Economics – Page 86 – a sibilant intake of breath

The Desertec solar plan

As reported in The Economist, Munich Re has invited 20 large companies to form a consortium, intended to build concentrating solar power stations in Africa and the Middle East, as well as the high voltage direct current (HVDC) lines required to bring that power to Europe. The stations will use molten salt heat storage, so as to be able to generate power day and night. Munich Re, the world’s largest reinsurer, is motivated by concern about its exposure to climate change. Fully implemented, the scheme would cost $560 billion and provide 15% of Europe’s projected energy demand in 2050. The complete system would cover 17,000 square kilometres of territory.

Desert solar as a renewable energy option has come up here before.

All told, the plan is very promising. It is refreshing to see companies thinking strategically about the long-term harm climate change could do to them, as well as the long-term opportunities associated with renewable energy. A report produced by the Wuppertal Institute for Climate, Environment and Energy and the Club of Rome determined that the project could produce 240,000 jobs in Germany, as well as €2 trillion worth of electricity by 2050.

Even more importantly, it could demonstrate the feasibility of the desert concentrating solar / HVDC option, which could be extended to the Southern US and elsewhere. As David MacKay explains, this is one of the renewable options where the figures add up, and it could be possible to generate the kind of energy societies demand. Here’s hoping the Desertec plan helps lead the way.

Singer on rationing health care

Peter Singer, a prominent utilitarian philospher, has set out a very strong case that ‘rationing’ health care is both inevitable and ethically sound, if done intelligently. The inevitability of rationing arises inescapably from the fact that our resources to do all things are limited, that we don’t want to devote all of our resources to health care, and that no amount of resources can prevent death indefinitely or in all cases. As such, we need to make sure that the rationing is driven by intelligent considerations, rather than morally dubious ones such as the wealth of the person receiving treatment.

If the U.S. system spent less on expensive treatments for those who, with or without the drugs, have at most a few months to live, it would be better able to save the lives of more people who, if they get the treatment they need, might live for several decades.

Pragmatically, it isn’t possible to prevent the wealthy from spending whatever they can on their own health care. Even if you outlaw it domestically, there are plenty of other states that will welcome their cash. What is possible is improving outcomes in situations where risk and resources are being pooled, whether by private ensurers or by government-run insurance schemes. It is in those cases that we need to do a good job of evaluating what expenditures produce benefits sufficiently large to justify them, and which we must decline to undertake.

Ranking the quality of carbon offsets

Carbon offsets have been a contentious subject on this and other environmental blogs. On one side, people argue that their sale produces better outcomes than would otherwise arise, since people voluntarily help to eliminate emissions where it is cheapest to do so. On the other, people argue that many offsets are of dubious quality, and that the very idea of offsetting perpetuates harmful behaviours and the false sense that climate change can be addressed without lifestyle changes. Not everyone can offset, after all.

In response to the former concern, about the quality of offsets, the Pembina Institute and David Suzuki Foundation has produced a survey of 20 Canadian vendors of offsets. According to Pembina, offsets from renewable energy and energy-efficiency projects are the most credible sort available. Others have pointed out that forestry-based offsets and those based on Kyoto Protocol CDM credits are among the most dubious.

In the end, I think buying offsets is a much less worthwhile exercise than reducing your own emissions or lobbying for political action on climate change. That being said, if there is going to be a market in offsets, it is good that the various firms providing them are being subjected to outside scrutiny.

Exporting pollution

The government of Brazil is demanding that the UK take back 1,400 tonnes of hazardous waste that have been shipped to three Brazilian ports. The incident illustrates the broader phenomenon of rich states exporting pollution, both in the form of directly shipping hazardous materials abroad and by eliminating highly polluting industries domestically and importing their products from developing countries. All this helps to sustain the illusion that lifestyles in developed states are sustainable, since both resource and waste problems are shifted to places where they are less immediately visible.

Whether the issue is ozone depleting substances, persistent organic pollutants, or greenhouse gasses, distance alone is no real protection for the population of developed states. Fundamentally global problems like these require coordinated solutions involving states at very different levels of wealth, and with different internal political arrangements. The negotiators at the United Nations Framework Convention on Climate Change meeting in Copenhagen this December have quite a challenge ahead of them.

Insight into Google

For someone who produces a site which covers a broad variety of topics, Google is an especially critical source of traffic (because people interested in one topic are unlikely to follow a site with a bunch of other random topics included). In my case, more than 60% of the traffic I received in the last year came as the result of Google searches. No other search engine produces more than 3.5%, and only 12% of visitors actually type in the URL, rather than clicking a link from a page of search results or another site.

Given the importance of Google, it is worth knowing a bit about how the organization operates. Over at All Things Digital, there are three interesting articles. The first covers the human evaluators Google uses to evaluate the effectiveness of their various search algoriths. The second discusses the attempts people make to game the system (inevitable, given the sheer amount of money that can be gained or lost by rising or falling in Google rankings). The third describes how Google intends to improve future search results.

One interesting fact mentioned in the first piece is that the option Google offers for users to hide results in their searches is used to refine their search algorithms. For instance, I am personally annoyed by websites that try to scrape together an identity page on someone, by grabbing snippets from here and there that seem related to them. Sites that do this include pipl.com, 123people.co.uk, zoominfo.com, and others. It is a bit encouraging that if enough people hide their unsolicited and error-prone amalgamations, their overall page rankings may eventually suffer.

