Economics – Page 122 – a sibilant intake of breath

Business model patents

Intellectual property remains one of the most hotly contested areas in law and politics right now: with everything from the cost of patented drugs in third world countries to the illicit downloading of television shows under contention. What is important to recall throughout all of this is the reason for which the patent system exists: to encourage (a) innovation and (b) the disclosure of how new inventions work by offering a time-limited monopoly to the inventor. On the basis of this fundamental purpose, it seems fair to say that ‘business model’ patents should be eliminated.

A famous example is Amazon.com’s dubious patent on ‘one click shopping.’ To begin with, the idea probably fails the obviousness test. Something immediately obvious to almost anyone well-studied in the field is not supposed to be patentable. More crucially, the Amazon patent doesn’t represent genuine innovation, and it serves no public purpose to have the details explained in a patent. As such, society as a whole only suffers when such legal rights are granted.

A more recent case also illustrates the point. A couple in Utah is suing Starbucks and Apple for patent infringement. Starbucks is giving away gift cards that can be used to download particular music tracks from the iTunes music store. The couple claims that they have a patent on this idea. Can anybody legitimately claim that society would be better off if everybody who gave away such gifts cards had to pay licensing fees to the couple? You can argue that the premiums people pay for patented drugs are essential to ensuring that pharmaceutical firms have sufficient funds for further research; no comparable argument can be made for business model patents. Such patents are useless and parasitic and, as such, should be done away with.

Nicholas Stern video

Emily kindly sent me a link to the video of Sir Nicholas Stern’s presentation in the Examination Schools at Oxford in February of 2007. I was lucky enough to attend in person; I even got to speak with him at the exclusive reception afterwards. My notes are on the wiki. This is your chance to compare a verbatim record of the talk with my notes and thus determine my particular strengths and failings as a note taker.

The talk is well worth watching, not least because Stern is obviously very well informed and quite a capable speaker. His report is fully deserving of its status as the seminal discussion of the economics of climate change.

Garnaut Review interim report

The Stern Review – released in October 2006 by the British Government – is generally considered the most authoritative source on the economics of climate change. Among other things, it concludes that the cost of reducing global emissions is significantly less than the probable costs associated with letting climate change continue on its present course. Now, Australia has released a similar assessment, in the form of the Garnaut Climate Change Review.

Only the interim report is available so far, but it’s likely to make interesting reading for Canadians concerned about climate change. In many ways, the Canadian economy is more similar to that of Australia than it is to that of England. As such, this report may offer some especially useful insights.

P.S. I have some notes from a lecture Stern gave in Oxford.

British Columbia carbon tax

In a relatively big announcement today, British Columbia has announced a new carbon tax on gasoline, diesel, natural gas, coal, propane and home-heating fuel. Canada-wide, the combustion of fossil fuels represents about 70% of total emissions, with the remainder consisting of things like industrial process emissions and those associated with landfills. The B.C. tax takes effect on July 1st, starting at $10 a tonne and rising to $30 a tonne by 2012.

Like many proposed carbon taxes, the British Columbian scheme aims to be revenue neutral, with the funds collected being primarily redistributed back to consumers through reductions in other taxes and increased grants to low-income individuals. This somewhat reduces the environmental effectiveness of the tax, since some of the refunded money will be used to continue doing emissions intensive things, but it makes it easier to defuse claims that this is an excessive new burden on low income people. The projected emissions reduction for the next three years is 1 Mt per year – just 1.5% of the B.C. total, but a start. At present, British Columbia is in the middle of the pack when it comes to emissions among Canadian provinces: approximately on par with Quebec and Saskatchewan, but significantly behind Alberta and Ontario.

B.C. is also part of a regional climatic organization called the Western Climate Initiative, which aims to launch a cap-and-trade scheme for greenhouse gasses. With luck, such provincial and regional systems will yield both absolute reductions in emissions and useful lessons in policy design.

Costly delays at Yucca Mountain

Persistent delays at Yucca Mountain – the Congressionally appointed future home for American nuclear waste – could prove very expensive to taxpayers. Under an agreement between nuclear power utilities and the Department of Energy, firms are charged 1/10th of a cent per kilowatt hour for waste disposal. Yucca Mountain was meant to be open and accepting fuel in 1998.

