Jobs are costs, not benefits

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As I've been saying here and elsewhere for a number of years now. Jobs are costs of a plan, not a benefit of one. No, not claiming credit for this simple point being made by another, just noting that it is being made in this excellent report on green jobs.

The first level is that of projects or programmes. Here he makes the fundamental point that in appraising these, prospective labour inputs are to be viewed as a cost not a benefit: labour costs should be counted as such, along with other inputs (such as energy). Hughes notes that if the objective of policy is to reduce CO2 emissions, the right course of action is to minimise the costs of any such reduction; and these include the costs of labour.

The report is worth reading in full for it also goes on to examine the role of "green jobs" in the macroeconomic sense.

Please do note that the thrust is not that "there's no climate change so we don't have to do anything so Yah Boo Sucks! Greenies!". Instead it's the much more subtle points that, as above, jobs are a cost not a benefit. We should not applaud a specific anti-climate change policy because it "creates more jobs", this is entirely the wrong way around. We want to, just as in any other economic adventure, perform the task, that minimization of climate change, at the least cost in resources, whether those resources be labour,capital, energy or anything else.

On the macro side, here we are in Bastiat territory. Sure, we can see those jobs being created building windmills. However, how many other jobs in the economy are being destroyed by higher energy costs? Those higher energy costs we have to suffer to employ the people to build the windmills? The Spanish experience has been 2.2 jobs lost for every one created: that's on a generous interpretation of the results.

I know that I'm a little out of step with many on this climate change thing. I annoy one group by being quite willing to believe that it's happening and perhaps we should do something about it. I annoy those who agree with me there by continually pointing out that most plans floated to "do something" are appallingly awful and would ashame three year old children if they were to propose them.

Which is, if I am to be honest, why I like this report so much. The argument is that if we are going to do something can we at least make sure we don't do this long list of very stupid things that people are currently proposing? Please?

Sounds like a plan to me.

Planning has given us the ugly environments it was intended to prevent

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I heartily recommend this intelligent piece on rural planning and development by Charles Moore in the Daily Telegraph. His paper have been running a campaign against the British government's proposals to ease the planning system, on which countless South East of England NIMBYs ('Not in my back yard') and BANANAs ('Build absolutely nothing anywhere near anybody') have vented their spleen in its letters columns, complaining that the whole of the Cotswolds are going to be covered by factories and wind turbines.

Moore points out that the government aims merely to devolve, imply and liberalise the planning system – which, he believes, is essential for the rural life that the 'Disgusted, Tunbridge Wells' campaigners want to preserve. After all, the charming rural farmsteads and mills, like that at Flatford painted by John Constable, were, paradoxically, the industrial development of the time that gave us our rural environment. The mineral wells around Tunbridge are what caused the prosperous and pretty town to – I can't think of a better word – spring up. The people who built these commercial enterprises had to live in them or near them, and generally speaking they built wisely, practically and beautifully. That is the origin of the countryside that people love.

Now, of course, we have instead the socialist principle of planning. As Moore points out, modern planners would probably reject the idyllic Flatford Mill as an unwarranted industrial intrusion into the landscape. People complain about ugly, squashed-in housing developments around towns and villages, but these are brought about because of the planning system. Large companies buy up vast acreages because they know the planning system is slow, bureaucratic and fickle, which means that land prices are driven up, and the price of land that is approved for development rises even more spectacularly. Planning has in fact given us the ugly environments that it was intended to prevent. We need instead for our development to grow organically, as they did in the past when they created the rural environment that campaigners want to preserve.

It's not the banks or the speculators starving the poor

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I'm afraid that this all makes me rather angry. There are innumerable fools out there screaming that speculation, the banksters, the Vampire Squid, futures markets, are starving the poor by making food too expensive.

The true blame lies elsewhere:

A new report by the Committee on World Food Security found that using grains like corn and wheat to create bioethanol, often blended with gasoline to create transport fuel, has added 0.5 percentage points to the growth in world cereal demand, pushing it to 1.8% a year from 1.3%.

