Category: Economics

Matters of money

Global wealth disclosure as a step toward redistribution

It’s a fantasy to imagine that today’s governments would confront the wealthy in this way, but it’s nonetheless of some value to think about some of the barriers to major global redistribution and potential means through which they might be surmounted.

As with other major global challenges like nuclear proliferation there is a coordination problem in establishing more redistributive policies. People say that if one country starts taxing wealth, or land, or otherwise working to rebalance income and wealth across their society, those with the most will simply move elsewhere, either physically or legally for tax purposes.

As a preliminary step, there may be some value is simply compelling ‘high net worth’ individuals to disclose their worldwide financial dealings to any country where they want major government benefits, from the protection of their intellectual property to government contracts and support for their businesses. Remember that private property is a fiction that governments choose to uphold, not a fact of the universe or something that individuals can meaningfully assert for themselves. Every major country could agree on a financial disclosure standard that is (a) intended to capture a person’s economic activity all over the world and (b) designed to overcome deliberate obfuscation through corporations, trusts, and other legal mechanisms which can conceal who owns and benefits from what.

Governments have many potential levers to compel compliance, from visa rules to the tax system, and it’s especially plausible that the rich would comply if most appealing jurisdictions to live in acted simultaneously: say, the EU (including poor muddled Britain), the US and Canada, Japan and China, Australia and New Zealand, and a few others to start with. Doubtless such a reporting obligation would drive a flurry of new consulting activity to help rich people avoid it or minimize what they disclose, but it would nonetheless be a step toward transparency and an important reminder that even those with the freedom to travel and live wherever they like ultimately derive much of their wealth from countries with capable bureaucracies and that they aren’t immune from the sovereignty of those states.

Politics of narrow nationalist interest miss the underlying national interest in survival

This Canadian news article about political opposition to carbon taxes does a good job of summarizing the barriers to stronger greenhouse gas mitigation policy that people like Doug McAdam and Stephen Gardiner have articulated:

“Certainly there are abundant grounds to doubt the political wisdom of the Liberal plan. A tax, or anything that resembles it, would be a hard enough sell on its own. But a tax in aid of a vast international plan to save the earth from a scourge that remains imperceptible to most voters, to which Canada has contributed little and against which Canada can have little impact, while countries whose actions would be decisive remain inert? Good luck”

To me it seems like a nice demonstration about Gardiner’s 4th proposition, about the “problematic paradigm” in climate change politics:

“In the environmental discourse, the presence of the perfect moral storm is obscured by the dominance and pervasiveness of an alternative, narrower analysis. According to this account, climate change is a paradigmatically global problem best understood as a prisoner’s dilemma or tragedy of the commons played out between nation states who adequately represent the interests of their citizens in perpetuity. However, such models assume away many of the main issues, and especially the intergenerational aspect of the climate problem. Hence, they are inadequate in this case, and perhaps many others. This point has theoretical as well as practical implications.”

This is the logic of Andrew Coyne’s newspaper article, that citizens in democratic states will use the inaction of others around the world to justify their own limited efforts to reduce domestic fossil fuel consumption, fuel production, and exports. As long as someone else is behaving unethically, we have license to do so too. As George Monbiot and others have explained eloquently, that logic is a suicide pact in the case of climate change. We need to establish an international order where continued fossil fuel dependence is discouraged and even punished, and the emergence of that order likely depends on some good faith first steps from the rich countries like Canada who now say their dirty path to prosperity can’t be followed by the rest of the world. It’s actually true that rising living standards in places including India and China can’t be fossil-fuel-driven as they have been in North America, Japan, and Europe for the most part. Convincing developing countries to take the less tested path of development based on carbon safe energy depends on countries that have already quite counterproductively invested enormously in fossil fuel energy to show that they too will move away from it for the sake of all the human generations that will follow us, and all the species whose welfare depends on how much climate change we cause.

