externalities
Editorial
Carbon capture in Iowa: A lifeline or a pipe dream?
In absence of smarter rules to limit the environmental impacts of farming, Iowans should be wary of new lifelines for the ethanol industry.
Legendary VC John Doerr has a plan for solving climate change
John Doerr’s new book, 'Speed and Scale: An Action Plan for Solving Our Climate Crisis Now,' is a checklist for global action.
www.theatlantic.com
A climate-focused index fund will fight skeptical CEOs
The hedge fund that staged a revolt at Exxon last month is now recruiting an army of mom-and-pop investors for future battles.
medium.com
Opinion: Externalities are our existential threat
It’s the “ex’s” we need to worry about the most. Externalities that create an existential threat. The ultimate threat: Our extinction.
Three things Christine Lagarde can do to cement her legacy on climate.
Managing Director Lagarde has positioned the IMF as an important and credible voice in the debate about climate change. Now it’s time for the Fund to expand and institutionalize this new role, helping poor and vulnerable countries understand and confront the macroeconomic and financial risks of climate change.
WASHINGTON DC, Oct 11 2017 (IPS) - The International Monetary Fund (IMF) and climate change do not often appear in the same headline together. Indeed, environmental issues have been, at most, peripheral to the Fund’s core functions. But now economists inside and outside the IMF are beginning to understand that climate change has significant implications for national and regional economies, and so it’s worth reconsidering the Fund’s role in addressing the climate challenge.
To her credit, Managing Director Christine Lagarde has boldly injected the IMF’s voice into the global debate on policy responses to climate change and has identified a number of roles the Fund can play.
The Fund has conducted valuable work on how carbon emissions can be reduced through market prices that reflect the negative externalities of those emissions. In particular, the Fund has become a leading voice for quantifying and streamlining or eliminating fossil fuel subsidies, as well as for introducing carbon-pricing mechanisms.
What is still missing, however, is a bigger role for the IMF in enabling countries to prepare and manage the potential impacts of climate change. There are three things the Fund could do, building on its current efforts, that would make a big difference:
1. Deepen Research on Macroeconomic and Financial Impacts of Climate Change
In a climate change debate that has become heavily politicized, the Fund’s technical and nonpartisan voice is uniquely valuable. Few questions are as important as understanding the possible effects of a changing climate on the world’s economies, especially the most vulnerable ones.
The Fund has recently started to make important contributions in this area. In a paper published last year, the IMF started to look into the implications of climate change on so-called “small states”. And last week, the Fund devoted for the first time a whole chapter of its flagship World Economic Outlook to the impacts of weather shocks on economic activity.
Building on these foundations, the Fund should focus its research capabilities on a key question, namely whether climate change is having have a “level effect” or a “growth effect” on per capita income. If the former, then climate change will only destroy a given amount of income over time (think of damaged bridges and buildings) but not affect the capacity of the economy itself to grow. If the latter, then climate change is also harming the drivers of growth themselves, such as the productivity and availability of workers, the productivity of agriculture, and the flow of investment. The economy’s growth rate will slow as a result, and losses will compound year after year, leaving an economy significantly worse off than if only level effects applied.
Getting better answers to this question is essential for policymakers making decisions about how much to spend today to avoid damage tomorrow.
2. Formally Incorporate Climate Change Into Policy Dialogue
One of the Fund’s core functions is macroeconomic surveillance. This function brings Fund staff into regular policy dialogues (called Article IV consultations) with financial authorities in virtually every country in the world.
Financial authorities have a key role to play in preparing for climate change, as they are charged with budget planning and managing fiscal and financial risks. The Fund should bring climate risk into the dialogue as a formal part of its consultations, not just with small states, but with a much larger set of vulnerable countries as well, including systemically-significant ones.
This year, in collaboration with the World Bank, the Fund launched the first Climate Change Policy Assessment (CCPA) during the Article IV consultations for the Seychelles. The assessment focused on policy options to reduce vulnerability to climate change; the Seychelle authorities found it to be very useful. More CCPAs are planned – a small handful per year – but this is simply not fast enough given the urgency and gravity of the challenge.
