Wednesday, July 22, 2009

A very pointed question recently asked in Britain's House of Commons

An email from the skeptical Peter Lilley [], an economist and energy analyst who is also a member of Parliament on behalf of the Conservative party:

The Secretary of State for Energy and Climate Change (Edward Miliband): "Today’s debate is held at an appropriate time — a week after the 17 countries of the Major Economies Forum met in L’Aquila in Italy and accepted the long-held scientific consensus that we should seek to prevent dangerous climate change above 2° C…"

Peter Lilley: "The average temperature in Cornwall is more than 2° C higher than the average temperature in the north-east of England. Is it really dangerous for someone to move from Newcastle to Cornwall? Would it be dangerous if the north-east of England became as warm as Cornwall? Would it be dangerous if Cornwall became as warm as the Loire valley? That is what a 2° C increase would involve."

See Cols 462 & 482 of Hansard for 16th July


In this month’s article at EconLib, I provide an introduction to the economics of climate change, and discuss some of its major controversies. Follow the above link for the full story, but in a nutshell here are the main issues:

(1) The Discount Rate. Economists give wildly different estimates of the “social cost of carbon” and hence the “optimal” tax on an additional unit of emissions. These differences are not primarily due to the assumptions about climate systems or human vulnerabilities to warming. On the contrary, the main difference between, say, the policy recommendations of the Stern Review (very aggressive) and William Nordhaus’ DICE model (very moderate) is that Stern uses a very low discount rate, while Nordhaus plugs in an estimate of the market’s rate of return on capital.

Efforts to mitigate greenhouse gas emissions impose large, upfront costs on the economy (in terms of forfeited potential output of goods and services), while the benefits will not accrue until decades in the future (in the form of avoided climate change damage). Thus, the lower the interest rate used to evaluate present and future events, the greater the perceived net benefits of mitigating emissions.

(2) Modelling Uncertainty. One of the most popular lines of attack against the conventional carbon-pricing models concerns the treatment of uncertainty, or how they handle small-probability worst case scenarios. Martin Weitzman is the leader in this assault. Weitzman argues that the orthodox approach of people like William Nordhaus neglects the small probability of truly catastrophic outcomes. However, I think many people who are only vaguely familiar with economic models are misunderstanding the debate.

In a standard economics model in which there is uncertainty, the “expected utility” from a given course of action is computed as the sum of the realized utilities under various possible scenarios, weighted by their respective probability of occurring. Some people hear this and mistakenly assume that economists are therefore assuming that people are “risk neutral,” meaning that a guy would gladly pay $1000 to play a game where there is a 1/1000 chance to win $2 million. (The expected payout is $2 million x 0.1% = $2000, which is twice as much as the price of $1000 to play the game. So a person who didn’t care about risk would gladly play that game.)

However, rest assured that the standard economic models do not assume everyone is risk neutral; of course most people wouldn’t pay $1,000 for a 1/1000 chance to win $2 million. The point is a bit technical for the present post, but what happens is that the models have agents maximize not the expected payoff, but rather the expected utility. And so if a utility function (in terms of wealth) is concave (not linear), then a person is “risk averse” and would be willing to pay slightly higher than actuarially fair premiums for fire insurance, etc. To give the intuition, most economic models assume that a person does NOT get twice as many utils from twice as much money. It’s far more devastating to lose all of your wealth, compared to the gain from doubling your wealth. So that’s why people (in such models) are risk averse, and therefore it’s not true (as I think some climate activists believe) to say that standard economic models don’t appreciate improbable but damaging climate scenarios.

Nordhaus has written a great response [.pdf] to Weitzman’s formal work on this subject. Nordhaus has shown that Weitzman’s approach (which climate activists love, because it provides a justification for very aggressive limits on emissions) leads to apparent absurdities, such as justifying the expenditure of trillions of dollars to remove a 0.0001% probability of an asteroid’s destroying the planet.

(3) Differences in Wealth. One of the most ironic aspects to the debate over climate change is that, under all but the most catastrophic scenarios, the future generations who will benefit from our efforts to limit emissions will be much, much richer than we are. Of course, if there is a true “market failure” leading to an inefficient amount of emissions, then our great-grandchildren will be poorer than they otherwise would be. But the point is, that “poverty” is a relative concept–our great-grandchildren are going to be fantastically wealthy by our standards, even if they have to devote a portion of their GDP to more air conditioners and sea walls.

(4) Government Failure. The mainstream economics of climate change literature takes it for granted that greenhouse gas emissions constitute a “market failure,” requiring corrective government action (in the form of a carbon tax, a cap & trade program, etc.). Yet students of Public Choice and Austrian economics know that there are institutional flaws with government efforts to “fix” the market. Even if one takes the more alarmist climate models at face value, it still takes heroic assumptions to conclude that giving more money and power to bureaucrats will make things better. The Public Choice’ers know that it is very naive to assume that politicians will actually implement a policy lining up with what the climate scientists recommend, while the Austrians know that no group of experts can command all of the relevant knowledge when making such monumental decisions.

