Opinion

Felix Salmon

Why fuel-economy standards make sense

Felix Salmon
Sep 12, 2012 14:04 UTC

Eduardo Porter has a very good explanation, today, of why it makes much more sense, from an economic perspective, to simply start raising gasoline taxes than it does to implement ever-tougher fuel-efficiency standards. But before we get to the meat of his argument, it’s worth correcting his numbers. Here’s his conclusion:

In Britain, where gas and diesel are taxed at $3.95 a gallon, the American automaker Ford sells a compact Fiesta model that will go nearly 86 miles on a gallon. In the United States, where gas taxes average 49 cents, Ford’s Fiestas will carry you only 33 miles on a gallon of gas.

This is an apples-to-oranges comparison on not one but two different levels. I’m not sure about the gas taxes, I think they’re correct. But the mileage figures are misleading. Yes, UK Fiestas are more fuel-efficient than US Fiestas. But not by nearly as much as Porter suggests.

For one thing, the mileage tests are different. The test you use makes a huge difference, to the point at which the 2025 fuel-economy standard of 54.5 mpg actually corresponds in the real world to cars bearing window stickers advertising 36 mpg. The US Fiesta is already there, or extremely close. On top of that, UK gallons, also known as Imperial gallons, are significantly larger than US gallons. (Which is why a pint of beer in the UK is larger than a pint of beer in the US.) As a result, 85.6 miles per Imperial gallon is 71.3 mpg in American. And only one expensive “ECOnetic” Fiesta model gets that mileage in the UK; the other ones go as low as 42.8 miles per Imperial gallon, which is 35.6 mpg in the US.

I’s hard to say for sure which cars are more efficient, because the tests are different. To be sure, any UK fleet will be more efficient than any US fleet, for three main reasons: the UK has smaller cars, with more manual transmissions, a higher proportion of which are diesel. These are consumer choices driven by high gasoline taxes, and that really makes Porter’s point for him: raise taxes, and people will automatically start driving more efficient cars. But let’s not kid ourselves that Ford could simply import UK Fiestas into the US and overnight start shipping cars getting 86 mpg.

Porter’s central point is absolutely right: there are two ways to reduce the amount of fuel that people use. The first is to make cars more efficient; the second is to reduce the number of miles that people drive. Higher gasoline taxes work on both fronts, while higher fuel-economy standards only work on the first. Indeed, at the margin they increase the number of miles people drive: since more efficient cars cost less to drive per mile, people drive further when they get more efficient cars.

Porter is also right that in countries with higher gas taxes, fuel economy tends to be much higher. But he’s not necessarily right that the higher gas taxes alone are responsible. Porter implies that the US only has fuel-economy standards just because “a tax on gasoline doesn’t stand a chance” of being passed. But the fact is that even countries with very high gas taxes have fuel-economy standards as well. And, guess what, they’re significantly tougher than ours, and they always have been.

economy.tiff

The fact is that the US has pretty much the lowest fuel-economy standards in the developed world, and it still will in 2025, even after the new standards are fully phased in. If US carmakers want to be internationally competitive, they’re going to need to develop more fuel-efficient cars anyway, no matter what happens in the US.

As a result, I really don’t buy Porter’s scaremongering about the cost of the higher standards:

According to the government’s analysis, the additional production and maintenance costs made necessary by the mileage rules will rise gradually to about $31.7 billion in 2025 — which will add about $1,900 to the average price of cars and light trucks. There are other costs, too. Some Americans will not be able to afford a new car. Profits of some automakers and dealers are likely to decline. Greater congestion will impose an added burden on health.

The idea here is that the average price of cars will go up over the next 13 years; it’s far from clear why that would decrease profits at automakers rather than increasing them. What’s more, it’s equally far from clear that the average price of cars would go up significantly less if the new standards were not put into place. The question isn’t how much cars in 2025 cost compared to cars in 2012; it’s how much cars in 2025 will cost under various possible future regimes.

And when Porter starts talking vaguely about the health burden of greater congestion, you know he’s grasping at straws. Auto emissions pollution was a problem in the 70s and 80s; it’s not a problem now, with today’s much cleaner cars.

The fact is that fuel-economy standards are a pretty good way of ensuring that carmakers can plan for a more fuel-efficient future, without worrying about competitors undercutting them with gas-guzzlers. If the US government ever comes to its senses and increases the gas tax, or if it — wonder of wonders — actually implements a broader carbon tax, then at that point you would have three different forces conspiring to make America’s fleet more efficient. You’d have the tax, you’d have the fuel-economy standards, and you’d have the general global increase in fuel efficiency.

Without new taxes, we’re down to two; and without new fuel-efficiency standards either, we’d be down to just one. And that’s dangerous, because the US market is big enough that at that point there’s always a risk that we could replay the era of SUVs and Hummers, with manufacturers of small, efficient cars running a risk that they might get crushed if oil prices fall.

