Government bans fracking in 25% of the country

The government has just announced that it's pretty much going to ban fracking for oil and or gas in 25% of the country. This is not actually what they've said, of course not, but it is what they mean. For they're saying that the rules will make fracking in national parks and or areas of outstanding natural beauty much more difficult. To the point that only if a deposit is of great economic importance will drilling be allowed. We might think this is just fine: we'd not drill under Westminster Abbey after all and there might be parts of the country that are simply so beautiful that we wouldn't want anyone to put a couple of shipping containers of equipment behind concealing hedges. That's possible, even if unlikely.

However, the part that people will miss here is quite how much of the country this blocks off. Some 25% of it in fact.

National parks and other areas of important countryside will be protected from fracking, ministers will announce in a move that will head off anger in the Tory heartlands ahead of the election.

While stopping short of a total ban, the Government will unveil new planning guidance to make it harder to drill fracking wells in national parks and areas of outstanding natural beauty.

In a significant concession, the new rules state that fracking should only be allowed in the most precious areas of British countryside in “exceptional circumstances”.

Any will say "Oh, how sensible" to that. But then add in quite how much land this covers. National Parks cover some 10% of the country. Areas of Outstanding Natural Beauty a further 15%. People don't seem to realise quite how much of the country is already being pickled in aspic.

There're very definitely people who don't want us to have access to this lovely cheap energy for whatever reason. Sadly, some of them are currently in government and making the rules.

Sadly, Ed Davey still doesn't understand carbon cap and trade systems

This is something of a pity of course, for not only is he the politician in charge of this area he's also been in charge of it for some years now. You'd rather hope that someone would have clued him into how cap and trade systems work by now but apparently not. Perhaps people have tried and he's not able to grasp it? The problem is that Davey seems to think that a low price for a pollution permit is a bad thing: that because pollution is bad therefore a high price for the right to pollute would be better. This is, of course, the reverse of what is actually true:

The EU cap-and-trade system is the world's largest. By putting a price on every metric ton of carbon emitted and allowing companies to trade allowances, the system enables carbon-reduction targets to be met at the least cost.

But the market currently has a surplus of about 2 billion emission allowances, equivalent to a year’s supply. As a result, carbon prices are at an unhealthy low. So what has gone wrong, and what can we do about it?

Some believe that a weak carbon price benefits business and the economy, but it does not. It undermines the low-carbon investment we need now to meet long-term targets. Ambitious emissions-reduction targets are here to stay, so delaying low-carbon investments just pushes the cost of achieving them later down the line and risks increasing it. It also means losing out on the potential growth and jobs that come with such investments.

Facepalm.

There is no surplus of permits: there's exactly the same number of permits that there were when the politicians set up the system. That many of them are going unused does not mean that pollution is not being reduced: it means that reducing pollution was easier than the politicians thought it was going to be when they set the number of permits. And a low permit price does not mean that people are not working to reduce emissions: it means that it's far cheaper to reduce emissions than we all thought it was going to be.

Davey's simply got the wrong end of the stick here about what prices are telling us. If we were to have a carbon tax then yes, it would be the price which would be what limits emissions. The higher the tax the more emissions would be limited. But prices work the other way around in a cap and trade system. The limit on emissions is the number of permits. Price tells us not how many emissions will be limited but how easy or difficult it is to meet the permit cap. We would all very much prefer emissions permits to cost €0.01 per thousand tonnes CO2 than any thing higher. For it would indicate that reducing emissions is a great deal cheaper than anyone thought it would be.

Aren't we lucky that people attempting to plan our lives can't grasp even the most basic points about how to plan said lives?

What excellent news, risottos are becoming cheaper

There are always those who will complain about delicious food becoming cheaper of course:

Half a century on, the Italian rice industry is suffering badly from foreign competition.

While Italian farmers sell a tonne of home-grown risotto rice for 322 euros, producers in south-east Asia grow it for less than 200 euros a tonne.

Rice producers in the Po and Ticino valleys will organise a week of protests and strikes against the cheap imports, starting on Monday.

“In the first six months of this year, rice coming from Cambodia has been subject to at least one fine every week because of the presence of unauthorised pesticides or the absence of the proper food safety certificates,” said Roberto Moncalvo, the president of Coldiretti, a national farmers’ organisation.

