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.