The key factors causing coal plant retirements

Dave Roberts has posted a cogent summary of the key implications of the new EPA rule related to new coal plants.  These points follow:

1. This rule applies to new power plants, not existing or currently permitted plants, meaning it won’t have any real effect until well after the election.

2. The rule marks (but did not cause) the end of new coal plants in the U.S.

3. This rule is the easier one. The tougher one, which will apply to existing plants, will come later, probably after the election.

4. The ongoing wave of coal-plant retirements has little to do with EPA rules.

5. EPA rules are not job killers or economic burdens.

6. Some day the natural gas bubble will pop and prices will return to earth.

I want to focus on #4 (and on a terrific paper by Susan Tierney on that topic), because it gives interesting insight into the factors that cause utilities to retire power plants.

The first thing to understand (as I pointed out in Cold Cash, Cool Climate) is

About 15% of existing US coal plants (about 50 GW out of 300 GW total) are old, inefficient, polluting plants that were grandfathered under the Clean Air Act, so they have few or no pollution controls.[1] More than half of US coal plants are 35 years of age or older.[2] The total social cost of running many of these plants is higher than the cost of alternative ways of supplying that electricity (even without counting the damages from greenhouse gas emissions),[3] so they represent an obsolete capital stock from society’s perspective.

These older plants are comparatively inefficient, even though they have few or no pollution controls, so it’s not surprising that they are the ones being retired in the face of the economic forces outlined by Tierney.  That report points to increasing coal prices, decreasing natural gas prices, and declining electricity demand as the main factors thus far in encouraging the retirement of existing coal plants.

While these factors have played a dominant role so far, it’s likely that the EPA mercury and air toxic rules were the final “nail in the coffin” for some of these plants, and these rules will encourage additional plants to retire in the years ahead.  This is because the cost of retrofitting these plants to meet the new standards is large enough to make the utilities think twice about retrofitting, especially when so many lower emission power generation alternatives are available.

What these rules are doing is starting to bring the societal costs of coal-fired generation to bear on utility decisionmaking.  Until recently, these old coal plants were getting a free ride, belching out pollution and not paying for the true costs of the electricity they generate.  That’s now changing, and our society will be better for it.

So if you hear someone complaining that these regulations cost too much, always ask “Cost to whom?”.  What they mean is that the regulations will cost utilities money, and that’s often (but not always) true.  That’s not the same thing as saying that the regulations are not worth it from society’s perspective, and that’s really the metric we need to apply.  And the numbers prove it–Isaac Shapiro of the Economic Policy Institute tallied the costs and benefits of the three big Obama administration’s EPA proposed rules (not including this latest one on new power plants) and found benefit-cost ratios ranging from 6:1 to 15:1, and total net benefits for the US (after counting costs) of $60 to almost $200 billion per year.  Sounds like an awfully good deal to me.

[1] Celebi, Metin, Frank C. Graves, Gunjan Bathla, and Lucas Bressan. 2010. Potential Coal Plant Retirements Under Emerging Environmental Regulations. The Brattle Group, Inc.  December 8. [http://www.brattle.com/documents/uploadlibrary/upload898.pdf]

[2] See Figure 5-6 in Lovins, Amory B., Mathias Bell, Lionel Bony, Albert Chan, Stephen Doig, Nathan J. Glasgow, Lena Hansen, Virginia Lacy, Eric Maurer, Jesse Morris, James Newcomb, Greg Rucks, and Caroline Traube. 2011. Reinventing Fire:  Bold Business Solutions for the New Energy Era. White River Junction, VT: Chelsea Green Publishing, p. 175.

[3] For details, see Muller, Nicholas Z., Robert Mendelsohn, and William Nordhaus. 2011. “Environmental Accounting for Pollution in the United States Economy."  American Economic Review vol. 101, no. 5. August. pp. 1649–1675, and Epstein, Paul R., Jonathan J. Buonocore, Kevin Eckerle, Michael Hendryx, Benjamin M. Stout III, Richard Heinberg, Richard W. Clapp, Beverly May, Nancy L. Reinhart, Melissa M. Ahern, Samir K. Doshi, and Leslie Glustrom. 2011. "Full cost accounting for the life cycle of coal."  Annals of the New York Academy of Sciences.  vol. 1219, no. 1. February 17. pp. 73-98. [http://dx.doi.org/10.1111/j.1749-6632.2010.05890.x].

EPA to promulgate greenhouse gas emissions standards for power plants!

This is big news.  The Washington Post is reporting that the Obama Administration is about to propose regulations on new power plants that would limit greenhouse gas emissions per kWh.  Juliet Eilperin writes

The Environmental Protection Agency will issue the first limits on greenhouse gas emissions from new power plants as early as Tuesday, according to several people briefed on the proposal. The move could end the construction of conventional coal-fired facilities in the United States.

The proposed rule — years in the making and approved by the White House after months of review — will require any new power plant to emit no more than 1,000 pounds of carbon dioxide per megawatt [sic–should be megawatt-hour] of electricity produced. The average U.S. natural gas plant, which emits 800 to 850 pounds of CO₂ per megawatt[-hour], meets that standard; coal plants emit an average of 1,768 pounds of carbon dioxide per megawatt[-hour].