The absence of the proper certificates is, of course, in this modern world, a heinous sin. And that presence of pesticides. Hmm, perhaps that's something to worry about?

Gianmaria Melotti, a rice producer from near Verona, said rice arriving from countries like Cambodia and Burma was devoid of the weevils and grubs that afflicted Italy’s output.

“What are they putting in their rice fields, that they are able to eliminate all these insects? Saving Italian rice means also safeguarding people’s health,” he said.

That's an interesting one to think about really, isn't it? Safeguarding peoples' health these days means ensuring that their rice is not vegetarian.

The answer here is obvious: as Bastiat told us we should always be looking at any and every economic question from he point of view of consumption, the consumer. And here the answer is blindingly obvious. Simply label the two, the imports with may contain pesticides and the Italian with does contain weevils. Let the customer make the choice.

Excellent, so that's climate change entirely sorted then

I take this to be exceedingly good news. Our struggles to contain climate change are entirely over and we can all go back to sleep:

Solar has won. Even if coal were free to burn, power stations couldn't compete

As early as 2018, solar could be economically viable to power big cities. By 2040 over half of all electricity may be generated in the same place it's used. Centralised, coal-fired power is over.

It's true that we don't normally believe The Guardian on matters environmental. But let us just take them seriously here.

As we all know the predictions of future climate change are based upon economic predictions of the future. How many people will there be, how rich will they be and what technologies will they be using to generate the power to create that wealth for that many people. And of the models that are used the one that tells us that we've a serious problem with climate change insists that we'll still be using coal for 50% of our power needs in 2080 or so.

We don't actually have to believe that in order to be able to observe that that is the central point of the alarmist case.

Excellent, so, if no one is going to be using coal in the future then we've not got a problem with climate change, do we?

Do note that this is not to take as being true, nor even seriously, any of the predictions that are being made by anyone. It is, rather, just to point out an important piece of logic. If solar is now, or will be imminently, cheaper than coal so that we all start to use it purely on economic grounds then the problems with climate change are over. For all of the models and predictions insist that we only get major problems if we don't stop using coal.

It cannot be true that solar is wholly (and unsubsidised) competitive, or cheaper, than coal and we still have a problem. Alternatively, it cannot be true that we still have a problem in hte future if we believe what we are being told about the imminent cost competitiveness of solar.

It's an either or thing.

Looking at the true numbers, rather than those provided by the boosters of solar power, it's probably a little early, 2018, to be saying that solar will be truly competitive. But by 2025 (as Bjorn Lomborg has long been saying) it almost certainly will be. Meaning that we don't actually have a problem and that we can indeed all go back to sleep.

The only way that this cannot be true is if solar doesn't become so competitive. In which case we shouldn't be working so hard to install it either, should we?

On the idea of the three day weekend

The idea of reducing the working week raises its head again. This time it's the idea that we should have a three day weekend:

Professor John Ashton, president of the UK Faculty of Public Health, caused a stir this week by advocating a four-day working week. This would improve our mental and physical health, reduce stress and we would all "enjoy ourselves more".

One reason to bring in a four-day week is that we work the longest hours in Europe.

Sadly this is not true, we do not work the longest hours in Europe. We might work quite long hours at paid, market, work this is true. But in return we do rather less unpaid, household, labour. The net effect of this is that we have more leisure hours than much of Europe does.

And there's a good reason why this is so too: the division and specialisation of labour.By doing market work we are able to do that dividing and specialisation which, as Adam Smith pointed out, allows there to be greater productivity. Household labour can generally only be divided between the two adults in a household: obviously less efficient than being able to divide and specialise with the 7 billion in the global economy.

By organising ourselves so that we do more market work and then purchase in more of that household labour (in the form of drip dry shirts, washing machines, vacuum cleaners, microwaves, prepared food and so on) we are thus able to have a higher standard of living while also enjoying more leisure.

We have also been doing more of this as the decades pass. Leisure hours continue to rise as household labour hours drop away.

But let's imagine that we really do want to increase the days spent in leisure as a matter of public policy rather than as a matter of personal choice. The obvious solution is to nationalise the power industry again, put the unions in charge of it and then get Heath back into No 10. We all had four day weekends back then and that worked out really well, didn't it?

