Sean Casten’s Posts

• Still fallacious

  The perfect market fallacy 9

  Posted 1 month, 2 weeks agoA "market" is nothing more than a description of our collective allocation of resources. Economists refer to markets as being efficient only when they meet a specific set of conditions, at which point the benefits that accrue from Adam Smith's invisible hand are realized through the independent actions of profit-seeking actors. But most markets are inefficient--often woefully so.

• Hayward J'Buzzoff

  The problem with unspoken assumptions 1

  Posted 1 month, 2 weeks agoSteven Hayward's OpEd in the Wall St. Journal yesterday ("No: Alternatives Simply Too Expensive") really annoyed me the first time I read it.

• How much energy does the U.S. waste? 14

  Posted 1 month, 3 weeks ago

  Any increase in our efficiency of energy conversion is implicitly a reduction in our energy waste.

• Why CO2 regulation will lead to lower electricity prices 2

  Posted 3 months, 1 week ago

  Excluding those who question whether we need a greenhouse gas policy at all, the debate is fundamentally one about where certainty is most important. What all agree on is that uncertainty is unacceptable.  But do we really have that much uncertainty?

• Yes, we Kahn

  Carbon trading: Worthy of Feinstein's ire? 18

  Posted 4 months ago

  "Deregulation shifts the major burden of consumer protection to the competitive market, and therefore, in important measure, to the enforcement of antitrust laws." - Alfred E. Kahn, Lessons for Deregulation: Telecommunications and Airlines after the Crunch.

  I've always found the above to be one of the wiser quotes about deregulation. What does this have to do with commodities and Senator Feinstein? Recently, she announced a proposed amendment to the Senate climate bill, one that would commence federal oversight of CO2 markets "to prevent Enron-like fraud, manipulation and excessive speculation in the new federal, state and regional carbon markets… Read More

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Sean Casten’s Recent Comments

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  Good post. Note though that the apparent eccentricity of English's statement is only if you think of him as a coal utility exec. Far more appropriate to think of him as a voice for rural cooperatives. Recall that in a coop, the owners are the customers - as opposed to in an investor-owned utility where the owners earn money at the expense of the customers.* So for English and the constituency he represents, there is no conflict inherent in favoring efficiency over rate increases. That's not at all true for the investor-owned utilities of the world (coal or otherwise) wherein any reduction in sales must come out of owners dividends and any increase in price must come out of customer's wallets. That's not to say that all of the rural coop leaders understand this, and kudos to English for making it clear. But it's not fundamentally a coal story, nor a lesson that translates easily to the Dukes & AEPs of the world, sadly. *Note: this is NOT intended as a bash against capitalism, but as an acknowledgment of the fact that in a regulated, for-profit monopoly, the interests of owners and customers are exactly opposed. Add competition and this goes away. Convert it to a coop or other more "socialist" structure and this goes away. But half pregnant doesn't work.On Why it's better to invest in efficiency than to hold electricity rates down posted 1 week, 3 days ago 9 Responses

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  Amanda, This is mostly right, but I'd caution strongly against jumping to conclusions - worth noting, after all, that for all the complexity, visual spiderwebs and antiquated nature of our grid, it still does an awful lot of things remarkably well. (Creaky as it is, it still ensures - about 99.99% of the time) that it can instantaneously respond to increases/decreases in demand for service and react to a host of really complicated demands, from motors that shift current and voltage out of phase with one another to electronic items that wreak havoc on overall power quality. To be sure, the system isn't perfect. But the danger in concluding that it is broken and needs repair to handle the power generation technologies of the future (as you implicitly do in your note about solar panels) is that it falsely presumes that (a) the current grid can't handle load-sited generation and (b) the only solution is to invest in a new, more expensive grid. That's simply not true. Indeed, it's worth noting that the buildings above your head as you walked around Manhattan all had elevators in them - each one of which has a counter-weighted motor that turns into a generator whenever the elevator is going up, injecting current back out onto the wires. The "dumb grid" we have is capable of acommodating the hundredss of thousands of elevators in Manhattan without any knowledge of when and where one is going to turn from a motor into a generator. Comparatively speaking, sticking generation in a fraction of those buildings that run in a much more predictable and steady fashion is small potatoes. I mention this because the utilities have too often been given a free pass on the "grid is complicated, can't handle non-utility generation, need more money to upgrade first" argument, which works out really good for their shareholders (given the rate-base nature of grid upgrade investments) but simply doesn't square with the facts. So yes, the grid is clunky and could be better - but let's not fall into the trap of assuming that a cleaner, more decentralized system must be preceded by an upgrade of the system itself.On Our old electric grid is no match for our new green energy plans posted 3 weeks, 4 days ago 4 Responses

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  An excellent question, and I think a much better focus of attention. Put the proper structures in place and markets will approach perfection; but leave the cap too low and all that gets you is a perfectly half-assed result. I'm quite certain W-M is half-assed on the cap side (and don't think it does very well on the perfect market side either). Get only one of those right, and you'll fail on the other...On The perfect market fallacy posted 1 month, 2 weeks ago 9 Responses

