Climate Climate & Energy

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):

Always keep the bait dangling just out of reach

The July/August 2007 issue of World Watch magazine (produced by the Worldwatch Institute) includes a concise demolition of carbon geosequestration in the form of a letter to the editor by one Luc Gagnon, "a senior advisor on climate change for Hydro-Quebec."

I'd quote the letter but the Worldwatch site doesn't have it online yet. So I went searching for more by Gagnon and found this short, powerful PDF making essentially the same point (in almost the same language). An interesting table indeed, of "energy payback ratio of electricity generation options based on life-cycle assessments":

Short summary: No matter how much they dangle the subsidy-bait of carbon geosequestration back and forth like a gold watch in front of our eyes, trying to hypnotize us into the belief that the chimera called "clean coal" actually exists, there are a few key points to remember:

1. coal is the enemy of the human race, and
2. coal isn't all that hot as an energy source to start with, once you factor in all the other energy costs.

Even if we were to stipulate that perfect geological storage of CO2 (from a leakage perspective) was attainable, the cost in energy makes it a killer for coal.

And the punch line is quoted below:

With the right rules in place, it could work

Working Assets is my long-distance phone company. I love it dearly for its combination of business efficiency, social responsibility and progressive politics.

Each month, my phone bill carries alerts that urge me to take action on a specific issue or two. Recent Citizen Actions suggest the gravity of the issues chosen: "Save Our Constitution," "Impeach Dick Cheney," "Close Guantanamo."

This month Working Assets urged me to "Say No to Ethanol."

How did the use of ethanol end up alongside tyranny and torture as an evil to be conquered?

A couple of years ago, I was waiting my turn to speak to a well-attended California conference on alternative fuels. For this gathering, alternative fuels included natural gas, clean diesel, fossil fueled derived hydrogen, coal-fired electricity, as well as wind energy and biofuels. The leadoff speaker, from the California Energy Commission, spoke warmly about all the alternative fuels under discussion. Except one. When it came to ethanol, he visualized his perspective with the metaphor of a giant hypodermic needle from Midwest corn farmers to California drivers. For him and, I suspect, most of California's state government, ethanol belongs in the same category as heroin.

In the late 1990s, the nation discovered that MTBE, a widely used gasoline additive made of natural gas and petroleum-derived isobutylene was polluting ground water. The environmental community largely defended its continued use and vigorously opposed substituting ethanol. One well-respected New England environmental coalition raised the possibility that ethanol blends could cause fetal alcohol syndrome. Fill up your gas tank with 10 percent ethanol and your baby could be alcoholic, their report warned.

In the last few years, the environmental position has shifted from an attack on ethanol from any source to an attack on corn and corn-derived ethanol. The assault on corn comes from so many directions that sometimes the arguments are wildly contradictory. In an article published in the New York Times Magazine earlier this year Michael Pollan, an excellent and insightful writer, argues that cheap corn is the key to the epidemic of obesity. The same month, Foreign Affairs published an article by two distinguished university professors who argued that the use of ethanol has led to a runup in corn prices that threatens to sentence millions more to starvation.

Ethanol is not a perfect fuel. Corn is far from a perfect fuel crop. We should debate their imperfections. But we should also keep in mind the first law of ecology. "There is no such thing as a free lunch." Tapping into any energy source involves tradeoffs.

Yet when it comes to ethanol, and corn, we accept no tradeoffs. In 30 years in the business of alternative energy, I've never encountered the level of animosity generated by ethanol, not even in the debate about nuclear power. When it comes to ethanol, we seem to apply a different standard than we do when we evaluate other fuels.

Disagreement over threat to national security

Cape Wind claims to have cleared another hurdle today. From their press release:

Today's Department of Defense (DOD) report is good news for Cape Wind. The report clearly finds Cape Wind to be outside of the wind-turbine offset zone being proposed for PAVE PAWS radar systems.