So far, the delay has cost the American Treasury $342 million in rebates so far, and is projected to cost $11 billion if the facility doesn’t open before 2020. Given the tooth-and-nail resistance from the Nevada government, and the history of lengthy lawsuits in the United States, it’s not impossible that such a delay will occur. Meanwhile, wastes continue to be stored in relatively expensive and high-maintenance cooling ponds and dry storage casks. In the whole mess, consumers lose out twice. The costs for eventual disposal imposed on utilities were passed on to them; as taxpayers, they will also end up paying most of the cost for Yucca Mountain or whatever alternative long-term disposal facility is eventually used.

The situation could be even worse than it seems. Both Clinton and Obama have announced their opposition to the project. Presumably, having one of them win the presidency would return the whole process to the preliminary site selection phase, back where it was thirty years ago. Regardless of one’s position on nuclear power, the need to store the wastes that exist in a safe, economically viable, and long-term way is inescapable. Keeping the waste in a large number of small sites increases both costs and risks.

Canada also lacks a facility for the long-term storage of radioactive wastes.

Crystals for improved CO2 separation

One should always be cautious about noisy announcements regarding climate related technologies. The mainstream media is all-too-willing to repeat them without much investigation or consideration. That said, there is every likelihood that concern about climate change (and increasingly stringent regulations) will produce dramatic breakthroughs in climate relevant technologies. One area in which that could occur is in relation to carbon capture and storage. At present, this is quite an energy intensive process, largely because of the difficulty of separating CO2 from the other flue gasses being produced by a power plant or factory. Some new research suggests that zeolitic imidazolate frameworks could do this much more efficiently than the amine scrubbers currently being tested.

The authors suggest that these crystals could be and inexpensive and durable way to isolate CO2 for sequestration. Their central conclusions about the materials sound promising:

Members of a selection of these ZIFs (termed ZIF-68, ZIF-69, and ZIF-70) have high thermal stability (up to 390°C) and chemical stability in refluxing organic and aqueous media. Their frameworks have high porosity (with surface areas up to 1970 square meters per gram), and they exhibit unusual selectivity for CO2 capture from CO2/CO mixtures and extraordinary capacity for storing CO2: 1 liter of ZIF-69 can hold ~83 liters of CO2 at 273 kelvin under ambient pressure.

If so, they could help reduce the costs associated with installing and operating CCS equipment – a particular boon given the likelihood that coal use will remain a feature of many economies and some processes – like concrete manufacture – are extremely hard to decarbonize.

Comprehensive storage

Your average active computer user has more and more data. The first computer I effectively administered had 170 megabytes of hard disk space. Difficult choices had to be made about the relative merits of Doom versus Simcity. Now, just my primary email account has 1500 megabytes of data in it. I have 15 gigabytes worth of photos I have taken (all since 2005) and 20 gigabytes of music.

All this has been made possible by dramatically falling storage prices, combined with the spread of broadband internet. Soon, I expect that this combination will reach its logical conclusion. Right now, people are constrained by the size of their smallest hard drive, as well as by the difficulty of accessing larger remote drives. Eventually, I expect that most people will have a multi-terabyte disk connected to the internet at high speed and securely accessible from virtually any device in the world over the internet. The biggest question is whether this will be an ‘answering machine’ or a ‘voicemail’ solution.

The answering machine option is a big disk purchased by an individual consumer (perhaps a rack of disks, so that cheaper bigger ones can be added to the array as they become available). A company that made three things easy would have a license to print money. The first is integrated ease of use. iTunes music on the big disk should be immediately accessible from a person’s laptop or iPhone, provided they have internet access. The same should be true for saved television shows, photos, etc. The second is effortless backup. It is perfectly feasible to have a disk that is big enough to ensure that the failure of any one component does not lead to any loss of data. The third is security. The big disk should be secure enough against outside attack for use in storing commercially sensitive materials; likewise, the connection between outside devices and the disks should be secure. Probably, this means different levels of access for different sorts of devices, managed through a good user interface.

The voicemail option is to leave all the kit to someone else and just buy a service. Lots of companies are moving towards this model. In many ways, it’s a lot more efficient. Maintaining adequate but not excessive space for a million users is easier than doing the same thing for one; there are also economies of scale, since you can have specialists do all the technical work. The downsides of this model are mostly security related. You need to trust the service provider to keep your data safe. You also need to trust them not to apply arbitrary constraints on how you can use it, as Apple has sometimes done.

I predict that most people will use the second model exclusively, and will pay little or nothing to do so. More technically savvy people will run their own drives, but will probably use external services for (free) unencrypted or (subscription based) encrypted backup. Personally, I can’t wait. External hard drives have the feel of a 1980s solution, rather than one that is aware of the potential of the internet.

