Economics isn’t all about money. It’s about human action, decisions and choices. In fact, economists and environmentalists could be natural allies in solving climate change. Unfortunately, a good number of environmentalists take a hardline stance on geoengineering, arguing that any further human manipulation of the environment is a bad idea. But with CO2 levels reaching more than 400 PPM, mitigation alone will not solve our problem. So how would an economist approach climate change?
Full Transcript
Alexsandra Guerra: You’re listening to the Reversing Climate Change podcast by Nori, the world’s first carbon removal marketplace. Here are your hosts, Ross Kenyon and Christophe Jospe.
Ross Kenyon: Hello, welcome to the Reversing Climate Change podcast with Nori. I’m Ross Kenyon here with Christophe Jospe and producer Paul. We’re in downtown Los Angeles right now in a high rise condo in a very fancy lounge with weird chains on the wall here. I’m not sure what that’s about. Maybe we can We’re here with an old friend of mine, Sean Hernandez. He works at a power utility in Southern California. And we’re here to talk about energy forecasting and energy trading, and also a paper of his, which he wrote about geoengineering. So we’ll get into the moral hazard in geoengineering as well as energy trading.
But where should we start there? Sean, I guess, why don’t you say hello?
Sean Hernandez: Maybe that’s the best place. Hi. Yeah. Like Ross said, I work as an economist. Ever since I was an undergrad, just thought economics was really the way to go in terms of social thinking and Yeah.
Unknown speaker: Why is that? Why do you think economists?
Sean Hernandez: Economists are so arrogant. They think it applies to everything. Something about economists, you know, they like counterintuitive findings and I definitely like counterintuitive findings too. Sometimes they’re right and counterintuitive things are true. So they do seem like some of the few willing to accept that reality.
Unknown speaker: Do you feel like you sometimes take the argumentative side or the contrarian side of an argument?
Sean Hernandez: This is not necessarily related to our conversation, but I was a national champion in debate saying that we should increase alternative energy incentives by buying aircraft carriers.
Unknown speaker: Really? How does that work?
Christophe Jospe: I think it is relevant. So yeah, talk us through there.
Sean Hernandez: Yeah, because it subsidizes the nuclear power business to buy an aircraft carrier. It has two reactors on board that are powered by weapons-grade fuel.
Unknown speaker: And did you win? You got to the finals? You won the national championship, yeah.
Christophe Jospe: That’s funny. Actually, Hattie was talking about that in one of our previous podcasts. Oh, Ross, you weren’t paying attention, I guess. But listen again, we’ll refresh us on that one. Well, so when you are using nuclear energy to power an aircraft carrier, you have all this excess and incredibly cheap energy. Oh, that’s right. And... You could theoretically and quite possibly be removing carbon dioxide directly aboard that aircraft carrier and producing fuels because you’re zapping it with electricity, which is cheap and abundant. Yeah. And you also need water, which happens to be all around aircraft carriers in general.
And that removal of CO2 from the atmosphere is also part of geoengineering. Coincidentally, this idea was proposed by David Keith, who’s talked about both removing carbon dioxide from the atmosphere and spraying things into the atmosphere to cool the planet, which gets into a really hairy question. Can we say what we’re talking about without saying the actual term or do we have to say moral hazard?
Ross Kenyon: I feel like you should lay it out and then let Sean explain what that is. My brain just exploded.
Christophe Jospe: Yeah, let’s see. So Sean, we really like to define things. So how about we let you define what is a moral hazard?
Sean Hernandez: Well, you know, really simply a moral hazard could be whenever you try to reduce a risk, causes you to incur that risk more. So like if I have a seatbelt, I might drive faster. Or if I buy flood insurance, I might not... Go to the Home Depot, pick up sandbags when the storm is too bad. And so these examples are kind of all around. You know, we have it in the Great Recession, too, that the bailouts lead to taking on greater risk by the banks. That’s been an argument for many decades in economics.
Ross Kenyon: That’s the whole point of the big short, right? It’s like the ending. They’re like, oh, spoiler.
Sean Hernandez: Government guaranteed all the losses. I mean, at like the latest, this started with the saving and loan bailout. So I think...
Unknown speaker: That was the Reagan era?
Sean Hernandez: Yeah, yeah, yeah. So they started doing it back then and God only knows how much that’s affected the financial markets since then. I don’t know of any like really believable mechanisms for measuring that, especially on such a huge scale. But in geoengineering context, the idea is if you had some techno fix that you wouldn’t want to build your renewable energy, build your nuclear plants and reduce your CO2.
Christophe Jospe: Okay, so you got to define for us and our listeners techno fix.
Sean Hernandez: Oh, techno fix? I’ll get a little closer. It’s maybe a buzzword. It’s probably an accusation, I would say, against geoengineering that, oh, this problem will just go away. We’ll have the solution to all of our global warming problems, which incidentally, you know, I don’t really think that there are too many I don’t know.
Ross Kenyon: We can talk about that later. But the Royal Society did some investigations on this and they found that actually, if you pose this question to people about geoengineering, even people who are skeptical of climate change, they would oftentimes be like, if it’s serious enough to ask if I’m going to like send a mirror to outer space to reflect the sun or like sulfates, like this must be a huge problem, right? So it actually increased their willingness to mitigate.
