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Condors and Wind Turbines: Green-vs-Green Conflict Revisited February 29, 2012

Posted by Michael Hoexter in Energy Policy, Renewable Energy, Sustainable Thinking.
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(This post was originally published at Renewable Energy Magazine)

California Condor (photo: US Fish and Wildlife Service)

The likely conflict between the extension of the California condor’s habitat and wind development in California pulls the green movement in opposite directions, an unfortunate story that has repeated itself a number of times in the combined environmental-climate action community in the United States.  Both sides of the conflict have personal relevance to me:  I remember as a child reading about and cheering on the condor, in part because of its role as the largest flying bird in North America, as well as its endangered status.  More recently, I have also advocated for the last 5 years that worldwide we build a Renewable Electron Economy, a massive build-out of wind and solar energy in the context of a multi-technology, largely renewable energy powered electric grid.

In his excellent article in Forbes, Todd Woody summarizes the conflict between wind turbines and the reintroduced condor and explores some of the technological fixes that are being explored by scientists and the wind industry.  The condor had been decimated via poaching, DDT poisoning and lead poisoning from swallowing bullets in the carrion that this quite intelligent vulture prefers to eat.   Via what some say is the largest species conservation effort in North America, wildlife biologists and conservationists have worked hard to revive the condor by running nurseries with the few remaining birds and then, since 1992, releasing some back into the wild.

Such is the success of the efforts to revive this critically endangered species that approximately 400 condors are now active in a larger portion of their native range throughout the mountains of Californiaand the Western US.  Apparently condors fly in thermal updrafts near mountain ranges and at an altitude which puts them potentially on a collision course with the blades of wind turbines in areas such as the Tehachapi Mountains of Central-Southern California.  If a condor were killed, the owners of the project might face criminal prosecution.  While there have yet been no documented deaths of condors from collision with a wind turbine, a number of large scale projects have been cancelled because of fears of such an event occurring.  Wind project developers are aware of and attempting to avoid projects that have the highest likelihood to kill a condor but to many wildlife conservationists and fish and wildlife authorities, almost any project in this wind-rich area of Californiais too much risk.  A 2005 US Forest Service study determined that overall wind turbines contribute to a small fraction of human-caused bird deaths of all species with buildings killing 4 orders of magnitude more birds than wind turbines.

One possible technical solution, discussed in the Forbes piece, is to develop a system of condor detection plus wind turbine controls that enable stoppage of turbines when condors approach them.  These technologies have not matured to the point where they could be used in projects that are already in California’s approval process.

The wind turbine-condor conflict is the latest in a series of setbacks for large-scale renewable development on California’s renewable-energy rich landscape.  Concerns about impacts on the desert tortoise and Mojave ground squirrel have scuttled a number of large-scale solar projects in California’s deserts.  California is attempting to meet a fairly ambitious renewable portfolio standard of 33% of electricity generated by renewable energy by 2020, which is now in doubt given the roadblocks put up by issues related to wildlife and viewscape conservation.

We are starting to see an emerging pattern of “green-on-green” political and ethical conflict surrounding what are the acceptable costs and speed with which renewable energy generation should be built.  While the condor vs. turbine conflict has some unique features, it corresponds to a now common “map” of the positions available to those who believe themselves to be preserving natural habitats, wild species and/or the habitability of the globe more generally.  Some of these positions are compatible with one another and are found within the same group or pro-or-con argument; others are diametrically opposed to each other:

  1. Return to Nature –  Ever since the Romantic reaction to industrialization in the early 19th Century, there have been individuals and groups that believe that  human civilization should retreat before and should come more under the influence of eco-systems that are not controlled by people (i.e. Nature). While this is not an official or stated position of any mainstream environmental organization, some individual environmentalists and or defenders of wildlife might feel that human civilization must retreat to create a more bucolic world.  From a slightly different angle, some “neo-Malthusians” might join in the belief that population growth and the ecological footprint of humanity has become too great, thereby necessitating a contraction of human societies.  At its most radical this stance can become a celebration of the collapse of manmade structures and society in the face of non-human dominated eco-systems.   Hollywood has provided us with some visions of this future in movies like “Planet of the Apes” and “I am Legend”.  The condor’s advance into some of its previous range opens up the possibility that human intentions to build or maintain the civilization’s footprint could be abandoned in the face of strong wildlife preservation concerns.
  2. Wildlife/Habitat Preservationism –  Most who are strongly committed to protecting wildlife over and above other concerns believe that, while they may be motivated by dreams of a significantly “wilder” landscape, the highest good is to protect existing remnants of endangered species and their habitats.  This stance is commonly held in mainstream environmental organizations, such as the Sierra Club or the Nature Conservancy, as well as their base among generally politically left-of-center member/contributors.  Additionally various governmental bureaucracies such as parts of the US Fish and Wildlife Service and the Parks Service represent preservationist interests, especially those which are tasked to preserve land areas or wild species.
  3. Anti Wind-Turbine Activism – Wind turbines are the targets of activists who focus on a number of real or perceived attributes of the technology without offering a clean energy alternative.  Besides concerns about threats to birdlife, these activists focus on the visual appearance of the turbines, the perceptible or imperceptible sound they make, and, less commonly, the intermittency of power produced by the turbines.  These activists usually do not count themselves as environmentalists or “green”.
  4. Brownfield/Rooftop PV Only – A compatible position with wildlife preservationism is the idea that renewable energy development should be confined to only so-called “brownfields” where there is already human development or rooftop installations.  This is sometimes called “distributed energy”, though the definition of “distributed” varies depending on who is using the term.  This position focuses on reducing the external and often visible impacts of energy development but tends to ignore the parameters of replacing fossil energy supply as it is currently used to power civilization.   Often this group combines this energy prescription with a political preference for small-scale, local political and economic organization, a.k.a. “small is beautiful”.
  5. “Green is Good” – A position that is common among politicians and that is fairly widely held in the population is that “green is good” in some undifferentiated way.  Many people don’t bother to read up on or feel themselves to be competent to judge the merits of various green issues.  On the other hand, they want to think of themselves as generally virtuous people who do not support the clubbing of baby seals or who try to recycle when it is made easy.  The opinions of this group will be influenced by those with stronger views for, and against, any particular green issue.
  6. Anti-AGW, Pro-RE (AGW= anthropogenic global warming: RE = renewable energy)  –  Supporting a wide-range of RE powered generators to replace fossil fuels for electricity production and transport, this position shared by some climate activists, business groups, and renewable energy advocates focuses on climate impacts of current fossil fueled transport and electricity generation.  Parts of mainstream non-profit environmental organizations have supported this position, including Greenpeace and the Sierra Club.  Unlike the “small is beautiful” distributed RE position, these groups see a role for large scale renewable development and a renewable energy “supergrid” to balance energy flows on the electric grid.  Some who support this position specifically argue against nuclear power while others accept that nuclear power will play some role in climate strategy.  I count this position as my own but do not justify my views via total opposition to nuclear power.  The conflict between condors and wind development is a challenge for this group, as many in it consider themselves to be as “green” as anybody else.
  7. Anti-AGW, Pro-Nuke –  A number of advocacy groups, business interests, and governmental officials argue for nuclear power, justifying their views via the predictability of the power generated by nuclear plants and using, in my opinion, optimistic projections about its near term development and safety.  Most in this camp argue for nuclear power against renewable energy, often making pessimistic or negative statements about the technical or environmental attributes of RE electrical generation technologies such as wind turbines.  There are some in this camp that see renewable energy and nuclear power as complementary as witnessed by the French national energy strategy which combines both nuclear and renewable energy.  Some with these views emphasize the high level of energy demand and often de-emphasize or criticize energy efficiency efforts.  There are a number of active Internet “trolls” that write from this position with varying degrees of interest in combating climate change but always taking jabs at various perceived and real drawbacks of renewable energy, including potential conflicts between wind turbines and birds.  The Fukushima disaster has put a damper on enthusiasm for this position for the time being.
  8. Innovation First – Optimism and cheerleading for technology in a more general sense can be found among a substantial group that see in technological innovation a solution to almost all energy problems.  The sole role for political decision makers in this view of the world is to foster innovation and the technical skills associated with continual innovation.  As an example, the Breakthrough Institute hopes to accelerate “breakthroughs” or quantum leaps in innovation as a means to solve energy problems.  The political love of innovation is however more generalized and is, in the United States, at least, almost a secular religion.  Innovations in wind turbine technology and bird detection would be seen as the solution rather than political conflict over the role and valuation of different aspects of the dependence of people on the environment (energy use vs. individual species preservation).
  9. More Energy is Better – Finally there is another position that is compatible with the corporate goals of diversified energy companies (including some large fossil fuel conglomerates) and technology-neutral investors, which sees in the building of more energy supply of almost any kind an unalloyed good.  This position would support the building of wind turbines (or any other energy production facilities) and might then lobby to get certain projects built, given an opportunity for an acceptable return on investment.  Those with this position do not tend to support restrictive policies on energy development but also will work with and lobby regulators or government officials if regulation allows their business to continue or grow.
  10. Anti-Enviromentalist, Climate Denial – In the background and currently a very politically powerful position in the US is right-wing anti-environmentalism that also denies the reality of climate change.  While it is not clear which “side” of the condors vs. wind turbines debate people with this position would support, it is more than likely that supporters of this position would want to encourage the division between supporters of wildlife protection and supporters of renewable energy development.  It is my belief that many with this position would show a preference for wildlife protection over the systemic changes implied in active efforts at climate change mitigation.

The diversity of these positions, most of which might call themselves “green” or green affiliated in some form or other, shows how easily divided environmentally interested political forces are in theUnited States and perhaps beyond.

At the end of this list are the powerful opponents to both renewable energy and to wildlife conservation: the radicalized right-wing in America, for the most part in the Republican Party, corporate groups opposed to changing the energy system, and, in particular, the fossil fuel lobbies.  The inter-green conflicts give these anti-environmental groups enormous leverage to stall and divide action on topics of mutual interest to make America“greener” in some form or other.

To some, who hold one or more of these views, this issue is already a settled matter in terms of technical and political choices.  For instance, those who believe that energy should only be generated locally at a small scale, believe that the solutions are already there for a habitable civilization to be powered by PV, lead acid batteries, energy efficiency, and perhaps local biomass burning.  Thus a conflict with wildlife preservation would, they imagine, be avoided.  I am not convinced that the distributed-PV-only vision would work on a technical level, nor do I believe that local is necessarily better: I have not yet seen a realistic scenario for the production, maintenance and disposal of the millions of tons of batteries required to store energy for a populations of 100’s of millions and billions of people.  Nuclear advocates, likewise, think that nuclear power’s drawbacks will be quickly overcome by technological advances, thereby making the conflict between wind power and birds moot.

Many in the environmental community are not even producing what they believe to be a realistic systemic solution but are simply committed to an issue, which they consider to be irreproachable in terms of its morality.  Sometimes implied in these issue by issue commitments is a deeply held vision of a more (non-human) nature-dominated world and the interests of the human community as a whole and calculations of its energy requirements more or less “be damned”.

Each of these positions makes assumptions about the world, about human beings and about technologies that need to be clarified in order for a rational discussion to take place about how to proceed here in California and elsewhere.  These assumptions are part of what might be called a “decision space”.  In coming posts, I will develop a map of the underlying decision space within which these conflicts take place.

 

Energy Policy “Carrots and Sticks”: Bernard Chabot’s Profitability Index Method for Feed-in Tariffs July 19, 2010

Posted by Michael Hoexter in Energy Policy, Renewable Energy, Sustainable Thinking.
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Often policymakers are “flying blind” with regard to how they will incentivize or disincentivize various market and other social activities via policy design.  Part of this has to do with the complex network of stakeholders that are always involved in the design of policy as well as mismatches between the influence of one or two powerful incumbent stakeholders and the less powerful.  Another factor is that policymakers often need to rely on a disorganized web of economic opinions about how the economy works and how policy works, over which they themselves do not have clear oversight.

Bernard Chabot, a mild-mannered renewable energy engineer from France with extensive business and policy experience, has designed a system that may very well make it easier for policymakers to design policies that work according to public intentions.  Last week at the national offices of the Sierra Club, I was able to attend Chabot’s Workshop on Feed in Tariff design sponsored by the Kern-Kaweah Chapter of the Sierra Club, organized by the leading North American feed-in tariff advocate Paul Gipe.  The workshop was attended mostly by feed-in tariff and renewable energy advocates from the western US.  Besides over 25 years working in the field of renewable energy and energy efficiency, Chabot has consulted in the design of the Ontario and the French feed-in tariffs so brings to the workshop a good deal of authority with regard to the technical, policy, and business aspects.

Chabot bases his method on a much overlooked tool from corporate finance and business economics, the Profitability Index.  The Profitability Index (PI) is a number that is arrived at by dividing the present value (PV) of an investment by the total capital cost of the investment (I).  Chabot alters this slightly by using NPV in the numerator, which means Chabot’s PI uses 0 as the “break even point” like NPV rather than 1 like the traditional Profitability Index.  As NPV is much more widely used than PV as a decision tool, Chabot’s alteration can be considered justified.  What emerges are a range of values that usually range between 1 and -1.  Chabot explains how PI can be used as a universal value for understanding the profitability of various economic and even more broadly social activities and makes an argument that businesses and financiers more generally should use PI over other business measures of return on investment.  Chabot has some fairly convincing arguments that using the more popular internal rate of return (IRR) statistic leads to some misleading results and unforeseen variations in how at least renewable energy policy turns out for different market actors.

In terms of policy “carrots and sticks”, Chabot observes that policymakers should make highly desirable activities more profitable than less desirable activities by using the profitability index as a guide.  In manufacturing, a profitability index of 0.3 is minimal but in project development or construction with no R&D costs, such a PI would be highly incentivizing.  On the other hand, harmful activities should be made less profitable by the imposition of taxes or the removal of tax subsidies, pushing their profitability towards zero or below.

Turning to feed-in tariffs, Chabot uses PI as the basis for developing incentive policies which enable policymakers to keep profitability levels at acceptable but not excessive levels for project developers and facility owners.   As above, given the relatively low risk involved in a well-designed FiT, Chabot believes the PI should range between 0.1 and 0.3 for both simple “flat” FiTs and Advanced Renewable Tariffs.   Chabot believes some of the policy missteps in FiT design in certain areas could have been avoided if policymakers had used the PI method.

