Gernot Wagner's Blog, page 22

Rolling stones and the art of the trade-off

Economists have some hard and fast rules that—to put it mildly—don't necessarily endear them to everyone around. For one, there's the idea of trade-offs. It makes so much sense it's sometime easy to forget how difficult an idea it really is.

You can't always get what you want. But sometimes we so wished it wasn't true. If only you try hard enough, perhaps, just maybe, there's a way around it.

Alas, no.

That's at least what an economist would say. Yes, your late grandmother's den might be invaluable to you, but if someone offered you a million, a billion, a gazillion, you would tear it down in no time. There's always a finite amount of money.

Economists don't do infinity, at least not in this context. And they would point out that you don't value your own life infinitely much. You cross the street by red. You eat sugar. You drive, sometimes even without a seat belt.

Now take that idea and apply it to pollution and conservation.

Choking on car exhaust is bad, but no pollution isn't an option either. We can't leave every stone untouched. That's how we left the cave in the first place. Yes, Ngorongoro, Yosemite, Mozart's birthplace, the Egyptian pyramids are all locations worth preserving.

But imagine if Unesco had been around 500 years ago. Much of Salzburg would have never been built.

If it had been around 5,000 years ago, we would have a pristine Nile delta, but no pyramids.

Had Unesco been around 50,000 years ago, we may have never made it out of the Stone Age.

When 1 in 10,000 equals 1 in 100

How's this for a student experiment: Tell half your subjects that you will zap them with a brief, painful, but "non-dangerous" electric shock. Tell the other half that there's a 1% chance that you will shock them. But first ask them to let you know how much money they want in order to endure the pain.

It turns out people focus on the shock and ignore the probability of it occurring. They want little more compensation for the certain shock than the one that's highly unlikely.

In wonk-speak, courtesy of Cass Sunstein and Richard Zeckhauser, "when risks are vivid, people are likely to be insensitive to the probability of harm, particularly when their emotions are activated."

Translate that into a globally warming world and things get scary.

There'll be many high consequence losses. It matters whether their chance of happening is 1 in 10,000 or 1 in 100. But it looks like most of us—and most politicians—would treat the two as roughly equivalent.

Prepare to be zapped.

Advanced biofuels in search of customers

The White House is starting an advanced biofuels initiative, putting money toward researching a new generation of biofuels for planes and boats.

That's all good. But BF < O has two sides. New technologies need customers who actually want the stuff. Airlines are a prime target for new biofuels, but they won't use them unless BFs are, in fact, cheaper than Oil.

The EU has put together exactly this kind of incentive structure with its "Aviation Directive," which includes airlines under its emissions cap. The cost to airlines is small, but they have significant potential to make quite a bit of money in the process. Biofuels are an easy way: keep going where you are going, just use lower-carbon fuels.

The EU's system would reward airlines for the advanced biofuels this new program is meant to create. But Washington opposes the EU's plan and even backs U.S. airlines suing the EU over its system including them.

The buck stops with the consumer: no demand, no sales. Why use tax dollars to research advanced biofuels and then oppose the only system we have to actually create the demand necessary for people to buy them?

Pollution has a price, just not for the polluter

We've known at least since Robert F. Kennedy's first speech as a presidential candidate that gross domestic product "measures everything…except that which makes life worth living". While it's tough to quantify the beauty of our poetry or the strength of our marriages, we do have ways to quantify the impact of pollution and could, in theory, amend GDP to account for its costs.

Now Nick Muller, Rob Mendelsohn, and Bill Nordhaus have done just that in practice. They also do a huge favor to all of us pollution gawkers out there and rank industries by the ratio of total damages they cause divided by how much value they add to the economy.

Spoiler alert: Burning oil or coal causes a lot more damage than it adds value to GDP. The only two activities quite as bad are burning trash and treating sewage. Nothing, however, matches burning coal in terms of total socialized damages.

High ratios by themselves don't say that these industries shouldn't exist in the first place. I appreciate the fact that we have reliable electricity supplies and don't have sewage ponds in our backyard.

But the analysis makes it painfully obvious that none of these sectors is paying its fair share of the cost of doing business. That falls on the rest of us.

Warren Buffett is just like you and me

Warren Buffett took to the pages of the New York Times yesterday to state in no uncertain terms what is painfully clear to anyone looking at income inequality: Stop coddling the super-rich.

His call led to predictable outcries of "pay up." The Treasury has a form enabling anyone to make donations to help reduce the public debt. Use it!

That misses the most important point. Even Buffett voluntarily paying higher taxes wouldn't make a dent into the public debt.

