Showing posts with label environment. Show all posts
Showing posts with label environment. Show all posts

Sunday, December 20, 2009

Brian Dell vs William Connolley on Wikipedia

Lawrence Solomon has written an interesting piece in the National Post about William Connelley's Wikipedia edits and deletions.

As one can see from here, almost 2 years ago I was the first to take issue with Connelley with respect to the Wikipedia article for the "hockey stick controversy." I finally gave up but not without writing a "Note to Article Readers" where I stated:
I have attempted to provide more balance to this article but my edits have been reverted wholesale and I fail to see the point of extended revert war. So I would just caution you that a critical criticism of Mann's graph is that it implies no Medieval Warming Period or Little Ice Age and these phenomena are well documented in other sources. ...

Wikipedia is leftist. Even TIME's Obamaphile pundit Joe Klein grants that much. In Wikipedia one can find laughable assertions like "the question of [Alger] Hiss's guilt [as a Soviet spy] or innocence remains controversial." But it is interesting to see some recognition of this in the MSM.

Despite my taking up the guantlet for the skeptical side, however, I think that it is still important to tread carefully with respect to climate change. In Copenhagen Obama said, "This is not fiction, this is science," and I would be very reluctant to challenge that claim head on. Just as no government, either elected or unelected, anywhere in the world denies the climate change thesis, no scientific body of national or international standing is currently denying the reality of climate change either. In a community like Wikipedia editors, the need for a neutral point of view requires editors to give more representation to the views of the skeptics, but in a community of self-identified "conservative Albertans," there is the danger of going too far to the other side in one's rhetoric and advocacy.

Wednesday, December 9, 2009

benefits of carbon capture projects unproven

A media story about climate change and carbon emissions is always good for a lot of comments and a Calgary Herald story citing Wildrose leader Danielle Smith is no exception.

The facts are that the benefits of spending billions on carbon emission mitigation are unproven. Responsible fiscal policy means conducting a cost/benefit analysis with respect to programs and why spending on carbon capture and sequestration (CCS) gets a free pass here is beyond me. By how many fractions of a degree will the average temperature in Alberta be lower in 2050 for every billion of taxpayer dollars spent on CCS and how is that better for Albertans? If this is about helping Maldivians why are there no studies comparing the cost effectiveness of spending billions on CCS with spending billions on foreign aid to the Maldivians to help them adjust to climate change? Of course, there is a good chance we have not seen a cost/benefit analysis because climate cannot be reliably predicted.

As the BBC observes, "for the last 11 years we have not observed any increase in global temperatures." Climate scientists are acknowledging that their models have failed to predict the stability in temperatures that the planet has seen over the last decade. One wonders if this outcome should really be so very surprising when, as a writer in the UK Telegraph points out, "world-ranking physicists such as Professor Richard Lindzen of MIT and Professor Will Happer of Princeton have been arguing... that the models are fatally flawed because they do not take proper account of all sorts of other factors which play a key part in shaping the world’s climate..." Britain's Met Office estimates the odds of a 10 year global temperature stall happening by chance variation amidst a genuine warming trend to be 1 out of 8. Especially telling is this conclusion by the Met authors: "The simulations rule out (at the 95% level) zero trends for intervals of 15 yr or more." In layman speak, this means that unless temperatures move up by 2013, the hypothesis of global warming should be REJECTED by those whose approach to the subject is evidence and science-based as opposed to faith-based.

The head of the IPCC, Rajendra Pachauri, says that the Alberta oil sands should be shut down. Alberta politicians cannot have it both ways here. If they are going to take Danielle Smith to task for not accepting the IPCC's work uncritically, then they should either accept this call to close down the oil sands or explain why they are cherry picking recommendations.

From an economist's perspective, people should be focusing on stopping methane leaks from refinery equipment since methane has a much greater greenhouse effect than CO2.

The real problem here is not the consumption of carbon products but consumption in general. Hence my advocacy of general consumption taxes. There are a legion of strains on the environment, of which carbon levels in the atmosphere are just one, and one whose harm to the environment is dubious. As I've noted before, according to Nature magazine,

The Palaeocene/Eocene thermal maximum, 55 million years ago, was a brief period of widespread, extreme climatic warming that was associated with massive atmospheric greenhouse gas input. We show that sea surface temperatures near the North Pole increased from 18°C to over 23°C during this event.

That's right: more than 23 degrees above Celsius at the north pole. Yet the world kept on turning.

