Topic: Energy and Environment

Yglesias Is Baffled

Progressive blogger Matthew Yglesias says he is baffled by my previous post here about whether urban sprawl is the result of individual choice or government regulation. Ben Adler, a Newsweek blogger, weighs in as well.

You can read my detailed response to Yglesias on the Antiplanner blog. In a nutshell, Yglesias claims that my argument is a “complicated counterfactual hypothetical about whether or not most people would still prefer to live in large single-family homes even in the absence of regulatory restrictions.” In fact, my argument is that the government regulation that he claims forces people to live in urban sprawl does not even exist.

As near as I can tell, Yglesias has lived his entire life in New York City, Massachusetts, and the DC area, all of which have had highly prescriptive land-use regulation during most of Yglesias’ life. So he might be excused for thinking everywhere else is just like that. In fact, most of the country has never had such regulation. Instead, what regulation exists, in the form of zoning, has been entirely responsive to the market.

As a libertarian, I have repeatedly challenged progressives like Yglesias to join me in supporting the abolition of all zoning codes and other forms of government land-use regulation. Instead of accepting my invitation, Yglesias and Adler would rather pretend I am a hypocrite for supporting such regulation.

A Libertarian View of Urban Sprawl

On Thursday, March 18, John Stossel’s show on the Fox Business News network will feature a discussion of how taxes and regulation have prevented urban areas like Cleveland from recovering from the decline of the industries that once supported those regions.

While the “stars” of the show were Drew Carey and Reason Magazine’s Nick Gillespie, Stossel spent a few minutes on zoning and land-use regulation. When searching for someone to advocate such land-use regulation, they happened to ask James Kunstler, author of The Geography of Nowhere, a critique of suburbia.

Kunstler’s response was emphatic. First, he called one of Stossel’s other guests (okay, it was me) “a shill for the sprawl-builders.” Then he added, “Please tell Stoessel [sic] he can kiss my ass.” He was so proud of this response that he posted it on his blog (look for it in the archive if it has disappeared from his home page).

Kunstler is biased against mobility and low-density housing, but he must be a good writer because he has lots of fans. As soon as he posted his rude reply, the blogosphere lit up with arguments from progressive, conservative, and even libertarian writers claiming that sprawl is the result of central planning and zoning and therefore libertarians such as Stossel and Cato should support smart-growth policies aimed at containing sprawl.

Sprawl is “mandated by a vast and seemingly intractable network of government regulations, from zoning laws and building codes to street design regulations,” claims conservative Austin Bramwell. As a result, “government planning makes sprawl ubiquitous.”

Anarcho-libertarian Kevin Carson quotes The Geography of Nowhere as the authority for how planners like Robert Moses forced people to live in sprawl. “Local governments have been almost universally dominated by an unholy alliance of real estate developers and other commercial interests” that insisted on urban sprawl, says Carson.

Progressive Matthew Yglesias describes sprawl as “centrally planned suburbia” and accuses libertarians of being hypocrites because they don’t oppose zoning codes that mandate sprawl. He adds that “People sometimes cite Houston as an example of a libertarian-style ‘no zoning’ city, but this is mostly a myth” (citing a paper that finds that Houston “regulates land use almost as intricately as cities with zoning”).

This is all balderdash and poppycock. People who believe it should get their noses out of Kunstler’s biased diatribes and look at some real data and see how zoning actually worked before it was hijacked by authoritarian urban planners. It doesn’t take much to show that areas without any zoning or regulation will – if developed today – end up as what planners call “sprawl.” Until recently, all that zoning has done has been to affirm the kind of development that people want.

Contrary to Carson’s claim, zoning was not invented by developers trying to impose their lifestyle preferences on unsuspecting Americans. The idea that realtors and developers could somehow force people to buy houses they didn’t want is refuted by hundreds or thousands of real-estate developments that failed financially because they did not offer what people wanted. Unlike planners who write prescriptive zoning codes, developers who risk their own money are going to make every effort to build things that people want because if they don’t, the developers themselves will be the losers.

Instead, zoning was invented by homeowners in existing developments who wanted to insure that their neighborhoods would maintain some degree of stability. When zoning was first applied, it was used almost exclusively in areas that were already developed. Those original zones merely reaffirmed the development that was already there. Single-family neighborhoods were zoned for single-family homes; apartments for multi-family; industrial for industry; and so forth.

Single-family homes in Euclid, Ohio.