The Fund should formalize CCPAs as a routine part of Article IV consultations for a broad swathe of vulnerable, low-income countries. This will require investing in staff capacity and training, including in the Fund’s Monetary and Capital Markets Department, which can help countries identify how climate risks and opportunities could affect their financial systems. Maximizing synergies with the World Bank on the CCPAs will also be necessary.
3. Treat Expenditures on Climate Resilience as Investments
Countries facing a balance-of-payments crisis often draw on IMF resources and enter into a program relationship with the IMF. One of the trickiest elements when negotiating such a program is how to treat different categories of spending and where to cut to restore fiscal balance. How should the Fund treat expenditures designed to provide financial protection against extreme weather events? These include, for example, deposits into a national reserve fund, premium payments on sovereign insurance against natural disasters, or the costs of issuing catastrophe (“cat”) bonds.
Protecting some of these expenditures from program-mandated cuts is fully appropriate, as they are designed to provide a measure of fiscal protection to the government in the aftermath of an extreme weather event. For instance, the Fund might treat cat bond issuance costs and insurance premiums as investments with potential upside, rather than as expenditures, thereby exempting them from cuts.
Managing Director Lagarde has positioned the IMF as an important and credible voice in the debate about climate change. Now it’s time for the Fund to expand and institutionalize this new role, helping poor and vulnerable countries understand and confront the macroeconomic and financial risks of climate change.
“This article was originally posted at World Resources Institute’s Insights blog”
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Whitehouse's floor soliloquies chug on. Is anyone listening?
For the 180th time, Sheldon Whitehouse took to the Senate floor this month to warn of the perils of climate change, blasting the fossil fuel industry, corporate greed and the failure of market capitalism to address global warming.
For the 180th time, Sheldon Whitehouse took to the Senate floor this month to warn of the perils of climate change, blasting the fossil fuel industry, corporate greed and the failure of market capitalism to address global warming.
Each week for years, largely without fail, the junior senator from Rhode Island waxes philosphical about ocean acidification, atmospheric temperature rise, devastated coastal communities, increases in storms, fires and floods. And every week, he urges Congress and the American people to act before it is too late.
But is anyone listening?
"I don't know," the Democrat recently told E&E; News during a sit-down in his office. "After all that effort, I certainly hope and pray it had an impact."
Whitehouse has gained a reputation as a lefty progressive with anti-capitalist undertones who rages against greedy corporate interests and the Koch brothers.
But he said he sees market capitalism as the most effective way to address global warming, much more so than increased regulation, a common Democratic battle cry. And the climate hawk is working to find common ground with those who once appeared to be his enemies.
In the wake of unprecedented extreme weather events such as Hurricanes Harvey, Irma, Jose and Maria, the subject of climate change is back in the spotlight. And the administration's move to kill the Clean Power Plan gives lawmakers more room to act.
In a change from years past, more Republicans are joining Whitehouse and beginning to call for action. Sen. Lindsey Graham (R-S.C.) said last month he would work with Whitehouse on a bipartisan carbon fee bill.
"I'm a Republican. I believe that the greenhouse gas effect is real, that CO2 emissions generated by man is creating our greenhouse gas effect that traps heat and the planet is warming," Graham said during a press conference (Greenwire, Sept. 20).
Even though many activists on the left want caps on emissions, Whitehouse says a carbon fee is much more efficient. "You get much more climate bang for your effort buck," he said.
And while he is not shy to criticize the GOP for what he considers inaction on the global warming issue, he is equally willing to call out fellow Democrats, as well.
"Remember Will Rogers? The 1930s-era comedian who said, 'I'm not a member of any organized political party, I'm a Democrat,'" he said. "No, we've done an absolutely crap job of fighting this fight. We allowed it to become polar bears versus jobs, which is ridiculous on both sides."
There are more jobs in green energy and renewables now than in the fossil fuel industry, he said. "And it's not polar bears that are suffering, it's beaches and fishermen and farmers right here in the United States."
'Capitalism is the solution'
At issue, Whitehouse said, is not capitalism as an economic system, but rather what he sees as a perversion of that system.
