© 2009 Joshua Stark
The Sacramento Bee has a great article on concerns over the Peripheral Canal (or tunnel, or Isolated Conveyance, same thing) from folks down in the Delta. But, what I mostly like about it is the slant in which it is written. It's a tad fluffy, but that's okay - I've spent my life reading condescending, patronizing, and downright derogatory articles about the Delta my entire life, so it's nice to get more of an insider's feel.
And for the record, there is no sun-tan line on this wrist, either.
Monday, December 21, 2009
Into the weeds a bit on economics & ethics
© 2009 Joshua Stark
I've received a few questions on my post about carbon sequestration and reforestation, mostly regarding the idea of "internalizing externalities". I wrote about externalities here, if anybody is interested, but here is a quick definition of "externalities":
Externalities are effects upon a third party from an economic transaction of two other parties.
flx1247rg
Economists are trying hard to figure out ways to alleviate negative externalities, because they are an inherent market inefficiency (the econ term for failure). So, starting from the beginning (the ethics), most economists believe that individuals in a transaction should be responsible for all the effects of that transaction. If somebody's purchase hurts somebody who wasn't even involved, then the purchaser and seller should have to pay for the damage.
Many economists are trying to figure out market-like ways to most efficiently alleviate the problem of negative externalities. One idea has been to create a market-like mechanism for the thing that causes the externality. In the case of carbon, this is putting a price on carbon emissions because they cause global warming (externality), and then requiring the participants to play in the market-like mechanism. This idea is called "internalizing the externality", because it forces a price into the transaction as a way to both reduce the amount of, and possibly provide revenue to, help mitigate the problems of the externality.
In the past two weeks, however, I've identified a few potential problems with this. First, I've always been leery of made-up markets like carbon, where you really aren't selling a good or service, you are selling the privilege to pollute. However, the polluters (both buyers and sellers) have had this privilege for free for years and years, so getting them to accept a new payment is very difficult. This is a problem when pricing in any externality.
Second, picking and choosing which externalities get priced is tough, too. In my earlier post on reforestation in Europe, I pointed out that if you don't/can't price in every externality, then you create incentives that worsen the remaining, un-priced externalities.
A third problem became apparent in my head after reading this from David Zetland's blog:
"Even if there was a market, we would only know the value "on the margin," which does not capture the (inframarginal) benefits that accrue to users."
Mr. Zetland was speaking about (the lack of) water markets, but the same concept can be applied to carbon, too.
Let me step back and explain: If we were to give carbon a price, what would that price be? Would it be the cost of its effects on the environment? Or, would it be based on the demand and supply for carbon? (Hint: it's the second one.)
This I see as a serious flaw when pricing externalities with a market-like mechanism like cap & trade. Markets work on supply and demand of the good being offered, but the problem we are trying to solve is the effect of an externality. Companies will only pay for carbon up until they would find it cheaper to just stop polluting (there's a great lesson on this at a fun & interesting site here). That price is determined by the company, not by the cost of damage from carbon to the atmosphere.
This price does not make enforcement any cheaper, either, but, sadly, it does help eliminate the stigma associated with being a polluter, while hiding a regulation over a pollutant in a pretend market.
To alleviate this, the cap & trade mechanism has the "cap" part that tightens over time. As this cap tightens, and fewer and fewer credits are allowed into the system, the price for carbon will increase. Can you see some downstream effects? Like, serious lobbying to loosen that cap, or postpone it just a little bit longer (see here for a great contemporary example)?
Ultimately, what this shows is that we are bending over backwards trying to make the transition to a low-carbon infrastructure as efficient and kind on businesses as possible. Unfortunately, what we might have done by this is:
A) create a decision-making process that favors problems where a market-looking solution is feasible, thus creating new distortions;
B) create a climate where we can call something a market if it appears to be a market, even when it is, in reality, a regulation; and
C) eliminate the stigma attached to paying a fine for polluting by hiding it in a pretend market, or in the case of giving away carbon credits, making taxpayers pay the fine for the companies in addition to helping pay the additional carbon costs whenever we buy anything.
