Vol. VI, No. 13

Economics

“Clean Power Act” Up for Senate Committee Vote

The U.S. Senate’s Environment and Public Works Committee is scheduled to mark up and vote June 27 on the Clean Power Act (S. 556) proposed by its chairman, Senator James Jeffords (I-Vt.).  If enacted, the Kyoto-style policies in the most recent version of the bill would have serious adverse impacts on the reliability and affordability of the nation’s electricity supply.

The bill would be very costly according to estimates by the U.S. Energy Information Administration.  The caps on emissions of sulfur dioxide, nitrous oxides, mercury and carbon dioxide would increase residential energy costs by 17 percent and household energy costs by 25 percent by 2010.  By 2020, the cumulative cost of S. 556 to energy producers would rise to $177 billion, and eliminate 48 percent of coal-fired electricity production.  It would also reduce real GDP by $100 billion the year the caps go into effect.

The full economic impacts are actually much worse, because EIA did not analyze all of the bill’s onerous restrictions, including some Chairman Jeffords added in recent weeks. For example, a provision in the most recent version lowers the specified emission caps by the number of tons collectively emitted by small producers (less than 15 megawatts capacity).

 

The bill requires coal-fired power plants 40 years and older to install the latest pollution control technology to reduce sulfur dioxide and nitrous oxide emissions.  Edison Electric Institute argues that this requirement would affect 74 percent of coal-fired capacity by 2013 and 83 percent by 2018.  This could be virtual death sentence for large portions of U.S. generating capacity.  Indeed, a similar rule in California is forcing the retirement of 1,400 megawatts of generating capacity, a loss the state can ill-afford.

The higher electricity prices resulting from S. 556 would fall most heavily on poor people and retirees on fixed incomes.  At a hearing on the bill earlier this month, J. Thomas Mullen, president of Catholic Charities Health and Human Services in Cleveland, testified that the bill would literally force retirees or working mothers to have to decide between eating and heating.  “These are not choices any senior citizen, child, or for that matter, person in America should make,” said Mullen.

 

In the latest re-write, Jeffords attempts to deflect that argument by awarding 64 percent of the tradable emission allowances to “trustees” who will provide assistance to the affected households.  The idea is that utilities would have to buy the allowances from residential electricity consumers, thereby offsetting the adverse affects on consumers.

 

But this is just smoke and mirrors according to Marlo Lewis, a senior fellow at the Competitive Enterprise Institute.  “Where, after all, does Senator Jeffords think utilities are going to get the money to buy emission credits from consumers after spending billions on technology controls and conversions from coal to natural gas?” he asks.  “From their consumers, of course.”

 

 

Economics

 

Is Kyoto a Walk in the Park?

 

A new “study” of the costs of the Kyoto Protocol is getting attention even before its publication.  Written by Christian Azar, a professor of sustainable industrial metabolism with the Department of Physical Resource Theory at Goteborg University, and Stephen Schneider of the Department of Biological Sciences at Stanford University, the analysis will appear in a forthcoming issue of Ecological Economics.

 

The article is an amazing bit of linguistic jujitsu.  Recall that Bjorn Lomborg, author of the Skeptical Environmentalist, argued in his book that the tremendous costs of implementing Kyoto would result in no benefit.  It would only delay the advent of predicted global warming from 2100 to 2106, so that the costs of global warming wouldn’t be prevented, but delayed.

 

Azar and Schneider turn that argument on its head.  They argue that without action to stop global warming the world will be ten times richer in 2100 than it is now and people on average will be five times richer.  Implementing Kyoto, however, would only delay that date by two years.  “To be 10 times as rich by 2100 versus 2102 would hardly be noticed,” Schneider told the New Scientist (June 15, 2002).  And meeting the Kyoto target would mean that industrialized countries “get 20 percent richer by June 2010 rather than by January 2010.”

 

The argument is absurd on its face.  It isn’t the people who will be alive in 2100 that will be harmed by Kyoto, but the people who are alive today.  Indeed, it makes no sense for those who are alive now to distribute income to increase the welfare of relatively more wealthy people who will be living 100 years from now.  Moreover, if one takes seriously the Energy Information Administration’s cost estimates, the Kyoto Protocol’s affect on GDP will be three times as large as the loss to GDP experienced during the Great Depression.

 

Ironically, Lomborg was chastised for doing work outside his area of expertise, yet neither Schneider nor Azar are economists and are obviously over their heads when it comes to doing economic analysis.  One may ask how they managed to get a paper published in a peer reviewed economic journal if it isn’t any good.  It turns out that Ecological Economics is a bottom-rung economics journal that is largely a vehicle for leftist economic analysis.  Oh, and by the way, Azar is on the journal’s editorial board.

 

Warm Winter was Good for the Economy

 

This last winter was unusually warm in the United States, something that Kyoto advocates have pointed out frequently.  It turns out, however, that rather than a gloomy portent, the warmer weather was a godsend, according to a study by Stanley Changnon, chief emeritus of the Illinois State Water Survey, and his son David Changnon, a professor of geography at the University of Illinois at Urbana-Champaign.

