Archive for the ‘climate change’ Category

[update] Bob Murphy, Rob Bradley and the Austrian Road Not Taken on Climate by two fossil-fuels gunslingers

October 28th, 2009 No comments

[Update: I copy at bottom a follow-up exchange I had on Bob`s thread with another reader – radio silence from Bob.]

Bob Murphy has a new post up at his blog, “CBO Testimony Misleads on Cost of Cap-and-Trade“, that draws attention to a new blog post at the Institute of Energy Research that Bob says he “had a lot to do with”.

The IER post rightly criticizes some of the numbers that the Congressional Budget Office has released, but the IER is playing games itself.

I left the following note at Bob`s (now substantially goosed up for the benefit of readers):

TokyoTom said…

IER? Isn`t that the “free-market” blog that bans libertarians who are not on their pro-coal, pro-pollution wagon? [Oops, I confused this with Rob Bradley`s MasterResource blog; IER is different, in that IER is – much more clearly than MR – an active rent-seeking front for fossil fuel interests, which Exxon made clear last year when it publicly announced that it would no longer fund IER`s “unproductive”, climate-skeptic position.]

But while we`re on the subject, let`s not forget:

– Austrians` fundamental objections to cost-benefit analysis;

that the mining, transport and combustion of coal, in addition to whatever climate “cost” it
might have to various people whose preferences can`t be measured, have
very real and significant costs in terms of damage to persons and property;

that federal law authorizes this (via the “Clean Air Act”, surface mining laws and ownership of the TVA), and grandfathers the very worst
midwestern utilities, the oldest 10% of which (41 or so) are  estimated to be responsible for 43% of the
$62 billion in annual  damages (not including damages from harm to ecosystems, effects of some air pollutants such as mercury, or climate change)(according
to the latest NAS report on the indirect costs of fossil fuels);

– that our federal government and states own most of the coal deposits and are otherwise addicted to the royalty revenues and complicit in turning a blind eye to damages;

– the future “costs” that the IER analysis refers to (in 2050) are not discounted to present value;

that alternative policies – such as

are never advanced, much less their costs weighed [that is, no attempt is ever made to engage opponents in good faith or to seek mutual gains by working to resolve underlying problems];

– the costs/consequences/risks and equities of “do-nothing” policies are hardly considered, and when so are heavily discounted;

– that deliberate “geo-engineering” holds no promise as a panacea, and itself is fraught with issues about statism, preferences, risks and liaibility;

the need for investment in infrastructure and change in laws to adapt
(and foster adaptation) to very real ongoing climate changes are never
discussed; and

– no one at IER ever seems to question the
unstated presumption that utilities and our transportation industries
have somehow homesteaded an ownership right over the global atmosphere – or the massive role that our federal government and states play as coal and other energy resource owners),
so that it`s perfectly okay to dismiss the preferences of those who
have concerns at home [those “religious” nuts like Exxon, and our Academies of Science] and those abroad in the least developed countries
that are most vulnerable to damages (much less to suggest how those
injured should be aided).

In other words, those defending the
status quo seem to have abandoned any Austrian training (or to have no
familiarity with its concern for problem-solving and awareness that
[as Block points out] common law protection of private property rights was hijacked a century
ago, with massive pollution and rent-seeking problems being the result

ought to post a few of these thoughts over at IER; Rob Bradley somehow
finds comments of this type over fundamental principles to be “ad hominem” arguments [of the kind that very quickly tested his patience and got me banned, without any word to his co-bloggers, who found my comments worthy of considered response].

Sure, we should fight over policy, but let`s not ignore principles or put our heads in the sand.

October 28, 2009 10:10 AM

*  From the NAS report:

Coal accounts for about half the electricity produced in the U.S.  In
2005 the total annual external damages from sulfur dioxide, nitrogen
oxides, and particulate matter created by burning coal at 406
coal-fired power plants, which produce 95 percent of the nation’s
coal-generated electricity, were about $62 billion; these nonclimate
damages average about 3.2 cents for every kilowatt-hour (kwh)
of energy
produced.  A relatively small number of plants — 10 percent of the total number — accounted for 43 percent of the damages.  By 2030, nonclimate damages are estimated to fall to 1.7 cents per kwh.


Supporters of cap and trade always turn to the
argument that opponents are burying their heads in the sand. It’s not
true. This legislation won’t do anything to help the environment. It is
merely a front so that the administration and the Democrats can say
they did “something.” We don’t need legislation that is going to cost
every single American household and won’t even be able to achieve its
stated goals. Write your Congressmen at

[A], you`re missing my higher -level poinht, which is that IER is
rather apparently UNINTERESTED in engaging productively or on a
principled basis on this issue; rather, they are simply sniping (though
they make excellent points) at the cap-and-traders).

of course, from the view of those financing them, this form of
engagement may very well be “productive”, if it delays any action that
will lower returns to coal, rail or utility investors.

regrettable is that this obfuscation, which has been going on for
decades, is what is likely to saddle us with extremely costly, porky
and ineffective “climate change” policies.

Obama uses climate change concerns to mandate a slimming of government energy use and carbon footprint

October 8th, 2009 No comments

I`d like to see how conservatives can figure out how to bitch about Obama`s new executive order. From WaPo on Monday (Juliet Eilerin)

The federal government will require each agency to measure its
greenhouse-gas emissions for the first time and set targets to reduce
them by 2020, under an executive order signed by President Obama

The measure affects such things as the electricity federal buildings consume and the carbon output of federal workers’ commutes.

“As the largest consumer of energy in the U.S. economy, the federal
government can and should lead by example when it comes to creating
innovative ways to reduce greenhouse gas emissions, increase energy
efficiency, conserve water, reduce waste, and use
environmentally-responsible products and technologies,” Obama said in a
statement. “This executive order builds on the momentum of the Recovery
Act to help create a clean energy economy and demonstrates the Federal
government’s commitment, over and above what is already being done, to
reducing emissions and saving money.”

Each agency must report its 2020 emission targets to the Council on Environmental Quality within 90 days.

Administration officials said they could not estimate the federal
government’s carbon footprint, since it has never been measured before,
but the government ranks as the nation’s largest energy consumer. It
occupies nearly 500,000 buildings, operates more than 600,000 vehicles
and employs more than 1.8 million civilian workers.

Under the executive order, all federal agencies will have to meet a
series of environmental targets over the next decade. They include 50
percent recycling and waste diversion by 2015; a 30 percent reduction
in vehicle-fleet petroleum use by 2020; and a 26 percent improvement in
water efficiency by 2020.

President George W. Bush signed an executive order in 2007 that
asked four agencies to draw up regulations to reduce greenhouse-gas
emissions from cars and trucks by the end of his administration, but
didn’t ask for specific targets. His move came after the Supreme Court
ruled that his administration did not follow Clean Air Act requirements
in not regulating greenhouse-gas emissions from motor vehicles.

Okay, I got one: if it applies to “defense” spending, how dare Obama cripple our ability to defend America!

Ringside seat on the fight to steer the Chamber of Commerce’s climate bus

October 7th, 2009 No comments

On the heels of my post about Apple leaving the U.S. Chamber of Commerce, here are a few more links and excerpts for eager readers (who have been spared a longer post that vanished into the ether as pixie dust crashed Mozilla and my prior unsaved draft) (emphasis added).

1.  The Chamber’s opaque policy-making mechanism on climate, and the trigger for the wave of departures from the U.S. Chamber of Commerce;

see long article at NYT:

U.S. Chamber of Commerce staff decides the trade group’s climate and
energy policy positions without approval from the board of directors,
Nike Inc. charged as it formulated a plan to call for greater chamber

Nike, which last week left the chamber’s board of directors but decided
to remain a chamber member
, described a lack of transparency at the
group that conflicts with how the chamber describes its operations. …

“We just weren’t clear in how decisions on climate and energy were
being made,” said Brad Figel, Nike’s director of government relations.
“They’re not being made at the board-of-director level, because we’re a
member of the board of directors. We were not consulted. We’re
convinced that’s not really where the action on climate change is being

The chamber reaches its positions through a “democratic
process” that is “driven by members,” chamber spokesman Eric
Wohlschlegel said yesterday. …

“Policy is developed and recommendations are made to the whole
board,” spokesman Wohlschlegel said yesterday. “It’s an open and
voluntary process, and it’s formulated by a majority of our members
that represents the broader business community’s perspective and not just the interests of one sector, one energy sector … or one sector of the economy.”

would not address Nike’s statement, however, that while it had
representation on the board of directors, the board did not vote on
climate policy positions. Wohlschlegel would not say when the board
last took a vote on its position on climate legislation. …

“They told us these decisions were made by staff [and not pursuant to the Board’s committee system],” Figel said. He
said that Nike was told that “this is a longstanding chamber policy,”
and that “once the policy is established, a lot of these decisions can
be made at the staff level.”

