Follow the money

Over on Env Econ Tim lays out the Habb Haab Climate Security Act of 2009. It basically involves auctioning 10% of allowances in year one, and then increasing this by 10% per year until we have 100% auctioning. The remaining permits will be given away to polluters so that they have “time to adjust”. While this would have been a pragmatic compromise as recent as 12 months ago, today I’d say its a non-starter. Polluters totally dropped the ball on this one, preffering the to play hardball rather than getting in early when they could have essentially written the bill themselves. Now that ship has sailed.

Under President Obama I really can’t see more than 25% of permits being given away for free initially, with a much quicker phaseout. BO repeatedly emphasised his support for 100% auctions during the campaign. And this position wasn’t simply some calculated play for votes. Unlike almost every other politician in Congress, Obama grasped the fiscal opportunities of carbon revenue very early on. At a time when Senator McCain was touting cap and trade because it could be implemented without a big check going to the federal government, Obama started talking about killing two birds with one stone: we could address climate change and raise money for other programs.

Then this week President Obama came out and said that he would halve the federal deficit. This surprised many, as he’s also stated ambitious spending goals, particularly on health care. Then people noticed something funny in the budget: revenue from a cap and trade program that doesn’t yet exist. Now I’m not sure how hidden this line item was supposed to be, but its clearly not the most transparent move we’ve seen from Obama. Instead of getting into a big public debate about cap and trade, he appears to have opted to show congress the money first, and then let them decide if they’d like to give it away to polluters for free (Remember that Peter Orzag is in Obama’s cabinet. This is the man who was in charge of the CBO when it ruled that free permits would be scored as spending outlays). I wonder what they’ll do (sarc.)

Like almost everything that’s come out of the Obama team in the past year, they appear to be one step ahead of everyone else. While I’m actually pretty apprehensive about the symbolic implications of sneaking climate policy in the backdoor, I’d have to admit that this strategy increases the probability of some form of cap and trade program getting passed in the next two years. And if the carrot’s insufficient to tempt Congress, he’s also promised that the EPA would comply with the Supreme Courts ruling that it must regulate carbon dioxide under the clean air act. This would would probably cost businesses more and raise less money for the federal government.

Touche Mr. President. Touche.

Quote of the day

I know it’s early still, but I don’t see this one being topped.  In reference to yet another article on the (ahem) tragic condition of the high-end dating scene under the current recession, Free Exchange notes:

The market for schadenfreude is about as countercyclical as it comes.

God bless the Germans for that word.

Assuming we cap carbon emissions, what’s the added benefit of enacting a federal RPS?

I’ve been really busy since I got back from Thailand, which is why I haven’t been posting. Now I’ve got a cold and don’t really have the mental energy to come up with anything coherent or insightful. So I figure I’ll take this opportunity to ask CT readers a question, the one in the title.

I’ve been confused about this for a long time and am hoping someone can explain it to me.  There’s been a lot of chatter recently about Obama’s apparent attempt to sneak a cap and trade program in through the back door of the budget. However, I’ve heard from multiple sources that the House Dems want a national renewable portfolio standard in place before a carbon cap is implemented.

As far as I know, the reason we want to promote renewable electricity is to reduce our carbon emissions. Since simply enacting an RPS will not guarantee that we reduce emission to the desired level, some sort of carbon price will be necessary anyways. If the RPS is less than or equal to the percentage of renewable electricity generated after carbon policy is in place, then the renewable credit price (REC) will go to zero, and the whole program will have contributed nothing more than red tape.

On the other hand, if the RPS still binds after we cap carbon, it will have the effect of increasing electricity prices without further reducing carbon emissions. Unless the CO2 permit price goes to zero (EIA estimates of L-W were in the $20 range), the emissions cap acts as both a floor and a ceiling on emissions.

So my question is, simply, why do we want an RPS if we know we need to price carbon anyways?

Strong economic reasoning

Rep. Joe Barton’s (R-TX) reaction to President Obama including revenue from a  cap-and-trade system in his budget proposal:

“If you put something on industry that is non-economic, and it drives industry out of the United States and costs jobs, over time it’s going to be a revenue loss,” Barton said. “Only in a static analysis can you get a revenue stream like they’re talking about by cap and trade.”

Everyone got that? Non-economic things + industry leaving USA + loss of jobs = revenue loss. I’m looking forward to the reasonable and well though-out debate that will accompany climate change legislation this year…

Like a good neighbor

Interesting news on the insurance regulation front, courtesy of ClimateWire (subscription req’d):

Insurance companies are facing new rules designed to prod them deeper into the fight against climate change, a remarkable transition that is poised to be set in motion when a group of key regulators casts a preliminary vote today.

