Environmentalism – as Germany goes, so goes the EU

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The German Green Party, which is on the rise again (having won an additional seventeen seats in last year’s elections), has set the target of running their country on 100% “clean” energy by 2050, and plans on lobbying for more import restrictions on “unclean” products into the EU. If the Greens get back into government in Germany and implement these sorts of policy, it will create a huge upward struggle for consumers both in Germany and across the EU.

The term “clean renewables” is a piece of politically correct doublethink which includes things like hazardous bio-diesel (which, incidentally, drives up food prices) but excludes nuclear energy which unless run by wasteful communists is ultra-clean. They can also be enormously expensive.

But never mind – it's the consumer who will pick up the tab, and environmentalists rarely care about that. Climate-friendly retrofitting of Germany's buildings could amount to €2.5 trillion, which owners will transfer to tenants through increased rents. Germany has one the highest numbers of renters to homeowners in Europe. Therefore, this matter hugely for disenfranchising households in terms of energy costs. “Green” requirements like these are simply a form of indirect taxation that hit the poor hardest, and those who can’t afford to pay for the government’s green energy targets will be forced to move out of the bigger cities like Berlin and Frankfurt.

Environmentalism has been invoked to justify economic "stimulus" programmes that “create” green jobs. It does not – it simply redirects resources from things that people want to things that the green lobby want. Consumers are forced to buy new versions of expensive everyday products—from refrigerators to cars—not because of age or deterioration, but because they no longer conform to the most recent environmental standards.

These rules also serve as stealth tariffs to block trade – so plastic dolls from China and genetically modified food from Brazil can both be blocked under the cover of environmentalism. Some might see an unholy alliance of environmentalists and industrialists in these import restrictions. (Is the green lobby in the pocket of Big Industry?)

Where the German ecological-industrial complex leads, the rest of Europe will probably have to follow, thanks to Germany’s huge influence over the EU. The rise of the German Greens is bad news for Britain, and could be even worse if British environmentalists make similar gains.

The unintended consequences of planning

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In his Wiki Man column in this week’s Spectator, Rory Sutherland writes that “residential architecture is one area where innovation has stalled in Britain. Why? Perhaps planning laws need to change…” His argument is that the burden and complexity of UK planning laws mean that only developers build residential housing – trying to do it yourself is too much of a bureaucratic nightmare. The result is “standardization at odds with what most people really want.”

I think he’s right. The rather soulless uniformity of most modern developments is – at least in part – the result of regulation encouraging much larger economies of scale than would prevail in a free market. The planning system, in other words, accomplishes the opposite of what most people think it is for and leads to less attractive housing.

It isn’t hard to point to other unintended consequences of planning interventions. Why, for instance, have developers spent the last 10 years trying to put up blocks of flats in leafy suburban areas, where people actually want to buy detached houses with gardens? It might have something to do with John Prescott’s housing density requirements, which basically compelled developers to cram as many units onto each bit of land as possible. Likewise, the reason most modern housing is gloomy, sterile and airless has a lot to do with government imposed energy efficiency targets.

One could probably spend hours reeling off all the problems that the UK’s land-use planning system causes. But in short, it makes Britain less attractive, less liveable, more cramped and, of course, more expensive. It is a relic of post-war socialism, and its demise is long, long overdue.

Upwardly Mobile

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The hubbub over housing benefit reflects, yet again, a fixation by policymakers and their noisy claimants on just half of the fundamental supply/demand equation. In this case, the clamour for “affordable” housing has prompted a nightmare framework of subsidising the demand for shelter with the inevitable result that housing of any kind has become prohibitively expensive and in short supply for just about everyone.

We now have the absurdity of many claimants receiving £20,000 a year in housing benefit. This requires five people each earning that amount of money a year just to come up with the taxes. Complex schemes to manage rents and regulate distribution do nothing to resolve the problem.

Totally neglected is any serious discussion about the supply of housing that would do more to reduce prices and increase choice than anything else. Quite simply, the UK has got to overcome its ingrained abhorrence of the high-rise apartment block.

