Thursday, April 25, 2019

Climate Change and Investor Activism

On the topic of climate change, one often searches in vain for news that would support a bit of optimism.  From the scientific side, recent predictions seem uniformly more pessimistic as updated projections for the pace of global warming and its effects are ever more dire.  In terms of societal response to the need for action, we in the United States are blinded by the lies and negative responses to climate change that emerge from the Trump Administration and its Republican enablers.  Other nations and many organizations, some international in scope, are being more aggressive in their responses to the need for action.  This does not mean that success in limiting temperature change is likely, but we should at least recognize when people are trying to help.

There is an organization going by the name Climate Action 100+.  It (often labeled as CA100+) describes itself in this way.

“…an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. The companies include 100 ‘systemically important emitters’, accounting for two-thirds of annual global industrial emissions, alongside more than 60 others with significant opportunity to drive the clean energy transition.” 

And provides this description of its potential clout in the world’s economy.

“To date, more than 300 investors with more than USD $33 trillion in assets under management have signed on to the initiative. In July 2018, Climate Action 100+ released an update that showed more investors are mobilising across dozens of countries to drive corporate action on climate change, and companies on the initiative’s focus list, have started to make progress towards its goals, including a trebling in support for the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.”

It summarizes its goals with this statement.

"As institutional investors and consistent with our fiduciary duty to our beneficiaries, we will work with the companies in which we invest to ensure that they are minimising and disclosing the risks and maximizing the opportunities presented by climate change and climate policy.”

What that statement implies is that there are two topics that investors are examining in terms of corporate policy.  The first involves actions that might be taken to minimize the risks to both the company and to society from corporate activities.  The second involves protecting the rights of investors by encouraging—or forcing—companies to notify investors of the risks climate change might have on their investment.

Kelly Gilblom provided a description of CA100+ and its activities in and article for Bloomberg Businessweek.  It was titled Green, Rich, and Intimidating in the paper magazine.  It is available online as Climate Group With $32 Trillion Pushes Companies for Transparency.  Gilblom makes it clear what corporations expect when confronted by CA100+ activists by beginning with this lede.

“Climate Action 100+ believes companies should detail exactly how climate change will affect their businesses so shareholders can decide which to support.”

If an oil company claims it has $100 billion in petroleum assets underground, but only a fraction of those are likely to ever be consumed, the company and its investors should take note of that fact.

“This group of shareholders has become the biggest, richest, and possibly the most benevolent bully the corporate world has ever seen. What Climate Action 100+, or CA100+, wants is simple to understand and agonizing to achieve. It believes companies should detail exactly how climate change will affect their business, so shareholders can pull money from those that aren’t preparing for the future.”

Goading companies to change their policies to better alignment with climate issues is not a new endeavor.  What this initiative has going for it is that it can claim to be a business-friendly organization with a company’s long-term interests at heart.

“This idea is far from new, and dozens of groups—from the divestment movement to protesters climbing atop offshore oil rigs—have tried. The difference is that CA100+ isn’t out to slay corporate climate villains; it wants to help them succeed, albeit on different terms. The movement is working, and it’s growing. And it’s coming for everyone.”

Gilblom provides a few successes that CA100+ has had.

“In December, citing work with the little-known group, Shell announced near-term climate targets. A common theme was splattered across the headlines around the announcement: Shell had caved.”

“Two months later, BP Plc said it had agreed to a shareholder resolution filed by Climate Action 100+ members and would release specific details about how its investments aligned with the Paris climate accord. Less than a month after that, Glencore Plc, a notoriously hard-nosed miner and trading house that’s one of the world’s largest suppliers of coal, said it would cap output of the fossil fuel because of global warming. It had also been paid a visit by Climate Action 100+.”

Are these activities likely to head off disastrous climatic consequences?  Probably not, but we should at least applaud the effort.  And who knows, such efforts could grow and become more significant over time.

