The world’s top industries would be unprofitable with externalities priced in
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An environmental group our law school worked with (ELPC) lobbied hard to get two coal in the middle of Chicagoland (Fisk and Crawford) shut down. They did a study estimating the negative externalitiesmofnthe two century old plants at $127 million, the majority of which fell on working class people in the areas around the plants.
A related phenomenon I found interesting is an LSE paper (can't find the link offhand) arguing that the GDP calculation vastly overstated the GDP of countries built on resource extraction. Income is change in wealth, but when $100 of coal is sold, it is counted as $100 to GDP. But the bulk of that price is offset by the decreased value of coal reserves in the ground, which isn't counted in GDP even though its part of the change in wealth.
Of course, a corollary is the Jevons paradox: as energy efficiency goes up, demand for products that use energy also goes up when energy price is held steady. A popular example is the home refrigerator, which has gotten bigger at about the same rate that it has gotten more efficient.
One way around this is to ensure that energy prices continue to increase so that efficiency gains don't lead to increased overall energy consumption. That means some kind of green tax - preferably something designed to be revenue neutral via equivalent cuts to, say, income tax.
The key is that it doesn't have to be "energy prices" but only "unsustainable energy" prices, i.e. fossil fuels. And then you have your method of making the tax revenue neutral: Tax fossil fuel, use the money to subsidize non-fossil energy. Result is that net energy prices don't rise by very much, but they shift away from fossil fuels and toward sustainable energy.
You can control how fast this happens just by adjusting the amount of the tax. And yes, imposing an immediate 10000% tax on oil would get people to stop using it very quickly indeed, but a somewhat more gradual phase out may be less disruptive -- a 50% tax, for example, with a promise to raise it even more as time passes to encourage people to buy electric cars and corporations to stop wasting money looking for new deposits of fossil fuels.
Why? There are huge benefits to society from allowing things like energy to become dirt cheap.
The mother of 100+ years ago had no option to pursue a career beyond keeping the house and making meals because she had to venture out every day to get fresh food because she had no way to store it.
She had no options for flash frozen meals that she could prepare quickly. Every dish had to be painstakingly prepared from scratch, which dominated her day.
That's just one example. There are thousands of others out there. Those thousands of other advancements have built upon each other in a cascade that has changed human existence for the better in most measurable ways.
Articles that ignore positive externalities are not meaningful.
air pollution that causes 50,000 premature deaths a year in the United States
Versus how many millions of lives that have been saved per year because of modern medicine predicated upon cheap power for the last 60 years?
greenhouse gas emissions that are producing global warming and the devastating climatic changes
Please back away from the global warming alarmist hysteria as a means for pushing governmental change. Hasn't the last 15 years of no further increase in mean temperature (despite predictions to the contrary) at least taught a little humility on the subject to believers in AGW?
We're at the end of a natural long-term cyclic temperature increase, tending to rise fast then drift down, repeating every 125,000 years or so. If AGW is significant, we may consider it beneficial to counteract trending toward the next ice age.
http://suyts.files.wordpress.com/2013/03/image_thumb404.png?...
We know so little about how the earth will react to higher CO2 levels. It seems that we don't at all factor in solar and other cyclical factors that may just show that we're in a typical warming period.
As a developer who has worked with physical world models before, if a model doesn't predict the future better than random guessing then it is worse than useless. In RF modeling, if we showed a customer software that predicted signal strength the way that the IPCC predicts temperature gains - we'd be laughed out the door.
A climate model is very complex, and it is build on basic premises, which can all be tested separately (like the CO2 part). Some points remain unclear: For example, a great part of the CO2 that has already been emitted has apparently gone into the ocean (which will lead to acidification, another problem). The ocean has a turn-over time of about 1000 years, so we can expect more uptake. On the other hand, a warmer ocean can dissolve less gas. ..it's a very long list of interleaved issues, and small changes of parameters (whose values are not known precisely) can change big things. Great care is taken in making these models. Scientists are usually not interested in politics very much. Even if a few had an agenda, they wouldn't manage to push a made-up idea. Btw, the solar influence is also factored in (see [1]). The next ice age would be due soon, but it won't happen due to the CO2 (a good thing, I reckon).