The Supreme Court’s 1926 Euclid decision was not over vacant land but an existing neighborhood of single-family homes. A realtor wanted the option of building an apartment building in this neighborhood. The court realized that an apartment building could attract higher rents if it were located in a stable neighborhood of single-family homes, but conversely it could reduce the value of the nearby homes. Rightly or wrongly, the court decided that the rights of homeowners to maintain their property values exceeded the right of one property owner seeking to boost the value of his property at everyone else’s expense.

After the Euclid decision, most American cities zoned their neighborhoods. Planners criticize “Euclidian zoning” because most zones separate housing from other uses. But such separation was the prevailing standard in developments after about 1900, and zoning merely affirmed that standard because most of the land that was zoned was already developed.

Most vacant land in a metropolitan area is outside of city limits under the jurisdiction of county governments, and until the 1960s and 1970s most states did not give counties the authority to zone (some still don’t). As Robert Nelson pointed out in his book, Zoning and Property Rights, when cities or counties did zone vacant land, they generally put it in a “holding zone,” meaning that it was zoned for a low density until some developer saw a market for something else. The developer would then ask the city or county to rezone for the market, and the city or county almost always complied.

People look at these low-density holding zones and charge that they force sprawl. It would be true if the zones were inflexible, but in fact the cities and counties were responsive to market demand: when a landowner or developer came forth with a proposal, the city or county generally reclassified the land into an appropriate zone. NIMBYs who expected that the low-density zones would remain forever were doomed to disappointment, and they often accused city/county commissioners of somehow being in the thrall of the developers. But the developers themselves were just reflecting market demand and city officials did not consider it their job to dictate what kind of homes or other buildings people should build and buy.

To his credit, Matthew Yglesias actually looks at some real data, namely the zoning code for Maricopa County, Arizona. But he misreads the code – or misleads his readers – when he implies that the densest zoning allowed is duplexes. In fact, chapter 7 of the code provides for multi-family housing with as many as 43 units per acre. An even bigger omission is the “planned area of development” (elsewhere called planned unit developments) zone in chapter 10, which allows for high-density, mixed-use developments. Every zoning code I have ever seen has included such a zoning option.

Whatever the code says, just reading it offers no idea of how flexible it is. If a significant chunk of vacant land is in one zone, but a developer thinks there is a market for another zone, most cities that haven’t yet fallen into the smart-growth fad will cheerfully change the zone or allow a variance. Obviously, this wouldn’t happen to a single vacant lot in the middle of an otherwise developed area, but would frequently happen to pieces of land that were, say, 100 acres or more. Maricopa’s PAD zone, for example, allows anyone with 160 acres to build a classic New Urban (mixed-use, high-density) development.

These homes were built in a suburb of Houston that has no zoning and no land-use regulation, so – according to sprawl critics – this must not be sprawl.

As noted, Yglesias also points to land-use regulation in Houston, which supposedly enforces sprawl. It is true that Houston regulates such things as setbacks and building heights. But it does not regulate uses: you can build a 7-Eleven in the middle of single-family homes or an apartment building in an industrial district. To the extent that Houston has a separation of uses, it is because that is what people want. Convenience stores want to locate on busy streets where they are visible to lots of potential customers, so they don’t often locate in the middle of neighborhoods of single-family homes. People don’t want to live in industrial districts, so you don’t see too many apartments in them.

If you don’t believe Houston is unregulated, just step across the city line into Harris County or any of the eight counties adjacent to Harris County. Texas counties aren’t allowed to zone, so there you will find virtually no regulation (other than building codes), yet you still find developments with the classic separation of uses and low-density development that planners derisively call sprawl.

This subdivision is in Germany. Does that mean that German laws are also forcing people to live in sprawl?

And if you don’t believe that, take a look at Wendell Cox’s rental car tours of European (and other) cities. Few would argue that Europe has forced people to sprawl, yet Cox shows that European cities are rapidly spreading out with low-density developments that (as Peter Hall says on page 873 of his massive tome, Cities in Civilization) are “almost indistinguishable from [their] counterparts in California and Texas.” (In a more recent article, Cox also refutes the completely undocumented claim that Americans are deserting the suburbs to move back to central cities.)

American cities sprawl because Americans, like people all over the world, prefer to live in single-family homes and like to have a little land they can call their own for gardening, entertainment, and play areas. The automobile made it possible for almost everyone to achieve this dream, where before the auto only the upper classes could do so. As John Stossel noted back in 2006 (when Kunstler had accepted his invitation to be on his show), restrictions on sprawl will destroy “the lives of poor people” because they basically tell “low-income people who want back yards that they can’t have one” (to which Kunstler supposedly replied, “you can’t have everything”).

