Tuesday, December 29, 2009


Someone explains in a mainstream newspaper that the compensation under the Australian government's proposed ETS/CPRS is highly distorting. Actually, now that the Liberals aren't going to vote for an ETS in any form why not start over and compensate simply by reducing corporation and personal income taxes across the board (which is the most efficient approach)? I guess that goes against the bureaucratic instincts of this government and they do seem to cave to lobbyists even when they don't need the Liberal votes...

Friday, December 25, 2009

Nice Antidote to All the China Bashing

Copenhagen is a bit like the blind men and the elephant. Everyone sees something different. Bernarditas de Castro Muller (on the left in the photo) writing in the Guardian blames the West and the US in particular. I blame the US too. Though of course it is the Bush administration and the Republicans in the US Congress that are more to blame than the Obama administration. I see that China and the rest of the developing world are resisting taking on any legally binding commitments until the West starts taking its responsibilities seriously. That doesn't mean that the Chinese government doesn't care about climate change. It's taking considerable action domestically.

Wednesday, December 23, 2009

News Media as a Channel of Environmental Information Disclosure: Evidence from an EGARCH Approach

I am a coauthor of a new working paper that uses an event study methodology to look at the impact of bad environmental news on the stock returns of U.S. listed firms. The lead author, Ran Zhang, is one of my former students at RPI. The paper is based on a chapter of her dissertation. My role in the paper was suggesting the original topic to Ran, providing feedback at various stages, and doing a lot of work on writing and editing this version.

A stock market event study tests whether stock returns are greater than would normally be expected in the period following a particular event in this case the release of bad environmental news. The topic itself isn't novel but our study adds the following value:

1. We use a larger sample than previous reliable studies of this issue. Large samples help us get more accurate estimates of effects. Filbeck and Gorman use a larger sample, but they do not seem to have cleaned up the data to remove "confounding events". When other important events happen in the same time window as the environmental news event we are interested in, we can't tell using daily data whether any change in stock prices is due to our event of interest or the confounding event. The confounding events swamp the signal with noise. Filbeck and Gorman only found a significant impact on stock prices from news of environmental awards. This doesn't mean that other news has no effect on stock prices. Simply that they couldn't isolate that effect.

2. As well as using traditional ordinary least squares estimation of the model we use an E-GARCH approach that can deal with the tendency of extreme returns in the stock market to cluster. Contrary to previous research we find that the results are robust to using either OLS or E-GARCH.

3. We measure the size of effects for different types of news and in different industrial sectors. Accidents and complaints are associated with 2.0% estimated mean reductions in stock market value, whereas lawsuits are associated with 1.5% reductions and court rulings and fines with 0.8% reductions. Transportation equipment and petroleum refining firms experience mean reductions in value of near 2.0%, versus 1.6% in chemicals firms, 0.8% in electric, gas, and sanitary services firms, and 0.7% in other firms. The mean effect across all industries and news types was 1.3%.


G. Filbeck and R. F. Gorman, The stock-price reaction to environmentally-related company news, Journal of Business and Public Affairs 29 (2004) 25-31.

Tuesday, December 22, 2009

Tuvalu is Rather New

Link to an article on the evolution of Pacific atolls. While I realised that these islands in their present form only developed after the end of the last Ice Age, I didn't realize that the stable islets on atolls have only been habitable for a thousand or so years due to a fall in sea level of about 2 metres.

Alley's AGU Lecture

Excellent lecture from the recent AGU meeting on the geology of climate change.

Climate Proposals Scoreboard Website

The Climate Interactive website translates climate policy proposals into expected climate outcomes. The video above provides some general introduction.

They also compute emissions trajectories based on proposals. The resulting warming, is warming by 2100 rather than equilibrium warming. I'm guessing that the mean climate sensitivity they are using is 3C for doubling CO2. This chart shows that all the potential proposals result in emissions in 2050 being roughly the same as today.

There is also a nice summary table of all current proposals and lots more.


Paul Krugman agrees with me that the US Senate is "dysfunctional". One reason that the Australian parliament is relatively effective is that there are strict limits on how long each member can speak. Therefore, filibusters are almost impossible.

Sunday, December 20, 2009

Is One State, One Vote the Problem?

In my opinion (subject to being changed by evidence and argument), the two main obstacles to a more meaningful outcome at COP15 were the intransigence of the US Senate and the gridlock in the UN structure in Copenhagen. In the end, the final accord was not put to a vote of the plenary but simply "noted". The objections of many of the small countries to being dictated to by the large countries who came up with the accord is understandable, but they'd also blocked convergence of the process until the last minute accord was written up. As I've already opined, there may have been a willingness for more consensus at Copenhagen if the US had offered some real cuts in emissions from the 1990 baseline. Maybe even 25% from 2005 would have helped?

Some commentators are saying that this shows that the UN is not a useful forum to have discussions on emissions reductions and I agree. The large numbers/transaction costs problem is all too evident.

The UN and the US Senate have something in common: Both are based on one vote per country or state.* Is it democratic that California (population 36 million) and North Dakota (pop 500k) have the same number of votes in the US Senate? Is it democratic that China (pop 1.3 billion) and Tuvalu (pop 12k) have the same number of votes in the UN?

It's neither democratic nor efficient.

The idea of the US Senate was to put a check on the "tyranny of the majority". But does it have too much power? The UN also has a two tier structure with the Security Council being a little closer to population representation. But the Security Council has no role in climate negotiations.

Here in Australia, the Senate is also a problem. It often gives exceptional power to a one person party like Fielding. An actual or effectively (like the UK) unicameral parliament is not neccessarily ideal either... The UNFCCC though is the worst case scenario of just an upper house (and where every member has a veto vote!).

* There are two US senators per state but only one third of the senate is up for election every two years and so on a party basis it might as well be one delegate per state. Yes, senators don't really vote on party lines but I doubt that the two senators for a state, assuming that they are from the same party often vote differently to each other. 9 out of 50 states actually have a split delegation at the moment (though one of those is Vermont which means left-wing and more left-wing :))).

Friday, December 18, 2009

Should You Submit Papers to Open Access Journals?

Here is an article on how to choose a journal to submit to in the field of paleontology (yes, recently I like to read blogs about dinosaur and other vertebrate paleontology). I disagree with quite a few of the points in the article. In particular, the blogger favors open access journals but then admits that anyone can pretty much get a copy of an article in the form of a pdf if they want one whether it is published by a commercial publisher or not. Whether we really need traditional journals or even journals at all is also a good question, but let's focus on open-access journals here.

Many scientists argue that there is no reason to give money to commercial publishers like Elsevier when academics can nowadays organize many of their functions on their own (using institutional resources) - though someone has to pay the editor/managing editor if a serious refereeing process is going to be carried out. But assuming that this is a worthy goal, in many disciplines such as economics there are very few serious open access journals as yet and these aren't catalogued by Thompson/ISI/WoK and don't have much of a track record.

I think it is still important to publish in journals that are indexed by Thompson/ISI/WoK and I disagree on ignoring impact factors. There are now 5 year impact factors available from them and from eigenfactor.org. These turn out to be pretty correlated with the 2 year ones even in a slow discipline like economics. Given this it makes most sense to go ahead and publish with Elsevier as every research library in the developed world is going to subscribe to them if not to anything else (it’s hard to get published in the top not-for-profit journals in econ. as they have rejection rates like Nature and Science – and take much longer to turn around manuscripts).