"I think market capitalism is the solution to the problem," he said. "The difficulty here is that market capitalism has been twisted by the fossil fuel industry, and they have completely polluted and captured our politics so that the natural course of things has been interfered with."
The "natural course" refers to an inevitable market collapse that often accompanies innovation. Whitehouse said when the economy shifts, for example, from horses to internal combustion engines, there is a "quite precipitous and quite painful" fallout, but it is usually contained within the affected industries.
"In this case, we spin this out too far; while we're waiting for that natural eventual precipitous market collapse [of the fossil fuel industry] to take place, we're also doing all this other damage that will then come back to haunt us, and for which there will be considerable blame," he said.
Sen. Sheldon Whitehouse (D-R.I.) on the Senate floor. C-SPAN
Critics believe the very nature of capitalism works against environmental protection. In her award-winning book "This Changes Everything: Capitalism vs. the Climate," author Naomi Klein argues capitalism necessitates ongoing economic growth.
The ever-growing consumption model requires never-ending resource extraction, she says, thereby exacerbating global warming through continued carbon emissions. Klein, and others on the left, are pushing for a new economic model.
This idea runs counter to Whitehouse's position. He argues market capitalism is not inherently problematic, but rather has been "torqued and polluted and ruined" by the fossil fuel industry.
More specifically, the industry "enjoys" an annual subsidy in the United States of more than a half-trillion dollars a year, according to the International Monetary Fund, he said.
"In theory, under market capitalism, those negative externalities in the amount of $700 billion a year ought to be baked into the price of the product," he said.
In economic theory, a negative externality is the cost that is suffered by a third party as the result of a market transaction.
"The markets work, but when you have negative externalities not in the price, that's an economic failure, an economic dislocation," Whitehouse said. "But because it's so to the benefit of the fossil fuel industry, they've stepped over into the political side and have just beat the hell out of everybody in order to protect that massive subsidy."
Whitehouse said that usually, on the political side, lawmakers would recognize the $700 billion as a negative externality, but Republicans — he thinks — have become indebted to industry donors.
"You can't smoke in airplanes any longer because now we know what secondhand smoke does to children sitting next to you in the airplane," he said. "They won't let us do the equivalent of that for climate change because they make too much money off of the status quo."
For Whitehouse, the fight for climate action is not only a fight for the preservation of the planet, but also for what he sees as core American values.
'Baked into me'
The child of a prominent diplomatic family, Whitehouse said he spent time in places such as Laos and Turkey growing up, and watching his kin make sacrifices for high ideals had an effect.
"I spent my life as the son and grandson of Foreign Service officers, and we were not on the champagne and cocktails diplomatic circuit," he said. "We were in poverty-ridden countries, and we were in countries at war, and what I grew up around were Americans who put themselves and their families in harm's way because they believed in something."
It was evident to him from an early age that something about America was important enough for family and friends to subject their loved ones to malaria, dirty drinking water or poor living conditions.
"They do it because something matters. So that got baked into me pretty hard," he said.
"And if we have let this temple of democracy that men and women fought and bled and died to create and preserve get corrupted by one special interest in a way that will harm the lives of people all around the world and bring the democracy that we cherish into disrepute, shame on us."
Whitehouse first became passionate about climate change through his wife, a marine biologist who shared her findings concerning sea-level rise and ocean acidification in their home-state Narragansett Bay.
"The bay in which my wife did her research on winter flounder has risen nearly 4 degrees medium underwater temperature, and the flounder that she used to study are virtually gone," he said.
'Boom'
When Whitehouse arrived on the Hill in 2007, lawmakers were taking climate change seriously and working to draft a solution, he said. From 2007 to 2009, there were "bipartisan bills coming out of all sorts of places," he said. In 2008, Sen. John McCain (R-Ariz.) ran for president on a climate change platform Whitehouse considered "great."
"And I thought, OK, this is a scientific problem, but government is working on this, we're doing our job," he said. "Then comes 2010, Citizens United decision. Requested and forecasted by the fossil fuel industry from the five Republicans on the Supreme Court and boom, like sprinters at the starting gun, they were off."
Citizens United v. Federal Election Commission is the 2010 landmark Supreme Court case, which lifted restrictions on how much money large corporations can invest in political campaigns.