Fuel-efficiency standards are a way of preventing car companies from being forced to hedge their bets by working on gas guzzlers as well as efficient runabouts. As a result, those companies can take the money they’d otherwise spend on developing six-ton monsters, and invest it instead in the efficient cars of the future. Everybody wins, and the cost — contra Porter — is negligible. He’s absolutely right that higher gas taxes are a very good idea. But that’s no reason at all not to implement higher fuel-economy standards as well.

COMMENT

I live in the UK and most people I knew had wondered why SUVs were so popular in America.

Then I did a 3 week roadtrip around California / Arizona / Nevade earlier this year.

The roads are terrible. We were driving a 2013 Lincoln MKS which for the most part was extremely comfortable yet we spent most of the journey bouncing up and down. Even the interstates are covered in pot holes. They are easily the worst roads any of us have ever driven on. If I actually lived there and had to drive on them frequently I don’t think there would be any choice other than to get something like a Range Rover.

Posted by ABT | Report as abusive

The depressing politics of climate change

Felix Salmon
May 3, 2011 07:45 UTC

Why has the Obama administration failed utterly to get anything at all done with respect to climate change? The issue was a major part of Obama’s 2008 platform, but it seemed to disappear as soon as he got elected, and the consensus on the climate change panel today was that there’s essentially zero chance that a cap-and-trade bill will become law in the foreseeable future.

One of the reasons is party-political: “Republicans chose to equate climate change with taxation,” said Milken’s Peter Passell, “and a well-financed campaign made climate change denial almost a litmus test for conservative orthodoxy”. Obviously, if you don’t believe in climate change, or if you say you don’t believe in climate change, then you’re never going to be remotely helpful with respect to crafting any kind of bill designed to address it.

But more profoundly — and the reason that the Democrats don’t seem particularly eager to get anything done on this front either — there’s the fact that climate-related legislation is one of those things which will create a large mass of winners with relatively little present-day political clout (us, our children, and our children’s children), alongside a small number of losers with extremely deep pockets and extensive lobbying arms.

One of the best aspects of the great HuffPo investigation of the politics of swipe-fee reform was the way in which it detailed how the issue came to dominate Washington politics precisely because both sides are so well funded. (Essentially, it’s big retailers vs big banks, with the public in the middle.)

As a general rule, it simply isn’t possible to pass legislation where the many benefit but a few entrenched special interests lose out. There are exceptions, of course, but they tend to be extremely hard-fought (think the healthcare and Wall Street reform bills) and unique in many ways. What you really need, when it comes to climate change, is a powerful constituency which would benefit from a bill. And since the largest beneficiaries haven’t even been born yet, let alone started making campaign donations, we’re not about to find one.

For similar political reasons, I’m evolving away from my preference for cap-and-trade over a carbon tax, since a cap-and-trade system is certain to get gamed by special interests. Allocations will be given out for free, and carbon credits will end up being given to projects which don’t reduce carbon emissions at all: Bjorn Lomborg talked about a cottage industry in China where people will build refrigerator factories designed to use a particularly potent greenhouse gas called HDFC23, not to build refrigerators, but just to get billions of dollars’ worth of carbon credits when they don’t build refrigerators.

Indeed, politics in general is a really bad way of addressing the issues of global climate change. When politicians do implement something, it’s as likely as not to have a minuscule marginal impact and to cost a vast amount of money: think of Germany’s subsidies for solar panels, which work out at about $1,000 per ton of carbon emissions saved, or U.S. subsidies for corn ethanol, which arguably create extra carbon emissions when you take into account the deforestation they cause by people needing to grow food elsewhere. Expensive programs aren’t always enforced particularly well — see California’s plan to mandate zero-emission autos — but they do make it seem as though any attempt to address climate change is bound to be prohibitively expensive if it is enforced. And that’s a bad message to send.

What’s more, even if we did pass cap-and-trade legislation — or even an outright carbon tax — it wouldn’t necessarily do a huge amount of good: such a move might be necessary, but it’s far from sufficient when it comes to the big goal of preventing the buildup of atmospheric carbon to the point at which climate change becomes catastrophic.

We also need major technological breakthroughs, and possibly also insurance in the form of geoengineering — at least a few experiments with injecting sulfur into the stratosphere or evaporating more sea salt so that marine clouds become whiter and reflect more sunlight. They might not work, and they might have significant unintended consequences, but it’s looking increasingly as though Plan A when it comes to preventing temperature build-up — reducing global carbon emissions drastically — simply isn’t going to happen. So we ought at least to be thinking about Plan B, and endowing a few prizes for technological innovation on both fronts.

One message I did get from the panel is that individual attempts to minimize our carbon footprint are not going to make any real difference. When I see people suffering a significant loss of utility because they’re watching their footprint and refuse to fly, for instance, it’s pretty clear that the personal cost of their decision is much greater than any global benefit. Even if they act as a role model and persuade others to follow their lead, they’re still perpetuating the idea that individual actions count. And I’m not sure there’s any evidence for that. Especially when the single most carbon-intensive thing that anybody can do — having children — is the last thing that they ever will (or should) give up for the sake of the planet.