The interested reader might find the following article informative:

Tuesday, April 9, 2019

The Pollution We Produce in Our Homes

We have become accustomed to regular reports on outdoor pollution levels in our cities where auto traffic and industrial plants are expected to be major contributors.  And we thrilled at the improvements in air quality that technology has provided over the years.  The existence of this outdoor pollution has driven studies that can quote seemingly precise numbers of deaths that a given level of chemicals or particulates in the air will cause over time—and even how the deaths will occur.  This focus on the external conditions has allowed the study of what we encounter in our own homes to be almost totally ignored.  An article in The New Yorker by Nicola Twilley discusses attempts to rectify this situation and the troubling results that have begun to emerge.  The article was titled Home Smog in the paper magazine version, and The Hidden Air Pollution in Our Homes for the online version.

Twilley begins with this lede.

“Outdoor air has been regulated for decades, but emissions from daily domestic activities may be more dangerous than anyone imagined.”

She provides this perspective on our indoor versus our outdoor encounters with pollutants.

“Since the seventies, emissions of many harmful gases, such as carbon monoxide and sulfur dioxide, have fallen by half, and particulate counts by eighty per cent. But this victory may be less significant than we assume, because, in America, we spend, on average, ninety per cent of our lives indoors. (By way of comparison, this means that humans spend more time inside buildings than sperm whales spend fully submerged in the ocean.) The statistic, from an E.P.A.-funded study conducted in 2001, might seem implausible, but it probably understates the case. More recent data, from the U.K., show that, on average, Britons are outside for just five per cent of the day—an hour and twelve minutes.”

“Unlike outdoor air, the air inside our homes is largely unregulated and has been all but ignored by researchers. We know barely the first thing about the atmospheres in which we spend the vast majority of our time.”

It is not quite true that nothing has been researched about indoor air quality.  Back in the 1980s concerns about dangerous chemicals being introduced via construction materials led to regulation of those products.  However, any detailed study of our indoor environments waited on 9/11 and the concern over airborne terrorism attacks.  How could we detect invasion by chemical or biological threats if we didn’t know what the standard constituents of our indoor air were?  This led to the formation of a research collaboration labeled HOMEchem.

“HOMEchem—House Observations of Microbial and Environmental Chemistry—was the world’s first large-scale collaborative investigation into the chemistry of indoor air. Thoroughly dissecting the data accumulated will take a couple of years, at least, and, even when the findings are published, no one will be able to state their public-health implications with certainty; HOMEchem was designed to explore what the chemistry of indoor air is, not what it’s doing to us. But the experiment’s early results are just now emerging, and they seem to show that the combined emissions of humans and their daily activities—cooking, cleaning, metabolizing—are more interesting, and potentially more lethal, than anyone had imagined.”

Most of Twilley’s reporting describes the activities taking place in a highly diagnosed home-like structure located at a site associated with the University of Texas at Austin. The goal is to closely monitor hosehold activities such as cleaning, cooking, and personal grooming to determine the levels of small particulates and volatile organic chemicals (VOCs).  The first lesson learned from collecting researchers and sensors from the external air community was that levels of pollutants to be measured were often much higher than encountered in the open air.  A second lesson involved the complexity of the chemical reactions that could take place when cleaning and personal emissions were cooked along with foods in a high temperature environment.  The complex emissions became even more pronounced when combined with the opportunity for combustion when cooking with gas.

One of the major activities involved monitoring the air quality produced in the process of preparing a typical (meaning big and complex) Thanksgiving dinner.  The result was the discovery of chemical levels even higher than the researchers expected.

“Simply measuring concentrations of a chemical in a test house is not enough to infer potential exposure, however. John Balmes, a pulmonologist at the Human Exposure Laboratory, at the University of California, San Francisco, told me, ‘Going from chemistry to epidemiology is a big leap.’ To gauge the varying levels of each compound that the Thanksgiving cooks and their guests likely inhaled would require precise readings at various heights in various rooms, correlated with activity patterns. Still, when I told Balmes that the carbon-dioxide reading for Thanksgiving had peaked at four thousand parts per million, he was taken aback. ‘Wow,’ he said. ‘Those kinds of levels will lower your cognitive functioning, at least in the short term. Whether it has any long-term effect, we don’t know’.”