The article also describes how the older dirtier plants are already under pressure from the air toxic rules as well as cheap natural gas.  Many existing plants will be retired because they are no longer economic to run, given these new regulations.  And as recent economic analysis has shown, coal fired generation is actually costing us far more than alternatives when you count the costs of pollution to society (which until these new rules came into force weren’t being paid by the operators of coal plants, they were being paid mostly by old people and children hurt by coal related pollution).

Emission control rules like these pay for themselves many times over from society’s perspective, so all the gloom and doom raised by the pro-pollution forces about their dire economic consequences is just nonsense. We are already paying far more for electricity as a society than we need to, and by phasing out many coal power plants we’ll be REDUCING the cost of electricity to society.  These regulations will be good for the economy AND good for the environment.  For details on the unpaid external (pollution) costs of coal, see the references below.

Muller, Nicholas Z., Robert Mendelsohn, and William Nordhaus. 2011. “Environmental Accounting for Pollution in the United States Economy.” American Economic Review vol. 101, no. 5. August. pp. 1649–1675.  

Epstein, Paul R., Jonathan J. Buonocore, Kevin Eckerle, Michael Hendryx, Benjamin M. Stout Iii, Richard Heinberg, Richard W. Clapp, Beverly May, Nancy L. Reinhart, Melissa M. Ahern, Samir K. Doshi, and Leslie Glustrom. 2011. “Full cost accounting for the life cycle of coal.” Annals of the New York Academy of Sciences. vol. 1219, no. 1. February 17. pp. 73-98. [http://dx.doi.org/10.1111/j.1749-6632.2010.05890.x…

A brilliant graph summarizing the communications quandary about climate change

Michael Tobis (with help from Stephen Ban) posted a wonderful schematic graph back in January 2012 contrasting the state of media coverage about climate with what informed opinion actually says.  It’s not intended to be quantitatively accurate, but I think it conveys things pretty well, based on my experience in following this issue over the past couple of decades.  Here’s the graph:

Joe Romm, over at Climate Progress, has used this graph effectively to discuss the issue of false balance in media reporting.  If you talk about what the literature says about the path we’re now on (5 degrees C warming by 2100, as I discuss in Cold Cash, Cool Climate) you’re labeled by the mainstream media folks as an “alarmist”.  But what if the truth is really alarming?  I’m sure dinosaurs who raised the issue of a possible meteor strike were labeled alarmists also (I’m being facetious, folks), but that didn’t help most of those critters to survive that particular disaster when it happened.

Reality doesn’t care about what we think is plausible, and the more society ignores reality as best scientists understand it, the more likely it is that we’ll misjudge, with potentially catastrophic consequences for humanity and the earth’s natural systems.

I need your help for a guerrilla campaign to get Cold Cash, Cool Climate on the New Earth Archive book list for 2012

The New Earth Archive opened voting for the most “powerful and influential books on topics like climate change, sociology, economics, politics, technology, philosophy, and many, many other areas.”  They are asking for “help in choosing the 25 that have the power to inspire college readers to change the world,” based on the criteria listed below.

I need your help to get Cold Cash, Cool Climate:  Science-based Advice for Ecological Entrepreneurs on this list, since it is so new they didn’t list it on their default choices.  That means you’ll need to add it under “your personal recommendation” at the bottom right.  You’ll need to vote for between 10 and 15 books (they won’t let you submit less than 10) and you’ll need to supply your name and email address

I suggested you paste in the following text:  Cold Cash, Cool Climate:  Science-based Advice for Ecological Entrepreneurs, by Jonathan Koomey

Many thanks for your help!

Jon

The criteria to be used to judge the books are below:

“The books that comprise this archive should educate and empower students to work towards improving the world around them, and should inspire open-mindedness and acceptance of new, more beneficial ideas and lifestlyes. For this goal to be succesful, the books that populate this collection should be:

1. Books that college students will actively want to read: they have to be informative and passionate enough to capture and then hold students’ attention.

2. Powerful enough to change the reader’s mind about these issues, encourage new perspectives, and promote acceptance of alternate or controversial ideas.

3. Provocative and motivational: they have to genuinely drive readers to want to change the world.

4. Inspiring and positive, and offer solutions that encourage pursuit of holistic and truly fulfilling lifestyles.

5. Recent (within the past 10-15 years) and still relevant to our world’s rapidly changing conditions.

6. Decades-big ideas with a worldwide scope: topics that span the environment, economics, people, politics, and revelations in understanding human nature.

Rocky Mountain Institute (RMI) just posted a short summary of Cold Cash, Cool Climate

Rocky Mountain Institute (RMI), where I am affiliated as a Senior Fellow, just posted my short summary of key arguments from Cold Cash, Cool Climate:  Science-based Advice for Ecological Entrepreneurs. For the full post, go here.

Can entrepreneurs save the climate?

That’s the question Dan Lashof of NRDC leads with in his review of Cold Cash, Cool Climate.  Lashof has published extensively on climate science and policy, so I was happy he chose to review the book.  Here are the first few paragraphs of the review:

“Entrepreneurs have to be optimists. They invest their energy, time, and money based on their vision for the future. Many times their optimism isn’t justified and their enterprise fails. But sometimes they succeed. And when they do they create the future.

