Economics – Page 108 – a sibilant intake of breath

Forget targets

The big picture on climate change is one of the composition of the atmosphere and the thermodynamic balance of the planet. It is a very complex and long-term story, some of which requires considerable scientific knowledge to grasp. The basics of it come out to this:

Humans are changing the climate.
Further change is profoundly threatening for humanity.
We need to stabilize how much greenhouse gas is in the atmosphere, and do so at a safe level.
This requires fast, deep cuts.

A lot of attention has rightly focused on emission targets and timelines: where we need to be by when to achieve the kind of outcomes we want. The trouble with this debate is that it is largely artificial. Candidate X might say: “Cut to 50% below 2000 levels by 2050” and Candidate Y might say: “Cut to 65% below 2000 levels by 2050.” The difference between the two outcomes would be important for the climate. At the same time, the difference between the candidates is actually much less about the targets and much more about the means of implementing them. Candidate Y might say: “Voluntary measures, technological progress, and magical future technologies will do the job” while Candidate X might say: “We will limit total emissions from our economy to 3% below this year’s level next year. We will charge firms for the right to emit this much. We will use that money to foster a transition towards a low-carbon economy.” Needless to say, the results of each plan will differ significantly by the time you get to 2050.

The critical thing right now is to bend the path of global emissions. Rather than moving ever-upward, it needs to turn downward and start the long decline towards a low-carbon economy. Achieving that is all about immediate measures, not about emission projections that delay most of the reductions for decades. While it is certainly cheaper to cut a notional tonne of emissions ten years out, it is also the case that starting the transition will be more difficult than maintaining it. As such, it would be good to see states and political parties competing over who will cut emissions more in the immediate future, rather than across timespans during which today’s leaders will be enjoying their retirements.

Of course, the political risks of cutting emissions now are comparatively large. When it becomes evident what that will involve, it might prove expensive and politically unpopular. Protecting the welfare of present and future generations might evoke the wrath of voters during the next election. Unfortunately but honestly, no politician can be expected to show such bravery. Even so, there is an opportunity to recast the narrative. Firstly, we need to stress that this transition simply needs to occur. The alternative to acting now is simply delaying to the point where the transition will cost more and the impacts of climate change will be more severe. Secondly, this is an epic opportunity for humanity and for individual states. We can finally move beyond a post-Industrial Revolution economy based on constantly borrowing from the welfare of future generations. We can create states and a global society than run on sustainably produced climate-neutral energy.

The action required to start doing so is needed immediately. Choose someone who promises to change something by next year, and turf them out if they don’t.

Comments? Counter-arguments?

Spremberg clean coal plant

In Germany, Vattenfall is in the process of constructing a 30 megawatt (MW) ‘clean coal’ power plant. The plant will separate pure oxygen from air, burn coal in it, then ship the resulting CO2 to an injection facility 150 miles away by truck. The liquified CO2 will then be injected 3,000 metres underground in a depleted gas field.

The best thing about this project is that it will provide some real data about the feasibility and costs of carbon capture and storage (CCS). A 30 megawatt plant is a pipsqueak compared to the 500 and 1,000 MW coal facilities that are operating and planned. Nonetheless, this smaller plant should provide some useful information about timelines and cost structures. It will also establish how much of the total energy produced by the plant will be needed to produce the oxygen stream, as well as liquify, transport, and bury the CO2.

Too often, governments and industry groups blithely assert that they will sequester 10% or 20% or 50% of emissions by year X. At present, that is a bit like the Wright Brothers describing the economics of a major airline. It is only with the successful deployment of pilot plants that we will discover if ‘clean coal’ is actually a viable low-carbon source of energy or (as I suspect) a high-cost distraction from superior alternative approaches focused on renewables, efficiency, and conservation.

$700 billion ‘debt rescue plan’

In response to the subprime mortgage crisis, President Bush has called for an $700 billion bailout: buying toxic debt from the firms that now hold it. That’s about $2000 for every American citizen, being used to buy assets that may end up being worth far less than the price the government is paying.

The whole thing is disturbing for a number of reasons. There is the constant moral hazard problem that emerges when government bails out people who behave in risky ways and lose. Then there is the degree to which this will further worsen the overall economic position of the American government: already badly strained by costs associated with wars in Afghanistan and Iraq, as well as tax cuts that were never matched with reductions in spending.

If there is any justice in the world, the bonuses paid to the current and former executives who ran the financial firms at the centre of all this will be clawed back in one way or another. This whole thing started because of financial instruments that let the top tranches of the riskiest loans be sold as low-risk assets; of course, the inevitable downside of bundling the safest portions of those loans was causing the riskiest portions to accumulate elsewhere. It remains to be seen what the full and final effects of all that uber-toxic debt will be.