That abhorrence is deeply entrenched. The disastrous council blocks of the 1950s and 60s left a negative legacy. The British obsession with home ownership created a vested interest in rising house prices as a disastrous substitute for productive saving and investment. And then there’s the misty-eyed myth of Ye Olde Rose Cottage as the only plausible mode of living.

It doesn’t need to be this way. Other cities around the world manage just fine with a large chunk of its accommodation in high-rise towers. Even the city that regularly tops the rankings as the most liveable is awash with towers, as the above picture of the Vancouver skyline attests.

Apartment blocks bring more benefits than just shelter for the masses. They’re energy efficient, they don’t need green-belt land, they reduce car traffic, they limit infrastructure expenses like water, sewage and other utilities. An adequate stock of apartments facilitates job mobility. They can be cost efficient for residents by minimising upkeep, insurance and commuting costs. The bigger the supply of apartment blocks, the greater the diversity. For a city like London, the current gap between the super-rich and those on benefit will be filled by legions of the middle classes – university graduates, singles, DIY-haters and empty-nesters.

The coalition government would be smart to stop fiddling with subsidising demand and get serious about increasing supply. For most cities, that means facilitating the construction of high-rise apartment buildings. It most certainly doesn’t mean the government should be building them itself. Whether it’s apartments for rent or condominiums to buy, let the market rip.

It took a few years for the City of London to get over its aversion to high-rise office towers but, once that mindset was overcome, the new buildings in Canary Wharf and in the traditional City look stunning and dynamic. Bung in a few apartment towers and the 7:24 from Slough can become a thing of the past.

Privatising Britain's forests

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The Sunday Telegraph yesterday reported that ministers intend to privatise – or transfer to community groups and mutuals – about a third of Britain's forests. The country's government, struggling to contain huge budget deficits, needs the money of course. Even so, it is very much the right thing to do.

You could guess as much from the fact that the trade unions instantly denounced the plan. They say that private ownership would mean less public access to forest land. They could not be more wrong. For decades, Britain's state-backed Forestry Commission has smothered the hillside of Scotland and Wales in particular with blankets of unattractive, dark, and completely inaccessible conifer forest. Private owners, on the other hand, have a financial incentives not only to manage the forest stock better, but also to open up forest land to paying tourists, and to develop forest resorts for tourists and hikers. And rights of public access can be guaranteed, even extended, as part of the sale process.

New Zealand, for example, developed a leasing system to combine the benefits of private-sector management with the guarantee of public access and amenity. Forests are an important environmental resource in New Zealand, where natural and commercial forests cover around a third of the land area. In the 1980s, the then Labour government wisely separated its state management authority from the actual ownership of the forests, and identified those forests which should be reserved and managed principally for amenity rather than commercial use. The changes led to immediate beneficial returns, reversing the need for state subsidies, and in fact encouraging a sharp rise in new plantings and timber production.

For more on New Zealand, see our ideas piece Out of the Woods. See also Douglas Mason's ASI report Wood for the Trees and Miles Saltiel's Forests for the People.

The new atomic age

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This week another Liberal Democrat minister has had to abandon party policy for the good of the coalition. On Monday, the Energy Secretary Chris Huhne announced that eight sites have been approved for use of future nuclear power stations. This came on the same day that Severn barrage, aimed at harnessing the “green” power of the tidal estuary, was scrapped.

This shift in energy policy back towards nuclear is an indication that the Coalition is once again taking a practical view about energy provision, despite the debate being a potential flashpoint between the two parties. With many nuclear plants nearing the end of their life span, a decision about the future of this industry had to be taken. To let nuclear power in the UK lapse would mean that the 20% of electricity that is currently produced would have to be provided by other sources of energy. Renewable energy alone cannot make up this potential shortfall before the current plants become redundant, leaving the government with no alternative except to open new plants to secure Britain’s long-term energy security.

What can be gleaned from the announcement made today is that any decisions regarding energy production will be derived from the ability of the market to provide, rather than being based on government subsidies. The Severn barrage was scrapped because there was no “strategic case” for investing £30 billion of public money into the scheme. Nevertheless, it appears that smaller, privately funded tidal energy projects that do not require taxpayer money will go ahead on the Severn Estuary.

