Environmental balance sheet

By Ben Walsh
April 4, 2014

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Climate change, the latest UN report finds, is very bad already – and it’s getting worse.

The NYT condenses the study’s gloomy findings: ice caps and sea ice are melting; droughts, heatwaves, and heavy rainstorms are intensifying; the ocean is acidifying; “fish and many other creatures are migrating toward the poles or in some cases going extinct”. The Economist says climate change can no longer be seen as a stand-alone risk. Instead, it is already interacting with social, political, and economic risks. All of which means, Philip Bump writes, “more violence, less food”.

The report – which assesses the state of climate research – puts an increased focus on the need for “resilience and adaptation to inevitable climate change”, says Fred Pearce. Nevertheless, the final 48-page summary of the report excluded, due to objections from the US and other rich countries, a World Bank estimate that developing nations need $100 billion a year to deal with climate change’s effects. The estimate was included only in the rarely read text of the full, 2,500-page report.

No one – neither governments nor markets – is doing a good job putting an accurateprice on carbon. The Environmental Defense Fund, National Resources Defense Council, and the Institute for Policy Studies put out a report criticizing the US government’s $37 a tonne estimate of the costs of carbon as too low. The largest carbon market in the world, the EU Emission Trading Scheme, prices a tonne of carbon at between €6 to €7, but Ken Arrow and his co-authors argue that the cost of of a tonne of carbon could be as high $64:

The leading economic models all point in the same direction: that climate change causes substantial economic harm, justifying immediate action to reduce emissions. In fact, because the models omit some major risks associated with climate change, such as social unrest and disruptions to economic growth, they are probably understating future harms.

Economist William Nordhaus, in his latest book, The Climate Casino, advocates putting an immediate and increasing tax on carbon, and eventually doubling the cost of coal-fired power by 2030. Reviewing the book, Paul Krugman concludes that one course of action is much more urgent and effective than any other: “we have to sharply reduce emissions from coal-fired electricity generation”.

China is the world’s largest carbon emitter. It burns almost as much coal as the rest of the world combined, and will pass 50% sometime later this year. The country has 363 coal-fired power plants, and despite its headline grabbing investments in green energy, it will get two-thirds of its power from coal (the US is in the high 30s; globally the number is 40%). The vast remainder of China’s electricity comes from hydroelectric dams, and this mix is unlikely to change much by 2030.

ExxonMobil, assessing its climate risk, is more concerned about changing weather patterns than regulation. The oil giant predicts that global carbon regulation is “highly unlikely”, which is great for its financial future. Unfortunately, low risk for Exxon means high risk for the rest of us. “You can have a healthy fossil-fuel balance sheet, or a relatively healthy planet,” Bill McKibben says. “You can’t have both”. – Ben Walsh

On to today’s links:

Primary Sources
The US economy adds 192,000 jobs in March - BLS

New Normal
“A labor market that continues to improve at a steady, though by no means a gangbuster, pace” - Jared Bernstein

Study Says
Want to successfully pitch a startup? Be a good-looking man - HBS

Charts
The state of corporate balance sheets: more cash, less debt - Sam Ro
The US economy is close, but not quite back to pre-recession peak employment -Calculated Risk
Earnings haven’t caught up with the enthusiasm of Europe’s bull market - Dan McCrum

Wonks
Eugene Fama’s first job: washing cars for less than a dollar an hour - Reuters

Financial Arcana
HFT order stuffing, Habermas, and sincerity - Tim Johnson

Legal Arcana
Securities regulation without the efficient markets hypothesis - SSRN

Data Points
The UN says the world needs to leave 3/4′s of known fossil fuel reserves in the ground - Bloomberg Businessweek

Oxpeckers
Content, not distribution, will disrupt TV - Benedict Evans

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