Arnold Kling  

Carbon Footprints and Central Planning

PRINT
Scott Adams on the Economic Wa... Median Voter to Self: Keep Up ...

Megan McArdle discusses the issue of whether urban hipsters or suburban ticky-tackies have the more carbon-intensive lifestyle.

This is one of those questions for which the answer is too difficult to calculate. For example, there was a story making the rounds about a month or so ago to the effect that if you walk to the supermarket, you will use up so many calories that the additional food you eat will ultimately require enough carbon-emitting activities that you would be more "green" by taking your car instead.

These are the sorts of calculation issues that vex central planners. Nobel Laureate Wassily Leontief tried to solve the problem with input-output tables. Those work fine, other than that they assume away substitution and innovation. In other words, they are not reliable at all.

A similar problem affects calculations of energy savings. Does that Prius really save energy, or does it use additional energy in the assembly process that, in present-value terms, offsets the energy savings while driving the car? Do biofuels really save energy, or does the energy used in agriculture undermine any savings?

The beauty of markets is that they make these calculations for you. The price of energy and the price of carbon emissions will find their way into the prices of goods and services, in effect calculating your carbon footprint and your energy footprint for you. Pigou Club members will argue that we need taxes to raise the prices of energy and carbon emissions. However, if you have what you think is the right tax, the market will do the rest.

If you think you have a choice between a low-cost lifestyle and a lifestyle with a low carbon footprint, chances are if you choose the latter you will be getting neither. Central planners cannot outsmart the market, and neither can you.


Comments and Sharing





COMMENTS (18 to date)
Megan McArdle writes:

Given the uses of carbon in this country, I sincerely, sincerely doubt that statistic. For one thing, walking burns very few calories--you can do 3-4 miles on the flat on one decent-sized piece of fruit. Given how much more fuel efficient long haulage is, how much of it goes over rail (or ship), and the percentage of carbon emissions accounted for by personal transport in America--something like 20%, if I'm doing the math right--that piece of fruit would have to weigh a ton, and be grown under marijuana lights.

Kimmitt writes:

Isn't one of the pervasive critiques regarding energy that its value is regularly massively distorted?

GIGO, right? The market can only aggregate information it receives.

Arnold Kling writes:

Megan, I had a hard time believing the "driving to the supermarket is green" story myself. I didn't link to it when it came out, for that reason. I should have said so in the post.

But the larger point is that you should not rely on that or any other artificial calculation.

Lord writes:

The problem is all the other factors that go into prices; we do not live in an energy driven theory of value world although a carbon based tax would work towards those ends. Coal is cheaper than natural gas for electricity, but that hardly means a lower energy footprint. Within a given input form though, it probably does.

Matt writes:

If central planners did not occasionly outsmart the private market, then why do central planners survive?

A better theory. When a market unexpected breaks terribly, then a central planner can jump in and find a monopoly niche. It is a quantum probability when transaction flows are very low.

General Specific writes:

"The beauty of markets is that they make these calculations for you."

True. The pricing mechanism will put the squeeze on those products or services with a larger carbon footprint. This makes sense if we want to reduce the production of carbon dioxide. The Economist has been arguing for this approach for years.

Unfortunately, if all countries don't take a similar approach, a carbon tax in one country--which reduces use of coal or oil, for example--will result in lower oil and coal prices. In the global market, that implies higher consumption in regions that don't tax similarly. Hence more carbon dioxide production in other places.

Press down in one place, something pops up elsewhere.

Daublin writes:

Matt, thre is a sort of competition between countries, even though in individual countries a poor policy idea can persist just because it is popular. However, so long as other countries try different things, you will see endless discussions by the citizens about what works better in other countries. If the difference is sharp enough, citizens will have to notice. It's a process that takes decades, though, so it's not a market that clears very quickly.

Of course, if we all become vassals of some world government, then we lose this information source, because a crappy policy will be equally crappy for everybody and so we cannot tell whether it is any good. We have already lost a lot of information due to U.S. states becoming more homogenous and less powerful compared to the U.S. federal government.

8 writes:

If I was a central planner, or just a simple meddler like our own Feds, I would increase wood use in housing and furniture. Freeman Dyson and the co-founder of Greenpeace both think it's a good way to accomplish carbon sequestration. Plus, if China can be convinced to implement a similar policy, it could offset the trade deficit with lumber exports.

mk writes:

GenSpecific:
In the global market, that implies higher consumption in regions that don't tax similarly. Hence more carbon dioxide production in other places.

This is true, but the "pop up" effect does not have to be 1-for-1. By reducing America's "demand for CO2-emissions" we shift the world demand curve leftward. Depending on the slope of the world demand and supply, this will result in both lower world emissions and a lower price for polluting fuels.

So, it is (as you note) misleading to say that American abatements can just be subtracted from the world CO2 total, but some fraction of them really can be.

Of course I haven't read that paper on supply effects yet...

mk writes:

To respond to Arnold's post, it is true that it's really hard to tell what helps sometimes, and a carbon tax is the best mechanism for making this clearer.
However, I think you're overstating things by saying people can't "outsmart the market." Studies of lifecycle emissions can help us. Consumers get wiser as time goes on. Memes (like the infamous walking/driving study) spread like wildfire.
Some consumers want to verifiably cut their CO2 emissions, i.e. they place value on that. A market can grow up around verifiable accounting of CO2 emissions. It would take time, but it's possible.
The government could help by performing audits, or ensuring that the accounting is genuine. Imagine an extra little box next to "Nutrition Facts" detailing the environmental impact of a food purchase.
Of course, carbon accounting is difficult, whereas monetary accounting (from a carbon tax) is more straightforward. But it's not impossible.