While FiTs are considered by almost all observers of the renewable energy scene to be the policy of choice, some simple FiTs have run into problems with either excessive profitability and an overheated market, which has attracted disproportionate attention by opponents of FiTs, or with insufficient profitability for certain types of projects.  Chabot proposes the Advanced Renewable Tariff (ART) as means for designing tariffs for wind or for regions with wide variability in the strength of renewable resources.  A single flat tariff for solar in California for instance, would make projects in southern and eastern California extremely profitable relative to projects along the foggy coast.  Similar variation can be found in many US states.  Wind resources vary widely by location as well.  The two-tier ART consists of two tariff levels with an initial higher tariff followed after a period of years by a lower tariff;  those areas with a lower resource strength will continue at the higher tariff level longer in order to enable most reasonably well designed projects in areas with adequate resource to achieve minimal profitability.  ARTs can be designed any number of ways but Chabot believes that the policy should reward utilization of the best resource areas with higher but not excessive profitability yet not overbuild solar or wind in areas with poorer resource base.

Chabot feels that ARTs are a critical instrument for a vast country like the US with multiple climate zones to be able to create policies that will spur investment in renewable energy.  Similarly countries like Italy, France and Spain with multiple climatic zones would benefit from ARTs.

In any case, I highly recommend that policymakers who are considering any number of different policy instruments that depend on incentivizing or disincentivizing various economic activities consult with Chabot and learn about his method.   While I have only experienced his one-day workshop on pricing feed-in tariffs, Chabot says that his longer workshop deals with energy efficiency as well, which similarly involves cash flows and is amenable to the profitability index. His resume and information can be found here.

Book Announcement From Danny Harvey: Energy and the New Reality Vols. 1&2 June 20, 2010

Posted by Michael Hoexter in Climate Policy, Efficiency/Conservation, Green Building, Renewable Energy, Sustainable Thinking.
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I recently became acquainted with the work of Danny Harvey, Prof.  of Geography and a climate scientist at U. Toronto.  Over the last few years, Danny has been putting together a large-scale energy plan that might be called a Renewable Electron Economy, to which a portion of this website is devoted.   I believe Danny’s work is invaluable because he presents a great deal of detail about a wide range of technological solutions and also links these to climate scenarios. His website has a series of extensive powerpoint files which provide you with a great overview of most of the relevant issues in the climate and energy debate with a strong technical and scientific grounding.  The materials on his website are available for educational use and with permission for other uses.  Upon my request, he has sent  the announcement of his new two volume book “Energy and the New Reality” published by Earthscan to which the powerpoint slides are linked.  The first volume concerns reducing energy demand through energy efficiency and the second volume with carbon-free sources of energy.  I highly recommend that anyone with even a mild interest in climate and energy issues take a look at Danny’s work.

Two new books by Danny Harvey (Dept of Geography, University of Toronto),

Energy and the New Reality, Volume 1: Energy Efficiency and the Demand for Energy Services (Earthscan, UK, 614 pages)

and

Energy and the New Reality, Volume 2: Carbon-Free Energy Supply (Earthscan, UK, 576 pages),

comprehensively and critically assess what it would take to stabilize atmospheric CO2 concentration at no greater than 450 ppmv, and can be purchased through links on my website (given in the email signature).

Some of the key conclusions from these books are that

•           it is still technically and economically feasible to cap CO2 at no more than 450 ppmv without replacing existing nuclear power capacity as it retires and without resorting to carbon capture and storage (CCS), although the latter could be – in combination with bioenergy – part of a strategy to more rapidly draw down atmospheric CO2 from its peak than would otherwise occur;

•           nuclear energy and CCS would, at best, be too little too late, whereas reliable C-free energy systems can be built up on the required time frame and likely at no greater cost than nuclear energy or CCS; and

•           we will almost certainly have to abandon our insistence on continuous economic growth above all else if we are to have a reasonable chance of avoiding eventual global ecological and social catastrophe.

Complimenting these books are powerpoint presentations (with figures, summary tables, and explanatory notes) for each chapter (a total of 1899 slides) that can be obtained either through the publisher’s website (www.earthscan.co.uk/?tabid=102427) or the author’s website (faculty.geog.utoronto.ca/Harvey/Harvey/index.htm). These powerpoint files would be a valuable resource even without purchasing the books, but if slides from them are used in any public presentations, the source of the figures (whether the author of the books or the original sources given with the figures) should be acknowledged.

Also posted on my author’s website are (1) pdfs of the table of contents and chapter highlights for each book, (2) pdfs of the summary (policy) chapters from each book, (3) the package of Excel files used to generate all of the energy demand and supply scenarios presented in the two books, (4) an Excel-based building stock turnover and energy demand model, (5) the FORTRAN code and input files that are also used in one step in generating the energy demand scenarios, and (6) the flyer for the books and a link to the publisher’s website for those who wish to purchase the books (for professors, complimentary copies can be obtained if the books are adopted as course textbooks).

The author’s website also contains an Excel package on climate and carbon-cycle modeling that will be part of the online material associated with the author’s chapter in the forthcoming book, “Environmental Modelling: Finding Simplicity in Complexity, 2nd Edition” (Wiley-Blackwell, John Wainwright and Mark Mulligan, eds.). CO2 emission output from the Energy Excel package can be conveniently pasted into the second Excel package and used to generate scenarios of global mean temperature change for a variety of easily-changed assumptions concerning climate sensitivity and the strength of various climate-carbon cycle and internal carbon cycle feedbacks.

FURTHER DETAILS ON THE EXCEL FILES AND FORTRAN CODE:

The idea behind posting the Excel files and FORTRAN code is to permit those who are so interested to generate their own scenarios with their own input assumptions concerning population, GDP per person, activity levels per person, and physical energy intensities for various energy end uses in 10 different geopolitical regions, as well as to generate scenarios for energy supply from various C-free energy sources. Outputs from these files include global demand for fuels and electricity, annual material and energy inputs required to build a new energy infrastructure, land requirements for bioenergy, and annual and cumulative CO2 emissions to 2100 (the CO2 emissions in turn were used as inputs to a coupled climate-carbon cycle model to produce the scenarios of global mean warming and ocean acidification that are given in ENR Volume 2). The FORTRAN code applies a building stock turnover model to 2 different energy sources (fuels and electricity) in two different building sectors (residential and commercial) in the 10 geopolitical regions, and uses as input the growth in regional building floor area as generated from the Excel demand scenarios, along with a variety of other inputs.

The stock turnover model has also been implemented in Excel for one generic fuel, building type and region for those who wish to adjust the inputs to a particular region and building type of interest so as to explore the impact of alternative assumptions concerning growth in total floor area, rates of building renovation and replacement, and the change over time in the total energy intensity (annual energy use per unit floor area) of new buildings and of newly-renovated buildings.

The climate-carbon cycle Excel package (subsequently referred to as the CCC package) has three parts. The first part contains a number of worksheets that explain the physics of climate change and the development and properties of simple climate and carbon cycle model components. The second part of the CCC package contains a highly-simplified representation of the energy demand and supply framework used in my two energy books. These give scenarios of global fossil fuel emissions of CO2. CCC package also has worksheets that give land use emissions of CO2 and total anthropogenic emissions of CH4, N2O and halocarbons (all subject to alteration). The impacts (radiative forcings) of tropospheric ozone and aerosols are computed in a manner that is roughly consistent with the fossil fuel and land use CO2 emissions. The third part of the CCC package contains a coupled climate-carbon cycle model (built from the components illustrated in Part 1) that is driven by the outputs from Part 2. The climate sensitivity and a number of carbon-cycle and climate-carbon cycle feedbacks can be specified (including the possibility of eventually catastrophic releases of CO2 and methane from permafrost regions beginning slowly at some user-specified threshold temperature change). The climate-carbon cycle model in the CCC package can be driven either with the fossil fuel CO2 emissions that are generated from Part 2 of the package, or with the CO2 emissions that are produced from the Excel package for the two energy books (these emissions can be pasted into the CCC package). In this way, those who are so interested can explore the range of possible impacts on climatic change (given uncertainty in climate sensitivity and climate-carbon cycle feedbacks) resulting from very specific assumptions concerning future population, economic growth, activity levels and physical energy intensities at the regional level, and in the rate of deployment of C-free energy supplies at the global scale.

Two Additional Hurdles to Oil Independence: Fear of Inconveniences and Tax Aversion June 12, 2010

Posted by Michael Hoexter in Climate Policy, Energy Policy, Green Transport, Sustainable Thinking.
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(Photo: Thomas Faivre-Duboz/Wikimedia Commons)

A couple weeks ago, I sketched out an Oil Independence Plan for the United States that was based on a combined move to more efficient uses of petroleum as well as a much more aggressive move to oil- (and natural gas-) independent infrastructure, than is currently proposed in existing legislation in the US Congress. [Since posting that plan, Craig Severance has written an equally ambitious and more detailed plan which can seen here.  I also didn’t reference Boone Pickens’ “Pickens Plan” which is an Oil Independence Plan that relies heavily on natural gas and tractor trailer trucks fueled by natural gas.]  The most immediate motivation for such a plan, which we should have embarked upon 35 years ago anyway, was of course the oil disaster in the Gulf as well as the muted and unambitious response to that disaster by the Obama Administration. [There are now rumors that Sen Jeff Merkley may be producing a plan to reduce oil demand in the US which will be announced shortly]

I asserted in that post among other things that planning was a critical missing element in our policy arsenal and that only a plan, and not the cap (cap and dividend, cap and trade) instruments under consideration, would bring the necessary resources to bear in a timely manner.  Not only has there been a failure to plan for the demise of oil as our primary transport fuel, there has been a fundamental failure to accept planning as part of the legitimate role of political leadership.

After outlining this plan in the same post, I identified 6 hurdles which President Obama or another future leader of such a plan to radically reduce our oil dependence would face.  Those hurdles are:

  1. Market Idealization vs. Planning
  2. Deficit Worries and Hysteria
  3. Balancing the Interests of Stakeholders/Mixture of Public and Private Enterprise
  4. Many Americans’ Love of Expansive Resource Use
  5. The Biofuels Distraction
  6. Corporate Funding of and Influence in Politics

Two additional hurdles occurred to me but I felt these deserved their own post.

Hurdle #7: Unwillingness to Accept Inconveniences (or the Prospect of Inconvenience)

This Las Vegas drive-thru wedding chapel is at one extreme of the love of convenience in consumer society. What in most countries and contexts is a lengthy and demanding process of vetting by and meeting with family and clergy is here simply a trip around a driveway without having to get out of your own personal vehicle. The " March of Convenience" tends to orient us towards a single purpose at one time rather than locate us in a web of social relationships and traditional practices with all the possibilities and constraints that that entails. (Photo: Norman Walsh)

The economic history of the last 100 years in developed nations might be called the “March of Convenience” as activities that used to take hours, like procuring and preparing food or traveling to a nearby city, now take minutes.  “Convenience” means the use of a device or the design of a way of life enables desires to be more easily fulfilled.  Fossil fuels have had a critical role in powering almost all of the conveniences that we enjoy, either directly in automobiles or indirectly via a partly fossil-energy powered electric grid.  Americans have led the way in the “March of Convenience”, adopting consumer devices on a mass scale more quickly than other countries, though in recent years we have lagged in many areas of consumer device adoption.

While Europeans, Japanese, and increasingly others in fast developing Asian countries, enjoy many conveniences that Americans do not (better public transportation for one), the American way of life is particularly dependent both on the automobile and the oil-powered delivery truck because of the structure of our towns and cities and the lack of oil-independent infrastructure.  Convenience in America, has come to be defined by easy use of the automobile for either long or short trips to stores, work, and entertainment. The hundred year old trend in real estate development towards sprawl has kept Americans in most locations almost entirely dependent on the automobile.  Additionally “just in time” supply of retail and wholesale goods has become a business practice that demands air freight or relatively energy-inefficient trucking transport for many locations that are not located on major rail lines.

The proposed Oil Independence plan as well as, in my estimation, the plan offered by Craig Severance, would involve a period of one to two decades (or longer) within which, for some trips, people might need to sacrifice some time or convenience in order to avoid using increasingly pricey and eventually scarce oil.  This might mean waiting for others in a carpool or Internet-brokered ride-share, or taking bus service or using a shared van.  It may take 25% or 50% more time to do certain tasks.  For some people, the isolation of their cars is far preferable to any contact with others, so the notion of sharing space with others will be considered a major inconvenience.  These people will, if they are able, pay a higher price for convenience, as the price of oil is bound to go up either via market forces or taxation or both.  Nevertheless, in time, those who prefer self-driven solitary transport and have middle to high income will be able to buy battery electric vehicles or plug-in hybrids.

On the other hand, there are tradeoffs other than cost which eventually may become incentives for others not to use a self-driven vehicle:  when one isn’t driving one can work, socialize or read using our increasingly multi-functional mobile communications devices and networks.  The provision of workable transportation alternatives is key to the success of any of these plans.   While some offer the hope of a “drop-in” solution for oil (a fully-realized battery electric vehicle infrastructure and fleet of tens of millions of BEVs) this is not likely to be scaled up in time to radically reduce our oil demand with no inconveniences.  Depending on increased or the same level of convenience is a liability for a serious plan to get off oil before both its depletion, before more deepwater environmental disasters, as well as to avoid climate tipping points.

There are aspects of an Oil Independence Plan that typically will attract more attention and therefore funding, those which usually offer an increase in convenience for many transport users.  A TGV or Shinkansen-class high speed rail network (>160mph average speed) (which is just one of the solutions in my and others’ Oil Independence Plans) represents a net increase in convenience over the status quo for most trips up to 500-600 miles.  On high speed rail with Internet access, one is offered a more luxurious ride than either in a self-driven vehicle or experiencing the inconveniences of air travel.  The less “sexy” 90 or 110 mph freight or passenger rail may be more difficult to “sell” because they do not in their design offer the promise of increased convenience over the status quo for those who are particularly devoted to automotive travel (where traffic isn’t a problem).

Another area where there is a fairly transition is where the charging or battery-swap infrastructure has been built for battery electric and plug-in hybrid vehicles.  These will represent at least an equal level of convenience to gasoline powered vehicles for most local trips, though the technology is not as mature as that for electric rail.

