Climate Progress: An insider's view of climate science, politics, and solutions

Here’s the conclusion of “How Did Economists Get It So Wrong?” a long, brilliant piece in the forthcoming NYT magazine by the leading progressive economist:

VIII. RE-EMBRACING KEYNES

So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit — and this will be very hard for the people who giggled and whispered over Keynes — that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics.

Many economists will find these changes deeply disturbing. It will be a long time, if ever, before the new, more realistic approaches to finance and macroeconomics offer the same kind of clarity, completeness and sheer beauty that characterizes the full neoclassical approach. To some economists that will be a reason to cling to neoclassicism, despite its utter failure to make sense of the greatest economic crisis in three generations. This seems, however, like a good time to recall the words of H. L. Mencken: “There is always an easy solution to every human problem — neat, plausible and wrong.”

When it comes to the all-too-human problem of recessions and depressions, economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly. The vision that emerges as the profession rethinks its foundations may not be all that clear; it certainly won’t be neat; but we can hope that it will have the virtue of being at least partly right.

Read the whole damn indictment.  Any politician, journalist or opinion maker who worships at the feet of the false gods of neo-classical economics is no better than Bernie Madoff (see “Is the global economy a Ponzi scheme?“).

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I don’t have time to debunk Bjorn Lomborg every time he writes a disinformation-filled WSJ op-ed [and yes, that is redundant].  I’ve debunked him enough [see “Lomborg skewers the facts, again” and "Debunking Lomborg — Part III and "Voodoo Economists 4: The idiocy of crowds or, rather, the idiocy of (crowded) debates"].  But I’m happy to feature the work of guest debunkers (see “Lomborg’s main argument has collapsed).”  Today’s guest debunker is the uber-accomplished Dr. Bill Chameides, dean of the Nicholas School of the Environment at Duke University, in a post first published on his Green Grok blog.

Bjorn Lomborg is at it again on the pages of the Wall Street Journal. (See previous Lomborg posts here and here.) No action on climate change, he argues, because it’s too hard *and* too easy. Cool argument.

I woke up this morning to find one of my favorite columnists in the journal’s op-ed pages. In “Technology Can Fight Global Warming” (Wall Street Journal, August 28, 2009) Lomborg outdoes himself in his sleight-of-hand pseudo-logic arguing against imposing emission reduction targets through a global climate agreement. In Lomborg’s worldview, the whole climate problem will go away if we just throw a few dollars at the problem and stand back. Actually, I thought that’s exactly what we’ve been doing over the last two decades or so, and look where that’s gotten us.

Misinformation

A Lomborg piece would not be a Lomborg piece without a healthy supply of misinformation, and his latest does not disappoint:

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A little-discussed provision in the clean energy bill, the Clean Energy Deployment Administration, would have a huge impact on the U.S. clean tech industry, as this guest post by CAP’s Jake Caldwell explains.  Yet the EIA didn’t even model the clean energy bank in its recent climate bill analysis (see “Despite its many flaws, EIA analysis of climate bill finds 23 cents a day cost to families, massive retirement of dirty coal plants and 119 GW of new renewables by 2030 — plus a million barrels a day oil savings“).  Combined with all the other provisions in the bill, plus the stimulus and the Administration’s other clean energy and climate policies, Obama would easily meet his promise of $150 billion in U.S. government investment in clean energy over 10 years — and in fact will ultimately drive some $100 billion a year in total U.S. investment in clean energy.

Introduction

The United States must build and deliver clean energy today to create jobs, lower energy costs, and strengthen our economy. The establishment of a federally owned, independent, not for profit Green Bank—formally called the Clean Energy Deployment Administration, or CEDA, in legislation now before the Senate—will spur private-sector investment in innovation and American ingenuity to help end our dependence on oil, and help diversify our nation’s sources of energy to lower prices over the long term while also confronting global warming. The Green Bank will improve our global economic competitiveness, too, by making the United States a worldwide leader in the manufacture and deployment of clean-energy technology.

