Estonia has now joined the euro area (10pm Irish time is New Year in Estonia) - over the years, it will be interesting to see the difference it makes in shifting from a ‘hard peg’ to the euro to full membership of the euro area.

This headline appeared in the Irish Times on 20^th December 2010. In the article that followed Frank McDonald admitted this was “paradoxical” but explained that recent research has linked severe winters in northern Europe to diminishing levels of ice in the Arctic sea. A more detailed account of the same reasoning is contained in this article published in the New York Times on December 26^th 2010.

This new view of the effects of global warming is quite an about-turn.

In 2009 the Irish Environmental Protection Agency (EPA) published a Summary of the State of Knowledge on Climate Change Impacts for Ireland. This document provides predictions for key climatic variables for the rest of 21^st century based on extrapolations of observed changes relative to the 1961-1991 averages. Here is how some key trends are summarized in Tables 2.1, 2.2, and 2.7.

“All seasons are warmer but more so in winter”

“Less frost; trend of decreasing frost nights and decrease in duration.”

“Less (sic) snow days”.

“Increases in Irish coastal water temperatures”.

“Drier summers”

All but the last of these generalizations were made with a “high degree of scientific confidence”. The deluges of the summers of 2007, 2008, and 2009 reduced the confidence attached to the last point to “medium”.

If instead of the the recent extreme weather events there had been comparable deviations in the other direction (dry, hot summers and mild, snow-less winters) confirmation bias would have led many commentators to view such events as strong support for the predictions contained in the EPA document. The same bias now leads commentators to label the actual recent pattern of extreme events “anomalies” and to offer ad hoc explanations for them. One has to wonder about a science that flip-flops from predicting one extreme to the other in so short a space of time. If climatologists are now saying that our winters may be  going to get colder rather than warmer, it will be very hard to test the various hypotheses associated with the idea of “global” warming.

A longer term perspective is needed if we are to talk about “climate” as opposed to “weather”. In an earlier post I drew attention to absence of a positive trend in the Dublin’s annual average temperature over the period 1958 to 2008.  Two more years of data have reinforced the main points I made in that contribution. In 2009 Dublin’s temperature was slightly below the long-term average, while 2010 was the coldest of the past 52 years, with an average temperature of 8.3º C - more than two standard deviations below the 1961-1991 average used by meteorologists to represent “the long run”. During last winter (December 2009 – February 2010) the average temperature was three standard deviations below the long-run winter average. It is very likely the winter of December 2010 – February 2011 will also be unusually cold.

However, it would be a mistake to believe that the recent downward trend in annual temperatures is due only to colder winters.  June and July were the only months of 2010 when Dublin temperatures were above their long-run averages.  The warmest year of the past half century was in 1989. The average temperature during the naughties was lower than during the 1990s

A longer term perspective is needed if we are to talk about “climate” as opposed to “weather”. The graph of Dublin’s annual average temperatures (below) does not convey an impression of a consistent upward trend in annual temperature since 1958. This is confirmed by standard statistical tests, which reveal that there has not been a significant trend (positive or negative) in the annual data over the entire 52-year period.  Nor has there been a consistent trend in temperature in any of the four seasons. More detailed investigation shows that there was a significant positive trend for some 30-year windows between 1958 and 1993, but for all such windows between 1971 and 2010 the trend has been negative although not statistically significant. The trend in Winter and Summer temperatures has been negative but not significant since the 1970s. Similar graphs of Dublin’s rainfall reveal no significant trends.

The fairest summary of this evidence would seem to be that Dublin’s climate has not changed significantly over the past half century.

The evidence for an upward trend in temperatures over the past half century is stronger for weather stations outside Dublin. Dublin has become colder than other parts of Ireland.  Belmullet, for example, shows strong evidence of a positive temperature trend for much of the period and the Dublin minus Belmullet differential widened markedly in the 1990s. But here, too, there is a puzzle: Belmullet’s temperature showed no positive trend between 1958 and the mid-1980s but for the next twenty years there was a strong positive trend, while the last three years have been cooling again.  Here, as for the other stations, the volatility of the data is very striking.

These small pieces of evidence may, of course, be dismissed as irrelevant to the “global warming” debate. But to adapt Tip O’Neill’s aphorism, all climate is local. The Dublin data draw attention to the fragility of some of the evidence on which recent predictions of climate change have been based.

Happy New Year!

Landon Thomas compares the current predicament of the euro area to the predictions made before the single currency was launched in this article.

Stephen Kinsella pointed me to this site: the NSF in the US has requested ‘white papers’ on the future of economic research  - the current list of contributions is available here.

Simon Head writes on the “The Grim Threat to British Universities” in the NYRB: here.

David McWilliams discusses the Irish version of the ‘Gavyn Davies’ sector financial balances graph in the Irish Independent today. He makes two points. The first is to highlight the restoration of the foreign sector balance in recent years, which he interprets as meaning that, absent the banking crisis, the government would not have needed to seek EU/IMF funding given the availability of sufficient domestic savings to fund the government deficit.