Perhaps more frightening to politicians and to anxious consumers is the mere prospect of change of any kind in the relatively pampered automotive lifestyle that we currently inhabit with gas at somewhere around $3.00/gallon.  The actual changes involved in an Oil Independence Plan will with time offer net benefits or at least a livable but more sustainable lifestyle but to those who are clinging to the “edge” or to office, any change seems frightening.  The attack campaigns by elements of the political Right, by incumbent industries, or others who base their appeals on fear are almost pre-programmed for efforts that even suggest that people should loosen their grip on the steering wheel.

Some of these fears might be premised on a fear of strangers, “other people” in general or class prejudices.  The automobile dominated lifestyle has enabled people to live in relative isolation from each other.  Becoming used to dealing with and coordinating movement with others may be a challenge for some.  . While the prospect of sharing rides or public transit is uncontroversial for some and almost a sign of personal virtue, at least in the way of advocacy, there are many, many Americans who are either horrified by this notion or would, when push comes to shove, resist having to enact these virtues rather than simply advocate them.

As with the other hurdles, leadership and planning are required to overcome this hurdle.  Planning is going to be required to provide Americans with alternatives to automobile travel, per expansion of mass transit, as well as funding more novel systems like internet ride sharing or automated pod-cars.  Higher gas prices, whether by market forces or by the imposition of taxes would drive the change faster but only a visionary and persuasive leader is going to be able to convince Americans to accept higher fuel taxes.  The offense and defense against inevitable attacks from the anxious and the defenders of the status quo is to engage consumers/citizens/businesses in an epic quest to change our way of life and put it on more sustainable basis.  The missing element is principled leadership in both speech and example which would ideally come from the President or another national leader.  As it currently stands, the Presidency of Barack Obama has not attempted to engage in such a quest; partial or half-hearted movements towards these goals would expose leaders to attack from those who cling fearfully to present satisfactions and our way of life as it stands.  The best defense in this case is offense and commitment to a better future.

Especially with a rise in the cost of fuel, businesses used to “just in time” delivery from distant suppliers may need to reconsider their business practices and inventory strategy.  Long-distance rail freight may not in the first years be able to reproduce the speed of long-distance tractor-trailer trucks which can choose the most direct routes between supplier and buyers.  For local delivery however, the transition to battery power is fairly easy for small and medium duty trucks with shorter ranges.

There are “Peak Oil” narratives, associated with figures like Richard Heinberg or James Howard Kunstler that based on an extreme version of this change in lifestyle, within which society becomes radically localized and many institutions collapse into a friendlier version of the world of “Mad Max”, the 1979 Australian film which portrayed a dystopian future. I don’t share the pessimism of some in the Peak Oil community but their arguments and warnings cannot be dismissed out of hand.  With the cautious and unimaginative leadership shown in the last month here in the US, the likelihood of social collapse or at least a radically downsized society (an outcome which some would find a positive development) is higher rather than lower after a peak in oil production.

The largely mythical notion of a painless transition between one industrial and energy-related way of life and the next holds out the notion for policy makers that they just need to wait for innovation to deliver a new technology that offers only benefits and no tradeoffs.  Economic historian Jeremy Greenwood chronicles how throughout the last two hundred years the acceptance of technologies that we consider to be superior happened over a period of decades in which there were struggles between interest groups and losses of economic benefits as well as gains from the new technologies.  The fantasy of a “drop-in” technological replacement for the internal combustion engine continues to make it difficult for leaders to face hard choices.

Hurdle #8:  Tax Aversion and the Retreat from an Ethic of Social Responsibility

The current "Tea Party" interpretation of the 1773 Boston Tea Party is that it was simply a rebellion against "too much" taxation. The more standard textbook interpretation has been that it was a rebellion about "taxation without representation". A more economic historical view was that it was an anti-monopoly rebellion by colonial merchants against the advantages conferred on the East India Tea Company by the British Crown ; the Tea Act of 1773 was actually a tea tax reduction that made the East India tea cheaper than the competition. (Image from John Gilmary Shea, 1886 Story of a Great Nation New York:Gay Brothers and Company)

Another hurdle to oil independence is tax aversion bordering on tax phobia.  While, in the previous list of hurdles, I underlined the importance of public finance of transport and energy infrastructure, I left open the possibility that deficit spending would be the primary means of financing this infrastructure.  I pointed this out only as a short-term fix during our current deep economic slump.  In better times, tax financing will be crucial to keeping deficits and inflation in check.  Taxes will need to rise on both the well-to-do and also the middle class as counseled by a growing group of economists that NY Times economic columnist David Leonhardt has grouped in his fictitious “Club Wagner”.  Of course tax rates have at times been too high in certain places and times and levied unfairly upon certain activities or groups but now is not one of those times for most tax brackets and taxable entities in the US.

Tax paying and voting are the two main pillars of what ordinary citizens can to do to express a sense of group or social responsibility, the idea that “we are in this together”.  Attacking tax-paying in general as an evil in itself, as has become common, is an almost direct attack on a spirit of national or group responsibility.  Excessively high taxes can stifle individual initiative but excessively low taxes can fray the ability of a society to meet large scale group challenges requiring government investment.  Unfortunately there is no generally agreed-upon economic model of how to set optimal tax rates that accommodates both of these concerns, so tax rates are raised and lowered according to changes in political fashion and power dynamics.

In addition to being a source of funding, the aversive effect of tax is also one of the stronger mechanisms we have to shape our own group behavior via the use of incentives and disincentives.  Pigovian, a.k.a. “sin” taxes, are means of limiting the use of resources or engaging in activities which are not illegal but are considered to have high social costs.  Many conservative economists prefer Pigovian taxes to income taxes under the rubric “tax what you don’t want”.   A significant carbon tax would be one of the most efficient means to limit carbon emissions and fuel taxes of sufficiently high levels curtail the use of various fuels.

To enact significant new Pigovian taxes, these too require a sense of social solidarity or at least a broad social agreement that some activity should be limited at some initial or ongoing monetary cost to society.  One of the key weapons we have in reducing oil consumption is to levy higher taxes on oil.  Ian Parry of Resources for the Future rightly points out that, like an upstream carbon tax, oil should be taxed at the well-head rather than downstream as a fuel tax.  While a upstream carbon tax is preferable as it would include oil, natural gas and coal for addressing GHG emissions, relative to a simple gasoline tax an oil tax has greater coverage as it also would start the search for alternatives to oil in industrial processes and home heating, which makes up 23% and 5% of oil demand respectively.

We have just gone through a 30 year period in the US within which income tax rates have been cut dramatically, particularly on the wealthiest Americans, justified with reference to the largely discredited theories of Arthur Laffer (that tax cuts increase government revenues via economic growth) as well as supply-side, “trickle-down” theories associated with highly influential “Reaganomics” associated with his first budget director David Stockman.  The accumulation of private wealth and therefore productive investment was thought to be smothered by the top level marginal tax rates of post-WWII America;  by allowing rich people to accumulate more wealth it was thought that more would be invested and the economy would grow. Progressive taxation (the taxation of the wealthiest at a higher rate than the less wealthy) and taxation in general have been treated as taboo and as damaging to the economy since the political triumph of Reaganism.  The raising of taxes even slightly became highly politicized as the ideal of a low-taxation, small government society has remained the implicit ideal for politicians in both political parties.  Despite the small government ideal, government has continued to grow though often in ways that are not the social welfare driven “Big Government” that the followers of Reagan have attempted to pillory.  Furthermore savings rates, one of the advertised benefits of lower taxes, have continued to plummet in the US.

The American economy has grown in this period of low taxation but these increases have come largely in the service sector and particularly in financial services.  Low taxation, in combination with a trade policy that undermines domestic production relative to other countries has led to super-consumption, massive increases in private and public debt, trade deficits, investment in and inflation of the value of real estate, and speculative excess in paper assets.  The economic booms of the 1990’s and the early 2000’s that low-tax advocates like to point out as benefits of reduced tax rates has come at the expense of manufacturing capacity, at least in the US.

While taxes are never popular, almost no one stands up now in favor of taxes, despite professed concern about deficits.  Every politician believes that if they were to be the one to raise taxes, they would lose the next election.  With some justification, American taxpayers under 65 feel that they don’t get much benefit from taxes, as there is no comprehensive universal social programs other than for elderly people.  The government spends money on an elaborate military, the world’s gendarme, which offers few direct benefits to Americans domestically.  American industrial and trade policy has allowed jobs to be off-shored, so the government has not exactly stood at the side of the American worker.  President Obama’s health reforms will not be tax-funded with the exception of the expansion of Medicaid, which again biases America’s social spending in favor of distinct disadvantaged groups rather than as a generalized universal principle of social solidarity.

Both the Pigovian side of  (oil and carbon) taxation as well as the revenue generation component are critical for a rapid reduction in oil demand.  An ambitious leader, I’m hoping President Obama, would have to tackle this by “reversing the ethical valence” of popular perceptions of tax-paying and thereby also some of its emotional valence.  To do this, he would need to discuss tax paying as an expression of social responsibility, social solidarity, and responsibility to the future, not merely as a subtraction of monetary funds from one’s perceived economic well-being. To date, the President has tended to reinforce the individualized ethical framework of the low-tax world-view by continual efforts to court those who believe only in individual private initiatives rather than social initiatives.  This “pragmatism” continues to undermine Americans’ fragile sense of social solidarity.

Eight hurdles: Too Many?

While six substantial hurdles was a lot, eight hurdles is even more.  Is it too much to ask of us, our government and President to meet this challenge?

In my mind, this is the matter of, as mentioned above, a “reality principle” that cannot be ignored, so hurdles must be overcome no matter how many of them exist.

However, the path is somewhat easier than my presentation of these as individual free-standing hurdles would suggest.  Many of these hurdles “stand in bunches” or can be surmounted if our leaders adopt a new stance.  Leaders attempting to push the US off its oil addiction need to invoke the following general principles, which in turn will allow these hurdles to be taken as groups:

  1. Re-affirm our sense of social solidarity and social responsibility
  2. Emphasize social and individual resilience over sensitivity to minor hardships like carbon or oil taxes, hassles of coordinating transportation with others over self-driven automobile centered transportation.
  3. Affirm the role of government as a tool for the realization of national ambitions and the necessary backstop for market failures

Within this context, many of the eight hurdles become easily surmountable if the “general case” has been made for these principles.

We can reduce our dependence on oil with sufficient coordinated effort.  With this effort will come a great sense of accomplishment in an era where it had been thought that this kind of challenge was no longer part of the American Dream.

Evaluating Climate and Energy Proposals Under Two Conditions: High and Low Voter Concern May 13, 2010

Posted by Michael Hoexter in Climate Policy, Energy Policy, Sustainable Thinking.
1 comment so far

Senator Kerry has worked very hard this year on crafting a version of a climate and energy bill that might appeal to Senators of both parties (Photo: US Senate)

After months of deliberation, Senators Kerry and Lieberman have introduced the Senate’s version of the climate and energy bill, the American Power Act, that Obama requested from both Houses of Congress last year.  The Senate version has some of the more objectionable cap and trade provisions of the Waxman-Markey/ACES bill altered to remove the giveaway to financial carbon traders by instituting a more regulated cap and dividend system.  The bill shows the influence of Sen. Maria Cantwell and Susan Collins’ CLEAR proposal as well as Jim Hansen’s fee and dividend proposal (and perhaps, who knows, my criticisms of cap and trade here and here).  A good summary of the bill and comparisons to ACES can be found here at Grist.org.

What remains is still not nearly as strong an instrument to stimulate clean energy investment as fixed, ascending fee or tax per tonne on carbon but it, at least in its current unamended form, seems to recognize the danger of outsourcing the setting of the carbon price to an unaccountable market.  The starting price on carbon proposed operates within a trading range in the first year of $12 to $25 per tonne with the floor rising by 3% plus inflation while the ceiling rises 5% plus inflation.  The widening gap between the floor and the ceiling will create a great deal of uncertainty for investors about the exact value of an emissions-reducing investment: that investment will, at least in its carbon component represent a range of values that may be anywhere between a conservative base value to almost three times that value.  The price and the yearly increases involved are also extremely modest representing a price floor of $13.91 plus inflation and a price ceiling of $31.91 five years after the beginning of the program.  This represents at maximum an approximate addition of $.11-$.27/gallon of gas in carbon fees after 5 years which is a relative “flea bite” for users of petroleum.

The American Council for an Energy Efficient Economy finds that the bill will not offer the same level consumer benefits in terms of energy efficiency rebates and programs as did the ACES bill.

Erich Pica of Friends of the Earth warns of the curtailing of the powers of the EPA under the Clean Air Act, which would be superseded for GHGs by the passage of this act.  Many in the environmental movement feel that the expansion of the Clean Air Act by the Supreme Court’s Endangerment finding would allow the EPA via direct regulation to curtail emissions as an emergency measure.  The Kerry-Lieberman bill keeps the EPA in the game as the administrator of warming gas emissions but constrained by the dictates of the bill itself.

The bill focuses on large incumbent stakeholders with ample provisions for coal with CCS and some nuclear power.  A national renewable energy standard is mentioned by not specified in the documents I have seen.

As with the ACES bill, the near term targets are lax with a 17% reduction from 2005 levels targeted by 2020, with steeper reductions required to reach the 2030 goal of 42% and finally to 83% by 2050.

Overall Impression of Kerry Lieberman (So Far)

As Kerry admits in his Grist post, this is not a bill for “true believers” among which he includes himself.  He argues instead that this is a bill tuned to the political realities of the Senate.  The bill in some sense is a hodgepodge of ideas about what Senators think when they think “clean energy” but puts off aggressive moves to push even those ideas (like nuclear energy and coal CCS) until an indeterminate point in the future when these Senators will in all probability be retired from the Senate or dead.  The draft bill does not “push” anybody very hard… there is very little urgency in it.

Most aspects of climate and energy proposals have been “sanded down” in this proposal. The rough edges of the cap and trade instrument have been “filed off”  putting in its place a less objectionable instrument that, at least with its current low price collar and slow rate of ascent in the carbon price, will only slowly stimulate clean energy investments.

To Support or Not to Support?

