Surprise! If you set a target then people will game that target

This shouldn’t come as the greatest surprise to anyone ever but sadly it does to those who would plan our lives. If you set people a target for something then they will game that target. This is true whether it’s of bankers vying for bonuses and pushing losses outside the bonus period, people making tractors where if you measure them by the tonnage they’ll make heavy tractors and, in today’s example, if you set car manufacturers mpg targets for their vehicles then they’ll game the measurement of mpg:

Motorists are usually advised that smaller cars can travel more miles per gallon (mpg) than those with larger engines, making them cheaper and more environmentally friendly to run.

But manufacturers’ estimates of fuel economy, based on official laboratory tests, may not reflect the reality when the vehicles are driven on the road.

Tests on 500 vehicles, half petrol, half diesel, each driven for three hours on roads in Britain, found that the cars travelled on average 18 per cent fewer miles per gallon than stated in manufacturers’ specifications.

Emissions Analytics, a data company which measured the cars’ fuel consumption and emissions, explained that this was due to cars accelerating more and travelling at higher speeds on the road than in official testing regimes.

The test drivers are of course all practicing perfect economical driving while, and this problem is worse for very small engines, we real drivers give it a bit of welly to compensate for those very small engines. And of course this is a general fault with any and every target of this type. Showing, once again, that if you want to ration something (here the desire is to ration fuel consumption) the best way to do your rationing is by price. For price is the one thing that doesn’t lie in these circumstances.

It’s such a simple concept that it really is amazing that those who would plan our lives still don’t get it.

Well of course the 2 degrees climate change target should be ditched

The reason that 2 degree climate change target should be ditched being that it was always an entirely economically illiterate target to set in the first place. Sadly, that’s not the point being made in Nature on it. As The Guardian reports:

But two academics in the prestigious journal Nature now argue that the 2C target has outlived its usefulness. They say it should be abandoned and replaced with a series of measures – “vital signs” of the planet’s health.

Under the headline, “Ditch the 2C warming goal”, they argue the 2C limit is “politically and scientifically … wrong-headed”, it is “effectively unachievable” and it has let politicians off the hook, allowing them to “pretend that they are organising for action when, in fact, most have done little.”

The reason it should be ditched is that it should never have been a target in the first place. For we should not be trying to target a particular change in temperature: we should be trying to target a certain cost of action.

Think back to what every economic report on this issue has said. That there will be costs associated with allowing climate change to happen. Also that there will be costs with preventing climate change from happening. And in such circumstances the correct answer is that we should spend up to the price of those costs on trying to prevent it happening. But we should not spend more than those costs: nor, obviously, should we spend less.

Thus whatever climate change target is set (for those who want to set one at all) it always has to be set in terms of the costs of the actions we are going to take. And this does have very important effects. For example, if we attack the problem in the most efficient manner possible (say, a carbon tax) then we can avert more climate change by doing so than if we try to avert it in less efficient manners (say, regulation or legislation). And that’s why we really do want to always keep the costs in mind. Because if we set a temperature target, as we have, then people will say that we should do anything at all to meet that temperature target. But that’s the very thing that we’ve already proven is not true: we should not do anything at all to avert warming. We should only do however much is economically rational: which brings us back to the costs of action as against the benefits of it.

So ditch the two degrees by all means. Then concentrate on what actually matters: the costs of whatever actions are taken.

Greenpeace really is getting desperate here

Desperate in the sense that they’re now claiming that if the people whose lives get disrupted by fracking get a share of the money from fracking then this would be bribery. Rather than what we might normally call it, compensation:

Jim Ratcliffe, the 61-year-old industrialist who founded the chemical giant Ineos, is promising to hand more than 6% of future shale gas revenues to those sitting on the reserves or affected by their extraction, in an effort to replicate efforts in the US where shale gas has created scores of new millionaires. The situation in America contrasts starkly with that of the UK, where efforts to develop the controversial new energy source have been delayed by landowners, environmental groups and the planning system.

Simon Clydesdale, UK energy campaigner at Greenpeace, said: “This is just more of the same bribes and bulldozers approach that has already proved a failure. With one hand the fracking industry goads the government into steamrolling people’s right to oppose fracking under their homes, with the other it offers cash incentives.

“The industry forgets people have legitimate concerns about fracking that won’t be easily assuaged by cash sweeteners.”

It’s all very Dave Spart isn’t it?

Leaving the Trotskyist Hippies aside the interesting part of this is that we seem to have reversed, to some extent, the nationalisation of fossil fuel reserves that happened many decades ago. It’s a standard of landowning law that the landowner owns the minerals underneath it. Except for gold and solver and then later we added fossil fuels to the list nationalised. Given that there would therefore be no benefit to landowners of fracking under their land there’s been a certain resistance to allowing it.

However, the government has lowered the tax rate on gas and oil brought up through fracking: allowing that Coasean bargain to be struck again between the drillers and the landowners. There’s now room in the sums for compensation to be offered: and thus compensation is being offered.

