Matt Yglesias

Obama to Outlines Emissions Cut Target

Good news of a sort:

The US will announce a target for reducing greenhouse gas emissions before next month’s UN climate summit, according to a White House official.

The target is expected to be in line with figures contained in legislation before the Senate – a reduction of about 17-20% from 2005 levels by 2020.

This is a reminder of two sobering realities about climate change. One is that this kind of target is, by most accounts, pretty grossly inadequate. The other is that by all accounts it will be extremely difficult to get the United States Senate to agree to even doing this much.

Can’t Change Energy Policy Without Revenue

I think this is a great example of the shortsightedness of alternatives to carbon pricing:

Two senators unveiled legislation Monday to double U.S. nuclear energy output in 20 years and foster clean energy options with “mini-Manhattan Projects” named for the original U.S. atomic bomb push.

Sen. Jim Webb (D-Va.) and Sen. Lamar Alexander (R-Tenn.), noting they cannot support the cap-and-trade climate bill now churning through the Senate, said their plan could cost $20 billion over 10 years. It would include $100 billion for carbon-free electricity loan guarantees, expected to chiefly benefit the U.S. nuclear industry.

It would also offer $750 million per year for 10 years to fund carbon-capture-and-storage technology—sometimes known as “clean coal”—as well as biofuels made from non-food crops, advanced batteries for electric cars and trucks, solar power, and recycling of used nuclear fuel.

Completely leaving aside the merits of these projects, this costs money. Where are you going to get the money from? Well, one potential source of revenue would be to tax greenhouse gas emissions or else to impose a cap on them and auction permits. Of course you could get the revenue some other way—tax people’s income, or their consumption in general. But a tax on climate pollution would be at least as economically efficient as any alternative, and would increase the environmental efficacy of any of these ideas. I wrote this back in a review of Nordhaus & Shellenberger’s Break Through and I think it still holds up today:

But whatever the shortcomings of their rhetoric, environmentalists have a very good reason to push for some limits, however much of a downer that message might be. Global warming is caused by carbon emissions and can be contained only by reducing them. Nordhaus and Shellenberger’s preferred alternative — huge investment in alternative energy — doesn’t really stand up to scrutiny. For one thing, without mandatory curbs on emissions, it might not work. For another thing, emissions caps would effectively provide a subsidy to less polluting alternatives, one that would be harder for lobbyists to manipulate and that wouldn’t require lawmakers to pick winners among various possible technologies. Finally, even as a matter of crass politics, Nordhaus and Shellenberger neglect a basic point: the hard part about gaining support for a new initiative isn’t convincing people of its value but finding the money to pay for it. The conventional solutions to global warming posed by the “politics of limits” — taxing carbon emissions, or issuing tradeable emissions to carbon-producing firms — conveniently raises revenue that could be used to pay for the very projects the authors wish to see.

If you think that human industrial activity isn’t causing climate change, that is a good reason to oppose limiting climate pollution. But we’ve seen this kind of proliferation of false alternatives to the mainstream carbon pricing agenda from within a group of people who claim to recognize the basic shape of the problem. But whatever it is that you think the “real” answer is—even if it’s artificial trees or more nuclear subsidies or a crash carbon sequestration research problem—you still come around to the fact that the best way to pay this stuff is to make the emitters of greenhouse gas pollution subsidize your preferred version of the clean energy agenda. Someone, after all, will have to pay the bill.

Frum on Nuclear Socialism

I was saying this morning that I thought conservative affection for nuclear power was a bit odd in light of the fact that only massive socialism seems capable of financing nuclear power plants. David Frum has a post in response that I don’t totally understand:

Nor is it true, as Matt contends, that only an active state can deliver nuclear power. The United States already draws 20% of its power from nuclear. Until recently, it’s true, the stock market has preferred utility companies that generate their power from coal. Coal is cheap and reliable. But if a carbon tax increased the price of coal, nuclear would come back into vogue – and the regulatory changes needed to facilitate that shift would not have to be very dramatic. Probably more important would be mergers in the utility industry. The rule of thumb in the industry is that a new nuclear plant would cost some $10 billion and start yielding revenue only after 5 to 7 years. That’s a big check to write when the largest utility in the United States, Exelon, has a market capitalization of only $35 billion. Electricite de France by contrast has a market cap of some $85 billion.

We seem to me to be in agreement here. Even though carbon pricing ought to make nuclear power profitable on an operating cost basis, it would be prohibitively expensive to raise the capital necessary to construct nuclear plants. I think you could resolve this by having the state step in and do the financing. He thinks, I guess, that some counterfactual private utility could do it if it were far larger than any existing utility. But how would you make these mergers happen? That sounds to me like you need an active state.

