Is profit driven affordable housing possible?

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Last week at the Better Boulder Happy Hour (B2H2) we tried to talk about affordable housing.  The little nook at the Walnut Brewery was so packed that it was hard to even have a face-to-face conversation with folks, let alone do any kind of presentation that didn’t sound like an attempt at crowd control.  Which is good I guess… but not exactly what we’d planned.  I think a good chunk of the attendance was due to all the buzz generated by last Tuesday’s City Council meeting, and the talk of a citywide development moratorium.  Anyway, it was a learning experience.  We want these events to be informative, but also to get people talking to each other, and have it be more fun and social and network-building than a brown bag seminar or lecture that’s mostly going to appeal to the Usual Suspects, who are already engaged.  We need to get more “normal” people to show up and engage on these issues.

In any case, Betsey Martens, director of Boulder Housing Partners (the city’s housing authority) got up and said a few words to the assembled crowd.  She made a point which is in retrospect obvious, but that got me thinking anyway.  The costs of creating additional housing in Boulder (or anywhere, really) can be divided up into three categories:

  1. Hard development costs — the cost of actually building the housing.
  2. Soft development costs — e.g. the financing and permitting costs, carrying costs associated with regulatory delay, organizational overhead, etc.
  3. The cost of land.

She pointed out that you can do all the work you want to reduce hard and soft development costs — using standardized designs, prefabricated buildings, streamlined permitting for affordable housing — but ultimately those optimizations just nibble around the edges of affordability.  The real driver of housing costs in a desirable place is the cost of the land, which is pretty irreducible.  If you’ve got a funding stream (as we do here from our inclusionary housing policy), then you can buy up a bunch of land and create housing on it, but there’s still an opportunity cost to be had for using the land inefficiently — the same money might have created more affordable housing.

The obvious way to attack this problem is to spread the fixed land cost across more dwelling units.  You may not be able to reduce the price of the land, but you can share it with more people, decreasing per unit costs, and increasing density.  Naysayers are quick to point out that all the density in Manhattan and Tokyo has not made them cheap.  A common response is that they’re cheaper than they would have been if they hadn’t been more densely developed, but I’m not sure this is really the right answer (even if it’s true).

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Humans as Curators in Troubled Times

We had some of that golden evening light tonight just after house meeting.  The kind that makes you think maybe an apocalypse is just over the horizon.  That the mountains are on fire.  That the gods are angry.  This Saturday I went for a long bike ride up to the Peak to Peak highway with Amy from Picklebric.  At the Sunshine Saddle she pointed out the cheat grass — an invasive species that she works on.  Studying disturbed ecosystems, and how to assemble new approximations of the originals from the parts at hand.  You can’t get rid of the invasives, but maybe you can influence which ones thrive.  Just beyond the divide above us, the mountains covered with red trees, a forest being transformed in a lifetime.  500 years from now will they be the Aspen mountains?  Tim applied for a job at the Nature Conservancy as a landscape ecologist in a similar vein — understanding and managing wild and semi-wild lands for their own sake.  Like the Colorado river pulse.  All this made me think of the ecopoesis that Kim Stanley Robinson portrayed in his Mars books, especially Green Mars.  Humans as gardeners of the no longer quite wild.  From here on out, it’s all gardening. Mandatory gardening.  It’s just what kind of garden do we want?  What will grow in this climate?

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Alone in the Wilderness

I’ve been thinking a lot about risk tolerance and discount rates lately, and how they profoundly shape our perception of the economic costs associated with minimizing climate change.  Basically… if you’re willing to vary your preference for the present over the future or the level of uncertainty you’re willing to accept, then you can make mitigation cost whatever you want.  All else being equal, low discount rates and low risk tolerance make taking action cheap, while high discount rates and high risk tolerance make it expensive.

Unfortunately, we live in a society with high discount rates and high risk tolerance.  Or at least, that’s what you’d infer from our collective behavior.  It’s also what you’d gather from a lot of the rhetoric around climate action, and our obsession with trying to make it “economically efficient”, to the point of maybe not doing it at all.  Our risk tolerances and discount rates aren’t really objectively measurable.  They are fluid, and context sensitive.  The same person in different situations will not behave consistently.  Different people in the same situation may come to different conclusions.  How we deal with uncertainty and the value of the future is a personal as well as cultural decision.

