Why the Green New Deal won't work

I'm sure you've all heard about the Green New Deal. It's the idea that we'll just print a load more new money then spend it on lovely things like building green houses, lagging and insulating those that already exist and by doing so we'll create lots of high paid jobs and boost the economy. Plus, of course, reduce CO2 emissions.

I'm afraid it's not going to work though:

At the beginning of the year, Ian Hodgkinson's main aim was to keep his business alive. But in the last four months he has gone from ticking over to overwhelmed. His bricklaying firm has been inundated with demands as Britain's building industry has begun to boom, boosted by the government's Help to Buy scheme for first-time house buyers. The scheme, announced in April, has started a chain reaction that has seen the construction industry facing labour and materials shortages that have pushed up prices and lengthened supply delays. Bricklayers can now earn more than £40,000 a year and brick deliveries that were being fulfilled in two days can now take 10 weeks.

The reason it won't work is that we don't have the skilled labour nor the production infrastructure to make it work. Boost housebuilding/repairing beyond what it is now and all we'll end up doing is sucking in more immigrants and more imports. Not that there's anything wrong with more of either but pumping yet more stimulus into a sector already overstretched is not one of the wisest ideas around. Indeed, good Keynesian demand management would indicate that a sector so stretched should probably have a bit of fiscal austerity applied, not stimulus.

Will Hutton's very strange thoughts on climate change

Apparently we free marketeers are almost entirely responsible for the fact that Flipper is going to boil in the coming end of times. It's all our fault that not enough is being done about climate change.

However, it will be met by a barrage of criticism from the new "sceptical" environmental movement – almost entirely on the political right – which, while conceding that global temperatures are rising, insists that there is still insufficient scientific proof to make alarmist predictions. There is certainly no need for governments to tax and regulate the burning of fossil fuels, or subsidise renewables, or come to "freedom-denying" international agreements. Economic growth, technology and the magic of human adaptation through tried and tested market mechanisms will see civilisation through what is already an over-hyped crisis.

With one slight proviso that is indeed what we argue. It's happening but it's unlkiely to be catastrophic. Economic growth and technology will indeed be the way out of it. And market mechanisms are going to be vitally important in ensuring this happens.

But this does not put us out on some extremist wing of the argumentation: the reason we support such things is because they are the scientific consensus on what to do about climate change.

The markets, economic growth and technology thing comes from the Special Report on Emissions Scenarios, the foundational economics study upon which the entirety of the IPCC process is built. It's very clear indeed that the globalised scenarios are better than the not globalised (lower population, a richer population and lower emissions). Further, it's equally obvious that a free market/capitalist society produces a better outcome (lower population, a richer population and lower emissions).

The one proviso is that we (or at least I) do agree with taxation of carbon emissions. They are an externality, externalities should have Pigou taxes applied to htem. We even have a very large report called the Stern Review that is supposed to guide our actions in this matter. And that Stern Review says apply a carbon tax of $80 per tonne CO2-e. Which is largely what we already do here in the UK.

Free market globalised capitalism with a carbon tax. That's what this "political rightist" thinks should happen. And the amazing thing is that this particular solution is boringly mainstream, it's actually the considered scientific consensus.

Parliament goes hostile on climate change

Parliament’s cushy consensus over climate change is dead. In 2008, when the Climate Change Bill had its third reading in the Commons, only five MPs voted against. But with doomsday predictions failing to materialize, and the planet failing to warm, MPs are starting to get more skeptical.

On Tuesday, in a Commons Westminster Hall debate, the room was overwhelmingly hostile to the Act. One of those MPs who voted for it, David TC Davies, says that the evidence has made him change his mind:

I am sorry that I was not a member of the famous five who voted against the Act in 2008, but I hope I will now do something to put that right. I must confess that I was one of those who accepted the arguments that were made—I supported the Act when it was passed... I contend that, given what we now know about climate science, we have a strong argument for reconsidering the Act with a view to either revoking it completely or drastically amending it.

