Economics – Page 129 – a sibilant intake of breath

Trains and buses

Commenting on the possibility of Seattle installing a streetcar system, Dan Savage has argued: “People like trains. People hate buses.” Though public transportation policy is hardly his area of expertise, he does understand how people think and he is able to express himself forcefully and directly. On some level, it is definitely true. I like trains and subways. In London, I took the subway all the time; not once did I ever take a bus. Taking the train from Oxford to London feels like a luxury; taking the bus feels like a jerky, tedious chore.

In Heat, George Monbiot argues that the solution is to make buses nicer: cleaner, newer, and with attractive add-ons like wireless internet. He also argues that inter-city buses should avoid city centres, with all the nightmares of traffic and fiddly intersections they inevitably involve. While that would improve point-to-point travel in the UK, it doesn’t really reveal the reasons for which buses are treated with everything from moderate dislike to outright disdain. Is it a class issue? Lisa Simpson called the bus “”the chariot of the poor and very poor alike.” Is it a practical matter of comfort and efficiency, as Monbiot describes? If so, can it be overcome through practical measures like those he suggests. Are buses doomed to forever be an inferior good?

It is generally recognized that increasing bus services is the cheapest way of expanding public transport – both in terms of capital considerations and overall lifetime costs. That said, if transit use is significantly hampered by the dislike people feel for buses, perhaps alternatives should be more strongly considered. Arguably, this is especially true when it comes to people who have the financial means to use a car instead. If they get driven off the public transit system as soon as they hit that level of affluence, the system remains dominated by users without a great deal of political influence. In an argument akin to those about two-tier healthcare, it is possible that the self-exclusion of the wealthy from the public system perpetuates mediocrity.

One way or another, we need to hope that the private vehicle is reaching its apex in human history. Even with the eventual development of electric vehicles and other low or zero-emission options, the sheer amounts of space and resources devoted to producing and maintaining private transportation infrastructure are probably not sustainable. Given that it will be politically impossible to drag people from their cars kicking and screaming, we need to think seriously about how to encourage voluntary shifts to public or non-motorized transport. Better bike infrastructure and public transit seems crucial tot that campaign.

Positive externalities and the environment

When you see “environment” and “externality” in the same sentence, it is a safe bet that the issue being discussed is negative externalities associated with production or consumption. These are certainly critical, but they are not the only area in which environmental thought and economic theory on externalities intersect. The positive externalities associated with new technologies also bear consideration. When a firm or individual invents something that provides major overall benefits, many of those will accrue to other people. This is good from the perspective of those able to benefit from the new technologies, but it is theoretically bad for innovation overall. If I suspect that most of the gains for my new engine, battery, or vaccine technology will accrue to other people, I will not devote as much of my time and resources to developing such innovations as I would if I believed I would personally get all the benefits.

As with intellectual property rights in general, the issue of balance here is a critical and difficult one. We want to encourage people to design and build better solar cells, wind turbines, and power plants. They could arguably be best encouraged to do so by giving them extensive property rights over what they come up with: lengthy patents and the right to collect royalties from all users. That said, such a restrictive system could sharply limit distribution. Once we have a good technology, we want to see it widely deployed – including in places where people have urgent sustenance needs and cannot be fairly called upon to pay heavy royalty fees.

One established way to square this circle is with prizes. The X-Prize assisted the development of (highly greenhouse gas intensive) private space technology. Prizes may also be used successfully to encourage the development of vaccines and treatments for poor world diseases like malaria. Richard Branson has created a prize for straight-out-of-the-air carbon capture. A few big prizes for things like lowering the cost and efficiency of renewable power sources might help to overcome institutional hesitation within innovative firms, as well as get some clever people tinkering in their garages.

The existence of positive externalities associated with new technology also provides strong justification for other governmental interventions: including direct government research and governmental support for private and academic efforts. Internalizing the full costs of pollution is exceedingly important if we aim to achieve environmental protection within a free market system; internalizing the benefits of innovation may also help to bring that about.

For a much more detailed discussion, see: Jaffee, Adam et al. “A tale of two market failures: Technology and environmental policy.” Ecological Economics. Volume 54, Issues 2-3, 1 August 2005, Pages 164-174.

Boomtowns and bitumen

Since 1999, the population of Fort McMurray has nearly doubled. Primarily, this is on account of the oil sands: unconventional petroleum reserves whose exploitation is being driven by high prices and geopolitics. The demand for labour is dramatically increasing its price, both directly and indirectly. Apparently, inexperienced truck drivers can expect to make $100,000 per year. Shell has also just opened a 2,500 unit housing complex for its oil sands employees, part of their $12 billion in local infrastructure spending.

With oil around $90 a barrel and the atmosphere still being treated as a carbon dump, this is not terribly surprising. That said, such projects are certain to develop increasing momentum of their own. Once they bring enough jobs and money, they are hard for a provincial government to not support – especially if many of the environmental costs are being borne by people outside the province or by future generations. Internalizing environmental externalities through taxation or regulation becomes progressively more difficult as the incentive of certain parties to preserve the status quo increases. Such asymmetries are likely to give oil sands development a harmful legacy in terms of general policy development, in addition to its climate change effect and local environmental impacts.

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.