The Paris Agreement, general aspirations versus specific targets

As reported in The Guardian, no major countries actually have commitments compatible with the 1.5 – 2.0 ˚C maximum target in the Paris Agreement: “When taken as benchmark by other countries, the NDCs of India, the EU, the USA and China lead to 2.6 °C, 3.2 °C, 4 °C and over 5.1 °C warmings, respectively.” Canada is among the very worst: “We find that the NDCs of Canada, China and Russia are less ambitious than their CBDR-RC hybrid allocations even under the least ambitious global emissions scenario available, with 5.1 °C of warming in 2100”.

From the beginning people have been skeptical about how serious countries are about the warming targets in the Paris Agreement, with the most optimistic believing that the agreement would be a first step toward gradually adopting compatible targets.

The Nature Communications paper is also quite interesting in its discussion of global equity and climate change, arguing that: “While not all countries use indicators that favour their equity argument in their communication, a common definition of equity is unlikely to be adopted since countries generally tend to support interpretations of distributive justice that best serve their self-interest and justify their negotiating positions”.

IEA World Energy Outlook 2018

As reported in The Guardian, the International Energy Agency is warning the world that there is no place for new fossil fuel power stations, vehicles, and industrial facilities if the world is going to stay below the 2 ˚C upper limit in the Paris Agreement:

In total, the IEA calculated that existing infrastructure would “lock in” 550 gigatonnes of of carbon dioxide over the next 22 years. That leaves only 40 gigatonnes, or around a year’s worth of emissions, of wriggle room if temperatures are not to overshoot the 2C threshold.

This underlines why Canada should not be building more fossil fuel production or export capacity.

Canada may be a comparatively small part of the world’s population and energy use, but the scale on which we produce and export fossil fuels gives us an outsized impact on the rest of the world. Certainly we need to achieve emissions reduction by constraining demand, but we also need to avoid new investments in production. Once projects are built and actual jobs depend on them governments are rarely willing to let them shut down, regardless of the magnitude of the global harm and suffering they are causing.

Climate deniers in a world of fantasy

In an ideal world, politicians would rely on high quality sources of information to determine what they should consider to be true factually about the world. They could then apply their political philosophies and ideologies to the question of what public policy ought to exist.

It’s not only conservatives who invert or pervert this process, beginning with their desired political conclusions and working back to facts from there, but the conservative tendency to do so is a noteworthy feature of contemporary politics. It’s not all post-Trump either. Conservatives have disliked the implications of everything from the study of human anatomy in the context of sexual differentiation to climate change, and have often assuaged their discomfort by just refusing to accept features of the universe they dislike.

Hence ‘People’s Party of Canada’ founder Maxime Bernier’s tweet about how “CO2 is NOT pollution. It’s what comes out of your mouth when you breathe and what nourishes plants.”

While the claim has the appearance of a scientific assertion, I think it’s a clear case of working back from policy preference to fact. Even for experts like Canadian conservatives it’s hard to deny chemically that when you burn coal, oil, and gas you generate CO2. If the policy priority is to keep expanding those industries as much as possible, it becomes necessary to recast that consequence as benign or even desirable. It doesn’t seem to matter much if that’s done in a way that contradicts other claims (like there being no need to curtail supply because we should focus on limiting demand, or saying that Canadian action to curb CO2 emissions would be pointless because China produces so much more).

To an extent we all suffer from motivated reasoning along the lines of ‘when the facts don’t seem to support my beliefs, find some new facts’. The importance of understanding the climate problem, however, means we need to demand more from ourselves and our leaders in this area. Not only are people who make these sorts of climate denier comments showing they cannot be trusted to be put in charge of climate and energy policy, they are proving that they aren’t competent to lead at all.

Stopping fossil fuel proliferation

I have said before that only multilateral negotiation can address climate change. Today The Guardian has one proposal: We need a fossil fuel non-proliferation treaty – and we need it now.

The article argues:

A new line in the sand is needed to underpin the existing climate agreement, to exert influence over the immediate choices of policymakers. At the very least, the science should mandate a moratorium in rich countries on any further expansion of the fossil fuel industry, or any infrastructure dependent on it.