Note that many of these same considerations apply to windmills. They generate electricity quite cheaply on an operating cost basis, the problem is building the windmills. But the scale of the investment in a windmill is much smaller, so it’s easier for the private sector to mobilize the risk-bearing capacity necessary to build one. That said, obviously you need a certain amount electricity that can be relied upon irrespective of how windy it is or whether the sun is shining. So I’d happily see the nuclear share of the pie grow at the expense of coal and oil as the provider of that baseload electricity. But from where I sit, making it happen requires a pretty forceful state intervention. Or perhaps what I should say is that the cleanest way to make it happen would be to bite the bullet and engage in forceful state intervention. I’m afraid that what we’re going to do instead is try to subsidize the operating profits of nuclear power to such a sky-high level that the private sector can’t help but jump in with the financing even though the deadweight loss of doing it that way will wind up being a lot higher.

Climate Optimism From Key Democrats

I don’t really think anyone quite knows what to make of this, but Max Baucus is seeming surprisingly bullish on the prospects of climate legislation: “There’s no doubt that this Congress is going to pass climate change legislation. I don’t know if it’s going to be this year. Probably next year.” I would have thought that one major reason to be skeptical about a climate bill’s prospects is that it doesn’t seem like the kind of thing that key senators like Max Baucus would be enthusiastic about. But there you have it.

Meanwhile, here’s Joe Lieberman making a lot of sense on climate. Environmental issues have long been the topic on which Lieberman is most progressive, but it had seemed to me that he’d drifted away from that commitment over the past couple of years.

Place Matters in Cap-and-Trade Compliance Costs, Does it Drive Politics?

There’s a lot of variation from place-to-place in terms of carbon emissions. Some places are sprawling, others are dense. Some places are cold, requiring a lot of heating. Some places have coal-fired electricity, others rely much more on cleaner sources. That’s the upshot of this useful rundown of place-by-place variation in costs to households of clean energy legislation done by Jonathan Rothwell and Mark Munro at Brookings:

What do we make of these results? The first thing to say is: The household costs of cap-and-trade compliance vary quite a lot, and depend quite a bit on what metro you live in. Ranging above and below the average $160 cost to a household nationally in 2020, the average metro figures range from a high of $277 per household in Lexington, KY to a low of just $96 in Los Angeles. Low costs are registered all across the West’s metros and in Northeastern metros like New York, Boston, and Rochester. Much higher costs will be borne by households in metros all across the upper South and Ohio Valley—places like Cincinnati, and Indianapolis, and Nashville. So once again, as we keep saying: Place matters.

This is followed, however, by some back-of-the-envelop political analysis that I don’t think is correct:

Given these realities, you can see why the chief sponsors of climate legislation hail from California (Rep. Henry Waxman, Sen. Barbara Boxer) and Massachusetts (Rep. Edward Markey, Sen. John Kerry) while the leading opponents, like Rep. John Boehner, represent Ohio or the South. But you might also think that regions that want to do well for their citizens might want to manage growth a little better, provide transportation options, and think about cleaning up their energy sourcing. Look at the map, after all: Place matters!

I think it’s hard to leap to this conclusion. The Northeast and California are aligned on a wide array of political topics—gay rights, abortion, labor law—that have absolutely nothing to do with carbon emissions. In particular, I began to have serious doubts about this analysis when I went to this table and discovered that DC is one of the highest-cost metro areas and Boise is one of the lowest-cost ones. I made a table showing eight above average and eight below average metros, with selections made with an eye to problematizing this conjecture about the politics of the climate bill:

DC strikes me as a particularly good test case for this hypothesis. The DC area is generally quite left-wing. But apparently would feature high compliance costs with a cap-and-trade bill. So are Donna Edwards, Chris Van Hollen, and Jim Moran among the House Democrats who made the most trouble for Waxman and Ed Markey? Well, no, they’re not. Nor is Boise a hotbed of support for climate change legislation nor Austin a hotbed of opposition.

My counter-hypothesis is that, the primary driver of the politics of climate change is general ideological factors, followed by the interests of energy producers rather than consumers. The DC area relies on a lot of coal power, but it doesn’t involve a lot of coal-related employment.

Global Cooling Debunk Belongs in Politics Sections of Newspapers

Seth Borenstein of the AP has a pretty great piece knocking down all the nonsense about “global cooling” that the Washington Post op-ed page and others have been pressing:

Have you heard that the world is now cooling instead of warming? You may have seen some news reports on the Internet or heard about it from a provocative new book. Only one problem: It’s not true, according to an analysis of the numbers done by several independent statisticians for The Associated Press. [...] In a blind test, the AP gave temperature data to four independent statisticians and asked them to look for trends, without telling them what the numbers represented. The experts found no true temperature declines over time.

