Economics – Page 99 – a sibilant intake of breath

Climate change and salt water infiltration

In addition to the direct effects of climate change induced sea level rise, it is important to be aware of the effect of salt infiltration on farming. Much of the world’s cropland is near the coast and at low altitude. It is therefore vulnerable to being rendered infertile by salt from the oceans, as increased sea levels produce brackish rivers and more extreme storm surges. Many of these croplands are in developing countries, where the compounded effects of climate change are most likely to overwhelm domestic adaptation capacity.

Scientists have predicted that a 90cm increase in sea level would cause major infiltration problems in Bangladesh. Most recent scientific evidence suggests a sea level rise of about 1m by 2100, and possibly significantly more.

Optimism / pessimism survey

If you were given the following options, which would you choose:

An absolute guarantee that the Canadian material standard of living in 2200 will be identical to what it was in 2009 – that is to say, the same number of computers, lightbulbs, sandwiches, appendectomies and everything will be consumed.
For the material standard of living in 2200 to be determined by the economic and technological development that occurs between now and then?

For those who believe that long-term growth in wealth can be maintained, the level of prosperity in 2200 can be expected to be much higher. For those who are fearful or either stagnation or catastrophe, the certainty of present levels is more appealing.

Note that I am not saying anything about the distribution of the material standard of living. For the purposes of this survey, please ignore the question of whether the top 10% of the population end up consuming 10%, 30%, or 50% of the material goods and services consumed.

Carbon capture cannot redeem the oil sands

Set aside, for the moment, the very reasonable doubts about whether carbon capture and storage (CCS) is safe and effective, affordable, and capable of rapid deployment. Even if CCS could be implemented rapidly and cheaply, it would not render the oil sands acceptable from a climatic perspective. The reasons for that are as follows:

CCS can only be used to capture greenhouse gasses emitted in concentrated form from large facilities. Not all oil sands emissions are of this type.
Even at large facilities, CCS is only expected to capture about 80-85% of emissions.
The emissions from burning the fuels being produced will not be captured. Even with fuels originating from oil sands bitumen, these are the bulk of total emissions.

The oil sands are touted as a resource equivalent to a second Saudi Arabia. This is the last thing the world needs. There are only so many fossil fuels we can burn while still having a decent shot of avoiding catastrophic climate change. As a result, fossil fuels are an industry with no long-term future. This is indirectly demonstrated by the shamefully weak greenhouse gas mitigation targets adopted by Alberta. They know that even if CCS development progresses perfectly, it will not let them bring their emissions in line with what is sustainable. That’s why they can only hope to have reduced emissions to 14% below 2005 levels by 2050, when the world as a whole needs to have cut them to around 80% below 1990 levels, and rich places like Canada will need to have cut by even more.

There is also the issue of declining energy return on investment (EROI) and the perpetuation of oil dependency. Right now, the global economy is a fossil fuel junky. This cannot be sustained. Starting to depend heavily on alternative sources of oil, such as the oil sands, is the equivalent of starting to shoot up between your toes, because the veins in your arms have collapsed. It is not a far-thinking or effective way to deal with your quandary. The solution is to find a new way to sustain yourself. At best, the oil sands are a significant distraction from doing that.

[Update: 8 March 2010]. BuryCoal.com is a site dedicated to making the case for leaving coal, along with unconventional oil and gas, underground.

Three passages from Payback

There are three further elements of Margaret Atwood’s Payback that seem in keeping with the themes of this blog, and the current conversations here. I am not going to comment on them excessively, since I think they provoke enough thinking in themselves.

The first is her list of possible responses to major crises. You can “Protect Yourself, Give Up and Party, Help Others, Blame, Bear Witness, and Go About Your Life.” In the context of climate change, it seems like we are all engaging in a particular combination of these behaviours. It is worth contemplating if it is the right one. She doesn’t really discuss how there is a prisoner’s dilemma at work here. If nobody else addresses problems, protecting yourself or partying are your best options. If you can convince others to cooperate, you can help others and get on with your life.

The second is her description of an international approach to climate change mitigation:

[G]lobal warming has been dealt with at a global summit during which world leaders gave up paranoia, envy, rivalry, power-hunger, greed, and debate over who should start cutting down the carbon footprint first and rolled up their sleeves and got with it.

While that is a very appealing vision for how developed and rapidly developing states might behave, it does seem appropriate to recall that, in many places, the reduction of extreme poverty and insecurity is a more urgent task. Let Canada, China, and the United States learn how to run a zero carbon society, before calling on Sudan or Afghanistan to do so.

