McCarthy on the Green New Deal, Tol on the carbon tax

Colm is not impressed in today’s Irish Times

This continues the earlier discussion in this house

He also comes out in favour of a carbon tax, which I discuss at another page of the same newspaper

Distributional implications of a carbon tax

In a paper just published in the ESR, Verde and Tol study the implications of a carbon tax across the income distribution. The paper by and large confims previous work (Callan and others being the most recent). A carbon tax is markedly regressive. It disproportionally hits poorer households. That said, the scale of the carbon tax is modest (euros per week) and small relative to income taxes and benefits. That means that the distributional damage can easily be repaired (should our dear leaders be so inclined).

The paper adds to previous research by also quantifying the indirect effects of a carbon tax. (This was last done by Cathal O’Donoghue for 1987.) A carbon tax increases the price of energy (direct effect) and thus of everything else (indirect effects). The paper shows that the indirect effects are small relative to the direct effects, and thus hardly affect the regressivity of the tax. The paper also shows that a carbon tax abroad would have a similar impact on Irish households again.

Commission on Taxation: Water charges

The Commission on Taxation recommends that water charges be introduced. High time. Giving away a valuable resource has never been smart.

There are two additional recommendations by the CoT.

Water charges should come in two types: Flat rates for those without meters, and volume-based rates for those with meters. If the flat rate would be set at approximately the average volume-based rate, then a substantial fraction of the population would have a reason to install a meter. If the flat rate is then adjusted to the average volume-based rate OF THOSE WITHOUT METERS, meters will soon be installed everywhere. If not, there will be a subsidy flow from those who save water to those who do not.

It’s a pity that water data are so poor that we do not even know the average drinking water use per household with some degree of confidence.

The CoT also recommends that local authorities be local monopolies in supply, and that the price be regulated, presumably by a new Commission on Water Regulation. Old habits die hard.

Commission on Taxation: Carbon tax

The report of the Commission on Taxation can be downloaded: http://www.commissionontaxation.ie/Report.html

This thread is on their proposals for a carbon tax. Others will open threads on other aspects of the Commission on Taxation.

The Commission on Taxation proposes a carbon tax. Here are some crucial elements:

Level: Roughly equal to the CO2 permit price in the EU Emissions Trading Scheme (€15.24/tCO2 today)

Scope: Non-ETS CO2 only

Revenue: Earmarked

On the level of the tax, with the carbon tax equal to the permit price, we reduce carbon dioxide emissions at the lowest possible cost. This is good. At the same time, the level of the tax is set by the market rather than by some politician. This is good too. There is the worrying suggestion of a floor to the tax, but this is fine as long as that floor is set low.

Scope: CO2 in the ETS is exempted as it should. Taxing CO2 in the ETS would be double regulation, and every tonne of CO2 reduced in Ireland would be emitted elsewhere in Europe. Non-CO2 greenhouse gas emissions are exempted too. This is the only pragmatic way forward at the moment, although economic theory strongly recommends that this exemption should be phased out at the earliest opportunity.

Revenue: The Commission on Taxation got it wrong here. They recommend that tax breaks for energy efficient capital be continued, and that companies in a voluntary agreement on energy efficiency. The tax break is double regulation. The Accelerated Capital Allowance on energy efficient equipment should be abolished. The voluntary agreements on energy efficiency should also be abandoned. Voluntary agreements are a weak policy instrument. The CoT essentially allows industry to choose between two regulatory regimes.

By the same token, the CoT does NOT recommend that other energy subsidies be abolished — particularly the Greener and Warmer Homes. Again, this is double regulation, unnecessarily increasing the cost of emission reduction and introducing distortions and opportunities for rent seeking. This is an opportunity missed.

The CoT does recommend that VAT on energy-efficient goods be lowered. This is triple regulation!

Is Dublin Missing out on Climate Change?

The concept of “global warming” or, more vaguely “climate change”, is now deeply embedded in the public’s consciousness and indeed in the economic agenda of most developed countries.  Expensive policy responses are being put in place to avert possible future environmental damage.  However, as has been pointed out by Richard Tol, “the impact of climate change on Ireland is [likely to be] moderate”, although he argues that as a constructive contribution to the global problem we should introduce a carbon tax.

This Post is prompted by my puzzlement at the contrast between predictions that our climate is heating up and the prospect of the third dismal summer in a row, coming on the heels of a severe winter and “broken” spring weather. 

