Walter Borden

WILL money saved from using clean technology simply be spent on using    more energy? Jevons paradox (or the Jevons effect) is named for economist William Stanley Jevons.  In the 1860’s, he observed that technologically driven increases in the efficiency of coal-use increased coal consumption in a wide range of industries. Counter-intuitively to some, he argued that technological improvements could not be relied upon to reduce fuel consumption. Buyers simply use the savings to buy more energy. Such rebound effects as a batch of recent research reveals, are at work in energy markets yet are often overdetermined and misunderstood. Their occurrence suggests the need for carbon taxes in order to price environmental risk in energy costs. The basic logic of such taxes was sketched out in the 1920′s by another economist, Arthur C. Pigou, as the Pigovian Tax. He argued that landowners who allow their rabbits to overbreed and spill over to neighboring land, therefore damaging  crops, have a financial responsibility for the damage. Such activity, often uncorrected by markets, is seen as a market failure. So its remedy is a tax or law to protect the rights of neighboring landowners.

Interest in both is keen among policymakers, thinktankers, bankers, and the general public as the tension between energy demand  and supply increases. Pollution, global warming, declining oil reserves, and increasing demand for energy in the neoliberalized global marketplace underlie both the interest and the tension.

To the extent that they are at work, Jevons rebound effects in a system vary based on the scale of the market considered. For example Richard York of the University of Oregon finds:

A fundamental, generally implicit, assumption of the Intergovernmental Panel on Climate Change reports and many energy analysts is that each unit of energy supplied by non-fossil-fuel sources takes the place of a unit of energy supplied by fossil-fuel sources 1, 2, 3, 4. However, owing to the complexity of economic systems and human behaviour, it is often the case that changes aimed at reducing one type of resource consumption, either through improvements in efficiency of use or by developing substitutes, do not lead to the intended outcome when net effects are considered.

Dr. York’s work appears to reveal an instantiation of the effect.  Across most nations of the world, developed and developing, he reports an average pattern, “…over the past fifty years is one where each unit of total national energy use from non-fossil-fuel sources displaced less than one-quarter of a unit of fossil-fuel energy use. When looking at electricity specifically, the displacement of each unit of electricity generated by non-fossil-fuel sources is less than one-tenth of a unit of fossil-fuel-generated electricity.”

These conclusions put a useful empirical foundation under recommendations found in Google.org’s clean energy innovation study: meaningful suppression of fossil fuel consumption requires adaptation of mainstream energy policy. Also looking at the international scale, Grist.org published a chart this week titled The mind-boggling rise in Asian coal consumption shown as Exhibit 1.

Exhibit 1: Chinese Coal Consumption vs. Developed World. Source: grist.org

Coal going unconsumed in the U.S. is being burned with little scrubbing in China and India, further arguing for the need to decarbonize via international agreements. Liberalized trade (neoliberalism) needs alignment with a flow of trade that balances externalities – pollution – created by exchanges of resources and capital. This also complements York’s finding: shifts to renewables will be inconsequential if the total decarbonization rate isn’t decelerated, that is, if amounts are merely shifted from one market to another.

When Rebound Effects Are Perceived But Not Found

Then there is the contention of the paradox at work in driver behavior popularized as the ‘Prius Effect” in sources such as Conundrum and the Wall Street Journal. Their argument is that Prius owners drive more and thus erase their net carbon and energy savings for the system. However, the work of Ken Gillingham of Yale University and analysis from CO2 Scorecard show Prius owners rack up comparatively the same vehicle mileage as non-Prius owners.

This Prius Fallacy has a dual premise: Prius drivers drive more because they are paying less for gas, and/or they use their savings on carbon-intensive goods and activities.

Gillingham’s micro-dataset on personal automobiles contains information – further analyzed by Thinkprogess – which refutes premise one as the scale of the consumer. The plot in Exhibit-2 shows no significant difference in Vehicle Miles Traveled (VMT) by Prius owners vs. the rest of  California’s drivers. (For those interested in statistical details on the data and diagnostic regression Thinkprogess’ analysis is worth a good study). Prof. Matthew Kahn of  UCLA writing in the Christian Science Monitor reinforces these conclusions.

So in these cases when consumers switch from conventional cars to a fuel-efficient hybrids a meaningful reduction in gasoline consumption – up to 430 gallons per year for an owner who switches from an SUV— is also observed.

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By Walter Borden

Science and Sustainability

We at Fund Balance are concerned that the only mention of climate change in President Barack Obama’s 2012 State of the Union address was “The differences in this chamber may be too deep right now to pass a comprehensive plan to fight climate change.”

President Obama, State of the Union address 2012.

