Guest Contribution: “High oil prices can help the environment”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy  School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared at Project Syndicate.


Prices of fossil fuels rose sharply in October. The European price for natural gas hit a record peak early in the month. The price of US crude oil, is above $80 a barrel, the highest it has been in seven years. Prices for thermal coal in China have also reached record highs. Heading into the northern winter, consumers in many parts of the world are worried.

1. Explanations for high prices

Why the rise in prices?  To be sure, a variety of factors are at play in individual countries:

  • European inventories of natural gas are unusually low, and Europeans fear that Russian President Vladimir Putin will use gas supplies as a political weapon.
  • German demand for fossil fuels has been higher than it needed to be, ever since it decided in 2011 to shut down its nuclear power plants, in the wake of Japan’s disaster at Fukushima.
  • Britain has shut down coal and nuclear capacity, leaving high demand for natural gas in the power sector. Meanwhile, a shortage of truck drivers, exacerbated by Brexit, has raised the retail price of gasoline.
  • In Brazil, a severe drought has curtailed hydroelectric power.
  • In China, a history of subsidies for coal and price controls for electricity has discouraged conservation.

Despite such idiosyncratic factors in individual countries, however, the recent rise in fossil fuel prices must have some more fundamental cause. Just as with fuel prices, indices of mineral and agricultural commodity prices, have recovered from a low six-year period and have now re-attained their levels of 2014. The longstanding correlation across prices of different commodities suggests a common macroeconomic explanation.  In 2021, the rise in fossil fuel prices, and commodities in general, is readily explained by rapid growth in the global economy, recovering from the recession of 2020.  To that extent, it is a good thing.

2. Are high fossil fuel prices good for the environment?

The Biden Administration in August called on OPEC and other major oil-exporting countries to increase production and so reduce prices. Many of Biden’s predecessors had done the same.

But what about the implications of high prices for the global environment?   The question is particularly salient, as officials from 197 countries are meeting in Glasgow over the next two weeks, for the 26th Conference of Parties to the UN Framework Convention on Climate Change (UNFCCC).  They are expected to declare their intent to reach net zero carbon emissions by 2050.

Are high prices for oil, gas and coal good or bad for the fight against climate change?  On the one hand, their effect on consumers is good for the environment, as they discourage demand for fossil fuels. On the other hand, their effect on producers is bad for the environment, as they encourage supply.

Past warnings that low prices would leave oil companies with stranded assets would seem less relevant when prices are high. (“Stranded assets” refer to reserves of fossil fuels that their owners would find unprofitable to bring above-ground, because environmental exigencies would choke off the demand for them.)

Currently, however, the stimulus to private-sector investment in the fossil fuel sector that would normally be expected from higher prices has been attenuated.  Firms may have reached a tipping point in how seriously they take the realities of climate change.  They know that an energy transition has begun, away from hydrocarbons and toward renewable sources.

American frackers, whose tremendous expansion transformed the US natural gas industry not long ago, have since 2014 suffered losses and bankruptcies. They appear to have had “the fight knocked out of them.” (If natural gas still wants to be a bridge fuel – that is, to substitute for dirtier coal until the time when renewable resources like wind and solar energy can fully do so —  its methane emissions must be regulated.)

3. Time for a carbon tax?

This might be the right time in the US to reconsider a carbon tax or a (largely equivalent) system of tradable emission permits, also known as “cap and trade”.  Currently, revenue from higher oil and gas prices goes to Russia, Saudi Arabia and other foreign producers. Why not keep the revenue at home? The proceeds of the tax or permit auction could be returned as a dividend to citizens, by cutting other taxes, thereby maximizing political acceptability.

The important point is that putting a price on carbon would be the most efficient way, by far, to achieve the carbon reductions necessary for goals like capping temperature rise at 1.5 degrees Celsius. In the US, cap-and-trade has been considered politically impossible, since the failure in Congress of the McCain-Lieberman Climate Stewardship Act in 2007 and the Waxman-Markey American Clean Energy and Security Act in 2009.  But perhaps the failure this month of President Joe Biden’s attempt to get a Clean Electricity Program through Congress offers an opening for a sensible carbon tax alternative.

4. Who is the free rider?

Among the reasons for the strong political resistance for effective regulation of greenhouse gases such as a carbon tax or system of tradable emissions permits, in any country, is the question, “why should we impose this extra cost of operations on our own manufacturing firms, if it would hurt them in competition against foreign firms that aren’t subject to a similar burden?”  The feared result is leakage: a relocation of carbon-intensive activities to countries that are not imposing a comparable price on carbon.

But, logically, the US is perhaps the last country that should worry about other countries free-riding on its efforts.  Most other countries subscribe to the Paris Agreement. The free-rider problem discouraging them from full implementation currently takes the particular form of (justifiable) fears that the US will not take strong action to cut emissions of greenhouse gases and that China’s emissions will continue their rapid growth.  If the US takes leadership, others are more likely to follow.

The US has historically been the biggest emitter. By now, China emits far more, but the US still emits over twice as much per capita as China (and over seven times as much as India).

European countries have perhaps done the most to cut emissions — despite such missteps as Germany’s closing of nuclear power plants, which resulted in an increase in coal consumption. Or the ill-fated push for diesel.

It is ironic that Europeans, who are usually considered more statist, have adopted market mechanisms to curb emissions, while in the market-oriented US, they have been considered less feasible politically than direct regulation. Europe has two particularly important market mechanisms. The first is high taxes on gasoline (petrol). They have the incidental advantage of reducing the percentage volatility in domestic consumer prices in response to changes in the global oil price like the current one. The second is the European Union’s Emissions Trading System (ETS), which currently puts a substantial price of 59 euros (69 dollars) on a tonne (a metric ton) of emitted carbon dioxide, a price that is credibly expected to rise over the decade.

5. Carbon Border Adjustment Tariffs

What about countries that don’t do their fair share?   The European Union is already moving forward with a Carbon Border Adjustment Mechanism, a tax on imports of carbon-intensive steel, aluminum, cement, fertilizer and electric power from countries that are not imposing a price on carbon comparable to the EU’s.

