Daily Score Blog

Someone recently said “energy efficiencies aren’t low hanging fruit, they are the fruit lying on the ground.” Then why don’t people retrofit their homes? There are a lot of reasons, but one of them is finding the money to pay for efficiencies up front. While innovative financing tools (like my favorite bond financing) can help, they are only part of the solution.

An article in the New York Times this week called “A Stimulus That Could Save Money” traverses a well worn path in the discussion of energy efficiencies, asking the question “what will make people retrofit their homes?” The article doesn’t have any shockingly new ideas, but the discussion does surface the concept of Property Assessed Clean Energy financing—or  PACE. 

Now, sidestepping for a moment the obvious answer, “you can sell the energy efficient home for more money,” PACE is an interesting way of paying for the retrofits as part of regular property taxes. This is another version of “on bill” financing that puts the payments back on the owner’s property tax bill rather than on their utility bill.

By one measure of "food security," the new USDA hunger data released this week puts Oregon right in the middle of the pack. Its rate of food insecurity, is higher than the rest of the Northwest states, but only a little higher than the national average. Yet a closer look at the numbers reveals a more worrisome story.

Oregon's rate of "very low food security" is the second highest in the nation -- only Mississippi does worse -- and is far beyond than anything else in the Northwest. Getting enough to eat is a serious problem for 6.6 percent of Oregon households -- that's roughly 1 in every 15. Here's the official definition of very low food security:

The defining characteristic of very low food security is that, at times during the year, the food intake of household members is reduced and their normal eating patterns are disrupted because the household lacks money and other resources for food.

It's a very troubling figure, though it's consistent with what I remember seeing when I looked at these figures a few years back. (By contrast, the national rate of very low food security is only 4.6 percent -- though it's the highest in the 14 years since we've had consistent measurements. The rest of the Northwest states are clustered below the national average: Montana (4.4), Alaska (4.4), Washington (4.3), and Idaho (3.9).) It's also broadly consistent with Oregon's dire employment situation: the most recent federal figures put the state's unemployment at 11.5 percent, 6th highest in the nation and much higher than anything else in the Northwest.

Let's hope these new figures are enough to put a permanent end to the use of the incredibly grating neologism "funemployment."  

Technical note: the margin of error for some states' hunger rates is fairly high. It's 1.14 for the rate of "very low food security" in Oregon, meaning there's a 90 percent chance that the real rate of hunger in Oregon is between 5.46 and 7.74.

In spite of what you may have heard, Europe's carbon market is working beautifully. The EU's Emissions Trading Scheme (ETS) has been operational since 2005 and we're now getting a good look at how it functions. It turns out, it's a remarkable success story, both environmentally and economically.

Let's briefly review the major pieces of evidence.

1. European Environment Agency. A November 2009 report finds that the continent is well on its way to meeting its Kyoto targets thanks in large part to its cap-and-trade program. In fact, by 2007,14 countries had already exceeded their reduction goals, including the wealthy industrial giants of France, Germany, and the United Kingdom. To wit:

EU‑wide policies are expected to contribute towards most of the planned emissions savings by the end of the period 2008–2012, in particular the European Union Emission Trading Scheme (EU ETS), the promotion of renewable energy sources, policies targeting the energy performance of buildings and internal energy market policies. 

Here's a nickel summary from Joe Romm:

...the Europeans are poised to surpass their targets under the terms of the Protocol. It is no longer plausible for those who don’t want a U.S. cap-and-trade system to point to the European Trading System (ETS) as a failure. Quite the reverse.

...the EEA analysis concludes the EU-15 will not need to rely on offsets to meet their Kyoto target

(There's more good stuff at Treehugger.) Importantly, the reductions analyzed in the EEA report do not include the effects of the global economic downturn, which has unintentionally provided much steeper reductions.

2. The German Marshall Fund of the United States. A July 2009 report is a goldmine of valuable lessons from the European experience, but for now I'm going to focus just on the carbon market aspects.

Seattle's planned deep-bore tunnel could get even more contentious soon. As state engineers flesh out their early cost estimates, a comparable tunneling project has hit another snag. The Seattle Times reports:

The Brightwater sewage-treatment project, which is costing local ratepayers $1.8 billion, is delayed yet again because fixing a damaged tunnel-boring machine stuck deep underground will take months longer than originally thought.

This should be eye-catching because Brightwater's sewage tunnel construction uses a smaller-scale but very similar tunneling technology to what is planned for the tunnel under downtown Seattle. And the Brightwater tunneling project has encountered numerous problems.