While the “famous five” in 2008 were exclusively Conservative, hostility to climate alarmists’ claims now crosses the political divide.  Graham Stringer, a Labour MP, attacked some of the most notable “science” behind climate change legislation. He quoted Lord Oxburgh’s Independent Panel on the Climategate scandal that found that methodology used was “turning centuries of science on its head” and was not replicable. Mr Stringer said that what had happened “was not science but writing narrative”.

Sammy Wilson, a DUP politician, attacked the excessive costs that the Climate Change Act is imposing on consumers and business. “All reason and self-critical analysis go out of the window when people address this subject,” he said.

Peter Lilley called for the Act to be scrapped, to much vocal support:

The Act is not just the most expensive, impractically ambitious and uncertainly based piece of legislation that I have ever known; it is unique in being legally binding and unilateral. No other country has followed us down that route. Since we went down that route, Canada and Japan have resiled from Kyoto, and Australia has just abandoned its carbon tax. It is time we looked critically at the Act, repealed or revised it, and do not allow ourselves to be slavishly, legally bound to continue doing something that no longer accords with the evidence or goes along with what the rest of the world is doing.

But one MP, Alan Whitehead, seemed flabbergasted by the views of his Parliamentary colleagues. “I really do not know where to start…”

“That’s cos you’ve been stuffed!” interjected Tory Philip Davies, to widespread amusement.

Forgive them Lord for they know not what they do

The fruitcakes over at the Green New Deal have another report out today. It's the usual thing, print more money to spend on the things that we like and damn the rest of us. But I did find this little snippet interesting:

“Germany already has twice as many people employed in the renewables sector than in all other energy sectors combined. An estimated 387,000 jobs had been created in the renewables sector in Germany by 2011, far more than the total 182,000 people working in all other energy sectors. By 2020, more than 600,000 people are expected to work in the renewables sector – roughly as many as are currently employed in the automotive industry."

They fail to understand that of course jobs are a cost, not a benefit, of doing something. Yes, jobs are even a cost to the workers: that's why we have to bribe them with real cash money to do them.

We do of course like the things that are produced by people working but we'd much rather have those things with fewer people having to be bribed to get out of bed in the morning. For example, in Germany they have 387,000 people producing some 25% of the electricity and 182,000 producing 75% of it. It would clearly be a good idea if those working on renewables were as productive as those in the other energy sectors. If they were, then 25% of the country's electricity could be produced using only 60,000 workers instead of 387,000: leaving rather a lot of people to go an do something else, find the cure for cancer or tend to elderly.

But our green loons will no doubt dismiss this simple economic reality as just neoliberalism. For they really do see to think that jobs are a benefit of their schemes. So much so that they provide an appendix detailing how many jobs will be created by their plants. I suppose we should forgive them, after we've corrected them of course, but they really do seem to believe that their listing of jobs created is a benefit of their plans, rather than what it is, a guide to the rest of us about how expensive said plans are.

Why we really do want to abolish solar power subsidies

Long time readers will recognise the skeleton of this argument: that solar power is becoming ever cheaper really very quickly. Whichis exactly why we should immediately abolish all and any subsidies for it.

That solar power is becoming cheaper very quickly is obviously true: but it's also true that the general engineering opinion is that it's goint to continue to do so and that it will soon be cheaper than coal produced 'leccie from the grid:

He says the key to making solar panels competitive — whether in the United States, China, or elsewhere — is to bring the cost of installed panels to a level competitive with the current cost of electricity from the grid, without subsidies or tax benefits. Once that goal is achieved — which the researchers estimate will likely occur by the end of the decade — then much larger PV factories will become economically viable worldwide. “This common goal, which can benefit all nations, is an opportunity for international cooperation that harnesses our complementary strengths,” Buonassisi says. Improvements under way in every step of the PV manufacturing process — from thinner silicon wafers to greater cell efficiency to better ways of mounting the cells in a panel — could end up making them highly competitive with other sources of power, Buonassisi says. “Today’s technology is not quite there yet,” he says, but adds, “We could be hitting grid-competitive costs … within the next few years,” which could lead to a surge in installations.

