Category: Economics

Matters of money

Fatih Birol on peak oil

In an interview with British journalist George Monbiot, Fatih Birol, the chief economist of the International Energy Agency made the following predictions about when peak oil output for non-OPEC and OPEC states would be reached:

“In terms of non-OPEC [countries outside the big oil producers’ cartel]”, he replied, “we are expecting that in three, four years’ time the production of conventional oil will come to a plateau, and start to decline. … In terms of the global picture, assuming that OPEC will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well, which is of course not good news from a global oil supply point of view.”

Coming from a representative of this particular organization, that is quite a surprising statement. Traditionally, the IEA has downplayed any suggestion that global oil output could peak before 2030. A peak in 2020 suggests that we have a lot less time than most firms and governments have been expecting to transition to a post-oil, post-gasoline, post-jet fuel future.

An early peak in oil output could have an enormous effect on both the development of the global economy and climate change. What effect it will have depends on many factors: three crucial ones being the timing of the peak, the severity of the drop-off in output afterwards, and the investment decisions made by states and firms. If we want to continue to produce enough energy to run a global industrialized society, and we also want to avoid the worst effects of climate change, we need to ensure that renewables (and perhaps nuclear) are the energy sources of the future, and that efficient means of energy storage are developed for vehicles.

Unions and seniority

Given the very high level of interest people have had in this previous discussion of the OC Transpo strike and unions in general (78 comments so far), it seemed worth initiating a second discussion on the matter. Since the union is saying that the major purpose of this strike is to retain the right to have bus routes assigned on the basis of seniority, the general issue of seniority and unions seems to be worth considering.

There do seem to be some valid reasons for supporting higher pay and greater privileges for more senior individuals. Among those are the issue of experience, which those who are senior to an organization can be expected to have in greater amounts, and perhaps the facilitation of standard lifestyle transitions: from youth to adult life, and from that to retirement.

At the same time, there seem to be valid reasons to oppose perks based on seniority. In situations where something worth rewarding is often correlated with seniority, but can be measured easily, it seems to make sense to measure and reward it directly. That way, rather than assuming that ten years on the job makes you more capable, you can reward those who actually demonstrate capability in a day-to-day manner. Another argument is that basing a large share of pay and benefits on seniority rewards the mediocre at the expense of the excellent. Those who are very active and engaged get paid no better than those who perform the minimum obligations of the job. Aside from providing a disincentive for talented people to be part of the organization, that seems basically unfair.

I am not disputing the freedom of unions and employers to negotiate whatever terms seem best to them. I am simply seeking to open a discussion on the advantages and disadvantages of favouring seniority: from the perspective of union members, management, and those who consume the products of services the union members and management provide.

Obama and manned spaceflight

Apparently, Barack Obama is thinking of curtailing NASA’s future manned spaceflight activities. Specifically, there has been talk of canceling the Ares 1 rocket and scaling back the Orion Crew Exploration Vehicle. If true, the news is welcome. There is very little evidence that ongoing manned programs – including the Space Shuttle and International Space Station – are generating useful science or providing other benefits. There is even greater doubt about the usefulness of returning to the moon.

Space exploration is an activity best undertaken by robots. They are cheaper to send up than humans and more capable. Given the very limited value provided by sending live people into space, it is something the United States should discontinue. At the very least, it is something that should be sharply scaled back while the government works to address America’s severe debts and other problems.

Ranking energy technologies, from wind turbines to corn ethanol

Mark Z. Jacobson, a professor of civil and environmental engineering at Stanford, headed up a study to quantitatively evaluate different electricity generation options, taking into consideration their impacts on climate, health, energy security, water supply, land use, wildlife, and more:

The raw energy sources that Jacobson found to be the most promising are, in order, wind, concentrated solar (the use of mirrors to heat a fluid), geothermal, tidal, solar photovoltaics (rooftop solar panels), wave and hydroelectric. He recommends against nuclear, coal with carbon capture and sequestration, corn ethanol and cellulosic ethanol, which is made of prairie grass. In fact, he found cellulosic ethanol was worse than corn ethanol because it results in more air pollution, requires more land to produce and causes more damage to wildlife.

It is naturally very difficult to assess the validity of any particular research methodology, given uncertainties about matters like the future development of technologies, the evolution of the global economy, the availability of fossil fuels, and so on. Nonetheless, it is good to see serious work being done on comparing the overall appropriateness of different energy technologies. Given the unwillingness of many states to impose serious carbon pricing solutions, and the tendency of governments to ‘pick winners’ when it comes to technologies being subsidized, the more high quality data available, the better.

While I haven’t looked over the study in detail, it does seem like the strongest objections raised against nuclear (which is ranked very badly) aren’t really about the environment or economics. The risk Jacobson highlights most is that of nuclear proliferation, and the dangers associated with making fissile material more widely available. Proponents of a nuclear renaissance probably won’t be keen to see discussion of “the emissions from the burning of cities resulting from nuclear weapons explosions potentially resulting from nuclear energy expansion.”

The entire study was published in Energy & Environmental Science, and can be accessed online.

