Economics – Page 129 – a sibilant intake of breath

Materialism

The terms ‘materialism’ and ‘materialist’ seem to be popularly misunderstood. As such, it bears mentioning that there are two wildly different interpretations of what these terms mean.

Perhaps the more common interpretation is based around a desire for material possessions. In this view, a ‘materialist’ is someone who continually wants to own more things.

A much more interesting definition holds that being a ‘materialist’ means that you believe everything in the universe is made of comprehensible materials, interacting with each other on the basis of laws we can understand. This viewpoint definitely raises important questions in philosophy – and potentially lethal ones in theology – it is also much more worthy of consideration than the fact that neighbour X might want a bigger car than neighbour Y.

Meat and antibiotics

Quite a while ago, I wrote about connections between human disease and the factory farming of animals. Recently, some new observational data has supported the link between the two. In the Netherlands, a new form of the superbug MRSA has emerged. It is strongly resistant to treatment with tetracycline antibiotics: a variety heavily used on livestock. The animals need the drugs because they are kept in such appalling conditions (unhygienic and constrained) that they would get infections too easily otherwise.

Xander Huijsdens and Albert de Neeling found that 39% of pigs and 81% of pig farms in the Netherlands were hosts to the potentially lethal antibiotic resistant bacteria. People who came into contact with pigs were 12 times more likely to contract this form of MRSA than members of the ordinary population; those who come into contact with cattle are 20 times more susceptible. The strain has since been found in Denmark, France, and Singapore. A study conducted by the University of Guelph found the strain in 25% of local pigs and 20% of pig farmers.

Maintaining the effectiveness of antibiotics for the treatment of people is highly important for human welfare. Antibiotics are one of the major reasons why modern medicine is valuable: they help people die dramatically less often after childbirth and surgery than was the case before their development. They have also helped to make diseases that would formerly have been probable death sentences treatable. The fact that we are allowing farms to deplete their value so that they can produce meat more cheaply (by forcing more animals closer together in less clean conditions) seems profoundly unwise. In Pennsylvania, legislators have even banned farmers who produce hormone and antibiotic milk from saying so on their packaging – on the grounds that it would make consumers unduly worried about the other milk on offer.

McKinsey climate change study

McKinsey – a major consultancy – has released a report (PDF) on the costs of reducing greenhouse gas emissions in the United States. The general conclusion is a familiar one: that existing technologies and emerging technologies with a high probability of success can collectively reduce emissions by a very considerable degree at modest cost. Specifically, the study argues that 3.0 to 4.5 gigatonnes of CO2 equivalent can be averted by 2030, at marginal costs of under US$50 per tonne. Business as usual would see present emissions of 7.2 gigatonnes grow to 9.7 gigatonnes by 2030: almost twice what the whole planet can handle.

The executive summary linked above is well worth reading, as it is rich with detail. It stresses how abatement will not happen through a few big changes: many thousands of emitting activities must be incrementally reformed. That said, 40% of the abatement they describe would actually save money in the long term (for instance, by replacing existing systems with more energy efficient varieties).

Perhaps the most interesting element in the whole report is the abatement curve on the fifth page of the executive summary. It ranks a collection of mitigation activities from those that produce the highest level of economic benefit per tonne to those that are most costly. For instance, increasing the efficiency of commercial electronics could save $90 per tonne of CO2 equivalent. Other win-win options include residential electronics, building lighting, fuel economy standards for cars and trucks, and improvements to residential and commercial buildings. Cellulosic biofuels are net winners, though of a lesser magnitude, as is changes to soil tillage to boost the strength of carbon sinks. The most expensive abatement options include carbon capture and storage, the use of solar electric power, and the use of hybrid cars (the single most expensive option listed).

This is quite an encouraging view. Achieving substantial reductions within a developed economy for under $50 a tonne is promising in itself. It also suggests that international abatement prices could be even lower, given how insane things like tropical deforestation are from an economic perspective, once climate change is taken into account.