Visualizing the credit crunch

So far, the credit crunch has wiped 1.86 trillion dollars off the balance sheets of investment banks, commercial banks, financial services companies, asset managers, and investors.

This graphic, produced by the New York Times, visualizes the losses, showing how unevenly distributed they are. The whole thing is really quite dramatic, even for those of us with a limited interest in finance.

Price stability and energy investments

It is frequently argued that ever-rising oil prices will encourage good climatic outcomes. They make people cut back on flying and buying SUVs, and thus reduce emissions through destroyed demand. One counter-argument highlights how consistently high prices encourage the use of fuels even filthier than oil: such as coal and hydrocarbons produced from the oil sands. Arguably, uncertainty and instability actually produce the best climatic outcomes, since they leave the profitability of huge hydrocarbon investments uncertain.

This piece in The Globe and Mail argues that the recent fall in oil prices, combined with constrained access to credit due to the financial turmoil in the United States, is threatening the development of the oil sands.

Of course, uncertainty about future energy prices and restricted access to capital are also likely to hurt the development of renewable sources of power, such as concentrating solar plants in the American southwest that retain enough thermal energy overnight to produce electricity continuously. The ideal option is a predictable, ever-increasing price for carbon emissions. That would give clean sources of energy the confidence to invest, while simultaneously discouraging the development of amply available yet climatically disastrous sources of energy – at least until such a time (if ever) when effective carbon sequestration emerges.

Spore and DRM

One of the most talked about aspects of the computer game Spore is the digital rights management (DRM) software being used to prevent unauthorized copying. The SecureROM software restricts each copy to being installed on a maximum of 3 computers. Beyond that, you can call Electronic Arts and beg them to let you install it more times. Given that hardware upgrades can make your computer count as a ‘new’ one, this might happen to a lot of people.

As DRM software goes, this really isn’t that bad. It doesn’t run an annoying program in the background, like the awful Steam system that accompanied Half Life 2. It also lets you play the game without the DVD inserted.

Arguably, the key to this issue is the following: somebody is always going to crack the DRM and release pirated copies of the game without it online. As such, DRM does not stop unauthorized copying, but does inconvenience the people who actually shell out the money for the game. As such, DRM is both useless and unfair to legitimate customers. As the Sony DRM debacle demonstrates, it can also open massive security holes on the computers of those who run it.

P.S. I will write a full review of Spore once I finish it. My first impressions are quite positive. One major suggestion to anyone trying it: play a very aggressive species for the first four stages (basically winning by killing everyone). Then, start a new game at the space stage with a blank state species. If you bring your hyper-aggressive species out into the galaxy, you will spend all of your time manually defending each of your planets from attack. It is infinitely less frustrating to build an empire based on trade and teraforming, earn lots of badges, make alliances, buy some awesome weapons, and then start busting people up if desired.

UBC to join NCAA?

It seems the University of British Columbia is considering joining Division II of the National Collegiate Athletic Association, and is at least nominally soliciting advice from students and alumni about the decision. Personally, I have never seen varsity sports as an important part of what the universities do. For the most part, students who don’t care and don’t watch them are subsidizing athletes who contribute little to the overall university community. Sports programs also divert funding away from more valuable uses such as research, student scholarships and bursaries, and university infrastructure.

Ideally, UBC should make the ‘Varsity Sports Fee’ that gets imposed on every student an opt-in system. Then students who feel that the program is worth the approximately $200 per year cost of the program can choose to support it. By all means, attendance of athletic events can be restricted to those who pay the fee. Even so, I expect they would see a sharp contraction in their level of funding: relatively clear evidence that these programs are valued more by university administrators than by students. If the sports programs wanted to preserve their present level of funding, they would need to find willing donors, rather than exact a semi-hidden tax on those who often have far more pressing financial needs.

In any case, three consultations on the move are planned:

September 29, 4:00-7:00 p.m. – Liu Centre, Multi-purpose Room, 6476 North West Marine Drive
October 14, 6:00-9:00 p.m. – Ponderosa Centre, Arbutus Room, 2071 West Mall
October 15, 4:00-7:00 p.m. – Ponderosa Centre, Arbutus Room, 2071 West Mall

Those in Vancouver may wish to consider attending.

Two American cap-and-trade plans

While both John McCain and Barack Obama have endorsed a national cap-and-trade system as the centerpiece of their climate policies, the two proposals differ on several highly important grounds. The most important by far is the mechanism of permit allocation. Under the McCain system, permits to emit carbon would be granted for free to those with existing records of emissions; under the Obama system, all those wishing to emit will be required to buy permits at auction. The practical differences between the approaches are massive. Under the auction system, those who wish to pollute are made to pay. Under the free allocation system, those who have polluted in the past are granted valuable credits that they can either use to pollute or sell for cash.

