Forget the Doughnut. Meet the Wedge.

Mar 11 JDN 2458189

I just finished reading Kate Raworth’s book Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist; Raworth also has a whole website dedicated to the concept of the Doughnut as a way of rethinking economics.

The book is very easy to read, and manages to be open to a wide audience with only basic economics knowledge without feeling patronizing or condescending. Most of the core ideas are fundamentally sound, though Raworth has a way of making it sound like she is being revolutionary even when most mainstream economists already agree with the core ideas.

For example, she makes it sound like it is some sort of dogma among neoclassical economists that GDP growth must continue at the same pace forever. As I discussed in an earlier post, the idea that growth will slow down is not radical in economics—it is basically taken for granted in the standard neoclassical growth models.

Even the core concept of the Doughnut isn’t all that radical. It’s based on the recognition that economic development is necessary to end poverty, but resources are not unlimited. Then combine that with two key assumptions: GDP growth requires growth in energy consumption, and growth in energy consumption requires increased carbon emissions. Then, the goal should be to stay within a certain range: We want to be high enough to not have poverty, but low enough to not exceed our carbon budget.

Why a doughnut? That’s… actually a really good question. The concept Raworth presents is a fundamentally one-dimensional object; there’s no reason for it to be doughnut-shaped. She could just as well have drawn it on a single continuum, with poverty at one end, unsustainability at the other end, and a sweet spot in the middle. The doughnut shape adds some visual appeal, but no real information.

But the fundamental assumptions that GDP requires energy and energy requires carbon emissions are simply false—especially the second one. Always keep one thing in mind whenever you’re reading something by environmentalists telling you we need to reduce economic output to save the Earth: Nuclear power does not produce carbon emissions.

This is how the environmentalist movement has shot itself—and the world—in the foot for the last 50 years. They continually refuse to admit that nuclear power is the best hope we have for achieving both economic development and ecological sustainability. They have let their political biases cloud their judgment on what is actually best for humanity’s future.

I will give Raworth some credit for not buying into the pipe dream that we can somehow transition rapidly to an entirely solar and wind-based power grid—renewables only produce 6% of world energy (the most they ever have), while nuclear produces 10%. And nuclear power certainly has its downsides, particularly in its high cost of construction. It may in fact be the case that we need to reduce economic output somewhat, particularly in the very richest countries, and if so, we need to find a way to do that without causing social and political collapse.

The Dougnut is a one-dimensional object glorified by a two-dimensional diagram.

So let me present you with an actual two-dimensional object, which I call the Wedge.

On this graph, the orange dots plot actual GDP per capita (at purchasing power parity) on the X axis against actual CO2 emissions per capita on the Y-axis. The green horizonal line is a CO2 emission target of 3 tonnes per person per year based on reports from the International Panel on Climate Change.

Wedge_full

As you can see, most countries are above the green line. That’s bad. We need the whole world below that green line. The countries that are below the line are largely poor countries, with a handful of middle-income countries mixed in.

But it’s the blue diagonal line that really makes this graph significant, what makes it the Wedge. That line uses Switzerland’s level of efficiency to estimate a frontier of what’s possible. Switzerland’s ratio of GDP to CO2 is the best in the world, among countries where the data actually looks reliable. A handful of other countries do better in the data, but for some (Macau) it’s obviously due to poor counting of indirect emissions and for others (Rwanda, Chad, Burundi) we just don’t have good data at all. I think Switzerland’s efficiency level of $12,000 per ton of CO2 is about as good as can be reasonably expected for most countries over the long run.

Our goal should be to move as far right on the graph as we can (toward higher levels of economic development), but always staying inside this Wedge: Above the green line, our CO2 emissions are too high. Below the blue line may not be technologically feasible (though of course it’s worth a try). We want to aim for the point of the wedge, where GDP is as high as possible but emissions are still below safe targets.

Zooming in on the graph gives a better view of the Wedge.

