Stimulus and response in the EU ETS

We use a carbon tax or an emission trading scheme to stimulate investment in clean technology.  The logic of this idea is based on several steps: we charge people for emitting CO2 and as a result some will find ways not to emit.  Some of the ways people find not to emit will involve developing and implementing clean technology.

Let’s think of the other things people might do when faced with a charge for emissions.  They might just carry on, because they have plenty of money and it is easier to do nothing or because their own income does not depend on profits.  They might move their production to another country where there is not a charge or a lesser charge for emissions.  They might become cross and try to persuade the authorities to reduce the charge for emissions.  They might sell their business and go and do something else.

We can draw a picture of this.  There is a stimulus (charge for emissions) and several possible responses.

These are six different responses which I came up after only a few minutes thinking.  With more thinking and research we can surely uncover many more responses to the stimulus.

Some of these responses have no effect on emissions, some do, and in some cases we cannot tell.  For example, if I sell the plant (at a depressed price because of the emissions charge) to someone else, then the buyer, having bought at a depressed price, might be generating nice returns even with the emissions charge and so he moves into the first response category.  If the buyer is a creative and eager type, he might take up the challenge which the seller baulked at, and try and reduce emissions.

We can consider the conditions which the influence the response.  There are conditions of circumstance – external circumstances which constrain the decision-makers; and of belief and temperament – internal characteristics personal to the decision-makers.  Here are some suggestions:

 

The point made here is that for a company to try and reduce emissions in response to the stimulus of a high carbon price, you want certain circumstances to prevail and you want the decision-makers to have certain beliefs and temperament.

In what percentage of companies do you have the right combination of circumstances and beliefs / temperaments?

Do we know?

We have some idea of the circumstances surrounding companies – hence the whole discussion of the “leakage list” which in a way makes an attempt at determining the probability of a company shifting production abroad.  But this does not give the whole picture.

I don’t think that the temperament and beliefs of decision-makers have been examined.

Is there anything we can do to guide or nudge the response to the stimulus towards (6) and away from the others, especially (5)?

We should discover this, because efforts to increase the propensity of decision makers to go the way of (6) might be more effective and politically acceptable than simply increasing the charge for emissions which is the only option that the EU ETS gives us.

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Priming as policy: forest schools and nuclear power

It takes five years to educate a child from the age of five to ten.  It takes between ten and twenty years to build a nuclear power station in a democracy.  We should consider carefully the implications of this in climate policy.

In his biography of Edmund Burke, Conservative politician Jesse Norman writes of how the psychological effects of priming and framing shape our views of the world and our behaviour.  He writes: “People who grow up surrounded by the images, language and culture of money – as they do overwhelmingly in highly developed economies around the world – may have their behaviour and attitudes unconsciously shaped by these primes, and that if so the effect is to make them more greedy, more selfish and more individualistic, and more accepting of social and economic inequality.”

This phenomenon of priming during our formative years is critical for climate policy, and points to a low-cost alternative to current approaches.

Almost all climate policy today is about the supply side: it tries to make bad things (fossil fuels) more expensive and good things (low carbon technologies) cheaper.  Hardly any serious policy is about the demand side: how to make us want bad things less and good things more.

The reason for this is that economists and politicians are scared of trespassing on our “preferences”.  That is, they say that they don’t like to tell us what we should want and not want.  But they do permit themselves to make us pay more or less for things that they think we should want or not want.  There is a subtle, perhaps imaginary, difference between what is politically acceptable and what is not.

Let’s consider this from a purely economic point of view and not a political one.  After all the economists should be ignoring politics and just looking at the economics of different policy measures – it is up to politicians to decide what they can sell.

Economics profess to seek policy measures which achieve their goals at least cost.  This is why, for example, they like to create emission trading schemes which induce market-like behaviour: like water seeking the easiest route to the ocean, or electricity the easiest way around a circuit, human economic agents rush around to find the lowest cost way cut emissions.

But those systems don’t necessarily find the lowest cost route to cutting emissions. They only find the lowest cost route to cutting emissions which is consistent with political sensitivities.

What if we look at the demand side?

Imagine that we had an inspired program of priming of young children to care for the natural world.  Through a national network of forest schools – a dense thicket of schools – , children would imbibe experiences of the natural world for several years; they would learn about our connections to nature – the science, the chemistry, the biology, the ecology; the mathematics of networks and evolution and dispersion.  This would be as rigorous as any science learnt in the classroom.  They would sleep in forests or on mountain tops, see breathtaking sunsets and dawns; swim in chill pools and watch minnows; run full pelt against wild winds and watch red kites soaring; they would become transfixed with awe of nature.  They would learn about other species and our duties towards them; they would learn to care for people and species far away in space and time.