Eighteen state insurance commissioners on a climate change task force are on the brink of approving the nation’s first regulations making companies reveal their efforts to spur emission-reducing policies. The rules could affect how members of one of the country’s largest industries make investments, offer products and anticipate losses related to rising seas, stronger storms and wilting drought.

This disclosure plan has been in the works for a while and would represent a pretty big departure from the industry norm. As one might expect, many of the potentially regulated parties are not thrilled and some even see it as a trojan horse to advance various tree hugging elitist-friendly agendas:

Requiring public answers to knotty questions about how stronger hurricanes, for example, could affect investment portfolios, or affect coverage in certain areas probes deeper into their business than some insurers would like.

Some critics see the disclosure plan as the first step toward other “green” regulations, like making companies offer car insurance that rewards reduced driving or provides discounts for hybrid vehicles.

“For the global environment, that may be beneficial, but does that truly benefit the individual insurance company?” said David Kodama, a climate policy expert with the Property Casualty Insurers Association of America, which opposes the plan. “That is a worthy goal, but should that be a prominent goal of the insurance industry?”

I don’t care that much whether or not the insurance industry should be promoting hybrids, but I definitely think it should have more transparency in how it determines and measures climate risks. Adapting to climate change (and doing it well) is going to require that decisionmakers have a pretty good understanding of risk, and nobody understand risk better than insurers. The insurance industry has been described as ‘the canary in the corporate mine‘ of climate change and its models could shine a bright light on areas where climate change is going to hurt the most. Wouldn’t be nice if the canary could say ‘Hey, I can’t breathe’ instead of just dying?

For those w/o a subscription, full article after the jump.

On the next boat to Wellington

Climate change adaptation is years away from having its day in the policy limelight, but someday soon it will be a big deal. Until then, we just get to enjoy the random places where it pops into the public consciousness. The Washington Post today has a fun story today about climate-driven ecomigration. They interview Adam Fier, who has determined the United States is not a safe place for he and his family to be in this climate-changing world of ours. Where will they find refuge? Middle-earth New Zealand!! The logic (which is pretty solid) behind Mr. Fier’s choice is as follows:

Fier, 38, a computer security professional who used to work at NASA, said he thought hard about the risks of global climate change. He knew moving to a new country would be difficult but thought that the dangers of staying in the United States were worse. Several years ago, he drew up a list of countries and studied how they might fare over the next century. He examined their environmental policies, access to natural resources and whether they would be safe from conflict. He decided that New Zealand would offer a comparable quality of life, has an excellent environmental record and is isolated from global conflicts by large tracts of the Pacific Ocean. Its tropical, subtropical, temperate and arctic zones also offer a variety of “bioenvironments” as a hedge against the vagaries of climate change.

Ready to jump on the panic train to southern Pacific safety? If not, a peek at the lovely people you’ll be living with should entice you a little further. You won’t be alone though. The article mentions that the 100,000 citizens of Kiribati are busy looking for a new place to live and have similar thoughts to Mr. Fier. Props to President Anote Tong for getting on the ball, but he’s not quite as impressive as Mohamed Nasheed, the first democratically elected President of the Maldives. Last November, President Nasheed annouced he was going to start diverting tourism revenue to purchase a new homeland. At least someone is willing to invest in real estate in this market. As for me, I had a brilliant plan to retreat to the Rockies and build a giant Swiss Family Robinson-type tree house to wait out the climate crisis, but that might not work out either. Any other brilliant climate refugia ideas out there?

Against the median

Sen. Schumer makes an interesting point about the common perception of middle class in America:

The median-household-income statistic is too blunt an instrument, because it includes households headed by 20-year-olds (i.e., students) as well as 90-year-olds (i.e., retirees). If you earn $48,000 at 20, you’re doing fine and don’t need government help; at 90, you’re on a fixed income and have different needs (and more options) from government than someone younger. According to an analysis by Third Way, the median household income for people ages 25 to 60, the prime working years, is about $68,000; if they’re married, it’s about $78,000. If both spouses earn income at some point during the year, the number rises to $85,000. So the “middle class” most Democratic politicians imagine—that is, typical working-age families—is actually much higher on the income ladder than they realize, somewhere more in the range of $60,000 to $100,000.

From The Atlanic.

Is our solar pv panels learning?

According to a new LBNL report (pdf), yes. For those with short attention spans busy schedules, the main findings are presented in a powerpoint here (pdf). The authors find that installed pv costs declined substantially from 2001 to 2007 (by 32% in the commercial sector and 7% in the residential sector). However, as is the typically the case when it comes to renewables, public policy is a key determinant of net costs, with the authors attributing recent movements largely to the ITC.

