Can we construct adversarial electricity portfolios made of new zero-carbon resources that undermine the profitability of specific existing fossil plants? Some version of this is already happening, but it’s incidental rather than targeted. The economics of existing coal and nuclear plants are being eroded by flat electricity demand in combination with cheap gas, wind, and solar. Economical storage and dispatchable demand aren’t far behind. But how much faster would the energy transition be if we actively optimized new energy resources to undermine the economics of existing fossil generation?
In my last post, I suggested that while we like to think of housing as an investment, it’s really more like a crappy savings plan, potentially redeemed by the fact that you can live inside the piggy bank. Land can be a profitable speculative investment, but allowing land to appreciate and drag the cost of housing upward in real terms is fundamentally incompatible with housing being affordable.
Economists (including Adam Smith, David Ricardo, Thomas Paine, Henry George, Thomas Friedman, Joseph Stiglitz, and Matt Yglesias) have highlighted the negative impacts of allowing land owners to collect monopolistic “ground rents” but nobody seems to care. So now tens of trillions of dollars worth of real estate in the US is predicated on the idea that landowners get to retain these speculative gains. Barring a glorious Georgist Revolution, this is probably the arrangement we have to work within.
Build, Baby Build!
Luckily, in a city with increasing land values, where property owners get to keep all of those unearned financial gains, there’s an All American Capitalist Solution™ of sorts, which can potentially keep housing affordable, even when land is expensive: build more housing on less land. By building densely, high land costs can be shared across more households, reducing the overall impacts of expensive land, and allowing home buyers & renters to pay primarily for housing instead of land.
After more than two decades of growth and success, Fort Collins based New Belgium Brewing became 100% employee owned three years ago, with the employee stock ownership plan buying out the 59% of the company previously held by its founders. Today it sounds like they might be putting themselves on the auction block. With around 500 employees, and a potential valuation of a billion dollars, it’s not too hard to understand the temptation. That’s $2 million worth of company value per employee.
Our society’s prevailing economic zeitgeist assumes that everything has a price, and that both costs and prices can be objectively calculated, or at least agreed upon by parties involved in the transaction. There are some big problems with this proposition.
Externalized costs are involuntary transactions — those on the receiving end of the externalities have not agreed to the deal. Putting a price on carbon can theoretically remedy this failure in the context of climate change. In practice it’s much more complicated, because our energy markets are not particularly efficient (as we pointed out in our Colorado carbon fee proposal, and as the ACEEE has documented well), and because there are many subsidies (some explicit, others structural) that confound the integration of externalized costs into our energy prices.
The global pricing of energy and climate externalities is obviously a huge challenge that we need to address, and despite our ongoing failure to reduce emissions, there’s been a pretty robust discussion about externalities. As our understanding of climate change and its potentially catastrophic economic consequences have matured, our estimates of these costs have been revised, usually upwards. We acknowledge the fact that these costs exist, even if we’re politically unwilling to do much about them.
Unfortunately — and surprisingly to most people — it turns out that understanding how the climate is going to change and what the economic impacts of those changes will be is not enough information to calculate the social cost of carbon. Continue reading The Myth of Price
Share Everything: Why the Way We Consume Has Changed Forever. Sharing material goods makes it cheaper to use high quality, durable, well designed things, and the higher utilization factor means that many fewer things need to exist to satisfy everyone’s needs. It works especially well in urban areas where the geographic transactional overhead is small. This is a big piece of the dematerialization of our economy, and one of the most underappreciated reasons cities are a core climate solution.
The New York Times looks at our national policy of paying to rebuild vulnerable coastal communities, no matter how ill advised their developments might be. In effect, we’ve encouraged people to upscale their beachfront shanties into expensive vacation homes, increasing the value at risk next time a storm hits. As the seas rise, ever more money will be sent down this gopher hole. Instead, we should prohibit future development, map out the most vulnerable locations, and draw up buy-out offers ahead of time, so when disaster strikes, it can be used as an opportunity to re-direct investment into less risky areas.
The Union of Concerned Scientists has gone through the catalog of America’s coal plants, and found hundreds of mostly small, old, polluting, inefficient generating units that just aren’t worth operating any more, even on a purely economic basis. They looked at several different sets of assumptions, including different natural gas prices going forward, a price on carbon, whether or not the competing natural gas fired generation would need to built new, or whether it existed already with its capital costs paid off, and whether or not the production tax credit for wind ends up being renewed. In all of the scenarios considered, they found substantial coal fired generation that should be shut down on purely economic grounds, above and beyond the 288 generating units that are already slated for retirement in the next few years. They also found that some companies — especially those in traditionally regulated monopoly utility markets in the Southeast — are particularly reluctant to retire uneconomic plants, perhaps because they can effectively pass on their costs to ratepayers, who remain none the wiser.
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.
NRDC blogs about a new study on federal use of discount rates in calculation of carbon costs, which suggests we grossly underestimate the present value of reducing emissions. Did you even know that the feds had put an internal price on CO2? They behave as if it costs $21/ton to emit. But that’s based on a discount rate of around 3%, which is the highest rate OMB suggests using for inter-generational costs. Part II of the very detailed NRDC post is here.