Last spring, Figel said, Nike told
the chamber that it wanted to be consulted on climate issues. After
that, he said, “there were several decisions that were made by the
chamber that we weren’t consulted on.”

In particular, Figel said, Nike recoiled at a chamber official’s
call for an EPA trial similar to the Scopes Monkey Trial on
evolutionary theory
[regarding EPA’s steps to employ regulatory authority affirmed by a Supreme Court decision during the Bush administration].

“That’s not helpful in any way,” Figel said. “That put a lot of companies on edge, how they phrased that.”

statement this summer by William Kovacs, a chamber senior vice
president, that the science of global warming should face a public
trial similar to the Scopes Monkey Trial thrust the trade group into a
new realm, [Kenneth] Green [resident scholar at the American Enterprise Institute] said.

“That was beyond the pale in terms of
aggressiveness that I’ve seen in a trade association
,” Green said. “At
that point, they were really inserting themselves into the political
process in an extremely visible way, not just a matter of lobbying for
their companies but really engaging in the bigger cultural argument. I
wouldn’t be surprised if that wasn’t what scared some people away.”

Note (from Marc Gunther at Salon in April):  ” Nike—along with Starbucks (SBUX), Levi Strauss, and Timberland
(TBL)—helped form a green-business coalition to lobby for strong
federal actions on climate. The coalition is called BICEP: Business for
Innovative Climate and Energy Policy

From blog of Marc Gunther (who is a Fortune contributing editor):

To be sure, the chamber, which calls itself “the voice of business”
and spent about $62 million lobbying Congress last year, also has lots
of members from the oil, coal and energy-intensive industries who
oppose federal regulation of greenhouse gases. Its 122-member board
includes executives from Consol Energy, Massey Energy, Peabody Energy,
and the Southern Co.

The smart thing for the chamber to do would be to stay neutral—to
admit that business is divided on the issue and to leave lobbying up to
individual companies. Instead, some chamber officials offered up
reasonable arguments against the bills pending in Congress and others
went off the deep end. In a remark that was ill-advised at best and
downright dumb at worst, William Kovacs, the chamber’s senior vice
president for environment, technology and regulatory affairs, called
for a public trial about climate science that he said would be “the Scopes monkey trial of the 21st century.”

2.  Who dissents from the Chamber’s long-standing opposition to climate change legislation? (with links to statements)

Quit the Chamber: Exelon, PNM Resources, PG&E, Apple.

Quit the Chamber’s Board: Nike.

Says Chamber doesn’t represent their views on climate:

– seven Board members from companies that are part of the U.S. Climate Action Partnership, a wide business coalition pushing for passage of climate
legislation: Alcoa, Caterpillar,
ConocoPhillips, Dow Chemical, Duke Energy, Siemens and Xerox

General Electric, General Motors, Ford, Shell, DuPont, American Electric Power, and John Deere also support mandatory controls on greenhouse gas emissions.

ExxonMobil favors a carbon tax (as I have noted several times).

Entergy, a New Orleans-based utility also on the board

General Electric,

Johnson & Johnson,

San Jose Chamber of Commerce.

Note: Those expressly in favor of the Chamber’s go slow approach on climate appear to be limited to coal firms Peabody Energy, Massey Energy Corp.,
and CONSOL Energy, and freight shipper Con-Way Inc.  As noted previously, Chamber CEO Tom Donohue is closely tied to coal shipper Union Pacific.

3.  In a move that shows how little the Chamber cares about the opinion and positions of its dissenting members, CEO Tom Donohue took at jab at Apple in this October 6 letter that he addressed to Apple CEO Steve Jobs in response to Apple’s announced resignation from the Chamber (with editorial comments):

Dear Mr. Jobs:

am sorry to learn of Apple’s resignation from the U.S. Chamber of
Commerce. It is unfortunate that your company didn’t take the time to
understand the Chamber’s position on climate and forfeited the
y to advance a 21st century approach to climate change. [Needless, to say, Apple quit because it fully understood and was fed up with the Chamber’s actual position – unrelenting intransigence; PG&E said in its letter to the Chamber announcing its withdrawal: Extreme rhetoric and obstructionist tactics seem to increasingly mark
the Chamber’s public stance on this issue.

U.S. Chamber of Commerce continues to support strong federal
legislation and a binding international agreement to reduce carbon
emissions and address climate change.
[The Chamber has no consistent expressed approach; it has opposed all federal legislation, and opposes provisions that would penalize foreign countries not adopting similar legislation. It is simply trying to put lipstick on a pig.] Furthermore, we believe that
Congress should set climate change policy through legislation, rather
than having the EPA apply existing environmental statutes that were not
created to regulate greenhouse gas emissions. This is also the stated
position of the President and Congressional leaders. [The regulatory threat exists only because the Bush administration and Republican Congress refused to act, and because the Chamber has exercised no leadership in outlining constructive legislation.]

letter states that “Apple is committed to the environment and the
communities in which we operate around the world.” So is the Chamber
but we are also committed to preserving the competitiveness and
prosperity of the communities and businesses in our nation. [Particularly the competitiveness and prosperity of the Chamber members that mine, transport and burn coal.]

we do support legislation to address climate change [the Chamber continues to take the position that even an average 3 degrees C increase over the next century would bring net benefits], we oppose
legislation such as the Waxman-Markey bill that numerous studies show
will cause Americans to lose their jobs and shift greenhouse gas
emissions overseas, negating potential climate benefits. An effective
climate change response must include all major CO2 emitting economies,
promote new technologies, emphasize efficiency, ensure affordable
energy for families and businesses, and defend American jobs while
returning our economy to prosperity.

“The American business
community that we proudly represent is the single largest investor and
innovator in clean energy solutions and remains committed to a strong
economy and clean environment. … The Chamber believes that the
business community will continue to be the catalyst for reducing
greenhouse gas emissions and we support efforts to tackle climate
change in a way that will strengthen our economy, protect American
jobs, and benefit our environment.

“Climate change is a global
problem that requires a global solution. The Chamber supports an
international agreement that will set realistic and achievable goals,
ensure global participation, protect intellectual property rights and
remove trade barriers to environmental goods and services.

would have hoped that Apple would have supported our efforts to improve
environmental stewardship
and keep Americans at work and our economy
competitive. As the world’s largest business federation representing
more than 3 million businesses and organizations of every size, sector,
and region, the Chamber is leading the way to support the innovation
needed to transition to a lower carbon future, including the
elimination of barriers to the deployment of clean energy technologies.
Supporting innovation and technology is at the very heart of our
efforts to combat climate change, and we will continue to fight for an
approach that embraces their merits.

It is a shame that Apple will not be part of our efforts.” [Yes; the Chamber will just have to “lead” with fewer followers, fewer resources, and less prestige. And it appears that Tom Donohue is trying to “lead” the way to even fewer Chamber members; Dale Carnegie’s “How to Win Friends and Influence People,” anyone? ]

4.  More ongoing insightful (if skewed) commentary on the Chamber of Commerce here by Peter Altman, “Climate Campaign Director” of the mainstream enviro group NRDC (which largely “depend[s] on the kindness of rich people to stay afloat.” Its board and
major donors “come from Wall Street, corporate law firms and big

5.  It’s clear that we are looking not merely at a clash of preferences, but a clash of preferences over how government is used – and in whose favor. This would look like classic “rent-seeking”, but for the fact that it relates to the management of an un-owned, open-access commons that affects all of us – the atmosphere and climate system – and the fact that Coasean bargaining on an international scale cannot, in any practical sense, be conducted without involving states.