Looking at the climate history of our planet is a scary thing since it is far from stable. It appears that there are periods where the whole globe was covered in ice, and periods where it was very much warmer than today. It's ok for life, but not for individual species such as us who have build their civilisation on one specific situation (precipitation patterns!). In the long run, we will have to manage/stabilize the climate anyway, so research is needed either way.
disclaimer: I study and do research in this area. If I could show there was no problem, I'd be a hero; nobody of us wants this. My professors seem to have given up on the issue at this point.
Can I answer some questions or is this a lost battle as it is so very often?
No, they really don't. The variation over the past 15 years, like the variation over the previous 120 years, is entirely consistent with a steady upward trend. Cherry-picking start and end dates is bad data analysis, period.
What a spoiled, Western-centric, historically ignorant point of view. Without coal mining in England, there would have been no steam engine, no railways, and no modern economy. Preaching to the Chinese about the evilness of coal is a classic case of pulling up the ladder after you've climbed on it.
Second, coal is not the desirable thing of modernization: energy is, and energy is available through many means. China seems to be very fond of solar, for example. Also the Chinese pay the externalities just as we all do; and if you've visited China your aware that they see perhaps more pollution than the rest of the world. I have no doubt that these externalities made visible will influence the nation to take them realistically, which we in the western world are not.
Even a wealthy economy like the US still draws almost half of its electricity from coal [1]. If Americans couldn't afford to switch to solar already, how are the Chinese supposed to?
>the Chinese pay the externalities just as we all do
And so did the US. The first (very weak) Clean Air Act was not passed until 1963 [2], at which point the economy was already very energy intensive, very wealthy, and could afford to take an economic hit by implementing more stringent environmental regulations. The holier-than-thou crowd expects China to hobble itself with environmental regulations in advance of the US, while developing an economy that is still decades behind. All this preaching is of course done from countries that have gone through centuries of unrestricted industrial development, and while taking full advantage of the benefits thereof.
[1] http://en.wikipedia.org/wiki/Coal_power_in_the_United_States
[2] http://en.wikipedia.org/wiki/Clean_Air_Act_(United_States)
But how do you calculate such a cost - keeping in mind that you would also need to factor in non-environmental benefits like new inventions, more free time for education, higher quality of life, etc.
I'm all for a system that's fair. I just object to environmentalists deciding what the true cost/benefit analysis is. Their squeaky wheel one-issue outlook has heavily biased the discussion.
Isn't that rather like saying that there wouldn't have been a strictly monotonic route from the pre-industrial society maximum to the industrial society maximum? There might have been, or might have not been, but a priori it's not absurd to postulate that with coal tax from day 1 the road to a more efficient final state wouldn't have been blocked.
However, this argument has limits. Clearly China doesn't intend to limit themselves to the technologies that existed when the best way to get from London to San Francisco was by coal powered ship and train. Will they also use asbestos insulation? Will they perform surgeries without anesthesia? Will they treat infections with primitive or no antibiotics?
Fortunately, China's leaders are scientists and engineers, and I don't believe for a second that they are unaware of the environmental catastrophe that could result from a stupid energy policy. When they have a drought, they won't lead their state in a prayer for rain. China's leadership is well aware that the survival of their nation depends on getting to clean energy first - and that this may in fact be the best way to become the dominant power of the next century. I think the whole "you used coal in 1850, so now we get to" is more a point of argument to get the west to make concessions (which is a reasonable demand) rather than something they'd actually do.