Tuesday, October 20, 2009

"carbon capture projects are madness"

From Jeffrey Simpson's latest Globe and Mail column:
Prime Minister Stephen Harper makes so many spending announcements, flying like Mary Poppins on speed around the country to distribute billions of dollars, that the news media have given up analyzing any of them.
For the heck of it, let's look back to last week, when Mr. Harper dropped into Edmonton to announce $343-million of federal money for a coal-fired TransAlta Corp. carbon-capture and storage (CCS) project. Simultaneously, Alberta Premier Ed Stelmach announced a contribution of $436-million, for a total investment of $774-million of taxpayers' cash.
That Harper-Stelmach announcement followed an earlier Ottawa-Alberta one for a coal-fired Shell carbon storage project. In that case, the combined federal and provincial contribution was $865-million. ...
Let's be generous and assume the two projects costing $1.6-billion do in fact bury 2.1 million tonnes of carbon dioxide, the most-prevalent gas contributing to global warming. Such a reduction would mean a per-tonne carbon-reduction cost of about $761 – staggeringly, wildly, mind-blowingly higher than any other conceivable measure designed to cut greenhouse-gas emissions. ...

While you, the Alberta taxpayer, pay C$761 per tonne of CO2 abatement, which is equivalent to 494 euros, the price per tonne in Europe has ranged between 10 and 30 euros year to date:
















What has the reaction of the Stelmach government been to the Wildrose Alliance party, whose leader has denounced Stelmach's multibillion dollar carbon capture fund as a political boondoggle?
If they want to be relevant, they have to develop a long term policy strategy which speaks to a modern, compassionate, cosmopolitan Alberta and I don't think they do.
- Edmonton Whitemud MLA and Education Minister Dave Hancock
The P"C" party thus asks you to understand, dear Albertan, that you are spending billions on CO2 abatement that costs $761 a tonne because this is what "modern" and "cosmopolitan" jurisdictions do. In fact, if you looked up either word in the dictionary you would see the smiling faces of Premier Ed Stelmach, Finance Minister Iris Evans, and Energy Minister Mel Knight! Those euro types are a bunch of rubes who just fell off a turnip wagon compared to these public policy prodigies. And as for you young and unborn Albertans who will be coming of age in a jurisdiction that squandered the natural resource wealth it was once blessed with, well, that's how we, the Alberta P"C" Association, define "compassion." Now please take a seat while your august government gets back to the business of closing hospital beds and increasing class sizes!

Friday, August 7, 2009

"cap and cut"?

Today's Calgary Herald editorial calls for "cap and cut". Let's be clear here: "cap and cut" is not a policy, it's a tagline created by a politician. Saskatchewan Premier Brad Wall's new slogan makes little economic sense because if the government caps the emissions of two large emitters, say X and Y, and X could cut emissions at a cost of $10 per tonne and Y for no less than $20 per tonne, the government is making emissions abatement unnecessarily costly if Y cannot "trade" with X such that Y pays X $15 per tonne to reduce on Y's behalf. Y saves $5 per tonne in costs and X finds a new profit source in reducing emissions and selling the credits thereby earned.

The skeptics suspect that if a market for carbon emissions credits were actually set up, X would be an out-of-jurisdiction enterprise that would indeed find a new profit source in selling credits (to within-jurisdiction emitters) but without actually doing any real emissions reductions. I share this skepticism to sufficient extent that I am not a supporter of cap and trade relative to a carbon tax. But that's because the particular nature of the thing to be traded here. The Herald seems to object to the "trade" part of "cap and trade" on the general grounds that it would be, well, trade: to wit, "moving money around". As such, Calgary's paper of record feeds the presumption, perhaps unwittingly, that market systems in general just "move money around" and enrich financial sharks without creating any economic value.

In general, markets function well in setting the price signals that determine production. But the critical issue for markets is how to deal with information asymmetry.