Wedge_zoomed

The point of the Wedge is about $38,000 per person per year. This is not as rich as the US, but it’s definitely within the range of highly-developed countries. This is about the same standard of living as Italy, Spain, or South Korea. In fact, all three of these countries exceed their targets; the closest I was able to find to a country actually hitting the point of the wedge was Latvia, at $27,300 and 3.5 tonnes per person per year. Uruguay also does quite well at $22,400 and 2.2 tonnes per person per year.

Some countries are within the Wedge; a few, like Uruguay, quite close to the point, and many, like Colombia and Bangladesh, that are below and to the left. For these countries, a “stay the course” policy is the way to go: If they keep up what they are doing, they can continue to experience economic growth without exceeding their emission targets.

 

But the most important thing about the graph is not actually the Wedge itself: It’s all the countries outside the Wedge, and where they are outside the Wedge.

There are some countries, like Sweden, France, and Switzerland, that are close to the blue line but still outside the Wedge because they are too far to the right. These are countries for whom “degrowth” policies might actually make sense: They are being as efficient in their use of resources as may be technologically feasible, but are simply producing too much output. They need to find a way to scale back their economies without causing social and political collapse. My suggestion, for what it’s worth, is progressive taxation. In addition to carbon taxes (which are a no-brainer), make income taxes so high that they start actually reducing GDP, and do so without fear, since that’s part of the point; then redistribute all the income as evenly as possible so that lower total income comes with much lower inequality and the eradication of poverty. Most of the country will then be no worse off than they were, so social and political unrest seems unlikely. Call it “socialism” if you like, but I’m not suggesting collectivization of industry or the uprising of the proletariat; I just want everyone to adopt the income tax rates the US had in the 1950s.

But most countries are not even close to the blue line; they are well above it. In all these countries, the goal should not be to reduce economic output, but to increase the carbon efficiency of that output. Increased efficiency has no downside (other than the transition cost to implement it): It makes you better off ecologically without making you worse off economically. Bahrain has about the same GDP per capita as Sweden but produces over five times the per-capita carbon emissions. Simply by copying Sweden they could reduce their emissions by almost 19 tonnes per person per year, which is more than the per-capita output of the US (and we’re hardly models of efficiency)—at absolutely no cost in GDP.

Then there are countries like Mongolia, which produces only $12,500 in GDP but 14.5 tonnes of CO2 per person per year. Mongolia is far above and to the left of the point of the Wedge, meaning that they could both increase their GDP and decrease their emissions by adopting the model of more efficient countries. Telling these countries that “degrowth” is the answer is beyond perverse—cut Mongolia’s GDP by 2/3 and you would throw them into poverty without even bringing carbon emissions down to target.

We don’t need to overthrow capitalism or even give up on GDP growth in general. We need to focus on carbon, carbon, carbon: All economic policy from this point forward should be made with CO2 reduction in mind. If that means reducing GDP, we may have to accept that; but often it won’t. Switching to nuclear power and public transit would dramatically reduce emissions but need have no harmful effect on economic output—in fact, the large investment required could pull a country out of recession.

Don’t worry about the Doughnut. Aim for the point of the Wedge.

Daylight Savings Time is pointless and harmful

Nov 12, JDN 2458069

As I write this, Daylight Savings Time has just ended.

Sleep deprivation costs the developed world about 2% of GDP—on the order of $1 trillion per year. The US alone loses enough productivity from sleep deprivation that recovering this loss would give us enough additional income to end world hunger.

So, naturally, we have a ritual every year where we systematically impose an hour of sleep deprivation on the entire population for six months. This makes sense somehow.
The start of Daylight Savings Time each year is associated with a spike in workplace injuries, heart attacks, and suicide.

Nor does the “extra” hour of sleep we get in the fall compensate; in fact, it comes with its own downsides. Pedestrian fatalities spike immediately after the end of Daylight Savings Time; the rate of assault also rises at the end of DST, though it does also seem to fall when DST starts.

Daylight Savings Time was created to save energy. It does do that… technically. The total energy savings for the United States due to DST amounts to about 0.3% of our total electricity consumption. In some cases it can even increase energy use, though it does seem to smooth out electricity consumption over the day in a way that is useful for solar and wind power.