[...] Statisticians who analyzed the data found a distinct decades-long upward trend in the numbers, but could not find a significant drop in the past 10 years in either data set. The ups and downs during the last decade repeat random variability in data as far back as 1880.

Unfortunately, I see the piece bylined as “By SETH BORENSTEIN, AP Science Writer” which makes me worry it’ll be buried in newspapers’ science sections (or not seen at all since lots of papers barely do science coverage at all these days) rather than front-and-center in politics sections where it belongs. This story is about a key piece of propaganda being put out by political actors in order to win a political fight. It’s a political story.

Carbon Pricing Would Help With This

Grist has, alongside its environmental policy news and commentary, a running feature called “Ask Umbra” in which people ask for advice on ecologically responsible consumption. The answer almost invariably turns out to be “this hinges on an impossibly complicated set of considerations.” For example, is it better to buy frozen vegetables or steamed ones:

Grade A frozen foods are harvested when ripe and quickly taken to the freezing plant, where they are (even more quickly) flash frozen at extremely low temperatures. The modern industrial freezing process retains almost all the original nutritional value of the food (according to nutrition guru Marion Nestle’s helpful book What to Eat). Good to go on the nutrition angle. But it’s important to have an efficient freezer. One study using 1970s data found that the longer frozen foods sit in the freezer, i.e., are using energy in storage, the more they fall behind canned goods in the efficiency smackdown.

The canned goods are a bit less nutritious, but a study that looked closely at this issue found the differences between frozen and canned carrots to be insignificant. Carrots in syrup, or whatever they might put carrots in, would of course fall in to the category of dessert or a processed food, and cannot be favorably compared to fresh. As you know, the ecological issue with canned carrots is the steel can itself, which has high embodied energy costs. If a study assumes the recycling of the steel can, then canned vegetables can compete favorably with frozen vegetables on the sustainability index.

From a political perspective, this sort of thing underscores the need for collective action in the form of public policy that will put a price on greenhouse gas pollution. To realistically assess the total environmental impact of the choice between frozen carrots and canned carrots, you’d also want to know something about the land-use impact of your decisions, the transportation of the goods, the energy costs of keeping frozen food frozen in the supermarket, etc. You can’t really do this sort of thing through back-of-the-envelop calculations.

Epistemology With James Inhofe

Pew reports that the right is having a great deal of success in trying to mislead people about climate change. The header Pew put on the graphic notes that the decline is “across party lines.” But you should look at the magnitudes—the Republican line has fallen way further, and from a lower base, than the Democratic line. This is probably a rationalizing voter example where increased salience of the issue is bringing more Republicans into line with the beliefs espoused by their party’s leaders.

Meanwhile, James Inhofe says:

Perhaps the most interesting finding in this poll aside from the precipitous drop in the number of Independents who believe global warming is a problem, is that the more Americans learn about cap-and-trade, the more they oppose cap-and-trade. And this explains quite clearly why Democrats don’t want the public to know about it.

These are curious uses of the terms “know” and “learn” which are generally reserved for instances in which people form true beliefs. On the specific issue of cap and trade, the evidence has always been that the term “cap and trade” is barely in circulation outside the Beltway. Public support for clean energy legislation under different descriptions tends to be high. You can get poll results as good at 72 percent in favor of the American Clean Energy and Security Act under one favorable description.

Measuring Forest Conservation

Deforestation in Nigeria (Foreign and Commonwealth Office photo)

The United Kingdom’s Eliasach Report on deforestation and climate change concludes that “Using appropriate techniques, forest emissions can be estimated with similar confidence to emissions estimates in other sectors.” Glenn Horowitz explains the significance of this:

That’s very good news, as approximately 20 percent of total global warming pollution comes from deforestation, more than all the world’s cars, trucks, planes, and ships combined. As the United States and the world move towards a system in which these forests are valued for their immense carbon storage, it’s critical that we make those valuations as accurate as possible—so we can know exactly how much a particular forest conservation project (and ultimately a particular country) is actually reducing emissions.

Of course, there’s a key caveat in The Eliasch Review’s conclusion: “using appropriate techniques.” Although these appropriate techniques are available and have been applied in many projects, deploying them at the global scale needed to end deforestation will require financial and human investment.

The investment involved is pretty modest (”the costs of monitoring forest projects are typically less than $1 per ton of carbon reduced, often much less”) but the time scale is quite urgent since deforestation is proceeding very rapidly. What’s more, you tend to have your most severe deforestation issues in countries where the overall quality of governance is low. That tends to make it difficult in practice to do things even if they’re cheap and technically feasible.

