Author Archives: Gernot Wagner

Four Years in the Making: The Big U.S. Climate Review

(Note: This post was co-written with Graham McCahan and was first published on EDF Voices.)

Congress may be ignoring climate change these days, but there are laws already in place that make progress possible, right now, on this defining issue.

Take the Clean Air Act. Under it, the President has begun to use his authority – as confirmed by the U.S. Supreme Court – to regulate greenhouse gases in a serious way.

The Global Change Research Act is another, lesser known law that could have a major impact on the national understanding of what climate change is doing to our world.

Congress passed the Act in 1990 to provide for “a comprehensive and integrated United States research program which will assist the Nation and the world to understand, assess, predict, and respond to human-induced and natural processes of global change.” What that means, in part, is that the government must prepare a National Climate Assessment every four years. The next report is due out this June.

April 12 was the deadline for public comments on the draft report.

A lot has happened since the last assessment in 2009. The country has begun to experience the effects of climate change: droughts, floods, heat waves, two hundred-year storms hitting New York City within two years. The abnormal is becoming the new normal. (True, no single such event can be conclusively linked to the fact that the average American emits carbon dioxide equal to his body weight every day and a half. But that’s like saying that no single Barry Bonds homerun or Lance Armstrong Tour de France win can be linked to doping.)

This year’s quadrennial report should set the standard as an analysis of these phenomena. Thus far, the draft assessment, written by some of the nation’s leading scientists and experts, is rich in sobering data and analysis on things like extreme weather and the damage it is causing. But its consideration of the economic impacts of climate change – the enormous and rising costs — is scattershot and incomplete.

For example, the draft report shows that the 2011 Texas drought cost farmers and ranchers in that state over $5 billion. And it tells us that wastewater utilities will have to spend between $120 billion and $250 billion by 2050 to adapt their infrastructure to a changed climate. But the draft makes no attempt at a rigorous estimate of the costs of climate change, or the rising costs of inaction in the face of it.

Between now and June, this weak spot needs to be shored up by the report’s authors.

EDF, in its official comments to the National Climate Assessment, is urging that it incorporate all relevant information on the economics of climate change, whether from the federal government or the private sector. That’s the only way to get a handle on the costs that climate change is levying on each and every one of us.

Recently, for example, the independent, nonpartisan, U.S. Government Accountability Office, warned that climate change “presents a significant financial risk to the federal government” in four key areas:

1) Damage to federal property and infrastructure, and associated adaptation costs.

2) Rising costs for federal insurance programs. For instance, the federal government’s crop insurance costs have increased from an average of $3.1 billion per year from 2000 through 2006 to an average of $7.6 billion per year from 2007 through 2012; and these costs are projected to increase further.

3) Costs related to providing assistance to state and local governments to respond to local climate impacts.

4) Rising costs of climate disaster relief. For example, federal disaster declarations have increased over recent decades, and the Federal Emergency Management Agency (FEMA) obligated over $80 billion in assistance for disasters from 2004 through 2011. The growing number of disaster declarations—a record 98 in fiscal year 2011 compared with 65 in 2004—has contributed to increased federal disaster costs.

Material like that should be included in the final assessment.

The same holds true for data from the private sector. In a recent report, the world’s largest reinsurance company, Munich Re, analyzed the costs of severe weather in North America. It found that the number of natural catastrophes escalated from 1980 through 2011, as did the losses for weather-related events during the same time period – both insured and uninsured. The total losses from weather catastrophes over these three decades exceeded $1.06trillion. About half, $510 billion, were insured losses. The rest wasn’t. All of it was ultimately born by all of us – whether in increased taxes or insurance premiums, or directly out of our wallets.

The Global Change Research Act compels the government to make a definitive assessment of what climate change is doing to the nation’s health and welfare. In that spirit, the National Climate Assessment, when it is released in June, should strive to be the last word on the issue – to set the terms of the debate.  And let’s hope it also helps move our elected leaders to action.

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Why does no one in Thailand recycle, Bangkok is a polluted mess, yet everyone uses CFLs?

Few Thais recycle, no one bikes, plastic bags are everywhere and Bangkok is afflicted by gridlock and pollution. So you might say that, in general, Thais behave more like citizens of a rapidly emerging economy than the typical Brooklyn environmentalist.

Why, then, does virtually every home use efficient compact fluorescent lights (CFLs). Americans and Europeans needed a ban on incandescent bulbs to make the switch. Not so the Thais, where you can still buy cheaper, more inefficient incandescent bulbs at the corner store.