This alternative priming would mean that children grown into more confident adults, less desperate for symbols of status; they would be less anxious, less needy for the numbing of consumerism.  They would be hardier and so not need to be coddled with so much heating and hot water.  They would be more at one with the world and so not need jet-setting ambition to feel good.

Demand for energy would fall, as would CO2 emissions.

Therefore before concluding that supply-side interventions are the most economically effective, economists should also consider the economics of demand-side interventions.  They should look at the cost of this priming exercise and then consider its effect on emissions.  For all they know the marginal abatement cost of priming is lower than that of supply-side interventions.  One thing is certain: they don’t know that marginal abatement cost yet.  And until they know it, they cannot claim that tackling the demand side would be a more expensive approach than – say – building low-carbon infrastructure.  One thing is for certain – it takes less time to prime a child than to construct a nuclear power plant.

One day I want to see the celebrated (but flawed) marginal abatement cost curve bristling with demand-side approaches: priming, education, advocacy, leadership, great example by inspiring people…

This is a hypothesis.  It would be great if we could test it.

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Prosperity, possessions and flying

In a recent article published in the Guardian, L Hunter Lovins describes how a new narrative might be emerging about the economy.  http://www.theguardian.com/sustainable-business/2014/oct/10/challenge-narrative-possessions-equal-prosperity

In the rich world we are realising that we don’t need possessions to achieve prosperity, happiness and fulfillment.  Therefore we do not need to be make so many things – business can be done by arranging the sharing of existing things or providing services not to do with physical objects.

This points to a future where we can achieve the human goal of lots of people having meaningful livelihoods and we also don’t have to trash the planet.

It points to but does not imply, so we have to be sceptical embracing this soft-techno-optimist route.  There is a fly in the ointment.

In the rich world the thing we do with the biggest CO2 emissions by far is flying.  A flight within Europe can emit several hundred kg CO2 per head and a transatlantic flight can be well over a ton.  This is an order of magnitude far above other things we do in our lives.  Meat-eaters cause emissions in the order of a ton per head per year; your domestic heating and hot water system – perhaps one or two tons per head per year.   One single flight can exceed these figures.

The very most polluting thing we do is not about possessions.  It is about experience.

Once we get over the need for hoarding symbols of status, which can be possessions (a car) or evidence of experience (a tan), we often move to hoarding experiences – partly for hedonistic reasons – pure pleasure, and partly as a store for the future so that we can look back at pleasurable memories.  We have to be careful that the shift from symbols to experience does not result in even more emissions because we end up travelling more.

Cutting down on possessions and sharing are using ways of reducing our consumption of resources.  As important as this, however, are finding ways of symbolising status without physical tokens and developing the self-confidence not to need symbols of status in the first place.

Then – the greatest challenge – having the restraint not to pursue those pleasurable and experience-rich activities which are highly polluting.  Sharing or no sharing, possessions or no possessions, that challenge remains.

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A simple theory of anger at suffering

I developed a simple model to explain how angry I get at injustices done to wildlife.  It might also work for war situations, treatment of minorities etc.  It is called the get-angry-about model.

The degree of anger I feel about a given act is proportional to:

(A x B x C) / (D x E)

where

A is the degree of suffering caused

B is the innocence of sufferer

C is the percentage of population of the sufferer which suffers

D is the innocence of aggressor

E is the reversibility of the act

Actually this is version 2 because I included “reversibility”. The idea is that if an act can be reversed and the effects undone, then I feel a bit less angry.  So, for example, if an animal is made extinct and so reversibility is 0, then I am infinitely angry.  OK, I might also need some help from a mathematician.  I am not sure if C and E are the same, or how much correlation there is between the two.  Perhaps both factors are not needed.  I think reversibility and irreversibility might actually fully account for C as well.  It needs some tests.

If anyone would like to test or comment on this formula, or suggest possible applications I would be most grateful.

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Racism and types of thinking

I don’t usually stray from “the environment” but I am cross about something connected with racism, so will write about it.

