Tag: energy

Response to Conor Clarke, Part I

Last week Conor Clarke at The Atlantic blog , apparently as part of a running argument with Jim Manzi, raised four substantive issues with my study, “What to Do About Climate Change,” that Cato published last year. Mr. Clarke deserves a response, and I apologize for not getting to this sooner. Today, I’ll address the first part of his first comment. I’ll address the rest of his comments over the next few days.

Conor Clarke: 

(1) Goklany’s analysis does not extend beyond the 21st century. This is a problem for two reasons. First, climate change has no plans to close shop in 2100. Even if you believe GDP will be higher in 2100 with unfettered global warming than without, it’s not obvious that GDP would be higher in the year 2200 or 2300 or 3758. (This depends crucially on the rate of technological progress, and as Goklany’s paper acknowledges, that’s difficult to model.) Second, the possibility of “catastrophic” climate change events – those with low probability but extremely high cost – becomes real after 2100.

Response:  First, I wouldn’t put too much stock in analyses purporting to extend out to the end of the 21st century, let alone beyond that, for numerous reasons, some of which are laid out on pp. 2-3 of the Cato study. As noted there, according to a paper commissioned for the Stern Review, “changes in socioeconomic systems cannot be projected semi-realistically for more than 5–10 years at a time.”

Second, regarding Mr. Clarke’s statement that, “Even if you believe GDP will be higher in 2100 with unfettered global warming than without, it’s not obvious that GDP would be higher in the year 2200 or 2300 or 3758,” I should note that the conclusion that net welfare for 2100 (measured by net GDP per capita) is not based on a belief.  It follows inexorably from Stern’s own analysis.

Third, despite my skepticism of long term estimates, I have, for the sake of argument, extended the calculation to 2200. See here. Once again, I used the Stern Review’s estimates, not because I think they are particularly credible (see below), but for the sake of argument. Specifically, I assumed that losses in welfare due to climate change under the IPCC’s warmest scenario would, per the Stern Review’s 95th percentile estimate, be equivalent to 35.2 percent of GDP in 2200. [Recall that Stern’s estimates account for losses due to market impacts, non-market (i.e., environmental and public health) impacts and the risk of catastrophe, so one can’t argue that only market impacts were considered.]

The results, summarized in the following figure, indicate that even if one uses the Stern Review’s inflated impact estimates under the warmest IPCC scenario, net GDP in 2200 ought to be higher in the warmest world than in cooler worlds for both developing and industrialized countries.

Source: Indur M. Goklany, “Discounting the Future,” Regulation 32: 36-40 (Spring 2009).

The costs of climate change used to develop the above figure are, most likely, overestimated because they do not properly account for increases in future adaptive capacity consistent with the level of net economic development resulting from Stern’s own estimates (as shown in the above figure).  This figure shows that even after accounting for losses in GDP per capita due to climate change – and inflating these losses – net GDP per capita in 2200 would be between 16 and 85 times higher in 2200 that it was in the baseline year (1990).  No less important, Stern’s estimate of the costs of climate change neglect secular technological change that ought to occur during the 210-year period extending from the base year (1990) to 2200. In fact, as shown here, empirical data show that for most environmental indicators that have a critical effect on human well-being, technology has, over decades-long time frames reduced impacts by one or more orders of magnitude.

As a gedanken experiment, compare technology (and civilization’s adaptive capacity) in 1799 versus 2009. How credible would a projection for 2009 have been if it didn’t account for technological change from 1799 to 2009?

I should note that some people tend to dismiss the above estimates of GDP on the grounds that it is unlikely that economic development, particularly in today’s developing countries, will be as high as indicated in the figure.  My response to this is that they are based on the very assumptions that drive the IPCC and the Stern Review’s emissions and climate change scenarios. So if one disbelieves the above GDP estimates, then one should also disbelieve the IPCC and the Stern Review’s projection for the future.

Fourth, even if analysis that appropriately accounted for increases in adaptive capacity had shown that in 2200 people would be worse off in the richest-but-warmest world than in cooler worlds, I wouldn’t get too excited just yet. Even assuming a 100-year lag time between the initiation of emission reductions and a reduction in global temperature because of a combination of the inertia of the climate system and the turnover time for the energy infrastructure, we don’t need to do anything drastic till after 2100 (=2200 minus 100 years), unless monitoring shows before then that matters are actually becoming worse (as opposing merely changing), in which case we should certainly mobilize our responses. [Note that change doesn’t necessarily equate to worsening. One has to show that a change would be for the worse.  Unfortunately, much of the climate change literature skips this crucial step.]