In conclusion, I refer readers to my earlier post on the cost/benefit calculations of Waxman-Markey, showing that its advocates have not demonstrated that its emissions targets are a good idea, even with textbook implementation.



As if Big Coal’s protests weren’t enough, here’s another reality check for “clean coal.” Harvard’s Belfer Center just released an analysis of the costs of carbon capture and storage for coal-fired plants. The good news? Clean coal could become an economically viable alternative source of energy down the road. The bad news? It’s a long road—and the short term isn’t pretty.

“The Realistic Costs of Carbon Capture,” which examined the economics of trapping carbon emissions from coal-fired plants now and in the future, concludes that making coal plants “clean” will be an expensive undertaking until the technology is mature. Actually storing the stuff underground might cost more money, or might be a source of revenue, depending whether it’s used to juice tired oil fields or just stuck in caves.

How much will clean coal cost? The first generation of plants will be able to capture 90% of their carbon emissions at a cost of between $100 and $150 a ton. In layman’s terms, that would add between 8 and 12 cents per kilowatt hour to the cost of coal plants (the national average electricity price is about 9 cents per kilowatt hour).

Once the technology is mature and more efficient plants are up and running, the economics look better: It will cost between $30 and $50 per ton of carbon, or an extra 2 to 5 cents per kilowatt hour. To quote the report: “The range of estimated costs for [future] plants is within the range of plausible future carbon prices, implying that mature technology would be competitive with conventional fossil fuel plants at prevailing carbon prices.”

The problem is determining just when clean coal leaves behind its gawky adolescence and enters adulthood. It’s not a question of getting a couple of demonstration plants up and running; rather the world needs to make a huge, concerted push to enjoy economies of scale and the like. Harvard figures that “maturity” means between 50 and 100 gigawatts of clean coal plants in operation. Right now, there are four demonstration plants in the world, not including FutureGen.

One interesting tidbit: Less is not more. That is, “clean coal” doesn’t get any cheaper by capturing fewer of the plant’s emissions (as the reborn FutureGen seeks to do). To wit: “Indeed for the benchmark of a conventional coal plant…costs decrease markedly with increasing capture rates… There do not seem to be any grounds based on unit cost of abatement to prefer lower capture rates” for advanced coal plants.


Al Gore's hometown Nashville's Record Cold Breaks 1877 Temp Record 'Set when Rutherford B. Hayes was President'‏

Cool weather has broken a previous low temperature for July 21 in Nashville that was set when Rutherford B. Hayes was president. When the temperature at the National Weather Service station dipped to 58 degrees at 5:30 a.m. on Tuesday, it wiped out the previous record low for the date of 60 degrees, which was set in 1877. NWS forecaster Bobby Boyd noted it was the third consecutive morning when Nashville either tied or broke a daily low temperature record.

Temperatures were cool, but did not break records at several Tennessee cities. Knoxville dropped to 59 degrees Tuesday morning, Chattanooga had 60 degrees, Tri-Cities recorded 58 degrees and Memphis was 69 degrees.


A loony sect of modern flagellants

by Vin Suprynowicz

There is one good thing about the lunatic "global warming" catechism now taught our youth in the mandatory government youth propaganda camps :

When they are finally forced to admit that the globe has been cooling again, not warming, for the past decade, yet proceed to demand precisely the same remedies for "global cooling" (which they will cleverly dub "climate change") as they did for "global warming" -- that is to say higher electric bills, more government controls, taxes sufficient to cripple our industrial economy and generally lower our standard of living in keeping with the world socialist doctrine that America and particularly the "capitalist rich" must be "punished" and "made to sacrifice" in penitence for our former prosperity -- there is finally a decent chance they'll simply be laughed out of town.

"The same punishments to be inflicted on us in retribution for global cooling, as you prescribed for us in punishment for global warming?! Ha ha! Good one! Have you heard the one about the prostitute and the midget?"

For the record:

1) The globe is now again cooling, albeit infinitesimally, just as Time and Newsweek declared in major feature stories back in 1975 -- and the next Ice Age is indeed the real problem, since (if the world were to warm again), modest warming is actually good for us, since more people die of cold than heat, and warm climates allow us to grow more food.

2) The modest fluctuations in question, of a couple of degrees per century, are of minimal importance to anyone. Even the "rising ocean levels" predicted by the extremists' worst-case scenarios are on the order of one inch.