 

“The unseasonably warm, dry and sunny winter led to profound effects on the nation’s economy at critical times,” said the senior Changnon.  “Several economists reported that the weather was a major factor in keeping the United States from falling into a major recession.”

 

The study, commissioned by the National Oceanic and Atmospheric Administration, asked the Changnons to assess the economic impacts of the warm winter.  What they found was that it leads to an estimated $21 billion in benefits due to lower heating costs, lower snow-removal costs, and increased construction.  Makers of snow-removal equipment and winter clothing and segments of the tourism industry lost about $0.5 billion, however.

 

“The warm and dry weather allowed record-setting levels of home construction,” said Changnon.  “Housing starts jumped 6.3 percent in January to a seasonally adjusted rate of 1.68 million units – the highest level in two years – and in February, housing starts reached their highest level since 1949.”  This added “an additional $2.1 billion income to the industry.”

 

“The lack of severe storms also reduced property losses by $3.8 billion, which was a boon to homeowners and the insurance industry,” Changnon said.  “Only one weather related catastrophe occurred – a major ice storm from Oklahoma to Ohio – which caused losses of $265 million.  Reduced losses from a lack of snowmelt floods amounted to an additional savings of $1.3 billion for the industry and the government.”

 

“The more direct impacts of last winter include the costs of heating, reductions in transportation delays, lower highway maintenance costs, and reduced insurance losses,” Changnon said.  “The more indirect impacts include retail sales, home sales and tourism.”

 

 

Science

 

What Constitutes “Dangerous Anthropogenic Interference?”

 

The stated goal of the United Nations’ Framework Convention on Climate Change it to stabilize greenhouse gas concentrations at levels that avoid dangerous anthropogenic interference with the atmosphere.  As President George W. Bush has rightly pointed out, the Kyoto targets “were arbitrary and not based upon science” and “no one can say with any certainty what constitutes a dangerous level of warming, and therefore what level must be avoided.”

 

Brian C. O’Neill at the Watson Institute for International Studies and the Center for Environmental Studies at Brown University and Michael Oppenheimer at the Woodrow Wilson School of Public and International Affairs and the Department of Geosciences, Princeton University, attempt to answer that question in a Policy Forum paper in the June 14 issue of Science.

 

The authors admit that this is a difficult task that must “ultimately involve a mixture of scientific, economic, political, ethical, and cultural considerations, among others.  In addition, the links among emissions, greenhouse gas concentrations, climate change, and impacts are uncertain.  Furthermore, what might be considered dangerous could change over time.”

 

The Intergovernmental Panel on Climate Change has identified two criteria for defining “dangerous” interference: “warming involving risk to unique and threatened systems and warming engendering a risk of large-scale discontinuities in the climate system.”

 

The authors offer three risks which would fall under these criteria, (1) “Large-scale eradication of coral reef systems,” (2) the “disintegration of the Western Antarctic Ice Sheet (WAIS),” and (3) “the weakening or shutdown of the density-driven, large scale circulation of the oceans (thermohaline circulation or THC).”

 

To prevent severe damage to reef systems, the authors recommend a long-term target of one degree C above 1990 global temperatures.  To protect the WAIS would require a limit of two degrees C above 1990 temperatures.  And to stop the shutdown of the THC would require a limit of three degrees C warming over the next 100 years.

 

None of these cases is particularly convincing, however.  As noted in a critique of this study by The Center for the Study of Carbon Dioxide and Global Change (www.co2science.org), the evidence shows that coral reefs have been shown to be very resilient in the face of temperature change.  Coral reefs have survived several past interglacial periods that experienced warmer temperatures than now.  For example, the most recent interglacial was a full three degrees C warmer than the current interglacial, yet coral reefs survived.

 

Recent studies have cast serious doubt on the likelihood of a collapse of the WAIS or the shutdown of the THC.  A June 19 study in Science found that the WAIS is actually thickening.  A January 31 study in Nature found that the Antarctic has been cooling since 1966.  And another study in the February 21 issue of Nature found that the palaeoclimate data show that abrupt changes to the THC are not characteristic of the current interglacial, but are characteristic of the latest glaciation.  In other words, it is unlikely that global warming will cause the THC to shut down.

 

ENSO Not Linked to Global Warming

 

With El Niño returning to the southern Pacific, it won’t be long before we begin hearing about the ill effects of global warming and its possible link to this large-scale natural weather phenomenon.  A study in the February 2002 issue of Paleoceanography shows that there is no connection between global warming and the frequency or strength of El Niño.

 

Using palaeoclimate data, the researchers reconstructed a record of El Niño activity, the latter 400 years of the record being the most reliable.  The data show that El Niño activity “was more frequent after 1980, lower in the 1940-1975 epoch, and again more frequent around the beginning of the 1900s.”  It also showed that “the 1860-1880 period was relatively quiescent,” while “the 1820-1860 period was also a period of relatively vigorous ENSO [El Niño Southern Oscillation] activity.”  Indeed, the 1820-1860 period was “similar to [that] observed in the past two decades.”

 

The study concludes, “As these observations extend at least into the preindustrial period, attribution of the unusually ENSO-rich past few decades may lie in part with natural variability.”  This is a bit of an understatement given the evidence.  It looks like El Niño activity is likely due entirely to natural variability.