China's leaders may be engineers, but they are also an unaccountable elite whose primary goal is and continues to be their own aggrandizement and enrichment. Who do you think causes environmental damage in the US? Populist governors leading prayer meetings or the technical and economic elites who actually build, own, and operate polluting entities? Mock the U.S. political system all you like, but it contains mechanisms that allowed popular pressure to produce a tremendous environmental turnaround and a raft of effective environmental legislation. That China's political system will do the same is by no means guaranteed.
In this specific case, I think there probably is an alliance between this particular politician and the business interests that pollute and who would like to dismantle the political mechanisms you mentioned. My biggest problem with the "prayer for rain" was that it came from someone who tends to mock the US political system (though he was unable to specify the third govt agency he would like to replace, he did reassure us that he didn't want to eliminate the EPA, he just wanted it "rebuilt", and I can only imagine who he'd put on that panel). He also rejected the conclusions of the vast majority of the scientific community about what might be causing and/or exacerbating chronic droughts.
The real issue would have been ships, but considering how much coal was used for home heating that's a tiny fraction of overall demand.
The English begged to differ. The early Industrial Revolution was powered by water [1], but they switched to coal as soon as they could.
[1] http://en.wikipedia.org/wiki/Cotton_mill#Water_.281770.E2.80...
The fundamental principles of electricity generation were discovered during the 1820s and early 1830s by the British scientist Michael Faraday. His basic method is still used today: electricity is generated by the movement of a loop of wire, or disc of copper between the poles of a magnet.[1] So the time period was not quite consistent. But, they where also still using hydro power in the industrial revolution 1760-1840 and could have kept going at a larger scale after switching to electrical power.
PS: Without electricity or large scale dam's coal is ridiculously easier to use in a city, however most factory's use electricity not coal today for a reason.
The development of the stationary steam engine was an important element of the Industrial Revolution; however, for most of the period of the Industrial Revolution, the majority of industrial power was supplied by water and wind. In Britain by 1800 an estimated 10,000 horsepower was being supplied by steam. By 1815 steam power had grown to 210,000 hp.[38] Note: The industrial revolution started in 1760 and ended between 1820 and 1840. So, in my hypothetical situation England may have imported coal for shipping and railways but industry would have probably looked at imported coal as to expensive and used alternatives. Edit: Another possible exception iron / steel production.
PS: There where steam engines before the industrial revolution, but they gained prominence because of design improvements and as a drop in replacement for other power sources.
Every third world country will use the exact path the 1st world used to get to where we are because it is proven reliable, doesn't cause political turmoil (nuclear), and is cheap to implement. If the 1st world wants it to be different then we have to provide the game changing technology. That has not been done.
Really? They'll do this without the internet? without anesthesia? without antibiotics? or will they re-invent these things themselves?
No, of course they won't take the same path. There are far better paths.
China is industrializing in an era when we have technologies that can increase survival rates and extend lifetimes dramatically, when we have greater awareness of the negative externalities of dirty fossil fuel technology, and we have far greater options for generating energy. This leads to a different set of obligations and opportunities.
I don't think that the "west", or the US in particular, has come close to meeting those obligations. But that's a different issue. My point here is a more narrow one - if you're going to pick and choose which technologies you're going to use, the claim that you get to do this the 1800s way loses almost all its moral force. Instead, this is "if it benefits us to do things the old way, we will remind you that you did it this way and insist that we get to do it that way too. If it benefits us to do things the new way, hey, we're a modern country, why on earth should we be shacked to the crappy old way you used to do things"
No, it boils down to "I did it this way and nothing has come along to replace this way". There is no energy revolution at scale, reliability, and continuous 24x7 (through the night / in the calm) production.
"China is industrializing in an era when we have technologies that can increase survival rates and extend lifetimes dramatically, when we have greater awareness of the negative externalities of dirty fossil fuel technology, and we have far greater options for generating energy. This leads to a different set of obligations and opportunities."
Yet, they still use coal to an excess. It is simple economics. Nuclear has been demonized, and coal is cheap, easy, and well understood. The 1800's way is the 1900's way is the 2000's way. Coal and oil are still the way.