COMMENT

@VisualCarbon –

I studied physics and computer science at Cornell, as well as meteorology. My first job was as an intern at NOAA in Silver Spring, MD. Admittedly that was years ago, but do share your background. Your claims that we know everything there is to know doesn’t comport with my sense of science as a field of great caution. What do I know? Maybe the old ethos of scientists is gone, at least in certain fields.

Look, I am not a skeptic that humans are changing the climate. There is no question we are adding to the mix. I believe!! But to claim that we actually know what will happen in the coming century (“We have a model that is 100% accurate with all variable included. It is called the Earth. “) is a riot!

Our geological record is spotty but here are a few elephants milling about the room that make it hard to claim all variables are 100 percent sewn up:
* Carbon levels at around 390 PPM are well above the recent historical range of 200-300 PPM. But looking across just the last tens of thousands of years of carbon in this range we have had massive swings of 14 or 15 degrees C in relatively short periods of time with CO2 in its historic range. These are the ice ages. We have no idea what triggered each one, only that they are a positive feedback loop.
* Solar intensity is one of the most important variables of all (and yes it is significantly variable over thousands and millions of years) and it is completely absent from the geological record.
* A number of studies have attempted to look at carbon levels across geological time. The one thing that stands out is that historical carbon measurements are all over the map and no two studies come anywhere close to each other.
http://en.wikipedia.org/wiki/File:Phaner ozoic_Carbon_Dioxide.png
About the only thing they agree on is that atmospheric carbon was once much higher than today.
And there’s this: “the early Phanerozoic includes a global ice age during the Ordovician age combined with high atmospheric carbon contents ”

Apparently the bar at which scientists are willing to say they know things with certainty has gotten a lot lower. This is not helping public perception.

In Tamil Nadu (south India), one of the hotter places on Earth where I have been twice, they have three harvests a year. On the other hand, ice ages are very much more difficult to deal with. Evidence points to a present warming trend and evidence is that humans are a part of it. But I’m just not seeing the end of the world as we know it, at least on that front.

Exhaustion of much mineral wealth is what we really need to be stressed out about if we really care about the kiddies. That is not a problem on a 100 year time frame. That is a problem arising right now. The fossil fuel / carbon problem is solving itself because we are running out of them anyway as thisspaceforsale noted.

Nuclear based electric power seems to be the only source that scales up to the level we need. Absent a viable alternative of massive scale what discussion is there to have?

Posted by DanHess | Report as abusive

The Climate Desk launches

Felix Salmon
Apr 19, 2010 14:37 UTC

The Climate Desk has launched! It’s an exciting collaboration, and I’m pleased to be a part of it. My piece is one of two complementary articles; the other comes from Clive Thompson, and explores a lot of the ways that companies are looking to profit from climate change. I, on the other hand, look at corporate attempts to mitigate the downside of climate change — and find them few and far between.

One case in point can actually be found in Clive’s piece: ski resorts like Aspen have a business model which gets destroyed if they can’t attract lots of skiers during spring break in March. If March skiing goes away, as it well might, they could end up losing a great deal of money.

But what’s Aspen Skiing Company doing about it? Well, it’s lobbying Congress, of course, claiming that the ski resort industry “is as endangered as the Polar Bear” and that if people can’t ski in March, “we go out of business”. But this is a risk it’s very hard to hedge, and maybe all it can do, pace Thompson, is call for a cap on carbon emissions.

In any case, the Climate Desk is only just getting started: expect to see lots more great reporting on climate issues going forwards. And, of course, many thanks to everybody who responded to my blegs on this issue. You were invaluable!

COMMENT

Climate change is a global problem, and yet each one of us has the power to make a difference. Even small changes in our daily behaviour can help prevent greenhouse gas emissions without affecting our quality of life. In fact, they can help save us money!

Posted by ascoss | Report as abusive

How to compensate consumers under carbon pricing

Felix Salmon
Sep 28, 2009 02:18 UTC

Greg Mankiw, when it comes to cap-and-trade, is more or less on the side of the angels: he’s quite right that permits should be auctioned rather than given away to polluters. But is the tax code really the best way to compensate consumers for the higher energy prices they’re going to end up paying? Mankiw writes:

From the standpoint of economic efficiency, the price of carbon emissions should be passed on to consumers in the form of higher energy prices, so that consumers can make optimal decisions regarding energy consumption. Consumers should be compensated for paying these higher prices via cuts in income or payroll taxes. Those tax cuts would be financed by the revenues received from the auctioning of carbon rights (or, better yet, a carbon tax).

The first sentence is right, it’s the second I take issue with. If you cut income or payroll taxes, you end up giving more benefit to high earners than to low earners, and people who pay little or no taxes at all (eg the unemployed) get precious little benefit at all.