The Concentration of World Output

One of the reasons Levitt & Dubner give for thinking that avoiding catastrophic global climate change via binding emissions reductions isn’t workable is “the fact that greenhouse gases do not adhere to national boundaries.” In other words, the fact that there’s a difficult coordination problem. And it’s true, there is a tricky coordination problem. That said, one shouldn’t actually overstate the degree of difficult coordination involved. The fact of the matter is that global economic output is pretty highly concentrated. Look up the IMF’s figures for 2008 GDP and you’ll see that the United States and the EU together account for a majority of the world economy:

The dropoff after the big four is pretty enormous with Russia, Canada, and Brazil clocking in at around a third the size of the Chinese economy. Realistically from a legitimacy point of view you’re not going to see those four large economies get together on an agreement and then coerce everyone else into following suit. But coordinated and determined coercion by those four—or even by the US and EU alone—could probably be made to work. More realistically you can go from a Big Four to a Big Eight that includes Russia, Brazil, India, and Indonesia and you’re looking at about all the coordination that’s needed. A Canada or South Korea or Mexico or Cambodia isn’t in a position to play spoiler and just refuse to play by whatever general set of rules fit high-, medium-, and low-income countries.

Back to Levitt & Dubner, for some reason they write during the course of this discussion that “the United States has in recent years sporadically attempted to lower its emissions,” which is false, and then implies that the issue is that China and India won’t go along. It’s true that we could wind up in a situation where Sino-Indian recalcitrance is the key obstacle to progress, but in reality the United States of America, historically speaking by far the largest contributor to the problem, has made no attempt to lower its emissions. Nor has the USA made any effort to play a constructive role in solving the global coordination problem. Fortunately, thanks to the Waxman-Markey bill that’s passed the House, the Kerry-Boxer bill pending in the Senate, and the looming negotiations in Copenhagen that stuff might change. But it won’t if people listen to Levitt & Dubner and give up in advance, concluding that past efforts have failed when in fact no efforts have been made.

Conservatism in the UK

Guess who said this?:

We have a vision of a different America. It is a vision of an America in which our cars run on electricity; high speed trains whisk us from North to South in less time than it takes to get across greater New York; we produce much more but use much less energy to do it; our power suppliers no longer depend to any great extent on imported oil and gas; our homes require less energy, produce far more of their own energy and are heated by gas we produce from our own agricultural and domestic waste.

It is a vision of a United States which leads the world in new green technologies. Secured against interruptions of supply and volatile prices, our industry can plan for growth. Our national security is guaranteed, regardless of decisions by volatile governments elsewhere to close pipelines or restrict supply. It is a decentralized vision rather than one in which all decisions about our energy future are vested in the government. Through it we play our full part in protecting our planet against the effects of man-made climate change.

Well, nobody said it. Instead I changed the words “Britain” and “centralised” to “America” and “centralized.” But it comes from the UK Conservative Party’s low-carbon economy white paper.

I mention this because David Brooks has a pretty good column urging Republicans to learn from David Cameron that, disappointingly, doesn’t mention anything about climate and energy issues. But if you want to make the point that at the moment European center-right parties are both much more politically successful than the GOP and also much more substantively sensible, then climate and energy is probably the topic where you’ll find the biggest contrast. After all, it’s not just that the Conservatives’ climate and energy issues page looks very different from the Republican one—the Republicans don’t have one at all.

Journalistic Malpractice From Leavitt and Dubner

Superfreakonomics appears to contain a lot of nonsense climate contrarianism. Major media organizations are normally extraordinarily bad at policing the people who write for them in terms of accurate presentation of scientific information, so I’m pretty sure Leavitt and Dubner can get away with totally misrepresenting the climate impact of solar power. Still, it is worth dwelling a moment on the fact that their critique of photovoltaic literally rests on the idea that PV cells are black whereas in reality they’re usually blue:

Correctly ascertaining the color of widely available macroscopic objects is not much to ask from authors.

That aside, something journalists typically do understand is the idea that you’re supposed to correctly represent what sources tell you. So for example compare their characterization climate scientist Ken Caldeira’s views (”Yet his research tells him that carbon dioxide is not the right villain in this fight.”) with Caldeira’s characterization of his views:

I believe the correct CO2 emission target is zero. I believe that it is essentially immoral for us to be making devices (automobiles, coal power plants, etc) that use the atmosphere as a sewer for our waste products. I am in favor of outlawing production of such devices as soon as possible….

And Caldeira’s explanation to Joe Romm of how his views came to be so grossly misportrayed:

If you talk all day, and somebody picks a half dozen quotes without providing context because they want to make a provocative and controversial chapter, there is not much you can do.

