Kellogg faculty 2009 holiday gift guide

One short week remains of the Christmas shopping season (or one day if you still need to find your final Hanukkah treat), and the Kellogg School of Management faculty have gracefully chipped in to help you finish your holiday shopping. So what would make the perfect gift for the accounting geek in your family? Or maybe the management nerd whose name you’ve drawn? Read on for those ideas and more.

Clearing the Air: Limiting emissions no simple task

Climate change news has been recently dominated by the rift between developed and developing nations over the amount of money the former should give the latter to move to a low carbon economy. Yet this issue, while vitally important, is not all that’s at stake. Beyond climate friendly funding lie the questions of how the goals will be reached and what will happen if a country snubs its nose at the rest.

Soros proposes $100 billion for green projects

George Soros, billionaire investor and philanthropist, proposed Thursday that the International Monetary Fund should serve as financier for green projects in developing nations to help battle climate change. Developing countries have criticized any climate agreement that would impose emissions cuts without assistance from developed nations. Soros’ proposal would tap the special drawing rights IMF members receive when they deposit money. Current SDRs are worth a total of $283 billion, over half of which are held by the world’s 15 largest economies.

Geographically Correct: On population, GDP, and greenhouse gas emissions

With all the hubbub surrounding the climate talks in Copenhagen this week, it’s easy to forget many of the basic facts surrounding the debate.  Developing nations are heavily involved in this round, something that sets this Conference of the Parties apart from previous ones, and their participation has raised a significant question. To what extent should developed countries assist developing nations in reducing emissions without harming economic growth? While a few maps may not help the diplomats in Copenhagen forge a consensus, they can help the rest of us understand what lies at the heart of the debate.

Yarrrr! Thar she invests!

Markets have a knack for popping up in some very unusual places. The most recent may be fishing villages on the lawless desert coasts of Somalia that many pirate gangs call home. Piracy can be an expensive undertaking, so the gangs of Haradheere have set up an exchange of sorts to fund their expeditions with outside capital and materiel.

Piracy has become a lucrative industry in the war-torn land. Famine and conflict have stifled the economy—GDP per capita was a meager $291 in 2007. Without the protection of a functioning navy or coast guard, Somali waters are routinely looted by foreign fishing vessels, depriving coastal villages of their former livelihoods. Shady companies also use the coastline as a dumping ground for toxic waste. With pirate ransoms running in the millions of dollars, hijacking ships has become a beacon of hope for many impoverished Somalis.

The market at Haradheere helps the gangs spread the risk and expense of piracy. “Four months ago, during the monsoon rains, we decided to set up this stock exchange,” former pirate Mohammed told Reuters. “We started with 15 ‘maritime companies’ and now we are hosting 72. Ten of them have so far been successful at hijacking.”

Michael Fishman, professor of finance, said Haradheere’s exchange probably functions “more as a primary market” with each pirate company raising capital and equipment (like rocket propelled grenades) from direct investors. Criminal ventures in developed nations operate in much the same way, he said, but without the openness that characterizes the Somali version.

“This sounds like its pretty above ground. The authorities know about it. They tax it,” Fishman said. But, he added, it doesn’t sound like a true stock exchange yet. “I’d be surprised if there’s something like active trading volume.”

Clearing the Air: Weighing 2005 against 1990

Setting limits on greenhouse gases is fraught with difficulty—each country has their own horse in the race, their own interests at stake. Agreeing to an emissions cap would seem to be the first obstacle delaying international climate policy. If the issue were settled, countries could move on to debate mechanisms, penalties, and assistance programs. But even before emissions caps can be set, another technicality stands in the way—the year on which emissions targets should be based.

The internationally accepted baseline year is 1990. The year has been nearly ubiquitous in climate change negotiations and the scientific literature. But fast forward fifteen years and another baseline year has emerged—2005. Didn’t we already agree to a target year?

It turns out that 1990 emissions levels have become increasingly difficult to reach in those fifteen years. In that time, global greenhouse gas emissions increased 28 percent (pdf), and U.S. emissions increased 16 percent. Larger sounding but more politically convenient targets are easier to obtain using 2005 levels. So President Obama’s proposed 17 percent reduction below 2005 levels by 2020 only amounts to a cut of 3.7 percent below 1990 levels. By contrast, the European Union has put a 20 percent cut below 1990 levels by 2020 on the table, which it would raise another 10 percent if an international agreement could be reached. To match that, U.S. would have to drop emissions 31 percent below 1990 levels and add another 9 percent in the face of international consensus.

That the U.S. is proposing cuts in emissions at all is a step toward reaching an international agreement. But the continued use of 2005 as a baseline only muddies the waters, making proposed emissions targets difficult to compare.