3) During years when the globe has warmed, man-made carbon dioxide has had no significant impact on that warming, which is caused by the oceans and mostly the sun. (Mars warms in a rhythm which matches the Earth's. Do we believe this is because Martians are driving too many SUVs and burning too much coal?) Mankind creates about 3 percent of the atmosphere's carbon dioxide, which is not the largest contributor to the blessed greenhouse effect, in the first place. Water vapor is.

4) Even if we could de-populate and throw America back into the Stone Age tomorrow, and even if man-made carbon dioxide did contribute in some measure to global warming, this would still have no effect on the climate, since the authority of Mr. Reid and Mr. Obama does not extend to India and China, which are building new coal-fired power plants every day.

"Man-made global warming" is a scam promoted by those who want more taxes, more control of our lives, less enjoyment of the freedom represented by private automobiles and single-family homes -- a modern sect of flagellants who (when you come right down to it) view mankind as a pox and parasite on an otherwise lovely world full of weeds and bugs more deserving of care, opportunity and "protection" than our own children, a sect who would view as a "regretful necessity" any government policy that could reduce the number of humans by at least half.

I'm not making this stuff up. See here, here or here

Or, if you're willing to do a little old-fashioned book reading, try the fine new book "Climate of Extremes/Global Warming Science They Don't Want You To Know," from the Cato Institute, by Patrick J. Michaels and Robert C. Balling, Jr., or "Re-Thinking Green/Alternatives to Environmental Bureaucracy," from the Independent Institute, edited by Robert Higgs and Carl P. Close.

These are thoughtful, well-documented books. Choose your favorite and buy copies for all your friends.


Britain: ‘Low carbon’ is code for low ambitions

The UK’s new climate change plan shows how the green ethos is used to add a gloss of respectability to economic and visionary failure

Given its isolation, unpopularity and dysfunctional relationship with ‘the vision thing’, it seems highly unlikely that Gordon Brown’s government is capable of starting a revolution. Yet that, apparently, is what it did yesterday.

Ed Miliband, the UK climate change secretary, unveiled the government’s plans for cutting carbon emissions in the UK by 34 per cent by 2020 and by 80 per cent by 2050. In the fields of manufacturing, energy production, transport and housing, revealed Miliband in 650 pages of shiny manifestos and strategy documents, carbon-use will be slashed. Commentators were overjoyed, describing it as ‘nothing less than a green industrial revolution’, which might rank as ‘one of the most important moments in British economic history’ (1).

Steady on. There is nothing remotely revolutionary about Miliband’s plans. And the only sense in which they are historic is that they represent – albeit in a coded, PC fashion – Britain’s disavowal of its own industrial history and its final embrace of the slow life, low ambitions and the realities of economic failure. Miliband’s vision, or rather anti-vision, reveals what the politics of low carbon is really all about: accommodating to the economic downturn and to the dearth of big plans for the future.

Where growing and aspirational nations like China and India produce carbon – which is simply the byproduct of large-scale energy production and manufacturing – sluggish and increasingly insignificant nations like Britain produce less carbon, or no carbon, or now, in the words of Miliband, ‘low carbon’: codeword for a nation that isn’t doing very much at all. Miliband’s plans expose how the green ethos can be used to add a gloss of respectability to already-existing economic and visionary failure.

In many ways, the documents published by Miliband yesterday represented a bizarre celebration of Britain’s slowdown, particularly in manufacturing, over the past 15 to 20 years. In the kind of green lingo that excites officials and commentators, Miliband effectively boasted about the fact that Britain is producing and building fewer tangible things today than it was in 1990. He outlined how New Labour has committed Britain to cutting carbon emissions by 34 per cent on 1990 levels by 2020, and then said we are already more than half way to achieving that goal. ‘We’ve already achieved around a 21 per cent cut since 1990’, his factsheet said, ‘[which is the] equivalent of cutting emissions entirely from four cities the size of London’ (2).

But it is deeply disingenuous to present a 21 per cent fall in carbon emissions since 1990, the equivalent of getting rid of four Londons, as a product of some conscious, profound desire to rein in carbon-use and make the nation cleaner. Such a reduction in emissions was not brought about by the erection of a few windfarms off the south coast of England or the introduction of bin-monitoring recycling policies in the cities; more fundamentally, it reflects the contraction of manufacturing in Britain and the creeping replacement of a one-time productive economy with a services-based economy, aspects of which are not productive at all (especially the financial services sector).

Over the same period now presented by Miliband as the Glorious Era of Low Carbon, the British economy underwent huge changes. In 1986, manufacturing made up around 21 per cent of British economic activity; today it accounts for only 13 per cent. At the same time, the service side of the economy grew enormously: in 1975 services accounted for 55 per cent of British GDP; today they account for 75 per cent (3).

