Thursday, June 21, 2007

Efficiency-driven policies to encourage the Chinese to clean up their CO2 act

China last year overtook the US as the largest national emitter of CO2. This will crystallize preexisting concerns among developed countries that China’s emissions (as well as those of Indonesia and India) will need eventually to be controlled.

I have suggested two approaches to dealing with this issue:

(i) Introducing an international carbon tax with sufficient bite to meet Greenhouse gas reduction targets internationally and to levy tariffs on imports from non-complying countries – those that do not adequately impose the carbon tax. This is the somewhat coercive Stiglitz enforcement mechanism proposal. Non-taxing polluters are excluded from free trade because they are unfairly leaning on the rest-of-the-world by not internalizing their emissions. They are being levied with import tariffs to compensate for their environmental theft in exactly the same way that France seeks to attack US non-compliance with Kyoto.

The Stiglitz proposal moreover is designed to switch the tax base internationally from taxing socially-desirable pursuits (work-effort, saving) to pursuing double-dividend advantages from taxing social ‘bads’ such as pollution.

The attractive feature of this program is that it prevents 'carbon leakage'. By imposing direct restrictions on countries such as China it becomes impossible for pollution firms in developed countries to simply relocate to developing countries. Carbon leakage means jobs are lost in developed country and there is no improvement in the global environmental situation. This is the weakness of unilateral moves toward dealing with climate change - and indeed a weakness of the Kyoto Protocol.

Ultimately all countries need to tax carbon emissions or to be penalised by being excluded from trade.

(ii) Setting strict enough carbon emission quotas on complying developed countries (but not seeking to cap emissions from developing countries) to meet very stringent aggregate global emission targets but allowing developed countries to buy carbon credits from emission reductions that achieve via investments in developing countries. This is equivalent to the Clean Development Mechanism proposed (and used) under Kyoto. The difficulty with this proposal is that, as discussed in an earlier post, incentives can be distorted in developing countries. For example, incentives can be created to generate lots of pollution in order to make a sale.

I haven’t thought through the details of these respective viewpoints. My views might back-flip – I suspect there are intricacies here - and I might well have missed something entirely obvious. But I am increasingly coming to the view that option (ii) – despite its problems – has a much to recommend it. Aut least in the short-term before policy option (i) can be seriously considered.

Think of an analogy with conserving biodiversity existence values. These are the values associated with the happiness people experience from knowing that biodiversity species remain extant and can be thought of as a global public good. A species conserved in China contributes as much happiness as one conserved in Australia. Reflecting this suppose wealthy countries value the conservation of biodiversity irrespective of where it is located for existence value reasons and that these wealthy countries have a higher preference for conservation than do poorer developing countries. Suppose too that the options for conservation are better in developing than developed countries – there are lower cost conservation options in developing countries simply because very little conservation effort has been made. Then on efficiency grounds there is a case for resource transfers from rich to poor countries to effect good conservation outcomes on cost-efficiency grounds. These are not ‘charitable’ contributions but simply a consequence of seeking to best allocate conservation expenditures and where taxes to fund such conservation effort are set equal to marginal biodiversity conservation values in providing the global public good.

Roughly speaking developed countries have high willingness-to-pay reflecting their high marginal valuations on conservation. Moreover, the best opportunities to conserve are in developing countries where willingness-to-pay is lower. A resource transfer from rich to poor countries resolves this imbalance. (I once spelt out the analytics of this in a couple of published papers – unfortunately no online versions are available).

Does not an equivalent argument apply to CO2 emissions? Using the argument that the ‘environment is a luxury good’ (there are higher demands for environmental prissiness from rich countries) suggests that countries like the US and Australia have a higher demand for environmental prissiness than will (for example) the Chinese who are mainly targeting their quest for material wealth – they will kill* any animal that moves and have probably one of the environmentally dirtiest societies on earth. Being non-emotive, the Chinese have a low preference for conserving the natural environment – they want growth that will move them out of their miserable current circumstances.

Chinese energy consumption is low relative to developed countries but energy efficiencies are also low so that the opportunities for energy conservation in China are abundant and cheap as China moves toward higher energy consumption levels. Given the disparity in objectives between rich and poor countries and given that CO2 emissions are a global public bad it might make sense for there to be a transfer from wealthy to poor countries such as China to clean up the damage they are creating.

Proposal (ii) creates the incentives for the private sector to do this via a huge investment program that makes money by expanding the clean energy generation technologies in the west by cleaning up the dirt in the developing world. Yes there are huge incentive problems but the proposal to generate a developed country capital market response to cleaning up in the developing world will at least help to deal constructively with global warming issues.

