It can get a bit depressing talking about negative externalities all the time. It’s important not to forget that solving problems like climate change isn’t just about internalising negative externalities, we can also harness positive externalities. Apparently a ‘green’ club is installing a dancefloor that will use the kinetic energy of people dancing to power the light show! Video after the jump. Read more
Many climate change sceptics argue that the IPCC’s predictions are highly uncertain. Over at Vox, Paul Klemperer suggests that this should make us more worried, rather than reassuring us.
…[If] the models merely underestimated the uncertainty, the range of plausible outcomes is now greater, so… defences would need to be higher for us to feel safe.
Klemperer is implicitly relying on people’s risk aversion to claim that the increase in uncertainty makes us worse off. Standard economic theory is on his side here, but experimental work has shown that people are actually risk seeking when it comes to losses. Most people would rather gamble on a loss if there’s some possibility of averting it than take a small, certain penalty. That implies that the increase in uncertainty over the costs of climate change might actually make people feel better about it! Maybe the sceptics are pressing the right buttons after all.
From the Hive we see that the government may be having trouble getting its mandatory biofuel regulation through parliament. Anyone that knows me will know that this makes me glad, not because I’m a climate change denialist (I’m willing to trust the experts on this one), not because I’m concerned about biofuel not having a net positive impact on carbon emissions, but because I don’t think the scheme is properly synchronized with the fact that we have a “carbon price” (through the carbon-trading scheme).
Why does setting a price for carbon mean that we don’t need to make biofuel’s mandatory? In order to explain this I’ll look at the three main criticisms I might get for this position (I’m hoping more criticisms can be added in the comments 😉 ):
Lots of people are ripping in to Monica Prasad after her op-ed in the NYT on carbon taxes. She says that
Denmark, Finland, Norway and Sweden have had carbon taxes in place since the 1990s, but the tax has not led to large declines in emissions in most of these countries… [T]he insight they provide is that if reducing emissions is the goal, then a carbon tax is a tax you want to impose but never collect.
I read recently about the Vélib’ program that Paris is running and what a boon it is for the environment. Apparently Ken Livingstone is keen on making London more bicycle friendly, and cities like Copenhagen are already full of cyclists. The decrease in pollution as a result of the reduction in cars must be quite significant. What is it that prevents New Zealand cities from adopting similar, cyclist-friendly inner city roads?
Perhaps it’s not so much a supply issue as a demand issue. Perhaps fewer people want to commute by bicycle in NZ. A major factor in their decision not to use a bicycle might be the requirement that helmets are worn on the road. Read more
The Congressional Budget Office reported recently on its comparison of a cap-and-trade program to a carbon tax program. The one-line conclusion is that carbon taxes are cheaper and simpler, but caps give more certainty. Read more