One Laptop Per Child

People who do not spend half their lives on the internet may not have heard about the One Laptop Per Child Program. This non-profit initiative has produced an inexpensive laptop meant to be used as an educational tool by children in the developing world. The device has been reviewed by the New York Times and, while it is limited in some ways, it seems to serve its intended purpose very well. Furthermore, it does some things that no other available laptop can, such as on-the-fly mesh networking: where computers close together automatically link up, allowing internet connections to be shared and collaboration within applications. It uses a $10 battery that is good for four times more charges than a normal laptop battery, while also providing six hours of power with the screen’s backlight engaged or 24 hours without. The machines also have built-in video cameras and microphones.

Through the ongoing Give One, Get One promotion, people can spend $400, receive one laptop for themselves, and donate one to a child in the developing world. Needless to say, one of these would make an amazing Christmas gift for a young person (the keyboard is apparently too small to be used comfortably by adults). Dust-proof and spill-proof, these things seem to be safe in the hands of the average child. Not only do they come with some very neat software, they really embrace the philosophy of letting children learn how it all works. One button reveals the code behind any website or program being used on the machine: potentially breeding a new generation of skilled programmers.

That last part is important. Some people have argued that laptops are hardly a priority in a world where people lack access to the basic requirements of life. In many places, that is certainly true. At the same time, having access to technology of this kind can help both individuals and societies push themselves along the path to development. It is more rewarding and sustainable, in the long run, to do that through the accumulation of expertise and skill than by continuing to rely upon what can be caught in nets, cut down, or dug out of the ground.

Climate change and the Inuit way of life

At several points in the past, Arctic native groups including the Inuit have been effectively involved in the development of international regimes for environmental protection. Perhaps most significant was the role of the Inuit Circumpolar Conference in the development of the Stockholm Convention on Persistent Organic Pollutants (POPs). Studies done on the human health impact of Arctic POPs on the Inuit provided a big part of the scientific basis for the agreement. Arctic native groups were also effective at pressing their moral claim: chemicals being manufactured elsewhere were poisoning their environment and threatening their way of life.

A similar claim can be made about climate change, though the probable outcome is a lot more negative for Arctic native groups. Relatively few states and companies manufactured the bulk of POPs and, in most cases, less harmful chemicals can be used in their place. The economic costs of phasing out POPs were relatively modest. While the costs of dealing with climate change are a lot lower than the costs that will be incurred through inaction, they are nonetheless many orders of magnitude greater than the costs associated with abatement of POP use.

The threat posed to the Inuit by climate change is also quite a bit more far-reaching. It is entirely possible that the whole Arctic icecap will be gone within twenty years, or even sooner. 2007 was by far the worst year ever recorded for Arctic sea ice. Without summer sea ice, the Arctic ecosystem seems certain to change profoundly. Given the reliance of traditional Inuit lifestyles upon hunting terrestrial and marine mammals, it seems like such conditions would make it impossible to live as the Inuit have lived for millenia. This isn’t even a matter of worst-case scenarios. Even without significant new feedback effects, summer Arctic sea ice is likely to vanish by mid century. Increasing recognition of this partly explains the ongoing scramble to claim Arctic sub-sea mineral rights.

As with small island states, there doesn’t seem to be enormously much hope for avoiding fundamental and perhaps irreversible change in the Arctic.

Clean coal isn’t cheap

The point is increasingly well made by numerous sources: once you add carbon sequestration, coal is no longer an economically attractive option. In Indiana, a 630 megawatt coal plant is being built for $2 billion. That’s $3,174 per kilowatt. If we expect investors to seek a an 11% return on investment over a 20 year span, the capital cost of the plant is about 5.7 cents per kilowatt hour. On top of that, you need to pay for transmission, fuel, staff, and maintenance. On average, electricity in Indiana sells for about 6.79 cents per kilowatt hour.

