Climate Policy Meets Cold Reality in Europe

The rush to renewables causes severe energy price spikes and shortages. Biden’s policies would do the same in the U.S.

By Allysia Finley of The WSJ. Excerpts:

"In the past decade the U.K. and Europe have shut down hundreds of coal plants, and Britain has only two remaining. Spain shut down half of its coal plants last summer. European countries have spent trillions of dollars subsidizing renewables, which last year for the first time exceeded fossil fuels as a share of electricity production.

But renewables don’t provide reliable power around the clock, and wind power this summer has waned across Europe and in the U.K., forcing them to turn to gas and coal for backup power. Yet demand for these fossil fuels is also surging across Asia and South America, where drought has crimped hydropower. Manufacturers there are also consuming more energy to supply Western countries with goods.

Japan has become especially dependent on liquefied natural gas imports since it shut down most of its nuclear power plants after Fukushima in 2011. Even China has been forced to ration electricity to energy-hungry aluminum smelters because of a coal power shortfall. This has sent global aluminum prices soaring.

Increased global demand has caused the price of coal to triple and the price of natural gas to increase fivefold over the past year. Europe’s cap-and-trade scheme has pushed prices even higher. Under the program, manufacturers and power suppliers must buy carbon credits on an open trading market to offset their emissions. The price of credits has spiked this year as demand for them from coal plants and other manufacturers has increased while government regulators have tightened supply." 

"Europe has become ever more dependent on Russia—the world’s second largest gas producer, after the U.S.—for energy because the U.K. and Germany have banned hydraulic fracturing, letting their rich gas shale resources go to waste. Meantime, the Netherlands is shutting down Europe’s biggest gas field.

In short, all of Europe’s green chickens are coming home to roost. Several U.K. retail electricity providers have collapsed in recent weeks because of the surging price of gas. Energy experts warn that some German power suppliers are in danger of going insolvent. Germany’s electricity prices, which were already the highest in Europe because of heavy reliance on renewables, have more than doubled since February.

Skyrocketing power prices have caused U.K steel makers to suspend production."

"U.S. gas and coal producers have benefited from rising prices in Europe. Growing exports, however, are pushing up prices that Americans pay for energy because domestic production lags pre-pandemic levels. Natural-gas prices in the U.S. have doubled since the spring, and some coal power plants are scrounging for fuel."

Global Gas Shortage Stings U.K., Showing Shortcomings in Its Energy Transition

U.K. is more vulnerable than most other advanced economies to surge in demand for natural gas, analysts say

By Max Colchester, Joe Wallace and Benoit Faucon of The WSJ. Excerpts:

"A lack of natural-gas storage facilities in the U.K., where capacity has been allowed to dwindle in recent years, has amplified the risks of a global shortage of the fuel and raised concerns that energy supplies won’t hold up if there is a cold winter.

The U.K.’s rapid shift to renewable energy, which has helped it cut greenhouse-gas emissions by 44% in the past three decades, is lauded by many in the industry. But the country’s experiences offer a reminder that decarbonizing an economy must be carefully managed."

"U.K. natural-gas prices have risen more than fivefold over the past year to €73.10 a megawatt-hour Wednesday, equivalent to $84.83"

"more than four times the price in the U.S."

"But the U.K. is more vulnerable than most to gas shortages, analysts say. After a major storage facility shut down in 2017, the U.K. can now hold a week’s worth of natural-gas stocks. That compares with three months in Germany, according to industry body Gas Infrastructure Europe.

High reliance on renewable energy, mainly wind, and low coal use has left the country heavily dependent on imported natural gas for electricity generation when the wind doesn’t blow. A jump in energy prices leaves the U.K. “a victim of its own progress on lowering emissions,” economists at Dutch bank ING Groep NV wrote in a note this week.

The lack of storage follows a decision back in 2013 by the U.K. government not to subsidize loss-making gas-storage facilities. Output from the North Sea gas fields was declining, leaving the country more dependent on imports, at the same time as a transition from coal-powered electricity to renewables was under way."

"By 2020, the U.K. relied on wind for 24% of its power-generation mix but didn’t have a backup plan when it fell to 2% of supplies in late summer this year"

"In late summer, it was less windy than normal, resulting in turbines sitting idle.

Britain’s gas policy is based on faith that the market would produce a robust supply. But the government has intervened, imposing a moratorium on fracking projects and capping domestic energy prices to protect consumers from higher bills."

Covid Will Soon Be Endemic, Thank Goodness

Widespread immunity, vaccinated and natural, will bring control and a full return to normal.