Sean Hernandez: Yeah. And I don’t think that there’s a lot of willingness to contend with that possibility. Another counterintuitive thing, you know, sometimes it might be true. So if you’re having a hard time convincing people climate change is real, maybe you should just let them know people are looking into space mirrors and spraying sulfur in the stratosphere.
Ross Kenyon: Anything that sounds like a Bond villain is a great attention grabber. I’m already like intrigued now. Should we just make everyone watch Snowpiercer? We can even talk on the podcast about geoengineering and Snowpiercer doesn’t come up. It’s like literally, it’s like the first sentence out of my mouth.
Sean Hernandez: I needed to watch that for this, but I didn’t. However, I saw Geostorm.
Unknown speaker: I don’t even know that one. Is that another?
Sean Hernandez: Man, Geostorm, that’s 2017. That’s 2017 with Gerard Butler and Jim Sturgis in space. Jim Sturgis stays on Earth. Geostorm is impending because our weather modification from space is going haywire. It gets saved. You know, the moral of the story, it’s a spoiler, but they keep the geoengineering. So that’s the moral.
Ross Kenyon: So you just, this is like the try, fail, try again, fail better. Samuel Beckett. That Zizek likes to quote about communism. I don’t know if you’ve ever heard that.
Sean Hernandez: I don’t know that one.
Ross Kenyon: You don’t need to know.
Sean Hernandez: But that’s one of the moral hazards. It’s called the technical dependence hazard. That if we have these chemicals in the sky reflecting our sun away, then... We’re not going to be able to take it down because if it fell out, if we stopped doing it, maybe after only a few months, the concentrations of reflectance would reduce and then there might be really fast global warming. So we’d have to keep doing it.
Ross Kenyon: So we just get hooked on it. And then you have this whole like regulatory capture or like rent seeking kind of behavior in there too.
Sean Hernandez: You bring up two different moral hazards. Yeah. So in my paper, I talk about 16 and actually it’s from another really excellent paper by Ben Hale. He picks out the 16. I looked at them and I said, none of these We’re on technical dependence. I think a framing of climate change that we’ve probably seen around that we’re addicted to oil and we need to get off of it. Geoengineering is methadone. Geoengineering could be methadone or it could be, you know, just getting more of your fix. But in fact, I don’t think the methadone thing has really been used.
I think I kind of asserted that.
Unknown speaker: But why not?
Sean Hernandez: I asserted that.
Unknown speaker: Why not?
Sean Hernandez: I only know about methadone because of the show House.
Unknown speaker: Oh, OK. It’s a good source. Very informative.
Sean Hernandez: But, you know, if methadone works, then that implies geoengineering works, doesn’t it? No.
Christophe Jospe: Yeah, I think that’s a bit of a stretch.
Ross Kenyon: This is like trying to over apply analogies like that. But yeah, I’ve seen that too. And you sort of like trying to take these apart a little bit.
Sean Hernandez: Yeah, you saw the oil addiction. So just wanted to draw attention to that. That’s a lot of this moral hazard is really framing and it’s rhetorical. What’s going to persuade people? Are people persuaded enough that Do we have other framings about, you know, looking forward, having a diversified portfolio of solutions or just worrying that climate change already is very serious? All of these alternative framings cast doubt on mitigation that we might be wasting our time or wasting our resources to do. Basically, what I say is slowing down global warming instead of reversing it like you guys are trying to do, which is great.
Or, you know, just stopping it. That would be something.
Ross Kenyon: Yeah, one of the concerns that gets brought up with us too with carbon removal and our interest in it is that if people can just remove the carbon that they emit and they can keep on their lifestyle the same pace, then we’re just sort of like amplifying it rather than not. But I don’t want to like go back to it. And I guess since we’re sitting here with an economist, we have to use the phrase externality. Oh, thank you.
Sean Hernandez: It is so many things that they say are, I think may not be, but that’s kind of a broad conversation.
Ross Kenyon: I saw an argument on Facebook the other day where someone argued that externalities are only negative. And I was like, that’s not, that’s not true at all. There is a neutral term. They’re gonna be positive externalities anyways, though. So is geoengineering a positive or negative externality? I’m sure it depends on who you are. If you’re like a deep green, one of those personality types, they’re ideological types that you name. It’s probably just straight up negative, right?
Christophe Jospe: I would even say, first of all, I hate the term geoengineering. I really don’t like how it sort of pigeonholes a whole bunch of things into something that it’s not.
Unknown speaker: But it sounds so epic.
Christophe Jospe: Because, well, actually, burning fossil fuels is a form of geoengineering. Absolutely. Because that is us tinkering with the planet on a large scale and making changes.
Unknown speaker: Yeah, Christophe is right.
Sean Hernandez: I think maybe we take a step back and talk about what some of the other geoengineerings are. I mean, there’s two kinds. First of all, there’s carbon dioxide removal geoengineering, CDR. But we’re all in 8th and the 9th. So it’s carbon dioxide removal.
Ross Kenyon: Oh my goodness. Sean’s a big fan of the podcast. What a callback there.