This is exactly the approach we need to create a safer climate future argues Jonathan Koomey in his new book Cold Cash, Cool Climate: Science-Based Advice for Ecological Entrepreneurs. Koomey’s approach is best summarized by the quote from Alan Kay that he uses to introduce Chapter 3. “The best way to predict the future is to invent it.”

There are plenty of reasons to be pessimistic about our chances of success and Koomey fully recognizes the scale of the challenge. In fact the book includes a nice summary of climate science and lays out clearly the very rapid rate of change needed to limit global warming to 2 degrees Celsius, a goal Koomey adopts as his design objective. To get there he notes that not only must new capital investments be focused on zero or very low emission technologies, but some of the existing capital stock will need to be scrapped before the end of what is currently considered its useful life.”

To read the full post, go here.

My podcast interview with Allyson Klein of Intel about Cold Cash, Cool Climate

Intel’s chip chat podcast recently featured an interview with me that focuses in part on the book Cold Cash, Cool Climate, and the implications of that book for entrepreneurial innovation in information technology (IT).  In that interview I summarize the three areas where IT can help us reduce emissions, save money, and better manage our affairs.  The first is mobile sensors, the second is controls, and the last is analysis to help make sense of all the data that sensors and controls will bring to us.

Why Entrepreneurs Offer the Best Hope as Climate Heroes

Matt Wheeland of Greenbiz.com did a thoughtful Q&A with me about my new book that was posted yesterday.  I reproduce the first question and answer below.

Why entrepreneurs offer the best hope as climate heroes

Matthew Wheeland: Why are entrepreneurs the best hope for this scale of carbon reductions – is the policy realm really so bleak?

Jonathan Koomey: We do need policy action to tackle this problem, but to create the game-changing innovations we’ll need, the entrepreneur’s role is critical, and that’s why I chose to focus on that audience.

I’ve been studying climate solutions since the mid 1980s, and it’s been clear since then that this issue would be an important one for humanity, but aside from scattered corporate leadership and regional action (in Europe, California and a few other places) there’s been little progress in making the big shifts that we need to tackle the problem. Over the years I grew frustrated writing detailed technical studies that were only rarely put to use, so I started to turn to what innovative businesses could do to change the debate.

What is also fascinating to me, as someone who’s been working with economic forecasting models for a long time, is that the use of these models in analyzing climate policies enshrines rigidities that don’t exist in the real economy but are instead an artifact of modeling practice.

That means that the policy discussions are hamstrung by modeling exercises that don’t actually reflect what is possible when real entrepreneurial innovation gets rolling (I explore these issues in Chapter 3 and 4 of Cold Cash, Cool Climate). That realization made me want to help create the conditions for rapid innovation instead of studying what might be possible in a less dynamic world.

To read more go to http://www.greenbiz.com/blog/2012/02/15/koomey-why-entrepreneurs-offer-best-hope-climate-heroes

My latest book, Cold Cash, Cool Climate, comes out TODAY! Here's a summary of the argument

This blog post summarizes the overall argument in Jonathan Koomey’s latest book, Cold Cash, Cool Climate:  Science-based Advice for Ecological Entrepreneurs, released today (February 15, 2012) by Analytics Press.    Written for entrepreneurs and investors, this book describes how to profit from tackling climate change, one of this century’s greatest challenges.   The author acts as your company’s scientific advisor, summarizing the business implications of the climate problem for both new and existing ventures.  Koomey helps you effectively allocate scarce time and resources to the most promising opportunities, drawing upon his more than 25 years of experience in analyzing and implementing climate solutions.

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When our children and grandchildren look back on our era the political squabbles of today will have been long since forgotten.  What they will ask (I hope) is “How did they have the wisdom to build for the future?”  That’s how we need to measure our actions now.  Will they thank us for acting with reason, compassion and foresight?  Will they express gratitude for our wisdom?  Or will they wonder what the hell we were thinking?  Let’s make sure we earn their gratitude, because the alternative is too unpleasant to contemplate.

In the book Cold Cash, Cool Climate I’ve outlined the depth and breadth of the climate challenge, and summarized some insights that entrepreneurs starting new ventures in this space should find useful.  That exploration began with the insight that humans are now no longer small compared to the earth.  Because of our wealth, our numbers, and our technology, we can (and have) significantly altered the global life support systems upon which we all depend.

If current greenhouse gas (GHG) emissions trends continue, the earth is in for at least two doublings of greenhouse gas concentrations in the next century, which implies more than a 10 degree Fahrenheit increase in average global surface temperatures, with no end in sight.  This outcome would be disastrous for humanity and for the earth’s natural systems, and we should do everything in our power to avoid it.  This path also opens up the real possibility of accelerated warming due to positive feedbacks (like release of carbon from rapidly melting ice, thawing permafrost, burning peat bogs, and warming methane hydrates), which in the distant past have led to even more significant changes in the earth’s climate, and could do so again if we push the climate system too far.

