Category: Policy

Random Reflections on The Deal

The following are some stream-of-consciousness insights that struck me from other presentations and audience comments during the Tällberg event. Apologies to Bo Ekman, Bob Corell, Christine Loh, Johan Rockström, and other unattributed sources of these thoughts – my notes just aren’t that good.

There’s much tearing of hair and gnashing of teeth in attempts to interpret the UNFCC objective, “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” But the convention actually provides a useful definition in the very next sentence, “Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.” That’s already a fairly stringent and specific requirement.

    The mood of the Club of Rome, and of statements about the state of ecological and social systems in general, is gloomy, i.e. that issues raised 40 years ago regrettably are now more acute and immediate.

      Climate is not a future problem, it’s happening now.
      It’s not a gradual process; it could happen drastically.
      It’s not globally uniform; regional variations are large.
      It’s not an environmental problem; it’s connected to an array of issues in many domains (oil security, ecosystems, water, refugees, the real and money economies). Developments in the money economy rely on the underlying real economy, which in turn relies on resources, yet finance ministers routinely trump environmental decisions and few environmental agreements are honored.

        Sovereignty is one of the notions that stands in the way of agreements; such fundamental principles need to be rethought. The philosophical problem leads to practical problems. For example, enthusiasm for cap & trade, at least in some quarters, stems from the idea that it could be used as a mechanism for transfers from rich to poor nations, for example via allocation of emissions permits on a per capita basis. An ideal system would have to operate person to person though. If governments receive allowances, the system risks becoming a mechanism for the elites of the poor world to fleece the rich world, with limited benefit to the poor.

          As soon as one accepts the framing of climate change as, how to sustain GDP growth, or as a cost-benefit problem, half the battle is lost. The ‘economy as means’ is confused with ‘economy as end’. The solution needs to connect to well being. This is difficult, because of role confusion – so many of the interests involved in creating a solution are also dependent on the creation of consumer demand. Seen in that light, there might be a silver lining to the financial crisis. It is distracting, but it might also be the storm of creative destruction that provides fertile ground for growth of new interpretations of well being and new economic goals.

            The world of climate negotiation is closed. Negotiations are driven by diplomats who’ve been at it for years, and resist information sources and constraints representing reality. Environment ministers complain that they have no influence over the outcome. Nature needs to be brought into the room (exactly what we’re trying to do).

              Tol Talks Tax

              Stumbled upon while searching for a reference: Richard Tol Changes Tune, Talks Carbon Tax. From what I’ve read, Tol is too much of a nonconformist to club with the professional skeptics, and has probably always preferred a Hotelling-style carbon price trajectory, so I’m not convinced that this is really a change, but it’s intriguing.

              Aviation Pontification

              Last week I presented in an INFORMS 2008 panel, Role Reversal: The Impact of Climate Change on Aviation. My slides are here (you’ll miss a model demo using a carbon cycle/climate model, but that wasn’t central). I got challenged on one assertion – that participation in regional initiatives is meaningful – on the grounds that federal preemption definitively assigns aviation regulation to the national level. That may be so, but I suspect that mental models formed through regional experimentation will still shape what happens nationally. Without early involvement, aviation could find itself getting pounded into the nearest available policy pigeonhole, regardless of fit. Avaitors joke that, “gravity never loses; the best you can hope for is a draw.” The same could perhaps be said of aviation’s chance of withstanding the inexorable consequences of GHG accumulation.

              The Deal We Ain't Got

              Today, Drew Jones and I presented a simple model as part of the Tällberg Forum’s Washington Conversation, ‘The climate deal we need.’ Our goal was to build from some simple points about the bathtub dynamics of the carbon cycle and climate to yield some insights about what’s needed. Our aspirational list of insights to get across included,

              • stabilizing emissions near current levels fails to stabilize atmospheric concentrations any time soon (because emissions now exceed uptake of carbon; stabilization continues that condition, and the residual accumulates in the atmosphere)
              • achieving stabilization of atmospheric CO2 at low levels (Hansen et al.’s 350 ppm) requires very aggressive cuts (for the same reason; if carbon cycle feedbacks from temperature kick in, negative emissions could be needed)
              • current policies are not on track to meaningful reductions (duh)
              • nevertheless, there is a path (Hansen et al.’s “where should humanity aim” paper lays out one option, and there are others)
              • starting soon is essential (the bathtub continues to fill while we delay – a costly gamble)
              • international negotiation dynamics are tricky due to diversity of interests, coupled problem spaces, and difficulty of transfers (simulations shadow this)
              • but everyone has to be on board or little happens (any one major region or sector, uncontrolled, can blow the deal by emitting above natural uptake)

              A good moment came when someone asked, “Why should we care about staying below some temperature threshold?” (I think a scenario with about 3.5C was on the screen at the time). Jim Hansen answered, “because that would be a different planet.”