Dubner and Leavitt’s editors at The New York Times have some ’spainling to do. This is not conduct that they would deem acceptable from any of their reporters.

Climate Security Arguments Making Some Gains

I have slightly mixed feelings about some of the national security arguments that I’ve heard advanced about the need to prevent catastrophic climate change (I have my own national security arguments that I like better). But you evaluate a political strategy based on how well it actually works, not on how you feel about it personally. And via Brad Plumer, Darren Samuelson suggests that these arguments played a big role in persuading Lindsey Graham (R-SC) that it made sense for him to start wading into the issue.

That’s a big win. And Operation Free, the veterans-oriented coalition group that’s been set up to push precisely this argument, is really just getting up and running this month.

Blog Action Day: Mitigating Climate Change With Complementary Policies

Burning methane gas is a relatively clean way of generating power compared to other fossil fuel options. But directly releasing methane gas into the atmosphere is a climate catastrophe. Methane packs far more greenhouse punch per unit than does the better known carbon dioxide. Thus, as Andrew Revkin and Clifford Kraus write in The New York Times plugging various kinds of leaks in our infrastructure for storing and transportation methane is a highly effective way of mitigating climate change. What’s interesting, as they also observe, is that in many cases this isn’t just cost-effective, it directly saves money. The cost of the leaks, in other words, is higher than the cost of plugging them.

In addition to illustrating the specific point, that kind of thing highlights the efficacy of so-called “complementary policies” alongside a hoped-for basic mechanism of putting a price on greenhouse gas pollution. In a kind of black box rational agent model, the price mechanism alone should provide all the incentive people need. In practice, agents with a limited amount of time and attention can often find themselves neglecting small problems with large cumulative impact. Methane leakage is a striking example, but home insulation is probably a more broadly applicable one. Normal people simply don’t take the time to do a cost-benefit analysis on investing in better-insulating their homes and the problem of attenuated attention to this issue gets even worse when you consider things like rental apartments and office space. Under the circumstances it makes a lot of sense to try to push the level of evaluation up to a more macro scale and then hand down new building codes and direct financial incentives for retrofitting. Over the long term, there’s no substitute for carbon pricing to create incentives for both efficiency, innovation, and investment in existing clean energy technology. But in the short-term, our best bet is almost certainly the efficiency-enhancing properties of these kind of complementary policies.

At any rate, today is Blog Action Day and the issue is climate change. Tell your friends! When people look back one or two hundred years from now on American politics in the early 21st century, they’re probably not going to care about the ups-and-downs of health care policy or derivatives regulatives. They are going to care about what we did or didn’t do to forestall an ecological catastrophe.

Planning in the Climate Bill

Elana Schor has a helpful roundup of a recent Brookings event on improving federal support for Metropolitan Planning Organizations and, even more important, improving the extent to which the federal relationship with MPOs actually supports good planning. This is an important element of dealing with the climate issue. The built environment evolves slowly over time so it’s difficult to get large short-term emissions reductions through better land use, but by the same token it’s absolutely essential to meeting long-term targets in an economically viable way.

Michael McKeever, executive director of the SACOG, and Peter McLaughlin, a commissioner of Minnesota’s Hennepin County, agreed that the upcoming congressional climate change bill is essential to achieving land use reform.

If the climate bill “does some fairly simple things and requires … high quality [MPO planning] to be done as a pre-condition of getting federal funds,” local development can become a more transparent and rational process, McKeever said.

Legislators, recognizing this, included language to that effect in the original Waxman-Markey bill. But it wound up getting stripped out. Now it’s back in the Kerry-Boxer draft, but the U.S. Senate is generally less friendly than the House to sound urban planning and land use policy so one should be nervous that it will be removed again. However, with these kind of relatively low-profile issues things like preference intensity make a great deal of difference. If Senators get word that their offices are being contacted by people who are interested in something as obscure as MPO planning, that would get noticed. Of course as a DC resident I’m not allowed to be represented in the governing bodies of the United States of America so I can’t contact anyone.

Annals of the Improbable

This has got to be some kind of postmodern performance art right?

Saudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers.

It’s interesting to look at the range of policy responses different countries have had to oil wealth. Norway has been incredibly far-sighted, while Abu Dhabi and Qatar also score quite well. All the way on the other end of the spectrum are Nigeria and Equatorial Guinea. And then there’s Saudi Arabia, kind of the oil exporters and apparently world champions in chutzpah.

Who Would Pay a Carbon Tariff?

There are a bunch of indications that one of the things that may have to be done to get a climate bill through the senate is the inclusion of some kind of “carbon tariff” to prevent a cap-and-trade program from disadvantaging US-based manufacturers vis-à-vis their developing world rivals. In theory, the carbon border adjustment idea makes a lot of sense, but almost everyone I speak to is skeptical that it would actually work correctly in practice as opposed to becoming a venue for a lot of gamesmanship.