Differential electricity pricing

Some forms of differential prices based on time are entirely artificial: for instance, telephone companies that charge more for calls made before 6:00pm or 7:00pm. They do this because it is profitable. It lets them charge high prices during the day to business users, while offering cheaper plans to social users later. That being said, there are situations where the economic basis for prices varies considerably depending on time of day (and year). Electricity production is one.

In the future, spikes in electricity demand may be partially mitigated through the combination of variable pricing and smart appliances that can inform users about the costs of operating at different times, or even make autonomous choices to stay within a budget. This video from General Electric provides more information.

While getting rid of daytime minutes would have little real effect on cell phone networks, shifting electricity demand from high-demand to low-demand times could have a significant impact on the electrical system, partly by reducing the need for inefficient ‘peaker’ plants, which top up supply during periods of maximum strain.

The costly nuclear option

Writing in The Toronto Star, Tyler Hamilton reveals that the AECL bid to add two new Advanced CANDU reactors to Ontario’s Darlington nuclear station was approximately $26 billion. That works out to a shocking $10,800 per kilowatt of electricity, compared with the $2,900 per kilowatt reference figure the Ontario Power Authority was using for planning back in 2007. The French firm Areva apparently put in a lower bid – $7,375 per kilowatt – but was unwilling to take on as much risk as AECL. The article also notes the untested nature of the Advanced CANDU design, which is especially worrisome given the failure of AECL to deploy two planned isotope reactors, due to design failures.

If this is the true contemporary cost of nuclear power, it seems plausible that we shouldn’t be bothering with it, given all the other associated risks. For $10,800 per kilowatt, it is quite possible we could get more value by funding energy efficiency, conservation, and renewables. Taking some cost figures from MacKay, we can compare $26 billion for 2,000MW (2GW) of nuclear with other options:

Onshore wind: $2.8 billion for 2GW
Offshore wind: $3.0 billion for 2GW
Concentrating solar in deserts : $31 billion for 2GW
Solar photovoltaic: $14.5 billion for 2GW

We also wouldn’t be taking on the additional risks associated with proliferation, accidents, wastes, and so forth. Admittedly, MacKay’s figures are approximate and there are other considerations to be made. Even so, the staggering cost of the AECL bid has to give pause to anyone who hopes nuclear could be a cheap and relatively easy solution to climate change. It may be that The Economist will be proved correct in saying: “Since the 1970s, far from being ‘too cheap to meter’—as it proponents once blithely claimed—nuclear power has proved too expensive to matter.”

Palin’s content-free opposition to carbon pricing

Sarah Palin, former governor of Alaska, has produced an op-ed for The Washington Post attacking the Waxman-Markey bill, and the idea of using cap and trade to reduce greenhouse gas emissions. She argues:

It will prevent economic recovery.
It will make energy too expensive.
Job losses will result.
Costs of agriculture, transport, and manufacturing will rise.
Drilling in Alaska and building pipelines is a better option.
The US has lots of coal, and could build a lot more nukes.

Notably, she doesn’t even pretend to offer a solution to climate change, the primary problem the Waxman-Markey bill aims to address. This is remarkably myopic. Even if we accept that all of her assertions are true, this op-ed brings us no closer to making an intelligent decision on climate change and energy policies, since it doesn’t really contemplate alternative mechanisms through which climate can be stabilized and dependence on non-renewable fuels can be overcome. To imply that the US can get by with a bit more drilling is deeply fallacious. Similarly, it is misleading and dangerous to suggest that the American economy would keep ticking happily along indefinitely, even if climate change was totally unrestrained and allowed to follow its most destructive course.

We can only hope that the US Senate will be a bit more far-seeing in its analysis and deliberations, more willing to consider the key motivations for energy policy, and ultimately seized of the importance of sending a strong and growing price signal, so as to progressively and deeply curb the release of harmful and threatening greenhouse gasses.

Privatizing the sea to prevent overfishing

One standard solution to overfishing offered by economists is to essentially privatize the sea by creating individualized transferable quotas (ITQs) that give individuals and firms an incentive to fish at a sustainable level. Where intellectually coherent, the approach can be criticized on a number of grounds.

This Grist post does a good job of doing so. It points out the importance and difficulty of setting an appropriate Total Allowable Catch (TAC), the enormous problem of subsidized overcapacity, as well as bycatch and social justice issues.

ITQs may well be part of a sustainable global fisheries regime, especially where it comes to well-studied coastal fisheries off the shore of a single state with a strong regulatory capacity. When it comes to dealing with the pillage of the open ocean, however, they don’t really stand a chance.

Pine beetles spreading into the US

According to the BBC, the climate-linked mountain pine beetle epidemic in British Columbia is threatening to spread south and west, into the United States. Forests with a mixture of species and small regular fires would be more resilient, overall.

In addition to mentioning the importance of warm winters in aiding the spread of the insects, the article describes how past fire suppression policies have produced huge areas of mature lodgepole pine, which are especially susceptible to the beetles.

The continuing spread represents not only an economic and environmental cost linked to climate change, but also a potentially serious positive feedback effect. It is estimated that Canada’s boreal forests alone contain about 186 billion tonnes of carbon dioxide equivalent: an amount equivalent to about 25 years of global emissions at the present level.