The price of carbon and the ethic of Cain

William Morris has been described by E.P. Thompson as one of the greatest of Englishmen, and as a revolutionary without a revolution [Persons & Polemics, E.P.Thompson, Merlin Press, 1994]. At the end of the nineteenth century this perspicacious man, who saw that economic relationships reflect and fashion moral relationships, rallied tirelessly against the ethic of Cain – the acquisitive society and deepening wealth inequality – in contrast to a society based on the ethic of community and a society of equals, and believing that that there could be no compromise between the two ethics set out to work for the revolution.

The appalling waste of life & suffering in the past 100 years would undoubtedly cause Morris pause for thought and probably less zeal for revolution. But his moral critique – following a long tradition of English dissenters – finds an albeit faint echo in Joseph Schumpeter’s concept of “creative destruction” which describes the uneven evolution of capitalism and corporatism, and their relationship to democracy, and which arguably has renewed relevance after twenty years of globalisation.

The question of how liberal democracies, entrepreneurs and dominant classes will respond to climate warming is now focused on the opening debate over carbon taxes, and is taking place against a background of stumbling growth and the unbridled greed of the financial markets added and abetted – in the UK – by the present and preceding New Labour administrations.

But the same Labour governments have also set two precedents: commissioning the Stern Report, and introducing the climate change bill. The first established that adopting measures to reduction carbon and other greenhouse gas emissions would cost less than failing to prevent climate change, and that such measures are affordable; the second includes a politically far-reaching timetable for mandatory cuts in targeted greenhouse gas emissions, based upon binding domestic carbon reduction targets, effectively establishing a pathway to make the UK a low-carbon based economy.

The Stern Report has been controversial, initially for the choice of discount rate, and more recently because of the assumptions and numbers used to estimate the consumption reduction equivalence (including putting a monetary value on human life), which have been used to estimate the social cost of carbon in the cost-benefit analysis for the proposed third runway at Heathrow. George Monbiot has taken umbrage that the “shadow price of carbon”, which is currently valued, human lives and all, at £25 a tonne. Human life is not a commodity, but it does have an economic value in many markets. The Economist response errs in overstating the capacity of future growth and material progress to reduce poverty in a world known to be bound by climate change constraints and the immediate necessity to reduce consumption.

Heathrow is now a lightening rod for climate change campaigners and regardless of government estimates that a new runway has a net economic benefit, it is unlikely to be built: innovative protesters plus MPs in London and Home County constituencies will ensure that profits take second place to environmental and political costs. Large infrastructure and technology projects have track record of cost underestimation and cost overruns. Hypothetical gains from growth in air traffic are not shared equally and nor are the costs: the extent to which scenarios have been developed that take into account the effect of a fuel levy on airlines, carbon taxes on airline tickets, and the cost of disturbance to Londoners remains unclear. The debate is really about re-appraising the UK’s aviation forecasts and policy in light of the need to cut emissions by 30% by 2020.

In the UK emissions are about 10 tonnes of CO2 equivalent per capita. With a population of about 60 million the current annual level of domestic emissions is 600 million tonnes. An initial low carbon tax of, say, £10 per tonne (US$15 per tonne) would generate £6,000m per year in tax revenues. Total UK tax revenues were £520,000m (about £8,500 per head) in 2006-07, of which income tax and national insurance payments represented 45%. The carbon tax can be introduced as a revenue-neutral measure, for example matched by reductions in incomes taxes – although strong arguments can be made for some carbon tax receipts to be ring-fenced to finance public support for carbon technologies, grants and subsidies to encourage the switch to lower carbon technologies for power, heat and transport, as well as part of UK contributions to international safety nets and adaptation funds for those poorer countries most likely to be directly affected first by climate change – for example to counter declining crop yields in Africa.

Faced with the social costs of their spending, consumers can be expected to reduce their demand for carbon emission goods and services, and companies will invest in more efficient technologies (Shell have called for a carbon price close to $100 – about £50 – per tonne of CO2 to justify investment in carbon-capture-and-storage schemes). Carbon pricing and supporting regulations need to be introduced quickly: the Stern report emphasised that price of delay will be higher mitigation costs.

Short of rationing only carbon pricing will induce the shifts needed for the UK to meet its commitment to reduce emissions by 60% before 2050 to about 4 tonnes per capita. Carbon pricing policies will raise many distributional issues, and open the debate on the nature of our society. William Morris would be working now to prepare the ground for a more cooperative social contract, and raging against the moral immiseration of the ruling classes, who “rather than lose anything which really is its essence, it will pull the roof of the world down upon its head.”

 

 

 

Policy experiments, economic paradigms

Dani Rodrik’s recent post on development economics took me back to my graduate days at the UEA’s School of Development Studies on the — then brand new — MSc Agricultural Economics course (1984-85) managed by Frank Ellis and Steve Biggs. Their liberal course and seminar-based teaching approach was a breath of fresh air. Franks Ellis´s lectures would contribute to his “Peasant Economics: farm household and agrarian development” (CUP, 1988), and later influential work on rural livelihoods. Other lecturers included, inter alia, Richard Pearce, John Harris ["Political Economy Rural Development : Theories of Peasant Economy and Agrarian Change" (Hutchinson, 1982)], and Piers Blaikie ["The Political Economy of Soil Erosion in Developing Countries" (Longman, 1985)].

Steve Biggs lectured on agricultural innovation and participation — and Dennis Rondelli’s “Development Projects as Policy Experiments” was a key text.