Unknown speaker: What is that? Can you explain real quick?
Sean Hernandez: 8th and the 9th, since we don’t use acronyms, is the American Association Against All Acronyms and also all abbreviations.
Unknown speaker: Beautiful, beautiful.
Christophe Jospe: It was 8th and the 8th, but he added the also.
Sean Hernandez: I added also.
Christophe Jospe: I like it.
Sean Hernandez: Let’s just... Okay, so back to your substantive point. Carbon dioxide removal geoengineering could be something as simple as taking corn stalks from a field after it’s harvested, put it in a factory that makes it into charcoal, and then bury it. You just did geoengineering.
Unknown speaker: Could it be planting trees as well?
Sean Hernandez: It could be planting trees. That’s in the Royal Society report.
Paul Gambill: Aren’t all forms of agriculture technically geoengineering?
Sean Hernandez: Sure. If you want to say climate geoengineering, I mean, either way, fine, right? That’s totally great. What that means is that we’re already okay with some of these things. Right. Or, well, we’re not okay with some of them too. So the other kind, besides carbon dioxide removal, and there’s many kinds of that, you know, another one that was tried is ocean iron fertilization, where you go and you drop a big old, probably flakes, not a big block of iron, but you... Drop iron flakes in the ocean and it increases plankton which increases fish eating plankton which increases carbon through fish waste sinking into the ocean.
That one may not work but that’s a theoretical geoengineering too.
Paul Gambill: You know the problems I have with these things is that there’s really no way to test them at scale without doing them at scale. Yes. The risk will always exist you can’t really test away those risks.
Sean Hernandez: Actually, oh, maybe it was on the podcast. I heard somebody deny that’s true. Actually, you could just like do a square mile of solar aerosol spraying and like measure the insulation underneath the square mile. Why not? It’s not completely impossible to empirically do. It’s just very difficult to assess the impact on the climate. Yeah, right. That’s the reason.
Christophe Jospe: I’d just like to take us back to something incredibly pernicious and I want to deconstruct it. The mitigation, quote unquote, air quotes camp will say, okay, so if you are going to geoengineer Yeah, so I think really the most important reason that is The wrong attitude is that we have already failed on climate change.
Sean Hernandez: It’s basically too late, and it’s by the arguments of environmentalists themselves. So first of all, the CO2 level is already too high to be safe, and you can know that because of the website 350. com. So Jim Hansen implicitly agrees that we’re already too far gone. The CO2 is like greater than 400 parts per million of course, it’s highly seasonal.
Unknown speaker: But it seems like Jim Henson also contradicts himself.
Sean Hernandez: I think so. I think it is a contradiction to say CO2 level is already too high. We need to do mitigation only because mitigation can only prevent emissions from going into the air. It cannot remove them. So it’s impossible for mitigation to reverse the CO2 level. You need to build at a minimum some kind of additional carbon storage.
Paul Gambill: It’s not impossible. It would just take a very, very, very long time. Well, the natural carbon cycle could potentially absorb that. It’s just that would take a long time, potentially thousands, tens of thousands of years.
Sean Hernandez: The second point is the lags in the climate system. So we have a level of CO2 right now that we think is too high. But also we don’t know completely what level of temperature that corresponds to after the system is fully adjusted. So one like small point to disagree on that is that it wouldn’t automatically adjust like the CO2 level to pre-industrial levels. The CO2 is accumulating in the atmosphere. So basically when the climate system is done adjusting it’s going to be with a higher CO2 level and a higher temperature but in a world where we’re doing aggressive carbon dioxide removal geoengineering we can both lower that equilibrium CO2 level and that equilibrium temperature and the basic reason is There’s no place in the world to store our 40 billion tonnes of CO2 other than the atmosphere.
So regardless how long you wait, that CO2 isn’t going anywhere unless some other carbon storage mechanism in the environment or from humans is constructed.
Christophe Jospe: So I actually do think that there’s room to store the 40 billion tonnes we emit each year on the simple fact that we’ve pulled it out of the ground and there’s space back in the ground where we might be able to store it. I also think as Nori is certainly looking at soils as an obvious first place to restore the carbon, there’s ample room. And if there are effective ways to sink carbon in the ocean, we might be able to handle it there. I’m still hung up on it though, Sean.
We need more reasons.
Sean Hernandez: I have some.
Christophe Jospe: Yes. So first of all, we threw out the term mitigation. And just to define that, it means to make less bad.
Sean Hernandez: I define it for this context as preventing emissions or basically every climate policy that currently exists, which is carbon tax, cap and it could be made much simpler.
Christophe Jospe: We’re not saying that’s bad. We like mitigation. But what we’re saying at Nori is if you put CO2 or a greenhouse gas up into the atmosphere, it needs to get pulled back. And if you don’t put CO2 out into the atmosphere, well, good for you. You’re not going to need to pay to put it back. And if you put less, well, then you pay less to pull it back. At the end of the day, it’s about balancing the books. Yeah, it seems kind of inherently less persuasive to say that carbon dioxide removal geoengineering trades off with mitigation and that’s bad because those are like...