A review of the financial crisis is instructive here. Although the flood of capital into the US (partly a consequence of the 1997 Asian crisis, in the wake of which many countries decided to protect against future runs on their currency by accumulating USD denominated assets) increased the risk that a sector of the US economy would have too much financing available to it, a bubble (which is a market failure, never mind the efforts of the EMH proponents to argue otherwise) was not strictly inevitable. The root of the 2008 financial crisis was rather a moral hazard: US mortgage originators were insulated from risk (or, more precisely, thought they were) because they spun the risk out to third parties via the financial system. Although financial markets perform a valuable function by redistributing risk, a tradeoff occurs (diminishing the social value of seeing the market trade occur) when the buyer of risk has less information than the seller. Had mortgage originators remained fully exposed to the risk of default by carrying the mortgages on their own books, they would have been fully incentivized to play a more active monitoring role with respect to their more doubtful clients. Although market discipline could have theoretically ensured that the originators remained vigilant, this discipline presumes that players all the way down the securitization chain could have been insightfully informed of the situation "on the ground". Maintaining this is increasingly difficult the more abstract the securitized products get. It is thus not just the quantity of information transmitted through layers of market players that matters but its complexity. More exacting disclosure regulations could not have helped avert the crisis when the problem was that it was too difficult to interpret the available information and when the people who could interpret the information had incentives to not share what insight they had. Finally, there was also an element of plain old dishonesty in that people filled out forms claiming that they had high incomes when in fact they didn't even have jobs. The bottom line is that the picture became too obscured for the pricing mechanism to ensure the efficient allocation of capital (although the US practice of allowing the tax deductibility of interest paid on residential mortgages was distortionary despite its transparency). Too few financial actors were engaged in the price discovery that sends signals to real production (they were instead creating and trading derivative products, which are effectively parasites on the price discovery process).

"Cap and trade" has problems of incentives and pricing complexity in spades. To take but a couple of examples, who is going to discipline the jurisdiction that sets easy caps on emitters in its territory in order to poach industry and keep employment up? Multilateral agreements could be made, but how is one going to detect and discipline cheaters? How economically useful is it going to be to stimulate the growth of a lobbying industry dedicated to convincing politicians to raise or lower the caps? An unworkable international emissions credits market (a purely local market defeating the whole point of a market) nonetheless does NOT mean that markets in general do not work. Economists are in almost universal agreement as to the value of free trade in goods and services. The consensus is also clear with respect to the free movement of capital provided it is genuine capital and not financial derivatives thereof which may or may not accurately represent changes in underlying capital. The problem with "cap and trade" comes down to the fact that the emission credits to be traded, which need to be fungible across jurisdictions, might not represent real emissions reductions. But that's a specific problem, not a general one.

Wednesday, July 29, 2009

carbon capture redux

Wildrose Alliance leadership candidate Danielle Smith addressed environmental policy today. Danielle called for the cancellation of the Stelmach government’s $2-billion Carbon Capture and Storage [CCS] Fund, a program that deserves certainly deserves the ax. But before explaining why in more detail, I'd note that Ms Smith would also "support research into clean coal, hydro, biomass, geothermal, hydrogen, nuclear, wind and solar power, while improving how we meter and price electricity." The pricing mechanism is critical in terms of consumer incentives, although I should avoid reading too much into what Danielle means here. She wisely notes that any "incentives" should be "broad" and warns against trying to "predict winning technologies through subsidies to individual firms or technologies". Which is all great, so why not run with this and support the broadest, least distortionary tactic available to government: a tax on the consumption of "un"clean energy?

One of the reasons why I do not support the federal Conservatives is because they demagogued the idea of a carbon tax so outrageously last election. Never mind that respected conservative economists like Greg Mankiw support the idea. No one would have to pay a carbon tax that they did not want to if they were willing to put enough effort in using alternative energy. Yet the Tories, consistent with their preference for narrow incentives over broad, would evidently prefer the highly illiberal approach of regulation.

What about cap and trade, which is the approach being taken by the US House of Representatives? An LA Times article attacks the idea, quoting from the Financial Times of London, which observes that "Carbon markets leave much room for unverifiable manipulation. [Carbon] taxes are better, partly because they are less vulnerable to such improprieties." Having studied this issue while working for the Financial Markets Division of Finance Canada, in coordination with Natural Resources Canada and Environment Canada, I have to add my own view that the FT is entirely prudent in its skepticism. If the financial crisis of 2008 taught us anything, it is that instead of revealing true value, markets can obscure it if the incentives of the market players are disconnected from true price discovery and the connection to the fundamental price driver (in this case a political policy) is too remote.

But what about subsidies for carbon capture? I've condemned this idea before, but it is worthwhile pointing to some more recent studies. Dave Cournoyer notes that the chairman of an Alberta advisory council believes that carbon capture and storage will "at least double" electricity prices in the province, and calls attention to a U of Calgary researcher's view that “[l]ittle of the oil sands' carbon dioxide can be captured because most emissions aren't concentrated enough." Costs for the US' flagship clean coal project, FutureGen, which was meant to test carbon capture and storage, spiraled so high that the government canceled it in 2008. A Reuters story from March says "many experts say burying carbon from coal-fired power plants will still be in its infancy for years beyond 2020." A recent report from Harvard's Belfer Center found that, until at least 2030, "[c]osts of abatement are found typically to be approximately $150/tCO2 avoided". Many environmentalists, whose opposition the Stelmach government hopes to buy off with billion dollar subsidies for carbon capture, are not keen on the idea either: Greepeace calls it a "scam" and, according to another FT article, in Europe "CCS could become mired in a political and regulatory thicket before it can ever be deployed."