He is one in 236,883 Americans who made more than a million in 2009—one in 8,274 who made more than ten million. Buffett himself counts for perhaps ten or 100 of these millionaires, but his voluntary tax payment is still but a small fraction of what all of them together would be paying.

Even when it comes to millionaires, doing individual good doesn't do much of anything. Buffett's millions are much better spent trying to argue for policy changes than to try to "pay up" all by himself.

Doing a 180 on 350?

Why, if activism won't do, would I ever link to 350.org's tar sands campaign?

Simple: Activism of the sort that gives us lists of "10 things you can do to save the planet" is impotent at best and counterproductive at worst. Recycling, refusing plastic and paper, eating local, biking to work, or avoiding bottled water are all good. I do them with as much conviction as the next vegetarian without a driver's license.

But none of them will stop global warming. If anything, pointing to these activities as things that do make a difference has probably contributed quite a bit to why people are tuning out.

What we do need is policy change.

350.org is a massive bottom-up, grassroots organization, but its goal is just that kind of top-down policy change.

We won't head back to 350 ppm through a bunch of environmentalists refusing plastic bags at the register or drinking tap water. Bill McKibben is the first who understands this.

Now, I do hope McKibben wouldn't only ask his millions of volunteers to study up on what "350 ppm" stood for and to take pictures with 350 signs but also to study the economics that will allow us to get there in the first place.

Here's hoping. I know just the book that could help make the case. Bill McKibben for one says it's "an awfully good place to start."

Where's Malthus when you need him?

Infinite growth on a finite planet is impossible.

It's also clear that demanding ever more resources with finite supply will increase their price. Economics 101.

So shouldn't global warming solve itself? Eventually, we will be running out of fossil fuels to burn. Prices go up. We burn less.

True, except that all evidence shows that we are running out of atmosphere long before we run out of carbon buried under ground. We might be hitting limits on the sweetest, cheapest, easiest-to-get crude, but we are not running out of coal, gas, or oil (think tar sands) anytime soon.

That's what makes the latest resource price spikes so vexing. They point to real planetary limits, but they don't send the right signal when it comes to global warming—or at least they aren't sending it nearly quickly enough.

The prices of aluminum, barley, coffee, cocoa, copper, corn, cotton, gold, lead, oats, silver, tin, wheat, and many others including oil might be up. The price of natural gas is down. And the price of dumping the resulting carbon into the atmospheric is still a zero in the United States, sometimes even below.

Cognitive dismissal

We are hard-wired to push out of our mind a problem that is too distant, too hard, or too removed from personal influence. Me, worry?!

Stopping global warming will require collective action. You and I can do little to influence the final outcome.

The simplest response to such impotence is "cognitive dismissal."

That's a big word for a simple and disturbing conclusion: We can't wait for a popular uprising demanding strong climate policy. It'll be up to informed political and policy leadership to make a difference.

That's basically how Europe did it. Yes, Europeans conserve, recycle, and bike more than Americans. But few on the old continent know what emissions trading is, even though the European Union has the world's largest carbon market. It was up to a group of mandarins in Brussels to take the plunge.

Enlightened leadership may be an oxymoron, but it's still easier than working to overcome hardwired psychological phenomena and rousing the masses.

5, 20, 25

The United States has 5% of the world's population.

These 5% cause 20% of annual greenhouse gas emissions.

These 20% of emissions help the United States produce 25% of global economic output.

Pop quiz: Is the United States producing

   (1) more than its fair share of emissions?

   (2) less than its fair share of emissions?

   (3) both (1) and (2)?

Bonus question: How do you settle that dispute logically? Or in other words: Is it any wonder that we haven't been able to come up with an international agreement that includes 193 countries and assigns "fair" emissions reductions targets for each?

Here's your box, Sir

That's what happens when you try to do the right thing?

You order refills to avoid tossing the pen and just getting a new one, and then they send an entire box with lots of hot air and its own packaging slip for two ink cartridges. (The other four came in the box beneath.)

The money question really is whether it does pay for Staples to send UPS guys out on their trucks with empty dead trees.

If not, give them each a Climate Corps Fellow to squeeze out the waste, pick up free money, and save a few trees in the meantime.

If this does make business sense at scale, you know there's something rotten with how we treat the planet and price our resources, and it goes much beyond pen refills. (Don't get me started on the multiple, half-empty Fresh Direct boxes we get with every order.)

Put value on trees—not just the dead ones—and stop treating the atmosphere as a free sewer, and I bet Staples will reconsider its packaging strategy in no time.