Welcome to Fantasy Island!

I have in the past given the title of "Fantasy Island" to the UK for pursuing an impossible approach to carbon dioxide emissions reductions. Over the next week a much bigger island will take that title (yes, yes, it is a continent, but this is a fantasy!). On July 1, Australia's carbon tax comes into effect, which has already prompted a new round of cheering and critiquing.

Representative of the cheering, Nature Climate Change has just published an essay that celebrates the tax as a model for other countries, without noting that it has been used intentionally as a political wedge issue making it deeply unpopular, and more importantly, that it will do almost nothing to help Australia to meet its short-term emissions reductions targets. This sort of willful blindness is endemic in climate policy discussions among those calling for action. Perhaps the thinking is that maybe if we pretend, then the fantasy will become real.

To understand why Australia's approach to emissions reductions will not just fail, but perhaps even mask BAU as progress, one simply need do a bit of math. Have a look at this analysis (here in PDF) of the targets and timetables of Australia's proposed short-term emissions reductions targets.

Here is the bottom line from the quantitative analysis:

Australia would need to undertake a herculean effort comparable to the level of effort required to build and put into service dozens or more nuclear power plants by 2020 or thousands of solar thermal plants. Were this ‘‘level of effort’’ to be expressed in terms of windmills or other existing technologies the magnitude would be equally as daunting. When coupled with very aggressive efficiency and renewable objectives the level of effort is still enormous. Australia, of course, has no nuclear power plants, and the technology is hotly debated, so even building one plant would be an enormous achievement.

The point being made here of course is not about nuclear power or even solar thermal plants, but about the enormous level of effort needed to meet the proposed short-term targets for Australian emissions reduction. The magnitude of the effort required helps to explain why policy makers look to offsets and other accounting schemes to achieve targets. Regardless of the nature of the legislation ultimately adopted in Australia, the actual decarbonization of the Australian economy will all but certainly fall short of the rates needed to hit the emissions reduction targets.

Of course, when pointing out such things the most common response is likely to be -- "Look boss, de plane, de plane!" I explain in the paper:

Australia has a very carbon intensive economy, thus its ability to dramatically accelerate the decarbonization of its economy offers the promise of many valuable lessons for other countries around the world. However, a focus on targets and timetables for emissions reduction that will be impossible to meet in practical policy implementation runs the risk of engendering public cynicism and even opposition. Currently the nature of international climate politics is such that aggressive promises are met with applause, regardless of their feasibility.

In the coming 10 days, we should expect much discussion of  Australia's carbon tax, but very little of it touching the ground. Welcome to Fantasy Island!

Where Does Wealth Come From?

This post is a part of an ongoing discussion of innovation policies at the conceptual level, which will eventually lead into a much more empirically focused set of discussions. For me, these posts are about ensuring that I am clear on the concepts that I am discussing, which draw upon a wide literature in (so far) economics, sociology, policy sciences and S&T policy.

Last week I presented a definition of wealth as the accumulation of valued outcomes. Here I ask, where does wealth come from?

This question is necessary to ask and answer if we wish to make collective decisions that lead to greater wealth. Any one who offers a judgment on questions of policy -- that is, decisions focused on attaining valued outcomes -- operates with some conception of the mechanisms through which we attain wealth, whether explicitly or implicitly held. This post is my attempt to lay out a coherent and simple explanation of how I would answer this question.

In a particular context or setting, wealth comes from four sources:

Effort -- This is closely related to the conventional economics concept of labor (and perhaps some economists define labor exactly in this manner), but by effort I mean work not workers. Effort is action.

Resources -- Tangible and intangible assets, which include (importantly) energy, and other environmental and human attributes. This is closely related to some conceptions of "capital" as used by economists (and, again, perhaps some economists use exactly this definition).

Luck -- There are some consequences that are simply the result of factors beyond our intentional actions. These would include, for the individual, a genetic predisposition to good health or a Monet found at a garage sale, and for a nation, bountiful energy resources. Luck can be good or bad with respect to valued outcomes.

Innovation -- Here I mean the Solow residual (in economics terms). In plain language, it is what Peter Drucker defined as "change that creates in a new dimension of performance" or what Joseph Schumpeter defined as "any “doing things differently” in the realm of economic life."

I emphasize the importance of context or setting, which is characterized by some existing combination of effort, resources, luck and innovations (i.e., wealth). From a policy perspective, we do not get to choose the initial context from which decisions are made, that setting is the consequence of history and contingency. What matters is what we do given a particular context.

From the perspective outline here, should we wish to attain greater wealth the most important lever is innovation, which of course can influence effort and resources (i.e., thereby changing aspects of the current context). Luck is largely (but not entirely) not subject to such influence.

The purpose of outlining such a conceptual model of where wealth comes from, in the words of Karl Marx, " is not merely to understand the world, but to change it." Comments, criticisms welcomed and encouraged.

