Economics – Page 119 – a sibilant intake of breath

Some carbon capture similes

The media is full of talk about carbon capture and storage (CCS). At the same time, there are only four facilities in the world where it is done. None of them resemble a conventional coal-fired power plant.

As a result, our cost projections for the technology are far more speculative than is commonly acknowledged. It is like we are in the era of the Wright Brothers, and we are trying to sort out the economics of running a major airline.

As I have said before, we had better hope that CCS works, if only because so many different climate change mitigation plans depend on it. At the same time, we really need to acknowledge that there is some chance that it simply will not work, and we will need to find those megatonnes of reduction somewhere else.

That uncertainty also pertains to questions about building more coal power plants. Building them today – with the hope that CCS will eventually become available – is highly irresponsible. It might be compared to jumping out of a plane and hoping you can sew yourself a parachute before you hit the ground.

Mintz on carbon taxes

Jack Mintz, who is apparently one of Canada’s leading economists, came out in support of a carbon tax today. Specifically, he suggested that federal taxes on gasoline be expanded to include the taxation of other carbon-generating fuels. This sort of upstream tax on fuels can complement a cap-and-trade regulatory scheme for large emitters by covering sectors of the economy too small to be efficiently addressed through the latter approach. Mintz does not have a reputation as a green champion, making his endorsement all the more suggestive of a general trend towards accepting carbon taxes as one good approach for addressing the massive problem of climate change.

Whereas the carbon tax recently created in British Columbia begins with prices of $10 a tonne, eventually rising to $30, Mintz proposes a federal tax of about $42 a tonne. One of the major issues raised concerns inter-provincial transfers from high emission provinces like Alberta and Ontario to lower emitting provinces like Quebec. That being said, there are many ways in which carbon taxes can be designed. They can be set up so as to not increase the overall tax burden, on account of taxes being reduced elsewhere. They can also be designed so that revenues collected in one province must also be recycled or invested there.

With luck, people will start to realize the opportunities inherent in replacing conventional taxes with carbon taxes. Doing so will offer a strong financial incentive to invest in greater efficiency, cleaner fuels, and more sustainable practices generally.

Hell and High Water

Joseph Romm’s Hell and High Water: Global Warming – the Solution and the Politics – and What We Should Do might be fairly described as an American version of George Monbiot’s Heat. It describes much less intrusive means for responding to the threat of climate change, as well as being more tailored to American politics. It is also less ambitious that Monbiot’s work, since it aims at the stabilization of atmospheric concentrations of greenhouse gasses (GHGs) below 550 parts per million (ppm) rather than 450.

The book is basically divided into two sections: one of which describes the nature and extent of the threat posed by climate change and one talking about solutions. The book is very explicitly focused on what climate change will do to Americans. Romm argues that too much coverage has focused on effects in poor countries, leading Americans to think the impact of climate change on their lives will be minimal.

Romm talks a great deal about how groups opposed to GHG regulation have created and funded a group of irresponsible ‘experts’ trying to convince the general public that major disagreement still exists about the reality and probable impact of climate change. He is very critical of the media, particularly for giving equal attention to the conclusions of a few oil-funded crackpots, compared with those of the enormous majority of scientists and all major scientific assessments.

I have some quibbles with some of Romm’s technological recommendations. I think he is a bit overconfident about the rapidity with which carbon capture and storage and cellulosic ethanol might be deployed. That said, the vast majority of what he says is correct, well defended, and similar to the thinking of others who have considered the questions seriously.

One notable omission from the book is emissions associated with air travel. At no point are they mentioned, either as a problem or an area where policy could yield improvements. As Monbiot effectively highlights, emissions from air travel are among the toughest to address, not least because lots of well-off people who consider themselves environmentalists and support good environmental policies nonetheless want to be able to jet off to South Africa or New Zealand.

Overall, Romm’s book is informative and accessible. He does a good job of bringing the issue home for Americans – de-emphasizing issues like the preservation of nature and international fairness – and emphasizing why they, personally, should be worried. Certainly, the kind of climatic impacts projected by the IPCC for 2030 or so are enough to make any reasonable person extremely nervous. He is right to say that, in a world where GHG concentrations are 650 ppm or more, climate change will be the issue being dealt with by all governments. Equally, he is right to point out that concentrations of that magnitude have a very serious risk of pushing us into a self-reinforcing cycle producing temperature increases of more than 5˚C globally and sea level increases of 25 metres or more. Hell and high water, indeed.

Small change

The New Yorker has an interesting article on American coinage. It focuses particularly on the question of what should be done with small denomination coins, given the ever-higher prices of metals like zinc, copper, and nickel.