Stance #1: Unconditional Support

To show support this means calling your Senator, blogging in support of it, commenting on blogs and on the Internet in support of it, organizing demonstrations, etc.  Large environmental and other supporting groups are running TV ads that call for support of KL/ACES as a “Clean Energy Jobs Bill”.   Unconditional support means in the end that you don’t really care so much what happens with the individual provisions of the bill during amendment only that it is a “climate and energy” policy sponsored by people you either trust, want to support, or to whom you want to ingratiate yourself.   For large environmental groups, their organizational logic “defaults to” support of big environmental packages, which they may have had a hand in drafting.  Some people feel that this is a “do or die” bill that must be passed, even if they don’t like provisions in it: they believe that there will be no future opportunities to pass a climate bill in the US.  I don’t see it this way and I don’t offer unconditional support for this bill.

Stance #2: Conditional Support

If you offer your conditional support you would be pressing for one or two provisions to be changed and then the bill would be OK.  There are a lot of luke-warm provisions in it and if you have a particular provision that you feel passionately about, you should write in to your Senator and urge that they change that provision.  A more difficult conditional support stance to have would be to pick multiple elements that need changing.  Conditional support involves enough self-belief to think that you can change the bill by voicing your opinion or being the leader of an organization that already has an activist network.  Conditional support could mean demonstrating, letter writing, blogging, meeting with Senators, etc.  For me, a lot of bill is very weak, so I am not sure if conditional support makes sense.  On the other hand, I need to sit with it longer to see if I feel that as a whole the bill offers progress with perhaps a modification and could be “shed” or be substantially reformed under different political conditions.

Stance #3:  Principled Opposition (in favor of other action)

Demonstrations can have an effect by showing passion, dedication, numbers of activists, and sending a readily identifiable message to policymakers.(Photo: Peter Blanchard)

This means opposing the bill on grounds of insufficiency and as a sell-out to or a reinforcement of the position of the fossil fuel interests.  If you provide a specific bill or action plan as an alternative to what is proposed, I think this can be a productive strategy.  If you are just saying no, never, then this is maybe less productive.  On the other hand if  you can get a lot of “no-nevers”  together and cause a ruckus in public or maybe even online about how insufficient the bill is you will also have an effect, perhaps strengthening the bill.  On the other hand, saying “no never” with no suggestion of a workable alternative, can lead to reactionary stasis, as may happen in certain NIMBY conflicts.

Presidential Support or Lack Thereof

Many unconditional supporters of these bills (ACES or KL) point out that a key ingredient in the success of these or any reform bill is if the President is involved in promoting the bill.  Currently it is not clear that President Obama will make a major push for a climate and energy bill especially one that contains even the suggestion of continuing offshore drilling.  He is able to talk a good game as an aside in many of his speeches but he would need to show a willingness to get combative with opponents to make a difference.  Conditional support by the President (in a behind the scenes manner) in combination with a show of unconditional support publicly, might either improve OR weaken the bill depending on the true commitments of the President.

Positioning the Bill(s) in the Real, Outside-the-Beltway, World

As I am clearly ambivalent about this bill, as are many, I think it makes the most sense to position the bill in the real world outside Washington politics, both psychological/political and Geophysical/Technological to gain a clearer understanding of how inside-the-Beltway political reality can interact with real reality.

KL and Geophysical/Technological Reality

The bill, as was ACES, is a meager and in parts misguided response to the challenges of climate change and energy independence.  It’s goal of 17% reduction of 2005 emissions by 2020 is laughably unambitious (30-35% is doable but would require a WWII style mobilization) and is insufficient in attempting to avoid tipping points and warming below 3 C.

The bill’s economic engine for stimulating low carbon investment creates too much uncertainty for investors and consumers about the carbon-related value of investments while not offering a rapid enough ascension of the carbon price that stimulates decisive movement to low- and zero-carbon within the critical near future.  Its energy efficiency standards are weak, while energy efficiency could provide a lot of early reductions in emissions; net or near net-zero buildings should be the national building standard for new buildings by 2020, representing already a small cost increment in Europe over conventional construction.

Kerry has promised “realer” offsets but the offset mechanism has had a checkered history and functions as a release valve in achieving emissions reductions goals.

Technologically, the bill ignores most of the means of getting off oil, including electrification of rail transport as well as encourages more offshore oil drilling.  The bill operates within the “economic fantasy” that domestically produced oil will make a significant difference in oil prices or supply in the US, when it will simply go onto the world market.

The bill ignores the rapid deployment of renewable energy which is the fastest way to deploy low-carbon generation.  It also doesn’t explicitly offer a research, test and certification program for breeder reactors and innovations in the nuclear fuel cycle.  It passes over an aggressive large-scale renewables plan in favor of courting votes from coal-state Senators by giving the never-likely-to-succeed coal CCS technology (working against entropy to compress and inject waste carbon dioxide from coal combustion into the earth, permanently).  It doesn’t contain a Big Solar Plan or a Big Wind Plan, within which 10’s of GW of generators can be put on line within a few years.

The most interesting but vague part of the bill are the “fast mitigation” solutions involving black carbon and super-GHGs which probably could be made very stringent given that they would evoke very little resistance from Republicans.

In general the bill seems to be using a political principle of compromise with officeholders, many of whom don’t “believe in” global warming, rather than technological, social scientific and natural scientific principles for determining which technologies it will support and how aggressively it will support them.  The bill then fails if matched with the task at hand.

Modifier:  “Reformability” of the Bill

Even if one believes that the bill is insufficient, one could support the bill if one has a theory that the bill can be modified to match or nearly match technological and scientific reality at a later date.  I’m calling this “reformability”, which is an attempt to put into one word what has been batted about throughout this year among supporters of various political reforms by the Obama Administration.  Others may want to use a different word.  In any case, the idea is that it is better to put a “placeholder” bill into place and fill it with better stuff as time goes on.  The example often given is Social Security, which was expanded numerous times since its inception in 1935.  This is a very long argument with many examples to give but I wouldn’t say that every bill is “reformable” even if it attempt to achieve laudable goals.

With a basically sound structure, I agree that it is possible that targets (numbers) can be changed and increased.  Offsets could be excluded and other rules could be changed.  On the other hand this bill shores up the role of the incumbent industries in the energy business, including no rigorous efforts to stop oil addiction.

I think, as Kerry acknowledges, that if the bill is truly insufficient that more explicit monitoring and review measures need to be put in place with regard to both emissions, climate effects, and the policy’s effects on oil imports.  Perhaps a bi-yearly review on all these fronts needs to be put in, rather than left to faith and good will.  Building in “reformability”, especially in an acknowledged weak bill makes sense.

KL and Outside-the-Beltway Political/Psychological Reality

Unconditional supporters of the efforts on climate of Congress and the Obama Administration in the last two years, I think , overlook an important boundary condition of current proposals:  they are being proposed during a time when most of the American electorate has much more pressing concerns and in many cases could care less about climate and energy.  Until recently gas prices had descended substantially from their historic highs in the summer of 2008 and we have also had reduced concern about global warming, under an avalanche of  “skeptical” attacks on climate science.

Furthermore, in my opinion, activists groups and Congressional leaders have for the last 15 years wedded themselves to the cap and trade instrument which was a needlessly complex and ultimately ineffective tool to address GHGs.  Activism in the area of global warming has become professionalized and in part corrupted by funding from polluter organizations.  While the public may not know all the details, there is no clear understandable “story” that emerges from the movement that also explains how policies actually work.  This is in part because activists themselves don’t understand how the policies would actually work in the real world.

So proposing solutions that are marginally effective to ineffective in the context of a disjointed movement and low voter concern looks different than proposing these same solutions with high voter concern and even activism.

The public also can be concerned but also misinformed so in a situation where there is high voter concern, policies may be proposed and enacted that are wrongheaded.  Last summer offshore drilling was considered by many to be a workable solution for energy, while currently not so much anymore.  It is the duty of specialist organizations and public educators to make sure that the public is as well informed as possible so that when there is greater concern, one arrives at

KL under Low Voter Concern

In the context of chronic Low Voter Concern about issues of energy and global warming, a “professionals and politicians only” climate and energy policy with substantial giveaways to the strongest energy lobbies is about the best you can do in a political system under the sway of powerful lobbies.  The politicians and their allies in non-profit organizations will attempt to structure policy according to how they think the policy should work but with awareness that not many politicians can risk either voter or lobbyist anger.  Ideally in conditions of Low Voter Concern you get weakened versions of what, with greater voter support, could be strong policies.  Alternatively you could pass bills that deal with parts of the climate and energy package a targeted manner, for instance, an energy efficiency bill, which might stir less opposition.

In a condition of chronic Low Voter Concern, Kerry-Lieberman might be considered adequate with some modifications. It does not introduce the financial industry as a co-regulator of the carbon pricing system, so this bit of stupidity in ACES is no longer in the bill.   However it could still be strengthened even without a great deal of voter scrutiny as suggested above.

Kerry-Lieberman works best as an exercise for political and industry insiders on showing that they have some form of “will” to do “something” about climate and energy with the caveat that massive compromises have been struck with industries and politicians that could care less or have very little understanding about climate change and energy independence.  It also may send some signals to investors that are “on the fence” about various green investments that they might consider some version of those investments in the next decade.  It does not decisively re-orient the economy.

KL under High Voter Concern

In the context of High Voter Concern about global warming and/or oil dependency, Kerry Lieberman as currently proposed is completely inadequate.  If voters were demanding timely solutions to our oil dependence or rapid action on global warming, Kerry Lieberman would be considered to be highly unambitious and a potential roadblock to better solutions.  Furthermore, if voters believed, independent of a climate and energy concerns that such a bill should jumpstart a generally sluggish economy, Kerry Lieberman as proposed would not produce enough of an immediate economic effect.

The Senators and/or Congress would under High Voter Concern need to go back to the drawing board and produce a bill with more aggressive targets and more specific solutions that would cut emissions in the next 5 to 10 years.  I believe such a bill would involve asking for more financial sacrifice and potential lifestyle change in exchange for positive movement on warming and energy.  Such a “trade off” between goals would be possible with true leadership coming from the Administration and Congress.

If the public were both concerned and also misinformed there would need to be period of politicians and activists attempting to educate the public about really workable solutions prior to the enactment of bills.   The Tea Party phenomenon is a example of voters with high concern but also, for the most part, badly informed about the issues that they protest about.

Voter Concern as of Mid-May 2010

With the oil spill in the Gulf and rising oil prices, voters may be moving from what might be called Low Concern to a higher level of concern about energy.  Certainly other oil spills, in particular the 1969 Santa Barbara spill, have galvanized public opinion about environmental issues.  Additionally we have been experiencing in the US some freakish weather this spring and may be facing a record year in temperatures with an El Nino coming on top of a secular warming trend.

Within a short while, it may be that voters will demand more concrete and direct solutions to environmental and energy problems than are contained in Kerry Lieberman.  At this point, then it would be a mistake to press Kerry Lieberman on the public as THE solution to these problems.  There are conflicting results from opinion polls that suggest a decrease or continued high support for offshore drilling.

Whether or not it is this year and at this time that the public becomes more concerned about energy and climate, it is only a matter of time before they do as events unfold both in the climate system and in the oil markets.  Even if shore communities are not as badly impacted by the Deepwater Horizon spill as anticipated, it makes sense to prepare for the post-oil future (more on this in the next post).

Roles for Climate and Energy Activists and Ethically Motivated Politicians

If we are moving towards an era where the broader public is genuinely looking for climate and energy solutions, I believe it is the duty of climate and energy activists and ethically motivated politicians to provide complete and understandable solutions.  By educating the public about the options and placing high demands on policymakers, we institute policies that are at the maximum feasible limit of what can be done today, with more action promised for tomorrow.

We are seeing this currently in financial reform, where a confluence of events has broken open the consensus that nothing substantive would be done.  Now we are seeing Senators voting nearly unanimously to institute changes in financial regulation that are close to what most economists are saying is required.  The fight is fierce, especially with lobbyists, and not yet over, but there is progress.

In order for a bill like Kerry Lieberman or similar to be truly meaningful, those parts of the bill that are just the continuation of “Business as Usual” need to be reduced or eliminated and those parts that are on the right path need to be strengthened markedly.

In the next post, I will offer a vision of what a science-based, rational response to the oil spill would look like.  It might be considered too ambitious by some but such is the role I am choosing in this discussion.

Just Published on Grist: Piece on “Bill Gates and Our Innovation Addiction” March 3, 2010

Posted by Michael Hoexter in Climate Policy, Energy Policy, Renewable Energy, Sustainable Thinking, Uncategorized.
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The environmental news site Grist, has just published a piece I wrote that is a response to Bill Gates’ recent entry into the climate and energy discussion.

Check it out at:

http://www.grist.org/article/2010-03-02-bill-gates-and-our-innovation-addiction-a-recipe-for-climate/

Enjoy and comment if you like!

Michael

My New Post/Article on Post-Copenhagen Ethics March 3, 2010

Posted by Michael Hoexter in Climate Policy, Efficiency/Conservation, Energy Policy, Green Activism, Renewable Energy, Sustainable Thinking.
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Frustrated with the state of climate action both here in the US and at the COP15 meeting in December, I have been focusing on how to distill thinking about climate action to some simple rules.  I came up with a longer piece that builds on the work of Donald Brown at the Climate Ethics Center at Penn State University.

Since this is a long piece I have posted it in my “Energy and Transport Policy” section as a three part post starting from this page :

http://greenthoughts.us/policy/post-copenhagen/

I also have a PDF version here, which some may find easier to read or refer to.

Please read and comment!

Michael

Cap and Trade: An Unserious Policy Framework.. Towards a Serious Climate Policy – Part 2 December 13, 2009

Posted by Michael Hoexter in Climate Policy, Energy Policy, Sustainable Thinking.
1 comment so far

In part I,  I made the general case for cap and trade as an unserious policy framework that inserts extraneous elements into pricing carbon that threaten the whole enterprise.  I generated general definitions of seriousness and unseriousness and applied them to cap and trade and its market mechanisms.

Dimensions of Cap and Trade’s Unseriousness: Four Aspects

There are a number of aspects of cap and trade’s fundamental unseriousness that apply to specific actors involved in the framework.  On one level the designers of cap and trade had an intellectually speculative distance from their subject matter which suggests that the policy has many characteristics of an economic “thought experiment”.  On another, more obvious level, polluters are encouraged to view the process of obtaining a price on carbon as a game which needs to be played both at government sponsored auctions and in a trading market.  Finally there are invitations, explicitly and implicitly, for third-party financial speculators to become involved in carbon trading markets in search of trading profits.