The third is a hypothetical response the American president could have given to the September 11th attacks:

We have suffered a grievous loss – a blow has been struck at us that was motivated by an obsessive desire to harm us. We realize that this was the work of a small group of fanatics. Other nations might bomb the stuffing out of the civilian population where those fanatics are at present located, but we recognize the futility of such an action. Nor will we accuse any bystander nation of having been involved. We realize that acts of vengeance recoil upon the heads of the inventors, and we do not wish to perpetuate a chain reaction of revenge. Therefore we will forgive.

The quote is an interesting one. For me, the last sentence somewhat clashes with the rest. It is one thing to say: “We will not take this fight to those who did not start it.” It is quite another to say that we will not respond directly to those who did, while being careful to spare the innocent. While it is on the fringe of what is imaginable that the United States might have responded to Al Qaeda through international cooperation and the vigorous efforts of law enforcement and the courts, it doesn’t seem either moral or believable that they would not respond in some way to those who were directly involved.

Chu on unmitigated climate change and California’s future

After the deluded attitude of the last American administration, it is a relief to see that Steven Chu, the new energy secretary, has grasped the magnitude of the climate challenge. In his first interview, Chu discussed the impact a business-as-usual approach to greenhouse gas mitigation could have on California by 2100:

In a worst case, Chu said, up to 90% of the Sierra snowpack could disappear, all but eliminating a natural storage system for water vital to agriculture.

“I don’t think the American public has gripped in its gut what could happen,” he said. “We’re looking at a scenario where there’s no more agriculture in California.” And, he added, “I don’t actually see how they can keep their cities going” either.

Talking candidly about the ramifications of increasing greenhouse gas concentrations to around 1000 parts per million, and increasing global temperatures by well over 5ºC, is an important part of making the case for action. That is especially true when a few people still foolishly believe that climate change mitigation is about protecting beavers, rather than averting major damage to human welfare worldwide.

Payback: Debt and the Shadow Side of Wealth

This series of lectures, published in book form, shows Margaret Atwood at her lively best. It is reminiscent of James Burke’s series ‘Connections,’ in which he traces a seemingly random path through history, choosing the most interesting and unexpected road at every juncture. In some ways, Atwood’s consideration of debt occurs in an even richer world, since it includes literature, mythology, and religion among the kind of paths that can be followed.

The first section of the book examines debt in a historical and conceptual way: considering different kinds of debt (financial, moral, spiritual, etc) as well as different modes of repayment. It considers the ethics of being a borrower and a lender, as well as the consequences that can arise for those who happen to be near either. Atwood’s examination highlights how lenders can err both in being too harsh on their debtors and in being too stingy with their money – both the vicious loan shark and the penny-pinching miser are culpable. The book discusses revenge as a special form of debt repayment, as well as the complexities that arise when debts are being incurred by states and princes. All this is made quite entertaining by the cleverness of the connections being identified, and the teasing and humorous tone of the narration.

The second section is an exposition of our current state of deep indebtedness, and a recognition that the greatest and most threatening of those debts are ecological. While Atwood’s updated Scrooge story includes asides on the unjustness of the World Bank and IMF, as well as the risks associated with fiat currencies, her primary concern is with the wanton destruction of the natural world that has been accelerating since the industrial revolution. She singles out overfishing, biofuels, deforestation, overpopulation, soil depletion, and climate change as examples, painting a general picture of extreme human recklessness. The redemptive vision is one based around neo-hippie victory: renewable power, an international agreement to stop climate change, and organic food for all.

The concluding story feels a bit trite, really. Any corporate baron paying the slightest bit of attention would already be jaded about the messages from the ghosts Atwood’s Scrooge Nouveau receives. That said, and while the literary merits of the first section exceed those of the second, it is appealing that this is a book of action as well as contemplation. It is hard not to agree with the thrust of Atwood’s argument. By all means, let’s increase the fairness of the global financial system and curb humanity’s self-destructive ways. This book contributes to that project by provoking a great deal of thought about the symbolism and meanings of debt. We will need to look beyond it for concrete ideas about how to overthrow or convert those who favour the status quo and thus bring about a sustainable (appropriately indebted) new order.

I say ‘appropriately indebted’ because the book makes a strong case that we can never really be out of debt. As social entities, there are always tallies of obligation between us, and nobody can ever be said to be sitting perfectly at the balance point of these transactions. Indeed, given the way they are denominated in different currencies (honour, favours, wealth), seeking such an outcome is hopeless. What we can attain is the position of borrowing and lending rightly, with forgiveness and an awareness and concern about the consequences for those around us and the wider world.

In any case, the book is highly topical, informative, and makes for a quick and rewarding read. It is telling that, while other books have been sitting around my apartment for months, I received this one in the mail yesterday and finished it today.