Was it the influence of a higher authority? Thais famously revere their 85-year-old King, the world’s longest-reigning head of state, who happens to be an environmentalist.

The answer is, mostly, no.

Continue reading at EDF Voices.

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Nature: The rebound effect is overplayed

Trying to put the rebound effect for energy efficiency in its rightful place is like playing a game of wack-a-mole. Predictably every couple of years, someone new discovers the counter-intuitive appeal of showing how more efficient energy policies may lead to more energy use. Wham! Told you there's something wrong with those clean-car standards. Well, not so fast.

Yes, the rebound effect is real. But it's also small. And what's there is actually positive! Why shouldn't people who can now afford to due to more efficient energy technologies be able to improve their lives?

Together with three co-authors (Ken Gillingham at Yale, Dave Rapson at University of California, Davis, and Matt Kotchen, currently on leave from Yale to serve as Deputy Assistant Secretary for Environment and Energy at the U.S. Treasury), I surveyed a bajillion+1 energy efficiency rebound studies. Nature then made us cut down those references to 6. We settled at 9.

We couldn't find a single study that has the rebound be above 100% or anything close to it, what's necessary to nix energy efficiency savings. The maximum number you can get is 60%, and that's already quite a stretch. Think 30% as the upper bound for actual behavioral responses. Yes, we are more efficient today than we were a hundred years ago, and we also use more energy today. But that's far from talking about the rebound effect. It's simply economic growth.

Establishing a causal link between efficiency and energy use isn't quite as simple. In the end, the rebound effect comes in four forms. Buy a more fuel-efficient car, and driving that next mile just became cheaper. The result: a bit more driving, to the tune of 5 to a maximum of 30%, although most likely much closer to 5-10% of the initial fuel savings. Then there's the indirect effect: Drivers may now use some of the savings to buy other products that consume energy.

You can already see that we can't just add these two effects. If you spend some of the gas money on driving more, you have less to spend on that plane ticket, and vice versa.

Then there are two macroeconomic effects: one via the price and one via technological advances. They are the trickiest to pin down and could, in theory, be the largest. But theory lends a helping hand in getting an upper bound: the basic demand-and-supply relationship tells us that the macroeconomic price effect can't be more than 100%.

And once again, all these effects aren't anywhere near that threshold. 60% is as high as it gets for the combined effect, and only in rare circumstances. For the most part, it's much closer to 5 to perhaps 30%.

So where does that leave us?

When designing energy efficiency policies like clean-car standards, consider the rebound effect, much like the government already does. The Department of Energy's model uses a highly appropriate 10% rebound figure for the car standards. And that's about it. Not much else to see here.

If you did want to take it a step further — full disclosure: a step I couldn't convince my three co-authors to take in the Nature piece itself — everything else equal, the existence of the rebound effect may prompt us to use even stricter energy efficiency standards. If you have an overall target in mind, and the rebound effect shaves off a bit, you ought to consider using a slightly stricter target to get back to where you wanted to be.

For more, check out the full Nature piece. Well worth the $32 to put the rebound effect in its rightful place once and for all.

Posted in Clean Air Act, Politics| Leave a comment

Geoengineering: ignore economics and governance at your peril

Cross-posted from Climate 411.

How serious is global warming? Here’s one indication: the first rogue entrepreneurs have begun testing the waters on geoengineering, as Naomi Klein laments in her must-read New York Times op-ed.

Sadly, Klein misses two important points.

First, it’s not a question of if but when humanity will be compelled to use geoengineering, unless we change course on our climate policies (or lack thereof). Second, all of this calls for more research and a clear, comprehensive governance effort on the part of governments and serious scientists – not a ban of geoengineering that we cannot and will not adhere to. (See point number one.)

Saying that we ought not to tinker with the planet on a grand scale – by attempting to create an artificial sun shield, for example – won’t make it so. Humanity got into this mess thanks to what economists call the “free rider” effect. All seven billion of us are free riders on the planet, contributing to global warming in various ways but paying nothing toward the damage it causes. No wonder it’s so hard to pass a sensible cap or tax on carbon pollution. Who wants to pay for something that they’re used to doing for free – never mind that it comes at great cost to those around them?

It gets worse: Turns out the same economic forces pushing us to do too little on the pollution front are pushing us toward a quick, cheap fix – a plan B.