I have to agree with Alberta Liberal energy critic Kevin Taft: "If it comes down to a choice between carbon capture and storage or hospital beds, I for one am going to choose hospital beds."

Tuesday, June 9, 2009

expect hard caps re emissions, not "intensity based"

Apparently the Alberta Tories are taking issue with their "Conservative" brethren in Ottawa. Amongst other things, they complain of not being informed about the possibility intensity-based targets for reducing emissions may be scrapped.

Intensity-based targets will have to be scrapped in favour of absolute targets if the strategy is to go with cap and trade, and it looks like Obama wants to go cap and trade (any cap and trade system would have to be continent-wide lest caps be evaded by emitters hopping borders). I looked at the dynamics of developing a carbon market while at Finance Canada and, in a meeting with TSX people from Toronto and Montreal, heard those potential market-platform-providers clearly tell Mark Carney (who happened to be at Finance at the time) that they could not and would not support intensity-based targets. The reason why is straightforward enough: it becomes next to impossible to price credits without hard caps. It is going to be difficult enough to get a market going when the caps are decided by politicians. But if they are furthermore intensity-based, the level of uncertainty is going to enormous. An academic might think it nonetheless doable, but few in industry would think that. If you thought the tranches of a mortgage-backed-security were difficult to price, just try an emissions credit that derives its value from an intensity-based cap.

A cap and trade system with hard caps would, of course, be a vastly greater cost to Alberta than other jurisdictions because of the presence of large emitters here. Had the Stelmach government understood the situation, they would have gotten ahead of this by signing on to a national carbon tax (something I've long advocated, as readers of this blog would know). A carbon tax would be bourne by Canadians in proportion to consumption, and therefore far more regionally equitable than by production. As an aside to those who believe climate change is a hoax, support for a carbon tax does not necessarily mean support for the idea that climate change requires fiscal action. We have to get taxes from somewhere, right? Why not get it by taxing consumption like on sales of SUVs instead of taxing everyone's personal income? We should be taxing consumption instead of income and investment anyway. Whenever I say I support a carbon tax I mean a revenue-neutral tax.

Instead of trying to head off a cap and trade system, Stelmach has tried to impress environmentalists by throwing billions of Alberta taxpayer dollars at the boondoggle of carbon capture. Needless to say, no one has been much impressed since there isn't a fully operational working example of successful carbon capture anywhere on the planet, and Alberta's own energy executives have said carbon capture will be extremely expensive on a per barrel basis (hence BIG subsidies would be required to implement it!).

Wednesday, July 9, 2008

$4 billion for carbon capture

re the alternatives I suggested below ("...the burden is either all on Alberta suppliers ... OR the burden is all on the Alberta taxpayer, with said taxpayer footing the whole bill for an Alberta supplier subsidy"), you now know the answer: it's all on the taxpayer.

The fact that a CAPP representative has said, "I see our members showing an interest in this," doesn't challenge my contention that business is skeptical of carbon capture as an unsubsidized business plan: Epcor CEO Don Lowry maintains that implementing carbon capture would push "the current $1.6-billion price tag for the state-of-the-art Keephills Three to as high as $5 billion". A Transalta spokesman goes on to effectively admit that without "government", CCS projects are not "commercially viable". The energy industry, of course, has no complaints about a scheme with a potentially negative return on investment when they can always just walk away and leave taxpayers with the tab.

I can only agree with Calgary Herald columnist Don Braid: "This is a recipe for expensive disasters such as the infamous Gainers, NovAtel and MagCan scandals of the 1980s and 1990s."

Sunday, July 6, 2008

"I do not support a carbon tax" - Stelmach

So says the premier... again.

So what does he support? What's Ed's answer to the gathering storm of a US boycott of oil sands energy (a group of US mayors has already called for a boycott and Barack Obama says that, because of environmental concerns, the oil sands are not part of his energy plan)? Will Ed simply ignore the growing criticism (like he's simply ignored the OECD report that attacked his squandering of Alberta's natural resource wealth)?

The premier has two answers, evidently.

Answer #1 is that "We're protecting each other in the Middle East and Afghanistan. We've been together in both world wars."

