Greens carbon tax

I see that the Greens have announced a carbon tax to replace the emissions trading scheme (with details and analysis by BERL here).  The authors of TVHE have long been a fan of  this type of switch when discussing the issue (eg here and here).  And the idea of pricing an externality and using it to lower other tax burdens is a good one.  Note:  John Small also discusses here, with specific discussion about dairy.  Aaron Schiff discusses here.

So it should be unsurprising that I broadly agree with the aim Green party policy here, and this should be kept in mind while reading my post.

However, TVHE isn’t about saying what policies I think are good or bad – it is about considering trade-offs and thinking about the details of policy when we can.  In that context, there are a few points I must raise.

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Green’s Investment Bank

The Green party has announced a “Green Investment Bank” to help facilitate investment in green industries (release, discussion, paper).

I am not against it per se, and given they are saying that in the first year they will have a working group to determine the details there isn’t too much I can dig my teeth into here.  As a matter of principle I am:

  1. Against industrial subsides
  2. For policies that help to improve matching and adjustment to changing economic reality

This policy is doing a bit of both, so I would need details before I can say much.  But the money quote for me from the policy document is this: Read more

Greenpeace enters the economic policy debate…sort of….

I was interested to see this article on stuff about Greenpeace arguing for  a “green” economy. I even considered taking a peak at the report they have put forward by the  “German Aerospace Centre’s Institute of Technical Thermodynamics” until I got to this bit at the end of the article

Where the report stumbles is on the financial side, giving no detail on the level of investment required or the economic tradeoffs, making it impossible to judge if the transformation would be worthwhile or simply a pyrrhic environmental victory.

Argent said this was a deliberate choice, with the aim of the report to spark a discussion rather than getting too bogged down in the numbers.

Which basically means this report tells us nothing….

As a side note, as an economist I would replace “financial side” with “opportunity cost”  as it it’s not just “money” trade offs that need to be considered…social, environmental, and any other metric that will be part of the cost need to be considered. You can’t just look at non-monetary gains on the benefit side and ignore them on the cost side.

The sustainability of meat

There is an excellent post over at Offsetting Behaviour discussing the reasons why people go vegetarian, and discussing the separation of moral and allocative issues that lead to this choice.  The way I see it, there are three main reasons why a person may go vegetarian – these can be mixed and matched of course, they aren’t mutually independent.

  1. The person has an eating disorder
  2. The person gains disutility from eating a dead animal/causing the death of an animal
  3. The person gains disutility from the view that, given current institutions, the consumption of meat is unsustainable/damaging – specifically that the choice to eat meat lowers the lifetime welfare of future generations.
  4. Update:  Health, I forgot health – some people do it for health reasons.

Now I have recently gone vegetarian myself.  My reasoning was the second one.  This is strange given things I have previously said, I know –  implicitly I do believe that if the animal only lives because it is going to be consumed, and that the life it lives is a good one, then it is morally right to eat the animal.

However, I am viciously time inconsistent.  When it comes to the final stage of the animals life where it must die, I can’t handle the personal disutility I gain from the idea that the animal died to feed me.  As a result of my selfish choice not to eat meat, the animals I would have consumed never get to live those beautiful free-range lives that they deserved.  Not to worry though. See it here first.

Anyway, I haven’t come here to discuss myself, I’ve come here to discuss the sustainability issue.

Is meat consumption sustainable in our finite world?

Lets note something down here.  Prices represent scarcity, as long as the “price is right” the consumption of meat is perfectly sustainable.  As Eric says:

There’s no need for a moral imperative to reduce meat-eating. Get rid of subsidies in the agricultural sector, make sure effluent externalities are properly priced or regulated, then let relative price adjustments take care of the rest. The optimal amount of meat will be eaten, so long as we keep waving our hands about the moral questions.

However, people who do not eat meat on these grounds have exactly the same argument.  They would say:

  • Meat is subsidised.
  • Externalities are not priced, regulation is not appropriate.
  • We discount the future too strongly, relative to what we believe is morally right.

