Economics – Page 111 – a sibilant intake of breath

McKinsey ranks mitigation technologies

In the past, I have mentioned both marginal abatement cost curves for greenhouse gasses (curves that describe the cost of eliminating each successive tonne of greenhouse gas) and the economic analyses done by McKinsey. Recently, a friend reminded me of an informative graphic from one of their reports:

The whole report is available online. All the options listed on the left hand side, below the horizontal line, are actually projected to save money as well as reduce greenhouse emissions. Those to the right are progressively more expensive, up to about 50 Euros a tonne.

The graphic is quite interesting because it shows a ranking of the cost at which different technologies can achieve emission reductions. It’s also interesting that they projected how many technologies need to be implemented – and to what degree – to achieve stabilization of greenhouse gas levels at 550, 450, and 400 parts per million of CO2 equivalent.

Put on a graphic like this, it all looks very achievable.

Shifting baselines, oil and ice

One of the more interesting environmental blogs I read is Shifting Baselines: a fisheries focused site that concentrates on how our changing expectations about life in the sea conceal from us the gradual emergence of long-term changes. A couple of other shifting baselines have caught my attention recently. They have to do with the long term trends of Arctic sea ice depletion and increasing oil scarcity. In both cases, exceptional shifts in the recent past have given way to what look like temporary reprieves.

Last summer’s Arctic sea ice minimum was a major record-breaker. It sparked serious thinking about whether the Arctic summer could be ice-free within a decade. This summer’s melt now seems likely to be less severe. Does this mean our level of worry should diminish, or is this simply oscillation around a worrying downward trend? It certainly gives ammunition to those who would like to deny that there is a trend at all. In the long run, it probably doesn’t matter enormously whether the Arctic melts in ten years or thirty. Where it may matter considerably is insofar as awareness of Arctic melting either prompts the emergence of strong climatic policies or provides fodder for those who want to continue to delay.

The same might be said about the recent slip in the price of gasoline. That being said, the nature of the causal factors at work there seems more straightforward. Prices do not seem to be falling because supply constraints have been lifted. Rather, they are falling because people are cutting back on usage: both as a result of general economic weakness and as a result of high energy prices themselves. High gasoline prices are something of a double-edged sword for environmentalists. On the one hand, they do help to encourage investments in efficiency. On the other, they encourage the development of truly filthy alternative sources of fuel (like the oil sands), encourage the development of false solutions (like corn ethanol), as well as making it more challenging politically to support sound environmental policies.

Whether it is ice or energy under consideration, the general lesson of shifting baselines is pertinent. We need to see past short term trends and our focus on how the recent past and the present compare, looking onwards to fundamental forces and long-term developments. Of course, when it comes to systems as massive and complex as the global climatic and economic systems, doing so is enormously difficult.

Human Health in a Changing Climate

Health Canada has followed up the climate change impact assessment carried out by Natural Resources Canada with a report of their own: Human Health in a Changing Climate: A Canadian Assessment of Vulnerabilities and Adaptive Capacity. For some bizarre reason, they have decided not to post it on their website. Rather, it is available through email upon request. To simplify matters, here it is:

When I have the chance, I will merge them all into one file and post it.

[Update: 19 August 2008] Here is the whole thing as one 9 megabyte PDF: Human Health in a Changing Climate: A Canadian Assessment of Vulnerabilities and Adaptive Capacity.

[Update: 1 January 2012] Here is just the overview page as an image file.

Manifestos on the Future of Food & Seed

This collection of essays, edited by Vandana Shiva, varies considerably in tone and degree of novelty. The manifestos themselves seem ham-fisted and loaded with unsupported assertions. It is not that no convincing case can be made for many of the arguments raised; rather, the authors simply choose not to do so. It is an approach that will win them few converts. In general, the book contains a number of positions towards which I am sympathetic: that patents on living things are highly dubious, that the present food system is unsustainable, that the agricultural policies of most states are inappropriate and often immoral. It simply manages to convey most of these points in a shrill and off-putting manner: the kind of voice that makes you take an opposing stand almost by reflex.

Most of the authors seem to profoundly misunderstand the nature of the global trade system. As with so many other blanket anti-globalization activists, they seem to think the WTO is some kind of wicked and powerful entity, enforcing its will against states. It is more accurate to say that it is an imperfect vehicle for trying to create some trade rules formulated on something other than economic and geopolitical power. It is a goal rarely achieved – how could it be? – but a worthy one nonetheless. Similarly, the WTO does not impose outside restrictions on the kind of food safety laws states can adopt. It simply requires that the same standard be applied to domestic producers as importers. You cannot reject beef produced using recombinant bovine growth hormone abroad while allowing domestic industrial agribusinesses to use the same substance. Naturally, if you are big and economically powerful, you can more or less do as you like (witness WTO rulings against American maize subsidies, for instance).

