Posts from — November 2009

Last week, at the first Senate Environment and Public Works Committee hearing on S. 1733, the Kerry-Boxer “Clean Energy Jobs and American Power Act,” Department of Energy Secretary Steven Chu explained the economic rationale for adopting a Kyoto-style cap-and-trade program.

His argument, in a nutshell, goes like this:

1. Reducing emissions globally will require a massive investment in “clean technologies” — an estimated $2.1 trillion in wind turbines and $1.5 trillion in solar voltaic panels by 2030. These investments will create many green jobs.
2. “The only question is — which countries will invent, manufacture, and export these clean technologies and which will become dependent on foreign products.”
3. The United States is falling behind. “The world’s largest turbine manufacturing company is headquartered in Denmark. 99 percent of the batteries that power America’s hybrid cars are made in Japan. We manufactured more than 40 percent of the world’s solar cells as recently as the mid-1990s; today we produce just 7 percent.”
4. To seize the opportunity of clean tech and keep from falling farther behind, “we must enact comprehensive climate legislation,” the most important element of which is a “cap on carbon emissions that ratchets down over time. That critical step will drive investment decisions towards clean energy.”

There is so much silliness packed into Chu’s testimony that it’s hard to know where to begin. [Read more →]

The slow moving Senate debate over climate change offers an opportunity to revisit the fundamentals of climate change. While the physical science about natural and anthropogenic forcings is the place to start, the economics of climate change is highly relevant for the policy debate. In this regard,  a perfectly timed literature review in the Spring 2009 The Journal of Economic Perspectives is worth studying.

There have been 13 – count them, 13 – studies published in the peer reviewed literature that have wrestled with the economic implications of a doubling of atmospheric greenhouse gases (GhGs) on a CO2-equivalent basis.  Those 13 studies have yielded 14 estimates of what will subsequently happen to global GDP.  For those who are curious, 10 of those studies assume a subsequent warming of 2.5 C; two assume that a 1 C warming would follow; and two assume a 3 C warming would follow. 

Here are the estimated changes to GDP relative to a baseline scenario where no CO2e buildup occurs:  +2.5%, +2.3%, +0.9%, +0.1%, no change, -0.1%. -0.4%, -0.9% -1.3%, -1.4%, -1.5% -1.7% -1.9% and -4.8%.  In short, climate change will either add or subtract about one year of economic growth from the global economy in the second half of this century. [Read more →]

The European Union Emissions Trading Scheme (ETS) is currently the largest cap-and-trade scheme in the world. Covering 11,500 installations and countries with a combined population of around 500 million, the scope of the scheme is truly enormous. Before Americans adopt a cap-and-trade scheme of their own, it is vital that they take a serious look at how things have gone in Europe. I hope that my study, released at the end of last week, can demonstrate some of the huge risks that the United States will face if cap-and-trade advocates get their way.

The first thing to note is that the scheme has cost European consumers a fortune. There was a total bill of €93 ($123) billion between the introduction of the scheme in January 2005 and the end of 2008. That is €185 ($245) for every man, woman, and child across an area where average incomes are considerably lower than they are in the United States. That bill is expected to rise in the years to come.

And the people who pay the heaviest price are those least able to bear it. A large part of the bill to consumers will come through higher prices for electricity. When you combine the ETS with other policies, such as renewable energy mandates, which may well form part of a cap-and-trade bill, they amount to 14 per cent of household electricity bills in the U.K. That will be felt most by the poor and elderly. By contrast, [Read more →]

The recent Houston Chronicle op-ed, ostensibly written to respond to my New York Times op-ed, is worthy of reading for a variety of reasons, but primarily entertainment. The reference to me as Stephen Lynch was apparently an editor’s error, but the analogy of oil fields and glasses of water was quite enlightening as to the state of the debate. The three gentlemen comment on the difference between a straw in a glass (a supergiant field) and a puddle of water on the table requires many straws.

In fact, I know of no supergiant fields that have not required many straws, since oil fields are not ‘pockets’ of oil but rather oil that is in rock, rather as water is in a sponge. Drawing all of the fluid from one spot doesn’t mean that all of the oil will flow freely and uniformly to the straw: to the contrary, a given well usually drains a very limited area, and supergiant fields typically have numerous wells, hundreds even thousands, depending on the geology and geography.
[The inappropriate use of analogy is reminiscent to the website of Colin Campbell, the founder of the Association for the Study of Peak Oil. He points out that when you have finished half the glass in a beer, you only have half left. Given that he lived in Ireland, this prompted the rejoinder that his inability to find another glass of beer should raise questions about his understanding of resources.]

There is also the rather illuminating comment that not knowing much about Russian and Middle Eastern supergiants suggests that they could decline much faster than we expect. And yet, couldn’t they also decline much slower than we expect? This selective attention is what is known as ‘bias’. In fact, while it is not possible to download comprehensive information about oil fields in those areas, I have done work in the past by relying on such information as is available, including the piece, “The Economics of Petroleum in the Former Soviet Union,” in Gulf Energy and the World: Challenges and Threats (The Emirates Center for Strategic Studies and Research, Abu Dhabi, 1997) as well as “Crop Circles in the Desert” (on this website), which show what can be done, given a little effort. [Read more →]