1. Scientific Unseriousness

The formulation of emissions trading was an effort by social scientists, political operatives, and activists to make environmental regulations acceptable within the US economic policy framework of the 1980’s and 90’s that exaggerated the power of markets to do social good.  Within this historical timeframe, regulators and government officials were to approach powerful economic interests solicitously and without the conviction that they were defending the common good.  Government became the junior partner in regulation, an attitude which has led us to so much grief in the financial sector.  If applied to issues that were a matter of “improving environmental quality” or even the regulation of human-to-human affairs, the unseriousness of the policy would remain a matter of regulatory or political “taste”.  However, in dealing with the unique and largely irreversible damage to the climate system as a whole, the unseriousness of cap and trade becomes catastrophic.

There is a fundamental disconnect between the emissions trading instrument and the domain of action in which that instrument is supposed to act.  While economists have a long history of misrecognizing their models of reality with reality itself (most notably the recent models that did not see the huge asset bubble pre-2008), it appears in cap and trade that this tradition continues with potentially disastrous effects.  Modeling that one MIGHT be able to “cap” global warming pollution by regulating quantities of emissions by selling and trading permits is not the same thing as providing substantial evidence that this would actually work better than the alternatives.  And given the potential that we would be irreversibly altering the biosphere, we need to be choosing from the best tools available.  I will allow that cap and trade could theoretically, using it’s particularly arbitrary administrative component, achieve its targets in an ungainly and economically damaging way but this is  not relying on its much discussed carbon market component.

The sole supposed success story for emissions trading, the US acid-rain cap and trade system, has not been as successful as direct regulation of emissions in Europe and Japan in reducing sulphur dioxide the main acid rain causing pollutant.  Why turn away from what works better for vague or insubstantial reasons?  The unseriousness of arguments for cap and trade is that they are “selling” the idea that one could avoid more traditional government-led ways of controlling emissions and effecting social change.  When one “sells” an idea in the sciences, one overlooks elements of reality that falsify or do not support one’s hypothesis.

One of the prime selling arguments for cap and trade is that it is supposedly a more economical way to cut emissions per tonne, for which I have not yet seen a serious, comparative study.  However this argument for cap and trade, if it has any truth in it at all, overlooks the entire point of carbon mitigation:  to cut emissions radically, securely and fast to avoid major catastrophes.   The costs of NOT achieving carbon emissions goals is  that whatever incremental costs within reason are associated with another instrument (direct regulation or taxation) are well worth playing if those instruments are going to get us there faster and more reliably.  This argument is always left out by cap and trade advocates who continue harping on “least cost” solutions.  In this context any instrument that is more reliable or faster than cap and trade would appear to be much more valuable.

The constant and alarming repetition of the “least cost” doctrine as a fundamental value in discussions of carbon mitigation is also a sign of how distant the designers and advocates of the cap and trade policy are from the actual physical and business domain where emissions are cut.  Many of the large scale cuts in emissions in the area of energy and transportation will be infrastructure projects or high quality durable goods that are meant to last 10 to 50 years.  In this domain “least cost” bids do not necessarily win the job because of concerns by project commissioners/buyers for the financial viability of the constructors and the quality of the resulting product with which they will live for decades.  So “least cost” excludes most of the large-scale emissions cuts that can happen within a period of 3 to 10 years.  The building of infrastructure falls almost entirely out of the orthodoxy of climate economics which assumes an undifferentiated, infinitely divisible mass of carbon mitigation measures which can be efficiently and effectively filtered almost entirely via cost, leaving aside their appurtenance to a given emissions source.

The means by which carbon pricing, of which cap and trade is one type, will transform energy use is to send a “price signal” to owners of polluting facilities to invest in technologies that cut these emissions.  As discussed above cap and trade sends a signal of relatively poor quality as compared to a carbon tax, as it makes it difficult to predict the price of carbon into the next 5 or 10 years.  This is crucial from the point of view of making the long-term investments needed to cut carbon emissions.  So the touted equivalence between cap and trade and carbon taxation which is sometimes uttered by the current generation of environmental economists, is misleading when one considers the type of investments required to actually cut emissions on a firm-by-firm basis.

Cap and trade is actually a hybrid instrument, the mixture of a price and a permit regulatory instrument with an administrative component.  By mixing these two components, cap and trade appears to offer a “one stop shop” to government officials.  However in “mashing together” these two types of instrument, the quality of both components is substantially degraded:  carbon taxes/fees are a much better price instrument and direct regulation and rulemaking, if funded, are far more effective and rational than cap and trade’s administrative measures that will either concern themselves with permit fraud or arbitrary shut down of facilities that have no more permits.

Finally and perhaps most difficult to appreciate is that cap and trade translates the problem domain (carbon mitigation) into it’s own language, foreclosing the possibility for insiders and potentially outsiders to examine how it is doing.  This might be called “cap-and-trade solipsism.”  While there is a long tradition in economics and other social sciences in inventing special use languages and terminology, cap and trade’s language makes everything within this domain a problem of markets and its own artificial market structures to a degree that impedes more general understanding and ultimately troubleshooting or comparison between alternatives.  Recently I exchanged a series of comments with a gentleman who persisted in returning the discussion to one of “allowance prices” when I was bringing up a comparison between cap and trade and carbon tax.  The inability or unwillingness to use a generic framework means discussions become distorted.  There is large-scale epistemological issue for the social sciences here that unfortunately needs to be resolved simultaneously with improving climate policy.   Put in other words, “quality control” in the social sciences is very difficult to put into action because of their fragmented structure.

Instead of basing the world’s most important policy instrument upon social scientific principles that have been shown again and again to alter consumer and investor behavior (clear incentives, clear and stable disincentives [taxes, fees, and rules], funded mandates, public investment), the choice has been made over and over again by people who should know better to go with the “thought experiment” that was assumed to have political benefits but has turned out to be less effective and terribly cumbersome as a policy.  These supposed political benefits also by implication undermine the only stance that is going to significantly reduce emissions: that government action backed by the ethical concern of leaders and the public will impose direct limits on and help restructure our energy use system.  If, according to cap and trade’s philosophy, the market is “doing it by itself” then the public should “stand back” and let the market do its work.  This is a recipe for nothing getting done in the area of substantial emissions cuts.

2. Unseriousness for Politicians

As implied above, cap and trade kicks the political can of responsibility for climate protection “down the road” or “passes the buck” to markets or a future generation of politicians that will have to name a price for carbon mitigation.  The declaration of the cap is the political “candy” with which politicians can claim an easy virtue for themselves without naming costs.  In instituting a cap and trade framework, no leader is fully committing to regulating industry and consumer wants in the name of climate protection.  An effective climate policy simply cannot “pass the buck”.  Cap and trade institutionalizes “buck passing” via deferral to carbon markets, via the use of offsets and by not naming a price on carbon at the outset.  The declaration of the cap, which is largely symbolic because if ambitious it is unenforceable, remains a fig-leaf behind which no pressure or commitment of public or consumer funds is required.

As I have argued here, and in conformance to the fears of many opponents of action on climate change, there is no getting around a strong role for government in transforming our fossil fuel-using habits; cap and trade, at least within the US context, furthers the myth that government is secondary to the process of carbon mitigation, which carbon markets will do better.  If we take SOx regulation as an example, a far simpler task, this will definitely not be the case.  Furthermore achieving carbon neutrality will mean lots of new public or government-incentivized investment in public goods like electric train lines, electric transmission and various large and small public works projects.  To soft-pedal government is a mistake from the outset if you are serious about carbon mitigation.

Within this context there may be a differential perception of cap and trade when viewed in societies with a long history of government social welfare, higher taxes including energy taxes, and an across-the-political spectrum agreement that the government regulation is OK.  To Europeans, for instance, cap and trade is just another regulatory program (that was supposed to be more acceptable to the Americans) that of course involves costs and raising the price of energy (like many European taxes), blending in with other initiatives.  In the American context,  cap and trade is supposed to circumvent government’s role and also promise no or negligible costs.   Cap and trade might appear to be more acceptable in a context where government has a greater role in setting energy prices, planning infrastructure and there is already a fairly high level of taxation.

Ultimately government leaders will need to take responsibility for leading carbon mitigation efforts inclusive of the associated frustrations and transformations of old habits for business and consumers.  While individual citizens taking responsibility for their own carbon footprints will also be crucial, leaders must lead and provide the matrix within which lower carbon choices are not acts of social and economic exile.  As open as possible a discussion and confrontation with the costs and dislocations associated with this process is not only desirable but entirely necessary.  Cap and trade, wherever the myth of market self-sufficiency is strong, undermines the development of a political discourse where both leaders and the public at large can examine the costs and benefits to action on climate change.

3. Unseriousness for Polluters

The cap and trade policy with its indirection, use of market “games”, and generally lax goals in implementation sends the message to polluters that they shouldn’t take climate change too seriously.  The fundamental problem with cap and trade is that not only is it often in actual implementation a “sweet deal” for large polluters but it distracts them, with its market game playing (auctions, trading, permit allocation debates, offsets) from the serious tasks facing them in making their businesses largely carbon neutral within a couple decades.  Auctions and trading are supposed to tap into the competitive mindset of businesspeople and are efforts to “come over to their side of the table”.   While none of this is necessarily as trivial a game as football or baseball, the insertion of these elements into cap and trade are extraneous to pricing carbon and then letting businesspeople make decisions about how to reduce their carbon costs.  The assumption is made that somehow, perhaps due to short attention spans or a lack of interest in the actual technological and processual challenges in cutting emissions that one would in some sense patronize businesses by creating a carbon “House of Games” from cloth from the (paper trading aspects) of the business world.

Furthermore, the notion that via carbon markets polluters would seek any “least cost” solution to mitigating carbon erases any notion of duty to innovate and stanch one’s own emissions, which might involve perhaps developing a small research and testing function within one’s organization.  The policy, in reiterating what already is the mission of businesses, to reduce their costs, aligns itself with a price oriented rather than a process-oriented approach to emissions controls. The diversion of the market for pollution credits makes the job of mitigating carbon relatively “unserious” for the largest emitters.

4. Unseriousness for Financial Markets

One of the major challenges for many nations currently is to create an environment where long-term infrastructure and capital investment can thrive, especially for the purpose of transforming energy use.  The US economy in particular has deindustrialized considerably and has a decaying infrastructure that is heavily dependent upon fossil fuels of both the imported (oil) and the domestic (coal and natural gas) kinds.  The serious challenge associated with climate change is making the investment in this type of infrastructure and real energy and transport capital more attractive than the more speculative financial instruments based largely on paper rather than real assets which have dominated finance over the last 25 years.

Some economists and critics of the financial excesses of the last decades have called for finance to be made boring (again), meaning less financial engineering and, among other things, more financing of real engineering projects.  The carbon permit market and the potential for the generation of various carbon derivatives opens another lucrative market for financial firms to make the quicker buck by trading rather than becoming involved in a long-term lending relationship with industrial and project development firms.  On Wall Street, it has been an almost non-stop financial “party” over the last few decades as financial rewards have outstripped any meaningful economic value that this work has created.

Cap and trade then works against more general financial reform efforts that attempt to constrain banking and reduce the attractions of trading in favor of productive investments that create real jobs (and cut emissions) in the wider economy.  The trading component of cap and trade and the creation of a new tradable financial abstraction and property right works almost diametrically against the process by which capital would be funneled towards long-term investments in things like wind farms, concentrating solar thermal farms, transmission, electric vehicle charging stations, etc.  To trade is the financial “candy” that allows for high returns to traders within short time frames.

Common Feature of Cap and Trade’s Unseriousness

Cap and trade in its scientific attitude, orientation to politics, financial market design, and permit regulation all have one commonality:  the cap and trade system inserts one or more extraneous elements that do not serve the purpose of cutting emissions or increasing the overall efficiency of the system.   In most cases this “stop” along the way to achieving the goal is some form of “visit” to the carbon market before the actual job of cutting emissions or financing the emissions cutting projects can occur.  The insertion of the carbon market into the process impedes rather than enhances the process of cutting emissions as this inserts variability and the structure of the permit market and its many superfluous stakeholders into the emissions cutting process.

The insertion of extraneous stakeholders into the process of cutting emissions means that there are people who have already developed financial interests in a status quo that will not accelerate emission cutting but will keep it only at a low boil, as they seek profits from price variability.  These stakeholders will try to extract profits from the differences between “buy” and “sell” prices without much oversight or necessitate the erection of an additional regulatory structure WITHIN the cap and trade structure.   As we have as yet not even succeeded in regulating the already existing derivatives market in the broader economy, why should be we be optimistic, as the salespeople of cap and trade will respond, that we would succeed in regulating this market, if the will is even there, once we have set up a structure that insures that variability?   The stupidity of this altogether avoidable situation is mind-boggling.

Some take this to the extreme and say that profit-making itself is wrong or make various efforts to accuse others of making profit off doing good, as a way to impugn their characters.  Instead, profit needs to be made for delivering real value rather than thoughtlessly offering a massive new lease on life to the overblown financial trading sector at a time that we can ill afford it.  An ill-informed, undifferentiated endorsement of all profit-making leads to the giveaway of the planet’s biosphere to a coalition of extremely short-sighted people, while a condemnation of all profit-making insures that the value of efficiently run businesses will be excluded from the discussion.

“Carbon finance” despite its novelty, moors our financial system in the past rather than propels it into the future.  Carbon finance interferes with an orientation towards investment in real assets that cut carbon by offering the “carrot” to financial firms of greater profits from trading carbon derivatives.  Maybe with more time or a flusher economic system we could afford to play around with trading markets and carbon but we literally do not have the time anymore.

A “serious” carbon policy removes the extraneous elements because, frankly, we don’t have time to play around with someone’s intellectual hobby horse or third-parties’ wishes to extract excess trading profits from a transaction between two other parties.  So-called “carbon finance” is not the same thing as project finance or venture investment.  We need finance and investment with reasonable returns on investment without the “sweetening” for financial players of the trading profits associated with carbon trading.

Why is Cap and Trade’s Unseriousness Invisible or Tolerable to Well-Meaning Folk?