This maybe isn't quite what you mean by "outsmarting the market", but my point is that voluntary consumer actions, plus voluntary producer actions, really could help this problem.

General Specific writes:

mk: True. Might not be 1-to-1. In particular, one has to consider the innovation and investment driven by a large economy like the united states moving towards a smaller carbon footprint through taxation. The innovation and simple economies of scale could lead towards a smaller draw on high carbon energy sources in other countries as they follow our path.

I'm doubtful though. Or a bit pessimistic. I think global energy production is soon to peak and that will lead to corner-cutting. It's easy for people to select the "green" path when they've got extra spending money, less so when times are tight.

People with disposable income are more inclined to choose an expensive path if they find it a moral path. Those with less income probably want to maximimize the productivity of their income. Carbon footprint is too abstract or remote for many.

Tracy W writes:

mk - your idea has value, but still faces the same problem.
How does anyone verifying the amount of CO2 emissions in a particular object? This is not just a practical problem, but a philosophical one. To see the difference between practical problems and philosophical problems in statistics, let's take an easier problem - how many people live in New York? There are practical problems in counting noses - people won't sit still and can be hard to find. There are also philosophical problems - where is NY? How about people who live there in the week and elsewhere on the weekend? How about people who are in town for two days? two weeks? Two months? Two years?

In terms of population of NY, one can make reasonably abitrary decisions on the philosophical matter and still get sensible numbers as long as you make the same decisions everywhere.

But if you want to measure CO2 emissions of different products, the philosophical problems are significant. Say a computer was made in a place where most people drive to work, creating CO2 emissions. If the computer had been made elsewhere where people cycled to work, would CO2 emissions have dropped? Or would setting up a new computer factory increased incomes and caused more people to take up driving? And would the people in the first place have stopped driving as a result of the factory closing down? Beats me.

mk writes:

Tracy:

You make good points. We'd like to figure out who is responsible for each bit of carbon emissions. But causality is quite messy, and the problem is not well-defined. What is the counterfactual situation for assessing X's carbon impact? Assuming that X was never born? That X was born, but made different decisions? Then you have to predict what everyone else in the world would have done in response. Impossible!

Note however that this philosophical problem comes up with a carbon tax too. I can make a decision (such as your manuf. plant example) that causes someone else to have to emit more carbon. Is that my fault? Well, that dude pays for it anyway. And someone is always paying for each emission, even if their level of "true" blame for that emission is philosophically unresolved.

So that's a case where a carbon price might charge people who aren't blameworthy. Consequentialists (myself included) don't care too much about that, but consequentialists aren't any happier here; in all the gray areas you mention, the fact that someone gets charged for each emission doesn't mean it's the right person, from an incentives or consequences standpoint.

So, under a tax, people have some incentive to make other people bear the costs. Under a carbon accounting scheme, people have some incentive to emit carbon in some sort of shadowy or hard-to-account-for way.

The tax is more bulletproof, it may not always be fair but it can't be BSed in the same way. The tax has gotta happen, but I think there could be some room for carbon accounting too. I agree it's a real headache.

General Specific writes:

mk: "I agree it's a real headache."

Yeah. Maybe too much of a headache. Perhaps we should just cook ourselves and then hope something better evolves from whatever remains when the temperature drops and the stew settles.

Brad Hutchings writes:

mk, The problem with marketing environmental correctness is that the more its done, the more people who literally do not care. Take smoking, fast food, alcohol, and donuts as examples. All are marked with official government sanctioned labels as evil, and yet lots of people don't care. That's where I am with carbon emissions and carbon footprints right now. So long as I can afford it, I will err on the side of comfort. There has to be some correlation between carbon foot size and the ability to kick the little envirosissies in the back sides. Or something like that.

Oh, and the most reassuring thing about where we are politically right now is that the Dems' base will never ever ever buy into a gas tax increase. We've established (not surprisingly) in the past year that the Dems are impotent to bring the price down. And they're going to want to jack it up for an unclear, unmeasurable environmental purpose? LOL.

mk writes:

Brad,

Thanks for your revealing opinions. I agree it's going to be an uphill battle.

Barkley Rosser writes:

matt,

Well, there are a lot fewer central planners around now than there used to be, and those remaining are a lot less powerful.

To get the market to work, one has to have a reasonably functioning market for carbon. One has been set up in Europe, although it seems to have some problems. But even if one gets a properly functioning market and price for carbon, one still has to get markets to take account of it and take it seriously, not necessarily so simple.

Tim writes:

The usual media presentation of the comparative carbon footprint of urbanites versus suburbanites is very biased against the suburbanite. The suburbanite 's use of water and power to maintain his backyard and larger owned living space are counted as costs, yet the urbanite often obtains these services from public amenities (parks etc) and also privately purchased services (cafes, restaurants, cinemas etc). The carbon foot print from the operation of both these types of services needs to be allocated back to the urbanite on a pro rata basis. Similarly the suburbanite's privately maintained carbon sinks, i.e. his lawn, trees and garden, need to be calculated in. It's possible that all told that there is not difference between urbanite and suburbanite carbon footprints.

Comments for this entry have been closed
Return to top