What we do have in economics is a very strong system of working paper series (catalogued by RePEc and SSRN) which has total free access but is not refereed. But my journal articles definitely get more citations than my working papers do (which in turn do better than my book chapters). Journals in econ don’t care that the paper is already online as a working paper. Neither do any of the natural science ones I’ve dealt with.

It is true that university libraries are much less useful than they used to be for people who are not members of the institution. Members of the public used to be able to walk in and take a copy of a journal off the shelf and read it. Now you usually need passwords to access the computers in the library. So open-access journals can play a role in providing access to those who aren't members of institutions. But as I've said, in economics many or most papers are available online as working papers anyway and if not, you can usually get a copy of a paper by e-mailing the author.*

This is a public good problem. Supporting open-access journals might be good for the dissemination of science but currently individual academics will lose from publishing papers in them. And the public benefit is probably lower in economics than some other disciplines.

* This is usually my last resort (or second last to actually paying a publisher for an article). First is to check my library, followed by Google Scholar, followed by interlibrary loan, followed by asking someone close at another institution if they have it there.

Thursday, December 17, 2009


I don't have much to say about the Copenhagen conference at this point. Seems silly to try to analyse it from this distance. It looks to me like anything can happen at this point. What's puzzling me mostly is what the hell have the negotiators been doing for the last 2 years since Bali? They should have been more agreed on the basic framework for this meeting before getting there than it looks like they were. My guess is that there may have been more willingness for cooperation before developing countries saw how small the US's offer was. As I blogged earlier, in terms of carbon intensity the US offer is the same as China's. In terms of a cut in emissions relative to a baseline I've heard it only amounts to 3% (Based on CDIAC's numbers it looks like 0% to me). But at Kyoto the US offered to cut emissions by 5% by 2010 relative to 1990 (though they never ratified the treaty). So the US is offering much less now than they did in 1997!

Monday, December 14, 2009

Paul Samuelson

The big news today in economics is the death of Paul Samuelson. I don't have much to add to what is being said except that I am one of those first introduced to the topic via his textbook. We used it as the English textbook in the "Introductory Economics" course I took in my first year at Hebrew University of Jerusalem in 1985-6. There was also a very terse textbook in Hebrew titled "Mavo Lekalkalah" (Introduction to Economics) produced by the student union based on past lectures. After all my moves, I no longer have Samuelson's Economics. I really have very few books compared to most academics.

Saturday, December 12, 2009


The Triumph of Judas Maccabeus: Gerrit van Honthorst, 1590-1656

David Brooks write a short summary of the Hannukah story in the New York Times. Mostly he just recounts stuff that is in the books of Maccabees I and II (which are not part of the canonical Hebrew Bible but they were included as part of the first Greek translation of the Old Testament, the Septuagint). This stuff is partly historically true but written from the point of view of the victors and the accounts clash a bit. Brooks puts spin on various aspects of the story but I'm not sure what Brooks' point really is. It really doesn't seem very controversial to me. What is interesting are the comments on his article and that Facebook users were banned from linking to the article due to some users complaining of "abusive content". Many of the commenters say that they had no idea that this was the story of Hannukah. Some of those commenters are not Jewish but many seem to be Jewish. At the other extreme are those who say he hasn't taken historical scholarship on the story into enough account. And then there are others who say he spoiled the holiday for them, for example:

New York
December 11th, 2009
11:31 am
What an inappropriate article-- which quotes history while fully distorting the facts-- and attempts to take the joy out of a beautiful holiday with a tradition of hope and renewal. In spite of your "faux" intellectualism, this will be a beautiful night of family gatherings, of embracing our friends, our children and grandchildren while focusing on the tender feelings of love life can bring. "

Many religious people base what they believe on what scriptures and religious scholarship actually say. But many people hold very strong beliefs about stuff they just invented themselves. From a secular viewpoint both may be equally unsubstantiated beliefs. But at least the first group think that they have some evidence to base their opinion on. And in contemporary science and policy debates many people hold very strong beliefs based on stuff they just made up themselves without any evidence to support it. It's strange how humans have a capacity for doing this.

Copenhagen Circus?

Paul Frijter's take on the climate negotiations and my comment on his post:

"Your blogpost shows why the new approach of the Australian Liberal Party won’t work. Taking some actions like increasing energy efficiency initiatives or renewable energy targets likely will only slow the growth of emissions in the face of the kind of things you list in the article. So we do need to save ourselves from our desires by imposing carbon restrictions and pricing (preferably via either an ETS or a carbon tax rather than administratively fixed quotas). Will the world’s governments eventually agree to a serious move of this sort. I think that eventually they will though more serious damage from climate change might be neccessary before they really get a move on. My best guess is that global carbon emissions in 2050 will be the same as today. This is backed up a small and unscientific poll I ran on my blog. In other words, emissions will grow slower than under business as usual but not slow enough to stabilize the climate. All the serious economic analysis of the costs of acting on climate change show that the costs are not that high – i.e. GDP would be 4-5% lower in 2050 than otherwise. Yet the public, business, and governments don’t seem to believe the economic analysis. It’s hard to believe that they think that that cost is too high."

Friday, December 11, 2009

Two Paper Submissions this Week

We submitted two papers this week - more details when the working paper versions are up on the web. One is a resubmission (to a different journal) of my paper on between estimates of the EKC. The other is a new paper coauthored with a former student at Rensselaer, Ran Zhang, and Ken Simons an Assistant Prof. at RPI. It's a paper about corporate social responsibility based on a chapter from her dissertation. I got her going on the topic and did quite a bit of feedback, editing, and adding references etc. to this version.

Tuesday, December 8, 2009

Peer Review, Berlin, 1945

The latest in the Downfall video clip meme:

Like many commenters on YouTube write the captions really capture the feelings many of us have (at least now and then) when getting back peer reviews of our papers.

Copenhagen Prediction Market

CEEM at UNSW has set up a prediction market for the outcomes of COP15. It looks pretty complicated - i.e. you'd need to know a lot of details or read up on them on the site to know even what many of these markets mean. And the prizes are in the form of carbon offsets. Will be interesting to see how well it works. The current most probable outcome for the the developed nations target is a reduction of less than 10%. I guess that could mean "no agreement". So why not have a zero % contract? $10-14 billion of funding for developing countries is also a most probable outcome. Looking at the different graphs - this doesn't look like an efficient market. The only trading contract for the EU-27 target is the 30-40% one...

EERH Working Paper Statistics for November 2009

The rate of abstract views and downloads for the EERH Working Papers on RePEc seems to be settling down this month. We got 180 paper downloads and 507 abstract views. The most popular paper this month in terms of downloads was the paper by Peter Wood and Frank Jotzo: "Price Floors for Emissions Trading". A paper by Evers et al.: "Economics of Ethanol Production – a brief introduction" got the most abstract views. The series ranked 559th for downloads and 739th for abstract views out of about 2700 working paper series on RePEc that includes many old and established working paper series. Ranked by downloads per item we came in 74th globally and 117th when ranked by abstract views per item.

One Reason I Don't Belong to a Union

It's one thing to be forced to pay taxes to a government that does things you disagree with, but why pay fees to a union who waste some of them on political campaigns that you disagree with and are irrelevant to their members' direct interests? Of course, there are other reasons too... BTW I once did join a union as it was the best route to health insurance in the country I then lived in and I voted for the Labor party at the last Federal election in Australia so I can be pragmatic :)

By contrast with the situation in Australia where it seems that only the one union is allowed to negotiate pay and conditions, in my previous position in the U.S. we were told by the provost ("chief academic officer") of our university that it was illegal for faculty members to even ask other faculty members whether they wanted to join a union as we were deemed in law to be "management" rather than "workers". I found this very strange.

Monday, December 7, 2009

Spash Scandal One Month On

As you may have heard, Clive Spash resigned from CSIRO and is moving back to Europe, apparently to Norway (I'm not surprised really about this)... I haven't spoken with him since the Darwin meeting. In the meantime, the issue has been debated in the Australian Senate and CSIRO have been trying to clarify their policy (see below). Dr Clark's position looks reasonable. I guess the problem is how the word "advocate" is interpreted. I would have assumed that saying "ETS's are crap" based on supporting arguments like Spash did is not advocacy. Saying "Labor's policy is trash, I prefer the Liberal Party's approach" would be advocacy. But that is not how CSIRO treated his work. What do you think?

From: Clark, Megan (OCE, Campbell)
To: CSIRO - All Staff
Subject: CSIRO Public Comment on Policy

Dear Colleagues

Over the last few months I have shared with you the importance of communicating the results of our research. Over the last few weeks there has been debate in the Parliament, and in the media on CSIRO’s ability to comment publicly on government and/or opposition policies.

As discussed in my last email to you, as a publically funded research agency the principles of our Charter are clear. CSIRO staff are actively encouraged to debate publicly the latest science and its implications and to analyse policy options, however we do not advocate for or against specific government or opposition policies.

I stand by the Charter. It protects the independence of our science and comment. It also protects each of us from being exploited in the political process. It allows us to provide frank and fearless scientific input to policy development.

However our independence and scientific integrity in the eyes of the Australian people are diminished if we publicly support or criticise government or opposition policies. We are trusted by the Australian community because of our record of scientific excellence. They know we have good internal approval and review processes in place for all of our publications.

I, my Executive Team colleagues and the Board value our scientific independence and will always defend your right to speak publicly in a manner consistent with the Charter.

Today’s policy makers need our high quality independent science and related advice on the complex challenges they face. Climate change and its impacts, water scarcity, biodiversity decline, Australia’s growing urbanised population and food security are just some of the national and global issues they grapple with on a daily basis.

In any given week CSIRO scientists have a wide range of interactions with government, industry and the wider community. In the climate change space for example over the last two years we have published numerous papers and reports on the ETS and carbon trading issues, as well as extensive work in complex policy areas such as water. In addition, in March we conducted a briefing on the latest science of climate change for members of Parliament. We also made over 40 submissions and appearances before Parliamentary Committees looking at the issue of climate change since 2008. We need to continue to be a strong voice in these critical issues.

As science is now predicting how our actions today will affect us in 50-100 years from now, there is an even greater responsibility for science’s contribution to society to be substantive and supported by rigorous scientific method and robust analysis.

I encourage each of you to continue to communicate the results of your work consistent with our Charter.



Dr Megan Clark
Chief Executive, CSIRO

CSIRO Corporate Centre, Limestone Avenue
Campbell, ACT 2612 (all correspondence);

Mayfair House, 351 Royal Parade
Parkville, VIC 3052

Tuesday, December 1, 2009

China Can't Win

People like this see China's announced carbon intensity target as "unambitious" because the business as usual scenarios from the IEA and US EIA already incorporate all of China's ambitious energy intensity and renewable energy goals. I wouldn't call those scenarios "BAU". Yes, China's carbon intensity target is probably mostly confirming their existing greenhouse policy. But why should China have to bring new measures to the table now when the US and Australia haven't even managed yet to legislate anything serious on greenhouse policy? Should we start calling the US's 17% and Australia's 25% emission reduction proposals BAU?

Monday, November 30, 2009

Great Climate Data Resources Page

In response to the "Climategate" events the RealClimate blog has put together a great resource page with links to various climate data and modelling results.

Sunday, November 29, 2009

Artificial Meat

I'm very skeptical that this would be an economic proposition any time soon. You'd think it would be a lot easier to produce artificial milk - engineer some micro-organisms to secrete cow milk. Instead we still go to the trouble of raising cows, milking them, and transporting the perishable product to market. I'd like this to be true - it has big environmental and possibly ethical advantages.

Saturday, November 28, 2009

China's Intensity Target is at Least as Stringent as the US Intensity Target

I'm puzzled by people saying that the Chinese intensity target is just business as usual. Of course, Roger Pielke is skeptical like me that the IEA projection is anything like realistic BAU. Some simple math reveals that the Chinese target is likely a greater intensity cut than that proposed by the US. The US proposes to cut emissions by 17%. In other words emissions will be 83% of the 2005 level by 2020. If the US economy grows by 2.5% per year then its economy will be 44% larger in 2020 than in 2005 (both China and the US's proposed base year). Intensity in 2020 is then .83/1.44 = 0.57 which is a 43% cut, right in the middle of the Chinese range. The slower the US grows the less ambitious its target is compared to the Chinese target.

The U.S. economy grew at 2.7% between the end of 1999 and 2007 and as we all know at a "slower" rate since the end of 2007. So 2.5% seems to me like a realistic rate for 2005-2020. We are planning to have more to say about this in February.

Thursday, November 26, 2009

China Announces Carbon Intensity Target

China proposes to reduce carbon intensity by 40-45% by 2020 relative to 2005 which was a year with a relatively high carbon intensity.

President Hu Jintao announced at the UN Meeting in New York that China would adopt a carbon intensity target. Now we know what it is. This looks like a quite ambitious target. Frank Jotzo and I are supposed to talk about this at the AARES meeting in February. Now we have a solid target to analyze.

Monday, November 23, 2009

Saturday, November 21, 2009

And then a Reject...

Right after getting a revise and resubmit I get a "reject" for my paper "Between Estimates of the Environmental Kuznets Curve". Understandably, referees and editors are unwilling to publish more papers on the EKC and this paper apparently confused people as to whether it was a comment on Vollebergh et al. or a new econometric method for estimating EKCs (it's both) and if it was the latter I didn't apparently do a very good job of explaining why that is justified and worthwhile. I'm going to turn round pretty fast to submit this somewhere else... I also have two revise and resubmits to do...

Tuesday, November 17, 2009

Revise and Resubmit...

I got another revise and resubmit today. This time for my paper on interfuel elasticities of substitution. The most important point the referees want me to address is the weights I use in the meta-regression. I use the square root of sample size. They would like me to use the standard errors of the parameters from the original studies. However, one referee admits that when the statistics that are being compared in a meta-analysis are complicated nonlinear functions of the original estimated parameters as is the case here this may in any case not be desirable and provides a reference for backing up my view.

For example, some authors only provide standard errors for the original parameters that they estimate, not the elasticities they present, which are already nonlinear functions of the original parameters. In order to derive an estimate of the standard error of the elasticity I need to know the covariance between the parameters (which is almost never presented) or assume it is zero, which introduces another source of error into my study. In any case, my study uses shadow elasticities of substitution, which are share weighted means of the Morishima elasticities of substitution. In many or most cases, authors do not present the cost shares and I calculate them from the authors' parameter estimates. So even my cost shares are non-linear functions of the original parameters.