But this is a trivially small amount of energy savings, and there are far better ways to achieve it.

Simply due to new technologies and better policies, manufacturing in the US has reduced its energy costs per dollar of output by over 4% in the last few years. Simply getting all US states to use energy as efficiently as it is used in New York or California (not much climate similarity between those two states, but hmm… something about politics comes to mind…) would cut our energy consumption by about 30%.

The total amount of energy saved by DST is comparable to the amount of electricity now produced by small-scale residential photovoltaics—so simply doubling residential solar power production (which we’ve been doing every few years lately) would yield the same benefits as DST without the downsides. If we really got serious about solar power and adopted the policies necessary to get a per-capita solar power production comparable to Germany (not a very sunny place, mind you—Sacramento gets over twice the hours of sun per year that Berlin does), we would increase our solar power production by a factor of 10—five times the benefits of DST, none of the downsides.

Alternatively we could follow France’s model and get serious about nuclear fission. France produces over three hundred times as much energy from nuclear power as the US saves via Daylight Savings Time. Not coincidentally, France produces half as much CO2 per dollar of GDP as the United States.

Why would we persist in such a ridiculous policy, with such terrible downsides and almost no upside? To a first approximation, all human behavior is social norms.

Is there hope for stopping climate change?

JDN 2457523

This topic was decided by vote of my Patreons (there are still few enough that the vote usually has only two or three people, but hey, what else can I do?).

When it comes to climate change, I have good news and bad news.

First, the bad news:

We are not going to be able to stop climate change, or even stop making it worse, any time soon. Because of this, millions of people are going to die and there’s nothing we can do about it.

Now, the good news:

We can do a great deal to slow down our contribution to climate change, reduce its impact on human society, and save most of the people who would otherwise have been killed by it. It is currently forecasted that climate change will cause somewhere between 10 million and 100 million deaths over the next century; if we can hold to the lower end of that error bar instead of the upper end, that’s half a dozen Holocausts prevented.

There are three basic approaches to take, and we will need all of them:

1. Emission reduction: Put less carbon in

2. Geoengineering: Take more carbon out

3. Adaptation: Protect more humans from the damage

Strategies 1 and 2 are classified as mitigation, while strategy 3 is classified as adaptation. Mitigation is reducing climate change; adaptation is reducing the effect of climate change on people.

Let’s start with strategy 1, emission reduction. It’s probably the most important; without it the others are clearly doomed to fail.

So, what are our major sources of emissions, and what can we do to reduce them?

While within the US and most other First World countries the primary sources of emissions are electricity and transportation, worldwide transportation is less important and agriculture is about as large a source of emissions as electricity. 25% of global emissions are due to electricity, 24% are due to agriculture, 21% are due to industry, 14% are due to transportation, only 6% are due to buildings, and everything else adds up to 10%.

global_emissions_sector_2015

1A. Both within the First World and worldwide, the leading source of emissions is electricity. Our first priority is therefore electrical grid reform.

Energy efficiency can help—and it already is helping, as global electricity consumption has stopped growing despite growth in population and GDP. Energy intensity of GDP is declining. But the main thing we need to do is reform the way that electricity is produced.

Let’s take a look at how the world currently produces electricity. Currently, the leading source of electricity is “liquids”, an odd euphemism for oil; currently about 175 quadrillion BTU per year, 30% of all production. This is closely followed by coal, at about 160 quadrillion BTU per year, 28%. Then we have natural gas, about 130 quadrillion BTU per year (23%), wind, solar, hydroelectric, and geothermal altogether about 60 quadrillion BTU per year (11%), and nuclear fission only about 40 quadrillion BTU per year (7%).

This list basically needs to be reversed. We will probably not be able to completely stop using oil for transportation, but we have no excuse for using for electricity production. We also need to stop using coal for, well, just about anything. There are a few industrial processes that basically have to use coal; fine, use it for that. But just as something to burn, coal is one of the most heavily-polluting technologies in existence—the only things we burn that are worse are wood and animal dung. Simply ending the burning of coal, wood, and dung would by itself save 4 million lives a year just from reduced pollution.