For some reason, I find myself with a low pure time preference, and an aversion to many kinds of risk.  This is part of why I find our unwillingness to act on climate infuriating, and why I’m working on climate policy.  I got to wondering, how did I end up this way?  Why isn’t it more common?

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A Carbon Price for Colorado

In May of 2013 I gave a talk at Clean Energy Action’s Global Warming Solutions Speaker Series in Boulder, on how we might structure a carbon pricing scheme in Colorado.  You can also download a PDF of the slides and watch an edited version of that presentation via YouTube:

What follows is a more structured written exploration of the same ideas.

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The 2013 Rad-ish Council Candidate Forum

Last night seven Boulder city council candidates visited the Rad-ish Collective, an activist co-op that does a lot of volunteering behind the scenes of Boulder Food Rescue.

Candidate Literature

The candidates had some motley seating, including one stool made out of the back half of an old bike frame (Andrew Shoemaker) and a chair upholstered in what appeared to be a faux Yeti pelt (Sam Weaver). Half the walls were covered with murals, and the other half with event flyers, political literature, and all the daily household bookkeeping that goes into making a co-op run smoothly.

The crowd’s median age was probably under 25, and most of us sat on the floor. As the event progressed, more and more people filtered in, and those sitting shoulder to shoulder in the front slowly scooted forward until we were within reach of the candidates’ feet. Sam Weaver remarked at some point that it was probably the largest or second largest audience of any forum they’d attended, even though it was being held in a living room!

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How guilty should the West feel about eWaste in Africa?

It’s easy to see pictures of toxic eWaste dumps outside of Accra, Ghana (like the ones below by Michael Ciaglo) and be led into a rich-world guilt trip (like this one on Gizmodo). These are obviously horrible, toxic working conditions, but what exactly leads to them is much less straightforward than the “West dumps toxic waste on Africa” narrative.  The majority of the electronics being “recycled” here came most recently from Africa (yes, they were imported used goods from the developed world, but if you’re running an internet cafe in Accra, and getting Ghanians reading the Wikipedia… you’re probably not going to buy fancy new stuff.)  Furthermore, the overwhelming majority of western eWaste does apparently end up being recycled within the OECD.  See this article by Adam Minter for an overview (and also his global scrap trade blog: Shanghai Scrap).  And for vastly more detail, the Basel Convention’s reports on African eWaste.

Burning Wire

African Hands and eWaste

Kevin Anderson and Getting to 2°C

A good seminar by Kevin Anderson (former head of the Tyndall Center for Climate Research in the UK), exploring the conflicts between our stated goal of keeping global warming under 2°C, and the actual energy and emissions policies that the developed world adopts:

The same basic information, in a peer-reviewed format Beyond “Dangerous” Climate Change: Emissions Scenarios for a New World, in the Transactions of the Royal Society.  Also in a Nature Commentary (paywall).

The basic point he’s making is, the assumptions that are currently going into climate policy discussions are unrealistic, with respect to what’s required to meet a 2°C goal, even 50% of the time.  They require global emissions peaks in 2015 and eventually negative emissions, in order to be able to accommodate the 3-4% annual emissions declines that the economists (which he likes to call astrologers) say is compatible with continued economic growth.  But a global peak in 2015 is at this point outlandish from China or India or Brazil or South Africa’s point of view.  To give them even a tiny bit of breathing room, and treat our historical emissions even somewhat equitably, the developed world has to peak roughly now, and decline at more like 10% per year for decades, and the developing world has to follow our lead shortly thereafter (maybe 2025).

None of this is compatible with exploitation of any unconventional fuels (tar sands, shale gas, etc.).  And, he argues, it also isn’t likely to be compatible with reliance on market based instruments, given that we need to implement drastically non-marginal changes to the economy.

Shades of Green

There are a lot of voices in the climate and sustainability discussion.  I’ve been thinking about where in the spectrum I fall, and why.  Who are the people I’m trying to convince?  What camp do opponents imagine I’m in?  Even amongst those of us who agree that the energy and climate problem is enormous, there’s disagreement about whether change in our daily lives is necessary, desirable, or acceptable.