The Voice of the People: An Echo

I have a guest post up at the Lowy Interpreter on the results of the latest Lowy Poll of public opinion in Australia. I was asked to discuss the poll results related to climate change.  Here is an excerpt:

The 2012 Lowy Poll shows that only 36% of those surveyed agreed with the statement that 'Global warming is a serious and pressing problem. We should begin taking steps now even if this involves significant costs.' Back in 2006, one year before Kevin Rudd elevated the climate issue to national and international prominence, 68% of those surveyed agreed with that same statement, almost twice as many.

But have Australians really gone cold on climate change? The 2012 Lowy Poll shows that 55% surveyed say that their concern about climate change is unchanged since debate on the issue began in Australia, while 38% report being more concerned. Only 7% express a decrease in concern.

How can we reconcile these apparently contradictory positions?

For the answer, please head over to the Lowy Interpreter for the whole post, and please feel free to come back here and comment or ask questions.

Lowballing Carbon Dioxide Emissions Projections

The IEA has released a new analysis that helps to demonstrate the systemic failure of policy analyses focused on carbon dioxide emissions reductions.

In the new report the IEA projects that by 2030 the world will be emitting about 45 Gt (gigatonnes) of carbon dioxide. Yet, in 2008, just 4 years ago the IEA was projecting 40 Gt CO2 for 2030 (see it at p. 11 at this PDF).

Where did the extra projected 5 Gt CO2 for 2030 (just about equal to an extra United States) come from over the past 4 years?

It came from a systemic underestimate for future emissions that is built in to almost all such exercises. The IEA assumed in 2008 that future emissions would grow from 2005 to 2030 at 1.5% per year. Actually, from 2005-2010 emissions increased by 2.4% per year (data from PBL in this PDF). The 1990 to 2010 average was a 1.9% increase per year, and 2009 to 2010 was a whopping 5.8% increase.

Thus, in 2008 the IEA used a low-balled 1.5% annual rate of increase in projected emissions to 2030. In the years since, actual emissions have increased by much higher than this rate, which means that the new 2012 projection for 2030 needs to start at a higher starting point than was projected just several years ago. Hence, in the new 2012 report the IEA has quietly increased the 2030 level of emissions o 45 Gt from 40 Gt. I actually anticipated this revision almost exactly when the 2008 IEA report came out.

So, based on this experience, what rate is the IEA now using to project emissions from 2015 to 2030 under a business as usual scenario?

1.3% (45 Gt CO2 in 2030, 37 in 2015)

So much for learning from experience.

Such estimates matter because all of the estimates of cost of emissions reductions and level of policy effort required that derive from the IEA projections are contingent upon an assumption of a rate of emissions growth that is much lower than observed in recent years and decades.

This repeated failure to accurately describe the actual magnitude of the emissions reduction challenge occurs so widely that it is the systemic failure of policy analysis of CO2 emissions reductions. We repeatedly trick ourselves into thinking that the task is easier than reality shows.

Unless things change in how such analyses are done, we should expect that future IEA projections will be revised upwards and the charade to continue. A more technical explanation of this dynamic can be found here in PDF and an alternative approach to policy analysis of emission reductions can be found in TCF.

What is Wealth?

Wealth, simply put, is the accumulation of valued outcomes.

Robert Heilbroner explains that:

Wealth is a fundamental concept in economics – indeed, perhaps the conceptual starting point for the discipline. Despite its centrality, however, the concept of wealth has never been a matter of general consensus.

As it turns out wealth is also central to the study of politics – defined as bargaining, negotiation and compromise in pursuit of valued outcomes (a definition from The Honest Broker). In the study of wealth boundaries between the disciplines of economics and politics merge into shades of grey.

This post seeks to make three points related to wealth. First, wealth is more than money. Second, wealth can refer to outcomes in terms of both ends and means, and ultimately is a subjective concept. And third, it is important to distinguish the redistribution of wealth from the aggregate accumulation of wealth, though both are important, valued outcomes to policy making.

If wealth refers to “valued outcomes,” then what are “valued outcomes”?

The first thing most of us think of as wealth is money. Money is important because it can readily be exchanged for other things. We often use measures of income or economic activity as a descriptor of wealth, and such measures often work quite well, but they don’t tell us everything about what we value. Efforts to measure “happiness” as wealth have become a sort of cottage industry, but have not gained much traction in displacing monetary-based measures of wealth.

In his 1958 classic, Politics: Who Gets What, When, How, political scientist Harold Lasswell suggested eight different categories of valued outcomes: power, income, respect, well being, rectitude, skill, enlightenment and affection. (Lasswell actually used “wealth” but defined it as “income” – I use the latter here to avoid confusion.) While Lasswell’s work has been much discussed for over half a century, including whether the eight value categories are comprehensive or not, the essential point here is that the outcomes that we value in society have many dimensions that go beyond money or that which can be expressed in money. (There are of course philosophers, political scientists and economists who would argue that everything has its price. I am not one of them.)

The presence of different (and often inconsistent) conceptions of what constitutes a valued outcome is of course where politics come in. Because people value different means and ends, we reconcile those different values through various forms of democratic political systems. Take energy as an example. Everyone agrees that the lights should stay on, but people disagree about what means should be used to provide energy – Fossil fuels? Nuclear? Renewables? – and how much they would prefer to pay for energy services. Such differences in perspective cross many of Lasswell’s value categories (maybe all of them). We reconcile those differences via politics, which is how we get done the business of society.