So which is the appropriate libertarian view? To tell low-income people that they have to live in multi-family housing because social policy has made single-family homes artificially expensive? Or to simply eliminate zoning codes (which, contrary to Yglesias’ claims, every libertarian I know advocates) and let people do what they want (including, if they want, living in high-density developments or low-density developments with deed restrictions providing the stability that zoning once offered)?

Sprawl is not the result of central planning and libertarians need not hesitate in their opposition to smart growth. The real hypocrites are the so-called progressives like Yglesias who claim to care about low-income and disadvantaged people yet support policies that will prevent most such people from ever owning single-family homes.


Tufts Academic Gives Two Thumbs Down to Cheap Food

I suspect I may be falling into a publicity trap here, but nonetheless I am unable to resist blogging about an email I received this morning from the Global Development and Environment Institute at Tufts University.  The email contained this teaser:

How does cheap food contribute to global hunger?  GDAE’s Timothy A. Wise, in this recent article in Resurgence magazine, explains the contradictory nature of food and agriculture under globalization. He refers to globalization as “the cheapening of everything” and concludes:

“Some things just shouldn’t be cheapened. The market is very good at establishing the value of many things but it is not a good substitute for human values. Societies need to determine their own human values, not let the market do it for them. There are some essential things, such as our land and the life-sustaining foods it can produce, that should not be cheapened.”

This sort of stuff could only be written by someone on full academic tenure and who has never had to worry about feeding his family.

It would take many hours to rebut all of the idiocies contained in the full article, but for now I will just say: Yes, it is true that U.S. government subsidies for corn, for example, cause environmental damage in the Gulf of Mexico (Cato scholars have in fact covered this before as part of our ongoing campaign to eliminate farm subsidies). And yes, poor farmers abroad have suffered because of government intervention in food markets. But those are problems stemming from government intervention, not the free market.

Do You or Do You Not Hate America?

Sen. John Kerry (D, MA) made an, er, interesting rhetorical case yesterday (as reported on E2 Wire, The Hill’s Energy and Environment blog) that borrows heavily from the Bush playbook: your patriotism hinges on voting for his favored policy — in this case, a climate change bill. Not that the bill is really about climate change, of course. It’s about a list of goodies completely unrelated to the changing political winds:

What we are talking about is a jobs bill. It is not a climate bill. It is a jobs bill, and it is a clean air bill. It is a national security, energy independence bill,” he told reporters in the Capitol…

“And people are going to have to decide whether they are going to vote for America or against it,” he concluded.

India Explicitly Rejects Bringing Environmental Issues Into WTO

An article today in BRIDGES Weekly Trade News Digest (What? You don’t subscribe??) contains an explicit rejection by India’s trade minister of the idea that carbon border tax adjustments belong in the WTO’s agenda.  Border tax adjustments in this context refers to de facto tariffs that would “level the playing field” for domestic producers competing with foreign producers not subject to climate change policies of an equivalent rigour, also called “border carbon adjustments” or variations on that theme.

While Minister Khullar predicts that these sorts of measures will be in place in 2-3 years time, he rejects that the WTO is the forum to deal with environmental issues.

Furthermore, countries introducing such measures can expect litigation:

India and other developing countries will undoubtedly challenge the true impetus behind the [border carbon adjustment] measures.

“Such measures imposing restrictions on imports on the grounds of providing a ‘level playing field’, or maintaining the ‘competitiveness’ of the domestic industry, etc are likely to be viewed as mere protectionist measures by the developed world to block the exports of the poorer nations,” [a recent report from an Indian think-tank closely connected with the Indian government] reads. “This is because there is little empirical evidence that companies relocate to take advantage of lax pollution controls.”

The [report] argues that such unilateral trade measures will inevitably lead to tit-for-tat trade retaliation that could spiral into an all-out trade war. Such warnings have also been raised by China and several think tanks following the issue.

I’ve written before on the dangers of introducing climate change issues into the WTO (and Dan Griswold has written more broadly on why labor and environmental standards don’t mix well with the aim of freeing trade) but this is yet another firm, unequivocal warning to developed countries that their proposals (and they are still just proposals at this stage) will have consequences. Developed country politicians who insist on forcing rich-world standards on the poor world should listen carefully.

Radioactive Corporate Welfare

A good default proposition regarding the government’s role in the economy would state that the government should not loan money to an enterprise if the enterprise in question cannot find one single market actor anywhere in the universe to loan said enterprise a single red cent.  It might suggest – I don’t know – that the investment is rather … dubious.

