A recent Bloomberg View article (“Brazil Puts a Denier in Charge of Climate Change,” January 7) draws a sharp contrast between Brazilian President Dilma Rousseff’s September UN General Assembly reference to climate change as “one of the greatest challenges of our times” and a just-announced appointment to her cabinet. A slightly edited version of my “comment” to the article follows.
It appears that the President has selected a climate denier – Aldo Rebelo – as Brazil’s minister of science and technology (the agency that has climate in its portfolio), a move that seems seriously misguided. Aside all else, Brazil’s acknowledged emergence as a significant power – hemispherically and beyond – makes responsible political judgments a test of the country’s claim to international respect. If this appointment threatens a politicization of climate science, Brazil fails that test decisively.
But there is more. And it adds both irony and disillusionment to what, over a number of years, has pointed to a growing Brazilian policy-embrace of environmentally responsible growth. And no one embodies that record more than Dr. José Goldemberg – the Brazilian-born physicist who, both as a distinguished academic and public official, played a leading role in hosting the 1992 UN Conference on Environment and Development in Rio. Among many other distinctions, Goldemberg served as Rector of the University of Sao Paulo, Visiting Professor at Princeton, President of the Brazilian Association for the Advancement of Science, and co-recipient of the (US-based) Mitchell Prize for Sustainable Development.
That a tradition reflected in such contributions should, in effect, be so casually shrugged off with the appointment of a viscerally committed climate denier – one who appears to lack the interest or intellectual wherewithall to articulate the basis for such denial – is truly troubling.
Gas Tax Opportunity
The current oil market has created an ideal opportunity to raise the gas tax and better support the Highway Trust Fund, according to the editorial board of the Washington Post. In a recent op-ed, it writes that revenue could be used to fill the fund, which will “run dry again in May.”
In a previous letter to the editor, RFF’s Joel Darmstadter writes that the current gas tax has “ceased to make any meaningful contribution to sound economic and environmental policy” due to its inability to keep up with inflation. RFF’s Margaret Walls also considers the limits of a gas tax in a Wall Street Journal blog post, noting that an inflation-adjusted tax will still only generate “about half as much” in annual revenues due to tighter corporate average fuel economy standards.
Climate Science Consensus
In a letter to the editor published in the Washington Post, Nobel Laureate Mario Molina addresses recent comments by prominent figures that “cast doubt on man-made climate change” by referencing previous climate shifts that were unrelated to human actions. Molina writes that “while the planet may have experienced natural periods of warming in the past, what is happening now is not natural.”
At an event hosted by RFF and the American Association for the Advancement of Science (AAAS), Molina noted that scientists have reached the kind of consensus on climate change that “is not common in science,” but media coverage—and therefore public perception—“certainly does not represent [this] consensus.” Video of the event can be found here.
Poverty, political instability, and natural disasters are just a few of the problems facing Latin America and the Caribbean. So it’s not surprising that policymakers devote limited resources to conserving the region’s biodiversity—even if it is, by all accounts, exceptionally rich and valuable. But that’s exactly why those scarce conservation resources need to be deployed strategically.
Co-authored by RFF researchers Becky Epanchin-Niell, Juha Siikamäki, Daniel Velez-Lopez and me, it has three sections.
- The first part provides an overview of the region’s (terrestrial, freshwater, coastal and marine) biodiversity, the threats to this biodiversity, and the drivers of these threats.
- The second section summarizes what we know about seventeen leading conservation policies, including regulatory polices like protected areas and land-use planning, and market based approaches like subsidy reform and payments for ecosystem services.
- And the third section proposes a five-point action plan focusing on green agriculture, strengthening terrestrial protected areas and co-management, improving environmental governance, strengthening coastal and marine resource management, and improving biodiversity data and policy evaluation.
When we talk about risk in the financial world, we are typically referring to an asset or portfolio whose price may decrease down the road. Even though risk implies a level of uncertainty, we are able to model and measure the risks associated with these assets. One of the typical ways we do this is to assess their volatility; if their prices change often, we would argue that you take on a large risk by holding them.
When volatility is especially low, it is very likely to rise again. But before the financial crisis, the risk management tools that we generally used did not offer an easy way to measure this potential and warn people in the financial sector that these risks could change.
Since then, we have built volatility models that allow us to project how fast risks can change, using historical data to simulate a number of future sample paths for long-run risks. These tools now allow us to look back on the period of time before the financial crisis to understand why everything went wrong when it seemed to be going well. In fact, just before the crisis began, only short-term volatility was low; in the long run it was high, significantly changing the situation’s perceived long-run risks.