To meet this challenge we’ll need rapid GHG emission reductions in the next few decades.  This conclusion is inescapable because it’s cumulative emissions that matter, due to the long lifetime of many greenhouse gases.  If we want to prevent global temperatures from increasing more than 2 degrees C, we have a fixed emissions budget over the next century.  If we emit more now we’ll have to reduce emissions more rapidly later, so delaying action (either to gather more data or to focus on energy innovation) is foolish and irresponsible.  If energy technologies improved as fast as computers there might be an argument for waiting under some circumstances, but they don’t, so it’s a moot point.

Of course, we need new technologies and should therefore invest heavily in research and development, but there are vast opportunities for emission reductions using current technologies, and cost reductions for these technologies are dependent on implementing them on a large scale (learning by doing only happens if we do).  So the focus in the next few decades should be on aggressive deployment of current low-emissions technologies, bringing new technologies into the mix as they emerge.

Conventional benefit-cost analysis has often led to a different view of the problem, one that emphasizes a more cautious approach.  Studies of this type attempt to balance costs and benefits using computer models, but such efforts are dependent on accurate forecasts (which are impossible for economic and social systems), and for many reasons these efforts are biased towards preserving the status quo.   The models ignore important effects like increasing returns to scale, assume that structural rigidities will continue into the future, omit relevant options from consideration (thus overestimating costs), and bury ethical judgments in ostensibly technical concepts like the discount rate or the economic value of climate damages (many of which are unquantifiable in principle).  These limitations make it seem like fixing the climate problem is harder and more costly than it really is, and so use of these models in this way is bound to lead us astray.

I advocate instead an evolutionary approach to this problem, implementing many different technologies, failing fast, and doing more of what works and less of what doesn’t. This approach, which the National Research Council dubs “iterative risk management”, recognizes the limitations of economic models and puts such analysis into an important but less grandiose role:  that of comparing cost effectiveness of different mitigation options in achieving a normatively defined target (like the 2 degrees C warming limit).

I call this approach “working forwards towards a goal” and it’s a more business-oriented framing of the problem.  It mirrors the way companies face big strategic challenges, because they know that forecasting the future accurately is impossible, so they set a goal and figure out what they’d have to do to meet it, then adjust course as developments dictate.   It also frees you from the mostly self-imposed conceptual constraints that make it hard to envision a future much different from what exists today.

This approach is useful in identifying and evaluating opportunities both at the very highest level (like global carbon emissions) but also for analyzing component parts of possible solutions.  So for example, we can consider what would have to happen to allow the utility system to use huge amounts of variable generation from renewable energy in the case where solar generated electricity becomes three times cheaper than it is today (which is a real prospect over the next decade).  These kinds of thought experiments can yield real insights into where new opportunities may lie.

As I’ve described in the first chapter, the climate problem is big, it’s urgent, and its misunderstood, which makes it fertile ground for new business ventures.  The changes we need are so large that no part of the economy will remain untouched, and that means opportunity.  In fact, we’ll probably need to scrap some capital in the energy sector, given the rate of emissions reductions that will be required to maintain a livable climate.  Entrepreneurs can lead the way by designing new low-emission products, services, and institutional arrangements that are so much better than what they replace that people are eager to adopt them (and to scrap some of their high emitting existing capital along the way).

Emissions reduction opportunities start by focusing on the tasks we want to accomplish and associating those tasks with flows of energy, emissions, and costs, which you then work to minimize.  This focus on tasks frees you from the constraints of how they are currently accomplished and allows you to capture compounding resource savings upstream.  By considering the whole system and designing to approach theoretical limits of efficiency, it is often possible to achieve drastically reduced emissions while also improving other characteristics of products or services substantially.

Information and communication technology (ICT) is accelerating the rate of innovation throughout the economy, and that development has implications for business opportunities in this space. ICT speeds up data collection, helps us manage complexity, allows us to restructure our institutions more easily, and lets us rapidly learn and adapt to changing circumstances.  It also creates a continuously renewable source of emissions reductions, and is a great place to look for opportunities because it generally offers rapid speed to market and low startup costs.

When considering the climate issue, we can’t avoid the issue of institutional governance. Government has an essential role to play in defining property rights, enforcing contracts, and internalizing external costs.  No other institution can do these things, so we need to ensure that these tasks are performed in a way that leads to the kind of society we want.  When it comes to government, more is not better. Less is not better.  Only better is better.  And better is what we as a society should strive for.

Surviving this stage of human development means we’ll need to evolve as a species to learn how to face challenges like this one.  We’ll need to foster rapid innovation, fierce competition, and active coordination between businesses, all at the same time. We’ll also need to change how we think about our responsibilities to each other, to the earth, and to future generations.  Innovations in our values can be as powerful as those for new technologies in opening up new possibilities for the future, and these we also need to explore.

The technology now exists for us to move past combustion in most applications, but scaling it up to meet the demands of a modern industrial society won’t be easy.  Of course, not doing so will be harder still, because of the damages unrestricted climate change will inflict on the earth and on human society.  It’s long past time to get started.  There’s simply no more time to waste.