The creation of a Green Bank will encourage a long overdue integrated and strategic approach to clean-energy innovation, efficiency, and deployment in the United States. In combination with Senate action on clean energy—legislation that provides incentives for the research, development, and deployment of clean-energy technologies, and a market-based pollution-reduction program that reduces greenhouse gas emissions and reinforces a predictable price signal on carbon—the Green Bank will open credit markets, motivate private business to invest again, and create good, clean-energy jobs here at home.

In partnership with the private sector, the Green Bank will enable innovative, commercially viable clean-energy technologies in such areas as wind, solar, geothermal, advanced biomass, increased efficiency, and transmission infrastructure—all to be deployed on a large scale. The construction and actual deployment of these clean-energy technology projects is vital to a clean-energy future.

What’s more, clean energy delivers long-term job growth and holds tremendous new job-creation potential, particularly in the manufacturing sector. A recent report from the Center for American Progress and the University of Massachusetts Political Economy Research Institute notes that $150 billion per year in clean-energy investment can generate a net increase of 1.7 million jobs.

In short, the Green Bank can encourage the rapid deployment of clean energy and ensure that lower energy costs are passed on to consumers. In addition, the Green Bank can act as a bulwark against higher energy costs associated with volatile fossil fuel prices.

Costs and benefits of the Green Bank

A Green Bank funded at $7.5 billion could fund generation of 60 to 80 gigawatts of clean energy over a period of 20 years, or 3 to 4 GW annually. The result: Our national security will be enhanced by reducing our dependence on foreign oil. A fully capitalized Green Bank at $50 billion could:

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Employers throttled back on layoffs in July, cutting just 247,000 jobs, the fewest in a year, and the unemployment rate dipped to 9.4 percent, its first decline in 15 months. It was a better-than-expected showing that offered a strong signal that the recession is finally ending.

It may not be fair, but the likelihood of climate legislation passing the Senate in November (or later) depends critically on such seemingly unrelated matters as whether the Senate can pass health care reform and what the state of the economy is.  So the latest job report — along with other recent economic news like the better-than-expected GDP report from Monday — is a big deal:

The new snapshot, released by the Labor Department on Friday, also offered other encouraging news: workers’ hours nudged up after sinking to a record low in June, and paychecks grew after having fallen or flat lined in some cases.

To be sure, the report still indicates that the jobs market is on shaky ground. But the new figures were better than many analysts were expecting and offered welcomed improvements to a part of the economy that has been clobbered by the recession.

We’ve till got a long way to go to dig ourselves out of the economic hole abyss Bush-Cheney put us in, but we appear to have bottomed — thanks in part to the stimulus — and I am cautiously optimistic that we will be able to get 60 votes for ending the inevitable and immoral conservative filibuster the Senate will need to overcome to pass the climate and clean energy bill.

Sen. Byron Dorgan (D-ND) has a “Probability of Yes” vote (PrY) of 22% for the climate bill, as it’s currently written (see “Who are the swing Senators?“).   That is notwithstanding his April remarks:

North Dakota is the Saudi Arabia of wind….  I’m going to keep pushing for policies in Congress that help us develop our wind resource for the benefit of the whole country.”

Hard to do more for wind than the stimulus bill did — other than pass something like the Waxman-Markey climate and clean energy bill (with a stronger renewable standard).

Dorgan has, however, now published an op-ed in The Bismarck Tribune with a headline that befits his 22% PrY, “Reduce our CO2, yes … but cap-and-trade, no,” but with contents that mostly suggest he might actually be a real fence-sitter — and a potential filibuster buster — if somebody actually explained the bill to him and worked to address his concerns.

Indeed, the sole objections he raises to the bill — the potential for Wall Street to engage in questionable derivatives tradings and speculative bubbles that might drive the price of CO2 soaring — are actually addressed in Waxman-Markey by multiple provisions (as I discuss here and reprint below).  As an important aside, it would be almost impossible to write a bill reducing CO2 emissions that would not lead to “derivatives,” which, after all, include futures contracts and options.

