Showing posts with label global warming. Show all posts
Showing posts with label global warming. Show all posts

Tuesday, July 7, 2009

Ethanol and biofuels get 190 times as much subsidies as natural gas and petroleum liquids

So Much for 'Energy Independence.' By ROBERT BRYCE
The Wall Street Journal, Jul 07, 2009, p A15

Whenever you read about ethanol, remember these numbers: 98 and 190.

They offer an essential insight into U.S. energy politics and the debate over cap-and-trade legislation that recently passed the House. Here is what the numbers mean: The U.S. gets about 98 times as much energy from natural gas and oil as it does from ethanol and biofuels. And measured on a per-unit-of-energy basis, Congress lavishes ethanol and biofuels with subsidies that are 190 times as large as those given to oil and gas.

Those numbers come from an April 2008 report by the Energy Information Administration: "Federal Financial Interventions and Subsidies in Energy Markets 2007." Table ES6 lists domestic energy sources that get subsidies. In 2007, the U.S. consumed nearly 55.8 quadrillion British Thermal Units (BTUs), or about 9.6 billion barrels of oil equivalent, in natural gas and oil. That's about 98 times as much energy as the U.S. consumed in ethanol and biofuels, which totaled 98 million barrels of oil equivalent.

Meanwhile, ethanol and biofuels are getting subsidies of $5.72 per million BTU. That's 190 times as much as natural gas and petroleum liquids, which get subsidies of $0.03 per million BTU.
The report also shows that the ethanol and biofuels industry are more heavily subsidized -- in total dollar terms -- than the oil and gas industry. In 2007, the ethanol and biofuels industries got $3.25 billion in subsidies. The oil and gas industry got $1.92 billion.

Despite these subsidies, the ethanol lobby is queuing up for more favors. And they are doing so at the very same time that the Obama administration and Congress are pushing to eliminate the relatively modest subsidies for domestic oil and gas producers. Democrats want to cut drilling subsidies while simultaneously trumpeting their desire for "energy independence."

The cap-and-trade bill passed by the House aims to "create energy jobs" and "achieve energy independence." Meanwhile, Democrats are calling to eliminate drilling subsidies that have encouraged advances in technology that have opened up vast new U.S. energy sources. These advances have made it profitable to extract natural gas from the Barnett Shale deposit in Texas and the Marcellus in Pennsylvania -- deposits once thought too expensive to tap.

President Barack Obama's 2010 budget calls for the elimination of two tax breaks: the expensing of "intangible drilling costs" (such as wages, fuel and pipe), which allows energy companies to deduct the bulk of their expenses for drilling new wells; and the allowance for percentage depletion, which allows well owners to deduct a portion of the value of the production from their wells. Those breaks provide the bulk of the $1.92 billion in oil and gas subsidies.

In May, Mr. Obama called the tax breaks for the oil and gas industry "unjustifiable loopholes" that do "little to incentivize production or reduce energy prices."

That's flat not true. The deduction for intangible drilling costs encourages energy companies to plow huge amounts of capital into more drilling. And that drilling has resulted in unprecedented increases in natural gas production and potential.

An April Department of Energy report estimated that the newly available shale resources total 649 trillion cubic feet of gas. That's the energy equivalent of 118.3 billion barrels of oil, or slightly more than the proven oil reserves of Iraq.

Eliminating the tax breaks for drilling will make natural gas more expensive. Tudor, Pickering, Holt & Co., a Houston-based investment-banking firm, estimates that eliminating the intangible drilling cost provision could increase U.S. natural gas prices by 50 cents per thousand cubic feet. Why? Because without the tax break, fewer wells will be drilled and less gas will be produced. The U.S. consumes about 23 trillion cubic feet of gas per year. Simple arithmetic shows that eliminating the drilling subsidies that cost taxpayers less than $2 billion per year could result in an increased cost to consumers of $11.5 billion per year in the form of higher natural gas prices.

Amid all this, Growth Energy, an ethanol industry front-group, is pushing the Environmental Protection Agency to adopt a proposal that would increase the amount of ethanol blended into gasoline from the current maximum of 10% to as much as 15%.

That increase would be a gift to corn ethanol producers who have never been able to make a go of it despite decades of federal subsidies and mandates. Growth Energy is also pushing the change even though only about seven million of the 250 million motor vehicles now on U.S. roads are designed to run on fuel containing more than 10% ethanol.

There is plenty of evidence to suggest that gasoline with 10% ethanol is already doing real harm. In January, Toyota announced that it was recalling 214,570 Lexus vehicles. The reason: The company found that "ethanol fuels with a low moisture content will corrode the internal surface of the fuel rails." (The rails carry fuel to the engine injectors.) Furthermore, there have been numerous media reports that ethanol-blended gasoline is fouling engines in lawn mowers, weed whackers and boats.

Lawyers in Florida have already sued a group of oil companies for damage allegedly done to boat fuel tanks and engines from ethanol fuel. They are claiming that consumers should be warned about the risk of using the fuel in their boats.

There is also corn ethanol's effect on food prices. Over the past two years at least a dozen studies have linked subsidies that have increased the production of corn ethanol with higher food prices.

Mr. Obama has been pro-ethanol and anti-oil for years. But he and his allies on Capitol Hill should understand that removing drilling incentives will mean less drilling, which will mean less domestic production and more imports of both oil and natural gas.
That's hardly a recipe for "energy independence."

Mr. Bryce is the managing editor of Energy Tribune. His latest book is "Gusher of Lies: The Dangerous Delusions of 'Energy Independence'" (PublicAffairs, 2008).

Monday, July 6, 2009

Pay More, Drive Less, Save the Planet

Pay More, Drive Less, Save the Planet. By GABRIEL ROTH
To fight climate change, Washington wants you to take a bus.
The Wall Street Journal, Jul 06, 2009, p A11

What is the appropriate response to Secretary of Transportation Ray LaHood, who as General Motors prepared to file for Chapter 11 bankruptcy protection declared that he wants to "coerce people out of their cars"? One might be inclined to dismiss these words as overkill -- except for recently introduced legislation by some congressional heavy-hitters that would take us down this road.

First there was the "Federal Surface Transportation Policy and Planning Act of 2009," introduced in May by Jay Rockefeller (D., W.Va.), chairman of the Senate Committee on Commerce, Science and Transportation, and Frank Lautenberg (D., N.J.), chairman of the Subcommittee on Surface Transportation. Next, in June, came the "Surface Transportation Authorization Act of 2009," introduced by James Oberstar (D., Minn.), chairman of the House Committee on Transportation and Infrastructure.

Messrs. Rockefeller and Lautenberg aim to "reduce per capita motor vehicle miles traveled on an annual basis." Mr. Oberstar wants to establish a federal "Office of Livability" to ensure that "States and metropolitan areas achieve progress towards national transportation-related greenhouse gas emissions reduction goals."

What does this mean? Most travel is not for its own sake. So reducing the total miles traveled -- whether the length or number of trips -- means people would have to reduce the activities they want and need to do. People would be "coerced," in effect, to live in less desirable places or work in less desirable jobs; shop in fewer and closer stores; see their doctor less frequently; visit fewer family members and friends.

There are three likely ways this could work. The cost of travel could be increased by raising the prices of vehicles or fuel; travel time could be increased by not expanding the highway system; or superior alternatives to the private car could be developed. The most likely way to increase the cost of travel would be by increasing fuel taxes perhaps to as much as $4 per gallon, as some have suggested.

Allowing congestion to increase travel times would be politically easier. In the name of "multimodal planning," for example, road-use taxes could be diverted, as Messrs. Rockefeller and Lautenberg suggest, to "increase the total usage of public transportation." But public transportation (where it's available) typically takes twice as long as automobile travel, so it's not practical for many Americans.

Moreover, public transportation (passenger rail services, subways, buses, light rail) requires heavy subsidies, while roads mostly pay for themselves through fuel taxes. Our roads would be even more self-sustaining if 20% of the federal fuel tax were not already diverted to public transit from the federal Highway Trust Fund. Messrs. Rockefeller, Lautenberg and Oberstar want to grab even more money from the trust fund.

Americans have always valued their independence and mobility. One way to reassert their rights would be to abolish the misnamed Highway Trust Fund, which finances highway construction and maintenance. Let the states decide what roads they need and how to finance them. The present system expires on Sept. 30 unless Congress reauthorizes it. Let it die.
Sen. Kay Bailey Hutchison (R., Texas) has in this regard introduced the "Highway Fairness and Reform Act of 2009," which would explicitly allow states to opt out of the federal financing system. A companion bill has been introduced in the House.

If a significant number of states opted out of the federal system, it would collapse and responsibility for roads would revert to the states. The vast majority of road users would benefit from such a change. And, if "livability" standards were deemed desirable, local preferences would determine them, rather than federal "greenhouse gas emissions reduction goals."

Mr. Roth is a research fellow at The Independent Institute and editor of "Street Smart: Competition, Entrepreneurship and the Future of Roads" (Transaction, 2006).