Property rights and the climate

In discussions about the climate issue, I’ve often heard the argument that no one, including the government, has a right to interfere in the disposition of private property.  In essence, supporters of this view believe in unrestricted property rights and place great faith in their sanctity.  This position is a bit ironic, because it is precisely the lack of property rights in the global atmospheric commons that leads to the world’s emitters using its ecological services for free and causes the problems I outline in previous chapters.   The deeper issue is, however, that the most widely cited justifications for property rights contain often over-looked assumptions and cannot be used to justify their unrestricted application.

There are two fundamental justifications for property rights in western societies:  one justification is based on natural rights or justice, the other on economic efficiency.  The rights-based justification traces its roots to the writing of the English philosopher John Locke, who, in The Second Treatise of Government, wrote:

Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person; this no body has any right to but himself.  The labour of his body, and the work of his hands, we may say, are properly his.  Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property.  It being by him removed from the common state nature hath placed it in, it hath by this labour something annexed to it, that excludes the common right of other men:  for this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common for others. (ch.5, §.27)

The laborer therefore deserves the fruits of his labor, as Robert Nozick and other contemporary philosophers have argued. However, the final proviso is often overlooked by advocates of unrestrained property rights, yet its effect is to limit their scope dramatically in a world dominated by tragedies of the commons like climate change.  Determining whether a polluter is leaving “as much and as good” for others can be difficult, but once it is determined, the “others” can act to restrict the property rights of the polluter in some undetermined way, even under the philosophy of one of the most forceful and widely-quoted advocates of natural rights to property.

The other major justification for property rights is that of economic efficiency.  This justification has its roots in the writings of Locke and Adam Smith, but it derives the necessity for property rights by showing that property rights in a market-based economy will lead to a more efficient outcome than systems without property rights.  One assumption of this justification is that consumers purchasing a good must pay the full cost of the good, including costs borne by society as a whole.  If all social costs are not internalized, the production outcome will not be an efficient one.  But this assumption is none other than the Lockean proviso of “as much and as good”, and the result is the same.

Both justifications for property rights therefore include the same proviso:  when an individual or organization pollutes, despoils, or is generally not leaving “as much and as good” for others, then there is justification for restricting property rights.  This proviso is both efficient and just, because manufacturers using hazardous materials have an incentive to reduce their consumption, and those consumers who use a product that requires such materials in its manufacture pay the costs of doing so.

It’s also important to remember that government defines property rights and can choose how these will be structured and enforced, which can strongly affect the incentives individuals and institutions have to protect the commons (for one example of this issue in the government context, go here). Many of these choices have some level of arbitrariness to them, which means we as a society can make choices that favor long-term sustainability instead of short-term profit, and there’s nothing wrong with that.

I doubt anyone would argue nowadays that preventing people from owning others as slaves was an unwarranted abridgment of property rights, but that shift had major social and economic implications, not the least of which was living up to the promise of the Declaration of Independence, that “all men are created equal”. Other examples abound, from restrictions on how companies can treat workers, to conditions on the chartering of corporations, to creation of new types of corporate entities, to the penalties imposed when property rights are actually infringed by others in the society.

For many decades the property rights associated with a battery transferred fully from the manufacturer to the purchaser of that battery.  In recent years, as society has become more aware of the toxic effects of chemicals in groundwater, some countries (notably those in Europe) have moved towards a modification of property rights, under the rubric of “extended producer responsibility”.  The manufacturer is still responsible for safely recycling that battery, even after it is sold to the customer, so in a sense the producer still owns the part of the battery’s costs associated with long-term disposal.  This change is not that different from property rights for land in the US, where rights for mining, water, wind generation, and air (in the sense of the right to fly through the air above some land) can be split off and sold separately, depending on the laws for the state in which the property resides.

Decanio raises this issue clearly in the context of climate:

“Property rights begin with the government, because it is the government that defines what kinds of actions are lawful, what kinds of exchanges are permitted, and what kinds of contracts are enforceable…

Social entitlements typically are inalienably attached to individuals.  Yet the practical significance of these entitlements depends on interpretation and enforcement of laws.  Ultimately it is the state that makes this determination.

The reason this matters for climate policy is because the future outlines of the economy are going to be determined, to a very large degree, by the kinds of rights–in climate stability, emissions levels, or fossil fuel use–that ultimately will be policy-determined.  The situation until now has been one in which users of fossil fuels have been free to dispose of the waste products of the combustion of those fuels (mainly CO₂) for free…This allocation of ‘climate rights’ was appropriate in the preindustrial and early industrial world, when energy demands were relatively low and human activity did not have much of an impact on the atmosphere as a whole…

That situation no longer prevails…If and when governments begin to address the consequences, and assign various kinds of environmental or climate rights to people (including future potential victims of climate change), the result will be a change in the allocation of wealth.”

Thus, the definition of property rights depends on context, as Decanio rightly notes, and this definition can (and should) evolve as the context changes (and boy has it changed).

The deep insight conveyed by Decanio is that solving the climate problem requires redefining property rights to reflect the new reality of our limited atmosphere, and no one else can do that except governments. It is therefore nonsensical for people to argue that private property rights are absolute—they are defined by government based on a certain context, and when that context changes, the way we define property rights needs to change too.  The argument about climate and other environmental issues then becomes about what definition of property rights makes sense instead of focusing on the costs imposed on individuals and corporations, and that’s a much more appropriate place to have the argument.