Earlier this year, both machines working on the two "Central Tunnels" were damaged and await repairs underground. The one that was due to be operational by November is, apparently, in worse condition than originally believed. The other is not due to be fixed until December or early 2010.

So the project will be delayed further and the costs will continue to mount:

The delay likely will push completion of the project — originally scheduled for 2010 — into 2012, project manager Gunars Sreibers said Tuesday.

It isn't yet known how much repairs will cost and how much of the cost might be paid by the county, the contractor or the manufacturer of the damaged machines, but, Sreibers said, "We're in the tens of millions of dollars of money at issue."

If Seattle's deep-bore tunnel were to encounter similar problems, it could pose a serious risk for Seattle property taxpayers, who are designated by state legislation to pick up the tab for any cost overruns. The legality of that legislation has been much disputed, but at least one influential legislator has vowed to enforce the provision. (At best, the current funding legislation does not adequately clarify who pays for cost overruns, a potentially serious problem.)

Amplifying the worrisome lessons from Brightwater, the deep-bore tunnel project’s costs were first estimated when the project’s design was considered only 1 percent complete. (Today, the project is considered to be 5 percent designed, but the state has declined to release updated cost estimates until it is 15 percent designed.) None of this is good news, but the Brightwater experience is, unfortunately, consistent with the majority of major tunneling projects undertaken in the area, a topic I covered in a recent report for Sightline, "Cost Overruns For Seattle-area Tunneling Projects."

I guess I’ve known all along that introducing a baby into the family meant introducing a whole slew of stuff into our lives—much of it bulky, expensive, and—often—plastic.

But I'm fighting all the media and social cues to go on a shopping spree at Babies R Us. Instead, my husband and I decided to buy only one or two essential items new, like a state-of-the-art super-safe car seat. But, for the most part we’ve managed to “go green” as we’ve outfitted ourselves for pregnancy and parenthood—from used maternity clothes to garage sale furniture and non-material shower gifts. Our goal has been to reduce, reuse, and recycle—and to save money while we’re at it.

Here are three tricks that have worked for us:

Eureka! I have discovered a huge new source of clean energy in Alaska that can create green jobs too. Well sort of.

I’m not the first to strike gold, but lately I’ve been describing the potential of energy efficiency like hitting the jackpot. Efficiency is a clean, domestic energy source that would add, in the next decade, $1.2 trillion dollars to the economy. The big numbers (like saving 9.1 Quadrillion BTUs in Two Minutes) get people’s attention. If the kind of economic impact we could gain from energy efficiencies was a natural resource buried in the ground, you can bet that every level of government would be trying to dig them up.

With all the hand-wringing over the alleged risk of market manipulation in cap and trade, you'd almost forget that the United States already has a carbon cap and trade program up and running. But it does.

RGGI, a regional program among 10 Northeast states, has been auctioning permits, allowing trading on a secondary market, and even, in a way, encouraging trading in derivatives. And guess what's happened so far?

...we find no evidence of anticompetitive conduct. Participation by a large number of firms is an encouraging sign of competitiveness and efficiency in the secondary market.

That's according to a May 2009 report (pdf) by Potomac Economics, the designated market monitor tasked with keeping a close eye on RGGI's market function. It's the most recent analysis available and it's an encouraging sign. But really, it's no accident that RGGI has been successful so far. Administrators have prized transparency, regulation, and oversight in ways that can usefully inform federal cap-and-trade legislation. 

I draw three major lessons from the report.

Editor's Note: Alex Steffen, the editor and cofounder of Worldchanging-a global network of independent journalists, designers and thinkers--sat down with writer Emily Knudsen to discuss some of the topics he’ll be covering in his upcoming talks at Town Hall. The first part of the interview discussed Worldchanging's role in the sustainability movement. This second discusses what Seattle can do to become a more sustainable city.

What can Seattle learn from cities like Copenhagen and London that are now leading the green movement?

There are two big lessons. One is that there are amazing policy and design innovations out there that we ought be just stealing outright. People are doing things elsewhere in the world much better than we are. And we need to catch up or exceed them. So that’s part of what I’ll be talking about (at Town Hall on Nov. 11 and 12)—trying to help people implement that range of really cool innovations out there.

The second part of it is that we really need to redefine realism, especially in Seattle. We have convinced ourselves that there are certain kinds of approaches to solving these problems that are unrealistic.

