Convery defends the Green New Deal

in today’s Irish Times

Convery starts with stating that “raising the price of carbon is a necessary and sufficient step for tackling global warming” […] if and only if the tax was high enough to achieve the necessary reductions”. This stretches the definition of “necessary”. The carbon tax should, of course, be equal to the marginal damage cost. Such a tax does not lead to the emission reductions required by a forthcoming EU directive. Perhaps that is a sign that the EU is overambitious. But even if you except the writ of the EU, then we should still meet the EU-wide target at a cost that is minimum at the EU-level — and for Ireland not accept a cost that goes beyond that. This means that the carbon tax should equal the ETS permit price. Not less. Not more. Equal.

Convery then argues that, because methane from agriculture cannot be monitored, the uniform price principle is broken. True. He then seems to imply that because it is broken anyway, it does not matter to break it further: Because the tax on methane is zero, the price of carbon dioxide need not be uniform. This is plain nonsense.

Convery does not repeat the recommendation by Comher SDC that the carbon tax revenue should be used to subsidise energy efficiency. That would indeed be wasting tax money on double regulation.

Convery does argue that “[s]ubsidies […] be directed exclusively at enhancing fuel efficiency in poor households.” I have argued that the monies for this can more appropriately be found in the budget for fuel allowances.

Convery finally argues for a stimulus package of 2% of GDP, but does not state where that money should come from. The Comher SDC report recommends more borrowing and using the capital of NAMA, Anglo-Irish and the pension funds.

The affordability of a stimulus aside, investing in renewable energy is not the best stimulus. Climate change may be a problem for Ireland in 100 years, but extra borrowing surely poses a problem in 10 years time. The Irish economy needs jobs and capital, while energy is capital-intensive and labour-extensive. Renewable energy may create export opportunities in 10 or 20 years times, but we need to increase exports this year and next.

If there were money for a stimulus, then we should slash labour taxes. If we cannot slash labour taxes, then we’ll have to slash wages.

15 thoughts on “Convery defends the Green New Deal”

  1. @Richard,

    You, very sensibly, have placed these green fantasies in the context of the severe fiscal adjustment and the significant internal devaluation required, but not, again very sensibly, as an obstacle to efficient and effective policy changes. I think you would agree that focused policy interventions to reduce fossil fuel dependency and to increase energy efficiency would do more to meet climate change obligations and, at the same time, foster economic recovery than all this wishful thinking which only generates a WAFF (Warm and Fuzzy Feeling).

    With regard to your final point on labour costs, I’ll simply reiterate my point that slashing state-directed costs and prices (which provide some justification for current nominal wage levels) might make any “slashing” of wages more palatable and achievable. I’m not surprised that this suggestion has gained little traction, but the evidence for the need to do this seems to be piling up. For example a recent survey of MNCs by the IMI-NIB http://www.imi.ie/TNS/info_newso/latest-news.aspx?article=f5b79a6c-e7c1-463a-bf3b-576a9c8552bd
    (co-authored by Ronnie O’Toole who is known to frequent this parish) had 86% of respondents indicating that energy costs were higher in Ireland than in competing locations (Table 2.1). This, of course, does not mean that regulated energy tariffs should be reduced simply because MNCs don’t like them – and I accept that energy costs may not factor highly in their cost bases – but high energy costs feed into the supply chains for all goods and services and contribute to demands for high nominal wages.

  2. This always gets me:

    “The Comher SDC report recommends more borrowing and using the capital of NAMA, Anglo-Irish AND THE PENSION FUNDS.” [my emphasis]

    Is that supposed to mean the NPRF or private occupational pensions funds?

    If the former, the NPRF will be running out of capital soon given the increading number”good causes” they are being made to support. If the latter, it is just an absurd statement.

  3. @Geckko
    All pension funds. In the words of Comhar:

    A further financial vehicle for supporting the Green New Deal lies in the potential for mobilising the capital entrusted in pension funds to finance the investment required for environmental measures. These pension funds are governed by the obligation of fiduciary duty to pursue the best interests of their members. But two pressures are forcing pension funds to re-evaluate this duty.

    The first is the tightening regulation on pension fund disclosure and valuation across the Western world, which is prompting pension funds to more clearly match their liabilities (in terms of making out future payments to their members) with their mix of underlying assets. One recent study from a European investment bank estimated that tightening rules in the UK, the USA, France, Germany and the Netherlands would shift pension assets out of risky assets, such as equities, into relatively risk-free, long-term bonds to the tune of $2,000 billion.