In vegetable oils, which are used to make biodiesel and dominate Europe’s market, growth has been even more pronounced. While their use for food slowed down between the 1990s and 2000s, from 4.4% to 3.3% a year, industrial use soared, so that in the decade to 2010 it grew from 11% to 24% of world use.

It really is the entirely stupid, damn fool, biofuels movement which is causing the food price rises. That US and EU politicians have insisted that all fuel used must be made of a certain percentage of plant derived material. It really is the entirely stupid, damn fool, laws, passed by our entirely stupid, damn fool, Lords and Masters which is killing the poor as we put food into cars not people.

The speculators, the commodity traders, the futures, options, the deep and liquid markets do their best to mitigate the effects of this damn foolery but the reason the poor are dying for lack of food is the actions of our own politicians.

That the proposed solution is for those politicians to be given more power over the food system moves me from rather to incandescently angry.

Could we all, please, just agree that biofuels are a damnably stupid idea that kill people and so just stop making or using them?

Please?

Giving environmental puritans free rein

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For such a basic part of the economy and people’s lives, energy is a remarkably minor topic, politically speaking. The hacking scandal is interesting, but won't affect people's lives in a decade. Energy policy might.

Sadly, environmentalists have been given nearly a free rein in the field of energy policy, without much input from people concerned about the impact of anti-carbon regulations on the economy or poor people’s ability to pay. Note the constant lumping together of energy and climate change policy, as if these are just two sides of the same coin. This is a big mistake. As the “Rational Optimist” Matt Ridley argued in a superb piece for the Times last week (now on his blog, free for the world to read), the price of energy is fundamental to our economic wellbeing:

Cheap energy is the elixir of economic growth. It was Newcastle’s cheap coal that gave the industrial revolution its second wind — substituting energy for labour drove up productivity, creating jobs and enriching both producers and consumers. Conversely, a dear-energy policy destroys jobs. Not only does it drive energy-intensive business overseas; according to Charles Hendry, the Energy Minister, the average British medium-sized business will face an annual energy bill £247,000 higher by 2020 thanks to the carbon policy. That’s equivalent to almost ten jobs it must lose, or cannot create.

Let's accept that a low carbon economy is a desirable thing, but reject the apocalyptic hysteria that some push (without much scientific basis for doing so). That’s one desirable objective out of three or four others – including growing richer, making sure poor people can afford to heat their homes, and encouraging innovation in all sorts of fields. Is there a tension between the low carbon goal and the other ones? A bit, yes, but environmentalists are protesting a little too much when they emphasise carbon reduction over all other priorities.

A decent compromise already exists, and Britain is fortunate enough to have quite a lot of it: shale gas. Shale gas is cheap, efficient and low carbon compared to other fossil fuels. Conservative estimates say that there’s enough shale gas in the US to last at least fifty years. This video from Reason.tv explains some of the process by which shale gas is extracted from the ground – a process known as “fracking”. In this case we really can have our cake and eat it too: everybody should be happy.

But they’re not. Environmentalist groups have condemned fracking, on largely spurious grounds. Indeed, many were for it before they realised that it was an alternative to renewable energy, not a suppliment. Why? Because many in the environmentalist movement, particularly the more politically active ones, are more interested in controlling people's lives than in promoting a “clean” atmosphere. They are the new puritans, who want us to live "good" lives instead of rewarding ones. As a consequence, heavy-handed environmental regulations are making shale gas unviable in Britain. This needs to change so we aren't left behind.

Shale gas is a get-out clause for people who want cheap and clean energy, but it doesn't include the lifestyle changes that hardcore environmentalists want us to make. This is a point that’s been made plenty of times before. But the environmentalist movement's ludicrous opposition to shale gas exploitation underlines its true aims. Many of them don’t really care about the environment, they care about pushing people around. What a shame that, for political expediency, they’re being allowed to.

Subsidies for renewable energy could drown private enterprise

In a recent report (PDF) published by RenewableUK and Energy & Utility Skills, the authors suggest that the wind and marine energy industries have the potential to contribute heavily to job creation given that a correct policy and legislative framework is implemented. Although this is an encouraging message, we ought to study the lessons to be learned from Denmark, the once so promising first mover in renewable energy.