If you are going to create a CO2 price — really the only way of reducing CO2 other than mandatory, command-and-control, sector-based emissions regulations (which it is impossible to believe Dorgan supports) — then Wall Street is going to create futures and options to allow companies to mitigate risk.  And that’s a very good thing, as even conservative economists will tell you.

The only question is whether you design a system with checks and balances against fraudulent derivatives and speculation, which this bill does.  No doubt it could be improved, and perhaps after someone explains the bill to him — Browner, Biden, Reid, Boxer … anyone? — Dorgan will join an effort to add more oversight.

Now, you might say that Dorgan isn’t interested in a real bill, that he is just positioning himself for a “no” vote.  Well, if so, he has written a very strange op-ed.  Let me excise all the “railing against Wall Street” stuff, and see for yourself:

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We knew new nukes were absurdly expensive (see “Areva has acknowledged that the cost of a new reactor today would be as much as 6 billion euros, or $8 billion, double the price offered to the Finns.”).  Now we know they are literally unaffordable.

Our friend and fellow blogger, Tyler Hamilton — who actually has a real job as senior energy reporter for the Toronto Star — published this stunning news in Canada’s largest daily newspaper:

The Ontario government put its nuclear power plans on hold last month because the bid from Atomic Energy of Canada Ltd., the only “compliant” one received, was more than three times higher than what the province expected to pay, the Star has learned.

Sources close to the bidding, one involved directly in one of the bids, said that adding two next-generation Candu reactors at Darlington generating station would have cost around $26 billion.

It means a single project would have wiped out the province’s nuclear-power expansion budget for the next 20 years, leaving no money for at least two more multibillion-dollar refurbishment projects.

“It’s shockingly high,” said Wesley Stevens, an energy analyst at Navigant Consulting in Toronto.

So nuclear bombshells have now been dropped on Canada, Finland, Turkey (see “Turkey’s only bidder for first nuclear plant offers a price of 21 cents per kilowatt-hour“) and this country (see “What do you get when you buy a nuke? You get a lot of delays and rate increases….”).

Now you may be saying, wait a minute, Joe, hasn’t Areva said it would deliver a single plant for $8 billion, so that should work out to a Walmart-style $16 billion price, rather than AECL’s Tiffany-style offer.  Hamilton has more juicy details:

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I am reprinting a commentary for Bloomberg by Eric Pooley.  Pooley is a former senior editor of both Fortune and Time, who is writing a book about the politics of global warming.  Earlier this year, he documented the media’s mistakes and biases during the Lieberman-Warner debate in a must-read Harvard study [see How the press bungles its coverage of climate economics — “The media’s decision to play the stenographer role helped opponents of climate action stifle progress.”]

Warren Buffett carries plenty of weight in any debate — even when he gets it wrong.

So as the Senate digs into the climate-change bill that passed the House of Representatives last month, it’s worth taking a hard look at how Buffett’s views on the bill went off course.

Buffett knows global warming is real and carbon emissions must be cut. But he’s worried that the bill might hurt his electric utility, Des Moines, Iowa-based MidAmerican Energy Holdings Co.

He may be right. But that doesn’t mean this is a bad bill; it may mean MidAmerican made some bad decisions.

On another count, Buffett is simply wrong when he calls the bill a “huge, regressive tax” that would ensure “very poor people are going to pay a lot more for their electricity.” Likewise David Sokol, the chairman of MidAmerican, was wrong when he testified that the cost of buying carbon allowances under the bill would drive up Iowa electricity prices by $110 per month per customer in the first year.