Sunday, November 15, 2009

Does the Natural Resource Curse not Apply in Democracies?

One of my colleagues, Sambit Bhattacharya, has an article out on natural resources and corruption. Their conclusion is:

"Resource-rich countries are often cursed by corruption and governance problems. This column shows that the natural resource curse burdens non-democracies, but countries with better democratic institutions are not corrupted by such endowments. For governments accountable to their citizens, resources can be a blessing."

Democratic countries are mostly less corrupt and they argue that if democracy is established before resources are discovered then the resources do not promote corruption. Maybe that explains Indonesia where democracy has been established only recently and corruption is high.

I've been looking at the relationship between resource endowment and carbon emissions with a couple of other colleagues recently (more on this if and when we get a working paper out). Definitely the economies with large resource endowments tend to have higher and apparently faster growing carbon emissions. Partly this is due to mining being a very energy intensive industry but probably also due to these countries (e.g. Australia) not regulating or taxing resource use as stringently as countries with small endowments. Is this due to a difference in perceptions of resource security? Or is this due to the resource lobby actively preventing regulation? And if it is the latter is that a form of corruption? It's not included in indices of corruption but it is definitely "rent-seeking".

Thursday, November 12, 2009

Fenner Presentation Slides

Here are the slides for my presentation at the Fenner School today. Because of the way I set things up to allow me to have an "animation" in a pdf file there aren't actually as many slides as there are pages in this document. But I didn't delete the extra pages because this is my emergency copy if my flash drive fails!

Wednesday, November 11, 2009

Nigel Jollands

Nigel Jollands, the head of the energy efficiency unit at the International Energy Agency gave a presentation today at the Crawford School. He talked about three main ideas the first of which was the relationship between changes in energy use, changes in well-being, changes in energy efficiency. This diagram is a revised version of his:

The y-axis is the percentage change in well-being, the x-axis the percentage change in energy use. All points on the top left have rising energy intensity because wellbeing is rising faster than energy use and all points on the bottom right falling energy intensity because well-being is not rising as fast as energy use. His point was that people often have preconceptions about energy efficiency, thinking that increasing energy efficiency must mean falling energy use or falling well-being. Neither is the case.

Of course, the whole point of my Hub project is that energy efficiency is more complicated than this and shouldn't be measured by energy intensity

My Fenner School Seminar: Thursday 12th November

As I mentioned a couple of months ago I'm giving a seminar at the Fenner School of the Environment and Society at ANU tomorrow, Thursday, at 1:00pm in the Forestry Lecture Theatre. As usual the slides will go up on the web as soon as I've completed them... I'm still working on model runs to put in the presentation as I wasn't pleased with the results I presented in Darwin. I'll show those results tomorrow and then some of the new ones. I'm also thinking about radically restructuring my Environmental Economics Research Hub project in order to be able to get it done in the time available. I would relegate the structural modeling I discussed earlier on this blog to future research and take a more reduced form approach here. There is plenty still to do on this project including the new obligation of producing a policy brief, which we'll present at AARES.

Monday, November 9, 2009

Review of Prosperity without Growth

Here is a draft of my review to be published in Ecological Economics of Prosperity without Growth:

Prosperity without Growth: Economics for a Finite Planet

By Tim Jackson, Earthscan, London, 2009.

Reviewed by David I. Stern

Usually, I find myself disagreeing with advocates of zero economic growth (defined as non-increasing GDP). First, a large part of the world’s population remains poor by any objective standard and second, I think they have the wrong end of the stick. If the reason that we are concerned about growth is its impacts on the environment we should control resource use and then let the economy determine the optimal level of output within the constraints that are set. And controlling resource use, hard as that has proven to be, is still likely to be both politically and practically an easier goal than somehow directly controlling growth. So, I was a little surprised to find myself agreeing with quite a lot of what Tim Jackson writes in Prosperity without Growth. Jackson is Economics Commissioner for the UK’s Sustainable Development Commission and Professor of Sustainable Development at the University of Surrey.

Jackson draws parallels between the global financial crisis and the looming ecological crisis. Anglophone (and some continental European) economies artificially boosted consumption in recent years by promoting very lax credit standards and low interest rates. Borrowing from the future to fund today’s fun. This irresponsibility, which met its denouement in the credit crunch is matched by the irresponsibility of borrowing resources and assimilative capacity from the future to fund today’s economic growth. In the case of mineral resources and even fossil fuels we could argue that we are developing the technology with which to “pay back” our borrowings but no such argument can be made on biodiversity and habitat loss and the build up of carbon in the atmosphere.

Jackson then reviews the lack of impact of income on national happiness after subsistence needs are met and asks whether growth is still necessary in order to maintain prosperity. Would a zero growth economy have rising unemployment as technology continues to advance (assuming technology does still advance and as implicitly assumed by Jackson in the main text that GDP is produced by a Cobb-Douglas function of capital and labor)? Such an economy will require less and less labor if wages rise. Either wages have to be constant or average hours worked would have to decline. Such an economy could be a utopia or a dystopia depending on which of these dominates and how the reduction in work hours is distributed. Following the lead of Peter Victor (2008), Jackson advocates some regulation of working hours. But, if we restrict the use of natural resources and resources are not good substitutes for capital and labor, as Jackson himself proposes in the Appendix, labor-augmenting technical change (on its own) in fact becomes rather futile (Jackson assumes technological change augments all inputs equally). This is because adding more effective labor to fixed resources has limited results when labor isn’t a substitute for resources. There is then no increasing labor productivity problem to solve. And if resources are good substitutes for labor then there really isn’t a problem with growth per se. Controlling the use of resources would have limited impact on growth and limiting growth would be the wrong focus.

Jackson also highlights the “myth of decoupling”. Though there have been improvements in the energy and resource intensity of GDP in many economies over time, in very few economies have these gains been more rapid than economic growth. Therefore, global energy and resource use and carbon emissions have continued to rise. Decoupling or environmental Kuznets curve effects are the exception rather than the rule. The rebound effect means that a focus on improving environmental efficiency will reduce impacts by less than one would naively think. Neither is there salvation in the service sector – most services are still fairly energy intensive in both their production and consumption. But, in order to achieve the ambitious goal of stabilizing atmospheric concentrations of carbon dioxide at 450ppm by 2050, global carbon intensity will have to decline by an unprecedented 7% per annum from now till then if population and income grow as expected under business as usual scenarios. Put another way, carbon intensity will have to improve 21 fold in the next 40 years. Jackson believes that that is more than can reasonably be achieved and, therefore, growth must come to an end.

Unfortunately, Jackson misinterprets the estimates of the cost of climate policy generated by computable general equilibrium (CGE) models, writing: “The Stern Review famously argued that “the annual costs of achieving stabilization… are around 1 per cent of global GDP.” After mentioning some other estimates he writes: “Though all these numbers look rather small, there’s something very confusing about cost estimates like these: they are already about the same order of magnitude as the difference between a growing economy and a non-growing economy. So if these costs really represent an annual hit of around 2-3 per cent of GDP they would essentially already wipe out growth” (83-84). It is hard to believe, but CGE models actually state that climate policies would cause GDP to be lower by 2-3% in 2050 than it would otherwise be rather than grow at 2-3% less each year. An economy that grows at 2% less each year has GDP that is 54% lower after 40 years.

