Copenhagen Update

As we get closer to the upcoming Copenhagen summit, nation-states and international bodies have begun debating policy options likely to be addressed at the conference. Though I am skeptical  that long-term reform will lead to a reduction in greenhouse gas emissions, I am nevertheless happy that the world’s attention will be focused on this issue in December.

The essentials of the debate include: the rate at which industrialized nations are willing to reduce their emissions of greenhouse gases; what China and India are expected to do to limit the growth of their emissions; how much help will be needed for developing countries to engage in reducing emissions; and how funds used to encourage the reduction of greenhouse gases will be managed.

So far a couple of policy options, beyond the debate about whether the U.S. will pass a climate change bill before the summit, are dominating discussions among policymakers prior to the conference. One of these options includes a discussion about what alternatives are available for coping with how a carbon treaty will affect the relationship between rich-poor nation-states on carbon emissions. Overall, most policy elites feel that funding to poorer nations is key to finding consensus at the summit. This debate is currently going on within E.U. , however, a coherent position has not come out of the 27 nation group on this issue. Further, there is also a discussion about the role of international institutions to cope with climate change. This argument entails a stronger role for the UN; many policymakers are calling for the institution to create an agency to deal with climate change.

In any event, we will have to wait see how the details over these debates unfold prior to the summit.

Understanding the Motives of Pressure Groups to Influence Climate Change Legislation

To better understand the debate surrounding the Boxer-Kerry and Waxman-Markey bills, it is important to understand the motives behind tactics employed by interest groups invested in the bill. So to do this, I offer a brief explanation as to why pressure groups act in this way and what can be expected as a result of this type of behavior.

Interest groups, who are either for and against the bill, have thus far tried a variety of tactics in winning over members of Congress. Specific tactics range from outright fraud—a recent example is a forged letter put together by a coal-grassroots coalition —as a means to to discourage moderate Democrats from voting for the Waxman-Markey bill—to fear—examples include groups focusing on arguments about how this legislation will raise energy costs , how it is a threat to our national security, and/or that it does not go far enough in dealing with global warming —in order to dissuade members of Congress from voting for the bill.

One explanation for this type of behavior is that interest groups invested in climate change legislation are following a basic strategy of rent-seeking. In other words, pressure groups seek government to either bestow on to them some benefit, or protect their existing benefits, as a result of the bill. Such benefits typically take the form of government subsidies, the granting of permits to emit carbons, or more generally some type of transfer of public assets to private interests. In effect, pressure groups are seeking a monopoly over the rights granted by government in the regulation of carbon emissions.

Unfortunately, the likely outcome of this type of behavior results in a distortion of the legislation that is more focused on meeting the needs of specific interests ,which more times than not, is at our expense.

2009 NJ Election Forecast: Voting “Yes” on Public Question #1 (Open Space)

Following up on my earlier posts from this week on Public Question #1 (Open Space), I think it is important to take a moment and assess the probability of the measure’s passage next Tuesday. To do this, I have developed a forecasting model that includes variables that account for current state and national political trends, as well as on past Open Space and Green Acres referenda from 2005, 1995, 1989, and 1983. To estimate “Yes” votes by county, the following independent variables are used: overall voter turnout, previous gubernatorial voting patterns by county, the governor’s approval rating, as well as the previous vote for the democratic presidential candidate by county. Further, I adjusted the forecasts to account for county population.

So far, it is a “toss-up” on whether Public Question#1 will receive a simple majority of the vote (greater than 50% of the total estimated vote). The overall forecast for the provision is likely to get 47% of the vote (plus or minus a 4% forecast error). Reaching the 50% threshold will be a challenge, particularly because this requires that actual voting will have to be at the high range of the forecast estimates. To accomplish this will be difficult, in part this is due to an overall anti-incumbent sentiment among the electorate that is driving not only the current New Jersey governor’s race but also the upcoming election more broadly.
2009 NJ Election: Forecast of "Yes" Vote on Open Space by County
The chart above illustrates expected 2009 voting patterns by county of “Yes” votes for the measure. As the chart illustrates, critical counties (those counties within 1 forecast error of the 50% threshold) for passage of the referendum are not only more populated counties, but also those counties that are more likely to support the governor in the upcoming election. Yet, the governor’s low approval ratings and the governor’s under performance on environmental issues tend to decrease the likelihood that voters will  pass the referendum. At any rate, the major conclusion from these estimates is the importance of getting out and voting “Yes” on this measure. Don’t forget, election day is this coming Tuesday November 3, 2009.

The Debate Over the Costs of the Clean Energy Jobs and American Power Act

After the first day of Senate hearings on the Boxer-Kerry bill, fault lines have begun to emerge among legislators. However, differences have not fallen along traditional party lines. Rather, a loosely-formed coalition of moderate Democrats, those members primarily from manufacturing states and rural states, and the committee’s Republicans have begun to voice their skepticism over this piece of legislation. The initial concern among these legislators is the associated costs.

