The Unassuming Economist

From the Financial Times:

The Greens’ surge in last week’s European Parliament elections confirmed that a growing share of voters want their politicians to do something about climate change. But it is far from clear that the majority is ready to pay the higher energy and fuel prices that would result from any serious effort to limit the rise in global temperatures — and that would hit some groups much harder than others.

Economists, who for years have been debating the best ways to fine-tune carbon pricing mechanisms, are now turning their attention to the bigger challenges of political economy.

A paper by IMF staff, published earlier this month, shows just how far off we are from making carbon as expensive as it needs to be. Many major economies could achieve the emissions cuts pledged under the 2015 Paris accord with a carbon price of $35 per tonne, they calculate — a level that would roughly double coal prices and add 5 per cent to 7 per cent to pump prices for road fuels.

But to contain global warming to 2 degrees centigrade above pre-industrial levels would require a global carbon price of about $70 per tonne, they estimate. At present, despite a proliferation of national and sub-national carbon taxes and trading schemes, the average global carbon price is $2 per tonne.”

 

 

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From EconoSpeak:

“The U.K. think tank Autonomy has issued a report calling for much shorter working weeks, “The Ecological Limits of Work: on carbon emissions, carbon budgets and working time,” which is featured in a Guardian article published today, “Much shorter working weeks needed to tackle climate crisis – study.”

People across Europe will need to work drastically fewer hours to avoid disastrous climate heating unless there is a radical decarbonising of the economy, according to a study.

The research, from thinktank Autonomy, shows workers in the UK would need to move to nine-hour weeks to keep the country on track to avoid more than 2C of heating at current carbon intensity levels. Similar reductions were found to be necessary in Sweden and Germany.

The findings are based on OECD and UN data on greenhouse gas emissions per industry in the three countries. It found that at current carbon levels, all three would require a drastic reduction in working hours as well as urgent measures to decarbonise the economy to prevent climate breakdown.

Will Stronge, the director of Autonomy, said the research highlighted the need to include reductions in working hours as part of the efforts to address the climate emergency.”

From Francis Diebold:

“One can only go so far in climate econometrics studying time series like the proverbial “global average temperature”, just as one can only go so far in macroeconomics with the proverbial “representative agent”.  Disaggregation will be key to additional progress, as different people in different places experience different climate “treatments” and different economic outcomes.  The impressive new paper below begins to confront the massive tasks of data collection, manipulation, analysis, and visualization, in the context of a disaggregated analysis of the effects of temperature change on aggregate output.

“Climatic Constraints on Aggregate Economic Output”, by Marshall Burke and Vincent Tanutama, NBER Working Paper No. 25779, 2019.

Abstract:  Efficient responses to climate change require accurate estimates of both aggregate damages and where and to whom they occur. While specific case studies and simulations have suggested that climate change disproportionately affects the poor, large-scale direct evidence of the magnitude and origins of this disparity is lacking. Similarly, evidence on aggregate damages, which is a central input into the evaluation of mitigation policy, often relies on country-level data whose accuracy has been questioned. Here we assemble longitudinal data on economic output from over 11,000 districts across 37 countries, including previously nondigitized sources in multiple languages, to assess both the aggregate and distributional impacts of warming temperatures. We find that local-level growth in aggregate output responds non-linearly to temperature across all regions, with output peaking at cooler temperatures (<10°C) than estimated in earlier country analyses and declining steeply thereafter. Long difference estimates of the impact of longer-term (decadal) trends in temperature on income are larger than estimates from an annual panel model, providing additional evidence for growth effects. Impacts of a given temperature exposure do not vary meaningfully between rich and poor regions, but exposure to damaging temperatures is much more common in poor regions. These results indicate that additional warming will exacerbate inequality, particularly across countries, and that economic development alone will be unlikely to reduce damages, as commonly hypothesized. We estimate that since 2000, warming has already cost both the US and the EU at least $4 trillion in lost output, and tropical countries are >5% poorer than they would have been without this warming.”

From YaleGlobal Online:

“As the world demands more energy, nations face the often-competing pressures to increase energy access and affordability, protect the environment, and assure energy security.  The military, long focused on energy issues related to mission delivery, has often been at the forefront of technological innovation and deployment. The quiet innovations in the defense sector could help solve energy challenges nations confront today.

In energy policy circles, the conventional concept of energy security relates to economic prosperity and social harmony. In a globalized energy market, energy policies are designed to reduce the economic impacts of supply and price shocks through efficiency, diversified supplies, and fuel choice. In military energy decision-making, however, “security” focuses on achieving strategic objectives, and enables nearly everything the military does. In the defense domain, energy has the potential to be both an enabler of hard power but also a weapon of war via denial and willful coercion.

Energy has played a role in every facet of war. Many of the lessons learned during the world wars of the 20^th century are still being appreciated and relearned in today’s conflicts. One of the most famous examples of energy influencing military strategy comes from 1911, when Winston Churchill, then First Lord of the Admiralty, converted the British fleet from Welsh coal to foreign oil. The gain in speed and decrease in logistical burden gave the British Royal Navy a critical advantage over the Axis powers. The policy brought further advantage as oil’s less smoky combustion allowed the Royal Navy to avoid coal’s telltale plumes  that revealed a fleet’s position.

As militaries shifted toward oil during the early 20th century as the main energy source, a scramble to secure oil supplies influenced events leading to and throughout WWII. Some of the greatest strategic decisions in World War II had their roots in a desire to access energy resources. The German military’s perceived need for oil created a two-front war, and its failure to take and hold Soviet oilfields spelled disaster at Stalingrad. The Japanese surprised the American naval fleet on December 7, 1941, an attempt to secure oil-shipping lanes and secure other natural resources, such as rubber, from Southeast Asia. Energy’s link to World War II conflict had as much to do with denial of resources to the enemy as securing one’s own oil supply chains. The stalling of General Patton’s Third Army following its campaign across France in summer 1944 is a telling example of fuel acting as “tether” to military operations.

The skill and technologies of logistics forces in providing fuel has grown significantly since World War II. Energy security has been a challenge in Afghanistan, NATO’s largest operation. In late 2012, more than 100,000 troops consumed more than 6.8 million liters of fuel per day, 99 percent delivered by truck, from Pakistan and later through a complex Central Asia route. The enduring criticality of energy logistics was highlighted when retired General James N. Mattis entreated the US Department of Defense to “unleash us from the tether of fuel.” The 2010 test deployment of portable solar-powered generation systems at US Marine forward operating bases in Afghanistan reduced the bases’ diesel generator usage by more than 90 percent.”

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From a new IMF working paper by David Coady, Ian Parry, Nghia-Piotr Le and Baoping Shang:

“This paper updates estimates of fossil fuel subsidies, defined as fuel consumption times the gap between existing and efficient prices (i.e., prices warranted by supply costs, environmental costs, and revenue considerations), for 191 countries. Globally, subsidies remained large at $4.7 trillion (6.3 percent of global GDP) in 2015 and are projected at $5.2 trillion (6.5 percent of GDP) in 2017. The largest subsidizers in 2015 were China ($1.4 trillion), United States ($649 billion), Russia ($551 billion), European Union ($289 billion), and India ($209 billion). About three quarters of global subsidies are due to domestic factors—energy pricing reform thus remains largely in countries’ own national interest—while coal and petroleum together account for 85 percent of global subsidies. Efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP.”