A couple of days ago, UKIP MEP Janice Atkinson got into hot water because she was recorded in a moment of folly referring to a foreign lady using a flippant and rude phrase.  The press have revelled in this like a highly hypocritical hippopotamus in glorious, warm mud.  The next day, football manager, Malky Mackay, was hounded by the press and noisy and righteous people, for a number of ill-judged messages he sent which had rude content – referring inappropriately to people who were variously homosexual, Jewish and overweight.

I might be juvenile, but among other things I thought it was quite funny.  I bet that lots of good and normal other people did, too, in darker moments of weakness.  In these circumstances I wonder what makes me so bad and what makes the press and the pious campaigners for various rights so good?

To explain this, I reflected on how the human mind works – admittedly relying on limited knowledge, based on recent reading and thinking; but I think my explanation is fairly solid.

The mind has two important systems (which you can learn about in Daniel Kahneman’s best-seller, Thinking, Fast and Slow): an intuitive system which works quickly and instinctively; and a slower, more ponderous rational system.  Kahneman calls them systems 1 and 2.

Intermeshed with these systems we have a complex of values, which are nicely explained in Chris Rose’s book, What makes people tick.  We acquire values – attitudes and beliefs – throughout our lives, through the influence of parents, family, teachers, friends, our peers and our experiences.  Earlier on in life, our values tend to be associated with survival, security and tribalism – so-called “settler values”.  Later on as we seek self-actualisation our values are associated with reward, material wealth, hedonism and status – “prospector values”.  A third stage is the “pioneer” who is more interested in ideas, ethics, other people and the world around them.

People who have learned to be very attentive to the rights of others are those who are lucky enough to have passed right through to the end of the third stage and are at the very pinnacle of human decency.  Others, for a range of complex reasons, do not get so far, and remain as settlers – suspicious, insecure or xenophobic, or as prospectors – full of fun and bling and whaddevva.  (Note to serious people: I exaggerate, here, for fun, and this does not to justice to the sophistication and learnedness of Rose’s book.)

So, in our minds there are instinctive thinking and reflective thinking, and there is a complex of values – old ones, new ones, tribal ones and enlightened ones.

When Malky Mackay is having a laugh with his chums and makes a ripe comment about someone, his system 1 is in action, reflecting more tribal or juvenile thinking patterns.  Perhaps he has had a glass of wine and system 2 was not alert enough to impose later, learnt values of political correctness onto the discourse.

Perhaps, similarly, Janice Atkinson was tired during a busy day, reverting to system 1 mode; her intuitive brain made a slip, and system 2 was not smart enough to catch it.

I think this is normal, human behaviour.  It does not imply anything about whether Malky Mackay and Janice Atkinson are good or bad people.  These incidents are not a test of character and even if they were, one data point has little statistical validity.  Now, if a fat, Jewish, gay, black woman is lying groaning on the pavement, and both Malky and Janice, after reflection, were to choose to walk on the other side of the road and not lend a hand, then that might well reflect undesirable character.

Sometimes I am terribly racist, in a system 1 way: when I read about elephants being slaughtered and I think that it is all to do with the Chinese.  Then I am a terrible Sinophobe.  After some reflection, however, I realise that it is only a small proportion of the Chinese who are responsible for buying elephant ivory, rhino horn, pangolin meat and tiger penises.  And the fact that they are Chinese is irrelevant – except for that fact that, being in China, it is a matter for the Chinese government to deal with them and not the UK government.  So after a moment my racist feelings subside and I can think clearly about the issue in a system 2 way, applying learnt values of enlightenment.

Similarly with Malky and Janice.  In a weak moment of stress or banter, they might say something silly.  That is, they might be human.  But in important moments of reflection and decision-making, they are unlikely to let their system 1 thinking prevail.

I don’t think this all makes me or Malky or Janice bad.  Just human.

Thus it is annoying when spokesmen and spokeswomen for rights jump down the throat of people in such situations as Malky and Janice found themselves in.  The incensed responses of anti-discrimination groups are as instinctive and intuitive as Malky’s and Janice’s error.  They appear so full of righteousness and piety as if they believe themselves to be sinless.  If you want the world run by angels, go and live in heaven.  I am sure if we took a magnifying glass to their lives we could find something they don’t feel so proud of.

Anti-discrimination campaigners should show more understanding of the human mind and more sympathy for the difficult situations in which people are put.  They need to understand that everyone has come on a developmental journey, that the relics of earlier days are still in their minds, like it or not, and from time to time, those earlier values might pop out.  But those instances do not constitute a fair reflection of the overall integrity and character of the people they judge.

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