One reason for skepticism is that I’m actually skeptical that a properly implemented set of worldwide carbon border adjustments would actually achieve its intended purpose of boosting American manufacturing. After all, despite all the China hype we do much more trade with developed countries—countries with considerably less carbon-intense economies. Combining data from here and here I present the following chart of leading trade partners:

The EU, Canada, and Japan are in the aggregate much more significant trade partners than China/Mexico/Brazil. And the case for them charging us carbon tariffs seems about as good as the case for us charging the Chinese.

As Long As You’re Going to Be in Scandinavia…

I have no idea if this influenced the Nobel Committee’s decision-making, but it’s worth noting that one thing I’ve heard a lot about in Europe is disquiet over Barack Obama’s failure to commit to personally attending the COP15 conference on climate change in December. There’s a lot of sentiment that the president putting his personal credibility on the line could be an important factor.

The conference is being held in Copenhagen and it starts on December 7 but runs for a couple of weeks. Interestingly enough, the Nobel Prize is going to be handed out in Oslo on December 10. In other words, in the middle of the conference. And Oslo is pretty close to Copenhagen. And Obama will be in Oslo to accept the award. Under the circumstances, it will be hard for the White House to come up with a good reason why it’s impossible for Obama to pop by Copenhagen.

Climate and Collective Action

Yesterday’s complaints aside, by far the biggest problem with David Brooks’ proposal to “just raise the price on carbon and let everybody else figure out how to innovate our way toward a solution” is that our energy use is inextricably bound up with collective decision-making about infrastructure.

That’s people taking the bus in Stockholm. Their decision to take the bus, like my own, was of course influences in part by individual calculation about the costs and benefits of different courses of action. But it was also heavily influenced by someone’s decision about where to put the bus stops, where to make the routes go, how frequently to run the buses, and other aspects of Stockholm’s bus-related infrastructure. Stockholm bus ridership is also influenced by the relative paucity of parking spaces in the city, which in turn relates to public policy decisions about minimum parking regulations, maximum allowable density and so forth. Similarly, in Washington DC at one point they wanted to build more urban freeways cutting through the city. But people protested and instead they wound up building the Metro. Lots of people take the Metro, but that’s only because they built it. And lots of people drive on the urban freeways they did build, but nobody drives on freeways that weren’t built anymore than anyone rides subways that don’t exist.

Similarly, whether or not putting a solar panel on your roof makes economic sense depends in part on whether you can sell energy to the grid during surplus periods. But that’s a political/regulatory issue. And whether or not it makes sense to build a huge wind warm in Kansas depends on whether you have a grid robust enough to transmit that energy to population centers, which again is a political/regulatory issue.

We also have regulatory issues limiting our ability to innovate. If we raise the price of carbon emissions, one thing that will happen is that we’ll see innovations around finding more efficient ways to heat buildings. One thing we already know is that multi-family structures are more efficient to heat than are detached houses (it’s a surface area to volume thing) but in many places it’s illegal to build a multi-family structure. So if what you want to do is leave this up to the market, you need to take active legislative steps, not just impose a price and say we’ll let the chips fall where they may.

Green Tax Shift in Denmark

On the Wikipedia page for Danish Prime Minister Lars Løkke Rasmussen, who currently leads a center-right (by Danish standards) coalition, I read the following about his time as Finance Minister before Anders Fogh Rasmussen stepped down as PM to be the top civilian official in NATO:

In February 2009, Lars Løkke Rasmussen was the chief negotiator in the political agreement behind a major tax reform, implementing the government’s ambition of reducing income tax and increasing taxes on pollution. The reform was, according to Lars Løkke Rasmussen, the biggest reduction of the marginal tax rate since the introduction of the income tax in 1903. The opposition accused it of being historically skewed in favouring those with high-income jobs and giving very little to those with low-income jobs.

You can read Google’s translation of Danish newspaper articles about this here and here. Relative to the tax agenda pursued by George W. Bush, Rasmussen’s approach:

1. Achieves the U.S. right-wing’s core policy objective of reducing taxes on rich people.
2. Also contributes to solving a bona fide public policy problem.
3. Does a much better job relative to the budget deficit, an issue the U.S. right-wing at least claims to care about.
4. Would have screwed around with the Democratic Party’s political coalition by attracting support from green groups and from upscale liberal voters.

That seems like a lot to like had a more serious, thoughtful, and courageous group of people been in power. Obviously the interest-group politics is totally different in Denmark where there are substantial industries around wind power and efficiency and basically no fossil fuel production. They use coal and oil, in other words, but don’t produce much of any so there’s not the same kind of pro-pollution constituency. That accounts for part of the difference. But much of the rest of the difference seems like a lack of imagination combined with a lack of good sense and a lack of morality.