Better would be a flat refundable tax credit: the government essentially gives every taxpayer a flat amount each year, passing on the revenues it gets from the carbon auction.

Even that, however, would create inequities: three college roommates sharing a small city apartment would get three times the amount going to a single mother trying to raise three kids in the countryside — someone whose energy consumption would naturally be much higher.

There isn’t a simple and fair way of doing things — even channeling fixed payments through the energy companies themselves would unfairly advantage people who use say electricity and natural gas and heating oil. Instead, I fear that the fair method is going to be complicated, based on ZIP codes and size of household at the very least.

But the compensation should certainly be capped at no more than the average energy bill for the area. If people use less energy than the average, then it’s fine for them to profit from that. But there’s no reason to use a carbon-pricing mechanism to give high earners yet another tax break.

COMMENT

The dividend check is the way to go. And the tax on gasoline wouldn’t be $3 per gallon, closer to $0.10 per gallon. Carbon neutral just isn’t that expensive. See this study in New Scientist on affordability.
http://www.newscientist.com/article/mg20 427373.400-lowcarbon-future-we-can-affor d-to-go-green.html

Posted by JonHocut | Report as abusive

Dimmable LED bulbs!

Felix Salmon
Sep 17, 2009 19:47 UTC

Many thanks to Andrew Leonard and Alok Jha, who have discovered the Philips Econic. Here’s the relevant bit of their flyer (warning: 9.9MB PDF):

econic.tiff

Yes, that really does say “dimmable”. And Jha says that this is the “new bulb that will hopefully make the doubters shut up”.

When I moved into my new apartment in 2005, we ended up needing a huge number of 40W reflectors, all on dimmers, which between them consume an insane amount of electricity. What’s more, they need very frequent replacing, which is non-trivial. If I can just replace them with dimmable LEDs which last for 25 years, I will be a very happy person indeed.

COMMENT

I think the manufacturer is crazy to believe that the average consumer will pay anywhere near $40 for a light bulb, let alone when the light output is only 1/3 a true 60W bulb. And the introductory price gimic is just that. It’s far more likely that in 3-6 months time the LED will be considerably cheaper than its $40 “introductory price.” I’m all for saving energy, but I give this product an F for value.
http://www.imodernlighting.com

Posted by lucianaLucy | Report as abusive

Thomas Crocker’s weird arguments against cap-and-trade

Felix Salmon
Aug 13, 2009 14:55 UTC

There’s something rather odd about Thomas Crocker’s opposition to cap-and-trade and his support of a carbon tax instead: all of his arguments why a carbon tax is preferable to cap-and-trade are exactly the same as my arguments why cap-and-trade is better than a carbon tax!

Let’s take Crocker’s arguments one by one, with the proviso that they’re coming second-hand, via the WSJ, rather than directly from Crocker himself.

First, Crocker says that a carbon tax “would be easier to enforce” than a cap-and-trade system. But it’s hard to see why that should be the case: both of them involve measuring the same carbon emissions. It’s certainly easier to enforce when you measure upstream rather than downstream, but that applies equally to carbon taxes and to cap-and-trade.

Crocker then gets into the meat of his argument:

Mr. Crocker sees two modern-day problems in using a cap-and-trade system to address the global greenhouse-gas issue. The first is that carbon emissions are a global problem with myriad sources. Cap-and-trade, he says, is better suited for discrete, local pollution problems. “It is not clear to me how you would enforce a permit system internationally,” he says. “There are no institutions right now that have that power.”

Yes, cap-and-trade is better suited for local pollution problems than it is for global pollution problems. But that doesn’t mean that a carbon tax is better for global pollution problems than cap-and-trade is. Indeed, the opposite is true. In theory, once a number of jurisdictions implement a cap-and-trade system, carbon traders will start arbitraging the various different carbon permits, and we will end up with something approaching a global system. Carbon taxes, by contrast, are ever and always local. Crocker is right that a US cap-and-trade system wouldn’t necessarily slow global carbon emissions if China and India refuse to play ball. On the other hand, neither would a carbon tax. But at least a cap-and-trade system has the ability to scale into China and India.

But moving on:

The other problem, Mr. Crocker says, is that quantifying the economic damage of climate change — from floods to failing crops — is fraught with uncertainty. One estimate puts it at anywhere between 5% and 20% of global gross domestic product. Without knowing how costly climate change is, nobody knows how tight a grip to put on emissions.

In this case, he says Washington needs to come up with an approach that will be flexible and easy to adjust over a long stretch of time as more becomes known about damages from greenhouse-gas emissions.

Agreed, 100% — which is exactly why we need a flexible cap-and-trade system rather than an inflexible carbon tax. A cap-and-trade system can be tweaked much more easily than a carbon tax, both in terms of the level of the cap and in terms of the proportion of the permits which is auctioned off rather than given away. Crocker says it’s hard to adjust a cap once it’s in place — but he neglects to mention that it’s harder still to adjust a tax once it’s in place.