Rich and poor, under the Kyoto Protocol

This article in Slate makes a convincing case that the definitions of rich and poor states under the Kyoto Protocol make no sense and produce distorted outcomes:

The original climate negotiators had a simple way of defining wealth. First, they took the list of 24 countries that were part of the Organisation for Economic Co-Operation and Development, a pre-eminent club of wealthy, democratic, free-market states that was formed in 1961; these included the United States, most of Western Europe, Japan, and a few others. Then they added several states of the former Soviet Union, like Russia and Belarus, as well as a handful from Eastern Europe, like Poland and Slovenia. This was basically Cold War logic on cruise control: First World and so-called Second World countries were rich; Third World countries were poor. The Kyoto Protocol, concluded six years later, maintained the same division. Rich countries agreed to institute caps on their greenhouse-gas emissions while poor countries agreed to do nothing.

The resulting deal had its flaws then. It makes absolutely no sense today. Belarus, for example, is lumped together with the rich countries, despite a GDP per person of about $10,000. As a result, it has an emissions cap like those in place for Europe and Japan. Kuwait, meanwhile, is considered poor. That means the oil-rich emirate is spared any obligations, despite the fact that its residents are about five times wealthier than the Belarussians.

Future climate deals will need to do a better job of distinguishing between those who have already developed and become wealthy (largely on the basis of CO2-generating greenhouse gas emissions) and poor states that are likely to suffer the worst effects of climate change after contributing disproportionally little to its emergence.

It makes sense to shift some states from the poor category to the rich one, and vice versa. It also makes sense to establish a special category for states that are (a) major emitters (b) relatively poor and (c) experiencing relatively rapid growth in emissions. An effective climate change treaty will need to address emissions from these states (such as India and China) as well as those from unambiguously rich states like Canada, Australia, and the United States. While the biggest issues in relation to the very poorest states concern how people will adapt to climate change, starting all major emitters (regardless of wealth) on the path to low carbon economies is the only way to avoid the worst consequences of climate change. Of course, establishing a new category doesn’t answer the tricky moral question of who ought to pay how much, in order to achieve the stabilization of atmospheric greenhouse gas concentrations.

Extreme environmental recklessness

As a metaphor for better understanding the relationship between humanity and nature, some people have used the image of a lifeboat. A more appropriate one is that of a submarine. It captures the complexity of our surroundings, as well as the real danger that messing around with critical systems in an unenlightened way will have dire consequences. Right now, humanity is in the process of setting fires that test the air filtration capabilities of the machine, altering the gas mixture in ways likely to produce unexpected results, and banging away at the outer hull with wrenches, based on the unthinking assumption that our ignorant pounding won’t produce critical leaks.

When one looks at the state of our resource, pollution, and climate policies and actions, one is left with little hope that the future will be a long or pleasant one for humanity. This is not a matter of protecting endangered species or pristine areas of forest; it is about not compromising the basic physical and biological systems that provide the fundamental requirements of human prosperity and existence.

Private Copying Tariff increase

Canada has increased its Private Copying Tariff on writable CDs from 21 cents to 29 cents. Supposedly, the purpose of the tariff is to pay artists back for unauthorized copying. In total, the levy generates about $30 million per year. 66% of the revenues go to eligible authors and publishers, 18.9% to eligible performers, and 15.1% to record companies. That being said, the tariff does not give consumers a clear right to make copies of their music. It certainly will not do so if the new copyright bill tabled by the Conservative Party becomes law.

It is clearly unfair to assume that all writable CDs will be used to copy commercial music. It is also clearly odd to levy the tax on CDs but not DVDs, and to not make clear what rights are conveyed by the existence of the tariff.

Hopefully, we will see this system rendered more rational through future government policies and court decisions. Whatever your feelings on the ethics of copyright, the current arrangement is an ugly muddle.

Obama’s energy secretary

President-elect Barack Obama’s choice for energy secretary seems impressive: Nobel laureate Steven Chu. He is an experimental physicist, so he will be able to separate scientifically accurate information from bunk. He is also an advocate of alternative and renewable energy.

Since 2004, he was the head of the Lawrence Berkeley National Laboratory and concentrated his efforts on climate change. Hopefully, the choice reflects a commitment to addressing climate change, despite all the immediate clamour and apparent urgency of economic policy-making.

On an odd side note, about two thirds of the budget of the US Department of Energy is spent on nuclear weapons research and maintenance.

Ottawa, plans, and families

Ottawa in general, and the federal civil service in particular, seem ideally suited to those who want to get a mortgage, buy a house, and start having children. The benefits associated with government jobs are most valuable for those who have these kinds of plans; the same is true for the strong job security and minimal requirements for overtime hours or late evenings.

Personally, I feel like I have more in common with undergraduate students than with people who are at that stage of their lives. I don’t see my present situation as the base of a hill to be slowly climbed over the course of decades. I see it as another interim stage, albeit one from which it is hard to anticipate the character of the stage that will succeed it.

Stop selling off UBC

It seems that the University of British Columbia has granted a temporary reprieve to the on-campus farm, deciding that it will not be converted into housing “as long as the university’s housing, community development and endowment goals can be met through transferring density to other parts of campus.” While this strikes me as a modest victory, I have long had the feeling that UBC has had its priorities wrong in terms of campus development. Often, it seems to behave like a tax-exempt land management company in possession of a lot of prime real estate in Point Grey. The fact that the company happens to run a school can seem incidental.

The UBC endowment lands are meant to exist as a perpetual legacy for the university. It isn’t clear to me why selling so many of them for commercial development has been beneficial for the student body. To me, it seems the best course of action would be a freeze on new construction not related to students, coupled with a renewed focus on education, rather than property management.