In general, there is an acute danger that such border adjustment tariffs could be protectionist and violate the WTO.  But they need not necessarily do so, in my view, if implemented under rules that are multilaterally worked out as an adjunct to a UNFCCC climate agreement like the Paris Agreement. An elementary requirement of such a regime is that the country, or group of countries, that wishes to impose a Carbon Border Adjustment Tariff (CBAT) must be a participant in good standing under the international agreement.

The United States would not currently meet this requirement. It would need to do its share to fight climate change first, before it would qualify for a US CBAT to assure domestic industry of continued international competitiveness. The US should tax carbon, incidentally reducing the need to import oil, instead of paying as much money to OPEC and Russia as it effectively does now.


This post written by Jeffrey Frankel.

86 thoughts on “Guest Contribution: “High oil prices can help the environment”

  1. sammy

    This reason Democrats won’t solve high energy prices is because they want high energy prices. You can’t transition from fossil fuels if their prices remain low.

    Same thing on border security. Democrats want more poor immigrants, so you can’t expect them to stop them.

    So two of the major things that Americans complain about Biden doing a poor job on are by design.

    1. Jeffrey Frankel

      No, Biden and most Democrats don’t want high oil prices. But maybe they should (via a carbon tax with the proceeds rebated to the people). – JF

      1. ltr

        “Biden and most Democrats don’t want high oil prices. But maybe they should (via a carbon tax with the proceeds rebated to the people).”

        This was the proposed policy of a superb James Hansen in 2009; presented poorly by the New York Times editor and unfairly criticized by Paul Krugman:

        https://www.nytimes.com/2009/12/07/opinion/07hansen.html?ref=opinion

        December 7, 2009

        Cap and Fade
        By James Hansen

        https://krugman.blogs.nytimes.com/2009/12/07/unhelpful-hansen/

        December 7, 2009

        Unhelpful Hansen
        By Paul Krugman

        1. macroduck

          What’s unfair about criticizing cap-and-trade? Carbon taxes address the CO2 problem through price, cap-and-trade through creation of credits and a market for credits and a regulatory mechanism to monitor compliance… Why is a complex mechanism superior to a simple one?

          You’re being unfair to Krugman.

          1. pgl

            Anne (ltr) has attacked Krugman many times using the same sleight of hand. It is sad as you note but she persists anyway.

        2. pgl

          Come on. Krugman did not bash the carbon tax. What he did do was to note cap and trade achieves similar results. Please be more honest with your comments.

      2. ltr

        http://pubs.giss.nasa.gov/abs/ha00410c.html

        December, 2008

        Target Atmospheric CO2: Where Should Humanity Aim?
        By James Hansen, Makiko Sato, Pushker Kharecha, David Beerling, Robert Berner, Valerie Masson-Delmotte, Mark Pagani, Maureen Raymo, Dana L. Royer and James C. Zachos

        Abstract

        Paleoclimate data show that climate sensitivity is ~ 3°C for doubled CO2, including only fast feedback processes. Equilibrium sensitivity, including slower surface albedo feedbacks, * is ~ 6°C for doubled CO2 for the range of climate states between glacial conditions and ice-free Antarctica. Decreasing CO2 was the main cause of a cooling trend that began 50 million years ago, the planet being nearly ice-free until CO2 fell to 450 ± 100 ppm; barring prompt policy changes, that critical level will be passed, in the opposite direction, within decades. If humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from its current 385 ppm ** to at most 350 ppm, but likely less than that. The largest uncertainty in the target arises from possible changes of non-CO2 forcings. *** An initial 350 ppm CO2 target may be achievable by phasing out coal use except where CO2 is captured and adopting agricultural and forestry practices that sequester carbon. If the present overshoot of this target CO2 is not brief, there is a possibility of seeding irreversible catastrophic effects. ****

        * Surface reflectivity of sun’s radiation

        ** Currently 417 ppm

        *** Net change in radiant emittance or irradiance

        **** https://pubs.giss.nasa.gov/docs/2008/2008_Hansen_ha00410c.pdf

        1. pgl

          OK – Hansen is a good scientist. No one is disputing the need for EITHER a carbon tax OR cap and trade. The problem is that Hansen bashed cap and trade for reasons that showed he does not get the basic economics. That was Krugman’s point. But we have been over this before and you persist with your rather dishonest tirade against Krugman. Just stop it.

      3. ltr

        http://www.xinhuanet.com/english/2021-07/16/c_1310065311.htm

        July 16, 2021

        China’s national carbon market starts online trading

        BEIJING — China’s national carbon market started online trading on Friday, a significant step to help the country reduce its carbon footprint and meet emission targets, according to the Ministry of Ecology and Environment (MEE).

        Trading began at 9:30 a.m. at the Shanghai Environment and Energy Exchange, with the opening price for carbon quotas at 48 yuan (7.4 U.S. dollars) per tonne. The first transaction was priced at 52.78 yuan per tonne, with a total value of 7.9 million yuan.

        Carbon emissions by more than 2,000 power companies involved in the first trading group are estimated to exceed 4 billion tonnes per year, making the market the world’s largest in terms of the amount of greenhouse gas emissions covered.

        Carbon trading is the process of buying and selling permits to emit carbon dioxide or other greenhouse gases.

        Companies are assigned quotas for carbon emissions and can sell surplus emission allowances to those that expect to exceed their pollution quotas.

        To maintain the healthy and stable development of the national carbon market, trading institutions have established a series of systems including price fluctuation limits, maximum position limits, large account reports, risk warnings and reserves, and abnormal trading monitoring.

        It is necessary to further strengthen the top-level design, refine the roadmap, arrange for more industries and trading entities to be brought into the market, and enrich trading varieties to help the carbon market play a better role in controlling greenhouse gas emissions, said Liu Jie, general manager of the Shanghai Environment and Energy Exchange.

        China’s national carbon trading market was launched in 2017 after pilot operations in seven provincial-level regions in 2011. Behind its launch was the aim of exploring market-based mechanisms to control greenhouse gas emissions.

        The MEE will roll out trading regulations and improve relevant standards and management schemes while expanding the varieties and methods of trading.

