Category: Economics

Matters of money

Fossil fuel divestment update

The University of Toronto has now officially created a committee to consider fossil fuel divestment.

One of my big tasks in the weeks ahead will be to update the brief with everything important that has happened since it was opened for attestations last September.

From the date when they first meet, the committee will have a year to produce a recommendation. President Gertler will then make his own recommendation to the Governing Council, which in turn will make the final decision.

One auction for all the ‘safe’ greenhouse gas pollution?

If a way could be found to make firms and governments take it seriously, it seems like a single auction of all the planet’s ‘safe’ remaining carbon emissions could be an alternative form of carbon pricing with some virtues.

Starting with the goal of keeping warming to under 2˚C, we could estimate the total quantity of greenhouse gas (GHG) emissions that humanity can still produce. In order to make the auction at all fair, it would need to take into account national populations and levels of wealth. Probably, it should be set up so that everyone is positioned to acquire equal per-capita shares in the world’s remaining emissions.

If confidence is created that no more credits will ever be auctioned, we can expect the price of those from the initial auction to rise across time as people use them up and trade them. People in countries with excessively high per-capita emissions (like Canada, Australia, and the United States) will find themselves burning through their reserves at a frightening pace, and face a strong incentive to cut emissions quickly.

Of course, there would be many challenges with such an approach. Governments would need to agree to participate. Global monitoring of GHG emissions would be necessary. Rogue governments, individuals, and firms could simply disregard the system. Splitting up the emission allowance between present and future generations is also a major problem (especially since the smartest course of action is probably to save a big chunk of the remaining total for the activities that are hardest to decarbonize, like air travel and space launches). All that being said, an auction of the whole resource would strongly reinforce the idea that humanity has a finite amount of atmospheric space for GHG pollution and that we need to move aggressively to stay within the limit.

Blundstone #500 boots

Since the summer of 2011 – right before my bus trip to New Orleans and Washington D.C. – I have been wearing the same pair of Blundstone #500 boots. Buying brand new boots right before a trip was a big mistake, since stretching the side of each boot to accommodate my smallest toe was a long and surprisingly painful process. Despite mostly sitting still, the boots made that long bus ride very painful, and complicated walking about effectively in NOLA and Washington. Once about three weeks had passed, however, the boots proved very comfortable, functional, and versatile. I have worn them with suits at work and formal events, and with every type of clothing in conditions ranging from hot summer days to blizzards.

Now, after years of constant wear, the boots have holes in the leather sides (the leather itself still looks great after a bit of polishing). There is also an especially problematic hole in the rubber sole, right under the ball of my right foot. When the ground is even a bit wet, it acts as a suction device, rapidly drenching my sock.

As soon as I have some money in my bank account again, I intend to pick up another pair. Rather than trying to break them in through continuous wear, my plan is to wear the new boots 25% of the time at first, progressively increasing that figure until they are my main footwear.

The latest nuclear fusion enthusiasm

I have written about nuclear fusion as an energy source before:

Periodically, however, there are news stories about supposed breakthroughs in fusion technology with the potential to be rapidly and affordably deployed, potentially curbing climate change.

I have seen enough of these stories in my life to be pretty skeptical, but this can be a thread for keeping track of and discussing them.

Here’s the latest: Lockheed says makes breakthrough on fusion energy project

Responding to Kenneth Green on renewable energy

On CBC’s The Current this morning, Kenneth Green – the Senior Director for the Centre for Natural Resources at the Fraser Institute – made quite a string of erroneous claims about climate science, renewable energy, and the climate change activist movement.

His most serious error, I think, was arguing that states like Ontario and Germany are going to regret their decision to invest in climate-safe and renewable forms of energy. Like a lot of mistaken analysis about energy politics, Mr. Green’s ignores the necessity of decarbonizing the global economy if we are not going to cause so much climate change that we completely wreck human prosperity, while simultaneously endangering huge numbers of lives and critically important natural systems.

In the decades ahead, it’s going to be states like Canada that seriously regret the energy choices they made at this time. While others will have begun the necessary transition to energy sources that we can rely on indefinitely, Canada will eventually need to make the same transition more rapidly and at greater expense. We will need to scrap inappropriate high-carbon infrastructure including oil sands projects, pipelines, and tight oil and gas hydraulic fracturing projects – and do so well before the end of what their economically viable lifetimes would be in the absence of climate change. Then, we will need to build appropriate infrastructure at a greater pace and a higher cost, while suffering worse impacts from climate change. These impacts will be worsened both by Canada’s direct contribution to the severity of climate change and by the indirect way through which Canadian inaction has encouraged continued fossil fuel dependence in the rest of the world.