Confirmation bias, rent-seeking and the rush to print the latest climate science "scoop" (Lindzen-Choi)

September 4th, 2009 1 comment

Since I`m in Tokyo and deprived of Bob Murphy`s enviable access, via talk radio, to cutting-edge climate science, I thank him using his blog to bring it to the attention of his audience (which occasionally includes me). Says Bob (emphasis added):

Chip Knappenberger explains
the significance (and remaining holes to be plugged) in the recent
Lindzen-Choi paper that’s got talk radio in such a tizzy
. The opening
sentence: “MIT climate scientists Richard Lindzen and collaborator
Yong-Sang Choi soon-to-be published paper (Geophysical Research
Letters, American Geophysical Union) pegs the earth’s “climate
sensitivity”—the degree the earth’s temperature responds to various
forces of change—at a value that is about six times less than the “best
estimate” put forth by the Intergovernmental Panel on Climate Change

Well, well, if talk radio is covering a new article that purportedly downplays climate risks, then others who have invested time in casting doubt

I`ve blogged previously about my various conversations with Chip Knappenberger, who is employed by the self-described “advocacy” group of Pat Michaels, New Hope Environmental Services.

I went to pay a visit to his post at Rob Bradley`s pro-coal, “free market” MasterResource blog, which I have discussed on any number of occasions here – especially after Mr. Bradley unceremoniously withdrew the welcome mat for libertarian critics (yours truly) while in mid-conversation with (and without notice to) several of his guest bloggers.

I reviewed Chip`s precis of the Lindzen-Choi paper and attempted to leave comments at MasterResource, but they were “disappeared” as soon as they were posted, so I forwarded a copy of my comments by email directly to Chip, which I copy below (with minor edits):

Chip, I couldn`t resist trying to comment on your post at MR, and
checking to see if Rob still has his blog set up to automatically
exclude all of my comments. Unfortunately, he still seems to be
convinced that a principled and libertarian approach (or his clients`
needs) requires maintaining his echo chamber by excluding me.

To check the sophistication of his method, I have for the first time
just tried commenting anonymously (I have until stayed away and simply
hoped Rob would change his mind), and to my surprise the comment went
through – though it is “awaiting moderation”. [update: this post has now received immoderate , “echo chamber” moderation]

I thought I would give you a head`s up on my pending comment, which I
do not expect to see published – but who knows?  Strange things
sometimes happen, such as Rob quoting with approval a link to a
comment that I have made:

My comment is below; I will wait until tomorrow before cross-posting
at my own blog.



[comment left at MasterResource]
“It is too early to tell whether Lindzen and Choi’s findings will
prove to be the end-all be-all in this debate.”

But it`s not too early for you, for others who act as paid mouthpieces
for fossil fuel and others who wish to avoid policy action, to trumpet
this as yet unpublished paper all over the intertubes, is it Chip?

By the way, continuing studies on the “sensitivity” of temperatures to
GHG increases should not lead us to ignore either the problem of ocean
acidification from our accelerating CO2 build-up or the very exquisite
sensitivity of the Earth`s climate and ecosystems to the 0.6 C average
temp increase that we have experience over the past 50 years
(remaining stuck at a peak for the past 10).  The Arctic and temperate
zone glaciers continue to rapidly thaw, and other changes affecting
ecosystems and human livelihoods are still underway.

I note I have seen very preliminary remarks by James
, and by

Schmidt here

“a waste of time and effort”

More directly, don`t you mean that such efforts would cost your clients money?

Sure, there are reasonable grounds to dispute practically any use of
government (though I note that Exxon and Margo Thorning of the ACCF
are both expressly advocating carbon taxes), but let`s not pretend to not

that those speaking most loudly in support of our radical, ongoing
planet-wide “experiment” on the affect of GHG emissions and albedo
changes are precisely the investors and firms (and their mouthpieces)
who benefit from the status quo (leaving all of these activities
unpriced), while it`s the world`s populations more generally who end
up with all of the risks.

This climate experiment and those paid to provide it cover are hardly
a “conservative” or “libertarian” enterprise.

I note that Bob Murphy is no climate expert, but simply posting blindly about something that he thinks cuts in the direct he wants; in a similar vein, Knappenberger also evidently is puffing the importance of a scientific article that is hot off the presses, but can`t be troubled to link to any articles providing additional context. (A recent blog post and comments by Steve McIntyre at Climate Audit also point out the difficulties in reaching conclusions from the new research.)

I also note, as I have previously, that not only Chip but Bob as well – when he has on his “economist for IER” (which is a coal and public utility front group that was de-funded last year by Exxon) hat – are, at least in part, being compensated to undercut climate change policy.

In this context, we all are prone to note evidence that fits into our existing world view, while discounting contrary information, such “confirmation bias” is readily apparent in the internet and radio coverage of this piece.  While climate change and climate policy are certainly hot topics, it doesn`t seem to me that the so-called “skeptics” are at all taking this new study skeptically, but are instead eagerly lapping it up, assume it is good news, are are loudly trumpeting it. Now who`s fooling whom?  Many “skeptics” look just like the “alarmist” “global warming cult” “believers” whom they abhor.

Unfortunately, while it`s impossible to know what Rob and Chip are actually thinking and why, it`s clear that a dangerous mix of self-deception, confirmation bias and rent-seeking permeates the tribal conflicts that we are seeing in current over the use of government, not the least in the case of climate change, which is a difficult scientific and policy issue.


Atlas Does Not Shrug at Climate Change: Exxon, Rob Bradley's favorite "principled entrepreneur", embarks on $600+ million biofuels venture

July 15th, 2009 No comments

A little birdy told me this story yesterday, which I think I was the first to ”Tweet”.

ExxonMobil has announced a $600+ million venture with Craig Venter’s advance genomics firm to develop fuels from algae.  An Exxon scientist noted:

“the potential advantages and benefits of biofuel from algae could be significant. Among other advantages, readily available sunlight and carbon dioxide used to grow the photosynthetic algae could provide greenhouse gas mitigation benefits. Growing algae does not rely on fresh water and arable land otherwise used for food production. And lastly, algae have the potential to produce large volumes of oils that can be processed in existing refineries to manufacture fuels that are compatible with existing transportation technology and infrastructure.” “

Exxon, whose scientists contributed directly to the Intergovernmental Panel on Climate Change, has made a steady stream of policy announcements and investments related to climate change over the past five years, and Exxon CEO Rex Tillerson has specifically called for governments to establish regulatory frameworks that provide investors and consumers with incentives to find ways to reduce GHG emissions, with Exxon favoring carbon taxes over cap-and-trade policies.  (Tillerson has said: “It is rare that a business lends its support to new taxes. But in this case, given the risk-management challenges we face and the alternatives under consideration, it is my judgment that a carbon tax is the best course of public policy action. And it is a judgment I hope others in the business community and beyond will come to share.”)

A recent statement by Exxon explained its climate change views as follows:

“As was recently summarized in the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), the risks to society and ecosystems from increasing greenhouse gas (GHG) emissions are significant. Meeting the enormous energy demand growth and managing the risk of GHG emissions are the twin challenges of our time.We all must engage in the search for solutions if we are to succeed at mitigating these risks. Progress can be achieved through climate change policy frameworks that enable countries to pursue economic progress while promoting the development of technologies necessary to generate and use energy more efficiently. As the largest publicly traded international energy company, the energy ExxonMobil produces meets 2 percent of the world’s needs. We share the responsibility to take action with scientists, citizens, and governments around the world and are doing so in several substantive ways.”

(emphasis added)


As an aside, I note that despite Rob Bradley’s deep admiration for Exxon (including several posts noting Exxon`s reluctance to invest in “green” energy), Exxon has specifically stopped funding Rob Bradley‘s Institute for Energy Research and similar public policy research groups, on the grounds that these groups’ “position on climate change could divert attention from the important discussion about how the world will secure the energy required for economic growth in an environmentally responsible manner.”  Does Exxon, despite an apparently strong policy disagreement with Bradley, still have his respect?



Categories: climate change, Exxon, Rob Bradley, Tillerson Tags:

Food, water, agrotech & climate change: More "NeoMalthusian" charlatans, this time at National Geographic

May 20th, 2009 1 comment

[note: my title has a bit of snark, designed to point out the emptiness of some anti-Enviro scare-mongering.]

A reader of my previous post  –  regarding Ron Bailey`s review of the concerns that “famine-monger” Lester Brown recently wrote about at Scientific American  – points me to a similar article, this time the feature article in the June issue of National Geographic.  The article, entitled “The Global Food Crisis; The End of Plenty”, is worth a read.

I look forward to Ron Bailey`s further comments; in the meanwhile I post a few excerpts below (with emphasis added):

“Agricultural productivity growth is only one to two percent a year,” warned Joachim von Braun, director general of the International Food Policy Research Institute in Washington, D.C., at the height of the crisis. “This is too low to meet population growth and increased demand.”

