Nightcap

  1. Paul Gauguin in San Francisco Bradley Anderson, Claremont Review of Books
  2. Did European colonisation precipitate the Little Ice Age? Dagomar Degroot, Aeon
  3. What if climate warriors put their money where their mouths are? Joakim Book, Mises Wire
  4. It all started with my balls.” Colm Tóibín, London Review of Books

Further thoughts on the carbon tax.

This post is in response to feedback from my previous post on this topic.


There are no panaceas.

But as abstract ideas go, pollution taxes are pretty appealing. Holding constant lots of things that we can’t really hold constant, it means replacing the inefficiency resulting from poorly defined/enforced property rights with a world where prices more accurately reflect the costs of one’s decisions.

Let me come back to the things we’re “holding” constant in a bit. Why do I want to throw my weight behind shifting public perceptions in favor of pollution taxes?

I think they’re underrated by the median voter. Climate change is just a subsidy paid in the form of worse conditions. But most people (including people who should know better) don’t have a good understanding of the problems caused by subsidies.

Which is not to say a carbon tax isn’t overrated by the median policy wonk. There are a ton of important caveats, but on balance, as a policy for use in the next 50 years, I think they’re a useful tool to enhance efficiency or replace worse tools.

Again, there are no panaceas. I’m also not a huge fan of the “Economists’ Statement on Carbon Dividends” as written (for reasons I’ve hopefully mostly addressed). I suspect the best case scenario for my preferred carbon tax policy would be a modest improvement. I think the bulk of the gain would be a cultural shift away from “let’s regulate our problems!” to “let’s leverage incentives to address our problems!” Not Earth shattering, but a step in the right direction.

So let me state my position, then we can dig into criticisms and caveats.

Let’s make marginal shifts away from taxing investment and towards taxing negative externalities. As we go, let’s spend a lot of effort trying to study the impacts and adjust accordingly. Let’s heavily agument that with abatement policies rather than trying to return to some pre-industrial climate target.

Okay, let’s dig into criticisms and caveats.

  1. Public choice considerations
  2. Geoengineering and other alternatives
  3. Cost
  4. Coordination
  5. Uncertainty

1-Public choice considerations

A Green New Deal will be a rent-seeking bonanza. Pollution taxes will face the same sorts of problems that plague the tax code in general. There will be intentional loop-holes and accidental screw ups.

We have to continue to push for reducing the complexity of tax codes in general. But I can’t deny that a carbon tax would be a step back on this margin.

Minus a hundred points for my position.

2-What about geoengineering?

Geoengineering sounds like a possible panacea. Maybe it is. But I’m not willing to flip a switch and find out the hard way all at once.

First off, geoengineering is scary. The climate is a complex system and complex systems are difficult-impossible to manage well. And that’s especially concerning if it means that anyone with a few million bucks can try to fiddle with Earth’s thermostat.

But it seems like a plausible tool that might be used to address climate change. Similar to my take on a carbon tax, I think the way to go is baby-steps plus research.

What about subsidizing “green _____”

Personally, I’m skeptical. Solar sounds appealing, and I (personally) think windmills are beautiful. But I don’t think the government will do a good job of picking winners and losers. Pollution taxes are appealing to me because they don’t require bureaucrats to choose. Again, I think the way to go is to use pollution taxes to offset other taxes–while continuing to advocate for reduced size/scope of government and a return to federalism.

Plus five points for my position.

3-Cost

We should also remember that GDP is an imperfect measure of well being. The current figures aren’t directly comparable to the figures we’d get in a post-carbon-tax world. A one-time fall in GDP doesn’t (necessarily) mean we’ve screwed things up.

A tax big enough to halt climate change would be incredibly costly. Too big a tax yields a negative net benefit.

Still, it’s worth remembering that a) we can go too far with a carbon tax, and b) we don’t have access to a silver-bullet solution. So let’s start small and gradually increase carbon taxes till we get close to (our best estimate of) the optimal level.

