Category: Economics

Matters of money

At the intersection of entitlement and slaughter

My current home in Toronto’s annex neighbourhood is a weird place and time in which to live. Many of the people up and down my street are simultaneously funding cosmetic renovations to their houses, like installing smooth new bricks and stairs. At the same time, there are people who I see daily and who seem to earn their living by picking liquor bottles out of the city’s big blue wheeled recycling bins.

It all makes me feel like people here don’t understand what is going on. The rich landowners are shelling out in hopes of boosted social status or because of psychological insecurity. At the same time, glass and metal containers which could be recycled just as well by the standard municipal recycling service are worth collecting and bringing to specific stores, at the same time as society largely ignores the harm associated with alcohol, and even encourages its use. In Canada, the four kinds of drugs that cause the most damage to individuals and society are alcohol, tobacco, opiates, and benzodiazepines. People who spend their labour collecting liquor vessels provide no benefit to society, since it doesn’t matter whether municipal recycling or Ontario’s liquor sales system collects the glass and aluminium. Within three blocks of here, restaurants burn methane to encourage customers to sit outside.

This is all magnified by my concern about climate change. All the credible science shows that continuing with business as usual will destroy nations, yet people continue to feel entitled to burn as much fossil fuel as they can afford. People find the flimsiest excuse to justify wasting energy on heating or cooling large spaces, flying thousands of kilometres in jets, and constantly adding to their stocks of material possessions. If there are people in the future, they will probably be right to judge us harshly: as the ones who knew the ruin they were imposing for their own fun and convenience and who chose like psychopaths to do it all anyway.

Trudeau’s carbon pricing plan

Today Prime Minister Trudeau announced that the federal government will require all provinces to have a carbon price of at least $10 per tonne by 2018, rising in $10 increments to $50 per tonne in 2022. There’s a lot of politics at work here. The Alberta government says they will only accept the plan in exchange for an export pipeline, while climate activists emphasize that the whole point of a carbon price is to prevent such projects. Trudeau seems to think he has split the opposition in Parliament, and set up an approach that most Canadians will support:

Polls suggest there is overwhelming support for the idea of carbon pricing, and that many Canadians back the imposition of a national climate change target. Trudeau alluded to that generosity of spirit when he said Canadians are prepared to work together and follow through on the commitments to fighting climate change made in the Paris Agreement on climate change. But such good will has its limits.

Environmental groups rushed Monday to condemn the planned price as being too low to take a bite out of Canada’s emissions. Dale Marshall of Environmental Defence said the carbon price needs to rise at the same rate beyond 2022 — a point on which Trudeau was mute.

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It’s a perfectly sound strategy, provided he forsakes his environmentalist allies. It is becoming clearer by the day, they are not going in the same direction as he is.

Trudeau needs to have the courage to tell Canadians that fossil fuels are on the way out as a source of jobs, tax revenue, and economic prosperity. Building new extraction and export projects is wholly at odds with the direction Canada and the world need to go. A price on carbon is a mechanism for discouraging fossil fuel projects, not an excuse for letting them proceed.

An even tighter carbon budget

When we wrote the fossil fuel divestment brief for the University of Toronto, we thought that humans could “pour roughly 565 more gigatons of carbon dioxide into the atmosphere by midcentury and still have some reasonable hope of staying below two degrees”.

If we’re aiming instead to stay below the 1.5 ˚C limit aspired to in the Paris Agreement, that falls to 353 gigatons more CO2, a figure that means “we’ll need to close all of the coal mines and some of the oil and gas fields we’re currently operating long before they’re exhausted”.

In a way, this makes the politics of climate change simple. Any new project that aims to develop new fossil fuel extraction capacity is either going to need to be abandoned prematurely as part of a massive global effort to curb climate change, or it will be another nail in our coffin as we soar far beyond the 1.5 ˚C and 2 ˚C limit.

Of course, this also makes the politics very difficult. People have a huge sense of entitlement when it comes to both exploiting resources in their jurisdiction and in terms of using fossil fuels with no consideration of the impact on others. The less adjustment time which can be offered to fossil fuel industries, and the more operating facilities that will need to be closed down to avoid catastrophic climate change, the harder it becomes for decision makers to act with sufficient boldness.

The hypocrisy argument for pipelines

Some people who favour the construction of new bitumen sands pipelines have been deploying a particularly weak argument, which echoes a couple of the points that have long been made by people who don’t want to take adequate action to avoid catastrophic climate change. They point out that — in one way or another — any person calling for new pipeline projects to be stopped uses fossil fuels. At a recent Toronto climate change consultation, Adam Vaughan pointed out that a woman wearing plastic-framed glasses was therefore an oil user. In her recent segment on The Current and on Twitter, Martha Hall Findlay has made a similar ‘argument from hypocrisy’, implying that only people with a 100% post-fossil-fuel lifestyle can call for systemic change.