For individuals, rights come with responsibilities.  That’s true of people and it should also be true of companies. They are treated as persons under the law, at least from a rights perspective, but their responsibilities need to also be enumerated and enforced.  If the government aggressively enforces property rights without also simultaneously defining and enforcing the responsibilities for property owners then this imbalance will lead to outcomes that are bad for society. So we really do need a consumer products safety commission to keep lead paint out of toys, a Food and Drug Administration that aggressively enforces purity standards for consumer goods, and a government that in general takes a proactive role in analyzing the societal costs of private actions and takes appropriate actions when the costs of those actions are not being born by the economic actors who cause them.   Even better would be giving incentives for companies to proactively behave in the most sustainable way, but that’s something we’re going to have to work on.

This way of looking at the problem has an additional important feature:  it reveals yet another issue with economic models.  These models take the current set of property rights as a given, but if these are redefined (as it is incumbent upon all market systems to do as conditions change) then the equilibrium that results may be quite different from one where property rights are kept constant.  The possibility for changing property rights is therefore another important source of multiple equilibria (along with increasing returns to scale, information asymmetries, and transaction costs, to mention a few), and that means (again) that we get to choose the kind of society we want by our choice of property rights regimes.

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This blog post draws from Chapter 7 in Jonathan Koomey’s latest book, Cold Cash, Cool Climate:  Science-based Advice for Ecological Entrepreneurs, to be released by Analytics Press on February 15, 2012.    Written for entrepreneurs and investors, this book describes how to profit from tackling climate change, one of this century’s greatest challenges.   The author acts as your company’s scientific advisor, summarizing the business implications of the climate problem for both new and existing ventures.  Koomey helps you effectively allocate scarce time and resources to the most promising opportunities, drawing upon his more than 25 years of experience in analyzing and implementing climate solutions.

The central problem of governance

I’ve worked with my friend Stephen Decanio, an economics professor emeritus at UC Santa Barbara, for many years.  He’s an economist who, like me, has a deep skepticism about the computer models used to analyze the economics of climate change.  He’s also a keen observer of the politics around facing the climate challenge, so I take his musings seriously.

I sent Steve an article about the failure of our elected representatives to create the fundamental reforms needed in the financial system after the market collapse of 2008, and he replied “I’m becoming more and more convinced that the real problem doesn’t have to do with economics or technology, but with governance.”  What he meant was that the challenges we face, whether climate change or financial meltdowns, have in common the failure of government or corporate governance to align private incentives with the public good.

What has been most disheartening to me about the debates over financial regulations, health care reform, and climate change in the US in the past few years is how obviously sensible solutions are sidelined by one side or the other based on ideology or political interest, without serious discussion of the real issues.  Regulators and elected officials are “captured” by the industries they ostensibly control, and either fail or refuse to see the need for structural reform.  The news industry has been reduced to entertainment, with little real analysis in all but a few news shows (some comedy shows even do better analysis than the best of the real “news” shows). And the lack of accountability for truly colossal mistakes (like the financial meltdown) breeds a depth of public cynicism that virtually ensures that further disasters lie ahead.

Yet none of this is inevitable. The founding fathers laid out a framework for government that stands to this day as a paragon of how to make self interest work for the common good, relying strongly on checks and balances and competing interests to prevent the accumulation of too much power by any one individual or group.  The system hasn’t been perfect, but it has worked remarkably well (better than all competing systems, as Winston Churchill noted).   It has weathered world wars and numerous financial crises, and thus far always emerged stronger than before.  But the system only works when all participants share a commitment towards working together for the common good.

Now we face new realities, with technological and financial power beyond the imagination of the people of two centuries ago, and new environmental challenges that require new ways of working together (for one eloquent exposition of this idea, see David Orr’s book Down to the Wire). That means we must design institutions that recognize those realities, and use our new capabilities to align private interests with broader societal goals.  Private enterprise is the best means yet devised for driving down costs and spreading the use of technology, but capitalism cannot survive without some check on the actions of corporations.  Otherwise we end up with lead in children’s toys, testing of drugs on unsuspecting patients, fraud and theft by corporate cronies, and rivers that catch on fire.

The challenge is to create the right kind of check on corporate power, keeping the spirit of innovation alive while curtailing corporate excesses. In the US, at least until recently, we seem to have been moving away from limiting corporate action in any form.  Somehow the pendulum needs to swing back, but some systemic problems prevent it, including people who worry greatly about excess government power but not about excess corporate power, and vice-versa.  If you worry about both, I get it, but if you only care about one or the other, I think you’re missing the boat.