This is actually a central point. Prosperity without Growth argues that decarbonization with growth is too hard. Therefore, growth must halt. But leading mainstream economics policy models state that the costs of climate policy are very low and, therefore, there is no incompatibility between growth and decarbonization. I suspect that the truth is somewhere in the middle. Moderate cuts in emissions (20-30%) are likely to be very cheap. But once efficiency and fuel-switching options are exhausted the switch to solar and nuclear energy may have much higher costs. Reviewing the parameter values in CGE models, I think that they may overestimate the ease with which consumers can substitute away from fossil-fuel intensive goods and services.
On the other hand, as Jackson points out, growth as we know it looks set to continue the trend to higher resource prices that we saw leading up to the record oil prices of mid-2008. Can business as usual growth continue anyway in the face of rising resource scarcity?

The book is an easy read and despite my disagreements on some points has plenty of substance. There is also much more in this book – discussions of consumerism and governance for example – than I can cover in this review. Jackson rounds off the book with a set of specific policy proposals and a vision of the transition to sustainability. The policy proposals (presumably directed at developed economies such as the United Kingdom) are:

Establishing the limits: caps on emissions and resource use and targets for reduction; green tax reform; support for ecological transition in developing economies.

I wholeheartedly agree with all these suggestions.

Fixing the economic model:
Here Jackson proposes a mix of changes to the practice of economics – green accounting and developing an “ecological macro-economics” – and practical measures like investment in green infrastructure and new financial regulation such as the Tobin tax and increasing bank reserve ratios.

Of course, I think ecological macro-economics should be encouraged but I am less enthusiastic about green accounting – more data on the state of the environment is of course valuable but aggregating that data into the national accounts using monetary valuation can give us false indications about sustainability (see Stern, 1997). 100% reserve banking appears to be favored by some ecological economists but is a complete non-starter as it literally means that banks cannot make loans. These are then money warehouses rather than financial intermediaries. Outlawing short-selling and imposing the Tobin tax are likely to make financial systems less efficient. But we should look at limiting the size of financial institutions and regulating credit more tightly again.

Changing the social logic: Policies on working time, inequality, “measuring capabilities”, strengthening social capital, and dismantling consumerism.

If reduced growth in a resource-constrained economy does lead to reduced labor demand we may need new policies to address increasing inequality. Not all societies and individuals will prefer the approaches advocated by Jackson. Limiting employment hours along French lines would drive the more entrepreneurial into self-employment perhaps increasing inequality further. On the other hand, competition for status probably really does result in “positional externalities”. But incentives are more appropriate than blunt one-size fits all regulation.

In conclusion, I think that we should not treat this book as a necessarily correct diagnosis of our predicament and prescription for our future. But it does provide a very thought-provoking research and policy agenda for ecological economists who understand the size of the challenges we face.

Stern D. I. (1997) The capital theory approach to sustainability: a critical appraisal, Journal of Economic Issues 31, 145-173.

Victor P. (2008) Managing without Growth: Slower by Design, not Disaster, Edward Elgar, Cheltenham.

Sunday, November 8, 2009

EERH Working Paper Statistics for October 2009

We saw an increase in both abstract views and downloads this month over last month. This is the first full month of participation in RePEc - data started being collected midway through September. Only a few papers were included in NEP reports this month (which tends to increase downloads). So these numbers might be representative of the expected performance of the series. We ranked 276th out of 2677 working paper series in October.

Saturday, November 7, 2009

Rudd's Speech to the Lowy Institute

In his speech to the Lowy Institute on Friday the Prime Minister lashed out at climate change skeptics but lumped them together with those who agree on the natural science but disagree on the policy response to climate change:

"The opponents of action on climate change fall into one of three categories.
· First, the climate science deniers.
· Second, those that pay lip service to the science and the need to act on climate change but oppose every practicable mechanism being proposed to bring about that action.
· Third, those in each country that believe their country should wait for others to act first. "

The second of these is open to interpretation, but would it include people who oppose emissions trading schemes in general and favor other action? Rudd followed up with:

"The second group of do-nothing climate change skeptics are those who purport to accept the scientific consensus, but in the next breath are unwilling to support any of the practicable plans of action that would actually do something about climate change. This group plays lip service to the climate change science but when push comes to shove refuse to support climate change action. In Australia, these naysayers have successfully blocked the development of an emissions trading scheme for more than a decade."


"The logic of these skeptics belongs in a casino, not a science lab, and not in the ranks of any responsible government. "

Of course, Spash is attacking the ETS from the viewpoint of heterodox not conservative economics and most of Rudd's attack was very specifically against conservatives.

Wednesday, November 4, 2009

The Australian Weighs in on the Spash Scandal with an Editorial

Here it is.

AARES 2010 Abstract

I just submitted an abstract for the AARES 2010 meeting in Adelaide. You have till Friday to submit... I also expect to be presenting at the Environmental Economics Research Hub Workshop that precedes it. Here is the abstract:

How Feasible are Developing Country Energy and Carbon Intensity Targets? An Econometric Analysis

Frank Jotzo, Resource Management in the Asia Pacific, Crawford School of Economics and Government, Australian National University
David Stern, Arndt-Corden Division of Economics, Crawford School of Economics and Government, Australian National University and Centre for Applied Macroeconomic Analysis

China has adopted a target of reducing the energy intensity of its economy by 20% in the period 2005-2010 and will likely adopt further targets for 2015 and 2020. At the UN Summit on Climate Change in New York in September 2009, President Hu Jintao announced that China would also adopt a carbon intensity target of so far unspecified level. Other developing economies might also adopt energy or carbon intensity targets as part of the post-Kyoto climate policy regime. Yet the energy intensity of the Chinese economy was essentially unchanged from 2000 to 2007 when a long period of declining energy intensity came to an end. How feasible are the proposed reductions in energy intensity and/or carbon intensity for China and other developing economies? In this paper, we use a production frontier model of energy intensity to decompose energy intensity in a number of major developing economies into input and output mix, climate, and scale effects, and a residual technology variable. A second stage model decomposes the technology residual into the energy efficiency of installed capacity and of new investment and measures the implicit cost of energy efficiency technology in each country. We then evaluate how feasible various targeted reductions below business as usual trajectories would be, assessing what they would imply in terms of changes in the pace of technology adoption or changes in the fuel mix towards lower carbon fuels, and comparing these required changes to historical performance.

Tuesday, November 3, 2009

CSIRO Doesn't Seem to Understand What Social Science is All About

ABC reporting on the Spash controversy. If the comments here accurately represent CSIRO's position then they don't have much of a grasp about what applied social science and certainly economics is all about. Some more information from Clive was also published in the Australian.

Monday, November 2, 2009

CSIRO Tries to Ban Paper Critical of Emissions Trading

Just got back last night from the ANZSEE conference in Darwin (yeah we went to Kakadu too) where I saw Clive Spash present the paper in question that CSIRO have tried to ban from publication. From the presentation the paper is just a long list of different criticisms of emission trading schemes, none of which were new to me and not all of which I really agreed with. Most cogent is the issue of how reliable so-called offsets are. Do these schemes to reduce carbon really result in people doing carbon sequestering or emission avoiding things they otherwise wouldn't have done and how sure can we be that carbon really is really being sequestered or avoided. Standard criticisms. I put it to Clive that any real world carbon tax would likely end up with a heap of exemptions and credits generated under a tax are not necessarily any more reliable. So is he suggesting we should just regulate or what. He said that all he is asking is that we should think more about these things when designing the scheme.

