Streetwise Professor

January 23, 2013

The Pain is the Gain?

Filed under: Climate Change,Economics,Politics,Regulation — The Professor @ 11:36 am

It is bizarre to observe Obama’s burning desire to reproduce the European welfare state in the US (on full display in his inaugural address) at the same time that model is collapsing before our eyes.  But another element of Obama’s address reveals that his disconnect between a desire to reproduce European policies at the same time as those policies are lapsing into farce is not limited to the welfare state alone. On Monday, Obama pledged a renewed commitment to combating “climate change.”  (When has climate been static, by the way?)  Ironically, on Monday, the FT ran an article describing the near collapse of the EU’s emission trading (cap-and-trade) market:

Carbon prices have fallen to a record low of less than €5 a tonne, pushing the European Union’s eight-year-old emissions trading system into a crisis.

Benchmark EU carbon prices yesterday dropped to a session low of €4.79 a tonne – down nearly 20 per cent over the past week – after Germany’s failure on Friday to sell carbon permits triggered a crisis of confidence.

As the article notes, this follows hard on the collapse of the UN’s Clean Development Mechanism.  Kyoto is dead.  The regional/state markets in the US (REGGI and California) are wheezing, at best.

So why not a new Big Push (cue Douglas Haig) on climate change?  What could possibly go wrong?

Better yet, why bother with the pesky legislative branch when pursuing this endeavor in the face of a truly global record of failure?  After all, Congress might be subject to feedback, and we can’t have that.  Thus, according to Bloomberg, Obama plans to pursue his Quixotic venture (almost literally so, given the prominence of windmills in alternative energy efforts) via executive order and regulation, rather than legislation.  Again: what could possibly go wrong, putting what is arguably the worst, most dangerous government regulator, the EPA in charge of this?

Not to mention that these initiatives at the level of individual nations, or even large multinational blocks, will be costly, and have virtually no impact on global temperatures.  All pain, no gain.  It is utterly insane for California to attempt unilaterally to control emissions: it is only slightly less insane for the US to do so.  But that’s the way Obama wants to go, despite the collapse of similar initiatives around the world.

But maybe that just reflects the fact that these endeavors are driven more by a religious and ideological belief than a commitment to tackle an issue an a practical way that wrestles with empirical and political realities, and weighs costs and benefits.  For people so driven, ostentatious sacrifice and adherence to ritual are valued in their own right, not for their practical consequences.  Incurring a cost signals the depth of commitment, and that’s what matters.  The pain is the gain.  For them, that is.  For the rest of us who are not wedded to such beliefs, not so much.

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  1. The interesting thing is that although the USA was not a signatory to Kyoto it has, thanks to shale gas, achieved actual and uniquely large reductions in its CO2 emissions. Europe, committed en bloc to cap and trade, has meanwhile failed to do so. Whether or not you think carbon reduction is a worthwhile goal, it’s clear which approach to accomplishing it actually works. It isn’t the one Obama is keen on.

    The benefits of shale gas don’t end there, either. With US gas prices where they are, and US diesel prices where they are, it can’t be too long before someone builds a shale-gas-fuelled GTL plant in the USA. As well as allowing us to make synthetic oil products so clean they’re fit for human consumption (literally: gas-derived synthetic edible wax is sprayed on fruit to preserve it), shale gas also generates jobs, including quite a lot of the kind of blue-collar working-class-white types of job that western nations have been losing for years.

    You can easily see why the green left is so very, very unhappy about shale gas. It addresses the entire panoply of greenery’s ostensible concerns – energy supply security, global warming, sustainability, nuclear risk, etc – without recourse to the green-preferred solution (deindustrialisation and global socialism). It gives them what they’ve always claimed to want, while denying them what they really want.

    Comment by Green as Grass — January 24, 2013 @ 5:05 am

  2. “Carbon prices have fallen to a record low of less than €5 a tonne, pushing the European Union’s eight-year-old emissions trading system into a crisis.”

    Crisis? What damn crisis?

    Don’t these people understand that a low credit price is just fantabulous?

    In a cap and trade system reductions in emissions are driven by the number of credits in existence. The price of those credits is telling us how difficult (or costly, if you prefer) it is to reduce emissions to meet the targets.

    A low credit price means that it’s easier to hit the targets than we thought. Hurrah!

    Assuming that the number of creidts in existence is the correct number (which of course we must for the number issued was decided upon as a result of the very best scientific advice, overseen by those fabulous technocrats in the EU) then we’d actually all like the price to be €0.01 per hundred of the damn things. Because it would show that meeting the emissions targets and thus saving Gaia is going to cost spit.

    You might want a carbon tax to be high to reduce emissions but in a cap and trade system you should be delighted with a low credits price.

    Comment by Tim Worstall — January 24, 2013 @ 6:11 am

  3. Tim

    The issue I think is that the carbon tax was intended to raise, well, tax.

    Greens liked it because they thought it could be used to force deindustrialisation on the west and because it would provide the funds for global socialism.

    Governments liked it because it provided a tax revenue stream that was disguised as something else, collected for them by someone else, is basically unavoidable (it’s a tax on air), didn’t require them to deliver anything at all to justify taking it, and would be blamed by the payers of it on the the collectors of it (viz retail petrol).

    VAT fraudsters and the Mafia liked it because it enabled carousel fraud.

    Phishing scamsters liked it because it enabled the theft and sale of permits from insecure registries.

    The collapse of prices is terrific if you’re genuinely – if bafflingly – concerned about CO2, but not if you’re not; and almost everyone who supported it falls into the latter camp.

    Comment by Green as Grass — January 24, 2013 @ 6:49 am

  4. @Tim. Of course you are right. I was debating on which way to go with the post . . . and I seriously considered going the way you suggest. Namely, the “be careful what you ask for” route. If you think that you’ve chosen the right level for the cap, you shouldn’t give a flying f*ck about the price. Given the right choice of Q, the P just tells you about the strength of the economy. And maybe that’s exactly what has the Eurocrats in a tizzy. The low P shows just how weak the Eurozone economy is.

    And the low P had gotten even lower. Good times!

    But it was just too hard to resist contrasting the angst of the Euros at the low carbon prices with Obama’s newfound (post-election: go figure!) enthusiasm for climate control regs.

    The ProfessorComment by The Professor — January 24, 2013 @ 9:35 pm

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