Here is a summary of the evidence for warming in Ireland provided by a group studying climate change at NUIM:

The Mean annual temperatures in Ireland have risen by 0.74°C over the past 100 years (McElwain and Sweeney, 2007). This increase largely occurred in two periods, from 1910 to the 1940s and from the 1980s onwards, with a rate of warming since 1980 of 0.42°C per decade. In Ireland, 6 of the 10 warmest years have occurred since 1995 with the warmest year within this period being 1997.

From this quotation it is clear that the trend in average temperature in Ireland was quite erratic over the twentieth century.  Issues such as trend breaks, autocorrelation, and statistical significance, need to be addressed, as does the relevance of jumps in temperature early in the twentieth century for trends in the twenty-first century.

The Environmental Protection Agency’s press release (27th April 2009) based on this report states

The projections show that average temperatures will rise by 1.4°C to 1.8°C by 2050, and be in excess of 2°C relative to the 1961-1990 baseline by the end of the century.  

The basis for this fairly precise projection is unclear. Of course, a lot of very sophisticated climate change modelling is underway in Ireland and world-wide.  To give a flavour of what is involved, consider the following summary of the modelling underway at Met Éireann:

Technically, it dynamically downscales the relatively coarse-grained information produced by global models to tease out the finer details over a smaller area. This approach – regional climate dynamic modelling – is unique in Ireland. The work is done in collaboration with the Meteorology and Climate Center at UCD, and more recently, with the Irish Center for High-End Computing (ICHEC).

At a simpler level, a visit to the CSO Database under Environment, Climate opens up fifty one years of monthly data on temperature, rainfall, sunshine, and wind speeds for 15 weather stations across the Republic. This wealth of easily-accessible data could help take your mind off the banking crisis during the wet summer months. More seriously, I thought it was worth mining these series to see if the effects of climate change can be discerned in this record of the last half century of weather. 

I selected for analysis the mean monthly air temperature at Dublin Airport over the period January 1958 through April 2009 in the belief that this is a meaningful indicator of the climate affecting the largest concentration of population in Ireland.  This simple approach raised some interesting issues.

This first Chart shows the twelve-month moving average of Dublin’s temperature over the period January 1958 to April 2009. 

Even when seasonal effects are removed, the series is very erratic. Periods of cooling have been abruptly followed by warming periods. For example, temperatures fell sharply between 1983 and 1986, but then there was a period of noticeable warming from mid-1986 to late-1989.  1986 was the second coldest calendar year in the 51-year period, but 1989 was the warmest. It is especially striking that the series is very erratic and trendless over the last twenty years. The average temperature (9.4⁰ C) for the most recent twelve-month period, May 2008 to April 2009, was below the mean (9.8⁰ C) for the whole fifty-one year period and almost the same as that for the year 1958 (9.5⁰ C).  

The observations centered on 1963 reflect the exceptional winter of 1962-63.  According to one account

The winter of 1962/1963 was savage, the coldest for more than 200 years outstripping even ‘white 1947’ for bitter temperatures . . . It began freezing on Christmas Day in 1962 and barely relented until March. By early January 1963 much of Britain and the eastern part of Ireland were blanketed in snow.

This exceptionally cold period is still included in the baseline (19861-1990) for average temperatures used on the Met Éireann site. 

However, selective illustrations do not prove anything. The Chart shows the trend line through seasonally-adjusted data. The trend is positive and significant, but not impressively so. Moreover, it is not stable, as is shown in the following Chart for the 25-year period 1983-2008.  Over this period the positive trend is not significant.

To test the stability of the trend more formally, I fitted a linear trend and monthly dummies to the temperature data for the whole period and two sub-periods.  The following results were obtained:

Period

Trend 

(t-ratio) 

((upper – lower bound))

Extrapolated change in average temperature over a century

o C

Full sample: 1958-2008

.0009

(3.5)

((.0004  – .0014)) 

0.48 – 1.68

First half: 1958-1982

 .0009

(1.3)

((-.0005  – .0023)) 

-0.6 – 2.76

Second half: 1983-2008

 .0004

(0.6)

((-.0009  – .0017)) 

-1.08 – 2.04

 

These results illustrate uncertainties about global warming in the Dublin area.  While all the estimated trends are positive, they are at best weakly significant and provide a wide range of estimates of the pace of warming.  The most recent data provide the least support for the warming hypothesis.

Changes in summer and winter weather are probably more economically significant than changes during the transitional seasons of autumn and spring, so it is worth looking at the evidence by season.

Dublin readers may take little convincing that our summers have not been getting much warmer.  The graph shows that the city has not experienced a really warm summer since 1983. The time series show that while over the 51-year period 1958-2008  there has been a small positive trend, it is  not statistically significant (R2=.068, P=.0648). If we confine our attention to the second half of the period – 1983-2008 – the trend is negative (but not statistically significant).