And I'm in favor of a strong Cap & Trade! Weird, huh?
I've received a few questions on my post about carbon sequestration and reforestation, mostly regarding the idea of "internalizing externalities". I wrote about externalities here, if anybody is interested, but here is a quick definition of "externalities":
Externalities are effects upon a third party from an economic transaction of two other parties.
flx1247rg
Economists are trying hard to figure out ways to alleviate negative externalities, because they are an inherent market inefficiency (the econ term for failure). So, starting from the beginning (the ethics), most economists believe that individuals in a transaction should be responsible for all the effects of that transaction. If somebody's purchase hurts somebody who wasn't even involved, then the purchaser and seller should have to pay for the damage.
Many economists are trying to figure out market-like ways to most efficiently alleviate the problem of negative externalities. One idea has been to create a market-like mechanism for the thing that causes the externality. In the case of carbon, this is putting a price on carbon emissions because they cause global warming (externality), and then requiring the participants to play in the market-like mechanism. This idea is called "internalizing the externality", because it forces a price into the transaction as a way to both reduce the amount of, and possibly provide revenue to, help mitigate the problems of the externality.
In the past two weeks, however, I've identified a few potential problems with this. First, I've always been leery of made-up markets like carbon, where you really aren't selling a good or service, you are selling the privilege to pollute. However, the polluters (both buyers and sellers) have had this privilege for free for years and years, so getting them to accept a new payment is very difficult. This is a problem when pricing in any externality.
Second, picking and choosing which externalities get priced is tough, too. In my earlier post on reforestation in Europe, I pointed out that if you don't/can't price in every externality, then you create incentives that worsen the remaining, un-priced externalities.
A third problem became apparent in my head after reading this from David Zetland's blog:
"Even if there was a market, we would only know the value "on the margin," which does not capture the (inframarginal) benefits that accrue to users."
Mr. Zetland was speaking about (the lack of) water markets, but the same concept can be applied to carbon, too.
Let me step back and explain: If we were to give carbon a price, what would that price be? Would it be the cost of its effects on the environment? Or, would it be based on the demand and supply for carbon? (Hint: it's the second one.)
This I see as a serious flaw when pricing externalities with a market-like mechanism like cap & trade. Markets work on supply and demand of the good being offered, but the problem we are trying to solve is the effect of an externality. Companies will only pay for carbon up until they would find it cheaper to just stop polluting (there's a great lesson on this at a fun & interesting site here). That price is determined by the company, not by the cost of damage from carbon to the atmosphere.
This price does not make enforcement any cheaper, either, but, sadly, it does help eliminate the stigma associated with being a polluter, while hiding a regulation over a pollutant in a pretend market.
To alleviate this, the cap & trade mechanism has the "cap" part that tightens over time. As this cap tightens, and fewer and fewer credits are allowed into the system, the price for carbon will increase. Can you see some downstream effects? Like, serious lobbying to loosen that cap, or postpone it just a little bit longer (see here for a great contemporary example)?
Ultimately, what this shows is that we are bending over backwards trying to make the transition to a low-carbon infrastructure as efficient and kind on businesses as possible. Unfortunately, what we might have done by this is:
A) create a decision-making process that favors problems where a market-looking solution is feasible, thus creating new distortions;
B) create a climate where we can call something a market if it appears to be a market, even when it is, in reality, a regulation; and
C) eliminate the stigma attached to paying a fine for polluting by hiding it in a pretend market, or in the case of giving away carbon credits, making taxpayers pay the fine for the companies in addition to helping pay the additional carbon costs whenever we buy anything.
And I'm in favor of a strong Cap & Trade! Weird, huh?
Wednesday, December 16, 2009
What a Great Idea (read: I'm jealous and wish I'd thought of it)
Hank over at Hog Blog had a link to this, and I feel I must, too: The Western Wanderer's great Christmas ideas. Please check it out.