By Monica Gandhi. Dr. Gandhi is an infectious-disease physician and professor of medicine at the University of California, San Francisco. Excerpts:

"A disease becomes endemic when it is manageable—defined, for instance, as not causing an undue burden on hospitals or other healthcare resources—but is unlikely to be eliminated because of the pathogen’s inherent properties."

"Australia, China and New Zealand have pursued “zero Covid” policies that aim at elimination (reducing incidence in a region to zero) or even eradication (world-wide elimination). That goal is unrealistic. Smallpox is the only human disease that has ever been eradicated. The smallpox virus has had four properties that made it eradicable: the lack of an animal reservoir, clear and distinctive signs and symptoms, a short period of infectiousness, and both lifelong natural immunity after survival and a highly effective vaccine.

SARS-CoV-2, by contrast, is unlikely to be eradicated. It has animal reservoirs, a high level of transmissibility (especially of the Delta variant), and overlapping symptoms with other respiratory diseases. It has, as well, a prolonged period of infectiousness, caused by its propensity to spread from asymptomatic or presymptomatic carriers."

"Many ineradicable infections are controlled by vaccination and treatment. Measles, a highly transmissible respiratory virus, created high levels of immunity among adults who were exposed as children. But until a vaccine was developed in 1963, some nonimmune adults died every year."

"Antibodies generated by the vaccines will naturally wane, but the vaccines trigger the creation of B cells that get relegated to our memory banks, and these memory B cells produce high levels of neutralizing antibodies if they see the virus again, even in variant form. Memory B cells are long-lasting."

"T cells (also put into cell memory) generated by the vaccines protect us from severe disease and are unfazed by variants."

"As circulation of the virus decreases with increasing immunity, Covid-19 will go the way of other respiratory viruses over which we have control. We will test those who arrive at the hospital for a variety of infections—including influenza, Covid-19, respiratory syncytial virus (mainly in children) and bacterial pathogens—and tailor treatments to the infectious agent."

"Denmark dropped all restrictions at a 74% vaccination rate and low cases on Sept. 10, and Norway dropped them on Sept. 25 at a 67% vaccination rate. Many U.S. states had an undue burden of hospitalization during the Delta wave, although California is keeping restrictions in place despite low hospitalization and high vaccination rates. We will need to accept that the noneradicable disease is endemic. A low burden of disease should facilitate the transition."

"no virus in history has ever continued to evolve to higher pathogenicity."

"No vaccine-preventable or immunity-inducing infection has ever raged on as a pandemic indefinitely. An endemic virus doesn’t require continuing isolation and other restrictions; defanging SARS-CoV-2 by stripping it of its ability to cause severe disease through immunity will relegate it to the fate of the other four circulating cold-causing coronaviruses."

Benefit costs, not school choice programs, are the real drain on public education spending

By Aaron Garth Smith & Jordan Campbell of Reason. Excerpts:

"Between 2002 and 2019, all school choice states except North Carolina saw inflation-adjusted increases in public school per-pupil revenue as Chart 1 illustrates below. New Hampshire had the highest growth in funding at 51%, going from $12,738 per student in 2002 to spending $19,283 per student in 2019. Between 2002 and 2019, the vast majority of states had education funding bumps exceeding 10%. Even school choice bellwethers like Florida and Wisconsin increased public education funding by more than 5%. North Carolina’s school revenue was essentially flat with a decrease of less than 1%."

"Using 2009 as a reference point, half of the states with school choice still increased real spending by 2019, and these data don’t include more recent revenue trends from the latest school year—including a massive injection of about $200 billion in federal COVID-19 relief funding for K-12 public education.[ii] Future Census data will likely show a significant funding boom across school choice states through at least the current school year, regardless of what baseline year is used.   

School choice states have indeed increased funding for public education over time, and as our Reason Foundation colleague Christian Barnard says, it’s not even debatable. If anything, it’s school choice programs—which research indicates leads to increases in parent satisfaction, educational attainment, and test scores—that are underfunded."

"Fortunately, EdChoice has data on each state’s school choice funding as a share of its total K-12 education expenditures. They find that school choice programs—education savings accounts, vouchers, and tax credit scholarships— account for less than 0.4% of total U.S. education expenditures. Florida comes in on top of that list at a paltry 3.25%."

"Pennsylvania spent approximately $81 per student on choice programs while Louisiana spent $77. Interestingly, all but six of the 26 states spent less than $100 per student, including seven that fall below $10 per student."

"school choice programs consume a tiny sliver of the public education funding pie. This becomes even more apparent when comparing these amounts to total spending on public schools. Rhode Island, Pennsylvania, and Illinois all spend in the neighborhood of $20,000 per student with the District of Columbia topping out at an astounding $31,109 per student."

"research suggests that teacher pension costs are responsible for a substantial share of the growth observed in the last two decades."

"inflation-adjusted instructional benefits—which doesn’t even include all district and school staff—have risen dramatically in school choice states. For example, Pennsylvania increased spending on instructional benefits by $2,414 per student from $1,358 in 2002 to $3,772 in 2019. This means that for every class of 20 students in Pennsylvania about $75,000 is now spent on instructional benefits alone—$48,000 more than was spent in 2002."

"As a result, instructional benefits consumed substantial portions of public education’s revenue growth during this time period. For example, Virginia increased funding by $1,717 per student but benefits grew by $901 per student. Ohio’s benefits spending consumed $573 of its $1,749 revenue increase. For some states, spending on instructional benefits actually outpaced revenue growth. This was the case for Arizona where funding increased by $122 per student while benefits grew by $393 per student—a net loss of $271 per student."

"For almost every state, growth in per pupil instructional benefits between 2002 and 2019 exceeded spending on school choice, and in many cases, this gap is large. In Chart 5 you can see that in Georgia, benefits grew by $471 per student and school choice spending in 2019 was only $62 per student. Even in Indiana, a school choice heavyweight that experienced relatively moderate growth, the increase in benefit costs is still on par with school choice spending."

"how much would school choice states have saved if they maintained benefit spending at 2002 per pupil levels adjusted for inflation? In 2019, these 26 states combined would’ve spent about $17.8 billion less on instructional benefits, compared to the $2.6 billion they spent on school choice programs. In other words, growth in benefit spending is diverting over six times more from classrooms than what’s spent on school choice programs. Clearly, the notion that school choice drains funds from public education is not just unfounded, but it’s also a distraction from an actual fiscal crisis that’s consuming education budgets in virtually every state."

The negative effect of universal child care in Quebec

From American Economic Journal: Economic Policy.

"Abstract

Past research documents the persistence of positive impacts of early life interventions on noncognitive skills. We test the symmetry of this finding by studying the persistence of a sizeable negative shock to noncognitive outcomes arising with the introduction of universal child care in Quebec. We find that the negative effects on noncognitive outcomes persisted to school ages, and also that cohorts with increased child care access had worse health, lower life satisfaction, and higher crime rates later in life. Our results reinforce previous evidence of the central role of the early childhood environment for long-run success.

Citation

Baker, Michael, Jonathan Gruber, and Kevin Milligan. 2019. "The Long-Run Impacts of a Universal Child Care Program." American Economic Journal: Economic Policy, 11 (3): 1-26."

David Henderson shows how Eric Posner's views on monopsony are defective

See Eric Posner on Monopsony. 

"I recently criticized Don Boudreaux’s two major arguments against legal scholar Eric Posner’s claim that monopsony in U.S. labor markets is widespread. But I do agree with Don that Posner’s case is defective.

Posner writes:

Economic theory says that when a pool of workers has only one potential employer, or a small number of potential employers, those workers will be paid below-market wages.

Actually, economic theory doesn’t say that. I’ll put aside the quibble that wages couldn’t be below-market because whatever we’re observing is the market. It’s clear from context that Posner means below the wage that would be paid in a competitive market, so that’s what I’ll consider.

(By the way, if you follow the link in the Posner quote above, it will take you to a lengthy study on monopsony by former President Obama’s Council of Economic Advisers. I critiqued that study here, here, here, and here.)

Posner is right that economic theory says this is true when there is only one potential employer. But it’s silent on the issue when there are “a small number of potential employers.” There are often industries in which there are only a few firms and these few compete aggressively in the output market. It’s hard to believe that they wouldn’t compete aggressively in the market for inputs, in this case, labor.

In his article “Monopoly” in David R. Henderson, ed., The Concise Encyclopedia of Economics, economist George Stigler referenced a study by fellow University of Chicago economist Reuben Kessel on underwriter spreads in the bond market. Kessel found that when there were 20 bidders, the spread (the price charged by the underwriters) was $10 and when there was one, it was $15.74. That latter price is consistent with Posner’s claim. But, Kessel noted, just adding one extra competitor brought the spread down to $12.64, a major drop. Having 6 competitors brought it down to $10.71, almost all the way to the spread charged by 20 competitors. In short, 6 competitors led to a very competitive result. In most people’s eyes, 6 is a “small number of potential competitors.”