Editor's Note: Alex Steffen, the editor and cofounder of Worldchanging-a global network of independent journalists, designers and thinkers--sat down with writer Emily Knudsen to discuss some of the topics he’ll be covering in his upcoming talks at Town Hall . The first part of the interview (below) discusses Worldchanging's role in the sustainability movement. The second discusses what Seattle can do to become a more sustainable city.

What inspired you to establish Worldchanging?

In the late 1990s, I was working as a consultant doing strategic communications work with environmental groups and other NGOs. One of the questions I would often ask the people I worked with was “What’s your win scenario? If you win, how is the world going to improve?” In essence, “What’s in it for me to believe in your change?” I was really amazed by how many people didn’t really have an answer to that.

Last Saturday, two stories about green jobs caught my eye. One was in the Washington Post and the other in the Seattle Times.  The Post article was a hand-wringing affair about the failure of energy efficiency efforts funded by stimulus dollars to create any of the promised green jobs. The Times article was a bit more positive, reporting about a training program I wrote about in a post titled Labor Sees Green Job Opportunity. The Times piece highlighted the first graduates of the program, created by the Laborers' International Union of North America (LiUNA) to train weatherization workers. But the Times piece also asked the crucial question of one of the graduates, “will you be able to get a job?”

The graduate, Ahmalik Claiborne, answered, "I'm sure I can get a job . . . We are at the start of something good." Not everyone is so optimistic. But it is important for our region’s problem solvers not to give in to pessimism. The fact is, our region is ahead of the rest of the country and getting green jobs right is better than getting them right now.

On the announcement that the Clean Energy Jobs (CEJ) bill cleared a key Senate committee last week, Friends of the Earth complained:

The bill’s backbone is a poorly regulated carbon trading scheme that entrusts the Wall Street bankers who brought us the current economic crisis with the responsibility to solve global warming.

Sheesh.

Of course, this isn’t true. It’s not even sort of true. It’s just an attempt to torpedo a bill by sowing confusion about an important and sensitive issue. (There are some of legitimate critiques of the bill -- and Friends of the Earth (FoE) makes some of them -- but this one is a red herring.) You can rest assured that if CEJ passes it will not be administered by Bernie Madoff.

At heart, the argument is not about CEJ or cap and trade. It’s about a basic mistrust of market economics. And it has high stakes: it’s rhetoric that could sabotage a real chance to put a legal limit on greenhouse gas emissions.

This kind of critique isn’t a first for FoE. In fact, in March 2009, they authored a surprisingly influential and widely-cited critique of carbon trading: a 13 page policy paper called “Subprime Carbon: Rethinking the World’s Largest New Derivatives Market” (summary here). The paper does make a few sound points along the way, but it substantially over-reaches in its conclusions. What’s worse, however, is that the paper is dressed up to appear to be a critique of cap and trade, but the substance really applies only to offset programs -- and then only in a debatable and hypothetical way.

In a nutshell, the argument spins out a doomsday scenario in which bad offsets replay the housing bubble, muck up the financial sector, and destroy the global economy. More specifically, the argument goes like this: FoE worries that financial firms would intermediate in providing carbon offsets by purchasing offsets and offset derivatives (especially futures), some of which could be of questionable value. Firms might then repackage and securitize the offset products, much as happened with mortgage-backed securities, selling them to various kinds of investors and ultimately, perhaps, to the firms regulated under the carbon cap. If it turns out that large numbers of offset projects go bad (meaning that they cannot be certified as legitimate offsets because they do not sufficiently reduce carbon), then the offset-backed securities could be worth less than they were believed to be. And if the carbon derivatives market is sufficiently gigantic (as FoE believes it will be), the reduction in value of carbon derivatives might to a worldwide financial collapse mimicking the recent asset bubble collapse in 2008.

As you can see, there are several strands of argument and it takes a moment to untangle them. Let’s dig in.

I love reading Matt Taibbi. I mean, who else puts together a sentence like this?:

The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Funny and righteous at the same time. Good stuff. But in a piece he wrote for Rolling Stone this past July, he made some awfully curious -- and curiously unsupported -- allegations about carbon markets:

...if the Democratic Party that [Goldman-Sachs] gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Yikes. It's pretty scary stuff, but Taibbi doesn't elaborate. At all. 

Which is frustrating.