“Similarly, when I told Francesca Dominici, a biostatistician at Harvard, that the Thanksgiving levels of fine particulate matter had reached two hundred and eighty-five micrograms per cubic metre, she responded with shock. ‘Even short-term increases of just ten micrograms per cubic metre from one day to the next will increase hospital admission rates and mortality in the over sixty-fives,’ she said.”

That measurement of fine-particulate density briefly meant that pollutant exceeded that of the dirtiest city in the world.

“One of the scientists, Lea Hildebrandt Ruiz, said that conditions inside the house had briefly exceeded those of the world’s most polluted city—'and I can say that,’ she added, ‘because I have a monitoring program in New Delhi.’ According to the World Health Organization, the Indian capital's air quality is the worst of any major city. During the dirtier winter months, levels of fine particulate matter in the air there typically hover at around two hundred and twenty-five micrograms per cubic metre. That’s still significantly lower than the two hundred and eighty micrograms per cubic metre that was reached during the final, frenzied hour of cooking. Everyone had expected Thanksgiving to be bad, but no one had expected it to be that bad—a finding that was alarming but also, from a research point of view, thrilling.”

The Thanksgiving experiment was an exceptional event.  Is it likely that everyday activities will generate dangerous chemical levels?  The scientists are concerned.

“’The scariest thing in this house is probably the toaster,’ Erin Katz, another student volunteer, said. ‘I just had no idea that toasters emitted so many particles’.”

“A group of volunteers would spend the day in the house, cooking breakfast and lunch, checking their e-mail, cleaning up, making dinner, and running the dishwasher, in order to see whether, say, the emissions from frying vegetables in teriyaki sauce would react with the bleach fumes from mopping the kitchen floor afterward. Farmer told me that, based on her preliminary data, it seems as though they did, producing temporary spikes of chloramines, a class of chemicals that are known to inflame airway membranes. Another product of the marriage of bleach-based mopping and gas-burner ignition is nitryl chloride, a compound that is known to atmospheric chemists for its role in coastal smog formation. No one had expected to find it indoors.”

“Hydroxyl radicals drive much of outdoor atmospheric chemistry, and are a mixed blessing from a health point of view: they break down VOCs but also react with nitrogen oxides to produce ozone, making smog formation more likely. Stevens was surprised when his readings registered their presence, because their production requires sunlight, and a house’s walls and windows block much of the sun’s energy. Like many researchers, he’d assumed that indoor air, lacking sunlight and, thus, hydroxyl radicals, wouldn’t yield the kind of rapid photochemical reactions that atmospheric scientists like to study. But his results, supported by a colleague’s measurements of light intensity inside the house, have convinced him that afternoon sunshine filtered through a window, combined with emissions from a gas stove, is sufficient to produce chemical reactions ‘similar to what you might find outside on a smoggy urban day’.”

We humans also contribute to the chemical stew in our homes.  Our breathing sprays not only carbon dioxide into the air, but also chemicals such as “isoprene, acetone, and acetaldehyde.”  We also dose ourselves with a host of chemical compounds in the form of cosmetics and other personal-care products.

“Novoselac and another HOMEchem researcher, Richard Corsi, recently collaborated on a separate study of nearby high schools and found that the highest emission levels were always of the same two chemicals, found in exactly the same ratio at every location. After a little bit of detective work, they identified the culprit: Axe body sprays, which the teen-age boys of Texas apparently apply lavishly in classrooms between periods.”

The ability of a single home to generate copious amounts of complex molecules and particulates suggests a curious paradox.  There are about as many homes in a given area as there are cars.  Could our pollution creating dwellings become competitive with external sources such as automobiles?  We used to worry that filthy outside air could leak into our homes and harm us.  Is it possible that we should now be worrying that filthy inside air might be leaking out of our homes and polluting the outside air?  Some people are beginning to ask that question.

“…one HOMEchem researcher, Allen Goldstein, recently co-authored a paper that suggests a fascinating inversion. The dominant source of VOCs in Los Angeles is now emissions from consumer products, including toiletries and cleaning fluids. In other words, vehicle emissions have been controlled to such an extent that, even in the most car-clogged city in America, indoor air that has leaked outdoors may create more smog than transportation does.”

Stay tuned.

Thursday, April 4, 2019

Income Inequality and Lost Economic Growth

Income inequality is a common topic in the economic and political arenas.  Most discourse focuses on the causes and the possible cures.  Here we will be concerned with the economic consequences of a system in which wages for the majority of workers have stagnated in real terms (accounting for inflation) while the top few percent of earners have seen their share of net income increase significantly. 

One obvious consequence of this evolution in the distribution of income is that those who spend most of their income on consumer products have relatively less to spend, while those who spend the least share of their income on consumer products have lot more income to dispose of.  If one chooses to think of economic growth in terms of gains in Gross Domestic Product (GDP), this growth of inequality should show up as a decrease in the growth of GDP.  This is not a controversial claim.  The question is how large is the effect?  Josh Bivens produced a study for the Economic Policy Institute that provides estimates of the effect.  His article was published in 2017 and is titled Inequality is slowing US economic growth.  He provides this lede.

“Faster wage growth for low- and middle-wage workers is the solution”

Bivens provided these estimates of saving rates by various income groups.

The bottom 80% by income save almost nothing, pouring essentially their entire incomes back into consumption.  The top 1% only returns about 50% of their income into the economy in the form of consumption.  That does not mean that the other 50% is economically useless.  Much of the savings will appear as investments that might or might not have any general economic value, but it will not contribute directly to the creation of demand for products.

If one has these saving rates and the amount of net income going to each income group, one can calculate the lost consumption every time a dollar of income goes to a high-income person rather than to a low-income person.  The indicated transaction will show up as a decrease in the GDP because a fraction of that dollar is removed from the aggregate demand for products in the economy.  This calculation can be made for the entire economy by knowing the income distribution at a point in time and how it has changed over time.  Since these numbers vary over time and the level of economic prosperity can have a significant effect on them, Bivens calculates how changes in income distribution have affected aggregate demand (GDP) over time.  He finds that over the period 1979 to 2007 aggregate demand fell by 4.2%, from 1989 to 2007 it fell by 3.1%, and from 1989 to 2012 it fell by 2.0%.

“By 2007, the implied inequality-induced drag on aggregate demand that began in 1979 amounted to more than 4 percentage points of GDP every year. Even if we measure from 1989, and we take as given the large (but almost surely temporary) decline in top 1 percent income shares from 2007 to 2012, by 2012 inequality was imposing a drag of over 2 percentage points on aggregate demand growth. It is worth restating that this hit to the level of aggregate demand generated by rising inequality is cumulative: this demand drag is occurring each year by 2007 or 2012.”

These results lead to Bivens’ major conclusion.

“The rise in inequality has contributed significantly to the downward pressure on demand growth that is labeled secular stagnation. Inequality has transferred income from low- and middle-income households with relatively low savings rates towards higher-income households with higher savings rates. All else equal, this transfer drags on demand growth as consumption grows more slowly. This transfer will likely slow growth in aggregate demand by an estimated 2 to 4 percentage points of gross domestic product (GDP) every year going forward from today.”

Since GDP growth at the 2% level has come to be viewed as rather robust, the claim that the growth rate could be at least doubled if there existed a more efficient income distribution is remarkable.

One expects there is room for quibbling over the exact size of the effect, but the logic behind concluding excessive income inequality is harmful to the general economy seems incontrovertible.

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