Saturday, November 16, 2019

Climate clarity

The  carbon elephant in the room: (Data from EIA)


In case "Asia and Oceania" vs. "North America" isn't clear  enough:


Just why have China's carbon emissions risen  so much in the last decade?
China  has been building  about one coal  fired  power  plant a week.


China uses half again more energy than the US, to produce  $13.6 trillion vs. $20.5 trillion of GDP. That energy is strikingly weighted to coal (90 vs. 14  QBTU).

Why does this fact matter? Carbon policy seems to feature a lot of local responses to a global  problem, from a US Green New Deal, to Californians' interesting faith that electric cars and high speed trains are the best way to bring the rains and to prevent wildfires.

In my little  world of monetary policy, Bank of England governor  Mark Carney has taken the lead demanding a "commitment of all actors in the financial system to act will help avoid a climate-driven ‘Minsky moment’. " (The ring of nice bank you have there  it would be a shame if something should happen to it is unmistakeable in his comments.) He also channeled Bastiat's broken windows with the fallacy that "climate action bolsters economic growth." (In case you don't get the reference: investing in a technology that produces the same thing more expensively does not help long-run growth. It may help the environment, but it does not help growth. Carney isn't  the only one in a high place repeating this nostrum.)

Even the IMF has a new initiative to nag central banks of small countries having exchange rate crises that they need to take "proactive steps"  to "promote a greener world," with  “green quantitative easing” programs" to  "purchase of bonds funding energy-efficient/renewable projects." Let's see, just what is the  effect of, say, Argentina, moving to electric cars, on Argentina's GDP and ability to pay its debts, via lowering global carbon emissions, in the next decade or two? 0.0000000 ... how many zeros  do I  need before a digit?

And then China builds a new coal-fired power  plant. Trapping the mice will not clean up the droppings on the floor as long as there is an elephant in the room.

(Credit to  Fed Chair Jay Powell for staying off the bandwagon, declaring that  “Climate change is an important issue but not principally for the Fed,” and recognizing the increasingly forgotten limited mandate of independent central banks: “We’re not going to be the ones to decide society’s response. That is for elected officials, not us.” But this is really about how it gets done. The same elected officials can pass laws expanding the Fed's mandate to include the purchase of green new deal bonds, and Powell's  point is only that  they should do so and not nag him to do it on their behalf without legislation.)

A  puzzle:  Just  why has China  decided to grow via coal? Yes, they have a lot of it and can import it from Australia cheaply. But China also has plenty of nuclear expertise, and, apparently, the wherewithal to build 3,000 miles of tunnels and fill them with nuclear weapons. If a one-party state can  do  anything it ought to be able to avoid regulatory regime that has stymied modern-technology  nuclear power development in the US. The air in Beijing is testament to that! China could have electrified by nuclear energy, mimicking France, producing no carbon and none of the more pressing horrible smog.  Why did it not do so? Why is China  so energy intensive? I welcome comments from China experts.

More puzzles: Why is the climate policy world so blind to this elephant in the room? OK, I can see a certain lack of climate urgency in the Trump Administration, so that they would focus all China-whining on intellectual property and bilateral trade deficits might make sense. But why is the rest of the climate world not focused laser-like on the big problem, and so insistent on local efforts that will make no difference to anything?

HT to  Niall Ferguson who showed a version of this graph at the Hoover retreat.


31 comments:

  1. To answer your question ("Just why has China decided to grow via coal?"), I am no China expert, but I have to believe that this is China's version of Trump's pledge to West Virginia. Internal, regional politics has to be the answer. And nuclear plants don't employ many people.

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    1. when trump doesn't believe in climate change,why should china sacrifice for the world?this is the consequence of breakdown in international cooperation

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    2. China building coal power plants because of Donald Trump climate policies is a rational with some significant time inconsistencies.

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  2. Hi,
    This kind of charts about emissions per country/region is misleading. They are based on the location of production, while the location of consumption would be more relevant. By relying increasingly on China to produce high emission goods that Americans and Europeans do import and consume, we artificially lower emissions attributed to the US or to Europe.
    Best regards,
    Etienne de Callataÿ

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    1. It has often been argued that to appear virtuous in emissions-reductions within it's own borders, the EU has increased its emissions by moving production to countries such as (and mainly) China where production is more emissions-intensive. Virtue-signalling while denying reality, as with the UK shipping wood from Canada to replace fossil fuels ion power stations. Emissions are more than doubled (including with tranpsort), but it qualifies as "Green" energy. We are not operating in a rational domain here.