At the conference I commented that if he worked for the Treasury he would have been fired instead. But if it is true that: "under the agency's charter scientists were forbidden from commenting on matters of government or opposition policy" how can social scientists at CSIRO do any meaningful research in policy areas? Isn't policy evaluation part of what the agency should be doing? Apparently not.

Thursday, October 29, 2009

ANU Economics Showcase

Here is my presentation for the ANU Economics Showcase - a two day event that presents the range of ANU research to potential students, members of the public service, other ANU economists, and the general public (i.e. anyone who wants to come along :)). The showcase is on 25th and 26th of November. I'm scheduled for 26th November in the session from 1:30-3:00pm.

Signals or Noise? What Does Meta-Analysis Tell Us About the Reliability of Individual Econometric Studies?

David I. Stern

Arndt-Corden Division of Economics
Environmental Economics Research Hub
Centre for Applied Macroeconomic Analysis

Econometric studies can appear to be well conducted by the usual standards of the economics profession but still not provide results that can be relied upon for theory or policy purposes. The technique of meta-analysis can combine the results of many individual studies to provide more reliable results. I illustrate these points using a meta-analysis of more than forty studies of inter-fuel elasticities of substitution – a measure of the difficulty of switching between different fuels and electricity in production. These studies show a very wide range of values for any given elasticity. This dispersion of values reduces as the sample size of the original studies increases. This shows that to get reliable results we either need a very large sample or conduct a meta-analysis of existing studies. The results also show that the type of data – time series, cross section, or panel data - and the type of regression model used have a very significant effect on the estimated elasticities. This shows that we also need to have a good understanding of econometric theory in order to select an appropriate estimator.

Monday, October 26, 2009

ANZSEE Presentation Slides

Here are the slides for my presentation at ANZSEE in Darwin on Wednesday. I only have 20 minutes to talk including questions so I'm going to have to cut something here. But thought I might as well put everything up for now. I'll be giving a longer version at the Fenner School at ANU on 12th November. Also coming up this month is a presentation at the ANU Economics Showcase 2009. I will be talking about the effect of sample size and estimator selection on what we think we know about economics - i.e how useful meta-analysis can be.

P.S. 11:45pm
I just cut a bunch of stuff out of my presentation for ANZSEE including all the early stuff about the EKC and put the shorter version up on the web.

Sunday, October 25, 2009

Energy Intensity Again

There is a stronger relationship between energy intensity of GDP and GDP per capita when you plot both of them using ordinary exchange rates rather than purchasing power parity adjusted exchange rates:

I think that the relationship is mainly due to the tendency for currencies to overvalued relative to purchasing power parity in most wealthy countries and the reverse in poor countries rather than any real energy related behavior.

Saturday, October 24, 2009

Levitt Hits Back

Steven Levitt hits back at his critics in this new post in the NY Times. The post is a bit revisionist I think as to what exactly is in the chapter in Superfreakonomics. The tone of that chapter is clearly that carbon taxes or cap and trade won't work (for unclear reasons) and, therefore, we need geoengineering. This post places geoengineering as a method for quickly cooling the Earth (which I agree could be a useful tool in our toolbox). And I found myself mostly being able to agree with what he wrote until we come to:

"But that is not the question that Al Gore and the climate scientists are trying to answer. The sorts of questions they tend to ask are “What is the ‘right’ amount of carbon to emit?” or “Is it moral for this generation to put carbon into the air when future generations will pay the price?” or “What are the responsibilities of humankind to the planet?”"

That may be true to some degree but the main question most of us are asking is "What is the best long-term solution to the global warming problem?" Geoengineering can only be a short term fix. It reduces the sunlight that plants need for growth and does nothing to address ocean acidification (I'm a bit skeptical that the latter is as bad as most people make out but it certainly isn't a good thing). But if the ice sheets melt too fast while we try to get carbon emissions down, geoengineering may well be an appropriate response...

Thursday, October 22, 2009

World Values Map

I was visiting the World Values Survey website in the process of collecting more data for my EERH project.Thought I'd post this fascinating "map" from their homepage:

Not surprisingly, the English speaking countries (sorry Quebecois) are found grouped together. I found this was also the case for levels of sulfur abatement technology. Similarly the Germanic or Protestant countries occupy a common zone and Japan isn't far removed, ditto. Mediterranean Europe is also tightly grouped (with the exception of Portugal), ditto.

Israel isn't that different to Italy or Greece. That makes a lot of sense to me.

Wednesday, October 21, 2009

Quality of Economics Research Funded by the ARC

The ARC has carried out an evaluation of the citation impact of the publications derived from ARC funded research. The main finding (full report on ARC website) is that ARC funded publications receive more citations than other Australian publications and other global publications. That is good, but it is hard to have an intuitive sense I think of what the Australian or global averages are. So I looked at the data for economics to get a better idea. The ARC counted the number of publications and the number of citations received by them in the Web of Science from 2001-2005. This means that the average publication had two years in which to receive citations.

There were 202 ARC funded publications which received 320 citations in the period. This is, therefore, an impact factor of roughly of 0.79 (i.e. 0.79 citations received per year). There were 1311 other publications from the university sector receiving 1569 citations for an impact factor of 0.60.

Referring to ISI's "Journal Citation Reports" economics journals with a two year impact factor of 0.79 were ranked 93rd out of 209 economics journals. Kyklos has the closest score. Economic Development and Cultural Change, Review of Income and Wealth, Quantitative Finance, Cambridge Journal of Economics, and Journal of Economic Dynamics and Control are examples of other journals with close scores.

An impact factor of 0.60 resulted in a rank of 133rd out of 209. Canadian Journal of Agricultural Economics is closest. Journal of Economic Issues, Journal of Macroeconomics, Geneva Risk and Insurance Review are some of the journals in this neighborhood.

I think this gives a more intuitive understanding of the quality of average Australian and ARC funded research in economics.

Tuesday, October 20, 2009

Pedigree Bias in Economics

At least anecdotally I think it is true that economics has a pedigree bias. Good departments tend to hire people from a limited subset of top schools. This is just as true in Australia as in the U.S. There are very few ANU economists who don't have a PhD from either a reasonably decent or even top U.S. school, a top British university (few if any less senior people) or ANU itself. The bias in geography, environmental science etc. certainly seems to be much less. When I went to grad school I wasn't aware of such biases at all. If I'd followed the advice of my masters' adviser (Department of Geography, London School of Economics) I would have applied to a top U.S. economics department. But as my undergrad alma mater wouldn't have accepted someone with as low a GPA as me in economics to do a masters' degree even (my third year undergrad GPA in econ was 90% or so but the first two years were a lot lower; my geography GPA was more than 90% in each year) I didn't think I stood a chance of getting a funded place. So I headed to geography. Again if I had been more aware of "pedigree" I probably would have headed to Ohio State (which made me an offer I didn't take up at the masters' level) for my PhD and wouldn't have been exposed to ecological economics at Boston University.

Climate Sensitivity and Expected Temperature Increase

My response to C S Norman questions' about yesterday's post was getting so long I decided to turn it into a blog post.

The climate sensitivity is the expected temperature increase for the equivalent of a doubling of carbon dioxide in the atmosphere from the pre-industrial level of 280ppm to 560ppm. My understanding is that the confidence interval (the expected range about which we can be 90% or 95% confident say that the actual temperature increase will fall within that range) is still very wide and research hasn't managed to narrow it signficantly. Mean or mode expected changes in temperature have edged up in recent research as more historical data is examined and more feedbacks incorporated in modeling.