Three market development scenarios, measured by the extent of deployment of wind and marine energy, are set out in the report. By 2021, the low growth scenario envisages the support of 44,000 jobs, medium growth is anticipated to result in the creation of 67,200 jobs, and high growth may well create 115,000 jobs, most of which require a particularly skilled workforce. These numbers account for full-time employees whose jobs are directly or indirectly (i.e. in the supply chain) created by the growth of these industries. For this growth to be possible, however, the authors call for substantial investments in the workforce in order to facilitate the provision of much needed skills.

If this growth, partly at least, relies on government involvement, we must be aware of the achievements and failures of foreign governments. In 2009, CEPOS, an independent Danish think tank, dared to slaughter a sacred cow when it commissioned a report (PDF) on wind energy in Denmark. The main argument of the report is that the successes of Danish wind energy are heavily overstated. More specifically, the use of government subsidies to support the development of wind energy has merely detracted labour from other sectors, and Denmark will as a result fail to observe a net increase in employment in the long run.

If the figures below are correct, CEPOS has certainly highlighted an important issue in policy-making in this specific area:

Allowing for the theoretical possibility of wind employment alleviating possible regional pockets of high unemployment, a very optimistic ballpark estimate of net real job creation is 10% of total employment in the sector. In this case the subsidy per job created is 600,000- 900,000 DKK per year ($90,000-140,000). This subsidy constitutes around 175-250% of the average pay per worker in the Danish manufacturing industry.

In terms of value added per employee, the energy technology sector over the period 1999-2006 underperformed by as much as 13% compared with the industrial average.

This implies that the effect of the government subsidy has been to shift employment from more productive employment in other sectors to less productive employment in the wind industry. As a consequence, Danish GDP is approximately 1.8 billion DKK ($270 million) lower than it would have been if the wind sector work force was employed elsewhere. [Emphasis mine]

Thus, had the market forces been allowed to function freely, the resources could have been used more efficiently elsewhere. It should be mentioned that the authors of the report published by RenewableUK and Energy & Utility Skills emphasise the promotion of incentives for private sector investment in wind and marine energy industries. Whilst this is essential, there is a risk that private sector initiative will drown in government subsidies. The politicians should indeed allow the wind and marine energy industries to flourish, but let us not accept an unwise use of subsidies that is bound to destroy the long-run potential.

Is Britain's energy policy prescribed by Germany and France?

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Whilst the issue of UK energy policy elicits many strong – and often countervailing – views, there is one genuine constant, namely the widespread belief in a mixed energy policy. Of course, there are polarising opinions as to whether such a policy should embrace nuclear power.

Aside from the nuclear issue, the broad adoption of market principles, following privatisation some 20 years ago, has been generally beneficial, despite the sharp rise in energy prices of late – due to higher gas input costs.

However, in recent years, the energy market has been adversely impacted by a raft of outside influences – ranging from EU targets to seemingly endless energy subsidies – which have seriously distorted market principles.

To what extent this policy is pursued in the forthcoming Energy White Paper, due to be published very shortly, remains to be seen; its prime aim will be to kick-start new nuclear-build. The reality, though, is that the White Paper is reacting to energy events, mainly in Germany and France. The German Government recently executed a massive U-turn whereby all its nuclear plants are due to close by 2022.

Moreover, RWE, one of German’s two leading energy players, is rumoured to be selling its UK Npower operations. Its participation in the Horizon consortium with E.On to build new nuclear plants in the UK looks doomed.

China and the West

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The visit of the Chinese premier Wen Jiabao to the UK this week naturally makes one ponder the role of China in the world economy. After years of China selling us cheap clothing and electronics, British and American consumers are getting used to paying a lot more for their imports as their currencies slide gracefully towards oblivion, thanks to quantitative easing. In China, meanwhile, the expansion of the cities and the movement of people off the land is turning the economy more middle class – more interested to supply its own needs rather than be cheap producers for the rest of the world.

