13 March 2009

The Debate Continues

The politicization of the Global Warming debate has led to great confusion about what the real issues are.

After all, who can dispute the importance of caring for natural resources? Of avoiding pollution? Of developing alternative sources of energy. This is not where the debate lies.

There isn't even real debate over the existence of climate change. The questions here amount to understanding whether recent climate change has been significant, whether it will continue, and how it was caused. But these issues are not the ones that we should pay attention to either, because they are scientific ones and we do not yet have a definitive grasp on the issue.

The great question that should be of concern to you and me is what the proper role of government is, and that is the purpose of this post. I'm writing in an airport lounge in Atlanta, the busiest airport in the United States, an epicenter of carbon emissions.

In his address to Congress, President Obama described his plan to implement carbon taxes, a system of cap and trade. As is the case with most tax proposals, the implication is that the offending businesses will be affected, promoting social change in a way that has little or no effect on the everyman. This is simply untrue. The higher costs of carbon taxes will be passed on to the consumer in the form of higher prices and higher unemployment across affected industries. Some erstwhile supporters of cap and trade have seen it take on a conceptual form they are less comfortable with, and may now become opposed. This just proves that attempts to paint companies like ExxonMobil as having accepted their role in climate change due to their acceptance of cap and trade is inaccurate. ExxonMobil's incentive to participate has been based more on their desire to help craft the regime. To remain opposed might have left them and others out in the cold. Now that Congressional Democrats are at their feistiest those large entities will probably be left out anyway.

But again, let's come back to the core question- what is the role of government?

I want to lay out some assumptions:

  1. Government has finite resources. Although revenues may increase in absolute terms, by and large a focus on one area will lead resources away from another.
  2. Government resources should be used in the public good, both long and short-term.
I think these are generally accepted principles. It is on item two that the most serious disagreement lies with regard to its implementation.

People like Bjorn Lomborg have argued that the best use of government resources are in those areas where we will derive the greatest return on that investment. This includes clean water initiatives to reduce child mortality. This is a tremendous problem, and completely preventable. It's diagnosis relies on no shaky data, on no fake consensus. This is not to say that the government should ignore environmental concerns, but the money should go where they can have the greatest impact, and combating climate change just doesn't meet that standard.

Not that you would know it from watching Al Gore and his fellow warming alarmists. Despite many opportunities to give his critics a fair debate, Gore continues to assert that we near a point of no return. This kind of fear-mongering has never led to ideal outcomes- the Patriot Act, TARP, and the recent fiscal stimulus are good examples. You can view the video below to see if Gore is willing to respond to an honest intellectual debate:

I care about providing a clean and beautiful earth to those that follow me, but with finite government resources we are right to be exceedingly careful about how those are used. The debate continues.


A.J. said...

Joe - I have been reading your posts on global climate change (or better called “global weirdening”, coined by Thomas Friedman) and for the most part of I have very little argument against what you present. I find it to be generally well thought out and agree with a lot of your ideas. Now, I am not necessarily an ardent supporter of cap-and-trade, but I struggle to find the arguments against it very convincing. This may be to simple a way to think about it and feel free to tear it apart, but I use an analogy to my California energy bill. In California, they try to get us to use energy during non-peak hours and only use a certain amount a day. This allows the power generation systems to operate as efficiently as possible (I will not go into the details of why, but there is very solid engineering rationale behind this). They "convince" us by charging higher rates during peak times (7 AM to 7 PM) and allotting us only a certain amounts of KWH per day (if you go over, you get charged at a higher rate). My first few months here, my wife and I learned the hard way about this with exorbitant energy bills. So, we changed our habits. We do washing, drying, showering and anything relating to hot water in the evenings (conveniently, the weather is nice enough here that we do not have to use heat very often and we actually do not even own an air-conditioner, which took this Florida-boy some adjustment). Our energy bill went down by over half. These habits became permanent and do not effect our livelihood. We use our energy in a smarter, more efficient, more reliable way. If California had not had this system, as much as I hate to admit it, I would not have these better habits.

Now, I know that example is very simple and I live in the limousine-liberal-hippie-haven of Berserkeley so my ideas are probably left-leaning (though I am registered Republican, but that has a quite different meaning in California than back east), but I think (and this may be a stretch) the same sort of principles may work with companies and cap-and-trade. Let’s take Chevron, for example. This happens to be a California oil company and I happen to work for them. So I am probably a little biased towards oil companies, but I like to think I am a rational, logical thinker with a scientific background as an engineer. If you give Chevron some reasonable boundaries with which to work in and penalize them for when they go above it, they will do everything in their power to avoid losing money to a regulation. If we do lose money to a regulation, you are right in that there will be an effect on the prices of commodities sold by Chevron. However, Chevron will make necessary changes in order to avoid this scenario, because at the end of the day Chevron does not make any more money when the price goes higher to a regulation. If the price goes higher, the worry is that demand will drop off due to people’s inability to afford it. Again, I am not an economist, so there could be large economic flaws in my logic, but I am trying to think of it in terms of my energy bill – I do not want to pay a higher bill because I lose money and can’t get other things. I have to make changes and I do so intelligently.

