Economics – Page 113 – a sibilant intake of breath

Dyed panels for concentrating solar

A team from MIT may have developed a cost-effective solar collector system for buildings. It consists of panes of glass coated with particular dyes. Each pane collects light in a specific range of wavelengths and delivers it to a relatively small area of solar cells. As such, the technology would replace some relatively expensive photovoltaic components with cheaper glass ones. It would also do away with the need for moving sun-tracking mirrors.

As with many human innovations, there is a natural precedent. Photosynthetic pigments in chloroplasts help to capture the light used in photosynthesis. They too differ in colour depending on the peak wavelength being targeted, thus explaining why you can have your algae in red, brown, yellow-green, etc.

Demand and quantity demanded

One minor point: a lot of news coverage about energy economics confuses demand with quantity demanded. Demand is a function describing how much of a particular thing (say, oil) will be purchased at different prices. Because the quantity doesn’t change all that much when the price does, at least in the short term, this line is fairly steep when viewed on a graph using the y-axis to denote price and the x-axis to denote quantity. Quantity demanded, by contrast, is just one point on that line. At price X, people demand quantity Y. At price 2X, they demand a different quantity, based on the shape of the demand curve.

The most common error you see is statements like: “With prices at $4 a gallon, demand for gasoline has fallen” (it is the quantity demanded that has changed, in response to the change in price). An appropriate use of the term might be: “With the creation of an improved public transport system, demand for gasoline in Vancouver has fallen.” In the latter example, people demand a lower quantity of gasoline at all price levels, since a substitute for driving has become more appealing than before. In the transit example, the entire demand curve has shifted.

A more extensive explanation is available at Environmental Economics.

Green buildings and labour productivity

In an interview with the McKinsey Quarterly, Amory Lovins makes an excellent point about energy efficiency and building design:

Moreover, seldom-counted side benefits can be far more valuable than the direct savings. For instance, a typical office pays about 160 times as much for people as for energy, so a 0.6 percent gain in labor productivity would have the same bottom-line effect as eliminating the energy bill. But we routinely see not a 0.6 but a 6 to 16 percent gain in labor productivity in efficient buildings with better thermal, visual, and acoustic comfort. When people can see what they’re doing, hear themselves think, breathe cleaner air, and feel more comfortable, they do more and better work. We also see 40 percent higher retail sales in well day-lit stores, 20-odd percent faster learning in well day-lit schools, and better clinical outcomes in green and efficient hospitals. These often overlooked side benefits are frequently worth tens or hundreds of times more than the actual reduction in energy costs.

For instance, a famous aerospace building designed for day lighting gave a far faster payback than expected, because it spurred 15 percent higher productivity and 15 percent less absenteeism. The higher productivity and reduced overhead of the green building gave the company a competitive advantage in a tough contract bid. Winning that contract generated enough profit to pay for the whole building. When the Wall Street Journal was writing its third article about the building, the Journal’s reporter called me and said, “They’ve clammed up. I can’t get any data. Can you find out what’s going on?” Well, the CEO had realized that the building was an important source of competitive advantage and that they’d already said way too much about it.

In order to encourage the efficiency investments required to fight climate change, it will be important to quantify and value these kinds of co-benefits, as well as focus on developing and deploying designs that enhance them.

This is a situation where it is possible to deploy the opposite of a hair shirt environmental solution: create something that is both more sustainable and more comfortable and economically desirable. It just takes creativity, joined up thinking, and a willingness to consider at least the medium term when investing.

Carbon pricing: solo or combined?

The basic idea of putting a price on carbon is this: whenever you undertake an activity that results in the release of carbon dioxide (or another greenhouse gas with a similar effect), you are imposing costs on those who will suffer from global warming. Since people in other states and future generations are paying most of the cost, the emitter does not properly take it into account. The cost is ‘external’ to that person’s decision about how to behave. Making the cost ‘internal’ requires imposing a tax that increases the cost of the behaviour for the person undertaking it.

Actual carbon pricing schemes (whether tax based or cap-and-trade based) also need to choose between an approach based purely on internalizing the cost of carbon and one that also seeks to advance other goals. One motivation for the second option is political; it can be used to defuse opposition to carbon pricing within groups that are politically influential. Another motivation is the ethical notion that different people should pay more or less the same amount to combat climate change. Another motivation is the pure redistributive preference that exists within some political views and ideologies.

In the end, I don’t think any of these arguments is terribly strong. It makes sense to charge more to those who pollute more. Not only is that a matter of fairness, it is a matter of prudence. Knowing that the group is going to split the bill in a way that renders shares more even, a selfish diner will consume an above-average amount, counting on those who consume a lesser quantity to subsidize him. A revenue neutral carbon tax achieves the opposite: with heavy polluters paying dividends to those who are more restrained. Granting special treatment to politically influential groups also risks reducing the effectiveness of the carbon pricing scheme, partly because it becomes more worthwhile to try to game the political system, rather than cut emissions.

