Category: Economics

Matters of money

Dealing with the oil sands is not enough

An intelligent article in The Calgary Herald makes the case that dealing with the oil sands is not a sufficient Canadian contribution to climate change mitigation. Firstly, this is because they represent a small fraction of total Canadian emissions and, even in the worst-case projections, are still a minority of emissions in a few decades. Secondly, it is because technologies developed to de-carbonize the oil sands are likely to be less generally applicable than those created for more widespread industrial activities. Thirdly, it is because many of the emissions associated with the oil sands occur wherever the fuels being produced are burned, rather than at the point of production, where they might be captured.The second point is an interesting one, and the overall case is strong:

The oilsands now produce about four per cent of Canada’s emissions; if production were to triple with no change in technology and all other emissions stopped growing, they could be as high as 10 to 15 per cent around 2025.

This is a big number, and it’s going in the wrong direction since if we want to avoid dangerous climate change, we should be driving our emissions to zero sometime soon after 2050. However, even if we shut down all oilsands operations tomorrow, Canada would still be one of the top greenhouse gas emitters’ per capita in the world. Fixing the oilsands will not get us off the hook.

While I think the authors are somewhat overconfident in the applicability of carbon capture and storage (CCS), they are right to say that dealing with the oil sands must be only one part of Canada’s overall climate change strategy.

In addition, we need to prevent the construction of new coal power plants (at the very least, those without effective CCS) and phase out those that already exist. We need to seek and exploit mitigation opportunities in all sectors – from agriculture to transport to heavy industry – with the ultimate goal of carbon neutrality. One important mechanism for creating the right incentives for lowest-cost across-the-board reductions is putting a price on carbon. That is not, however, sufficient to address all the externalities relating to climate change. Government also needs to work to improve standards and build intelligent infrastructure, supporting the choices that will lead to the emergence of a low-carbon society.

Metal detectors and carry-on restrictions for Greyhound travel

The policy of restrictive carry-on rules appears to be spreading from planes to Greyhound buses. Apparently, as of December 15th, passengers boarding them in Ottawa will be forced to put everything aside from “medication, baby formula and small handbags” in checked baggage. No matter that those rattling baggage holds are hostile territory for cameras, computers, and other delicate items. Likewise, no matter that the logic of security on intercity buses differs substantially from the logic for aircraft, as I have written about previously. The system has already been introduced in Edmonton, Calgary and Winnipeg.

To summarize my earlier post:

  • With a plane under their control, hijackers can fly to distant states that might assist them. The only way to stop them is to shoot down the plane, killing everyone on board. Buses are comparatively easy to stop.
  • [S]omeone in control of an ordinary plane can kill a lot of people. They can certainly kill everyone on board. They can also kill many people on the ground. Similar risks do not exist in relation to buses.
  • [I]t isn’t clear that this strategy won’t simply displace any violence that was to occur to a different venue. If I want to harm a particular person, I can do so in a place other than a Greyhound bus. The same is true if I just want to hurt people at random.
  • If you are really determined to hurt people on a bus, you can get on at a rural stop, rather than a bus station with metal detectors

It seems that the best low-cost and relatively low-carbon form of intercity travel is about to be needlessly constrained. It remains to be seen whether Greyhound proves enduringly committed to the new procedures once customers start appreciating just how inconvenient and unnecessary they are.

Alcoholic analogies to climate change

Two critical aspects of the problem of climate change can be well understood by means of alcohol-based analogy: the time lag between emissions and climatic consequences and the one-off nature of our decisions.

The last few decades have seen a surge in global greenhouse gas emissions. Due to lags in the climate system, the effects of those gasses are not yet felt, whether in terms of temperature or other climatic phenomena. It is as though we have started doing shots of vodka every thirty seconds. Even after the tenth shot, it is entirely possible that you are feeling lucid. You can talk, walk around, and drink more vodka. If you keep drinking at such a rapid pace until the point where you really feel the effects of the first shots, you have a whole mass of additional (and probably rather unpleasant) impacts still to come.

The reason this is so dangerous is that we only get one chance to decide when to stop drinking. Most people probably have a few experiences of youthful exuberance and realize they need to take into account the anticipated consequences of drinks, rather than just keep drinking until they cannot do so any longer. There is scope to learn from experience. As with global thermonuclear war, climate change offers no opportunities to learn by experience. We have one planet and, by extension, one timeline for greenhouse gas emissions and their atmospheric concentrations. If we are going to stop before we go too far, we are going to need the wisdom to anticipate consequences (as the IPCC and other scientific bodies have already done) as well as the will and good judgment to heed that advice.