The U.S. National Academy of Sciences states, “The world is heating up and humans are primarily responsible. Impacts are already apparent and will increase.” Greenhouse gas (GHG) induced climate change is a clear and present threat to our civilization and way of life. Its continued politicization is dangerous. We accept the consensus of the world’s scientific community which is summarized well by the American Chemical Society:

Careful and comprehensive scientific assessments have clearly demonstrated that the Earth’s climate system is changing in response to growing atmospheric burdens of greenhouse gases (GHGs) and absorbing aerosol particles. (IPCC, 2007) Climate change is occurring, is caused largely by human activities, and poses significant risks for—and in many cases is already affecting—a broad range of human and natural systems. (NRC, 2010a) The potential threats are serious and actions are required to mitigate climate change risks and to adapt to deleterious climate change impacts that probably cannot be avoided. (NRC, 2010b, c).

We further acknowledge and accept the conclusions of our medical community. The American Medical Association (AMA) urges that we as a society confront the health issues of climate change now.

Scientific evidence shows that the world’s climate is changing and that the results have public health consequences. The AMA is working to ensure that physicians and others in health care understand the rise in climate-related illnesses and injuries so they can prepare and respond to them. The Association also is promoting environmentally responsible practices that would reduce waste and energy consumption.

We see that escalating carbon emissions are seriously damaging our oceans depleting them of oxygen and acidification. Carbon dioxide emissions caused by human activities over the last century have increased the acidity of the world’s oceans far beyond the range of natural variations, which may significantly impair the ability of marine organisms to live. We realize that rapid deforestation increasingly impedes nature’s ability to buffer carbon dioxide concentrations in our atmosphere and thus keep our air suitable for breathing.

The time is now for President Obama and Congress to heed science and pursue evidence based policy formation in addressing the real and gathering dangers of Climate Change. Putting a price on carbon is a critical first step.

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By Walter Borden

“The conservation of natural resources is the fundamental problem. Unless we solve that problem it will avail us little to solve all others.”  Theodore Roosevelt

What’s In a Petrodollar?
Fossil Fuel producing nations should extract their resources consistent with the health needs of their people, air, land, and water.  History shows us that regulation plays an essential role in this mandate. Energy marketers insist regulations are counterproductive. Implied though not often stated, nations like Russia and China can more easily form capital and drive labor demand from fossil fuel exploitation because they can act largely unencumbered by regulation. This unproven assumption ignores the escalating costs of unconstrained fossil fuel extraction to present and future generations. Should we be more concerned about poisoning our planet for future generations than leaving large amounts of debt for them? I argue yes. Does the regulation of fossil fuel extraction impede aggregate labor demand? The evidence indicates no. The earth is the source of all money so worrying about debt instead of planetary health puts the cart before the horse. A sick, weakened planet will create less value, profit, and wealth.  Concurrently, as oil supplies wane, systemic risk will form around basing currencies on fossil fuels, oil in particular. Searches for fossil fuel resources will grow into fierce and destabilizing conflicts. Increasingly scarce tracts of clean, fertile land can only deepen them.

Unregulated Nations and Quality of Air, Water, Land and Life
Russia and its oil country exemplify the realities of unregulated, petrodollar capitalism. Its oil producing areas constitute what experts describe as our planet’s worst ecological oil catastrophe. Based on reporting from the Associated Press, estimates are that roughly one Deepwater Horizon-scale leakage occurs about every two months. Outdated infrastructure, minimal and unenforced regulation allow for oil to contaminate soil, kill plant life, and damage habitats for mammals and birds. State-funded research shows 10-15 percent of Russian oil leakage enters rivers with nearly 500,000 tons flowing into the Arctic.

Source: Bureau of Labor Statistics

From Chernobyl to more recent paper mill pollution seeping into Siberia’s Lake Baikal, which holds one-fifth of the world’s supply of fresh water, Russia’s lax regulatory posture renders great swaths of territory uninhabitable and fallow. Russian oil spills are more numerous than in any other oil-producing nation. “Oil gets spilled literally every day,” said Dr. Grigory Barenboim, senior researcher at the Russian Academy of Sciences’ Institute of Water Problems. His is not alone. And by all accounts the estimate is conservative since under Russian law, leaks less than 8 tons rate as “incidents” and can thus go unreported. By contrast, the U.S., the world’s third-largest oil producer, logged 341 pipeline ruptures in 2010 — compared to Russia’s 18,000 — according to the U.S. Department of Transportation.

The republic of Komi, just south of the Arctic Circle, is the scene of Russia’s largest oil spill. Up to 40 kilometers of two local rivers were polluted, killing thousands of fish. Respiratory diseases rose by over 28 percent in the year following the leak. Komi’s officials blamed neglected infrastructure and oil companies reporting that “companies that extract hydrocarbons focus on making profits rather than how to use the resources rationally.”