    The second pressure is that of climate change. Along with leading sustainable investors, many leading pension funds – such as ABP in the Netherlands, CALPERs in the USA and USS in the UK – have been at the forefront of efforts to encourage the investment community to acknowledge the systemic threat posed by climate change to their ability to pay out future pensions. As universal investors, pension funds deploy their assets across the market. This means their returns are an output of the wider economy. With climate change threatening to reduce global economic output by as much as 20 per cent, according to the Stern Review, pension funds face a further threat to their financial viability.

  4. @Richard,

    …and on that thread I noted that “vigorous pro-competition policies” are necessary, but are unlikely to be sufficient and highlighted the additional steps required on state-directed costs and prices. It strikes me as strange that these inflated costs which could be tackled swiftly receive so little attention. The usual response is that “promoting competition will reduce these costs”, or “these costs are negligible as a proportion of total business costs”, i.e., either the issue will be resolved over time or they don’t really matter.

    C’est la vie.

  5. “…methane from agriculture cannot be monitored…”

    Should this be addressed by some kind of per-head-of-cattle tax? Roughly zero chance of this happening I imagine but on its merits?

  6. @James
    A tax per head of cattle would not be the way forward. If such a tax would not be applied in other countries, Irish meat and dairy would simple be replaced by French meat and Danish dairy. There would be no emission reduction, but damage to Irish farming.

    If such a tax would be applied globally, it is still not right. Because methane is not measured, the tax would be applied to the average cow. Farmers would have no reason to reduce methane emissions.

    The way forward would be to levy a tax on the product. A steak tax would not discriminate against Irish farmers, and it would induce people to switch to white meat, fish, kangeroo, and less meat.

    On the production side, there should be subsidy on methane-reducing feed supplements and a tax on methane-enhancing supplements.

  7. I see the advantage of taxing cattle products in that methane from imports is taxed too (also I guess bigger cows produce more methane and would be taxed more if the product is taxed rather than the cow). Also politically easier in various ways.

    However I wonder about the general validity of your argument that:

    “If such a tax would not be applied in other countries, Irish meat and dairy would simple be replaced by French meat and Danish dairy. There would be no emission reduction, but damage to Irish farming.”

    If countries are under binding emission-reduction targets (whether through the EU or a global agreement), any increase in French or Danish methane emissions will simply require them to cut emissions in other areas. In other words there would simply be a cross-national diversity in the allocation of the burden of adjustment. Admittedly the relevance of this is limited until we have a universally binding emissions regime.

  8. We (most of humanity) have driven ourselves into a climate, energy and physical resources cul-de-sac. You cannot U-turn, you must reverse out. Axiomatically – you must decrease all the activities that you used to drive into the cul-de-sac. You cannot overturn the immutable laws of chemistry and physics.

    Actually proposing any decline in economic activity is heresy. It is such a an appalling vista for economies based on Smithian growth that no-one, (bar loonies), will even discuss the need for the annual declension in economic activity that is required.

    Our (western developed) economies are fossil-fuel economies. When, not if, fossil fuel resources exhibit a permanent decline trend, the SWHTF!!

    Strangely, discussions about climate change and its affects are couched in business-as-usual terms, with no hint of any knowledge and understanding of the massive disruption that will be caused by our inability to access a reliable supply of fossil fuel. One really serious deficit exhibited by commentators is their apparent disconnect between our total reliance of contemporary economies on fossil fuels and the nature of the energy dense physical technology we are using – a technology which will be rapidly idled absent sufficient fuel to drive it.

    The quantity of easily accessible fossil fuel resources being ‘discovered’ each year is falling significantly short of the combined decline. Why, in the face of a worldwide financial crisis (reduced economic activity) are energy prices – with ex of Nat Gas – either holding steady or rising slowly? What’s the REAL reason/s for the higher costs of energy in Ireland?

    B Peter

  9. Just as an aside

    I have access to a large quantity of air that I am willing to sell for use in powering windmills.

    Should Comhar need to contact me I should be quite reasonable…

    Al

  10. @ Richard

    I note:

    “estimates of the social cost of carbon are driven to a large
    extent by the choice of the discount rate and equity weights”

    And also: “….if we use a lower discount rate—as
    may well be appropriate for a problem with such a long time horizon…”.

    and the possibility of “truly scary impacts”.

    You’re sounding more like Nick Stern every day!

    To say that the tax should equal the marginal damage is somewhat amusing when we the wildly varying estimates and the enormous uncertainty etc.