Enter the Strangelovian world of geoengineering – tinkering with the whole planet. It comes in two distinct flavors:

  • Sucking carbon out of the atmosphere;
  • Creating an artificial sun shield for the planet.

The first involves reversing some of the same processes that cause global warming in the first place. Instead of taking fossil fuels out of the ground and burning them, we would now take carbon dioxide out of the atmosphere and bury it under ground. That sounds expensive, and it is. Estimates range from $40 to $200 and more per ton of carbon dioxide – trillions of dollars to solve the problem.

That brings us to the second, scary flavor, which David Keith, a leading thinker on geoengineering, calls “chemotherapy” for the planet. The direct price tag to create an artificial sun shield: pennies per ton of carbon dioxide. It’s the kind of intervention an island nation, or a billionaire greenfinger, could pay for.

You can see where economics enters the picture. The first form of geoengineering won’t happen unless we place a serious price on carbon pollution. The second may be too cheap to resist.

In a recent Foreign Policy essay, Harvard’s Martin Weitzman and I called the forces pushing us toward quick and dirty climate modification “free driving.” Crude attempts to, say, inject sulfur particles into the atmosphere to counter carbon dioxide already there would be so cheap it might as well be free. We are talking tens or hundreds of millions of dollars a year. That’s orders of magnitude cheaper than tackling the root cause of the problem.

Given the climate path we are on, it’s only a matter of time before this “free driver” effect takes hold. Imagine a country badly hit by adverse climate changes: India’s crops are wilting; China’s rivers are drying up. Millions of people are suffering. What government, under such circumstances, would not feel justified in taking drastic action, even in defiance of world opinion?

Once we reach that tipping point, there won’t be time to reverse warming by pursuing collective strategies to move the world onto a more sustainable growth path. Instead, speed will be of the essence, which will mean trying untested and largely hypothetical techniques like mimicking volcanoes and putting sulfur particles in the stratosphere to create an artificial shield from the sun.

That artificial sunscreen may well cool the earth. But what else might it do? Floods somewhere, droughts in other places, and a host of unknown and largely unknowable effects in between. That’s the scary prospect. And we’d be experimenting on a planetary scale, in warp speed.

That all leads to the second key point: we ought to do research in geoengineering, and do so guided by sensible governance principles adhered to be all. We cannot let research get ahead of public opinion and government oversight. The geoengineering governance initiative convened by the British Royal Society, the Academy of Sciences for the Developing World, and the Environmental Defense Fund is a necessary first step in the right direction.

Is there any hope in this doomsday scenario? Absolutely. Country after country is following the trend set by the European Union to institute a cap or price on carbon pollution. Australia, New Zealand, South Korea, and also California are already – or will soon be – limiting their carbon pollution. India has a dollar-a-ton coal tax. China is experimenting with seven regional cap-and-trade systems.

None of these is sufficient by itself. But let’s hope this trend expands –fast – to include the really big emitters like the whole of China and the U.S., Brazil, Indonesia, and others. Remember, the question is not if the “free driver” effect will kick in as the world warms. It’s when.

Posted in Climate science, International, Politics| Leave a comment

Australia's landmark legislation will put price on carbon pollution, create world’s second-largest carbon-price system

By Jennifer Andreassen, originally posted on our Climate Talks blog.

As expected, Australia’s upper house of Parliament voted yesterday to adopt a carbon price, which will compel Australia’s largest polluters, beginning July 1, 2012, to pay for their carbon pollution.

Australia will have the largest carbon-price system in the world outside Europe's, after its upper house approved the Clean Energy Future package of bills Nov. 8. The package of bills aims to cut emissions from coal-dependent Australia 80% by 2050 from 2000 levels.

The legislation’s passage will give Australia, which has the highest per capita emissions of any developed country in the world and uses even more coal than the United States, the largest carbon-price system in the world outside of the European Union. (That is, the largest outside the EU until California’s program takes effect in January 2013; California last month approved the largest, first-ever economy-wide carbon market in North America, which could eventually link to other sub-national, national and regional markets around the world.)

EDF applauds Australia on its leadership on the vitally important problem of climate change. This vote is another indication that more and more countries around the world – with the U.S. being a notable exception – are taking climate change seriously. The legislation also backs Australia’s international commitment to reduce emissions by between 5 and 25 per cent by 2020 from 2000 levels.

