Market Forces

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The others are either out of date, outright wrong, or worse.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 / Leave a comment

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 / Leave a comment

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 / Leave a comment

$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 / Leave a comment

Bending the curve

By / Bio / Published: November 23, 2010

Cutting emissions is about creating opportunities for new, clean energy sources, not about crashing economies.

The Great Recession saw a crash with the most severe consequences for employment and other measures of economic output since the Great Depression. Emissions responded in kind.

Pierre Friedlingstein and a slew of co-authors provide an “Update on CO2 emissions” in the latest Nature Geoscience (HT: BBC):  Global CO2 emissions declined by 1.3% in 2009. No surprise there, although the decline was lower than projected. (A closer look at the breakdown doesn’t come as much of a surprise, either: U.S. emissions declined by almost 7% in line with miserable economic figures. Chinese emissions increased once again, by +8%, in line with its continuing strong economic growth.)

The disconcerting part: global emissions are scheduled to shoot right back up in 2010 and then some at +3%.

(C) Nature Geoscience

The atmosphere barely notices these kinks in the general trend line, which continues to march up unabated. Crashing economies doesn’t do anyone any good. The charge is to decouple emissions from economic development and start bending the curve [PDF].

Posted in Climate science / Leave a comment

To the mattresses

By / Bio / Published: November 22, 2010

Last week saw the start of a new American environmentalism on climate policy: the gloves seem to be coming off.

Our own Fred Krupp’s article in the Huffington Post on Tuesday revealed the new fighting spirit:

[W]e have well-financed enemies in this fight, and it is time to sharpen the nation’s focus on the businesses that obstruct vital progress.

Our view is that the public and the investor community need to have far greater awareness of the companies engaged in indiscriminate obstructionism. We will look for ways to hold them accountable through every reasonable lever at our disposal. We will learn to be as tough with them as they have been with us.

Looks like Al Gore took note. GodfatherHis group Repower America launched KochIndustriesFacts.com, which flags Twitter and Facebook-ready snippets on the money involved, some of the smoke and mirror tactics used (speak “front groups”), and the dirty environmental trail left by Koch Industries.

With well-funded opponents like that it is not hard to see how cap and trade got swallowed up in D.C., no matter how strong the economic arguments in favor of a well-designed carbon market were. But beware: climate change isn’t going away.

To the mattresses it is.

Posted in Politics / Leave a comment