It also includes a lot of interesting asides: such as how the American nickel was designed to have a mass of one gram per cent of value, at a time when the American government was flirting with the metric system. The article also features an amusing example of how industry sets us shell groups of ‘concerned citizens’ who are keen to block changes to the law that would be disadvantageous to them. In this case, a major supplier of zinc to the U.S. Mint founded Americans for Common Cents in order to resist moves to eliminate the diminutive coin.

Personally, I think that scrapping the penny is an act long overdue. For years now, I have been picking them out of the change I get back from purchases in order to reduce the mass of stuff being ferried about in my pockets. Even if every price gets increased to the next five cent mark, the benefits from being rid of the bothersome coin will be more substantial.

New nuclear plants, new nuclear waste

These days, nuclear energy is frequently spoken of as being in the midst of a ‘rebirth’ or renaissance, largely because of high oil prices and concerns about climate change. Those concerned about greenhouse gas (GHG) emissions do need to give the technology some credit as a mechanism for producing large amounts of power with relatively limited climatic effects. That is no reason to ignore the problems with the technology – from water use to nuclear waste to long lead times – but it does compel the formulation of a considered response.

One possibility I came up with would be to require firms building new nuclear plants to build geological sequestration facilities for the nuclear waste the plant will produce over its lifetime before the plant can begin operation. That would probably further delay the deployment of the technology, but it would avoid boondoggles like the ongoing conflicts about Yucca Mountain. It would also be a step away from the “act now and worry about the consequences later” mentality that has infected so much of energy and environmental policy.

The response to such a demand, on the part of industry, might offer a better glimpse into what the true costs of nuclear power really are.

GHG-intensive industries and regulation

As mentioned in a recent Charlemagne column, certain industries produce so much carbon dioxide that it can be more in their interests to relocate than to face an effective national carbon pricing policy. At least, that is what they commonly argue. Examples of such industries include fertilizer, chemicals, steel, aluminium, and cement. Frequently, they have threatened to relocate if they are required to pay carbon taxes or buy permits for their emissions. While there is some reason to doubt how valid the threats are – it would be very expensive to relocate production facilities and personnel just to escape a new carbon regulatory regime – there is good reason to think about how various forms of regulation would affect such firms.

One mechanism through which such threats might be countered is by reaching agreements among major producers in as many states as possible. A Dutch chemical company will be more willing to accept carbon regulation if it knows that its American and Japanese competitors face similar requirements. This is an approach that worked well in dealing with ozone-depleting CFCs and could work similarly well in GHG-intensive industries that (a) involve a relatively small number of firms (b) located in countries with strong regulatory capacity (c) which have some political willingness to take action on climate change.

One feature many of these industries share is that a high proportion of their emissions are what are called ‘process’ emissions. This means that the greenhouse gasses are released not as a side-effect of energy production, but as a side-effect of the production of whatever it is the industry makes. As discussed before, cement has high process emissions and limited prospects for carbon capture. The situation is similar for at least some of the processes employed in the other listed industries.

One slightly counterintuitive aspect of ‘intensity-based’ cap-and-trade systems (in which firms are obliged to reduce the quantity of emissions they produce per unit of output, rather than in absolute terms) is that they are absolutely brutal for firms with predominantly process related emissions. If a cement company actually cannot do anything to reduce GHG emissions per tonne of cement, the only option under an intensity-based system is to buy 100% of its obligations from firms that have done better than their target or close down. Under a cap-and-trade system with 100% auctioning, or a carbon tax regime, such firms would basically be encouraged to contract while the economy finds less GHG intensive alternatives to what it produces. While that is a very politically difficult thing to call for, it must be remembered that all the years of unregulated emissions were, in effect, an undeserved gift from the general public in this and future generations to those firms. Discontinuing such unearned benefits is a necessary part of curbing climate change.

If we are serious about dealing with climate change, it needs to be acknowledged that not all industries are likely to find technological fixes during an acceptable timeframe. Some will simply need to shut down or be sharply scaled back. Looking across the past 100 years, it is clear that the fates of whole industries have risen and fallen in response to societal forces. The impetus for them to do so now is enormously greater, as nothing less than the future habitability of the planet is potentially at stake.

Trouble with aquaculture

Recently, Manitoba banned new hog farms in a wide swathe of the province due to environmental concerns. Now, British Columbia has suspended the issuing of new licenses for salmon farms. The ecological impact of these facilities has been mentioned here before.

Generally, the idea that open-pen aquaculture makes ecological sense for carnivorous species like salmon is fallacious. All it does is displace pressure from fishing activity from wild salmon themselves to the kind of fish they eat. Inevitably, an unconstrained fishery will destroy those stocks as well. Meanwhile, the salmon farms leach lice, excrement, and antibiotics into the waters around them.