So according to Ed's first sentence, the US is protecting Canada (and the world) with its actions "in the Middle East" excluding Afghanistan, such that Canada's involvement in Afghanistan is not only a favour to the US (as opposed to a NATO obligation), but a returned favour.

The second sentence is essentially, "you owe us." So not only is Canada's involvement in Afghanistan a quid pro quo to the US, according to Stelmach, but he'd like to officially acknowledge, and call in his chips on, the additional quid pro quo of of overseas military action and commercial energy contracts.

Can we get a show of hands from all activists who have been de-motivated by the premier's remarks?

As one might expect, Stelmach's handling of the cross-border issue has not gone over well with the Canadian diplomatic community.

Answer #2 is that the premier is calling for carbon capture and storage (CCS) technology. To begin with, there is nothing multilateral about this approach (the Calgary Herald reports that the competing alternative of an emissions trading market remains something that "Alberta strongly opposes", despite the fact that it is something "a group of U.S. states, as well as B.C., Manitoba and Quebec, have signed on for"). Secondly, carbon capture is either A) not going to be seriously pursued or B) absurdly expensive, something I've noted before. Contributing to the costs is the fact that CCS requires a lot of energy itself, a negative feedback loop noted by the IPCC's 2005 special report on CCS, amongst others.

It appears that Stelmach has not only bought into the narrative of the left with respect to role of energy and geopolitical horse-trading in foreign wars, but into the US left's longheld (pipe) dream that America's dependency on foreign oil is but a technological breakthrough away. Premier Ed is going to seize the reins of America's hitherto futile quest for "clean" domestic energy and apparently deliver emissions-free, water use-free, land use-free, oil sands energy, by the magic of more efficient production technology.

Right wingers are usually skeptical of such pie-in-the-sky programs and their ballooning costs. Indeed, although many economists are amenable to carbon trading, seeing it as a promising supplement or even alternative to a carbon tax, it's my real world experience with markets that makes me somewhat dubious of carbon trading. It's one thing in theory, and another thing in reality. Markets can be abused enough when politics aren't directly involved never mind when the price of a carbon credit would ultimately be entirely derived from what the government's emissions cap is. If you thought the complaints about government interference in the Canadian income trust market were serious, you ain't seen nothing yet, compared to an emissions market where essentially all of the fundamentals behind market moves would be directly attributable to government policy. Remember these emissions instruments would have no intrinsic financial market value at all, but for government demands. Traders will have a convoy of metaphorical trucks lined up to drive through every crack of difference that exists between the policies of different jurisdictions.

Most concerning, however, is the fact that Ed's insistence on a unilateral "made in Alberta" solution means there is no one to share the costs with. Where is the money for CCS going to come from? I'll address that in a second post.

Friday, March 28, 2008

US trade and carbon policy

According to Businessweek, "the economic priesthood continues to devote enormous intellectual firepower to making the case for freer trade... In the battle of public-policy ideas, American economists do wield influence."

An example of this might be Greg Mankiw's NYT op-ed. Although Mankiw makes the best case for voting for McCain that I've seen yet, his point about taking Obama's and Clinton's opposition to trade with a grain of salt is well taken. After all, Obama has Austan Goolsbee working for him and even Clinton's "top economic advisor" (according to CNNMoney) has written "in the long run America will win more than it loses from an open global economy. What practical options do we have between simply assuming greater globalization will lift all boats, and resorting to self-defeating protectionism?"

I've initiated a "blogroll" in the bottom right area with Greg Mankiw's blog as the first entry. I admit that part of my appreciation for Mankiw follows from my discovery that he largely agrees with what I've been saying about carbon taxes. He does it better than I do, of course, when he talks about it as a Pigovian tax. I had the general idea when I talked about externalities but I didn't have the term. This is why it is generally more useful to listen to someone with an actual PhD in economics than to someone like me.

Perhaps the best article yet that I've seen on emissions policy is by the former president of Mexico, Ernesto Zedillo:

... a Kyoto-type framework ... is not feasible. The only approach that will ... relieve countries' apprehensions regarding sovereignty and free riding is one in which all countries agree to penalize their carbon emissions in such a way that, over time, an internationally harmonized carbon price prevails. Consequently, the negotiation's focus would not be on emissions quotas but on the harmonized carbon-price trajectory.

Of course, carbon taxes (on burning fossil fuels) would provide the easiest way for countries to comply with the system, and each country could then decide what to do with the tax revenue. Some might make their carbon tax revenue-neutral by reducing other taxes. ...

If you're worried about climate change but don't like carbon taxes, think about the messy or even impossible alternatives!