Given these sets of factors people turn around and say “what can I do”.  With the price too low, there is a relative overconsumption of meat, an overutilisation of land into the production of meat, an excessive degredation of the environment.  In this context, it is completely consistent of people to say they will go vegetarian to deal with it – however, instead of complaining about the unsustainability of meat in of itself, it might be better that they say that the “price is wrong”.

I would argue that governments should come together and ensure that the worst of these issues are fixed, namely that subsidises on agricultural production are removed.  Then these people can get back to enjoying the consumption of meat, knowing that the higher price they are paying represents truly sustainable practices.

The Economist on ‘job creation’ in the energy sector

A very timely opinion piece in The Economist here on how energy policy should not be confused as with job creation.

Too often investment in the energy sector, especially around low-carbon energy, is held up as a way to ‘create’ jobs for the economy. This article dispels the myth:

At the risk of being obvious: energy policy is not a jobs programme. Here are three reasons why politicians shouldn’t try to create jobs through energy policy: it’s ambiguous, it’s inefficient, and, most importantly, it’s undesirable.

In summary the author’s critiques are as follows:

1. What counts as a ‘green’ job, for example? Would that job have occurred anyway? Did the ‘creation’ of that job crowd-out another job?
2. The energy sector is typically capital intensive rather than labour intensive and hence efforts to ‘create’ jobs may be better directed elsewhere.
3. More important issues exist in energy, such as accessing cheap, sustainable energy and the security of energy supply – adding a further goal of ‘job-creation’ muddles this.

Given job-creation via energy seems such a hot topic throughout much of the world right now due to weak economic activity, elections forthcoming in the US and NZ and ongoing concern with carbon emissions and a need to ‘green’ the energy sector, it’s worth keeping in mind these criticisms.

Economics and the environment: Perception and reality

Wow.  I realised David Suzuki was a little bit loose when he talked about economics – but he’s a smart man.  I assumed that when he talked he was merely bemoaning the fact that environment issues get ignored in policy, not that he actually had no idea how economics or the allocation of resources worked.

If these quotes are true, my view of him was far too generous (via Offsetting Behaviour).

“David Suzuki is another skeptic and he offers a great anecdote about economic thinking. While at the University of British Columbia, Suzuki figured it would be a good idea to supplement his academic background in biology with an understanding of economics. During the first class, Suzuki’s instructor stood at the blackboard drawing lines in chalk to show the flow from the resource base into the market, with subsidiary industries adding value and creating wealth for investors.

Suzuki pointed to the side of the blackboard that was empty of equations, the resource base, and asked whether the calculations took into account the effect of human activity on the environment, the diminishing reserves and growing waste that Suzuki reasonably regarded as a cost mortgaged into the future. “That’s an externality,” the instructor responded drily. In other words, the environment is something external to the grand human workings of the market and not worth factoring in. Suzuki left the class on the spot.”

Holy sh*t, this is one of the dumbest – most arrogant – things I’ve read this morning … and I’ve just finished reading some of my own writing!

An externality is one of the central reasons why an economist justifies policy – it is a concept used to define thing that aren’t captured in market prices, and justify intervention.  It is the very reason why so many economists actually do believe something needs to be actively done in environmental policy … contrary to the view among many people that economists don’t care.

I’ve been told by people that “one of the main weaknesses of economics is that it ignores the environment” – my reply is always “actually, one of economics main strengths is the way it can coherently put the environment, and trade-offs, into a framework”.

If the very icon for environmental policy has such a poor understanding of Econ 101 ideas – ideas that are REQUIRED to form GOOD policy – I have to admit I generally feel very concerned about the whole issue.

Note:  If anyone wants to know how bad this mistake is, its sort of like if you had to do some accounts for your business – but you thought the idea of addition was some voodoo way of transforming numbers without any meaning.  Externalities are one of the earliest concepts that are taught in economics – immediately after we learn what supply and demand represent.