Bipartisan support to end ethanol subsidies?

In today's political climate in the U.S., it's rare to find bipartisan support for anything, let alone an eminently sensible idea like ending subsidies for ethanol. (Not to be confused with cutting the cellulosic ethanol RFS requirement for 2011 by 97%, which is unfortunate but necessary given that we haven't actually figured out yet how to produce cellulosic ethanol economically at scale.) It will be interesting to see how the 42 ethanol state senators push back against this one, but it does seem that the shifting balance toward fiscal conservatism makes it both more likely that subsidies could expire and more difficult for them to be re-established once the do, as NRDC's Nathanael Greene points out in the NY Times article.

I'm not close enough to corn futures markets to know to what extent the expectation of lapsing subsidies is baked in, but I'll be very curious to see how world grain prices react if subsidies are allowed to expire. The discontinuity may give us a crude sort of counterfactual to help answer the persistent question of how much biofuels drive up food prices.

Via Michael Roberts, who's also cheering.

Brief book review: Merchant of Grain

About a year ago I bought Merchants of Grain and never got around to reading it - in fact, I lost track and had to order another copy when I decided to read it over Thanksgiving. Here's my brief take on its pros and cons:

Pros

• In many ways this is analogous to The Prize, Daniel Yergin's outstanding history of oil, thoroughly tracing modern grain trading from its inception in the early 19th century to the present day.


• Depth of research - the amount of information crammed into the 360 pages is truly impressive, most of it quite relevant and interesting, and his journalistic nose clearly enabled him to get to the bottom of some very complex stories and illuminate the characters involved and the very human dynamics of their interaction.

Cons

• Morgan is not a deep subject matter expert like Yergin, and it shows in his analysis. He does a fine job explaining the technical aspects of growing and trading staple crops, but in many instances his subjective assessment of situations seems off to me.


• He also writes with a vaguely accusatory tone that I find irritating and not constructive - e.g. when complaining that the global grain traders have more market information than the U.S. government, or that the global grain trade lacks transnational regulation. What do you propose instead - a benevolent supernational trade regulator?


• Writing is not great - the narrative is jumbled, and the prose itself is sometimes unnecessarily wordy or awkward.


• Out of date - it was first published in 1979, and has barely been updated since (the re-publishers have a trite note on the back that "little has changed' since the initial publication, but developments over the past 3 decades surely merit a similar treatment).

Overall, recommended as a history of the grain trade, but only because it appears to be the best available - I wouldn't give it top marks in the absolute sense.

Adaptation to center stage

One of my favorite recent papers is by Michael Roberts and Wolfram Schlenker (regular readers may have noticed me regularly plugging it here, here, here, here, and here). Congrats to Michael and Wolfram on being mentioned prominently by The Economist in this week's long article on climate adaptation.

The entire article is pretty good and worth a read, particularly for its dogged effort to parse out climate impact and adaptation, and subsequent honesty where this proves impossible. For example:

Melissa Dell of the Massachusetts Institute of Technology and her colleagues argue that in developing countries GDP growth has been lower in hotter years than in cooler ones. This may carry over into longer-term increases in temperature. The mechanism is obscure: it may simply be that overheated people work less hard. That can be seen either as adaptation or as a worrying impact, slowing down the economic growth which is the surest foundation for other, more positive adaptations.

Not only is adaptation hard to distinguish from impact, investments in response are harder to classify:

Whereas investments in mitigation are fairly easy to understand—build windmills not coal-fired power stations, and so on—those in adaptation are harder to grasp. Action on climate bleeds into more general development measures.

The article overall is pessimistic

The fight to limit global warming to easily tolerated levels is thus over.

and while I wish I disagreed, and hold out for better-than-expected outcomes from Cancun this week, my inner skeptic and pragmatist are pushing me hard to shift focus - professional and personal - toward adaptation.

Another cut in crop forecasts

U.S. crop production forecasts were slashed again this week:

The agriculture department on Tuesday cut estimates of US corn yields for a third successive month, forecast record soyabean exports to China and warned of the slimmest cotton stocks since 1925.

“The combined production shortfalls and dramatic potential stock drawdowns mean a much tighter supply picture than just a few months ago,” the agency said in a separate grains report.

Benchmark Chicago corn futures soared above $6 a bushel for the first time since August 2008, before ending lower.

I'm looking breathlessly to Michael Roberts for the more granular data analysis he promised; this year could well be a preview of agriculture in a warmer world of the future.

In other unfortunate news, most of the $20 billion of food aid that was pledged last year has failed to materialize, and the probability of inspiring U.S. leadership on the issue has fallen substantially after the recent mid-term elections.

Dollar driving commodity prices - for now

Via MR, James Hamilton at Econbrowser shows that the falling dollar - probably driven by quantitative easing - seems to be the main driver of commodity price increases over the last two months. The good news is that monetary policy seems to be working. The bad news is that I don't think we can expect this pure relationship to last for long - too many other drivers on the supply and demand sides are in play - so its value as a barometer for the Fed is probably short-lived.

Update: Dollar is driving metal and hydrocarbon prices, that is - agricultural commodities have more volatile supply.

Highest climate ROI = family planning

Suppose you had $1 million to spend on tackling climate change. How would you spend it to get the best bang for your million bucks?

Would you spend it on stopping the slash-and-burn of forests? Perhaps on switching to nuclear energy? More energy-efficient buildings? Building cleaner power stations?

According to a recent paper by David Wheeler and Dan Hammer, climate change experts at the Center for Global Development, the answer is (drum roll): you would do much, much better to spend your money on a combination of family planning and girls’ education in developing countries.

That's Owen Barder, reporting on a Copenhagen Consensus-like analysis (in output, not methodology) on climate change mitigation. According to the analysis, the killer combo of family planning and girls' education is ~4x as cost effective as reducing deforestation, ~6x better than nuclear and almost 10x better than CCS.

An interesting thought explored in the comments is whether this would be more impactful in poor countries (high potential to reduce fertility but tiny per capita emissions) or rich countries (little unmet demand for family planning, but much larger carbon footprints). Apparently the two are similar (at least the U.S. is).

As Owen acknowledges, there are limitations to this approach, but at the very least this appears to be a solid analysis with a thought-provoking conclusion.