        As data authenticity and accuracy are the bases of trading, the MEE will work to ensure the quality and transparency of emission data.

        The carbon market is also expected to be an important scheme for China in realizing its goals of peaking carbon dioxide emissions by 2030 and achieving carbon neutrality by 2060….

        1. pgl

          China should be applauded for this cap and trade policy. Even though Hansen has attacked cap and trade. Funny that you applaud Hansen and you also applaud China for adopting cap and trade.

      4. macroduck

        Professors Frankel,

        So glad you’ve written this. Hearing policy makers simultaneously calling for curtailment of greenhouse emissions and lower fossil fuel prices is just crazy-making.

      5. pgl

        We might point out to Sammy that cap and trade was the policy of George HW Bush. We might point out to Sammy that Greg Mankiw endorses a carbon tax.

        But note Sammy’s whole purpose in life is pushing Trumpian lies so try to reason with him is fruitless.

      6. paddy kivlin

        do “Biden and most Democrats” consider how much energy poverty and insecurity their policy are going to impose?

        a lot of energy distribution “models” include carbon objectives, however, there are several attributes of the “model s” that have to be addressed

        1. baffling

          “consider how much energy poverty and insecurity their policy are going to impose?”
          paddy, something tells me you are not really all that concerned about the poor and poverty in general. crocodile tears.

      7. JohnH

        Of course politicians oppose higher prices for one simple reason: it’s certain death for any policy maker who proposes it. The burden is particularly onerous to anyone already living hand to mouth—the majority of Americans. I really fail to understand why pundits and commentators are so obtuse on this.

        With any proposal like this, you need not just a stick but also a big carrot. Even America’s onetime bogeyman— Mahmoud Ahmadinejad—understood this. He raised prices at the pump substantially and took the proceeds and earmarked them for the poor.

        Despite this being a no-brainer, I don’t see anyone recommending a big carrot for those hardest hit. It seems that Ahmadinejad was smarter than the whole US political elite.

        1. pgl

          “The burden is particularly onerous to anyone already living hand to mouth—the majority of Americans.”

          Which is why economists like Jeff Frankel proposed tax reductions for these very same people. Do learn to actually READ the post.

          1. JohnH

            pgl’s nitpicking, as always, distracts from the bigger issue that I was raising—to get buy in from the majority, you need to offer a big carrot.

            One sentence buried at the end of a paragraph only illustrates the lack seriousness opinion influencers give the need for a big carrot. And the key words, could be” even make it into a hypothetical…exactly the kind weak tea that we’ve come to expect from politicians. And who exactly are “the citizens?” The same folks as usually reap the biggest rewards for tax breaks?

            As always, pgl tries to refute my point by finding an obscure citation in order to claim that economists always talk about something that is clearly off their radar, discussed at most perfunctorily as a CYA, far from an major topic of concern.

      8. Erik Poole

        No, Biden and most Democrats don’t want high oil prices. But maybe they should (via a carbon tax with the proceeds rebated to the people). – JF

        ———————————–

        No doubt there. The cheap energy entitlement enjoys strong US multi-partisan support regardless of the impacts on health, economic productivity, and national security outcomes.

        As to rebating the proceeds of hypothetical carbon taxes or simply an increase in the US federal excise tax on gasoline and diesel, it is most unfortunate that US pundits and policy makers feel obligated to bribe their fellow citizens in order to improve collective outcomes.

        The US should be planning to raise taxes, ideally consumption taxes, in order to reverse the growth in the Public debt to GDP ratio. Perhaps it is different this time, but there has been much literature over the years that argues fiscal strength is key to military power and by corollary key to projecting political power abroad. Perhaps US hegemony and all the benefits it brings are simply not important to Americans who appear to worry only about personal and family outcomes while disregarding collective outcomes.

        Perhaps the decline in US hegemony only worries a few people in smaller, rich western countries? Most of America’s enemies are probably delighted that the USA is imploding from within.

  2. paddy kivlin

    “This reason Democrats won’t solve high energy prices is because they want high energy prices.” true! thanks for the honesty most had already seen this.

    You can’t transition from fossil fuels if their prices remain low. false makes no sense.

    the broad national systems that punitive pricing harms are too complex,

    the solutions immature, and they do not encourage disciplined constrained optimization.

    progress cannot be driven by crude attempts such as these which have been going on for over 35 years.

    1. ltr

      http://www.news.cn/english/2021-10/01/c_1310221801.htm

      October 1, 2021

      Solar-energy developers complain about U.S. imposition of greater tariffs: Washington Post

      WASHINGTON — U.S. solar developers complained that greater tariffs could derail the Biden administration’s green-energy goals and lead to large layoffs among U.S. panel installers, according to an article * published by the Washington Post Monday.

      Fearing that the Commerce Department could impose greater tariffs, some Chinese solar-panel manufacturers have stopped sending panels to the United States, solar-energy developers and installers said at a briefing organized by the Solar Energy Industries Association, adding that they have already delayed projects because of the lack of inventory.

      Some panel manufacturers “have already stopped shipping,” said Markus Wilhelm, chief executive of Strata Clean Energy. “We are not able to get any obligations going forward for any of the projects that we have already under construction.”

      * https://www.washingtonpost.com/technology/2021/09/27/solar-panel-supply-tariffs/

  3. macroduck

    Off topic –

    Bank of Canada, anyone? Policy less accommodative than expected (2-year yield up 27 bps in response to the BoC announcement) despite a strong currency this year.

    The BoC doesn’t mind surprising market participants, so this behavior is not out of line. Just a data point ahead of the Fed’s next meeting.

    1. Moses Herzog

      I actually did notice this, I think randomly skimming something on Reuters or something. I think the U.S. should stop the purchasing. I don’t see how it helps. But I suppose with the slowing of the GDP they will be gun shy. I just I don’t see how they get a lot out of purchases at this point. It’s not going to help consumer demand. And raising rates mildly could help on the inflation question. Which I still view as transitive, but.

      To make a short story long, I think Canada made the wise move here.

        1. Erik Poole

          @ Moses Herzog,

          Suggestion. Go to the Bank of Canada website and read the news releases.

