Analysis of Copenhagen Accord

Interesting analysis of the Copenhagen Accord from Carlo Carraro and a coauthor. He argues that if the funding for developing countries is primarily used for mitigation actions then the Accord could achieve the goal of getting the world on the path towards the 2C limit on warming. I'm skeptical though that the money will:

1. Be spent at all - often aid pledges turn out not to be realised...

2. Not get wasted on bureaucracy and corruption...

3. Actually get spent on useful mitigation rather than adaptation...

4. Get spent on efficient things rather than white elephant prestige projects...

But maybe I'm too cynical...

Consumption Based Carbon Tax

An interesting proposal from Geoff Carmody for a consumption based carbon tax. It cleverly plays on protectionist sentiments and impulses by taxing the carbon content of imports and exempting exports. Every country can set its own carbon tax rate or coordinate as much as they like. I imagine this must have been proposed before. It sounds like a good idea but I can see two major pitfalls:

1. Will the WTO agree to taxing the carbon content of imports but not exports? It sounds unlikely to me.

2. Complicated accounting for embodied carbon is needed both to assess the carbon content of imports and of exports. Inputs purchased by exporters will have the carbon tax built into them and presumably this needs to be claimed back some way to symmetrically exempt exports while taxing imports. Or will only direct fuel use by exporters be counted? That can't be the case because in many cases the producer will not be the exporters. An alternative is to provide credits for exports based on an average estimate of embodied carbon - say one rate per dollar or weight for cars, another for coal etc.

What do you think?

Arndt-Corden Division of Economics Joins the Crawford School

As many of you know the Arndt Corden Division of Economics became part of the Crawford School at ANU from 1st January. Following the merger the Crawford school is now ranked 7th or 8th * among economics programs in Australia according to RePEc. I only informed RePEc of the merger yesterday (don't know if anyone else did but they didn't say they already knew) so the change isn't reflected in many other places in their system yet.

* It is ranked 8th when only Australian institutions are considered and ranked. It is ranked 7th when Australian institutions are compared to all others in the world. In other words it performs slightly better on the criteria in which institutions are strong globally and slightly weaker on criteria where Australian institutions tend to perform well. Australians get lots of publications in good journals but get fewer citations than global averages.

Zhang et al. Now on RePEc

The official version of the Zhang et al. working paper on the effect of environmental news on stock prices is now up at RPI and, therefore, catalogued in RePEc.

Convergence of Energy Efficiency

I've been making more progress in my Environmental Economics Research Hub Project. I still don't have final results, but I am close. The above chart shows the estimated underlying energy efficiency, controlling for the structure of the economy etc. for five countries. I don't quite believe that the US is more efficient than Switzerland but at least the two developing economies are less efficient than the developed ones. However, it appears there has been convergence over time, particularly between China and the others. It's, therefore, not reasonable to suppose that gains in energy efficiency in China will be as fast in the future as in the 1979-2007 period under business as usual. Perhaps the 2000-2007 period will be more representative? This makes China's carbon intensity target a lot harder to achieve than many people think. It's not unachievable though given China's goals for renewable energy. This is what we are going to look at in our AARES paper.

EERH Working Papers Statistics for December 2009

A few less downloads and abstract views this month, but December is always a weak month for working papers. For all the details visit the LogEc website

Energy/Capital Ratio and Capital Density

Back in October, I blogged about the energy/capital ratio arguing that it was a rough proxy of the level of energy efficiency and/or environmental technology in a country. The following chart plots the energy/capital ratio against the capital density - the amount of capital per unit land area in a country (both are averages for 1971-2007):



Now there could be quite a lot of explanations of the strong correlation (-0.72) between the two variables including lower transport distances in more densely populated countries and measurement errors. But I'd argue that capital density is a rough proxy of the potential environmental disruption in the absence of any ameliorating policies and that E/K is a rough measure of the stringency of policy. In my 2005 paper in Journal of Environment and Development I argued that one of the key determinants of environmental policy was likely to be the level of damage in the absence of action, finding found some support for the hypothesis. I am now testing this idea more rigourously in my current research. So far it is holding up.

The important point is that K/T isn't just a function of the level of income per capita. Australia ($329k per km^2) and Canada ($362k per km^2) have similar levels of this variable. But so do Brazil and Peru. The USA has near $4 million per square kilometre, while Britain has $20 million...

The Kuznets Curve

The evidence for the original Kuznets curve - a supposed inverted-U shape relationship between inequality and income per capita - is not very strong either. The Y axis shows an average of the available data on the Gini coefficient of income inequality for the period 1971-2007 (mostly from the World Development Indicators) and the X axis average income per capita over the period in 2007 PPP Dollars. The data is for 85 non-petroleum economies. Of course, it would be more desirable to plot 2007 Gini coefficients, but data on inequality is very sporadic and so we would be only able to investigate a small number of countries. The fitted curve is a simple quadratic.

There does seem to be less inequality at higher income levels and a greater variability of inequality at lower income levels. If you were to drop the former communist countries in Eastern Europe from the sample then more of an inverted U would result. Middle income levels would then be dominated by Latin American countries, which has historically been a more unequal region than other parts of the world at similar income levels.

Corruption and Development

Most of my readers are probably familiar with the correlation between corruption and the level of economic development, but as I was entering the data into my database I thought I'd go ahead and blog about it. The chart shows the 2007 Transparency International Corruption Perception Index on the Y axis and average income per capita over the 1971-2007 period in 2007 PPP dollars (from the Penn World Table) on the X axis for the 85 countries in my energy efficiency study. The sample excludes oil economies. The correlation between these variables in the sample is 0.90. It goes to 0.92 when Luxembourg - the point at the extreme right - is excluded. Including the petroleum exporters would reduce the correlation. The corruption index is bounded from above at 10.

The direction of causation is not clearcut. Poor countries tend to underpay their government employees (relative to the private sector) resulting in these employees seeking (small) bribes to make ends meet. In the other direction, corruption (large bribes) is supposed to result in economic policies that protect special interests and according to the Prescott-Parente theory of growth reduce total factor productivity and, therefore, GDP per capita in corrupt countries. My perception is that special interests in the energy and mining industries do wield a lot of influence in nominally low corruption economies such as the US and Australia. My colleague, Sambit Bhattacharya's research shows that resource endowments do not negatively affect growth in democracies. But do they negatively affect energy efficiency and environmental quality? In my Hub research, I am going to test the effects of resource endowments, perceived corruption and other variables on energy efficiency and hopefully come up with some answers.

There are More Chinese Students in Australia than in the U.S.

It is hard to believe that there are 50% more Chinese students in Australia than in the U.S. which has 14 times the population of Australia. Digging around on the web I found plenty of other articles from different sources corroborating the 130,000 number.

Krugman on China

I don't want to turn this blog into some kind of pro-China rant but I keep reading so many occidentcentric articles that just fail to see things in any kind of balanced way. Krugman says that China should revalue the Yuan. In the long-term I agree, as the Chinese currency is clearly undervalued. And China was doing exactly that prior to the Global Financial Crisis when they halted abruptly:



The last thing that China wanted to do in a recession was to revalue the RMB further which would put pressure on employment in the export sector in China, the sector that was already hard hit in the crisis. Why should China sacrifice Chinese jobs to save American ones? Of course, if China does not recommence revaluation once the GFC is well and truly over I'll join in the criticism.

Finally...

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...

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.

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%.

Reference

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.

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.

Filibuster

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.

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 :))).

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.

Copenhagen

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!

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.

Hanukkah

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:

"31.
Valery
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."

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.