Category: Economics

Matters of money

Concordia and UBC commit to full divestment

It complicates the process of completing my PhD dissertation, but there has been highly encouraging movement from administrations targeted by fossil fuel divestment campaigns. While McGill has again said no, Concordia and UBC have pledged to go beyond their prior partial commitments and entirely divest from fossil fuels:

The movement has generally had a hard time in Canada, perhaps because of the size and influence of the fossil fuel industry.

I’m working this week on finishing my NVivo coding of interviews, then moving on next week to finishing the literature review. Spending the rest of the month working on a finalized and complete manuscript, I will need to make sure to mention new developments without expressing false confidence about my ability to explain something which happened so recently and which I don’t have independent data about.

The Ford government’s climate change efforts

Ontario Auditor General Bonnie Lysysk’s 2019 report says that the Ontario government’s proposed climate policies are insufficient to meet their (inadequate) target for reducing greenhouse gas pollution:

The province estimates that its new approach will still meet federal reduction targets of 30 per cent below 2005 emission levels, or the equivalent of 17.6 megatonnes by 2030.

But that estimate is based on an older forecast that accounted for initiatives around electricity conservation, renewable energy and cap-and-trade — programs that have all been cancelled by the Ford government.

Lysyk estimates the new plan will only reduce emissions by between 6.3 and 13 megatonnes by 2030.

Page 147 of the report says:

Emissions Estimates Underlying Plan Not Supported by Sound Evidence

The Plan projects that Ontario’s greenhouse gas emissions will be 160.9 Mt in 2030 if no further climate initiatives are taken. To reduce Ontario’s emissions by 17.6 Mt to meet the 2030 target, the Plan outlines eight areas where the Ministry expects emissions reductions to occur. We reviewed the evidence and assumptions the Ministry used to estimate the emissions projected for 2030, as well as the reductions for each area. Based on our review, several of the estimates are not supported by sound evidence. Our assessment of the assumptions and double counting of initiatives found that the Plan overestimates the emissions reductions expected. Overall, our analysis found that the initiatives in the Plan have the potential to achieve between 6.3 Mt to 13.0 Mt of the 17.6 Mt emission-reduction goal.

This reinforces how many Canadian provincial and federal governments see climate change as a public relations issue: an area of criticism where they need a rhetorical answer to manage the level of criticism they get in the press.

Saudi Aramco and the future of oil

A few weeks ago The Economist ran this cover and two stories on Saudi Aramco, climate change, and the future of the global oil industry:

They claim: “Aramco’s underlying strategy is to be the last oilman standing if the industry shrinks, pointing to the upheavals to come”.

I wrote recently about the non sequiturs often used the defend the Canadian oil industry, notably the claim that Saudi Arabia’s awful human rights record makes it better to extract oil here than there. A chart from The Economist’s longer article further challenges that view:

If we can only use a fraction of the world’s remaining oil without causing catastrophic climate change, it makes sense that we should use the cheapest and cleanest oil. It makes no sense whatsoever to keep investing in the Canadian industry when the capacity already exists globally to extract all the oil the carbon budget will allow.

The IMF on carbon taxes

Carbon taxes have begun to play a strange role in debates on climate change politics. Designed to appeal to conservatives they are now a focus of rage on the political right. At the same time, they are supported by some big fossil fuel companies who see them as a comparatively small cost and a potential source of certainty about future policy.

Recently, the IMF commented:

The Washington-based Fund said the battle against climate change could only be won if the average carbon tax levied by its member states increased from $2 (£1.63) a ton (907kg) to $75 a ton.

The IMF said governments worried about a political backlash against big increases in the cost of heating homes and motoring, and should use the extra revenue raised from the tax to compensate consumers.

“To limit global warming to 2C or less – the level deemed safe by science – large emitting countries need to take ambitious action,” IMF economists said.

“For example, they should introduce a carbon tax set to rise quickly to $75 a ton in 2030. This would mean household electric bills would go up by 43% cumulatively over the next decade on average – more in countries that still rely heavily on coal in electricity generation, less elsewhere. Gasoline would cost 14% more on average.”