This is a broad sketch since one needs to account for growing Chinese energy demands even if energy conservation is promoted. Moreover, while China has been singled out, many developing countries fit into the Chinese situation. In the longer-term it is essential to seek a transition whereby all countries take care of their own environmental damages. Indeed unless that happens measures to control emissions in deverloped countries will simply be swamped by environmental grubs in the developing world.

* The Chinese have no animal protection laws and their treatment of nature is appalling. See this YouTube if you have a strong stomach.


Jay Draiman said...

Energy Independence begins with Energy efficiency - It's cheaper to save energy than to make energy.

By Jay Draiman, Energy Consultant
In order to insure energy and economic independence as well as better economic growth without being blackmailed by foreign countries, our country, the United States of America’s Utilization of Energy Sources must change.
"Energy drives our entire economy.” We must protect it. "Let's face it, without energy the whole economy and economic society we have set up would come to a halt. So you want to have control over such an important resource that you need for your society and your economy." The American way of life is not negotiable.
Our continued dependence on fossil fuels could and will lead to catastrophic consequences.

The federal, state and local government should implement a mandatory renewable energy installation program for residential and commercial property on new construction and remodeling projects, replacement of appliances, motors, HVAC with the use of energy efficient materials-products, mechanical systems, appliances, lighting, insulation, retrofits etc. The source of energy must be by renewable energy such as Solar-Photovoltaic, Geothermal, Wind, Biofuels, Ocean-Tidal, Hydrogen-Fuel Cell etc. This includes the utilizing of water from lakes, rivers and oceans to circulate in cooling towers to produce air conditioning and the utilization of proper landscaping to reduce energy consumption. (Sales tax on renewable energy products and energy efficiency should be reduced or eliminated)

The implementation of mandatory renewable energy could be done on a gradual scale over the next 10 years. At the end of the 10 year period all construction and energy use in the structures throughout the United States must be 100% powered by renewable energy. (This can be done by amending building code)

In addition, the governments must impose laws, rules and regulations whereby the utility companies must comply with a fair “NET METERING” (the buying of excess generation from the consumer at market price), including the promotion of research and production of “renewable energy technology” with various long term incentives and grants. The various foundations in existence should be used to contribute to this cause.

A mandatory time table should also be established for the automobile industry to gradually produce an automobile powered by renewable energy. The American automobile industry is surely capable of accomplishing this task. As an inducement to buy hybrid automobiles (sales tax should be reduced or eliminated on American manufactured automobiles).

This is a way to expedite our energy independence and economic growth. (This will also create a substantial amount of new jobs). It will take maximum effort and a relentless pursuit of the private, commercial and industrial government sectors’ commitment to renewable energy – energy generation (wind, solar, hydro, biofuels, geothermal, energy storage (fuel cells, advance batteries), energy infrastructure (management, transmission) and energy efficiency (lighting, sensors, automation, conservation) (rainwater harvesting, water conservation) (energy and natural resources conservation) in order to achieve our energy independence.

"To succeed, you have to believe in something with such a passion that it becomes a reality."

Jay Draiman, Energy Consultant
Northridge, CA. 91325
May 31, 2007

P.S. I have a very deep belief in America's capabilities. Within the next 10 years we can accomplish our energy independence, if we as a nation truly set our goals to accomplish this.

I happen to believe that we can do it. In another crisis--the one in 1942--President Franklin D. Roosevelt said this country would build 60,000 [50,000] military aircraft. By 1943, production in that program had reached 125,000 aircraft annually. They did it then. We can do it now.

"the way we produce and use energy must fundamentally change."
The American people resilience and determination to retain the way of life is unconquerable and we as a nation will succeed in this endeavor of Energy Independence.

The Oil Companies should be required to invest a substantial percentage of their profit in renewable energy R&D and implementation. Those who do not will be panelized by the public at large by boy cutting their products.

Solar energy is the source of all energy on the earth (excepting volcanic geothermal). Wind, wave and fossil fuels all get their energy from the sun. Fossil fuels are only a battery which will eventually run out. The sooner we can exploit all forms of Solar energy (cost effectively or not against dubiously cheap FFs) the better off we will all be. If the battery runs out first, the survivors will all be living like in the 18th century again.

Every new home built should come with a solar package. A 1.5 kW per bedroom is a good rule of thumb. The formula 1.5 X's 5 hrs per day X's 30 days will produce about 225 kWh per bedroom monthly. This peak production period will offset 17 to 2

4 cents per kWh with a potential of $160 per month or about $60,000 over the 30-year mortgage period for a three-bedroom home. It is economically feasible at the current energy price and the interest portion of the loan is deductible. Why not?

