Category: Economics

Matters of money

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.

Open thread: energy storage

One challenge with energy sources like solar and wind is that their output varies with local environmental conditions, and not necessarily in ways that correspond to energy demand.

Hence, having energy storage capacity makes them easier to integrate into the grid. There are many options: pumped hydroelectric storage, tidal storage, batteries, compressed air, molten salt, and potentially hydrogen.

It is also possible to balance output from different kinds of renewable stations, using biomass, solar, wind, tidal, and other forms of energy to cover one another’s fallow periods.

Obama climate interview

Thomas Friedman interviews Obama on climate change, and the president explicitly states that we can’t burn all the world’s remaining fossil fuels and that we should keep to the target of keeping warming below 2˚C.

He also endorses a price on carbon.

This makes it seem that Obama does understand the key dimensions of climate change; he just hasn’t made dealing with it a high enough priority to produce the kind of progress that is necessary for achieving the 2˚C target.

Stanford to divest from coal

Stanford University has announced that it will be divesting its $18.7 billion endowment from direct holdings of coal company stock.

This is great news for the campaign at U of T, given the size of the endowment and the credibility of the school.

The divestment campaign in general has huge potential to snowball, as each decision to divest makes it easier for other schools to make the same choice.

Sea-based nuclear power stations

Sea-based nuclear power stations would offer some advantages over the terrestrial sort:

For one thing, they could take advantage of two mature and well-understood technologies: light-water nuclear reactors and the construction of offshore platforms… The structures would be built in shipyards using tried-and-tested techniques and then towed several miles out to sea and moored to the sea floor…

Offshore reactors would help overcome the increasing difficulty of finding sites for new nuclear power stations. They need lots of water, so ideally should be sited beside an ocean, lake or river. Unfortunately, those are just the places where people want to live, so any such plans are likely to be fiercely opposed by locals.

Another benefit of being offshore is that the reactor could use the sea as an “infinite heat sink”… The core of the reactor, lying below the surface, could be cooled passively without relying on pumps driven by electricity, which could fail…

At the end of its service life, a floating nuclear power station could be towed to a specially equipped yard where it could be more easily dismantled and decommissioned. This is what happens to nuclear-powered ships.

The article mentions the Akademik Lomonosov, a Russian ship-based nuclear power system with an output of 70 megawatts. It uses the same kind of reactors that power the Taymyr-class icebreakers. Unfortunately, several such stations are intended to provide power for offshore oil and gas development.

The earliest floating nuclear power station went critical in 1967, inside the hull of a Liberty ship. It provided 10 megawatts to the Panama Canal Zone from 1968 to 1975.

Open thread: thorium-fueled nuclear reactors

Whenever the many problems with nuclear power are raised, there are people who suggest that everything could be fixed with a substantial technical change: moving to generation IV reactors, for instance, or the ever-elusive fusion possibility.

Another common suggestion is that using thorium for reactor fuel could limit concerns about proliferation, as well as (modest) concerns about uranium availability.

I have read a lot of contradictory things on the subject of thorium, so it seems useful to have a thread tracking information on the issue.