          In 28 October 2020, the BoC adjusted the QE program and reduced total purchases by $4 B/week.

          09 December 2020, the BoC announced it would keep the QE program until the economic recovery was well underway. This message was repeated every two months or until just recently.

          21 April 2021, the BoC revised its growth projections upwards to 6,5% real GDP growth for 2021. Pasted: “The Bank is continuing its QE program to reinforce this commitment and keep interest rates low across the yield curve. Decisions regarding further adjustments to the pace of net purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.”

          08 September 2021, the BoC noted that Q2 2021 real GDP growth was negative. By Q3, growth was back in positive territory. By the end of Q3, in early October, Brent Crude was trading well in excess of US$80/bbl.

          Is that insufficient signalling? You tell me. Frankly, if it was up to me, the BoC should have started tapering in early 2021 because of the ridiculous boom in housing prices and other borrowing-rate sensitive capital items. Then some might argue that it is 10-year US bonds that really matter for Canadian real estate.

          1. Moses Herzog

            @ Erik Poole
            You’ve made some valid points, and I would rather call this disagreement a “draw” than argue about it. Autumn is here and I find my general mood improving as the overbearing summer heat dissipates. But just to stand my ground, I would point you to a headline of October 27th from a small boutique British newspaper known as the “Financial Times” headline:
            https://www.ft.com/content/c934ec44-cc9f-4ec8-8ff2-8f8d6e226c04

            First sentence::
            “The Bank of Canada surprised investors by abruptly ending its bond-buying programme on Wednesday and pulling forward its expected timeline for interest rate rises, triggering a heavy sell-off in Canadian government debt.”

            Aaaaaaahh, tuh Hell with it. You’re right, what do those gullible bond traders know anyway,

          2. Erik Poole

            @ Moses Herzog.

            I always pay more attention to the bond traders than anybody else on the street. So if you want to argue that the shift in policy was insufficiently communicated in advance, I’ll buy that.

            This policy change and high oil and other lofty commodity prices should continue contributing to a stronger Canadian dollar that will dampen measured inflation going forward.

            In the meantime, the employment mandate of the US Federal reserve strikes me as designed to primarily help employers, not employees. The implicit notion that US monetary policy can help reduce high structural unemployment in Appalachia and Black American communities or paper over horrendously awful US health outcomes or shore up a sagging social contract is nothing short of delusional.

          3. Moses Herzog

            We’re probably much closer to agreeing than might first be apparent to either of us. As far as “surprising investors”~~unless it’s in a very extreme context (inducing panic rather than short term market angst) I don’t feel the Fed Res or any central bank “has a duty” to show its poker cards for every policy move. It’s only broker/dealers (who often have inside info anyway) that get their undergarments wedged up when the Fed makes surprise moves. The Fed and TBTF banks aren’t fooling me they show those cards “as a favor” or a “service” to Joe Q. Public when he isn’t even watching 98% of the time anyway.

            As far as monetary policy helping those on the low end of the socio-economic scale, I think it does help, but it’s very minimal, to the point of being hard to notice and/or measure, and would rather those moves to help middle class and the poor be done with fiscal policy. I’d like to see the Federal Government and Federal Reserve outlaw usury rates and certain types of payday loans. If their “caring” about the common man was more than non-substantive lip-service, they would make moves there, along with rules on maximum credit card rates and maximum credit card fees. The Federal Reserve only on rare occasions ever “serves the public”—they serve broker/dealers/ large banks.

  4. Barkley Rosser

    For what it is worth, crude oil prices declined nearly 2% on Wednesday, 10/27, both Brent and WTI, although that does still leave both at over $80 per barrel. Apparently crude inventories in the US were found to be higher than they were thought to be earlier.

    1. Moses Herzog

      Still sticking to my guns in case you were wondering. Eventually consumers will react. If people stopped to think about how much of their driving is recreational they would probably surprise themselves. And I think the push up above $80 is a lot more resistant. Or the demand curve is more “elastic” if you prefer.

  5. rsm

    What if consumers figure out how to buy WTI calls, thus profiting enough from finance to afford rising gas prices, confounding your Pigouvian machinations?

    1. macroduck

      One of two things must be true in order for this to work. Either there is a significant, exploitable mispricing in oil futures or consumers have to be able to profit from taking delivery of crude oil. If neither if true, then what you have here is an Underwear Gnomes business plan.

      Neither is true. Underwear Gnomes.

      But feel free to try it.

      1. baffling

        i had a short foray into oil once. lesson i learned is that the average investor has no business playing in a futures game where delivery needs to be taken. it takes too long to unwind those trades.

    2. pgl

      Of course this possibility has been dismissed by people who get the economics of cap and trade. But another nice troll at trolling.

  6. pgl

    That link to coal prices in China is nice. Now the text starts with:

    “GC Newcastle coal futures fell further towards $220 per metric ton, the lowest level since the end of September and down from an all-time high of $269.5 hit on October 5th.”

    ltr has been on some strange parade on how the Chinese government has been lowering coal prices without admitting how much coal prices rose during the earlier part of the year. The graph basically says it all.

  7. pgl

    This is an excellent discussion that advocates either a carbon tax or cap and trade. Alas ltr has decided to pollute the discussion with her devotion to James Hansen and another unfair attack on Paul Krugman. Krugman is not against a carbon tax. But he notes cap and trade is a good alternative. For some bizarre reason, Hansen decided to dismiss cap and trade. But don’t believe me or Krugman as others have commented on this issue:

    https://grist.org/article/how-james-hansen-gets-cap-and-trade-wrong/

  8. Moses Herzog

    NIcholas Kristof giving up his post at the New York Times. He’s running for Governor of Oregon. Really pulling for him. Now there’s a guy who deserves a few dollars in campaign donations from the common man. I have very high regard for him and his wife. Hoping God guides them on their journey.