Opponents of the bill have latched onto Buffett and Sokol’s words, trumpeting them on the House floor and in a July 7 Senate hearing. So let’s examine their three basic claims:

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Obama’s interview on the climate bill last week had this Q&A (transcript here, my earlier summaries here and here):

Media: One of the provisions that got added very late to this bill that senators had expressed some reservations about was the one that puts tariffs on goods imported from countries that don’t have these sort of restrictions. What do you think of that revision and would you like to see the Senate strip it out?

Obama: At a time when the economy worldwide is still deep in recession and we’ve seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there. There were a number of provisions that were already in place, prior to this last provision you talked about, to provide transitional assistance to heavy manufacturers. A lot of the offsets were outdated to those industries. I think we’re going to have to do a careful analysis to determine whether the prospects of tariffs are necessary, given all the other stuff that was done and had been negotiated on behalf of energy-intensive industries.

So certainly it is a legitimate concern on the part of American businesses that they are not disadvantaged vis-a-vis their global competitors. Now, keep in mind, European industries are looking at an even more ambitious approach than we are. And they obviously have confidence that they can compete internationally under a regime that controls carbons. I think the Chinese are starting to move in the direction of recognizing that the future requires them to take a clean energy approach. In fact, in some ways they’re already ahead of us — on fuel efficiency standards, for example, they’ve moved beyond where we’ve moved on this.

There are going to be a series of negotiations around this and I am very mindful of wanting to make sure that there’s a level playing field internationally. I think there may be other ways of doing it than with a tariff approach.

Krugman disagrees with the President (and I tend to agree with the Nobel Prize winner in Economics):

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I was at a small meeting on peak oil Friday — Executive Summary:  We’re peaking now!

James Kunstler, author of The Long Emergency, was there.  He is in the Mad Max/Lovelock/Wall-E school of dystopia, and so I have a number of disagreements with him (see “Why I don’t agree with James Kunstler about peak oil and the “end of suburbia“).

He did, however, say one thing that really strike a chord.  He said we should stop calling Americans “consumers.”  It pigeonholes all Americans and also becomes a self-fulfilling prophecy.

That seems to me a reasonable point, and I will endeavor to make a change.  Indeed, I had previously blogged that the U.S. savings rate was on the rise, it looks like U.S. carbon dioxide emissions peaked in 2007, President Obama was making a big ush toward making America a nation of creators as opposed to consumers, and I asked “Is the U.S. consumption binge over?”

The figure above is from the NYT business blog, Economix, which has a longer-term, glass-is-half-empty perspective in a post titled, “Savings Rates Rising Toward Mediocrity“:

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Denial makes strange bedfellows.

Two of the leading sources of anti-scientific disinformation on global warming — George Will and Anthony Watts’ blog WattsUpWithThat — have embraced a man, Robert Bradley, who proudly shilled for Enron CEO Ken Lay, who was convicted on fraud and conspiracy charges in 2006.

Watts and I, you may recall, got into a tiny dustup a couple weeks ago (see Exclusive: New NSIDC director Serreze explains the “death spiral” of Arctic ice, brushes off the “breathtaking ignorance” of blogs like WattsUpWithThat and here).   Since then, Watts has been throwing everything at me including the kitchen stink, with four full posts attacking me this month.  I was planning to ignore him, until two things happened.

First, Watts ran a truly nonsensical piece (here) by Bradley, who is now President of the Institute for Energy Research, which “has received $307,000 from ExxonMobil since 1998.”  Bradley is one of the Denier-Industrial-Complex Kooks (DICKs) — see, for instance, “Mysterious industry front-group affiliated with Ken Lay’s former speechwriter launches anti-Waxman-Markey ads with phony MIT cost figures.”

Second, George Will published a piece, “Tilting at Green Windmills” in which he uses a discredited Spanish “study” to claim clean energy investments don’t create jobs (for debunking by CP and the Regional Minister of Innovation, Enterprise and Employment for the Government of Navarre, see here and here and here).  Will’s piece is noteworthy for this remarkable admission:

[This] study was supported by a like-minded U.S. think tank (the Institute for Energy Research, for which this columnist has given a paid speech.

