Abstract
At the center of the crisis of climate change is an amazingly efficient but inert fossil fuel-centered energy industry. What makes the energy industry so inert is its massive stock of capital: the facilities, structures, networks, and other physical assets required to extract, process, distribute, and combust fossil fuels. This capital stock is predicated on fossil fuel exploitation, and does not adapt well to alternative methods of meeting energy needs. Fossil fuel subsidies have bloated capital investments in the energy sector, producing low prices and in turn, economic development. It has thus been widely assumed that this is the most reliable model for economic development. Two things have become increasingly clear: (i) that fossil fuel subsidies and low energy prices are not a condition precedent to economic development, and (ii) human capital development, primarily through broad provision of education, is a condition precedent to economic development. The climate crisis highlights the environmental harms of fossil fuel combustion, but it also shines a spotlight on the faulty economic reasoning behind a fossil fuel-centered model of economic growth. This chapter suggests that as a minimum, two no-regrets policies be linked: the phase-out of fossil fuel subsidies, and the robust financing of broader access to education. The climate crisis introduces a new set of inequalities, those in which some countries have benefited disproportionately from the combustion of fossil fuels, and a mostly different set of countries will suffer disproportionately from the harms of climate change. Effecting a direct transfer of fossil fuel subsidies to educational objectives simultaneously reduces the inert capital in fossil fuel industries, increases more productive capital in the form of human capital, and provides a compensatory mechanism for those disproportionately harmed by climate change. Ultimately, the most beneficial and lasting aid that can be provided for developing countries most vulnerable to climate change is one that increases human capital through broad educational initiatives.
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Notes
- 1.
See, e.g., Fundación DARA Internacional (2012), at 17.
- 2.
See, e.g., Dietz et al. (2016).
- 3.
Caney (2014).
- 4.
Solow’s fundamental neoclassical growth model posits growth as a general function of labor, capital, and technology, the latter being a multiplier that makes the other two inputs more productive. Solow (1956).
- 5.
Idiosyncratic exceptions may exist, but the Cobb-Douglas production function is almost never deployed with capital having an inverse relationship with productivity.
- 6.
The Cobb-Douglas production function, which every economics student learns about in undergraduate economics, posits production as a function of the quantity and productivity of just two types of inputs: labor and capital. Cobb and Douglas (1928). The now-familiar Cobb-Douglas formulation, Y = ALαKβ, with Y representing output, L representing labor, and K representing capital, has become a foundational relation in economic theory.
- 7.
Solow (1956), at 70.
- 8.
Smith (1766).
- 9.
Robert M. Solow, ‘Notes on Social Capital and Economic Performance’ in P. Dasgupta and I. Serageldin (eds.), Social Capital: A Multifaceted Perspective (World Bank, 2000), pp. 6–9, at 6.
- 10.
Mankiw et al. (1995), at 293.
- 11.
Hsu (2014), at 729.
- 12.
Financial capital is not discussed because it does not produce the kind of path-dependency problems identified in this article. Natural capital, ecosystems that produce environmental services, are also excluded because they are generally not owned, and thus are not sought to be protected by rent-preserving activities. Social capital is not discussed in this article because legal rules do not promote their formation or protect existing social capital.
- 13.
Hsu, 11, at 735–43.
- 14.
‘BHP Billiton Takes £5bn Writedown on US Oil Assets as Price Slump Takes Toll’ (2016) The Guardian, January 14, 2016, available at: https://www.theguardian.com/business/2016/jan/15/bhp-billiton-takes-5bn-writedown-on-us-oil-assets-as-price-slump-takes-toll.
- 15.
Olson (1982), at 41–47.
- 16.
Olson (1982), at 41–47.
- 17.
See, e.g., Baumol and Ordover (1985).
- 18.
Becker (1993), at 30–54.
- 19.
See, e.g., Chow et al. (2003), at 1529.
- 20.
See, e.g., Oreskes and Conway (2011).
- 21.