Natural gas burns cleaner than coal or oil, but it still produces a lot of carbon emissions. Even worse, natural gas is itself one of the worst greenhouse gases—and so natural gas leaks are a major source of greenhouse emissions. Last year a single massive leak accounted for 25% of California’s methane emissions. Like oil, natural gas is also something we’ll want to use quite sparingly.

The best power source is solar power, hands-down. In the long run, the goal should be to convert as much as possible of the grid to solar. Wind, hydroelectric, and geothermal are also very useful, though wind power peaks at the wrong time of day for high energy demand and hydro and geothermal require specific geography to work. Solar is also the most scalable; as long as you have the raw materials and the technology, you can keep expanding solar production all the way up to a Dyson Sphere.

But solar is intermittent, and we don’t have good enough energy storage methods right now to ensure a steady grid on solar alone. The bulk of our grid is therefore going to have to be made of the one energy source we have with negligible carbon emissions, mature technology, and virtually unlimited and fully controllable output: Nuclear fission. At least until fusion matures or we solve the solar energy storage problem, nuclear fission is our best option for minimizing carbon emissions immediatelynot waiting for some new technology to come save us, but building efficient reactors now. Why does France only emit 6 tonnes of carbon per person per year while the UK emits 9, Germany emits 10, and the US emits a whopping 17? Because France’s electricity grid is almost entirely nuclear.

But nuclear power is dangerous!” people will say. France has indeed had several nuclear accidents in the last 40 years; guess how many deaths those accidents have caused? Zero. Deepwater Horizon killed more people than the sum total of all nuclear accidents in all First World countries. Worldwide, there was one Black Swan horrible nuclear event—Chernobyl (which still only killed about as many people as die in the US each year of car accidents or lung cancer), and other than that, nuclear power is safer that every form of fossil fuel.

“Where will we store the nuclear waste?” Well, that’s a more legitimate question, but you know what? It can wait. Nuclear waste doesn’t accumulate very fast, precisely because fission is thousands of times more efficient than combustion; so we’ll have plenty of room in existing facilities or easily-built expansions for the next century. By that point, we should have fusion or a good way of converting the whole grid to solar. We should of course invest in R&D in the meantime. But right now, we need fission.

So, after we’ve converted the electricity grid to nuclear, what next?
1B. To reduce the effect of agriculture, we need to eat less meat; among agricultural sources, livestock is the leading contributor of greenhouse emissions, followed by land use “emissions” (i.e. deforestation), which could also be reduced by converting more crop production to vegetables instead of meat because vegetables are much more land-efficient (and just-about-everything-else-efficient).

1C. To reduce the effect of transportation, we need huge investments in public transit, as well as more fuel-efficient vehicles like hybrids and electric cars. Switching to public transit could cut private transportation-related emissions in half. 100% electric cars are too much to hope for, but by implementing a high carbon tax, we might at least raise the cost of gasoline enough to incentivize makers and buyers of cars to choose more fuel-efficient models.
The biggest gains in fuel efficiency happen on the most gas-guzzling vehicles—indeed, so much so that our usual measure “miles per gallon” is highly misleading.

Quick: Which of the following changes would reduce emissions more, assuming all the vehicles drive the same amount? Switching from a hybrid of 50 MPG to a zero-emission electric (infinity MPG!), switching from a normal sedan of 20 MPG to a hybrid of 50 MPG, or switching from an inefficient diesel truck of 3 MPG to a modern diesel truck of 7 MPG?

The diesel truck, by far.

If each vehicle drives 10,000 miles per year: The first switch will take us from consuming 200 gallons to consuming 0 gallons—saving 200 gallons. The second switch will take us from consuming 500 gallons to consuming 200 gallons—saving 300 gallons. But the third switch will take us from consuming 3,334 gallons to consuming only 1,429 gallons—saving a whopping 1,905 gallons. Even slight increases in the fuel efficiency of highly inefficient vehicles have a huge impact, while you can raise an already-efficient vehicle to perfect efficiency and barely notice a difference.

