Gernot Wagner, economist at the Environmental Defense Fund explains why the things individuals do—buying local produce, eating less meat, bringing reusable bags to the grocery store—won’t end up making much of a difference in halting global warming. Instead he argues that economics will. In But Will The Planet Notice: How Smart Economics Can Save the World he puts the onus for curbing global climate change on smarter economics, not science, politics, or activism.

Listen here.

They should start with economics.

When most people think about economics, their minds turn to business and finance. But economics goes beyond these fields, and the difference between business and economics goes beyond size. Economics is about a way of thinking.

Wal-Mart, for example, has roughly two million employees, more than the population of some fifty countries. Success in business, for Wal-Mart, or any company, is about navigating the rules of the game at hand. Economics is about setting the rules in the first place. That requires both a different toolkit and a different worldview.

It has become acceptable, in casual conversation, to say that markets don’t work. The demise of Lehman Brothers and the subsequent swoon of the global economy are often cited as evidence. The next time you hear someone say this, you can tell them they’re wrong for two reasons: Lehman Brothers is more a symptom of what happened rather than the underlying cause, and it was guided by much larger forces than itself. Markets, in fact, work all too well. They are an aggregator of wishes and desires, however misguided they may be.

Chuck Prince, the former CEO and chairman of what was once the world’s largest bank, was right when he uttered these famous words shortly before his resignation: “As long as the music is playing, you’ve got to get up and dance.” Place the emphasis on “you’ve got to.” Legislators and regulators, in their finite wisdom, had erased many of the existing checks and restrictions—those few, rickety road signs pointing in different directions. Their actions lit a fire under Prince’s and other bankers’ feet.

This is not to vilify Prince. He had it right. Bankers should be dancing to the music. That’s what they’re paid to do (and very well at that). It’s also the core lesson they’re taught in business school: Find the best ways to navigate the current system and make a buck or two in the process.

It’s up to the rest of us to find the right rhythm. That’s where economics comes in.

The caricature of economists is one of free market apologists. It’s understandable. One need only look at Alan Greenspan and others who hew too closely to Ayn Rand’s fictional characters. But this caricature is also unfortunate.

Continue reading in the Washington Post.

I like the message. But then I would. I’m proud to say that my wife and I didn’t spend a penny on Black Friday. When we do spend money, we try to buy organic, local products. I don’t drive, don’t eat meat, and yes, my wife owns a partially recycled polyester fleece jacket from Patagonia.

Come to think of it, we’re just the sort of people Patagonia is targeting with its anti-advertising ad. I’m fine with that, and with being one with those do-gooder consumers who drive Priuses, eat Ben & Jerry’s ice cream, shop at Whole Foods, and generally pay a premium for going green.

The problem is that buying green and recycling won’t stop global warming. We can’t spend, or conserve, our way out of the current ecological crises. Sadly, such behavior may even be counterproductive

Continue reading in bridges.

Pictures from book talk at Austrian embassy in Washington, DC. Quite the event.

Her 10,000-word exposé is well worth the effort. It makes the essential point that addressing climate change means reorganizing how the world does business.

Klein makes the point by arguing that the climate-denier crowd at the typical Heartland Institute gatherings:

may be in considerably less denial than a lot of professional environmentalists, the ones who paint a picture of global warming Armageddon, then assure us that we can avert catastrophe by buying “green” products and creating clever markets in pollution.

I’m completely with Klein on her first point. Sure, buy green products. I do. But do it because organic, local apples are better for you and the local environment, not because you’ll stop global warming.

But Klein is wrong in her more serious assertion: that we can save the planet only if we abandon capitalism:

Responding to climate change requires that we break every rule in the free-market playbook and that we do so with great urgency.

That’s only true in so far as we consider the current situation anything close to a “free market.” It isn’t. Markets are woefully rigged in favor of pollution, which is also the main reason the earth finds itself in peril. (I’m pretty sure Klein would agree with that point.)

Think of it this way. My 9-month-old has less right to grow up breathing clean air than the driver barreling past us has the right to pollute. The reason is simply that markets are constructed so that few have to pay for the pollution they produce.

Every time I open my fridge, turn on the heat, hop in a car (or on a train), or do much of anything, someone else incurs the costs for the pollution my actions produce.

When I fly from New York to Vienna to see my parents, my flight produces about one ton of carbon dioxide emissions. That ton causes at least about $20worth of damage to the atmosphere. But I don’t pay a penny of that. Everyone of us seven billion pays a tiny fraction of a penny for my seeing my parents.

Klein offers two solutions. The first calls for a radical rethinking of how we lead our lives and opt for a more leisurely path. A lovely thought. I’d much rather spend weeks at a time visiting my parents in Vienna and in-laws in Bangkok than engage on jetlag-laden, multi-continent “vacations” that seem to serve no real purpose other than to make it back to my desk by Monday morning.

So yes, let’s create a culture where it’s OK for everyone to take off a couple months in the summer, and perhaps another one around the winter holidays. It works for the Swedes, why not the rest of us?

But Klein realizes this sort of cultural change won’t happen overnight and wouldn’t by itself stabilize the climate. Which leads her to call for “taxing the rich and filthy.”

Nice turn of phrase, but, unfortunately, it confuses the issue. It’s really about taxing the filthy. And it’s not about taxing anyone for the sake of sticking it to the man. It’s about asking everyone to pay for their own pollution instead of shoving those costs onto society.

I’d gladly pay the $20 extra for my flight to see my parents. But Klein argues, correctly, that nothing will be accomplished if the only people paying are do-gooders who want to feel better about their carbon footprint. If we want to affect the planet, everyone has to pay the cost of their pollution. Only then will we truly level the playing field.

That all seems like wishful thinking, alas it can be achieved. The European Union, starting January 1, 2012, is putting a carbon price on every flight to and from the EU.

The program is starting modestly; my flight to see my parents will cost around $2 extra, not the $20 or more that would make up for my pollution. Still, it’s a start. And keep in mind that the EU’s system will cover a third of all miles flown—globally. That’s no longer a bunch of greens spending extra on their organically sourced ice cream. That’s change on a scale the planet notices.

Europe, of course, is not alone. California will soon have the world’s most comprehensive cap-and-trade system limiting global warming pollution. Australia just passed a carbon price. British Columbia has had one in place since 2008. India has a coal tax. China is pursuing carbon trading as part of its twelfth 5-year-plan. It seems only Washington is falling further and further behind.

All of these are the kinds of change that work with, not against, market forces and human desires—desires that capture the imagination of billions and make many of us want the latest iAnything or fly on that Airbus 380.

In fact, my real argument with Klein is that in trying to escape capitalism, she is trying to evade human nature. We could and should work to make human desires less material. Some of the rich may well be in that position already, but I’m afraid that’s a losing proposition for the globe.

It’s not about a full-scale assault on human desires, capitalism, and free markets. It’s about freeing them in the first place, and in the process freeing all of us to do the right thing. It doesn’t get more ethical than that.

What EPA’s role is to do is to level the playing field so that pollution costs are not exported to the population but rather companies have to look at the pollution potential of any fuel or any process or any plant or any utility when they’re making their investment decisions.

You’d think that’s the language someone on the Wall Street Journal editorial page would use to describe EPA’s ideal role, and you’d be right. The most conservative of goals, after all, is not for government to pick winners or engage in industrial policy, but rather to make sure no one free-rides on the backs of others. No one should be allowed to engage in blatant socialism by privatizing benefits and socializing costs.

