Professor Stavins in Geneva

Last night I attended a lecture by Professor Stavins of Harvard. He started with some basics on climate change and economics.

The fundamental obstacle to introducing measures to reduce carbon usage in our economies is that climate change is a global commons problems. It does not matter is carbon is emitted by a car in Geneva or lawnmower in Wisconsin. The damage is the same. However, actions to reduce emissions incur costs for a national economy even those the benefits of that action are shared globally – the free rider problem.

Economists like Stavins favour market-based instruments because there are millions of emissions sources (from cars to lawnmowers to power station) with hundreds of millions of decision-makers. Each source has a different short term marginal cost to reduce emissions.

Conventional command and control policies (e.g. emission standards) are not cost effective because they impose a regulation that requires compliance in different marginal costs.

Market-based instruments like a carbon tax or cap and trade controls emissions at the same marginal cost. In the longer term, pricing sends signals for low carbon technology development.

Why is carbon pricing a hot political issue?
Because it makes the costs transparent. Politicians want to make constituents think they have something for nothing. Win-win policies don’t exist. For example a gas tax is transparent. A fuel efficiency standard not, so more acceptable politically.

He said a carbon tax not likely in next few years, but that there is some climate policy in the US, e.g.
• 80 billion commited for renewable and energy efficiency
• Energy efficiency standards for auto and appliance
• US Supreme court decision. EPA endangerment findings and CAA triggered to put in place for CO2
• Air pollution leg

He said that carbon pricing is a necessary but not sufficient incentive for low carbon tech development. Why? Because R and D is eventually a public good, even with strong IP systems. For example, Apple spent millions on developing the smart phone. New entrants to the market (Android) have enjoyed the benefits of that development. Apple did not capture all the benefits of their investments. So positive externality mean that low carbon technology development will be undersupplied without government funding.

He then described the prospects for Durban. These are covered in his blog but essentially because of the pressure to extend Kyoto Protocol, the conference risks failure like Copenhagen. He noted that keeping KP going is v important to DCs. Why? They get benefits (reduced damage) but at no cost.

Interesting point about how carbon regulation can develop outside the UNFCCC process. We are now seeing decentralized approaches like the EU ETS and the Australian carbon tax. These can be linked through equivalence schemes (like with private standards). There is pressure to do that to reduce overall costs, market power and price volatility. Systems are already linked when they are both linked through use of the CDM offsets.

Trade and Naomi Klein

This week Naomi Klein issued her "climate agenda" as a response to the Tea Party deniers to climate change. The six "arenas" for change include one on international trade, in which production is "relocalized". A few thoughts on this:

Production and trade has always involved large distances, or least since man worked out animals could carry things and that ships with sails can go long distances. Economists show that trade brings about an efficient use of resources because of the theory of comparative advantage, whereby two countries trade with oneanother the things that they are respectively better at producing more of.

"Re-localizing" food production as Klein advocates would make food more expensive, which would be a bad thing for people on low incomes (who spend proportionally more of their budget on food than the rich). It would also be bad for the climate in some cases - certain foods are imported from warmer regions not just because it is cheaper to produce there but the emissions (even when you include transport) can be considerably lower, for example for fruits imported in the winter.

Freakonomics sums it up nicely today with this post.

Links for the weekend

Just in time for the weekend, here are some of the links that fascinated, entertained and depressed me this week (in no particular order):

1. Richard Muller, climate "skeptic", concludes the world is warming,
2. The Daily Show's take on the Muller story and science skepticism in general (the second segment is particularly funny though the whole show is worth watching),
3. Mitt Romey on Global Warming (not to be confused with America Warming),
4. News that 2010 levels of GHG are higher than the worst case scenario outlined by climate experts just four years ago and China's emissions now exceed US emissions by 50%,
5. Mark Halle of IISD and his Rio+20 perspective,
6. And lastly, Tim Haab of Environmental Economics nicely summarizes why "Blaming economists for our current economic situation is like blaming psychologists because people are crazy". His post is in reaction to an "Occupy Walkout" of Greg Mankiw's Ec10 class this week.

Happy Reading!

More on coffee and cocoa

More on challenges facing the coffee and cocoa sectors.

From CIAT on impact of climate change on cocoa

By 2050, a rise of 2.3 degrees Celsius will drastically affect production in lowland regions, including the major cocoa-producing areas of Moyen-Comoe, Sud-Chttpand Agneby in Cote d'Ivoire, and Western and Brong Ahafo in Ghana. Farmers in these areas are particularly vulnerable since cocoa production is often their primary source of income.