How not to read a report, brought to you by Geoffrey Lean

A lovely example of how to propagandise rather than actually report from our Geoffrey Lean over at the Telegraph. Things are terrible and only going to get worse, of course:

Ours is the first generation than can largely take plentiful, cheap food for granted. Now, report after report is suggesting it may also be the last.

Two days ago, a Ministry of Defence study of “global strategic trends” raised the spectre of global demand outstripping supply over the next 30 years. And two days earlier, a Commons committee warned that Britain’s own food security is imperilled.

Prices have been rising twice as fast as general inflation and appear to be accelerating. The MoD report suggests that they could eventually settle at twice their present level.

That's not, quite, what the report actually says. What it does say is this:

By 2045, food production is predicted to have increased by nearly 70%, to feed a larger and more demanding population13 – and it is possible that demand could outstrip supply. Some types of consumption are likely to grow particularly strongly. As affluence grows in the developing world, the demand for more protein-rich diets is also likely to increase. China, for example, has seen meat consumption increase by 63% between 1985 and 2009, and this trend seems likely to continue.14 Pollution and soil erosion are likely to adversely affect agricultural land – some estimates assess that, globally, as much as 25% of agricultural land is already degraded.15 Climate change will almost certainly have adverse effects on some agriculture, but may open up new areas for cultivation, with positive impacts on particular crops in certain regions. On balance, even though the quality of some areas is likely to have been degraded by 2045, the global arable land area is projected to remain relatively constant (estimates range from a 10% decrease to a 25% increase),16 with some potential increases in crop productivity in the high latitudes, and decreases across the tropical regions.17 Furthermore, warming, acidification and overfishing also threaten to reduce the amount of food that can be harvested from the oceans. Estimates of future food prices are highly varied and may be more volatile, although most projections indicate a general increase.18 Analysis by the International Food Policy Research Institute suggests that average prices of many staple grains could rise by 30% even in the most optimistic scenario.19 Disruption, and possibly congestion, of global trade routes may lead to sharp increases in food prices – particularly in those countries dependent on food imports. When the effects of climate change are taken into account, the price increase above present levels could be as much as 100%.

And when we go and look at that source report we find something very interesting.

If climate change is bad and population growth is high then the price of maize "might" rise by 100% in real terms (ie, after the effects of general inflation). Note, not "food" but "maize". The price, even in this worst scenario, of wheat might move by 30%.

However, note also one of the drivers of that food price rise: that people are getting richer and thus are able to have (ie, there is effective demand for) a richer and more varied diet. And whether food is "cheap" or not rather depends upon both the price of food and also the incomes of those trying to purchase said food. And even in that worst case scenario the incomes of the poor of the world (obviously, the people we're actually concerned about here, the change in the price of maize is going to make near no difference at all to rich world people like ourselves. Tuppence on a pack of cornflakes is too trivial to worry about for us.) rise faster than the price even of maize over the 2000 to 2050 time period being studied.

That is, yes, food rises in price but it also becomes cheaper, more affordable.

It makes sense that the MoD found this, that the original report found this, for it is also the same result Oxfam has found. Precisely because it is not a "shortage" of food, nor climate change, that is the major driver of future food price increases. Rather, it's that the poor will be getting rich and be gaining access to that petit bourgeois pleasure of three squares a day, some of them even with a little meat in them.

This is a problem, if you want to describe it as a problem, of the great success of the neoliberal, globalised, world economic order. Finally, for the first time since the invention of agriculture, the poor are able to eat well. This pushes up food prices, sure, but only and exactly because food is becoming more affordable for all.

We find it very difficult indeed to describe this as something we ought to worry about. More an occasion to get out the bunting and the flags really, time perhaps for Breughel-like scenes of the yeomanry feasting and drinking as we celebrate the good fortune of billions of our fellows.

Another bonkers regulation from the EU again

It appears that the European Union is about to foist upon us yet another near insane regulation:

Worse still, after a decade and more of needlessly increasing the cost of waste disposal, to the detriment of other public services, the European Commission has today produced a new legislative proposal which takes us into altogether new territory.

According to its press release, it plans to set a new target for recycling, requiring 70 percent of all municipal waste and 80 percent of packaging waste to be recycled by 2030, and totally to ban the landfill of recyclable waste by 2025, aiming "to virtually eliminate landfill" by 2030. At most, it will accept an irreducible minimum of five percent of waste, that cannot be recycled.