Sean Hernandez: Perfect substitutes because you are preventing one from going up. You’re taking one out. Like either way, there’s one less molecule of carbon dioxide in the atmosphere. But the moral hazard argument probably is more persuasive against the other kind of geoengineering, solar radiation management. Or the acronym would be SRM, which includes spraying aerosols in the stratosphere to slightly whiten the sky or doing mirrors at the Lagrange points to prevent the sun that way. Or even some other ones that have been shown ineffective is like painting the street. Yeah, just taking water and just spraying it up.
And pollution does that too. It accomplishes that. It creates clouds.
Ross Kenyon: Was that a disagreement? I had a hard time keeping up with exactly...
Unknown speaker: No, I don’t think it was a disagreement.
Sean Hernandez: Because I only gave, I think, two reasons.
Christophe Jospe: Yeah, we need to get to all the 15.
Sean Hernandez: The CO2 is already too high. And then number two is it takes a while for the system to... ... to equilibrate to the temperature that corresponds to the CO2 level. So right now both of these things are moving, but if the CO2 level stopped increasing, like all emissions tomorrow went to zero, it would still take a thousand years for the climate to stop changing because it would be responding to the new level. And that’s what Paul was talking about, where we would be. The answer is we don’t know, and actually I think that these arguments are the same ones environmentalists make when they emphasize the importance of mitigation.
They say climate change is very uncertain, climate change is very impactful, climate change is very serious, and all of these things... Point to the need for a serious portfolio-based approach with a lot of options and kind of not just ideologically putting our eggs all in the basket of mitigation.
Ross Kenyon: It wasn’t, I remember reading in your paper, I didn’t know this, but this was brought up to LBJ and the White House, geoengineering and like SRM. That’s right.
Unknown speaker: Was it the only solution proposed?
Sean Hernandez: LBJ was the first president to know about anthropogenic global warming. And his science advisor said, hey, it looks like there’s this warming effect because actually the effect was discovered years before. It’s very simple to replicate in the lab, the CO2 heating effect. And they were just like, but in case this becomes a problem, we can just spray sulfur in that stratosphere because it works in volcanoes. Wow. And that was the 50s. But Nobody really talked about that. And for whatever reasons, climate change didn’t really surface until decades later, as you know.
And actually, one thing that I try to frame in my paper is that so many scientists are concerned with this moral hazard argument that they don’t want to talk about it. They don’t want to bring it to policymakers. And they certainly don’t want the broader public to kind of get an idea of the possibility because that’s the whole moral hazard problem that if people aren’t even aware of this, then they won’t care. They won’t turn their lights off. They won’t buy their Prius. They won’t buy their Tesla.
Ross Kenyon: They want a spiritual change like the techno fixers. We kind of follow. Yeah, you know, you can just moderately criticize. You can dance for the rain, but it won’t necessarily come.
Sean Hernandez: And the third reason that mitigation has failed is because we don’t know how sensitive the climate is. So it’s kind of an extension of the second one, but the second one is how long it takes. And the third one is if we double CO2, how much of a temperature increase does that lead to? Does that lead to 2 degrees Celsius or does that lead to 11 degrees Celsius?
Unknown speaker: Meaning it’s probably not linear.
Sean Hernandez: Not linear, right. But then also what’s the shape? What’s the shape of that function? And we could already be past a point where we’re going to get a really dangerous amount of global warming. Like if the average temperature on an average day was greater than the temperature that causes mammals to have hyperthermia, it’d be basically uninhabitable for mammals on earth. Now that doesn’t mean humans extinct. Obviously we’re different than other mammals in many ways, but that’d be a real problem. And we don’t know that.
Christophe Jospe: It actually goes to an article that I read this morning about the Arctic, which is experiencing temperatures 45 degrees Fahrenheit above average.
Ross Kenyon: I have a hard time even believing that. It seems crazy high.
Sean Hernandez: They’re more sensitive. That’s reason number four is the positive feedbacks.
Ross Kenyon: What is that?
Unknown speaker: Should we lay that out for people?
Sean Hernandez: Positive feedback is that global warming leads to more global warming.
Unknown speaker: Like accelerating, right?
Sean Hernandez: Accelerating. And it’s part of the climate sensitivity parameter, but kind of another reason.
Christophe Jospe: Right. So you’ve got the Arctic, which is melting, and the Arctic is... And then you’ve also got the permafrost, which stores massive amounts of carbon, which begins to melt. And you have the methane, which is a way more potent. I’ve seen like Alaskan homes like fall in under like permafrost decaying, like melting, just falling into like giant sinkholes. But you know, okay, so we’re getting into the doom and gloom. And that’s not the point of this podcast. It’s Reversing Climate Change. And I want to go back to this techno fix thing.
I certainly think that Nori is proposing a techno fix, but not one particular solution. We are proposing And I guess that makes us techno-optimists to actually believe, hey, this is possible and we don’t want to live in that world.
Ross Kenyon: As an economist, do you approve of that method for addressing climate change? Does it trigger you in some sort of way?
Sean Hernandez: Previously, I’ve written about how questionable it is to decide a carbon price. I really don’t like the idea of doing all these statistics and It’s arbitrary. Right.
