Topic: Energy and Environment

Blame Urban Planning

The credit crisis has led to numerous calls for bigger government. Yet the truth is that big government not only let the crisis happen, it caused it.

This truth is obscured by most accounts of the crisis. “I have a four-step view of the financial crisis,” says Paul Krugman. “1. The bursting of the housing bubble.”

William Kristol agrees. His account of the crisis begins, “A huge speculative housing bubble has collapsed.” “The root of the problem lies in this housing correction,” said Secretary of the Treasury Henry Paulson.

So it all started with the bubble. But what caused the bubble? The answer is clear: excessive land-use regulation. Yet while many talk about re-regulating banks and other financial firms, hardly anyone is talking about deregulating land.

The housing bubble was not universal. It almost exclusively struck states and regions that were heavily regulating land and housing. In fast-growing places with no such regulation, such as Dallas, Houston, and Raleigh, housing prices did not bubble and they are not declining today.

The key to making a housing bubble is to give cities control over development of rural areas – a step that is often called “growth-management planning.” If they have such control, they will restrict such development in the name of stopping “urban sprawl” – an imaginary problem – while their real goal is to keep development and its associated tax revenues within their borders. Once they have limited rural development, they will impose all sorts of conditions and fees on developers, often prolonging the permitting process by several years. This makes it impossible for developers to respond to increased housing demand by stepping up production.

In contrast, when cities do not have control of rural areas, developers can step outside the cities and buy land, subdivide it, and develop it as slowly or rapidly as necessary to respond to demand. The cities themselves respond by competing for development – in other words, by keeping regulation and impact fees low. The Houston metro area, for example, has been growing at 130,000 people per year, yet it was readily able to absorb another 100,000 Katrina evacuees with virtually no increase in housing prices.

Before 1960, virtually all housing in the United States was “affordable,” meaning that the median home prices in communities across the country were all about two times median-family incomes. But in the early 1960s, Hawaii and California passed laws allowing cities to regulate rural development. Oregon and Vermont followed in the 1970s. These states all experienced housing bubbles in the 1970s, with median prices reaching four times median-family incomes. Because they represented a small share of total U.S. housing, these bubbles did not cause a worldwide financial meltdown.

In the 1980s and 1990s, however, several more states passed laws mandating growth-management planning: Arizona, Connecticut, Florida, Maryland, Rhode Island, and Washington. Massachusetts cities took advantage of that state’s weak form of county government to take control of the countryside. The Denver and Minneapolis-St. Paul metro areas adopted growth-management plans even without a state mandate. As a result, by 2000, prices of nearly half the housing in the nation were bubbling to four, six, and in some places ten times median-family incomes.

In the meantime, Congress gave the Department of Housing and Urban Development (HUD) oversight authority over Fannie Mae and Freddie Mac. While this was supposedly aimed at protecting taxpayers, Congress knew that HUD’s main mission is to increase homeownership rates, and Congress specifically pressured HUD to increase homeownership among low income families. So HUD responded to the housing bubble by directing Fannie and Freddie to buy increasingly high percentages of mortgages made to low income families, eventually setting a floor of 56 percent. This led Fannie and Freddie to significantly increase their purchases of subprime mortgages, which legitimized the secondary market for such mortgages.

Though everyone knows that the deflation of the housing bubble is what caused the financial meltdown, few have associated the bubble itself with land-use regulation. Back in 2005, Paul Krugman observed that the bubble was caused by excessive land-use regulation. Yet nowhere in his current writings does he suggest that we deregulate land to prevent such bubbles from happening again. Such suggestions have come only from the Cato Institute, Heritage Foundation, and a few other think tanks.

We know that if the regulation is left in place, housing will bubble again – California and Hawaii housing has bubbled and crashed three times since the 1970s. We also know, from research by Harvard economist Edward Glaeser, that each successive bubble makes housing more unaffordable than ever before – and thus leaves the economy more vulnerable to the inevitable deflation. This is because when prices decline, they only fall about a third of their increase, relative to “normal” housing, before bottoming out.