In the first instance, the important thing is to get something in place, which can then be improved over time. A cap-and-trade system fits the bill perfectly; a carbon tax, by contrast, doesn’t.

COMMENT

Cap & trade and carbon tax are failed concepts as carbon prices have been pathetic both in US ($ 3.5) and Europe ( Euro 8.0) during most of last year. CER has stopped issuing new carbon permits to prevent prices to fall sharply during the Bonn Conference. Australian parliament has rejected carbon trade, India refuses to consider it. I agree with those who say that Governments of U.S. and Europe have been fooling the people for last 15 years on climate change, delaying investments in Clean Energy on the pretext of huge revenues that will be generated by the Carbon Trade. One such show in slideshare.net “COP15: Bullshiting 15 years on climate change ” is an eyeopener.

Posted by Rachel Sigfreud | Report as abusive

Hummer: Too dirty even for the Chinese

Felix Salmon
Jun 26, 2009 13:54 UTC

China is likely to block the acquisition of Hummer by Sichuan Tengzhong:

Hummer, as an expensive, gas-guzzling sports utility vehicle, would not fit in with the government’s policy of encouraging energy-efficient vehicles, the radio said.

Could this be the beginning of the end of China importing carbon emissions from the US?

COMMENT

I find it fairly implausible that a sound Chinese government would give up this sort of opportunity. This would be the very FIRST live, non-dead auto company that would have acquired overseas.

Reading the article, the concern rather seems to be that the buyer does not have the requisite management experience. That can be amended by forcing it to merge with a bigger auto company.

Posted by Myles SG | Report as abusive

Nuclear power: Going fast

Felix Salmon
Jun 23, 2009 15:28 UTC

I was offline most of yesterday attending a high-intensity series of presentations hosted by Esquire magazine in the magnificent suite of rooms at the top of the new Hearst tower. GE’s Eric Loewen was there, talking about nuclear power, and specifically what he calls a PRISM reactor — a fourth-generation nuclear power station which runs on the nuclear waste generated by all the previous generations of nuclear power stations.

PRISM is GE’s name for an integral fast reactor, or IFR, and it’s a pretty great technology. The amount of fuel which already exists for such reactors would be enough to power the world for millennia — no new mining needed. Fast reactors also solve at a stroke the problem of what to do with the vast amounts of nuclear waste which are being stockpiled unhappily around the world. They’re super-safe: if they fail they just stop working, they don’t melt down. And they can even literally replace coal power stations:

One nice thing about the S-PRISM is that they’re modular units and of relatively low output (one power block of two will provide 760 MW). They could be emplaced in excavations at existing coal plants and utilize the same turbines, condensers (towers or others), and grid infrastructure as the coal plants currently use, and the proper number of reactor vessels could be used to match the capabilities of those facilities. Essentially all you’d be replacing is the burner (and you’d have to build a new control room, of course, or drastically modify the current one). Thus you avoid most of the stranded costs. If stranded costs can thus be kept to a minimum, both here and, more importantly, in China, we’ll be able to talk realistically not just about stopping to build new coal plants but replacing the existing ones, even the newest ones.

And best of all they’re eminently affordable: Loewen showed that they could be profitable selling energy at just 5 cents per KwH — which means that you don’t need to price carbon emissions at all to make these power stations economically attractive. With pricing on carbon emissions, of course, they become even economically compelling.

So what’s the problem? They’re untested, and the regulators in the US will take many years and many billions of dollars before they will approve such a project. And legislation is needed, too — including legislation allowing the use of nuclear waste as a fuel. But mainly all that’s needed is political will. It’s unclear the degree to which Steven Chu, the US energy secretary, supports this technology. But if he puts the weight of the Obama administration into supporting this technology and trying to make it a reality, then a lot of private capital will start flowing into the area. And it might be much, much easier to achieve ambitious carbon-emission reduction targets than many people currently think.

COMMENT

The biggest commercial problem with nuclear power, and especially from breeder reactors, is that it costs next to nothing to run.
If you count on the energy companies to embrace it, you’re asking them to put all their other businesses out of business.

Plus, for too many liberals, the distinction between nuclear weapons and nuclear power is emotionally too difficult. Any decent American knows that we should be ashamed of the bomb we dropped on Nagasaki, three days after the Hiroshima bomb for which we might have an excuse.

For my part, ascoss, I’d rather live next to (or downwind of) an Integral Fast Reactor power plant that’s got a few tens of tons of radioactive fuel, none of which can escape, than a comparable coal burner emitting millions of tons of poisonous gases, aye, and even radioactive thorium fly ash.

And I’d rather have a 1000 MW nuclear power plant at the bottom of my favorite range of mountains than 800 wind turbines, each 600 feet tall, over the same mountains, generating maybe the same total annual amount of energy, but without regard to the actual demand.