              The conversation didn’t lead to specification of “the deal we need” but it explored a number of interesting facets, which I’ll relate in a few follow-on posts.

              WCI Design Recommendations

              Yesterday the WCI announced its design recommendations.

              Update 9/26: WorldChanging has another take on the WCI here.
              I haven’t read the whole thing, but here’s my initial impression based on the executive summary:

              Scope

              Major gases, including CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.

              What? In scope? How/where?
              Large Industrial & Commercial, >25,000 MTCO2eq/yr

              Combustion Emissions

              		 Yes Point of emission

              Process Emissions

              		 Yes Point of emission
              Electricity Yes “First Jurisdictional Deliverer” – includes power generated outside WCI
              Small Industrial, Commercial, Residential Second Compliance Period (2015-2017) Upstream (“where fuels enter commerce in the WCI Partner jurisdictions, generally at a distributor. The precise point is TBD and may vary by jurisdiction”)
              Transportation

              Gasoline & Diesel

              		 Second Compliance Period (2015-2017) Upstream (“where fuels enter commerce in the WCI Partner jurisdictions, generally at a terminal rack, final blender, or distributor. The precise point is TBD and may vary by jurisdiction”)

              Biofuel combustion

              		 No
              Biofuel & fossil fuel upstream To be determined ?
              Biomass combustion No, if determined to be carbon neutral  
              Agriculture & Forestry No  

              (See an earlier Midwestern Accord matrix here.)

              Continue reading “WCI Design Recommendations”

              How To Fix A Carbon Tax

              Imagine that you and I live in a place that has just implemented a carbon tax. I, being a little greener than you, complain that the tax isn’t high enough, in that it’s not causing emissions to stabilize or fall. As a remedy, I propose the following:

              • At intervals, a board will set targets for emissions, and announce them in advance for the next three years.
              • On a daily basis, the board will review current emissions to see if they’re on track to meet the annual target.
              • The daily review will take account of such things as expectations about growth, the business cycle, weather (as it affects electric power and heating demand), and changing fuel prices.
              • Based on its review, the board will post a daily value for the carbon tax, to ensure that the target is met.

              Sound crazy? Welcome to cap and trade. The only difference is that the board’s daily review is distributed via a market. The presence of a market doesn’t change the fact that emissions trading has its gains backwards: rapid adjustment of prices to achieve an emissions target that can only be modified infrequently (the latter due to the need to set stable quantity expectations). Willingness to set a cap at a level below whatever a tax achieves is equivalent to accepting a higher price of carbon. Why not just raise the tax, and have lower transaction costs, broader sector coverage, and less volatility to boot?

              Certainly cap and trade is a viable second-best policy, especially if augmented with a safety valve or a variable-quantity auction providing some supply-side elasticity. However, I find the scenario playing out in BC quite bizarre.

              Update: more detailed thoughts on taxes and trading in this article.

              The GAO's Panel of Economists on Climate

              I just ran across a May 2008 GAO report, detailing the findings of a panel of economists convened to consider US climate policy. The panel used a modified Delphi method, which can be good or evil. The eighteen panelists are fairly neoclassical, with the exception of Richard Howarth, who speaks the language but doesn’t drink the Kool-aid.

              First, it’s interesting what the panelists agree on. All of the panelists supported establishing a price on greenhouse gas emissions, and a majority were fairly certain that there would be a net benefit from doing so. A majority also favored immediate action, regardless of the participation of other countries. The favored immediate action is rather fainthearted, though. One-third favored an initial price range under $10/tonCO2, and only three favored exceeding $20/tonCO. One panelist specified a safety valve price at 55 cents. Maybe the low prices are intended to rise rapidly (or at the interest rate, per Hotelling); otherwise I have a hard time seeing why one would bother with the whole endeavor. It’s quite interesting that panelists generally accept unilateral action, which by itself wouldn’t solve the climate problem. Clearly they are counting on setting an example, with imitation bringing more emissions under control, and perhaps also on first-mover advantages in innovation.

              Continue reading “The GAO's Panel of Economists on Climate”

              China's Energy Policy Comes at a Price

              That’s the title of a letter in the latest edition of Science. It nicely expands on some of my earlier concerns about China’s energy policy in the Clout & Climate Change war game and in reality. The author, Quiang Wang of the Guangzhou Institute of Geochemistry, writes,

              …

              China’s energy prices are mainly decided and controlled by the government. Because the government emphasizes social stability over scarcity of resources or environmental cost, it sets the energy prices very low. For example, Chinese gasoline and diesel prices rose by less than 10% in 2007, when global oil price nearly doubled. Moreover, in January 2008, the Chinese government decided to freeze energy prices in the near term, even as international crude oil futures have continued to surge.