The institution seems to be in the grip of the misapprehension that more recycling is, in and of itself, a good thing. This is incorrect.

Some recycling is obviously and clearly a good thing: you can tell this because you make a profit by doing it. Melting down old cars to make new ones, collecting copper scrap, smelting old gold fillings to make new ones (yes, it does indeed happen) make profits. This is an indication that the activity itself has added value: we are all richer as a result of this having been done.

There are also things that it would be insane to try to recycle. It's technically feasible, if you expend enough energy, to turn concrete back into cement. But it would be absurd to do so: better to bake some more cement.

Then there's a third class: things that are not profitable to recycle themselves but which we would like to for other reasons. It's not profitable to recycle most radioactive material but we'd also rather not have it lying around the countryside. Thus recycling it, even at a direct loss, might be a good idea for those more general reasons.

It's important to have these three types in mind. In terms of household and general waste, recycling the metals in them does make sense financially and so they come under that first type. And it's possible to argue that all of the other waste should be recycled for that second reason. We're running out of landfill for example, or we're running out of "resources" with which to make new stuff. But neither of those things is actually true. We've no shortage of suitable holes in the ground only of ones that anyone will licence. And there is no general shortage of "resources" at all. And, given that magic of markets thing, those that are in short supply are already in that first type of things worth recycling as their price is high.

We thus end up, as a result of the zealotry of some in the political system, with regulations like these new ones. Using incorrect type 3 arguments to force us into type 2 recycling, the type that makes us all poorer.

Five intriguing papers I discovered this week II

As the second in a series, here are summaries of five interesting journal articles I read in the last week. All of these ones are new, although that may not always be the case. 1. "Very Long-Run Discount Rates" by Stefano Giglio, Matteo Maggiori and Johannes Stroebel

Giglio et al. use the difference between the prices of leasehold and freehold properties in the UK and Singapore to compute long-run discount rates. They find that over 100 years, the discount rate is 2.6%—whereas properties with 700-year or longer leases trade at par with freeholds. They point out that this 2.6% discount rate may have implications for climate change policy; the famous and influential Stern Review recommended using a 0% discount rate, which may justify much more extensive anti-CO2 measures now. Some slides explaining their findings are available here.

2. "Is the stock market just a side show? Evidence from a structural reform" by Murillo Campello, Rafael P. Ribas, and Albert Wang

Campello et al. look at a 2005 reform that, in a staggered 16-month basis and after a trial, allowed $400bn worth of Chinese equity, previously untradable, to be bought and sold. Using "wrinkles" in the roll out that provide quasi-experimental tests, they find that firm profitability, productivity, investment and value all improved substantially. "Policies that ease restrictions on [capital] markets may have positive effects" runs the final line of their conclusion—quelle surprise!

3. "Social security programs and retirement around the world: Disability insurance programs and retirement" by Courtney Coile, Kevin S. Milligan and David A. Wise

These three authors add to the burgeoning literature proving that those on the edge of retirement respond to incentives just like anyone else. This shouldn't really be a surprise, but the heavy flow of publications adding evidence in this direction suggests that maybe there was once a bizarre consensus in the other direction. Coile et al. show that delaying eligibility to pensions, increasing the stringency of disability insurance programs, and other welfare reforms for older people have "very large" effects on how much labour they decide to supply. Not exactly shocking, but certainly important in ageing societies.

4. "What Happens When Employers are Free to Discriminate? Evidence from the English Barclays Premier Fantasy Football League" by Alex Bryson and Arnaud Chevalier

In this nifty and quirky paper the authors try and isolate "taste-based" racial discrimination, by looking if fantasy football players pick footballers differently based on their race, controlling for "productivity" (i.e. their expected points tally). They find no evidence of taste-based discrimination here, suggesting that much of the apparent discrimination found in other studies (e.g. studies of fake CVs where different ethnicities see different acceptance rates even when they have similar qualifications and experience) could be statistical. That is, since employers cannot directly observe productivity (unlike in fantasy football), and since different ethnicities have different productivity distributions, certain ethnicities are on average less valuable to employers. Of course, it might be that people exercise taste-based discrimination as well when they have to interact regularly with the group/race/ethnicity in question—fantasy football is much more at arms length.