The crucial advantage of nuclear power is that chemical processes involve the atom’s electron energy, which is about a millionth of what holds the nucleus together.

So a very small amount of uranium, which produces an even smaller amount of waste products, gives you as much energy as millions of barrels of oil.
Or put it another way:
Uranium and Thorium are the product of the violent cataclysmic death of a huge star, an event that we call a supernova.
Fossil carbon was laid down during about 64 million years, by energy from our quiet little sun.
Our rate of consumption of fossil carbon could use it up, and all of the oxygen in our atmosphere, in a few hundred thousand years.

It’s not likely that we can find ways to use solar energy to keep up with that rate.

Posted by AuldLochinvar | Report as abusive

How transit investments pay for themselves

Felix Salmon
Jun 22, 2009 14:44 UTC

Kaid Benfield has a great wonky post on the connection between carbon emission reductions and land-use regulations. It turns out that the latter can have an enormous effect on the former: in a number of cities and states, the cost of implementing things like transit-oriented development and growth boundaries can actually be negative, thanks to the resulting reduction in vehicle miles driven. (And that’s not even including the fact that household carbon emissions, as opposed to vehicle emissions, are much lower in high-density developments.)

The problem of course is one of political will. The state of Georgia, for instance, could save more than $400 billion over 30 years if it started getting strategic about infrastructure investment, while saving 18 million metric tons of CO2. But will it? I very much doubt it.

COMMENT

Ahem,

Dubious numbers Felix. Are you truly trying to say that people should be forced into highrises, squashed together like sardines? Are you saying that we should all ride choo-choo trains to our green jobs in the new urban nirvana? Felix, the last time I saw statistics for who liked this mode of living, only young pups like you with no small children and empty nesters one step from The Home thought this was a good idea. Would you and your socialist friends force us to live a lifestyle that we don’t choose? Apparently so. Thanks comrade Felix.

Posted by Guy Thompto | Report as abusive

Cap-and-trade datapoint of the day

Felix Salmon
Jun 22, 2009 04:05 UTC

I am very happy that the CBO has finally gotten around to costing out Waxman-Markey, so that we don’t have to put up with pseudoscientific scaremongering any more.

The Congressional Budget Office (CBO) estimates that the net annual economywide cost of the cap-and-trade program in 2020 would be $22 billion—or about $175 per household… households in the lowest income quintile would see an average net benefit of about $40 in 2020, while households in the highest income quintile would see a net cost of $245… Overall net costs would average 0.2 percent of households’ after-tax income.

A reasonable price to pay, I think, for massively reducing the economy’s reliance on oil imports and working to curtail the potentially catastrophic tail risk associated with global climate change. Note that ancillary benefits, such as economic and competitiveness advantages which flow from the private sector making significant investment in clean-energy technologies, are not included in this calculation; it doesn’t even include $22 billion a year in energy savings which will result from the act.

Note also that if there’s a faster-than-expected move from giving permits away to auctioning them, the scheme could in and of itself generate significant net benefits: the CBO assumes that only 17% of allowances would be sold in 2020, while fully 83% would be given away.

So yes, the ideal cap-and-trade bill would be much better than Waxman-Markey. But Waxman-Markey is vastly better than what we’ve got right now, which is nothing.

(HT: Avent)

COMMENT

$175 Don’t make me laugh.
Everything we purchase would increase in price.
And $40 credit to do what. Buy toilet paper?
CAP and TRADE is ENRON forced onto everyone.
CAP and TRADE is not about emissions it’s all about
the government creating a hugh slush fund for world government expansion.
CAP and TRADE places the entire U.S. economy on the shoulders of speculation, manipulation within the Chicago Climate Exchange(CCX)
CAp and TRADE is the most damaging plan for America changing our freedom in a very bad way.

Posted by Les Horn | Report as abusive

The inverse-floater gasoline tax

Felix Salmon
Jun 15, 2009 14:32 UTC

How to structure a gas tax? You could make it a flat X cents per gallon; alternatively (and this is essentially what a cap-and-trade system does, too) you could make it Y%, with the tax increasing with the price of gasoline.

Today, Jim Surowiecki comes up with a third option, where the tax decreases when the price of gasoline goes up:

Rather than leave so much of our fate to chance, we’d be better off doing what politicians always say they want to do: lessen the U.S. economy’s dependence on oil. One step toward that would be to phase in a gas tax designed to smooth out oil’s spikes and plunges by keeping the price of gasoline fixed (the tax would rise when the price of gas fell, and vice versa).

Surowiecki makes a strong case that consumer behavior, when it comes to reducing gasoline consumption, only really changes when there’s a spike in gas prices. As a result, his proposal would seem designed to have the least possible effect on gasoline consumption, and on our dependence on oil. Sure, it’s a sensible way of raising government revenues and reducing the fiscal deficit.