Paul Gambill: Yeah, that’s a couple of things on that. First of all, would you think that carbon tax escapes that?
Sean Hernandez: No, not necessarily, because it’s really arbitrary. It’s still within the boundary, like you’re saying. It’s not kind of a more universal-ish platform, kind of like Nori is imagined to be. But also, I’d just like to comment that for California’s cap-and-trade, which was established by AB32... In I think 2005, you can only do 4% of your emissions liability as offsets. So as carbon removal projects, and they have a heavy preference for ones that are in California. So they don’t really like your idea of going to Kenya and planting a tree because of what they call co-benefits, which is like we wanted to help Californians.
So it’s kind of like if you can imagine the Trump of California global warming policy.
Unknown speaker: You mean like nationalists and sort of like within our borders?
Sean Hernandez: Our people like first, no matter like how much better it is to reduce global warming in Kenya. Right.
Ross Kenyon: This seems like a good place to break into maybe the power utility that you...
Sean Hernandez: Oh, a lot. Yeah, I do.
Ross Kenyon: Oh, yeah, please lay it on.
Sean Hernandez: They have interesting mechanisms. Like for example, there’s auctions for the permits of the cap and trade and there’s a price floor in the auction so that if the bids aren’t high enough, then they charge the minimum price and it’s the law for you to get these. So you have to buy them. And for example, this floor, it increases every year at 5% plus inflation. It’s like around 7% and that’s the price floor. But there’s also now a price ceiling So there’s kind of a price ceiling. Yeah. So a floor and a ceiling.
So like a completely bound marketplace where like there’s only a permissible region of trading.
Ross Kenyon: Why can’t it just be bid up? Like it doesn’t seem like an inefficient way to allocate these.
Sean Hernandez: Because that’s what you want, right? You actually want the carbon price to get really high so that it’s a basically high carbon tax and you reduce emissions a lot. But that would be politically inexpedient, especially for, you know, energy consumers slash voters.
Paul Gambill: Oh, so that’s more of a political handout to the forced buyers of these.
Sean Hernandez: I think so. Yeah. As well as maybe, you know, about the free allocation.
Unknown speaker: No. What’s that about?
Christophe Jospe: We do, but please tell us.
Sean Hernandez: Yeah, the carbon permits, you get them for free if you’re a special company that the government likes. Basically, you sell them yourself on the auction, so you get money. It’s passed through to electricity rate consumers, so you get a lower electricity rate. If the carbon price is high, you’ll actually get a lower rate.
Unknown speaker: Do you want to give your, these opinions are my own and they do not reflect my employer or any of that?
Sean Hernandez: Yeah, I should definitely say that I have a lot of opinions and my company does too, but they’re not always the same ones. So these are my personal opinions.
Unknown speaker: You have a lot of opinions?
Sean Hernandez: These are my opinions. These are my opinions and not those of any organizations.
Christophe Jospe: I’d like your opinion on the California cap and trade market because this is being used as a model for the rest of the world to look at for effective cap and trade. Really? I think there are certain Californians who are saying that and saying, hey, look at us. Look at all this great work we’re doing.
Ross Kenyon: Sounds like a Californian for sure.
Sean Hernandez: I think that there are other Californians saying that it’s a failure because the carbon price is too low. The reason for that is that we also have renewable portfolio standard and a lot of what they call complementary policies. Actually, this is what I really dislike the most is the so-called complementary policies because typically economists, maybe we like elegance, but maybe I would say we like simple solutions. So cap and trade seems like pretty simple. You just choose a carbon amount and then you have some auctions. If you do complementary policies, you just have so much of a bigger job to do like all these small things.
But the bad effect is that the complementary renewable portfolio standard, which is where they say 50% electricity has to be renewable, it reduces emissions, which is good, but that reduces demand.
Paul Gambill: It’s cannibalizing demand for it.
Sean Hernandez: Exactly. So some of your activists turn around and say, well, clearly the market cap and trade is not an effective way to reduce global warming. We need command and control from the top.
Ross Kenyon: That’s me shaking my head.
Sean Hernandez: I call that a moral hazard.
Unknown speaker: Oh, yeah. Please elaborate.
Sean Hernandez: I mean, it’s immoral. We could say that. I’d be comfortable with that. But is it a moral hazard in the same way?
Paul Gambill: If you’re coming at it from the perspective that a centrally planned solution is probably not the ideal way to fix this and I don’t want to see that happen, then that’s the hazard there. If that’s an inevitable outcome of the scenario you described, then that’s bad.
Sean Hernandez: Absolutely. I like that. It jives with another thought that I have that if what I said about global warming being really bad now is true, then mitigation is the moral hazard against geoengineering. We keep doing mitigation. We think that it’s enough and we won’t take the steps that we need in order to prevent the real hazard.
Christophe Jospe: I mean, that’s something that really gets me going when this groupthink in environmentalism really lets the ends justify the means. I read an article yesterday talking about the Netherlands. It was shared on Facebook, so it got a lot of likes, even some loves. And it was saying that the Netherlands by the year 2025 was going to ban the sale of all internal combustion engines. Now, the article also went on to say that only 5% of the Netherlands... Power generation came from renewable sources. So Ross, let’s do some math. If 5% comes from renewable sources, where do you think the rest comes from?