Since 2010, there has not been a Republican co-sponsor, with Graham as a potential exception, of serious carbon emissions reduction legislation, Whitehouse said.
"The fossil fuel industry took that huge political weaponry that they were given by the five Republicans on the Supreme Court in Citizens United and they turned it on the Republican Party and they crushed dissent, and they made [climate] look like a partisan issue, which it is not," he said.
'Science got me scared'
When a carbon cap-and-trade bill passed the House in 2009 but failed to gain traction in the Democrat-controlled Senate, Whitehouse was furious and began taking on the Senate floor to vent his frustrations with Congress' lack of action.
"The science got me scared, watching the corruption of the government that I love happen in front of my eyes got me mad," he said.
"So at that point, I thought, well, somebody has got to say something, just to let people know that the lights have not gone out here. The only way to do that around here with people as busy as they are is to put yourself on a schedule and tell your office every week, no excuses, no exceptions, I'm going to the floor."
And despite the yearslong quest, Whitehouse is convinced the climate change fight can be won. "I wouldn't rule out a carbon fee," he said. A confluence of action has given him hope.
In addition to Graham's announcement, large oil and gas players have said they support a carbon fee.
"Although they're lying, Exxon, Shell, Chevron, all the big oil companies, pretend to support carbon fee," he said. "So there's significance in their pretense, if they know they've got to at least pretend."
There is building support for a carbon fee in the business community, he said. In fact, more than 1,200 business across the globe, including U.S. companies like General Motors Co., are voluntarily assigning a dollar value to carbon dioxide to reduce greenhouse gas emissions (Greenwire, Sept. 12).
And lastly, Whitehouse cited President Trump himself, who in 2009 signed onto a full-page ad in The New York Times saying climate change science is irrefutable and the consequences will be catastrophic and irreversible (E&E; News PM, Oct. 2).
"So is it a long shot? Yes, but those are all pretty interesting pieces that could come together as this thing develops," Whitehouse said.
"Ultimately, we win. We just hope that we don't win too late."
Twitter: @AriannaSkibell Email: askibell@eenews.net
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Wind and solar power are saving Americans an astounding amount of money.
Not getting sick and dying from pollution is worth quite a bit, it turns out.
Not getting sick and dying from pollution is worth quite a bit, it turns out.
Wind and solar power are subsidized by just about every major country in the world, either directly or indirectly through tax breaks, mandates, and regulations.
The main rationale for these subsidies is that wind and solar produce, to use the economic term of art, “positive externalities” — benefits to society that are not captured in their market price. Specifically, wind and solar power reduce pollution, which reduces sickness, missed work days, and early deaths. Every wind farm or solar field displaces some other form of power generation (usually coal or natural gas) that would have polluted more.
Subsidies for renewables are meant to remedy this market failure, to make the market value of renewables more accurately reflect their total social value.
This raises an obvious question: Are renewable energy subsidies doing the job? That is to say, are they accurately reflecting the size and nature of the positive externalities?
That turns out to be a devilishly difficult question to answer. Quantifying renewable energy’s health and environmental benefits is super, super complicated. Happily, researchers at the Lawrence Berkeley Lab have just produced the most comprehensive attempt to date. It contains all kinds of food for thought, both in its numbers and its uncertainties.
(Quick side note: Just about every country in the world also subsidizes fossil fuels. Globally, fossil fuels receive far more subsidies than renewables, despite the lack of any policy rationale whatsoever for such subsidies. But we’ll put that aside for now.)
Here’s how much wind and solar saved in health and environmental costs
The researchers studied the health and environmental benefits of wind and solar in the US between 2007 (when the market was virtually nothing) and 2015 (after years of explosive market growth).
wind and solar, 2007-2015 (Nature Energy)
Specifically, they examined how much wind and solar reduced emissions of four main pollutants — sulfur dioxide (SO2), nitrogen oxides (NOx), fine particulate matter (PM2.5), and carbon dioxide (CO2) — over that span of years. The goal was to understand not only the size of the health and environmental benefits, but their geographical distribution and how they have changed over time.