Risks considered “long-term” are sufficiently far in the future that what we see today only has a tiny bearing on what the long-run risk really is and include events such as economic recessions, inflation, terrorism, war, and even climate change.
Climate Change as a Long-Term Risk
So why do we think of climate change in the long-run risk category? The scientific evidence is clear that the climate is changing. However, we are not sure what the economic costs associated with this change will be or what the economic benefits would be of doing something about it. The topic of climate change includes large uncertainties that we have to address as aspects of long-run risk, but the financial community is in the business of making decisions under uncertainty. Knowing this, how should this community approach climate uncertainties?
A good initial approach is to assess the potential financial impacts of climate change. We assume that the global economy will be able to produce fewer goods and services as climate change progresses than it would without climate change. We also assume that the government will have to take a number of actions, such as building dikes or moving power plants, and that funding these actions will require raising taxes and will increase the cost of doing business for companies. Costs from doing so may be significant, but they are far in the future and uncertain as of now. Revealing more information on these costs requires projecting and comparing a variety of long-run risk scenarios for the stocks or assets in question.
If you think about the whole of the market as being one large, risky asset that faces a long-run climate change risk, then we would expect today’s stock market to drop if future climate risks were seen as more severe. Conversely, we could expect today’s stock market to go up if future climate risks were thought to be less severe. Assuming these hold true, we wouldn’t have to wait 50 years or so to find out whether we’ve had a positive impact on the environment and would instead see the stock market respond today. If we are effective at responding to climate change, the stock market should reward us today for taking these steps to reduce long-term risk in the future.
Note: RFF on the Issues will be on hiatus until the new year.
Lima Climate Action
The United Nations Climate Change Conference in Lima ended with the creation of the “Lima Call for Climate Action,” which was designed to appease poor nations concerned about shouldering disproportionate economic burdens, as well as rich nations who want “fast-growing economies to rein in fast-rising emissions.”
In a recent Marketplace interview, RFF’s Ray Kopp discussed how climate agreements involving the responsibilities of rich and poor countries have traditionally been framed. Kopp comments: “The way the paradigm has been laid out for the last 20 years, developing countries—China included—really don’t have to take actions or make commitments. Only the developed world needs to do that.”
Oil’s Foreign Policy Impacts
Low oil prices have the potential to impact US foreign policy goals involving countries that depend on the production and export of crude oil. Losing large amounts of oil-based income could “prod Russia into abiding by a ceasefire in Ukraine [or] make Iran more pliable in talks over its nuclear program,” but may also “hurt some governments the US wants to protect,” such as Nigeria.
RFF’s Stephen Brown recently discussed the effects of plummeting oil prices on US diplomacy and energy security interests on RFF’s blog. Brown writes that while output is likely to drop in “politically stable countries” with higher production costs, cheap oil will cause income losses in countries such as Russia, Iran, and Venezuela that may “weaken their ability to oppose US interests.”
Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy.
Disclosing the Facts 2014 : Transparency and Risk in Hydraulic Fracturing Operations
[Bloomberg] While a handful of shale drillers including BHP Billiton Ltd. (BHP) are providing better information to investors on the risks posed by fracking, industry wide efforts still fall short. – via As You Sow | Boston Common Asset Management | Green Century Capital Management | Investor Environmental Health Network (IEHN)
The Economic and Budgetary Effects of Producing Oil and Natural Gas From Shale
Recent advances in combining two drilling techniques, hydraulic fracturing and horizontal drilling, have allowed access to large deposits of shale resources—that is, crude oil and natural gas trapped in shale and certain other dense rock formations. As a result, the cost of that “tight oil” and “shale gas” has become competitive with the cost of oil and gas extracted from other sources. Virtually nonexistent a decade ago, the development of shale resources has boomed in the United States, producing about 3.5 million barrels of tight oil per day and about 9.5 trillion cubic feet (Tcf) of shale gas per year. Those amounts equal about 30 percent of U.S. production of liquid fuels (which include crude oil, biofuels, and natural gas liquids) and 40 percent of U.S. production of natural gas. Shale development has also affected the federal budget, chiefly by increasing tax revenues. – via Congressional Budget Office
New York State: A Public Health Review of High Volume Hydraulic Fracturing for Shale Gas Development
[New York Times] … the long-awaited health study finally materialized, its findings made public during a year-end cabinet meeting convened by the governor in Albany. – via New York State Dept. of Health
US Dept. of Energy Responds to Nature article, “The Fracking Fallacy”
EIA has responded to a December 4, 2014 Nature article on projections of shale gas production made by EIA and by the Bureau of Economic Geology of the University of Texas at Austin (BEG/UT) with a letter to the editors of Nature. – via US doe Energy Information Administration
Proof Positive: The Mechanics and Impacts of British Columbia’s Carbon Tax
In 2008, British Columbia announced a bold new climate policy: North America’s first revenue-neutral tax on carbon pollution. Today, it is the toast of the world… – via Clean Energy Canada
This is the tenth in a series of questions that highlights RFF’s Expert Forum on EPA’s Clean Power Plan. Readers are invited to submit their own comments to the questions and/or the responses using the “Leave a Comment” box below. See all of the questions to date here.