This argument is weak for a number of reasons, but most glaringly it’s because a post-fossil-fuel future isn’t something individuals can ever build through personal choice. The transportation, energy, and agricultural infrastructure around us isn’t something that can be changed without society-wide policy decisions including the use of market mechanisms like carbon pricing, regulations, and sheer governmental determination to leave enough fossil fuel in the ground to avoid the worst impacts of climate change.

The fact that we’re presently dependent on fossil fuels is in fact a reason why we need to stop building new infrastructure that perpetuates that dependence. In a Canada where we’re seriously planning to be part of a fair and effective global transition away from fossil fuel use, we simply can’t build projects like pipelines which will lock in global fossil fuel dependence for decades to come.

The weak argument from hypocrisy is sometimes paired with a superficially more convincing but still deeply problematic argument about demand. People like Findlay assert that the real problem with fossil fuels is the enduring demand, and that we should therefore focus our policy efforts on reducing demand. This is questionable for several reasons. For one thing, if they are sincere about their desire to reduce demand sufficiently to avoid dangerous climate change, that would undermine any need for the pipelines they are promoting, which would be built to support expanded production from Canada’s bitumen sands. Furthermore, in the face of a climate crisis which requires incredibly aggressive action to reduce emissions, it makes no sense to only pursue demand-side policies. We certainly should use everything from carbon taxes to building and appliance standards to reduce demand, but we should simultaneously avoid investment in new extraction and transport infrastructure which perpetuates fossil fuel dependence.

The entitled argument that people who live on top of fossil fuel reserves have the right to dig them up and sell them regardless of the consequences for others (and that fossil fuel users are entitled to whatever demand-side activities they have become used to) is seriously faulty from an ethical perspective. We don’t have the right to impose suffering on others around the world, future generations, and nature. Now that science has made so clear that greenhouse gas pollution is terribly threatening and harmful, those whose economic systems depend on them have a strong and immediate obligation to move to other sources of energy. That moral obligation is fundamentally at odds with building new bitumen sands pipelines, and the ethical argument that supports this position is dramatically more credible than the flimsy assertion that anybody who uses fossil fuels should somehow support new infrastructure as a consequence.

Berman and Findlay on pipelines

CBC’s The Current recently ran a segment on whether Canada’s climate change goals can be reconciled with new pipeline construction. Tzeporah Berman effectively made the case that Energy East, Kinder Morgan, and the Northern Gateway would be means of increasing bitumen sands production, even beyond the unacceptably high cap chosen by the Alberta government, and argued that they are fundamentally incompatible with the climate action Canada committed to in Paris.

In the same segment, Canada West Foundation CEO Martha Hall Findlay seemed to do everything she could to evade the issue of climate change, arguing that Canada simply must enlarge its economy and its emissions and that anyone concerned about climate change should focus on reducing demand (which she expects will increase when pipelines increase Canadian wealth). Her argument boiled down to saying that Canada has an opportunity to profit now, and simply shouldn’t concern itself with what impact new oil infrastructure will have on the climate.

This argument from entitlement — sticking to the assumption that Alberta and anyone else that happens to have oil resources has the right to dig them up and burn them regardless of the impact on people around the world, future generations, and nature — needs to be challenged on ethical terms. Yes, we need to fight climate change by reducing oil demand. At the same time, building infrastructure to serve a world of higher demand is, at best, a wasted investment and, at worst, a choice to lock in pollution that will profoundly threaten the prosperity and security of people around the world.

Ethics and discount rates

The discount rate is a basic tool of accounting and economics: people and institutions often need to deal with costs and benefits which will arise in the future, and it doesn’t usually make sense to simply value them as if they were happening today. A person expecting pension payments of $1,000 per month in thirty years probably shouldn’t value them as though they had the money in hand today, and neither should the organization that will be making the payouts.

To adjust for the time difference, people doing accounting choose an annual discount rate by which to reduce the value of things expected in the future.

Problematically, however, the compounding effects of this across long periods of time can make the specific rate you choose into the most important feature of the calculation. This has an extreme effect in climate change economics.

In the context of pensions, a recent Economist article explained:

The higher the discount rate, the less money has to be put aside now; American public plans tend to use a discount rate of around 7.5%, based on the investment return they expect to achieve…

A promise to pay a stream of pension payments in the future resembles a commitment to make interest payments on a bond. A bond yield is thus the most appropriate discount rate. But given how low bond yields are, pension deficits would look larger (and required contributions would be much higher) if such a discount rate were used. A discount rate of 4%, for example, would mean the average public pension plan would have a funding ratio of only 45%, not 72%, according to the CRR.

That last bit means that American institutions which owe pensions to employees in the future may have only 45% of the money which is necessary for that purpose, rather than the 72% which they currently believe themselves to possess.

While there is an intellectual and even a moral case for discounting the future, it seems clear that it’s a practice with considerable moral risks associated. We are in a situation where simply by making optimistic assumptions we can reduce the burden which we owe to future generations. If we get things wrong, especially in the multi-century case of climate change, they will have no way to hold us to account.

