Gernot Wagner's Blog, page 12

On NPR's Leonard Lopate Show

From today's NPR's Leonard Lopate Show:

Gernot Wagner, economist at the Environmental Defense Fund explains why the things individuals do—buying local produce, eating less meat, bringing reusable bags to the grocery store—won't end up making much of a difference in halting global warming. Instead he argues that economics will. In But Will The Planet Notice: How Smart Economics Can Save the World he puts the onus for curbing global climate change on smarter economics, not science, politics, or activism.

Listen here.

For young college graduates, the case for economics

Five years ago, top Harvard College graduates flooded Wall Street. They were small cogs in a race-car engine, except the car was speeding over a cliff. It's no wonder that today's graduates are reconsidering their career choices.

They should start with economics.

When most people think about economics, their minds turn to business and finance. But economics goes beyond these fields, and the difference between business and economics goes beyond size. Economics is about a way of thinking.

Wal-Mart, for example, has roughly two million employees, more than the population of some fifty countries. Success in business, for Wal-Mart, or any company, is about navigating the rules of the game at hand. Economics is about setting the rules in the first place. That requires both a different toolkit and a different worldview.

It has become acceptable, in casual conversation, to say that markets don't work. The demise of Lehman Brothers and the subsequent swoon of the global economy are often cited as evidence. The next time you hear someone say this, you can tell them they're wrong for two reasons: Lehman Brothers is more a symptom of what happened rather than the underlying cause, and it was guided by much larger forces than itself. Markets, in fact, work all too well. They are an aggregator of wishes and desires, however misguided they may be.

Chuck Prince, the former CEO and chairman of what was once the world's largest bank, was right when he uttered these famous words shortly before his resignation: "As long as the music is playing, you've got to get up and dance." Place the emphasis on "you've got to." Legislators and regulators, in their finite wisdom, had erased many of the existing checks and restrictions—those few, rickety road signs pointing in different directions. Their actions lit a fire under Prince's and other bankers' feet.

This is not to vilify Prince. He had it right. Bankers should be dancing to the music. That's what they're paid to do (and very well at that). It's also the core lesson they're taught in business school: Find the best ways to navigate the current system and make a buck or two in the process.

It's up to the rest of us to find the right rhythm. That's where economics comes in.

The caricature of economists is one of free market apologists. It's understandable. One need only look at Alan Greenspan and others who hew too closely to Ayn Rand's fictional characters. But this caricature is also unfortunate.

Continue reading in the Washington Post .

Brilliant ad, bad message

Patagonia, the outdoor clothing and apparel company, ran an eye-catching, full-page ad in The New York Times the day after Thanksgiving, the busiest shopping day of the year. The headline, "Don't Buy this Jacket," was above a photo of one of its products and some text that reminded us of its environmental footprint: 135 liters of water, 20 pounds of carbon dioxide. "Think twice before you buy anything." The ad went viral.

I like the message. But then I would. I'm proud to say that my wife and I didn't spend a penny on Black Friday. When we do spend money, we try to buy organic, local products. I don't drive, don't eat meat, and yes, my wife owns a partially recycled polyester fleece jacket from Patagonia.

Come to think of it, we're just the sort of people Patagonia is targeting with its anti-advertising ad. I'm fine with that, and with being one with those do-gooder consumers who drive Priuses, eat Ben & Jerry's ice cream, shop at Whole Foods, and generally pay a premium for going green.

The problem is that buying green and recycling won't stop global warming. We can't spend, or conserve, our way out of the current ecological crises. Sadly, such behavior may even be counterproductive

Read the rest at bridges .

Pictures from book talk at Austrian embassy in Washington, DC. Quite the event.

Naomi Klein is half right about capitalism vs. the climate

Naomi Klein is always worth reading. If you haven't seen Capitalism vs. the Climate, go ahead. I'll wait.

Her 10,000-word exposé is well worth the effort. It makes the essential point that addressing climate change means reorganizing how the world does business.

Klein makes the point by arguing that the climate-denier crowd at the typical Heartland Institute gatherings:

may be in considerably less denial than a lot of professional environmentalists, the ones who paint a picture of global warming Armageddon, then assure us that we can avert catastrophe by buying "green" products and creating clever markets in pollution.

I'm completely with Klein on her first point. Sure, buy green products. I do. But do it because organic, local apples are better for you and the local environment, not because you'll stop global warming.

