Friday, November 13th, 2009

Reducing Carbon Should Not Distort Regional Economies

My latest post is online over at New Geography. It is called “Reducing Carbon Should Not Distort Regional Economies“.

Here is a map of proposed compliance costs by quintile for the pending cap and trade bill in Congress put together by the Brookings Institution:

As you can see, the costs vary widely by region of the country, with the lower Midwest through the Mid-Atlantic and the South getting whacked. New England, the Upper Midwest, and the West – notably California – get off light.

When it comes to carbon, here’s my really simple Hoosier logic. I don’t know what artificially inducing a material change in the composition of the atmosphere by pumping large amounts of carbon dioxide into it will do, but chances are it will do something. Since I like the world the way it is – I’m a Hoosier, remember – maybe we ought to think about maybe not doing that. I’m not sure I’d spend unlimited sums of money on it, but I’d spend something. And if it reduces our dependence on oil from unsavory regimes, so much the better.

I tend not to opine much upon national debates. However, I’m not going to just sit there and let California try to knife a good chunk of the Midwest’s economy. Any carbon reduction regime should be as neutral as possible in the way it distorts regional economies. And it shouldn’t encourage manufacturing businesses – of which, believe it or not, there are still plenty in the Midwest – to move to carbon havens like China, where they already would get the “benefit” of lax environmental laws, dubious workplace safety requirements, and no independent unions or much else in the way of labor rights.

This is doubly true since increasingly it seems like this cap and trade bill won’t even reduce carbon emissions. Two of the EPA’s own San Francisco lawyers penned a Washington Post op-ed to this effect. They also have a You Tube video comparing the cap and trade bill to the Challenger disaster.

The Avenue

The Brookings information on cap and trade was presented in a blog called The Avenue, which they are producing in conjunction with the New Republic. Brookings, through the Metropolitan Policy Program, is one of the most respected names in urban policy, so this one is worth checking out.

Pecha Kucha Indy

There was a little something different for Pecha Kucha Indy Vol. 7. This event was part of the Spirit and Place festival and involved a competition. Each entrant was proposing a project designed to make the city a more inspiring place, and the winner was awarded $10,000 from the local community foundation to make their project a reality. I was privileged to be one of the judges.

The winner turned out to be Growing Place, a proposal to create a slow food edible garden in White River State Park. Congrats to presenter Laura Henderson. Another proposal, to create murals depicting the narratives of the lives of the diverse residents in the East 10th St. corridor, was awarded an extra prize of $4000 from the community foundation and LISC Indianapolis. Congrats to presenter Mark Latta.

It was great to get to meet several of my readers for the first time. Thanks for coming up to say Hi. I always like to engage with my readers. Also, it was great to finally get to meet fellow judge David Hoppe for the first time. It’s another example of why Indy is not the small town you might think it is. You just assume everybody must know everybody, but I continue to be amazed at people who I would be sure know each other intimately but have never even heard of one another.

David everyone knows but I hadn’t physically met. He’s a columnist for alt-weekly Nuvo. He’s a staunch man of the left, but even if that is not your cup of tea, his writings on arts and culture, and also urbanism are among the best and required reading. Of course if you live in Indy you already know that. I think about writing a blog for three years, but this guy has been at it for over a decade, week in week out, not just writing about but helping to create the Indy cultural scene. Great to shake hands finally.

On Vacation

I’m going to be on vacation next week. I’ve got a few articles queued up but might not be around much in person.

12 Comments
Topics: Sustainability
Cities: Indianapolis

12 Responses to “Reducing Carbon Should Not Distort Regional Economies”

  1. Alon Levy says:

    The environmentalist opposition to cap and trade is based on the idea that a carbon tax will be better. This is probably true, but in terms of impact on the Midwest, a carbon tax will be worse. A carbon tax and cap and trade are equivalent in impact, as long as the cap and trade system auctions off all emissions. The current plan, which calls for handing off permits to big utility companies, is actually good for the Midwest – it will allow it to keep polluting at no cost.

    There is no distortion coming from either policy, no matter what the regional impact is. Carbon emissions are an externality, which leads to market failure: the market emits more CO2 than is socially and economically optimal. This market failure is a distortion in favor of polluting industries like cars and oil and in favor of polluting regions like Texas and Appalachia, and against clean industries like alternative energy and less polluting regions like the coasts.

  2. I’m not endorsing a carbon tax. I’m not sure what the best regime is, as I said in the NG piece. But I do think whatever we do shouldn’t distort regional investment incentives. I liked to the EPA people simply because they say the current proposal won’t even work. I haven’t seen an analysis of their alternative.

  3. david vartanoff says:

    Simple Hoosier logic, as Alon points out, fails to account for the externalities. And FWIW, this tree hugger believes that cleaning up the oil/coal based pollution mess will not be a free lunch for those who are currently addicted or the pushers. As to California having an advantage, yes, courtesy of Governor Moonbeam (our current AG and likely candidate for Gov) we started down the conservation/new tech trail 30 years ago. My house has a solar DHW system, and I am at work on photo voltaics. That said, the entire US needs to stop using foreign sourced oil both for direct pollution production and petro agriculture. The only thing delaying this will accomplish is raising the cost. The ‘better urban design” movement, along with massive new transit infrastructure and major land use policy changes, all will be necessary for planet survival. As to “equity” on a regional basis, after the overly invested in sprawlburbs begin contributing fairly to the decaying urban cores they seceeded from, I might listen.

  4. Pete from Baltimore says:

    First of all please let me wish you a wonderful vacation MR Renn.

    Secondly , most of your map reinforces what you say about the midwest being affected most by climate legislation.But i am curious.Why is the cost so high in that one little part of Florida ?Do you or anyone else know ?

    And this may seem silly, but why isnt the western states affected as much.Isnt a large part of their economy coal,oil and gas.If anyone could explain why it would be appreciated.

  5. cdc guy says:

    Ah, but Alon, all those coastal cars also externalize the dirty (i.e. carbon-belching) aspects of their manufacture on the American Midwest and other countries.

    Indiana produces far more cars/trucks and components than it consumes. All except the full-size GM pickups made in Fort Wayne have “Japanese” name badges, so we’re immune from the argument that “our” cars aren’t desirable or purchased by coastal American consumers. Honda Civics, Subarus, and Toyota minivans, SUVs, trucks, and Camrys are made here.

    Likewise Indiana refines more oil (the BP refinery in The Region is among the world’s largest) and produces more steel than it uses. Ditto for corn, beef, and ethanol. And all its factories are powered by coal-fired electricity that we don’t use in our houses, but which is generated here or nearby in the lower Midwest.

    That’s the problem with state-by-state per-capita statistics. They don’t properly capture externalities any better than the market does. Indiana always appears to be a pollution-ridden, carbon-belching place on a per-capita basis because we’re absorbing all those costs externalized by our fellow Americans. Likewise Texas and Louisiana, the home of the US oil/petrochemical industries.

  6. Alon Levy says:

    The expectation is that carbon taxes will be passed along to the consumer – so a carbon-offsetting $1/gallon gas tax will fall primarily on SUV drivers. The only damage to the producers of dirty industry comes from people changing their lifestyle to consume less dirty products, in this case buying fewer, smaller cars, and driving them less.

    The only alternative that’s been seriously proposed to cap and trade and carbon taxation, besides building high fences to keep out tens of millions of refugees, is regulation. This is typically the proposal of choice of liberal populists, who argue that carbon taxes are regressive and will hurt the middle-class; they support various emissions caps instead, without the trading.

  7. cdc guy says:

    The US in particular didn’t get serious about cleaning up its pollution until EPA was created and there were regs in place. Now we can maybe make the argument that markets exist for cogeneration and recycled materials. But there is still not a significant market for natural-gas-fired internal combustion engines (far cleaner than gasoline-fired, corn ethanol fired, or plug-in-electric in places with coal-generated electricity).