This element of market provision is also present in the nuclear arena, with Mr Huhne stating that the new sites will receive no public subsidy. I hope that this is the case and that market forces are truly allowed to form within the energy sector – only then will the country be able to move on from political point-scoring over energy provision.

On how things don't necessarily turn out as planned

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It's entirely common in economics for us to find that, when looking at a particular problem or change, we've actually got two different processes going on. Each working in different directions that is, meaning that the correct answer to most economic questions is in fact "it depends".

One example might be income tax rates: will the lower post tax income mean people will work longer to gain their desired post tax income or will the lower income from extra work mean that people will lower the hours they do in order to have more of that now cheaper leisure? The answer for different people will be different but in aggregate this is what gives us the Laffer Curve. The "it depends" depends upon the society, the people in it and the tax rates that we're discussing. We'd not be surprised to find that a tax change from 10% of marginal income to 20% has a different effect in aggregate from a move from 80% to 90% (and even less if we look at percentage changes, a doubling of rates from 10% to 20% or a doubling from 40% to 80%).

This failure to understand the "maybe" nature of many economic answers leads to problems far beyond tax rates of course. It's generally accepted that if we all had electricity monitoring meters, which told us how much that extra light bulb, leaving the standby on, computer and broadband 24/7, cost us, that we would all react with horror and reduce our electricity consumption immediately.

Well, mebbe:

Asda were flogging these off cheap at £10 (an electricity monitor-Ed), a great buy. I watch with glee the cost of my juice now.

It's peanuts. I no longer have to feel guilty about turning things off. 13p an hour it is reading at the moment and Mme Elle Gee is scrubbing my smalls, Herr Bosch is ensuring the cutlery is shining ready for the next feast of unseasonal food that is being kept safe in a permafrost.

Tonight the wine will be chilled and the table lit better than any was at Versailles in its heyday. Two computers provide access to educational, and other, delights beyond the dreams of any Victorian bibliophile. And the television, wireless and music boxes outshine any collection of opera houses, vaudeville stages and sweaty cellars.

We live better than royalty ever did, all for pence a day.

How many react that way and how many will keep a gimlet eye upon the meter for the extra pennies will determine whether meters do in fact reduce electricity consumption or not. And the truth is, we don't actually know, we won't in fact know until meters are installed and we find out.

You see, the answer to so many questions in economics is simply "it depends".

Climate change alarmists finally lose it

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Via Mark Wallace, this is the climate change campaign 10:10's latest video aimed at promoting their latest campaign. I honestly do not know what they were thinking, but take a look – it reveals a lot about how they really feel about people who disagree with them. They've taken the video down but it's been preserved for posterity.

Warning: This video may not be suitable for children or viewers of a sensitive disposition.

Chris Huhne’s ruinous hoax

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Yesterday at the Lib Dem conference, Chris Huhne announced the government’s new ‘Green Deal’. The Deal will provide 26 million homes with insulation to save them energy and money. Mr Huhne also promised his scheme would create up to 250,000 jobs and by doing so has unwittingly leapt into an economic misnomer.

Mr Huhne has committed the so-called ‘broken window fallacy.’ The broken window fallacy is a common error made in economics, and it neglects the unseen consequences of our actions. Breaking windows does not help the economy through giving glass manufactures more work, but actually means we lose out on the other goods that could have been produced instead of the extra glass. Unlike businesses and workers who earn their revenue through peaceful and mutually beneficial trade, government only takes its revenue from others by force and is by definition a drain on others. To put it simply, the Government cannot create jobs without first destroying others.

Frédéric Bastiat pointed this out back in 1850. He wrote that whenever the government tries to create jobs, “it gives jobs to certain workers. That is what is seen. But it deprives certain other labourers of employment. That is what is not seen.” Bastiat concluded that such job creation programmes were “a ruinous hoax, an impossibility, a contradiction.”