That's just excellent, of course. Cheaper power for all is something to be desired not rejected simply because the current supporters of the technology are ageing hippies. Admittedly, it's a close run thing but that cheaper power does outweigh the hippies thing.

At which point the hippies leap up and shout that it's the subsidies that make solar cheaper so we must continue them. Something which fails on two grounds. The first being that I'm afraid industry doesn't work like that, it doesn't turn on a thruppeny bit. The solar industry has built up a sufficient head of steam that it's going to get there whatever the current level of subsidy: thus we don't need to pay it any more to get to the desired goal.

But the much more important point is that the existence of price efficient solar cells is rather like a public good. Assume that it does become gloriously cheap: no one is not going to sell it to us here in England just because we're English or anything. Quite the contrary, they'll be falling over themselves in order to take our money. Which means that we, the English, can simply stop subsidising solar power in England. We'll wait thanks, wait for that decade or less, then we'll buy the cheap and efficient cells and install them.

Normally we think of the public goods problem as being one of preventing free riders. My suggestion here is the opposite of course: that given the similarity to a public good we should position ourselves to be those free riders. Abolish the subsidies now, wait until the prices comes down some more then install them when they are cost effective without subsidy.

What's not to like about this plan?

Comment of the week

The point is that people who contract cancer or heart disease, (which are largely diseases of old age), suffer less than people who suffer the effects of malnutrition and poverty.

From the perspective of our prosperous and comfortable lives in the developed world, pollution-induced diseases seems like a terrible affliction. And they are, relatively speaking.

But from the perspective of somebody living in the developing world, the diseases associated with poverty are even worse, and that is the thing that environmentalists living their comfortable lives in the developed world never seem to get.

However bad you think industry is, the alternative is worse. Despite all those pollutants, when a country industrialises it's life expectancy and general healthiness climbs. That's why the global population increased. And when people without it get the chance to industrialise, they grasp it enthusiastically. We in the developed world have forgotten what pre-industrial poverty was like - thank heavens! - and have a tendency to romanticise it.

As it happens, the biggest health risks from pollution are in the form of water-borne disease - cured by the industrial production and distribution of clean water - and indoor smoke from wood/dung cooking fires - cured by the industrial production and distribution of cheap energy as electricity or gas. Are all the people who contract lung diseases from indoor smoke supposed to just shut up and suffer for the good of the environment?

We need to prioritise our resources on tackling the most pressing problems first, with the best benefit/cost ratio, and then move down the list once those are solved. I agree that we need to do something about the dimwitted claim that we "put profits before people". Trade and markets are about people - they are the way we collectively work together to solve other people's problems, they are about efficiently allocating our limited time and talents to addressing the problems people find most important, and "profit" is simply a statement that the benefit achieved doing something should be worth more than the effort put in. "Profit" is actually a "people" concept - it's opposite is "waste" and is anti-people. 'Waste' is about expending the resources that could have quietly helped a hundred on a (usually more obvious or media-friendly) handful. It is about what is seen and what is not seen. But it is a difficult point to get across.

- Nullius in Verba, commenting on "The environmental Kuznets Curve is alive and well in China"

The environmental Kuznets Curve is alive and well in China

It's a standard trope these days that China is so alarmingly polluted that it's killing off the population in droves. And that might actually be true in part as well. But all that filth is the side effect of people not being killed off in larger droves by the absence of food, shelter or industry.

Which is where the environmental Kuznets Curve comes in. It's a fairly simple idea: when people are just struggling up out of peasant destitution (please do recall, in 1978 China had the same GDP per capita as England in 1600) they don't particularly care about air pollution, water pollution and the rest. They're too focussed on this wonderful new idea of being able to expect three squares a day. As wealth increases then Maslow's heirarchy of needs comes in: OK, so now we've enough to eat, clothes, houses, maybe we ought to do something about that choking black smoke: we'll spend a larger portion of our new wealth on matters environmental that is. The curve is simply constructed from these two points: another way of putting the same thing is to say that matters environmental are a superior good. We're willing to devote a larger portion of our incomes to them the higher our incomes become.