    Markets aren’t usually efficient when there are outsized players with significant market-moving influence (either on the buy side or the sell side). So, for instance, carmakers and oil refiners probably end up passing along a lot of the costs of regulation due to the nature of the markets and the supply and demand curves.

    Even a free-markets guy like me recognizes that we are in a mixed market environment. If the government’s market power is to be used, it should be used toward good policy outcomes and, as Aaron advocates, in a relatively neutral way.

    Carbon taxes in the US would impose a manufacturing cost burden that would make competitive US manufacturers non-competitive with other parts of the world. We would end up NOT reducing carbon emissions, but merely relocate them (and US jobs) to China, Brazil, India, and Mexico. This clearly fails the “neutral way” test.

  8. Alon Levy says:

    What you say about relocating is not true. A carbon tax or cap and trade system can include border adjustment, levying carbon taxes on imported products as if they were domestic. It’s standard to do this with value added taxes, and the WTO does not consider this to be protectionism. In both cases, the tax is on consumers, but it’s collected from producers for simplicity, so when the producer is foreign, it’s collected at the border.

    And no, CNG engines are not cleaner than diesel engines. They cause less air pollution, and more greenhouse gas emissions.

  9. I agree with Alon Levy’s comments. In this case, reducing carbon will and should distort regional economies. Other parts of the US have been investing in cleaner technologies for many years and now it is time for the Midwest to pay the piper.

    Coal power is cheap in the sense of initial cost, but very expensive in terms of its environmental impacts. There is no way to reduce dependence on coal that will not raise energy costs in the Midwest, aside from subsidizing.

    Also, the Midwest might be more willing to accommodate these costs when they realize what climate change will do to their economies. Earlier studies have determined that the Midwest has the most to lose if climate change projections are correct (even with the 2degC cap). (See reports here and here)

    I think the premise of this article is flawed. The Urbanophile consistently argues for adaptation to changes in the global economy so why not in this instance? We can’t just bury our heads in the sand. Let’s leverage the advantages already present in the area to adapt to higher energy costs – Lower transportation costs for agricultural products, plenty of rail, good sunshine and wind resources, and access to the Great Lakes.

    In the end, carbon reduction must be accomplished and the Midwest will bear a large cost for that. This is merely a consequence of the choices that have been made over the last few decades, not because of any sinister conspiracy.

  10. JG says:

    It is incomplete to call diesel cleaner than methane (natural gas.) Diesel is so efficient that similar amounts of work can be done with less tonage of fuel combusted and less CO2 created and emitted. Diesel on the other hand produces more sulfer (unless well refined) and produces more particulate matter in the air than natural gas. Diesel emissions have some correlation to higher rates of coronary artery disease.

    Natural gas releases less carbon dioxide than burning coal, which we all know is highly polluting. Cities such Indianapolis that rely very heavily on coal would be wise to invest in switching to natural gas for electricity generation, certainly while waiting on the technology for more renewable energy sources to become economical.

    Ball State University (Muncie, IN) is embarking on an aggressive project to utilize geothermal energy for their facilities. I know the bits I have read regarding this technology but it may have promise.

    http://cms.bsu.edu/About/Geothermal.aspx

  11. Alon Levy says:

    JG: as I said, compressed natural gas produces less air pollution than diesel, but more greenhouse gas emissions. It’s a tradeoff – the question is how much better CNG is at air pollution and how much worse it is with greenhouse gases.

    Geothermal energy is promising, but unlike fossil fuels or even solar and wind, it’s not very portable – you only get it at one location. Like with hydro, the places that have it don’t become energy exporters like Saudi Arabia, but instead get very cheap electricity like Iceland, which encourages electricity-intensive industries such as aluminum production. Hydro power is why the West Coast became America’s primary aluminum manufacturing region.

  12. Just for the record, Ball State is not building Geothermal Energy production facilities like those that exist in Iceland, they are merely using ground loop heat pumps. This is a more efficient way to heat and cool buildings, but it still requires an electric generation plant to supply power.

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