The post-1990 fall in carbon emissions, the effective winding down of four cities, was brought about by the closure of the remaining coalpits, the shutting up of factories, the export of car manufacturing overseas (most notoriously, with the sale of MG Rover Group for a song to Nanjing Automobile Group in 2005), and so on. All that the 21 per cent reduction in CO2 really tells us, in any meaningful sense, is that Britain is producing less real stuff today; it has fewer and fewer workers whose job is to create real, tangible things and who in the process emit the byproduct of carbon. A services-based economy tends to be ‘cleaner’ than a manufacturing-based economy. Miliband is cynically presenting manufacturing downturn, and all the job losses and city and community deprivation that go along with it, as a brilliant central-government strategy to ‘clean up Britain’ (4).

When it comes to planning for the future, Miliband’s documents show how ‘building a low-carbon Britain’ is justification for ditching big plans. Between now and 2020, when 34 per cent of CO2 emissions will have been cut, Miliband envisages that a whopping 50 per cent of that cut will be in the ‘power and heavy industry’ sector, compared with 20 per cent in transport, 15 per cent in homes, 10 per cent in workplaces, and five per cent in agriculture (5). It is striking, and also rather predictable, that the climate change secretary of a nation that was once the ‘workshop of the world’ but which now carries out less and less manufacturing should envision the biggest fall in CO2 emissions taking place in heavy industry. What he really means is that fewer things will be done in that area in the next 10, 20 or 30 years; but, rather than seeing that as a potential problem he celebrates it as part of the process of creating a new kind of world-beating low-carbon nation.

There is a glaring contradiction in some of Miliband’s plans. He opportunistically celebrates the lower carbon levels that have fundamentally resulted from the sclerosis of properly productive activity, yet doesn’t realise that such sclerosis is likely to impact even on his low-carbon plans. For example, in order to cut CO2 emissions in the energy sector, Miliband proposes building vastly more windfarms and new nuclear power stations (he can keep his windfarms, but more nuclear is a very good idea). However, earlier this year Vestas, the wind turbine manufacturer, closed its major factory on the Isle of Wight, with the loss of 600 jobs, and cited lack of investment and too much red tape in planning procedures as the main problem (6). In response to Miliband’s nuclear proposals, energy companies have complained that, actually, Britain is not conducive to big building projects right now, because everything gets tied up in endless judicial reviews and public consultations (7).

In short, Britain’s general lack of manufacturing-based productivity has made the country ‘cleaner’, yes, but it has also made it far harder to get anything done. A lack of investment in manufacturing and big build projects has lowered carbon, but it has also lowered the chances of making things happen speedily and effectively. The irony is too much: Britain is low carbon because it produces less stuff, and it is that very lack of productivity that might hamper some of Miliband’s plans to make Britain even more low carbon, for example by building new nuclear power stations.

In transport and house-building, too, the low-carbon approach has clearly become a way of presenting the death of vision as something wonderful. Yesterday the minister for transport, Lord Adonis, spelt out his vision for a low-carbon transport system: his plan is not to overhaul roads, build more motorways or lay down vastly more railtracks, but rather to play around with the vehicles that travel on the already-existing creaking infrastructure. So he will introduce tougher regulation of cars that emit a lot of CO2, perhaps taxing their drivers more than others, and will spend £250million on customer incentives designed to promote electric cars. He also wants to create ‘sustainable travel cities’: places where people travel by foot or by bike (8). Here, Britain’s lack of transport vision, its abandonment of road-building and infrastructure investment over the past 10 to 15 years, is re-presented as part of the big, conscious plan for a low-carbon future.

In housing, where 10 per cent of the planned CO2 cuts will happen between now and 2020, there is not nearly enough talk of building the millions of new homes that Britain needs. Instead there is a headline focus on monitoring how we all live in the homes we have right now. One plan is to put ‘smart electricity meters’ in 26million homes, so that we can measure how much energy we’re using: those who use small amounts will be rewarded with financial incentives. This is probably what Lord Mandelson meant yesterday, when he said the big low-carbon project would ‘reshape our lives’ (9).

The Miliband plan reveals something profound about the politics of environmentalism: it justifies, even celebrates, underdevelopment and lack of investment in infrastructure, but in the dishonest language of ‘low carbon’ and ‘cleaner futures’. This is the opposite of revolutionary. Indeed, the government’s adoption of a new language that effectively heralds Britain’s position as a slow, meek and visionless nation is, in many ways, the final nail in the coffin of the industrial revolution that gave birth to modern Britain.



For more postings from me, see DISSECTING LEFTISM, TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, POLITICAL CORRECTNESS WATCH, FOOD & HEALTH SKEPTIC, GUN WATCH, SOCIALIZED MEDICINE, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL and EYE ON BRITAIN. My Home Pages are here or here or here. Email me (John Ray) here. For readers in China or for times when is playing up, there is a mirror of this site here.


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