Now the DOD has reached the same determination as the U.S. Air Force -- that Cape Wind will not negatively impact the Air Force PAVE PAWS radar system. This report puts to rest in a final form any reasonable concern about this issue.

The reality is that projects like Cape Wind strengthen national security by making America more energy independent and less reliant on foreign sources of energy.

That's not how the Alliance for Nantucket Sound sees it, unsurprisingly, claiming that this report is final proof that the turbines would threaten missile defense systems and therefore, national security.

These two just can't agree on anything.

More than meets the eye

If you think that the current governmental and corporate interest in ethanol has something to do with global warming, think again. It is dawning on the U.S. government that (1) most of the remaining supplies of oil are in unfriendly hands, and (2) that there isn't enough oil remaining to feed a constantly growing global demand.

With oil production plateauing, governments can turn to three main strategies to maintain fuel supplies: (1) consume what's left of the planet by growing huge amounts of biofuels; (2) fry what's left of the atmosphere by converting coal to oil or exploiting dirty, expensive tars and oil sands; or (3) conquer the planet to forcably take whatever oil is left.

Michael T. Klare brings this problem right to the door of the U.S. military in his new article, "The Pentagon v. Peak Oil: How Wars of the Future May Be Fought Just to Run the Machines That Fight Them."

What a nice idea

If Gandhi were around today, I think he would be less reasonable and tractable about the climate crisis; instead, he would challenge the moral integrity of so-called western civilization. The galvanizing march to the salt flats (the famous "Salt March") would be a tour of threatened island nations: Inuit seeking redress for loss of habitat, mountain people facing bewildering change, deluges in Bangladesh, landslides in the Philippines, and masses of people in the Indus-Ganges-Yangtze river basins facing an uncertain future over water supplies. It would be a march to bear witness to the moral wrongness that pervades the fossil-fuel civilization. It would not, my fellow environmentalists, be the image of a stranded polar bear, regardless of how signatory a phenomena.

There oughta be a law: Off means off

Here's why you need to put all your electronics on power strips/surge protectors; so you can actually turn them off and save the massive amounts of energy these vampires suck out of the system (and your wallet).

We need a law that says by 2009 no new electronic devices can be sold without a hard off setting that actually turns the device entirely off (i.e., no current drain whatsoever). It's not hard -- it's how everything used to work.

Well, sorta

One of the most striking findings from this year's Cascadia Scorecard from Sightline Institute (just released Tuesday, by the way) is that Northwesterners -- or, more properly, the residents of Oregon, Washington, Idaho, and British Columbia -- are using less gasoline. In fact, per person gas consumption on the Northwest's roads and highways has fallen by nearly a tenth since the late 1990s.

To put the recent declines in context: cutting gas consumption by nearly a tenth is equivalent to each driver taking a one-month holiday from driving each year. At this point, the average resident of the U.S. Northwest uses less gas than at any time since 1967.

Who knew?

Maybe some of you are not going to believe this, but a trend seems to be developing wherein some progressives seem to think that the issue of global warming is grabbing the "spotlight." For instance, in "Why is peak oil politically incorrect?" Ugo Bardi compares the number of online searches that global warming receives versus peak oil, using Google's admittedly new "Trends" system. The number of searches for global warming is rising rapidly, while peak oil lists along. But as an editor comments at the end of the article,"But if you think that's all very depressing -- do the comparison with 'Paris Hilton' and then cry."

Exactly. If the civil rights movement had enjoyed the "publicity" and public passion that global warming currently does, we'd still have segregated bathrooms in the South. Which brings us to the second, admittedly amorphous problem, best exemplified currently by that fascinating phenomenon, left-wing climate deniers.

David F. Noble, a historian of technology (his book Forces of Production is a classic), does a good job in " The Corporate Climate Coup" of showing the history of how large corporations are trying to use the global warming issue for marketing purposes, but somehow global warming activists seem to have accumulated some collective guilt as a result -- am I missing some billboards or something?

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