Shakuntala Makjijani and Lorne Stockman, Despite Falling Prices North America’s Fossil Fuel Sector Makes Healthy Profits, Oil Change International, May 5 2015; online: http://priceofoil.org/2015/05/05/despite-falling-prices-north-americas-fossil-fuel-sector-makes-healthy-profits/.
- 22.
Murphy (2016).
- 23.
The U.S. Energy Information Administration considers fifteen states as “active” in deregulation or “restructuring,” and seven in a “suspended” mode of deregulation. U.S. Energy Information Administration, Status of Electricity Restructuring by State, http://www.eia.gov/electricity/policies/restructuring/restructure_elect.html (September 2010). Other definitions of “deregulation” may yield different results. See, e.g. Severin Borenstein and James Bushnell, ‘The U.S. Electricity Industry After 20 Years of Restructuring’, (2016) __ Annual Review of Economics, at _[7–8]_ (forthcoming), available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2640081.
- 24.
Cearley and Cole (2003).
- 25.
Brennan and Boyd (1997), at 42.
- 26.
Brennan and Boyd, n. 20 above, at 42.
- 27.
Power plants in states that deregulated electricity generation employed about 6% fewer employees after deregulation and, incidentally, enjoyed a 13% decrease in nonfuel operating expenses. Fabrizio et al. (2007), at 1266–69 (Tables 4 and 5).
- 28.
See, e.g., Merrill and Schizer (2013), at 148.
- 29.
For a review, see Gilbert et al. (1996), at 2–3.
- 30.
Sine and David (2003), at 193.
- 31.
Cardwell (2015), New York Times, October 2, 2015, at B2, available at: http://tinyurl.com/omvq2q6.
- 32.
National Renewable Energy Laboratories, Solar Maps (2015), available at: http://www.nrel.gov/gis/solar.html (accessed December 14, 2015).
- 33.
Florida Statutes § 366.82(1)(a).
- 34.
PW Ventures v. Nichols, 533 So. 2d 281 (1988).
- 35.
Jim Turner, ‘Solar Choice Ballot Initiative Targets 2018’ (2016) Sun Sentinel, March 6, 2016, available at: http://www.sun-sentinel.com/business/consumer/fl-nsf-solar-choice-2018-ballot-20160111-story.html.
- 36.
See, e.g., In re Murray Energy Corp., 788 F.3d 330 (D.C. Cir. 2015); cert. granted, 136 S. Ct. 999 (2016).
- 37.
Newell and Paterson (1998).
- 38.
See, e.g., Gillis and Krauss (2015); Krauss (2007), at C7; online: http://www.nytimes.com/2007/01/04/business/04exxon.html?_r=0.
- 39.
Joskow (1991), at 67.
- 40.
Coady et al. (2015).
- 41.
See, e.g., Atlantis Deepwater Oil and Gas Platform Gulf of Mexico, United States of America, OffshoreTechnology.com (no date), online: http://www.offshore-technology.com/projects/atlantisplatform/.
- 42.
Chevron, Jack/St. Malo (2001), online: https://www.chevron.com/projects/jack-stmalo.
- 43.
Id.
- 44.
That is to say, purchasing electricity has been inexpensive, even if the external costs have been large. A recent study of the net economic benefits of a wide variety of industries in the U.S. found that coal-fired electricity production almost certainly subtracts more from GDP in the form of health and environmental harms than it contributes, in the form of electricity provision. Muller et al. (2012).
- 45.
U.S. Energy Information Administration, Frequently Asked Questions, ‘How Much Carbon Dioxide is Produced When Different Fuels Are Burned?’ available at: https://www.eia.gov/tools/faqs/faq.cfm?id=73&t=11.
- 46.
Scott Gossard, ‘Coal-to-Gas Plant Conversions in the U.S.’ (2015) Power Engineering, June 18, 2015, available at: http://www.power-eng.com/articles/print/volume-119/issue-6/features/coal-to-gas-plant-conversions-in-the-u-s.html.
- 47.
Darren Samuelson & Katherine Ling, ‘Fragile Compromise of Power Plant CEOs in Doubt as Senate Debate Approaches’ E&E News, 5 August 2009.
- 48.