    And:

    “Convery does not repeat the recommendation by Comher SDC that the carbon tax revenue should be used to subsidise energy efficiency. That would indeed be wasting tax money on double regulation.

    Convery does argue that “[s]ubsidies […] be directed exclusively at enhancing fuel efficiency in poor households.” I have argued that the monies for this can more appropriately be found in the budget for fuel allowances.”

    And you’ve also argued that benefits should be increased if a carbon tax is implemented, but you refuse to see that this essentially means using carbon tax for energy efficiency.

    By the way a steak tax (while superior to your previously mooted cow tax) would be an ugly and inelegant instrument. Different breeds of cows and farming practices lead to widely varying Ghg-eq per unit output.

    If you must have an economic instrument, a domestic trading scheme covering agriculture would probably be best. Not likely to be very popular though.

  11. I heard a professor from Nottingham university, Seamus Garvey question this target figure of 40% renewable energy generation in Europe by 2020. Garvey said the focus on this target completely misses the point. Okay, we get to 2020 and achieve 40$ renewable energy generation. Then what do we do? Shut down all of the wind turbine factories?

    By the time we hit 2020, and it is not that long away in terms of the research work that needs to be done between now and then, we need to have plans put together to figure out the cheapest and most effective way to store electrical power. Otherwise, if we follow this wonderful ‘green’ policy of 40% renewables by this target date, then we reach the target date and there is a big panic situation of the issue of electricity storage. Not very clever, yet no politician out there is talking about this most obvious flaw in the framework plan.

  12. The document – which has been developed through a consultation process involving business, academics, and environmental interests – recommends that the Government commits 2 per cent of our GDP to green stimulus measures over the next three years as a mechanism to create jobs and reduce our carbon emissions.

    This is what really worries me about the process by which the sustainability mafia operates in Ireland at the moment. At least Convery has admitted to the dispersed nature of the environmentalism in Ireland in the statement above. Developed through a consultation process. It bothers me that to be honest. Funding is so scarce for any of these organisations, it is hard to know how they survive at all. Usually, you have a hard nosed economic research group sharing funding with a society for the preservation of bats, and a group of bird watchers thrown in for good measure. Or some combination like that.

    It was quite evident in the fur trade debacle we saw recently, where NAMA was going to be decided on the issue of fur trading. But lets looks at the Green party for a second. We I was very active in the construction industry in the last couple of years, I began to notice many people who were much more intelligent than I was, getting involved heavily in green party politics. I was amazed at all of these smart people suddenly becoming politically motivated. I wondered where they had suddenly found such a desire to express themselves.

    Now I realise they were really intelligent, because they are the only group working in the construction industry today. There is really no market for not-so-clever people such as myself, who simply understand mass production, and couldn’t spot energy efficiency if it jumped up and bit me in the ass.

    But this is what the Green party is. A collection of several generations of people who are on average a lot more clever than I will ever be. This so-called ‘democratic’ methods of government and consensus really have nothing to do with wanting to be democratic. It has to do with the fact the Green movement is such a wide, dispersed amalgamation of vested green interests, working in all areas, and all levels of the economy. They are not like Fianna Fail, a bunch of builders who ganged together to make life better for themselves and their buddies. Therefore Fianna Fail doesn’t require the same level of consensus building the Greens require – because FF is by definition a consensus from the start. They got that out of the way ages ago, and vote the same way on everything thereafter.

    The contrast is a very stark one in my opinion. The Green party reminds me of a google search engine, or some other web-based functionality, that serves to draw together similar things in one handy interface. It is chaotic, but it is also very of this age we now live in. Fianna Fail is more like the old big radio, with the big acid car battery stuck onto the back of it, with the voice of some ancient radio host coming out. The thing that bothers me so much, is the fact they are extremes. I hope in the future we can see a party with a greater degree of solidity and organisation. But one which also accomodates a necessary level of diversity.

  13. The Greens are an invention of the Club of Rome and will be with us for a long time to ensure diversity, and an element of control by others.

    Climate warming becomes climate change as evidence mounts that 1998 was the warmest year and that since we have been cooling. Nuclear power is now Green!

    Ever heard of the BIG LIE? The Greens will be the new vehicle for reversals of policy such that one can only wonder how we were so deluded as to think nuclear energy was dangerous.

    Individuals will come and go and mysterious benefactors will ensure that enough but not too many Greens continue. After all we have had colour elections throughout the old Soviet Union. Democracy is a good game, can we play again?

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