The nominal price of the plant and the power it generates also doesn’t consider other coal externalities: like how mining it is dangerous and environmentally destructive. While this plant uses Integrated Gasification Combined Cycle technology and is capable of being attached to carbon sequestration infrastructure, it will not actually sequester the carbon it emits. As such, it will be only incrementally better than a standard coal plant with the same electrical output.

The only possible justification for this is that this is a demonstration plant that will help to make the technology much cheaper. Of course, when it is considered in that way, it seems at least equally sensible to spend $2 billion on experimental renewable power plants, in hopes of reducing their capital costs. The more you think about it, the more it seems like coal is densely packed carbon that is conveniently already in the ground. It should probably remain there.

Methane clathrates and runaway warming

Essentially a form of ice infused with methane, clathrates may seem an obscure topic for discussion. They exist only under extreme conditions: such as underneath oceanic sediment. What makes them significant is the sheer volume of methane they contain. While it is unclear what degree of warming would be required to induce methane release from clathrates, there is a very real possibility that such release could be self-reinforcing. Given the global warming potential of methane and the volume of the gas in oceanic clathrates, such a self-sustaining release could induce abrupt and massive climatic change.

As a greenhouse gas, methane is potent. Averaged across a 100 year span, one tonne of methane produces as much warming as 25 tonnes of carbon dioxide. Even worse, when atmospheric methane breaks down, it generally oxidizes into carbon dioxide and water. Taking into account secondary effects, the warming potential of a tonne of methane is about equal to 72 tonnes of CO2 (according to the Fourth assessment report of the IPCC). This is one reason people are so concerned about the climatic effects of meat production, as well as the reason for which methane capture projects are one of the more credible kinds of carbon offset.

Recent estimates hold that ocean clathrates contain 500-2500 gigatonnes of carbon dioxide equivalent: akin to 100-500 years worth of sustainable emissions. About 400 Gt of carbon dioxide equivalent is in the Arctic permafrost. If a substantial proportion of this methane were to be released, it would take the world into completely unknown climatic territory. As such, it is highly likely that the adaptive capacity of both humanity and existing ecosystems would be overwhelmed, perhaps to a degree akin to the Permian-Triassic extinction event. This is truly the nightmare scenario for climate change, though its probability cannot be accurately assessed in relation to any combination of human behaviours and natural variations.

The existence of such exceedingly dire possibilities affects economic calculations about climate change. While it may not be sensible to spend 20% of global GDP to avoid an outcome with a 0.1% chance of occurring, a strong argument can be made that heavy expenditure is justified in the face of catastrophic risk. It is not as though we have another planet to fall back on if this one gets rendered unfit for human habitation.

[Update: 4 February 2009] Here is a post on the danger of self-amplifying, runaway climate change: Is runaway climate change possible? Hansen’s take.

[Update: 19 February 2010] See also: The threat from methane in the North.

Four Economist articles on climate change

Sorry to post a bunch of links from one source, but this week’s Economist is unusually dense with worthwhile articles about climate change:

There is one on federal legislative efforts in the United States – focusing on the Lieberman Warner bill that has been dominating attention in the Senate. It isn’t as tough as a superior proposal from Bernie Sanders and Barbara Boxer, but it stands a better change of thrashing its way through committee and onto the Senate floor. Of course, even a bill that gets through the Senate would need to be made compatible with a bill passed by the House of Representatives and avoid being vetoed by the President. Even so, the kind of cap-and-trade bills that are appearing in the Senate may well be indicative of the kind of legislation to expect from the next American administration.

American states have traditionally been ‘policy laboratories’ and have often developed environmental policies that were later adopted federally. Examples include rules on automobile emissions and sulphur dioxide emissions which cause acid rain. A second article briefly discusses the Regional Greenhouse Gas Initiative (RGGI): one of the two most important regional initiatives in the US, along with the Western Climate Initiative. Again, this is more a sign of what may be to come than a hugely influential thing unto itself.