…. Such agflation hits the poorest billion people on the planet the hardest, since they typically spend 50 to 70 percent of their income on food. Even though prices have fallen with the imploding world economy, they are still near record highs, and the underlying problems of low stockpiles, rising population, and flattening yield growth remain. Climate change—with its hotter growing seasons and increasing water scarcity—is projected to reduce future harvests in much of the world, raising the specter of what some scientists are now calling a perpetual food crisis. [page 2]

Yet with world population spiraling toward nine billion by mid-century, these experts [from the Consultative Group on International Agricultural Research,  a group of world-renowned agricultural research centers that helped more than double the world’s average yields of corn, rice, and wheat between the mid-1950s and the mid-1990s, an achievement so staggering it was dubbed the green revolution] now say we need a repeat performance, doubling current food production by 2030.

In other words, we need another green revolution. And we need it in half the time.


Ever since our ancestors gave up hunting and gathering for plowing and planting some 12,000 years ago, our numbers have marched in lock step with our agricultural prowess. [page 3]

The industrial revolution and plowing up of the English commons dramatically increased the amount of food in England, sweeping Malthus into the dustbin of the Victorian era. But it was the green revolution that truly made the reverend the laughingstock of modern economists. From 1950 to today the world has experienced the largest population growth in human history. After Malthus’s time, six billion people were added to the planet’s dinner tables. Yet thanks to improved methods of grain production, most of those people were fed. We’d finally shed Malthusian limits for good.

Or so we thought. [page 4]

Today, though, the miracle of the green revolution is over in Punjab: Yield growth has essentially flattened since the mid-1990s. Overirrigation has led to steep drops in the water table, now tapped by 1.3 million tube wells, while thousands of hectares of productive land have been lost to salinization and waterlogged soils. Forty years of intensive irrigation, fertilization, and pesticides have not been kind to the loamy gray fields of Punjab. Nor, in some cases, to the people themselves. [page 6]

But researchers have found pesticides in the Punjabi farmers’ blood, their water table, their vegetables, even their wives’ breast milk. So many people take the train from the Malwa region to the cancer hospital in Bikaner that it’s now called the Cancer Express. The government is concerned enough to spend millions on reverse-osmosis water-treatment plants for the worst affected villages.[page 7]

Africa is the continent where Homo sapiens was born, and with its worn-out soils, fitful rain, and rising population, it could very well offer a glimpse of our species’ future. For numerous reasons—lack of infrastructure, corruption, inaccessible markets—the green revolution never made it here. Agricultural production per capita actually declined in sub-Saharan Africa between 1970 and 2000, while the population soared, leaving an average ten-million-ton annual food deficit. It’s now home to more than a quarter of the world’s hungriest people.[page 8]

But is a reprise of the green revolution—with the traditional package of synthetic fertilizers, pesticides, and irrigation, supercharged by genetically engineered seeds—really the answer to the world’s food crisis? Last year a massive study called the “International Assessment of Agricultural Knowledge, Science and Technology for Development” concluded that the immense production increases brought about by science and technology in the past 30 years have failed to improve food access for many of the world’s poor. The six-year study, initiated by the World Bank and the UN’s Food and Agriculture Organization and involving some 400 agricultural experts from around the globe, called for a paradigm shift in agriculture toward more sustainable and ecologically friendly practices that would benefit the world’s 900 million small farmers, not just agribusiness. [page 10]

So far, genetic breakthroughs that would free green revolution crops from their heavy dependence on irrigation and fertilizer have proved elusive. Engineering plants that can fix their own nitrogen or are resistant to drought “has proven a lot harder than they thought,” says Pollan. Monsanto‘s Fraley predicts his company will have drought-tolerant corn in the U.S. market by 2012. But the increased yields promised during drought years are only 6 to 10 percent above those of standard drought-hammered crops.

And so a shift has already begun to small, underfunded projects scattered across Africa and Asia. Some call it agroecology, others sustainable agriculture, but the underlying idea is revolutionary: that we must stop focusing on simply maximizing grain yields at any cost and consider the environmental and social impacts of food production. Vandana Shiva is a nuclear physicist turned agroecologist who is India’s harshest critic of the green revolution. “I call it monocultures of the mind,” she says. “They just look at yields of wheat and rice, but overall the food basket is going down. There were 250 kinds of crops in Punjab before the green revolution.” Shiva argues that small-scale, biologically diverse farms can produce more food with fewer petroleum-based inputs. Her research has shown that using compost instead of natural-gas-derived fertilizer increases organic matter in the soil, sequestering carbon and holding moisture—two key advantages for farmers facing climate change. “If you are talking about solving the food crisis, these are the methods you need,” adds Shiva.

In northern Malawi one project is getting many of the same results as the Millennium Villages project, at a fraction of the cost. [page 11]

Canadian researchers found that after eight years, the children of more than 7,000 families involved in the project showed significant weight increases, making a pretty good case that soil health and community health are connected in Malawi.

Which is why the project’s research coordinator, Rachel Bezner Kerr, is alarmed that big-money foundations are pushing for a new green revolution in Africa. “I find it deeply disturbing,” she says. “It’s getting farmers to rely on expensive inputs produced from afar that are making money for big companies rather than on agroecological methods for using local resources and skills. I don’t think that’s the solution.”

Regardless of which model prevails—agriculture as a diverse ecological art, as a high-tech industry, or some combination of the two—the challenge of putting enough food in nine billion mouths by 2050 is daunting. Two billion people already live in the driest parts of the globe, and climate change is projected to slash yields in these regions even further. No matter how great their yield potential, plants still need water to grow. And in the not too distant future, every year could be a drought year for much of the globe.

New climate studies show that extreme heat waves, such as the one that withered crops and killed thousands in western Europe in 2003, are very likely to become common in the tropics and subtropics by century’s end. Himalayan glaciers that now provide water for hundreds of millions of people, livestock, and farmland in China and India are melting faster and could vanish completely by 2035. In the worst-case scenario, yields for some grains could decline by 10 to 15 percent in South Asia by 2030. Projections for southern Africa are even more dire. In a region already racked by water scarcity and food insecurity, the all-important corn harvest could drop by 30 percent—47 percent in the worst-case scenario. All the while the population clock keeps ticking, with a net of 2.5 more mouths to feed born every second. That amounts to 4,500 more mouths in the time it takes you to read this article.

Which leads us, inevitably, back to Malthus. [page 12]


Now, can we discuss these issues without calling each other names?


[Update] Rot at the Core: Rob Bradley at "free market" MasterResource blog shows his true colors as a rent-seeker for fossil fuels

March 11th, 2009 2 comments

[Update:  I`ve added more background on Exxon, “Malthusians” and productive engagement.]

How has Rob Bradley showed his hand?  By shutting down reasoned (if challenging) debate at his blog, in the face of comments that were certainly more “free market” than displayed by Rob himself and his co-bloggers.

In a series of posts here and in comments at his blog, I have been critical of a number of obviously skewed and uninformative posts at MasterResource, the self-proclaimed “free market” energy blog of Rob Bradley‘s Institute for Energy Research, that downplay climate risks, cheer on coal and fossil fuels and point out problems with alternatives, while disappointingly show little evidence of a commitment to or understanding of free markets, much less a commitment to libertarian principles.  

Rob has fairly consistently simply ignored difficult questions from me on his posts, but what does he do when his guest bloggers (in particular, (a) Tom Tanton of  Pacific Research Institute, who jumped in on a post by Rob on drawbacks to wind that ignores the external costs of coal, and (b) climate scientist/paid policy consultant Chip Knappenberger) have no good answers to my comments and questions?  Even when I am just responding to his guest bloggers and others on the thread, he simply stops posting my remarks.  I am now blocked (“on moderation”) on all threads.  Granted, both Tanton and Knappenberger were in difficulty, but rather than allowing all (including other readers) to learn by having an open conversation, he apparently decided that open discourse with someone who can hold their own isn`t worth the potential embarrassment and distraction from the “mission”.  Tanton, to his credit, though he shows little understanding of market principles, at least chased me back to my linked blog post to throw in a few more parting words.

Of course the blog his plaything – or that of whoever funds it for him – so it’s entirely his right to decide whom he allows to comment.  But by deciding that hard questions and critical comments from a fundamentally libertarian, market perspective were too inconvenient, he’s tipped his hand that his interest is not in promoting “free markets” in energy, but in protecting the interests of his fossil fuel funders.  I noted on a previous post by Rob that boosted coal while bashing the “Malthusian anti-energy crusade” that:

I haven’t concluded here that Rob’s a rent-seeker; more evidence would be needed, but it’s fair to inquire and to wonder.