The final issue to bear in mind is that of where the costs fall. The danger of drinking yourself to death is one that each individual engages with directly. By contrast, most of the dangers associated with climate change are inadvertently borne by those in future generations. Continuing to emit greenhouse gasses is thus somewhat equivalent to drinking while pregnant. While some of the health consequences might be borne by the drinker, most will be borne by the next generation and, in turn, by those who follow.

There are actually a couple of additional valid ways in which this analogy can be extended. One is to appreciating the difference between stocks and flows. Cutting annual emissions is like reducing how much vodka is in each shot. When emissions are rising, each shot is bigger. When emissions are falling, successive shots are smaller. Nonetheless, even small shots still increase your blood alcohol level. Right now, rising global emissions mean the planet is downing a bigger shot of greenhouse gasses every year. Stopping that growth is the first step, but it is no more of an adequate response in the long term than capping the size of the shots being taken at regular intervals.

A related extension has to do with carbon sinks. In this analogy, they are akin to your liver. They can absorb a certain quantity of greenhouse gasses before they fail. After that point, the further climatic effects of emissions are unmitigated. In the period when your liver is still functional, you can still drink small shots every thirty seconds. Eventually, however, you need to cut your intake/emissions to zero, before your liver/sinks fail.

Video on copyright in Canada

Why Copyright? Canadian Voices on Copyright Law is a 50 minute film about copyright in Canada, produced by Michael Geist and Daniel Albahary. It is largely a response to the Conservative government’s deeply problematic proposed copyright legislation.

Equitable copyright laws are an important issue. In the first instance, that is due to the overwhelming importance of information, who controls it, and who can do what with it. Secondly, it has to do with societal decisions about what kind of conduct is acceptable, who enforces the rules, and what the consequences for violating them can legitimately be. Rules on when technical means of copyright enforcement can be legitimately circumvented are especially important, since that is a new sort of right potentially being extended to content owners. As such, the balance between the societal interest of fair use and the content owner’s claim to protection needs to be evaluated in a more profound way than has occurred so far.

As with many of the new developments on this issue, I found out about it through BoingBoing.

Meeting in Poland, while the Amazon burns

Satellite images show that 11,968 square kilometres of the Amazon rainforest have been destroyed this year, 4% more than last year. The amount of carbon dioxide released when these forests are cut and burned is colossal. Indeed, reducing the destruction of tropical forest is probably the single cheapest way to reduce the rate at which greenhouse gasses are accumulating in the environment.

Hopefully, the delegates at the ongoing United Nations Framework Convention on Climate Change (UNFCCC) meeting in Poznan, Poland will be able to make some progress on reducing deforestation. While higher cost mitigation will certainly need to take place, picking the low-hanging fruit could be a good way to make a difference relatively rapidly. That is especially important given the importance of the timing of emissions. The more steeply concentrations rise, the less time there is for any adaptation measures to be put in place. The risks of crossing critical climatic thresholds are also increased.

Income tax revenues in California

Surprising statistic of the day: according to The Economist, half of the state income taxes in California are paid by just 144,000 wealthy individuals. They represent about 0.39% of the state’s population of 36.5 million.

That can be interpreted in two rather different ways. On the one hand, you could highlight the degree to which that represents a heavy tax burden on a small number of people. On the other, you could say that the fact that so few people pay so much of the tax demonstrates just how concentrated wealth has become. Either way, it is an interesting figure.

Climate change mitigation cost-benefit analysis on different timescales

Peter Lilley, a British Member of Parliament, seems to have rather missed the point of climate change legislation. He is kicking up a fuss about how the UK’s Climate Change Bill might have costs larger than benefits in the period between now and 2050. Of course, the whole point of climate change mitigation is to avoid the worst effects of climate change and not leave future generations with a severely damaged planet. Almost by definition, the majority of the benefits associated with such an approach will accrue in the distant future.

Even if mitigating climate change has serious net costs between now and 2050, we still need to do it, at least if we care at all about the welfare of future generations and the integrity of the planet. That being said, we can certainly hope to mitigate effectively at a relatively low cost (taking advantage of mechanisms like carbon pricing to secure the lowest cost emission reductions first). We can also work to maximize the co-benefits of climate change mitigation, such an enhancing energy security and reducing other types of air pollution.

