Market Forces

There they go again, again

By / Bio / Published: December 3, 2010

Steve Cochran, head of EDF’s climate and air program, debunks economic scare tactics used against the highly successful acid rain program in the Clean Air Act Amendments of 1990. First in a series:

There they go again. Economic meltdown. Higher consumer costs. Massive job losses. These are among the predictions of doom surrounding EPA’s current and forthcoming round of clean air protections. If they sound familiar, they should. Time and again, from the enactment of the Clean Air Act in 1970 to today, prophets of doom have predicted that disastrous consequences would flow from cleaning the air we all breathe. And time and again, those dire predictions have been wrong. The Clean Air Act has protected American health and our environment for decades while our economy has grown. It is a legislative success story that continues today.

This series will examine what the naysayers have said about Clean Air Act protections and how those wild predictions compare to the statute’s actual record of protecting Americans from toxic air pollution and its devastating effects on human health and the environment. We start with the acid rain program in the Clean Air Act Amendments of 1990.

Read the full post on EDF’s Climate411 blog.

Posted in Cap and Trade, Politics / Comments are closed

Jobs, jobs, jobs

By / Bio / Published: December 2, 2010

Co-authored with Nat Keohane.

Marc Gunther lists ten reasons why “Cancun can’t.” We won’t go into his other nine points here, but number three on the list hit home:

Environmentalists have been disingenuous about the climate issue. They’ve argued that regulation of carbon dioxide will create green jobs and grow the economy. Typical is this graphic from Environmental Defense. (“Get a step-by-step picture of how a carbon cap will spark new jobs, lift the economy and clean the air.”) Uh, no. Most economists agree that dealing with global warming will entail short term costs. (See Eric Pooley’s excellent analysis at Slate.)

Talking about jobs is one of the most difficult things to do well in the arena of climate policy. The jobs issue is highly politically charged—and for good reason, given the state of the economy. But it struck us as unfair for Marc to use EDF as his bête noire.

To begin with, the graphic that Marc links to doesn’t make the claim he ascribes to it. We weren’t saying that climate policy was a free lunch. What we were pointing out was that doing something about climate can also create good jobs in some unexpected places. More on that in a minute.

We have bent over backwards to be as balanced and rigorous as possible in our assessment of the economics of climate change.

This turns out to be perfectly illustrated by Eric Pooley’s analysis—the same one Marc links to.

Eric’s indeed excellent analysis makes two points:

First, there is a broad consensus that the cost of climate inaction would greatly exceed the cost of climate action.

That’s the main, often-forgotten point because it seems so obvious: “it’s cheaper to act than not to act.”

We should really stop here and reflect on that for a second. Many—if not most—economists do, in fact, agree on that statement and have for a while.

But that’s not our point here, either. Read More »

Posted in 1000 words, Cap and Trade, International, Politics / Read 1 Response

Not green or brown, just good economics

By / Bio / Published: December 2, 2010

Lord Stern famously calls global warming “the biggest market failure the world has ever seen.” It would only be natural for any introductory economics textbook to prepare budding economists to address this problem.

You would think.

Yoram Bauman, otherwise known as the Stand-up Economist, put together a sobering report: Grading economics textbooks on climate change.

Only four of sixteen books received As.

The others are either out of date, outright wrong, or worse.

It’s frustrating that even the best texts seem to banish the biggest market failure into sidebars or special chapters toward the end. Sadly that’s the typical treatment of environmental issues in introductory economics classes: “First, let’s discuss all the reasons why the economy is doing just fine. Then, if there’s time at the end, we’ll cover some exceptions to those rules.”

Krugman and Wells’s text appears to be the only one that integrates climate considerations into a key chapter, one on “long-run economic growth.” That’s not entirely surprising, given Paul Krugman’s other writings on the topic, but it’s good to know it starts with the introductory text. It would be even better if other texts followed that lead.

(More takes: Mankiw and Env-Econ)

Posted in Climate science, Markets 101 / Comments are closed

What’s the matter with Arkansas?

By / Bio / Published: November 30, 2010

Midwestern states have traditionally been reluctant to embrace cap and trade. Now it looks like they may well turn into some of the larger beneficiaries of the California cap-and-trade system.

The largest supplier of likely carbon offsets for the California program so far? Arkansas.

Midwestern suppliers

States of origin for CAR credits

Besides California and New York, numbers 2 and 3 on the list, none of the other states currently have cap-and-trade systems in place.

Michael Wara has a terrific blog post on this phenomenon and the ensuing politics of cap and trade. [Update: New graphs and data. The story doesn’t change. The graphs are prettier, though.]

Of the four types of offsets initially allowed in California (landfills, livestock, conservation forestry, and domestic ozone depleting substances), Midwestern states are the main beneficiaries.

Not CDM

How will that change the politics?

The Clean Development Mechanism (CDM), the UN-brokered international offsets system has perverse incentives. It motivates companies supplying large amounts of CDM credits (and receiving billions of dollars in return) to lobby their governments against instituting stricter domestic policies and having cap-and-trade systems on their own, lest they lose their chance of selling exactly those CDM credits. That’s one of the many reasons why the CDM system ought to be radically reformed.

What makes all the difference here is that CDM credits originate mainly from industrial and energy sectors that ought to be part of domestic cap-and-trade systems in the first place. California’s offsets are focused on sectors not covered by its own cap-and-trade system and most likely not covered directly in a US-wide emissions market.

A US-wide cap-and-trade system would only increase demand for these kinds of agricultural offsets and those from ozone depleting substances (ODS), making selling them even more attractive.

That by itself may not revolutionize federal politics, but at least the incentives are working in the right direction. Read More »

Posted in California, Cap and Trade, Politics / Comments are closed

Two proposals and a reality check

By / Bio / Published: November 29, 2010

by Mikel JasoYesterday’s New York Times published three terrific op-eds worth a second thought.

Veerabhadran Ramanathan and David Victor argue that, “To Fight Climate Change, Clear the Air.” Carbon is the main climate culprit, but we can’t ignore and might as well start with tackling the other greenhouse gas pollutants.

Bruce Usher argues that, “On Global Warming, Start Small.” Not too small, mind you. Individual volunteerism won’t do. But U.S. energy policy is made in the states, and many states are making significant progress on sensible policy measures.

Jack Hedin provides “An Almanac of Extreme Weather” from his Minnesota family farm and an important wake-up call for why we are doing what we doing. In the end, “climate instability”—the extreme fluctuations around a warming climate—may prove at least as damaging as the slow but steady upward trend in temperatures.

Posted in Climate science, International, Politics / Comments are closed

$100 billion in 1000 words

By / Bio / Published: November 24, 2010

The Copenhagen Accord enshrined $100 billion as the target for north-south climate finance flows by 2020. Earlier this month, the U.N. high-level Advisory Group on climate change Financing (AGF) issued its final report on how to get there.

My colleague Miriam Chaum and I tried to summarize the 80-page report in 1000 words:

AGF report, middle carbon price scenario ($25/tCO2e in 2020). Ranges are for the middle price scenario and span net and gross flows, where applicable.

The main message is clear: $100 billion are out there. The big question is whether we can muster the political will to put the right incentives in place and indeed free them.

Some more messages and background in this short, one-page AGF fact sheet [PDF].

Posted in 1000 words, International / Comments are closed