Thus, median California housing was twice median family incomes in 1960, four times in 1980, five times in 1990, and eight times in 2006. In the next bubble, it will probably be at least ten times. This means homeownership rates will decline (as it has declined in California since 1960), small business formation (which relies on the equity in the business owners’ homes for capital) will decline, and education will decline (children of families that own their homes do better in school than children of families who rent).

Worse, more states are passing growth management laws. Tennessee passed a law in 1998, too late to get into the recent housing bubble but enough to participate in the next one. Legislators in Georgia, North Carolina, and other fast-growing states are being pressured to also pass such laws. Naturally, the planners who promote such laws deny that their actions have anything to do with housing prices.

Even worse, the Environmental Protection Agency has proposed to “integrate climate and land use” – effectively using global warming fears to impose nationwide growth management. Supposedly – though there is no evidence for it – people in denser communities emit fewer greenhouse gases, and growth management can be used to impose densities on Americans who would rather live on quarter-acre lots. The California legislature recently passed a law requiring cities to impose even tighter growth restrictions in order to reduce greenhouse gases – and its implementation will be judged on the restrictions, not on whether those restrictions actually reduce emissions.

Instead of such laws, states that have regulated their land and housing should deregulate them. Congress should treat land-use regulations as restrictions on interstate mobility, and deny federal housing and transportation funds to states that impose such rules. Otherwise, hard as it may be to imagine, the consequences of the next housing bubble will be even worse than this one.

How the IPCC Portrayed a Net Positive Impact of Climate Change as a Negative

And it was done without uttering an untruth!

Arguably the most influential graphic from the latest IPCC report is Figure SPM.2 from the IPCC WG 2’s Summary for Policy Makers (on the impacts, vulnerability and adaptation to climate change). This figure, titled “Key impacts as a function of increasing global average temperature change”, also appears as Figure SPM.7 and Figure 3.6 of the IPCC Synthesis Report (available at http://www.ipcc.ch/pdf/assessment-report/ar4/syr/ar4_syr.pdf). Versions also appear as Table 20.8 of the WG 2 report, and Table TS.3 in the WG 2 Technical Summary. Yet other versions are also available from the IPCC WG2’s Graphics Presentations & Speeches, as well as in the WG 2’s “official” Power Point presentations, e.g., the presentation at the UNFCCC in Bonn, May 2007 (available at http://www.ipcc.ch/graphics/pr-ar4-2007-05-briefing-bonn.htm).

Notably the SPMs, Technical Summary, Synthesis Report, and the versions made available as presentations are primarily for consumption by policy makers and other intelligent lay persons. As such, they are meant to be jargon-free, easy to understand, and should be designed to shed light rather than to mislead even as they stay faithful to the science.

Let’s focus on what Figure SPM.2 tells us about the impacts of climate change on water.

The third statement in the panel devoted to water impacts states, “Hundreds of millions of people exposed to increased water stress.” If one traces from whence this statement came, one is led to Arnell (2004). [Figure SPM.2 misidentifies one of the sources as Table 3.3 of the IPCC WG 2 report. It ought to be Table 3.2. ]

What is evident is that while this third statement is correct, Figure SPM.2 neglects to inform us that water stress could be reduced for many hundreds of millions more — see Table 10 from the original reference, Arnell (2004). As a result, the net global population at risk of water stress might actually be reduced. And, that is precisely what Table 9 from Arnell (2004) shows. In fact, by the 2080s the net global population at risk declines by up to 2.1 billion people (depending on which scenario one wants to emphasize)!

And that is how a net positive impact of climate change is portrayed in Figure SPM.2 as a large negative impact. The recipe: provide numbers for the negative impact, but stay silent on the positive impact. That way no untruths are uttered, and only someone who has studied the original studies in depth will know what the true story is. It also reminds us as to why prior to testifying in court one swears to “tell the truth, the whole truth and nothing but the truth.”

