Hans,
Your course sounds ambitous and worthwhile. You have a very good
rhetorical style and both the students and you will learn what people
are thinking and how to persuade them. I hope there is some way your
students can learn and later tell us all how to procede in this
conversation about global warming.
As I read the purported reader's comment that you were responding to,
I thought "this was written by a corporate PR guy or manager, not a
line worker." The author hit all the buzz words -- businesses
competing fiercely, just getting by, etc. And it not too subtley pits
good honest workers like the writer against the unionized rip-off
employees and the slackers who work for government. Not clever enough.
Actually if the thing was written by a non-management worker things
are worse. That means that all the cliches have been internalized and
your problem of persuasion is more difficult.
In terms of a response to this, a couple of quick things your
students could say, and then a point that I think is more important
and that I hope you will consider.
First, the "Cap and Trade" as discussed in Washington and by the
corporate and enviromentalist proponents will have only a gradual
impact. The cap isn't aggressive and then only gradually gets more
so. So there would be time for businesses to adjust -- years,
actually, and the adverse impact on energy cost and business profits
would unfold only slowly.
Second, and this perhaps is not in your favor in a coal producing and
consuming state like Utah, is that different industries and
occupations will be impacted quite differently. So your students need
to have a way of discussing this. They will argue with people working
in different situations. You make a good related point on this when
you talk about retraining and a strong safety net. Tony Mazzocchi
years ago had the idea of a "Super Fund for Workers" Mazzochi was
dealing with environmental shut-downs of chemical plants. He wanted
the workers protected with education, retraining, etc. Bruce
Springsteen and Willie Nelson were enlisted in one of the battles -- I
hope you and your students can develop some ideas on this.
Finally, I've read your posts over the months addressing Cap & Trade,
and understand how you see it. But I propose that your students also
consider alternatives. Cap & Trade is the GHG emitters preferred
response, but I believe there is a better one. Surely Cap & Trade
commands Washington's attention, and that is what will be debated
nationally and by your students in living rooms. But the alternative
of cutting emissions by cutting consumption by cutting working time
is, I believe, the only realistic response to slowing/stopping global
warming. I hope your students don't get fixated on Cap & Trade to the
exclusion of broader ideas.
Good luck and keep us closely informed.
Gene Coyle
On Mar 9, 2009, at 2:48 PM, ehrbar wrote:
Steve Johnson asked on our local energy list (c/t means cap and
trade):
Hans-
You are attempting to link a c/t as a method to address some of the
externalities associated with cheap energy but are not doing so.
How would
c/t address? I think that line of reasoning would be very
effective when
talking to average professionals.
Please expand on this thread...
I am glad you are asking, because the relationship between efficiency
and the prevention of climate disaster was muddled in my own mind.
Here is an attempt to understand it better:
The argument I presented to "Right On" was basically: energy prices
are too low and therefore we are using too much energy. I was
anticipating that "Right On" would think: "How can a price be too low?
Isn't it a good deal for everyone if we get cheap energy?" Therefore
I gave the standard neoclassical efficiency argument: Fossil
electritity causes pollution which causes asthma, therefore society is
forced to invest in hospitals for asthmatic children. If energy
prices are too low, society consumes too much energy. It would be
better for society to consume less energy, because then it would not
have to build so many asthma hospitals. The benefit of the last kwh
of energy produced is lower than the cost of the additional medical
care necessary to combat the side effects of this additional energy
production.
So far I think the argument is solid, and the Utah Moms for Clean Air
would probably the best organization to popularize the idea that
energy prices are indeed too low.
My next step is problematic, however. Implicitly, without saying so,
I transferred this entire reasoning to global warming. The unspoken
reasoning was: climate catastrophe is also an externality, and if we
get the prices right, this will reduce our energy consumption enough
that we can prevent catastrophic climate change.
Some economists argue this. Although the idea is simple, it is very
difficult to implement because you need a dynamic model in order to
calculate the efficient price level. William D. Nordhaus just
published a book "A Question of Balance: Weighing the Options on
Global Warming Policies" which describes the results of his Integrated
Assessment Model. The galley proofs can be downloaded from Nordhaus's
web site at
http://nordhaus.econ.yale.edu/Balance_2nd_proofs.pdf
His model, which works with the high discount rate of percent, finds
that the efficient price of carbon is $30 a metric ton now, rising
about 2 or 3% every year so that it hits $90 in 2050 and $200 in 2100.