The Clean Energy Future Package

The Clean Energy Future package is made up of 18 bills that will assign a price to carbon starting July 1, 2012 and cut Australia’s emissions 5% below 2000 levels by 2020 (though the target can be strengthened based on science or international action), and 80% below 2000 levels by 2050.

Australia’s 400-500 largest emitters will be covered by the carbon price, which will take the form of a fixed price (starting at A$23 per metric ton) for the first three years, and shift to a carbon market emissions trading system in 2015.

As we mentioned when Australia’s lower house passed the clean energy legislation on October 11, the Clean Energy Future package will shift Australia’s energy towards cleaner and renewable sources by:

  1. Placing a price on carbon.
  2. Creating a market-based system with plans to link it with ‘credible international carbon markets or emissions trading schemes in other countries’ – like New Zealand and Europe – after 2015.
  3. Giving a big boost to renewable energy research and development and deployment through a new $10 billion financing vehicle, the “Clean Energy Finance Corporation.”

(The Southern Cross Climate Coalition has some more details on the legislation in its analysis, as does Natural Resources Defense Council’s Jake Schmidt in his post Congrats Australia! Law passed which will require mandatory carbon pollution reductions for major polluters.)

Climate groups in Australia welcomed the passage of the laws, as did:

Australian Prime Minister Julia Gillard, who told reporters:

Today we have made history. … This is about what's right for the nation's future.

Deutsche Bank Australia carbon analyst Tim Jordan, who said:

This is a very positive step for the global effort on climate change. It shows that the world's most emissions-intensive advanced economy is prepared to use a market mechanism to cut carbon emissions in a low-cost way.

CEO of The Climate Institute John Connor, who said:

This is a vital cog in Australia's pollution reduction machinery with the potential to help cut around 1 billion tonnes of carbon pollution from the atmosphere between next year and 2020.

This vote means Australia now brings greater credibility going into international climate negotiations starting later this month in South Africa. It also puts wind in the sails of other jurisdictions about to introduce, or considering, emissions trading schemes which similarly price and limit carbon pollution.

The G20 Cannes Action Plan for Growth and Jobs even highlights the Australian legislation as an example of how members will “enhance competition and reduce distortions” in its plan to create “sustained, broad-based reforms to boost confidence, raise global output and create jobs.”

What’s next for Australia

Now, the Government moves into implementation mode, which means it will take to:

  • Establishing new institutions, including the Climate Change Authority (to recommend on future emissions targets); the Clean Energy Finance Corporation; and the Clean Energy Regulatory to oversee the market;
  • Finalizing contracts next year to close 2000 MW of brown coal power generation;
  • Working with New Zealand and EU officials on linking schemes after 2015.

Linkages to international carbon markets that are built into the system will also see Australia become a key player in the international offset market.

And Australian officials will be able to hold their heads high at the UN climate conference in Durban at the end of this year, as they promote their joint proposal with Norway for a roadmap to a 2015 global climate treaty.

Posted in Cap and Trade Watch, International, Politics| Leave a comment

Single-action bias

We all want to do something, anything. We don't just want to sit idle and watch events unfold around us. Call it "action bias."

Then there's "single-action bias."

We all want to do something, anything, but once we've done that one thing, we move on. For something as intractable and complex as global warming, that's a real problem.

Yes, replace your inefficient incandescent light bulb with more efficient compact fluorescent ones, but don't believe for a second that single action solved the problem.

Recycle. Just don’t think it’ll stop global warming. Make the planet notice.

For daily musings like these, take a look at EDF economist Gernot Wagner's personal blog.

Posted in 1000 words, Climate science, Politics| Leave a comment

Newsflash: Clean Air Act saves lives, boosts GDP

We have sometimes been the bearers of bad news on jobs in the past. Not bad news, really. Realistic news. So excuse me for being a bit giddy at the sight of the latest piece of very realistic—and very good—news.

The EPA just released a new White Paper that turns out to be as green as it is red, white, and blue.

Lives and health at a bargain price

First, it starts with what really matters when considering the impact of the Clean Air Act—health and the corresponding social and economic benefits:

  • 18 million child respiratory illnesses prevented in 1990 alone,
  • 200,000 lives saved that year (160,000 in 2010),
  • total benefits outpacing costs 30:1 since 1990.

These are the key figures we need to keep in mind. Always.

Healthy kids means a healthy workforce

For anyone who isn't yet satisfied but worries about the economic impact of the Clean Air Act, there's more good news:

Protecting children from neurotoxins leads to workers with higher IQs.