It should be of no surprise that the debate over the bill’s costs remain a point of contention among legislators. The back-and-forth, and deal-making, over the costs have persisted all summer–since the passage of the Waxman-Markey bill in the House of Representatives. Currently the EPA estimates the cost of the Boxer-Kerry bill to be in line with earlier estimates of the Waxman-Markey bill, which comes to about $100-$175 per family over the course of a year. For proponents of the legislation, this seems straightforward. Yet, critics contend the cost estimates presented are too rosy: Costs are watered down in the early years of the bill’s implementation as a means to appease Democrats in rural and manufacturing states; costs are then increased in later years as result of tighter caps on emissions. So, the full financial impact of the bill on households is not realized until post-2020, which is the end year used by CBO. (Critics do have a point. Emissions targets start out gradually, 66% of 2005 levels by 2012-13, and then increase to 86% of 2005 levels in 2016. Therefore, the major emissions targets begin to take effect by 2020 and thereafter.)

By 2020, with emissions standards being set back to 2005 levels, companies will then have less opportunities to “offset” their emissions, assuming there are no additional technological innovations during this time period for lowering emissions. As a result, the price of permits would be expected to exceed the CBO estimate of $28 per tonne of carbon; Yale economist William Nordhaus estimates it to be at least $34 per tonne.  The increase in the cost for companies to purchase permits would then be passed on to consumers. This is what critics claim is an energy tax on households, which could be up to a few thousand dollars a year. I will say that these concerns among critics are real, assuming there are no technological advances to better handle emissions. I would prefer if Congress set a reasonable bill that dealt with the costs in the near term rather than simply “kicking the can” down the road for future generations. I also have concerns about the bill meeting intended emissions targets.

From what I have read so far on the bill, it is not ideal in dealing with climate change: 85% of the pollution permits required in this bill have been given away and the remaining 15% will be auctioned. I have two problems with this strategy. First, it transfers public assets to private entities, and second it does not raise enough money to pay for itself. Also, my concern that the baseline of 2005 emissions levels may be too little, too late, when nations such as Sweden and Great Britain have sought to reduce their levels to 1990 levels. Nonetheless future comments and analysis will have to wait as more of the bill’s details become public.

Go Green, Go Vegetarian!

For all of you contemplating not eating meat for health reasons, Lord Stern’s comments provides you with yet another reason to reconsider your current lifestyle choices. Now, I also realize that not everyone is committed to make the change from carnivore to herbivore. So let’s take a moment to assess his argument.

To do this I will use David MacKay’s approach to calculating energy needs. So to start, let’s assume the average American eats about 1/2 pound of meat per day and after we factor in energy costs of meat production (I am going to use a shortcut of about 170kg multiplied by 3kWh/d divided by 65kg to account for meat consumption and then add in roughly 4kWh day to account for energy production) the result is approximately 12kWh per day or approximately 6% of an individual’s annual energy consumption. For me, I am not convinced this policy decision will have the overall impact suggested by Lord Stern on overall emissions. But nevertheless, his argument does empower vegetarians globally and gives them another reason to feel good about their diet!

Clean Energy Jobs and American Power Act

Over the next few days, the U.S. Senate Committee on Environment and Public Works will be holding legislative hearings on the Boxer-Kerry bill. The bill primarily focuses on clean jobs, renewable energy, as well as on overall carbon emissions. Proponents of the bill argue it is necessary if the U.S. is serious about tackling climate change; while opponents claim the bill does not do enough to diversify energy sources to tackle this issue.

Currently, the debate over the bill is falling along party lines. There have been, however, some positive signals of bipartisanship given by Senator Linsday Graham (R SC) who last week indicated he would be open to the bill only if it serves as a means to increase nuclear power as well as offshore drilling.

As the debate over the bill unfolds, I expect it to focus on the estimated costs of the bill. As of today, there are no clear indicators about the overall costs but the debate so far has Democrats downplaying the costs and Republican overstating the costs. It is likely the costs will fall somewhere between these arguments.

I expect that public opinion will begin to crystallize on the bill as the details become available. So far, U.S. public opinion is positive regarding the concept of “cap and trade.” But only time will tell where the American public falls on the bill as the pro and con camps entrench themselves in their legislative positions.

Regardless, I believe that regulation of carbon emissions will occur sooner than later and will either be done by Congress or by the EPA. My own preference leans towards the former because at least they are not completely removed from the electoral process, though incumbency remains a powerful force in Congress. I expect the debate over this bill to set the tone for future environmental action by Congress by serving as a barometer about how the institution can manage rural and non-rural interests as they relate to climate change and regulation. Nevertheless, I will reserve my assessment of the bill as more details become available. More to come…