transport, refrigeration, waste after that but they were mostly omitted from the articles). VCAT found that I was calling them to act outside the scope of VCAT, I disagree with this, and am considering whether it is possible to request the Supreme Court to undertake a judicial review of the case, with regard to the section that discusses my submission. I am seeking pro bono legal advice for this, as representing myself at VCAT was quite difficult I found and I was not as good as the barristers, and the Supreme Court is more formal than VCAT and is a Court of Law as well, which means it would be better to be represented by a solicitor and/or barrister with a more thoroughgoing understanding of law rather than myself who has only taken one planning law subject and read about laws in relation to whether the Commonwealth and State Governments and Crown are bound to act to preserve a safe and agriculturally prosperous climate.

    One research article on broiler farms finds that from cradle to farm-gate every one tonne (1,000 kg) of broiler poultry is associated with more than 1.4 tonnes of CO2 equiv. being released (Pelletier, 2008). A meta-analysis of several articles of lifecycle analyses from cradle to farm- gate of livestock farming states that GHG emissions per tonne of chicken have been found to range from 3.7 tonnes of CO2 equiv. to 6.9 tonnes of CO2 equiv. (de Vries & de Boer, 2009).

    The three broiler farms together are capable of holding 1.2 million birds at any one time. The Weekly Times states the developer plans for the broiler farm to grow up to 7 million broiler chickens a year, equalling 14 million kg, or 14,000 tonnes, of broiler poultry grown per year.

    At the figure of 1.395 tonnes of CO2 equiv per tonne of broiler poultry given by Pelletier (2008), this equals 19.5 million kg of CO2 equiv. produced per year up to the farm-gate. At the higher figure of 6.9 tonnes of CO2 equiv. per tonne of poultry given in the meta-analysis by de Vries and de Boer (2009), this comes to 96.6 million kg (or 96,600 tonnes) of CO2 equiv.
    produced per year up to the farm-gate.

    To put this into perspective, the Garnaut Climate Change Review Case Study of the Maine’s Power Project in the Shire found the total GHG emissions in the whole Shire from gas and electricity use to be around 184 million kg annually

    Therefore, the proposed development and use of the three broiler farms would produce greenhouse gas emissions per year equal to somewhere between 10% to 50% of the total emissions produced by the entire Shire’s yearly electricity and gas use.

    Thus, the development of the broiler farms would considerably increase the greenhouse gas emissions associated with the Shire at the very time when greenhouse gas emissions should be declining to ensure a safe climate

    In general, 1.2 billion birds are slaughtered a year for meat in Australia, so the emissions of broiler farms and other poultry producers are overly high at this critical time in history

  11. @ZM

    yes, agriculture (animal husbandry) – broilers, beef and etc do emit large quantities of GHGs.

    based on current projections – the current moves by our politicians so far will have Australia INCREASING CO2 emissions until 2020 but declining in intensity and on a per capita basis.

    As with fossil fuel exploration and extraction, there appears to be no high-policy initiative to restrict animal farming or coal mining etc as required.

    Some animal products may be possible in the future if the earth is stabilised at 450ppm. But I am not aware of any estimate of the available carbon sink at this point. Maybe this point is somewhere in IPCC ARs?

    The size of available future carbon sink is the key. Presumably it may permit some poultry farming, and beef, pork and etc production but our diet must become essentially plant based as evolution intended.

  12. Ivor,

    “As with fossil fuel exploration and extraction, there appears to be no high-policy initiative to restrict animal farming or coal mining etc as required.”

    There was an interesting VCAT decision a while ago, the Dual Gas case, which was intended to stabilise greenhouse gas emissions from gas power plants. The company wanted to build an extension to its power plant, but VCAT decided that an extension that would emit X amount of ghg could only go ahead if another power plant that emitted X amount of ghg was shut down.

    The Victorian government is currently working on policy development for both livestock and climate change, which will be interesting to see what happens or if there are opportunities for public consultation etc.

    The broiler farm developer was arguing that Victoria should increase the development of broiler farms as other states were leading in broiler farm development, while I was arguing that Victoria should stabilise the number of broiler farms bearing in mind the current number of broiler farms is probably exceeding the quotient of Victorian ghg emissions that should be allotted to broiler farms and really that numbers of broiler farms probably will need to decline in the future, which means the development is economically risky for the developer.

    “Some animal products may be possible in the future if the earth is stabilised at 450ppm. But I am not aware of any estimate of the available carbon sink at this point. Maybe this point is somewhere in IPCC ARs?”

    I don’t think there is enough research on this topic yet in terms of providing a model of what a sustainable agricultural sector would look like. It is an emerging field I think. Of course there are lots of farmers who in practice are trying to adopt sustainable farming but in terms of a systems perspective that covers what sustainable agriculture would look like in a State or Nation or the World I think it is emerging knowledge.

    Just from the variation in figures for ghg emissions from broiler poultry, there is a need for more research to be precise for different locations, and I have also read that agriculture including livestock is considered one of the most difficult fields to measure greenhouse gas emissions, i think because there are a lot of variable factors like soil quality, contribution to deforestation, etc,

    But you’re right, people can change their diet to be essentially plant based now without necessarily needing someone to model sustainable food systems (although I think the latter is also needed).

  13. Ivor :
    Switching to no-meat will cut CO2e emissions.
    But how does this progress continue so that residual meat use is less than in 1920 or thereabouts?
    This is the problem.

    Mate: to be a useful conversationalist you need to be saying things that add to the discussion, which is to say facts of which others are unaware, perspectives they had not considered or conclusions they had not realised.

    Do you believe that you’re doing this?

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