Plus epsilon points for my position.

4-Coordination

The basic idea of a carbon tax is that we’re dealing with a global-scale externality problem. But small scale taxes are unlikely to do much beyond shifting where pollution happens. A fully effective tax would require multi-lateral coordination. And, as a country, we aren’t very good at that.

Trying to create a tax on imported carbon-intensive goods that didn’t face a tax at home seems a) sensible at first blush, and b) a massive opportunity for public choice problems.

On the other hand, we could justify a tax commensurate with the local impacts (something like 10% of the global impact). This fits nicely with my idea of starting small and adjusting at the margin.

But even within the U.S. there are coordination issues. Long Island will likely face net costs from climate change, but other areas will benefit from a longer growing season.

Plus 10 points for my position, but also minus 10 points.

5-Uncertainty

Uncertainty cuts both ways: we’re currently accidentally manipulating the climate and that could turn out to be catastrophic. Trying to intentionally manipulate it in the other direction is also dangerous. Again, the appropriate focus is on marginal tinkering [much as it clashes with my non-interventionist priors] rather than ambitious global engineering [which grabs my priors by the lapels and knees them in the groin].

When I teach externalities, I draw a graph like this:

Negative externalities when we magically know their magnitude.

In this market, we end up with an equilibrium quantity defined by the point where Marginal Private Cost equals Marginal Social Benefit (MPC = MSB). But the Marginal Social Cost (MSC) is greater, so we get a deadweight loss equal to the triangle I’ve shaded in red and purple.

It’s important to note: we don’t actually know where the MSC curve is. It’s somewhere above MPC, but we’re basically in the position of trying to eliminate a subsidy we don’t know the size of.

The relevant models–climate models and economic models–are filled with uncertainty that we simply cannot resolve without real life experience.

What does the economic way of thinking tell us? Act on the margin. Setting a tax that pushes supply (MPC) up to the green line doesn’t fully address the problem (as I’ve assumed it to be in this graph), but it’s an improvement.

Even better, it’s an improvement where the biggest returns are experienced up front. This modest tax fails to get rid of the red deadweight loss (DWL) area, but it eliminated 3/4 of the total DWL.

Plus X points for my position where X is a random variable with an unknown distribution, positive first derivative, and negative second derivative.

tl;dr:

At my friend’s behest I’ve been looking at Bob Murphy’s critique of carbon taxes. I find it’s shifted the magnitude of my prior opinion, but not the direction. I still think carbon/pollution taxes are a good idea, but I no longer think they’re a great idea. My take away from Murphy’s work is that the optimal carbon tax is fairly modest. My response is to advocate for getting a very modest carbon tax on the books, then gradually shift tax policy in that direction.

For climate change (and any other problem) we ought to be pluralists. A mix of approaches is ideal. Part of the appeal of Pigouvian taxes is that they allow and encourage a wide range of responses. The best pollution abatement scheme isn’t something we can look up in a binder. We have to discover it, and crowdsourcing is the appropriate way to do that.

But carbon taxes are only one part. We should also advocate for changes that will ameliorate harm. I am more bullish on these policies than I am on a carbon tax:

  • Make it easier for the world’s poorest people to move to rich countries that will be better able to cope with climate change.
  • Quit subsidizing flood insurance.
  • Quit subsidizing polluting industries (and other industries).

Even though geoengineering scares me, we should try to learn more. Ditto for any other possible tools that come along.

Pittsburgh, not Paris: What’s a libertarian response?

A lot has been said about Trump pulling the US out of the Paris Accords. Leftists have been apoplectic, foaming at the mouth even. Conservatives are baffled, if they have anything to say at all. What should libertarians think?