That sort of ‘keep it in the ground’ approach would be compatible with what rich countries need to do to set a plausible global course. Unfortunately, it’s entirely at odds with what is happening almost everywhere, as the US races ahead with oil and gas fracking, Europe builds new pipelines to Russian hydrocarbons, and Germany and Japan are reverting to coal after the Fukushima disaster.

At least with a multilateral approach competitiveness concerns would be somewhat muted. Right now it’s a very hard sell for governments to tell corporations they will need to follow rules which their international competitors do not. If the rich world can agree to start with contraction and convergence it may be possible to negotiate a global agreement to succeed the Paris Agreement, but which would have serious targets and appropriate measures for meeting them.

Berman on the oil sands and decarbonization

Tzeporah Berman’s comments to the Alberta Teachers Association are well worth reading.

She highlights how Canada keeps operating with an outdated notion of how usable and competitive the bitumen sands are, and that the case for new pipelines collapses when you consider what the world as a whole needs to do to address climate change.

She also discusses the tone of the debate, which she sees as unhelpful, while acknowledging that civility itself cannot produce an answer. Canada is going to learn a hard lesson about the billions we wasted on the bitumen sands. The hope now is that we won’t waste billions more.

How much has been put into the bitumen sands?

Canadians (and especially Canadian politicians) seem to often work from the assumption that so much has been spent on developing Alberta’s oil sands that Canada is now committed to continuing with the project.

There are many problems with the argument. Particularly when it comes to new investments, it could be seen as a case of the sunk cost fallacy at work. When you have an investment which may already be unproductive it can be psychologically appealing but not actually strategically smart to invest more instead of working away from the danger you have set for yourself.

One article estimates that $200 billion has been invested since 1999. For comparison, Canada’s GDP is about US$1.53 trillion. That makes all the investment in nearly 20 years equivalent to 13% of one year of all Canadian economic activity. The Economist recently reported that Americans spent $498 billion per year on cars and car parts. That shows how the bitumen sands investment is really pretty small in global terms (and also how much could be gained from discouraging American car use, breaking up the cycle of cosmetic annual vehicle replacements, and discouraging new automobile infrastructure).

Since climate change literally threatens the economic prosperity of the entire planet, there’s no comparison between the losses associated with shutting down the bitumen sands versus the losses associated with unchecked climate change. Of course, the bitumen sands aren’t the only source of climate change. What they represent, however, is the self-destructive determination of the richest, dirtiest states to keep investing themselves in the most destructive forms of energy. That worsens the collective action problem which we all face and suggests to all other states that there is no point on holding back from realizing short-term profits from fossil fuels for the sake of averting global catastrophe.

We can afford to stop new bitumen sands development, and then to go on to gradually close down existing production, making it possible for Canada to follow an emission reduction pathway that represents a fair share of what the world needs to do to keep below 2 ˚C or 1.5 ˚C of warming. We can afford to help the workers who will need new careers.

Unfortunately, politicians, the banks, and the corporate media are terrified about any future where bitumen sands development and pollution do not continue to rise, making the idea politically impossible in Canada for now. Hence the need to change our politics, media, and perhaps our economic system.

Our appalling legacy

There’s another dire warning from the IPCC: Final call to save the world from ‘climate catastrophe’

There seems little reason to hope that people will react differently to this one than to the 1990, 1996, 2001, 2007, and 2014 reports.

Our collective future is a massive ethical blindspot. People who wouldn’t think about missing a pension contribution or not enrolling their kids in an enriched learning program are collectively deciding by default to ravage the planet which we all depend on, and our political and economic institutions are acting almost exclusively to encourage that outcome.

The right’s anti-carbon-tax hostility

A carbon tax is a liberty-respecting, economically efficient mechanism to help address the threat of climate change and build a sustainable, prosperous society. It ought to be welcomed and supported by policy-savvy fair-minded conservatives who want to live up to their ideals while stewarding the integrity of the planet for future generations.

Meanwhile in Canada: UCP Leader Jason Kenney and Ontario Premier Doug Ford to hold anti-carbon tax rally in Calgary