Thursday, July 2, 2009

Tilting at Windmill Jobs: The 'stimulus' promised a jobless peak of 8%; it's now 9.5%

Tilting at Windmill Jobs. WSJ Editorial
The 'stimulus' promised a jobless peak of 8%; it's now 9.5%.
The Wall Street Journal, Jul 03, 2009, p A12

About the best we can say about yesterday's June jobs report is that employment is usually a lagging economic indicator. At least we hope it is, because the loss of 467,000 jobs for the month is one more sign that the economy still hasn't hit bottom despite months of epic fiscal and monetary reflation.

The report is in many ways even uglier than the headline numbers. Average hours worked per week dropped to 33, the lowest level in at least 40 years. This means that millions of full-time workers are being downgraded to part-time, as businesses slash labor costs to remain above water. Because people are working less, wages have fallen by 0.3% this year. Factories are operating at only 65% capacity, while the overall jobless rate hit 9.5%. Throw in discouraged workers who want full-time work, and the labor underutilization rate climbed to 16.5%.

The news is even worse for young people, with nearly one in four teenagers unemployed. Congress has scheduled an increase in the minimum wage later this month, which will price even more of these unskilled youths out of a vital start on the career ladder. One useful policy response would be for Congress to rescind the wage hike to $7.25 an hour (from $6.55) that is scheduled for July 24. But the union economic model that now dominates Washington holds that wages only matter for those who already have jobs. The jobs that are never created don't count.

The goods producing sector -- Americans who make things -- shed 223,000 more jobs last month. Asked about these job losses by the Associated Press yesterday, President Obama said Congress should pass his cap-and-tax on carbon energy because "If we're weatherizing every building and home in America, if we are creating windmills and solar panels and biofuel facilities, that is a huge promising area not only for jobs here in the United States, but also for export growth." But even under the most optimistic scenario, not every hard-hat worker in America can make windmill blades and solar panels. With manufacturing on its back, enacting a new energy tax to drive more jobs offshore is crazy even on Keynesian grounds.

Of course, the economy can't keep falling forever, and most forecasters still see a recovery starting this year. The decline in manufacturing slowed last month and housing sales have picked up -- both positive leading indicators. The plunge in inventories means industrial production and durable goods orders are bound to increase. Consumers are also spending more again, albeit with more caution than if gasoline hadn't increased by $1 a gallon in recent months and if they felt more confident about their job security.

The real question is how strong and sustained any expansion will be. If the "stimulus" were working as advertised, it ought to be very strong. Washington has thrown trillions of dollars at this recession, including that famous $787 billion in more spending that was supposed to yield $1.50 in growth for every $1 spent. This followed the $168 billion or so stimulus that George W. Bush and Nancy Pelosi promised in February 2008 would prevent a recession. The jobless rate that month was 4.8%.

Most of this government spending has gone to transfer payments -- Medicaid, jobless benefits and the like -- that do nothing for jobs or growth. The spending that might create jobs -- on roads, say -- is dribbling out with typical government efficiency. Meanwhile, the money for all of this has to come from somewhere, and Democrats are already saying it will require big (unstimulating) tax increases in 2011, and perhaps sooner.

The Administration argues that the recession would be worse without the stimulus, which is impossible to disprove. However, it's worth recalling that Mr. Obama's economists predicted late last year that the stimulus would keep the jobless rate from exceeding 8%. That was a percentage point and a half ago. It's far more likely that the economy would have been better off without the spending, and the higher taxes and debt financing that it implies.

As always, a sustained expansion and job creation must come from private investment and risk-taking. Yet as America's entrepreneurs look at Washington they see uncertainty and higher costs from a $1 trillion health-care bill; higher energy costs from the cap-and-tax bill that just passed the House (see below); new restraints on consumer lending in the financial reform bill; new tariffs and threats of trade protection; limits on compensation and banker baiting; and the possibility of easier unionization, among numerous other Congressional brainstorms.

None of this inspires "animal spirits." The best thing Mr. Obama could do to create jobs would be to declare he's dropping all of this and starting over.

Orszag nails it: The 'largest corporate welfare program' ever

The Carbonated Congress. WSJ Editorial
Orszag nails it: The 'largest corporate welfare program' ever.
The Wall Street Journal, Jul 03, 2009, p A12

President Obama is calling the climate bill that the House passed last week an "extraordinary" achievement, and so it is. The 1,200-page wonder manages the supreme feat of being both hugely expensive while doing almost nothing to reduce carbon emissions.

The Washington press corps is playing the bill's 219-212 passage as a political triumph, even though one of five Democrats voted against it. The real story is what Speaker Nancy Pelosi, House baron Henry Waxman and the President himself had to concede to secure even that eyelash margin among the House's liberal majority. Not even Tom DeLay would have imagined the extravaganza of log-rolling, vote-buying, outright corporate bribes, side deals, subsidies and policy loopholes. Every green goal, even taken on its own terms, was watered down or given up for the sake of political rents.

Begin with the supposed point of the exercise -- i.e., creating an artificial scarcity of carbon in the name of climate change. The House trimmed Mr. Obama's favored 25% reduction by 2020 to 17% in order to win over Democrats leery of imposing a huge upfront tax on their constituents; then they raised the reduction to 83% in the out-years to placate the greens. Even that 17% is not binding, since it would be largely reached with so-called offsets, through which some businesses subsidize others to make emissions reductions that probably would have happened anyway.

Even if the law works as intended, over the next decade or two real U.S. greenhouse emissions might be reduced by 2% compared to business as usual. However, consumers would still face higher prices for electric power, transportation and most goods and services as this inefficient and indirect tax flowed down the energy chain.

The sound bite is that this policy would only cost households "a postage stamp a day." But that's true only as long as the program doesn't really cut emissions. The goal here is to tell voters they'll pay nothing in order to get the cap-and-tax bureaucracy in place -- even though the whole idea is to raise prices to change American behavior. At the same time -- wink, wink -- Democrats tell the greens they can tighten the emissions vise gradually over time.

Meanwhile, Congress had to bribe every business or interest that could afford a competent lobbyist. Carbon permits are valuable, yet the House says only 28% of the allowances would be auctioned off; the rest would be given away. In March, White House budget director Peter Orszag told Congress that "If you didn't auction the permit, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States."

Naturally, Democrats did exactly that. To avoid windfall profits, they then chose to control prices, asking state regulators to require utilities to use the free permits to insulate ratepayers from price increases. (This also obviates the anticarbon incentives, but never mind.) Auctions would reduce political favoritism and interference, as well as provide revenue to cut taxes to offset higher energy costs. But auctions don't buy votes.

Then there was the peace treaty signed with Agriculture Chairman Colin Peterson, which banned the EPA from studying the carbon produced by corn ethanol and transferred farm emissions to the Ag Department, which mainly exists to defend farm subsidies. Not to mention the 310-page trade amendment that was introduced at 3:09 a.m. When Congress voted on the bill later that day, the House clerk didn't even have an official copy.

The revisions were demanded by coal-dependent Rust Belt Democrats to require tariffs on goods from countries that don't also reduce their emissions. Democrats were thus admitting that the critics are right that this new energy tax would send U.S. jobs overseas. But instead of voting no, their price for voting yes is to impose another tax on imports from China and India, among others. So a Smoot-Hawley green tariff is now official Democratic policy.

Mr. Obama's lobbyists first acquiesced to this tariff change to get the bill passed. Afterwards the President said he disliked "sending any protectionist signals" amid a world recession, but he refused to say whether this protectionism was enough to veto the bill. Then in a Saturday victory lap, he talked about green jobs and a new clean energy economy, but he made no reference to cap and trade -- no doubt because he knows that energy taxes are unpopular and that the bill faces an even tougher slog in the Senate.

Mr. Obama wants something tangible to take to the U.N. climate confab in Denmark in December, but the more important issue is what this exercise says about his approach to governance. The President seems to believe that the Carter and Clinton Presidencies failed by fighting too much with Democrats in Congress. So his solution is to abdicate his agenda to Congress -- first the stimulus, now cap and trade, and soon health care. We wish he had told us he was running to be Prime Minister.

Fuel Standards Are Killing GM

Fuel Standards Are Killing GM. By Alan Reynolds
WSJ,Jul 02, 2009

Saturday, June 27, 2009

The Washington Post Discovers the Problems with Energy Subsidies

The Washington Post Discovers the Problems with Energy Subsidies.
Institute for Energy Research, Jun 24, 2009


From the Washington Post editors:

"Uncertainties abound: What if the costs of clean coal don’t come down enough to make it economical relative to other measures? If clean coal turns out to be less than its advocates envision, can Congress ever work up the political will to kill the subsidy program? Subsidies are set to phase out after 10 years of paying for operating costs, but won’t powerful coal-state lawmakers fight to keep them going? And even if it does work, won’t members of Congress insist that big carbon repositories not be located in their districts?"