Just that it’s not a WSJ editorial scribe, who espouses these views. It’s Lisa Jackson, President Obama’s head of the Environmental Protection Agency. And the WSJ doesn’t go out of its way to laud a liberal for avoiding the trap of picking winners or even losers. No, the WSJ declares Jackson’s statement a Freudian slip.

The WSJ is right, of course, that the goal of the Clean Air Act is clean air. But there are effective ways of going about doing that, and there are less effective ways. Ideally, EPA would set up the most flexible system that’s simply aimed at “leveling the playing field” so every polluter pays for his or her own pollution, and then get out of the way. That’s the basis of the success of the Clean Air Act Amendments of 1990 that passed the House 401–21 and the Senate 89–10 and has banished acid rain to the history books.

Sadly, EPA’s powers only go that far, so often it is left with setting particular standards. That’s where Congress ought to come in and pass laws that do guarantee the most flexible possible regulations. I’m certain the WSJ editorial page would be all in favor of that.

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.

Thanks to Charles Komanoff for the pointer.

This also marks my final daily blog post for a while. I’ll instead use quips and quotes like these to write a few longer pieces, which I look forward to posting here. Stay tuned.

And it’s good for customers, too. They will save $1.3 billion on electric and gas bills in the next decade due to energy efficiency measures financed through RGGI money.

Win. Win. Win.

The average time taken to respond to an email is greater, in aggregate, than the time it took to create.

Email is too cheap to send. That, in a nutshell, is why we are all drowning in it. It costs you nothing to add one more person as a recipient.

And it’s incredibly tough to break the cycle. If everyone else gets copied on everything, you don’t want to be the one left out. Nor do you want to be the spoiler and not copy everyone else on everything you send. You produce important work, after all, and others ought to know.

The creators of emailcharter.org have caught on to this and call it a modern example of the Tragedy of the Commons. Adding one more cow onto that pasture, hitting send on that one more email, is almost free to us. But we are creating costs for everyone else.

What to do?

You could use the direct, command-and-control approach. Gmail allows you to send mail to no more than 500 recipients at a time. If you send more than two or three of these large messages, Google will cut you off email entirely for a day. That, of course, is a crude way to go about it. Why not just create another free Gmail account and keep on spamming? And it’s not like most mail originates from messages with 500+ recipients. It’s the constant barrage of messages that gets to us.

The classic economic approach would point in another direction: charge for or limit email. Either literally charge for each message sent, or limit the overall number of messages sent in any given day. Every internet user gets a share in that total. If you have unused email allowances left over, sell them to those who want them. Soon enough, those who want to send will. Those who can live without email will keep the change. People will find innovative ways to communicate. It’s the most flexible approach imaginable. Cap and trade 101.

Then there’s the Elinor Ostrom-style system. It’s not like we are all sending email to everyone else on the planet. We are largely communicating in defined tribes. Often, most of our mail comes from colleagues who sit just down the hall. Individuals can’t do much, but we could try to change the culture of the organization. Decree that everyone shall respond to every (internal) message within 24 hours during the workweek and that no email shall have more than three recipients, and watch the number of email drop and productivity rise.

In any case, it’ll take collective action to make a difference. If you act alone, you will be the loner. It might be fun to have an out-of-office reply that says you are only checking email once a day, but you’ve just created even more email for everyone else. And you are the one who won’t respond to your boss’s boss before someone else does. Then again, you would keep your sanity.

75% of Americans recycling: 1.1 million jobs created.

His latest target: coal.

We estimate that the life cycle effects of coal and the waste stream generated are costing the U.S. public a third to over one-half of a trillion dollars annually.

Accounting for the damages conservatively doubles to triples the price of electricity from coal per kWh generated, making wind, solar, and other forms of nonfossil fuel power generation, along with investments in efficiency and electricity conservation methods, economically competitive.

His New York Times obituary captures Dr. Epstein’s impact. Joe Romm adds some color.

In recent months, some in Congress have been waging a whole-scale war against the Environmental Protection Agency. By now it has reached comical dimensions, with three separate bills aimed at preventing a so-called EPA “dust rule” that has never even existed.

The spectacle would indeed be funny, if it wasn’t deadly serious. Republicans in Congress and in the GOP presidential debates are seeking to defund an already cash-strapped EPA under the pretense of caring about the federal deficit and are trying to hamper the agency by arguing that its rules hurt the economy.

Quite to the contrary. We have 40 years of data to show that a cleaner environment goes hand in hand with solid economic growth.

Harvard Professor Dale W. Jorgenson, one of the deans of macroeconomic modeling who has been honing his model of the U.S. economy for decades, calculates that gross domestic product in 2010 was 1.5 percent higher because of the Clean Air Act of 1970. It turns out that protecting children from foul air leads to more productive adult workers.

That’s the moral equivalent of arguing for child labor laws by saying that keeping kids in school will increase their earnings as adults. But even this reductionist argument, focused only on a narrow definition of dollars and cents, works to show the benefits of cleaner air.

Overall, benefits of the 1970 Clean Air Act exceed costs by a factor of 30 to 1. The 1990 Clean Air Act Amendments match that ratio: $1 of investments led to $30 in benefits—fewer children sick or dying, more productive workers, and healthier environs.

In a 2010 analysis of rules passed in the prior decade, the non-partisan Office of Management and Budget calculated benefits-to-cost ratios across various government agencies. The EPA came out on top with the highest ratios by far, with benefits from its regulations exceeding costs by an average of more than 10 to 1. If you care about well-functioning, free markets, the EPA would be the last federal agency you’d want to cut.

None of this is magic. It’s something much more mundane: honest accounting.

Continue reading at Yale Environment 360.

Nuclear disarmament is one. The analogy isn’t perfect, but there’s a lot to be said to avoid the current UNFCCC-focused mindset and bubble of international climate talks.

Perhaps an even better analogy is the abolition of slavery. Marc Davidson has written the seminal paper on the topic, drawing parallels in reactionary argumentation in U.S. congressional debates between abolition and the Kyoto Protocol. Some of the parallels are readily apparent: the debates “revolve around ‘energy resources’ considered vital to the economy and pivotal to everyday life”; true costs are shipped off to others who have no vote in the political process; and, first and foremost, deep-seeded resistance to social change.

Direct parallels in “reactionary rhetoric” are even more striking. In both cases, you have duly elected Representatives arguing how what is clearly bad is, in fact, good (no, slaves weren’t better off as slaves, and no, global warming isn’t good for the planet), how change would bring economic ruin (wrong then as it is now), or how social change would hit other groups (women then, the poor now; newsflash: global warming hits the poor the most).

There may well be another parallel at work here, as Christian Azar points out in Makten över klimatet, a successful Swedish book, soon to be translated into English: “Slavery in the British colonies was abolished in 1833, effective five years later. The slave owners, not the slaves, were compensated for their losses.”

No trash bins in this establishment.

All you’ll find is delicious, $5-a-scoop ice cream and a choice between organic and paper waste baskets. Grom’s “plastic” spoons turn out to be plant-based. Makes you feel a lot better about tasting your way through a few flavors.

Too bad the plastic cover for your hot chocolate cup is in fact plastic. Good thing there’s a trash bin outside on the sidewalk. Just don’t disturb the recycling fun inside.

Yet none of that matters once we open our doors or windows and let in deceptively clean-looking but polluted air.