All of which is generally understood but there are those who insist that China's current pollution is something exceptional. Well, no, not really. It's about right for its current level of development actually:

China is broadly right about one thing: its environmental problems do have historical parallels. With the exception of Chongqing, the largest municipality, most Chinese cities are no more polluted than Japan’s were in 1960 (see chart 1). Excluding spikes like that in Beijing this year, air quality is improving at about the same rate as Japan’s did in the 1970s.

And not dissimilar from the UK in the 30 and 40s: something that makes sense given that China's GDP per capita is now about what the UK's was in 1948.

People do indeed want to have a clean environment. But as it happens they also like to eat, have the basics of a bourgeois life, more than they like a clean environment. It's only after those basics have been achieved that we're all willing to spend our still rising income on that green and pleasant land.

Solar power's going to be great: which is why we shouldn't be subsidising it today

I'm a firm believer that all of this climate change thing is going to be solved by the application of human ingenuity. You might call me a Simonite on that point.I'm also absolutely certain that solar power is going to play a large part in that solution. There's just so damn much of it available that it would be near mad insane of us not to use it. At which point my insistence that we should not be subsidising the installation of current solar power is going to seem most odd. However, I refer you to Mike Munger:

In 20 years, solar will be useful, and used. But it's a mistake to spend our money now on an immature and still not well-engineered solar generation system.

I'd argue on the 20 years: it's going to be much sooner than that. Solar power depends upon a variant of Moore's Law (in part, at least, and then further on the efficiency with which silicon metal can be made, something increasing by leaps and bounds as well) and it's getting more efficient faster than most realise. Or more productive perhaps, to bring the falling price of it into play.

The usual argument at this point is that since solar will become efficient at some point in hte near future then we've got to subsidise the installation of it right now. Which is absurd of course: that it will be grid comparable in general (rather than just in specific locations, as now) in the near future is exactly why we shouldn't be offering any subsidiy at all for installation of the current, not efficient, generation. And the closer that near future is the stronger the argument against subsidy. If the next generation of solar, available in, say, 2015, will be cheaper than coal (a claim some make although I'm not sure it will be that quick) then why one Earth would we waste money installing not efficient solar in 2014?

Save the money and install the efficient stuff in 2015. This is true whatever your timescale for solar becoming efficient is. The more anyone insists that it will become efficient the more they ought to be arguing against the subsidy of the installation of the current generation of inefficient solar.

Subsidy for development, for R&D work, that's different, with a different set of arguments. But subsidy for the current installation, for 25 years of subsidy through feed in tariffs, when we're all also arguing that unsubsidised efficient kit will be available in 2 or 5 years, is simply ridiculous. Wait and install the good stuff instead of littering the countryside with the current bad kit.

About the effect of the UK's shale gas on prices

I find myself entirely jaws agape at one of the arguments being used against the exploitation of shale gas in the UK. Roughly expressed here it's that because it won't move prices very much then we shouldn't bother to do it.

The heart of the argument is that because we're all tied into the Great European Gas Market then whatever amount of shale we drill up in the UK will only be a small part of the GEGM. Stuff that comes up from under Blackpool will be piped off to Lodz for example, and thus prices really won't move very much. Something which I'm perfectly willing to believe by the way: the addition of a small amount of marginal supply to a vast market won't in fact move prices very much. Indeed, there's one report out there (by Poryry) that states it will move prices by only 4%.

4% isn't worth it so let's not frack our Green and Pleasant land then.

Leave aside the technical arguments (about LNG, pipeline capacity etc) about why this might not be entirely true. Think instead about what the basic statement being made here is.

They're actually saying that all gas in Europe, for all European consumers, will be 4% lower as a result of fracking Lancashire. That's 500 million people save 4% of their power bills (yes, the reports do indeed say that electricity will be cheaper as well given the use of gas to generate it).