But Klein is wrong in her more serious assertion: that we can save the planet only if we abandon capitalism:

Responding to climate change requires that we break every rule in the free-market playbook and that we do so with great urgency.

That's only true in so far as we consider the current situation anything close to a "free market." It isn't. Markets are woefully rigged in favor of pollution, which is also the main reason the earth finds itself in peril. (I'm pretty sure Klein would agree with that point.)

Think of it this way. My 9-month-old has less right to grow up breathing clean air than the driver barreling past us has the right to pollute. The reason is simply that markets are constructed so that few have to pay for the pollution they produce.

Every time I open my fridge, turn on the heat, hop in a car (or on a train), or do much of anything, someone else incurs the costs for the pollution my actions produce.

When I fly from New York to Vienna to see my parents, my flight produces about one ton of carbon dioxide emissions. That ton causes at least about $20worth of damage to the atmosphere. But I don't pay a penny of that. Everyone of us seven billion pays a tiny fraction of a penny for my seeing my parents.

Klein offers two solutions. The first calls for a radical rethinking of how we lead our lives and opt for a more leisurely path. A lovely thought. I'd much rather spend weeks at a time visiting my parents in Vienna and in-laws in Bangkok than engage on jetlag-laden, multi-continent "vacations" that seem to serve no real purpose other than to make it back to my desk by Monday morning.

So yes, let's create a culture where it's OK for everyone to take off a couple months in the summer, and perhaps another one around the winter holidays. It works for the Swedes, why not the rest of us?

But Klein realizes this sort of cultural change won't happen overnight and wouldn't by itself stabilize the climate. Which leads her to call for "taxing the rich and filthy."

Nice turn of phrase, but, unfortunately, it confuses the issue. It's really about taxing the filthy. And it's not about taxing anyone for the sake of sticking it to the man. It's about asking everyone to pay for their own pollution instead of shoving those costs onto society.

I'd gladly pay the $20 extra for my flight to see my parents. But Klein argues, correctly, that nothing will be accomplished if the only people paying are do-gooders who want to feel better about their carbon footprint. If we want to affect the planet, everyone has to pay the cost of their pollution. Only then will we truly level the playing field.

That all seems like wishful thinking, alas it can be achieved. The European Union, starting January 1, 2012, is putting a carbon price on every flight to and from the EU.

The program is starting modestly; my flight to see my parents will cost around $2 extra, not the $20 or more that would make up for my pollution. Still, it's a start. And keep in mind that the EU's system will cover a third of all miles flown—globally. That's no longer a bunch of greens spending extra on their organically sourced ice cream. That's change on a scale the planet notices.

Europe, of course, is not alone. California will soon have the world's most comprehensive cap-and-trade system limiting global warming pollution. Australia just passed a carbon price. British Columbia has had one in place since 2008. India has a coal tax. China is pursuing carbon trading as part of its twelfth 5-year-plan. It seems only Washington is falling further and further behind.

All of these are the kinds of change that work with, not against, market forces and human desires—desires that capture the imagination of billions and make many of us want the latest iAnything or fly on that Airbus 380.

In fact, my real argument with Klein is that in trying to escape capitalism, she is trying to evade human nature. We could and should work to make human desires less material. Some of the rich may well be in that position already, but I'm afraid that's a losing proposition for the globe.

It's not about a full-scale assault on human desires, capitalism, and free markets. It's about freeing them in the first place, and in the process freeing all of us to do the right thing. It doesn't get more ethical than that.

Leveling the playing field

What EPA's role is to do is to level the playing field so that pollution costs are not exported to the population but rather companies have to look at the pollution potential of any fuel or any process or any plant or any utility when they're making their investment decisions.

You'd think that's the language someone on the Wall Street Journal editorial page would use to describe EPA's ideal role, and you'd be right. The most conservative of goals, after all, is not for government to pick winners or engage in industrial policy, but rather to make sure no one free-rides on the backs of others. No one should be allowed to engage in blatant socialism by privatizing benefits and socializing costs.

Just that it's not a WSJ editorial scribe, who espouses these views. It's Lisa Jackson, President Obama's head of the Environmental Protection Agency. And the WSJ doesn't go out of its way to laud a liberal for avoiding the trap of picking winners or even losers. No, the WSJ declares Jackson's statement a Freudian slip.

The WSJ is right, of course, that the goal of the Clean Air Act is clean air. But there are effective ways of going about doing that, and there are less effective ways. Ideally, EPA would set up the most flexible system that's simply aimed at "leveling the playing field" so every polluter pays for his or her own pollution, and then get out of the way. That's the basis of the success of the Clean Air Act Amendments of 1990 that passed the House 401–21 and the Senate 89–10 and has banished acid rain to the history books.

Sadly, EPA's powers only go that far, so often it is left with setting particular standards. That's where Congress ought to come in and pass laws that do guarantee the most flexible possible regulations. I'm certain the WSJ editorial page would be all in favor of that.

Machiavelli's dictum

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.

– The Prince by Nicolo Machiavelli

Thanks to Charles Komanoff for the pointer.

This also marks my final daily blog post for a while. I'll instead use quips and quotes like these to write a few longer pieces, which I look forward to posting here. Stay tuned.

Imagine what a real cap could do

RGGI (pronounced "Reggie"), the Regional Greenhouse Gas Initiative, has capped carbon dioxide emissions in ten northeastern U.S. states. Well, it isn't much of a cap, given how loose it really is. Still, the latest analysis that tries to follow the money points to $1.6 billion in economic benefits for the economies in these ten states.

And it's good for customers, too. They will save $1.3 billion on electric and gas bills in the next decade due to energy efficiency measures financed through RGGI money.

Win. Win. Win.

Occupy email

The average time taken to respond to an email is greater, in aggregate, than the time it took to create.

Email is too cheap to send. That, in a nutshell, is why we are all drowning in it. It costs you nothing to add one more person as a recipient.

And it's incredibly tough to break the cycle. If everyone else gets copied on everything, you don't want to be the one left out. Nor do you want to be the spoiler and not copy everyone else on everything you send. You produce important work, after all, and others ought to know.

The creators of emailcharter.org have caught on to this and call it a modern example of the Tragedy of the Commons. Adding one more cow onto that pasture, hitting send on that one more email, is almost free to us. But we are creating costs for everyone else.

What to do?

You could use the direct, command-and-control approach. Gmail allows you to send mail to no more than 500 recipients at a time. If you send more than two or three of these large messages, Google will cut you off email entirely for a day. That, of course, is a crude way to go about it. Why not just create another free Gmail account and keep on spamming? And it's not like most mail originates from messages with 500+ recipients. It's the constant barrage of messages that gets to us.

The classic economic approach would point in another direction: charge for or limit email. Either literally charge for each message sent, or limit the overall number of messages sent in any given day. Every internet user gets a share in that total. If you have unused email allowances left over, sell them to those who want them. Soon enough, those who want to send will. Those who can live without email will keep the change. People will find innovative ways to communicate. It's the most flexible approach imaginable. Cap and trade 101.

Then there's the Elinor Ostrom-style system. It's not like we are all sending email to everyone else on the planet. We are largely communicating in defined tribes. Often, most of our mail comes from colleagues who sit just down the hall. Individuals can't do much, but we could try to change the culture of the organization. Decree that everyone shall respond to every (internal) message within 24 hours during the workweek and that no email shall have more than three recipients, and watch the number of email drop and productivity rise.

In any case, it'll take collective action to make a difference. If you act alone, you will be the loner. It might be fun to have an out-of-office reply that says you are only checking email once a day, but you've just created even more email for everyone else. And you are the one who won't respond to your boss's boss before someone else does. Then again, you would keep your sanity.

Recycling waste, creating jobs

One person recycling: the planet won't notice.

75% of Americans recycling: 1.1 million jobs created.

In memoriam: Dr. Paul Epstein warned of health impacts of climate change

Dr. Paul Epstein was among the first to link bad climates to bad health. I was fortunate enough to meet him as a freshman in college. Bright-eyed and new to university life, I invited him to join a small group of us for dinner in the freshman dining hall. To my great surprise, he accepted and patiently explained a life's worth of research to a bunch of 18-year-olds. I had no idea at the time about the enormous impact he, his research, and his course Human Health and Global Environmental Change had on the planet.

His latest target: coal.

We estimate that the life cycle effects of coal and the waste stream generated are costing the U.S. public a third to over one-half of a trillion dollars annually.

Accounting for the damages conservatively doubles to triples the price of electricity from coal per kWh generated, making wind, solar, and other forms of nonfossil fuel power generation, along with investments in efficiency and electricity conservation methods, economically competitive.

His New York Times obituary captures Dr. Epstein's impact. Joe Romm adds some color.