To cut to the chase, let’s review the top-line conclusions:
From 2007 to 2015, wind and solar in the US reduced SO2, NOx, and PM2.5 by 1.0, 0.6, and 0.05 million tons respectively;
reduction of those local air pollutants helped avoid 7,000 premature deaths (the central estimate in a range from 3,000 to 12,700);
those avoided deaths, along with other public health impacts, are worth a cumulative $56 billion (the central estimate in a range from $30 to $113 billion);
wind and solar also reduced CO2 emissions, to the tune of $32 billion in avoided climate costs (the central estimate in a range from $5 to $107 billion).
So, if you add up those central estimates, wind and solar saved Americans around $88 billion in health and environmental costs over eight years. Not bad.
That number is worth reflecting on, but first let’s talk a second about how they came up with it.
Uncertainties abound in measuring positive externalities
Tallying up these benefits is difficult for all sorts of reasons.
First, you have to figure out which sources are displaced, when and where, which meant researchers had to build a power system model that covered the country and produced hourly estimates.
Second, you have to figure out just how much of the primary pollutants — SO2, NOx, PM2.5, and CO2 — were avoided by displacing that power generation. To do that, researchers used EPA’s AVoided Emissions and geneRation Tool (AVERT) model. (Don’t ask.)
Third, you have to figure out the avoided impacts, and their value, of the local air pollutants (SO2, NOx, and PM2.5) that were prevented. To do that, researchers used a “suite of air quality, exposure and health impact models” from EPA and elsewhere. (Not all pollutants or impacts were included — impacts from other parts of the power plant lifecycle, like mining, were excluded, for instance. See the paper itself for many more caveats.)
Fourth, you have to figure out the avoided impacts, and their value, of the carbon dioxide emissions that were prevented. To do that, you need to know the “social cost of carbon” (the total quantified benefits of an avoided ton of CO2). Researchers used a wide range of estimates for the SCC.
In all those steps, there are uncertainties and ranges, some having to do with the limitations of models, some having to do with the limitations of our understanding of the impacts of pollution, some having to do with difficult-to-quantify intangibles like the value of a human life.
These uncertainties explain the wide range of estimates involved: premature mortalities range from 3,000 to 12,700; local pollution impacts from $30 to $113 billion; CO2 climate impacts from $5 to $107 billion. (It’s worth saying that there are good reasons to think most SCC estimates are lowballing — certainly $5 billion is ludicrous.)
These ranges reflect the simple fact that different models weigh things differently, from the physiological impacts of pollution to the value of missed work. This is part of what muddies the politics of environmental regulation: Costs are specific and concentrated; benefits are uncertain and diffuse.
Wind and solar benefits vary over time and from place to place
If you dig into the paper, you find that the most interesting data has to do with the variations in benefits across regions and over time.
It’s complex, but in a nutshell, the health and environmental benefits of wind and solar vary depending on what other sources are being displaced, and how much, and when.
For example, fuel shifting (coal to gas) and various pollution regulations have meant that the average pollution of conventional power plants fell over the years of the study. If conventional plants are emitting less, then displacing them avoids less. So on average, early wind and solar displaced more local pollutants per-MWh than later.
It’s slightly different with CO2. The average CO2 emissions of the power sector fell as well, thanks to fuel shifting, but not as fast — not fast enough offset the explosive growth of wind and solar. So the amount of CO2 displacement per-MWh has remained roughly steady.
Here’s what that looks like graphically — these are the benefits over time. CO2 is on the upper left:
displaced pollution (Nature Energy)
Wind and solar’s positive effects on local pollution have, on a per-MWh basis, fallen over time as other power plants have cleaned up somewhat. But their positive effects on CO2 pollution have remained steady. If it isn’t already, CO2 displacement will soon become wind and solar’s most valuable positive externality.
Wind and solar effects also varied widely by region, because some regions have cleaner power sectors than others. In California, wind and solar are mostly displacing natural gas. In the upper Midwest and mid-Atlantic regions, which rely more heavily on coal, wind and solar have greater impact.
Here’s what that looks like graphically. The first two rows show the marginal benefits of wind and solar by region; the bottom two rows show the total benefits by region:
pollution displacement by region (Nature Energy)
A few things jump out here.