Why Miliband is wrong on energy policy

This article was originally published in the Young Fabian’s quarterly magazine, Anticipations (Volume 18, Issue 1 | Autumn 2014).

On this we will agree: the corporate monopoly dominating the UK energy market needs to come to an end. Currently, British customers have a total of six firms to choose from in the energy market, all of which offer very limited price distinctions.

And those prices keep going up. Since 2010, gas and electricity rates have risen by three times the rate of inflation (10.2% between 2010-2013). Quite rightly, the Big Six are constantly under attack from very political party in the UK for over-charging customers and raising retail prices, even when wholesale costs fall. With such little competition in the energy market, mega-firms can charge extortionate prices, and customers have no choice but to pay the bill.

Another point of agreement: a change in government regulation is key to breaking up this monopoly. Both Labour and Conservatives acknowledge that government regulations, like Ofgem, aren’t holding the Big Six accountable for what they charge customers. Over the past few years, party leaders have come up with new variants of the Regulatory State to combat the problem. Most recently (and most misguidedly) Ed Miliband has advocated for a government-mandated freeze on energy prices, which would force firms to fix their prices for 20 months, regardless of future changes in market conditions.

Why is this misguided? Let’s put aside Miliband’s refusal to acknowledge the costs that are loaded on to energy companies by the state (ie: requirements to source energy from renewables), which in turn, gets pushed onto the customer and focus on a second, more important point: Miliband’s policy proposals reinforce the energy monopoly.

It’s near impossible to create a market monopoly without help from the ultimate monopoly; that is, competition in the market place is so often drowned out, not by competitors, but by the state.

The energy sector is a prime example of well-intentioned government regulation gone awry. The sector is regulated so heavily, through both onerous compliance requirements and heavy taxation, that it is near impossible for any budding energy firm to compete with the Big Six. In its effort to stop energy firms from over-charging customers, the state has effectively regulated all competitors out of the market, re-enforcing the monopoly it was trying to prevent.

The bureaucratic, slow-moving nature of government bodies means that they are not equipped to understand or anticipate the unpredictability of market prices on energy. The security of energy supplies, complexities of long-term contracts, and real commodity costs are often dismissed by politicians who have made unsustainable, politically motivated promises to voters. Whilst the Big Six have no incentive to bring energy prices down when they can, a Labour prime minister would have no incentive to bring the prices up even when he must.

Britain needs appropriate, scaled back monitoring of the energy market that removes ‘safeguards’ for the Big Six’s market share and introduces healthy competition in the market place. A less-regulated system where consumer choice dictates the real price of energy would see monthly bills drop. But piling price fixation on top of bad regulations will produce a lot of heat and very little light.

Quelle Surprise: Nick Stern wrong again

We’ve yet another attempt from Nicholas Stern to persuade us all that beating climate change would actually be good for the economy. Fortunately we’ve also got Richard Tol around to tell us what’s really going on here:

The original Stern Review argued that it would cost about 1% of global GDP to stabilise the atmospheric concentrations of greenhouse gases around 525ppm CO2e. In its report last year the Intergovernmental Panel on Climate Change (IPCC) put the costs twice as high. The latest Stern report advocates a more stringent target of 450 ppm and finds that achieving this target would accelerate economic growth.

This is implausible. Renewable energy is more expensive than fossil fuels, and their rapid expansion is because they are heavily subsidised rather than because they are commercially attractive. The renewables industry collapsed in countries where subsidies were withdrawn, as in Spain and Portugal. Raising the price of energy does not make people better off and higher taxes, to pay for subsidies, are a drag on the economy.

Just not impressed there is he?

There are some eminently sensible things that could be done, things that would have the effect of reducing climate change into the future. Poor and oil producing nations throw $600 billion a year in subsidies at fossil fuel use for example. Stopping that would be a sensible thing to do: but it would be a sensible thing to do simply because it’s a sensible thing to do. The effect on climate change is just an added benefit.

But the most important part of this latest report is this:

“Well-designed policies … can make growth and climate objectives mutually reinforcing,” the report claims.

Yes, that’s entirely true. But as Tol also points out:

But low-cost climate policy is far from guaranteed – it can also be very, very expensive. Europe has adopted a jumble of regulations that pose real costs for companies and households without doing much to reduce emissions. What is the point of the UK carbon price floor, for instance? Emissions are not affected because they are capped by the EU Emissions Trading Systems, but the price of electricity has gone up.

There’s an awful lot of weight resting on that “well-designed” there. In fact, absolutely every report, yea every single one, that has concluded that we’d be better off trying to avert climate change than to go through it has been running the numbers on the politicians using sensible methods of aversion rather than not sensible ones. And yet when we see what those same politicians actually enact on that evidence base they’re not sensible policies. Thus the justification they’re relying upon doesn’t in fact exist.