It’s disappointing that quality current events programs like The Current still feel the need to bring on fossil-fuel-enthusiast dinosaurs whenever they discuss climate change. As organizations from the United Nations to the World Bank to the Pentagon have long recognized, the question now is how to succeed in the transition to a climate-safe global economy, not whether there is any viable case for remaining tied to coal, oil, and gas.

Hopefully, this weekend’s People’s Climate March will help instill a sense of urgency and determination in political leaders and the general public. As the major economic assessments of climate change like the Stern Report have concluded unequivocally, the intelligent choice in purely economic terms is to do what states like Germany have begun: to stop investing in high-carbon infrastructure projects that are no longer appropriate for the world in which we live, to phase out fossil-fuel energy beginning with the most harmful forms like coal plants, and to commit to the deployment of a new energy system which is climate-safe and which can be relied upon indefinitely.

Tax expenditures and the complexity of the tax code

One constant in tax policy-making is efforts by organized interests to obtain exceptions from the code. This has become especially pervasive in the U.S. corporate tax system:

America’s corporate tax has two horrible flaws. The first is the tax rate, which at 35% is the highest among the 34 mostly rich-country members of the OECD. Yet it raises less revenue than the OECD average thanks to myriad loopholes and tax breaks aimed at everything from machinery investment to NASCAR race tracks. Last year these breaks cost $150 billion in forgone revenue, more than half of what America collected in total corporate taxes.

(Note that I don’t necessarily agree that corporate taxes in the U.S. are too high, just that the tax code is too complex and favours the politically influential and well-connected.)

Limits to a social cost of carbon

In some ways, the idea of a social cost of carbon is fundamentally sound. Adding CO2 to the atmosphere harms people around the world in various ways which can be measured and quantified. Applying that in the form of a carbon price should allow us to better adjudicate between activities where the total benefits exceed the total costs (including climate damage). It should also help us identify where the most cost-effective options are for reducing emissions and mitigating climate change.

At the same time, there are some issues with the approach. For one, it suggests false confidence and draws attention away from the possibility of abrupt, irreversible, and catastrophic outcomes. There are climatic thresholds out there where increased concentrations lead to dramatic global changes and major impacts on human life. Adding $50 (or whatever) to the cost of an activity that adds a tonne of CO2 to the atmosphere conceals these dangers, suggesting that the harm imposed will always be incremental and manageable. Another tonne of CO2 in the atmosphere isn’t essentially equivalent to a little fine everybody pays. Rather, it represents a threatening degradation to the stable climatic regime that has accompanied the existence of human civilization. Moving from relative stability into a realm where global weather patterns are rapidly and violently shifting involves experiences that cannot be easily equated to simple monetary costs.

The social cost of carbon approach also conceals some of the costs of carbon that aren’t easily quantifiable in financial terms. It’s a lot easier to work out the additional cost of desalinating drinking water than it is to estimate the financial value we should assign to losing an ecosystem or having an important cultural site permanently immersed in the sea.

Further, using a single price suggests that the damage from every tonne of emissions is the same. This is essentially true for emissions that happen at the same time – the tonne of CO2 emissions you produce by running your gasoline lawn mower affects the climate as much as the tonne of CO2 I produce by running my gas furnace. However, climate science has convincingly demonstrated that the total harm done by carbon accumulating in the atmosphere isn’t linear across time. Warm the planet by a degree or two and human and natural systems can adapt comparatively easily. By the time you are going from 5˚C of warming to 6˚C, you will probably be experiencing catastrophic new forms of harm that nobody can really adapt to. Using a single social cost of carbon may make this idea harder to grasp, a well.

Applied properly, a social cost of carbon may be a useful tool for helping individuals, firms, and countries internalize the climate damage associated with their choices. In the big picture, however, the challenge for humanity is to control fossil fuel use and land use change such that we don’t cause catastrophic damage to the planet’s natural systems. Achieving that requires a sustained effort to abandon fossil fuels as sources of energy, while protecting carbon sinks. Insofar as a social cost of carbon helps encourage that transition, it is to be welcomed. When it contributes to the miscategorization of the problem as a whole, however, there is cause for concern.