We can attempt to build a protective cocoon around our child and do so with fervor, but national policy—or the lack thereof—nixes all attempts to making a difference as parents. As soon as we breathe, or drink water, or do most anything else for that matter, we are connected to the planet and everyone else around us.

It’s one thing to put your child in the safest possible car seat. It’s quite another to learn that infant mortality goes up near highways. City streets aren’t much better, with all the idling cars. The gunk and soot from tailpipes and smokestacks alike cause allergies, asthma, hypertension, and all sorts of other ills.

It even starts before birth. Call me a crazed environmentalist, but I draw a line when it comes to pollutants in my kid’s amniotic fluid. I don’t like my son to be born pre-polluted. Yet there is little I can do individually, as long as coal plants are spewing mercury into the air.

That goes for local air and water pollution as much as for an even bigger problem with potentially much more severe consequences for any of our children. A ton of carbon dioxide pollution emitted today causes at least $20 worth of damage in our lifetime. The average American emits 20 of these tons a year. That’s quite a debt burden we are leaving our children. Sadly, much of it is virtually irreversible. We can bail out banks and entire countries. Bailing out the planet is a much scarier proposition.

The only way to tackle almost any kind of pollution is to become an engaged citizen and demand that polluters pay for the damage they cause.

It’s policy, not individual action, that makes all the difference here. Buy organic, buy local, do all the right things. But the best way to protect your child is first and foremost to vote.

From “Moms Clean Air Force”.

Perhaps not, for three reasons:

First, the decision whether or not to build the pipeline was simply delayed until after the election. Tapping into the same tar sand reserves twelve months later would still mean almost the same amount of global warming pollution in the atmosphere over time.

Second, this may yet turn out to be a Pyrrhic victory for greens. As Michael Levi points out, the climate argument alone didn’t persuade the administration to decide against the pipeline. It was Nebraskan not-in-my-backyard thinking that did the trick. Now environmentalists are celebrating. When the same NIMBY thinking scuttles clean energy developments, most will cry foul (and rightfully so).

Third, and perhaps most important, the decision was about the pipeline, not about the tar sands themselves. They are still sitting there for the tapping. It will be more difficult to do so without a direct pipeline, but there are surely others who will gladly pay for some heavy crude. We ship oil from the Persian Gulf to the Gulf of Mexico. Why not send it from Canada to, say, China? And even the U.S. is still in the running. We now send oil from Cushing, Oklahoma, up to Chicago. There’s still the option on the table to reverse the pipeline and send oil on down.

It all just shows that the only way to truly get off oil is by pricing pollution, not by blocking single pipelines, however symbolic they may be.

We can’t solve global warming because I fucking changed light bulbs in my house. It’s because of something collective.

That quote, by the way, is courtesy of Barrack Obama. More in my Foreign Policy article.

By Jennifer Andreassen, originally posted on our Climate Talks blog.

As expected, Australia’s upper house of Parliament voted yesterday to adopt a carbon price, which will compel Australia’s largest polluters, beginning July 1, 2012, to pay for their carbon pollution.

Australia will have the largest carbon-price system in the world outside Europe's, after its upper house approved the Clean Energy Future package of bills Nov. 8. The package of bills aims to cut emissions from coal-dependent Australia 80% by 2050 from 2000 levels.

The legislation’s passage will give Australia, which has the highest per capita emissions of any developed country in the world and uses even more coal than the United States, the largest carbon-price system in the world outside of the European Union. (That is, the largest outside the EU until California’s program takes effect in January 2013; California last month approved the largest, first-ever economy-wide carbon market in North America, which could eventually link to other sub-national, national and regional markets around the world.)

EDF applauds Australia on its leadership on the vitally important problem of climate change. This vote is another indication that more and more countries around the world – with the U.S. being a notable exception – are taking climate change seriously. The legislation also backs Australia’s international commitment to reduce emissions by between 5 and 25 per cent by 2020 from 2000 levels.

The Clean Energy Future Package

The Clean Energy Future package is made up of 18 bills that will assign a price to carbon starting July 1, 2012 and cut Australia’s emissions 5% below 2000 levels by 2020 (though the target can be strengthened based on science or international action), and 80% below 2000 levels by 2050.

Australia’s 400-500 largest emitters will be covered by the carbon price, which will take the form of a fixed price (starting at A$23 per metric ton) for the first three years, and shift to a carbon market emissions trading system in 2015.

As we mentioned when Australia’s lower house passed the clean energy legislation on October 11, the Clean Energy Future package will shift Australia’s energy towards cleaner and renewable sources by:

1. Placing a price on carbon.
2. Creating a market-based system with plans to link it with ‘credible international carbon markets or emissions trading schemes in other countries’ – like New Zealand and Europe – after 2015.
3. Giving a big boost to renewable energy research and development and deployment through a new $10 billion financing vehicle, the “Clean Energy Finance Corporation.”

(The Southern Cross Climate Coalition has some more details on the legislation in its analysis, as does Natural Resources Defense Council’s Jake Schmidt in his post Congrats Australia! Law passed which will require mandatory carbon pollution reductions for major polluters.)

Climate groups in Australia welcomed the passage of the laws, as did:

Australian Prime Minister Julia Gillard, who told reporters:

Today we have made history. … This is about what's right for the nation's future.

Deutsche Bank Australia carbon analyst Tim Jordan, who said:

This is a very positive step for the global effort on climate change. It shows that the world's most emissions-intensive advanced economy is prepared to use a market mechanism to cut carbon emissions in a low-cost way.

CEO of The Climate Institute John Connor, who said:

This is a vital cog in Australia's pollution reduction machinery with the potential to help cut around 1 billion tonnes of carbon pollution from the atmosphere between next year and 2020.

This vote means Australia now brings greater credibility going into international climate negotiations starting later this month in South Africa. It also puts wind in the sails of other jurisdictions about to introduce, or considering, emissions trading schemes which similarly price and limit carbon pollution.

The G20 Cannes Action Plan for Growth and Jobs even highlights the Australian legislation as an example of how members will “enhance competition and reduce distortions” in its plan to create “sustained, broad-based reforms to boost confidence, raise global output and create jobs.”

What’s next for Australia

Now, the Government moves into implementation mode, which means it will take to:

• Establishing new institutions, including the Climate Change Authority (to recommend on future emissions targets); the Clean Energy Finance Corporation; and the Clean Energy Regulatory to oversee the market;
• Finalizing contracts next year to close 2000 MW of brown coal power generation;
• Working with New Zealand and EU officials on linking schemes after 2015.

Linkages to international carbon markets that are built into the system will also see Australia become a key player in the international offset market.

And Australian officials will be able to hold their heads high at the UN climate conference in Durban at the end of this year, as they promote their joint proposal with Norway for a roadmap to a 2015 global climate treaty.

The Australians seem to be doing many things right here. Lower-income households are more than compensated for the costs, but the law still creates the right incentives for most everyone. Most importantly, it follows rule #1: you pay for your own pollution.

This step may also be another indication of the theory that climate change does indeed need to hit home to want to do something about it. You just need to read title and subtitle of this excellent piece by Jeff Goodell to know what’s at stake: “Climate Change and the End of Australia—Want to know what global warming has in store for us? Just go to Australia, where rivers are drying up, reefs are dying, and fires and floods are ravaging the continent”

These are striking numbers, but they don’t mean much to most of us.

What’s a ton of CO2? Does it matter if it’s short or metric?