Monday, December 7, 2009
Humans, labeling, and the Precautionary Principle
© 2009, Joshua Stark
Yesterday, while looking for a Christmas ornament for the top of our tree, my wife pointed out to me, on one of the boxes, the Prop. 65 warning label that came with it: a warning that the wires on the star contain lead, a substance known to cause birth defects. We both expressed our incredulity at the idea, this symbol of life and love during our darkest and coldest days, covered in a substance that we should only handle if we know we aren't going to have babies. And if we don't have young children. And if we have children who know for sure that they aren't going to have babies in the future.
flx1247rg
Now, I'm not overly fanatical about lead, as I grew up hunting and fishing ("just bite down on the tips of the split-shot to open it up"), and I turned out alright. Maybe not all right, but alright. However, I try not to play around with God's dice, to ruin a great metaphor. So we moved on & bought another star.
This morning, I remembered the conversation, and then a story I'd heard struck me as I considered the ramifications of our decision. The story: folks fishing in backwoods lakes in Montana are finding signs at some of the lakes warning them of high mercury levels. When people are given this information, some stop fishing there, a wise decision. Instead, they drive up a few miles to the next lake, the one without a sign. Do you see where this is going?
The lake up the road has no sign because it has not been tested. The tested lake had high levels of mercury, and now the responsible agency must tell the public, but if they'd never tested it, then they cannot say anything, for a number of reasons.
Are they truly making fishing safer for the folks who eat their catch? My guess is that many, many lakes in the region are contaminated from mercury due to mining operations.
Folks get incomplete information, which is bad enough, but the nature of our responses to information given in such an open manner, via signs and warnings on packages, is to assume that we now have complete information, when we don't. What if the star we purchased has one of the hundreds of chemicals that have never been studied, but that causes some physical harm? What if the lake down the road has more mercury?
The precautionary principle would offer a solution here. The chemical one is easy: Require manufacturers to show no harm before they use a chemical. That is not only easy (though expensive), it is something I would expect conservatives and liberals to agree to - complete information before buying something. We are far beyond the ability to personally know who made our products (knowing the local salesman for the made-in-China product doesn't count) or how they are made, so putting the onus on the maker to reasonably show no harm makes sense.
The lake issue is tougher. Personally, I think the long-term damages of mercury poisoning are worth the economic risk to small communities, and I think forcing the issue would pressure folks in positions of authority to get the testing done more quickly. I'm not suggesting shutting down lakes, but instead understanding the nature of mercury on a larger scale, and then posting signs that say this lake has or hasn't been tested, and the results if it had been tested. Again, a bit more expensive. But hey, you can't outsource those jobs.
I will still buy things the origins and contents of which I don't completely know, but that is because, right now, I have to. I have no other options, except for food, which we've been working on improving in this household. This isn't good economic decisionmaking (rewarding the status quo by buying it), and it's ethically dubious, too, but the options are so limited right now, that I really don't have a choice. Over time, however, I anticipate we will move away from those far-away purchases, and buy more and more locally produced goods and services, where we can at least have a better sense of (and some control over) the regulations which guide production.
Yesterday, while looking for a Christmas ornament for the top of our tree, my wife pointed out to me, on one of the boxes, the Prop. 65 warning label that came with it: a warning that the wires on the star contain lead, a substance known to cause birth defects. We both expressed our incredulity at the idea, this symbol of life and love during our darkest and coldest days, covered in a substance that we should only handle if we know we aren't going to have babies. And if we don't have young children. And if we have children who know for sure that they aren't going to have babies in the future.
flx1247rg
Now, I'm not overly fanatical about lead, as I grew up hunting and fishing ("just bite down on the tips of the split-shot to open it up"), and I turned out alright. Maybe not all right, but alright. However, I try not to play around with God's dice, to ruin a great metaphor. So we moved on & bought another star.