Alas, like all good propositions regarding the government’s role in the economy, this one is being left by the roadside by the Obama administration.  Unfortunately, the only complaint being made by a not insubstantial segment of the political Right – frequently, the political crowd that is busy decrying “Bailout Nation” – is that the loan guarantees are not fat enough.

I write, of course, about the $8.3 billion federal loan guarantee announced by President Obama this week for Southern Company to build two new nuclear power plants.  The money will be used to guarantee the loans being made by the federal government (via the Federal Financing Bank) to partially cover the cost of Southern’s projected $14 billion nuclear construction project at their Vogtle plant near Waynesboro, Georgia.  The loan guarantees were authorized by Congress in the 2005 Energy Policy Act and, we are told, are the first installment on a total package of $54 billion that the President would like to hand out to facilitate the construction of 7-10 new nuclear power plants (Congress, however, has only authorized $18.5 billion to this point).

The claim being made by some – that the loan guarantees are necessary to jump-start investor interest in new nuclear power plant construction – is not quite correct.  Even these lavish loan guarantees aren’t enough to do that.  In a letter to the U.S. Department of Energy dated July 2, 2007, six of Wall Street’s s then-largest investment banks – Citigroup, Credit Suisse, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley – informed the administration that, contrary to the government’s expectations, anything short of a 100 percent unconditional guarantee would be insufficient to induce private lending.

Why is it risky to build nuclear power plants?  Because new nuclear projects tie up more capital for longer periods of time than its main competitor, natural-gas fired generation.  Nuclear power makes economic sense only if natural gas prices are very high.  Then, over time, the high initial costs of nuclear power would be offset by nuclear power’s lower fuel costs.  Moreover, as noted by Moody’s in an analysis published in July of last year, there is uncertainty associated with construction costs, regulatory oversight, technological developments that might reduce the cost of rival facilities, and the ability of utilities to recover costs and make a profit over the lifetime of the plant – a risk tied up in the economic prospects of the region being served by the plant.  And those risks have been increasing, not decreasing, as time has gone on.

In short, even during the go-go days prior to the September 2008 crash – a time when Wall Street was allegedly throwing around money left and right to all sorts of dubious borrowers – the banks that stand accused of recklessly endangering their shareholders on other fronts were telling utility companies that they would not loan them anything for new nuclear power plant construction unless the feds unconditionally guaranteed every last penny of those loans.  That’s how risky market actors think it is to build nuclear power plants.

And it’s not as if the federal government disagrees completely.  The Congressional Budget Office pegs the chance of default (program-wide) at 50 percent or better and the Government Accountability Office likewise thinks that default risks are quite high.  Energy Secretary Stephen Chu says that he thinks the chance of default is much lower.  We can only speculate about who’s right given that no one has tried to build a nuclear power plant in the United States for over 30 years.

Regardless of what the risk actually is, the loan guarantees do not reduce that risk.  They simply transfer the risk from the bank to taxpayer.  In this particular case, however, the loan guarantee transfers risk from one arm of the state to the other, so it doesn’t really count.  But if such loan guarantees  ever were to induce actual private lending for plant construction, that’s how it would work.

Plenty of arguments have been offered to justify these loan guarantees.  Most of them are flimsy on their face.

For instance, we’re often told that we “need” new power plants.  But with electricity demand declining over the past couple of years, it is unclear when that need might arise.

Regardless, when the market “needs” more electricity, that need will be manifested in price signals that will carry with them profit opportunities.  Profit-hungry investors will be willing and able to meet that need without the help of government.  Of course, if market conditions don’t radically change, those needs will be met with gas-fired power plants, but hey, if that bothers you, take it up with someone else.

Others argue that we need the jobs that will be produced by new nuclear power plants.  Well, building big new reactors will certainly employ a lot of (largely unionized) construction workers.  But that’s one reason why building a nuclear power plant is not very economic compared to building gas-fired generators.  If creating jobs is the idea whether the project makes any economic sense or not, then let’s just ban food imports and farm equipment and put everyone to work with hand plows and scythes.

Two somewhat more serious arguments have been offered to justify these loan guarantees.  Neither of them stands up to much scrutiny either.

The first argument – the argument most often heard from the nuclear power industry and some segments of the political Left – is that we need nuclear power to reduce greenhouse gas emissions.  Of course, the best (that is, most efficient) way to reduce greenhouse gas emissions is to internalize the cost of greenhouse gas emissions in the retail price of electricity and then allow market actors to adjust their production and consumption decisions accordingly.  That price internalization exercise, however (whether directly through a carbon tax or indirectly through a cap-and-trade program), does not appear to be in the cards in the foreseeable future.  Hence, the loan guarantees are advanced as a “second-best” solution, one that will get us the technology and economic efficiency that would be delivered by a properly crafted carbon tax or cap-and-trade program without the retail price increases associated with either.