A carbon price should be a mechanism through which socially optimal behaviour is encouraged and the transition to a low-carbon society is advanced. It does things best when it is not also a vehicle for income redistribution on the basis of facts not relating to carbon, such as employment sector, family status, or income. Those things can best be addressed through other areas of taxation and policy, leaving carbon pricing focused on the achievement of environmental outcomes.

‘Hair shirt’ environmentalism

In environmental discussions, I frequently see people deriding ‘hair shirt’ environmentalism: basically, the idea that a sustainable society should involve self-sacrifice. There are libertarian sorts who assert their right to live as they wish, without interference. There are also strategic environmentalists who believe that (a) personal sacrifice is not strictly necessary and (b) only approaches that do not call for it will succeed on a societal level.

In order to get into the analysis of this a bit, I think it makes sense to separate three basic ‘hair shirt’ positions. Each holds that it is either necessary or desirable to cut down on some collection of conveniences:

Conserve or we’re doomed

The people of Easter Island didn’t stop their wars and stone head making because they were guilted into it by hippie sorts. They stopped because their ability to sustain a society failed. Conceivably, this could happen at the level of a contemporary state, a region, or the global society.

This viewpoint includes those who think runaway climate change is a major concern, either because it is likely or because the sheer destructiveness it would bring justifies extensive precaution even in the face of a low chance of occurrence. It also includes those who think that when oil runs out we will (a) be unable to locate adequate replacement forms of energy and (b) that this will make civilization impossible to sustain.

Harm Principle advocates

These people argue that libertarians are wrong to assert that one person’s choice to fly or drive is not the business of others. In particular, there is the welfare of those alive now who are vulnerable to climate change (especially in the Arctic, in megadelta, and in small island states). There is also the matter of future generations, and the argument that it is morally wrong to pass a damaged and diminished world on to them.

For these people, it is fine to keep consuming as much energy and as many goods as desired, provided the mechanisms through which they are produced, used, and ultimately disposed of do not cause morally unacceptable harm to others. Naturally, questions about what types and levels of harm are permissible are contested.

Moral minimalists

This group argues that living a simple life is a virtue unto itself. It is split between those who simply choose to adopt such a life themselves and those who argue that others should or must do likewise. In that sense, they are a bit like vegetarians; some try to convert people willingly, others assert that there is a universal moral requirement to be vegetarian, and some are happy to let others do as they wish.

I don’t think any of the views is entirely correct or entirely incorrect.

I do believe that there are ongoing societal behaviours that run a strong risk of undermining the material basis for society, over the long term. Most critical by far is climate change. Runaway climate change would almost certainly mean the end of human civilization. Avoiding that is both prudent and a strong moral requirement. That being said, it is hard to estimate how the climate will respond to a particular collection of forcings – especially when there are tipping points to consider. It is also hard to predict what future generations will be able to do. It is possible that the end of oil will be a global disaster; it is also possible that the transition to renewable sources of energy will be relatively unproblematic.

I also believe that there are many things people in the rich world do as a matter of course that cause unacceptable harm to those alive today and those who will live. I think this is a strong moral basis for requiring behavioural change, including potentially painful changes like restricting air travel and curtailing harmful forms of agriculture.

The moral minimalists have the weakest case, when it comes to asserting the universal validity of their ideas. That being said, they draw attention to the ways in which changes in societal expectations can have big ecological effects. Think of the way in which the ill treatment of whales and primates has come to be rejected by most people. Similarly, note how nasty bogs to be cleared away have become pristine wetlands to conserve – in people’s imaginations, at least, if not in relation to their behaviour. Changes in the general worldview of a society can certainly affect sustainability: both for good and for ill.

In any case, I don’t think it is legitimate to reject the possibility that ‘hair shirt’ actions will be necessary, either on the basis of individual liberty, non-necessity, or political strategy. The strategy point I will debunk more thoroughly another time. For now, it suffices to say that telling people the transition will be relatively painless leaves you in an awkward position if it transpires that deeper (and less voluntary) changes are required.

B.C. Climate Action Dividend

Since I filed my 2006 taxes in British Columbia, I was eligable for the $100 Climate Action Dividend that accompanies their new carbon tax. It was an unexpected thing to receive, since I have been a legal resident of Ontario for almost a year, but welcome nonetheless.

The question is: how could I spend $100 in a way that would yield the most climatic benefits?