Building new natural gas plants to replace existing coal plants can be a cost-effective way to achieve emissions reductions. However, EPA’s Clean Power Plan is designed to regulate carbon emissions from existing power plants, so the potential for emissions reductions from new natural gas plants (natural gas combined cycle units) are not counted in the plan’s emissions targets. Some believe that including these plants as compliance options for states provides more flexibility. Others argue that making such investments are a short-term and imperfect fix, and that achieving even larger emissions reductions in the future will require even cleaner technologies. Should EPA modify the way it treats new natural gas plants in the Clean Power Plan? And, if so, how?
“Considering that power plants are long-lived investments, the construction of new plants today to meet the moderate goals of the current EPA proposal may be regrettable in later years if goals for emissions reductions tighten.” See full response.
—Anthony Paul, Center Fellow, Resources for the Future
“It is important to remember that considering new [natural gas plants] as part of a ‘best system of emission reduction’ would change the stringency of emissions rate goals for some states, but it would not require any state to build new [natural gas plants].” See full response.
—John Larsen, Senior Analyst, Rhodium Group LLC
“EPA should modify the Clean Power Plan so that it accounts for the emissions impacts of new natural gas combined cycle generators. Not appropriately accounting for emissions from new natural gas plants would encourage utilities to increase their dependence on natural gas, resulting in more fracking and more pollution.” See full response.
—Kate DeAngelis, Climate and Energy Campaigner, Friends of the Earth
Over the last year, RFF began hosting a series of meetings between the US Fish and Wildlife Service (FWS), NGOs, and the business community to discuss future species listing and recovery decisions under the Endangered Species Act (ESA). One goal is to take stock of the ESA’s many strengths and successes over the 40 years since its passage. The act has drawn significant attention to dwindling and endangered species—less than one percent of the 2,000 species listed as endangered have gone extinct—while influencing many land management decisions that affect threatened populations.
However, the primary focus of these dialogues is on challenges facing ESA implementation in coming years. The ESA’s impact on decisions and policy has by no means peaked. In fact, we are about to enter a crucial phase of the act’s implementation—if measured only by the sheer volume of species around which determinations must soon be made. Under the 2011 multi-district litigation settlement (MDLS), FWS agreed that by the end of fiscal year 2016 it would make final listing determinations for 251 species—and achieve critical habitat designations for those proposals to the extent practicable. Beyond 2016, FWS will face hundreds of additional listing and recovery determinations. In fact, more than 600 post-2016 listing determinations are already identified. Read More
New York State’s Governor Cuomo today issued a ruling, backed by a long awaited report on the public health implications of “high volume hydraulic fracturing for shale gas development,” to ban the practice in New York State. The report is as important for what it does not find as what it does. It does not find a public health smoking gun. Indeed, the primary conclusion is that there is great uncertainty about what the public health effects are. Put in this light, Governor Cuomo made a decision, not unlike the French or other EU countries, to abide by the precautionary principle. That is, he is willing for the people of New York to forgo the benefits of shale gas development to avoid the highly uncertain risks posed by this development. The implication is that if and when the uncertainty about public health is reduced, another determination could be made about whether the benefits of development are worth the health (and environmental) damages. This is a perfectly legitimate point of view, although one not shared by many other governors in the United States.
Weak demand and abundant supply are behind the recent trend in oil prices, which have fallen by more than $50 per barrel since June. This event is not unprecedented—in fact, the conditions associated with the 2014 crude price drop are very similar to those surrounding a similar drop during 1985 and 1986. In both cases, oil conservation caused prices to decrease while dramatic production gains—then in the North Sea, now in US shale fields—pushed supply much higher than originally anticipated. As a result, the world oil market has reached a new equilibrium that follows a much lower crude price trajectory.
These lower prices will have a range of positive and negative effects that are likely to be unevenly distributed across the United States. I’ve detailed these in a new RFF issue brief. Here’s a quick guide to the economic impacts we should expect in the coming months: Read More