First, wind power has had enormous air-quality benefits in the upper Midwest and the mid-Atlantic. Yuge!
Second, poor California is building the shit out of renewable energy, but it’s mostly displacing natural gas, which has relatively low levels of local pollution. That means the state is getting relatively little air-quality benefit from wind and solar — its shift to renewables is mostly benefiting the climate (look at that solar spike at the bottom).
Third, the Southeast, one of the regions that benefits most from every marginal addition of wind and solar (thanks to the prevalence of coal power), has built the least. That’s dumb.
Fourth, I hadn’t realized how big solar was in the mid-Atlantic region! It’s producing almost as much air-quality benefit as wind.
Subsidies are roughly in line with air and climate benefits, but only roughly
In something of a curious coincidence, the central-estimate health and environmental benefits of wind and solar in 2015 — 7.3¢/kWh and 4.0¢/kWh respectively — are “comparable to estimates of total federal and state financial support” for wind and solar.
So for all the various subsidies and tax breaks for wind and solar, we’re getting roughly what we paid for. (If you believe the central estimates. Of course, “central” does not mean “most likely,” so we still don’t really know exactly what we’re getting, but we’ll put that aside too.)
However, while the absolute level of subsidies might match the absolute level of benefits, they do not line up on a granular level. The health and environmental benefits of wind and solar vary widely by time and region, but most policy incentives for wind and solar do not. Federal tax incentives treat all wind and solar projects the same. And when subsidies do vary, as in state-level policy, it’s rarely connected to their varying benefits.
The conclusion the researchers draw from this subsidy mismatch is that “addressing air quality and climate change through policies directly supporting wind and solar is not necessarily the most cost-effective approach.”
That’s true, as far as it goes, though I think there are still plenty of good reasons to support wind and solar. What’s fun, though, is to think about what it might look like if state and federal supports for wind and solar did vary by time and region.
How might that work? Take the same pot of money and instead of flat, capacity-based subsidies, offer time-varying, per-KWh subsidies based the pollution-intensity of the power being displaced. That would be computationally difficult, but not theoretically impossible. (If you want to really nerd out, the Brattle Group proposed something roughly similar for energy markets in a white paper.)
Time- and location-sensitive subsidies would attract wind and solar investment to the regions where it will do the most air-quality and atmospheric good, increasing their impact. And as a bonus, those regions often overlap with regions badly in need of blue collar jobs and regions where the fight against climate change could use a political boost, so it could increase their sociopolitical impact as well.
California wouldn’t like that much. But the upper-Midwest sure would!
california
(CA Senate)
A final word on costs and benefits
In this case, as in all such cases, it is somewhat misleading to simply compare total subsidies with total health and environmental benefits. The total amounts are not all that matters. It also matters how costs and benefits are distributed — i.e., equity matters as well.
To put it bluntly: A dollar in federal taxes is not equivalent to a dollar of avoided health and environmental costs. The latter dollar is worth more than the former dollar.
Why is that? Simple: Federal taxes come disproportionately from the wealthy, via our progressive federal income tax, but health and environmental benefits disproportionately help the poor. And as any good economist will tell you, the same dollar is worth more to a poor person than it is to a rich person.
This is something that often gets lost in discussions of environmental regulations. It’s not just that their total benefits almost always exceed their direct costs. It’s that those benefits are uniquely egalitarian and progressive.
In the case of climate change, any reduction in CO2 emissions benefits everyone on Earth (egalitarian), while disproportionately helping the poor, who suffer earliest and most from climate impacts (progressive).
In the case of local air-quality benefits, cleaner air benefits everyone in the region who breathes (egalitarian), while disproportionately helping the poor, who are more likely to live in close proximity to fossil fuel power plants (progressive).
In terms of equity, converting a dollar of wealthy people’s money into a dollar of health for low-income communities seems like a good deal to me. And if you can get multiple dollars of low-income health benefit for every dollar of high-income taxes, well, that’s a no brainer.
Everybody breathes. Any dollar of federal income taxes used to produce a dollar of air and climate benefits is a net gain for justice.
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