A less encouraging trend is demonstrated by an article on the increasing popularity of coal. What is especially distressing is that coal plants are even being built in Europe, which has gone further than anyone else in regulating carbon emissions. Clearly, prices are not yet high enough and regulatory certainty is not yet firm enough to effectively discourage the use of coal for electricity generation. The new plants aren’t even being built in a way that can be easily modified to incorporate carbon capture and storage.

One last story is more tangentially related to climate change: tomorrow’s federal election in Australia will partly turn on voters responses to the positions adopted on climate change by the Labor and Conservative candidates, respectively.

In general, I don’t think The Economist takes the problem of climate change seriously enough. They write good-sounding articles in situations where it is the focus, but often miss it completely or mention it only trivially in articles on energy trends, business, or economic growth. That said, their ever-increasing coverage of the issue is probably representative of its ever higher profile in the planning of the world’s most influential people.

Problems with carbon markets

A recent article in Scientific American makes a lot of good points about carbon markets and emission trading. Perhaps most important among them is the recognition that the simple existence of a market cannot ensure good environmental outcomes: there must be strong and appropriately designed institutions backing it up. Otherwise, well-connected firms will be able to wriggle through loopholes, fraud will occur at an unacceptable level, and cheating will be endemic.

The article points out some of the big failures in carbon markets so far. Within the European Union Emission Trading Scheme, far too many permits to emit were distributed for free. As a result, their price collapsed in April 2006. Even worse, coal companies in Germany and elsewhere were given free permits to pollute, able to sell some of those permits for cash, and willing to charge their customers for carbon costs that never existed. Also problematic has been the prominence of HFC-23 (trifluoromethane) projects within the Clean Development Mechanism of the Kyoto Protocol. Getting rid of HFC-23 entirely should have only cost about $136 million. It has an absurdly high global warming potential (12,000 times worse than CO2), and is easy to destroy and replace with less problematic chemicals. So far, firms have been able to earn $12.7 billion for partial elimination. The authors of the article suggest that simply paying for the $136 million worth of equipment would be far more sensible than allowing firms to exploit the price difference between the value of emission reduction credits and the cost of eliminating HFC-23.

Other problems with markets include the difficulty of working out what emissions would have been in the absence of some change (the approach used for many carbon offsetting systems) and the way markets can encourage incremental approaches to emission reduction rather than the fundamental overhaul of industrial sectors and energy infrastructures.

None of this is to say that markets are not important. Indeed, carbon pricing is an essential component in the fight against climate change. What it shows is that participants in markets cannot be implicitly trusted, and neither can the governments operating them. There must be mechanisms for oversight and enforcing compliance and a constant awareness about possibilities for cheating or gaming the system. Insofar as it has helped people to develop a better sense of these things, the Emission Trading System of the EU has been a valuable front-runner.

Discarded cod in Europe

Once again, there is a big stink in the media about cod. This time, it is prompted by a report that between 40 and 60% of the cod caught in the North Sea are caught inadvertently and must be discarded, dead, in order to comply with EU quotas. Apparently, 117 million of the 186 million fish caught in UK waters last year were thus discarded. Some people are calling for the quotas to be raised, so that fishers can keep the fish rather than discarding them. Of course, that would encourage more ‘accidental’ catches.

The real solution is to create and enforce a tax on by-catch. If killing a bunch of cod neither makes money for fishers nor costs them anything, they will essentially be indifferent to doing it. If they needed to pay for what they killed, they would be more careful about choosing where to fish and what sort of gear to use. Even fish that do not have commercial value in the way that cod do have ecological value as part of marine ecosystems. Killing them in unlimited numbers is not compatible with sustainability.

Producing sustainable fisheries requires limiting by-catch, which in turn requires effective measures. A by-catch tax could play such a role. Of course, the fishers would protest any such move, citing threats to their economic livelihood. In the end, however, natural resources, including fish, do not belong to whoever grabs them; they belong to everyone in trust. As a consequence, nobody has the right to loot or destroy a resource, even if the economics of their present way of life require it.