This morning, I remembered the conversation, and then a story I'd heard struck me as I considered the ramifications of our decision. The story: folks fishing in backwoods lakes in Montana are finding signs at some of the lakes warning them of high mercury levels. When people are given this information, some stop fishing there, a wise decision. Instead, they drive up a few miles to the next lake, the one without a sign. Do you see where this is going?
The lake up the road has no sign because it has not been tested. The tested lake had high levels of mercury, and now the responsible agency must tell the public, but if they'd never tested it, then they cannot say anything, for a number of reasons.
Are they truly making fishing safer for the folks who eat their catch? My guess is that many, many lakes in the region are contaminated from mercury due to mining operations.
Folks get incomplete information, which is bad enough, but the nature of our responses to information given in such an open manner, via signs and warnings on packages, is to assume that we now have complete information, when we don't. What if the star we purchased has one of the hundreds of chemicals that have never been studied, but that causes some physical harm? What if the lake down the road has more mercury?
The precautionary principle would offer a solution here. The chemical one is easy: Require manufacturers to show no harm before they use a chemical. That is not only easy (though expensive), it is something I would expect conservatives and liberals to agree to - complete information before buying something. We are far beyond the ability to personally know who made our products (knowing the local salesman for the made-in-China product doesn't count) or how they are made, so putting the onus on the maker to reasonably show no harm makes sense.
The lake issue is tougher. Personally, I think the long-term damages of mercury poisoning are worth the economic risk to small communities, and I think forcing the issue would pressure folks in positions of authority to get the testing done more quickly. I'm not suggesting shutting down lakes, but instead understanding the nature of mercury on a larger scale, and then posting signs that say this lake has or hasn't been tested, and the results if it had been tested. Again, a bit more expensive. But hey, you can't outsource those jobs.
I will still buy things the origins and contents of which I don't completely know, but that is because, right now, I have to. I have no other options, except for food, which we've been working on improving in this household. This isn't good economic decisionmaking (rewarding the status quo by buying it), and it's ethically dubious, too, but the options are so limited right now, that I really don't have a choice. Over time, however, I anticipate we will move away from those far-away purchases, and buy more and more locally produced goods and services, where we can at least have a better sense of (and some control over) the regulations which guide production.
Monday, November 23, 2009
Where are all the big greenhouse gas emitters?
© 2009 Joshua Stark
In California, we now know. Last week, the California Air Resources Board (CARB) published the list of the biggest GHG (greenhouse gas) emitters in the state. This article from the San Jose' Mercury News does a good job talking to its importance. Unfortunately, it ends with a not-completely-true quotation:
flx1247rg
"The low-hanging fruit is to increase your efficiencies," he said. "Any time you can get more use out of natural gas, that will result in reduced greenhouse gas."
The "he" from that quotation is Tupper Hull, spokesman for the Western States Petroleum Association. Although I understand what he is trying to say, it does not capture the whole truth, and I thought it important to remind folks that more use out of natural gas will result in reduced GHG emissions only if it replaces higher-emitting fuels.
Now, if you were to ask Mr. Hull if he was suggesting cutting our use of petroleum in order to make his statement true, I suspect (though I don't know) that he'd have a difficult time agreeing, seeing as he is the spokesman for a petroleum association.
It's also important to note (as the Mercury News does) that the fifth largest GHG emitter in the state is a natural gas power plant at Monterey Bay.
Beware suggestions for increasing our consumption as a way to save the planet.
In California, we now know. Last week, the California Air Resources Board (CARB) published the list of the biggest GHG (greenhouse gas) emitters in the state. This article from the San Jose' Mercury News does a good job talking to its importance. Unfortunately, it ends with a not-completely-true quotation:
flx1247rg
"The low-hanging fruit is to increase your efficiencies," he said. "Any time you can get more use out of natural gas, that will result in reduced greenhouse gas."
