Economics

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Economics is about the current economics of energy production and also about how economics can be used to change things, through taxation and subsidies

Current economics

Economists agree: economic models underestimate climate change David Roberts; Vox; 25 Nov 2016

Last year, the New York–based Institute for Policy Integrity tried to remedy that situation with just such a large-scale survey of economists who have published work on climate change. The conclusion? There is broad consensus on some questions, a wider spread on others, but in every case the median opinion of climate economists supports more vigorous action against climate change, sooner. Like scientists, economists agree that climate change is a serious threat and that immediate action is needed to address it.

Expert Consensus on the Economics of Climate Change Institute for Policy Integrity; Dec 2015

In an effort to clarify the level of consensus among economists with respect to climate change risks, economic impacts, and policy responses, we conducted a survey of expert economists. Our survey builds on a similar 2009 survey conducted by other researchers at the Institute for Policy Integrity. We surveyed all those who have published an article related to climate change in a highly ranked, peer-reviewed economics or environmental economics journal since 1994. This survey allowed us to compare the views of economic experts to the views of the general public and help establish expert consensus on the likely economic impacts of climate change and the recommended policy responses. The survey also provides insights about the appropriate assumptions to use in “integrated assessment models” – the climate-economic models that many policymakers consult to inform climate policy decisions. We designed a 15-question online survey with questions focused on climate change risks, economic damage estimates, and policy responses. We invited the 1,103 experts who met our selection criteria to participate, and we received 365 completed surveys. The survey data revealed several key findings:
  • Experts on the economics of climate change expressed higher levels of concern about climate change impacts than the general public, when asked identical survey questions.
  • Economic experts believe that climate change will begin to have a net negative impact on the global economy very soon – the median estimate was “by 2025,” with 41% saying that climate change is already negatively affecting the economy.
  • Respondents believe that numerous sectors of the U.S. economy will be harmed by climate change. A majority predicted negative impacts on agriculture (94%), fishing (78%), utilities (electricity, water, sanitation – 74%), forestry (73%), tourism/outdoor recreation (72%), insurance (66%), and health services (54%).
  • More than three-quarters of respondents believe that climate change will have a long-term, negative impact on the growth rate of the global economy.
  • More than 80% of experts believe that the United States may be able to strategically induce other nations to reduce their greenhouse gas emissions by first adopting policies to reduce U.S. emissions.
  • Respondents overwhelmingly support unilateral emissions reduction commitments by the United States, regardless of the actions other nations have taken (77% chose this option over alternatives such as committing only if multilateral agreements are reached).
  • The vast majority (75%) of respondents believe that the most economically efficient way for states to comply with the U.S. Environmental Protection Agency’s “Clean Power Plan” carbon regulations is through “market-based mechanisms coordinated at a regional or national level (such as a regional/ national trading program or carbon tax).”
  • The discounting approach that the U.S. government currently uses to analyze climate regulations and other policies – a constant discount rate calibrated to market rates – was identified by experts as the least desirable approach for setting discount rates in the context of climate policies. Nearly half (46%) of respondents favored an approach that featured declining discount rates, while 44% favored using rates calibrated with ethical parameters.
  • On average, economic experts predicted far higher economic impacts from climate change than the estimates found in older surveys of economists and other climate experts. Respondents predicted a global GDP loss of roughly 10% if global mean temperature increases by 3°C relative to the pre-industrial era by 2090 (this increase approximates a “business as usual” emissions scenario).
  • Experts believe that there is greater than a 20% likelihood that this same climate scenario would lead to a “catastrophic” economic impact (defined as a global GDP loss of 25% or more).
  • Our findings revealed a strong consensus (69%) that the “social cost of carbon” should be greater than or equal to the figure currently used by the U.S. government (only 8% believe the value should be lower).

These findings strongly suggest that policymakers in the United States and elsewhere should be concerned about a lack of action on climate change. In particular, economists seem to believe that the United States would benefit from enacting strong domestic climate policies in the near term regardless of any concerns about “free-riding” by other countries. Our results also suggest that the integrated assessment models used to calculate the social cost of carbon are likely underestimating climate damages. There is clear consensus among economic experts that climate change poses major risks to the economy and that significant policy responses will be needed to avoid large economic damages.