This carbon price is surprisingly low. A carbon tax of $30 would
increase the price of gasoline by 9 cents per gallon, and the price of
electricity by 1 cent per kWh. But in Nordhaus's mind global warming
is not a big problem anyway. His model predicts that under business
as usual, temperature increases in 2100 will be 3.1 degrees celsius,
leading to a 2.5% loss in world output. This is clearly wrong; new
MIT and Hadley Centre estimates say that business as usual will lead
to over 5 degrees Celsius increase by 2100.
The obvious unreliability of the models necessary to compute an
efficient carbon tax is one of the arguments in favor of cap and
trade. Cap and Trade begins with a quantity constraint, namely our
carbon budget (the amont of CO2 we can emit without grilling
ourselves). In theory, it enforces this quantity constraint in a
flexible way. It lets the market determine prices instead of the
regulator fixing possibly wrong prices. In practice, in the ETS,
these theoretical expectations have not been met, but right now
I am trying to understand the theory behind it.
To sum up: Pigouvian taxes generate an efficient outcome internalizing
the externalities. For climate change we can forget about Pigouvian
taxes, because the correct tax level is almost impossible to compute.
The best we can hope for is to achieve given emission reduction goals
in a cost effective way. Since these goals, derived from climate
science, are quantity goals, a quantity system such as cap and trade
seems the logical choice.
Here is another argument why efficiency should not be our goal:
efficiency considerations ignore distributional implications.
Economists justify this because in theory, those who gain could pay
off those who lose and therefore create a state in which everybody is
better off. But such payoffs are never made. Efficiency is
therefore,
in practice, used as a big smokescreen, as an excuse to ignore
distributional issues.
If we throw distributional equity into the mix, then I like the
approach of EcoEquity best, see their Greenhouse Development Framework
http://www.ecoequity.org/GDRs/GDRs_ExecSummary.pdf
or the full book
http://www.ecoequity.org/docs/TheGDRsFramework.pdf
They say: for reasons of international equity, the developed countries
have to act *as quickly as possible*, which means (for the authors
Bear et al) industrial countries have to reduce greenhouse gas
emissions by 6 percent annually. This swift action gives the
developing countries a little bit of slack to continue to work
themselves out of poverty: their emissions are allowed to rise until
about 2015, and then the developing countries have to decrease
emissions as well by 6 percent annually.
The question is therefore not "how to do it most efficiently" and
"let's not do it too quickly because this makes it more costly than
necessary". The questions is: "how to do it as fast as possible in
order to accommodate the right of the developing nations to overcome
poverty." If the developed countries could do it even faster than 6
percent annually, this is what they would have to do for equity
reasons. And in order to enforce that 6 percent annually and the
necessary international aid, the authors are thinking of a cap and
trade system.
Instead of teaching "Right On" about internalizing externalities, as I
tried in my first email, I think now the story that should be told
when we talk to working people (and everybody else) about climate
change is: We have to do things as quickly as possible; any slack must
go in favor of the developed countries. Whether this "as quickly as
possible" means carbon taxes (how high must taxes be so that emissions
decline by 6 percent?) or cap and trade or perhaps tradable personal
carbon rations (my own preference), this is still subject to debate.
Hardly anybody in the US is seriously talking about international
equity issues with respect to climate change. We have to start
talking about it, because we need to come up with a complete plan that
can really work. If we now only tell half the story, and later say:
by the way, I didn't tell you that earlier, it is also our obligation
to help India and China on a green development path, I think we will
be less successful than if we tell the whole story now.
Hans.
Hans G. Ehrbar http://www.econ.utah.edu/~ehrbar [email protected]
Economics Department, University of Utah (801) 581 7797 (my
office)
1645 Campus Center Dr., Rm 308 (801) 581 7481 (econ
office)
Salt Lake City UT 84112-9300 (801) 585 5649 (FAX)
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