Either you want to effect consumer behavior and reduce gasoline consumption — in which case you actually welcome price spikes. Or else you want to smooth out price spikes, in which case you slowly boil the frog (to use one of the stupidest metaphors ever) and keep consumption high. But you can’t have it both ways. Which is it to be, Jim?

COMMENT

@ KenG:

I had assumed that Surowiecki didn’t mean “fixed” literally, since it’s so clearly a bad idea for the reasons you mentioned above. Maybe I was wrong. Anyhow, it seems like we agree on substance.

My point still stands about local (or short-term) pressures, though: if the tax is calibrated to an index of gas prices across the country (rather than case-by-case), there would still be downward price pressure on individual suppliers.

Posted by Benquo | Report as abusive

Whither cap-and-trade? An IM exchange

Felix Salmon
Jun 12, 2009 18:52 UTC

One of the great things about working for Reuters is that I get to pester journalists who actually know what they’re talking about. So after reading Timothy Gardner’s story on the cap-and-trade bill today, I got him on IM, and learned a lot — not least that Waxman-Markey is being considered more of an all-encompassing energy bill, as opposed to simply a way of creating a cap-and-trade scheme. Which on the one hand means that it can be loaded up with enough pork to make it pass, but on the other hand makes everything much more complicated:

Felix Salmon: Your headline says that a cap-and-trade bill is “more likely” in 2010 than in 2009, is that right? And is this a new development?

Timothy Gardner: Well I think a lot of people who are watching Congress closely believe the stars are aligned like never before for action from the U.S. on climate. The EPA has proposed that greenhouse gases are a danger to human health, Obama has set new CAFE standards for vehicles and he also supports a cap and trade market.

TG: But I think too that NGOs, and carbon market developers like the International Emissions Trading Assocation, are beginning to realize that in a lot of ways the compromises have just begun. It’s not new that many people think the bill wont be completed unitl sometime next year. But the complexity of the many of the issues including what to do about nuclear, which is not addressed very much in the bill, and reframing the costs of putting a price on carbon during the recession, are new. The head of the IETA office in Washington, who worked on the Hill for 9 years on climate, said today “there’s not a snowball’s chance in hell” that the bill will pass this year.

FS: Yikes.

TG: There’s still a lot of optimism out there especially because now the White House supports forming a carbon market.

FS: But that was the other thing I wanted to ask you about — this nuclear thing

FS: Obvs nuclear energy has zero carbon emissions, right? So it will benefit from any cap-and-trade bill?

FS: But your story seems to imply that there might be something in the bill to scale back nuclear energy?

TG: Well, it’s close to zero emissions because you would have to build new plants and mine the uranium and dispose the waste. But yes it could benefit from a cap and trade bill but so far it has mostly left out of the process.

TG: I didn’t mean to imply that it would be scaled back. It’s just that any benefit it would get from cap and trade would have to be balanced with a program on what to do with the waste since storing it at Yucca Mountain has run into so many problems.

FS: I’m confused about this. Surely questions about what to do with nuclear waste are questions about what to do with nuclear waste whether or not there’s a cap-and-trade scheme, right? Why should those questions be addressed in a cap-and-trade bill?

TG: Nuclear doesnt necessarily have to be addressed in the Waxman bill, it could be addressed in another bill in parallell, but that could take time

TG: But the bill is first and foremost an energy bill, not just a cap and trade bill. So from what I’m hearing some Senators are looking for funds and loan guarantees to build new nuclear plants. If they get that there would probably have to be some kind of deal or plan on what to do with nuclear waste as well.

TG: It costs $3 to $5 billion to build a nuclear plant, so to build one will take time

FS: Hobbling carbon-derived energy isn’t enough for these guys? They need extra pork for nuclear energy on top?

TG: If the Senate wants to gain a few votes to get to the required 60, particularly if Al Franken doesn’t make it in. There are still more than 20 iffy Democrat Senators and quite a few Republicans that could go either way

FS: Wow, sounds like this is going to end up with more pork than David Chang festival. Thanks for your time!

COMMENT

California CalEPA Secretary Linda Adams, signed a MOU with the UN in China on earth day. China gets about 50% of the world carbon tax and the China government gets a 50% tax of the credits.

** China goods and services may increase

** We pay the carbon tax and Pew Business Environmental Leadership Council (BELC) Member Companies: ABB, Air Products, Alcoa Inc., American Electric Power, Bank of America, BASF, Baxter International Inc., The Boeing Company, BP, California Portland Cement, CH2M HILL, Citi, Cummins Inc., Deere & Company, Deutsche Telekom, The Dow Chemical Company, DTE Energy, Duke Energy, DuPont, Entergy, Exelon, GE, Hewlett-Packard Company, Holcim (US) Inc., IBM, Intel, Interface Inc., Johnson Controls, Inc., Lockheed Martin, Marsh, Inc., Novartis, Ontario Power Generation, PG&E Corporation, PNM Resources, Rio Tinto, Rohm and Haas, Royal Dutch/Shell, SC Johnson, Toyota, TransAlta, United Technologies, Weyerhaeuser, Whirlpool Corporation, Wisconsin Energy Corporation and friends may all share in the public/private partnership of corporate and NGO welfare