  9. ltr

    https://fred.stlouisfed.org/graph/?g=z21W

    January 15, 2018

    Shares of Gross Domestic Product for Private Fixed Nonresidential & Residential Investment Spending, Government Consumption & Gross Investment and Exports of Goods & Services, 2017-2021

    https://fred.stlouisfed.org/graph/?g=z21I

    January 15, 2018

    Shares of Gross Domestic Product for Private Fixed Nonresidential & Residential Investment Spending, Government Consumption & Gross Investment and Exports of Goods & Services, 2017-2021

    (Indexed to 2017)

  10. ltr

    https://fred.stlouisfed.org/graph/?g=AuPx

    January 15, 2020

    Shares of Gross Domestic Product for Private Fixed Nonresidential & Residential Investment Spending, Government Consumption & Gross Investment and Exports of Goods & Services, 2020-2021

    https://fred.stlouisfed.org/graph/?g=AuPM

    January 15, 2020

    Shares of Gross Domestic Product for Private Fixed Nonresidential & Residential Investment Spending, Government Consumption & Gross Investment and Exports of Goods & Services, 2020-2021

    (Indexed to 2020)

  11. ltr

    http://www.news.cn/english/2021-10/27/c_1310273530.htm

    October 27, 2021

    White paper elaborates on China’s policies, initiatives in tackling climate change

    BEIJING — China on Wednesday released a white paper * to document the country’s policies, actions and progress in mitigating climate change, a common challenge for mankind, and to share its experience and approaches with the rest of the world.

    China is committed to building a global climate governance system that is fair, rational, cooperative and beneficial to all, and makes its due contribution to tackling climate change using its greatest strengths and most effective solutions, said the white paper titled “Responding to Climate Change: China’s Policies and Actions.”

    NATIONAL STRATEGY

    As the world’s largest developing country, China faces challenges across a range of areas including economic development, improving the people’s lives, and environmental protection.

    However, the country has been actively responding to climate change in a responsible manner, considering it to be a major opportunity to transform its growth model, according to the document released by the State Council Information Office.

    To meet its targets in response to climate change, China has implemented a variety of strategies and policies, including incorporating the response to climate change into its national economic and social development plans.

    Starting from the 12th Five-year Plan period (2011-2015), it has incorporated reducing carbon intensity into the outline of the plans for national economic and social development as binding targets.

    China has also worked to create a spatial configuration for green development.

    For instance, it has drawn redlines for identified protected areas (PAs), areas that are ecologically vital and vulnerable but not included in PAs, and areas with important potential ecological value, thus increasing their carbon sequestration capacity.

    In addition to these, China has continuously enhanced its efforts in developing green and low-carbon industries, curbing the haphazard development of energy-intensive and high-emission projects, and improving the energy mix.

    In tackling climate change, the country has given full play to the role of the market and continuously increased green finance support.

    On July 16, 2021, China’s national carbon market started online trading. A total of 2,162 power generation companies were involved, representing 4.5 billion tonnes of carbon dioxide emissions, making it the world’s largest emissions trading system.

    Data from the white paper showed that as of the end of 2020, China’s balance of green loans amounted to 11.95 trillion yuan (about 1.87 trillion U.S. dollars), of which the clean energy loan balance was 3.2 trillion yuan.

    Thanks to the painstaking efforts, China has achieved positive results in tackling climate change.

    Taking carbon intensity drop as an example, the country’s carbon intensity in 2020 was 18.8 percent lower than that in 2015 and 48.4 percent less than that in 2005, which means that China had more than fulfilled its commitment of achieving a 40 to 45 percent reduction in carbon intensity from the 2005 level by 2020.

    CHINA’S INITIATIVES

    Addressing climate change is a cause shared by all of humanity, the white paper said. “Faced with unprecedented challenges in global climate governance, the international community needs to respond with unprecedented ambition and action.”

    The document called on the international community to commit to sustainable development, multilateralism, the principle of common but differentiated responsibilities, win-win cooperation and concrete actions.

    “In meeting the climate challenge, no one can isolate themselves and unilateralism will get us nowhere. Only by upholding multilateralism, unity and cooperation can we deliver shared benefits for all nations,” it said.

    The principle of common but differentiated responsibilities must be committed and this is the cornerstone of global climate governance, according to the white paper.

    Noting that challenges posed by climate change are real, severe and lasting, the white paper said China will work with other parties to achieve the full, balanced, effective and sustained implementation of the United Nations Framework Convention on Climate Change and the Paris Agreement.

    “All countries should strengthen solidarity and cooperation, and build a global community of shared future together. This is China’s new vision for human development, in the common interest of all peoples,” it said.

    * http://www.scio.gov.cn/zfbps/32832/Document/1715506/1715506.htm

      1. pgl

        Can I highlight a small but key portion?

        “On July 16, 2021, China’s national carbon market started online trading. A total of 2,162 power generation companies were involved, representing 4.5 billion tonnes of carbon dioxide emissions, making it the world’s largest emissions trading system.”

        Cap and trade! Which Dr. Frankel noted is an excellent idea. Now James Hansen has bashed this idea but Dr. Hansen while great on the science does not get the economics. Maybe someday this little reality will sink into ltr’s head before she wastes our time with another bashing of Paul Krugman!

        1. Menzie Chinn Post author

          ltr: It is not “careless”, but rather the reproduction of entire articles is distracting, and detracts from the easy exchange of ideas. For instance, I do not quote entire articles from papers I am describing on Econbrowser. I appreciate your trimming the size of your comments.

  12. ltr

    https://twitter.com/YuanTalks/status/1452619266415423490

    YUAN TALKS @YuanTalks

    #China’s daily #coal supply to power plants have been more than their coal consumption for 20 straight days, with surplus exceeding 1 mln tonnes since Oct 19 and hitting 2 mln tonnes on Oct 23, said state planner NDRC.

    8:53 AM · Oct 25, 2021

    https://twitter.com/YuanTalks/status/1453014495379472389

    YUAN TALKS @YuanTalks

    #China’s most-traded thermal #coal futures contract in Zhengzhou, for Jan delivery, tumbles for the 6th consecutive session, sliding over 6% to break through 1,200 yuan/tonne mark on Tue night.

    11:03 AM · Oct 26, 2021

    https://twitter.com/YuanTalks/status/1453387913039728645

    YUAN TALKS @YuanTalks

    #China’s most-traded thermal #coal futures contract hit limit-down again, slumping 13% to hit 1,033.8 yuan/tonne. The contract plunged nearly 48% in eight days.

    11:47 AM · Oct 27, 2021

    [ China continues to add to the coal surplus, the price of coal in China continues to fall. Coal mining, delivery and storage will be ample through the winter. China is in addition steadily increasing production of oil and gas as well as renewable fuel supplies and storage facilities. Coal as a fuel will continue to be replaced by gas and renewable fuels. ]

    1. pgl

      See Jeff Frankel’s link on China’s coal prices. They are not low but you continue with this pathetic disinformation parade. Stop it lest we have to call you out to be a serial liar. GEESH!

  13. ltr

    https://krugman.blogs.nytimes.com/2009/12/07/unhelpful-hansen/

    December 7, 2009

    Unhelpful Hansen
    By Paul Krugman

    James Hansen is a great climate scientist. He was the first to warn about the climate crisis; I take what he says about coal, in particular, very seriously.

    Unfortunately, while I defer to him on all matters climate, today’s op-ed article * suggests that he really hasn’t made any effort to understand the economics of emissions control. And that’s not a small matter, because he’s now engaged in a misguided crusade against cap and trade…

    * https://www.nytimes.com/2009/12/07/opinion/07hansen.html

    [ Paul Krugman was unfair, as reading through the essay by James Hanson shows. Jeffrey Frankel is now suggesting using just the tax and dividend approach that Hansen suggested in 2009. ]

    1. pgl

      I’m sorry but this has grown to be pathetic. You are engaged in a disgusting disinformation parade ignoring all of the reality the rest of us have presented. This is very insulting to the other readers of this blog. Stop it.

    2. pgl

      Krugman never rejected tax and dividend. And Jeff Frankel is also endorsing the cap and trade idea which Hansen blasted. And gee even you have praised China for its recent adoption of cap and trade.

      So WTF is your point here? To bore the rest of us with your incessant and dishonest attacks on Krugman? PLEASE!

      1. Barkley Rosser

        pgl,

        An odd thing here is that usually ltr, including in her days as anne on Economists View, was a big fan of Krugman’s. She has repeatedly reprinted pieces or parts of them very approvingly. She even predated our Moses in complaining about me giving him a hard time about not giving appropriate credit to others for the ideas that he was given a Nobel Prize for. How dare I? So this odd siding with the abysmal Hansen on the matter of cap and trade, especially when PRC is adopting it, is truly bizarre.

        Actually, she may need to be careful. She has gone out of her way never to be caught out of line with the official government position of the PRC. So this sudden bashing of cap and trade, or more specifically defending Hansen’s ludicrous arguments against the critique of Krugman whom she usually is very favorable of, is especially weird. Maybe we should report her to the big leaders in Beijing, and they will get on her case. That might actually amount to “horrible intimidation” in contrast with all the things she has claimed over many years amount to that.

  14. ltr

    Alas — has decided to pollute the discussion…

    [ “Pollute” is a carefully chosen and unfortunate insult. This person who I have never addressed and never will has been repeatedly attacking and trying to intimidate me. ]

    1. Menzie Chinn Post author

      ltr: By quoting extensively and repeatedly from Xinhua — an organ of the state of the People’s Republic of China — you do yourself no favors in terms of the credibility of your comments. In my own personal opinion, the continued citation of state propaganda *does* pollute the discussion.

      1. ltr

        In my own personal opinion, the continued citation of state propaganda….

        [ Thank you so much for explaining, your opinion is very valuable, however I will reference and use the Chinese press to describe and explain China. The Chinese press readily and repeatedly references and uses the American press. Wonderful writers such as Jeffrey Frankel are repeatedly published and translated by the Chinese press. I will continue to use what I know as properly valuable sources.

        *does* ——- the discussion

        [ As for the word in question, thank you again for the emphasis but that is a word that is meant to prejudice, a word that has traditionally been used to foster prejudice. I am deeply appreciative of the explanation, but I am entirely proud of and pleased with my contributions to the discussion. I have of course not and could not ever “——-.”

        Still again, thank you for the remarkable kindness and consideration. ]

  15. Anonymous

    I guess it depends what your optimizing, what your happiness function is, where you want prices to go. I mean a plague that wiped out all humans would also help the environment. Of course, I’m not suggesting that or suggesting anyone is. But I’m also not suggesting eliminating all environmental regs (e.g. allowing dumping of mercury into public spaces). You have to decide how much economic value versus how much environmental value you want. What your happiness function is.

    However, higher price of oil reducing oil consumption or lower price increasing it is econ 101. There is an elasticity of demand for crude oil.

    Interestingly, with natural gas, there’s a phenomenon of gas/coal switching, where high natty prices encourage coal that makes the discussion less simple. If natty prices rise independently from coal, you’ll get discernable shift back to coal (ans visa versa). So have to look at that more holistically. How much is switching happening versus just less consumption. Of course if you’re just taxing stuff, you could penalize them both and even the coal harder. But if you’re cheering on an independent (say supply driven) price increase of natty, don’t think it helps you if it happens and coal stays flat (which hasn’t happened, but just as a thought experiment).

    Also for natty/coal, you really have to consider not just CO2, but conventional air pollution (sulfates and all that). So even within “environmental benefit” exactly what is being measured and considered the output variable of interest. It’s also a more local (at least national) issue (local air quality). Look at how China wants to clean up their smog. Or even how we do (and somewhat have) in the US. While CO2 is very “global commons”.

  16. pgl

    I just heard that James Hansen invented tax and dividend in 2000? I’m sorry but the ignorance of economic history is staggering. A.C. Pigou suggested taxing polluting activity back in 1920. Of course it was only in 1967 when Gordon Tullock suggested using the proceeds of this tax to reduce taxes on other activities. In some circles, this is called double dividend. Tullock entitled his paper “Excess Benefits”.

    Of course cap and trade done properly can achieve similar results as the Chinese government is about to demonstrate. Of course conservative economists like Greg Mankiw and liberal economists like Paul Krugman get all of this.