His second point is that the chart shows that austerity will not work because, if the private sector keeps saving, then either the government deficit remains high (as a result of a further contraction of the economy) or there is a build up in the current account surplus on the balance of payments, which he also sees as undesirable because it means that “we will export capital to the rest of the world for them to use, while projects in Ireland are starved of capital”.

While the first point may be true in the sense that the state would not have faced the downgrade on its sovereign debt in the absence of the banking crisis, I think the second conclusion is wrong. (more…)

Hans-Werner Sinn provides a provocative assessment of the current crisis in Europe here.  His take on the recent robustness of the German economy is novel. The slides are particularly entertaining though not always flattering to Ireland.

The Climate Change Response Bill 2010 was published today for consultation, together with an explanatory memorandum.

Art 1-3 are preliminaries. Art 4 has the emission reduction targets:

• Emission reduction should be 2.5% per year on average between 2008 and 2020. The bill seems to say that 2020 emissions should be 28% below 2007 emissions (i.e., 52 mln tCO2eq). The memorandum says that 2020 emissions should be 26% below 2008 emissions (i.e., 50 mln tCO2eq).
• 2030 emissions should be 40% below 1990 emissions.
• 2050 emissions should be 80% below 1990 emissions.

(In fact, the base year is 1995 for the F-gases and 1990 for the other greenhouse gases. Between 1990 and 1995, emissions of F-gases rose from 0.06 mln tCO2eq to 0.20 mln tCO2eq so the dual base year just complicates things.)

The 2030 target seems to follow from the fact that 2030 is halfway between 2010 and 2050 and 40% is halfway between 0% and 80%. Annual emission reduction is to be 2.5% between 2010 and 2020, 3.9% between 2020 and 2030, and 5.3% between 2030 and 2050.

Art 5 creates a National Climate Change Plan. Art 6 establishes an annual statement to the Dail. Art 7-10 create a National Climate Change Expert Advisory Body. (The memorandum clarifies that no new expert will be hired.)

Art 11 orders public bodies to have regard for the climate bill and report progress to the Minister of the Environment.

Compared to the Oireachtas bill (discussed here), the Government bill creates much less bureaucracy. That is a good thing. Like the Oireachtas bill, the Government bill has nothing on how the targets are to achieved. This is a serious omissions. It is all good and well to announce a target, but there is more to policy.

The targets are very ambitious, as discussed here. Fortunately, the memorandum assures us that “[t]his Bill does not have immediate significant financial implications for the Exchequer.” The crucial word is “immediate”. The 2020 targets are notably more stringent than the EU targets, and we’re well on track to miss those (at least, according to the EER2010).

UPDATE:

ETS emissions are controlled by the EU rather than by the Irish government. That implies that the additional emission reduction effort for 2020 will fall entirely on the non-ETS sectors. The EU targets are to reduce ETS emissions by 21% in 2020 (relative to 2005) and non-ETS emissions by 20%. The government target is to reduce non-ETS emissions by 37% in 2020 (relative to 2005).

In 2008, non-ETS emissions were about 48 mln tCO2eq, 38% in agriculture, 30% in transport, 16% in households, 9% in services, and 7% in manufacturing.

Note that I assume throughout that LULUCF is as defined for the Kyoto Protocol. Note also that the climate bill is silent on this.

UPDATE 2: See Times, Independent, Examiner

UPDATE 3: There is a Regulatory Impact Assessment, which contains the gem that if you raise energy prices through a carbon tax it would affect the vulnerable and competitiveness, but if you raise energy prices through other means there would be no such impact.

Tony Leddin and I have included a version of this type of graph in successive editions of our textbook The Macroeconomy of Ireland.
Here are two slides showing the data for Ireland from 1970 to 2009.

(It proved easier to post a link to Flickr than to go through to rigmarole of uploading via this site!)

Happy Christmas!

Has anyone seen an Irish equivalent of this? A good way of framing macroeconomic debates…

John Bruton has an interesting opinion piece in the Irish Times - the headline is “Europe also responsible for Ireland’s Banking Crisis”. He is of course absolutely right to point out, as others have done, that this crisis would not have happened if German, UK, Belgian and other banks had not lent to Irish banks, just as much as it would not have happened if Irish banks had not lent to Irish developers. What he does not point out is that other EU members benefitted greatly from the Irish boom e.g. where were the BMWs, Mercs, Audis etc. built?

John Bruton is very critical of the EU response and highlights that it is very narrow and one sided. For example he points out that the agreement reached at the last summit only provides a mechanism for help if the crisis threatens the entire Euro-zone - no scope to help out countries hit by an asymmetric shock. He also points to other crises facing the EU that need serious action.

To me the approach taken at the summit (and during other recent decisions) implies a departure from the principle of solidarity between the EU members that was supposed to underpin the EU. Of course all EU members can start looking after domestic interests only - Angela Merkel might end up with a nasty surprise the next time she is looking for a decision that requires unanimity. In that sense, far from solving problems, the last summit has added more uncertainties for the EU. No doubt the markets will use the Christmas break to sharpen their knives!

Yesterday, the EFSF explained its funding strategy for the Ireland deal: the details are here.

The schedule for IMF funding was contained in last week’s IMF Country Report.  The relevant table is reproduced below: