Inequality, Sunk Costs, and Climate Policy

By Frank Ackerman

Fifth in a series on climate policy; find Part 1 here, Part 2 here, Part 3 here, and Part 4 here.

Climate change is at once a common problem that threatens us all, and a source of differential harms based on location and resources. We are all on the same boat, in perilous waters – but some of us have much nicer cabins than others. What is the relationship of inequality to climate policy?

The ultimate economic obstacle to climate policy is the long life of so many investments. Housing can last for a century or more, locking residents into locations that made sense long ago. Business investments often survive for decades. These investments, in the not-so-distant past, assumed continuation of cheap oil and minimally regulated coal – thereby building in a commitment to high carbon emissions. Now, in a climate-aware world, we need to treat all fossil fuels as expensive and maintain stringent regulation of coal. And it is impossible to repurpose many past investments for the new era: they are sunk costs, valuable only in their original location or industry.

If we could wave a magic wand and have a complete do-over on urban planning, we could create a new, more comfortable and more sustainable way of life. Transit-centered housing complexes, surrounded by green spaces and by local amenities and services, could offer convenient car-free links to major employment sites. Absent a magic wand, the challenge is how to get there from here, in a short enough time frame to matter for climate policy.

Space is the final frontier in energy use. Instead of shared public spaces for all, an ever-more-unequal society allows the rich to enjoy immense private spaces, such as McMansions situated on huge exurban lots. This leads to higher heating and cooling costs for oversized housing, and to higher infrastructure costs in general: longer pipes, wires and travel distances between houses. And it locks in a commitment to low population density and long individual commutes. Outside of the biggest cities, much of the United States is too sparsely settled for mass transit.

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Methane Measurements and Short Attention Spans

By Frank Ackerman

Third in a series of posts on climate policy.  Find Part 1 here and Part 2 here.

Carbon dioxide (CO2) represents most, but not all, greenhouse gas emissions. In EPA’s Greenhouse Gas Inventory for 2016, CO2 represented 82 percent of gross U.S. GHG emissions, while methane represented 10 percent (measured as CO2-equivalents). The top three sources of methane are agriculture, the energy industry, and waste management.

As fascinating as some of us may find such details, the general public has a short attention span for new information about climate change. Within that constraint, what do we want to communicate? For methane, there are two choices, an introductory and an advanced message.

The introductory message emphasizes that methane, the principal component of natural gas, is an important cause of global warming under any version of the data. It is therefore crucial to reduce and eliminate all fossil fuels, gas included, as soon as possible, replacing them with efficiency, renewables and energy storage.

Climate Damages: Uncertain but Ominous, or $51 per Ton?

By Frank Ackerman

Second in a series of posts on climate policy.  Find Part 1 here.

According to scientists, climate damages are deeply uncertain, but could be ominously large (see the previous post). Alternatively, according to the best-known economic calculation, lifetime damages caused by emissions in 2020 will be worth $51 per metric ton of carbon dioxide, in 2018 prices.

These two views can’t both be right. This post explains where the $51 estimate comes from, why it’s not reliable, and the meaning for climate policy of the deep uncertainty about the value of damages.

On Buying Insurance, and Ignoring Cost-Benefit Analysis

By Frank Ackerman

First in a series of posts on climate policy.  

The damages expected from climate change seem to get worse with each new study. Reports from the IPCC and the U.S. Global Change Research Project, and a multi-author review article in Science, all published in late 2018, are among the recent bearers of bad news. Even more continues to arrive in a swarm of research articles, too numerous to list here. And most of these reports are talking about not-so-long-term damages. Dramatic climate disruption and massive economic losses are coming in just a few decades, not centuries, if we continue along our present path of inaction. It’s almost enough to make you support an emergency program to reduce emissions and switch to a path of rapid decarbonization.

But wait: isn’t there something about economics we need to figure out first? Would drastic emission reductions pass a cost-benefit test? How do we know that we wouldn’t be spending too much on climate policy?

In fact, a crash program to decarbonize the economy is obviously the right answer. There are just a few things you need to know about the economics of climate policy, in order to confirm that Adam Smith and his intellectual heirs have not overturned common sense on this issue. Three key points are worth remembering.

Worst Case Economics

Frank Ackerman is principal economist at Synapse Energy Economics in Cambridge, Mass., and the author of Worst Case Economics: Extreme Events in Climate and Finance (Anthem Press, 2017). He spoke to Triple Crisis co-editor Alejandro Reuss in late December 2017 about the main themes in the book. To learn more, you can also visit the book page on Dr. Ackerman’s website here.

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Climate Change, Imperialism, and Democracy

Questions and Answers with Liz Stanton

Part of the ongoing Dollars & Sense special series on the “Costs of Empire,” this Q&A with Liz Stanton (forthcoming July/August 2017) addresses the ways that global climate change—and the unequal distribution of benefits and costs from greenhouse gas emissions—are related to global inequalities in wealth and power. Stanton is a climate economist and the founder and director of the Applied Economics Clinic, a non-profit energy and environment consulting group affiliated with the Global Development and Environment Institute (GDAE), Tufts University. She answered our questions via email. —Eds.