Figure SPM.2 fails to tell us the whole truth.

Hints of the whole truth, however, are buried in the body of the IPCC WG 2 Report as evidenced by the following quote from Section 3.5.1, p. 194, of that report. Note that Arnell (2004b) and Arnell (2004) are identical.

In the 2050s, differences in the population projections of the four SRES scenarios would have a greater impact on the number of people living in water-stressed river basins (defined as basins with per capita water resources of less than 1,000 m3/year) than the differences in the emissions scenarios (Arnell, 2004b). The number of people living in severely stressed river basins would increase significantly (Table 3.2). The population at risk of increasing water stress for the full range of SRES scenarios is projected to be: 0.4 to 1.7 billion, 1.0 to 2.0 billion, and 1.1 to 3.2 billion, in the 2020s, 2050s, and 2080s, respectively (Arnell, 2004b). In the 2050s (SRES A2 scenario), 262-983 million people would move into the water stressed category (Arnell, 2004b). However, using the per capita water availability indicator, climate change would appear to reduce global water stress. This is because increases in runoff are heavily concentrated in the most populous parts of the world, mainly in East and South-East Asia, and mainly occur during high flow seasons (Arnell, 2004b). Therefore, they may not alleviate dry season problems if the extra water is not stored and would not ease water stress in other regions of the world. [Emphasis added]

But even this acknowledgment seems grudging, and leaves a misleading impression, as can be seen by the following annotated version of the above quote. [My annotations are indicated within the quote in square brackets and are in bold.]

In the 2050s, differences in the population projections of the four SRES scenarios would have a greater impact on the number of people living in water-stressed river basins (defined as basins with per capita water resources of less than 1,000 m3/year) than the differences in the emissions scenarios (Arnell, 2004b). The number of people living in severely stressed river basins would increase significantly (Table 3.2). The population at risk of increasing water stress for the full range of SRES scenarios is projected to be: 0.4 to 1.7 billion, 1.0 to 2.0 billion, and 1.1 to 3.2 billion, in the 2020s, 2050s, and 2080s, respectively (Arnell, 2004b). [COMMENT: note that the IPCC text fails to mention that the reductions in populations at risk of water stress due to climate change are projected to be substantially higher — 0.6 to 2.4 billion, 1.8 to 4.3 billion, and 1.7 to 6.0 billion in the 2020s, 2050s and 2080s, respectively. See Table 10 from the original source.] In the 2050s (SRES A2 scenario), 262-983 million people would move into the water stressed category (Arnell, 2004b). [COMMENT: The corresponding figures for the population moving out of water stress category are 191 to 1,493 million. See Table 9 from the original source.] However, using the per capita water availability indicator, climate change would appear to reduce global water stress. This is because increases in runoff are heavily concentrated in the most populous parts of the world, mainly in East and South-East Asia, and mainly occur during high flow seasons (Arnell, 2004b). Therefore, they may not alleviate dry season problems if the extra water is not stored and would not ease water stress in other regions of the world. [COMMENT: One should expect that societies would take action to store water if that’s what is necessary to avoid water stress. Such actions are not rocket science; they are probably as old as humanity itself, and have a successful track record going back for millennia. Moreover, if the IPCC’s emission scenarios, and the economic growth rates they assume are to be believed, these societies would be much wealthier in the future and should, therefore, have access to more capital to help adapt to such problems. See here (pp. 1034-1036, Tables 1 and 10).]

[Note that the Arnell paper is discussed in some detail here (pp. 1034-1036; Table 4), among other places.]

To summarize, with respect to water resources, Figure SPM.2 — and its clones — don’t make any false statements, but by withholding information that might place climate change in a positive light, they have perpetrated a fraud on the readers.