Ross Kenyon: Fairy dust and leprechauns and all that.
Christophe Jospe: Right. So 95% comes from fairy dust and leprechauns and fossil fuels. Okay. But there you go. So you’re going to have more electric vehicles onto the grid. More electric vehicles, which are putting more demand onto the grid. The country ostensibly is doing this and saying, we’re going to use this to meet our various targets. But what ends up happening is that you just shift the carbon emissions from the pipe to the smokestack. I would say that’s a moral hazard, Mr. Economist, ethicist.
Sean Hernandez: You know, I want to argue that the moral hazard is only what I say it is and nothing else. So if you are reducing the risk and that’s increasing your risk. So I think what you’re describing is a real serious concern, but it’s a different concern. It’s just like emissions relocating across sectors. It’s very important. And it’s important for California. But people believe that they aren’t doing that.
Paul Gambill: Yes, if you’re just shifting from one source to another, then yes. And if everyone understood that was happening. But I think people genuinely believe when they’re buying an electric car that they’re doing something good for the environment.
Sean Hernandez: That just sounds more like delusion than moral hazards. Well, if you’re in California, then your electric car is natural gas powered, which is maybe cleaner than your oil powered car. So it depends on where you are. I think that actually most people who seriously think in this area are very aware of that kind of fuel switching issue, but it varies by country and location based on what is in your grid. So it’s really important not to lose sight of that.
Ross Kenyon: People make this criticism of Tesla or various other manufacturers where it’s like, you’re charging with a natural gas plant. It’s not Tesla’s fault. They’re not a power generator. No, for sure. Yeah. But people like to think like, oh, I have this great moral bounty for doing this thing. And it’s like, well, on net, maybe or maybe not. It kind of depends.
Sean Hernandez: Yeah. So there is this continuing overlap between is ruining the environment through climate change immoral, is geoengineering immoral, and the moral hazard. From my exposure to the moral hazard argument in economics, The morality of it kind of is secondary to just having this phrase that means if you reduce the risk, you increase the risk. So that’s really the realm that I try to keep the consideration of the moral hazard because there’s other problems like geoengineering could have bad solutions. Side effects by itself. I mean, you’re going to block the sun.
You’re going to reduce power down the water cycle. You’re going to power down slightly agriculture, like maybe 2%. Those are real concerns, but those aren’t the moral hazard. They aren’t saying you’re going to make global warming worse by making it better. That’s the moral hazard. It’s the same thing as saying you’re going to make financial crises worse by bailing out the banks. You’re going to be more likely to have a fire if you buy fire insurance. This is like kind of its own internal reasoning, even though ruining the environment could be immoral, geoengineering could be immoral.
That’s why I ironically titled my paper Immoral Geoengineering because it’s actually not about immoral geoengineering. It’s about the moral hazard.
Ross Kenyon: And so would you say your position in general is just that you want geoengineering considered or not necessarily ruled out by everyone ex ante?
Sean Hernandez: Yeah, well, I think really the best position to inhabit on this issue is that geoengineering needs to be part of a portfolio of approaches. Mitigation probably can’t take care of climate change itself. Like I said, shutting off all emissions tomorrow would not work. Not only would it be a bad idea, but It’s pretty clear that adaptation is something that we should do in some capacity. Probably the moral hazard is floating out there being used against adaptation too. But the third part of what I call this climate policy triad is geoengineering in whatever forms, whether it’s carbon dioxide removal or solar radiation.
This is such a big issue by the own admission of environmentalists and policymakers who are with them that it would be silly really to say this one thing that is copacetic to our desire to power down industry is the only thing that we should do. That’s really my opinion. It comes from a presupposition that we need to power down our civilization, that the civilization, how far we’ve come is part of the problem.
Ross Kenyon: Yeah, adaptation is also kind of a dirty word. But when I first got into this, I didn’t really know anything about climate science at all. And I felt pretty hopeless because we were trusting the government to do this or activists. And I just didn’t have a lot of faith in the process. So my default position for a long time was, well, if we can’t really You want Snowpiercer to happen. I definitely do. I know it’s not popular, but that’s not unreasonable. We should be able to talk about that. But I can see how it takes the wind out of the sails if you care about mitigation a lot.
If you’re just like, oh, we just have to be free and have a good free market economy so we can survive, that’s probably the least appealing thing you can say to someone like that. True?
Christophe Jospe: I think that we can still have our cake and eat it too. We’re very much kumbaya at Nori. First of all, we’re not condoning SRM. Actually, the first time where we brought on geoengineering Jane and Andrew Maynard. She hates that term. I know. We’re going to make it stick. I got a note from someone who worked at the Rocky Mountain Institute, and it was along the lines of, hey, I think Nori’s cool, but you guys aren’t endorsing SRM, are you? No, we’re not. We’re only doing carbon removal. It’s fun to talk about, though.
Ross Kenyon: This conversation is super interesting.
Christophe Jospe: We have to talk about it. We can’t say that there’s one right solution. What it comes down to is managing the greenhouse effect.