The Naked Cost of Energy -- Stripping Away Financing and Subsidies James Conca; Forbes; 15 Jun 2012

Sun, wind and drain The Economist; 26 Jul 2014

... levelised costs do not take account of the costs of intermittency.* Wind power is not generated on a calm day, nor solar power at night, so conventional power plants must be kept on standby—but are not included in the levelised cost of renewables. Electricity demand also varies during the day in ways that the supply from wind and solar generation may not match, so even if renewable forms of energy have the same levelised cost as conventional ones, the value of the power they produce may be lower. In short, levelised costs are poor at comparing different forms of power generation.

Europe

Energy Prices in Europe Euan Mearns; Energy Matters; 2 Jan 2017

Coal in the US

The Coal Industry Isn’t Coming Back MICHAEL E. WEBBER; New York Times; 15 Nov 2016

Many in Appalachia and other coal-mining regions believe that President Obama’s supposed war on coal caused a steep decline in the industry’s fortunes. But coal’s struggles to compete are caused by cheap natural gas, cheap renewables, air-quality regulations that got their start in the George W. Bush administration and weaker-than-expected demand for coal in Asia.
Nationwide, coal employment peaked in the 1920s. The more recent decline in Appalachian coal employment started in the 1980s during the administration of Ronald Reagan because of the role that automation and mechanization played in replacing miners with machines, especially in mountaintop removal mining. Job losses in Appalachia were compounded by deregulation of the railroads. Freight prices for trains dropped as a result, which meant that Western coal — which is much cleaner and cheaper than Eastern coal — could be sold to markets far away, cutting into the market share of Appalachian mines. These market forces recently drove six publicly traded coal producers into bankruptcy in the span of a year.

Nuclear

Economics of Nuclear Power Plants wikipedia

subsidies

G7 nations pledge to end fossil fuel subsidies by 2025 Karl Mathiesen; Guardian; 27 May 2016

Leaders of the UK, US, Canada, France, Germany, Italy, Japan and the EU urge all countries to join them in eliminating support for coal, oil and gas in a decade

Fossil fuel subsidies to hit $5.3 trillion in 2015, says IMF study Ed King; Climate Home; 18 May 2016

Governments could cut 20% of carbon emissions at a stroke if they stopped subsidising oil, gas and coal. Subsidies for fossil fuels that cause climate change have soared since 2013, a new study from the International Monetary Fund has revealed. Oil, gas and coal costs will be subsidised to the tune of US$5.3 trillion a year in 2015. The last time the IMF ran the data it calculated they were worth $1.9 trillion.

UK contracts for difference

For nuclear see also Hinkley C

Contracts for Difference 2016 Allocation Round? Nicola; Consulting With Purpose blog; 17 Mar 2016

Yesterday’s budget finally put some figures to how much future CfD auctions could be worth. The Chancellor has now committed up to £730million over this parliament for up to 4GW of offshore wind and other less established technologies (including ACT, tidal stream, wave, AD). He also promised that the first auction, thought to be slated for November 2016, will have a value of £290million. The government will control costs by capping offshore wind strike prices at £105/MWh (2011-12 prices), falling to £85/MWh for projects commissioning by 2026 and this is broadly in line with our thinking on strike price levels.