Grayson Breaks the Rules

Representative Alan Grayson’s statement that the Republican plan for health care amounts to “don’t get sick” and if you do “die quickly” probably doesn’t meet a test of literal accuracy. Reality is I guess closer to “only get sick if you’re stably employed in a good, well-paying job but if you do get sick and don’t have a lot of money die quickly.” And, yeah, that’s a polemical characterization. But so what? The idea of a hubub about this is absurd:

I think the real issue—and the real import—of Grayson’s statement is that it involved breaking one of the unspoken rules of modern American politics. The rule is that conservatives talk about their causes in stark, moralistic terms and progressives don’t. Instead, progressives talk about our causes in bloodless technocratic terms. This is also one of the reasons that Ted Kennedy’s stark, moralistic attack on Robert Bork’s legal theories are for some reason often cast by the MSM as some kind of illegitimate smear campaign. The reality is that it was just him talking about a conservative the way conservatives relatively talk about liberals. Like Grayson he characterized his opponents’ views polemically, but wasn’t offering any kind of wild factual distortions. But moralism from the left is very unfamiliar to American political debates.

There’s a semi-legitimate practical reason for this, namely the fact that substantially more people identify as conservatives than identify as liberals. Consequently, progressive politicians are at pains to describe their proposals as essentially pragmatic and non-ideological which doesn’t lend itself to moralism.

That all makes sense as far as it goes, but I think there are some real limits to how far it does go. For one thing, it puts you at a permanent kind of rhetorical disadvantage. But for another thing, it’s just very hard to do big things without a certain amount of moralism. In particular, you really can’t talk about the climate change issue in a sensible way without mentioning the irreducible wrongness of residents of a large developed nation endangering the lives and livelihoods of a couple billion people in the developing world with our industrial activities. When you think about it, it’s really wrong! Wrong in a way that transcends the fact that it would be inconvenient for some key states and industries to recognize that fact.

All About Climate Policy

Two important posts yesterday from Brad Johnson at the Wonk Room that you should check out. The first is an analysis of the EPA’s plan to begin regulating greenhouse gasses in 2010 if congress doesn’t act, and the other is an analysis of the proposed Kerry-Boxer clean energy bill in the Senate. The EPA is looking at tougher measures than I would have thought the Obama administration is prepared to get behind, and Kerry-Boxer is a somewhat stronger and better measure than the American Climate and Energy Security bill that passed the House. But of course ACES passed the House whereas Kerry-Boxer will doubtless be changed many, many times.

For more, see Brad Plumer and Kate Sheppard on Kerry-Boxer and Dave Roberts on the EPA.

Exelon Ditching Chamber of Commerce Over Climate

Nice to see that a major company, the electrical utility Exelon, is going to drop out of the Chamber of Commerce over the Chamber’s opposition to climate change legislation. Obviously, there’s a business angle in this for Exelon, but in general the irresponsibility of the American business class on this issue has been striking and any sign of a step in the right direction is welcome. There are, clearly, certain specific businesses that might be better off under a “do nothing” scenario about climate change but there’s no way to avoid the reality that corporate executives as a whole would, just like the rest of us, ultimately be worse off in a world of catastrophic climate change. And of course executives have children and grandchildren who (I like to think at least) they presumably love and care about.

It’s striking how German business doesn’t really seem to have this view. When we talked to the Federation of German Industry their angle on climate policy was basically that they wanted to shift things around to be as favorable to them as possible. But they appeared to be perfectly willing to accept “curb emissions to avoid climate catastrophe” as a controlling constraint on the policy options. This seems like common sense—even once you accept that constrain there are still a lot of hows and whys that you would expect business interests to fight over. But the idea that the masters of the economic universe are somehow going to just shrug off a huge increase in global temperatures doesn’t make sense.

Deadweight Loss and Climate Change

Yesterday, Paul Krugman explained something that I bet could use a little more explaining for most people:

Now, a key point in all this is that the emissions tax or, equivalently, the rent on emissions permits, does not represent a net loss to society. It’s just a transfer from one set of people to another — from the emitters, and ultimately those who buy their products, to whoever collects the taxes or gets the permits, and ultimately whoever benefits from the revenue or rents thus generated. The only net loss is the Harberger triangle created by the reduction in emissions — which has to be set against the benefits of reduced pollution.