Calculations by the IMF’s economists show that a $75-a-ton carbon tax would also lead – once inflation has been taken into account – to an average 214% increase in the cost of coal and a 68% increase in natural gas. For the UK, the increases would be 157% for coal, 51% for natural gas, 43% for electricity and 8% for petrol.

The IMF has something of a reputation for thinking about policy, not politics, and it’s hard to see a carbon tax like this being implemented in any major democratic country.

Trudeau’s false radicalism

Geoff Dembicki has a piece out about how Trudeau’s method is to promise substantive reforms to voters, while privately comforting business with the understanding they won’t really be meaningful:

So on climate, for instance, he was presented as this kind of river-paddling environmental Adonis. He promised that fossil fuel projects wouldn’t go ahead without the permission of communities. But the Liberals create these public spectacles of their bold progressiveness while they quietly assure the corporate elite that their interests will be safeguarded. So at the same time Trudeau was going around the country and convincing people that he was this great climate hope, the Liberal party had for years been assuring big oil and gas interests that there would not be any fundamental change to the status quo.

…

The Liberal climate plan essentially is a reworking of the business plan of Big Oil and the broader corporate lobby. Most Canadians probably wouldn’t realize this because of the nature of coverage in the mainstream media and the polarized political debate about the carbon tax, but overwhelmingly there is an astonishing consensus among the corporate elite in support of a carbon tax.

The plan is to support a carbon tax and to effectively make it a cover for expanded tarsands production and pipelines. That was a plan hatched by the Business Council of Canada back in 2006, 2007. For 20 years oil companies had resisted any kind of regulation or any kind of carbon tax and fought it seriously. But they started to realize that it would be a kind of concession that they would have to make in order to assure stability and their bottom line not being harmed. The climate bargain that Trudeau went on to strike with Alberta of a carbon tax plus expanded tarsands production was precisely the deal that Big Oil had wanted.

For a long time, Canadians prioritizing climate change have had no effective political option. Under first-past-the-post Green and even NDP votes are often counterproductive protests. I’m wary about criticism of the Liberals increasing the odds of a Conservative win, but I don’t think we should lie either.

Pharma charities and drug co-payments

I hadn’t heard about this weird distortion in the US medical system, where pharmaceutical companies use tax-exempt charities to manipulate the co-payment system used by health insurers for prescription drugs:

Half of America’s 20 largest charities are affiliated with pharmaceutical companies.

…

Pharmaceutical companies will often claim that helping patients with their co-payments is a way of making costly drugs more accessible. But it has the fortunate consequence of making their customers price-insensitive, because insurance companies will often use high co-payments to nudge their customers into opting for generics over costlier branded drugs: no co-pay, no incentive to save money.

…

The Securities and Exchange Commission (sec) is also looking more closely at independent charities that are sometimes sponsored by pharmaceutical firms. One independent charity offered co-pay support only for a specific type of “breakthrough pain” for cancer patients, a condition its sponsor had a 40% market share in treating. An sec probe has already settled claims with some pharmaceutical firms, though none has admitted wrongdoing. United Therapeutics has settled the biggest claim, worth $210m, with the Department of Justice. Lundbeck, a Danish drugmaker, and Pfizer have settled smaller claims. “Pfizer knew that the third-party foundation was using Pfizer’s money to cover the co-pays of patients taking Pfizer drugs,” according to Andrew Lelling, a us attorney, “masking the effect of Pfizer’s price increases.” Johnson & Johnson, Astellas, Gilead Sciences, Celgene, Biogen and others face investigations.

America’s health system is convoluted to the point of being surreal, as well as manipulated by the huge influence of the pharmaceutical industry on legislators.

The environmental effectiveness of “green” funds

It seems like a plausible rule for climate change reduction schemes that the people running them will generally prioritize other political and economic objectives over actual emission reductions. This meshes together with other forms of wishful thinking, where we give ourselves credit for overly generous assumptions about reduced emissions, then find every possible way to cheat to reduce the stringency of the system.