              Energy conservation and efficiency are hard to achieve because government-set prices encourage excessive energy consumption and waste. The low energy prices send a distorted market signal to consumers that there is no shortage of natural resources, indicating that enhancing energy efficiency is unnecessary and waste is justified.

              …

              A market-oriented energy-pricing mechanism is an inevitable requirement for China to address climate change, although the reform of the energy pricing mechanism means increased energy prices, which will bring public dissatisfaction and possibly social instability.

              In 2005, I built a simple model of the Chinese electric power system, focused on coal-fired generation. One of the most beneficial strategies in the model is to make plant dispatch and power pricing more market-oriented, strengthening the incentive to install cleaner generation and retire or retrofit old dirties. That’s tough to implement as long as utilities wield more power than their regulators.

              Climate War Game – Recap

              I presented a brief review of my involvement in the CNAS wargame at Balaton today. My last few slides focus on some observations from the game. They led to a very interesting conversation about targets for future models and games. We have been planning to continue seeking ways to insert models into negotiations, with the goal of connecting individual parties’ positions to aggregate global outcomes. However, in the conversation we identified a much more ambitious goal: reframing the whole negotiation process.

              The fundamental problem, in the war game and the real world, is that nations are stuck in a lose-lose paradigm: who will bear the burden of costly mitigation? No one is willing to forego growth, as long as “growth is good” is an unqualified mantra. What negotiations need is a combination of realization that growth founded on externalizing costs of pollution and depletion isn’t really good, and that fixing the institutional and behavioral factors that would unleash large low- or negative-cost emissions reductions and cobenefits would be a win-win. That, combined with a serious and equitable accounting of climate impacts within the scope of present activities and coupling of adaptation and development opportunities to mitigation could tilt the landscape in favor of a meaningful agreement.

              Regional Climate Initiatives – Model Roll Call – Part II

              Minnesota

              The Minnesota Next Generation Energy Act establishes a goal of reducing GHG emissions by 15% by 2015, 30% by 2025, and 80% by 2050, relative to 2005 levels.

              From ScienceDaily comes news of a new research report from University of Minnesota’s Center fro Transportation Studies. The study looks at options for reducing transport emissions. Interestingly, transport represents 24% of MN emissions, vs. more than 40% in CA. The study decomposes emissions according to a variant of the IPAT identity,

              Emissions = (Fuel/VehicleMile) x (Carbon/Fuel) x (VehicleMilesTraveled)

              Vehicle and fuel effects are then modeled with LEAP, an energy modeling platform with a fast-growing following. The VMT portion is tackled with a spreadsheet calculator from CCAP’s Guidebook. I haven’t had much time to examine the latter, but it considers a rich set of options and looks like at least a useful repository of data. However, it’s a static framework, and land use-transportation interactions are highly dynamic. I’d expect it to be a useful way to construct alternative transport system visions, but not much help determining how to get there from here.

              Minnesota’s Climate Change Advisory Group TWG on land use and transportation has a draft inventory and forecast of emissions. The Energy Supply and Residential/Commercial/Industrial TWGs developed spreadsheet analyses of a number of options. Analysis and Assumptions memos describe the results, but the spreadsheets are not online.

              British Columbia

              OK, it’s not a US region, but maybe we could trade it for North Dakota. BC has a revenue-neutral carbon tax, supplemented by a number of other initiatives. The tax starts at $10/TonCO2 and rises $5/year to $30 by 2012. The tax is offset by low-income tax credits and 2 to 5% reductions in lower income tax brackets; business tax reductions match personal tax reductions in roughly a 1:2 ratio.

              BC’s Climate Action Plan includes a quantitative analysis of proposed policies, based on the CIMS model. CIMS is a detailed energy model coupled to a macroeconomic module that generates energy service demands. CIMS sounds a lot like DOE’s NEMS, which means that it could be useful for determining near-term effects of policies with some detail. However, it’s probably way too big to modify quickly to try out-of-the-box ideas, estimate parameters by calibration against history, or perform Monte Carlo simulations to appreciate the uncertainty around an answer.

              The BC tax demonstrates a huge advantage of a carbon tax over cap & trade: it can be implemented quickly. The tax was introduced in the Feb. 19 budget, and switched on July 1st. By contrast, the WCI and California cap & trade systems have been underway much longer, and still are no where near going live. The EU ETS was authorized in 2003, turned on in 2005, and still isn’t dialed in (plus it has narrower sector coverage). Why so fast? It’s simple – there’s no trading infrastructure to design, no price uncertainty to worry about, and no wrangling over allowance allocations (though the flip side of the last point is that there’s also no transient compensation for carbon-intensive industries).

              Bizarrely, BC wants to mess everything up by layering cap & trade on top of the carbon tax, coordinated with the WCI (in which BC is a partner).