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Mayor Bloomberg, Chair C40

Is Michael Bloomberg really getting serious about sustainability and the climate?

Is the upcoming free and now completely full ESG 2011 USA event a huddle of the region’s best sustainability practitioners? We’ll be getting the scoop from Bloomberg CEO Daniel Doctoroff, and Thomas DiNapoli, Comptroller of the State of NY, the top official of the massive $150B New York Common Retirement Fund.

Talks leading up to the C40 (top 40 cities) conference just prior to Rio+20 are starting to raise the bar on fixing the problem of urban emissions (60-80% of the total).

Mayor Bloomberg is the Chair of the C40.

Here’s his welcome message to C40 Sao Paulo attendees:

Former London Mayor Nicky Gavron: “Every single financial centre is at sea level.”

“Over the past six years, C40 Summits have brought together mayors of the world’s largest cities to share information on their respective experiences in dealing with climate change. This is our fourth Summit, the first to be hosted in the Southern Hemisphere, and my first as Chair of the C40.

For the first time in history, cities are home to more than half of the world’s population, and together account for more than 80% of the world’s greenhouse gas emissions. The Summit in São Paulo will provide us with an excellent opportunity to explore and exchange new ideas and initiatives, and to discuss new partnerships among mayors and governors that can address climate change and promote sustainability. ”

The race is on.

London’s former mayor Nicky Gavron tipped everyone’s hand with a pointed comment about the geographical location of the world’s financial centers:

“Big cities need to raise the game because they’re so responsible for such a high proportion of greenhouse gas [GHG] emissions and they’re very vulnerable to [climate change],” Gavron told Environmental Finance. Around 60% of global GHGs come from cities. “Every single financial centre is at sea level.”

Simultaneously it seems, Bloomberg’s home page just created a new top level tab, “Sustainability”, featuring some of the excellent work of Bloomberg New Energy Finance.

Having recently investigated the ESG features of a BNEF equipped Bloomberg terminal, I can tell you: it rocks.

Mayor Bloomberg also passed legislation improving the buy local profile of his NYC Administration:

Buy Local, the Mayor Says

So screamed the headline from Matt Flegenheimer’s NY Times blog:

The Context and Implications of American International Group vs. Bank of America
by Leland Lehrman

AIG vs Bank of America

Like Godzilla and King Kong in the Japanese movies, the lawsuit between AIG and Bank of America appears set in a kind of apocalyptic timeframe with cliffhanger debt ceiling negotiations happening during record heat waves, climate disruption and collapsing stock markets. Top corporate leaders, socially close and invested in the same system, nevertheless fight over the bones of a resource constrained “economy.”

Tyler Durden, the pseudonymous editor of the hotly commented and rebellious financial blog zerohedge.com called the AIG lawsuit against Bank of America “ironic.” The fight club anti-establishment trader points out that “it is AIG which takes down the financial system for the second time after its lawsuit against BAC filed last night kills Bank of America.” As gory as the details are, they are less important than the larger themes.

The Phoenix, “penciled” in by the Economist for 2018 is slated to rise from the ashes of other currencies. Following the crash of 1987, the anonymous editors in London wrote

“Thirty years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the phoenix. The phoenix will be favoured by companies and shoppers because it will be more convenient than today’s national currencies, which by then will seem a quaint cause of much

Economist Calls for Global Currency, 1988

disruption to economic life in the last twentieth century…Something will be, almost certainly in the course of 1988. And not long after the next currency agreement is signed it will go the same way as the last one. It will collapse. Governments are far from ready to subordinate their domestic objectives to the goal of international stability. Several more big exchange-rate upsets, a few more stockmarket crashes and probably a slump or two will be needed before politicians are willing to face squarely up to that choice. This points to a muddled sequence of emergency followed by a patch-up followed by emergency, stretching out far beyond 2018 – except for two things. As time passes, the damage caused by currency instability is gradually going to mount; and the very tends that will make it mount are making the utopia of monetary union feasible.”

There are other time-tested ways to handle currency instability using fixed exchange rates and asset backing for example. Were these “quaint” tools of Bretton Woods and earlier monetary regimes discarded in favor of inherently unstable hedging instruments known as derivatives because a period of systemic instability was useful to provide the appearance of the necessity of centralized global governance and currency?

Only a truly sovereign people can repudiate a debt yoke deceptively laid on its shoulders by a predatory financial class. Michael Lewis’ book Liar’s Poker offers example after example of the shark-like demeanor of bond traders and financial captains, endlessly feeding off pension funds around the world so arrogantly for so long that the eventual backlash they encounter is considered uppity.

So where can that sovereign people be found today? Increasingly in the street.

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