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Clean energy subsidies

There has been some discussion on econblogs, originating, I think, with this Economist blog piece, attacking the idea of carbon offsets and particularly of subsidising clean energy as a way of reducing pollution from traditional energy sources.

The first pro-subsidy argument is that subsidising clean energy will cause clean energy to be substituted for dirty energy, which is good.

The reply, in the Economist piece, and also Arnold Kling’s recent TCS article, is that a subsidy to clean energy is a subsidy to energy, and will increase overall consumption of energy, possibly producing more total pollution than would otherwise have been the case. Pigouvian taxes on dirty energy can be justified, but not subsidies.

In a comment on a Kling EconLog entry on the subject, I put forward a second pro-subsidy argument:

The purpose of subsidising clean energy is not simply to displace dirty energy in the immediate sense — that is undoubtedly done better by taxing the dirty energy.

New technologies require a lot of development investment to bring to market. Once they are being successfully produced and sold in the market, experience and competition often produce rapid improvements, particularly in efficiency. The subsidy to clean energy use should not be seen so much as encouraging a certain quantity of clean energy to be produced, but more as a subsidy to the of clean energy technologies, to bring them more quickly to the stage where they can be rapidly and profitably developed.

The intervention in the market is then not aimed at correcting the direct negative externality of pollution, but at the positive externality of improving technological knowledge.

I believe that this is what the proponents of subsidised clean energy have in mind.

I brought the argument up not because I agree with it, but because I don’t like to see important points being missed.

Note that because the point of the subsidy is to encourage industry to invest in the relevant technologies, the effects if it works correctly — increasing the profits of businesses in the relevant sectors — would end up looking an awful lot like pork, which is the major criticism. The profits might not be rents, but fair reward for valuable additions to the knowledge of clean energy technology.

There are, nonetheless, a number of problems with the argument.

First, there are other mechanisms which are intended to address this very general market failure (that is, the positive externality of R&D). Most relevant in this case are patents and direct state-funded or state-subsidised research. The existence of these alternatives do not automatically invalidate the use of energy subsidies — one would have to show that it is a less effective approach. Both government research and patents are far from perfect, and should not be presumed to be the best solutions.

As an example, subsidising the research, rather than the energy, reduces the incentive on the producer to actually improve efficiency. If the subsidy directly targets the energy use, then there is competition between firms producing the subsidised energy, whereas if the subsidy is on a particular research project, it is a pure rent.

More significantly, there is no guarantee that the subsidies will go to the most promising technologies. I don’t believe that making ethanol from corn will ever be a useful contribution to the energy industry, no matter how much more efficient the process becomes. It will be carried on only for as long as it is actively subsidised, and is pure deadweight loss. But as long as it is subsidised, it might be profitable for producers and consumers. Solar panels, on the other hand, while not really worthwhile at the moment, might well, if pushed into the market by subsidy, and improved in efficiency once there, develop to the point where they are a major portion of energy production at a genuinely low cost.

Since the policy is currently directed far more to biofuels than to solar energy, I think it is not working.

That’s not to say it can’t work. There are many other points that can be made pro and con. I am, as always, sceptical that any interventionist policy will be effective in the long run, but the argument has too much merit to be ignored or dismissed out of hand.

Films and tax

Film industry facing ‘tax crisis’

Production in the UK “will fall dramatically” because new tax laws are scaring off investors.

Apparently, there is a very strong relationship between the levels of taxation on the film industry, and the amount of investment that the industry receives.

I wonder if the normal tax regime “dramatically” discourages investment and production in industries other than film, as well.

I believe it does.

What policy implications would the great and good of the film industry draw from this?

The Iran Thing

I’m not well-informed as to the current state of affairs on the ground in Iraq, but there is an important general point that is not being made.

The USA and its allies invaded Iraq with the stated justification that the existing regime was a danger. As I wrote earlier, that is a reasonable justification. One can certainly argue whether the invasion was advisable, but I accept that it was justifiable.

However, whatever strategic interest the allies have in what happens in Iraq, the Iranians have more. Expecting the government of Iran to stand idly by while western countries attempt to fashion a new government there is not only unrealistic but unfair. Of course Iran is going to seek out allies among the factions struggling for influence, and of course it is going to support them, and, in a a situation of civil war, of course that support is going to involve arming them as well as funding them. It would be stupidly reckless of the Iranian government not to arm its allies in Iraq.

Now, if, as is alleged, Iranian-backed groups are fighting against US and British forces in Iraq, there is a problem that needs to be addressed. But pure outrage that Iran could seek to challenge the “rightful invaders” of Iraq will not do. The same logic that puts American and British guns in Iraq puts Iranian ones there too.

One could argue that Iran should refrain from intefering based on an ideal of absolute subservience to the U.N., which recognises the current Iraqi government. I challenge the commentators most hostile to Iran to make that argument with a straight face: I would be quite unable to do so myself.