Thursday, June 25, 2009

WSJ Editorial Page: Democrats off-loading economics to pass climate change bill

The Cap and Tax Fiction. WSJ Editorial
Democrats off-loading economics to pass climate change bill.
The Wall Street Journal, page A14

House Speaker Nancy Pelosi has put cap-and-trade legislation on a forced march through the House, and the bill may get a full vote as early as Friday. It looks as if the Democrats will have to destroy the discipline of economics to get it done.

Despite House Energy and Commerce Chairman Henry Waxman's many payoffs to Members, rural and Blue Dog Democrats remain wary of voting for a bill that will impose crushing costs on their home-district businesses and consumers. The leadership's solution to this problem is to simply claim the bill defies the laws of economics.

Their gambit got a boost this week, when the Congressional Budget Office did an analysis of what has come to be known as the Waxman-Markey bill. According to the CBO, the climate legislation would cost the average household only $175 a year by 2020. Edward Markey, Mr. Waxman's co-author, instantly set to crowing that the cost of upending the entire energy economy would be no more than a postage stamp a day for the average household. Amazing. A closer look at the CBO analysis finds that it contains so many caveats as to render it useless.

For starters, the CBO estimate is a one-year snapshot of taxes that will extend to infinity. Under a cap-and-trade system, government sets a cap on the total amount of carbon that can be emitted nationally; companies then buy or sell permits to emit CO2. The cap gets cranked down over time to reduce total carbon emissions.

To get support for his bill, Mr. Waxman was forced to water down the cap in early years to please rural Democrats, and then severely ratchet it up in later years to please liberal Democrats. The CBO's analysis looks solely at the year 2020, before most of the tough restrictions kick in. As the cap is tightened and companies are stripped of initial opportunities to "offset" their emissions, the price of permits will skyrocket beyond the CBO estimate of $28 per ton of carbon. The corporate costs of buying these expensive permits will be passed to consumers.

The biggest doozy in the CBO analysis was its extraordinary decision to look only at the day-to-day costs of operating a trading program, rather than the wider consequences energy restriction would have on the economy. The CBO acknowledges this in a footnote: "The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap."

The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.

When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Note also that the CBO analysis is an average for the country as a whole. It doesn't take into account the fact that certain regions and populations will be more severely hit than others -- manufacturing states more than service states; coal producing states more than states that rely on hydro or natural gas. Low-income Americans, who devote more of their disposable income to energy, have more to lose than high-income families.

Even as Democrats have promised that this cap-and-trade legislation won't pinch wallets, behind the scenes they've acknowledged the energy price tsunami that is coming. During the brief few days in which the bill was debated in the House Energy Committee, Republicans offered three amendments: one to suspend the program if gas hit $5 a gallon; one to suspend the program if electricity prices rose 10% over 2009; and one to suspend the program if unemployment rates hit 15%. Democrats defeated all of them.

The reality is that cost estimates for climate legislation are as unreliable as the models predicting climate change. What comes out of the computer is a function of what politicians type in. A better indicator might be what other countries are already experiencing. Britain's Taxpayer Alliance estimates the average family there is paying nearly $1,300 a year in green taxes for carbon-cutting programs in effect only a few years.

Americans should know that those Members who vote for this climate bill are voting for what is likely to be the biggest tax in American history. Even Democrats can't repeal that reality.

Sunday, June 21, 2009

A warning from Copenhagen

A warning from Copenhagen. By stefan
Real Climate, Jun 21, 2009

In March the biggest climate conference of the year took place in Copenhagen: 2500 participants from 80 countries, 1400 scientific presentations. Last week, the Synthesis Report of the Copenhagen Congress was handed over to the Danish Prime Minister Rasmussen in Brussels. Denmark will host the decisive round of negotiations on the new climate protection agreement this coming December.

The climate congress was organised by a "star alliance" of research universities: Copenhagen, Yale, Berkeley, Oxford, Cambridge, Tokyo, Beijing - to name a few. The Synthesis Report is the most important update of climate science since the 2007 IPCC report.

So what does it say? Our regular readers will hardly be surprised by the key findings from physical climate science, most of which we have already discussed here. Some aspects of climate change are progressing faster than was expected a few years ago - such as rising sea levels, the increase of heat stored in the ocean and the shrinking Arctic sea ice. "The updated estimates of the future global mean sea level rise are about double the IPCC projections from 2007″, says the new report. And it points out that any warming caused will be virtually irreversible for at least a thousand years - because of the long residence time of CO2 in the atmosphere.

Perhaps more interestingly, the congress also brought together economists and social scientists researching the consequences of climate change and analysing possible solutions. Here, the report emphasizes once again that a warming beyond 2ºC is a dangerous thing:

Temperature rises above 2ºC will be difficult for contemporary societies to cope with, and are likely to cause major societal and environmental disruptions through the rest of the century and beyond.

(Incidentally, by now 124 nations have officially declared their support for the goal of limiting warming to 2ºC or less, including the EU - but unfortunately not yet the US.)

Some media representatives got confused over whether this 2ºC-guardrail can still be met. The report's answer is a clear yes - if rapid and decisive action is taken:

The conclusion from both the IPCC and later analyses is simple - immediate and dramatic emission reductions of all greenhouse gases are needed if the 2ºC guardrail is to be respected.

Cause of the confusion was apparently that the report finds that it is inevitable by now that greenhouse gas concentrations in the atmosphere will overshoot the future stabilization level that would keep us below 2ºC warming. But this overshooting of greenhouse gas concentrations need not lead temperatures to overshoot the 2ºC mark, provided it is only temporary. It is like a pot of water on the stove - assume we set it to a small flame which will make the temperature in the pot gradually rise up to 70ºC and then no further. Currently, the water is at 40ºC. When I turn up the flame for a minute and then back down, this does not mean the water temperature will exceed 70ºC, due to the inertia in the system. So it is with climate - the inertia here is in the heat capacity of the oceans.

From a natural science perspective, nothing stops us from limiting warming to 2ºC. Even from an economic and technological point of view this is entirely feasible, as the report clearly shows. The ball is squarely in the field of politics, where in December in Copenhagen the crucial decisions must be taken. The synthesis report puts it like this: Inaction is inexcusable.


Related links

Press release of PIK about the release of the synthesis report

Copenhagen Climate Congress - with webcasts of the plenary lectures (link on bottom right - my talk is in the opening session part 2, just after IPCC chairman Pachauri)

Nobel Laureate Meeting in London - a high caliber gathering in May that agreed on a remarkable memorandum which calls for immediate policy intervention: "We know what needs to be done. We can not wait until it is too late." The new U.S. Energy Secretary Steven Chu participated over the full three days in the scientific discussions - how many politicians would have done that?

Thursday, June 18, 2009

On the New CCSP Report

Obama's Phil Cooney and the New CCSP Report. By Roger Pielke, Jr
Prometheus, Jun 16, 2009

Imagine if an industry-funded government contractor had a hand in writing a major federal report on climate change. And imagine if that person used his position to misrepresent the science, to cite his own non-peer reviewed work, and to ignore relevant work in the peer-reviewed literature. There would be an outrage, surely . . .

The Obama Administration has re-released a report (PDF) first issued in draft form by the Bush Administration last July (still online PDF). The substance of the report is essentially the same as last year's version, with a bit more professionalism in the delivery. For instance, the photo-shopped picture of a flood appears to be removed and the embarrassing executive summary has been replaced by something more appropriate.

This post is about how the report summarizes the issue of disasters and climate change, including several references to my work, which is misrepresented. This post is long and detailed, which is necessary to support my claims. But stick with it, or skip to the end if you've seen the details before (and long-time readers will have seen them often), there is a surprise at the end.

Here is the relevant paragraph of the CCSP report, found on p. 105:

While economic and demographic factors have no doubt contributed to observed increases in losses,346 these factors do not fully explain the upward trend in costs or numbers of events.344,347 For example, during the time period covered in the figure to the right, population increased by a factor of 1.3 while losses increased by a factor of 15 to 20 in inflation-corrected dollars. Analyses asserting little or no role of climate change in increasing the risk of losses tend to focus on a highly limited set of hazards and locations. They also often fail to account for the vagaries of natural cycles and inflation adjustments, or to normalize for countervailing factors such as improved pre- and post-event loss prevention (such as dikes, building codes, and early warning systems).348,349
Lets take it sentence by sentence.


Sentence #1

While economic and demographic factors have no doubt contributed to observed increases in losses,346 these factors do not fully explain the upward trend in costs or numbers of events.344,347Reference 346 is to a paper I co-authored:

Pielke, Jr., R. A., Gratz, J., Landsea, C. W., Collins, D., Saunders, M., and Musulin, R., 2008. Normalized Hurricane Damages in the United States: 1900-2005. Natural Hazards Review, Volume 9, Issue 1, pp. 29-42. (PDF)

In that paper we did indeed conclude that economic and demographic factors have contributed to losses related to hurricanes. In fact, we concluded that these factors accounted for all of the increase in hurricane losses over the period of record:

The lack of trend in twentieth century normalized hurricane losses is consistent with what one would expect to find given the lack of trends in hurricane frequency or intensity at landfall.