Title 24 has been mandated forcing developers to build energy efficient homes. Their bull-headedness put them in that position and now they see that Title 24 works with little added cost. Solar should also be mandated and if the developer designs a home that solar is impossible to do then they should pay an equivalent mitigation fee allowing others to put solar on in place of their negligence. (Installation should be paid “performance based”).

Installation of renewable energy and its performance should be paid to the installer and manufacturer based on "performance based" (that means they are held accountable for the performance of the product - that includes the automobile industry). This will gain the trust and confidence of the end-user to proceed with such a project; it will also prove to the public that it is a viable avenue of energy conservation.

Installing a renewable energy system on your home or business increases the value of the property and provides a marketing advantage. It also decreases our trade deficit.

Nations of the world should unite and join together in a cohesive effort to develop and implement MANDATORY RENEWABLE ENERGY for the sake of humankind and future generations.

The head of the U.S. government's renewable energy lab said Monday (Feb. 5) that the federal government is doing "embarrassingly few things" to foster renewable energy, leaving leadership to the states at a time of opportunity to change the nation's energy future. "I see little happening at the federal level. Much more needs to happen." What's needed, he said, is a change of our national mind set. Instead of viewing the hurdles that still face renewable sources and setting national energy goals with those hurdles in mind, we should set ambitious national renewable energy goals and set about overcoming the hurdles to meet them. We have an opportunity, an opportunity we can take advantage of or an opportunity we can squander and let go,"

solar energy - the direct conversion of sunlight with solar cells, either into electricity or hydrogen, faces cost hurdles independent of their intrinsic efficiency. Ways must be found to lower production costs and design better conversion and storage systems.

Disenco Energy of the UK has announced it has reached important
milestones leading to full commercialization, such as the completion of
field trials for its home, micro combined heat and power plant (m-CHP).
The company expects to begin a product roll out in the second quarter of
Operating at over 90 percent efficiency, the m-CHP will be able to
provide 15 kilowatts of thermal energy (about 50,000 Btu’s) for heat and
hot water and generate 3 kilowatts of electricity. The m-CHP uses a
Stirling engine generator and would be a direct replacement for a home’s
Running on piped-in natural gas the unit would create some independence
from the power grid, but still remain connected to the gas supply
Whereas heat is supplied only when the generator is running (or
conversely electricity is generated only when heat is needed) a back-up
battery system and heavily insulated hot water storage tank seem
eventual options for more complete energy independence.

All government buildings, Federal, State, County, City etc. should be mandated to be energy efficient and must use renewable energy on all new structures and structures that are been remodeled/upgraded.
"The government should serve as an example to its citizens"

A new innovative renewable energy generating technology is in development. The idea behind Promethean Power came from Matthew Orosz, an MIT graduate student who has worked as a Peace Corps volunteer in the African nation of Lesotho. Orosz wanted to provide electric power, refrigeration, and hot water to people without electricity. He and some MIT colleagues designed a set of mirrors that focus sunlight onto tubes filled with coolant. The hot coolant turns to pressurized vapor, which turns a turbine to make electricity. The leftover heat can be used to warm a tank of water and to run a refrigerator or an air conditioner, using a gas-absorption process that chills liquid ammonia by first heating it.
A major increase in daily petroleum output is deemed essential to meet U.S. and international oil requirements in 2020, and so we should expect recurring oil shortages and price increases. Only by expediting the diminishing our day-to-day consumption of petroleum and implementing of efficiency and renewable energy policy can we hope to reduce our exposure to costly oil-supply disruptions and lower the risk of economic strangulation.

Jay Draiman, Energy Consultant
Northridge, CA 91325
Posted on: 06/21/2007

Anonymous said...

Why on earth would you wish to complicate our relationship with China with this anti-science Crapola.

Have you forgotten Harry, that you don't have any evidence for this JIVE.

In fact this is ass-backwards. Since climate-wise it is Chinas release of SO2 that ought to concern us..... If we are looking the other way on their intimidation of Taiwan and their murder and organ-harvesting of Fallun Gong believers that is.

SO2 can exacerbate the chill conditions that are on the way.

Lets see some evidence Harry.


hc said...

GMB, I recognise your viewpoint but I cannot argue the reality of the case for global warming every time I post. I have done it many times.

That's not to say you don't have a point (in my view very much a minority view) but its a separate issue.

I don't like a host of things the Chinese do - their arrogant, imperialistic attitudes toward Tibet and Taiwan, their shocking record on human rights and their monumental cruelty to all forms of non-human life as well.

All this has nothing to do with what is being discussed here.