Even in an environment of skepticism about financial derivatives, cap and trade seems to have escaped critical scrutiny by people concerned about the climate.  Paul Krugman, for instance, who is highly critical of how Wall Street has been regulated, puts out an occasional Op-Ed or blog post that supports cap and trade.  Joe Romm, a blogger who wrote a good deal last year on his blog about a “global Ponzi scheme” and “rip-offsets”, has as of this year almost nothing critical to say about cap and trade.  Even if writers and bloggers have reasons of personal political position or paychecks involved in exempting this instrument from any meaningful critical gaze, the equation of cap and trade with action on climate is widespread in the mainstream environmental movement and in liberal circles.  Why is this so?

There are components to the “invisibility cloak” that makes it more likely that climate activists and politicians continue to support cap and trade despite (perhaps) knowing better.

1) Consumer Society and Unseriousness

A feature of wealthier consumer societies is that we have become used to pushing away or avoiding difficulties by moving on to the next product or fashion.  After all, President George W. Bush after the 9/11 terrorist attacks recommended that people “go shopping” as a way to fight the terrorists.  While at the time this seemed somewhat logical (keeping the economy going), it remained a superficial response to the dynamics that led to 9/11.

While we can pillory ex-President Bush for his awkward paean to consumerism, the attitude that simply a change of scenery or of product will make a world of difference is deeply embedded in the wealthier societies of the world.  Therefore in this context, a “shopping” or market model for reducing emissions fits right in:  cap and trade suggests that polluters are simply shopping for the “best buy” on the emissions reductions market, which, according to the global free trade ideal, should extend around the world.

Participants, and I include myself in this, in consumer society often become “unserious” people, in the sense that we are often preoccupied by largely trivial distinctions between products and services and questions of our own social identities.  Public information systems and mass media that make the most of the latest scandals and inconsequential aspects of celebrity personalities add to the trivialization of choice.  Cap and trade’s lack of seriousness blends in within this context.

2) Normalization of Derivative Trading-Based Finance

Trading financial instruments involves not seriously committing to a project or firm but simply trying to “work the spread” between buy and sell over a short period of time.  There is a generation of people under 45 or 50 who grew up in a time when banking and finance came to be represented by the “glamorous” lifestyles and reputations of bankers/traders or the individualized pursuit of wealth of the day-trader.  This generation compresses or misrecognizes the difference between investment and financial trading, having no memory of a different time when banking was largely “boring” and involved long-term commitments between financiers and borrowers.  The abstract and individually isolated nature of financial trading hides the externalities (damages to others) created by a trading-dominated financial system.

Cap and trade’s design is a product of the confusion of these two functions of financial markets and misapplies a trading instrument where an investment instrument is actually needed.  I can imagine that younger supporters of cap and trade have difficulty imagining a finance sector that sees its primary duty as issuing long-term loans rather than being involved in fast-paced swaps and trades.

3) Decline of an Ethic of Justified Profit-Making

In earlier periods in the economic history of capitalism there developed in some circles an ethic of justified profit-making: that one needed in some way to show that one had delivered a certain product or service with which one’s wealth became defined.  This allowed the new social class of business owners to find a reason to feel superior to those who simply inherited their wealth or collected rent from large inherited landholdings.  What Max Weber, called the “Protestant work ethic” (that is recently being disputed as being exclusively associated with Protestant portions of early Europe) helped define the mixture of ownership of productive assets (capital) and the entrepreneur’s work which promoted in the business owner a sense of virtue while risking committing the ancient sin of greed.

However, in the periodic speculative bubbles that have marked the history of our economic system, the relationship between entrepreneurial risk-taking in real enterprises and amounts of profit becomes frayed.  In these periods, profits from trading relatively overpriced assets or paper derivatives of those assets can outstrip those earned by real entrepreneurs.  James Galbraith has suggested that there exist a class of economic “predators” that thrive in speculative bubbles by their talent at locating opportunities to make what in other eras would be considered to be unearned profits.

In our current era, we are just beginning to hear calls for something like ethical profit-making, where the ethics is not simply inserted by association with a nominal cause or label attached to enterprise (“green” capitalism) but to the actual mechanism by which rewards are dispersed to individuals.  Was risk taken?  Was the product or service useful and/or socially useful?  Was the compensation scheme just?  In advanced industrial countries like the US, that have deindustrialized, more people are asking the question whether an “industrial policy” or systematic reform of the finance system will redirect capital to productive uses.

As outlined above, cap and trade, while it has a green veneer, creates a massive structure for targeting and achieving trading profits that are not compensation for a useful product or service.  In the cap and trade framework those who profit the most will be not those who cut the most emissions either via innovation, efficiency or implementation.

As the policy’s designers have normalized a financial trading-led economic system they have developed a conception of business profit that does not distinguish between profit from investment and entrepreneurial risk and profits from exploiting asymmetrical information in trading markets.

4) Climate Economics is Tied to Monetarist Ways of Thinking

The economics of climate change has emerged in an era when monetarism had become the new orthodoxy in economics.  Most practitioners of climate economics are focused to an excessive degree upon setting a price on carbon rather than also looking at the specific technological and infrastructure challenges associated with addressing climate change.  A Keynesian approach to economics, which had fallen out of favor in the 80’s and 90’s, enables economists to appreciate the vital role of government investment and leadership, though it doesn’t deliver any ready-made solutions in the area of climate change (in part because it is underdeveloped through recent neglect).  In this context, making the sole choice of policy between two carbon pricing instruments, cap and trade and carbon taxation, flattens some of the differences between the two instruments (though in an objective analysis still favors carbon taxation).  Additional benefits of carbon taxes or fees, that they can complement or do not interfere so much with other policies, are left out of the picture.

5) Knowledge Gap Regarding Relevant Business Investment Decision Making Processes

There is a knowledge gap among the designers of policy, its supporters and those who will actually use the policy to make investment decisions in the domain of energy efficiency and business process reform.  The economists who theorize about cap and trade and the environmental advocates of the policy do not in general have business experience and neither do political decision makers.  Critical knowledge of how capital investment decisions are evaluated within businesses has evaded the notice of most of the policy designers, including the basic cash-flow analysis tools, like NPV and IRR. Many of the business leaders who endorse cap and trade and may be consulted by political leaders are not necessarily motivated to help policy designers to create the most aggressive or most effective policies.  Engineers who understand which measures are relevant to their industries might not have been consulted by either one or the other of these groups.  So those who are motivated to cut emissions do not know how the microeconomics works and they don’t communicate regularly with those who know something about the technical challenges and available equipment.

6) Expectations of a Machiavellian Politics

Speaking mostly of the US, but also taking into account its outsized influence on climate policy, sincere supporters of cap and trade see themselves faced with what amounts to be a false choice:  support any proposal labeled “climate policy”, which unfortunately has been indentified largely with the cap and trade instrument, or implicitly support the rabid denial of climate change coming from opponents of any and all action to stem GHG emissions.  In the US at least this type of choice between principles and pragmatism is particularly stark as negotiations often start with the liberal-left having taken it’s principled position off the table from the start.

While the political Right, which has historically been opposed to action on climate change, has often made proposals that start with their “first principles”, reformers from the center and the left in the US have made political careers lately by starting from a position of compromise or even appeasement.  The successes of the Clinton Administration such as they were, were based on policy efforts that sacrificed principle from the beginning of the negotiation rather than in the middle.  Even if we assume, in a democracy, that no one gets exactly what they want, we find that this self-censorship on the part of the liberal or Left side of the spectrum has, along with massive infusions of money from wealthy interest groups, truncated the scope of reform proposals and narrowed public political discussion.  Unfortunately, the current Obama Administration has inherited some of the Clinton Administration’s emphasis on strategy that divorces itself from principle.

In such an atmosphere, the actual policy proposals for reform become tailored more for communication with an “inside politics” and lobbyist audience rather than the population at large.  It is now common for the press and officials to generate a public discourse of “do-ability” without the need to explain why the focus on legislative success will concretely help the broader public.  Political leaders and journalists want to be “insiders” and the public is expected to acknowledge that their interests may take a back seat in public discussion and in enacted policy.  If one expects policy and politics to be about the self-preservation of political careers, cap and trade blends in, not for the success that it promises but it’s structure that remains impenetrable to all but the inside stakeholders.

Dimensions of Serious Climate Policy

While elsewhere I have offered summaries of two sets of policies and one overarching meta-economic framework for effective (serious) climate policy, here I will offer another point of entry into why I think climate policy needs a thoroughgoing revision.  If we accept that we are in serious situation, an emergency, certain approaches are appropriate while others are not appropriate at all and should be left off the table.  I believe looking at climate policy through the lens of “seriousness” or otherwise can reveal important dimensions of policy.   While I believe I have offered two and half serious climate policies, I do not want these principles to suggest that these are the only possible serious climate policies

A serious climate policy

  1. Can cut greenhouse gas emissions with the highest (or close to the highest) level of rapidity without endangering economic development in the long term.
  2. Can be implemented (started) rapidly
  3. Recognizes and builds on existing emissions-reducing technology
  4. Tracks and promotes promising emerging technologies
  5. Supports energy research and innovation but does not hold policy hostage to unknown future breakthroughs.
  6. Aligns incentives (self-interest) to the greatest degree possible with cutting emissions.
  7. Excludes extraneous, non-climate related concerns from the core of the policy insofar as they may slow or undermine the most rapid action on climate; resist
  8. Can be adjusted to cut more or less emissions
  9. Draws strength from and mobilizes the “moral sentiments” and our sense of duty to each other and to the future.
  10. Enables transparent and equitable negotiations about global obligations and the price of climate change action between nations
  11. Prioritizes stanching the largest sources of emissions (coal-fired electrical power, tropical deforestation, fossil-fueled transport) from day one of the enactment of policy.
  12. Considers “emergency” measures that may lead to more rapid mitigation or cooling effects, inclusive of research into so-called “geo-engineering”.
  13. Addresses the balance between expenditures for aid for climate adaptation and expenditures for climate mitigation
  14. Increases the attractiveness of longer term investments in emissions reductions and sustainability.
  15. Addresses black carbon emissions nationally and internationally.

Wishlist for COP15

As COP15 is proceeding apace this week, I wanted to put out a wishlist for the outcome of that event as relates to a serious climate policy.  Minds may already be made up and I am just one voice but here it goes:

  1. Commit to ambitious targets (30% over 1990 emissions by 2020 for industrialized nations, reduce deforestation related emissions by 90% by 2020)
  2. Do not commit to emissions trading as the means to achieve these goals
  3. Create a standing international committee to evaluate the institution of a price-based international instrument or other, perhaps project-based, alternatives to cap and trade
  4. Commit to a science- and evidence-based approach to policy

Cap and Trade: An Unserious Policy Framework for Humanity’s Most Serious Challenge – Part 1 December 12, 2009

Posted by Michael Hoexter in Energy Policy, Sustainable Thinking.
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4 comments

In a few days in Copenhagen, world leaders will debate and, we hope, agree upon aggressive targets for humanity’s greatest challenge to date:  to avert devastating man-made climate change by transforming our economies’ use of energy and of land while maintaining and improving social welfare for the world’s peoples.  We have in the past 250 years proceeded on a course of development which has used fossil energy to replace human and animal muscle power with mechanical energy.  Economic development has almost become defined by application of this “exosomatic” energy, 85% of which comes from fossil sources worldwide.  Emissions from fossil energy as well as changes in land use, have dramatically increased the concentration of warming gases in the atmosphere, leading to increases in average annual temperature.  Furthermore, preferences for eating meat, in particular beef and bovine products like milk, have contributed massive amounts of warming potential to the atmosphere.  Finally, combustion of biomass and many fossil fuels has produced black carbon which has contributed substantially to warming.  Balancing the living standards of human beings with the health of the planet has become an unenviably massive set of tasks.

The potential economic and ecological catastrophes from a warmer planet are starting to become clear to us.  The retreat and eventual disappearance of glaciers seems now highly likely, reducing fresh water supplies for billions of earth’s people.  Rising sea levels from the melting of polar ice caps will swamp hundreds of millions more who live in low-lying coastal areas.  Changes in temperature are already disrupting fragile ecosystems with, for instance in North America, the pine beetle now surviving what once were frigid winters and devastating the forests of the Western US and Canada.  Many of the species with which our species has co-evolved will die off in a warmer world.

However, when compared to the magnitude of the threat and the measures needed to meet or exceed intended targets, the instrument chosen during the 1990’s to transform our economies, cap and trade (also known as emissions trading), has proved to be marginally effective to ineffective and extremely cumbersome to implement.  It is as if you, with great fanfare and concern, pointed out that there was a drowning swimmer 100 feet away from you but chose to throw a rubber duck instead of a lifebuoy to save them.  With time running low, it would be a disaster if government ministers and world leaders lock themselves into the cap and trade instrument as the main means to achieve emissions reductions targets.  Cap and trade or emissions trading, has had unimpressive results when compared with more traditional “command and control” regulation in the area of acid-rain forming pollution (SOx) and seems to have been selected as a means to control greenhouse gases largely because it appeared at the time politically expedient to the then-Clinton Administration.  This was humanity’s “first go” at a climate policy and the instrument has shown more weakness than strength.

There was within the Clinton Administration, which has had an outsized influence upon the shape of our first climate policy framework, an openness and vulnerability to the anti-regulatory and anti-tax rhetoric issuing from the Republican Party post-Ronald Reagan, so cap and trade seemed like an elegant domestic political solution.  Clinton, with apparent enthusiasm, declared in 1996 that “the era of Big Government is over,” yet government action and government regulation of markets, as it turns out, are going to be the pivotal institutions in transforming our economies to radically cut emissions (and managing our way out of the Great Recession).  Furthermore the Clinton Administration had more generally a fascination with financial innovation via expanding the influence and reach of financial trading markets and loosening regulations upon them.

However, in its capacity of creating a politically acceptable alternative to direct government action in the economy or to the levying of Pigovian (“sin”) taxation on carbon emissions, the proposal to use cap and trade to regulate greenhouse gas emissions has been, in the United States, a miserable political failure.  Opponents of action on climate change have seen through or willfully misinterpreted cap and trade’s “soft” regulatory image.  They are reinforced in their belief that “government is bad” by the effort by their political opponents to hide or make indirect government’s role via cap and trade.  “Fancy footwork” was unfortunately a hallmark of the Clinton Administration’s major policy efforts and cap and trade’s application to global warming is no exception.