Until someone beats coal and oil on all features, it won't change. It is that way in a lot of human activities.
What price on early deaths, reductions in labor force and increased medical bills? I've been to China a couple times, the pollution is bad. Any place where hello kitty surgical masks are a fashion item, that should tell you something about the air quality.
This is why China is actually investing a ton in renewables now -- it's not about the US pulling up a ladder behind us (as if we could), it's about what's best for Chinese and for the world.
They are not obligated to use coal for 100 years before moving up the ladder -- heck, they can beat us up it, since they're actually willing to invest in infrastructure and we're not.
China's challenges are very different from what England faced in the 1850s. But in that sense, perhaps their path will be similar - they will face unprecedented challenges, and will have to innovate to solve them. And if they do solve them, they will now have a massive first-mover advantage.
Here is an illustration. Would you rather live next to a coal plant or a solar farm? Would you rather get electricity from a coal plant at 2 dollars, or a solar plant at 3? Note how in the first case, the price of electricity is irrelevant because the external effect of the plant on you is the same no matter the price of electiricty. You can't decrease it by using less. In the second case, price is the only relevant consideration. The coal electricity doesn't have any positive benefit to you not accounted for in the price.
"cheap" by definition can't be a positive externality because the definition of externality is costs and benefits not accounted for in price.
The societal benefits of cheap electricity are no more "priced in" than the negative environmental externalities of coal use.
You can't put a benefits dollar value to society on all the women in the work force who would otherwise be preparing a lot more meals from scratch. You can't put a benefits dollar value to society on the productivity gains from all the people who would have died of childhood diseases that we have cures for thanks to western medicine.
You're obviously in favor of accounting for one factor in the cost/benefit analysis of coal power and ignoring the others. I think it's hubris and folly to do so.
Accounting for externalized costs is a wholly different exercise. It's an accounting of the costs that do not arise out of the producer/consumer transaction and thus cannot affect the price of electricity through bargaining. Health costs of coal are one such cost. People bear that cost whether or not they even have electric service, and their level of usage does not affect the level of the costs they incur. This kind of cost is not priced into the price of electricity from coal. The benefit that would be relevant in this accounting is a benefit from electricity that you get whether or not you directly or indirectly pay for electricity. Your wife being able to work is not such a benefit--you only get that benefit if you pay for electricity.
Note the wiggle word both you and the poster above use: "cheap electricity" not just "electricity." It's not "electricity versus no electricity" its "cheap electricity versus more expensive electricity." The benefits from cheaper versus more expensive electricity are entirely internal to the producer/consumer relationship an are thus priced in to the price of electricity. They're not the same as external environmental costs which are not priced in to the price of electricity.
You are assuming a perfectly competitive market for electricity, in which there is no consumer or producer surplus. The parent you are replying to is essentially asserting that this is not the case in the real world - The pricing of electricity is based on a comparison of marginal values and costs, not absolute values, and thus misses the entirety of the consumer surplus (by definition). This is a positive value that belongs on the ledger next to any positive and negative externalities that is not taken into account by the price of electricity.
Just like a child cured by Western medicine gets the benefit without having to necessarily be a consumer of electricity. When I mentioned women in the work force as a benefit, I didn't mean to the individual. I was talking about the societal advantage to having a more productive work force. That is not factored into the purchase of a KWh of electricity.
No, "cheap electricity" aren't wiggle words that describe an internal relationship. Cheap electricity was a necessary condition for the cascade of advancements we've made over the last 60 years. In this thread, I've seen the argument, "If only we had charged for externalities from the beginning of electrical generation" - as though we would be where we are today in all other areas of Western life if we had stalled the production of CHEAP electricity for 80 years while we waited to develop alternatives that were themselves predicated upon the cheap electricity we got from coal in the first place.
But it is. If society as a whole benefits more from electricity, their demand goes up, which raises the price of electricity. You're just trying to double-count the benefit.