Below is a list of people I’ve personally been influenced by.  Everyone here agrees that the current system has to change, that the magnitude of the required change is large, and that the direction of the change is unequivocally away from fossil energy sources.  Where we differ is on what part of the system needs to change, and why.  In particular, there seems to be a range of positions taken on the issue of social change.  The Pessimists think that no technical solution comes close to being adequate, that large social changes are thus obligatory, and that they will be interpreted negatively by most people.  The Optimists think that the best solutions include both technical and social components, and that the required social changes are relatively modest, and not necessarily negative at all.  Some Optimists advocate for social change overtly, while others imply that purely technical options look implausible without it.  The Cornucopians discount the need for social change, and are thus left with the technical task of supplying virtually unlimited carbon-free energy.

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Doing the Math on Climate Divestment

I just got back from the 350.org Do The Math event in Boulder.  The touring show is an outgrowth of Bill McKibben’s piece in Rolling Stone this summer, Global Warming’s Terrifying New Math.  The argument is elegant and horrifying: if we want to keep global temperature from rising more than 2°C, we can emit at most 565 more gigatons of CO2, ever.  Currently, the global fossil fuel industry’s reserves total nearly 2800 gigatons.  That carbon accounts for a substantial fraction of their overall market value, and at least 80% of it must never be extracted.  Ergo, we must necessarily bankrupt pretty much all of them, and soon.  At our present burn rate, we’ll have used up the 565 Gt allowance in about 15 years, taking us well into that part of the map where, as they say, there be dragons.

I get all of the above, and am enthusiastically in support.  However, I’m confused by the logic of McKibben’s suggested first salvo against the industry.  He is promoting a divestment campaign, along the lines of the one aimed at apartheid South Africa in the 1980s.  In this campaign, institutional investors susceptible to moral or public relations arguments — like pension funds, church congregations and university endowments — are being encouraged to purge their portfolios of fossil fuel related securities.  There seems to be widespread confusion as to what this would mean in a purely financial sense to the targeted companies.  Certainly the audience was confused, but I couldn’t tell what McKibben and the other folks on stage really thought.

So, what would happen if a major swath of the world’s institutional investors dumped their fossil fuel stocks?  Presumably, this would depress the industry’s stock prices, by reducing demand.  But would this actually hurt the companies in any way?  The simple answer is no.  Most people I talked to seemed to think that by selling stock, they’d somehow be taking money away from these companies.  That’s just not how stock works.  The only time you’re buying stock from the company itself, and giving it funding, is at the initial public offering (IPO), or, occasionally, in subsequent public financing rounds, where new shares are issued, diluting existing shares.  Institutional investors owning shares of publicly traded companies are trading with other investors, not the company itself.  You can’t go to a company and say “I want my money back” after they’ve issued the stock.  Sometimes companies that are sitting on a mountain of cash will voluntarily buy back their own stock, but this results in the value of remaining outstanding shares appreciating — you’re sharing ownership of the same business over fewer shareholders.  Buybacks are often used as a tax efficient way to return earnings to investors, since dividends are taxed as income, but share price appreciation is taxed as capital gains, and those taxes can be deferred indefinitely.

The stock price of a company that’s in financial trouble goes down, reflecting that financial trouble.  Artificially depressing that company’s stock price doesn’t induce financial trouble.  What would it do?  It would lower the price to earnings (P/E) ratio, which would increase the dividend rate.  It would make the companies with stable underlying businesses more attractive stock purchases, and in a purely financial world, other less morally encumbered investors would buy up all the dumped shares, probably severely limiting any depression of the stock price.

The fact that climate divestment won’t starve the fossil fuels industry of capital doesn’t necessarily make it a bad idea.  So what are the other potential consequences of a successful divestment campaign?

Getting churches, universities, pension funds and other institutional investors to divest would decouple their financial interests from those of the fossil fuels industry.  This might make it easier for divested institutions to take strong political stances on climate change.  At the same time, as an individual, unless you have a lot of money invested, or live in a very efficient house and refuse to drive and fly, you’re more tightly bound to the financial interests of these companies via the prices of the fossil fuels you consume, than by the prices of the stocks of the companies that produce them.