However, Austrians are problem solvers, not trying to win government
favor for a particular industry or bashing those with different views
for the benefit of clients.
It doesn’t looking like Rob is trying very
hard to be even-handed.

I think it’s fair to question what precisely are the objectives and
who is funding Rob, “Master Resources”, the Institute for Energy
Research, the American Energy Alliance and affiliated
institutions/personages. My understanding is that fossil fuel firms are
the principal funders, and it looks like the funding is rather generous.

So the jury is now in.

Too bad, as it’s just another manifestation of how powerful corporate interests work to manipulate the public debate (of course the wealthy citizens and corporations that fund enviros also deserve mention).  Further, it`s a turning away from principled and productive engagement over resource problems and the role of government in providing, facilitating or getting in the way of solutions to them. 

I queried Rob about his methods of engagement in response to a post by him entitled “Long Live King Coal?” in which he said that “coal looks to remain a mainstay in the domestic energy mix and bodes to help defeat the Malthusian anti-energy crusade.”  My comment?:

TokyoTom { 02.05.09 at 2:50 am }

are the John Badens, Terry Andersons, Bruce Yandles, Elinor Ostroms and
others who want to find ways to manage our commons better – by
improving ownership, incentives and pricing signals – also part of a
“Malthusian crusade”?

I just wanna make sure I know who to hate.

As for that big fly ash breach/spill in Tennessee, I’m glad that you
didn’t point out how this was a result of government ownership of TVA,
with the added benefit that costs will be borne not only by direct and
indirect victims, but by taxpayers as well. No sense in pointing out
how government is so often in the way, particularly if it detracts from
our “we hate enviros!” message. Last thing we ever want to do is to
reach a shared understanding with enviros of the institutional
underpinnings of problems, since that means our funders might lose some
of their fairly purchased, government-given special privileges.

Interestingly, though, apparently ExxonMobil – a well-run firm that Rob Bradley praises – has decided to actively promote carbon taxes. As I pointed out in a recent post, Exxon CEO Rex Tillerson,in a speech on February 17 at the Stanford University-centered Global Climate and Energy Project (the world`s largest, and internationally collaborative research prject focussed on clean energy), which Exxon commenced funding six years ago and has committed $100 million over ten years to, specifically endorsed carbon taxes AND pointed out its support as an effort to persuade others:

is rare that a business lends its support to new taxes. But in this
case, given the risk-management challenges we face and the alternatives
under consideration, it is my judgment that a carbon tax is the best
course of public policy action. And it is a judgment I hope others in
the business community and beyond will come to share.”

This must pain Rob to no end, as IER was once funded by Exxon; Exxon cut off funding last year to IER and certain other climate change denial groups.  An Exxon spokesman noted:

“We discontinued contributions to several public-policy research groups whose position on climate change could divert attention
from the important discussion about how the world will secure the
energy required for economic growth in an environmentally responsible

Rob`s skewed data flow and perhaps even his own denial on climate science, investments and politics could be seen on his recent post in which he highlights comments from Exxon`s Tillerson about Exxon`s unwillingness to invest in renewables due to the unreliability of the government-provided incentives.  When I managed to get in a comment that pointed out Tillerson`s explicit endorsement  of carbon taxes, Rob responded that Exxon had not endorsed carbon taxes, but had argued that carbon taxes were simply preferrable to cap and trade.  Rob`s parsing of Exxon is ridiculous, as Exxon has clearing been signalling for the past few years that it believes that coordinated government action on climate change is merited.  But on top of that, I responded to Rob with a link to Tillerson`s Stanford speech, which clearly shows that Exxon HAS endorsed carbon taxes and that Rob is wrong.  But Rob won`t post this correction (which I made in earlier “moderated” comments as well), obviously preferring to continue to mislead his readers (with the statement that “ExxonMobil has not come out in favor of a carbon tax or pricing carbon
per se
; they favor a tax over cap-and-trade. Two different things.”).

If Rob doesn’t want to let me in over there (I’m hoping he’ll change his mind), I guess I’ll just have to start an “anti-MasterResource” thread here.  Maybe I’ll see if I can get funding from Exxon!

Fat Tails Part Deux: cost-benefit analysis and climate change; Weitzman replies to Nordhaus

February 13th, 2009 No comments

[Note:  Although the giant snakes I mentioned in my preceding post may have fat tails, I didn’t want my description of the discussion between Harvard`s Martin Weitzman and Yale`s William Nordhaus of the limits of cost-benefit analysis to be overlooked, so I have largely copied it below.  I’ve added an introduction, as well as a few links.]

“Fat tails” seem to be the rage these days, as Bill Safire noted last week in the NYT.  But what are “fat tails”?  Notes Safire,

To comprehend what fat tail is in
today’s media wringer, think of a bell curve, the line on a
statistician’s chart that reflects “normal distribution.” It is tall
and wide in the middle — where most people and things being studied
almost always tend to be — and drops and flattens out at the bottom,
where fewer are, making a shape on a graph resembling a bell. The
extremities at the bottom left and right are called the tails; when
they balloon instead of nearly vanishing as expected, the tails have
been designated “heavy” and, more recently, the more pejorative “fat.”
To a credit-agency statistician now living in a world of chagrin, the
alliterative definition of a fat tail is “an abnormal agglomeration of angst.”

an eye-popping Times Magazine article last month titled “Risk
,” Joe Nocera, a business columnist for The Times, focused
on the passionate, prescient warnings of the former options trader
Nassim Nicholas Taleb, author of “The Black Swan” and “Fooled by
who popularized the phrase now in vogue in its
financial-­statistics sense. Nocera wrote: “What will cause you to lose
billions instead of millions? Something rare, something you’ve never
considered a possibility. Taleb calls these events ‘fat tails
or ‘black swans,’
and he is convinced that they take place far more
frequently than most human beings are willing to contemplate.”

If I make quibble with Safire’s description; “fat” refers not to the probabilty distribution ballooning on either tail, but refers to the case that the tail probability does not decline quickly to zero (viz., probability approaches zero more slowly than exponentially).

*   *   *

The size of the giant snakes and the much higher temperatures (and GHG levels) at their time (60 million years ago) and shortly after during the PETM (a perod 56 million years ago temperatures shot up by 5° Celsius / 9° F in less than 10,000 years) tell us no simply that climate is sensitive
(on geological scales, sometimes rather short-term) to atmospheric
levels of carbon and methane, but  remind us that there is a “fat tail” of uncertain climate change risks
posed by mankind`s ramped up efforts to release as much as possible of
the CO2 that has been stored up in the form of fossil fuels, methane
and limestone over millions years.  

I have mentioned the issue of “fat tails” previously,
in connection with attempts at applying cost – benefit analysis (CBA)
to determine whether to tax CO2 emissions.  While economists like
Yale`s William Nordhaus who have applied CBA to climate policy have been saying for decades that taxing carbon makes sense on a net basis, our own Bob Murphy has criticized Nordhaus`s approach on rather narrow (and decidedly non-Austrian) grounds.

But Nordhaus has also been strongly criticized by economists such as Harvard`s Martin Weitzman,
who basically argue that Nordhaus has UNDERSOLD the case for carbon
pricing or that the results of such CBA imply a greater certainty of
knowledge (and complacency) than is deserved.  Weitzman points out
basic difficulties inherent in applying CBA to policies addressing
climate change, particularly where there seems to be a grave
possibility that we do not understand how drastically the climate might
respond to our influences.  Weitzman`s comments (scheduled to appear in
the February issue of The Review of Economics and Statistics) were the focus of the lead essay by Jim Manzi in Cato Unbound`s August 2008 issue, which I reviewed.

Nordhaus has since responded to Weitzman in a comment that became available in January; this time with Bob Murphy stepped in as a defender of CBA!  I note that Ron Bailey, science correspondent at Reason online, has just published a piece examining Weitzman’s paper last year and Nordhaus’s recent comments.

Weitzman has now replied to Nordhaus, and has kindly permitted me to
quote from a draft of his reply (which he has out for review).  It seems that Weitzman
provides a compelling statement of some the limits of CBA, as applied
to climate change.  (NB:  Weitzman`s draft response is a .pdf file that I cannot upload, though I have uploaded a version converted to .txt format.  I am happy to forward the .pdf to any interested readers.)