Climate change is often said to be about extremes, rather than averages. The CSO site gives a time series on the maximum temperature recorded each month. This series behaves like that for average summer temperatures, exhibiting a weak upward trend over the whole period and a weak downward trend for the past 25 years.  (The highest temperature recorded at Dublin Airport over the last half century was 28.7o C in August 1990, whilst the highest recorded in 2008 was only 22.3o C.)

A common perception is that our winters have been getting milder, but it is possible that we are still influenced by memories – or accounts – of the exceptionally severe winters of 1947-8 and 1962-3. The statistical evidence for milder Dublin winters is weak.  While over the 51-year period there is an upward trend, but its statistical significance is low (R2 = 0.0462, P=0.14). Over the second half of the period, the trend is negative, but the R2 is a non-significant 0.0001. 


Well, perhaps we are enjoying warmer /mellower autumns?  Not significantly. With R2s of  0.0096 and 0.03, the trends in autumn temperatures over the 51-year period and the second 25-year period are not significantly different from zero.

Warmer /earlier springs, perhaps?  Maybe. The trend coefficient for the full 51-year period is almost significant at the 0.05 level, implying an increase of about 1.2⁰ C a century in Dublin’s average spring temperature.  However, the trend over the second 25-year period, 1983-2008, is not statistically significant (the R2 falls to 0.0445).

Overall, then, the data for Dublin’s temperatures suggest some weak evidence of a slow upward trend over the 51-year period 1958-2008, but none over the 25-year period 1983-2008.  There has been no warming in summer or winter, but perhaps during the transitional seasons.

Of course, temperature is only one dimension of climate and change may be occurring on other dimensions.  The most frequently mentioned possibility is that the warmer Atlantic Ocean will lead to stormier and wetter weather across Ireland.  However, the evidence for Dublin does not support this view – although very variable, Dublin’s rainfall shows no trend over the last half century. 

As mentioned above, extremes are important in the climate change literature.  However, extremes – especially of rainfall and wind speed  – can be very local.   The heaviest downpours tend to be produced by thunder storms confined to small areas. The highest rainfall recorded over a 24-hour period (184 mm) in Ireland was measured during a thunderstorm in Mount Merrion, County Dublin, on 11th June 1963. (For this and other nuggets see The Climate of Ireland by P. K. Rohan, The Stationery Office, Dublin, 1975).  

The series on the CSO website for “Most Rain in a Day” provides rainfall extremes for the 15 weather stations. Over the the 1958-2008 period the evidence for Dublin is of considerable variability but no trend.  The wettest day in the whole period at Dublin Airport was in June 1993, when 82.3 mm were recorded. But wettest day in the following year, 1994, had only 21.8 mm of rainfall.   (The only month over the half century in which no rain was recorded was April 2005).  

Of course, the Dublin area could be affected by warming occurring elsewhere in the world, most importantly by the impact of the widely-predicted rise in sea levels, which would presumably increase the incidence of coastal flooding.   Here is Met Éireann’s take on this topic:

Estimates of sea level rise from satellite observations around Ireland are consistent with the global picture: increases of 2.3 to 4.7 mm/year since 1993. At current rates of change, mean sea levels in Dublin, Sligo Bay and Slea Head will be 25, 44 and 40 cm respectively, above present day levels by the end of the century.

In light of what seems like an estimated 45 mm rise in sea levels over the last 15 years, it is strange that there does not seem to have been much reporting of increased coastal flooding over recent years.

This note is about the Dublin area.  There is considerable variation in climate – and possibly in climate change – within relatively small geographical areas.  There certainly is a lot of variation in the weather across Ireland – for example, summer 2007 was quite good in the West but terrible in Dublin. A sampling of data from other Irish weather stations provides stronger evidence for warming – with much higher correlations and more consistently significant positive trends.  However, even in the south and west the estimates of trends are quite unstable.  For example, the data for Shannon Airport show a strong positive trend in temperature over the 51-year period 1958-2008, but no significant trend for the most recent 20-year period and a negative (and significant) trend over the past 10-year period.  There is not much support for the view that things have been getting stormier – in Belmullet there has been no trend in maximum wind gusts since 1958 and no trend in rainfall over the past twenty years.

To conclude: The implications of climate change – and of our reaction to the fear of climate change – are too important to be ignored by economists.  In the face of uncertainty there is a strong argument for erring on the side of caution, so that even weak evidence of warming might be justification for strong policy responses. But reliable estimates of past trends are nonetheless essential for the projections of future trends on which these responses should be based.