Clearing the Air: Discussing climate change

Climate change treaty has become the pariah of international politics. An international agreement to limit greenhouse gas emissions has been elusive at best, supported by some, ignored by others, and outright scorned by a few. The United Nations Climate Change Conference opening in Copenhagen next week is the fifteenth time the parties of the U.N. Framework Convention on Climate Change have met. The UNFCC grew out of the 1992 Earth Summit in Rio de Janeiro as a nonbinding agreement to limit carbon emissions. Frustratingly little has been accomplished in those fifteen meetings outside of the Kyoto Protocol, which in and of itself has been less than effective.

Few expect anything substantial to emerge from the Copenhagen meeting—world leaders scrapped any chance of reaching a binding agreement at the Asia-Pacific Economic Cooperation meeting in Singapore last month.Rather, Copenhagen will become a stage where old ideas will be rehashed and new ideas will be assessed. Emissions caps are sure to be a hot topic, but also at the forefront will be programs to assist developing nations leapfrog carbon-heavy economic transformations.

As the Copenhagen meeting comes and passes, Expertly Wrapped will be exploring emissions trading, carbon taxes, emissions caps, and other environmental, economic, and policy-oriented issues that surround climate change and international efforts to deal with it. We will report on relevant Kellogg faculty research and views, dig deeper into news items as they arise, and contribute our own expertise on the topic. Look for our coverage in “Clearing the Air,” a series of special reports.

P.S. Banking the Bond way

The decline of Swiss banking secrecy seems to be in an endless tailspin. Earlier this year, the U.S. Internal Revenue Service announced they would pursue the disclosure of secret Swiss bank accounts they suspected belonged to less-than-honest United States citizens. Switzerland begrudgingly complied, and now the Swiss government has released more details on the agreement. While Switzerland’s earlier statements appeared to uphold bank secrecy, last week’s admission that all UBS accounts held by U.S. citizens containing over 1 million Swiss francs (around $1 million) will be disclosed seems to have more seriously undermined the practice. Furthermore, suspicious accounts—once the only ones thought to be in jeopardy of disclosure—will be outed if they contain more than 250,000 francs.

When the U.S. internal revenue service first announced that they would investigate secret bank accounts for tax evasion, authorities estimated around 7,500 U.S. citizens would give themselves up. But in the final days of the disclosure period, that number nearly doubled with 14,700 offshore account holders turning themselves in via handy form letters and the like. The IRS says the voluntary disclosures will raise “billions of dollars” in revenue, according to a Wall Street Journal article.

Geographically Correct: A Geographic Challenge

Think you know your geography? I like to think I do, but there’s a quiz over at The Morning News that’s making me think twice. Whether today is the beginning of your Thanksgiving holiday or just the middle of a late November week, take a break and head on over to test your map mastery.

MAEVF: Senior DOE advisor on the green energy transition

Making the transition to a green energy economy is not an easy task. Venture capitalists like those at the Midwest Alternative Energy Venture Forum have been dipping their toes ever deeper into the water over the past few years, but the $7.7 billion American venture capitalists invested in green energy companies in 2008 is merely a small step. Fortunately the stimulus package has given the green energy economy a huge shot in the arm. Matt Rogers, senior advisor to the Secretary of Energy and the man in charge of disbursing the Department of Energy’s stimulus money, detailed how his “green stimulus checkbook” could help drive the expansion of the alternative energy sector in his keynote at the MAEVF.

Rogers is responsible for moving the $36.7 billion of stimulus funds out the Department of Energy’s door as quickly as possible. “This is the DOE’s chance to create jobs,” Rogers said in his speech, “something many people didn’t think the DOE could do.”

The billions at his disposal are helping to change that perception. Rogers said his team of 250 full-time reviewers have awarded $18.3 billion in grants so far, on pace to meet their target of disbursing all $36.7 billion by President Obama’s September 30, 2010 deadline. The bulk of the department’s money is being invested in infrastructure and new technologies.

Energy efficiency projects like winter weatherization and appliance rebates are receiving the lion’s share of the funding—$10.6 billion in total. Such programs are key to cutting energy use, but do not really advance the state of the art. For that, Rogers said, the department has set aside money for such programs like the Advanced Research Projects Agency-Energy competition (known as ARPA-E) and the Energy Frontier Research Centers, including two at Northwestern. ARPA-E could be the most telegenic of the department’s line items. Modeled on the defense department’s DARPA program that has produced such crowd-pleasers as robot car races and the Internet, ARPA-E hopes to unearth one or more risky but promising proposals that could change the way we generate electricity.

Rogers appeared clearly aware of the challenges the government and private sector face in the green energy transition, including growing competition from competitors abroad. Asked what he thought of China’s efforts in the area, Rogers said, “They get it about climate change, and they’re taking action faster than we think.”

“They think about this as a global competition, and they intend to win,” Rogers said. But the race won’t be won with only a few years of stimulus funds. “We need long term market incentives to drive innovation over the next two decades, not the next two years.”