In fact, waiting-and-preparing-while-we-watch (AKA watch-and-wait) makes most sense, just as it does for many problems (e.g., some cancers) where the cost of action is currently high relative to its benefit, benefits are uncertain, and technological change could relatively rapidly improve the cost-benefit ratio of controls. Within the next few decades, we should have a much better understanding of climate change and its impacts, and the cost of controls ought to decline in the future, particularly if we invest in research and development for mitigation.  In the meantime we should spend our resources on solving today’s first order problems – and climate change simply doesn’t make that list, as shown by the only exercises that have ever bothered to compare the importance of climate change relative to other global problems.  See here and here.  As is shown in the Cato paper (and elsewhere), this also ought to reduce vulnerability and increase resiliency to climate change.

In the next installment, I’ll address the second point in Mr. Clarke’s first point, namely, the fear that “the possibility of ‘catastrophic’ climate change events – those with low probability but extremely high cost – becomes real after 2100.”

Cap ‘n Trade: The Ultimate Pork-Fest

Some naive people might have been convinced that the U.S. House voted to wreck the American economy by endorsing cap and trade because it was the only way to save the world.  But even many environmentalists had given up on the bill approved last Friday.  It is truly a monstrosity:  it would cost consumers plenty, while doing little to reduce global temperatures.

But the legislation had something far more important for legislators and special interests alike.  It was a pork-fest that wouldn’t quit.

Reports the New York Times:

As the most ambitious energy and climate-change legislation ever introduced in Congress made its way to a floor vote last Friday, it grew fat with compromises, carve-outs, concessions and out-and-out gifts intended to win the votes of wavering lawmakers and the support of powerful industries.

The deal making continued right up until the final minutes, with the bill’s co-author Representative Henry A. Waxman, Democrat of California, doling out billions of dollars in promises on the House floor to secure the final votes needed for passage.

The bill was freighted with hundreds of pages of special-interest favors, even as environmentalists lamented that its greenhouse-gas reduction targets had been whittled down.

Some of the prizes were relatively small, like the $50 million hurricane research center for a freshman lawmaker from Florida.

Others were huge and threatened to undermine the environmental goals of the bill, like a series of compromises reached with rural and farm-state members that would funnel billions of dollars in payments to agriculture and forestry interests.

Automakers, steel companies, natural gas drillers, refiners, universities and real estate agents all got in on the fast-moving action.

The biggest concessions went to utilities, which wanted assurances that they could continue to operate and build coal – burning power plants without shouldering new costs. The utilities received not only tens of billions of dollars worth of free pollution permits, but also billions for work on technology to capture carbon-dioxide emissions from coal combustion to help meet future pollution targets.

That deal, negotiated by Representative Rick Boucher, a conservative Democrat from Virginia’s coal country, won the support of the Edison Electric Institute, the utility industry lobby, and lawmakers from regions dependent on coal for electricity.

Liberal Democrats got a piece, too. Representative Bobby Rush, Democrat of Illinois, withheld his support for the bill until a last-minute accord was struck to provide nearly $1 billion for energy-related jobs and job training for low-income workers and new subsidies for making public housing more energy-efficient.

Representative Joe Barton, a Texas Republican staunchly opposed to the bill, marveled at the deal-cutting on Friday.

“It is unprecedented,” Mr. Barton said, “but at least it’s transparent.”

This shouldn’t surprise anyone who follows Washington.  Still, the degree of special interest dealing was extraordinary.  Anyone want to imagine what a health care “reform” bill is likely to look like when legislators finish with it?

Which Is Greener?

Which uses less energy and emits less pollution: a train, a bus, or a car? Advocates of rail transportation rely on the public’s willingness to take for granted the assumption that trains – whether light rail, subways, or high-speed intercity rail – are the most energy-efficient and cleanest forms of transportation. But there is plenty of evidence that this is far from true.

Rail advocates often reason like this: the average car has 1.1 people in it. Compare the BTUs or carbon emissions per passenger mile with those from a full train, and the train wins hands down.

The problem with such hypothetical examples is that the numbers are always wrong. As a recent study from the University of California (Davis) notes, the load factors are critical.

The average commuter car has 1.1 people, but even during rush hour most of the vehicles on the road are not transporting commuters. When counting all trips, the average is 1.6, and a little higher (1.7) for light trucks (pick ups, full-sized vans, and SUVs).