  17. ltr

    Alas — has decided to pollute the discussion…

    [ This person who I have never ever addressed and never ever will address has repeatedly attacked me and repeatedly tries to intimidate me. Malicious terms such as “pollute” and the like are carefully used to shame and frighten and abuse me. ]

  18. ltr

    You are engaged in a disgusting disinformation parade…

    [ “Disgusting,” a term carefully meant to shame and intimidate and harm me. This, from a person I have never ever addressed and never will address. ]

  19. Moses Herzog

    Best news headline of the week and probably the entire month, by Jon Blistein and Rolling Stone:
    “Facebook Is Now Called Meta, But Its Platforms Are Still Probably Deepening the Void in Your Soul”

    1. baffling

      i must admit, i have a conflict of interest on these social media platforms. i own stock in both twitter and facebook. in the case of facebook, its values has risen about 15 times since owning, so it has had an outsized influence on my portfolio. very profitable. and yet i do not have an account on either service. rather ignorant of how they really work. but i am beginning to get even more concerned about their influence on society, especially facebook. i have family who have gone down the facebook rabbit hole, and do not even recognize them anymore.
      i understand that social media is new, and its impacts and effects are not fully understood as the companies roll out new features. i am willing to accept the good with the bad. i think twitter has done a better job balancing these efforts. but i am hearing more about some of the facebook experiments, and becoming extremely disturbed at those revelations. especially seeing the results first hand in family members. i dont understand how facebook can run an experiment that pigeon holes a new member into the q and conspiracy theory crowd within a month, and not immediately do something about its algorithms. this is disturbing to me.
      what has become abundantly clear to me is that i have underestimated how easily misled the people of a free nation can be. although we have seen it before. nazi germany was not full of crazies. but propaganda is extremely powerful. see north korea today. i guess i have also underestimated the influence social media can have on a nation. although seeing a pure social media stock like facebook increase the way it has is a clear indicator of the power of social media.
      the time has about arrived where there will need to be more regulation of these social media companies.

      1. Moses Herzog

        It gets back to the quality of public education, which Republican legislators have done their bust to gut out and defund since roughly the beginning of the Reagan years. Rural areas also probably play hell getting enough tax revenue to support their schools.

  20. rsm

    If pigouvian taxes worked, why do I see garbage dumped in forests? If you just raise the price of garbage disposal and eliminate public garbage cans, didn’t Pigou predict the supply of garbage would have to decrease? May I show you some stoves, refrigerators, recliners, TVs, boats, cars dumped on public land that belie pigouvianism, please?

    See also https://sccinsight.com/2020/02/20/two-years-in-we-still-dont-know-if-seattles-soda-tax-is-working/

    《In June of 2017, the Seattle City Council passed a 1.75 cent-per-ounce tax on sugary beverages, which took effect on January 1, 2018. Today, over two years later, we still don’t have any idea whether it’s succeeding — or even a clear, agreed-upon definition of success. And that situation is unlikely to change soon.》

    Is pigouvianism just another faith-based economic theory?

    1. Barkley Rosser

      rsm,

      More rank nonsense out of you. Why on earth are asking about garbage dumped in forests? There is no Pigouvian tax on doing that. Oh, I guess this dinky on sugary soda in Seattle counts as one, but it does not amount to much and it may be about the only Pigouvian tax in the US. Most politicians in the US do not like Pigouvian taxes because they do not like taxes. We have all these economists pushing for carbon taxes, and even a few politicians have said they are for it. But prospects for actually passing a carbon tax or a Pigouvian tax on pretty much on anything else, even with a rebate to the public, are extremely low, about as likely as cutting Social Security benefits.

      Actually, rms, I would expect you to be getting on the Pigouvian taxes because advocates of them have not been providing standard errors on possible outcomes of imposing them. This would be more in line with your usual arguments here.

    2. pgl

      The CEO of Coca Cola is likely offended that you are claiming his product is on par with CO2 emissions.

    3. baffling

      “If pigouvian taxes worked, why do I see garbage dumped in forests? ”
      it worked for cigarettes and smoking. it is foolish to believe it will eliminate the behavior. but it certainly helps to reduce the amount of the behavior.

      related to soda and sugar taxes, we are looking at health statistics as the metric. i don’t think you will see that clearly in two years.

    4. macroduck

      Two problems wih your position, which is about average for you.

      1) The good functioning of any law or pegal system requires enforcement. What you have pointed out is of a failure of enforcement. It does not amount to evidence against Pigou.

      2) You have offered an anecdote and asserted that it invalidates Pigou. That’s what people who don’t understand science tend to do. A successful Pigouvian tax would lead to a reduction in the taxed activity, not necessarily its cessation. Your anecdote has nothing to say about whether there has been a reduction, only that there has not been a cessation.

      I can’t tell whether you aren’t able to grasp ideas or simply don’t bother trying. I’m reluctant to suggest this, because the Dunning-Kruger Effect more or less says that telling somebody on the wrong side of the Effect can’t be helped by learning about the Effect, but here goes: are you aware of the Dunning-Kruger Effect? Look it up. Maybe (please, please, let it be true) you could become anecdotal evidence against Dunning-Kruger.

  21. CoRev

    What an amazingly accurate discussion of liberal hypocrisy over their own policies/views. Sammy makes this statement: ” ”
    after the author wrote this in the article:
    “3. Time for a carbon tax?

    This might be the right time in the US to reconsider a carbon tax or a (largely equivalent) system of tradable emission permits, also known as “cap and trade”. ”

    The parade of comments confirming Sammy’s statement starting with JF: “No, Biden and most Democrats don’t want high oil prices. But maybe they should (via a carbon tax with the proceeds rebated to the people). – JF”

    The remaining liberal commentary is even more confirmingly convoluted. So much so I was actually laughing at the end of my review.

    BTW, some of the latest polls Virginia governor race show Youngkin ahead by nearly double digits. If this poll result shows actual voter movement then Biden’s conjecture that the next week will determine his term,’s success.

    1. pgl

      This is your usual twisting into a knot of what was actually said to make your usual dishonest attacks on people whose views do not comport to your Kelly Anne Conway Alternative Facts world view.

      With all your twisting, one has to wonder how you survive the knots your have generated in your own panties.