The CCSP report however, says the opposite, that these factors do not explain the upward trend in costs or numbers of events. To support this claim they provide two citations. Lets consider each in turn, first #344:

Mills, E., 2005: Insurance in a climate of change. Science, 309(5737), 1040-1044.

If you go to Mills, and I have, you will find that it is a commentary that does not offer any new research. Instead, its assertion that societal factors cannot explain the increase in disaster losses is based on a further reference; here is what Mills says:

Global weather-related losses in recent years have been trending upward much faster than population, inflation, or insurance penetration, and faster than non-weather-related events

You will see in my comprehensive discussion of Mills that he relied on two sources to support this claim. The first source actually refers to the second, so there is only one source. That one source is a 2000 Munich Re report, which for reasons I explain in the previous link does not actually support its claim.

But more problematically, why is a report characterized by Science Advisor John Holdren as being the "most up-to-date, authoritative, and comprehensive" analysis relying on a secondary, non-peer source citing another non-peer reviewed source from 2000 to support a claim that a large amount of uncited and more recent peer reviewed literature says the opposite about?

The second citation referred to is #347:

Rosenzweig, C., G. Casassa, D.J. Karoly, A. Imeson, C. Liu, A. Menzel, S. Rawlins, T.L. Root, B. Seguin, and P. Tryjanowski, 2007: Assessment of observed changes and responses in natural and managed systems. In: Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Parry, M.L., O.F. Canziani, J.P. Palutikof, P.J. van der Linden, and C.E. Hanson, (eds.)]. Cambridge University Press, Cambridge, UK, and New York, pp. 79-131.

Which is of course Chapter 1 of the 2007 IPCC AR4 WGII report. That report relied on a single study to make the following claim (at p. 110):

A global catalogue of catastrophe losses was constructed(MuirWood et al., 2006), normalised to account for changes that have resulted from variations in wealth and the number and value of properties located in the path of the catastrophes . . . Once the data were normalised, a small statistically significant trend was found for an increase in annual catastrophe loss since 1970 of 2% per year.

Muir-Wood (2006) is of course the white paper prepared in advance of the Hohenkammer Workshop on disaster losses that I organized along with Peter Hoeppe (of Munich Re) in 2006. I called the IPCC out on this cherrypicking/misrepresentation when the report was first released. Even though Muir-Wood et al. (2006) found no trends from 1950, and more importantly the Hohenkammer Workshop resulted in a consensus finding that such attribution was not possible, the Muir-Wood et al. study has been cherry-picked by the IPCC and before that the Stern Review and now, indirectly, again by the CCSP.

So to summarize: sentence one is not supported by the citations provided, which lead in both cases to selectively chosen non-peer revied sources, and the citations that are peer reviewed on this subject come to an opposite conclusion and are ignored.


Sentence #2

For example, during the time period covered in the figure to the right, population increased by a factor of 1.3 while losses increased by a factor of 15 to 20 in inflation-corrected dollars.That figure appears to the right and its problems are many.

That figure appears to the right and its problems are many.

1. The figure includes a major earthquake and 9/11.
2. The figure and the text neglect the effects of increasing wealth.
3. Published peer reviewed studies show no long-term trends in flood or hurricane losses once adjusted for societal change, yet those data are included.


Sentences #3 and #4

Analyses asserting little or no role of climate change in increasing the risk of losses tend to focus on a highly limited set of hazards and locations. They also often fail to account for the vagaries of natural cycles and inflation adjustments, or to normalize for countervailing factors such as improved pre- and post-event loss prevention (such as dikes, building codes, and early warning systems).348,349

I have to think that that the third sentence is referring to at least some of my work. Places that have been looked at include the United States for floods, hurricanes, and tornadoes (I'll ignore other studies outside the US since this CCSP report is referring only to the US). So what does that leave remaining? Not much.

The fourth sentence cannot be referring to my work, since it explicitly considers variability, inflation, and mitigation. Strangely enough that sentence is supported (reference #348) by a letter to Science (PDF) that I wrote on the Mills (2005) paper. In that letter I stated:

Presently, there is simply no scientific basis for claims that the escalating cost of disasters is the result of anything other than increasing societal vulnerability.

So it is strange to see it cited suggesting something that it does not.

Finally, #349 goes to a new paper by Mills which can be found here in PDF. Mills 2009 offers nothing related to the subject of this sentence, so it is strange to see it cited as a source here.

How can we explain how such a patently bad paragraph full of misrepresentations appeared in a U.S. government report?

One answer might lie in the fact that Evan Mills was a co-author of the report (p. 159). Do you think that had anything to do with it? His list of consulting clients is positively Phil Cooney-esque. Here are a few businesses and organizations that he lists under Consulting & Advising in his resume:

* Armstrong/Energyn (US)
* Barakat, Howard & Chamberlin, Inc. (US)
* Better Energy Systems (UK)
* Ceres (US)
* CMC Energy Services (US)* Integrated Process Technologies (US)
* Investment Research, Inc. (US)
* Teton Energy Partners (US)

So a person responsible for misrepresenting science in a government report has ties and presumably financial interests with companies that have an interest in climate policy outcomes? No, couldn't be. Could it?

For those wanting a more rounded picture of extremes in the United States, here is what an earlier CCSP report concluded about extreme events in the United States, but which was uncited by this new CCSP report in this paragraph:

1. Over the long-term U.S. hurricane landfalls have been declining.
2. Nationwide there have been no long-term increases in drought.
3. Despite increases in some measures of precipitation (pp. 46-50, pp. 130-131), there have not been corresponding increases in peak streamflows (high flows above 90th percentile).
4. There have been no observed changes in the occurrence of tornadoes or thunderstorms
5. There have been no long-term increases in strong East Coast winter storms (ECWS), called Nor’easters.
6. There are no long-term trends in either heat waves or cold spells, though there are trends within shorter time periods in the overall record.

Wednesday, June 10, 2009

When ‘Green’ Travel isn’t ‘Green’ - Thesis by Mikhail Chester

When ‘Green’ Travel isn’t ‘Green’. By Greg Pollowitz
Planet Gore/NRO, Monday, June 08, 2009

Here's a great article via Breitbart on the difficulty of determining what the "greenest" form of travel actually is. Worth reading in its entirety, but here's an excerpt:

So you always prefer to take the train or the bus rather than a plane, and avoid using a car whenever you can, faithful to the belief that this inflicts less harm to the planet.

Well, there could be a nasty surprise in store for you, for taking public transport may not be as green as you automatically think, says a new US study.

Its authors point out an array of factors that are often unknown to the public.

These are hidden or displaced emissions that ramp up the simple "tailpipe" tally, which is based on how much carbon is spewed out by the fossil fuels used to make a trip.

Environmental engineers Mikhail Chester and Arpad Horvath at the University of California at Davis say that when these costs are included, a more complex and challenging picture emerges.

In some circumstances, for instance, it could be more eco-friendly to drive into a city — even in an SUV, the bete noire of green groups — rather than take a suburban train. It depends on seat occupancy and the underlying carbon cost of the mode of transport.

"We are encouraging people to look at not the average ranking of modes, because there is a different basket of configurations that determine the outcome," Chester told AFP in a phone interview.

"There's no overall solution that's the same all the time."

Tuesday, June 9, 2009

Political and economic contradictions of the 'new GM'

Car Quandary. WaPo Editorial
Political and economic contradictions of the 'new GM'
WaPo, Tuesday, June 9, 2009

POOR BOB LUTZ. The vice chairman of General Motors loves "muscle cars" like the Camaro. He knows that, unless fuel prices go much higher and stay there, the American market for big cars is likely to exceed the market for small cars. Yet he has to build a little four-seat plug-in electric hybrid called the Chevrolet Volt, roll it out next year and try to sell it for $40,000 (not counting a likely $7,500 federal tax rebate). It doesn't make much sense economically, and the few thousand Volts that GM plans to produce at first won't dent U.S. carbon emissions much either. But, as Mr. Lutz told The Post's Michael Leahy, he feels pressure from Washington to do something spectacular on the electric car front. The Volt, he says, "is an important symbol. We need it. It has a chance to change our image."

When GM was still a privately owned company, this latest episode of Detroit agonistes would be no one's problem but GM's and its stockholders'. But soon, if they become owners of 60 percent of the company, taxpayers could be on the hook for the Volt. And Mr. Lutz's quandary epitomizes the political and economic contradictions of the "new GM." The taxpayers' interest is to get GM out of the red and back in private hands as soon as possible, consistent with environmental and fuel-efficiency standards. By that logic, the automaker's only goal would be to make what people want to buy; expensive "image" projects such as the Volt would wait. Yet the political pressures that drove GM to build the Volt in the first place -- namely, Congress's demand for a U.S.-made answer to the Toyota Prius -- are stronger than ever now that the government is about to own the company. So GM will build the Volt, even if it loses money, taxpayer money.