On the other hand, the trains are rarely full, yet they operate all day long (while your car runs only when it has someone in it who wants to go somewhere). According to the National Transit Database, in 2007 the average American subway car had 25 people in it (against a theoretical capacity of 150); the average light-rail car had 24 people (capacity 170); the average commuter-rail car had 37 people (capacity 165); and the average bus had 11 (capacity 64). In other words, our transit systems operate at about one-sixth of capacity. Even an SUV averaging 1.7 people does better than that.

When Amtrak compares its fuel economy with automobiles (see p. 19), it relies on Department of Energy data that presumes 1.6 people per car (see tables 2.13 for cars and 2.14 for Amtrak). But another Department of Energy report points out that cars in intercity travel tend to be more fully loaded – the average turns out to be 2.4 people.

“Intercity auto trips tend to [have] higher-than-average vehicle occupancy rates,” says the DOE. “On average, they are as energy-efficient as rail intercity trips.” Moreover, the report adds, “if passenger rail competes for modal share by moving to high speed service, its energy efficiency should be reduced somewhat – making overall energy savings even more problematic.”

Projections that high-speed rail will be energy-efficient assume high load factors (in the linked case, 70 percent). But with some of the routes in the Obama high-speed rail plan terminating in such relatively small cities as Eugene, Oregon; Mobile, Alabama; and Portland, Maine, load factors will often be much lower.

Even if a particular rail proposal did save a little energy in year-to-year operations, studies show that the energy cost of constructing rail lines dwarfs any annual savings. The environmental impact statement for a Portland, Oregon light-rail line found it would take 171 years of annual energy savings to repay the energy cost of construction (they built it anyway).

Public transit buses tend to be some the least energy-efficient vehicles around because agencies tend to buy really big buses (why not? The feds pay for them), and they run around empty much of the time. But private intercity buses are some of the most energy efficient vehicles because the private operators have an incentive to fill them up. A study commissioned by the American Bus Association found that intercity buses use little more than a third as much energy per passenger mile as Amtrak. (The source may seem self-serving, but DOE data estimate intercity buses are even more efficient than that–compare table 2.12 with intercity bus passenger miles in this table).

When it comes to energy consumption per passenger mile, the real waste is generated by public transit agencies and Amtrak. Instead of trying to fill seats, they are politically driven to provide service to all taxpayers, regardless of population density or demand. One of Amtrak’s unheralded high-speed (110-mph) rail lines is between Chicago and Detroit, but it carries so few people that Amtrak loses $84 per passenger (compared with an average of $37 for other short-distance corridors).

Meanwhile, transit agencies build light-rail lines to wealthy suburbs with three cars in every garage. With capacities of more than 170, the average light-rail car in Baltimore and Denver carries less than 15 people, while San Jose’s carries 16. For that we need to spend $40 million a mile on track and $3 million per railcar (vs. $300,000 for a bus)?

If we really wanted to save energy, we would privatize transit, privatize Amtrak, and sell highways to private entrepreneurs who would have an incentive to reduce the congestion that wastes nearly 3 billion gallons of fuel each year (p. 1). But of course, the real goal of the rail people is not to save energy but to reshape American lifestyles. They just can’t stand to see people enjoying the freedom of being able to go where they want, when they want to get there.

Obama’s Fuel-Economy Standards

If you like driving a big car or SUV, the good news about Obama’s new fuel-economy standards is that they won’t dictate what kind of car you will be able to buy in the future. If you want to buy a 15-mpg SUV, Detroit (or Aichi or Wolfsburg) will be free to make and sell you one.

The bad news is that the standards may make your car more expensive. Corporate Average Fuel Economy (CAFE) standards are actually calculated as the mean of gallons per mile, not miles per gallon. So, as of 2016, for every 15-mpg model made by an auto maker, that company will have to make five models of cars that can go 50 mpg in order for its fleet to meet Obama’s new target. Since bringing each new model to market can cost billions of dollars, if there are not enough people who want to buy those fuel-efficient cars to cover their design costs, the company will have to add a share of those costs to your SUV.

If you want to save energy, the good news is that Obama’s standards are more stringent than those in the Energy Independence and Security Act of 2007 – but not by much. While the 2007 law required new car fleets to average 35 mpg by 2020, Obama’s standard requires fleets to average 35.5 mpg by 2016.