Libertarians in the United Kingdom, States, and Provinces are generally unilateralists (not isolationists), whereas libertarians in Europe, South Africa, and Latin America are generally multilateralists. I’m of the opinion that American libertarians are wholly wrong to claim that their foreign policy is libertarian. It’s not libertarian at all. Unilateralism is combative rather than cooperative and relies on nationalism rather than internationalism to make its arguments.

Multilateralism forces factions to come to a consensus, thus slowing down government action at the international level, while also forcing factions to interact with each other in a diplomatic manner at that same international level. Unilateralism allows states to do whatever they want, regardless of what others may think. Now let me remind you of what libertarianism stands for: peace, prosperity, and freedom through mutually beneficial exchange and agreed-upon rules that can be changed provided they go through the proper channels (legislation, judiciary, executive). (Am I wrong here?)

Which sounds more libertarian to you?

Now that we have issues of doctrine out of the way, what’s really interesting to note is the Left’s inability to see what Trump is actually doing: wagging the dog. Trump’s term as executive is not going well (surprise, surprise). And so, he does a mean-spirited thing that he hopes will distract.

Here’s how I see the Paris Accords (chime in if you disagree):

  • They (it?) have not, and will not – ever – accomplish anything in regard to climate change, but
  • because of this it is also an organization that is wholly non-threatening. It’s just a bunch of countries getting together, in good faith, to solve a problem (real or imagined)

Some hardline factions on the conservative wing in the US didn’t like that the Paris Accords are essentially glorified intern conventions, and some Leftist factions on the American Left absolutely revere green initiatives (even if they’re no good at greening anything other than lobbyist’s pocketbooks), so Trump pulled the plug.

#covfefe

On 7 million deaths from air pollution

ATTN published a video of An-huld (the really cool guy who made my childhood by being in all my favorite action movies like Predator* and who ended up being the governor of California). In that short clip, Schwarznegger starts by saying that 7 million individuals die from pollution-related illnesses.

That number is correct. But it is misleading.

People see pollution as “all and the same”. But some forms of pollution increase with development (sulfur emissions and some would argue that too much CO2 emissions is pollution as it causes climate change). However, others drop dramatically – especially heavy particules (Pm10) which are a great cause of smog. Julian Simon (the late cornucopian economist who is one my greatest intellectual influence) pointed out this issue and noted that the deadliest forms of pollution are those that relate to underdevelopment.

Back in 2003, Jack Hollander published the Real Environmental Crisis: Why Poverty, Not Affluence is the Environment’s Number One Enemy. Hollander pointed out that simply from the combustion of organic matter (read: firewood and animal manure – literally burning fecal matter) indoors for the purposes of heating, cooking and lighting was responsible for close to 2 millions deaths.

Since then, the WHO came out with a study pointing out that around 3 billion people cook and heat their homes with open fires and stoves that rely on biomass or anthracite-coal. They put the number of premature deaths directly resulting from this at over 4 million people. This is close to 60% of the figure cited by the former President of California (yes, I know he was governor – see here). In other words, 60% of the people who die prematurely as a result of strokes, ischaemic heart diseases, chronic obstructive pulmonary diseases and lung cancers can be attributed to indoor air pollution. That means pollution resulting from the fact that you are so poor that you have to burn anything at hand at the cost of your health.

True, richer countries pollute and there are policy solutions (I have often argued that governments are better at polluting than at reducing pollution, but that is another debate) that should be adopted. But, these forms of pollution do not harm human life as much as those that come with poverty.

* By the way, when you watch Predator, do you realize that there are two future American governors in that movie? I mean, imagine that when Predator came out, some dude from the future told you that two of the main actors would end governing American states. Pretty freaky!

Libertarians on Climate Change

This post is part of the preliminary results of the NoL Foreign Policy Survey 2017 Pilot. I will be posting results throughout the week as I play around with the data. As always, I strongly emphasize that this is a pilot survey and these are just preliminary results

Are libertarians climate change deniers? No. The majority agree that it is occurring, caused by human activity, and that it is harmful. They do not however support unilateral action by the United States government. At least not the average libertarian respondent.

climatechange

Note that the last question, asking about supporting unilateral action, is on a different scale from the other three.