That should be an obvious statement. It also turns out to come with real economic benefits. The latest study by Harvard's Dale Jorgenson et al shows that the Clean Air Act has boosted productivity and growth:

GDP in 2010 is 1.5 percent higher than it would have been without the Clean Air Act.

Again, that's GDP. Hard economic growth. The number that measures everything except that which makes life worthwhile.

Clean and competitive

Lastly, the paper concludes with a look at competitiveness concerns. The verdict: the Clean Air Act does not harm competitiveness.

That's not as strong as saying that the Clean Air Act improves U.S. competitiveness. Improving productivity also improves competitiveness, and combining the standard competitiveness arguments with Jorgenson's productivity results may well show that to be the case.

But no one to my knowledge has done that yet credibly. (Of course, I'd love to be proven wrong on that point.) To the full credit of EPA and the credibility of its analysis, the paper does not go that far either.

The White Paper stays well within the mainstream of economic analysis of the Clean Air Act and bears plenty of good news for health, wealth, and the planet.

Read it at your own peril. It may well be the first piece of economic analysis that makes you giddy yourself.

Posted in Markets 101, Politics, Technology| Leave a comment

Carbon trading grows up

Cross-posted from Reuters AlertNet.

When someone robs a bank, nobody challenges the legitimacy of banks. They suggest instead that the bank find better security. Why should carbon markets be any different?

Wednesday last week the European Commission (EC) discovered cyber thefts of carbon allowances valued at around €30 million from accounts in a handful of member states. It promptly halted all trading in its nearly €130 billion/year market until the holes could be plugged, accounts could be cleared, the stolen allowances could be traced by their unique identifying numbers, and culprits could be identified.

The fact that some trading registries are apparently less secure than your Facebook account is a clear problem and points to serious underinvestment in market infrastructure and security.

It certainly does not call into question, however, the idea of carbon trading, although some opponents of carbon markets have taken that step. These people range from outright climate deniers—those who can't even admit we have a global warming problem—to those who believe that markets aren't the most efficient way of addressing climate change, to those who can't capitalize on the carbon market's opportunities.

Let's be clear: Putting a firm limit on carbon pollution, and providing polluters with flexibility in determining how to reduce pollution—including through transparent trading of pollution allowances—is fundamentally the best way to combat global warming pollution.

This basic fact is not changed by a €30 million theft of carbon credits that might have been prevented through a €10 thousand investment in security software and better computer hardware. Although not perfect, markets are the most rational and efficient way of allocating resources toward filling a specific need. Every stock exchange on the planet faces attempted cyber attacks, and most are well equipped to deal with them.

A day after the theft was discovered, the EC released a wholly separate, long-awaited decision to stop accepting pollution credits generated by destroying trifluoromethane, HFC-23, and nitrous oxide. Opponents of carbon markets seized on this announcement as further evidence that carbon trading markets aren’t working.

But actually, the EC's decision to stop accepting these credits is the right move. HFC-23 was originally developed as an alternative to ozone-depleting chlorofluorocarbons. HFC-23 is a potent global warming gas, and destroying it helps the climate.

However, trading in HFC-23 credits creates perverse incentives. With a high enough price for carbon credits, it could make economic sense to build factories that produce HFC-23 for the sole purpose of destroying the gas and collecting credit for doing so. A better way for dealing with HFC-23 would be to subsume it under the successful Montreal Protocol, which is working to repair the hole in the ozone layer.

The coincidence of the EC’s decision to stop trading HFC-23 credits and the temporary suspension of trading on the heels of the carbon allowance theft, gave opponents of trading the opportunity to launch a two-pronged critique of carbon markets. But barring HFC-23 credits from entering the EU system can only be applauded—it's entirely in the spirit of putting a firm upper limit on carbon pollution.

These two events highlight the carbon opportunity for the EC going forward. The emissions trading system has already proven its worth as the centerpiece of European efforts to cut global warming pollution. By improving the technical security of its trading program, the EC can assure investors that no more emissions allowances will be purloined.

And by closing its carbon market to credits from one-off HFC-23-type projects of dubious environmental value, and instead linking the EU market with jurisdictions that establish high-quality cap-and-trade systems, the EC can strengthen its own market and challenge others who are developing similar policies—from New Zealand to Tokyo to California, and beyond—to follow suit.

In the end, that’s all that counts—and the only thing the planet truly notices.

