Technological innovation that will increase greenhouse gases?

Ralph Winter has a new draft paper out, Innovation and the Dynamics of Global Warming, which warns us that well-intentioned technological innovation reducing greenhouse gas emissions may perversely increase the probability of climate change. This counter-intuitive result derives from two factors: (1) the "rebound effect" of emissions-reducing technological changes, in which emissions reductions are partially offset by resultant cheaper fossil fuel prices and concomitantly greater utilization, and (2) the possibility that in the short term, a rebound could be so severe as to create a "backfire" in which the rebound more than offsets the first-order emissions reductions, it increases emissions. Winter's dynamic model is very interesting. What he has done is model the long-term expectations about fossil fuel prices in the wake of a technological innovation; in his model, if the innovation is significant enough, and the long-term expectations are fully capitalized in fossil fuel prices, the result really could be a temporary uptick in fossil fuel usage. There has been much work on the rebound effect, but Winter's model is unique in incorporating this long-term capitalization effect.

And if there is an uptick, even a temporary increase in greenhouse gases could trigger a positive feedback effect that causes global warming to increase. What is an example of a positive feedback effect? There are many, but one is that warmer temperatures will cause northern Arctic systems to release more methane, which is much more powerful greenhouse gas than carbon dioxide, and which would further warm the planet. This incorporation of positive feedback effects is the other new idea in Winter's paper. What he is essentially saying is that technological innovation, even if it produces a temporary increase in fossil fuel utilization and a temporary increase in greenhouse gas concentrations (carbon dioxide is effectively resident in the Earth's atmosphere for almost a century) could produce a runaway feedback effect that would not have occurred without the technological innovation.

How realistic is the model? It is hard to say. Most rebound effect research seems to find that the effect less than completely offsets the first-order emissions reductions, and that backfire is rare. But much of this research has focused on fairly marginal improvements in vehicle fuel efficiency. What if we are talking about one of these "game-changers" that are supposed to magically rescue us from climate change, like biofuels, that could displace petroleum-based gasoline? A big change in that technology could shake up the energy markets of the world enough to increase emissions. Also, it is worth noting that rebound or backfire should not occur if the technological innovation only came about as a result of a price signal, and not a government subsidy. If a carbon tax were instituted, and technological innovation discovered thereby, emissions would not increase, because the innovation would never have taken place if emitters were going to have to pay more in carbon taxes thereby (I hedge with the words "should not" because I can imagine an exception for those with very low discount rates, but I can't imagine anybody with a very low discount rate).

So let's not go out there and pick winners, ok? Just price carbon emissions.

Direct air capture of carbon dioxide -- more and less than meets the eye

The American Physical Society released a report last week on direct air capture of carbon dioxide by essentially running ambient air over a chemical sorbent that binds the ambient carbon dioxide, thereby removing it from the air and preventing it from warming the planet. It has been pointed out that the advantage of such an approach is that unlike emissions reductions, it can be deployed unilaterally or by a "coalition of the willing" to reduce the ambient concentration of CO2, without having to worry so much about what China or other supposedly climate recalcitrants or doing, making it a "backstop technology." The APS report is somewhat skeptical, having found that the costs of direct air capture to be in the neighborhood of $600 per ton of CO2, but it is quite possibly much less, as University of Calgary researcher David Keith has estimated it to be only 50% more than post-combustion carbon capture and storage. In fact, Keith has issued a response to the APS report that challenges some of the perhaps unnecessarily conservative assumptions made in the APS report.

For climate policy wonks, the development of air capture is heartening in that it offers the potential to insulate the climate change problem from the comedic vicissitudes of domestic politics and international climate negotiations. If this one technology can be developed, then there is no need to have subsequent Monty Python conferences such as Copenhagen, and no need to fret about what other countries do. As I have written, the emissions mitigation question has up to now posed mostly strategic questions; what the US (China) or Canada should do has everything to do with what China (the US and Canada) will do. What if we could avoid these inconvenient strategic questions? Air capture offers not only the prospect of avoiding strategic problems, but also potentially un-doing some of the harm that we have already done. With an effective greenhouse life of about a century, just reducing emissions right now does nothing about the existing stock of emissions, which may already be too high.

But there is still also less than meets the eye. Development of air capture technology and deployment is still going to be costly. One country, or a coalition of the willing, undertaking development and deployment is very likely not going to be a magic bullet to the climate change problem. With development of air capture technology, there will likely be little incentive for countries to reduce consumption to reduce greenhouse gas emissions. Imagine the US (China), sucking CO2 out of the air just fast enough to keep pace with emissions from China (the US). Is that likely to be politically sellable?