Alternatively one could take an absolute imperialist line, and say that a Pax Americana is being imposed in Iraq, it will all be for the best, and everybody else better help, stay out of the way, or be squashed. I think that is the line that is taken in effect by the hawkish commentators, but I’m not sure they are really doing so consciously. Not that it would necessarily be a bad thing if such a peace could be imposed without local allies or compromises, but I am sure it is practically out of the question.

I would favour an acceptance that Iran has legitimate strategic interests in the internal struggles of Iraq, and a positive outcome is more likely to flow from some level of cooperation and compromise. Such an approach is made more difficult by the hysterical rhetoric that both parties have used against the other, as well as by the outstanding dispute over Iran’s nuclear ambitions. At the very least, Iran will be seeking assurance that a powerful enemy is not being created on its border, either in the form of a hostile Iraqi administration, or an American base for further aggression. Neither seems likely to me, but governments of every country tend towards the paranoid in assessing the intentions of such unstable regimes.

If the USA does not make it absolutely clear that it has no intention of attacking Iran, then the natural assumption is that it does have such an intention. And that being the case, it would be an essential act of self-defense for Iran to attempt to prevent such an attack by keeping Iraq too unstable. And then, of course, that would be used to show that Iran is part of the problem and that regime change there would be desirable.

The only case in which it would make sense to make a fuss about Iran’s interference in Iraq would be if it was insignificant. In that case it can be used to build up opinion for an attack on Iran, while forcing the interference to continue to escalate wouldn’t matter because it’s not significant anyway. If it is a major problem, the only way to stop it would be to not make a fuss about it, but to try to assure Iran that it is safe. Threats will not be successful, as the more Iran is threatened, the more incentive it has to keep Iraq unstable.

Iran could be expected to favour an outcome in Iraq of a stable representative government, provided it is confident that would not lead to an American leader saying “we have achieved what we set out to do in Iraq, we no longer need the army in Iraq, let’s do the same now to Iran, after all it worked in Iraq.”

Trademark Perversion

The same Register article I just referred to contains another interesting quote, this time from the Gowers Review:

“Trading Standards have powers and the duty to prevent the sale of trade mark protected goods. However, where the infringement of rights relates to copyright alone Trading Standards do not have the power to act, and cannot perform searches and seizures. This means, for example, that where there are sales of counterfeit CDs and DVDs, Trading Standards have only a limited response. This creates an inconsistency in the way that the law treats piracy and counterfeiting.”

The “inconsistency” between “piracy” and counterfeiting is hardly random or arbitrary. Copyright law exists to favour producers. If I sell you a copy I have made of Pirates of the Caribbean, you are not the victim, Disney is. On the other hand, trademark law exists in theory to protect consumers. If I sell you a Rolex watch that was not really made by Rolex, you are being cheated. The job of trading standards is to protect consumers, and therefore it has been concerned with enforcing trademarks, and not with enforcing copyrights. No inconsistency.

The Gowers Review recommends that this non-existent inconsistency be eliminated by having Trading Standards officers enforce copyrights also. How has this come about? It is because in reality they are already working for producers, not consumers. Trademark law is now being used as another form of copyright. If I buy a pair of Ray-Ban sunglasses for £2 from a street vendor, I know full well that they have not come from the Luxottica Group. By prosecuting the street vendor, the Trading Standards Officer is not protecting me, he is protecting the producer. It is indeed an inconsistency that the officer can act to protect the monopoly privileges of LVMH or Chelsea Football Club, but not those of Disney or Microsoft. However, he should not be doing either.

There is an efficiency argument for combining the functions of consumer protection and monopoly protection, but that needs to be set against the danger that one will overwhelm the other.

Update: By coincidence, John Kay makes a very similar point in today’s Financial Times about the proper purpose of trademarks.

Criminal Financing

The latest news on enhanced enforcement of copyright law contains the usual claim from the government that “People should realise that the proceeds from the sale of these goods are used to finance a whole range of criminal activities.”

Sensible people usually ridicule these claims, pointing out that professional criminal activity is generally profitable in its own right, and therefore does not need subsidy from generous counterfeiters.

It is only fair to recognise, however, the plausible rationale behind the “financing” argument.

The likes of Ron Gainsford (the TSI chief exec quoted above) are using the word “finance” in the technical sense of “credit”. What is plausible is that criminal activity is somewhat restricted by lack of access to credit. If you turn up at your local HSBC and tell them you have a promising business opportunity based on robbing a jewellery shop, and you need a £10K loan to cover weapons, a getaway car, a rented safe house, and labour costs for monitoring the activity of the shop for a couple of weeks prior to the raid so that you can exploit this advantageous business opportunity, the bank staff are likely to be even less helpful than the guy in the annoying Nationwide adverts.

