Monday, December 17, 2007

Mr. Steenblik You Are False.

This is a response to a debate on Gristmill "On science vs. economics" My post here got a response from some economist type trying to smack down the poor plebian who thinks we can deal with climate change by well, dealing with it. My follow up includes his post......

Pangolin, I'm not going to attempt to once again explain the difference between the application of economic principles in policy making and the fright-masked straw-man notion of tooth-and-claw economics that you and several others keep holding up in an attempt to discredit the profession.

I must state here that it is a widely held view that it is not possible to discredit the profession of economics further without resorting to a frank acceptance of physical reality. As reality doesn't appear to impinge on economic theory from my layman's viewpoint I must ask you to bear my repeated reference to it.

However, you do ask a good question, one that shows some of the problems that economists try to grapple with when devising policies:

Why then are we freaked out about the government replacing my air conditioner with a geo-exchange [heating, ventilating and air conditioning] HVAC unit or putting solar panels on my roof? Somebody?

"Freaked out" is probably too strong a word. But let's deconstruct the problem.

1. Especially if we are talking about a federal policy, clearly there are numerous geographical issues that immediately come to the fore -- namely, that only people living in certain parts of the country need both air conditioning and heating. Many people living in upper New England, the upper North-west and Alaska do not need an air conditioner, and many parts of Hawaii and some areas of California (where a ceiling fan suffices) have both low cooling and low heating needs. So a policy to subsidize replacing air conditioners will only benefit people in certain parts of the country. In effect, taxpayers in Maine will be cross-subsidizing home-owners in Texas.

First, existing federal policy already involves massive subsidies to some states paid by the taxpayers in other states. Our entire agriculture and energy policies already involve subsidies that favor some states over others. Disbursement of federal moneys among the states is distinctly unequal; modifying this disbursement changes nothing.

Second, it is obvious that you have no familiarity with geo-exchange heating, venting and air-conditioning (GeoExchange) systems. They provide heating, cooling and hot water for significantly less energy and carbon output than all other active thermal regulation systems. The citizens who benefit MOST from these systems would be those living in the hottest and the coolest areas with Hawaii being the state that would have the least need but perversely the most cost benefit due to locally high energy costs. You comment with authority without even googleing the subject to familiarize yourself with it's basic structures.

Even within areas of the country where air conditioning has become a must-have item (somehow people before the 20th century survived without them), the relative cheapness of operation of a geo-exchange HVAC will differ according to local climate and the efficiency of the air conditioner that it replaces. That is to say, in some additional parts of the country, paying to replace an existing AC with a geo-exchange HVAC would not rate high in terms of cost-effectiveness. What might be more cost-effective? Probably a lot of investments, including installing window awnings, or better insulation.

Here you prove the standard ignorance of economists. The means of survival without air conditioning or refrigeration prior to the post-WWII period involved architectural adjustments for the wealthy, loss of productivity for the middle classes and suffering and death for the lower classes. Since 1960 most buildings have been built to assume active HVAC systems and many cannot be occupied without operational systems. Loss of heating/cooling abilities would require abandonment of buildings and productive activities.

GeoExchange systems are modular and designed for exterior retrofits whereas replacements of windows, insulation, doors, etc requires custom fitting of multiple parts per unit. A massive installation program of GeoExchange systems would take a large bite out of the nations carbon budget with an actual long term cost savings.

GeoExchange systems have proven themselves to be cost effective in Maine, California, Florida, Texas, and Alaska. Essentially anywhere where heating/cooling or hot water is needed on a daily basis. Please demonstrate where people live in the US without the requirement for heating or cooling or hot water or commercial refrigeration. The major limiting factor in new installation of new GeoExchange systems is inadequate provision of financial vehicles by the marketplace.

The policy would probably be regressive: that is to say, the uptake of the subsidy would likely be much greater among relatively affluent home-owners than people renting small apartments and using detachable ACs (especially if the subsidy covered only part of the costs of the installation, since that part of the geo-exchange HVAC that is not mobile would stay behind when the renter moved). Moreover, replacing an existing AC with a geo-exchange HVAC in a private home would likely increase the value of that property. Hence, those home-owners would get an added bonus when they decide to sell their homes.

There is actually no need for a subsidy. What is needed is regulation to encourage installation, particularly in rental units where existing HVAC and hot water systems are aged, poorly installed and grossly inefficient. These units should be replaced on ten year cycles anyway. Landlords frequently leave aged/inefficient appliances in buildings to increase their marginal profits; a market failure IMHO.

Retrofitting rental units offers no benefit to the property owner but renters benefit and utility companies can avoid capital improvements on transmission and generation equipment. Utilities should be allowed/encouraged through pricing and regulation mechanisms to refuse to service property units where efficiency standards aren't met. Simply mandating replacement of the least efficient of existing thermal management systems first would disproportionally benefit the least well off.