I have elsewhere outlined two policy frameworks that with greater certainty would cut emissions more rapidly, based on more robust, reality-based economic and social scientific principles.  Firstly, a carbon tax or fee will function as a much clearer, more consistent incentive to invest in mitigation because of its predictability and clearer price signal to investors and consumers.  If paired with a series of targeted incentives for clean energy (feed in tariffs or other performance-based clean energy incentives) and investment in energy and transport infrastructure (electric transmission, electrified rail, electric vehicle infrastructure), we will see measurable emissions reductions and the emergence of real market choices upon which carbon prices will act.  The combination of incentives, disincentives and public investment might be called a “Comprehensive Climate and Energy Policy”.  Alternatively, a series of 20 to 50 large scale regional and global emissions cutting projects can form the basis for determining what would be the unifying national and international policy instruments, most likely including a carbon tax of some form.  Projects would need to represent certain emissions reductions using existing or emerging technologies within a timeframe or directly enable emissions reductions (transmission to renewable energy zones, electrified rail).

An alternate “meta-economic” framework for effective climate policy is Keynesianism, which after 3 decades of disregard has once again been recognized as the vital guide to economic policy at times of crisis.  What I call “Climate Keynesianism” recognizes the key role of government in leading an economy in crisis, in this case one with both a traditional worldwide economic slump in combination with an ecological crisis of unprecedented proportions.  Most commentators calling for a WWII style mobilization to catalyze economic growth and a greening of our society (a “Green New Deal”) are working with assumptions based on the work of John Maynard Keynes, though not all acknowledge his contribution.  Within a Keynesian framework government planning can supplement and support markets rather than remain invisible in our guiding economic theory or remain foolishly dismissed, as it has been over the past 30 years.  I have recently ventured the hypothesis that most intentional emissions reductions or increases in the efficient use of polluting resources that have occurred in our history have been the product of the implementation of government programs inclusive of the design of tax policy.

Furthermore, as I have argued here, cap and trade shields polluters and government from the ethical pressure of concerned citizens and concerned scientists, which are, in the end, the prime motive forces of climate action.   The new property rights to pollute that are the basis of emissions trading are fairly non-transparent and insulate polluters from the need to maximize emissions cuts sooner rather than later.  Cap and trade, in its implementation rather than in the ideal terms in which some advocates discuss it, sends out “go slow” or inconsistent signals via its complexity, reliance on offsets of often poor quality, soft targets, introduction of non-essential players into the domain of emissions reductions, and the contract not to cut emissions to zero contained within a pollution permit.

Seriousness and Unseriousness

I have above sketched out in broad terms why cap and trade is ineffective and incommensurate to the task of carbon mitigation (elsewhere I have gone into more detail with supporting documentation about why cap and trade is ineffective and resists strengthening).  However these criticisms that I have made are not particularly arcane or difficult to arrive at…why is it that these views are not shared more widely?  If we leave aside self-interested calculation for the time being, I believe there is what might be described as a “reality-orientation” among policymakers and important economic actors, within which cap and trade appears to be a quite acceptable solution despite its “Rube Goldberg” nature and inappropriateness to the task.  This reality orientation shapes perceptions of what is the nature of the challenges facing us and what are acceptable solutions to those challenges.  I would contend that it is possible to judge with some accuracy that some solutions are “serious” and others “unserious”.

On its simplest level, seriousness is an orientation of mind, either temporary or longer term, where we clear away irrelevant facts, irrelevant emotional states, and irrelevant impulses from consideration because of the need to take action.  Seriousness means focusing on only the relevant information for a particular moment or challenge and allowing in new information that is also relevant.  Seriousness means being able to screen information based on its appropriateness to what needs to be done now or very soon; it means understanding the links between an action and its ultimate purpose.

Despite the immediacy-of-action requirement in serious situations, seriousness however might also involve engaging in long-term planning, considering many factors and facts, but nesting and ranking them as to their relative importance, even though first actions are very important.  The observation from the study of complex systems called “sensitivity to initial conditions” a.k.a.  “the Butterfly Effect” explains to some degree why first steps are important even though the road may be long.  The planning and building of large physical structures requires seriousness from the outset to the end of the building process and beyond.  Seriousness most often involves the use of rational thought processes to come to solutions based on the relevant information, though intuitive, “Blink” type, reactions in extremis may yield good results as well.

Another way to look at seriousness from a more biological perspective, is that it is the “fight or flight response” brought under the control of the prefrontal cortex, the center of our brains that is associated with impulse control, deliberation and planning.  The fight or flight response is our basic physical and emotional response to threats, which has analogues across multiple species and has evolved over hundreds of millions of years.  In serious states of mind, the anxieties and dangers that trigger that response are anticipated, and planning is initiated that will reduce the likelihood of our encountering those threatening situations.

Unseriousness by contrast is allowing extraneous concerns and facts into that emergency or near-emergency situation or relying largely on non-rational decision-making processes when time would allow for rational ones.  As seriousness is judged by context and we all have multiple commitments in our lives, some people argue over whether people are “truly” committed to the issue at hand or are using it to further their “other agenda” to which it is assumed they are more committed.   As an example, deniers of climate change or action on climate change are in effect accusing those who are concerned about climate change of unseriousness because they believe them to have invented climate change science  as part of a pre-existing political agenda.  For these people, the pre-existing political conflict (between Left and Right) is the serious part while the science, to them, is unserious.  In this dispute there is a disagreement about which here is the fundamental context upon which to establish true “seriousness”:  the physical world as observed by science or the political and subjective world of human beings.

As “unseriousness” carries with it a pejorative tone, it is not the same thing as “lack of seriousness” in most domains of life where humor and levity is highly valued.   To break up the repetition in this piece I will use “lack of seriousness” to mean “unseriousness” because of the context.  However “to fiddle while Rome burns” can rightfully be called unserious, with all pejorative meanings intended.

To judge someone or something as “serious” or “unserious” appears at first to be a subjective task.  What are extraneous or irrelevant concerns and impulses?  What are rational thought processes?  For instance, I could be deciding at this moment for personal reasons of my own to declare cap and trade to be “unserious” and carbon taxation, a Comprehensive Climate and Energy Policy, and Climate Keynesianism to be “serious”.  Or seriousness could just be a state of mind that comes and goes; I might have a personal preference for serious people or a mood of seriousness (as it turns out this is the not the case).  If one looks or sounds a certain way, one might think, one is or is not taken as “serious”.

However I believe that most readers will be able to agree that certain facts and events in the world are “serious” without reference to the accompanying facial expressions or tones of voice.  What do we mean by “serious” or when something “gets serious”?  When something is “serious” we realize that we have either very little or no choice in an important matter; when something “gets serious” options have been removed and, yet action on our part is required that will have substantial repercussions for us and/or for others.  What most people would consider “necessities of life” are almost by definition “serious” while wants are not necessarily “serious”.  Government is often though not always involved in “serious” life and death situations: fire departments, police departments, courts, national defense etc.  Climate change is one of those serious issues:  we cannot escape the world en masse and we are degrading the biosphere irreversibly through our activity.  I am not making up its seriousness nor am I exaggerating it:  it is matter of humanity being able to live decently or the potential for a much reduced existence for humans and coevolved species in the future.

Also, many people, though perhaps a lesser number, will be able to identify unseriousness in the response to a serious situation.  You might become impatient if you recognize a serious predicament but are being offered information or solutions that are in some way irrelevant to its resolution.  If we are led to believe that we are in an emergency, yet are then offered a solution that is not effective or seems to be an answer to a different question, we need some very strong reasons to pair “Question and Answer A” with “Question and Answer B”.  However, as noted above, in some serious matters there are disputes about what is the “ultimate ground” or context against which acts are judged as more or less relevant: are politics and human relations or is the biophysical world “the ultimate ground”?

Seriousness or unseriousness is also an orientation with regard to the representation of facts and ideas.  In science, only “seriousness” is appropriate in the actual communication of data and their interpretation; there is supposed to be no ambiguity with regard to what something means.  In business or culture, “unseriousness” has its place, as ambiguity is allowed or encouraged.  Given the science-dependent nature of climate and energy policy and the very late hour we are facing these issues, “seriousness” is the only appropriate means to deal with the basic outlines of policies that are supposed to “save the world”.

Unseriousness at the wrong time or in the wrong people can have very real and serious consequences.   Unserious leaders of governments and large corporations can do enormous damage to their organizations or the parts of society that are affected by their actions.

Cap and Trade for Greenhouse Gas Emissions is Unserious Policy

Cap and trade via its adoption in the Kyoto Protocol and elsewhere has morphed into a sizeable set of institutions and worldwide: there are tens of thousands whose work is fed or feeds into its framework; it already has had serious real impacts on some people’s lives.  However despite its institutional massiveness and the grave nature of the climate change challenge it remains at its heart an “unserious” policy.  The frivolousness at the heart of the policy is a frightening irony and potential tragedy given the consequences of failure involved, the seriousness of the work done by many workers in the field as well as the fact of their employ in instituting such a policy.  But unfortunately, we and they have been saddled with a policy that is at odds with its fundamental task as well as the personal intents of many though not all of its supporters and functionaries.

The lack of seriousness of cap and trade can, in part, be traced back to its overreliance on trading and market mechanisms.  Markets, while they have serious consequences in the world, function in part via the lack of commitment of actors within markets to each other or to the goals of society as a whole.  Markets, to function, have to represent a degree of non-compulsion; they are never entirely “free” as some ideologues would like us to believe, but they attempt to be non-deterministic in terms of the outcome of the “play” of relationships and transactions within the market space.

The non-deterministic bent of markets leaves room for participants, in particular participants with sufficient financial resources, to have multiple choices with regard to the satisfaction of their wants.  For some this area of choice becomes a type of game, where players attempt to receive more benefits for less sacrifice of resources.  Offers can be played off against other offers so the costs for items will become more affordable for the buyers, though not necessarily advantageous for the sellers.  In playing one offer off against another there often will be an element of unseriousness or deception, as false commitments or false show of disinterest may lead sellers to increase the favorability of their offer.  To approach markets with total seriousness is often to lose out on opportunities or to be taken advantage of.  Playing games well in markets then becomes for each individual actor a competitive advantage in claiming more of the overall benefit for themselves.

There has been a certain hagiography of markets that has emerged in the last 30 years which has portrayed this scenario of market actors moving fluidly between offers on a market as the sole paradigm of economic activity.  All economic activity has been supposed to strive to emulate markets with the idea being promoted that individual buyers choosing between multiple offers is the almost exclusive foundation of economic progress and efficiency.  However this view of markets is focused on the internals of market functioning and ignores the supporting institutions for the smooth functioning of markets as well as the externalities (the damages and benefits to those not involved in the transaction) they create.  A well-functioning market is a product of (a lot of) work by non-market actors like government officials as well as those who work in economic roles and sectors which do not necessarily function well in the ideal market format.  Furthermore there are a number of economic functions that do not lend themselves well to market functioning, many of which are “natural monopolies” or oligopolies like electricity and transportation infrastructure.

Markets tend to work better the more “discretionary” or flexible a given type of human wish is, as well as where buyers can accurately evaluate the value and likely results of a transaction with their own knowledge base.  We tend to see “ideal” market behavior in areas of life where we are dealing more with luxuries than necessities:  in health care, cosmetic surgeons and dentists can sell their services to a (wealthier) consumer market on an out of pocket basis while in the area of basic medical care there is more likely to be subsidies or public and private insurance schemes.  Thus the “playfulness” of markets fits with things we can literally “do without” or hold out for, i.e. demand is “elastic”.  In those areas of life where demand is high but relatively “inelastic” we tend to see more regulation and/or subsidies by government or the direct provision of goods and services by government.

In the era of the idealization of markets we were supposed to trim all economic activity to the Procrustean bed of a competitive, unregulated market.  As Adam Brandenburger and Barry Nalebuff pointed out in their book Coopetition, cooperative interaction in the business world has been under-theorized while competition has been over-theorized and over-celebrated.  Economic planning, both within firms and in society as a whole, became taboo, as competition through the market was supposed to do almost everything for everybody.  In practice this has meant that certain economic activities that we are now recognizing are crucial (energy and transport) were neglected or subject to a series of exercises in deregulation or “marketization” with mixed but sometimes disastrous outcomes.  This has left, especially in the United States which has been the epicenter of the idealization of markets, energy infrastructure and transportation projects at the margins of high-level economic policy discussions.

Formulated during a period of financial deregulation and a mushrooming of the financial services industry, cap and trade is an offspring of the idealization of markets, a baroque monument to a belief in the market mechanism and financial trading in particular as the self-sufficient and predominant function in economic life.  Cap and trade has a “double decker” market, with the carbon permit market, with its variable price outcomes, regulating the real market for global warming solutions.  It would have been easier and more effective to simply drive the, “lower” level of that stack of markets, the real market for global warming solutions, with a tax but the policy designers were swept up in their belief in competitive markets and feared the appearance of exercising governmental authority via either taxation or direct regulation.  That the Clinton Administration was unsuccessful in 1993 in instituting an non-greenhouse gas related energy tax has shaped international climate policy in measures far beyond the value of that historical moment.

Proponents of cap and trade tend to argue that emissions trading and taxation are equivalent in terms of their usefulness but these assertions are based on an inadequate confrontation with some basic weaknesses in the cap and trade system.  Beyond the problem of offsets and their quality, which is a very large problem, the two most problematic assertions about almost all configurations of cap and trade are:

Assertion #1 –  Cap and trade’s price signal is equivalent as that of a carbon tax” –  This is not true because auctioning and permit trading yield a variable price signal and investment uncertainty.  A variable price signal is much less useful to investors in emissions reducing measures because these investments will pay for themselves in most cases over a period of years.  The value of the investment is then in question with a variable signal.  The economic modeling of this issue ignores the multi-year perspective from the point of view of individual economic actors.  I call this cap and trade’s “faulty microeconomics”.  There are ways to patch this up with price floors and ceilings and a very narrow trading range but then the elaborate structure of cap and trade is no longer necessary.  Cap and trade then becomes a more cumbersome tax with permits and market games attached.