"Many of these farmers use their cocoa trees like ATM machines," said CIAT's Dr. Peter Laderach, the report's lead author. "They pick some pods and sell them to quickly raise cash for school fees or medical expenses. The trees play an absolutely critical role in rural life."

And

Example from CIAT of Climate Smart Agriculture from a smallholder in Kenya

Film on its impact on coffee in Colombia

Taxing fat

Dave Pannell posts on the Danish fat tax - he argues that it is ineffective, regressive and potentially with high transaction costs. On the plus side, the revenue raised could be used to make it less regressive.
Are there parallels with a carbon tax?

Greg Mankiw argues that a carbon tax is not regressive as the poor use less on carbon than the rich (who own more cars for example). Although presumably proportionally more of their income is spent on meeting basic needs which are carbon related expenditures (like food and heating).

Mankiw and Hansen both argue the regressive element of carbon can be reduced through paying dividends to the poor from the revenue raised.

Coffee and Climate Change

Last week I attended a conference in Lausanne organized on the topic of Climate Change Adaptation and Mitigation in the Kenyan Coffee Sector. Attending the conference were representatives from all parts of the coffee supply chain, from producers to traders to brands as well as standard setters, NGOs, governments, international organizations, and academics. Having all of these players in the same room was enough to convince me of the severity of climate change for the coffee sector.

The context for such a conference is straight forward: coffee yields per hectare have been shrinking in the past years in the face of more variable climate. (For instance, variation in rainfall is directly related to variability in production). Incomes have been falling, coffee quality has become less reliable, and producers are going out of business. Because falling coffee yields and quality affect actors all along the value chain, the coffee sector as a whole has an interest in addressing climate change and helping producers adapt to its impacts. Producers need to adapt to changing climatic conditions. Industry needs to secure long-term quantity and quality of their product, as well as respond to national, regional and international climate legislation. And standards organizations need to incorporate climate change into the sustainability aspects of their work. While the impacts for each actor may be different, they all agree that intervention is necessary.

In this regard, a number of cooperative projects have been carried out in the past few years including the Development Partnership (PPP) between Sangana Commodities Ltd. and the German International Cooperation (GIZ) to support Kenyan coffee smallholders in adapting to climate change and incorporating climate change mitigation where possible. The project worked to support coffee producers to adapt their production to the changing climate, namely through the development of an additional component to the existing 4C Code of Conduct taking into account climate aspects. Coffee is a very versatile plant and with adequate support, producers can learn to adapt their production systems.

In addition to the 4C climate module, other standards systems such as Rainforest Alliance and UTZ Certified have also been actively involved in helping producers adapt to and mitigate climate change impacts. For instance, UTZ Certified is piloting a project where waste water from coffee production is converted into biogas through the use of bio-digesters. The biogas is either used for electricity or heat , or in large scale operations generates CO2 credits to offset emissions downstream in the value chain. Other projects have focused on the use of the Cool Farm Tool, developed by the University of Aberdeen with financial support from Unilever. This online, open source tool uses the PAS 2050 methodology and assists farmers in calculating the carbon footprint of their production. All farmers have to do is enter the data into the tool which then calculates their carbon footprint for them.

Overall, some interesting conclusions came out of the conference:

• In the coffee sector, adaptation of climate change impacts should have a higher priority than mitigation. The coffee sector is responsible for less than 0.1% of global GHG emissions while climate change is already having serious negative impacts on the livelihoods of coffee producers in developing countries.



• Coffee brands and consumers tend to view mitigation more favourably than adaptation since mitigation projects sell, while adaptation requires investment. However, through partnerships with other actors along the supply chain, modest investment in adaptation for coffee producers has been possible.



• Much more investment will be needed to scale up adaptation projects to the necessary level. The supply chain will need to continue to work together and with local government authorities to come up with innovative solution and more importantly, agree on exactly where the needed funding will come from.



• Finally, regarding mitigation in the coffee sector, it will be difficult to engage coffee producers when there is no clear benefit for them to measure and reduce their carbon footprint. Explaining the technical terminology, improving the ease and reducing the cost of data collection (for example through use of the Cool Farm Tool) can all prove beneficial. Above all though, mitigation projects need to be made inclusive of producers (e.g. generation of carbon credits that could be sold to fund adaptation projects).

Steve Jobs

From his Stanford Commencement Speech - three lesson for life

1. You have to believe the dots will connect in the future

2. You got to find what you love...the only way to do great work is to love what you do...keep looking don't settle

3. Remembering you are going to die is the best way to avoid the trap of being afraid of what you do...death is life's change agent...Don't follow dogma, it is other people's thinking...don't live other people's lives...stay hungry, stay foolish