What’s a Harberger Triangle? Well, here’s a good illustration:

What’s that showing us? Well, when a market is in equilibrium you have some supply of goods being sold at a certain price. The reason people are buying the stuff in question is that the stuff is worth more to them than the money it costs. That’s the “consumer surplus.” And the reason people are selling the stuff in question is that the stuff is worth less to them than the money they can earn from selling it. That’s the “producer surplus.” If the government puts a new tax on the stuff, then the price goes up and the quantity sold goes down.

That reduces the consumer surplus and the producer surplus. But that lost surplus doesn’t just vanish, it’s basically being taken by the government and turned into tax revenue and public expenditures. But it’s not all taken by the government; some fraction of it—the triangle represented by D and E in the chart—really does just vanish. That’s the “deadweight loss” the value, to producers and consumers alike, of transactions that would have happened at the un-taxed price but didn’t happen at the taxed price. This, rather than the “cost” in taxes paid, represents the real social cost of a new tax.

But of course how much deadweight loss there is depends on the actual shape of the supply and demand curves. That chart has nice-looking straight lines. But in the real world it just depends. Different taxes have different degrees of deadweight loss. What’s more, the loss can be apportioned differently between producers and consumers. And a certain kind of tax could have a small deadweight loss at one level and a huge one at another level depending, again, on the shape of the supply and demand curves.

When you talk about a cap-and-trade system rather than a tax, you get all these same issues with consumer and producer surplus and deadweight loss. But instead of automatic revenue, you get rents associated with acquisition of carbon permits. And a key issue in policy design becomes how allocate those rents. One popular with industry proposal is to give them to industry for free. This basically compensates industry for the lost producer surplus, and in principle could actually be better for producers than the status quo ante was.

Alternatively, you could sell the permits and rebate the money to citizens—compensating consumers for the lost consumer surplus. There’s pretty good reason to believe that this would actually leave most people with more money in their pockets than they have under the status quo.

You could also auction the permits, have the government keep the money, and use the funds to reduce some other tax. If that tax has a higher deadweight loss associated with it than does the carbon cap, the overall economic cost of the carbon cap will be negative. And there’s actually pretty good reason to believe that permit auctions would be more economically efficient than many of the taxes we currently rely on, so as an abstract matter of policy design it would be relatively easy to design a pro-growth carbon cap regime. The dual problems are that the distributive consequences of going this route might be bad, and politically a tax swap is hard to pull off.

That said, as I was saying yesterday this idea is really laying out there in the street waiting for a political movement that (a) doesn’t mind redistributing wealth upwards, (b) likes to complain about the adverse economic consequences of taxes, and (c) would like to do something about climate change. We have a movement in the USA that fits (a) and (b) quite nicely, but their opposition to (c) is unfortunately so robust that they’ve somehow managed to forget everything they normally say about tax policy issues in order to concoct a theory to support the conclusion that a carbon cap would necessarily be economically ruinous.

Free Markets and Climate Change

Kevin Drum writes:

I mean, suppose you accepted that climate change was both real and catastrophic. What options would you have if you insisted on sticking solely to free market principles? Beats me. Hell, it’s hard enough to address even if you don’t. But that’s where we are these days: an awful lot of our most pressing problems simply can’t be solved unless you accept that the government has to be involved. So conservatives are stuck.

I think this is far too kind to the behavior of right-of-center institutions—Heritage, AEI, Cato, National Review, Weekly Standard, the Chamber of Commerce, Rush Limbaugh, etc.—on the issue of climate change. It implies that there’s some genuine ideological dilemma that makes it impossible for a committed free marketer to propose constructive policies to avert catastrophic climate change. But how about reductions in subsidies for fossil fuel production and consumption? The free market credentials seem impeccable. Or how about a “green tax shift” in which carbon is taxes or carbon emission permits are auctioned and the revenue is used to finance deficit-neutral reductions in other taxes? Again, it surely can’t be that free market principles commit people to the precise series of revenue streams currently used in the United States.

Now of course in the real world it’s going to be impossible to legislate a pure free market “tax shift” policy just as it’s going to be impossible to legislate a pure “tax polluters to subsidize clean energy” approach or a pure “cap and rebate” or a pure anything. But if people started from the premise that emissions need to be reduced, and then debated the extent to which this needs to be done in a free market way versus some other kind of way, then compromise would be easy to reach and a solution could be within reach. But that’s not what we have. Not because market-oriented approaches are inadequate to the challenge but because too many of the key institutions that espouse market-oriented approaches are run by people who are too corrupt, incompetent, immoral, stupid, or cowardly to get their side to take the problem seriously.

It doesn’t have to be this way. The German Federation of Industry had a bunch to say, not all of it sensible on the merits, about making German climate policy friendly to export-oriented manufacturers, but none of it involved ranting about “cap and tax” or denouncing “socialism” or pretending that the whole problem was made up by Al Gore.