This situation explains a couple of things:

1. The attention given to Martin Weitzman's research which focuses on the potentially catastrophic impacts of the upper tail of the distribution of temperature changes. The deterministic cost benefit approach of Nordhaus and other economists who hated the Stern Review doesn't really address the correct problem at all. See also my post on who should win the Nobel Prize for environmental economics.*

2. The new emphasis on lower concentration targets like 350ppm and 450ppm of carbon dioxide equivalent rather than the formerly popular 550ppm. Even if the mean climate sensitivity was 3C there is a 50:50 chance that temperature would rise more than that likely resulting in the melting of at least the Greenland Ice Sheet among other impacts.

How can we relate climate sensitivities to expected temperature changes at any point in time? You can't just halve the climate sensitivity for a 50% increase in CO2, because:

1. Radiative forcing - the direct effect of carbon dioxide on the heat balance of the planet - is logarithmic in the increase in CO2. So a 50% increase in CO2 has more than half the effect of a doubling. A quadrupling has double the effect of a doubling etc.

2. Temperature changes very slowly in response to changes in radiative forcing. This is mainly due to the need to heat up the oceans which can store far far more heat than the atmosphere. In my model, the equilibrium climate sensitivity was 8C but, in an experiment that increases the CO2 concentration until doubling is reached, the temperature at the point of doubling had increased by less than 2C (this is known as the transient climate response). This is one of the factors that makes estimating the climate sensitivity from historical data very difficult.

Here is a chart from an IPCC report that illustrates this point:

For the doubling of CO2 scenario under a climate sensitivity of 3.5C, temperature had increased by 2C at the point of doubling. Even after 500 years the equilibrium increase hadn't been attained in the 3 layer GCM (global circulation model) simulation (red). The green curve is for a GCM with just a shallow ocean component and no transport of heat to the deep ocean.

This slow approach to equilibrium does have a positive implication - we can probably overshoot our desired long term concentration without too much damage if we can then bring concentrations back down again. For example, hitting 450 or 550ppm at 2050 and then bringing concentrations down to 350 or 450 by 2100. But this would probably require geoengineering of some sort.

* After Ostrom won the prize I wouldn't expect another one for environmental economics for a few years...

Monday, October 19, 2009

The Climate Sensitivity is Probably Really High

I'm not surprised by the trend for recent research to come up with higher values of the climate sensitivity - the change in temperature in the long-term for a doubling of atmospheric carbon dioxide. The piece I linked suggests that current levels of carbon dioxide are associated in the long-run with 25 to 50m higher sea levels, though we do need to be cautious in basing current predictions to paleodata for a world where the continents and oceans were configured slightly differently. My research found climate sensitivities in the range of 4-8C depending on model configuration. I gave up on publishing the second paper though in the climate literature and decided to focus on energy economics. It's hard to keep up to date in too many fields at once...

Sunday, October 18, 2009

Freaking Out About Superfreakonomics

Around the blogosphere there seems to be quite a bit of freaking out about the about to be released book Superfreakonomics going on. Specifically, about Chapter 5 on climate change. Joshua Gans has a nice set of links to some of the comments and there is some response by Dubner here.

I'm not too surprised by this. I was never that impressed with Freakonomics. Reading through this chapter one of the problems is that they try to cram in way too many points without any or sufficient explanation. But mostly it is just a jumble of half-baked ideas the economics ones just as bad as the natural science ones. For example, the discussion of externalities and Pigovian taxes talks about compensating the victims with the revenue and rather a mixed up discussion conflating individual choices and the choices of countries... Maybe they could have done a better job on the latter with more space... And then they describe Mount Pinatubo as generating "positive externalities"! More appropriate terminology would be simply "economic benefits".

Given this I don't think anyone should be reading Superfreakonomics to learn anything about economics either.

Saturday, October 17, 2009

Ostrom 12th Most Cited Book in Ecological Economics

According to the paper I coauthored with Bob Costanza (and Chunbo Ma, Brendan Fisher, and Lining He). One of her papers published in the journal also ranked in the list of the most cited papers published in the journal but was only ranked 52nd. Of course, our data end before 2004.

Friday, October 16, 2009

Looking for Academic Economics Jobs in Australia

In the past not many foreign institutions advertised on the American Economic Association's jobs website JOE. But this seems to have changed and now most leading Australian universities are advertising there. Not all these positions appear to be advertised on UniJobs, which I think is the leading Australian academic job site.

I've had a couple of recent discussions with people looking to do PhDs from around the world recently. I tried to convince them that if they want to work in Australia they need to either do a PhD in Australia (at a Go8 university) or do a PhD in the US. These are the two markets Australian universities are recruiting in. Not Britain or Sweden or anywhere else in Europe...

Thursday, October 15, 2009

Rich Howarth Seminar at ANU: 4th November

Speaker: Richard Howarth, Pat and John Rosenwald Professor, Dartmouth College, Editor-in-Chief, Ecological Economics

Uncertainty, Ethics and the Economics of Climate Change

Climate change is a long-term, complex problem that involves fundamental uncertainties. As such, the evaluation of climate change policies depends critically on the links between time preference, risk aversion, and the perceived rights of future generations. In economics, these issues are often addressed using models that assume high rates of time preference and low risk aversion. Such models support only modest reductions in greenhouse gas emissions. This presentation, in contrast, will argue that aggressive climate stabilization policies are justified on two separate grounds. First, people reveal high rates of risk aversion in real-world market decisions. Accordingly, reducing climate risks provides highly valuable economic benefits. Second, failing to stabilize climate would impose large, uncompensated costs on future generations. This violates the moral premise that future generations are entitled to protection against uncompensated, potentially catastrophic harms.

Time & Place: 4.30pm, Wed 4 Nov, Innovations Building, Eggleston Road.

Drinks and nibbles afterwards, 6.00-6.45pm

Wednesday, October 14, 2009

Paul Romer on Elinor Ostrom and Crucial Assumptions

Paul Romer makes some interesting comments on Elinor Ostrom's Nobel Prize win. He points out that many or most economic theories depend on what he calls "skyhooks" - what I called "crucial assumptions". According to Romer assuming that people follow rules is a typical "skyhook". Rather than assuming that people would follow rules, Ostrom tried to understand where the rules came from and why they worked or didn't work. Well, I think you must have some assumptions in your research. But they should be as innocuous and reasonable as possible.

Rather a contrast to Steven Levitt's comments for example. Let alone these guys :). Of course I've heard of Ostrom. My "Ostrom number" is 2.*

Peter Martin, who supplied the link to Romer, also has a more humorous take.

* She has coauthored papers with Bob Costanza.

Monday, October 12, 2009

Ostrom and Williamson Win Nobel Prize

After much speculation:

"The 2009 The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel goes to Elinor Ostrom "for her analysis of economic governance, especially the commons" and Oliver E. Williamson "for his analysis of economic governance, especially the boundaries of the firm."

Williamson was mentioned but Ostrom is a surprise. At 1:04 European Central Time someone had already updated Wikipedia to mention that she had won the Nobel Prize!

Of course, Ostrom is the first woman to win the Nobel Prize in Economics. Ostrom's most cited book has around 7,300 citations on Google Scholar and her h-index is around 73 or so. So she easily meets my criteria for predicting winners.