Contemplating inflation

Because a previous entry has diverged into a largely unrelated conversation about inflation, it seemed best to put up a post about the latter topic and divert the related discussion here.

The questions under discussion include:

What causes inflation, and to what degree can governments control it?
Is mild but positive inflation (say, 2%) socially or economically beneficial?
Through what political mechanism should target inflation rates be chosen?

Personally, my enthusiasm for all things economic is flagging a bit, given how long the ‘credit crunch’ has been dominating news and political commentary. That being said, I am always keen to foster discussion and, ideally, make it available in ways that third parties will find useful at later times.

Building standards and climate change

When it comes to planning, we really need to be thinking about the lifespan of what we are building, and the changes likely to occur during the course of it. For vehicles, that means thinking about efficiency standards and probable future developments in fuel types, prices, and availability. For buildings, it means thinking about efficiency and the payback time for different low-energy technologies. For all areas, it means thinking about what successful climate change mitigation and adaptation will involve.

New building construction is one of the areas where this can be most easily accomplished. Many different governments have levers through which they can influence private decisions. Governments build and renovate their own properties and, to a considerable extent, set the terms under which private actors do so. That power can be used to build a society that is both more economically and ecologically sustainable.

Federal, provincial, and municipal governments should be thinking about mechanisms like the Leadership in Energy and Environmental Design (LEED) standards and the effect they can have on the economic and environmental sustainability of future built environments. In a climate like that of Canada, there are a huge number of situations in which high building efficiency standards are rapidly repaid in the form of decreased energy use. At the societal level, they are repaid even more richly, since the externalities associated with that energy production are also eliminated. Simple initiatives like painting roofs white can reduce the urban heat island effect and reduce energy use associated with cooling in summer: achieving mitigation and adaptation simultaneously.

On the adaptation side, planning is similarly crucial. While many of the downscaled effects of climate change remain uncertain, there are a few we can already be pretty clear about. We are, for instance, going to see smaller glaciers and less winter snowpack. That affects how cities should be doing their water planning. Smart governments should be thinking about how communities can be grouped, in terms of the probable climate impacts they will face. Along with the insurance industry, governments can then encourage cost-effective preemptive adaptation measures.

There are those who argue that taking these kinds of action is inappropriate or counterproductive: that governments should just introduce carbon pricing and let the market respond. There are several reasons for which that is not an appropriate attitude. For one thing, these kinds of standards help address other non-climatic externalities. For builders, there is an incentive to build shoddy, poorly insulated homes. The societal welfare arising from durable, well-insulated homes is significantly greater. Setting standards can help close the divide. Also, there is no real prospect of an appropriate carbon price emerging in the next few years. There is, by contrast, hope for one that will escalate to a sensible level. By starting to build today the kind of buildings that will be sensible in that environment, we can both get ahead in the process of building a low-carbon society and preemptively address accusations that carbon prices places an unacceptable burden on ordinary people.

The ongoing financial crisis, which is so deeply connected to building construction and financing, provides governments with even more levels through which to push sensible standards. Doing so judiciously is one way through which a victory can be gleaned out of this catastrophe.

Presentation on near-term American climate policy

Dr. Holmes Hummel has put together a useful Powerpoint deck and presentation about American climate change policy in the period before and immediately after the Copenhagen negotiations. The slides are available here, along with an mp3 of the spoken presentation. Hummel is a Congressional Science Fellow, currently developing climate and energy legislation through the office of Congressman Jay Inslee. I wholeheartedly hope that she is correct in anticipating the proposal of a 100% auction cap-and-trade system from the Obama administration in 2009.

Her website has a number of other presentations.

Receding horizons in energy economics

Over at The Oil Drum, a reader has expressed an idea they call the ‘Law of Receding Horizons.’ This pertains to the energy industry and holds that, for unconventional fuels like ethanol and the oil sands, higher oil prices are not a guarantee of increased profits. This is because their own costs of production are not insulated from the direct and indirect effects of oil price increases. As such, their costs of production often rise to squeeze away any increased profit margin. Robert Rapier expresses the same idea in his recent post on fuels made using a thermal depolymerization process.

It seems unlikely that this holds true in all cases. Certainly, oil sands producers were a lot more upbeat when oil was around $150 a barrel than they are now that it is around $40. That being said, it may prove to be one reason for which new sources of unconventional fuel do not emerge in a cost-effective way as older and cheaper sources are depleted.

It is also worth mentioning that the costs here exclude any externalities. I maintain that if all the people who are and will be affected by oil sands production offered a dollar value equivalent to the level of harm they suffered to the oil sands producers, in lieu of continuing to produce they would choose to take this settlement. The externalities associated with the oil sands are probably greater than the welfare benefits of the fuel being produced.