One of several problems with this argument is that it would take one hell of a carbon tax – or one hell of an onerous cap-and-trade program – to get anyone interested in building nuclear power plants.  If natural gas prices remained roughly where they are at present (that is, if they were to remain at historical norms) then it would take a $90 per ton carbon tax or a cap-and-trade program that delivered carbon emission credits at $90 per ton on the open market to induce investment in nuclear power plants.  Few economists who study climate policy believe that a carbon tax of that size is defensible given what we know about climate change.

And that’s if construction costs are as low as advertised.  Were they to double (as they did from 2003 to 2009) – either because of endogenous increases in the cost of capital, labor, or construction-related resources or because of cost overruns – then it would take at least a $150 per ton carbon tax (or a cap-and-trade program that delivered $150 carbon credits to the market) to induce investment.

You might ask yourself what the historical relationship is between final (inflation-adjusted) nuclear power plant construction costs in the United States and construction costs as projected at the onset of the project.  Happily, the CBO has done your homework for you.  They found that final construction costs averaged 207 percent of projected costs.  Hence, a doubling of construction costs is probably more likely than not once a project is underway … if past is prologue.

The upshot is that there are many more efficient ways to respond to greenhouse gas emission constraints than to go on a nuclear power bender.  This observation is heresy on the Right, but almost every credible analysis of the matter backs up that observation.

The second argument one hears to justify federal loan guarantees is that they are necessary to counter-balance the excessive regulatory costs associated with new plant construction.  Now, put aside the fact that the Nuclear Energy Institute – the trade association of the nuclear power industry – has often expressed near-total satisfaction with the current federal regulatory regime.  If the regulatory regime is truly “bad” and, accordingly, is imposing steep and unnecessary costs on the industry, then the correct remedy is to improve said regulatory regime, not to subsidize the industry.

The counter-complaint that positive regulatory reforms are impossible is difficult to swallow.  After all, if there is sufficient political will to bestow tens of billions of dollars worth of tax money on this industry, then surely there is enough political will to reform the bad and unnecessarily costly regulations allegedly bedeviling the object of those very same legislative affections.

I will confess to being skeptical about the argument that high construction costs are largely the fault of regulators.  Building a light water breeder reactor is a technologically challenging and costly undertaking whether regulators are on the scene or not.  Moreover, it is not obvious to me that the regulations that are in place are a priori objectionable from a libertarian perspective.

One rarely, if ever, hears of particulars in this bill of complaint offered about nuclear regulation.  But if a persuasive bill of complaints is ever presented, then the appropriate response is regulatory reform and then to leave the decision to build or not to build to markets.

In the course of announcing these loan guarantees, President Obama said this week that “The fact is, changing the ways we produce and use energy requires us to think anew. It requires us to act anew.”  Well, there’s nothing new about throwing subsidies at nuclear power.  Economist Douglas Koplow calculates that federal nuclear subsidies have totaled $178 billion from 1947-1999.  The promise of a nuclear economy with rates too cheap to meter has been made for over half a century.  What would be new would be a policy of “just saying no” to industries with their hands out in Washington.

[Cross-posted at MasterResource]

UN Climate Official Steps In It, Then Aside

There are numerous possible reasons for UN climate chief Yvo de Boer’s decision to resign—from his inability to cobble together a new climate treaty last December in Copenhagen (where he wept on the podium), to recent revelations of his agency’s mishandling of climate change data.

What the climate science community and the public should focus on now are the ramifications of de Boer’s resignation.  For one thing, it signals that hope is dead for a UN-brokered global treaty that would have any meaningful effect on global temperatures.  It also means that the UN intends to keep its Intergovernmental Panel on Climate Change pretty much intact under the leadership of the scientifically compromised Rajenda Pauchari, who should have resigned along with de Boer.

This development guarantees that the Obama administration will have an unmitigated mess on its hands when signatories to the Framework Convention sit down in Mexico City this November in yet another meeting intended to produce a climate treaty.  The Mexico City meeting convenes six days after U.S. midterm elections, in which American voters are fully expected to rebuke Obama for policies including economy-crippling proposals to combat climate change.

In short, Mexico City is about as likely to produce substantive policy decisions as the TV show ‘The View.’  Backers of radical climate change measures are now paying the price for over two decades of telling the public—in this case literally—that the sky is falling.