But not only will this fail in its aim to create jobs, it is also likely to have negative unforeseen consequences. An almost identical scheme to Huhne’s proposal, recently implemented in Australia, has proved to be so disastrous that the Australian Senate is conducting an inquiry into the ‘green’ insulation scheme carried out there. Thousands of homes had their insulation installed incorrectly and hundreds burnt down, killing 4 people. You have to wonder why Chris Huhne has gone ahead with a policy with such a disastrous track record.

Mr Huhne may well wish he could create jobs, but he’ll have to trust in the private sector if he really wants to see more employment.

Buy land, they're not making it any more

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So went the old investment advice: as the supply of land is fixed the price can only ever rise. This isn't of course true as those financing the housebuilders' land banks are finding out but we've also an illustration of a much larger point here. We're continually told that the earth is "running out of resources", that there's just no more out there for us to use. To which the economists keep saying, but, but, we create resources by inventing the technology that makes them available. Yes, even land is, in this sense, created.

Don't get me wrong, I'm not saying that there are not physical limits to this planet we inhabit: only that they are so huge that they're not the relevant limits. Those relevant limits are obviously the ones that are important to us: how many copper atoms there are is not the relevant limit concerning how many telephones we can make: how many copper atoms we can mine at what price might be.

And yes, this does even applpy to land, as the development of Brazil's cerrado shows:

When Embrapa started, the cerrado was regarded as unfit for farming. Norman Borlaug, an American plant scientist often called the father of the Green Revolution, told the New York Times that “nobody thought these soils were ever going to be productive.” They seemed too acidic and too poor in nutrients. Embrapa did four things to change that.

Lime the soil (a centuries old technique), play clever with breeding both nitrogen fixing soil bacteria and grasses, play clever with the breeding of the crops you're trying to plant and finally, change the way the farming is done to no-till agriculture.

Et voila, we have created tens of millions of hectares of new arable land and there's perhaps another 250 million susceptible to the same treatment.

No, we're really not running out of things, not in any sense that actually matters. For we really do create resources through human ingenuity.

The great Bjorn Lomborg volte-face

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We are told, breathlessly and repeatedly, in The Guardian, that Bjorn Lomborg has recanted and is now fully on board with the "OMG we're all gonna die!" wing of the environmental movement over climate change.

Oh Aye? From his first book, The Skeptical Environmentalist:

I shall argue further that an economic analysis of the costs and benefits of an immediate reduction in CO2 emissions clearly shows that the world as a whole would benefit more from investing in tackling problems of poverty in the developing world and in research and development of renewable energy than in policies focussed on climate change.

From todays' revelations:

Examining eight methods to reduce or stop global warming, Lomborg and his fellow economists recommend pouring money into researching and developing clean energy sources such as wind, wave, solar and nuclear power, and more work on climate engineering ideas such as "cloud whitening" to reflect the sun's heat back into the outer atmosphere.

My, that is a real backtrack, isn't it?

Back to that first book, he uses the Willam Nordhaus DICE and RICE models to argue that the damage done by CO2 emissions is $7.50 per tonne. Applying both the Nordhaus and Stern Review view that damages should be covered by a Pigou tax he is now stating that:

He suggests this could be funded by a $7-a-tonne tax on carbon emissions, which he says would raise $250bn a year.

The tax is at the level of damage being done: this is hardly a change now is it?

Oh, and Lomborg makes, repeatedly, the point that renewables, most especially solar, are coming down in price and that (in his estimate) by mid this century will be properly price competitive. So much so that we'll naturally switch to using solar PV. We might build a large solar power station in the Sahara for example. Oh, we are, aren't we? Or solar panels might be installed upon houses because by that mid-century it'sll be cheaper than taking fossil fuel generated electricity from the grid.

Oh, lookee here. Jeremey Leggett says that it will happen by 2013:

Monbiot bets me £100 that my prediction that solar PV electricity in homes will be no more pricey in 2013 than conventional electricity will be wrong.

So, it looks like Lomborg hasn't in fact gone through some Damascene conversion, rather, he's making the same points he's always made. That climate change is happening, that we're causing it and that the economics of the whole shebang tell us that we should be trying to reduce the cost of low and non carbon power generation to deal with it.

His only really major failing seems to be that he was too pessimistic about how quickly technology would advance.

Ho hum.