Posted in Cap and Trade Watch, International, Politics| 2 Responses

Not the U.S. or China, but the U.S., China and the Planet

One of the pleasures of my job is having a slew of superbly qualified prospective interns knock on our doors. Yesterday, I interviewed someone who graduated at the top of his class at Renmin University in Beijing.

There have been plenty of column inches written on "China versus the US," including when it comes to green jobs and clean tech. So,

Who's going to come out ahead, China or the United States?

It took him nary a second to nail this one:

China, relatively. Both China and the U.S. in an absolute sense.

That's the textbook answer.

The atmosphere wins

China has a lot of catching up to do. Comparatively, it will clearly gain on the U.S. But trade also has advantages for both parties involved. That's why we trade in the first place.

The planet emerges as a winner as well. It doesn't care where a ton of carbon gets emitted or where it gets reduced—just that reductions happen.

If China produces cheaper solar panels, we get fewer emissions overall. The planet wins. China wins. What about the U.S.?

What about jobs?

If you are among the 800 workers in Devens, MA, who last week found out that Evergreen Solar was moving its plant to China, you will feel very differently about free trade right about now. The textbook economic answer would say that the move can still make everyone better off: compensate the losers through portions of the gains from the winners, and everybody wins once again.

This situation, of course, is the moment when you throw out your textbook and think about the full consequences.

As a result of the move, solar panels will likely become even cheaper for everyone, enabling many more to buy them. Still, the Devens 800 will not be among the people lining up to buy cheaper solar panels.

What can they do? What should the U.S. do as a matter of policy?

First, we need to realize that the rules of trade still apply. China has lots of cheap labor. It does and will continue to manufacture many products sold in the U.S. Solar panels are no different.

But that's still not a satisfying answer, nor is it the whole story—not for manufacturing itself, and not for the clean tech industry overall.

How to keep clean tech jobs in the U.S.

To get to the bottom of this, we need to look at the full supply chain for solar panels. This, of course, oversimplifies things, but we can split the entire process into three distinct buckets: inventing, producing, and installing.

Right now, the U.S. is inventing, China is producing, and it is the one installing the resulting solar panels domestically at massive scale.

The U.S. ought to do everything to make sure it keeps inventing clean tech products. That means a concerted push to fund basic research and development. But R&D subsidies alone won't do.

Many mentions of "R&D" add a second "D" for deployment. Government support can get things going, but large-scale deployment of clean technologies won't happen through subsidies alone (at least not without bankrupting the government).

So how do you get deployment up to scale?

Deployment clearly needs to be driven by demand. That's where a cap on carbon pollution, with its resulting price on carbon, comes in. A cap helps create a more level playing field for solar and other renewable energy sources relative to fossil energy and, therefore, creates the necessary demand. (There are alternatives, like simply requiring a certain percentage of power to come from solar, but none is quite as cheap and flexible as a cap.)

Made in USA?

Moreover, cheap labor and cheaper production facilities may be a decisive factor, but they are not the only reason companies consider when choosing where to locate. There are many more, but let's focus on two: intellectual property (IP) protection and being close to where the demand is.

The U.S. has a leg up on China in terms of IP protection. That's, in part, why the U.S. (still) leads on R&D. It's also a clear draw for some companies to locate their production facilities in the U.S.

Another oft-cited reason is to be close to consumers. That's once again where the importance of the second "D"—deployment—comes in. The more demand there is for solar panels in the U.S., the more companies will locate their production plants in the U.S. as well. The case of First Solar supplying panels for Wal-Mart is a prime example. (Note that this is distinct from cheaper production leading to more demand in the first place.)

In the end, though, we must also be clear that jobs will be different in the new, cleaner economy. We will need fewer gas station attendants. Many other jobs will thrive. Underlying trade forces will mean that China may well be producing many of the solar panels sold globally. Assembling, installing, and maintaining solar panels in the U.S. will require plenty of skilled labor. And none of these jobs can be exported.

California leading

With the right policies in place, the U.S. will keep inventing. It will also create thousands of jobs dedicated to deployment. China will play a major role in producing, but even there, smart environmental policy can only help.

California is taking the lead with its Million Solar Roofs initiative, creating many a job assembling, installing, and maintaining solar panels. That initiative, though, still has to be paid for by tax dollars, and it won't go on forever.