DECC releases results of UK’s first Auction for Contracts for Difference Renewable Energy Focus; 26 Feb 2015

More than a year after the Contract for Difference (CfD) regime1 was instituted — courtesy of the 2013 Energy Act, the UK Department of Energy and Climate Change (DECC) has released the results of the first round of the Contracts for Difference allocation.
According to the DECC, Contracts for Difference (CfD) were awarded to the following: two offshore wind farms (one in England and one in Scotland: East Anglia Phase 1, and Neart na Gaoithe, a total of 1162 MW capacity); fifteen onshore wind farms across England, Scotland and Wales, which equated to a total of 748.55 MW capacity; five solar projects ranging from 12 to 20 MW; a pair of combined heat and power projects accounting for nearly 100 MW; and a trio of “advanced conversion technologies” totaling 62 MW. The outcomes show that 2.1GW of capacity has been procured, at a total cost this round of £315million.
The contracts were awarded to the two offshore wind farms entail strike prices varying between £114.39 and £119.89 per MWh. Meanwhile, contracts awarded to the fifteen onshore wind farms entailed average strike prices for each year varying between £79.23 per MWh and £82.50 per MWh.

Economics for change

Consumers have a bigger impact on the environment than anything else, study finds (Peter Dockrill; Science Alert; 25 Feb 2016)

Karen Street: A Musing Environment

externalities

Trucost / TEEB

None of the world’s top industries would be profitable if they paid for the natural capital they use David Roberts; Grist; 17 Apr 2013

First, the total unpriced natural capital consumed by the more than 1,000 “global primary production and primary processing region-sectors” amounts to $7.3 trillion a year — 13 percent of 2009 global GDP.
Second, surprising no one, coal is the enemy of the human race. Trucost compiled rankings, both of the top environmental impacts and of the top industrial culprits.

NATURAL CAPITAL AT RISK: THE TOP 100 EXTERNALITIES OF BUSINESS Trucost; Apr 2013

NATURAL CAPITAL AT RISK: THE TOP 100 EXTERNALITIES OF BUSINESS Trucost; Apr 2013

This report offers a high level perspective on the world’s biggest natural capital risks for business, investors and governments.
To provide a business perspective, it presents natural capital risk in financial terms. In doing so, it finds that the world’s 100 biggest risks are costing the economy around $4.7 trillion per year in terms of the environmental and social costs of lost ecosystem services and pollution.
Many of these natural capital costs are found in the developing world, but the resulting goods and services are being consumed by resource intensive supply chains around the planet – thus it is a global challenge for a globalized world.
Although internalization of natural capital costs has only occurred at the margin, 3 billion new middle class consumers by 2030 will cause demand to continue to grow rapidly, while supply will continue to shrink. The consequences in the form of health impacts and water scarcity will create tipping points for action by governments and societies. The cost to companies and investors will be significant.
This research provides a high-level insight into how companies and their investors can measure and manage natural capital impacts. While it has limitations, it should act as a catalyst for further research into high risk areas, and mitigation action. For governments it should spark further debate around the risks their countries face, and whether natural capital is being consumed in an economically efficient manner. The scale of the risks identified suggests that all actors have the opportunity to benefit.

Carbon Pricing *

Solar

Solar Electricity Costs US Solar Central

Solarcity gigafactory for solar cells could make solar plus batteries cheaper than fossil fuels

Solar Industry Admits Green Energy Only Exists Thanks To Government Subsidies Jeffrey Dorfman; Forbes; 1 Sep 2015

For at least the last thirty years the alternative energy industry has been claiming they are almost ready to be economically competitive with fossil fuel. Wind, solar, geothermal, and others keep begging for government subsidies to help them stay afloat until they can reach a size at which economies of scale kicks in, price per kilowatt hour drops, and then they can survive on their own. Now we are seeing this has been a blatant grab for taxpayer dollars and the subsidies were more about industry executives and shareholders getting rich than about reaching a green industry future. For the past few years the United States has received a veritable flood of cheap Chinese solar panels, dropping costs by 99 percent over 36 years. According to the industry itself, solar installations have increased by a factor of 60 since just 2006 and for the first nine months of 2014 solar represented 32 percent of newly installed electric generating capacity.

The revealing numbers on solar employment in the USA Roger Andrews; Energy Matters; 1 Jun 2016

What would Hillary Clinton’s 500 million solar panel plan cost? Institute for Energy Research; 23 Sep 2016

One of the keys to Hillary Clinton’s energy agenda is to install more than 500 million solar panels by 2020 if she is elected. The question is, what would this cost with the latest figures?