Be Afraid — Be Very Afraid

Light rail is on the ballot this November in Kansas City and Seattle. Commuter rail is on the ballot in Sonoma and Marin counties, California. BART heavy rail is on the ballot in San Jose.

These rail plans will cost billions of dollars each (hundreds of millions in the case of Sonoma-Marin), yet take few to no cars off the roads. The energy, pollution, and greenhouse gases generated during construction will vastly outweigh any operational savings, which in some cases will be nil. The plans are supported by a baptists-and-bootleggers combination of rail nuts and companies, like Parsons Brinckerhoff, that expect to make millions during construction.

But the real ballot measure to fear is California’s proposition 1A, which would authorize the sale of nearly $10 billion in general obligation bonds to build a high-speed rail network from Sacramento and San Francisco to Anaheim and San Diego. This $10 billion, combined with $10 billion from the feds and $5 billion in private money, was supposed to pay for the $25 billion system. The plan was to turn the system over to the private investors, who would operate it and keep 100 percent of the profits.

The first problem is that even the California High Speed Rail Authority admits that the real cost will be at least $43 billion. Considering the history of similar megaprojects – and this would be the largest state-sponsored megaproject in history – the final cost will probably be at least $60 billion.

The second problem is that the Authority has probably overestimated demand. It projects the system will carry 3 to 6 times as many passengers as Amtrak carries on its Northeast Corridor trains, which serve a higher population.

If the costs are high, the benefits are minuscule even if rail attracts the projected number of riders. The environmental impact statement for the project projects that it will take, at most, 3.8% of cars off the road, reduce air pollution by about 1%, and reduce transport-related greenhouse gases by 1.4%.

Considering the underestimated costs and overestimated ridership, it seems unlikely that private investors will put up $5 billion, much less a 20 percent share of whatever the final cost turns out to be. The danger for California taxpayers is that the Rail Authority will spend its $10 billion building as far as it can and then ask for more money. How far will $10 billion go? Not much further than San Francisco to San Jose.

Nor is there any guarantee that Congress will match the state’s money. But the danger for non-California taxpayers is that it does match the money – which will lead to demands for high-speed rail support from the rest of the country. Ten other high-speed corridors have received official recognition from the Federal Railroad Administration. Then there are various ad hoc proposals, such as Albuquerque to Casper and even Fargo to Missoula.

The likely cost of a national high-speed rail network will be in the hundreds of billions of dollars. Except to the contractors that build it, the benefits will be largely imaginary. We can see that by looking at high-speed rail elsewhere.

Japan’s bullet trains were a feather in that country’s technological cap, but they sent the formerly profitable Japanese National Railways (JNR) into virtual bankruptcy. The government was forced to absorb $200 billion in high-speed debt. Meanwhile, far from attracting people out of their cars, high-speed rail accelerated the growth in driving as JNR raised fares to cope with its losses.

Europe’s record with high-speed rail hasn’t been much better. Though nations in the European Union spend an estimated $100 billion per year subsidizing intercity rail, rail has slowly but steadily lost market share since Italy opened the continent’s first high-speed line in 1978. Today, less than 6 percent of passenger travel goes by rail.

We car-crazy Americans drive for 85 percent of our travel. Europeans drive for 79 percent. Spending several hundred billion dollars to get, at best, 5 or 6 percent of people out of their cars is not worthwhile. The real impact of high-speed rail is that it replaces private air service with heavily subsidized rail service.

Rail is not just a waste of money, it is an intrusion on personal freedom. That’s because it is inevitably accompanied by restrictions on people’s property rights. Buses and airlines can follow demand by changing routes. Rails cannot, so rail agencies conspire with land-use planners to reshape society and make it more “rail friendly.” That means upzoning areas near rail stations to higher-than-marketable densities while downzoning other areas to keep developers from building the kind of low-density housing most Americans prefer.

For more information about high-speed rail, see the Antiplanner, which is blogging about it in a series of nine posts.