5. "The Role of Publicly Provided Electricity in Economic Development: The Experience of the Tennessee Valley Authority, 1929–1955" by Carl Kitchens (ungated)

The most fun kind of research to read is one that confirms a niggling view you've had for a while, but one that nevertheless overturns a happy consensus. The Tennessee Valley Authority is a classic example of "enlightened" central planning, targeting a hard-up area with massive coordinated infrastructural investment and widely believed to have delivered substantial benefits. But if these dams and systems were really such good investments wouldn't private companies have got around all the barriers to such an investment already? There are some cases where I suppose that sort of basic argument doesn't hold, but it's a pretty good first approach to any area, and it turns out the TVA is one of them. Kitchens newly-published paper finds "that the development of the TVA during its first 30 years did not cause manufacturing, retail sales per capita or electrification to grow any faster in areas receiving TVA electricity than in other areas in the Southeast."

Markets are the way to beat climate change

So we've been treated to the latest installment of climate science from the IPCC. And as they say, it's vitally important that we have well functioning markets to deal with this. Of course, we need well functioning markets to deal with anything but here, right from the horses mouth (in Chapter 10, here) is what they say about markets:

Well-functioning markets provide an additional mechanism for adaptation and thus tend to reduce negative impacts and increase positive ones for any specific sector or country (high agreement, medium evidence). The impacts of climate on one sector of the economy of one country in turn affect other sectors and other countries though product and input markets. Markets increase overall welfare, but not necessarily welfare in every sector and country.

And as they say in more detail in 10.9:

Computable general equilibrium models have long been used to study the wider economic implications of changes in crop yields (Kane et al., 1992). (Yates and Strzepek, 1998) show for instance that the impact of a reduced flow of the Nile on the economy of Egypt is much more severe without international trade than with, because trade would allow Egypt to focus on water-extensive production for export and import its food.

Yes, they say that international trade, even or especially in food, is one of the vital ways in which we can deal with this problem.

That is, that part of the solution to climate change is international trade and markets: you know, basically the neoliberal world order.

Yes, OK, believe the science or not about the effect of emissions as you will. But don't let go of this point that I've highlighted above. Even if all of what the scientists tell us about the effect of emissions on anything at all is correct this still means that the people who tell us we must have local food security, that we must become more self-reliant, those who tell us we must abandon the market and plan matters, they are still wrong!

As I once wrote a whole book about the solution to climate change is neoliberal globalisation plus a carbon tax. This latest report from the IPCC is saying exactly the same thing. No, not prescient of me, I just read the previous reports where they've been saying exactly the same thing all along. And don't let anyone tell you different.

(Yes, I know the date of publication of this piece. No, it ain't)

A very important point about climate change

As you all know I'm boringly mainstream in my views over climate change. The scientists tell us that we've got to do something, the economists that that something is a carbon tax so I say, great, let's have a carbon tax. And then we get information that rather changes this so far sterile debate:

It puts the overall cost at less than 2% of GDP for a 2.5 degrees Centigrade (or 4.5 degrees Fahrenheit) temperature increase during this century. This is vastly less than the much heralded prediction of Lord Stern, who said climate change would cost 5%-20% of world GDP in his influential 2006 report for the British government.

Here's what Stern did to reach his figure, the one that leads to that $80 a tonne carbon tax. He took the worst possible economic forecast of the next century, the one leading to the highest emissions path. Then he made that worse with a couple of other assumptions. Then he invented (on this, possibly rightly) a new method of calculating net present values. And he assumed thatt here was high sensitivity of temperature to emissions.

However, the essential heart of his argument was correct. We don't want to undertake actions that are more costly now that the damage they save in the future. The limit to our attempts to prevent climate change, and yes he does lay this out, must be the scale of that future damage. To spend more now than that damage then would be nonsensical.

Which is where the new numbers coming from the IPCC come in. We now think that climate senstivity is lower than Stern assumed. Thus the actions that we should take to deter future costs must cost less now. That is, we should rationally be doing less now than we were before.

And the thing about this finding is that it is the boringly mainstream finding too. Which is interesting really, because there seem to be only a handful of people (Matt Ridley and myself being among them, he shouting it from a much taller soapbox of ourse) who even grasp this point, let alone actively promote it.