The "he" from that quotation is Tupper Hull, spokesman for the Western States Petroleum Association. Although I understand what he is trying to say, it does not capture the whole truth, and I thought it important to remind folks that more use out of natural gas will result in reduced GHG emissions only if it replaces higher-emitting fuels.
Now, if you were to ask Mr. Hull if he was suggesting cutting our use of petroleum in order to make his statement true, I suspect (though I don't know) that he'd have a difficult time agreeing, seeing as he is the spokesman for a petroleum association.
It's also important to note (as the Mercury News does) that the fifth largest GHG emitter in the state is a natural gas power plant at Monterey Bay.
Beware suggestions for increasing our consumption as a way to save the planet.
Thursday, November 19, 2009
My little suggestion for next year's state-level work
© 2009 Joshua Stark
Yesterday, I was able to attend the California League of Conservation Voters' Green California Summit. It was well-organized, as usual, with relevant topics and great discussions.
flx1247rg
Of course, the looming concern for this group of folks is next year's legislative and regulatory climates in the face of a nearly $21 billion projected budget deficit. One strategy (and one that comes up annually) is to consider alliances with other communities (labor, business, etc.) when our goals align. In this light, and considering the "Jobs!Jobs!Jobs!" mantra that EVERY interest group touts for their projects, I have proposed one idea: Be brutally, brutally honest about the jobs.
Environmental groups have wrapped the "jobs" tag around quite a few projects, and I've been guilty of this, myself, where I think it's true in places. But, now is the time to open up about how and where those jobs will hit, and what the true opportunity costs will be if we enact projects that will build "green" jobs, vs. the status quo.
First, define your terms. The community needs a good, solid definition of "green" jobs. My suggestion: Any job that produces net carbon negative without too many impacts on other ecosystem values, and provides wages above the poverty threshold (or even prevailing wages?) should be "green". Remember, we are looking to build sustainable communities that make enough money to afford to leave some land/resources aside, in addition to lessening our environmental impacts. If we don't define this term in some way, however, it will so completely lose its value as to be potentially damaging.
Along with defining "green", define the opposite (hint: Don't call them "brown" or "black", please - maybe something like "bad", or "crappy", as I'm guessing "dirty jobs" is copyrighted).
Then, do an A+B+C=D equation, where A = Green Jobs, B = Crappy Jobs, C = unemployed people, and D = total workforce in the community (I kinda "stole" this from the folks at Env-Econ). I suggest doing this by region, and starting in the Central Valley, not because it's taking water from my community, but because it's economic conditions are as bad as Appalachia.
In this comparison, be honest: More green jobs will mean fewer other jobs. But, define those other jobs, which in the context of the Central Valley, looks good for green, local communities, and labor. Yes, massive solar installations on denuded and fallowed lands will lose farm labor jobs, but they will gain full-time, year-round solar industry employment. In addition, consider how these jobs will cut into unemployment. Mendota claims to be freaked out because its official unemployment rate is over 30%, which is sad and awful, but not much worse than it was during good economic times. Mendotans should be screaming mad at their infrastructure and local government for never trying to get good, steady work developed in its region, but now, with the potential for farming solar, they should be demanding space for these full-time jobs with better wages and benefits.
So, show the math. In the best of times you may lose, say, 2000 ag. jobs to a particular project, but gain 500 green jobs. However, the 500 jobs we'd support would be at, say $15-20/hr., + benefits + full-time work, vs. the current $8-10/hr. seasonal work without benefits. In addition, your ag. jobs aren't there right now, anyway, due to drought and a bad economy, so note that turning fallowed lands benefits locals without driving away current agriculture.
If you add an honest conversation about the created jobs to the benefits of carbon-negative projects and lower impacts on ecosystems, you speak not only to the current budget crisis and economic climate, but also to future quality of life issues for local communities.