    2. pgl

      “some of the latest polls Virginia governor race show Youngkin ahead by nearly double digits.”

      One poll – done by Faux News. I trust you and Tucker Carlson have managed to organize the next January 6 by now.

      1. Barkley Rosser

        Actually I think that poll is probably close to right. I am in VA and this looks like 2010 and he Tea Pa;rty. GOP is fanatically surging on a log of bs, the latest this high school boy who sexually assulted two girls in bathrooms in two different high schools in NoVa. This is within two weeks o f the election, like Hillary’s emails in 2016. Most of this school stuff GOPs frothing at the mouth is bs, like the “Obamacar death panels” in 2012, but the GOOs are in a frenzy,while Dems are complacent and sitting home. They think VA now a blue state.

        I forecast a strong GOP win on Tuesday, probably taking all top three offices, including knocking out popular inncumbent AG Mark Herring, and also likely to flip control of House of Delegates back to GOP, currently 55-45 Dem control. Only good thing is State Senate not up, which means narrow Dem control there will hold and will keep VA from turning into Florida or Texas in the next couple of years. But this is bad, very bad, and I think not only national media, but a lot of Edms in VA do not see it coming.

        I have posted on this at much greater length on Econospeak, and did so before this latest poll.

        1. Barkley Rosser

          Obamacare death panels were 2010, when he Tea Party did much better than expected. Like then we have all these angry GOP citizens disrupting meetings, in this case school board meetings, with their nonsense. What is really bad now is some of them are threatening lives of school board members, but GOP is getting away with callling this “parents rights.” They have seized control of the narrative, with McCauliffe attempting to defend himself against criticism of his views on education. This is going to be very bad.

          Oh, and the failure of Dems to pass those Biden bills does not help, and gas prices have shut up a whole lot here in the last two weeks. Nothing good here at all, not a darned thing, although I know Dems in town who still think this is a dead heat. I have been around too long and seen this before, with surprise GOP gains. We also saw it in 1980 and 1994. That is what is about to hit in Virginia on Tuesday.

      2. Barkley Rosser

        pgl,

        Do not get misled by Fox as a source. They are not Rasmussen, which regularly tilts GOP.

        In 2020, it was Fox that first called AZ for Biden, making the Trump people apoplectic. But they were right. This poll should be taken more seriously than all these polls calling a dead heat with McCauliffe hold a half point lead. Those polls are contributing to the outcome with all these complacent blah Dems.

        1. Barkley Rosser

          BTW, folks, I really hope I am wrong about this forecast, for the record. I shall look forward to having those who like to enumerate my errors, blunders, and general muckups, adding such a bad forecast by me to the list will be fine.

          1. baffling

            it shows the effectiveness of a well organized misinformation campaign. over the past few weeks, i have changed my opinion regarding the significance of these campaigns. i think it is time that we enforce any and all rules and laws available to stop disinformation. social media should begin the process of eliminating demonstrably false posts. and companies like faux news should not be permitted to hide their commentary behind freedom of the press arguments. they are violating federal election laws on a daily basis by providing unfettered political access without equal representation from the other side. it is time this should be addressed.

  22. Erik Poole

    “They have the incidental advantage of reducing the percentage volatility in domestic consumer prices in response to changes in the global oil price like the current one.”

    Frankel makes a most interesting point here. For context recall, the exceptionalism of US excise taxes on gasoline and diesel. They are the lowest among the rich OECD club members.

    I have often wondered if the ‘coincidence’ between oil price spikes and US recessions was causal in nature.

    I recall a period earlier in this century and the last when many economists advocated higher excise taxes on gasoline and diesel largely for health and safety reasons. Then there were a few analysts who called for ‘No regret climate change’ policy based on the notion that if the worst outcomes of climate disruption did not materialize, people would be healthier and there would be fewer deaths driven by the consumption of these fossil fuels.

    Please don’t misinterpret what I am saying. As a an active investor who specializes in oil & gas exploration & production companies, I am absolutely thrilled with the US cheap energy entitlement and general strategy of climate change activists to avoid taxes and use regulatory methods. Demonizing and blocking supply and distribution will simply mean greater rents for producers similar to the effect that the War on Drugs had on black market profits.

    The investment thesis is also supported by the obesity-sitting-dementia epidemic and broad multi-partisan American support for policies that reinforce these negative health trends (including COPD and diabetes). Despite an economically punishing pandemic which is essentially a disease of the respiratory system, nobody seems to care about US health outcomes. Exercise and physical activity remain unpopular for most voters. The American love of low-density suburban sprawl has not yet abated. I suspect that cheap gasoline and diesel have significantly contributed to low-density suburban sprawl.

    Republican support for Marxist-Keynesian fiscal policy and a broad bi-partisan rejection of consumption taxes also helps with the investment thesis. The Fed’s dual mandate is also supportive.

    Tight oil and natural gas producers in the USA are being extremely careful with new CAPEX after years of capital losses. Tight flaring restrictions, if implemented in the past, would have slowed the pace of the shale oil boom and perhaps allowed the sector to make a positive risk-adjusted social-economic return but, as usual, ‘freedom’ and quaint notions of national energy autonomy got in the way.

    There is no job description that says American voters have to make investors rich in the oil and gas sector. Nevertheless, American voter generosity is much appreciated. Tusin tuck!

  23. Anonymous

    Maybe Mr. market is just trying to get us to that perennial hundred dollars which Econbrowser forecasted in JUL2014: “My conclusion is that hundred-dollar oil is here to stay.”

    http://econbrowser.com/archives/2014/07/the-changing-face-of-world-oil-markets

    😉

    Of course there’s a few million bopd+ of OPEC+ withheld supply, helping prop that price up. And we’re still only in the low $80s, WTI/Brent. And Mr. Market strip is backwardated. And even pre-COVID, we spent a half decade under $100. But still, looking better for that article than it did 2015-2020 when price stubbornly stayed well below $100.

    But who knows. US response has been slower in 2021 than in 2018. Time to start plotting peak oil by state again? We’ll need to move TX, NM, OH, and WV to the “later peak date of states” grouping, since the last paper. (Federal GOM also, if you look at it on its own, which I think you should.)

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