Weight, of course, is the right way to think about it. If you burn a log of wood, you will be left with some ash and a lot of hot air. Where did the rest of the log go? It’s floating around above you in form of carbon dioxide and various other forms of gunk.

So how much is a ton of CO2 exactly?

Using some standard assumptions, a ton of CO2 comes out to around 16,000 cubic feet at 32 degrees Fahrenheit.

That’s about the size of the average American home with 2,500 square feet of living space. That times twenty is the volume each of us fills year after year: 20 chilly homes of carbon dioxide.

(It’s also a much better answer than the one I gave when asked about it at the Carnegie Council. Thank you, Mischa Woods and Conrad Shultz, for the pointers.)

Conductor: For your safety and the safety of passengers around you, please do not block the doorway.

General indignation and eye-rolling among passengers.

Exasperated conductor: Step all the way in. Move to the center of the car. You are delaying the train for every passenger.

More eye-rolling. A few knowing smirks—including by the “offender,” who just wants to get to work on time.

One passenger: Run them more often so they aren’t as crowded, jackass.

Laughter and smiles all around—and you know that’s not easy on a subway, in New York, at 8 in the morning.

It’s not quite as simple. The crumbling New York City subway system is largely running at capacity during rush hour.

Here’s one possible approach for a more humane commuting experience:

• Charge drivers for the congestion and pollution they cause.
• Remove free parking everywhere in the city. It’s not free to you, if it takes you 20 minutes to find a spot. It’s not free to the city, if they can’t use the space for something else. It’s not free to anyone around you either, if that parking spot acts like viagra for cars: increase the number of “free” parking and watch cars multiply.
• Use the money to invest in more and better subway cars, tracks, and other amenities (free WiFi?) that make you want to take the train.
• Build more and better bike paths for those who like to save money and burn fat, rather than the other way around.

If you dare, add another:

• Charge a congestion fee for the subway: At 8 a.m., they cost twice what they cost now. At 7 a.m. and again at 10 a.m., they are almost free.

Just don’t do any of these without the others. Transport is a system and requires a systemic approach. And it all starts with getting the incentives right.

Yesterday’s accomplishment: smile and utter a clearly audible (and possibly even intentional) “Hiiii,” eliciting a broad smile from the homeless man on the subway sitting across from us.

We all want to do something, anything. We don't just want to sit idle and watch events unfold around us. Call it "action bias."

Then there's "single-action bias."

We all want to do something, anything, but once we've done that one thing, we move on. For something as intractable and complex as global warming, that's a real problem.

Yes, replace your inefficient incandescent light bulb with more efficient compact fluorescent ones, but don't believe for a second that single action solved the problem.

Recycle. Just don’t think it’ll stop global warming. Make the planet notice.

For daily musings like these, take a look at EDF economist Gernot Wagner's personal blog.

We have sometimes been the bearers of bad news on jobs in the past. Not bad news, really. Realistic news. So excuse me for being a bit giddy at the sight of the latest piece of very realistic—and very good—news.

The EPA just released a new White Paper that turns out to be as green as it is red, white, and blue.

Lives and health at a bargain price

First, it starts with what really matters when considering the impact of the Clean Air Act—health and the corresponding social and economic benefits:

• 18 million child respiratory illnesses prevented in 1990 alone,
• 200,000 lives saved that year (160,000 in 2010),
• total benefits outpacing costs 30:1 since 1990.

These are the key figures we need to keep in mind. Always.

Healthy kids means a healthy workforce

For anyone who isn't yet satisfied but worries about the economic impact of the Clean Air Act, there's more good news:

Protecting children from neurotoxins leads to workers with higher IQs.

That should be an obvious statement. It also turns out to come with real economic benefits. The latest study by Harvard's Dale Jorgenson et al shows that the Clean Air Act has boosted productivity and growth:

GDP in 2010 is 1.5 percent higher than it would have been without the Clean Air Act.

Again, that's GDP. Hard economic growth. The number that measures everything except that which makes life worthwhile.

Clean and competitive

Lastly, the paper concludes with a look at competitiveness concerns. The verdict: the Clean Air Act does not harm competitiveness.

That's not as strong as saying that the Clean Air Act improves U.S. competitiveness. Improving productivity also improves competitiveness, and combining the standard competitiveness arguments with Jorgenson's productivity results may well show that to be the case.

But no one to my knowledge has done that yet credibly. (Of course, I'd love to be proven wrong on that point.) To the full credit of EPA and the credibility of its analysis, the paper does not go that far either.

The White Paper stays well within the mainstream of economic analysis of the Clean Air Act and bears plenty of good news for health, wealth, and the planet.

Read it at your own peril. It may well be the first piece of economic analysis that makes you giddy yourself.

Cross-posted from Reuters AlertNet and EDF's Market Forces blog.

When someone robs a bank, nobody challenges the legitimacy of banks. They suggest instead that the bank find better security. Why should carbon markets be any different?

Wednesday last week the European Commission (EC) discovered cyber thefts of carbon allowances valued at around €30 million from accounts in a handful of member states. It promptly halted all trading in its nearly €130 billion/year market until the holes could be plugged, accounts could be cleared, the stolen allowances could be traced by their unique identifying numbers, and culprits could be identified.

The fact that some trading registries are apparently less secure than your Facebook account is a clear problem and points to serious underinvestment in market infrastructure and security.

It certainly does not call into question, however, the idea of carbon trading, although some opponents of carbon markets have taken that step. These people range from outright climate deniers—those who can't even admit we have a global warming problem—to those who believe that markets aren't the most efficient way of addressing climate change, to those who can't capitalize on the carbon market's opportunities.

Let's be clear: Putting a firm limit on carbon pollution, and providing polluters with flexibility in determining how to reduce pollution—including through transparent trading of pollution allowances—is fundamentally the best way to combat global warming pollution.

This basic fact is not changed by a €30 million theft of carbon credits that might have been prevented through a €10 thousand investment in security software and better computer hardware. Although not perfect, markets are the most rational and efficient way of allocating resources toward filling a specific need. Every stock exchange on the planet faces attempted cyber attacks, and most are well equipped to deal with them.

A day after the theft was discovered, the EC released a wholly separate, long-awaited decision to stop accepting pollution credits generated by destroying trifluoromethane, HFC-23, and nitrous oxide. Opponents of carbon markets seized on this announcement as further evidence that carbon trading markets aren’t working.

But actually, the EC's decision to stop accepting these credits is the right move. HFC-23 was originally developed as an alternative to ozone-depleting chlorofluorocarbons. HFC-23 is a potent global warming gas, and destroying it helps the climate.

However, trading in HFC-23 credits creates perverse incentives. With a high enough price for carbon credits, it could make economic sense to build factories that produce HFC-23 for the sole purpose of destroying the gas and collecting credit for doing so. A better way for dealing with HFC-23 would be to subsume it under the successful Montreal Protocol, which is working to repair the hole in the ozone layer.

The coincidence of the EC’s decision to stop trading HFC-23 credits and the temporary suspension of trading on the heels of the carbon allowance theft, gave opponents of trading the opportunity to launch a two-pronged critique of carbon markets. But barring HFC-23 credits from entering the EU system can only be applauded—it's entirely in the spirit of putting a firm upper limit on carbon pollution.