> as though we would be where we are today in all other areas of Western life if we had stalled the production of CHEAP electricity for 80 years while we waited to develop alternatives that were themselves predicated upon the cheap electricity we got from coal in the first place.
The situation isn't banning the use of coal from the beginning. It's forcing the external costs of coal to be accounted for from the beginning. Economic theory tells us that this wouldn't have stalled our development.
If that were true, then electricity should be astonishingly expensive because we use astonishingly more of it than we did 60 years ago, yet the last time I looked, inflation adjusted prices for electricity were remarkably flat.
Economic theory tells us that this wouldn't have stalled our development
What economic theory is that? Plus, if you want to compare Economic theory vs History; I'll take History. History is filled with discoveries and technology advancements that were the results of cascading advances which were the result of an advancement that made due to some basic resource becoming available and/or cheap. Advances are in no way inevitable. Advances are in no way unhindered by prices of resources.
Really what we did early on was to trade our environmental resources for cheap power. From that tradeoff, we have reaped extraordinary benefits. Why are those benefits so hard to recognize in this discussion?
So, the price of computers has gone down even with skyrocketing computer use. But nobody would say that the benefits of computers are a positive externality that isn't priced into their price.
> What economic theory is that?
Bog-standard neo-classical economics. See: http://www.libertarianism.org/media/around-web/negative-exte....
> Advances are in no way inevitable. Advances are in no way unhindered by prices of resources.
There is a "right price" for resources. If the actual price for the resources is too high, that will retard development. If the actual price for that resources is too low, development will happen in a way that uses an inefficiently high amount of the cheap resource. The market will generally arrive at the "right price" for resources, except in the presence of externalities.
> From that tradeoff, we have reaped extraordinary benefits. Why are those benefits so hard to recognize in this discussion?
It's not a matter of recognizing those benefits, it's a matter of not double-counting those benefits.
You're the one who said that the increase in price of a resource already accounted for its benefit to the producer. You can't use the fact that I broke your argument to then construct a straw man. Besides, if someone used the same one dimensional environmental argument against the pricing of computers (which they sometimes do), then I would be consistent in the defense of the beneficial externalities of computers.
Bog-standard neo-classical economics
You got me there, you named A theory. Hey, here ya go: http://en.wikipedia.org/wiki/Externality
Right there they mention "invention". My claim is that inexpensive electricity has led to many inventions because people have more time to invent and more resources with which to invent. Because of cheap electricity, we have more people alive because they could afford air conditioning and well refrigerated foods. Some of those people have invented things.
If "Invention" is a beneficial externality (or more properly has positive externalities), then the predicate of invention, "cheap electricity" is also a beneficial externality.
If the actual price for the resources is too high, that will retard development
Use of a resources normally has a critical minimum price before it's used commonly or at all. Why do you think the title of this article is "Cost of Gene Sequencing Falls Raising Hopes for Medical Advances"?
http://www.nytimes.com/2012/03/08/technology/cost-of-gene-se...
Gene sequencing has negative externalities too. There's a loss of privacy. There is a possibility that terrorists could release gene-based biological agents that could wipe out segments of societies. Should we price that into gene sequencing now "just in case"?
it's a matter of not double-counting those benefits
I could just as easily say you're double-counting the costs of electricity since society (to a small and appropriate degree) views its generation as harmful to the environment and so they already have less of a demand for it. That would be a nonsense argument to since consumers don't typically factor in non-sequitor benefits and negativities during price negotiation.
We're not talking about the value of electricity, we're talking about the value of "cheap electricity." Attempting to assign a value to cheap electricity beyond its price is just double counting. There is no value to "cheap electricity" that isn't accounted for in the price and therefore it's not a positive externality. Put another way, the value you get from one unit of electricity is the same no matter whether it comes from coal or wind power. Any difference between the two is merely the incremental benefit of getting it at a cheaper price, which is entirely accounted for by the price.