If you’re feeling optimistic, getting institutions you care about (or depend on) to divest from the carbon industry might be seen as self-interested.  If we succeed in keeping 80% of the world’s booked fossil fuel reserves in the ground, then all these companies are the walking dead.  Like the hordes of zombie banks created in the financial collapse a few years ago, in a world that rises to meet the climate challenge, they are already bankrupt — they just don’t know it yet.  If you really believe we’re going to succeed, divesting is clearly the right thing to do financially in the medium to long run.

Probably most importantly, the campaign is aimed at branding fossil fuels as a morally repugnant investment, both explicitly and by analogy with the apartheid divestment movement.  In the case of South Africa, it was successfully argued that companies taking advantage of apartheid were benefiting from a form of legalized slavery, and anybody sharing in those profits was, in some part, morally equivalent to a slaveholder.  In the case of the Carbon Lobby we’re not slaveholders, we’re waging a war on the future.  This is particularly ironic in the case of university endowments, which support the education of young people, who will live further into that war-torn future than the rest of us, and pension funds that ostensibly work to ensure we are supported in our old age, as much as 50 years hence.

Morally repugnant industries are often allowed to operate, but their political influence becomes diminished and expensive.  Unless you’re actually representing a tobacco growing district, it’s tough to stand up publicly these days as a politician and rub shoulders with tobacco companies.  Their veneer of respectability has been peeled away.  This has made advertizing restrictions and smoking bans and hefty sin taxes politically possible.  If fossil fuel extraction were broadly accepted as a repugnant transaction, would it remain politically feasible to continue spending  five times as much on fossil fuel subsidies as we do on climate mitigation?

In the case of the technology driven oil and gas development and exploration, one might hope that a successful re-branding of the carbon industries as repugnant dinosaurs waging a war on the future would make it more difficult for these companies to recruit young technologically savvy talent, at any price.  Will petroleum and coal mining engineers one day feel unable to mention their work, for fear of public shaming?

This shift in our cultural norms about whether releasing geologically sequestered carbon is morally defensible is necessary, I think, but like virtually all climate campaigns it is not alone sufficient.  Especially in the energy-intensive developed economies, shaming and shunning the fossil fuel industry must also involve some amount of self-flagellation today.  It runs the risk of guilt-tripping people whenever they buy gas or fly, or leave the coal-fired lights on in the kitchen overnight.  That guilt can induce people to tune out, if they don’t feel like they have any alternative to their “bad” behavior.

We need to aggressively create those alternatives by creating paths to high-renewable penetration electricity, building cities for people that don’t depend on cars, inter-city high-speed rail that doesn’t suck, re-solarizing our agricultural systems, requiring the highest possible building energy efficiency, and mandating closed-loop zero-waste materials systems whenever they’re possible.  We also need to make sure we brand the fossil fuel industry as other.  We need a Them.  They take hundreds of billions of dollars in subsidies every year.  They fund disinformation campaigns on climate.  They spend half a million dollars a day lobbying congress.  They are the problem, preventing necessary change, preventing us from adopting systems that don’t wage war on the future.  This otherness can forestall that feeling of short-term guilt.

This may sound like irresponsible heresy in the face of a tidal wave of consumer green marketing.  However, the vast majority of our emissions and resource utilization are systemically determined, and are not susceptible to significant change through personal choices alone.  Those necessary systemic changes are being blocked in large part by industry lobbying and disinformation.  In that arena of systemic change, which is what matters most, it really is Us vs. Them.

Climate Change and the Insurance Industry

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As the entire eastern seaboard slowly recovers from its lashing by Sandy, insurance companies are bracing for the hurricane’s aftermath and the possibility of another Katrina-scale loss.  If there’s any major incumbent business with an incentive to publicly acknowledge the risks and costs of climate change, it’s the insurance industry, and especially the re-insurers — mega-corps that backstop individual insurance companies by pooling their risks globally.  These companies can do the math, and what they’ve seen over the last couple of decades is a steady upward trend in both the number of extreme weather events and the resulting insured losses that they’ve been on the hook to cover.  The situation is well summarized in a new report from Ceres, entitled Stormy Futures for U.S. Property/Casualty Insurers.  They suggest that insurers face an existential risk from climate change.

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