Psychologically, this may also lead to us ‘discounting the future’ in other ways. If people expect corporate and government pension plans to be broke by the time they retire, it may inspire a super-cautious response of independent personal pension saving, or it may lead to people writing off any hope of financial stability in old age and simply ignoring the risk. Such temptations may be even greater for those who see the massively inadequate response the world is undertaking in relation to climate change and ask whether – even if governments, firms, and individuals did set aside adequate retirement savings in the near future – the world will still be intact enough in the second half of the 21st century for those funds to be meaningful.

Fix it with a fire tornado

Somehow, this article seems indicative of the low quality of a lot of our thinking about environmental issues: Mesmerizing ‘blue whirl’ from fire tornado could be cleaner solution for oil spills: Scientists discover clean-burning blue flame while simulating a fire tornado in the lab.

It seems a particularly questionable application of the idea that technology can correct environmental problems. Calling fire tornadoes used to burn up oil spills “remediation” stretches the bounds of both vocabulary and plausibility.

The history of the Arab Spring

The New York Times has published an exceptional long article by Scott Anderson about the history of the Middle East since 2003. It’s an ambitious text to have written, not a trivial task to read, and perhaps a suggestion that print journalism is enduring in its dedication to telling complicated stories, despite ongoing challenges to the business model and staffs of many of the most important print sources. It also includes some remarkable photography by Paolo Pellegrin.

A summary, early in the article, attributes special importance to the post-Ottoman settlement:

Yet one pattern does emerge, and it is striking. While most of the 22 nations that make up the Arab world have been buffeted to some degree by the Arab Spring, the six most profoundly affected — Egypt, Iraq, Libya, Syria, Tunisia and Yemen — are all republics, rather than monarchies. And of these six, the three that have disintegrated so completely as to raise doubt that they will ever again exist as functioning states — Iraq, Syria and Libya — are all members of that small list of Arab countries created by Western imperial powers in the early 20th century. In each, little thought was given to national coherence, and even less to tribal or sectarian divisions. Certainly, these same internal divisions exist in many of the region’s other republics, as well as in its monarchies, but it would seem undeniable that those two factors operating in concert — the lack of an intrinsic sense of national identity joined to a form of government that supplanted the traditional organizing principle of society — left Iraq, Syria and Libya especially vulnerable when the storms of change descended.

This accords closely to Middle Eastern history as interpreted by many of the sources we read in my Oxford M.Phil. In particular, it reminds me of David Fromkin’s A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East.

The AC dilemma

After many shorter spans which left us sweating in our third floor rooms, Toronto is now immersed in the longest and most intense heat wave of the summer so far.

This leaves me feeling awkward about actually owning an air conditioner, which I have never moved from its storage location in our living room. During my long search for accomodation, I saw many, many deeply unappealing, distant, and overly expensive rooms. When the chance to rent this one arose, I wanted to do everything possible to avoid somehow losing this one. So, when the previous inhabitant wanted to sell me his furniture (as well as most of the furniture in the common areas) I was willing to do so at the prices he initially suggested. That’s how I ended up with a $150 air conditioner which fits in my window but which I have never turned on.

My reluctance is entirely about the energy use and associated greenhouse gas emissions. Remarkably, in a city that goes below -20 ˚C in winter, Toronto’s highest energy demand is during hot summer days when everyone turns their air conditioning on. This isn’t so remarkable really, in part because cooling is fundamentally less efficient than heating. Turning electricity into heat is essentially a 100% efficient process. By contrast, refrigeration requires the inefficient compression of a coolant (producing heat as an unwanted by-product) which is then expanded in the area to be cooled and circulated elsewhere to be re-compressed and release the heat it has absorbed into the outside environment.

Perhaps worst of all is that when energy demand peaks, Ontario cannot produce enough electricity from low-carbon sources including large-scale hydroelectric and nuclear — instead turning on natural gas ‘peaker’ plants that would not otherwise run, like the Portlands Energy Centre.

Another oddity is that, for renters like us, electricity bills are paid by the landlord. Cooling would thus have no associated financial cost for me.

There are arguments in favour of me using AC. At the best of times, summers carry a danger of being inefficient doldrums. Without the structure asociated with teaching tutorials, regular meals at Massey, regular contact and communication with colleagues, and all the other motivating accompaniments of the school year, it can be easy to become unproductive. This is even more true when it is too hot to sleep, or even to sit in my room reading or doing research in a productive way.

I do have fairly easy access to cooled work areas at Massey College and Robarts Library, and that has been my chief means of escaping the heat.

This particular wave is meant to break over the next few days. I am greatly looking forward to the fall, which I think may be my favourite season in this part of the world. As in Ottawa, it provides an enjoyably span of pleasantly cooler and cooler days. Even the depth of winter is far preferable to mid-summer, in my eyes. I can always break out the wool long underwear, and wearing coats is often convenient for carrying things. By contrast, summer often leaves us with worsening the climate change plight of everyone in the future as our only means of avoiding the discomfort of heat and humidity right now.

As for the air conditioner, I can’t sell it because that would certainly lead to it being frequently used. Perhaps the best option is to find somewhere that can remove the coolant, since they are powerful greenhouse gases when they leak, and recycle as much of the rest of the device as possible.