That’s right, George Will published an entire piece based on disinformation bought and paid for by a think tank that is bought and paid for by ExxonMobil and run by Ken Lay’s former top shill — and Will also took money from that think tank. At least editorial page editor Fred Hiatt required that much in return for letting Will publish his umpteenth article full of misleading and inaccurate statements.

Now you may say, wait a minute, Joe, sure Bradley served as Director of Public Policy Analysis at Enron, where he was a speechwriter for CEO Kenneth Lay,” who was “convicted on fraud and conspiracy charges on May 25, 2006″ — but how can you say he proudly shilled for Lay when he has wiped any trace of his connection to Enron from his IER bio here?

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The EPA has posted its detailed analysis of the American Clean Energy and Security Act (H.R. 2454) here.  The bottom line is that the total cost to consumers is low, just as CBO found — just as all major independent analyses of even strong action show (see “”Intro to climate economics“).  You can read the House Energy and Commerce summary of the EPA analysis here.  In this post from Wonk Room, guest blogger, Daniel J. Weiss, Director of Climate Strategy at the Center for American Progress Action Fund, discusses the EPA’s findings.  At the end, I discuss a few flaws in the analysis, as well as the implications of Waxman-Markey for coal.

The main argument conservatives and big oil and coal companies use against the American Clean Energy and Security Act (H.R. 2454) is that it would cripple American households with a crushing energy tax. To make that claim, they have distorted cost estimates from the Massachusetts Institute of Technology and conducted their own biased studies. Today, the Environmental Protection Agency obliterated these phony numbers with the release of its economic analysis of H.R. 2454. The EPA estimated the bill would actually lower household electricity bills:

As a result of energy efficiency measures, consumer spending on utility bills would be roughly 7% lower in 2020 as a result of the legislation.

That’s right — lower bills. In 2007, this would have saved the average residential user $84, or 23 cents per day. EPA’s analysis also found:

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Nobel prize-winning NYT columnist Paul Krugman has been doing some terrific writing on the economics of climate action (see Climate action “now might actually help the economy recover from its current slump” by giving “businesses a reason to invest in new equipment and facilities” and “Krugman strongly endorses Waxman-Markey“).

Now he writes on Friday’s important CBO study, which found a “cost to households of Waxman-Markey in 2020 at $22 billion — which, given a projected population of 335 million, comes to 18 cents a day.  [We've been using the household figure of 48 cents a day.]  He ends his column titled, “Climate change fantasies“:

The point is that we need to be clear about who are the realists and who are the fantasists here. The realists are actually the climate activists, who understand that if you give people in a market economy the right incentives they will make big changes in their energy use and environmental impact. The fantasists are the burn-baby-burn crowd who hate the idea of using government for good, and therefore insist that doing the right thing is economically impossible.

From a fellow climate realist — Hear!  Hear!

As clean energy and climate legislation moves through Congress, new data show that a $150 billion investment in clean energy — which the bill would achieve in its first 10 years — could create a net increase of 1.7 million American jobs and significantly lower the national unemployment rate. According to the analysis, shifting to a clean-energy economy will help millions of low-income Americans by creating more accessible job opportunities ─ with the potential for advancement ─ and by lowering utility bills and transportation costs.

Two complementary reports ─ prepared by the Political Economy Research Institute at the University of Massachusetts, Amherst (PERI), Center for American Progress (CAP), Green For All, and the Natural Resources Defense Council (NRDC) ─ outline how investment in a clean-energy economy will produce significant economic and job creation benefits. These include the generation of roughly three times more jobs than would be generated by the same investment in the existing fossil fuel infrastructure.

“Jobs are the cornerstone of any economic recovery, and these reports show that investing in the clean-energy economy will create 1.7 million new jobs across the country as well as cut America’s contribution to global warming and reduce our dependence on foreign oil,” said John Podesta, President of the Center for American Progress.