Weitzman`s criticisms of the limits of CBA ought to resonate with Austrian concerns about complexity, limits of knowledge and the difficulty of prediction — even as Weitzman (and Nordhaus and, indeed, Bob Murphy) completely fail to consider the fundamental problems of conflicting preferences in the absence of property rights and of the likelihood that rent-seeking with corrupt governmental policy responses.


The rest of the post sets those of Weitzman`s key points that I consider most salient to a discussion among laymen:

“there is enormous structural uncertainty about the economics of extreme climate change,
which, if not unique, is pretty rare. I will argue on intuitive grounds
that the way in which this deep structural uncertainty is
conceptualized and formalized should influence substantially the
outcomes of any reasonable CBA (or IAM) of climate change. Further, I
will argue that the seeming fact that this deep structural
uncertainty does not influence substantially outcomes from the
“standard” CBA hints at an implausible treatment of uncertainty.”

pre-industrial-revolution level of atmospheric CO2 (about two centuries
ago) was





about280 parts per million (ppm). The ice-core data show that
carbon dioxide was within a range roughly between





180 and





280 ppm
during the last 800,000 years. Currently, CO2 is at





385 ppm, and
climbing steeply. Methane was never higher than





750 parts per billion
(ppb) in 800,000 years, but now this extremely potent GHG, which is
thirty times more powerful than CO2, is at





1,780 ppb. The sum total of
all carbon-dioxide-equivalent (CO2-e) GHGs is currently at





435 ppm.
Even more alarming in the 800,000-year record is the rate of change of
GHGs, with increases in CO2 being below (and typically well below)





ppm within any past sub-period of ten thousand years, while now CO2 has
risen by





40 ppm in just the last quarter century.

Thus, anthropogenic
activity has elevated atmospheric CO2 and CH4 to levels extraordinarily
far outside their natural range – and at a stupendously rapid rate. The
scale and speed of recent GHG increases makes predictions of future
climate change highly uncertain.  There is no analogue for anything
like this happening in the past geological record. Therefore, we do not
really know with much confidence what will happen next.”

“To keep atmospheric CO2 levels at twice pre-industrial-revolution levels would require not just stable but sharply declining emissions within a few decades from now. Forecasting
ahead a century or two, the levels of atmospheric GHGs that may
ultimately be attained (unless drastic measures are undertaken) have
likely not existed for tens of millions of years and the rate of change
will likely be unique on a time scale of hundreds of millions of years.

the “standard”CBA of climate change takes essentially no account of the
extraordinary magnitude of the scale and speed of these unprecedented
changes in GHGs – and the extraordinary uncertainties they create for
any believable economic analysis of climate change.
Perhaps even
more astonishing is the fact that the “policy ramp” of gradually
tightening emissions, which emerges from the “standard” CBA, attains
stabilization at levels of CO2-e GHGs that approach





700 ppm. The
“standard” CBA [of Nordhaus] thus recommends imposing an impulse or
shock to the Earth’s system by geologically-instantaneously jolting
atmospheric stocks of GHGs up to





21/2 times their highest past level
over the last 800,000 years – without even mentioning what an
unprecedented planetary experiment such an “optimal” policy would

“climate sensitivity” (hereafter denoted S1) is a key macro-indicator
of the eventual temperature response to GHG changes. Climate
sensitivity is defi…ned as the global average surface warming following
a doubling of carbon dioxide concentrations. … the median upper 5%
probability level over all 22 climate-sensitivity studies cited in
IPCC-AR4 (2007) is 6.4° C – and this stylized fact alone is telling.
Glancing at Table 9.3 and Box 10.2 of IPCC-AR4, it is apparent that the
upper tails of these 22 PDFs tend to be sufficiently long and heavy
with probability that one is allowed from a simplistically-aggregated
PDF of these 22 studies the rough approximation P[S1>10° C]





1%. The
actual empirical reason why these upper tails are long and heavy with
probability dovetails nicely with the theory of my paper: inductive
knowledge is always useful, of course, but simultaneously it is limited
in what it can tell us about extreme events outside the range of
experience – in which case one is forced back onto depending more than
one might wish upon the prior PDF, which of necessity is largely
subjective and relatively diffuse. As a recent Science commentary put
it: “Once the world has warmed by 4° C, conditions will be so
different from anything we can observe today (and still more different
from the last ice age) that it is inherently hard to say where the
warming will stop.”

“Exhibit C” concerns possibly disastrous releases over the long run of bad-feedback components
of the carbon cycle that are currently omitted from most general
circulation models. The chief worry here is a significant supplementary
component that conceptually should be added on to climate sensitivity
S1. This omitted component concerns the potentially powerful
self-amplification potential of greenhouse warming due to heat-induced
releases of sequestered carbon. … Over the long run, a CH4
outgassing-amplifier process could potentially precipitate a
cataclysmic strong-positive-feedback warming
. This real physical
basis for a highly unsure but truly catastrophic scenario is my Exhibit
C in the case that conventional CBAs and IAMs do not adequately cover
the deep structural uncertainties associated with possible
climate-change disasters.  Other examples of an actual real physical
basis for a catastrophic outcome could be cited, but this one will do
here.  The real physical possibility of endogenous heat-triggered
releases at high temperatures of the enormous amounts of
naturally-sequestered GHGs is a good example of indirect carbon-cycle
feedback effects that I think should be included in the abstract
interpretation of a concept of “climate sensitivity” that is relevant
here. What matters for the economics of climate change is the
reduced-form relationship between atmospheric stocks of
anthropogenically-injected CO2-e GHGs and temperature change. … When
fed into an economic analysis, the great open-ended uncertainty about
eventual mean planetary temperature change cascades into
yet-much-greater yet-much-more-open-ended uncertainty about eventual
changes in welfare.”

D” concerns what I view as an unusually cavalier treatment of damages or
disutilities from extreme temperature changes. The “standard” CBA
treats high-temperature damages by a rather passive extrapolation of
whatever specification is assumed (typically arbitrarily) to be the
low-temperature “damages function.”  … Seemingly minor changes in
the specification of high-temperature damages can dramatically alter
the gradualist policy ramp outcomes recommended by the “standard” CBA.

Such fragility of policy to postulated forms of disutility functions
are my Exhibit D in making the case that the “standard” CBA does not
adequately cope with deep structural uncertainty – here structural
uncertainty about the specification of damages.”

experiment without precedent is being performed on planet Earth by
subjecting the world to the shock of a geologically-instantaneous
injection of massive amounts of GHGs. Yet the “standard” CBA seems
almost oblivious to the extraordinarily uncertain consequences of
catastrophic climate change.”

nothing in our world has a probability of exactly zero or exactly one.
What is worrisome is not the fact that extreme tails are long per se
the fact that a meaningful upper bound on disutility does not exist),
but that they are fat (with probability density). The critical
question is how fast does the probability of a catastrophe decline
relative to the welfare impact of the catastrophe. Other things being
equal, a thin-tailed PDF is of less concern because the probability of
the bad event declines exponentially (or faster). A fat-tailed
distribution, where the probability declines polynomially, can be much
more worrisome.
… To put a sharp point on this seemingly abstract issue, the
thin-tailed PDFs that Nordhaus requires implicitly to support his
gradualist “policy ramp” conclusions have some theoretical tendency to
morph into being fat tailed when he admits that he is fuzzy about the
functional forms or structural parameters of his assumed thin-tailed
– at least for high temperatures. … When one combines fat
tails in the PDF of the logarithm of welfare-equivalent consumption
with a utility function that is sensitive to high damages from extreme
temperatures, it will tend to make the willingness to pay (WTP) to
avoid extreme climate changes very large.”

the PDF in the bad fat tail is thinned, or even truncated, perhaps from
considerations akin to what lies behind the value of a statistical life
(VSL). (After all, we would not pay an infinite amount to eliminate
altogether the fat tail of climate-change catastrophes.) Alas, in
whatever way the bad fat tail is thinned or truncated, a CBA based upon
it remains highly sensitive to the details of the thinning or
truncation mechanism, because the disutility of extreme climate change
has “essentially” unlimited liability.
In this sense climate change
is unique (or at least very rare) because the conclusions from a CBA
for such an unlimited-liability situation have some built-in tendency
to be non-robust to assumed tail fatness.”

