Articles by Joseph Romm

Discount rates: Boring but important

This post will address two questions. What exactly is the discount rate? Did Sir Nicholas Stern, a former chief economist with the World Bank, use the wrong discount rate in his landmark 2006 report, the Stern Review on the Economics of Climate Change?

These may seem like abstruse economic questions, but for analyzing the cost-benefit analysis of climate action -- whether we must act urgently or at leisure -- the discount rate is probably the single most important factor. The discount rate basically represents the so-called time value of money, how much more $100 is worth to us today than next year.

A high discount rate means we would much rather have money today than in the future. The issue is complicated by the fact that society should have a lower discount rate than individuals, since a high "social" discount rate essentially means that we don't value future generations much.

I must confess that even though I minored in economics and have followed the discount rate issue closely for years, after reading various recent blogs by economists, I realized I didn't really understand it, particularly as it applies to climate change. I was not alone -- The New York Times completely misunderstood Stern's choice of discount rate.

Since discount rates are probably as important to the climate debate as feedbacks, I would very much commend the work of Australian economist John Quiggin. He explains why Stern's choice of a low discount rate is fully justified -- and why most critics are either wrong or confused or both -- in an essay, "Stern and the critics on discounting" (PDF) and a lengthy blog post, "Discounting the Future yet Again." The blog post has a fascinating quote from an Environmental Science & Policy article, "Discounting and the social cost of carbon" on the PTRP (Pure Time Rate of Preference):

The financial giant is ready to take on climate change

The investment firm Goldman Sachs has released an environmental policy framework (PDF) and invested billions of dollars in clean energy and research into environmentally-friendly markets, a stark contrast with the inaction of our own government.

In their environmental policy framework, Goldman Sachs recognizes climate change and its threat to financial markets and general livelihood. Consequently, they advocate limiting emissions, participate in Europe’s carbon market, and have agreed to voluntarily report and cut their own emissions by 7 percent by 2012.

You can find their progress in their 2006 Year-End Report (PDF), which includes the partnerships they have forged, research papers they have commissioned, and even exact numbers for emissions from their real estate utilities.

From GreenBiz News:

Market analysts have called the U.S carbon market a "hibernating giant." With Goldman Sachs leading the way, the conservative wing of Wall Street seems to have woken up. And so the question is: when will lawmakers on Capitol Hill follow suit?

This post was created for ClimateProgress.org, a project of the Center for American Progress Action Fund.

Wisdom from the heart of coal country

It's not news when I criticize Congress's proposals to subsidize coal-to-liquids (CTL). After all, my focus is avoiding serious global warming, which CTL would only make more likely.

But when two newspapers from traditional coal regions say "no" to CTL, that is a man-bites-dog story.

The Kentucky Herald-Leader has a great headline:

Liquid coal a new version of snake oil: Don't subsidize energy plans that would worsen global warming.

The Roanoke Times of the coal-region of Southwestern Virginia has an equally strong headline:

Billion-dollar boondoggle: Coal-to-liquid technology is expensive, harmful to the environment and inefficient. The federal government should take no part in subsidizing it.

Wisdom in the media on these issues is rare. Kudos to both papers for putting the long-term national interest above short-term local interests.

Witness the verbal mangling at today’s press conference

The White House Council on Environmental Quality Chair showed off his legendary verbal skills at a G8 press briefing yesterday (PDF). Here are the two best bits.

Yoda Connaughton was enumerating the President's "domestic agenda on climate" when he said:

The President has set out his support at the state level for renewable power mandates, and we now have the United States of America, 80% [sic] of our power under state renewable power requirements.

Packed in a lot of doubletalk in one sentence, he has. The president opposes a federal renewable power mandate (even though he signed one into law in Texas). Second, 80 percent is just plain wrong. The 20 states with renewable mandates (plus D.C.) account for 42 percent of electricity sales. Can anyone can explain what he meant?

The second example is even more garbled: