May 2010

Despite talk of a moratorium, the Interior Department’s Minerals and Management Service is still granting waivers from environmental review for oil drilling in the Gulf of Mexico, including wells in very deep water. Until last month, most of us never thought about the risk that one of those huge offshore rigs would explode in flames and then sink, causing oil to gush out uncontrollably and befoul the oceans. The odds seemed low, and still do: Aren’t there lots of drilling rigs in use, year after year? Twenty years ago, your elected representatives thought that you’d be happy to have them adopt a very low cap on industry’s liability for oil spill damages.

Nuclear power was never quite free of fears; it was too clearly a spin-off of nuclear weapons to ignore the risk of a very big bang. Yet as its advocates point out, we have had hundreds of reactor-years of experience, with only a few accidents. (And someday when Nevada’s politicians aren’t looking, maybe we can slip all of our nuclear waste into a cave in the desert.) Again, the risks are so low that you’d be happy to learn about a law limiting industry’s liability for accidents, wouldn’t you?

Environmentalists have long warned that the world could run out of energy and resources, from the “limits to growth” theories of the 1970s to the more recently popular notion of “peak oil.” The response from economists has been that prices for energy and raw materials are still moderate, and declined over the course of the 20th century; if we are running out of something, why doesn’t its price skyrocket?

The problem is that what we’re running out of is low-risk conventional energy supplies. Because our economy conceals and socializes energy risks, prices remain deceptively low for an increasingly risky energy supply. (more…)

Our team at SEI-U.S., led by Frank Ackerman, has just released a new model for climate change, mitigation investment, and development that highlights a major dilemma for industrialized countries. The model, Climate and Regional Economics of Development (CRED), is designed to analyze the economic consequences of various climate and development choices, based on what we know about different regions’ current economies and their vulnerability to climate change.

What the model shows is that the most cost-effective way to reduce global emissions and maximize the yield of “green” investment is to target developing countries: Because the impact of every dollar is bigger in a lower-income economy, shifting capital from rich to poor regions has the best payoff.

Developing nations have advocated this approach for years, but industrialized nations have resisted, not wanting climate mitigation to become a vehicle for the redistribution of wealth. In fact, widely used economic models specifically correct for this “problem,” and focus on climate solutions that leave global inequality untouched by design.

Read our working paper to learn more.