CT determines the future

A few months ago, Rich wrote about how awesome it would be if Zipcar converted to PHEV’s.  Well, they’re at least dipping their toe in the water.  They are partnering with the city of San Francisco to establish a pilot program in which Prius PHEV’s would be available.  Currently, it’s unclear whether more than the single car used at the press conference is available or the eventual size, but it’s a great step nonetheless.  Zipcar ran a similar program with original Prius HEV’s in Seattle.

To reiterate some of Rich’s discussion, this is ideal because it exposes people to PHEV’s.  Unfamiliar things are strange and scary, so using a PHEV is a great way to show consumers that they are not really much different from a normal auto.  It is also a good way to deploy them without building large amounts of infrastructure, since Zipcars are parked in a limited number of spots around a city.

However, there is the issue that people currently using Zipcars are already likely to favor PHEV’s:

In a member survey last month, more than 80 percent of the respondents voiced support for the addition of electric vehicles (EVs), plug-in hybrids (PHEVs) and alternative fuel vehicles to the fleet.

Still, other drivers will be exposed to PHEV’s, especially if there is some sort of prominent label advertising their special attributes.  At any rate, this is definitely an exciting development, although it’s worth mentioning that cars powered by our current dirty mix of electricity generation are not much better than those powered by petrol.

H/T: Green Car Congress.

More evidenceless econ bashing

David Roberts doesn’t like Daniel’s new office. While he admits that he doesn’t really know what the office does, his “gut” tells him that it can’t be good becuase the staff consists of “mainstream” economists (aka jerkoffs). These mainstream economists pose a grave threat to humanity, partly because “they tend to understate the cost of inaction, overstate the cost of action, [and] rely too heavily on models that account poorly for efficiency and innovation.” Fortunately a prescient cohort of superintellects headed up by Joe Romm have calculated the true costs of climate action and inaction, and mapped out the optimal sequence of investment and innovation, which they will reveal to the world at some point in the very near future, making all the mainstream economists look like IDIOTS. Don’t get too comfortable Daniel!

More on the tragedy of the space commons

Last year I wrote about the costly exernalities associated with the US’s decision to blow up a defucnt satellite instead of removing it from orbit. In today’s NYTimes, James Clay Moltz details the increasingly unstable nature of current space use practices. While we’re probably a long way away from establishing near space property rights, we clearly need some sort of international agreement which partially internalizes the social costs of cluttering the sky with trash.

Renewable energy money in the stimulus bill

A nice concise summary (PDF), courtesy of ACORE.

Dey took er jerbs!, H-1B edition

Michael Clemens at the Views from the Center blog points out that the Grassley-Sanders (!) amendment to the stimulus bill places new restrictions on hiring practices of firms receiving TARP funds; specifically, it will be more difficult for these firms to hire highly-skilled foreigners on H-1B visas.  Seems to me that restricting extremely talented MBA’s and the like from staying in the U.S. is not necessarily the best medicine for firms that are struggling to stay afloat under an anchor of poisonous assets.

In addition, Clemens relates the following:

That’s just one example of a trend we can expect to grow: Last Friday at Columbia University I publicly debated one of rising number of Americans who feel that the crisis is a reason to welcome drastically fewer people to this country, even highly skilled workers. “Buy American”, via immigration policy, is gaining credibility as a solution to the crisis.

His main economic counterpoints:

1. Immigration and unemployment are, if anything, negatively correlated.  In fact, highly-skilled workers (such as those here on H-1B’s) seem to create jobs by improving existing companies and starting their own ventures.
2. Developing nations benefit greatly when their citizens come the U.S. to be trained and work for a while.  They send home remittances and mantain/form networks with their home country, thus accelerating trade, investment, and technological change abroad.  Yes, we are having extremely tough times here, but Clemens urges us to consider the dark outlook for an already-impoverished nation in these global economic circumstances.

Clemens also points us to Bill Kerr of Harvard Business School.  In a recent paper, he found that when H-1B visa numbers went down, so did patent applications filed by immigrants in the U.S.  When H-1B numbers went up, patent applications followed suit.  In fact, he even found “little impact on the invention rates of native U.S. workers.  Most increases in U.S. innovation with higher H-1B admissions come through direct contributions of the immigrants themselves.”