We really should measure in gallons per mile—or better yet, liters per megameter. (Most of the world uses liters per 100 km; almost!)

All right, let’s assume we’ve done that: The whole grid is nuclear, and everyone is a vegetarian driving an electric car. That’s a good start. But we can’t stop there. Because of the feedback loops involved, we only reduce our emissions—even to near zero—the amount of carbon dioxide will continue to increase for decades. We need to somehow take the carbon out that is already there, which brings me to strategy 2, geoengineering.

2A. There are some exotic proposals out there for geoengineering (putting sulfur into the air to block out the Sun; what could possibly go wrong?), and maybe we’ll end up using some of them. I think iron fertilization of the oceans is one of the more promising options. But we need to be careful to make sure we actually know what these projects will do; we got into this mess by doing things without appreciating their long-run environmental impact, so let’s not make the same mistake again.

2B. But really, the most effective form of geoengineering is simply reforestation. Trees are very good at capturing carbon from the atmosphere; it’s what they evolved to do. So let’s plant trees—lots of trees. Many countries already have net positive forestation (such as the US as a matter of fact), but the world still has net deforestation, and that needs to be reversed.

But even if we do all that, at this point we probably can’t do enough fast enough to actually stop climate change from causing damage. After we’ve done our best to slow it down, we’re still going to need to respond to its effects and find ways to minimize the harm. That’s strategy 3, adaptation.

3A. Coastal regions around the world are going to have to turn into the Netherlands, surrounded by dikes and polders. First World countries already have the resources to do this, and will most likely do it on our own (many cities already have plans to); but other countries need to be given the resources to do it. We’re responsible for most of the emissions, and we have the most wealth, so we should pick up the tab for most of the adaptation.

3B. Some places aren’t going to be worth saving—so that means saving the people, by moving them somewhere else. We’re going to have global refugee crises, and we need to prepare for them, not in the usual way of “How can I clear my conscience while xenophobically excluding these people?” but by welcoming them with open arms. We are going to need to resettle tens of millions—possibly hundreds of millions—of people, and we need a process for doing that efficiently and integrating these people into the societies they end up living in. We must stop presuming that closed borders are the default and realize that the burden of proof was always on anyone who says that people should have different rights based on whether they were born on the proper side of an imaginary line. If open borders are utopian, then it is utopian we must be.

The bad news is that even if we do all these things, millions of people are still going to die from climate change—but a lot fewer millions than would if we didn’t.

And the really good news is that people are finally starting to do these things. It took a lot longer than it should, and there are still a lot of holdouts; but significant progress is already being made. There are a lot of reasons to be hopeful.

Elasticity and the Law of Supply

JDN 2457292 EDT 16:16.

Today’s post is kind of a mirror image of the previous post earlier this week; I was talking about demand before, and now I’m talking about supply. (In the next post, I’ll talk about how the two work together to determine the actual price of goods.)

Just as there is an elasticity of demand which describes how rapidly the quantity demanded changes with changes in price, likewise there is an elasticity of supply which describes how much the quantity supplied changes with changes in price.

The elasticity of supply is defined as the proportional change in quantity supplied divided by the proportional change in price; so for example if the number of cars produced increases 10% when the price of cars increases by 5%, the elasticity of supply of cars would be 10%/5% = 2.

Goods that have high elasticity of supply will rapidly flood the market if the price increases even a small amount; goods that have low elasticity of supply will sell at about the same rate as ever even if the price increases dramatically.

Generally, the more initial investment of capital a good requires, the lower its elasticity of supply is going to be.

If most of the cost of production is in the actual marginal cost of producing each new gizmo, then elasticity of supply will be high, because it’s easy to produce more or produce less as the market changes.