These two events highlight the carbon opportunity for the EC going forward. The emissions trading system has already proven its worth as the centerpiece of European efforts to cut global warming pollution. By improving the technical security of its trading program, the EC can assure investors that no more emissions allowances will be purloined.

And by closing its carbon market to credits from one-off HFC-23-type projects of dubious environmental value, and instead linking the EU market with jurisdictions that establish high-quality cap-and-trade systems, the EC can strengthen its own market and challenge others who are developing similar policies—from New Zealand to Tokyo to California, and beyond—to follow suit.

In the end, that’s all that counts—and the only thing the planet truly notices.

Cross-posted from Reuters AlertNet.

When someone robs a bank, nobody challenges the legitimacy of banks. They suggest instead that the bank find better security. Why should carbon markets be any different?

Wednesday last week the European Commission (EC) discovered cyber thefts of carbon allowances valued at around €30 million from accounts in a handful of member states. It promptly halted all trading in its nearly €130 billion/year market until the holes could be plugged, accounts could be cleared, the stolen allowances could be traced by their unique identifying numbers, and culprits could be identified.

The fact that some trading registries are apparently less secure than your Facebook account is a clear problem and points to serious underinvestment in market infrastructure and security.

It certainly does not call into question, however, the idea of carbon trading, although some opponents of carbon markets have taken that step. These people range from outright climate deniers—those who can't even admit we have a global warming problem—to those who believe that markets aren't the most efficient way of addressing climate change, to those who can't capitalize on the carbon market's opportunities.

Let's be clear: Putting a firm limit on carbon pollution, and providing polluters with flexibility in determining how to reduce pollution—including through transparent trading of pollution allowances—is fundamentally the best way to combat global warming pollution.

This basic fact is not changed by a €30 million theft of carbon credits that might have been prevented through a €10 thousand investment in security software and better computer hardware. Although not perfect, markets are the most rational and efficient way of allocating resources toward filling a specific need. Every stock exchange on the planet faces attempted cyber attacks, and most are well equipped to deal with them.

A day after the theft was discovered, the EC released a wholly separate, long-awaited decision to stop accepting pollution credits generated by destroying trifluoromethane, HFC-23, and nitrous oxide. Opponents of carbon markets seized on this announcement as further evidence that carbon trading markets aren’t working.

But actually, the EC's decision to stop accepting these credits is the right move. HFC-23 was originally developed as an alternative to ozone-depleting chlorofluorocarbons. HFC-23 is a potent global warming gas, and destroying it helps the climate.

However, trading in HFC-23 credits creates perverse incentives. With a high enough price for carbon credits, it could make economic sense to build factories that produce HFC-23 for the sole purpose of destroying the gas and collecting credit for doing so. A better way for dealing with HFC-23 would be to subsume it under the successful Montreal Protocol, which is working to repair the hole in the ozone layer.

The coincidence of the EC’s decision to stop trading HFC-23 credits and the temporary suspension of trading on the heels of the carbon allowance theft, gave opponents of trading the opportunity to launch a two-pronged critique of carbon markets. But barring HFC-23 credits from entering the EU system can only be applauded—it's entirely in the spirit of putting a firm upper limit on carbon pollution.

These two events highlight the carbon opportunity for the EC going forward. The emissions trading system has already proven its worth as the centerpiece of European efforts to cut global warming pollution. By improving the technical security of its trading program, the EC can assure investors that no more emissions allowances will be purloined.

And by closing its carbon market to credits from one-off HFC-23-type projects of dubious environmental value, and instead linking the EU market with jurisdictions that establish high-quality cap-and-trade systems, the EC can strengthen its own market and challenge others who are developing similar policies—from New Zealand to Tokyo to California, and beyond—to follow suit.

In the end, that’s all that counts—and the only thing the planet truly notices.

One of the pleasures of my job is having a slew of superbly qualified prospective interns knock on our doors. Yesterday, I interviewed someone who graduated at the top of his class at Renmin University in Beijing.

There have been plenty of column inches written on "China versus the US," including when it comes to green jobs and clean tech. So,

Who's going to come out ahead, China or the United States?

It took him nary a second to nail this one:

China, relatively. Both China and the U.S. in an absolute sense.

That's the textbook answer.

The atmosphere wins

China has a lot of catching up to do. Comparatively, it will clearly gain on the U.S. But trade also has advantages for both parties involved. That's why we trade in the first place.

The planet emerges as a winner as well. It doesn't care where a ton of carbon gets emitted or where it gets reduced—just that reductions happen.

If China produces cheaper solar panels, we get fewer emissions overall. The planet wins. China wins. What about the U.S.?

What about jobs?

If you are among the 800 workers in Devens, MA, who last week found out that Evergreen Solar was moving its plant to China, you will feel very differently about free trade right about now. The textbook economic answer would say that the move can still make everyone better off: compensate the losers through portions of the gains from the winners, and everybody wins once again.

This situation, of course, is the moment when you throw out your textbook and think about the full consequences.

As a result of the move, solar panels will likely become even cheaper for everyone, enabling many more to buy them. Still, the Devens 800 will not be among the people lining up to buy cheaper solar panels.

What can they do? What should the U.S. do as a matter of policy?

First, we need to realize that the rules of trade still apply. China has lots of cheap labor. It does and will continue to manufacture many products sold in the U.S. Solar panels are no different.

But that's still not a satisfying answer, nor is it the whole story—not for manufacturing itself, and not for the clean tech industry overall.

How to keep clean tech jobs in the U.S.

To get to the bottom of this, we need to look at the full supply chain for solar panels. This, of course, oversimplifies things, but we can split the entire process into three distinct buckets: inventing, producing, and installing.

Right now, the U.S. is inventing, China is producing, and it is the one installing the resulting solar panels domestically at massive scale.

The U.S. ought to do everything to make sure it keeps inventing clean tech products. That means a concerted push to fund basic research and development. But R&D subsidies alone won't do.

Many mentions of "R&D" add a second "D" for deployment. Government support can get things going, but large-scale deployment of clean technologies won't happen through subsidies alone (at least not without bankrupting the government).

So how do you get deployment up to scale?

Deployment clearly needs to be driven by demand. That's where a cap on carbon pollution, with its resulting price on carbon, comes in. A cap helps create a more level playing field for solar and other renewable energy sources relative to fossil energy and, therefore, creates the necessary demand. (There are alternatives, like simply requiring a certain percentage of power to come from solar, but none is quite as cheap and flexible as a cap.)

Made in USA?

Moreover, cheap labor and cheaper production facilities may be a decisive factor, but they are not the only reason companies consider when choosing where to locate. There are many more, but let's focus on two: intellectual property (IP) protection and being close to where the demand is.

The U.S. has a leg up on China in terms of IP protection. That's, in part, why the U.S. (still) leads on R&D. It's also a clear draw for some companies to locate their production facilities in the U.S.

Another oft-cited reason is to be close to consumers. That's once again where the importance of the second "D"—deployment—comes in. The more demand there is for solar panels in the U.S., the more companies will locate their production plants in the U.S. as well. The case of First Solar supplying panels for Wal-Mart is a prime example. (Note that this is distinct from cheaper production leading to more demand in the first place.)

In the end, though, we must also be clear that jobs will be different in the new, cleaner economy. We will need fewer gas station attendants. Many other jobs will thrive. Underlying trade forces will mean that China may well be producing many of the solar panels sold globally. Assembling, installing, and maintaining solar panels in the U.S. will require plenty of skilled labor. And none of these jobs can be exported.