The book also seems to be a bit short of real content where genetically modified organisms and antibiotic resistance are concerned. Both naturally raise important questions of health, safety, and ethics. The nuances of the discussion, however, are poorly served by a book that asserts that the Green Revolution was actually harmful to the world’s poor. Genetically modified organisms could certainly produce adverse outcomes. At the same time, they might be able to help us reduce our dependence on toxic pesticides, reduce the carbon emissions associated with shipping and refrigeration, and deal with the consequences of climate change. Similarly, while there is much to lament about current global trade practices, the kind of protectionism advocated by most of the authors is unlikely to help either the poor or the sustainability of agriculture. What is necessary is that the total social and environmental costs of economic activities be borne by the relevant parties: not that food is grown in a particular place, domestic producers receive preferential treatment, or that the world re-fragments into disparate economies.

While the book doesn’t really make it, there is an excellent case for a global transition to new forms of agriculture. Important elements include replacing vulnerable monocultures with resilient polycultures, sharply restricting the use of antibiotics, reducing the intensity of fossil fuel use, and otherwise taking into account the many social and environmental costs of agriculture that are ignored when it is undertaken in an industrial manner. There is likewise a very strong case to be made about reforming the global intellectual property regime. It is extremely dubious to be able to patent a gene that you have moved from one creature to another. It is similarly dubious to sell seeds on a ‘licensed’ basis, where they can only be legally used for one crop.

In the end, it is hard to see who this book is for. It doesn’t contain enough substantive argumentation to convert anyone – though there is one good essay written by a local foods grocer, railing against both Walmart and Whole Foods. It likewise does not contain a viable plan for changing the nature of the global food system. Here, Michael Pollan seems to adopt the most reasonable position: accepting the popularization of organic and local food as progress, while others angrily reject them as insufficient. A book that helped to enlarge that beachhead, while providing some strategic direction towards a genuinely sustainable global food system, would have a lot more value than this short, flawed text.

Debt and responsibility

An article in the New York Times draws further attention to the indebtedness of American consumers: focusing on the degree to which debt is harming the lives of individuals, as well as how the lending practices of firms encourage people to take on more than they can handle. While there is certainly a key regulatory role in preventing fraud and misleading advertising, it is less clear to me that the major fault here lies with companies. As a shareholder in a mortgage company, I might be annoyed that it had chosen to lend to people unable to make the necessary payments. As a member of the general public, it is less clear why I should be excessively concerned – nor why I should have excessive sympathy for those who choose to live beyond their means.

Financial conservatism – the deliberate choice to live below your means and set something aside for the future – is a mindset that is certainly at odds with consumer culture. That being said, it seems sensible for the onus to be on the individual to learn restraint, not for the system to change so that it is no longer required. The lesson that needs to be absorbed is that borrowing is generally only justified in order to invest or to smooth our financial fluctuations. Using it as an unsustainable mechanism for consumption spending will always be a bad choice, no matter what rules various lending organizations adhere to.

Yes, there are unexpected situations that arise and unfairly tax the finances of some individuals. This is one reason for which insurance needs to be equitable and widely available. At the same time, people who have chosen to drive themselves into debt with cars, houses, and consumer products they cannot afford cannot be held entirely innocent when a further financial shock overwhelms their short-term ability to cope financially. That may been like an unsympathetic judgment, but it seems like the only view that incorporates the right incentives.

Another NYT article discusses the compassion versus personal responsibility debate directly.

Product idea: guaranteed win lottery tickets

While thinking idly about ways to tactfully pass money to people, I had an idea. A company could sell lottery tickets (probably of the scratch-and-win sort) that are guaranteed to pay out specific amounts. You would buy them for the face value plus a service fee. They could be issued in denominations running from $10 or so up to thousands.

They would look like ordinary tickets, and could be redeemed at places that sell scratch-and-win tickets. The merchant would simply be compensated by the company. Even better, the company could buy guaranteed winner tickets from the normal ticket issuers. That way, they would be available in the same brands as tickets sold in normal shops, diminishing suspicion and allowing buyers to choose something suitable for the recipient.

This could be:

A way to help a struggling friend of family member without making them feel guilty.
A way to convince someone feeling down on their luck that things are turning around.
Practical jokes of various sorts.
Less benevolently, as a semi-covert means of exchanging money.

Could there be any other uses? Would people actually buy such a thing? Would lottery regulators ever permit them?

Scarce resource conservation optimization

There is a catch-22 involved in some forms of resource planning. Take, for example, helium (as discussed recently). As of now, we only know of one place from which to get it – certain natural gas deposits. We have no idea where, or if, it might be found elsewhere.

One perspective is to say: “For all we know, this is all the helium we will ever be able to access on Earth. We should avoid excessive (airships) and frivolous (party balloons) uses, and save the stuff for cooling sophisticated electronic equipment and so forth.” One could add to this: “If we ever come across a big new source, or an unlimited source, we can reevaluate the prohibition.”