The bad news is that nothing in Obama’s standard guarantees that they will actually save energy. The rule only requires that the mean fuel economy of all models, not all cars, made by a manufacturer meet the 35.5 mpg standard. Not much energy will be saved if gas guzzlers sell well and hybrids don’t.

If gas prices go up, people will buy the fuel-efficient models that auto makers are forced to make – but that would have happened anyway. If gas stays cheap, people will continue to buy fuel-inefficient cars (tempered only by having to pay extra to cover the start-up costs of models no one wants). If you believe that saving energy or reducing dependence on foreign oil is important, then you should prefer a stronger form incentive over this mandate.

The worst-cast scenario is that the new standards increase the cost of buying new cars but don’t save any energy (except to the extent that a few people can’t afford to own a car at all). The best-case scenario is that Obama’s standards result in future auto fleets that are not much different from what a free market would have produced. Considering that Honda and Toyota are now in a price war over their Insight vs. the third-generation Prius, that may be closer to the actual outcome.

The good news is that auto makers readily acquiesced to this standard, partly because they feared something worse but partly because they didn’t think it would cost much. The Obama administration estimates that the added cost of the new standard will be $1,300 per car, but that (if gasoline remains $3 per gallon) it will save drivers $500 per year. That means it could pay for itself in the long run – but only if people actually do buy more fuel-efficient cars.

The debate over the standard reminds me of the debate after Congress gave the Environmental Protection Agency the authority to regulate air quality in 1970. One faction favored of technical solutions to pollution, such as catalytic converters. The other faction argued for behavioral tools aimed at getting people to drive less.

Today, we know the behavioral solutions were a complete failure. Although many cities imposed urban-growth boundaries, built light rail, and implemented various disincentives to driving, not one can say they have reduced per-capita driving by even 1 percent.

On the other hand, the technical solutions were highly successful. Though we drive nearly three times as many miles as in 1970, total automotive air pollution has declined more than 50 percent.

There was a third faction in 1970 whose voice was almost inaudible: economists who argued that incentives would clean the air better than mandates. The mandates that were put in place only acted on new cars, and it took more than a decade (and now takes almost two decades) to turn over the American auto fleet. Properly designed incentives could have acted on all cars and cleaned the air much faster (by, for example, giving people a choice between retrofitting their cars or paying a pollution fee that was dedicated to cleaning up pollution elsewhere).

The lesson libertarians take from this is that incentives are better than mandates. But the point I like to make is that, though incentives might work better than mandates, technical solutions work far better than behavioral ones.

Despite the past failure of behavioral tools, there is a strong movement in the administration and Congress today for more behavioral controls aimed at reducing driving to save energy and greenhouse gas emissions. These behavioral tools will be expensive, they will have costly unintended consequences, and in the end they will do little to protect the environment.

I remain unpersuaded that we need to reduce greenhouse gas emissions. But if there is a political need to do so, we should at least do it in ways that cost little and provide other benefits that will help cover those costs. McKinsey & Company estimates that the United States can meet the most stringent greenhouse gas targets by investing in programs that cost no more than $50 per ton of greenhouse gas abatements. More fuel-efficient cars meet this test, says McKinsey, and will also reduce the emissions of other pollutants such as nitrogen oxides.

Meanwhile, light rail, growth boundaries, and other behavioral tools, if they save energy and reduce greenhouse gases at all, will only do so at costs of tens of thousands of dollars per ton. Though I am far from thrilled about Obama’s new policy, at least it reminds us that, for a relatively low cost, we can significantly reduce energy consumption and various pollution emissions without trying to socially engineer American lifestyles.

Energy Mismanagment

Try as they might, supporters of big government spending cannot make federal programs work very well. The Department of Energy, for example, has been plagued by mismanagement, cost overruns, and scandals for decades.

Today, the Washington Post reports on the poor performance of DoE’s environmental clean-up programs. As I reviewed in the linked essay, these enormously costly programs have been plagued by mismanagement for at least 25 years. Last week, Lou Dobbs lambasted DOE’s National Ignition Facility in California for its huge cost overruns (Hat Tip: Harrison Moar).

I summarize these costly projects and other DoE boondoggles here. With bipartisan support for increases to energy subsidies, we can expect a raft of bipartisan boondoggles developing over coming months and years.

New at Cato

Here are a few highlights from Cato Today, a daily email from the Cato Institute.