 

When you drill down by type of libertarian though you start to see stark differences. Left-libertarians agree much more strongly that climate change is occurring, caused by human activity, and harmful. They are also much more in support of unilateral action to prevent climate change.

climatechangell

 

What is driving the differences between type of libertarian? Part of the story seems to be that those who think climate change is harmful are more willing to act to address it, but I suspect a large part of the story is also that some libertarians, particularly market anarchists, simply do not trust the government. Market anarchists are less likely to believe climate change is harmful or caused by humans compared to libertarians at large, but the big difference in opinion is whether the government should act on it.

Thoughts? Tomorrow I will be posting the demographics of those who took the survey.

climatechangema

Update: Updated graphs; minor coding error.

“Statogenic” Climate Change?

Is climate change government-made? For some years, I have been saying to my colleagues that climate change is real. Nonetheless, I am not an alarmist and I do not believe that stating that there is a problem is a blank cheque for any policy. Unlike many of my colleagues who believe that climate change is “anthropogenic”, I argue that it is “statogenic” in the sense that government policies over the last few decades basically amplified the problem.

Obviously, there is a social cost to pollution – an externality not embedded in the price system. On that basis, many have proposed the need for a carbon tax to “internalize the externality”. The logic is that anything that brings the “market price” closer to the “social cost” is an improvement.

Rarely do they consider the possibility that governments have “pushed” the market price away from the “social cost” (Note: I really hate that term as it has been subverted to mean more than what economists use it for). Consider the example of road pricing. In my part of Canada (Quebec), road pricing was eliminated in the 1970s. By eliminating road pricing, the government incentivized the greater use of vehicles and, basically, the greater burning of fossil fuels. Thus, by definition, the return of road pricing would bring the market price and the social cost closer together (and it might do so more efficiently than a carbon tax). Thus, there can be “statogenic” climate change because governments encourage indirectly the greater use of fossil fuels.

How big is that “statogenic” climate change? I think it is pretty “yuge.” For the last few months, I have been involved in a research project with Joanna Szurmak and Pierre Desrochers of the University of Toronto regarding environmental indicators in the debates between Paul Ehrlich and Julian Simon (see Joanna’s podcast with Garrett Petersen here at Economics Detective Radio). In that paper, we mention the fact that roughly a quarter of the world consumption of fossil fuels is subsidized directly or indirectly (through price controls setting local prices below world prices). That is a large share of total consumption and, according to an OECD paper, 14% of the effort needed to attain the most ambitious climate change mitigation plan could be made by eliminating those subsidies.

Now imagine that estimate was made in 2011. These policies have existed since the 1970s! One paper from the World Bank from the 1990s argued that eliminating them back in the 1980s would have reduced greenhouse gas emissions by 5% to 9%. Imagine a level lower by 9% (just for the sake of illustration) and imagine that the growth rate of greenhouse gases would have been reduced by 9% as well. Using CAIT data, we can see how this oversimplified scenario (which is by no means a general equilibrium scenario – which is the only way to measure the overall lower levels) means in terms of lower levels of GHGs. Relative to the observed data, a 9% drop back in 1990 with a 9% reduction in the growth rate of GHGs mean that the level of GHGs in 2012 in a world without subsidies would have been more than 12% lower relative to what they were in a world of subsidies.

subsidies

Again, this is an oversimplification. However, it works against my claim. The use of sophisticated methods is likely to yield much larger differences over time. Think about it for a second – alone the policy of fossil fuel subsidies explains a lot even with the oversimplification. Now, imagine adding the fact that many countries do not practice road pricing; that some countries tax the resale of used goods forcing the production of more goods; that they discourage construction in urban environments forcing a greater population sprawl; that trade barriers in agriculture prevent us from concentrating production where it is the most efficient; and the list goes on!