British and, particularly, American influence in world affairs has been given a knock by the financial crisis. China was already catching up fast, in terms of overall GDP at least, if not per-capita. The crisis is just hastening the eclipse of the West. The old G8 hardly matters these days, it is the G20 that pushes the world economic agenda. Indeed, the emerging economies of Brazil, Russia, India, China, Mexico, Indonesia and Turkey are becoming a power in themselves. And Europe is of course embroiled in its own crisis, thanks not so much to the banking crisis as to the inconsistencies of the single currency.

On the other hand, the West's self-inflicted hurt is not really good news for China. It has its own problems. Its decades-long manipulation of the exchange rate has produced a lot of them. Inflation is alarmingly high. Growth has slowed as China's customers, like America, have been spending less. Commodity prices are rising again as other parts of the world recover. It has a terrible demographic problems, with its ageing population and one-child policy. And when you go to China and see millions of them jabbering into their mobile phones, you wonder how the central administrators in Beijing think they can resist the rise of democracy. Sure, China is growing, more of its population are being taken out of poverty, its muscle in world affairs is getting stronger. But it would be a lot stronger still if it maintained more sensible economic policies, rather than its politicians thinking that they can defy economic laws of gravity. If China really goes capitalist, we had better all watch out.

Could regulation squash the UK's shale gas potential?

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Back in 1859, the self-styled Colonel Drake famously struck oil in Titusville, Pennsylvania and, in effect, laid the foundations for the global oil industry. A similar hype is now being accorded to energy’s latest wonder weapon, shale gas, which has boomed of late in the southern states of the US. The Barnett Shale site in the Fort Worth Basin in Texas was the first to be developed. Just a decade later, the Barnett Shale field accounts for 5% of the US’s natural gas supply. Crucially, the arrival of shale gas has both depressed US gas prices and apparently broken – temporarily at least – the long-term relationship between international oil and gas prices.

Estimated US and EU shale gas reserves are massive, although the level of recoverable reserves is far more questionable. Nonetheless, against this background, it would suggest that the many concerns about EU energy security – long-term gas price supplies and prices, serious delays in developing carbon capture technology, nuclear generation costs as well fears and expensive renewables - could be readily overcome. But many environmentalists harbour serious concerns about shale gas’ ‘fracking’ technology and its impact on the water table.

However, developing shale gas in Europe has particular challenges compared with the US. Less favourable geology, differing sub-soil property ownership laws, less experience in ‘wild-catting’ technology, less attractive tax regimes and tighter environmental legislation all argue against a straightforward read-over from the US experience. In the UK, following two minor earthquakes in the Blackpool area, where it has recently been drilling for shale gas deposits, Cuadrilla Resources has now suspended its operations there.

In short, despite its popularity and rise in the US, it is unlikely that the development of shale gas will transform the mainland European energy scene – with all its vested interests – over the next decade. Without serious regulatory reform, the scenario in the UK is unlikely to be any different.

Statism killed the cats

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It’s impossible to find out how many tigers are left in India’s state owned tiger reserves. The estimates for individual reserves are not available beyond 2001/02. The lack in transparency serves to hide the fiasco of state-run animal protection.

In 1973 the Indian government set up Project Tiger, which initially covered nine tiger reserves. Now an increased number of reserves cover 1.14% of the land in India. Year-on-year increases in the tiger population were reported – until an independent study in 2008 (PDF) found that the figures had been fiddled by Field Directors to obtain more state subsidies. The estimates were reduced by some 60%. In some cases the reported increases had not even been biologically possible. It is now thought that tiger numbers have dramatically fallen in the last thirty-five years.

The report must have caused some consternation in government ranks. Now, even falsified figures are no longer available. We are left guessing how many tigers there are actually left from the 82 in Bandirpur National Park, the 137 in Corbett National Park, etc.

Dense fog is used to deflect from state failure. From the individual reserves estimates, Project Tiger switched to province-wide estimates, making any comparison impossible. Even respected tourist guidebooks such as Lonely Planet base tiger figures on the 2001 estimates (discredited in the 2008 study), or say nothing at all (which feels odd if you try to find which reserve to visit).