California leading

With the right policies in place, the U.S. will keep inventing. It will also create thousands of jobs dedicated to deployment. China will play a major role in producing, but even there, smart environmental policy can only help.

California is taking the lead with its Million Solar Roofs initiative, creating many a job assembling, installing, and maintaining solar panels. That initiative, though, still has to be paid for by tax dollars, and it won't go on forever.

That's where the cap on carbon kicks in. California is bound to stay ahead of the rest of the U.S. with its ambitious cap-and-trade system that starts on January 1, 2012 and the resulting market signal that says that clean tech pays in the U.S. as well.

Consider the just-released Next 10 report, Many Shades of Green, that found that in the most recent observable 12-month period (January 2008 – January 2009) jobs in the green sector grew more than three times faster than total employment in California. (Of course, all of this always comes with the warning that green sector jobs are still a small fraction of total jobs—much like IT jobs were a minuscule part of overall employment in the early 1980s.)

One of our internship spot may well end up going to a Chinese student, but that, too, can only be good for the planet—making a small contribution to help train the next generation of Chinese environmental leaders. And rest assured, there are plenty more open job positions (including one for a post-doc working with our economic team, open to anyone with a Princeton affiliation).

David Owen asks a provocative question in the current New Yorker: If our machines use less energy, will we just use them more? He more or less says yes. The real answer comes in two parts.

For now—over days, weeks, months, and even years—energy efficiency will decrease energy use and emissions. Screw a compact fluorescent light (CFL) bulb into a socket that used to hold an incandescent and your energy use will go down. Chances are you won't leave the lights on four times as long just because light now costs a quarter.

Over time—years, decades, centuries, and millennia—more energy efficient lights and appliances will indeed mean that more people use more of them. CFLs make light more affordable. That doesn't matter to the typical U.S. household, where few light sockets remain unused because of energy costs. But globally—and over time—it does make a difference.

The Jevons Paradox

Owen goes back to 1865 and William Stanley Jevons who at 28 came up with what has later been called the "Jevons Paradox":

It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.

Jevons is right, of course. We have seen dramatic increases in energy efficiency over centuries while energy use has gone up by orders of magnitude.

Does that mean we shouldn't increase energy efficiency? Of course not. We just need to be clear about what we are getting in exchange.

Energy over the millennia

By the mid-1800s, the latest and greatest in lighting technology was spermaceti, a fat from the head of sperm whales. It cost around $1,500 a barrel in today's dollars and its price was only going to go up as whales became ever scarcer. Since then, we have seen gas lights come and go and by now electric lights cost less than a thousandth as much as the equivalent in lighting power back then.

That's not a recent phenomenon. Bill Nordhaus went back to 500,000 BC. Lighting cost a million times [PDF] as much then as it does today. Needless to say, we are using much more of it now.

Another word for this phenomenon is “technological progress.” That’s really what’s behind the whale oil story, and we want more of it. There is still plenty of energy poverty [PDF] in the world. We clearly want affordable, clean energy for as many people as possible.

Of course, misguided “progress” has also led us to a planet on the brink of breakage. We need to limit greenhouse gas emissions—and do so sooner rather than later.

Will energy efficiency save the climate?

Should we look to energy efficiency as a way to do some of that? Absolutely. Energy efficiency is cheap, quick, clean, and often underutilized.

McKinsey has looked for zero-cost energy efficiency opportunities in the United States and has found possible savings of above 20 percent of total demand in 2020.  Those savings, could go a long way toward meeting commonly discussed climate policy goals.

But won’t those energy savings just mean that we are using more energy eventually? History has shown it to be true after all.

In the short run—over days, weeks, months, and even years—the Jevons Paradox manifests itself in a well-documented “rebound effect” of around 10 percent. On average, you would indeed leave your CFL on for a bit longer than you would an incandescent. We lose a tenth of energy savings to increased use. (Owen cites the 10 percent figure but then goes on to overstate some of the implications dramatically.)

That leaves 90 percent in true savings and points to the clear win-win potential of energy efficiency measures.

Not by energy efficiency alone

In the long run—over years, decades, centuries, and millennia—cleaner and cheaper energy also means more people will be using more of it.

Does that mean energy efficiency is bad? Of course not. Energy inefficiency is another term for waste. And we clearly want less of that. But the problems our planet faces are too large to address through waste reduction (“reduce, reuse, recycle”) alone.

To get emissions down in the long run, there’s no escaping the (gasp) inconvenient truth that we must limit pollution directly—ideally though a declining cap on total emissions.

A cap on emissions—and the ensuing price on carbon pollution and race to invent cleaner energy sources—is the only mechanism we know that can break the link between emissions and energy use.  It limits the former and makes clean energy cheaper relative to fossil fuels.

Cancun closed with a bang, not least because Mexican Foreign Secretary and Cancun talks chief Patricia Espinosa declared that, "The rule of consensus doesn't mean unanimity."

That sentence alone should occupy legal scholars for years to come. Most economists would only applaud. Getting 190-odd countries to agree on anything is extremely difficult. Unanimous consent is almost always out.

If the Espinosa consensus stands, it will certainly insert some new vigor into the UN climate talks. It proved to be crucial to breaking the logjam in Cancun, which would otherwise have been held up by Bolivia as the lone dissenter. (Bolivia is now appealing Espinosa's decision.)

The building blocks for a global deal are still elusive. Cancun punted on some of the most important issues. Some other crucial ones like Avoiding Deforestation (REDD+) and the basic building blocks for a Green Climate Fund saw some real progress.

Head over to EDF's Climate Talks blog for a rundown of the most important issues.

In the end Michael Levi has it exactly right:

The Cancun agreement should be applauded not because it solves everything, but because it chooses not to.

It focuses on what the UN does well, and avoids the rest.

That, and the Espinosa consensus—if it withstands Bolivia's appeal—may well be the most important legacies of Cancun.

Sometimes cap and trade isn't the best solution. Call me a purist, but I want my kid's amniotic fluid to be toxin-free. In the case of mercury, direct regulation is the best way to go.

It also shows that carbon can have some good uses after all. Activated Carbon Injection can reduce mercury pollution from power plants by 90 percent. It's clean(er), readily available, already deployed large scale, and affordable. Now it's up to EPA to set the proper rules.

Steve Cochran tells the full story. Second in a series.

Art Carden has a great piece on the Grinch saving Christmas,

using Pigouvian taxes and the bargaining business.

But it reminds us again that even Coase missed the mark,

when it comes to things outside of Whoville's small arc.

So to Art's welcome take on a Yuletide tradition,

We humbly append a climate-change addition:

Since Whoville Whos’ chanting affects only the Grinch,

Bargaining is the solution that works in a pinch.

Climate's a problem that affects the whole planet,

Coasian bargaining is much too small to span it.

A price on carbon is the better path,

all we need now is the political math.

Failing that, to be sure, we have the EPA,

not a first-best choice, still it may win the day.

To save the world's Whovilles, we need a solution

that in the end puts a firm limit on carbon pollution.

Cap and trade is the most certain way

to give every Who joy on this and future Christmas Days.

Transitioning into a new, low-carbon energy future costs money. No doubt about it. Yet the flip-side of cost is opportunity.

Pew just released a new study on Global Clean Power: A $2.3 Trillion Opportunity. Is this just a smart attempt at rebranding the inevitable, or is there more behind this?