Transport: I don’t drive and am trying to avoid flying to the greatest possible extent. Within the Ottawa-Montreal-Toronto area, I travel by bus, train, and bicycle almost exclusively. There don’t seem to be too many opportunities here.
Home: I have been replacing light bulbs with compact fluorescents as they burn out, but could take the plunge and replace them all at once. The oil furnace and poor insulation in my flat are big problems, but they are the property of my landlord and cannot be meaningfully improved for $100 anyhow. I suppose I could offer to contribute towards an efficiency improvement of some kind.
Food: I am already a vegetarian, but spending the $100 on local organic produce would probably have some small carbon impact. That said, it is possible that the net carbon impacts of local food in this area are actually greater than those for some imported choices. Food calculations are very tricky.
Carbon offsets: For C$100, I can buy about 8.3 tonnes worth of offsets from Native Energy. They offer methane capture offsets, which are much more credible than forestry offsets, but there will always be questions about whether the gasses were captured specifically because of your payment, or whether the capture would have happened anyhow.
Donations: I could give some or all of the money to a political or non-governmental group that is having a positive impact on climate policy.
Books: While buying books about climate change science and policy will not directly lower my emissions, they may help put me in a better position to help aid the transition to a low-carbon society.

Do people have any other ideas?

Contesting city streets

At present, I am reading a book about how the ‘motor city’ emerged as the dominant North American standard. It is quite interesting, really. The fact that automobile promoters played a role in the demise of streetcars is well known. What seems to be less well known is how the very idea of urban streets was contested and ultimately redefined in the period between 1920 and 1930. At the beginning of that span, automobiles were seem as a deadly and dangerous new element in street life: particularly effective at killing children. Now, thanks to school safety campaigns devised during the transformative period, automobiles are recognized as the road-going default: the normal thing to find on urban streets.

Only 20% into the book, I cannot comment on it comprehensively. Still, I have the sense that the next such conflict may be between fossil fuel automobiles and greener options – particularly cyclists and transit.

Our personal experiences often leave us incapable of glimpsing the assumptions that underlie the way we live. Good historical writing gives one a sense of how things were seen before. So far, this book has been accomplishing that task well.

Artificial geothermal sites

Geothermal energy has generally been seen as limited to areas lucky enough to have hot water bubbling to the surface. Iceland, for instance, manages to produce about 19% of its electricity and about 90% of the heat for homes from geothermal sources (though they also manage to have higher per capita emissions than France or Spain). The Philippines manages to generate 25% of its energy from geothermal sources. One intriguing suggestion to broader the applicability is to create by design what plate tectonics has sometimes produce by chance. The idea is to drill two shafts into hot dry rock, pump cool water down one, and exploit the hot and high-pressure water coming up from the other. If successful, such techniques could make geothermal energy dramatically more widely available. One estimate holds that 100 gigawatts worth of engineered geothermal could be created in the United States by 2050, at a ‘commercially acceptable price.’

There are problems, of course. Our drilling expertise mostly relates to porous oil-bearing rocks: not the more solid sorts that would be between the shafts. There are also concerns that building artificial geothermal sites will destabilize the surrounding land. A project in Switzerland apparently caused a small earthquake back in 2006.

Hopefully, the technology will prove viable in some areas. The more renewable power options we have, the less we need fossil-fuel powered plants to balance the grid. Furthermore, the more different types of renewable energy are in use, the more resilient the system is to climatic changes and other shocks.

Carbon taxes abounding

This month, the British Columbian carbon tax came into force. The tax is starting off at $10 per tonne, rising to $30 in 2012. The tax will be revenue neutral: with extra costs associated with greenhouse gas emissions being balanced overall by reductions in personal and corporate taxes. The approach seems well designed and economically sound, as well as likely to help B.C. move towards a sustainable low-carbon economy. It is quite a pity, therefore, that the provincial New Democratic Party has taken such a wrong-headed and opportunistic stance on the thing. Surely they must realize that their overall agenda of helping the poor and marginalized can only be accomplished alongside effective climate change mitigation action. It is the poor who have the least capability to adapt: to the effects of climate change, to harsher carbon pricing policies later, and to the ever-increasing prices of fossil fuels. As such, setting incentives early is an important mechanism for smoothing the transition.

At the same time as B.C. is moving forward, other jurisdictions are consolidating past actions. Norway is toughening the carbon tax they have had in place since 1991. Unfortunately, a fuel-price-induced backlash seems to be rising there too. If gasoline taxation continues to be the biggest public opinion stumbling block to carbon pricing, perhaps those who argue for its exclusion are correct. It is better to start the bulk of society on a low-carbon transition, leaving some sectors behind, than to have the whole project kept in limbo due to objections arising from short-term thinking.

While not a tax on carbon, it is interesting to note that American police departments are even imposing fuel surcharges on traffic tickets. The policy is prompted by high oil prices, rather than environmental concern, but it is an illustration of the ways in which fuel costs, economic activity, and government fiscal policy interact.

EU taxing aviation carbon

The European Union has agreed to start integrating air travel into its emissions trading system. This is a big step, given how the industry has often been excluded from carbon pricing schemes – especially where international travel is involved.

Arguably, the biggest piece of news is that they want to charge non-EU carriers for emission permits when they enter EU countries. This is certainly going to kick up a stink in the WTO and other multilateral trading bodies. That being said, if a global regime of carbon pricing is not to be forthcoming, the regional arrangements will need mechanisms for ensuring that imports meet their standards.

Hashing out how such standards can be applied is sure to be a difficult and extended affair.