A Statement of Your Most Significant Contributions to this Research Field

I have to write this for the grant applications I'm planning on filing early next year. Usually, in job applications you have to write about your current and planned research. But this is different and a bit weird. It feels a bit like I'm writing my own obituary :)

For U.S. grants you just send them your (condensed) CV. Australia is much more into giving money to individuals than for specific topics. I once had to write a "scientific autobiography" for a job I applied for in Israel. That was the same idea more or less.

Sunday, October 11, 2009

Omitted Variables Bias in Estimating the Rate of Global Warming

There has been a lot of discussion in the media and blogosphere of a supposed cooling of the global climate since 1998 that is being pounced upon by climate change sceptics. This supposed trend is almost certainly not a statistically significant break in the warming trend. Real Climate points out that whether you see a cooling effect or not depends on which data series you use. Apparently the Hadley data series is missing data from the parts of the Arctic where the most warming has been occuring:

The image shows the difference between the average temperatures in 1999-2003 and 2004-2008.

But the atmosphere is only a small part of the total heat budget of the planet. An excellent blog post from Climate Progress explaining the importance of the increase in ocean heat content in understanding global warming. These charts show the increase in heat content of the oceans till 2003 and from 2003-2008:

Climate Progress dramatizes this data nicely by pointing out that the ocean is warming at the rate of 190,000 GW... If you try to estimate the trend in atmospheric temperature while ignoring this massive storage of heat in the ocean you may fall victim to the classic econometric problem "omitted variables bias". When you estimate a regression model omitting some important variables that are correlated with those that you include in the regression your estimates of the effects of the included variables will be biased.

I wrote two papers on this topic. In the papers, I showed that taking into account the build up of heat in the ocean resulted in much higher estimates of the sensitivity of global temperatures to increases in greenhouse gases than when you just use atmospheric temperature to produce an estimate. Also, that just looking at the atmosphere you will estimate that temperature responds very fast to increases in greenhouse gases and that after just a few years the adjustment to a new equilibrium temperature is complete. These are symptoms of omitted variables bias.

Thursday, October 8, 2009

Nobel Prediction Market

Here is a prediction market for who will win the Nobel Prize in Economics. My original pick, Robert Barro, is marginally leading, and all the other suspects are on the list.

I'd really like William Baumol to win it. My friend and colleague Astrid Kander wrote an interesting paper related to one of Baumol's ideas. Baumol gave her some good comments on it. Actually it was a chapter in her dissertation which I encouraged her to submit to Ecological Economics. She argues that the shift to a service economy is something of an illusion. The prices of services rise relative to those of manufactures over time and so the share of manufacturing in GDP falls over time. But this doesn't mean that material production as a share of GDP is falling when we use constant prices instead. Also, just as productivity growth in manufacturing is more rapid than in services the rate of increase in energy and environmental efficiency is more rapid in manufacturing. Therefore, it seems that emissions fall due to a shift to services but to some degree this too is an illusion.

IEA Lowers Projected Carbon Emissions

A New York Times article about an IEA report on future carbon emissions. They are lowering projections due to slower growth worldwide and Chinese efforts to reduce energy intensity. I've been thinking the same thing myself. I didn't buy into the Garnaut Review's idea that business as usual emissions would rise faster than the IPCC previously expected. Though the problem now is distinguishing between business as usual and "business unusual". Is China going for renewable and nuclear energy to reduce imports of fossil fuels and local air pollution or because it expects to eventually to be subject to binding restrictions on greenhouse gas emissions? Or because it wants to be a leader in selling the technology to the rest of the world? All of the above, I think.

Wednesday, October 7, 2009

Who Will Win the Nobel Prize in Economics? Update

Back in August I discussed who might win the Nobel Prize in Economics to be awarded on Monday. My pick then was Robert Barro as the most cited and not so controversial economist who had not won it yet. Others are now weighing in. Here are my comments on these suggestions:

Ernst Fehr Possible, though Kahnemann won the prize not that long ago.

Matthew Rabin Too young.

William Nordhaus Possible, though I don't consider his climate change economics work to be very deep.

Martin Weitzman I prefer him to Nordhaus, though on citations he is marginal as a Nobel Prize winner but could happen.

I also heard Nicholas Stern mentioned at lunch today. Until his recent work on climate change his citation record hasn't been at Nobel Prize level. And he only got into environmental economics in this recent period.

My pick for an environmental economics winner is Partha Dasgupta. Maybe Weitzman and Dasgupta?

All the macroeconomists mentioned are potential winners. But Gali (PhD 1989) seems too young. Gertler or Taylor is possible. Robert Shiller or even Nouriel Roubini are outside chances.

Marginal Revolution suggests Williamson and Tirole. They're possibilities too. This could be a pick if the committee decides against being topical. So this is my shortlist: Barro, Gertler, Dasgupta, Taylor, Tirole, Weitzman, Williamson.

Note that the Fehr and Rabin, or Nordhaus and Weitzman, or Taylor, Gali, and Gertler prediction is from Thomson Reuters. They didn't get the Physics or Chemistry prizes right but they did guess the Physiology/Medicine Prize.

Environmental Economics Research Hub Research Reports Monthly Report

As I previously blogged, the Environmental Economics Research Hub Research Reports are now included in RePEc. Each month RePEc calculate how many abstract reviews and downloads each paper, author, and series got. You can track the downloads for EERH here. We got 157 downloads in our first month. Some caveats:

1. It's only a partial month.

2. All our papers were featured in NEP Reports and so had heightened visibility this month. NEP, New Economics Papers, is one of the RePEc services that helps get your paper seen in the research community.

3. We certainly had more downloads than this. Only downloads through RePEc services are counted and many of those are filtered out to circumvent the effects of web indexing robots and cheating.

To see how often individual papers in the series were downloaded check the ranking page.

Friday, October 2, 2009

Energy/Capital Ratio

There doesn't seem to be much of relation between energy intensity and GDP per capita. But this chart shows that there is a relationship between energy per dollar of (estimated) capital and GDP per capita:

The points off to the top right are mostly oil producers. Apart from those points there seems to be a clear downward trend. High income countries use less energy per dollar of capital than poor countries do. Some poorer oil producers (e.g. Libya and Algeria) also have very low energy/capital ratios. These countries have invested a huge proportion of GDP each year and so supposedly have a large capital stock but have little to show for it in terms of increased output.

In a so-called "putty-clay" model, improvements in energy efficiency can only be implemented by investing in new, more energy efficient, capital goods. Once that equipment and infrastructure is in place, energy use is pretty much predetermined. So in countries with less energy efficient installed capital energy use per dollar of capital will be higher and vice versa. Intuitively we'd expect high income countries, ceteris paribus, to have higher quality capital installed and, therefore, lower energy use per dollar of capital.

Technical stuff :): It is also attractive to try to estimate a model for the energy capital ratio rather than energy intensity for econometric reasons. Given the putty-clay theory, capital per capita and the level of energy efficiency technology are highly correlated. If we run a regression where energy intensity (energy per $ GDP) is on the LHS explained by RHS variables that include capital, the unobserved state of technology will be correlated with the capital variable on the RHS leading to biased estimates of the parameters. Shifting capital to the LHS of the equation gets rid of this potential (and actually very problematic) source of bias. The challenge is now to come up with a theoretically rigorous model of the E/K ratio...