In this case, the trend toward recession anti-immigration sentiment is concerning for all aspects of our economy,  especially as we begin sinking large amounts of money into basic research in biomedical and energy sciences.  Most estimates of highly-educated labor supply find it to be quite inelastic in the short run as one must acquire extensive training to join the science and engineering workforce.  The last thing we need to be doing at this point is restricting extremely talented, creative entrepreneurs from entering our economy and innovating.  To treat an H-1B foreign hire as simply a one-to-one crowd out of an American from his/her job is extremely fallacious.

Thanks, Daniel

So we here at CT face the end of an era as Daniel heads over to Treasury. Daniel, Rich, and I founded Common Tragedies after realizing that we read a lot of blogs and were seeking a way to force our opinions on the public an informal intellectual outlet. Daniel has often been the driving force of this blog and put in a lot of effort to attract our current readership by writing intelligent posts and connecting us with other bloggers through comments and links. It’s been a pleasure discussing potential posts and research in the context of the blog and RFF, but also getting to know you as a friend.

Basically, thank you Daniel, for helping to shape a forum in which I can post cow fart jokes and know that they are read by many people that I will never meet.

The problem with grandfathering permits

One alternative to auctioning off carbon permits under a cap and trade program is to give them away based on past usage. This is often promoted by industry groups as a way of gradually easing in carbon regulation without rocking the boat too much early on. Recently this notion has also been promoted in the EU as a way of providing compensation to industries that experience a significant decrease in international competitiveness due to domestic climate policy (similar measures are also being discussed by unions in the US). However, one of the problems with output based permit allocation is that it creates an incentive for actors to alter their behavior in the period(s) prior to setting the allocation. For example, if carbon permits were simply given out proportionally based on firms’ share of total carbon emissions in the previous year, there would be a huge incentive to be as dirty as possible.

A good example of this phenomenon was reported in the WaPo on Saturday, in “Waterman Inflated 2008 Crab Harvest Figures”. Basically Maryland officials determined that reported blue crab hauls for 2008 were wildly inflated. While the watermen have claimed its simple human error, its appears that the state sees an attempt to influence future catch limits. From the article, “State officials said the discrepancy was probably caused by watermen overstating what they’d caught. One likely reason, they said, was that some thought the state would use the catch from 2008 to set future limits on crabbing — that a big catch last year would lead to a higher quota later.”

H/T to Dave Evans.

Good resources for econometrics

If that’s not an eye-catching title, I don’t know what is.

As a development economics and politics blogger, Chris Blattman stands out.  However, since adding him to my Google Reader feeds, I’ve noticed that he often links to extremely useful microeconometrics tutorials and guides.  The latest is a guide to regression discontinuity methods in economics, but previous links include IV vs. structural models and Andrew Gelman’s review of a new inexpensive volume on labor econometrics.

Which brings me to Gelman’s blog on statistics in the social sciences.  Gelman is a real live statistician with a joint appointment in political science.  A lot of his posts are pointing out abuses of statistics or interesting statistical tidbits.  But his biggest value added is that he looks as social science methods through the lens of a statistician.

Farewell

This is a post that I’ve been putting off writing all week.  But the time for delay is up.

Yesterday was my last day at Resources for the Future.  In some sense I got the opportunity to put a capstone on my time there by writing this week’s Weekly Policy Commentary, which previews the upcoming cap-and-trade debate.  It’s as fitting a final statement as I could have hoped for, as it sums up (or at least touches on) many of the issues I’ve worked on over the last two years at RFF.

Tuesday morning I will report to the Department of the Treasury, to start as a Climate Policy Analyst in the (relatively new) Office of Environment and Energy.  (You can hear Hank Paulson talk about this office briefly in the video from a recent event at RFF — he mentions it a bit beyond the 8 minute mark.)  I’m tremendously excited about the opportunity to help shape the debate on climate policy design.  In many respects I’m moving from being a producer of the type of analysis that RFF does to being a consumer.

That sentiment applies to this blog as well.  I’ll continue to read with interest, and I do secretly hope that this blog long outlives its founders’ involvement as a place where the research assistants at RFF can give timely and accessible thoughts about the work that they are doing and the issues they’re thinking about.

I had the chance yesterday to tell my RFF colleagues what a privilege and a joy it had been to work with and learn from them.  I feel much the same about my co-bloggers and our readers.  I don’t think any of us could have started this thing up without the encouragement from each other, and I know my ability to blog was greatly enhanced by the offline conversations with Evan and Rich (and others) that sparked ideas.  And I learned plenty from the readers too, who were willing to call me out when I was wrong, ask me questions when I was unclear, and point me to additional information when I was uninformed.  Thank you all, sincerely.  I hope in your time reading here you’ve gleaned even a fraction of the knowledge and pleasure that I’ve gained in writing.