Assertion #2 – “Cap and trade delivers certainty about quantities of emissions reductions (while taxation gives you price certainty).” If “1” is false (which it is without losing many of its trading attributes) then this statement is unlikely to be the case because carbon reducing investments will be less likely under carbon price uncertainty.   The point of carbon pricing (cap and trade or tax) is to stimulate investment in carbon reducing technologies rather than issue fiat regulations that controls amounts of emissions.  However the uncertainty in the price signal will interfere with emissions reductions until the point where regulators will step in and “pull the plug” on either malevolent, ignorant or unlucky losers on the carbon permit markets.  So certainty will be achieved, with an ambitious cap, when regulators will step in with arbitrary-seeming harsh measures.  Neither instrument will give anyone total “certainty” of quantity without the use of direct regulation, though a carbon tax would be easier to calibrate to achieve approximate goals.  Advocates of cap and trade omit the simple fact that carbon price rates can be adjusted perhaps every 3 years to achieve an emissions goal (though not so frequently as to make price projections arbitrary and useless for businesses).  Even with these adjustments the carbon price signal will remain clearer than with cap and trade.

Besides these questionable assertions that are always treated as established fact, invisible in the discussions by cap and trade advocates is the introduction of what is essentially an extraneous element into the process of pricing carbon, the trading markets, which seems to serve no other purpose than to lay at the feet of the market abstraction that the last couple generations of economists have idealized, the most important policy instrument that the world has ever seen.

As individuals, the designers and advocates of cap and trade are sometimes believers in more general financial market reform yet refuse to see how carbon finance pulls financial markets away from reform and towards speculative excess once again, via the insertion of price variability and trading.  Other than personal corruption, which may be the case for some, I do not see how these otherwise smart people continue to exempt cap and trade from what they otherwise would apply to the trading, for instance, of bundled sub-prime mortgages or other shady securities.

If we turn to our definition of “serious” vs. “unserious”, we see in cap and trade the introduction of an extraneous institution (the permit markets), set of concerns (the profit motive via trading of paper and not via producing or financing emissions cuts), and stakeholders (powerful financial groups interested in expansion of derivatives).  These extraneous institutions do not simply remain “quiet” but end up co-steering the course of the policy and interfering with its purpose.  Political and economic favoritism as well as intellectual hobbyhorses are being served instead of the world’s most important set of tasks and investments.

If we accept that our relationship with the biophysical world is the “ultimate ground” of climate policy, introducing an over-elaborate set of political and economic ideas and interest groups that are inessential to the policy’s goals and divert energy and funds to their ends adds a lot of unnecessary risk to the carbon mitigation enterprise.  If we furthermore acknowledge that the state and rate of our degradation of the biophysical world is very serious and approaching dire, the risks are multiplied.

Therefore cap and trade is unserious policy.

Cap and Trade Derails Climate Ethics, the Motive Force of Carbon Mitigation – Part 3 November 18, 2009

Posted by Michael Hoexter in Energy Policy, Sustainable Thinking.
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In the first part of this piece, I discussed how the fractured structure of cap and trade is either non-functional or marginally functional.  In the second part, I pointed out how cap and trade, due to its structure, is largely non-responsive to the ethical power of the climate action movement and concerned political leaders.  Here I offer a context within which individual effective policy instruments can fit together.

3. Climate Keynesianism:  Already at Work Cutting Emissions

As the foregoing account suggests, underlying climate policy and the weighting given to ethical principles in economic decision-making are differences in general theories of economics.  The choice of economic frameworks organizes the world into “Gestalts”, assemblies of meaningful elements that separately do not have as much meaning as they do together.   Certain choices seem to follow more easily from other choices when there are different frameworks for understanding the world.

The monetarist worldview, within which cap and trade emerged, focuses on the effects of prices on the behavior of independent economic actors on a market.  If the right carbon price signal is sent, the hope is that demand for low-carbon products will spur invention of and production of low-carbon solutions.  Those policy proposals that rely exclusively on a predictable carbon tax or fee also “play by the rules” of the monetarist worldview; a carbon tax/fee is a truer and clearer expression of the monetarist belief in the importance of pricing than the double-decker market of cap and trade.  However the carbon tax or fee recognizes or at least does not laboriously circumnavigate government’s direct role in representing the general interest and managing overall emissions-reduction efforts.

The events of last year in the financial markets have called in question monetarist orthodoxy as an exclusive guide to economic policy, which broadly defined includes climate policy.  While some attribute the crisis to improper government involvement in financial markets, most have taken away a view that there was insufficient government regulation of the financial system.  Whatever the causes of that particular collapse, markets in reality require over time the provision of public goods and infrastructure to function, as well as at times the stabilizing force of direct government investment in the private economy.  Support for and focus on public goods is de-legitimized or ignored by the monetarist economic framework leading to stealthy, poorly planned or underfunded government initiatives in these areas.

To remind readers of the recent history, in September 2008 the Bush Administration abandoned any pretense of following monetarist restrictions on government intervention in the economy and moved rapidly in combination with the Federal Reserve Bank to stabilize the US financial sector as other governments throughout the world undertook similar efforts to avert a repeat of the Great Depression of the 1930’s.  The Obama Administration continued these policies and added a $700 billion economic stimulus package which is an effort to bolster economic activity and employment outside of finance.  The US stimulus package includes a number of projects in the area of renewable energy and energy efficiency that would help reduce carbon emissions.

These actions of the Bush and Obama Administrations are rightly considered Keynesian, at a point in history when John Maynard Keynes, the foremost economic theorist of the Great Depression, had been ignored for at least a decade among government and academic economists.  Since these events, Keynes has luckily been rediscovered.  Despite the dramatic and uncommon nature of major market crashes, Keynesianism observations and principles also apply to the relationship between government and markets at less extraordinary times.  It is not clear whether the Obama Administration will embrace a variant of Keynesianism as more than a source of emergency help for a faltering economy, as this would be a stance that appears somewhat to the left of the President’s desired political position.  However circumstances, including rising unemployment, may force him, as they would almost any thinking leader, to adopt a more aggressive Keynesian approach to our Great Recession.

Relative to monetarism, most versions of Keynesianism acknowledge that government needs to provide public goods inclusive of social welfare measures that manage aspects of the economy other than interest rates and the money supply.  One of the key focuses of some Keynesian policies is sustaining demand via various government programs: provision of educational benefits, worker retraining, unemployment insurance and health insurance which allow more discretionary spending by consumers, stimulating demand for goods.  Though never formalized as a package of obligatory measures, these parameters vary but can be broadly construed as Keynesian.

Keynesianism does not explicitly endorse the interaction of traditional ethics with economics but the validation of government’s role in managing the economy and spurring demand has meant that governments with a Keynesian approach to the economy are more responsive to ethical argumentation about new social, economic, and environmental needs.  Those who believe in unregulated markets after Adam Smith see this aspect of Keynesianism as a corruption of the ethic of pure or almost pure self-interest, supply and demand that they feel should animate economic life.

While adherents to monetarism or neoliberalism, the philosophy that markets represent a normative ideal that is most often suppressed by government, will resist the movement towards a new Keynesianism, it seems highly likely that going forward, the lessons of Keynes will be taught once again.  Consequently views of government intervention in the economy are shifting from largely negative to a mixture of negative and highly positive.

Climate Keynesianism:  Suited to the Tasks of Climate Protection and Our Economic Challenges

There is a fundamental dispute between monetarism and neoliberalism with regard to whether government can at times lead an economy.  Monetarists believe it is only private enterprise that can lead the economy while Keynesians believe in a mixture of public and private where the public sector and government can provide leadership in areas where the private economy is incapable of providing direction or delivering services.  Whatever your political preferences in the grand scheme of things, in the area of rapid response to climate change, I see no alternatives to recognizing the role of public leadership in restructuring our energy and land-use systems.

The selection of carbon pricing instrument is an important choice within climate policy but is not nearly the silver bullet that advocates imagine it to be.  An effective climate policy would yield an unparalleled rapid transformation of energy infrastructure and land use patterns the likes of which the world has never seen.  Not only has the building of infrastructure at ordinary pace depended decisively on the help of government but the addition of a rapid tempo of change as part of a plan or stimulus effort to achieve carbon neutrality will require large government investments and planning, often in consultation with private corporations, academics and the general public.

Discussions of high-level climate policy have almost always centered around the addition of the carbon price as the key to progress in cutting emissions.  This emphasis, what might be called “climate monetarism”, has overlooked the importance of existing physical infrastructure, both public and private that constrain our energy and transportation choices in ways that a price will not overcome by itself.   The major infrastructure projects required to move society within reach of carbon neutrality are a renewable energy supergrid or hypergrid, renewable energy generators that are large or internetworked, electric vehicle recharging networks, and an electrified passenger and freight transport system. Unfortunately, infrastructure projects are not often self-financing but are usually either paid for directly through tax revenue or the financing of those projects is secured using tax revenue as a guarantee.

Put another way, the transition to a zero-carbon economy cannot be easily packaged into “product-sized” units to which the appropriate prices can be attached.  Carbon prices will play a role but equally important are the physical contexts within which those products are used.  Therefore changing that physical context should pre-occupy leaders as much as or perhaps even more than assigning a carbon price.  I have no doubt that a sufficiently high carbon price, as did the run up in gas prices in the summer of 2008, will have a galvanizing effect.  However those behavioral changes will become lasting changes if there is an infrastructure to support markets for low- and zero-carbon goods and services.

Despite the costs of these recommended infrastructure projects they also confer benefits beyond their zero- or low-carbon emissions:  we are facing an epic economic crisis which requires both massive economic stimulus and economic leadership to form the basis of the 21st Century economy.  Unemployment is creeping towards levels not seen since the Great Depression and an increasing number of commentators have called for a World War II type mobilization to pull the US economy and by extension other economies out of what might become a long period of stagnation.  The stabilization of the climate would appear to be a massive project that would offer these additional economic benefits if viewed within some form of Keynesian paradigm.

Is Climate Keynesianism Quietly Doing the Heavy Lifting?

Claims are now being made by the managers of the EU-ETS cap and trade system that a “price signal” has been heard leading to a decrease in emissions in 2008.  I have dismissed this above and elsewhere as a suspect assertion given that US emissions fell by approximately the same amount due to the worldwide recession of massive proportions that by some counts started in late 2007 but picked up in 2008.   There are however some countries that also are cutting emissions quite rapidly while others are not cutting emissions much at all.  Perhaps some are feeling the “price signal” and other are not?

Even if we accept that some emissions cuts are happening intentionally within the EU-ETS, we need to ask “how?” they are happening.  What mechanisms are causing people to cut emissions?  Is it a price signal or are these government land use, energy efficiency and renewable energy programs that run independently of the EU-ETS?   If we take the case of Sweden or Denmark, we see many government programs have already been instituted in the form of carbon and energy taxes to cut the net emissions.  Some of the emissions reductions attributed to Sweden, the overachiever in the EU-ETS, are due to work that that government has done in leading initiatives to increase district heating and the use of biomass to heat and generate energy.  Furthermore, the Swedish government has been following the mandates of the 2003 EU Biofuels Directive more assiduously than other European country, which means that it now uses E85 (85% ethanol fuel) and ED95 for an increasing number of vehicle miles traveled in buses and private vehicles, much of which is imported from Brazil and Italy.  For the purposes of this analysis I want to leave aside the highly problematic nature of refined biofuels (but not waste biomass) as a source of emissions reductions.

The Danish government has also embarked on an aggressive program of decarbonizing the Danish economy by using government-sponsored programs, vehicle and fuel taxation, some of which extends back to the 1970’s.  The largely government-owned energy company DONG has been working with Better Place to create an electric vehicle charging network, in part as a means to use Vehicle to Grid (V2G) technology to balance the energy production of Denmark’s many wind turbines.  Tax policy is being reconfigured to give electric vehicles a substantial cost advantage over equivalent gasoline vehicles.

If we take a step further back, we see that Western Europe’s many governments have, since the oil shocks of the 1970’s, converged upon a response to their dependence on imported energy by taxing gasoline at a high level and paying generally high per unit energy costs for energy, encouraging a much more efficient use of energy than we find in North America.  While prior to the 1990’s this could not be considered a “climate policy”,  the Keynesian consensus in Europe’s parliaments has not led to serious political challenges of the notion that government needs to shape a “macro” energy policy that looks at longer term needs than this year’s wholesale petroleum prices.  European governments (and now governments in other parts of the world) have also decided to monetize the positive externalities of clean energy by offering guaranteed premium rates for renewable energy investors (feed-in tariffs) to enable financing of what used to be considered risky investments.  While geography and population density have something to do with it, these policies over a 30 year period have led to European economies having a relatively lower carbon intensity than the US and Canada.

For the purposes of this piece, written in relative haste, I cannot do all the research to fill out this picture but I would like to advance the following two hypotheses to stimulate research by those who are following events on the ground in the EU-ETS:

Hypothesis #1:  Emissions cuts in the last few years and the near future, controlling for external economic downturns or upturns, will be attributable to government regulations enforcement, energy tax measures, government (including the EU) programs, planning and initiatives that I am calling “climate Keynesianism” and not to cap and trade regulation, with the exception of the cap being viewed as representing a “target” or carbon pledge which reinforces these actions by leaders.  It should be fairly easy to test this hypothesis.

Hypothesis #2: A continuing trajectory of cuts downward into the future cannot be achieved without the provision of large government investments or programmatic planning and incentives to build out zero-carbon infrastructure (electrified trains, transit, electric vehicle support infrastructure, electric transmission, electricity system reform, renewable energy generation incentives)

If either of these hypotheses are true, the monocular focus on carbon pricing and in particular cap and trade may simply be window-dressing on coordinated government programs that are doing all the work.  What is getting the job done is not a carbon market but a government motivated to protect it’s people and meet its obligations to its neighbors and the world community.  The structure of reward and discussion has been on the design of carbon markets, when in the background governments have been attempting to do the heavy lifting.  Why not change the focus to look at the reality rather than strain to create the carbon monetarist utopia?

The “dressing up” of climate Keynesianism as cap and trade would do a lot more than cosmetic damage because it would undermine the prospects of the tool that does the work, an adequately funded government engineering regionally appropriate systemic solutions, to get the political support and tax revenue that it needs to do the job.

Creating a Context for Carbon Pricing

Carbon pricing is very important but it must operate within a context which is shaped in part by economic history and geography and in part by government policy.   The focus on carbon pricing and in particular the octopus of cap and trade has crowded out meaningful discussion of what needs to be done on the ground to fundamentally change our use of energy.  What I am calling “Climate Keynesianism” is one way that we can understand how we might create a context around these individual measures so they have “meaning” and therefore propulsive power to motivate changes in investor and consumer behavior.  Some of this context is supplied by government and government, like it or not, has the best shot of reshaping these contexts within which carbon prices will push us in the right direction.