  • Dan Ikenson and Scott Lincicome argue in a new study that restoring the pro-trade consensus must be a top priority for the Obama administration.
  • In the DC Examiner, Gene Healy discusses Obama’s first 100 days and argues that he’s massively expanded the power of government in a short period of time.
  • In the Asia Times Online, David Isenberg discusses private security contractors in the war in Iraq.
  • Watch Patrick J. Michaels discuss energy on CNBC.
  • In Tuesday’s Cato Daily Podcast, Peter Van Doren discusses the interaction between Congress and regulators on the issue of food safety.

Week in Review: Tax Day, Pirates and Cuba

Tax Day: The Nightmare from Which There’s No Waking Up

Cato scholars were busy exposing the burden of the American tax system on Wednesday, the deadline to file 2008 tax returns.

At CNSNews.com, tax analyst Chris Edwards argued that policymakers should give Americans the simple and low-rate tax code they deserve:

The outlook for American taxpayers is pretty grim. The federal tax code is getting more complex, the president is proposing tax hikes on high-earners, businesses, and energy consumers; and huge deficits may create pressure for further increases down the road…

The solution to all these problems is to rip out the income tax and replace it with a low-rate flat tax, as two dozen other nations have done.

At Townhall, Dan Mitchell excoriated the complexity of the current tax code:

Beginning as a simple two-page form in 1913, the Internal Revenue Code has morphed into a complex nightmare that simultaneously hinders compliance by honest people and rewards cheating by Washington insiders and other dishonest people.

But that is just the tip of the iceberg. The tax code also penalizes economic growth, distorts taxpayer behavior, undermines American competitiveness, invites corruption and promotes inefficiency.

Mitchell appeared on MSNBC, arguing that every American will soon see massive tax hikes, despite Washington rhetoric.

Don’t miss the new Cato video that highlights just how troubling the American tax code really is.

U.S. Navy Rescues Captain Held Hostage by Somali Pirates

gallery-somali-pirates-pi-003USA Today reports that the captain of a merchant vessel that was attacked by Somali pirates was freed Monday when Navy SEAL sharpshooters killed the pirates. The episode raises a larger question: How should the United States respond to the growing threat of piracy in the region?

Writing shortly after Capt. Richard Phillips was freed, foreign policy expert Benjamin Friedman explained the reasons behind the increase in piracy:

It’s worth noting the current level of American concern about piracy is overblown. As Peter Van Doren pointed out to me the other day, the right way to think about this problem is that pirates are imposing a tax on shipping in their area. They are a bit like a pseudo-government, as Alexander the Great apparently learned. The tax amounts to $20-40 million a year, which is, as Ken Menkhaus put it in this Washington Post online forum, a “nuisance tax for global shipping.”

The reason ships are being hijacked along the Somali coast is because there are still ships sailing down the Somali coast. Piracy is evidently not a big enough problem to encourage many shippers to use alternative shipping routes. In addition, shippers apparently find it cheaper to pay ransom than to pay insurance for armed guards and deal with the added legal hassle in port. The provision of naval vessels to the region is an attempted subsidy to the shippers, and ultimately consumers of their goods, albeit one governments have traditionally paid. Whether or not that subsidy is cheaper than letting the market actors sort it out remains unclear to me.

Appearing on Russia Today, Friedman discussed the implications of the increased threat and what ships can do to avoid future incidents with Somali pirates.

Since the problems at sea are related to problems on Somali land, what can Western nations do to decrease poverty and lawlessness on the African continent? Dambisa Moyo, author of Dead Aid, argued at a Cato Policy Forum last week that the best way to combat these issues is to halt government-to-government aid, and proposed an “aid-free solution” to development based on the experience of successful African countries.

Obama Lifts Some Travel Bans on Cuba

The Washington Post reports:

President Obama is lifting some restrictions on Cuban Americans’ contact with Cuba and allowing U.S. telecom companies to operate there, opening up the communist island nation to more cellular and satellite service… The decision does not lift the trade embargo on Cuba but eases the prohibitions that have restricted Cuban Americans from visiting their relatives and has limited what they can send back home.

In the new Cato Handbook for Policymakers, Juan Carlos Hidalgo and Ian Vasquez recommend a number of policy initiatives for future relations with Cuba, including ending all trade sanctions on Cuba and allowing U.S. citizens and companies to visit and establish businesses as they see fit; and moving toward the normalization of diplomatic relations with the island nation.

While Obama’s plan is a small step in the right direction, Hidalgo argues in a Cato Daily Podcast that Obama should take further steps to lift the travel ban and open Cuba to all Americans.