Sean Hernandez: Should we talk about how SRM might be terrible for Nori or should we talk about how to convert SRM credits into carbon credits?
Unknown speaker: I would like to talk about the former.
Christophe Jospe: Yes, let’s talk about our existential risk. But I would like to say I like SRM because it scares me very much. And it, I believe, will motivate at a certain time, maybe 2019, for everyone to want to pay for a lot of carbon removal because we don’t Can I say SRM doesn’t actually scare me as much as sulfates in the atmosphere does?
Paul Gambill: Because one of those is much easier to do than the other one. Like if SRM becomes a real plan, like there’s a lot of time and energy and money that’s going to go into producing that, that where this discussion and conversation can happen. But like anyone right now could send a plane up into the air and start dumping sulfates up there.
Sean Hernandez: Absolutely. I think that it seems really intuitive that space-based SRM, basically like installing shades in orbit or at the Lagrange point, which floats between the Earth and the Sun, that seems like the safest because you wouldn’t have these chemicals, you wouldn’t have them falling out, you wouldn’t have to continuously Yeah. There’s a real technology called space-based solar power that is to collect it in orbit, beam it, and that’s mitigation.
Paul Gambill: I want to talk about the SRM risk, Tenori. I’m very curious what you think about that.
Sean Hernandez: Well, not that many people want SRM, so it’s not a near-term risk. Really, I think people like David Keith, who I think David Keith is really the most responsible geoengineering advocate out there, he’s always talking about this moral hazard stuff almost before he says what his real idea is. So that’s probably the ideal geoengineer, and I am going to bestow that title on him. I think it’s probably non-controversial.
Unknown speaker: We’ll let him know. We’ll send it to him.
Sean Hernandez: Yeah, yeah. Maybe he doesn’t want it. So he’s responsible. The only time that people say we should even do it, obviously we should research solar radiation management no matter what because climate change is uncertain and potentially an existential risk. But should we really do it? Nobody’s saying that we should unless there’s pretty much an immediate emergency. Like if we see Arctic methane is exploding out and we’re going to have like something five degrees Celsius in five years warming, something like that. Is that a threat to Nori? I don’t know. What’s Nori going to do if there’s a climate change apocalypse scenario?
Paul Gambill: I guess it’s sort of evaluating like at what point do things get so bad that the attempt to scale up carbon removal becomes not even worth it anymore.
Sean Hernandez: You really want to decide on what is that time that we’re going to deploy it. You want to decide beforehand, I think. Otherwise, you’re going to slide into it. You’re going to have the regulatory capture of the geoengineers like, oh, I’ve been working on this for 20 years. Like, come on, let me do it. That’s worrisome.
Paul Gambill: Yeah, I can see that risk.
Sean Hernandez: I want to do it.
Unknown speaker: You want to be the guy with the button?
Sean Hernandez: The space-based, by the way, is probably the safest but the most expensive. You’d need like 10 trillion mirrors or something. It would take a decade even launching like a million a day or something. Oh, jeez.
Christophe Jospe: Yeah, I mean, I think the way to get started, just get out there with your paint roller and start painting Los Angeles white. I mean, maybe Los Angeles is a bad city to do that. The streets would get so dirty and gross, though. I know, that’s the thing. It sort of retracted my comment. The roof side could be okay with.
Sean Hernandez: Yeah, but the streets, I’ve never heard the streets until today. That’s a thing? There’s a good back-of-the-envelope calculation in the Royal Society 2006 report. They assumed, like, all the cities become white and it doesn’t work. It’s not enough.
Ross Kenyon: Oh, okay. That’s unfortunate. It’d be nice if we had... Well, it’s not enough on its own, right?
Paul Gambill: But yeah, good point. Very good. Taken as like one of many in a suite of responses.
Ross Kenyon: Isn’t that kind of a little bit of a handout to the sunglasses companies, though? I feel like if every city was bright white, I would just Ray-Ban stock by now. We need complimentary policies.
Unknown speaker: Would you just mean like we need to stack them on top of each other?
Sean Hernandez: I don’t want to use this term. I think I sarcastically recommended that we do some kind of extra tax on the sunglass companies due to their unjust profits.
Unknown speaker: Yeah, it sounds like something you’d suggest.
Christophe Jospe: So, Sean, you work at a utility. You think about energy production and you mentioned natural gas and things are happening in California with natural gas and fracking, which is also sometimes controversial. I’d be interested in your thoughts and opinions around the topic.
Sean Hernandez: I saw a meme on Facebook that was summarizing a statistical regression result from some A greater than 1% increase in natural gas burning. And I thought that was a fake meme, but I looked at the paper and they had a good method and they showed that doing renewable energy increases doing natural gas because you need a flexible grid support system. So maybe you’re turning off coal that is happening nationally. So I believe that was captured in their data.
Paul Gambill: Isn’t that more or less what Jevons paradox? Isn’t that basically the same thing?
Christophe Jospe: The Jevons paradox is a little bit different. The Jevons paradox says, as you get more efficient, You will consume more energy.
Sean Hernandez: Yeah. And this one is more like saying natural gas and renewables are complements.