The latest example:

As so often, I am reminded of Stephen Gardiner 5th and 6th propositions about climate ethics from 2011:

In the perfect moral storm, our position is not that of idealized neutral observers, but rather judges in our own case, with no one to properly hold us accountable. This makes it all too easy to slip into weak and self-serving ways of thinking, supported by a convenient apathy or ideological fervor. Moreover, the devices of such corruption are sophisticated, and often function indirectly, by infiltrating the terms of ethical and epistemic argument.

And:

Given this, we are susceptible to proposals for action that do not respond to the real problem. This provides a good explanation of what has gone wrong in the last two decades of climate policy, from Rio to Kyoto to Copenhagen. However, the form of such “shadow solutions” is likely to evolve as a the situation deteriorates. Some recent arguments for pursuing geoengineering may represent such an evolution.

It’s also reminiscent of Greta Thunberg this year:

You don’t listen to the science because you are only interested in solutions that will enable you to carry on like before. Like now. And those answers don’t exist any more. Because you did not act in time. Avoiding climate breakdown will require cathedral thinking. We must lay the foundation while we may not know exactly how to build the ceiling.

No climate policy ever works as well as in an ideal case because those implementing it always have higher, more local, and more immediate priorities than the policy’s effectiveness at controlling climate change.

When I was at the Treasury Board Secretariat, for instance, I was told that when it came to the money the government was giving to car companies to supposedly improve their environmental performance it didn’t matter to us if there were any actual environmental benefits from what they were proposing, and it was similarly outside our mandate to consider whether the companies would have done the same things without the money.

We’re not coming at this like people determined to solve a problem. Instead, we’re acting like people who are being nagged to take action on a problem which we half-recognize but mostly just want to ignore. That meshes menacingly with how the problem keeps turning out to be more alarming than we feared, and where drastic action is necessary immediately to avoid catastrophe.

Open thread: the Carbon Bubble

Surprisingly, despite the importance placed on it in the University of Toronto fossil fuel divestment brief and in the divestment movement generally, I don’t have a post on the idea of the carbon bubble. If we start with the temperature targets countries have chosen as the upper limit for tolerable climate change, we can calculate that the world’s total fossil fuel reserves are much bigger than necessary to bring us to that target. Hence, if governments achieve their climate change mitigation goals, most of the world’s fossil fuels will need to be left unburned and the profits firms expect to make from them will be unrealized. Under such a scenario, fossil fuel investments will be stranded.

Back in February, The Economist explained:

Yet amid the clamour is a single, jarring truth. Demand for oil is rising and the energy industry, in America and globally, is planning multi-trillion-dollar investments to satisfy it. No firm embodies this strategy better than ExxonMobil, the giant that rivals admire and green activists love to hate. As our briefing explains, it plans to pump 25% more oil and gas in 2025 than in 2017. If the rest of the industry pursues even modest growth, the consequence for the climate could be disastrous.

ExxonMobil shows that the market cannot solve climate change by itself. Muscular government action is needed. Contrary to the fears of many Republicans (and hopes of some Democrats), that need not involve a bloated role for the state.

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According to ExxonMobil, global oil and gas demand will rise by 13% by 2030. All of the majors, not just ExxonMobil, are expected to expand their output. Far from mothballing all their gasfields and gushers, the industry is investing in upstream projects from Texan shale to high-tech deep-water wells. Oil companies, directly and through trade groups, lobby against measures that would limit emissions. The trouble is that, according to an assessment by the IPCC, an intergovernmental climate-science body, oil and gas production needs to fall by about 20% by 2030 and by about 55% by 2050, in order to stop the Earth’s temperature rising by more than 1.5°C above its pre-industrial level.

If accepted, this argument torpedoes the idea that sticking with fossil fuels is a path to prosperity while turning away from them to fight climate change is an economic sacrifice. If we’re really going to make the transition, the people who kept investing in fossil fuels until the end will have the most to lose.

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