And members of Congress will delve into other aspects of the car companies' business. Rep. Barney Frank (D-Mass.), chairman of the House Banking Committee, has already prevailed on GM to extend the life of a plant in his district. GM and Chrysler dealers, thousands of whom are set to close in order to streamline the companies' sales efforts, have flocked to Capitol Hill demanding relief. In response, House members of both parties have introduced a bill that would block the closure of GM and Chrysler dealerships. If this proposal ever makes it to his desk, President Obama should veto it. America can have nationalized auto companies with a chance, however slim, of someday turning a profit. Or it can have nationalized firms subject to constant political tinkering. It can't have both.

Monday, June 8, 2009

Brookings: Consequences of Cap and Trade

Consequences of Cap and Trade. By Warwick McKibbin, Adele Morris, Peter Wilcoxen, and Yiyong Cai
Brookings, Jun 08, 2009

SUMMARY

The U.S. Congress continues to debate a potential cap-and-trade program for the control of greenhouse gas (GHG) emissions. The economic effects of such a bill remain in dispute, with some arguing that a cap-and-trade program would create jobs and improve economic growth and others arguing that the program would shift jobs overseas and hit households with large energy price increases.

This report applies a global economic model to evaluate different emission reduction paths and to offer insights to policymakers about how to the design the program to lower the costs of achieving long-run environmental goals. The study examines emissions reduction paths that are broadly consistent with proposals by President Obama, Representatives Waxman and Markey, along with two cost minimizing paths that reach similar goals.

KEY FINDINGS

The study estimates that alternative paths to reach an emission reduction target of 83% below 2005 levels by 2050:

• reduce cumulative U.S. emissions by 38% to 49%, about 110 to 140 billion metric tons CO2
• reduce total personal consumption by 0.3% to 0.5%, or about $1 to $2 trillion in discounted present value from 2010 to 2050
• reduce the level of U.S. GDP by around 2.5% relative to what it otherwise would have been in 2050
• reduce employment levels by 0.5% in the first decade, with large differences across sectors
• create an annual value of emission allowances peaking at around $300 billion by 2030, and a total value of about $9 trillion from 2012 to 2050

The different timing of emissions reductions under the various paths explored has significant effects:
• Without banking, in the short run the Obama and Waxman-Markey emission paths result in more gradual carbon price rises than the paths that minimize the present value of abatement costs. In the medium run, Obama and Waxman-Markey targets are relatively more stringent.

Incremental stringency produces high incremental cost, e.g. an extra 8% reduction increases costs by 45%.

LEARN MORE

For more information about the Climate and Energy Economic Project, please visithttp://www.brookings.edu/topics/climate-and-energy-economics.aspx

Thursday, June 4, 2009

Hurricane Damage and Global Warming

Hurricane Damage and Global Warming. By Daniel Sutter
How Bad Could It Get and What Can We Do about It Today?
CEI, June 3, 2009

Full study available in pdf

Climate experts and policy makers have debated the existence of a potential link between global warming and increased hurricane activity since the record-setting 2005 Atlantic hurricane season. While claims that hurricanes are already stronger due to climate change are highly controversial, research demonstrates that increases in societal vulnerability to hurricanes—the number of persons and amount of property in coastal areas—goes a long way toward explaining the increases in hurricane losses over time.

This paper focuses on hurricane damage projections, reviews them in detail, and critiques the projections. It details how existing public policies have helped increase hurricane losses. In its final section, the paper recommends specific policies to reduce populations’ vulnerability to hurricanes.

Existing public policies—including insurance regulation, government-subsidized flood insurance, improper mitigation, and faulty building code enforcement—contribute to unnecessarily risky and inefficient development along coastal areas by shifting the cost of hurricane damage ultimately onto third parties—mainly taxpayers. Poor policies lead to excessive vulnerability to hurricanes and would exacerbate the cost of any increase in storm activity, whether due to climate change or any other factor. Insurance subsidies and mitigation may not be normally considered part of the climate change debate, but within that debate reform of these policies now will constitute a “no regrets” strategy. In other words, reforms will yield benefits in all circumstances—especially if adverse climate change does occur.

Cap-and-Trade: All Cost, No Benefit

Cap-and-Trade: All Cost, No Benefit. By Martin Feldstein
WaPo, Monday, June 1, 2009

The Obama administration and congressional Democrats have proposed a major cap-and-trade system aimed at reducing carbon dioxide emissions. Scientists agree that CO2 emissions around the world could lead to rising temperatures with serious long-term environmental consequences. But that is not a reason to enact a U.S. cap-and-trade system until there is a global agreement on CO2 reduction. The proposed legislation would have a trivially small effect on global warming while imposing substantial costs on all American households. And to get political support in key states, the legislation would abandon the auctioning of permits in favor of giving permits to selected corporations.

The leading legislative proposal, the Waxman-Markey bill that was recently passed out of the House Energy and Commerce Committee, would reduce allowable CO2 emissions to 83 percent of the 2005 level by 2020, then gradually decrease the amount further. Under the cap-and-trade system, the federal government would limit the total volume of CO2 that U.S. companies can emit each year and would issue permits that companies would be required to have for each ton of CO2 emitted. Once issued, these permits would be tradable and could be bought and sold, establishing a market price reflecting the targeted CO2 reduction, with a tougher CO2 standard and fewer available permits leading to higher prices.

Companies would buy permits from each other as long as it is cheaper to do that than to make the technological changes needed to eliminate an equivalent amount of CO2 emissions. Companies would also pass along the cost of the permits in their prices, pushing up the relative price of CO2-intensive goods and services such as gasoline, electricity and a range of industrial products. Consumers would respond by cutting back on consumption of CO2-intensive products in favor of other goods and services. This pass-through of the permit cost in higher consumer prices is the primary way the cap-and-trade system would reduce the production of CO2 in the United States.

The Congressional Budget Office recently estimated that the resulting increases in consumer prices needed to achieve a 15 percent CO2 reduction -- slightly less than the Waxman-Markey target -- would raise the cost of living of a typical household by $1,600 a year. Some expert studies estimate that the cost to households could be substantially higher. The future cost to the typical household would rise significantly as the government reduces the total allowable amount of CO2.

Americans should ask themselves whether this annual tax of $1,600-plus per family is justified by the very small resulting decline in global CO2. Since the U.S. share of global CO2 production is now less than 25 percent (and is projected to decline as China and other developing nations grow), a 15 percent fall in U.S. CO2 output would lower global CO2 output by less than 4 percent. Its impact on global warming would be virtually unnoticeable. The U.S. should wait until there is a global agreement on CO2 that includes China and India before committing to costly reductions in the United States.

The CBO estimates that the sale of the permits for a 15 percent CO2 reduction would raise revenue of about $80 billion a year over the next decade. It is remarkable, then, that the Waxman-Markey bill would give away some 85 percent of the permits over the next 20 years to various businesses instead of selling them at auction. The price of the permits and the burden to households would be the same whether the permits are sold or given away. But by giving them away the government would not collect the revenue that could, at least in principle, be used to offset some of the higher cost to households.

The Waxman-Markey bill would give away 30 percent of the permits to local electricity distribution companies with the expectation that their regulators would require those firms to pass the benefit on to their customers. If they do this by not raising prices, there would be less CO2 reduction through lower electricity consumption. The permit price would then have to be higher to achieve more CO2 reduction on all other products. Some electricity consumers would benefit, but the cost to all other American families would be higher.

In my judgment, the proposed cap-and-trade system would be a costly policy that would penalize Americans with little effect on global warming. The proposal to give away most of the permits only makes a bad idea worse. Taxpayers and legislators should keep these things in mind before enacting any cap-and-trade system.

Martin Feldstein, a professor of economics at Harvard University and president emeritus of the nonprofit National Bureau of Economic Research, was chairman of the Council of Economic Advisers from 1982 to 1984.

Wednesday, June 3, 2009

Global Humanitarian Forum report: A Methodological Embarassment

A Methodological Embarassment, by Roger Pielke, Jr.
Prometheus, May 29th, 2009

Excerpts:

I am quoted in today’s NYT on a new report issued by the Global Humanitarian Forum which makes the absurd claim that 315,000 deaths a year can be attributed to the effects of rising greenhouse gas concentrations. Here is what I said:

Roger A. Pielke Jr., a political scientist at the University of Colorado, Boulder, who studies disaster trends, said the forum’s report was “a methodological embarrassment” because there was no way to distinguish deaths or economic losses related to human-driven global warming amid the much larger losses resulting from the growth in populations and economic development in vulnerable regions. Dr. Pielke said that “climate change is an important problem requiring our utmost attention.” But the report, he said, “will harm the cause for action on both climate change and disasters because it is so deeply flawed.”

Strong comments I know. Shoddy work on disasters and climate change is the norm, unfortunately, and something I’ve been closely following for well over a decade. I have no illusions that this latest concoction will be repeatedly cited regardless.

Below are my comments to the NYT upon reading the report (cleaned up and formatted). Caution, strong views ahead.

Let me apologize for the length of this reply. But it is important to be clear and to set the record straight.

Let me say first that human-caused climate change is an important problem requiring our utmost attention. Second, the effects of disasters, particularly in poorer countries, is also an important problem that to some degree has been overlooked, as I have argued for many years.