Costs now, savings later

First, a quick qualifier on costs. Yes, investing in low-carbon technology costs money upfront. It's also true, though, that many investments in clean technology reap savings later.

The up-front capital expenditures for wind, solar, nuclear, and other low-carbon technologies are large. But operating costs are much cheaper than using fossils fuels (and I'm not even including the costs of climate change from carbon emissions, which have long been socialized).

That still doesn't make the transition a freebie, but it makes it much cheaper over time. McKinsey has run the numbers. Global net incremental capital expenditures for a clean energy future are significantly lower than upfront capital investments, once we consider operational cost savings.

These operational cost savings could, in fact, be called "opportunities." But that's not what the Pew report has in mind. It refers to the actual costs.

Cost = Opportunity ?

Higher costs imply more money changing hands. So costs do, in fact, equal opportunities in a very real sense for anyone on the receiving end of the transaction.

If you decide which career to pursue, you may well want to opt for renewables instead of, say, petroleum engineering. Your chance of landing a job is much greater. The former will add many more jobs in the foreseeable future. And once you are in a particular industry, you want as much money to come your way as possible. (Of course, a scarcity of petroleum engineers would imply a salary premium for the few who do opt to study a 19th century technology.)

That is different from society's and especially the government's perspective, where cost minimization is de rigueur. That's also what makes market incentives—a cap on carbon emissions—so crucial: it unleashes private investment dollars without government spending.

Investment + Recession = Opportunity

But even the social picture changes completely once we find ourselves in a situation we are in right now.

In a recession, with lots of spare capacity and industry literally sitting on $1 trillion in idle cash, creating incentives for more spending is exactly what we want to do as a society.

Investing in renewable energy, of course, has the added benefit that it also comes with an enormous social benefit—by decreasing the now socialized costs of carbon emissions. That's one cost we definitely want to avoid.

Why are we so "gung-ho" about cap and trade? The term might be banned from Washington and much of our vocabulary at the moment, but it's still far from a trick question.

Call them what you want, environmental markets are fundamentally the most scientifically sound, economically efficient, and often the only way forward.

No wonder countries the world over are adopting or planning to adopt them.

We are starting a new blog specifically focused on market forces and why re-guiding them is the only solution to many of our environmental problems.

Individual volunteerism won't do. Blocking market forces won't do. Subscribing to the new blog won't make the world a better place all by itself either, but it probably doesn't hurt.

Edward L. Glaeser makes the case for simplicity in addressing climate change. I couldn’t agree more with his premise. The basic economics are indeed simple. Climate change might be the largest market failure the world has ever seen. To correct it, put the right incentives in place: correct the fact that we currently treat the atmosphere as a free sewer for our global warming pollution. Problem solved.

The how and especially the politics are not quite as straight-forward. Glaeser bemoans that the proposed American Power Act has 987 pages and identifies three culprits: that the Act tries to do more than just put a price on carbon, that it uses a cap-and-trade system rather than a tax, and that the problem has an important international dimension. He is broadly right on one and three but not on two: the issue of a cap versus a tax.

A firm limit on global warming pollution does not make the law more complicated. It makes it better.

First, a cap sets a firm upper limit on pollution. Glaeser acknowledges as much by saying that “fixing the number of permits may actually be the right thing to do.” It is.

Second, it’s politics, stupid. There is a good reason why the U.S. tax code has 17,000 pages. Proposing a tax on paper is simple. Getting it through the political process is a different matter altogether. Most significantly, every tax credit, every exemption means an increase in pollution. That’s not the case with a cap. While politics does what politics does best—worry about the allocation of allowances—the upper pollution limit stands.

Third, and contrary to what is sometimes argued by tax advocates, a cap creates a more stable policy environment. Certainty is the sine qua non for energy policy.  While it is true that a cap and trade program can introduce short-term variability into the carbon price, that is unlikely to matter for investments in energy infrastructure.  What matters is certainty over the long run. Capital-intensive investment decisions take years if not decades to pay for themselves (think about a new electric power station).

A well designed cap—especially one with a price floor, which this Act would include—creates this kind of certainty, by guaranteeing that emissions must go down and, therefore, that emissions reductions will have value. A tax is easily revoked, altered, or put "on holiday." A cap has durability. And even if it does have to be amended, market foresight will allow smooth transitions, much more so than a tax would.

Fourth is the international dimension, Glaeser’s last point. A cap makes international coordination easier. It also creates incentives for developing countries to cap their own emissions, in order to gain from selling allowances into a U.S. market and create win-win-win situations for themselves, U.S. companies and consumers, and the atmosphere.

All four of these reasons also appear in America’s Climate Choices, a terrific new study just released by the National Academy of Sciences. It provides the scientific closing argument for the debate unfolding in the Senate. The science is compelling, the urgency to act is clear, and the main solution is equally apparent: put a price on global warming pollution, ideally through a firm, declining cap on emissions.

A Practical Guide To A Prosperous, Low Carbon Europe is the latest McKinsey study to show how it is eminently affordable to achieve the transition to a low-carbon world. The headline on a post by Financial Times climate über-scribe Fiona Harvey puts it best: “Europe’s energy in 2050: Cutting CO2 by 80% no more expensive than business as usual.”

How is that possible?

Initial capital expenditures are higher for renewable energy but operational cost savings along the way make up the difference. It’s the gift that keeps on giving.

To be sure, there are some very clear obstacles. The old economists’ mantra applies here as well: if it’s so cheap, why aren’t we doing it already? Well, we ought to be. The obstacles are largely political, driven by vested interests. If you are just now building a new coal plant and haven’t put much thought into carbon capture and storage technology, you may be less inclined to cheer than your neighbor investing in wind and solar.

McKinsey isn’t saying that everyone wins in this new world. The ones who see the future and act accordingly do. Most importantly, society and the planet win as well.

The lead-up to Copenhagen has seen a welcome flurry of target announcements. President Barack Obama has promised emissions reductions "in the range of 17% below 2005 levels in 2020," in line with the climate bill that has passed the U.S. House and is now in the Senate. China, India and others have followed suit. Opinions differ how these targets stack up.

UNEP yesterday presented a report by Lord Stern that says countries "may be closer than some observers realise to agreeing the emissions cuts required to give the world a reasonable chance of avoiding global warming of more than 2˚C." The report shows that current proposals add up to 46 Gt (billion tonnes aka gigatonnes) in 2020. A 50/50 chance of avoiding warming above 2˚C would require 44 Gt. We are only off by 2 Gt, or so UNEP says.

There is some debate around the numbers. An earlier, independent analysis by Project Catalyst says we would miss the mark by 6 Gt or more. Our own analysis shows that proposals on the table add up to 48 Gt, 4 more than the 44 Gt figure.

The drive to get concrete figures is understandable. We need to know where the negotiations stand. All of these accounting exercises, however, miss three crucial points:

1. Large uncertainties around business-as-usual (BAU) projections make predictions within 1, 2 or even more Gt extremely difficult. It cannot give us confidence that 44, 46, or 48 are accurate to the nearest Gt. What it does show is the importance of tying targets to historical baselines rather than diversions from BAU.
2. Traditional imprecision associated with climate models renders hard thresholds, like the 44 Gt figure, difficult to defend. First, a coin toss's 50/50 chance of avoiding warming above 2˚C is simply not good enough. Second, this is one possible pathway to 2˚C. There are many others, some known as "peaking" pathways allow as much as 46 or 48 Gt by 2020, assuming steeper decreases after the peak.
3. The trajectory is more important than year-by-year emissions. Current offers on the table may meet the 2020 Gt requirements, but they don't lead to a global peak before 2040. The world needs to peak by around 2020 or shortly thereafter. By 2040, the gap between what's on the table now and where we need to be is greater than 25 Gt. Emissions would be more than twice where they should be! The most important part is not to stabilize emissions by 2020, it's to get on a rapid downward slope soon, decreasing emissions at a rate of around 4% per year shortly after the peak.