Last, attack opponents by pointing out that the status quo vis a vis bad jobs and unsustainable environmental practices is what got us into our current economic crisis. For example, if first-time homebuyers in the Central Valley had full-time work with good wages, they would have been much less susceptible to predatory lending practices. They also would have been more able and willing to help with diesel truck retro-fits to improve air quality. Had they been given access to sustainable and alternative energy sources for transportation, or even mass transit, we would have been able to weather the oil market instability which helped drive down the consumer economy just before the financial crisis hit. We have been good at telling people what will happen, but maybe its time to explain what just happened in light of bad environmental and jobs practices, and then offer the alternative in the form of sustainable jobs with good wages and benefits.
It's just a couple of small suggestions.
Yesterday, I was able to attend the California League of Conservation Voters' Green California Summit. It was well-organized, as usual, with relevant topics and great discussions.
flx1247rg
Of course, the looming concern for this group of folks is next year's legislative and regulatory climates in the face of a nearly $21 billion projected budget deficit. One strategy (and one that comes up annually) is to consider alliances with other communities (labor, business, etc.) when our goals align. In this light, and considering the "Jobs!Jobs!Jobs!" mantra that EVERY interest group touts for their projects, I have proposed one idea: Be brutally, brutally honest about the jobs.
Environmental groups have wrapped the "jobs" tag around quite a few projects, and I've been guilty of this, myself, where I think it's true in places. But, now is the time to open up about how and where those jobs will hit, and what the true opportunity costs will be if we enact projects that will build "green" jobs, vs. the status quo.
First, define your terms. The community needs a good, solid definition of "green" jobs. My suggestion: Any job that produces net carbon negative without too many impacts on other ecosystem values, and provides wages above the poverty threshold (or even prevailing wages?) should be "green". Remember, we are looking to build sustainable communities that make enough money to afford to leave some land/resources aside, in addition to lessening our environmental impacts. If we don't define this term in some way, however, it will so completely lose its value as to be potentially damaging.
Along with defining "green", define the opposite (hint: Don't call them "brown" or "black", please - maybe something like "bad", or "crappy", as I'm guessing "dirty jobs" is copyrighted).
Then, do an A+B+C=D equation, where A = Green Jobs, B = Crappy Jobs, C = unemployed people, and D = total workforce in the community (I kinda "stole" this from the folks at Env-Econ). I suggest doing this by region, and starting in the Central Valley, not because it's taking water from my community, but because it's economic conditions are as bad as Appalachia.
In this comparison, be honest: More green jobs will mean fewer other jobs. But, define those other jobs, which in the context of the Central Valley, looks good for green, local communities, and labor. Yes, massive solar installations on denuded and fallowed lands will lose farm labor jobs, but they will gain full-time, year-round solar industry employment. In addition, consider how these jobs will cut into unemployment. Mendota claims to be freaked out because its official unemployment rate is over 30%, which is sad and awful, but not much worse than it was during good economic times. Mendotans should be screaming mad at their infrastructure and local government for never trying to get good, steady work developed in its region, but now, with the potential for farming solar, they should be demanding space for these full-time jobs with better wages and benefits.
So, show the math. In the best of times you may lose, say, 2000 ag. jobs to a particular project, but gain 500 green jobs. However, the 500 jobs we'd support would be at, say $15-20/hr., + benefits + full-time work, vs. the current $8-10/hr. seasonal work without benefits. In addition, your ag. jobs aren't there right now, anyway, due to drought and a bad economy, so note that turning fallowed lands benefits locals without driving away current agriculture.
If you add an honest conversation about the created jobs to the benefits of carbon-negative projects and lower impacts on ecosystems, you speak not only to the current budget crisis and economic climate, but also to future quality of life issues for local communities.