Dollars & Sense: Some of the discussion of global climate change has been framed as “we’re all in the same boat and have to share in the effort to keep it afloat.” However, the distribution of benefits and costs from climate change is quite unequal, isn’t it?

Liz Stanton: Both things are true. We’re all in the same boat, but some are on the first class deck and some are in steerage. If the ship sinks, everyone is in big trouble. We only have, as they say, one Earth.

Short of a total climate disaster, however, we have the incremental degradation of natural environments and the well-being of the communities that rely on them the most. Richer families can protect themselves with houses outside of flood zones, air conditioning, and access to high-cost foods and private water supplies. Poorer families are far more vulnerable to severe weather, losses of natural resources, and limitations on the supply of food and water.
It’s helpful, as a rallying cry, to emphasize that everyone is affected by climate change—but some are more affected than others. The “same boat” analogy also misses the impacts on future generations, who lack a voice in today’s decision making.

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Keeping America’s Promises: The Green-State Climate Agreement

Frank Ackerman

In January Donald Trump will endorse climate denial, renouncing the Clean Power Plan and climate targets in general. This will damage the fragile global momentum toward emission reduction, established in last year’s Paris agreement. If the United States refuses to cooperate, why should much poorer, reluctant participants such as India do anything to cut back on carbon?

But among many things that this dreadful election did not represent, it was not a statement of (dis)belief about climate change. Large parts of the country recognize the validity of modern science, understand the urgency of the problem, and remain committed to ambitious carbon reduction targets.

Suppose that many of our state governments got together and told the rest of the world about our continuing commitment to action: we are still abiding by the U.S. pledges under the Paris agreement, or even planning to do more. Not just NGO reports, blog posts, or individual signatures, but an official, coordinated announcement from government bodies with decision-making power over emissions – primarily states, perhaps joined by Indian tribes and major city governments.

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$200 a Month for Everyone?

Universal Income from Universal Assets

James K. Boyce and Peter Barnes

James K. Boyce teaches economics at the University of Massachusetts Amherst. Peter Barnes is a co-founder of Credo Mobile and the author of With Liberty and Dividends for All.

Lately there’s been renewed discussion of universal income: regular cash payments to everyone, regardless of race, gender or need. Past proponents of the idea include the revolutionary Tom Paine, civil rights leader Martin Luther King, Jr., free-market econ­omist Milton Friedman and President Richard Nixon. Today’s interest has been sparked by the income stagnation experienced by America’s middle class and working poor, and by the persistent slow growth experienced by our economy.

The idea finds support across America’s ideological spectrum in an era when hardly anything else does. Liberals, or at least some of them, like it as a way to preserve our middle class when jobs no longer pay enough. Conservatives, or at least some of them, like it as a way to reduce dependence on our byzantine maze of welfare programs.

But universal income is expensive and quickly runs into the stumbling block of how to pay for it. Its wide appeal is checked by equally widespread aversion to taxes, especially for the purpose of redistributing income. Fortunately, though, there’s another way to pay for it: universal income can come from universal assets, a.k.a. our common wealth.

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The Clean Power Plan’s Day in Court

Elizabeth A. Stanton

In one week, the D.C. Circuit of the U.S. Court of Appeals will begin hearing oral arguments regarding the Clean Power Plan—that’s the Environmental Protection Agency’s rule limiting carbon emissions from existing power plants that the Supreme Court put on hold in February. In staying the rule, the Supreme Court flagged concerns that EPA had failed to take the rule’s economic impacts into account. The 27 states challenging the rule have focused their arguments instead on its legal niceties claiming that the federal government is overstepping its authority.

Of the 27 states suing the EPA, 21 have already achieved their 2024 emission reduction targets and 18 have enacted policies that put them on track to reach their 2030 targets. Reuters quotes EPA Administrator Gina McCarthy as saying, “We are seeing reductions earlier than we ever expected. It’s a great sign that the market has already shifted and people are invested in the newer technologies, even while we are in litigation.” Economics are driving large-scale adoption of wind and solar generation around the country at the same time that low natural gas prices mean less reliance on coal-fired generators.

Carbon emission are falling and will continue to fall in the electric sector—without help from federal climate regulation. But in the absence of a strong national climate policy these reductions will not cut emissions quickly enough for the United States to play its essential role in keeping global warming below 2 degrees Celsius. It is no exaggeration to say that the decisions made by the D.C. Circuit and U.S. Supreme Court will set a precedent for federal regulation of carbon pollution that will have long lasting impacts felt around the world.

The quality of public debate sparked by the Clean Power Plan’s day in court will benefit from a grounding in facts not just about climate change and the U.S. role in changing the composition of our global atmosphere, but also in the legal issues at the core of the challenge to and stay of the rule. Here’s some recommended reading to that end:

·        A helpful blog piece from the Institute for Policy Integrity explaining the challenge in the context of U.S. law and history

·        A brief history lesson from the Law360 website describing the U.S. legal decisions that paved the way for the Clean Power Plan

Cross-posted at the author’s blog, lizstantonconsulting.com.

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September 22, 2016 | Posted in: Uncategorized | Comments Closed

Robert Pollin on “Green Growth”

Robert Pollin is professor of economics at the University of Massachusetts Amherst and co-director of the Political Economy Research Institute (PERI).

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