Nuclear

Historical construction costs of global nuclear power reactors Jessica R. Lovering, Arthur Yip, Ted Nordhaus; Energy Policy; 2016

The existing literature on the construction costs of nuclear power reactors has focused almost exclusively on trends in construction costs in only two countries, the United States and France, and during two decades, the 1970s and 1980s. These analyses, Koomey and Hultman (2007); Grubler (2010), and Escobar-Rangel and Lévêque (2015), study only 26% of reactors built globally between 1960 and 2010, providing an incomplete picture of the economic evolution of nuclear power construction. This study curates historical reactor-specific overnight construction cost (OCC) data that broaden the scope of study substantially, covering the full cost history for 349 reactors in the US, France, Canada, West Germany, Japan, India, and South Korea, encompassing 58% of all reactors built globally. We find that trends in costs have varied significantly in magnitude and in structure by era, country, and experience. In contrast to the rapid cost escalation that characterized nuclear construction in the United States, we find evidence of much milder cost escalation in many countries, including absolute cost declines in some countries and specific eras. Our new findings suggest that there is no inherent cost escalation trend associated with nuclear technology.

Why America abandoned nuclear power (and what we can learn from South Korea) Vox

(based on Lovering et al paper)

The success of France, Canada, Japan and South Korea in controlling nuclear energy costs nextbigfuture

(based on Vox article)

Nuclear reactors' construction costs: The role of lead-time, standardization and technological progress Michel Berthélemy, Lina Escobar Rangel; Energy Policy; July 2015

This paper provides an econometric analysis of nuclear reactor construction costs in France and the United States based on overnight costs data. We build a simultaneous system of equations for overnight costs and construction time (lead-time) to control for endogeneity, using change in expected electricity demand as instrument. We argue that the construction of nuclear reactors can benefit from standardization gains through two channels. First, short term coordination benefits can arise when the diversity of nuclear reactors' designs under construction is low. Second, long term benefits can occur due to learning spillovers from past constructions of similar reactors. We find that construction costs benefit directly from learning spillovers but that these spillovers are only significant for nuclear models built by the same Architect–Engineer. In addition, we show that the standardization of nuclear reactors under construction has an indirect and positive effect on construction costs through a reduction in lead-time, the latter being one of the main drivers of construction costs. Conversely, we also explore the possibility of learning by searching and find that, contrary to other energy technologies, innovation leads to construction costs increases.

European Commission to Recommend 450 to 500 Billion Euro Investments in Nuclear Power by 2050 Uranium Investing News; 15 Mar 2016

The European Commission is set to release a report on the nuclear industry in coming weeks, and German Newspaper Handelsblatt reported on an advance copy of the document.

Department Of Energy Task Force Backs Environmental Progress Call To Save Nuclear Power Plants With Temporary Subsidy Environmental Progress; 22 Sept 2016

A Department of Energy (DOE) Task Force has just backed a key demand made over the last eight months by climate scientists and environmentalists organized by Environmental Progress: that the federal government end policy discrimination against nuclear power that is causing our clean energy crisis.
Writes the DOE advisory board:
[E]lectricity markets must recognize the value of carbon-free electricity generation based on the social cost of carbon emissions avoided, either by assessing a carbon-emission charge on electricity generation or, alternatively, by extending a production payment on carbon-free electricity generation of about $0.027 per kilowatt-electric-hour (kWe-hr) ($213 million for a 1,000 MWe reactor operating at 90% capacity factor) for a period of time.
In calling for a price on carbon or the temporary support for nuclear, the DOE task force is acknowledging that energy production tax credits are not the ideal, long-term solution, but should be given temporarily to save America's largest source of clean power. The federal government has subsidized wind energy production at a similar level for 23 years. The report also endorses the call made by Environmental Progress to include nuclear in state renewable portfolio standards (RPS)

equality

Why Welfare and Redistribution Saves Capitalism from Itself Steve Roth; Evonomics;

No country has ever joined the modern, high-productivity, rich-country club without massive doses of redistribution, and universal government programs for social support and financial security.