Now for Chevron, the necessary changes would include things that allow them to operate more efficiently. Chevron will work smarter. Emissions will be reduced. Slight expense will be incurred, but I have found with a lot of projects that once you are “inspired” to go down a more efficient and reliable route, you learn a lot and you actually end up saving money in the end. There are many ways to do this from a scientific and engineering point of view, but there are few economic or business incentives for Chevron to do so at this time (as a matter of fact, there are usually outside forces in the local community that never want Chevron to make any changes, fearing incorrectly that they will further poison the environment).

At the end of the day, every project and decision at Chevron is based upon the net present value of a project. Regulations can kill a lot of the work Chevron does from a money standpoint, so Chevron must work smarter in order to avoid them. And, as I said above, I think in the long run this can actually save money, time, resources, etc.

So I have not really gone through all the details of the Obama cap-and-trade system with a fine-toothed comb, but I think it is at least in concept the way to go. You start off with reasonable boundaries and allow companies and people to adjust. Then you slowly tighten over time so that companies can further adjust. If a regulation is scientifically unattainable, then you revoke it. The only way anyone will ever respond though is if the bottom-line is effected.

Now, in your blog you claim that carbon emissions and cap-and-trade really should not be the focus because they do not merit value as compared to clean water. I think if you completely disassociate these two effects you are correct. However, I do not think one can do this to life, the universe, and everything (Douglas Adams is probably turning over in his grave). I think if you spur on changes like this with a cap-and-trade system, the intelligent changes companies make towards efficiency and reliability will help your clean water cause. If we are putting less carbon into the world, it means we are also putting less pollution in general. There is no catch all for carbon in our processes. The systems you have to implement to make such changes will have a profound effect on overall emissions of everything from a refinery, an oil rig, a chemical plant, etc. At the end of the day, you will get your clean water and you will get solutions to all the other nagging environmental problems out there. Perhaps I am being a bit na├»ve and optimistic on this, but I truly believe that we (and I mean everyone) can accomplish this with the “little of no effect” you link to an article in the WSJ with the phrase “This is simply untrue.”

This is getting a bit long, so I will stop. Hopefully, you will find errors in my arguments and tear them apart so I can come up with stronger rationale and ideas. Ultimately, if a cap-and-trade system is not the way to go, then what is the way? I do not feel the previous administration that caused your last moment of political happiness had solid ideas clean drinking water or carbon management. But I could be wrong.

Lowdogg said...

Thanks for comment A.J. I enjoyed it and have to admit a few things:

1. I tried to do too much with this post. The Cap and Trade scenario really is a different issue than the idea of prioritization, and each merits different treatment.
I know my anti-tax preferences create an instant skepticism to any government revenue generation, and Obama lost much credibility on this issue for me with his initial proposal for the oil windfall tax.
Maybe I just want the government to be a bit more honest about the potential affects of a program like this. I agree that regulations will force a company like yours to work smarter, which is why good companies won't be destroyed by a cap-and-trade regime. I think another part of my distrust comes from its timing. Given the state of the economy I'd like to see issues like this delayed until we are on stronger footing. That may mean just one year, or even less.
It could also be that I am too pessimistic about cap-and-trade's impact. I honestly don't know all the ins and outs myself.

As for the other issue, I also distrust the aims of many in the environmental lobby. If I thought there was clear evidence that we were in some sort of crisis mode globally with regard to climate I would understand the hysteria. We are in a crisis mode with many health issues that threaten political instability much more than unproven climate change.

So I guess I am in favor of regulating emissions, but for reasons that can be proven and that will not be excessively damaging to the economy in the short run. I don't like the linkage to climate change, which seems tenuous.

I also don't like to be told that delaying action on climate change means the death of the planet. So really the two ARE separate issues and I should have treated them that way.

And there was a reason why I picked election night 2004 as my last moment of political happiness. Not a lot came from those guys to provide me anything since that time, aside from improvement in Iraq. So I am open to new ideas.

Thanks for the excellent comment.

A.J. said...

Fair enough. It will be interesting to see how this all progresses. You may expect more posts from me on the topic, if I feel so inclined :)