The idea that development approaches and policy ideas in, for example, Africa are really very different to those in the UK or US is fundamentally odd to me. We simply don’t always know where the “where the problems lie” and by necessity and choice need ” to acknowledge that the key problems may differ from setting to setting, and to adopt an explicitly experimental attitude to policy selection and formulation.”

But is this really a paradigm shift? I have long been an advocate of Bill Easterly’s approach — conditional funding based on country’s own efforts at policy reform, and Dani’s own emphasis on the recognition of pluralism (and I have no little time for Sach’s big bang): perhaps it may be from those in ivory towers, but for those involved in discussing, bargaining & negotiating policy it is the only approach. Putting in place the institutional arrangements (and funding) for collective M&E is admittedly more difficult.

Google: broadband aid

Gandhi was once asked, “How can I know that the decisions I am making are the best I can make?” He answered: “I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man whom you may have seen, and ask yourself if the step you contemplate is going to be of any use to him. Will he gain anything by it?

Slate has an interesting article “Gandhi’s Talisman” on Google’s philanthropy. Apparently Google started by asking themselves how their help would affect the world’s poorest and weakest (which also mirrors the company’s “don’t do evil” code of conduct) , and the second criterion — which also reflects their own business model — ‘is it a big enough idea’? So far, so West Coast. Asking whether Google had any particular expertise for potential projects is perhaps a step further than many public development agencies and NGOs have perhaps cared to ask themselves too closely. Google are therefore at present supporting five initiatives: 1. Predict and Prevent – strengthening the means to identify and respond to hot spots or emerging risks; 2. Inform and Empower – to improve the provision of essential public services (education, health, water, and sanitation); 3. Fuel the Growth of Small and Medium-Sized Enterprises – contributing to the flow of risk capital to the developing countries; 4. Develop renewable utility-scale energy that is cheaper than coal, and 5. Commercialization of Plug-In Vehicles – by providing seed money and ideas to encourage the mass commercialisation of electric vehicles.

This is all quite laudable — and is a good example of Google’s leverage of its comparative advantage – its distinctive capability – in IT and associated networks as described by John Kay in his seminal book “The Business of Economics”.

But the US$75m committed to date might be seen to be a bit modest compared to their goals, let alone company income — and leaving aside estimating what the size of the “charity gap” may actually be. And curiously, Google has not appeared to use its unsurpassed access to information to ask the poorest and weakest what are their needs are, and how they might be met. It would be fascinating to compare and contrast the analysis of such search results with, for example, the Millennium Development Goals.

Hallucinatory leadership

We have the most hallucination-inducing leaders-they are surpassingly bad at everything, or extremely good, depending on your point of view.Kibaki, in effect, has said: … Look. We Kikuyus endured twenty-four years of that Kalenjin man’s rule, and were regularly rigged out. We knew it, and so did you. We, unlike our violent Luo lesser-citizens or our wanna-be Kalenjin friends, did not engage in wanton acts of destruction for this reason. We bore our Moi-years burden in silence and with decorum, like everybody else in this country, we even managed to keep our heads above water, more or less. We had saved and secreted away enough, although diminished, shillings to begin to build again-and we have been working hard.You must admit that the street lights in Nairobi work now, and remember the new beauty of the roundabouts. Don’t you like flowers? And on this point: please tell your guys to stop burning our flower farms in the Rift Valley: there is going to be a rose crisis in Europe if you don’t watch out. It isn’t as if the new supermarkets and shops only sell things to Kikuyus: we’re all winning, here, guys! We were about to do global IPOs, bwana! We waited for our turn to come, and in 2002, it did (okay, it came for us again, but who’s counting?). We now do not understand what all this unmannerly screaming and shouting and wielding of pangas and matchboxes and gallons of petrol is all about, as we expect you to understand that you must stand in line. It isn’t your turn yet.Yes, we rigged: so what? So did you-we were just better at it, as you well know, as you admitted privately at the golf club. We won that rigging game, fair and square. So, shut up and get on with preparing for the next campaign in five years-we’ll have wrapped up our most important business by then, or at least convinced you to follow our plan instead of yours. We’ll buy you out, as always-what’s all this fuss about? You are welcome to have another factory or two, if that is the problem; if this will make you shut up.

Kibaki has said this, or words certainly to that effect, at the recent meeting of African Union heads recently. He was speaking to his peers-other rulers and regulators of Africans of a bewildering variety of tongues and tendencies, and yet, he was confident that they would understand his meaning. He knew that they knew how to read between his lines of “law and order,” of “institutional redress”: he was basically saying to his fellow African Excellencies, with a nudge and a wink, that the real problem in Kenya has come about because those idiot Luos don’t know how to take a fall, and the Kalenjin have always had dreams of grandeur; they think they’re in a movie for white people, or something. Someone, one of his Excellent Brothers, might even guffaw, at his subtleties. They understood his meaning clear and well.

In the meantime, Raila Odinga is failing every test of greatness that has walked up to him and practically slapped him in the face, this last month: he has been looking at the good of his country each day and deciding against it. He has decided that the chance of the presidency means more to him than the chance to be truly great, to be an outstanding African instead of just another quarrelsome Kenyan, petty and power-blinded. They’ll still write about him in the history books fifty years from now, and he doesn’t care what the reasons are, what stories we will be telling our children about him. His party may have planned mass human rights violations; they may indeed have been a touch over-enthusiastic, but his injured innocence knows no bounds. Kibaki’s Presidential Cronies would understand Raila’s point of view, too-they practice its tenets daily.

They are all one of a kind.