No Dice, Pickens!

Last Thursday on public radio’s Marketplace Morning Report, Bob Moon interviewed billionaire T. Boone Pickens about his highly self-publicized energy plan, which centers on using wind power to replace a portion of the natural gas used to create electricity, and then using that replaced natural gas to power cars. As it happens, Pickens has invested in a big way in windmills and is extremely well placed to profit from an increase in the use of natural gas-powered vehicles. But the part that bothers me most isn’t the fact that a billionaire is running a propaganda campaign in an effort to rig the regulatory structure to force consumers to buy what he sells – though that bothers me plenty. The part that bothers me most is the mixture of toxic nationalism and egregious economic illiteracy in the ads Pickens is airing to plump for his plan. Which brings us back to Moon’s interview with Pickens:

Moon: Let me ask you to respond to something that Will Wilkinson of the Cato Institute said in a commentary on Marketplace the other day. Here’s some of his criticism of you:

Will Wilkinson clip: He’s leaning hard on our worst nationalist impulses. What he’s really saying is, why buy the things you need from dangerous foreigners when you could be paying more to buy them from rock-ribbed Americans, like T. Boone Pickens.

Pickens: It’s more than me. I mean, this is about America. This isn’t about Boone Pickens and whether Pickens’ wind farm makes money or whatever happens to it. But I mean, here with $700 billion going out of the country, and let’s say that we could cut it in half – $350 billion in the United States, can you imagine how that would multiply for jobs here. I’d much rather that gonna $350 billion was being used here than to give some for foreign oil.

Allow me to point out that Pickens’ reply is nonsense. He continues to insist on characterizing mutually-beneficial exchange across borders as hundreds of billions of American dollars “going out of the country.” But, in a nutshell, the reason Americans bought all this oil from abroad was that they had no way to get more energy bang for their energy buck. Unless the prices of domestic energy sources decline relative to that of foreign oil, shifting domestic consumption to energy from domestically-produced sources will  require Americans to pay more for energy–leaving them less for everything else.

This is not a recipe for multiplying jobs. Rather, it would leave less money in the economy to start new businesses and to expand successful ones. This is a recipe to make ordinary American consumers poorer and energy corporations, like the ones Pickens owns, richer. If Pickens was making sense, the implication would be that Americans would be better off if we “in-sourced” everything. T. Boone Pickens, meet David Ricardo.

Either one of the world’s wealthiest men doesn’t understand elementary economics, which clearly tells us that his plan will make Americans poorer, or his plan is not really “about America.”

Here’s my July 31st Marketplace commentary on Pickens. And here’s Cato’s Jerry Taylor in March debunking “energy independence.”

Bipartisan Nonsense on “Energy Independence” and Trade

Sen. John McCain reinforced his bipartisan credentials Thursday evening by sounding as confused as the Democrats on the nation’s assumed need for “energy independence.”

In his acceptance speech at the GOP convention in St. Paul, McCain pledged federal support for alternative energy so the United States can reduce the amount of energy it imports from abroad. “When I’m president,” McCain told cheering delegates, “we’re going to embark on the most ambitious national project in decades. We are going to stop sending $700 billion a year to countries that don’t like us very much. We will attack the problem on every front.”

He then pledged his support for more offshore drilling, nuclear power plants, wind, tide, solar and natural gas.

Whoa! Before we embark on a project that could cost tens or hundreds of billions of dollars, let’s get the facts straight. Specifically, where did that $700 billion number come from?

That is far more than what we pay for imported energy. In 2007, Americans spent less than half that amount—$319 billion—for imported energy of all kinds, including oil and natural gas. Even with higher energy prices in 2008, our total bill for imported energy this year will be nowhere near $700 billion.