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    2. Looking at carbon where it is produced matters because that is where policy can be made. The US cannot write policies for China; China must do so. If China taxes carbon, those taxes will eventually make their way to consumers in the US & EU via higher prices, which addresses the consumption location concern automatically.

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    3. I agree with Chris W that policy is national. But it is also true that just looking at location is a bit misleading in terms of emissions. How misleading? Well, here is one paper (https://www.pnas.org/content/early/2010/02/23/0906974107.abstract) saying that about 22% of emissions in China were exported, while for the US, we imported about 10% of our consumption based emissions. So even though the chart is misleading, it is not entirely misleading. Even allocating emissions by consumption, it still appears that China dwarfs all other countries.

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  3. Investing in anti-climate change technology does help growth. The point is that economic welfare is not measured correctly: you need to internalize the costs properly. If the technology to stop global warming is cheaper than the costs imposed by it, then real growth if measured correctly (ie aggregate welfare) should improve from eliminating the externality.

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    1. Any costs of warming (it might be net beneficial) appear to me to be much less than the costs of futile attempts to defer warming; which in any case, and in contradiction to IPCC modelling, has not followed a warming trend this century.

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    2. Even the Stern Report acknowledged that warming is nett positive up to 2070.

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  4. I am not an expert on the topic but the Chinese trend of building coal fired power plants might be because of the decades old communist mentality of creating jobs for blue-collar workers and most importantly because of bureaucratic inertia in pursuing a new better alternative

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  5. You have to look at consumption per capita. Here the US is one of the highest in the world. You drive big cars, use air-conditioning and so on. Should the developing world not be allowed the same? Clearly rich countries have to do their part and that includes US.

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    1. Yes. Big cars and air conditioning. First we will worry about getting everyone those before we even think about dealing with something as inconsequential as climate change.

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    2. And yet total US emissions (from energy consumption) have managed to stay at the same level for 35 years, despite big population increases. Why? Because, unlike China, the US has backed away from coal. Ditto the rest of the western world.

      Obfuscate all you like, but John is dead right: banging on about carbon emissions while failing to recognize the 'China problem' is head-in-the-sand stuff.

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    3. China's leaders are looking for the fastest, easiest way to lift their people's economic well being to the level of the West or higher. Building nuclear power plants is too slow. No Chernobyls should happen. France's path does not scale to the size of China. This is my guess.

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    4. I wish John would comment on the per-capita (and consumption-location) issue. That's all I could think about as I read the piece. John is one of the smartest thinkers around so I can't help but think he so obviously must have known this.

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    5. I was reading More From Less and I can't tell yet (just starting the book) if they are accounting for consumption. They use the term "use" of various materials. I started digging into consumption based measures. I mentioned above, China does seem to export about 30% of their emissions (in other words, about 30% of their emissions go into make goods that are exported). In Europe, they import about 30% more emissions than emitted in their countries otherwise. In the US, the number seems to be smaller--the US only imports about 10% of their emissions. So, to correct the charts above for consumption, China is still the biggest by far in terms of total emissions. Still true of course that rich western countries have high per capita emissions. Those countries are also the most energy efficient per unit of GDP. Which circles back to the question...why is China building coal plants? They could be much more energy efficient with nuclear (at least in terms of emissions efficiency). Useful link on consumption based emissions where I got those numbers: https://www.pnas.org/content/early/2010/02/23/0906974107.abstract

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  6. Mercy, climate policy is religion policy. All this is trivial if we were to go nuclear.

    The still Governor of the BoE seems to always get on the side of, well, the popularists, to coin a word. Monetary policy not driven by gold, not driven by a k percent rule, not driven by target NNP growth, nay, driven by climate change! God save us.

    Look at "John Jones' Dollar, by Harry Keeler, published 1927 [!], conveniently reprinted in Clifton Fadiman, Mathematica Fantasia, 1958, to find an analogous vital error. :-)

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  7. I don't think there's anything wrong with shifting towards sustainable economies. As attitudes change, so will the metrics used to classify success versus failure (or stagnation, take your pick). Once the over-reliance on GDP growth fades, I am hoping it's replaced with measurements that make sense (Criterion problem strikes again).

    China certainly has enough technical expertise to change the infrastructure. But it also costs money. Different regions have different cost structures and prices -- especially true when we start taking about the marginal cost of abatement.

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  8. What portion of total CO2 emissions are due to 'energy production' ?

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  9. "climate action bolsters economic growth."

    The Greens are saying this because there is very little public support for spending on climate change, no matter how much hand wringing there is. They have to promise a free lunch or they will get no traction at all. In a survey of Canadians 2/3 said climate change was an important issue and 2/3 said they would personally not be willing to pay more than $100 per year to address climate change. ¯\_(ツ)_/¯

    One of China's problems is that it is subsidizing primary steel and aluminum production which is increasing the CO2 production without actually creating net value (and probably actually making China poorer).