Last, attack opponents by pointing out that the status quo vis a vis bad jobs and unsustainable environmental practices is what got us into our current economic crisis. For example, if first-time homebuyers in the Central Valley had full-time work with good wages, they would have been much less susceptible to predatory lending practices. They also would have been more able and willing to help with diesel truck retro-fits to improve air quality. Had they been given access to sustainable and alternative energy sources for transportation, or even mass transit, we would have been able to weather the oil market instability which helped drive down the consumer economy just before the financial crisis hit. We have been good at telling people what will happen, but maybe its time to explain what just happened in light of bad environmental and jobs practices, and then offer the alternative in the form of sustainable jobs with good wages and benefits.
It's just a couple of small suggestions.
Monday, November 16, 2009
Carbon sequestration & European reforestation
© 2009 Joshua Stark
Don't let the title scare you off, I'll bring it down a notch, and talk about that issue in a bit.
Last week, I was able to attend a lecture by a researcher from Spain, Dr. Alejandro Caparrós of the Institute of Public Goods & Policies at the Spanish National Research Council. The good doctor gave a fine presentation, even while interrupted mid-lecture by rude Americans with questions. He was well-versed in the actual effects of carbon regulation, because the EU has been actually implementing them for a few years now.
flx1247rg
So, a definition, to get everybody up to speed: Carbon sequestration is the physical act of pulling carbon out of the atmosphere and storing it. Many folks are working on an engineered sequestration, but we have an elegantly designed method in plant life, esp. in trees and other slower-growing plants. Now that you know this (if you hadn't before), you can see the obvious interest in reforestation or avoided degradation of existing forest lands. You can also see the dollar signs appearing in many folks' eyeballs as they look out no longer at pristine forests, but at miles and miles of giant carbon stands and the money they might hold.
I won't go into the weeds too deep over actual reforestation vs. avoided degradation, or the comparisons between a largely free market (Spain) and a controlled market (Tunisia). I want to point out a surprising finding he mentioned as an aside, and two conclusions that I reached from this lecture.
First, the little gem that Dr. Caparrós pointed out: Paying farmers to reforest or avoid degradation is seen as a way to wean the EU off a large portion of its farm subsidies, and it looks like it may work. He said that the EU is attempting to eliminate its farm subsidies over the next 20 years, and is offering a way to pay for carbon sequestration as an alternative for farmers. For this reason, they are looking at the best way to ease farmers into agreeing to these subsidies. Surprisingly, with carbon market prices, it may be possible to reforest about 10% of Europe through pricing in the value of carbon.
As for my conclusions, they are a tad disturbing, but hopefully more enlightening in the long run.
As Dr. Caparrós talked about different ways to "internalize" the price of carbon, he narrowed the subsidy/payment down to two methods, which he named the Carbon Flow Method (CFM), and the Ton Year Allocation Method (TYAM). CFM is easiest: You get a check for the amount of carbon you sequester in a year, and you pay that amount when you lose that carbon. Ideally, this means that a farmer grows oaks for twenty years, and receives a check for his additional carbon every year. When he harvests his oaks, he pays for the carbon that leaves his property. Realistically, a certain percentage of farmers will lose their trees to catastrophic wildfire every year, but will probably be quite unwilling to pay for their carbon loss immediately after losing everything.
TYAM tries to alleviate the fire problem by allocating a smaller amount to the farmer for sequestering carbon each year, but not requiring payment if the farmer loses carbon to a fire or harvest. It seems like an insurance plan to me, but it also has the effect of incentives for farmers to keep trees longer, thus rehabilitating native Spanish cork oaks and their habitats.
These are all well and good, point to an economics concept really pushed lately, which is to try to internalize (make a price for) market externalities. So when I had a chance, I asked a question about this idea, because I saw a looming hole growing in the carbon pricing mechanism, and one that worries me as a conservationist/environmentalist.
I asked him if he anticipates any pressures to encourage reforestation in habitats which provide strong carbon sequestration, and degradation of habitats where not so much carbon is sequestered, but where we have other ecosystem values. His answer was illuminating: He said yes, he anticipates that market distortion, and that we would all love to be able to internalize every externality to alleviate that problem.