But if most of the cost is in building machines or inventing technologies or training employees which already has to be done in order to make any at all, while the cost of each individual gizmo is unimportant, the elasticity of supply will be low, because there’s no sense letting all that capital you invested go to waste.
We can see these differences in action by comparing different sources of electric power.

Photovoltaic solar power has a high elasticity of supply, because building new solar panels is cheap and fast. As the price of solar energy fluctuates, the amount of solar panel produced changes rapidly. Technically this is actually a “fixed capital” cost, but it’s so modular that you can install as little or as much solar power capacity as you like, which makes it behave a lot more like a variable cost than a fixed cost. As a result, a 1% increase in the price paid for solar power increases the amount supplied by a whopping 2.7%, a supply elasticity of 2.7.

Oil has a moderate elasticity of supply, because finding new oil reserves is expensive but feasible. A lot of oil in the US is produced by small wells; 18% of US oil is produced by wells that put out less than 10 barrels per day. Those small wells can be turned on and off as the price of oil changes, and new ones can be built if it becomes profitable. As a result, investment in oil production is very strongly correlated with oil prices. Still, overall production of oil changes only moderate amounts; in the US it had been steadily decreasing since 1970 until very recently when new technologies and weakened regulations resulted in a rapid increase to near-1970s levels. We sort of did hit peak oil; but it’s never quite that simple.

Nuclear fission has a very low elasticity of supply, because building a nuclear reactor is extremely expensive and requires highly advanced expertise. Building a nuclear power plant costs upward of $35 billion. Once a reactor is built, the cost of generating more power is relatively trivial; three-fourths of the cost a nuclear power plant will ever pay is paid simply to build it (or to pay back the debt incurred by doing so). Even if the price of uranium plummets or the price of oil skyrockets, it would take a long time before more nuclear power plants would be built in response.

Elasticity of supply is generally a lot larger in the long run than in the short run. Over a period of a few days or months, many types of production can’t be changed significantly. If you have a corn field, you grow as much corn as you can this season; even if the price rose substantially you couldn’t actually grow any more than your field will allow. But over a period of a year to a few years, most types of production can be changed; continuing with the corn example, you could buy new land to plant corn next season.

The Law of Supply is actually a lot closer to a true law than the Law of Demand. A negative elasticity of supply is almost unheard of; at worst elasticity of supply can sometimes drop close to zero. It really is true that elasticity of supply is almost always positive.

Land has an elasticity near zero; it’s extremely expensive (albeit not impossible; Singapore does it rather frequently) to actually create new land. As a result there’s really no good reason to ever raise the price of land; higher land prices don’t incentivize new production, they just transfer wealth to landowners. That’s why a land tax is such a good idea; it would transfer some of that wealth away from landowners and let us use it for public goods like infrastructure or research, or even just give it to the poor. A few countries actually have tried this; oddly enough, they include Singapore and Denmark, two of the few places in the world where the elasticity of land supply is appreciably above zero!

Real estate in general (which is what most property taxes are imposed on) is much trickier: In the short run it seems to have a very low elasticity, because building new houses or buildings takes a lot of time and money. But in the long run it actually has a high elasticity of supply, because there is a lot of profit to be made in building new structures if you can fund projects 10 or 15 years out. The short-run elasticity is something like 0.2, meaning a 1% increase in price only yields a 0.2% increase in supply; but the long-run elasticity may be as high as 8, meaning that a 1% increase in price yields an 8% increase in supply. This is why property taxes and rent controls seem like a really good idea at the time but actually probably have the effect of making housing more expensive. The economics of real estate has a number of fundamental differences from the economics of most other goods.

Many important policy questions ultimately hinge upon the elasticity of supply: If elasticity is high, then taxing or regulating something is likely to cause large distortions of the economy, while if elasticity is low, taxes and regulations can be used to support public goods or redistribute wealth without significant distortion to the economy. On the other hand, if elasticity is high, markets generally function well on their own, while if elasticity is low, prices can get far out of whack. As a general rule of thumb, government intervention in markets is most useful and most necessary when elasticity is low.