Technological options for mitigation

Black circles indicate a definite ‘yes,’ whereas hollow ones denote a partial ‘yes.’ For instance, it isn’t entirely clear whether nuclear fission can ever be economically viable in the absence of government subsidies. Empty squares denote a probable ‘no’ while question marks indicate situations too uncertain to render any judgment upon.

A few of these technologies are so speculative that it is hard to make a decision. That said, this is probably a relatively good summary of the state of the debate at the moment.

GHG stocks, flows, and climate change

[Update: 22 January 2009] Some of the information in the post below is inaccurate. Namely, it implies that some level of continuous emissions is compatible with climate stabilization. In fact, stabilizing climate required humanity to have zero net emissions in the long term. For more about this, see this post.

On this blog, I have frequently cited a figure of about 750kg of carbon dioxide per person per year as sustainable. This is just what you get when you divide the approximate level of sustainable emissions (about 5,000 megatonnes) by the number of people alive on Earth. If each person emitted that much, the net radiative forcing effect of anthropogenic emissions would be approximately zero. That means the sum of the concentrations of all greenhouse gasses, multiplied by their global warming potential, would be in balance with the capacity of the planet to absorb those gasses.

Of course, suddenly achieving the transition to 750kg each would be extremely painful. Thankfully, achieving it instantly is not necessary. Right now, the atmospheric concentration of carbon dioxide (the most important greenhouse gas) is about 383 ppm. That compares with 280 ppm at the time of the Industrial Revolution. Scientists disagree about how much that concentration can rise before extremely harmful effects start to manifest themselves. The highest number generally suggested by reasonable people is 550 ppm, a more mainstream figure is 450 ppm, and some people even argue that we have already emitted enough that very harmful effects are inevitable, once lags in the climate system are overcome. At present, unsustainable global emissions are increasing the global concentration of carbon dioxide by about 2 ppm a year.

Acknowledging the uncertainty, let’s take 450 ppm as a best guess. That means we have about 67 ppm of shoulder room left. It is vital to note that this isn’t shoulder room for total emissions to rise; in the long run, they absolutely must fall dramatically. It is shoulder room in which we can keep emitting above unsustainable levels without wrecking the planet. The situation is akin to being in a lifeboat in a hot, dry climate with a barrel of water and a solar still that produces a small amount of water per day. The 750kg each is the output from the still. The 67 ppm is approximately how much we have left in the barrel. The question now becomes how to divide it. Here are some possibilities:

Continued unsustainable emissions in the developed world
Continued and increasing unsustainable emissions in the developing world
Additional security against abrupt or runaway change

We also have a choice about how to divide the use of barrel water across time. We might decide to drink lots of it in the early days, leaving less for later on. We might decide to save as much as we can. Of course, our capacity to do the latter is somewhat limited by the tragedy of the commons. It’s like there are a whole bunch of strangers in the lifeboat and any one can drink from the barrel without the others being able to stop them. You might end up with everyone trying to grab all they can early, even if saving most of the water for later would produce the best outcome for everyone.

Will we be able to find a way to moderate how much each person takes from the barrel? How much should we be willing to suffer in able to conserve some water for the future, or as a hedge against the possibility that 450 ppm is actually too high? These are among the toughest and most pressing questions in global climate change policymaking.

Cycle friendly London

Once again, London is demonstrating leadership in making progressive urban choices in response to climate change. The city is going to spend £500m on making London more cycle friendly: an initiative that will include 6,000 rental bikes, 12 car-free cycle corridors through the city, and an increased number of pedestrian only streets.

The bike rental scheme is modelled after a successful Parisian initiative, which was in turn inspired by successful community bicycle programs in the Netherlands. The bikes can be collected and deposited from special stalls that will be set up every 300m. The rates to be charged in London don’t seem to be available yet, but those in Paris are very reasonable: free for under 30 minutes, one Euro for an hour, and increasing progressively beyond that. The idea is to stimulate their use in making human-powered trips easier, not letting people use a bike for half a day. The Dutch seem to be the world leaders when it comes to public support for cycling, with 40% of Amsterdam traffic consisting of bikes and a 10,000 bike parking garage under construction at the main train station. Copenhagen, Tel Aviv, Barcelona, Brussels, Stockholm, Berlin, Frankfurt, Munich, Helsinki, and Vienna all have community cycling schemes of some sort.

Cities that are blessed with snow and ice-free roads year round (*cough* Vancouver *cough*) might want to think about something similar. You can’t built many kilometres of highway or subway line for £500m, but you can probably do quite a lot to promote a health-positive, community-centric, and virtually emissions-free transportation option.