Let's, very roughly, try to work this out. 500 million people is perhaps 150 million households. A UK duel fuel bill for a household for a year is £1,200 or so I believe. 4% of that is £50. Yes, many estimations in those numbers. But lowering gas prices for all European households thus saves those households some £7,500,000,000 a year. That's real money even when talking about things governmental.

Fracking Lancashire makes the households of Europe £7.5 billion better off.

Per year.

A little bit of money saved by lots of people is lots of money.

Now, the only counter-argument to this is that in fact the gas we frack won't be perfectly transportable and substituitable for the domestic supplies of Naples, Wroslaw and Lisbon. Which is also something I'm prepared to believe. In which case that tiny marginal addition to supply for all of Europe becomes a much larger additional supply to that part of Europe (say, perhaps, the UK alone) where gas really is perfectly transportable and substituitable. And a larger additional supply relative to market size will drive down prices further.

This is why I'm jaws agape. Their argument is either that lots of people will benefit a bit or that few people will benefit a lot. Either way, it's billions in benefit. This is an argument being used against fracking?

The supermarkets are killing off the independent petrol stations

A complaint from the independent petrol retailers that those dastardly supermarkets are killing off their business. Which I'm sure they are, opening larger stations, selling fuel at cost and so on. Given that this benefits the consumer long may it continue as well. I don't insist that they should not be allowed to complain about this: that's what trade associations are for. To push the interests of their members, just as unions do for their. Only that we don't have to pay all that much attention to such special pleading. However, they make one complaint that is worthy of closer examination. The supermarkets turn over their fuel faster (this being part of why they are more efficient) and this means that there's less stock actually on the forecourts of the country.

Based on the report, the Government concluded that "in the event of a total disruption to petrol and diesel supplies the retail sector holds up to eight days of fuel capacity to meet current demand". But the PRA was already highly critical of the Government's "grossly misleading" conclusions – even before it discovered it had understated the supermarkets' share of the market. Mr Madderson said DECC had misunderstood how the market works: "They are saying we have eight days capacity. In our view it's two to four days, especially if the supermarkets have a bigger market share than we thought."

Is this a problem? I don't know. Certainly I think I'd be slightly worried if I thought that the country had only 30 minutes of fuel on forecourts. What is the right number is I think is a matter of opinion not one of fact. I'd also posit that something that entirely stops the flow of fuel completely for more than two days is probably something that means we've got larger problems than whether we can drive to the shops.

But what interests me here is the other side of this story. So, let us agree, there is only 3 day's supply at the stations, not the 8 everyone thought. What's the implication of that?

Annual road transport usage of fuel seems to be around 40 million tonnes. 5 day's worth of that is some 500k tonnes, or in litres (assuming petrol is equal in density to water, which is close enough) and at a price of £1.35 a litre, that's some £675 million.

That is, in order to support the road transport system, supply it with fuel, this reduction in the stocks has led to that £675 million's worth of fuel not just sitting around in the system. The capital requirements to support the stocks in the system have therefore declined by exactly that £675 million. If you prefer, the amount of capital that has to be allocated to the transport fuel system has declined by that sum, a sum that can now be used to go off and do something more useful or interesting. Say, finding a cure for Simon Cowell (or is that a cure to Simon Cowell?).

And that's what I think is the interesting point here. OK, maybe 3 day's supply of fuel isn't enough, maybe it is. But there's always another side to these things. In this case, to insist that 8 days is available, someone, somewhere, has to find £675 million to finance that stock. I agree that it is possible that, in extremis, not having the fuel there could cause us all damage. But how much should we all be paying to make sure that greater supply is there? What is, if you like, the insurance premium we should be willing to cough up?

Most importantly, is that insurance premium worth the loss of all the other things we can do with that sum of capital?

As I say up top, I don't know what the correct answer is. But I would insist that this is the right way to consider the question. Increasing stocks at petrol stations might indeed be a nice idea: but it's not costless.