However, I cannot express how strongly I feel that this report has done a disservice to both issues. It is a methodological embarrassment and poster child for how to lie with statistics. The report will harm the cause for action on both climate change and disasters because it is so deeply flawed.

It will give ammunition to those opposed to action and divert attention away from the people who actually need help in the face of disasters, yet through this report have been reduced to a bloodless statistic for use in the promotional battle over climate policies. The report is worse than fiction, it is a lie. These are strong words I know.

1. Let me first start by noting that the same group that did the analysis for the UN, the Geo-Risks group in Munich Re, earlier this year published a peer-reviewed paper arguing that the signal of human-caused climate change could not presently be seen in the loss data on disasters. [...]

3. The report cites and undates the Stern Review Report estimates of disaster losses, however, in a peer-reviewed paper I showed that these estimates were off by an order of magnitude and relied on a similar sort of statistical gamesmanship to develop its results (and of course this critique was ignored):

Pielke, Jr., R. A., 2007. Mistreatment of the economic impacts of extreme events in the Stern Review Report on the Economics of Climate Change, Global Environmental Change, 17:302-310. (PDF)

This report is an embarrassment to the GHF and to those who have put their names on it as representing a scientifically robust analysis. It is not even close.

Best regards,

Roger

Friday, May 29, 2009

Waxman-Markey: What About Innovation?

Waxman-Markey: What About Innovation? By Mark Muro
Brookings, May 26, 2009

Tuesday, May 26, 2009

Unilateral or Worldwide, Waxman-Markey Fails Standard Cost/Benefit Tests (CO2 “leakage” makes bad even worse)

Unilateral or Worldwide, Waxman-Markey Fails Standard Cost/Benefit Tests (CO2 “leakage” makes bad even worse). By Robert Murphy
Master Resource, May 26, 2009

Jim Manzi has a very good post introducing the analysis of costs and benefits of Waxman-Markey. Here I want to follow up on Manzi’s great start, by showing that Chip Knappenberger’s estimate of the climate benefits of Waxman-Markey (W-M) actually erred on the side of optimism in its assumptions.

Specifically, Knappenberger very conservatively ignored the problem of “leakage”–he didn’t model the fact that unilateral U.S. carbon caps would actually increase the rate at which other countries’ own emissions grow. What’s worse, even if the entire world signed on to the aggressive emission schedule in W-M, the resulting environmental benefits would be achieved at a staggering cost in terms of lost economic output.

No matter how you slice it–whether the U.S. goes it alone, or the rest of the world signs on too–the environmental benefits of W-M are swamped by its economic costs.

“Leakage”–An Important Variable. In a MasterResource post that has become a touchstone of the great climate debate, Chip Knappenberger used a standard model to assess the expected reductions in global mean temperatures if the U.S. faithfully adhered to the emission targets in W-M. Knappenberger found that by 2100, the projected global warming under two different “baseline” emission scenarios would be postponed by a handful of years.

The pro-interventionist scientists at RealClimate have conceded the basic validity of Chip’s analysis; they simply accuse him of rigging the game by considering unilateral U.S. action.

What is interesting is that Chip did not assume that the emissions of the rest of the world would grow more quickly because of (the stipulated) unilateral U.S. committment to W-M. Yet this would surely happen, because of a phenomenon referred to in the climate economics literature as leakage. The intuition is quite simple: If the U.S. imposes a steep price on operations that emit carbon, then U.S. industries will produce fewer carbon-intensive goods and services. (That’s the whole point, after all.)

Yet because of the reduction in output of these sectors, the world price of these items will tend to rise, which in turn will call forth greater output from (carbon-intensive) sectors in the unregulated countries.

I caution readers that some cynics of government action to limit climate change draw an unwarranted conclusion from this type of analysis. I have heard such critics say things like, “This is ridiculous! If the U.S. goes it alone, all we’ll do is ship all of our jobs to China, and we won’t affect global emissions one iota.”

Strictly speaking, that is taking it too far. For various reasons, it is not true that every cutback in carbon-intensive production in the U.S. would be perfectly offset by expanded production in an unregulated jurisdiction. However, even though there won’t be a one-for-one offset in terms of final goods produced, the relative carbon emissions is a different matter. This is because Chinese manufacturing operations emit more tons of carbon than American factories do, in order to produce the same physical amount of goods.

Hence, the amount of “leakage” resulting from a unilateral U.S. emissions cap is ultimately an empirical matter, but it would probably be very significant. To repeat, Chip’s analysis (described above) did not take this effect into account. Chip merely took two standard IPCC baseline emission scenarios, and then altered them by reducing the baseline growth in U.S. emissions in order to comply with the targets in W-M. He is consequently overestimating the environmental benefits of unilateral American adherence to the emission targets in W-M. In other words, the dotted lines in the chart above would be even closer to the solid lines, once the model took into account the superior profitability of Chinese carbon-intensive operations after the U.S. government hobbled American operations.

Leakage in the Context of the “Social Cost of Carbon.” Some of the more sophisticated critics of Chip’s analysis asked a reasonable question: Since plenty of economic models show a “social cost of carbon” emissions, it doesn’t really matter what the rest of the world does, right? After all, if emitting an extra ton of carbon today, translates into a (present discounted value of) an expected increase in future climate change damages of (say) $35, then it surely moves us in the direction of efficiency if the U.S. government slaps a penalty on domestic emitters, right?

There are two problems here. First, nobody is defending Waxman-Markey on the basis of cost/benefit analysis, because it can’t be done. There is a bit of a problem in comparing apples with apples (since the integrated assessment models gauging the impact of mitigation policies all assume concerted worldwide action), but it is safe to say that the emissions targets in W-M are far too aggressive, if we are going to be guided by the “social cost of carbon.”

For example, Table 3.10 (page 229) of Working Group III’s contribution to the IPCC Fourth Assessment Report (.pdf) shows that of 177 scenarios surveyed from the peer-reviewed literature, only 6 scenarios assumed worldwide emissions reductions in the steepest category of 50% - 85% by the year 2050. (Recall that W-M imposes a reduction of 83% by 2050. But note that the IPCC reductions are relative to 2000 emissions, while W-M’s 83% target is relative to 2005 emissions.)

If we turn to the specific DICE model by William Nordhaus–who is a pioneer and leader in this field, and who is a definite proponent of a carbon tax–we see that the aggressive emission cutbacks in W-M fail his cost/benefit test by a wide mark. The IPCC’s Table 3.10 and Nordhaus’s own results agree that capping emissions in 2050 at 83% below current levels, would correspond to Nordhaus’s estimates of a policy of capping atmospheric concentrations at no more than 1.5x preindustrial levels. (See Nordhaus’s Table 5-5, p. 96 here [.pdf]. Note that we are being conservative with our choice, because the steep emission cuts in W-M are arguably closer to the “Gore proposal,” which the DICE model finds even more destructive than the policy that we have instead chosen as a surrogate for W-M.)

Yet according to Nordhaus’s DICE model, such an aggressive policy would do far more harm to the economy, than it would yield in benefits of averted climate damage. Specifically, Nordhaus estimates that the policy corresponding to W-M targets would make the world some $15 trillion poorer relative to the business-as-usual baseline of no controls (see Table 5-1, page 82, here [.pdf]). Yes, worldwide commitment to the aggressive emission schedule in W-M would avert climate damages that would otherwise occur, which DICE values as a benefit of $12.6 trillion. But the draconian emission caps would require $27.24 trillion in abatement (compliance) costs. Thus the environmental benefits are swamped by the economic costs.

So we see that using the standard “social costs of carbon” approach, reveals that W-M imposes far too high a price on carbon emissions than is warranted by this Pigovian framework. That is why proponents of steep emission cuts must abandon standard cost/benefit analysis, and instead recommend particular environmental targets (such as stabilizing atmospheric concentrations at a presumed “safe” level) and then try to find the least-cost method of attaining them.

As a final point, we should note how the problem of leakage also influences the “social cost of carbon” as computed in various models. When Nordhaus or other economists calculate the social cost of carbon (SCC), they are asking what happens to the present discounted value of future environmental damages, if someone emits an additional ton of carbon today, while holding the assumed trajectory of all future emissions constant.

Now we see the weakness in this metric, when trying to assess the net benefits of unilateral climate policy. Once we take leakage into account, we see that the standard measure of SCC overstates (possibly grossly so) the true costs to society from an additional unit of emissions. In reality, there are two things going on: When a U.S. manufacturer produces more units of a carbon-intensive good, it is true that he emits more carbon dioxide into the atmosphere. This is what the SCC looks at, and judges him accordingly.

However, the U.S. manufacturer also pushes down the world price of the good in question, and that tends to cause other producers to emit less CO2. Thus, there is a positive externality laid on top of the negative externality. The greater the scope for leakage, the greater the positive externality. In the extreme, where U.S. operations would be completely outsourced to China (in terms of carbon emissions, if not output of final goods), then the correctly measured “social cost of carbon” for U.S. operations would be zero, in the context of a unilateral U.S. cap.