“The Economic Benefits of Investing in Clean Energy: How the Economic Stimulus Program and New Legislation Can Boost U.S. Economic Growth and Employment” from PERI and CAP explains how the combination of the American Recovery and Reinvestment Act (ARRA) and the American Clean Energy and Security Act (ACES) could serve as the foundation for bringing total clean-energy investments in the United States to approximately $150 billion per year. This public spending and private investment would produce a net gain of 1.7 million new jobs.

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Climate legislation is a necessity for the agricultural sector to survive and thrive (see “Eight reasons for farmers to support global warming action“).  Yet many farmers mistakenly think that their sector would suffer from strong efforts to promote clean energy and reduce greenhouse gas emissions — no doubt because bill sponsors have not done a great job explaining things.  So I’m reprinting this post from WonkRoom. I have previously blogged on the new Brookings study and how it fails to model key features of Waxman-Markey that would reduce costs (see “New Brookings finds strong climate action would NOT hurt the economy“). Yet, “even without the inclusion of an offset program to allow the agriculture sector to benefit from carbon market, their analysis found the impact on agriculture to be minimal”:

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Less than a postage stamp a day.  That’s what it will cost the average American to cut US greenhouse gases 83% in four decades and give the world a chance of avoiding catastrophic global warming while jumpstarting the transition to a clean energy economy.

The right wing likes to take economic analyses that don’t model the House clean energy and climate bill and then misrepresent the results to attack the bill — see, for instance, Exclusive: MIT Professor says GOP, Weekly Standard “misrepresentation” of his April 2007 study to project costs for Waxman-Markey is “inappropriate,” “silly” and “just wrong.”

The latest hit job is by The Washington Times, which abuses a new study by Brookings in a piece whose headline is exactly backwards, “Study: Cap and trade would hurt economy.”  You can see for yourself the devastating economic harm that Brookings projects strong climate policy would cause:

Yes, you need a magnifying glass to find any impact on GDP growth for decades.

Now, Brookings could not be clearer that the study doesn’t model Waxman-Markey.  Note the very first bullet point of its presentation on the study Monday (here):

Not an analysis of particular bills.

The study models a variety of scenarios, centered around a 20% cut in U.S. energy-related carbon dioxide emissions by 2020, 40% by 2040, and 83% by 2050

But it doesn’t look at the various clean energy provisions in the bill (or in the stimulus, for that matter).  It doesn’t model any of the cost containment provisions of the bill.  It just looks at brute-force emissions reductions over time similar to what Obama and Waxman-Markey propose.  And that’s probably why Brookings predicts a rather absurdly high price for CO2 permits in 2020 — $50 a ton, which is double CBO’s projection and triple EPA’s!

Even so, as the Brookings graph above shows that the bill’s impact on the economy is negligible — and Brookings assumes no offsets whatsoever.  The 83% reduction by 2050 is achieved through domestic emissions reductions and with no noticeable economic impact.

But how does The Washington Times spin this as harmful to the economy?  Here is their lede paragraph:

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Nobel prize-winning NYT columnist Paul Krugman has been doing some terrific writing on the economics of climate action (see Climate action “now might actually help the economy recover from its current slump” by giving “businesses a reason to invest in new equipment and facilities” and Krugman strongly endorses Waxman-Markey).

Now he has turned his attention to fellow economist Martin Feldstein, who recycled a lame WSJ piece into an uber-lame Washington Post piece.

[Note to self:  If Post editorial page editor Fred Hiatt keeps recycling garbage, you're going to have to stop criticizing him for being anti-environmental.]

At 5:02 am (!) today, Krugman blogged:

Ugh. Martin Feldstein has been making sense on macro issues, but this is a really bad column, on multiple levels.

On the most basic level: Waxman-Markey eventually calls for a reduction of greenhouse gas emissions by more than 80 percent, so looking only at the 10-year target, for about a 15 percent reduction is deeply misleading.

Beyond that, Feldstein says this:

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