One important purpose of government is to promote what the US Constitution calls “the general welfare”.  This means designing systems that result in economic efficiency and social justice, minimizing perverse incentives.  For example, one of my former neighbors is a lawyer who defends developers against environmental lawsuits.  In a recent case, one of his clients bought an old railroad yard and promised significant funding to clean it up, so that housing could be built on the site.  A local environmental group, sensing an opportunity to get publicity, sued anyway, even after the company met with them and promised to go beyond current requirements.  The problem in this case is that the incentives for the local environmental group (to get publicity) are not aligned with the social goal of spending money on cleaning up the toxic mess left at the old industrial site, and now hundreds of thousands of dollars will be spent on legal fees that could otherwise have gone to cleaning up the site.  There are many such examples where the incentives for individuals and institutions do not necessarily align with the social good.  Markets are pretty good at providing the right incentives (provided certain conditions are met) but they are not infallible, and need to be designed, operated, and regulated well, otherwise we get financial crises, polluted rivers, and toxic toys.

I do wonder if all great countries reach a point where they can’t reform themselves, because they are too rich, the entrenched interests are too powerful, and the people grow self congratulatory and self indulgent.  I’m hopeful we haven’t reached that point, and I don’t see why it has to be that way.  We live in a democracy, after all, and the American ability to reinvent ourselves has been proven time and time again. We just need to figure out how to get things moving in the right direction.

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This blog post draws from Chapter 7 in Jonathan Koomey’s latest book, Cold Cash, Cool Climate:  Science-based Advice for Ecological Entrepreneurs, to be released by Analytics Press on February 15, 2012.    Written for entrepreneurs and investors, this book describes how to profit from tackling climate change, one of this century’s greatest challenges.   The author acts as your company’s scientific advisor, summarizing the business implications of the climate problem for both new and existing ventures.  Koomey helps you effectively allocate scarce time and resources to the most promising opportunities, drawing upon his more than 25 years of experience in analyzing and implementing climate solutions.

What kind of government do we want?

Imagine a company where the CEO says “We’ll never raise prices, borrow money, or increase our expenses under any circumstances, nor will we act to expand existing or create new markets when we have a competitive advantage in doing so”. You’d think that CEO was loony.  But this is exactly what some say about government when they say that spending and taxes should never increase, that environment regulations should always be relaxed, and that government should always do less than it’s doing now.

I believe that anyone who spends money should get what they pay for, and that money (particularly public funds) should be spent prudently, wisely, and carefully. But as a father, consultant, researcher, and entrepreneur, I’m also acutely aware that sometimes families, companies, governments, and societies need to invest money for the future.  "You have to spend money to make money", says the old proverb.  And sometimes only government can do what needs to be done.

What we need is an honest discussion about what kind of government we want and what we want it to do for us.  Sometimes we’ll want more government, like when we find lead in children’s toys, salmonella in peanut butter, poison in medicines, an unsustainable health care system, or fraudulent assets and a lack of transparency in the financial world.  We know from experience that only government can fix those things. Sometimes we’ll want less government, like when old and conflicting regulations get in the way of starting innovative new companies. Only government can fix that too (although the private sector has some lessons to teach on that score). And sometimes we’ll want the same government, just delivered more efficiently (like the state of California has done with the Department of Motor Vehicles in recent years, the good results of which I’ve experienced firsthand).

When it comes to government, more is not better. Less is not better.  Only better is better.  And better is the goal for which we as a society should strive.

It makes no sense to oppose taxes, increased spending, or stricter regulations in every circumstance. Sometimes we need to do those things, and when we do them, we should ensure fairness, efficiency, effectiveness, accountability, and transparency so we get what we’re paying for.  But what we should not do is govern our actions based on ideology that is blind to fiscal, environmental, and other realities.  That’s not liberal or conservative, it’s just wrong.

Which brings me to the climate issue. The choice of how to fix the climate needs to be made based on facts and evidence, not on unreasoning hostility to any government action.  One common theme for those opposed to action on climate is a deep concern about government.  It is so deep, in fact, that these folks appear unable or unwilling to recognize the reality of the climate problem described in the earlier chapters.  This is exactly backwards–once you accept that only government can do certain things about the climate problem, we move that discussion to where it should be, focusing on the question “what kind of government do we want, and how can we make it work best?”  Government is us, it is not an alien force, and we will, as the old proverb says, get the government we deserve.  If we don’t figure out better ways to govern ourselves, we’re going to be in big trouble, given the scope and nature of the climate problem.

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This blog post draws from Chapter 7 in Jonathan Koomey’s latest book, Cold Cash, Cool Climate:  Science-based Advice for Ecological Entrepreneurs, to be released by Analytics Press on February 15, 2012.    Written for entrepreneurs and investors, this book describes how to profit from tackling climate change, one of this century’s greatest challenges.   The author acts as your company’s scientific advisor, summarizing the business implications of the climate problem for both new and existing ventures.  Koomey helps you effectively allocate scarce time and resources to the most promising opportunities, drawing upon his more than 25 years of experience in analyzing and implementing climate solutions.

Climate scientists and money

One commonly expressed belief among those who deny climate change is that the scientists are “in it for the money”.  Texas governor Rick Perry stated this point of view bluntly (but inarticulately) on Aug. 17, 2011:

“I do believe that the issue of global warming has been politicized. I think there are a substantial number of scientists who have manipulated data so that they will have dollars rolling into their projects. I think we’re seeing it almost weekly or even daily, scientists who are coming forward and questioning the original idea that man-made global warming is what is causing the climate to change. Yes, our climates change. They’ve been changing ever since the earth was formed. But I do not buy into, that a group of scientists, who in some cases were found to be manipulating this data.”