For that reason, two things must accompany air capture: a carbon price, preferably in the form of a carbon tax, and a truly global collaborative effort on development of air capture technology. Were a carbon tax in place, then the capture of CO2 from the ambient air would, under a sensible policy, qualify for a subsidy, as a mirror image of the carbon tax. And with global cooperation of air capture R&D, there is not only the prospect of international buy-in, but also better economies of scale in R&D spending. While air capture R&D may not seem worthwhile from an individual country's perspective, that cost-benefit analysis changes if a cooperative agreement to share research is reached, so that the costs remain the same, but the potential benefits are doubled, or trebled, in accordance with the number of countries on board with the R&D effort. That is presumably one driver for a US-China carbon capture and storage partnership between the Pacific Northwest National Lab and the Chinese Academy of Sciences. But even more importantly, a joint global research effort is necessary so that all of the major emitting countries can have some buy-in to the idea of reducing ambient GHG concentrations. For air capture to have a chance at success, there can be no leakage (in the economic sense).

National Wildlife Federation GDP resolution

In its 75th annual meeting in April, the National Wildlife Federation adopted a resolution to urge "the President,  the Congress, and state Governors and legislatures to take immediate steps to redesign the use of the Gross Domestic Product as an indicator of economic well-being, and to take all necessary action to develop and implement in its place a system of economic accounting that gives a more accurate measure of overall economic and ecological well-being..." This is actually not all that radical, nor is it the "game-changer" that Center for the Advancement of a Steady State Economy says that it is. It is a recognition that non-market values are not a part of GDP, and should be, somehow. 

Now, the preamble and the staff analysis National Wildlife Federation fall into the trap that I contend environmental organizations often fall into, that of equating economic growth with environmental degradation. The preambles claim that "GDP misleads [in] ... that it systematically counts costs of ecosystem damage as economically beneficial..." (my emphasis) and that "[some] GDP measures consists of defensive and remedial expenditures that do not contribute to well-being, but instead are directed to repairing or preventing losses caused by economic development...   [as] vividly illustrated in the expense of cleaning up and otherwise remediating the damage from the Deepwater Horizon blowout, explosion and spill, with British Petroleum alone spending $11.2 billion for that purpose, all of which counts as a positive contribution to GDP..." 

Pooh pooh, cleanup costs. This illustrates a profound misunderstanding of very basic economics, even one that this inexpert macroeconomist recognizes: spending money on cleanups does contribute to the economy, even if it is not the way we would like to spend it. The right way to think about Deepwater Horizon is that yes, we spent $11.2 billion on cleanup, but we would really liked to have spent it somewhere else. You don't subtract the $11.2 billion because it is prevention or remediation -- by that reasoning, we should also subtract policing and incarceration costs -- but you can try to count the real costs, including the damage to natural capital. And I think NWF is mistaken in thinking that if this $11.2 billion weren't spent on cleanup, it would not be spent elsewhere. Besides, GDP will not completely devoid of accounting for this tragedy: future incomes from many activities in the Gulf will be diminished. It is just that GDP will not account for all of the losses.

On this score, NWF has actually been quite consistent in its position. It has supported the use of contingent valuation methodology, a way of valuing non-market goods using surveys. It is never easy to describe CVM in a way that is both understandable and yet also does justice to the hundreds of CVM researchers and thousands of research papers that have been done on CVM. Polemicists in environmental law decry the use of CVM, mocking the idea of asking random people on the street what they would be willing to pay to save whales. But it is easier to make fun of things that are hard to do, and easier still to peddle this disinformation to other environmental lawyers that don't understand it at all. It is a lot harder to appreciate that markets work to reveal prices, and harder still to make CVM work like markets. The upshot of CVM is this: it is an imperfect but still developing way of accounting for non-market environmental goods that we still don't know how to count. And if the NWF resolution helps us get there, then all the better.

Some sobriety about the proposed Clean Energy Deployment Administration

Outgoing U.S. Senator Jeff Bingaman (D-NM) is proposing a "Clean Energy Deployment Administration." Senator has historically worked well across the aisle, and he has in this case enlisted the support of Senator Lisa Murkowski (R-AK), who has nevertheless insisted that funding ($10 billion upfront) be figured out. This is not a bad condition to attach to her support.

In fact, I would go further and wonder if this CEDA is really such a good idea after all. There is a saying that goes something like "government is bad at picking winners, and losers are good at picking governments." We have this temptation, especially when we have a huge problem, to think that government, with its huge scale, is best positioned to somehow "solve" it. And what has that predisposition gotten us? Well, there was George W. Bush's hydrogen fuel cell initiative, which never approached the promised $1.2 billion in funding because it was eventually recognized as one of the less promising technologies after all. But apart from the suspicion that Bush's hydrogen fuel cell initiative, championed by then-Energy Secretary Spencer Abraham, was really about deflecting criticism on climate change and about helping win the key electoral battleground state of Michigan, the fuel cell initiative is a classic case of losers picking a good government. In terms of its contribution to society minus the costs it has imposed, General Motors is really one of the most abject losers in the history of human industry.