Posted by Charlie Peters | Report as abusive

The fiscal cost of Waxman-Markey

Felix Salmon
Jun 8, 2009 04:33 UTC

Couldn’t they have left themselves any leeway at all? The CBO has now costed out the Waxman-Markey act, and has come to the conclusion that over the 10 years from 2010 to 2019, it would raise $846 billion, spend $821 billion, and cost another $50 billion or so in discretionary spending. In other words, it’s at best fiscally flat, and quite possibly will actually cost the government money.

The good news, however, is that fully $693 billion of the $821 billion in direct costs is accounted for by “Outlays Associated with Emission Allowances Freely Allocated”. In other words, if and when there’s a fiscal crunch, any future government can significantly reduce the budget deficit at a stroke just by ceasing to give away carbon allowances. Which of all the different ways to raise taxes is probably likely to be one of the least politically damaging.

COMMENT

That’s a pretty interesting point, and almost makes me wonder if this is deliberate. After all one of the biggest criticisms of the bill from an environmental point of view is the fact that it gives away too many of the allowances for free, since that won’t change behaviour. Perhaps the idea is that if they can get the framework right, then the ongoing fiscal deficits will do the heavy work in terms of steadily forcing the proportion of free credits down and down.

Posted by duncan | Report as abusive

A closer look at the Waxman-Markey allocations

Felix Salmon
May 26, 2009 19:03 UTC

John Kemp has a very handy summary of exactly how emissions allowances are going to be allocated under the Waxman bill. And it turns out that while only 15% of the allowances are certainly going to be auctioned — at least in the first instance — another 14% or so are going to go towards pushing clean-energy objectives. As Kemp notes, this is

in effect granting valuable, saleable rights to companies promoting new technologies such as carbon sequestration and storage, energy efficiency and renewables, and clean vehicle technologies.

We’re talking a lot of money here: the “clean vehicle technology” line item gets 139 million tons of emissions allowances in 2012 alone, on top of 440 million tons slated to go to “energy efficiency and renewables”. Your guess is as good as mine when it comes to the secondary-market value of emissions rights in 2012, but we’re talking billions of dollars annually here.

I like the way that this clean-technology subsidy rises is essentially tied to the successful passage of Waxman-Markey — that’s a good way of aligning incentives. But isn’t the whole point of a cap-and-trade bill that it provides a way to monetize clean energy even without dedicated subsidies? And if we go down this road, aren’t we going to get even more sillybuggery surrounding the reclassification of various forms of energy as “clean” or “renewable”?

COMMENT

I’m reminded of the paper company tax play on the alternative energy tax subsidies http://www.thenation.com/doc/20090420/ha yes

There needs to be an analog to the word “gerrymandering” for referring to the (endogenous) dislocations that these sorts of tax/subsidy undertakings engender.

Posted by bdbd | Report as abusive

The reality of Google PowerMeter

Felix Salmon
May 22, 2009 14:21 UTC

Blog_Google_Powermeter.jpg

Kevin Drum is getting a bit ahead of himself, I fear, in his embrace of Google PowerMeter. He reproduces this chart, and says that the

PowerMeter app can be embedded on your iGoogle home page. Open it up and you can see exactly how much power you’re using every time you turn an appliance on or off. Neat.

In reality, however, we’re not remotely there yet. You see all those nice smooth lines and little wiggles in the Google chart? That’s not what you’re going to see when you combine PowerMeter with San Diego Gas & Electric’s smart meters. Instead, you’re going to see something much blockier: it’ll only show you total energy consumption on an hour-by-hour basis. So you’ll know how much energy use there was in the hour between 7am and 8am, say, but you won’t be able to see obvious spikes like the one for the dryer in the chart above.

And what’s more, if you turn on your dryer and then run to iGoogle to see what’s going on, you’ll see no change: the data on iGoogle will be for yesterday, not today.

More generally, the information you get from PowerMeter will be a subset, not a superset, of the information you can get directly from SDG&E. PowerMeter, at least in this case, is no more than an information delivery device: there’s no inside-the-home hardware involved, or anything like that. And if you get the information directly from SDG&E rather than from Google, you’ll be able to see not only how much electricity you’re using but also how much that electricity is costing you.

So the dream is great, and the reality is cool, but let’s not confuse the two.

COMMENT

Well this is a contractual requirement that SDG&E (and all other California investor owned utilities (IOUs)) own & control the data.

Customer data is jealously guarded by the IOU’s in California, you should see the contract language they have.

Normal damages are insufficient to compensate them from damages of customers owning and posting their use profiles, blah, blah, blah.

Posted by sunsetbeachguy | Report as abusive
  •