Which brings me to an "if you have a hammer, every problem looks like a nail" conclusion. Economists, in order to prove the ultimate efficiency of market systems, are looking to internalize every externality. But, you can't do it to everything, so we are going to see some serious distortions, until economics as a study again accepts the necessity of direct public involvement to alleviate these problems.
Don't let the title scare you off, I'll bring it down a notch, and talk about that issue in a bit.
Last week, I was able to attend a lecture by a researcher from Spain, Dr. Alejandro Caparrós of the Institute of Public Goods & Policies at the Spanish National Research Council. The good doctor gave a fine presentation, even while interrupted mid-lecture by rude Americans with questions. He was well-versed in the actual effects of carbon regulation, because the EU has been actually implementing them for a few years now.
flx1247rg
So, a definition, to get everybody up to speed: Carbon sequestration is the physical act of pulling carbon out of the atmosphere and storing it. Many folks are working on an engineered sequestration, but we have an elegantly designed method in plant life, esp. in trees and other slower-growing plants. Now that you know this (if you hadn't before), you can see the obvious interest in reforestation or avoided degradation of existing forest lands. You can also see the dollar signs appearing in many folks' eyeballs as they look out no longer at pristine forests, but at miles and miles of giant carbon stands and the money they might hold.
I won't go into the weeds too deep over actual reforestation vs. avoided degradation, or the comparisons between a largely free market (Spain) and a controlled market (Tunisia). I want to point out a surprising finding he mentioned as an aside, and two conclusions that I reached from this lecture.
First, the little gem that Dr. Caparrós pointed out: Paying farmers to reforest or avoid degradation is seen as a way to wean the EU off a large portion of its farm subsidies, and it looks like it may work. He said that the EU is attempting to eliminate its farm subsidies over the next 20 years, and is offering a way to pay for carbon sequestration as an alternative for farmers. For this reason, they are looking at the best way to ease farmers into agreeing to these subsidies. Surprisingly, with carbon market prices, it may be possible to reforest about 10% of Europe through pricing in the value of carbon.
As for my conclusions, they are a tad disturbing, but hopefully more enlightening in the long run.
As Dr. Caparrós talked about different ways to "internalize" the price of carbon, he narrowed the subsidy/payment down to two methods, which he named the Carbon Flow Method (CFM), and the Ton Year Allocation Method (TYAM). CFM is easiest: You get a check for the amount of carbon you sequester in a year, and you pay that amount when you lose that carbon. Ideally, this means that a farmer grows oaks for twenty years, and receives a check for his additional carbon every year. When he harvests his oaks, he pays for the carbon that leaves his property. Realistically, a certain percentage of farmers will lose their trees to catastrophic wildfire every year, but will probably be quite unwilling to pay for their carbon loss immediately after losing everything.
TYAM tries to alleviate the fire problem by allocating a smaller amount to the farmer for sequestering carbon each year, but not requiring payment if the farmer loses carbon to a fire or harvest. It seems like an insurance plan to me, but it also has the effect of incentives for farmers to keep trees longer, thus rehabilitating native Spanish cork oaks and their habitats.
These are all well and good, point to an economics concept really pushed lately, which is to try to internalize (make a price for) market externalities. So when I had a chance, I asked a question about this idea, because I saw a looming hole growing in the carbon pricing mechanism, and one that worries me as a conservationist/environmentalist.
I asked him if he anticipates any pressures to encourage reforestation in habitats which provide strong carbon sequestration, and degradation of habitats where not so much carbon is sequestered, but where we have other ecosystem values. His answer was illuminating: He said yes, he anticipates that market distortion, and that we would all love to be able to internalize every externality to alleviate that problem.
Which brings me to an "if you have a hammer, every problem looks like a nail" conclusion. Economists, in order to prove the ultimate efficiency of market systems, are looking to internalize every externality. But, you can't do it to everything, so we are going to see some serious distortions, until economics as a study again accepts the necessity of direct public involvement to alleviate these problems.
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