What’s remarkable about this claim is that the climate science research money at stake (single digit billions, by most accounts) is tiny compared to the revenues of the global fossil fuel industry, which totaled at least $5 Trillion US dollars in 2010 (about $4 trillion for oil & gas and $1 trillion for coal, according to Appendix C in Cold Cash, Cool Climate).  This is about ten times larger than the revenues for the tobacco industry in that year (see Appendix D in the book).  Everyone knows how hard the tobacco industry fought to preserve its market share in the face of scientific evidence, funding competing and misleading research, lying about the results, and doing everything possible to delay action on smoking in the US. Why should we believe that the fossil fuel companies would act any differently to protect ten times as much annual revenue?

And the idea that scientists would lie in a coordinated way just to preserve research funding is a ridiculous conspiracy theory, but you have to know something about the scientific community to understand it.  Scientists try to determine truth based on the preponderance of the evidence in a process that has open inquiry, rigorous peer review, and independent third party reproducibility of scientific claims.  We also value truth above all else, so if we were to accept money in exchange for “throwing” our research we would be betraying the values that we hold most dear, would be punished for it in our expert community, and would be committing professional suicide.  Reputation is precious and perishable, and once destroyed cannot easily be restored. In effect, taking money for altering our views is about as close as you can get to treason in the scientific community.

So the idea that scientists are “in it for the money” is just plain silly.  But I can also explain this point in a different and more personal way. I’ve been working on understanding the climate issue since the mid 1980s, and I have a deep knowledge of how economic forecasting models work. If I really wanted to make money I could have applied my modeling smarts to working on Wall Street, where people with quantitative modeling skills are in high demand. Why then would I have worked at a government research lab for two decades when I could have had a salary five or ten times as high?  Can’t think of a reason, other than that I actually care about whether human civilization survives the next century in some reasonable semblance of its current form.

For those who think climate scientists are manipulating their research for financial gain, I ask you this:  Which do you think is more likely: that thousands of scientists who have devoted their lives to exploring for truth are engaged in a massive conspiracy to hide the truth from the world, or that the fossil fuel industry is doing its best to protect $5 trillion US in revenues?   For most folks, this question practically answers itself.

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This blog post draws from Chapter 7 in Jonathan Koomey’s latest book, Cold Cash, Cool Climate:  Science-based Advice for Ecological Entrepreneurs, to be released by Analytics Press on February 15, 2012.    Written for entrepreneurs and investors, this book describes how to profit from tackling climate change, one of this century’s greatest challenges.   The author acts as your company’s scientific advisor, summarizing the business implications of the climate problem for both new and existing ventures.  Koomey helps you effectively allocate scarce time and resources to the most promising opportunities, drawing upon his more than 25 years of experience in analyzing and implementing climate solutions.

Finally, someone in the mainstream media applies sensible analysis to claims about who created the national debt

While I don’t agree with all the details, the Washington Post’s Ezra Klein has taken a decent first crack at the question of who’s responsible for the increase in the national debt these past few years.  As I pointed out last August, it’s incumbent on people talking about this issue to do more than simply subtract the national debt today from the national debt the day President Obama took office.  To do this analysis properly you need to assign causality for all the spending.  So by this logic I would assign all the costs of the Iraq war to George W.  Bush, because he started that war while Obama campaigned against it, but I would assign the costs of the Afghan war to Obama during his first term because he supported that war and even expanded it.

It’s time for anyone examining this issue to do the simple math.  This isn’t rocket science, but the news media seems to treat it that way.  And of course, it’s better to be approximately right than exactly wrong, and the simpleminded assertion about this issue made by politicians attempting to blame the president for anything and everything is exactly wrong.

Why "drain America first" is not a jobs policy

Michael Levi of the Council on Foreign Relations did a useful analysis last fall of the jobs the US could expect from drastically reducing oversight and expanding oil and gas drilling, both on and offshore.  There are a few important insights from this work, the main one being that advocates for this approach vastly overestimate the number of jobs that would come from such a policy.  This overestimate mainly results from false assumptions, a big one being the belief that the Obama Administration has somehow strangled oil and gas development in the US.  Climate Progress, referring to a Wall Street Journal article (subscription required) summarized as follows:

America’s Oil Production Grew Faster Than Any Other Country in Last Three Years

Federal forecasters are expected to confirm on Monday what the energy industry already knows: Oil production is surging in the U.S.

The U.S. Energy Information Administration is likely to raise by a substantial amount its existing estimate that U.S. oil production will grow by 550,000 barrels per day by 2020, to just over six million barrels daily.

The forecast will include new production data from developing oil fields, including the Bakken shale area in North Dakota, which could hold as much of 4.3 billion barrels of recoverable oil. North Dakota’s output of oil and related liquids topped 500,000 barrels per day in November, meaning that the state pumped more oil than Ecuador. In fact, U.S. oil production grew faster than in any other country over the last three years and will continue to surge as drillers move away from natural gas due to a growing gas glut, experts say. The glut has sent natural-gas prices to a 10-year low.