Paul Gambill: Oh, right. Yeah. So if you’re going to have a certain amount of power provided by solar, then which isn’t stable or you can’t use that at all hours of the day because that energy exists. So now there is a demand for that supply and to support that demand. Now you have to increase the amount of supply of non-renewable energy.
Sean Hernandez: Exactly. But the Jevons paradox, like an example would be if solar panels tomorrow became twice as productive per square foot, we wouldn’t use half as many because like it’s so much easier and cheaper. We would use twice as much. Right. Right. Because it’s better. That’s Jevons. Because we always want more energy. Exactly. So fracking, it has its own environmental problems, doesn’t it? But one of those is to get natural gas out of the ground.
Christophe Jospe: Yeah. So in a weird way, the environmental movement really likes to pick and choose. And it doesn’t realize that sometimes what we’re proposing is part of causing the problem.
Sean Hernandez: Absolutely. And, you know, for me, it’s really sad that so many environmentally interested people, they don’t like economics and sometimes they have like an outward contempt for economists. And I know that from my experience, like being in university and being in an economics department and environmental studies department. But I really think that we should be natural allies. I mean, both of us want to make the best use of resources that we can, although in our own way. Right.
Ross Kenyon: I’ve seen that David Suzuki video gets passed around every once in a while. The economics is a form of brain damage. Have you ever seen that?
Sean Hernandez: I haven’t. That sounds too triggering.
Ross Kenyon: Yeah, I don’t care for that one, but I always see it once in a while. But they don’t like it because they think it’s the old joke, right? The economists know the price of everything and the value of nothing. You’ve heard that.
Sean Hernandez: We’re just dumb people. You just care about money. You don’t care about the environment. Well, clearly, opportunity cost is everywhere, right? That’s one of the key insights of economics, and I feel like sometimes people don’t like to be reminded of that. Some of the best economists are environmental economists. Yeah, economics isn’t all about money. I think that nowadays, many people know that. It’s about human action and human decisions, choices. And the way basically, you know, specialization and trade, it’s Adam Smith. I think it’s more that than it’s these fancy statistical equations.
And regarding environmental interest, deep greens, what was Kristaps saying?
Unknown speaker: What were you saying?
Christophe Jospe: I had, I mean, we were- Fracking. Yeah, we were talking about fracking and- Some of the opportunities it poses and also the challenges and how it kind of fits into the whole decarbonization attitude or approach that we have. And I was curious just how you see things playing out. You more or less answered my question. So that was nice, Sean. This has been a great one. So I’m going to hit you with one final thought. Sometimes we get interesting people on the podcast. We want to make them king or queen of the world and just kind of...
You’re a dictator. The world has to do what you propose and you are tasked with solving climate change.
Ross Kenyon: There’d be no one for him to debate with though. What would be the point? I know.
Christophe Jospe: Yeah, that’s fine.
Unknown speaker: It’s to throw him in jail. How would you do it?
Sean Hernandez: I’m trying to be really centrist these days and I think I’m succeeding. So here’s what I’ll do. I’m going to establish a national carbon tax, but if I’m the dictator of the world, it’s going to be a global carbon tax. And I’m going to, I have a list, like a short list of maybe five to 10 economists who I would hire, like including Bill Nordhaus, Matt Kahn, Olivier Duchenne, a couple other people, Adam Rose, lots of really smart people thinking about this issue. And I would get all those guys together and I would be like, look, I don’t care how you do it.
Just give me a carbon price. I know that it’s a number you made up, but So we’re third?
Unknown speaker: We’re third? Podcast is over. What about the blockchain engineers? They must be important too, right?
Sean Hernandez: Blockchain, yeah. We didn’t even get into that. We didn’t get into that. I’m a speculator of currency, but I assume that you guys are going to connect IoT devices to the blockchain, sending their data. Right. Those are the challenges with it.
Paul Gambill: Yeah.
Christophe Jospe: And I think there are ways around that because we can look at historical data. And if you suddenly have some weird spike because you have your little CO2 depleted air spray can, well, no, you’re cheating. And then you can’t play in our marketplace.
Ross Kenyon: Auditing has existed for a long time.
Sean Hernandez: Exactly. And hey, regarding Christophe’s issue about environmentalists and natural gas, I wanted to just draw a brief attention to Paul Ehrlich. You guys know Paul Ehrlich, The Population Bomb. Very popular book among environmentalists and kind of the modern version is Jared Diamond’s Guns, Germs and Steel. Oh, my God. That prices of metals would go down, not up. Because Paul Ehrlich was a scarcity fetishist. He thought we’re running out of everything, destroying the environment. And this is a mentality that’s been proven wrong repeatedly. And the way forward is to continue civilization.
It’s definitely not to relax civilization. And coming up with more advanced techniques, including geoengineering, in all of its forms that work is part of that.
Ross Kenyon: I’m so glad you told that story. I was wondering how many episodes it would take before someone told the story of that bet because it’s so beautiful. I don’t think we’re going to be able to top that. Why don’t we cap this episode there? That was a beautiful closing statement. Sean, thanks so much for being here with us. This was super fun.
Sean Hernandez: Thanks, you guys. Good luck. This is great. I’m really excited about Nori.
Ross Kenyon: Thanks, Sean.