Let's avoid the 44 Gt chorus and the guessing about whether we are off by 2, 4 or 6 Gt. Instead, let's focus on the turning point of global emissions, the percentage decrease in emissions after the peak, and the long-term prospects for climate stability. The key is to start the turn toward climate safety now.

Turn toward climate safety

Negotiations for a climate deal in December are getting down to the wire at the penultimate session in Barcelona this week. Negotiators are hashing through the essential minutiae of an agreement – a process not without tensions – but at moments like this it's important to keep in mind what the final deal should look like.

There is a set of principal building blocks that need to be put in place for the turn toward safety. Our brief, five-page analysis, Turn toward Climate Safety, lays them out and shows how to generate sufficient financing to make it happen.

The goal, in the end, is a firm limit on carbon emissions in all large emitting countries, and a peak in global emissions by 2020.

But don't take it from us.

Yesterday and today, the Financial Times published a terrific analysis of climate change called Heating Up, by Fiona Harvey, and two editorials on the science and the politics that get the call for action exactly right:

• The best solution is a global cap-and-trade system.
• All major emitters need to be under the cap as early as possible: a lesser obligation by developing countries "is a case for more generous quotas, not an excuse from signing up for a global emissions target."
• The private sector and carbon markets are the best way to generate the scale of investment necessary to make the turn to climate safety a reality.

We know that with clear economic signals we can redirect much of the capital we are already spending on carbon-intensive infrastructure to cleaner renewable fuels. We currently spend $5 trillion annually on fossil fuels.

We also know that within the next decade all major emitting countries must start getting on a downward trajectory in carbon emissions.

The only path is to cap U.S. emissions and reach a strong global deal without delay.

This week, Joe Stiglitz and Nick Stern published an opinion piece in the Financial Times titled "Obama's Chance to Lead the Green Recovery". They call for a "stable, strong" price for carbon, but do not say how that price should be set. I just posted a response in the FT's Economists' Forum. Here's how it begins:

Joe Stiglitz and Nick Stern are exactly right to emphasize the role President Barack Obama can play in leading the green recovery. They are also right to calling for a “stable, strong carbon price.” But it matters how that price is set. In the United States in particular, the right environmental, political and economic answer is a cap-and-trade system.

Take a look at the whole conversation. I also provided some more detail on the greenness of economic stimuli over at the Environmental Economics blog. Spoiler alert: China's trumps the United States' package 2:1.

If you care about the climate, climate economics, or how economists in general are portrayed in the media, read this piece from Slate: "Surprise—Economists Agree! A consensus is emerging about the costs of containing climate change. So why is no one writing that?"

Enter Eric Pooley: good thing someone is. Here's a longer blog post about Pooley's eminently readable academic paper on the same topic.

Originally posted on Environmental Economics. 

EDF has been saying for years that the best way to invent new, greener energy technology is to put a cap on carbon pollution. That approach worked to combat acid rain in the 1990s, and a new study provides the best evidence yet that it's working for climate policy, too.

The study compared countries that ratified the Kyoto Protocol and ones that didn't, and guess which group had more new green tech patents?

I posted an overview of the findings, including a couple more charts and additional analysis I got from the authors, over at Environmental Economics.

What do you get when you give a respected journalist an academic fellowship? A new species entirely: a readable academic paper.

Eric Pooley, former managing editor of Fortune and a writer for Time magazine spent his fall semester at Harvard. The result is an eminently readable report on "How Much Would You Pay to Save the Planet? The American Press and the Economics of Climate Change."

The conclusions are sobering. Most reporters treat the story as stenographers, engaging in "he said, she said" reporting, instead of serving as honest referees of the issues. As a result:

1. The press misrepresented the economic debate over cap and trade. It failed to recognize the emerging consensus among economists that cap and trade would have a marginal effect on economic growth and gave doomsday forecasts coequal status with nonpartisan ones. In other words…The press allowed opponents of climate action to replicate the false debate over climate science in the realm of climate economics.

2. The press failed to perform the basic service of making climate policy and its economic impact understandable to the reader and allowed opponents of climate action to set the terms of the cost debate. The argument centered on the short-term costs of taking action — i.e., higher electricity and gasoline prices — and sometimes assumed that doing nothing about climate change carried no cost. In fact, economists overwhelmingly agree that business as usual will lead to greatly increased societal costs as the impacts of climate change set in. These costs were often left out of the story.

3. Editors failed to devote sufficient resources to the climate story. In general, global warming is still being shoved into the “environment” pigeonhole, along with the spotted owls and delta smelt, when it is clearly to society’s detriment to think about the subject that way. It is time for editors to treat climate policy as a permanent, important beat: tracking a mobilization for the moral equivalent of war.

The report's well worth a read, not least because it heavily features the Environmental Defense Fund and our comprehensive report on the cost of climate action.

This post was originally published on Environmental Economics, and the conversation about the study continues on ClimateProgress.org.

Nat Keohane and I have been participating in the "Carbon Tax vs. Cap-and-Trade" debate over on Bulletin of the Atomic Scientists. From Round 3, which addresses the international aspects:

A cap-and-trade system allows for the creation of a global carbon market. Such a market would provide the mechanisms and flexibility necessary to achieve the environmental goals at the lowest cost and the incentives for other countries to join. A tax does neither, while requiring much more harmonization across countries.

This post is by Gernot Wagner, Ph.D., an economist in the Climate and Air program at Environmental Defense Fund.

A call for change — no, not by Barack Obama, by Al Gore.

Gore co-authored a call for Sustainable Capitalism in today's Wall Street Journal:

At this moment, we are faced with the convergence of three interrelated crises: economic recession, energy insecurity and the overarching climate crisis. Solving any one of these challenges requires addressing all three.

The op-ed concludes that:

Today, the sustainability challenges the planet faces are extraordinary and completely unprecedented. Business and the capital markets are best positioned to address these issues.

…as long as the incentives are correct:

We…need to internalize externalities — starting with a price on carbon. The longer we delay the internalization of this obviously material cost, the greater risk the economy faces from investing in high carbon content, "sub-prime" assets. Such investments ignore the reality of the climate crisis and its consequences for business.

This post is by Gernot Wagner, Ph.D., an economist in the Climate and Air program at Environmental Defense Fund, and originally appeared on the Environmental Economics blog.

The debate goes on about EDF's competition to visually explain how a carbon cap will solve our addiction to oil. Joe Romm critiqued the competition as "bizarre" since it asked people to "explain something that isn’t true." I responded by saying that MIT's climate model supports us. This prompted another response from Romm titled "EDF's and MIT's magical thinking on carbon caps and oil."

As I mentioned in my previous post about this thread, the discussion was not yet over. I posted my latest response on Gristmill and Environmental Economics.

The gist? History helps illustrate why, if anything, we are underestimating likely technological progress.

This post is by Gernot Wagner, Ph.D., an economist in the Climate and Air program at Environmental Defense Fund.