Aggregate financing with payments channeled through utility bills and financed at the federal reserve discount rate would be sufficient. Regulations would have to be enacted to penalize rental property owners who failed to facilitate installation of GeoExchange or an efficiency equivalent system. Facilitating shared well sites for multiple family housing or shared wall housing would speed installation and minimize the disruption of the transfer. Urban areas could install local thermal utilities where density makes this appropriate.

4 Indeed, realizing that they could recoup some of the cost of replacing an existing AC with a geo-exchange HVAC when they decide to sell their homes, some home-owners may have already been planning to make the investment on their own. Hence, for some cases, the subsidy will be a pure transfer, since the recipients will have already decided to make the investment in any case.

In the current housing and financing crisis, caused by poorly regulated markets, it is unlikely that homeowners will have the ability to independently finance these capitol improvements on the mass scale needed. We do not have the time to wait for "market forces" to correct inefficiencies on their own. Again with a sufficient financial/regulatory package no subsidy is needed due to long term efficiency gains.

5 The government would in any case need to be careful that the subsidy does not create artificial scarcity in the good whose consumption it is trying to encourage. History is full of such examples, such as when the Dutch Government in the 1970s decided it would be a dandy idea to subsidize the replacement of single-pane with double-pane windows. Since demand was boosted suddenly, and the Dutch double-pane-window industry was already working flat out, all the subsidy did was to raise the price and drive most of the business to Belgian producers, who were the nearest ones with spare capacity.

6 Think also about the consequences of too-quickly expanding the capacity of the industry to meet that demand. For a couple of years, manufacturers of geo-exchange HVACs would make out like bandits. But then, once the market was saturated, there would be a bust.

No, you are wrong. Heat pumps have a 15-20 year useful life already. A GeoExchange unit is little different from a standard heat pump with the exception of control units, heat exchangers and the ground loop. Like all pumps they would need regular servicing and the periodic replacement of parts. As the equipment is modular this should result in a taper of demand but not a drop off. There would be a boom/bust in well drilling operations but the energy savings justify it. Used drilling rigs could be sold to developing countries to facilitate their transition to GHVAC thermal management. As production tapered back for the US market exported units would reduce emissions in developing nations.

7 There would likely be some claw-back in the gains in energy efficiency. Recipients of the new, more-efficient ACs, might decide to pay as much as they did before for air-conditioning, by keeping their homes cooler, or the ACs running more hours of the day.

You are correct, installation of GeoExchange systems results in residents keeping their homes at their preferred temperature. At 70 to 75 degrees most people are happy with temperature. Before and after energy studies show marked energy savings in existing homes and buildings while providing MORE comfort.

One of the advantages of (dare I use the term again?), "market-based approaches to policy" is that they avoid many of these problems. Because no particular "solution" is favored, the effect on the markets for the different possible ways to deal with the problem (installing ceiling fans, dressing lighter and enduring warmer homes, improving insulation, planting trees around the house) is more diffuse: the subsidy does not simply end up being frittered away through a rise in the price of the targeted item.

"The market" is an idiot which is demonstrated with every SUV GM produces and the continuing mortgage disaster. Regulating markets is the natural function of governments if not the primary function. A change in rules favoring specific, proven, efficiencies should not trouble the market.

Climate change is the product of market failure and requires regulatory correction before we see a "market" in long pork. Bespoke markets in CO2 emissions are economist's fictions imagineered to allow continued profit taking by the polluting powers that be. They do not describe natural systems or energy flows in any useful ways. Market fundamentalism is a mental illness.

Something like a carbon tax would also simultaneously both encourage fuel and electricity savings in areas with high heating, as well as cooling, demand -- i.e., its burden would be more equitably spread around the country.

In short, it is not that economists are loath to governments doing anything. Rather, they seek to steer policy makers away from promulgating policies that will yield fewer benefits for society than other ones.

by Ron Steenblik at 9:46 AM on 15 Dec 2007

I advocate a carbon tax AND an efficiency program. I advocate the use of every wedge that gets us to negative GHG emissions. The problem is that economist are not scientists or technicians but rather employees of political or corporate entities. They advocate the policies and profits of their employers regardless of the environmental consequences. They have NOT proven to be reliable predictors of action and consequence on any macro level. They "make it up" as they go along as you just did.

This has led to the current state of affairs where despite the scientifically obvious and horrific damage caused by existing GHG emissions certain economists are advocating continuing emissions in order to maximize "economic benefit."

What is obvious to environmental scientists is that there may not be the environmental "services" in the future to support any reasonable portion of our current economy. The "doom and gloom" is not imagined but is as real as the flight engineer reporting the loss of three engines on an airborne 747. The margin for continued survival of 6 billion humans is very thin no matter what the passengers choose to think about it. The chances of a soft landing are receding as we delay making radical changes. Your falsehoods increase that delay.