The trouble here is the reduced incentive to find new supplies. There have surely been countless historical cases where scarcity has generated rising prices which has in turn (a) led to the discovery of new sources of raw material (b) led to new techniques of production and (c) led to less intensive patterns of usage. The conservation mindset could impede these. Our solution may be akin to a policeman adrift on a lifeboat with a highly trained and valuable bloodhound. Every day, he is presented with a choice to either use the dog now as a collection of calories, or save it for a more valuable use in a future that may never come. Of course, the situation with any particular resource is far more complex. Our present needs are less acute and singular, the uses of the thing are broader, and our opportunities for near-term and (likely) long-term substitution are usually higher.

At issue are factors including (1) the most critical use of the resource (2) the probability of a, b, or c taking place over any time period (3) the urgency of the present uses, etc. A rational calculation taking into account all these factors (and necessarily making educated guesses about future trends) is a daunting prospect. To what extent does the usefulness of helium in medical imaging affect how we should manage supplies? Will we soon develop technologies that require more or less of the stuff? Is there any entity that is actually capable of managing helium use?

Of course, such choices are rarely made explicitly. Typically, nobody has the power to control the allocation of a global resource. As such, they are used up heedlessly in response to the economic imperatives of the moment- ignoring the fact that the same material might have a far more valuable purpose down the road.

Green bonds in Canada

Emily Paddon, one of my friends and classmates from Oxford, is involved in a scheme to create green bonds in Canada. The initiative, which is part of the Action Canada Fellowship, aims to create a “government-backed financial instrument designed to engage the public by raising capital to accelerate renewable energy production.” The aim is to eliminate more than 25 million tonnes of carbon dioxide equivalent by 2020, at a cost of between $1 and $13 per tonne.

Innovative financing mechanisms will be a very important part of the transition to a low carbon economy. It will be interesting to see when the full details of this become available, and even more interesting when the bonds are available for purchase. Those aiming to both save for the future and help to save the future should take note.

Consider helium conservation

All the helium on Earth arose from natural fission of uranium and thorium in the planet’s crust and mantle. We can access it only through certain natural gas deposits – many of them in Texas – which contain enough of the gas to make it possible to isolate. This is the helium of every high-voiced balloon prank, as well as of every MRI scanner and high temperature superconductor. About 1/4 of helium use is in cryogenic applications. Helium is ideal for such purposes, as it has the lowest boiling point of any known element.

What is not commonly appreciated is that, once these particular gas reserves are depleted, we will know of nowhere from which to get helium. Whatever helium is released into the atmosphere gradually rises through it, eventually drifting into interplanetary space. Despite all the helium being released by human beings, atmospheric concentrations have remained constant at around 5.2 parts per million.

We can produce minute quantities of helium through hydrogen fusion, of the kind that will eventually take place in the International Thermonuclear Experimental Reactor, but it will not be even close to the quantity that will be required to cool the superconducting magnets that will keep the plasma inside that device contained.

It would be particularly ironic if a long-hoped-for source of renewable energy (nuclear fusion) proved impractical not because of issues associated with energy levels of plasma containment, but because we had squandered the planet’s accessible supplies of coolant.

Al Gore’s solutions

Al Gore recently gave a highly interesting speech on the future of energy in the United States. None of the points made in it are especially new, but he does a good job of tying together a great many important themes.

Here are some key points:

Because of climate change, “the future of human civilization is at stake.”
“[T]here is now a 75 percent chance that within five years the entire [Arctic] ice cap will completely disappear during the summer months. This will further increase the melting pressure on Greenland.”
“We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroy the planet. Every bit of that’s got to change… The answer is to end our reliance on carbon-based fuels.”
Solar, wind, and geothermal are large and critical future energy sources.
“I challenge our nation to commit to producing 100 percent of our electricity from renewable energy and truly clean carbon-free sources within 10 years.”
“[S]harp cost reductions now beginning to take place in solar, wind, and geothermal power — coupled with the recent dramatic price increases for oil and coal — have radically changed the economics of energy.”
The national grid must be updated to link areas rich in renewable energy to areas with high energy demand.
Plug-in electric cars will play an important role in balancing the load on the electrical grid.
“[W]e need to greatly improve our commitment to efficiency and conservation. That’s the best investment we can make.”
“I have long supported a sharp reduction in payroll taxes with the difference made up in CO2 taxes. We should tax what we burn, not what we earn.”
“[I]t is also essential that the United States rejoin the global community and lead efforts to secure an international treaty at Copenhagen in December of next year that includes a cap on CO2 emissions.”
“[W]e must move first, because that is the key to getting others to follow; and because moving first is in our own national interest.”

The 100% target is probably not going to happen – it would require scrapping every coal, gas, and oil power plant – but it is a worthwhile aspiration nonetheless. Even getting a significant portion of the way towards that goal in the timeframe mentioned would be a huge advance.

It would be very interesting to see what role he would personally play in advancing this sort of agenda within an Obama administration. An administration that made a determined effort to implement this sort of agenda would be transformative, and could do a great deal to spur global transformation.