So would a CEDA provide more of this? I suspect it would. Senator Bingaman is a very intelligent and upright individual, but seems a bit vulnerable to snake oil sales. His comment in 2009, when he was chair of the Senate Energy and Natural Resources Committee, "I believe we could go to E-12, or E-14 or E-16 without causing any great problems with vehicle operation," is indicative of a misplaced confidence in the prospects of ethanol, if only government would save it. Senator Bingaman would likely not have anything to do with the operation of CEDA, if it formed, but this is not a good face to put on CEDA. And Congress's current proclivities to tinker and micro-manage agency operations does not bode well for the prospects of an indepedant and depoliticized CEDA.

bin Laden is dead... but what about gas prices?

Greenwire reported today that even as Americans celebrated the death of Osama bin Laden, they complained about high gas prices. The hoped-for connection, one supposes, is that with an important figure at the head of terrorism dead, a more secure world could more securely produce and transport oil.

Of course that's false. The price of oil, which did not abate Monday, depends on many, many factors other than whether one old man, important or not, is alive or not. Strange how a globally-traded commodity that is beholden to so many economic factors is almost always at the top of political emotional intensity meters.

Which brings me to today's Canadian federal elections. Indications are that Jack Layton and the New Democratic Party will move into second place as the party with the second-most seats in the House of Commons. This will not be a good thing for Canada. George Hoberg blogged last week about the role of climate policy in the election, lamenting the small role that it has played, but ever more discouraging, the really lousy conversation that is taking place. What a strange argument between Jack Layton and Stephen Harper -- Harper, the conservative, the libertarian, promising to reduce emissions through  costly, inefficient, command-and-control ("sector-by-sector") regulation, and Layton, the old-fashioned liberal, promising reductions through a cap-and-trade program! Let's be blunt: both are simply lying.

Of the two, I am more offended by Layton's claim that a cap-and-trade program that reduces emissions will not raise gasoline prices. Why? First, because this is an argument that could only be slipped past people who aren't paying attention or just engaging in wishful thinking. Do we really expect people and firms to reduce consumption without a price signal? There is no serious controversy that we need a price on carbon. Layton's economic falsehood is that the price can just be isolated to the evil barons of industry; this is sophomoric and silly, as most undergraduate students of economics could tell you that costs are often passed up and down the supply chain.. It seems particularly reprehensible for someone who hopes to be Prime Minister to make an emotional but inaccurate appeal, exploiting those Canadians most vulnerable to his demagoguery to gain their vote. Second, he is inculcating in Canadians a belief that climate change is someone else's fault and someone else's responsibility. Literally, nothing could be further from the truth. Of all environmental problems, climate change is everybody's responsibility, very prominently Canadians, which have the ninth-largest per capita carbon footprint, almost double that of the UK's and almost three times that of France.

On the Facebook page of U.S. Senator Lindsay Graham, someone wrote: "Now that he is dead! [sic] Can we get some substantial relief at the Gas pump?"  This is what it's come to. This is the kind of voter that Jack Layton would appeal to (if he were Canadian), and this is what Canadians will be like if Jack Layton ever gets the chance to lead Canada.

Why American Electric Power v. Connecticut doesn't matter

Greenwire reports that the justices of the US Supreme sounded skeptical of the plaintiffs' claim that greenhouse gas emissions by American Electric Power, the world's largest greenhouse gas emitter, and four other named defendant investor-owned electric utilities, could constitute a common-law public nuisance that could result in legal liability to the State of Connecticut, the Open Space Institute, and a handful of other states. I would reserve judgment; the tone of oral argument is not a great predictor for how justices will vote or for the outcomes of cases, and in the case of public nuisance for emitting greenhouse gases, there are a lot of hard questions that need to be asked whether you're inclined to rule in favor or not.

I wrote an article back in 2008 that climate litigation like this was not likely to be a very effective way to reduce greenhouse gas emissions. Looking forward and finding an ideal plaintiff -- which I concluded was the Inuit people of Canada, the US, Denmark (through its territory of Greenland), and Russia -- and pitting it against the most vulnerable defendants -- American Electric Power and a longer list of other emitters -- the chances of prevailing on a common law nuisance suit were.... OK, but not fabulous. There are just too many leaps that a court of law would have to make in order to find that AEP and the others actually did something significant to harm the Inuit people, when even a large aggregation of the greatest emitters in history did not contribute more than about 8-10% to the existing stock of greenhouse gases. And if winning this "ideal" case was going to be challenge, what does that say about all the other climate change cases that could be brought? (Note: the article benefited from the detailed comments of Matthew Pawa, attorney for plaintiff Open Space Institute; while disagreeing with my ultimate conclusion, Pawa acknowledged the hurdles he needed to overcome to win.)