Money helps to illustrate another important aspect of wealth – a distinction between ends and means. Money is a means of achieving valued outcomes, because it is readily exchangeable. The lights come on in my house because I send the power company money every month. Even in that case, the electricity that comes out of my wall is but a means to some other end – in the case of producing this blog post using electricity, enlightenment. Of course, for some – Gordon Gekko comes to mind -- the accumulation of money is an end in itself. One person’s means might be another person’s ends.

Heilbroner explains that economists have debated whether wealth is an objective or subjective metric. Examples of objective measures of wealth cited by economists over many centuries include money (of course), gold (and other forms of capital) and human labor. The idea of an objective metric of wealth is one of the underlying bases for benefit-cost analysis, which is a prominent tool in the policy analyst’s toolbox.

While it would certainly make the tasks of policy analysis (and indeed politics) much easier if there were an objective metric of wealth, the position that I take, simply based on observation, is that wealth is a subjective concept. The fact is that people value different outcomes differently. That said, in an extremely wide range of situations, money does an admirable job serving s a proxy for wealth. A challenge for the analyst is to always remember that money does not measure everything that matters to people.

A final point to make in this post is that wealth can change in both relative and absolute ways. For instance, if you give me all the money in your bank account, I will have become more wealthy, and you less so, but the absolute wealth of society will not have changed. The distribution of wealth is also a valued outcome (and might also be considered in terms of power and rectitude) that different people view differently, and thus from a political perspective should be a part of any discussion of the absolute wealth of society. So while my interests and focus will be on the accumulation of wealth (as valued outcomes) across society, to address this subject properly necessarily requires considering issues of distribution in addition to aggregate accumulation.

With a working definition of "wealth" in hand, in a number of subsequent posts I will take up one of the central questions of both economics and the study of politics, drawing on insights from each field, to explore the following question: How do we as a global society become more wealthy?

2012 Venus Transit from NASA

Should Scientific Communications be Privileged?

Writing in the Boston Globe, two scientists at the Woods Hole Oceanographic Institute have expressed concern that they have been required by a court to release email correspondence related to studies of oil flow rates in the aftermath of the Deepwater Horizon oil platform disaster. 

They write:

Because there are insufficient laws and legal precedent to shield independent scientific researchers, BP was able to use the federal courts to gain access to our private information. Although the presiding judge magistrate recognized the need to protect confidential e-mails to avoid deterring future research, she granted BP’s request. . .

BP claimed that it needed to better understand our findings because billions of dollars in fines are potentially at stake. So we produced more than 50,000 pages of documents, raw data, reports, and algorithms used in our research — everything BP would need to analyze and confirm our findings. But BP still demanded access to our private communications. Our concern is not simply invasion of privacy, but the erosion of the scientific deliberative process.

In the lawsuit, the government is suing BP for damages associated with the oil spill and clean-up. The work done by WHOI, under government contracts (e.g., here and here) is presumably a key exhibit in the lawsuit, as the amount of oil spilled and its ultimate fate will be important to determining damages.

Given the many billions of dollars at stake, it should not seem surprising that BP has requested background information on the production of the oil flow estimates by the scientists, including their emails.

for their part, the scientists are worried that the emails may be used against them to impeach their work:

In reviewing our private documents, BP will probably find e-mail correspondence showing that during the course of our analysis, we hit dead-ends; that we remained skeptical and pushed one another to analyze data from various perspectives; that we discovered weaknesses in our methods (if only to find ways to make them stronger); or that we modified our course, especially when we received new information that provided additional insight and caused us to re-examine hypotheses and methods.

In these candid discussions among researchers, constructive criticism and devil’s advocacy are welcomed. Such interchange does not cast doubt on the strengths of our conclusions; rather, it constitutes the typically unvarnished, yet rigorous, deliberative process by which scientists test and refine their conclusions to reduce uncertainty and increase accuracy. To ensure the research’s quality, scientific peers conduct an independent and comprehensive review of the work before it is published.

If their science is sound and has been accurately reported in the peer reviewed literature, then these concerns are misplaced. The messiness of science is a reality and need not undermine solid scientific work. If the peer reviewed work is defensible -- and I presume that it is -- then this case may have to be made, but that would not distinguish this lawsuit from a bazillion others where experts are called to provide evidence.

A second concern raised by these scientists is that their "intellectual property" is at risk. This is a strange concern, as there are multiple avenues for protection of intellectual property that these scientists could take advantage of, protecting themselves from it being stolen by BP. If I were WHOI I'd be more concerned about high value and unprotected IP being shared around via email, regardless of the BP disclosure.

The WHOI scientists conclude:

Our experience highlights that virtually all of scientists’ deliberative communications, including e-mails and attached documents, can be subject to legal proceedings without limitation.

This is correct -- When scientists operate with public support and the resulting work is used in the making of important decisions, whether in a lawsuit or in policy, we should expect that deliberations will be subject to public disclosure. Asking for a special privilege in scientific communication is highly unlikely ever to be a successful strategy under US law. Besides, good science, even when messy, does not need to be hidden from view.