‘Anything but tiger numbers’ is the order of the day’: Project Tiger’s 2009’s ‘scientific assessment of the state of tiger reserves’ merely distinguishes between ‘low’ and ‘good’ tiger density. Independent scientific research is not allowed. Even if permission is granted, thousands of hurdles are thrown in the way; many end up having court cases brought against them, and some are even accused of killing the animals.

Project Tiger is a basket case of failing state enterprise and vested interests. Its website tells us a lot about budget outlays, steering committees, central assistance, and Five Year Plans – but very little about the actual tiger number increase (absolute number increases are alleged but the territory was increased too, so one cannot compare). For some insight in the levels of bureaucracy between the Minister and the Field Worker, click here. The whole project was paid for by the Indian government and the Indian states, with grants from some other organisations, including the World Wildlife Fund. Some side projects, such as the India Eco Development Project, were partly paid for by you, through the World Bank. For some light entertainment regarding the bureaucratic organisation of eco-conservation, click here (scroll to Implementation Mechanism).

Apart from the imposition of smoke screens, nothing has changed. The Project Tiger website continues to state that “it is one of our most successful conservation ventures in modern times”. One wonders what the failing ones are like.

And yet there are alternatives. Botswana, South Africa, Costa Rica (JSTOR link), and many others have been tremendously successful with the introduction of private wildlife concessions. Linked to ecotourism (PDF), private concessions can deliver income far beyond the potential gain from poaching; it allows paying for game wardens and maintenance; and the wildlife tends to flourish.

But for that to happen in India, statist dogma needs to be culled first.

And now Greenpeace is writing the IPCC reports

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As regulars will know, I'm generally in agreement that climate change is happening and that we might want to do something about it. However, as said regulars will also know, I disagree vehemently with the generaly received wisdom of what we ought to be doing about it. Stick on a carbon tax and let the markets sort it out, forget all of this planning, targetting and picking technological winners.

My deeps and abiding suspicion of what we are told we ought to be doing seems vindicated. For it turns out that WG3 (in the tangled jargon of the IPCC reports, the "what we ought to be doing" bit) has actually been written by Greenpeace.

No, really: "New IPCC error: renewables report conclusion was dictated by Greenpeace" and that's from Mark Lynas, the bloke who wrote a whole book about how we'll all boil when it's 6 degrees hotter.

It's worse than that actually. Greenpeace and the people who make all the windmills and the solar cells and the.....they wrote the report. What was presented as an impartial, based upon the best science, report was in fact a lightly warmed over report from eco-loons and those who sell the purported "solution".

You may recall a month or so back stories telling us that renewables will be able to power our civilisation and so it's all going to be alright? Yes, it's that report. And no, it's not just that the nutters were asked to write it. There's a much larger problem as well.

For what was released a month ago was just the "summary for policymakers". What wasn't released until just this week was the actual report. It's only now that we can see who wrote it. Further, it's only now that we can see the mindgarglingly stupid assumptions that underlie it. For a start their assumption is that in 39 years time, a world more than twice as rich as it is now, with another 30% odd rise in population, is going to be using less energy than we do now.

Another particular joy was: "That study also assumes rapid technological progress in renewables and none in fossil fuels." This is insane. Not just that we'd obviously assume at least some improvement in fossil technologies: perhaps equal to the sort we've had in the past 39 years maybe. But that it doesn't even make sense as a sentence. If we've two competing ways of doing something, two technologies, then we know absolutely that changes in one are going to spark changes in the other. At minimum, rapid advances in renewables will make fossil fuels cheaper as demand for them falls.

My personal opinion is that this whole process has become so corrupted that it's just not viable any more. No, not the basic physics of what happens when you pump more CO2 into the atmosphere, but what we do about it. We need to fire them all and hire some new people. Those who understand basic economics perhaps, technological cycles, the capital cycle, possibly even those who grasp the powers of markets and the innovations that us curious shaved monkeys are capable of.

Why, yes I am free (but expensive), why do you ask?