It's frustrating because this is precisely the kind of thing you hear all the time from cap and trade critics. Taibbi's telling a big hairy ghost story here, but because he doesn't explain it we can't know whether to be spooked or just laugh it off. At minimum, somebody needs to explain how it is that a carbon-credit market will replicate the commodities market in ways that make it eligible for gaming by Goldman or others. And then someone needs to explain why that risk -- if it's even true -- is worse than the risk of failing to cap carbon.

That's where Paul Krugman comes in.

Worries about “gaming” or market manipulation sometimes crop up as an objection to cap and trade, often with reference to recent shenanigans in the financial markets. Some fear that a cap-and-trade system could be manipulated to artificially raise—or lower—permit prices to generate profits for a few at the expense of consumers. While distrust and concerns about scamming a carbon market are understandable, they’re not warranted.

To put some of these fears to rest, it’s informative to look at existing cap-and-trade programs. Neither of the two programs regulating greenhouse gases nor a third controlling acid rain pollutants has been corrupted by gaming or market manipulation.

The European Union’s Emissions Trading Scheme (ETS) was the world’s first cap-and-trade program restricting carbon dioxide releases when it started in 2005. The system has succeeded in creating a Europe-wide carbon market and trading program. There have been hiccups in the ETS, including an initial overallocation of allowances to polluters and some price volatility. Yet the problems are fixable and are already being addressed as the program evolves. The challenges are not attributable to a fundamental flaw in the policy or to lack of regulatory oversight. And the market has grown more robust as the number of traders has increased, making price manipulation difficult. Partly thanks to the ETS, the EU is on track to meet its emissions reduction obligations under the Kyoto Protocol.

The Regional Greenhouse Gas Initiative (RGGI), with a membership of 10 Northeastern and Mid-Atlantic states, held its first auctions in September 2008. Additional auctions are scheduled. While still in its early days, RGGI appears to be off to a good start, with low permit prices and no evidence of gaming.

The US Acid Rain Program has a track record dating to 1995. The program regulating power plants has exceeded expectations, beating the SO2 emissions cap years ahead of schedule and costing only one-fourth of what was expected. After more than a decade, analysts have concluded that the SO2 cap-and-trade program has also been free of gaming.

In short, cap-and-trade programs are already up and running with no evidence of sinister manipulation. That’s no surprise to specialists who study markets.

I've got an emerging obsession: the risk of market manipulation in cap and trade programs. It's something you hear about all the time, at least in carbon policy circles, but the details about "gaming" always seem to be in very short supply. Still, it's something we should take a close look at because the alleged consequences are so severe.

So at the moment, I'm gearing up to read everything important that's been written on the subject. (If you know of good stuff, please send it my way.) In the meantime, I want to share this recent short brief written by economist Laurence DeWitt at Pace University.

He takes a look at how the RGGI carbon cap and trade system has fared:

So far there have been no discovered instances of even attempts to exercise market power--and there has been great vigilance in searching for such actions. In addition to the careful scrutiny of Potomac Economics, which serves as RGGI’s official market monitor, the federal Commodity Futures Trading Commission (CFTC) has already become active in monitoring and analyzing the exchange traded RGGI derivatives. 

And a look at how the national SO2 and NOx cap and trade programs have gone:

It should also be noted that we have several decades of national experience with SO2 and NOx cap and trade programs with no indications of any significant effort, successful or otherwise, to manipulate the market. SO2 and NOx programs are relatively small markets—and thereby offer more potential for manipulation--so this experience to date is very relevant.

In fairness, DeWitt's piece is much too short to do justice to the subject matter. I plan to dig into the details further in the coming weeks, but I thought it provided a nice high-level expression of the basic facts of the case.

Over the last week there has been quite a bit of discussion in the media about the number of jobs created by stimulus dollars. Some argue the money is being wasted and others that the amount of money allocated were never enough in the first place. Paul Krugman suggested that “the really bad news is that “centrists” in Congress aren’t able or willing to draw the obvious conclusion, which is that we need a lot more federal spending on job creation.”

Either way, as I wrote in a post called Color of Money, a lot of money has been allocated and has yet to be spent. The facts seem to agree that moving funds (and allocations for bond and tax credit programs) out to local governments and into broader circulation is taking a long time.

But, when it comes to energy efficiency in general and stimulus funding in specific, the Northwest is getting high ratings. In their 2009 state ranking of local implementation of energy efficiency programs, the American Council for an Energy-Efficient Economy (ACEEE) ranks Oregon 3rd and Washington 7th among the top ten states for implementing energy efficiency policies.