When people say “anthropogenic” climate change, I hear “incentives-driven” climate change or “statogenic.”

Cave Paintings and Elementary Science

This is a travel story of sorts, of travel through time, to an extent. Be patient.

Directly to the west of Marseille, the second largest city in France are a series of beautiful, narrow coves, like fjords, situated in a sort of desert. They are called “calanques” in French. They are accessible only by sea or through a long walk on hot rocky ground. Although they constitute a separate world, the calanques are close to Marseille, as the crow flies. They used to be a major fishing resource for the city. You can be sure they were never forgotten during the 2600 years of the city’s existence. Also, the city was founded by Greeks and thus, it always had a literate population, one that kept records.

Marseille and its environs are where SCUBA was invented, the first practical solution to the problem of men breathing underwater. Accordingly, the calanques were always and thoroughly explored after 1950. In 1985, one of the co-inventors of SCUBA discovered a deep cave in one of the calanques. He couldn’t resist temptation and swam into it until he reached a large emerging room. I mean a cave where he could stand and breathe regular air. His name was Cosquer.

Cosquer visited there several times without saying a word about his discovery. Soon, he observed dozens of beautiful paintings belonging to two distinct periods on the upper walls of his cave. The art of the first period was mostly hand imprints or stencils. The art of the second, distinct period, comprised 170-plus beautiful animals including many horses, ibex and others mammals, also fish, seals and other sea creatures. Archaeologists think the painting of the first period were done about in about 25 000 BC, those of the latter period date back to about 18 000 BC, they believe.

Today, the entrance to the cave is about 125 feet below sea level. We know that paleolithic men did not have SCUBA. They simply walked into the cave for their own reasons, with their own purposes in mind. Thus, the sea level was at least 125 feet lower then than it is today. The people of Marseille never saw the cave. They would have written about it. There would be records. They would not have forgotten it. They simply did not know of its existence during the past 2600 years.

Sometimes in the past 20 000 years, the sea rose 125 feet or more. That’s an amplitude several times greater than any of the direst predictions of the official United Nations Intergovernmental Panel on Climate Change for the next century. The IPCC squarely blames a future ocean rise (one that has not been observed at all, yet) on abnormal emission of several gases, especially CO2 . These abnormal emissions in turn, the IPCC affirms are traceable to human activities such as driving cars and producing many useful things by burning fossil fuels.

It seems to me that basic good science requires that causal analysis begin with a baseline. In this case, it would mean something like this: In the absence of any burning of fossil fuels, the ocean rose 125 feet sometimes during the past 20,000 years. Let’s see if we can find evidence of the ocean rising above and beyond this order of magnitude since humanity began burning fossil fuels in large quantities, about 150 years ago.

The conclusion will likely be that nothing out of the ordinary happened. Hence, fossil fuel emissions are probably irrelevant to this particular issue. (This leaves open the possibility that such emissions are odious for some other reason. I mean that CO2 is plant food. Too much CO2 may promote weed growth in our fields and gardens. )

The ocean is not currently rising and if it is, the existence of the Cosquer cave suggests that it’s rising to a tiny degree. Let’s keep things in perspective. Let’s discard openly and loudly every part of the building of a complex hypothesis that does not work. Those who don’t take these obvious cleansing measures simply have a lot of explaining to do. They should not be allowed to wrap themselves in the mantle of science while violating Science 101 principles.

One of the conceits of the Warmist movement is that you don’t have a right to an opinion unless you possess a doctorate in Atmospheric science. By this dictate, anybody who has to keep a job, raise children, or pay a mortgage is out of the discussion. This is the typical posturing of intellectual totalitarianism. Note what’s missing in the story above: It says nothing about what did cause the ocean to rise between 18 000 B. C. and today. It’s enough to know that whatever it was, it was not the massive burning of fossil fuels. The story is complete as is. Don’t quit your job and apply to graduate school!