It is also entirely possible that we will end up spending more money on climate change than we should have, or than would have been possible if we had taken the best possible approach from the outset. To use an analogy, it is possible for a speeding car to brake too sharply to avoid hitting a pedestrian. Doing so jostles the driver and may damage the car, but it is a less undesirable outcome than braking too hesitantly and ploughing right into the person. When you are making a decision with important consequences and lots of uncertainty, erring on the side of caution and expense is the prudent and ethical approach.

Modes of transport and distances travelled

Adding once again to our ever-present debate about the ethics of air travel, a study from the University of California, Berkeley concludes that the major reason planes are more problematic than trains or buses is that people simply travel farther in them. This has two major implications.

For one, it suggests that efforts to curtain short-haul air travel may have limited benefits. If a high-speed rail corridor between Toronto and Montreal would only lead to incremental improvements in emissions reductions, the better course may be to try to discourage as much travel as possible. This may be especially true given another major conclusion of the study: that a very significant share of the environmental impacts of travel arises from the infrastructure (roads, rails, airports), rather than the emissions of vehicles themselves.

For another, it suggests that investing the time and money to travel by bus or train may likewise be less green than would be ideal. The problem may not be choosing to go from Ottawa to Vancouver by air; it may be an inescapable problem of making the trip in the first place.

It is well worth having a look at the webpage for the study, as it contains a lot of additional information. The study’s conclusions were also described on Slate.

Treating carbon as a cost in government projections

A document from the British government defining their ‘shadow cost’ of carbon (PDF) also discusses an approach to government planning that has a lot of potential. Essentially, the document estimates what the maximum amount a rational actor concerned about both the present and the future should pay to reduce carbon emissions. It then calls for that price to be incorporated into government planning and assessments, just as any other cost would be. For instance, two different proposals for the design of a hospital could be compared in a way that treats the social cost of carbon just like any other expense. The result is a cost-benefit analysis that operates as though a socially optimal carbon tax exists, even when no such instrument exists in the wider economy.

In situations where carbon costs have already been partly or fully taken into account – for instance, if a government building is using electricity on which an upstream carbon tax has already been applied – then only the remaining portion of the shadow price of carbon would be applied.

The approach is exciting because it could spur carbon-rational government action, without the need to wait for an economy-wide price of carbon to emerge. That means earlier results. It also means opportunities to secure economies of scale. The government is a major purchaser of products and services, and a push to incorporate the social cost of carbon into government procurement would affect which products are available to the economy as a whole, and at what price. Another advantage is that each layer of government has the power to impose the requirement; provinces and municipalities that wish to move forward could do so without the need for cooperation from the layers of government above them.

Fuel price floors and funds for the future

While prices send important signals about availability and marginal cost, volatility in fuel prices can be quite problematic. It impedes effective planning, causes abrupt swings in capital and wealth allocation, and sometimes leaves people hoping for future low prices, rather than investing in efficiency now. At the same time, there is an issue of inter-generational equity when it comes to fossil fuels. They are marvellous things: portable, packed with energy, and thus far relatively cheap and easy to extract. Recent generations have benefitted handsomely for their use (though future generations may suffer even more from the consequences of the emissions). A case can be made that some fossil fuel use has served to benefit future generations, because it has helped create the conditions for their material prosperity. Other uses are unambiguously selfish. The difference is akin to that between borrowing to invest and borrowing to finance consumption.

There does seem to be a fairly straightforward mechanism through which both of these problems can be made more manageable. The government could put a floor on fuel prices: pocketing any difference between the market price and the sale price as revenues. Those could then be invested in a fund that will pay out annual dividends to future generations. This would be akin to the oil-funded pension system that has been established in Norway. In this way, members of future generations will at least profit in some proportion of this generation’s fossil fuel wealth. It would also simplify planning for all those who use fuels, since they would be certain of paying at least a pre-set amount at any point in the future.

This isn’t an approach that the world as a whole could take, or even any major players in it. If the government set a floor price of $2 for a litre of gasoline, gas suppliers could just expand their prices to that point and eliminate any payments to government. Since Canada isn’t large enough to substantially affect the international price of oil, however, there may be scope to tax the difference between the floor price and the international price for an equivalent amount of crude oil / coal / etc.

No doubt, this system would cause some economic and equity-related problems I haven’t anticipated. That being said, it is perhaps an example of the general kind of approach that governments should be considering.