But there is another reason that environmentalists should not become too enamored of climate litigation: it perpetuates a myth that climate change is the fault and responsibility of a few evil barons of industry. It is not. It lies with us: certainly all of us living in affluent countries, but even those of us with small carbon footprints. We have done this to ourselves, and it is misleading to think that we can vindicate ourselves by sticking it to The Man. This is the specious tack taken by the Canadian NDP and the British Columbia NDP, which have attacked carbon taxes proposed by the Canadian Liberal Party and implemented by the BC Liberal Party. What we need is a price on carbon, so that all of us Canadians, Americans, and everybody else feels the pain of contributing to the climate change problem. A carbon tax does this, and does this best under most politically realistic scenarios.

Please don't complain to me about regressiveness until you've studied the literature. There will be some regressiveness to carbon taxes; that much has to be acknowledged and addressed. But there are many subtleties that have been ignored in the discussion about distributional impacts of carbon pricing. First of all, revenue recycling can and should address some of that. Dallas Burtraw and his colleagues at Resources for the Future have carefully modeled the effects of carbon pricing on different demographic and regional groups, and explored ways of recycling revenue to reduce impacts. And second, recent research seems to suggest that when government programs that provide aid for the poor are indexed to inflation, that the regressiveness problem is narrowed. This is of little comfort to those whose government benefits will *not* increase with inflation, but it is a start, and the kind of subtlety that has been ignored in the debate about regressiveness. Thirdly, do we define "poor" as people with low income? That fails to capture the affluence of two large groups of people: students and retirees. And finally, of all of the offenses that we visit upon the least fortunate in affluent societies, we're going to hold climate policy hostage until we fix income inequality?! Bailing out General Motors, perhaps the most stubbornly inefficient long-lived corporation in the history of human industry -- this insult to generations of American taxpayers is more important than climate change? The edgy language in this post is not targeted at the poor; it is targeted at those who purport to care about the plight of the poor, but haven't devoted the time to think through the various complicated issues around carbon pricing and distributional impacts, but would rather just use the poor as a political lever.

Renewable Portfolio Standards -- the Californication of Carbon Pricing

Governor Jerry Brown signed into law this week SB X1-2, the California Renewable Portfolio Standard which requires investor-owned utilities and other major electricity service providers to obtain 33% of their electricity from renewable energy sources by 2020. The law is not really much news, as it is just the legislative ratification of Executive Order S-14-08 signed by then-Governor Arnold Schwarzenegger in November of 2008. Admirably, the California Energy Commission's definition of renewable energy does not include large hydro projects, which, as Roberta Mann has written, is a somewhat ironic way to address climate change, given the future water supply issues that climate change will bring.

But although California takes a step in the right direction, it is worth taking a step back and looking at the overall climate change policy landscape in California and like-minded Western jurisdictions. Although a requirement that electricity service providers obtain electricity from renewables does boost the economics of renewable energy -- it forces providers to bid more for renewable energy in order to get their portfolio to 33% -- it doesn't actually do as much as it could. A direct carbon price -- in the form of a carbon tax or from the cap-and-trade program under California's AB 32, now pending a challenge by some environmental justice groups -- will more effectively reduce greenhouse gas (GHG) emissions.

There are a number of problems with the RPS. First, it will not be clear what kind of a price signal electricity consumers will see. Ideally, a consumer should pay in proportion to her GHG emissions, which of course means paying more with greater usage. But cost-recovery plans for the procurement of renewable electricity that are likely to be approved by the California Public Utilities Commission may or may not allow the completely transparent pass-through of emissions. Cost recovery will focus on how electricity providers can recoup the costs of paying more for renewables, which is different from making consumers pay for their emissions. It's a backwards way of pricing GHG emissions. Second, assuming that AB 32 survives the legal challenge, the RPS will distort the cap-and-trade market for permits, and that distortion will have more significance if the Western Climate Initiative's multi-state and -provincial cap-and-trade program comes into effect. Limiting California's energy consumption to 66% will have a profound effect on fossil fuel plants that ordinarily might compete in California's market -- they will be directed to, well, other WCI jurisdictions. This more ready availability of fossil-fuel-fired electricity will depress permit prices. This is potentially a large effect, as California's energy market is big enough to influence cap-and-trade permit prices very significantly. Finally, we need all the technological innovations we can get, at all levels of the energy production and consumption cycle, and an RPS only focuses on the production side. RPS does not directly encourage the search for ways to improve energy efficiency.