To enter a business of this kind, you either need to have the capital yourself, or know someone who has capital and is a criminal. Therefore the less profitable criminal activity there is going on around the place, the more difficulty criminal entrepreneurs will have obtaining credit.

Having recognised the argument, it is possible to dispute it. What is the total value of the trade in counterfeit or infringing goods, compared with, say, that in prohibited drugs. My guess would be approximately zero, meaning that the effect on the availability of criminal credit of effective enforcement would not be significant.

The finance argument also supports a liberal policy of reducing the number of victimless crimes. The most effective way of depriving criminal entrepreneurs of access to loans from drug dealers is to legalise drugs. Boots or Pfizer are no more likely to make loans to armed robbers than are HSBC or Marks and Spencers.

I have another unrelated point on the article which will follow shortly…

The Mercantilist Subsidy

Cafe Hayek is the place to go for tireless education on why trade deficits aren’t anything to worry about.

But another way of looking at them has occurred to me.

One thing that would make a trade deficit sustainable for a country would be if other countries contiually subsidised that country to sustain it.

That sounds a little far-fetched for a country like Britain or America, but I wonder…

I’ve probably mentioned before my amusement that at the peak of the internet and telecoms boom, a huge portion of Britain’s internet and telecom sector was bought by Europeans at inflated prices: one-2-one and Orange to Deutsche Telekom and France Telecom, Freeserve to Wanadoo, most smaller ISPs to Tiscali, and some others.

That’s a bit like a subsidy (because of the exaggerated valuations), but there’s no reason to think it was anything but a one-off fluke.

But it’s when an industry is in the throes of irrational exuberance that political pressure against foreign takeovers is strongest. And while France is the clear leader at resisting the sale of highly-valued companies for political reasons, the Blair administration has shown a very praiseworthy restraint towards such irrationality. Given that, I suspect there is a long-term bias towards overvalued assets being sold by less-protectionist countries like Britain to more protectionist countries like France. There may well have been buyers in Britain wanting to spend too much money on companies from France or Italy, but their governments would have prevented it.

One might conclude that these governments’ bad policies are benefiting Britain, but it’s important to bear in mind that we’re only talking about trade deficits — not about anything really important. The bad effects – spread globally – of protectionist policies reducing efficiency may well outweigh the benefits to people on Britain of having people near them restrained from beggaring themselves in global asset bubbles.

update: A case in point

Is X a Y?

When one is asked, is (something) a (something), the first answer should usually be the same: “Why do we care?”

I brought this up once before, in the context of whether (the situation existing between western countries and Islamist terrorists) is a (war). The first response was “why do we care”, and the next one was “we don’t”. You can call it a war if you want, it doesn’t make any difference either way.

Being more precise, the second answer that time, and in many other cases, should not actually be “we don’t care” — we do care a bit, because we want to make sure we use classifications in such a way as we can communicate efficiently. You can call the tail a leg if you want, but it’s a bad idea, because you’ll be misunderstood.

Another question of this type was “Is Pluto a Planet”. The answer doesn’t matter beyond having useful classifications for efficient communication, and there was much discussion last year as to whether the traditional classification of “planet” should be changed for better efficiency.

The Pluto example was used last year by Geoffrey Pullum of Language Log, and contrasted with the question “Is (the relationship between two people of the same sex which has been marked by some kind of public ceremony) a (marriage)”. As ever, the first response is “why do we care?”, but the secondary response, this time, is different. It is “because many public rules and laws, notably concerning taxation, inheritance, and things like that, treat marriages preferentially or differently from other relationships”. That answer leads only to more questions: What are the features of marriages that makes it a good thing to distinguish them from other relationships in these ways, and are those features shared by same-sex couples or not? Therefore, is it a good thing to treat those same-sex relationships as marriages or not?

Pullum was, rightly, criticising those who attempt to sidestep those substantial questions by appeal to dictionary, avoiding the essential “why do we care”, and jumping straight to “The dictionary says no”.

The only time a substantial question can be resolved by finding the answer to “what does this word mean?”, is when an appeal to authority is being used. This is because authorities are expressed in words. But what matters in that situation is not some arbitrary definition of the word in question, but the actual definition intended by the authority itself. The radical green Christian John Papworth argued, some years ago, that his encouragement of shoplifting from supermarkets could not be answered by appeal to “Thou shalt not steal”, because the meaning of “steal”, and of property generally, is not now what it was when that authority was propogated. To be more specific, it did not then encompass the concept of the joint-stock company. His argument was absolutely correct — while there may be (and in my view, are), good reasons for not stealing from supermarkets, appeal to the Ten Commandments is not among them.