Conclusion. Here are the takeaway messages:

(A) If the U.S. implements Waxman-Markey unilaterally, the environmental benefits will be even less than indicated by Chip Knappenberger’s pessimistic analysis.
(B) If the whole world implements Waxman-Markey, then the loss to economic output will far exceed the reduction in expected environmental damages.
No matter how you slice it, Waxman-Markey fails standard cost/benefit tests. W-M advocates are certainly free to criticize standard cost/benefit tests, but they can’t stop there. They still need to justify quantitatively the steep emission targets in W-M. And to the extent that they invoke U.S. leadership in prodding the rest of the world to follow suit, proponents also need to come up with a plausible story showing the likelihood of worldwide action, with and without Waxman-Markey, versus some other possible U.S. approach.

Yet W-M proponents have done none of these things. Surely they could at least try–even in an informal blog post–to formalize their case, before expecting the American people to sign on to a plan that could cost trillions of dollars in forfeited economic growth, and which on its face will do very little to alter the course of global warming.

Thursday, May 21, 2009

Historic compromise on tough fuel economy rules: 'Ford Might Not Survive'

'Ford Might Not Survive.' By Henry Payne
Planet Gore/NRO, May 22, 2009

Detroit, Mich. — Washington’s lap-dog press obediently wagged their tails yesterday at The One’s announcement that autos would have to achieve an absurd 35 mpg in six years (a 40 percent increase in little over one product cycle). Even the Detroit Free Press — which might ask whether the bankrupt industry in its backyard could afford government edicts that will increase their per vehicle costs from $2,500 to $8,000 — fell in line.“President Barack Obama announced a historic compromise on tough fuel economy rules,” gushed Washington reporter Justin Hyde, that “were a ‘harbinger of a change’ for Washington.”

The only dissonant note in the Free Press account was a stray thought about whether anyone would actually buy Obama’s dream cars. “The wild card remains consumers,” allowed the Freep. In a consumer-based market economy, consumers are a “wild card?”Fortunately, media watchdogs still exist.

Los Angeles Times reporter Jim Tankersley took the novel approach of calling sources to find that the “great victory” (as Obama pal Guv Schwarzenegger put it) reached by automakers, greens, and pols was not all hugs and kisses.In fact, Ford had cold feet about the deal right through the weekend. As the only Detroit company without a direct line to Uncle Sugar, Ford faces the massive costs of new mandates alone.

On Sunday, just two days before Obama’s big Rose Garden announcement, reports Tankersley, “a senior Ford executive said the company had run the numbers again and concluded it might not survive if it accepted the deal.”

Ford might not survive.

“In the end, with more number-crunching and another application of White House pressure, Ford did not bolt,” continued the Times report. And since we know the Obama adminstration threatened Chrysler secured debtholders into submission, “White House pressure” is a loaded term.

Whatever pressure was brought, Ford also likely got guarantees that it would have access to the 3 percent of cap-and-tax revenue Mich. Rep. John Dingell has negotiated as part of the upcoming energy bill.

In an industry where government wields unprecedented power, we need watchdog journalism.

The Times report also bucked its media brethren by actually talking to Republicans and the picture got even more chilling.

"These exact companies were fighting this . . . tooth and nail six months ago, and now suddenly they love it?" Rep. John Campbell (R., Calif.) said, accurately reconstructing the recent past. "No, they don't love it. This is what this administration is doing: This administration is autocratically forcing people to do whatever it wants."

Even Schwarzenegger pointed out the 800-pound Rottweiler in the room. "All of a sudden, the car manufacturers needed . . . the taxpayers' money," he said. "So in order to get that help, I'm sure that President Obama said: 'OK . . . here's what you need to do.' "

Translation: Let me make a deal youse Detroiters can’t refuse.

Wednesday, May 20, 2009

Waxman-Markey Cost-Benefit Analysis

Waxman-Markey Cost-Benefit Analysis. By Jim Manzi
The Corner/NRO, Wednesday, May 20, 2009

There has been widespread agitation in the influential blogosphere for a cost-benefit analysis of the Waxman-Markey cap-and-trade proposal. This sure seems like a reasonable request to me, and you have to wonder why the sponsors and advocates of this bill — who are, after all, proposing an enormous commitment of resources — haven’t provided one. So I tried to do a quick version of it. I have a longer and more complete version of this coming in the next National Review, but wanted to get the bones of the analysis out for discussion as rapidly as possible.


Background Analysis

According to the authoritative U.N. Intergovernmental Panel on Climate Change (IPCC), under a reasonable set of assumptions for global economic and population growth, the world should expect (Table SPM.3) to warm by about 2.8°C over the next century. Also according to the IPCC (page 17), a global increase in temperature of 4°C should cause the world to lose about 3 percent of its economic output. So if we do not take measures to ameliorate global warming, the world should expect to be about 3 percent poorer sometime in the 22nd century than it otherwise would be. This is very far from the rhetoric of global destruction. Because of its geographical position and mix of economic activities, the United States is expected (Table 3) to experience no net material economic costs from such warming through the end of this century, and to begin experiencing net costs only thereafter.

A government program to force emissions reductions to avoid some of these potential future losses would impose a cost of its own: The loss in consumption we would experience if we used less energy, substituted higher-cost sources of energy for fossil fuels, and paid for projects — which are termed “offsets” — to ameliorate the effect of emissions (an example would be planting lots of trees). It’s complicated to estimate the cost of an emissions-reduction program, but the leading economists in this area generally agree that it would be large, and that we should simply let most emissions happen, because it would be more expensive to avoid them than to accept the damage they would cause. This makes sense, if you consider that most such plans (for example, Waxman-Markey) call for eliminating something like 80 percent of carbon dioxide emissions within the next 40 years or so. Even if the economy becomes more efficient over this period, such a quick transition away from our primary fossil-fuel sources will be expensive.

If a) the total potential benefit of emissions abatement is about 3 percent of economic output more than 100 years from now, b) we can avoid only some of this damage, and c) it’s expensive to prevent those emissions that we can prevent, the net benefit of emissions reduction will likely be a very small fraction of total economic output. William Nordhaus, who heads the widely respected environmental-economics-modeling group at Yale, estimates (page 84) the total expected net benefit of an optimally designed, implemented, and enforced global program to be equal to the present value of about 0.2 percent of future global economic consumption. In the real world of domestic politics and geostrategic competition, it is not realistic to expect that we would ever have an optimally designed, implemented, and enforced global system, and the side deals made to put in place even an imperfect system would likely have costs that would dwarf 0.2 percent of global economic consumption. The expected benefits of emissions mitigation do not cover its expected costs. This is the root reason that proposals to mitigate emissions have such a hard time justifying themselves economically. (If interested, you can read much more about this here).


Costs vs. Benefits of Waxman-Markey

Let’s start with the costs. The Environmental Protection Agency (EPA) has done the first cost estimate for Waxman-Markey. It finds (page 17) that by 2020 Waxman-Markey would cause a typical U.S. household to consume about $160 less per year than it otherwise would, and about $1,100 less per year by 2050 (before any potential benefits from avoiding warming). That doesn’t sound like the end of the world, but this cost estimate is based on a number of assumptions that seem pretty unrealistic, to put it mildly.

First, it assumes that every dollar collected by selling the right to emit carbon dioxide will be returned to taxpayers through rebates or lowered taxes. Waxman-Markey establishes this intention but doesn’t (as of the time I’m writing this) describe how it would be achieved, which reflects the political difficulty of achieving it. Second, it assumes no costs for enforcement and other compliance measures, which would be awfully nice. Third, it assumes that large numbers of foreign offsets will be available for purchase; without these, costs would be far higher. Fourth, it assumes that the rest of the world will begin similar carbon-reduction programs. Lack of such foreign action would either increase U.S. costs or risk a trade war if we tried to compensate for lack of international cooperation with targeted tariffs. Fifth, it assumes that there will be no exemptions or other side deals — that is, no economic drag created by the kind of complexity that has attached to every large, long-term revenue-collection program in history. And so on.

The EPA forecast is something like an estimate of the pure loss in economic productivity from replacing some fossil fuels with less economically efficient fuels or conservation in a laboratory setting; in the real world, expected costs are far above 0.8 percent of economic consumption by 2050. The EPA does not forecast costs beyond 2050.

Remember that the U.S. should not expect any net economic damage from global warming before 2100. That is, the bill’s benefits would accrue to U.S. consumers — who are also bearing its costs — sometime in the next century. The EPA underestimate has costs rising from zero to 0.8 percent of consumption between now and 2050, and offers no projection beyond that year; but to what level would costs rise over the more than 50 years between 2050 and the point in 22nd century when we might actually expect some net economic losses from global warming? The answer is likely to be much higher.