As described before, consumers experience price rises in either scenario. What differs is where the windfall accrues. Under an auctioning system, it ends up in the hands of government, which can use it to fund low-carbon investments or refund it to the population as a hole (as in a cap-and-dividend system). Under a free allocation system, it simply goes into the coffers of the biggest polluters.

Even with a Democratically-controlled Congress and Senate, getting a plan based on 100% auctioning approved would be very challenging. Democrats from areas where extractive industries and automobile manufacture are economically important and politically powerful will resist policies that will be costly to dirty industries. That being said, it is arguably wiser to start with a policy position that is stronger than can probably be enacted and then compromise, rather than starting with a position that is weaker than necessary to get the job done.

Replacing the keyboard on a G4 iBook

Back in April, I managed to spill coffee on the keyboard of my 14″ iBook, disabling a number of keys. Now, I have managed to return it to functionality for less cost than anticipated.

The authorized Apple repair places in Ottawa wanted $45 just to diagnose the problem – specifically, to determine if the failure lay in the keyboard itself or the logic board it connects to. Replacing the keyboard would then cost extra for parts and labour. Replacing the logic board would be quite a significant expense, largely because the machine would have to be seriously taken apart.

Instead of taking it into a shop, I bought a replacement keyboard on eBay for about $30. Had it been a logic board issue, I would have diagnosed it myself for a lesser cost, which could have been further reduced by re-selling the replacement keyboard. As it happens, the new keyboard works fine. The process of installing it is pretty straightforward:

Shut down computer. Remove power cord and battery.
Lift plastic tabs at the top of the keyboard so it can swing upward towards you. Lay the partially removed keyboard flat across the area with the touchpad.
Ground yourself by touching something metal, to prevent static shock to the components.
If present, remove the AirPort card by gently pulling it towards the screen. Gently remove the plug connecting it to the motherboard.
Use a tiny screwdriver to remove the four tiny screws holding down the aluminum plate under the space where an AirPort card goes.
Lift off that plate.
Pull the keyboard connector out of the motherboard. In my experience, it takes a moderate amount of force to make it disconnect.
Position the new keyboard where the old one was, lying keys-down on the trackpad area.
Plug the new keyboard into the logic board, as before.
Replace the aluminum plate. Replace the four screws.
If present, replace the AirPort card by plugging the connector into it, then clicking it back where it was previously.
Place the keyboard back in its normal position, allowing the tabs to click it into place.

I am always suspicious that stuff I buy on eBay is counterfeit. This keyboard certainly looks identical to the old one. I am less sure about the sounds and feeling of the keys, but that may just be because I had grown used to how an old keyboard feels, followed by the feeling of Apple’s nice new aluminum external keyboards.

The replacement keyboard is definitely squeakier than would be ideal (particularly in terms of the spacebar). Hopefully, it will mellow with use.

True North American free trade

Amazon.com is superior to Amazon.ca in several ways. Firstly, it has a much broader selection. Secondly, it has some special features, like the Amazon Prime subscription that gives you unlimited shipping for $79 a year. The process of ordering things from Amazon.com, having them sent to places in the US, and then having them relayed to me has left me wondering what the effect of a true North American Free Trade Agreement would be.

In the simplest form, it would work like this:

Anyone in Canada, the United States, and Mexico can purchase anything sold by any company in any of the three countries.
The item can be shipped directly to them, and they will not be charged any customs fees, duties, or other border-related charges.
Some simple system is sorted out for sales taxes. It could be (a) you pay the tax of your local jurisdiction, which may send part of the revenue to the sending jurisdiction (b) you pay the tax of the sending jurisdiction or (c) you don’t pay sales tax.

Such an arrangement would obviously be beneficial for consumers. They would be able to buy from whatever physical or web-based store offered them the best arrangement. It’s less clear what the effect on businesses would be. Those that benefit from having consumers who are more likely to buy from a firm in their own country would get hurt, at least temporarily. Those that would be more attractive to outside consumers in the absence of duty fees would likewise benefit in the near-term. In the near term, this alternative approach should produce net economic benefits. While some actors would lose the benefits of a captive market (like drink sellers at concerts), the larger market would be more efficient overall.

In the longer term, there would be effects on firm consolidation, tax revenues, currency values, and macroeconomic conditions. Both from the perspective of what would benefit readers personally and from the perspective of what would be best for society overall, would readers prefer (a) for the current system to continue (b) having the current system replaced with one akin to the one above or (c) getting rid of North American free trade entirely?