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Hot, Flat, Crowded, and Taxed October 12, 2010

Posted by Amir Roth in books, clean energy, climate, energy efficiency, sustainability, taxes, weird.
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One of my favorite parts of my temporary new job is the commute. It’s between 30 and 40 minutes each way, but all on public transportation. This not only gives me the moral authority to browbeat people about their energy consumption—I’m not part of the problem! I use public transportation! My carbon footprint is only 12 times that of an average Indian, not 14 times!—it also gives me time to read in relative peace and while I am more or less awake. In fact, I am somewhat surprised by the relatively small number of people that read on the Metro. On any given day, I would say that fewer than 20% of the people on the Metro are reading, and most of those are reading that free magazine you can get as you come into the station. What are the other 80% doing? 20% are texting. 20% are listening to iPods. 20% are staring blankly into space. 19% staring blankly into space, listening to their iPods, texting in one hand, and holding the Metro newspaper in the other. 1% are trying to extricate themselves from the Metro doors.

The first book I read entirely on the Metro was Tom Friedman’s “Hot, Flat, and Crowded.” I won’t rehash Friedman’s thesis—the best thing America can do for itself and the world is to go seriously Green—Friedman does that just fine. I did want to say three things about the book though. First, I love that the cover is sampled from “Garden of Earthly Delights” by Hieronymous Bosch. Look no further than GoED for proof that they had very good psychotropes even in the 15th century! With publishing margins as slim as they are these days—although perhaps not for bankable stars like Friedman—why pay for cover art? Sample a renaissance painting for free!

Second, one of the things that struck me about “World Is Flat”—HF&C’s predecessor—was Friedman’s own itinerary. Bangalore. Shanghai. Doha. Copenhagen. Sao Paolo. Back to Bangalore. The most frequent refrain in WiF is “I just kept on moving.” Readers of Philly Bluejay know how I feel about business air travel. Friedman may fly more than any person on the planet! This was bad in an absolute sense but not hypocritical in the context of the book—WiF is about globalization. But HF&C is about climate and the Energy Era and yet the itinerary is similar. London. Mumbai. Dalian. Multiple visits to every continent except for Antarctica. I hope Mr. Friedman purchased carbon offsets for all of those air miles! Now, if you will excuse me, I have to fly to San Francisco. For business. Tom, I kid because I love. And because I am a hypocrite.

Third and finally, I want to elaborate on Friedman’s point about the necessity of a carbon tax. One of Friedman’s sub-points is that a clean energy revolution will never truly take off without a clear, loud, consistent and projectable price signal on carbon. The market will not move away from carbon—at least not efficiently and at scale—unless they know what staying with carbon will cost and unless that price is sufficiently high. Short of privatizing the atmosphere, the fastest way to create this signal is by government regulation. And here he advocates a carbon tax over cap-and-trade. Friedman views cap-and-trade as a kind of “hidden ball” trick—a way for the government to limit emissions in a way that does not result in direct costs for consumers or a direct trail of money back to itself. In a perfect world, the government hands out emissions credits, electric utilities buy and sell them amongst themselves and customers don’t see increased rates, and when they do, they don’t see that money going to the government. Friedman claims that this kind of shenanigan hides the true urgency of the problem from people—people are not going to change their habits unless they see how their actions translate directly into costs. I agree. Wholeheartedly. But I think that a better and more accurate way to state this problem is that a cap-and-trade system isn’t an effective price signaling mechanism because it doesn’t behave like a traditional price!

A price is a constant. The price of the first unit of is the price of the millionth unit. With a price, cost is always proportional to consumption and you can safely map out the future. Not so with cap-and-trade. With cap-and-trade, the price of a unit purchased under the cap is far less—perhaps infinitely less—than that of a unit purchased over the cap. And whether a unit is over or under depends on overall demand, not on your demand. Which system do you reckon would be more conducive to economic growth? “Neither” is not an option!

Meanwhile, the real commodity here is not electricity—or even coal—it’s CO2. It’s easy enough to create a cap-and-trade system for coal or electricity. A CO2-emissions-from-coal exchange would consist of a relatively small number of individually large participants. A cap-and-trade makes some sense in this case. But oil companies do not operate like utilities and so the CO2-emissions-from-gasoline effectively consists of millions of small participants. Cap-and-trade is logistically much more difficult here! And remember, if cap-and-trade were a true pricing mechanism than it would be possible to trade gasoline emissions for electricity emissions. Anything short of a holistic economy-wide cap-and-trade will effectively create a market distortion, effectively subsidizing uncapped sources of emissions at the expense of capped ones. Market distortion—specifically, implicit subsidies for carbon emissions—is how we got ourselves in this mess to begin with!

Perhaps Tom and I can discuss these points en route to Sacramento. Or maybe at the checkout counter at the Whole Foods on River Road. Tom, Text me!

P.S. The cover art of HF&C contains several images from the Paradise and Earth panels of GoED, but none—as far as I can tell—from the Hell panel. Was this intentional? A better cover would have had a sample from “Paradise” on top and “Hell” on the bottom. No?

P.P.S. Another suitable cover for HF&C—although not renaissance and likely not royalty free either—would have been a pair of paintings by neo-Bosch Salvador Dali. Butterfly windmills on top and that-painting-with-a-giraffe-on-fire-which-I-swear-is-by-Dali-but-I-can’t-find-a-link-for-so-now-I-don’t-know on the bottom.

P.P.P.S. Wonder if the Taliban puts this on their recruiting posters.

P.P.P.P.S. If you drop something on an escalator, never shoot your hand down to try to catch it while it’s falling. I’m just saying.