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  Ken, I may be jumping to conclusions about your question - my apologies, so let me re-frame. Suppose for the sake of argument one knows with accuracy what the true environmental cost is of CO2 emissions on the environment. What do you then do with that information? Perhaps you have an idea in mind that I don't, but if you are arguing that the government has an obligation to spend anything up to that cost to lower the emissions, that is a top-down approach. I don't have any idea how a bottom-up, market-driven approach would factor that number in for the simple reason that the market necessarily will factor both the environmental cost of emissions and the economic cost of reduction and clear at some level in between. Let's take an unrelated example: suppose we determined that the societal cost of homelessness was $1M per homeless family. That's a real cost, but entirely unrelated to the fact that we ought to be able to house all homeless people for something closer to $100 - $300K/family given prices of current homes. If we approached that policy challenge based only on the social cost, we would necessarily way overpay as we sought to solve the problem. Now apply this to CO2. Let us suppose that CO2 costs us $1000/ton of environmental damage, but let's also suppose that we can reduce CO2 for $10/ton. In a market model, the price will clear somewhere between $10 and $1000. To the extent that we can't reduce enough tons at $10 to meet the need, we'll move onto more expensive reduction approaches. (By analogy, my $100 - $300K housing number is an average reflecting the fact that there may not be enough $75K vacancies to meet the need, so our average price will be some higher #.) The net result of that economic calculus though is that we get the tons of reduction we need - or the lodging we want - at some price < the $1000/ton total cost. Note that the key here is not the price, but the cap. The average price paid for housing is a strong function of the number of homebuyers but a weak function of the price of construction/societal costs of homelessness. Likewise, a cap & trade model will have a price that is a strong function of the cap and weak function of the costs of reduction/consequences of inaction. But if we take the market mechanism out of that and fix a hard price based on cost, we can guarantee that we will pay a much higher cost to meet the environmental need than is necessary, to our collective detriment. Given that, I don't know how to answer your question. If there is a cap, you don't have the option to "pay less and emit more carbon", except to such degree that your incremental increase in CO2 emissions is offset by someone else's equal or greater reduction. Get the market signals right and that choice will be made in such a way that the incremental decision to emit or release favors those with the lowest cost of reduction, but you still end up with the reduction. By contrast, if there's not a cap, we are flirting with disaster, no? (To be clear, the cap is not innate to cap & trade; even in a carbon tax regime, there is a cap - it simply shifts the responsibility for setting that cap to politicians rather than the market.)On The perfect market fallacy posted 1 month, 2 weeks ago 9 Responses

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  Ken, I may be jumping to conclusions about your question - my apologies, so let me re-frame. Suppose for the sake of argument one knows with accuracy what the true environmental cost is of CO2 emissions on the environment. What do you then do with that information? Perhaps you have an idea in mind that I don't, but if you are arguing that the government has an obligation to spend anything up to that cost to lower the emissions, that is a top-down approach. I don't have any idea how a bottom-up, market-driven approach would factor that number in for the simple reason that the market necessarily will factor both the environmental cost of emissions and the economic cost of reduction and clear at some level in between. Let's take an unrelated example: suppose we determined that the societal cost of homelessness was $1M per homeless family. That's a real cost, but entirely unrelated to the fact that we ought to be able to house all homeless people for something closer to $100 - $300K/family given prices of current homes. If we approached that policy challenge based only on the social cost, we would necessarily way overpay as we sought to solve the problem. Now apply this to CO2. Let us suppose that CO2 costs us $1000/ton of environmental damage, but let's also suppose that we can reduce CO2 for $10/ton. In a market model, the price will clear somewhere between $10 and $1000. To the extent that we can't reduce enough tons at $10 to meet the need, we'll move onto more expensive reduction approaches. (By analogy, my $100 - $300K housing number is an average reflecting the fact that there may not be enough $75K vacancies to meet the need, so our average price will be some higher #.) The net result of that economic calculus though is that we get the tons of reduction we need - or the lodging we want - at some price < the $1000/ton total cost. Note that the key here is not the price, but the cap. The average price paid for housing is a strong function of the number of homebuyers but a weak function of the price of construction/societal costs of homelessness. Likewise, a cap & trade model will have a price that is a strong function of the cap but a weak function of the costs of reduction/consequences of inaction. But if we take the market mechanism out of that and fix a hard price based on cost, we can guarantee that we will pay a much higher cost to meet the environmental need than is necessary, to our collective detriment. Given that, I don't know how to answer your question. If there is a cap, you don't have the option to "pay less and emit more carbon", except to such degree that your incremental increase in CO2 emissions is offset by someone else's equal or greater reduction. Get the market signals right and that choice will be made in such a way that the incremental decision to emit or release favors those with the lowest cost of reduction, but you still end up with the reduction. By contrast, if there's not a cap, we are flirting with disaster, no? (To be clear, the cap is not innate to cap & trade; even in a carbon tax regime, there is a cap - it simply shifts the responsibility for setting that cap to politicians rather than the market.)On The perfect market fallacy posted 1 month, 2 weeks ago 9 Responses