That's where the cap on carbon kicks in. California is bound to stay ahead of the rest of the U.S. with its ambitious cap-and-trade system that starts on January 1, 2012 and the resulting market signal that says that clean tech pays in the U.S. as well.

Consider the just-released Next 10 report, Many Shades of Green, that found that in the most recent observable 12-month period (January 2008 – January 2009) jobs in the green sector grew more than three times faster than total employment in California. (Of course, all of this always comes with the warning that green sector jobs are still a small fraction of total jobs—much like IT jobs were a minuscule part of overall employment in the early 1980s.)

One of our internship spot may well end up going to a Chinese student, but that, too, can only be good for the planet—making a small contribution to help train the next generation of Chinese environmental leaders. And rest assured, there are plenty more open job positions (including one for a post-doc working with our economic team, open to anyone with a Princeton affiliation).

Posted in California, International, Markets 101, Politics| 3 Responses

The long and the short of energy efficiency

David Owen asks a provocative question in the current New YorkerIf our machines use less energy, will we just use them more? He more or less says yes. The real answer comes in two parts.

For now—over days, weeks, months, and even years—energy efficiency will decrease energy use and emissions. Screw a compact fluorescent light (CFL) bulb into a socket that used to hold an incandescent and your energy use will go down. Chances are you won't leave the lights on four times as long just because light now costs a quarter.

Over time—years, decades, centuries, and millennia—more energy efficient lights and appliances will indeed mean that more people use more of them. CFLs make light more affordable. That doesn't matter to the typical U.S. household, where few light sockets remain unused because of energy costs. But globally—and over time—it does make a difference.

The Jevons Paradox

William Stanley JevonsOwen goes back to 1865 and William Stanley Jevons who at 28 came up with what has later been called the "Jevons Paradox":

It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.

Jevons is right, of course. We have seen dramatic increases in energy efficiency over centuries while energy use has gone up by orders of magnitude.

Does that mean we shouldn't increase energy efficiency? Of course not. We just need to be clear about what we are getting in exchange.

Energy over the millennia

Sperm WhaleBy the mid-1800s, the latest and greatest in lighting technology was spermaceti, a fat from the head of sperm whales. It cost around $1,500 a barrel in today's dollars and its price was only going to go up as whales became ever scarcer. Since then, we have seen gas lights come and go and by now electric lights cost less than a thousandth as much as the equivalent in lighting power back then.

That's not a recent phenomenon. Bill Nordhaus went back to 500,000 BC. Lighting cost a million times [PDF] as much then as it does today. Needless to say, we are using much more of it now.

Another word for this phenomenon is “technological progress.” That’s really what’s behind the whale oil story, and we want more of it. There is still plenty of energy poverty [PDF] in the world. We clearly want affordable, clean energy for as many people as possible.

Of course, misguided “progress” has also led us to a planet on the brink of breakage. We need to limit greenhouse gas emissions—and do so sooner rather than later.

Will energy efficiency save the climate?

Should we look to energy efficiency as a way to do some of that? Absolutely. Energy efficiency is cheap, quick, clean, and often underutilized.

McKinsey has looked for zero-cost energy efficiency opportunities in the United States and has found possible savings of above 20 percent of total demand in 2020.  Those savings, could go a long way toward meeting commonly discussed climate policy goals.

But won’t those energy savings just mean that we are using more energy eventually? History has shown it to be true after all.

In the short run—over days, weeks, months, and even years—the Jevons Paradox manifests itself in a well-documented “rebound effect” of around 10 percent. On average, you would indeed leave your CFL on for a bit longer than you would an incandescent. We lose a tenth of energy savings to increased use. (Owen cites the 10 percent figure but then goes on to overstate some of the implications dramatically.)

That leaves 90 percent in true savings and points to the clear win-win potential of energy efficiency measures.

Not by energy efficiency alone

In the long run—over years, decades, centuries, and millennia—cleaner and cheaper energy also means more people will be using more of it.

Does that mean energy efficiency is bad? Of course not. Energy inefficiency is another term for waste. And we clearly want less of that. But the problems our planet faces are too large to address through waste reduction (“reduce, reuse, recycle”) alone.

To get emissions down in the long run, there’s no escaping the (gasp) inconvenient truth that we must limit pollution directly—ideally though a declining cap on total emissions.

A cap on emissions—and the ensuing price on carbon pollution and race to invent cleaner energy sources—is the only mechanism we know that can break the link between emissions and energy use.  It limits the former and makes clean energy cheaper relative to fossil fuels.

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