A proper discussion of externalities discuss both types, however, positive externalities are usually factored into the cost of goods or services relatively easily and quickly, and so are generally not ripe for discussion in mature markets.
Example: NUCLEAR ELECTRIC POWER GENERATION (page 59 bottom table) all estimating an impact ratio of 0.1 (cost of waste / revenues)
Actual cost of nuclear waste and other related cost are more likely about 100 times or more than estimated in this study - they are pushed to future generations or just passed over to tax payers globally by subsidies or cost covers e.g. cost for dismantling / building back a nuclear power plant after its commercial lifetime - from 3 Billion to 20+ Billion depending on the power plant etc. - power company will only cover a marginal amount of that, majority is paid from taxes. Storage cost for nuclear waste (thousands of years - most likely hundreds if not 1000s of Billions in cost)
About 2 years ago in Europe an in-depth scientific study into the actual cost of (uranium based) nuclear power has been undertaken (paid by various European institutions) including all subsidies provided to the power companies for building these nuclear power plants (in Europe hundreds of Billions) and (as far as I remember) also parts of the actual cost for waste - the outcome: true cost per KWh ~1.20 EUR - cost base used in business / profit calculations about 0.02 EUR
In a competitive market, this is precisely what we should expect. The price is driven toward the cost of production by competition. This doesn't include the externalities (it's not a part of the cost of production paid by the individual firms), so when you add them in the price is too low.
Also there would be a ton of innovation in negating these costs.
Unless they got replaced by something other that is currently unprofitable due to the de facto dumping prices of those industries.
If for instance, you wanted to reduce the impact of cattle farming in South America, you could encourage people to eat alternative sources of meat and protein (substitutes) or tackle the problem by pouring more funding into research into synthetic beef[1].
For electricity generation, you could gradually ramp up taxes on the dirtiest sources of power generation, coupled with economic incentives for individuals and companies, which would guarantee lower monthly bills for those who switch, and guarantee a certain price for excess power that is generated to sweeten the deal. You could also introduce heavier taxes on inefficient home appliances, and subsidise LED bulbs (for example) to encourage adoption.
It's not that these problems are insurmountable, it's people's attitudes and entrenched interests.
(a thought experiment- if you could say for certain that sea levels would rise by some amount within say 50 years, and this would guarantee that many major coastal cities would be flooded within our lifetime unless we do x within the next decade, do you think people would do x?) Again, it's attitudes. No one wants to be out of pocket, and many people just don't see any visible downside to continue eating beef or getting their electricity from a coal fired power source.
[1] http://www.globalpost.com/dispatch/news/business/technology/...
But the headline does not match what the TEXT of the article says. The text of the article says:
> Trucost’s third big finding is the coup de grace. Of the top 20 region-sectors ranked by environmental impacts, none would be profitable if environmental costs were fully integrated. Ponder that for a moment. None of the world’s top industrial sectors would be profitable if they were paying their full freight. None!
In other words, the industries THAT HAVE THE MOST EXTERNALITIES have externalities greater than their profits. No longer surprising at all. And the entire frenzy the article is trying to whip us up into is based on this one misstatement of their actual results.
Industries use lots of free resources because they're free.
It is not possible to say a priori whether they could be profitable with different input prices, because there are myriad complex ways to economize and substitute.
They seem to have used abatement costs (how much for removing the damage?) where available. For other factors like air pollution, estimates on increased health costs, crops, water, increased corrosion, etc. were used.
IMHO the most tricky is the part on "opportunity costs" of things like land use - it's hard to put an uncontroversial price tag on the fact that you cannot go hiking on parts of land used by some industries.
In this case, New York avoided $6-8 billion in costs for constructing filtration plants by actively managing the Catskills watershed. Like with any "free" service, you can price it by asking: what would I have to pay to replace it?
We all agree on the negative effects of those externalities, but pricing them in before completing the transition to sustainable systems would only make resources MUCH less affordable for the end-consumer - you, me and everyone else, given the basic needs those goods fulfill.