Michael Bolen, ‘Peter Mansbridge Was Paid by Oil and Gas Lobby for Speech’ The Huffington Post Canada, 26 February 2014, available at: http://www.huffingtonpost.ca/2014/02/26/peter-mansbridge-oil-speech_n_4861979.html.
- 49.
Pew Center for Global Climate Change, ‘Fifteenth Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change and the Fifth Session of the Meeting of the Parties to the Kyoto Protocol,’ (2009), available at: http://www.c2es.org/docUploads/copenhagen-cop15-summary.pdf.
- 50.
Coady, n. 35, at 7.
- 51.
Examples abound, but the remarks of Robert Murray, the founder and CEO of Murray Energy, are exemplary. See, e.g., Robert E. Murray, ‘Murray Energy’s Strategy for Succeeding in Transitional Coal Markets’ (2014), available at: http://www.eenews.net/assets/2014/09/23/document_gw_01.pdf (“The insane, regal Administration of King Obama has ignored science, economics, our poorer citizens and those on fixed incomes, our manufacturers, and the Constitution, as it has by-passed our Congress.”).
- 52.
See, e.g., Schultz (1960); Theodore W. Schultz, Investment in Human Capital, 51 A. Econ. Rev. 1 (1961).
- 53.
Lucas, Jr. (1993).
- 54.
Claudia Goldin and Lawrence F. Katz, The race between education and technology (Harvard Univ. Press, 2008).
- 55.
Goldin & Katz, supra, note 50, at 29.
- 56.
Goldin and Katz, supra, note 50, at 320–23.
- 57.
Levhari and Weiss (1974).
- 58.
Supra, note 53, at 950.
- 59.
- 60.
See, e.g., Skills Needs in the Energy Industry (Energy Institute, 2008), available at: https://www.energyinst.org/documents/5.
- 61.
See, e.g., Claire Calkin, ‘Offshore Oil Rig Jobs Can Be Tough, But Very Rewarding’ (no date), available at: https://www.experience.com/alumnus/article?channel_id=energy_utilities&source_page=additional_articles&article_id=article_1128902416846.
- 62.
Dawson (2015).
- 63.
Human Capital Strategies for Canada’s Energy Sector (Mercer, 2010), at 4, available at: https://www.conference-board.org/retrievefile.cfm?filename=Human-Capital-Strategy-for-Canadas-Energy-Sector.pdf&type=subsite.
- 64.
- 65.
Cox and Cox (2016).
- 66.
Coady et al., n. 35, at 7.
- 67.
See, e.g., Lipman (2004); Mark Gradstein, The Political Economy of Public Spending on Education, Inequality, and Growth (World Bank Policy Research Working Paper No. 3162, 2003), available at http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-3162.
- 68.
For a widely praised book on the role of education in economic growth, see, Claudia Goldin and Lawrence Katz, The Race Between Education and Technology (2008). See also, Lionel Artige & Laurent Cavenaile, Public Education Expenditures, Growth and Income Inequality (2016) available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2759093.
- 69.
James J. Heckman, ‘Policies to Foster Human Capital’ (2000) 54 Research Economics 3–56, at 5 (“Early learning begets later learning…”).
- 70.
Heckman, supra, note 63, at 5–6.
- 71.
Supra, note 60.
- 72.
Supra, note 60.
- 73.
See, e.g., Farber (2007).
- 74.
John Schwartz, ‘In Novel Tactic on Climate Change, Citizens Sue Their Governments’ (2016) New York Times, May 12, 2016, at A6, available at: http://www.nytimes.com/2016/05/11/science/climate-change-citizen-lawsuits.html?emc=edit_th_20160512&nl=todaysheadlines&nlid=66362416&_r=0.
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The author would like to thank Brian Labus and Christopher O’Brien for their research assistance, and the always helpful Florida State Law Library staff.
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Hsu, SL. (2018). Human Capital in a Climate-Changed World. In: Murphy, C., Gardoni, P., McKim, R. (eds) Climate Change and Its Impacts. Climate Change Management. Springer, Cham. https://doi.org/10.1007/978-3-319-77544-9_15
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