Now consider the benefits. Climatologist Chip Knappenberger has applied standard climate models to project that, under the scenario for global economic and population growth referenced above (A1B), Waxman-Markey’s emissions reductions would have the net effect of lowering global temperatures by about 0.1°C by 2100. Remember that the estimated cost of a 4°C increase in temperature (40 times this amount) is about 3 percent of global economic output. Assume for the moment that global warming has the same impact on the U.S. as a percentage of GDP as it does on the world as a whole (an assumption that almost certainly exaggerates the impact on the U.S.). A crude estimate of the U.S. economic costs that Waxman-Markey would avoid sometime later than 2100 would then be about one-fortieth of 3 percent, or about 0.08 percent of economic output. This number is one-tenth of 0.8 percent, the EPA’s estimate of consumption loss from Waxman-Markey by 2050. To repeat: The costs would be more than ten times the benefits, even under extremely unrealistic assumptions of low costs and high benefits. More realistic assumptions would make for a comparison far less favorable to the bill.
I’ve had to rely on informal studies and back-of-envelope calculations to do this cost/benefit analysis. Why haven’t advocates and sponsors of the proposal done their own? Why are they urging Congress to make an incredible commitment of resources without even cursory analysis of the net economic consequences? The answer should be obvious: This is a terrible deal for American taxpayers.


Two Potential Objections

One potential objection to my analysis is that the bill is part of a global drive for all countries to reduce emissions, and that the U.S. needs to “show leadership.” By this logic, we should ascribe much larger benefits to the Waxman-Markey bill — specifically, the benefits to American consumers of the whole world’s engaging in similar programs. There are two obvious problems with this argument, however. First, ascribing all of the benefits of a global deal to reduce emissions to a specific bill that does not create such a commitment on the part of any other countries is loading the dice. The benefit we should ascribe to the bill is rather that of an increase in the odds of such a global deal. But would Waxman-Markey actually increase them, or would it decrease them instead? Whenever one nation sacrifices economic growth in order to reduce emissions, the whole world can expect to benefit, because future temperature should decrease for the entire globe. Every nation’s incentive, therefore, is to free ride on everybody else. Our most obvious leverage with other emitting nations would be to offer to reduce our emissions if they reduced theirs. Giving up this leverage and hoping that our unilateral reductions would put moral pressure on China, Russia, Brazil, and similar countries to reduce their emissions reveals a touchingly sunny view of human nature, but it strikes me as a poor negotiating strategy. Second and more fundamentally, even if the whole world were to enact similar restraints on emissions, the cost/benefit economics would still not be compelling, for the reasons outlined at the beginning of this post.

A second and more serious potential objection to my analysis is that while Waxman-Markey may not create benefits if the projections I offered above turn out to be accurate, climate science is highly inexact, and the bill is an insurance policy against higher-than-expected costs. Now, climate and economics modelers aren’t idiots, so it’s not as though this hadn’t occurred to them. Competent modelers don’t assume only the most likely case, but build probability distributions for levels of warming and associated economic impacts (e.g., there is a 5 percent chance of 4.5°C warming, a 10 percent chance of 4.0°C warming, and so on). The economic calculations that compose, for example, the analysis by William Nordhaus that I cited earlier are executed in just this manner. So the possibility of “worse than expected” impacts means, more precisely, the possibility of “impacts worse than those derived from our current probability distribution.” That is, we are concerned here with the inherently unquantifiable possibility that our entire probability distribution is wrong.

This concept has been called, somewhat grandiosely, the “Precautionary Principle.” Once you get past all the table-pounding, this is the crux of the argument for emissions abatement. It is an emotionally appealing political position, as it easy to argue that we should reduce some consumption now to head off even a low-odds possibility of disaster. The most compelling version of this argument, by far, has been presented by Martin Weitzman. You can read my detailed response here (note that this was to a slightly earlier edition of the paper). The essence of my response is that in order to drive a decision, Weitzman must take his argument from the conceptual idea of a “fat-tailed distribution” of danger to a numerical estimate of risk. He recognizes that the logic of his argument entails this. In his article, he ends up having to do the kind of armchair climate science that has been the bane of the “global warming is all a hoax” set. He uses a couple of ice bore studies to develop his own probability distribution for potential warming that calls for a 1% chance of 22.6C or more of warming by 2100. To put this in perspective, a 22.6C increase in the earth’s temperature would mean that the average global year-round temperature would be the same as summertime Death Valley is today. If you could convince me that there was a reliably-quantified 1% chance of this happening, you wouldn’t need all of the mathematical formalism of Weitzman’s paper — I’d be the biggest emissions-mitigation proponent on earth. The problem is that the IPCC has already built a distribution of potential temperature changes (see Figure 10.28, page 808) that looks nothing like this. If you don’t want to believe me, read Cass Sunstein’s book about why the Precautionary Principle, even in sophisticated form, is a very bad decision rule.

In the end, clarity about costs and benefits is the enemy of Waxman-Markey. It is hard to get around the conclusion that it can not be justified rationally based on the avoidance of climate change damages.

Bankrupt companies making 39 mpg autos. Are we nuts?

Car Crazy. WSJ Editorial
Bankrupt companies making 39 mpg autos. Are we nuts?
WSJ, May 20, 2009

At the end of his Rose Garden explanation yesterday of the new U.S. fuel-efficiency standards, President Obama remarked on the good that can be accomplished when we are "working together." The President may be getting ahead of himself. Watching the unlikely coalition arrayed behind him as Mr. Obama committed the U.S. to an astonishing passenger-car mileage average of 39 miles per gallon by 2016, it looks truer to say we are merely standing together in this adventure, for better or worse.

Mr. Obama's fleet-mileage partners yesterday included the two auto companies that have fallen into his arms, Chrysler and GM, still-independent Ford, the major foreign manufacturers, United Auto Workers chief Ron Gettelfinger, and beaming representatives from the Sierra Club, Environmental Defense Fund and the Union of Concerned Scientists.

All that's left to arrive at the President's new destination for the American way of driving are huge, unanswered questions about technology, financing and the marketability of cars that will be small and expensive.

Start with technology. The President's proposed standards would raise fuel economy goals higher and faster than even the National Highway Transportation Safety Administration believes is practical. Last year, NHTSA issued a proposed rule making that would have raised fuel economy to 32.2 mpg by 2015 for cars and light trucks combined. Its 376-page report notes that "the resources used to meet overly stringent CAFE standards . . . would better be allocated to other uses such as technology research and development, or improvements in vehicle safety."

The new U.S. fleet will almost certainly be made up of hybrids and electric cars. This comports with the explicit intention of the President and his environmental partners to back out fossil fuels. One may ask: Once Detroit is forced to build these cars, will free Americans want to buy them, at any price?

Unless we outlaw the bigger cars that recent sales figures have shown Americans prefer any time gas prices fall below $4 per gallon, Detroit will need help marketing these small vehicles. As GM's Bob Lutz put it not long ago, "Very few people will want to change what has been their 'nationality given' right to drive big and bigger if the price of gas is $1.50 or $2 or even $2.50. Those prices will put the CAFE-mandated manufacturers at war with their customers."

All solutions to this problem flow from Washington. One would be to give substantial tax subsidies to buyers. Another would be to impose a federal gas tax to jack up the price of gasoline to $4 per gallon and keep it there. This is the solution that keeps Europeans driving small cars with tiny engines. High gasoline prices have become a political third rail in U.S. politics, and the Obama Administration insists it isn't interested in subsidies or taxes.

That puts the burden back on the beleaguered auto makers. The Detroit Three already sell small cars at a loss to meet the current 27.5 mpg fleet average. The car companies may hope that if the whole industry is forced to move up the fuel-economy ladder, consumers will have no choice other than to buy these cars. But experience suggests companies that have specialized in making smaller cars, such as the Japanese-owned auto makers, are more likely to be able to sell them at a profit.

Mr. Obama said a lot yesterday about the promised benefits of all this for the environment but not much about return on investment for the auto sellers. These public goals notwithstanding, it still looks as if Ford, Chrysler and GM will be making cars they can't sell, or can't sell profitably. That might not be a problem if you're now Gettelfinger Motors. But still-independent Ford has private shareholders and creditors to answer. While GM and Chrysler attempt to meet the new standards with taxpayer money, Ford will have to do so on its own.

The real carrot the Administration offered the industry yesterday was a detour from the nightmare of state-mandated standards. California has been seeking a waiver from the Administration to impose its own higher mileage standards, and a number of other states have followed suit. The Obama national proposal indeed offers the industry what he called "consistency."

So yes, it is possible to see why this disparate group came together yesterday. The UAW may soon be the government's partner in ownership of GM and Chrysler, and it has a strong incentive not to bite the hand feeding it a huge equity stake in the car makers. Ford and the other foreign-owned auto makers, which will have to raise private capital to make changes that U.S. taxpayers will fund at Chrysler and GM, no doubt want to maintain their political viability by not standing athwart this regulatory steamroller.

We wish these folks luck "working together" with the Obama auto-design team. One thing seems certain by 2016: Taxpayers will be paying Detroit to make the cars Americans don't want, and then they will pay again either through (trust us) a gas tax or with a purchase subsidy. Even the French must think we're nuts.