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  10. Here's one reason the ChiComms didn't build nukes: they saw Chernobyl blow up, and they witnessed how uncontainable the disaster was and how bad the Soviets looked as they struggled to contain the problem. Then five years later, they witnessed the fall of the Soviet Union. They concluded they didn't want problems like that.

    Coal plants, by contrast, fail innocuously - maybe a big fire. And they're cheap and quick to build. All that in mind, an easy decision for the ChiComms.

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  11. I'm chinese, but can't claim to be an expert. In my observation, most Chinese don't believe that climate change is that serious an issue. China has a lot of hydraulic powerplants. Nuclear is not that popluar thanks to Cheynobel and Fukuhima.

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  12. I wonder why Prof Cochrane talks about an "elephant in the room". Everyone with little knowledge on the topic knows that the major carbon emitters are developing Asian countries, particularly China. Still, there are a few reasons why simply pointing the finger at China is not helpful and possibly not even fair.

    1) As pointed out by others, it's a matter of size. China has a population 4 times that of the USA, but still generates only 2 times carbon emissions. By neglecting this key fact, China could easily say that "we're not the main emitter: the rest of the world is".

    2) This is the typical defence line from developing countries. What matters regarding the effect on climate is not the annual amount of carbon dioxide emitted, but rather the cumulative one. Developed countries have started emitting significantly before China, India, etc..., hence their cumulative contribution to date is significantly higher. Asking developing countries to sacrifice their current growth for the mistakes done in the past by developed countries is considered unfair. Rightly so, it seems to me.

    3) If our interest (and mine is) is to address the problem of climate change, pointing fingers like Prof Cochrane does seems of very little help. In view of points 1) and 2) above, developing countries (and China in particular) have good reasons for refusing to take action. Instead, a necessary but not sufficient condition to achieve the goal is for developed countries to push the agenda of reducing greenhouse gas emission by doing their fair share. This is why the issue must first of all be addressed locally.

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    1. This is an economics blog. Two of the key insights of economics are that we should think at the margin and ignore past actions as "sunk costs." So, the real question isn't who has done what in the past or cumulatively, but rather: what is making the problem worse NOW and at the margin, and what is the most cost effective way of eliminating this. This is the point that Prof Cochrane is making, which is that China - which is currently building more coal-fired electricity capacity than the entire industry in the EU - is the worst contributor at the margin. Citing how much the developed countries have emitted in the past, when today's technological and economic alternatives (eg., cheap natural gas due to fracking) were not even available, is blindingly besides the point.

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    2. Not sure about that Roger since high emissions in the past has resulted in higher living standards now, and lowering emission in China will, very likely, prevent people there to achive better living standards.

      I don't think this "Sorry, I got there first and now you should sacrifice" will work morally or politically, even if it makes perfect "at the margin" sense.

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    3. Jose, this could be an argument for who should pay for climate-friendly infrastructure, but not an argument for what should be done. Instead of developed countries spending a lot of money to achieve little results, it would be a "win-win" for the developed countries to pay developing countries to use more climate friendly sources. But what is really bizarre is that I suspect that the pure economics of natural gas plants is probably not materially worse, and is potentially better, than coal-fired plants - certainly this is true in America, where coal is dying due to economics. I suspect that China's use of this source has more to do with politics than with economics.

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  13. China has more than 4 times the population of the United States and what is relevant is the CO2 emission "per capita".

    If the solution to climate change is to limit the amount of CO2 emission the only fair way I can think of for asigning this "rigth to emit" is assigning the same amount to every person in the world. Why should be a person in america entitled to emit more CO2 than a person in China?.

    China is still emitting far less per capita than their "fair share", USA is emitting more.

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  14. China, China China... the article has lack of stats of how many China's produced products US uses

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  15. Interestingly, China and France have a similar number of nuclear reactors. Of course, China would need 10 times as many as France in order to have a similar proportion of its energy provided by nuclear.

    Nuclear provides 4% of China's electricity, compared to 1% 20 years ago. Arguably, China has increased its reactor-construction capabilities as quickly as possible over those 20 years.

    That said, there is a clear slowdown in construction of Chinese (and South Korean) reactors. It's mostly due to a shift of perceptions after Fukushima.

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  16. Dear Mr Cochrane,

    I've written a short piece on my blog that seeks to explain why China emits so much CO2, even in per capita terms. I hope you find it helpful and informative: https://sistermaurice.com/2019/08/24/china-by-the-numbers/

    Regards,

    SM

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