And speaking of that, at least a couple thoughts about “what I’ve learned as a blogger” seem in order before I close.  After almost a year and a half, and well over 200 posts, what have I learned?  I think the two biggest things are a sense of humility about how much I know and a sense of awe over the incredible storehouses of knowledge and expertise that are increasingly available through the blogosphere.  I’ll admit that I got into blogging thinking that I had a lot to offer.  And while I do hope I’ve made a contribution and helped a few folks understand climate policy a little better, the longer I went on blogging the more I felt that a lot of intellectual humility was necessary for any complicated question, and beyond that just how big and messy and complicated and interesting our world is.  I know that many of our readers have been disappointed by the low volume of posting I’ve done for the last 6 months or so.  Well, part of that was due to an increasingly busy personal and professional life, but honestly just as big a part of it was driven by my growing sense that there are so many incredible people out there in the blogosphere doing such great work that at the margin I was better off spending a bit of extra time reading rather than writing.  I guess in my view at the moment there is an oversupply of smart and excellent blog posts.  That’s a great thing for blog readers, and so I’ve been content to shift towards consumption and away from production.

Still, I’m incredibly glad I undertook this project and I strongly encourage people who are thinking about it to give blogging a try.  It’s a great way to ramp up your engagement with the world.  It gives you a natural lens through which to try to process and organize information, it sharpens your critical thinking skills, and hopefully it can help make you a better writer.  And you’ll likely pick up some friends along the way.

I certainly have. I’m not going to list any names, but I think you all know who you are.  Thank you for reading.  Thanks for your smart thoughts and engaging conversations.  Our conversations will no longer be as public, but I hope they’ll continue to be as spirited and thoughtful.  And who knows what the future holds?  I like to think that at some point down the road there is some more blogging out there for me somewhere.

In which I steal another of Gernot’s posts

In case there is anyone out there that reads CT but not EnvEcon (if so, I’d advise you to start reading it regularly), Gernot Wagner links to a nice piece about the general consensus that economists have quietly reached regarding the costs of climate change containment.  Be sure to check out Rob Stavins’ comment, which clarifies his position in the whole scene a bit.

Kyoto and climate-friendly patents

Gernot Wagner over at EnvEcon does a nice job outlining a very interesting paper I was too lazy busy to post on.  It basically looks at patent rates for climate-related technologies as a share of total innovation, and compares it across countries based on their Kyoto ratification history (EU + Japan vs. US + Australia).  The authors (Antoine Dechezleprêtre, Matthieu Glachant, Ivan Hascic, Nick Johnstone, and Yann Ménière) find that Annex I Kyoto-ratifying nations saw climate-friendly innovation at rates higher than that of Annex I nations that did not ratify (or ratified late, i.e. Australia).  Gernot is rightly cautious to claim causation — patent activity could easily be endogenous due to pre-existing/shifting tastes for green technology.  I’d love to see a difference-in-differences analysis, though that would probably require more data than is available, as well as a pretty sophisitcated lag structure given the delayed nature of patent activity.  This figure is pretty convincing though:

Still, a similar endogeneity claim could be made — perhaps the ratification of Kyoto reflected changing environmental tastes in those countries, which could also lead to more green patenting.  At any rate, this is valuable analysis, and Gernot sums it up nicely here:

The most important point, of course, is that green tech innovation doesn’t just magically happen. It takes deliberate government policy to spur it: make low-carbon innovation pay, and get out of the way. There’s plenty of entrepreneurs looking for the next big energy breakthrough — and to make a buck in the meantime.

Indeed, although we shouldn’t ignore the value of directly subsidizing basic energy research.

Climate policy in China and the U.S.

China is in some ways the mirror image of the United States. Whereas in the United States the most serious efforts to date to address climate change have been made at the state and local levels and in the private sector, in China the major initiatives have come from the national-level party and government and have often been blunted by conflicting interests among local officials and enterprises.

That is Kenneth Lieberthal and David Sandalow in a new report from Brookings on the prospects for cooperation between China and the U.S. on climate change.  Here is an interesting tidbit on power generation in each country:

Coal remains king in China, and about 70% of power still comes from coal-fired plants. Over the past five years China has built the equivalent of America’s entire coal power generation system. These plants will stay on line for another 30-50 years while 60% of U.S. coal-fired power plants will be over 50 years old by 2025.

Here are the key recommendations from the executive summary.  The full report is worth reading — it is a very short and accessible 80 pages.  (It is much closer to an article from Foreign Affairs than a journal article, and yes that is a compliment.)  One of the themes running through the report is that it would be helpful to reframe the U.S.-China conversation around “clean energy” rather than “climate change.”