attempts to constrict the fatness of the “bad” tail can still leave us
with uncomfortably big numbers, whose exact value depends non-robustly
upon artificial constraints, functional forms, or parameters that we
really do not understand. The only legitimate way to avoid this
potential problem is when there exists strong a priori knowledge that
restrains the extent of total damages.
If a particular type of
idiosyncratic uncertainty affects only one small part of an
individual’s or a society’s overall portfolio of assets, exposure is
naturally limited to that specific component and bad-tail fatness is
not such a paramount concern. However, some very few but very
important real-world situations have potentially unlimited exposure due
to structural uncertainty about their potentially open-ended
catastrophic reach. Climate change potentially affects the whole
worldwide portfolio of utility by threatening to drive all of planetary
welfare to disastrously low levels in the most extreme scenarios.”

from CBA [are] more fuzzy than we might prefer, because they are
dependent on essentially arbitrary decisions about how the fat tails
are expressed and about how the damages from high temperatures are
I would make a strong distinction between thin-tailed
CBA, where there is no reason in principle that outcomes should not be
robust, and fat-tailed CBA, where even in principle outcomes are
highly sensitive to functional forms and parameter values. For ordinary
run-of-the-mill limited exposure or thin-tailed situations, there is at
least the underlying theoretical reassurance that finite-cutoff-based
CBA might (at least in principle) be an arbitrarily-close approximation
to something that is accurate and objective. In fat-tailed unlimited
exposure situations, by contrast, there is no such theoretical
assurance underpinning the arbitrary cutoffs or attenuations – and
therefore CBA outcomes have a theoretical tendency to be sensitive to
fragile assumptions about the likelihood of extreme impacts and how
much disutility they cause.”

target is not CBA in general, but the particular false precision
conveyed by the misplaced concreteness of the “standard” CBA of climate
change. By all means plug in tail probabilities, plug in disutilities
of high impacts, plug in rates of pure time preference, and so forth,
and then see what emerges empirically. Only please do not be surprised
when outcomes from fat-tailed CBA are fragile to specifications
concerning catastrophic extremes.  The extraordinary magnitude of the
deep structural uncertainties involved in climate-change CBA, and the
implied limitations that prevent CBA from reaching robust conclusions,
are highly frustrating for most economists, and in my view may even
push some into a state of denial. After all, economists make a living
from plugging rough numbers into simple models and reaching specific
conclusions (more or less) on the basis of these numbers. What are we
supposed to tell policy makers and politicians if our conclusions are
ambiguous and fragile?”

“It is
threatening for economists to have to admit that the structural
uncertainties and unlimited liabilities of climate change run so deep
that gung-ho “can do” economics may be up against limits on the ability of quantitative analysis to give robust advice in such a grey area. But if this is the way things are with the economics of climate change, then this is the way things are – and non-robustness to subjective assumptions is an inconvenient truth to be lived with rather than a fact to be denied or evaded
just because it looks less scientif…cally objective in CBA. In my
opinion, we economists need to admit to the policy makers, the
politicians, and the public that CBA of climate change is unusual
in being especially fuzzy because it depends especially sensitively on
what is subjectively assumed about the high-temperature damages
function, along with subjective judgements about the fatness of the
extreme tails and/or where they have effectively been cut off
Policy makers and the public will just have to deal with the idea that
CBA of climate change is less crisp (maybe I should say even less
crisp) than CBAs of more conventional situations.”

moral of the dismal theorem is that under extreme uncertainty,
seemingly casual decisions about functional forms, parameter values,
and tail thickness may be dominant. We economists should not pursue
a narrow, superficially precise, analysis by blowing away the
low-probability high-impact catastrophic scenarios as if this is a
necessary price we must pay for the worthy goal of giving crisp advice.
An artificial infatuation with precision is likely to make our analysis
go seriously askew and to undermine the credibility of what we say by
effectively marginalizing the very possibilities that make climate
change grave in the first place.

issue of how to deal with the deep structural uncertainties in climate
change would be completely different and immensely simpler if systemic
inertias (like the time required for the system to naturally remove
extra atmospheric CO2) were short (as is the case for SO2;
particulates, and many other airborne pollutants). Then an important
part of an optimal strategy would presumably be along the lines of
“wait and see.” With strong reversibility, an optimal
climate-change policy should logically involve (among other elements)
waiting to see how far out on the bad fat tail the planet will end up,
followed by midcourse corrections if we seem to be headed for a
disaster. This is the ultimate backstop rebuttal of DT given by some
critics of fat-tailed reasoning, including Nordhaus. Alas, the problem
of climate change is characterized everywhere by immensely long
inertias – in atmospheric CO2 removal times, in the capacity of the
oceans to absorb heat (as well as CO2), and in many other relevant
physical and biological processes. Therefore, it is an open question
whether or not we could learn enough in sufficient time to make
politically feasible midcourse corrections. When the critics are
gambling on this midcourse-correction learning mechanism to undercut
the message of DT, they are relying more on an article of faith than on
any kind of evidence-based scientific argument.

think the actual scientific facts behind the alleged feasibility of
“wait and see”policies are, if anything, additional evidence for the
importance of fat-tailed irreversible uncertainty about ultimate
climate change.

relevance of “wait and see”policies is an important unresolved issue,
which in principle could decide the debate between me and Nordhaus, but
my own take right now would be that the built-in pipeline inertias
are so great that if and when we detect that we are heading for
unacceptable climate change, it will likely prove too late to do
anything much about it for centuries to come thereafter
possibly, for lowering temperatures by geoengineering the atmosphere to
reflect back incoming solar radiation). In any event, I see this whole
“wait and see” issue as yet another component of fat-tailed uncertainty
– rather than being a reliable backstop strategy for dealing with
excessive CO2 in the atmosphere.

states that there are so many low-probability catastrophic-impact
scenarios around that ‘if we accept the Dismal Theorem, we would
probably dissolve in a sea of anxiety at the prospect of the infinity
of infinitely bad outcomes.’ This is rhetorical excess and, more to the
point here, it is fallacious. Most of the examples Nordhaus gives have
such miniscule thin-tailed probabilities that they can be written off.”

summarizes his critique with the idea there are indeed deep
uncertainties about virtually every aspect of the natural and social
sciences of climate change – but these uncertainties can only be
resolved by continued careful analysis of data and theories. I heartily
endorse his constructive attitude about the necessity of further
research targeted toward a goal of resolving as much of the uncertainty
as it is humanly possible to resolve.
I would just add that we
should also recognize the reality that, for now and perhaps for some
time to come, the sheer magnitude of the deep structural uncertainties,
and the way we express them in our models, will likely dominate
plausible applications of CBA to the economics of climate change

(emphasis added)

Paul Joskow: What electric power regulatory reforms are need? A Federal Power Act of 2009

February 8th, 2009 No comments

Further to my previous posts, excerpted below are the recommendations that Paul Joskow (energy expert, MIT economist and current president of the Alfred P Sloan Foundationn) recently made in a speech at the National Press Club:

What is to be done?


We need to stop dealing with the electric power sector by placing band aids on the Federal Power Act of 1935. We need a comprehensive national policy for the electric power sector — a Federal Power Act of 2009 to replace the Federal Power Act of 1935. A policy that respects legitimate state rights but also reflects the contemporary attributes of electricity generation, transmission and distribution technologies, opportunities for innovation, and the public policy demands that are or will be placed on the electric power sector. While, I recognize that there are many technical differences between them, the restructuring of the U.S. natural gas industry provides a very successful basic organizational model to start with for the electric power industry. The special attributes of electricity and electricity networks can be layered on top of this model.


What provisions might a Federal Power Act of 2009 contain?


1. The economic, planning, reliability, and siting review and regulation of high voltage transmission facilities with voltages above, let’s say, 69 kv, should be federalized and the prices for transmission service over this network fully unbundled from generation and distribution service and made transparent. This would follow the structural and regulatory reform model associated with interstate pipeline transportation of natural gas and the successful implementation of electricity sector reform models introduced in other countries. Recent federal legislation effectively “federalized” reliability rules and made them mandatory. This is a step in the right direction.


2. The key provisions of FERC Order 2000 should be put into law. This would require the creation of [additional] TROs [regional transmission organizations] that manage the operation of large regional transmission networks, implement FERC’s transmission access, pricing, and planning regulations, and operate voluntary wholesale markets for electric energy, ancillary services, capacity and transmission rights. There is abundant evidence (a) that RTOs are needed to support efficient competitive markets, (b) that expanding the geographic expanse of RTOs and improving the market designs for energy, ancillary services and capacity lead to efficiency improvements, (c) and that wholesale market designs built around what is generally referred to as the “standard market design,” augmented by capacity obligations and capacity markets, promote economic efficiency.


