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Why ask why?

Forward causal inference and reverse causal questions

Andrew Gelman & Guido Imbens

The statistical and econometrics literature on causality is more focused on effects of causes” than on causes of effects.” That is, in the standard approach it is natural to study the effect of a treatment, but it is not in general possible to determine the causes of any particular outcome. This has led some researchers to dismiss the search for causes as “cocktail party chatter” that is outside the realm of science. We argue here that the search for causes can be understood within traditional statistical frameworks as a part of model checking and hypothesis generation. We argue that it can make sense to ask questions about the causes of effects, but the answers to these questions will be in terms of effects of causes.

I haven’t had a chance to digest this yet, but it’s an interesting topic. It’s particularly relevant to system dynamics modeling, where we are seldom seeking only y = f(x), but rather an endogenous theory where x = g(y) also.

See also: Causality in Nonlinear Systems

h/t Peter Christiansen.

Greenwash labeling

I like green labeling, but I’m not convinced that, by itself,  it’s theoretically a viable way to get the economy to a good environmental endpoint. In practice, it’s probably even worse. Consider Energy Star. It’s supposed to be “helping us all save money and protect the environment through energy efficient products and practices.” The reality is that it gives low-quality information a veneer of authenticity, misleading consumers. I have no doubt that it has some benefits, especially through technology forcing, but it’s soooo much less than it could be.

The fundamental signal Energy Star sends is flawed. Because it categorizes appliances by size and type, a hog gets a star as long as it’s also big and of less-efficient design (like a side-by-side refrigerator/freezer). Here’s the size-energy relationship of the federal energy performance standard (which Energy Star fridges must exceed by 20%):

standard

Notice that the standard for a 20 cubic foot fridge is anywhere from 470 to 660 kWh/year.

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Kerry-Lieberman “American Power Act” leaked

I think it’s a second-best policy, but perhaps the most we can hope for, and better than nothing.

Climate Progress has a first analysis and links to the leaked draft legislation outline and short summary of the Kerry-Lieberman American Power Act. [Update: there's now a

This is not much different from ACES or CLEAR, and like them it’s backwards. Emissions reductions are back-loaded. The rate of reduction (green dots) from 2030 to 2050, 6.1%/year, is hardly plausible without massive retrofit or abandonment of existing capital (or negative economic growth). Given that the easiest reductions are likely to be the first, not the last, more aggressive action should be happening up front. (Actually there are a multitude of reasons for front-loading reductions as much as reasonable price stability allows).

There’s also a price collar:

Kerry Lieberman Price

These mechanisms provide a predictable price corridor, with the expected prices of the EPA Waxman-Markey analysis (dashed green) running right up the middle. The silly strategic reserve is gone. Still, I think this arrangement is backwards, in a different sense from the target. The right way to manage the uncertainty in the long run emissions trajectory needed to stabilize climate without triggering short run economic dislocation is with a mechanism that yields stable prices over the short to medium term, while providing for adaptive adjustment of the long term price trajectory to achieve emissions stability. A cap and trade with no safety valve is essentially the opposite of that: short run volatility with long run rigidity, and therefore a poor choice. The price collar bounds the short term volatility to 2:1 (early) to 4:1 (late) price movements, but it doesn’t do anything to provide for adaptation of the emissions target or price collar if emissions reductions turn out to be unexpectedly hard, easy, important, etc. It’s likely that the target and collar will be regarded as property rights and hard to change later in the game.

I think we should expect the unexpected. My personal guess is that the EPA allowance price estimates are way too low. In that case, we’ll find ourselves stuck on the price ceiling, with targets unmet. 83% reductions in emissions at an emissions price corresponding with under $1/gallon for fuel just strike me as unlikely, unless we’re very lucky technologically. My preference would be an adaptive carbon price, starting at a substantially higher level (high enough to prevent investment in new carbon intensive capital, but not so high initially as to strand those assets – maybe $50/TonCO2). By default, the price should rise at some modest rate, with an explicit adjustment process taking place at longish intervals so that new information can be incorporated. Essentially the goal is to implement feedback control that stabilizes long term climate without short term volatility (as here or here and here).

Some other gut reactions:

Good:

  • Clean energy R&D funding.
  • Allowance distribution by auction.
  • Border adjustments (I can only find these in the summary, not the draft outline).

Bad:

  • More subsidies, guarantees and other support for nuclear power plants. Why not let the first round play out first? Is this really a good use of resources or a level playing field?
  • Subsidized CCS deployment. There are good reasons for subsidizing R&D, but deployment should be primarily motivated by the economic incentive of the emissions price.
  • Other deployment incentives. Let the price do the work!
  • Rebates through utilities. There’s good evidence that total bills are more salient to consumers than marginal costs, so this at least partially defeats the price signal. At least it’s temporary (though transient measures have a way of becoming entitlements).

Indifferent:

  • Preemption of state cap & trade schemes. Sorry, RGGI, AB32, and WCI. This probably has to happen.
  • Green jobs claims. In the long run, employment is controlled by a bunch of negative feedback loops, so it’s not likely to change a lot. The current effects of the housing bust/financial crisis and eventual effects of big twin deficits are likely to overwhelm any climate policy signal. The real issue is how to create wealth without borrowing it from the future (e.g., by filling up the atmospheric bathtub with GHGs) and sustaining vulnerability to oil shocks, and on that score this is a good move.
  • State preemption of offshore oil leasing within 75 miles of its shoreline. Is this anything more than an illusion of protection?
  • Banking, borrowing and offsets allowed.

Unclear:

  • Performance standards for coal plants.
  • Transportation efficiency measures.
  • Industry rebates to prevent leakage (does this defeat the price signal?).

Back in Business

I’ve been offline for a few weeks because something broke during a host upgrade, and I’ve been too dang busy to fix it. Apologies to anyone whose comment disappeared.

Most of those busy weeks were devoted to model verification prior to the rollout the C-ROADS beta in Barcelona (check the CI blog for details). Everything happens at once, so naturally that coincided with proposals for models supporting a state climate action plan and energy technology portfolio assessment. Next stop: COP-15.