Related to an appeal to authority is an appeal to tradition, but for that there is no reason to worry about definitions. There is no reason to say “We give these assorted benefits only to marriages, and traditionally the word ‘marriage’ has been understood to mean only a relationship between a man and a woman”, because one can equally well say, more simply, “We traditionally give these benefits only to partnerships between a man and a woman”, which is equivalent but bypasses the contentious definition. Appeals to tradition carry different weight to different people, but either way they are not changed by bringing in irrelevant questions of definition.

Any other answer to “why do we care” will come down to real questions about the real world, as opposed to the meaning of words. Those are the questions that matter, and they cannot reasonably be dodged by playing word games.

Sort-of random thought

If somebody has a lot to say about how to solve quadratic equations, it’s reasonable to deduce that, relatively speaking, they are not knowledgeable about the subject. If they really knew about solving quadratic equations, then all they would need to say about it is the one fairly simple formula that you need to do it. There would be no need to discuss it at great length. At most they would need to prove the formula is correct, which wouldn’t take more than a page.

Liberty is not best defended by sacrificing liberty

David Davis.

Also, Conservatives formally pledge to cancel ID card scheme

As things stand, I think I will be voting for these buggers for the first time.

Well done to the volunteers at No2ID, who have done so well in keeping the profile of this issue high.

Conservatives Formally pledge to cancel ID card scheme

copied from archive.org, 8 July 2024

Religious Freedom

The obvious question that hits first when looking at the recent furore over whether a church-run adoption agency should be allowed to apply its religious principles in a manner that would be illegal for anyone else, is: Why on earth should a church have special privileges?

It is quite common for governments to allocate privileges to religion. It’s difficult at first to see why this should be. Of course, it might be logical to privilege one specific religion, if that one is believed to be “true”. However, that logic cannot account for generic religious privileges. The lack of underlying logic to the position is exposed by those playing with the boundary of what constitutes a religion (via Volokh.)

Looking at the question historically, the answer is immediately obvious: religions get extra freedoms, because when they don’t, they fight. The lesson of history is, that you can take away all sorts of freedom with impunity, but if you obstruct people observing their religion, you’re risking violent resistance.

If you see politics, as I do, as a compromise between interests (rather than, say, a search for Justice), then this situation is OK. A preference that is held strongly enough to arouse violence is more important than one which is not. (Irrespective of the objective merit of the preference). There is a long-term issue that this attitude is encouraging violence, but that is very long-term in this situation, where the deference to religion in itself has grown over centuries. Responding promptly to violence, such as that of the animal rights movement, would be much more problematic than this slow adaptation to the existence of potentially violent religious movements.

The same incentive problem applies to rolling back the by now time-honoured privileges of religion. If we reason that because the Catholic / gay adoption issue isn’t likely to turn violent, we don’t need to worry, then we’re penalising peaceability. This concern is highlighted by the recent YouTube spat where a prominent atheist who has long published criticisms of Christianity is banned as soon as he starts making similar criticisms of Islam.

On the other hand, if new movements seek to claim the time-honoured status of religion, it is reasonable to ascertain whether they are “real” religions according to the only criterion that matters – whether they are likely to eventually turn violent. Therefore, our new Muslim communities succeed, and the Jedi of Brighton and the Brethren of Georgetown fail.


	NEWS Monday February 5, 2007 Conservatives formally pledge to cancel ID card scheme David Davis has written to Cabinet Secretary, Sir Gus O’Donnell, giving formal notice that an incoming Conservative administration would scrap the Government’s costly ID card project. And the Shadow Home Secretary has warned of the financial dangers of the Government signing contracts to set up the ID card scheme when it faces cancellation if the Conservatives are returned to power at the next election. In his letter, Mr Davis asked what provision, if any, has been made in the relevant contractual arrangements to protect the Government – and public funds – against the costs that would be incurred as a result of early cancellation of the scheme; with a similar letter fired off to likely major contractors, warning them of the Party’s intentions. Just hours before the Conservatives launch a web and print based campaign against Labour’s ID Cards proposals, Mr Davis told Sir Gus: “As you will be aware, the Conservative Party has stated publicly that it is our intention to cancel the ID card project immediately on our being elected to government. You are now formally on notice of our position and fully appraised of the contingent risks and associated liabilities arising from the national identity card scheme.” Referring to the planned roll out of the Government’s national identity card scheme later this year, Mr Davis reminded the Cabinet Secretary of the longstanding convention that one Parliament may not bind a subsequent Parliament. He wrote: “I urge you to consider very carefully the Government’s position, in advance of the roll-out of the scheme later this year. As a matter of financial prudence, it is incumbent upon you to ensure that public money is not wasted, and contractual obligations are not incurred, investing in a scheme with such a high risk of not being implemented. “In particular, I would be interested to know what provision, if any, has been made in the relevant contractual arrangements to protect the Government – and public funds – against the costs that would be incurred as a result of early cancellation of the scheme.