3. Vertically integrated utilities should be required to unbundled generation service from distribution service so that their respective costs or prices are transparent. They should also be required at least to move their generation facilities to a separate generation affiliate. Existing cost-of-service arrangements governing existing generating capacity can be replicated through properly structure long-term wholesale contracts between distribution and generation affiliates that are regulated by FERC. This will preserve the imbedded economic benefits (or costs) of existing generating capacity for retail consumers. These contracts would be transparent wholesale power contracts and regulated by the FERC.


4. The states would be free to decide whether or not they wanted to introduce retail competition for some or all customer classes. Where distribution companies continue to have obligations to serve retail customers at regulated retail prices, however, they would be required to meet at least their incremental power supply needs through competitive wholesale market solicitations managed by the states using procurement mechanisms that meet reasonably flexible FERC competitive procurement criteria. In states that have already restructured and adopted a competitive wholesale market model, all default retail supply obligations would be met through approved competitive procurement programs.


5. Any federal loan guarantees available for financing nuclear, CCS, or renewable generation would be available only for “merchant” generating facilities and not to facilities subject to traditional cost-of-service regulation. Generators should get loan guarantees only once. Regulated generators can effectively get loan guarantees through cost of service regulation. Merchant generators can get similar financing relief from federal loan guarantees. This would roughly place regulated and merchant generation investment options on a level playing field.


6. [Assuming that a cap and trade program is enacted,] Any free CO2 allowances allocated to the electric power sector should go directly to electricity consumers through non-distortionary lumpsum distributions based on, say, historical consumption in a base period. All generators that emit CO2 would be required to buy allowances in the market to cover their emissions. Generators subject to cost-of-service arrangements would be allowed to pass the associated costs through the retail price regulatory process and they would be reflected in retail prices. Consumers would get a lump sum “dividend” on their bills each month for the value of the allowances allocated to them. That is, consumers would face the efficient retail price on the margin, while receiving a dividend that would not depend on whether their consumption increases or decreases, but would lower their total bills. This would then provide better retail price signals on the margin where it matters for stimulating wise consumption decisions.


7. State regulatory jurisdiction and regulation would continue over distribution facilities, sub-transmission facilities below 69 say kv, whether and how retail competition will be permitted, energy efficiency programs, and competitive procurement of generation consistent with FERC procurement criteria. This is no different from the states’ jurisdiction in the natural gas industry.  …


It will take significant political courage to design and implement a comprehensive electricity sector reform program because there are powerful interest groups that benefit from the status quo. 


(emphasis added)


I encourage interested readers to see Joskow`s full written remarks, linked above.


H/T Lynne Kiesling.

MIT economist Paul Joskow describes our current electricity regulatory framework

February 8th, 2009 2 comments

I believe that a key problem – and thus a key opportunity – that our country faces is over-regulation and misregulation of the electric power sector.  Regulatory reform in this area is a middle ground, both for enviros and those whose principle concerns are economic liberty and healthy markets.

As I noted previously, Paul Joskow, current President of the Alfred P Sloan Foundation and former head of the MIT Department of Economics (now on leave) and former director of the MIT Center for Energy and Environmental Policy Research, laid out a history of the electric power regulation and a series of regulatory reform proposals in a speech given at the National Press Club in September last year.

Here is an excerpt of his remarks on the evolution and current status of electric power regulation

For almost 50 years this sector was stuck in an organizational and regulatory framework that may have been well matched to the electricity generation and transmission technology available in 1935, but was surely poorly matched to changes in technology, new technological opportunities, contemporary investment needs, or current economic and environmental challenges. Then in the early 1980s, electricity sector reformers began to stir, responding to concerns about the system of regulated vertically integrated monopolies inherited from the 1930s. The “good old days” of regulation represent a view to the past with rose colored glasses. The system of regulated vertically integrated monopoly was plagued by cost overruns associated with nuclear power plants, poor operating performance for both nuclear and large fossil-fueled plants, poor fuel procurement decisions, wide price differences between neighboring areas, excess generating capacity, inefficient dispatch and economy energy trading between generating companies, regulatory incentives to keep old inefficient plants operating rather than retiring them, too many small utilities to take advantage of economies of scale, institutional and technological barriers to using the transmission network to access lower cost power, productivity lags, and inefficient retail prices. The system …was unnecessarily costly and inefficient.

Reformers looked to the favorable experience with restructuring, competition, and regulatory reform in other sectors and with electricity in other countries to help to solve the problems associated with the fragmented electric power sector made up of over 100 vertically integrated geographic monopolies. Municipal distribution companies and large industrial customers were especially aggressive at promoting reforms focused on open transmission access, the creation of transparent organized regional competitive wholesale markets, and (in the case of large industrial customers) retail competition.

A large number of states initially embraced this restructuring, competition, and regulatory reform vision and began to implement it. In 2000 it looked like restructuring and competitive market reforms were going to sweep the U.S. electric power industry.

Then came the California electricity crisis, the collapse of Enron and a number of merchant generating companies, increased volatility to natural gas markets and associated volatility in wholesale electricity market prices, and a long march upward in fossil fuel prices ultimately resulting in rising retail electricity prices in both regulated and restructured states. Most of the states that were leaders in restructuring during the late 1990s, when natural gas prices were low and there was excess capacity, initiated reforms during a period when regulated prices for generation service were expected to be much higher than perceived comparable competitive wholesale market prices. The expectation was that over time retail prices would fall. This forecast was based on the assumption that low prices for natural gas in particular would continue and that a new system built on efficient CCGT technology would evolve. At that time, a major “problem” that many of these states had to cope with were the “stranded generation costs,” primarily associated with what were perceived to be costly nuclear power plants, that were expected to result from the introduction of real wholesale and retail competition. This was expected to be a “transition problem” because it was expected that competition would result in market prices that would fall to levels below the embedded costs of nuclear plants and older fossil plants that would have otherwise been used to calculated (higher) regulated retail prices.

However, as natural gas and coal prices continued to rise far above anyone’s expectations, many of these states soon found that competitive market prices were rising dramatically along with natural gas prices (which affect competitive wholesale electricity prices in most regions of the country) — arguably rising to levels above what regulated prices would have been today under the status quo ante (though this requires a difficult counterfactual analysis). This, of course does not mean that these electricity sector reforms were a failure. In states that adopted the restructuring, wholesale and retail competition model, retail prices now reflect marginal supply costs, as they should to give consumers the right price signals to use electricity wisely. Rather it means that regulated prices are or would have been too low to give consumers appropriate incentives to make wise consumption decisions.

In evaluating restructuring, competition and regulatory reform one must understand all of its efficiency and distributional properties, not just at short run price effects. From an efficiency perspective, the restructuring reforms implemented at the federal level and in some states have led to numerous cost reducing successes in the face of rising fossil fuel prices.  These include dramatic improvements in the performance of divested nuclear plants, significant improvements in the performance of fossil plants that now face market incentives, roughly 200,000 GW of new (mostly merchant) gas-fired generation has been added to the system between 1999 and 2004, while the risk of cost overruns, fuel price fluctuations, demand variations, and availability problems experienced by some of these plants were shifted to their owners through the market rather than borne by consumers through cost-of-service regulation. There is good empirical evidence that the expansion of the boundaries of RTOs (e.g. PJM) have led to significant changes in power flows and more efficient dispatch of power plants, while inefficiencies are observed at the boundaries of RTOs that have not agreed to be consolidated (e.g. NY/NE). Gradual improvements in wholesale market designs have increased the efficiency of these markets and have restored investment incentives. Moreover, retail prices now respond quickly to changes in wholesale market prices, providing consumers with the right price signals rather than the wrong price signals resulting from retail price regulation. And these price signals are properly differentiated by time and location to reflect marginal supply costs, rather than the depreciated original cost of generating plants built 50 years ago. Demand management programs linked to short-term supply and demand conditions are expanding quickly as well in the reform regions.

Of course, the full reform program has not been implemented in large areas of the South, the West, and portions of the Midwest. The partial electricity reform equilibrium that we appear to be in now will not serve the country well and is potentially quite unstable. We have a system that is 1/3 reformed and 2/3 stuck in the structural and regulatory paradigm of the 1935s or somewhere in between.

The problems created by an antiquated industry structure and incompatible mix of state and federal regulation have not gone away. They are lurking out there to undermine achieving the goals that I enumerated earlier. Absent a comprehensive national electricity policy framework this sector is and will perform poorly in meeting the four sets of goals that I discussed earlier.

More later.