Posner writes:

In one paper, José Azar, Ioana Marinescu, Marshall Steinbaum and Bledi Taska found that more than 60 percent of labor markets exceeded levels of concentration that are regarded as presumptive antitrust problems by the Department of Justice.

Ok, but that’s not enough evidence. That’s simply evidence that the Department of Justice has a presumption. Has the Department of Justice dealt with Stigler-type reasoning and Kessel-type empirical analysis? (The paper he cites does have evidence that concentration is correlated with lower wages, but I haven’t examined it.)

Posner does give some good evidence, writing:

For example, Elena Prager and Matt Schmitt examined hospital mergers and found that when hospitals expand through mergers and gain significant market power, the wage growth of employees declines. Notably, this decline affected skilled health care professionals like nurses — but not administrators and unskilled staff members like cafeteria workers, who could easily find jobs outside hospitals.

I wonder if Posner’s aware of two major factors that lead to concentration in the medical sector. One is regulation. The medical industry is one of the most regulated industries in America and became even more regulated with ObamaCare. When an industry is regulated, there are typically what I call “economies of scale in compliance.” A firm with 10 times the size of another firm bears costs of compliance that are less than 10 times the cost for the other firm. Even without mergers, that knocks out small firms and it also leads to mergers so that firms can take advantage of those economies of scale in compliance.

The other factor is Certificate of Need Regulations that many states have. The acronym is CON, and it’s a great acronym because it is a con. These regulations prevent surgery centers from arising to compete with hospitals and prevent hospitals from expanding to compete with other hospitals. When a surgery center or a hospital goes before a regulatory board to get government permission, guess who often intervenes to object to the new competition? That’s right: the current competitors.

In fact, some of the toughest CON regulations are in Posner’s state of Illinois. And in his 2008 book, Code Red, a health economist just up the street from Posner, David Dranove of Northwestern University, exposed some of the bad effects of CON regulation in Illinois. Prices and wages aren’t the only thing that matter. Dranove writes that due to CON regulations:

Illinois hospitals today are located where Illinoisians lived in the 1950s.

Posner also contradicts himself in his last paragraph, writing:

Labor monopsony affects people at all income levels, but it is a particular problem for lower-income workers and people living in stagnant rural and semirural parts of the country.

But lower-income workers tend to be less specialized. They tend to be the unskilled workers whom Posner says are not affected by monopsony. What gives?"

If you really use infection as an outcome, you probably need a booster every six months, which is unrealistic and unattainable

By Peter Van Doren of Cato.

"Last summer I wrote an essay about what science can and cannot do and the role it can play in public policy decisions including those pertaining to the COVID-19 pandemic. I concluded that science explains relationships between cause and effect: no more and no less. No normative conclusions about individual or collective decisions follow directly from science. Instead, costs, benefits, and other values properly enter both individual and collective decisions.

I have written twice since then about gradual recognition of this argument among medical professionals as well as journalists. I am writing again to recommend a recent column in the Washington Post by Leana S. Wen, a medical doctor as well as former health commissioner for the city of Baltimore. The title itself is striking in its clarity: “Public health is not only about science. It’s about values.”

The column describes the CDC and FDA scientific advisory committee discussions about the appropriate recommendation for COVID-19 booster shots. The data were not in question. “The coronavirus vaccines, though they still do well to protect against hospitalization and death, have waning immunity against symptomatic disease, especially in older and more vulnerable individuals. A third dose, given at least six months after the initial series, increases antibody response and reduces the likelihood of breakthrough infections.”

What was in dispute was the goal of vaccination: reduction of disease severity or prevention of symptomatic infection. Many medical professionals argue that only the former is the appropriate goal: “If you really use infection as an outcome, you probably need a booster every six months, which is unrealistic and unattainable,” said Dr. Peter Chin‐​Hong, an infectious disease expert at the University of California, San Francisco. “I don’t care about symptomatic disease — I care about severe disease.”

Dr. Wen responded as follows: “This is not a scientific question as much as one of personal values. Should academics and bureaucrats really be the sole arbiters in making such sweeping societal policy as to deny boosters to people who want to better protect themselves? Similarly, scientists shouldn’t be the only people to weigh in on whether the United States should be prioritizing boosters to our own citizens vs. vaccinating people in other countries. Who should decide, then? I believe it should be the American people.”

I could not have said it any better myself."