Carbon trading, windfalls, and consumers

This background note on carbon trading from the Sightline Institute does a good job of explaining the relevance of different modes of permit allocation to consumers. That sounds terribly dull, I’m sure, but it’s simple and important. The basic idea of carbon trading is that you set some level of allowable emissions for a facility, firm, sector, or economy. Say you want to reduce total national emissions by 2% over the next year. You multiply current national emissions by 0.98 and create permits for that quantity of emissions. What you do next is very important. You can either auction these credits to the highest bidder, requiring firms that produce greenhouse gasses to purchase them, or you give some or all of them away for free to such firms.

The critical point here is that these credits are money. Auctioning them does two things: it requires polluters to pay for their emissions and it raises funds. These can be invested in research, used to subsidize low-carbon technologies, or just used to fund general tax cuts. When these credits are given away for free, they give firms the option of either continuing to pollute for free or selling the right to pollute to someone else.

The point made in this document is that consumers end up bearing the cost from either approach. This is because unless firms are tightly regulated or in competition with other firms that don’t face emissions restrictions, they will both profit from any permits they are allocated for free and pass along the cost of permits to consumers. The analogy used in this document is a good one:

Try buying World Series tickets from a scalper. Would he charge you any less if he found the tickets on the ground? Of course he wouldn’t. Like energy, the street price of World Series tickets is based on supply and demand. The supply and demand for tickets is the same no matter how much the scalper paid for them, and so the price he charges you will also be the same no matter how he got them.

Of course, the scalper would much rather get his tickets for free – and that’s precisely the point. Polluters are financially much better off if permits are given away instead of auctioned, but the cost of cutting emissions and the resulting effect on energy prices will be the same no matter how the permits are delivered.

As such, the superiority of an auction system is further reinforced. Not only does it implement the Polluter Pays principle, but it also provides a mechanism through which governments can compensate consumers for the manipulative behaviour of firms.

Carbon capture in Saskatchewan

A $1.4 billion carbon capture (CCS) equipped coal plant is on the drawing board in Saskatchewan. The projected output is 100 megawatts (MW). That works out to a price of $14,000 a kilowatt, compared with about $2000 and $4600 per kilowatt for wind turbines (according to Agriculture and Rural Development Alberta). Of course, unlike the coal plant, the wind turbines wouldn’t require fuel after being installed.

Unless the cost of CCS falls dramatically, it is never going to be able to ride in, horse at a gallop and sword drawn, to rescue the coal sector. The cancelled FutureGen project in the United States was one demonstration of this. Until there is at least one unsubsidized commercial facility out there that is producing electricity from coal and sequestering emmisions – all for less than the price of ‘expensive’ renewable technologies like wind and solar – a fair bit of skepticism about the technology is justified.

Earth Hour, and why it is a bad idea

The news today is full of talk about Earth Hour. Frankly, I think the idea is stupid. Telling people to turn out the lights for one hour one day has a trivial impact. Furthermore, it has nothing to do with approaches that actually would. Shutting down the lights in a brief symbolic gesture does nothing to change the energy basis of our society. Replacing one ordinary light bulb with a compact fluorescent one would have a bigger impact in the long term, and would at least suggest an understanding that brief voluntary abstinence from energy use is no solution whatsoever. Earth Hour is akin to choosing to fast for one hour and hoping that it will send a strong message to the factory farming industry.

Earth Hour reinforces many of the fallacies people believe about climate change, such as:

It will mostly be solved through consumer choices
Voluntary efforts are enough
It’s the visible changes that really matter

As discussed at length here in the past, it is very likely that none of these things are true. Climate change will only be dealt with when the energy basis of society has changed enough that the most greedy and selfish people are nonetheless leading low-carbon lives. That requires massive infrastructure change over the course of decades – the progressive replacement of high carbon options with low carbon and finally zero carbon ones. Earth Hour is, at best, a distraction from this process.

[Update: 25 March 2009] Judging by the Google searches, another ‘Earth Hour’ is coming up. I still think the exercise is a pointless one. Moving to a sustainable society isn’t about reducing energy use for one hour, it’s about reforming the energy basis of society. Tokenistic environmental gestures do no good, and help to convince people that the real changes we need are trivially easy.

[Update: 24 March 2011] Looking back over it, what I have written about Earth Hour before is a bit harsh. Yes, I think the basic idea of turning out the lights for an hour is a weak one. At the same time, environmental groups presumable use Earth Hour as an opportunity to communicate with the public. It might have less value as a symbolic action, and more as a simple advertising opportunity, in terms of direct communication with the public and media exposure.