Contrary to popular perception, most of our oil imports come such friendly countries as Canada, Mexico, Colombia, Brazil, and the United Kingdom, or from more neutral suppliers such as Iraq, Kuwait, Nigeria, Angola, Chad and Congo (Brazzaville).  Only a third of our imported oil comes from the major problem countries of Saudi Arabia, Venezuela, Algeria, Ecuador and Russia. We don’t import any oil directly from Iran. [You can check out the latest Commerce Department figures here.]

The $700 billion that Sen. McCain probably had in mind is America’s total trade balance, known as the current account. Last year, Americans rolled up a $731 billion current account deficit with the rest of the world. That account includes not just energy but also manufactured goods, farm products, services, and income from foreign investments.

The current account deficit is not driven by energy imports but by the underlying level of savings and investment in the U.S. economy. We run a current account deficit because, year after year, more is invested in the American economy than Americans save to finance that investment. Foreign capital fills the gap, and the resulting net inflow of foreign investment more or less directly offsets the gap between what we import and what we export.

If the federal government dramatically increases spending on alternative energy, as Sen. McCain and his Democratic opponent both seem to want, the result will be a bigger federal budget deficit, a smaller pool of domestic savings, more foreign capital flowing into the United States, and an even larger current account deficit.

Great Moments in Subsidized Train Travel

I once ran out of gas in college, so I suppose I shouldn’t throw too many stones at Amtrak’s glass house, but presumably somebody actually gets paid to make sure that trains don’t leave stations without enough fuel to make it to their next destination. According to the AP report, Amtrak will be investigating how this happened on a trip from LA to San Diego. Needless to say, don’t expect anyone to be held accountable:

A quick train trip down the coast turned into a long haul for more than 80 Amtrak passengers when their train from Los Angeles to San Diego ran out of fuel Sunday night. …The train, which had left Los Angeles at 8:30 p.m., didn’t get there until 1:15 a.m. Monday, two hours late. A train running out of fuel is “an unusual occurrence” and Amtrak officials will be looking into how it happened, Cole said.

Energy Dust-Up in LA

This week, the Los Angeles Times has invited me to participate in a daily on-line debate (a regular feature they sponsor called “Dust-Up”) with V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies.  Monday, we debated off-shore drilling.  Today, we debated the T. Boone Pickens’ energy plan.  Tomorrow, we’ll debate nuclear energy.  Thursday, the issue is the future of the automobile.  Friday, the topic is what America’s energy economy will and/or should look like in a generation.  While our exchanges won’t be in the newspaper’s print edition, I’ll take the on-line exposure.

So far, I don’t think John has laid a glove on me.  In the off-shore drilling discussion, John has a hard time differentiating between electricity markets and transportation markets.  To say that we should rely on wind, solar, or whatever – and not oil – is to say that we should rely on batteries to run our automotive fleet.  Well, that would be great, but until some pretty big-time breakthroughs occur in battery technology, that’s not going to happen.  Regarding T. Boone Pickens’ energy agenda, I’m still waiting for a concrete argument about why markets “fail” to produce all the investment dollars that this supposedly worthy industry needs.

Tomorrow’s debate will likely produce few sparks.  I’m against nuclear energy subsidies and don’t think the industry would survive without them.  Thursday and Friday, however, will be more interesting.  I don’t have the faintest idea what sort of personal automobiles will be on the market in, say, 2030, and even less idea what the energy economy of the next generation will look like.  I suspect, however, that John thinks it’s all rather obvious where energy markets and technologies are heading and that he has the perfect master plan to most efficiently accelerate all the big-time changes that history has in store for us.

Saying “I don’t know” to questions like these is never that good of an idea if you want to dazzle people with your wisdom and insight.  On the other hand, it’s hard to marshall the argument that “the oil age is over and the age of genetically modified gerbils on treadmills is coming” (or whatever) and then say that the government needs to do something to get us there.  Well, if its so inevitable, then why must government act at all?  We’ll find out if John can manage to resolve that tension in what will likely be his argument.