Consumer green energy default choice is sticky

“Non-monetary incentives that encourage pro-environmental behaviour can contribute to combating climate change. Here, we investigated the effect of green energy defaults in the household and business sectors. In two large-scale field studies in Switzerland of over 200,000 households and 8,000 enterprises, we found that presenting renewable energy to existing customers as the standard option led to around 80% of the household and business sector customers staying with the green default, and the effects were largely stable over a time span of at least four years. Electricity consumption had only a weak effect on default acceptance. Our data do not indicate moral licensing: accepting the green default did not lead to a disproportionate increase in electricity consumption. Compared with men, women in both the household and business sectors were slightly more likely to accept the green default. Overall, non-monetary incentives can be highly effective in both the household and business sectors.” in nature human behvaiour.

What should UK innovation, ARIA, look at

Weird manifesto for UK ARPA or ARIA

My ideas:

-Progress Studies (including social progress and creativity)

-Basic Climate research

-How creativity happens

-Productivity schedules (sleep, diet, schedules)

-Educational Mastery

-Building Speed (how to do big projects fast[er])

-Healthcare speed, innovation, public health challenge trials,


The UK is creating a £800m sciency agency based on the US ARPA* an innovation agency. The UK agency will be called ARIA, Advanced Research and Invention Agency. This idea had considerable backing from former special adviser Dominic Cummings (see his lengthy blogs on this, links end*). While it has received criticism and isn’t a novel idea in innovation circles, we have it. So let’s make the most of it.


What is ARPA?

In brief at ARPA, around 100 program managers (PMs) with ~5 year appointments create and run programs to pursue high-level visions, for instance - what would make electric planes or hydrogen heating systems.


There is much written on what makes US DARPA work with a decent focus on having brilliant PMs. Also the similarities and differences on how IARPA (intelligence focused) and ARPA-E (energy focused) have also worked. So, I won’t dwell on that. 


UK’s ARIA is likely to be given the freedom to choose what it works on. Let’s put aside the debates on ARIA and the long history of innovation policy experts here and posit what we think ARIA should work on.

I’d like to float some weird and not so weird ideas I think a UK ARIA should focus on. I have a touch of weirdness about me so that fully qualifies me (tongue in cheek).

These ideas support areas which would have large public goods benefits (and some private sector benefits) but for various incentive/time horizon problems are not well suited to private actors.

I have 3 large buckets but with some off sub-buckets.

  •  Basic Climate research

  •  Progress Studies (after Cowen & Collinson)

  •  Healthcare (life extension and quality of life extension)


Basic Climate research: Trees and Seas 

While this falls under “net zero” area, my idea under basic climate research is more foundational than eg tackling hydrogen based systems for making carbon neutral steel.


There are several areas here, where - it seems to me - we simply do not understand the state of the world and its system but we might now have the technology and research to do this.

For instance, what is the true state of our forests, jungles and trees over the globe? Data and the interpretation of that data is unclear. Where are trees disappearing, where are we planting and how is it going?


Bill Gates is dismissive of trees as a climate solution*. The UN FAO has data, visualised by World in Data*, but other attempts to assess trees are contradictory.

This is due to problems of classifying types of trees (shrubs, types of trees etc.) and the aerial data needed. And there are problems with losing old trees (especially primary rain forest) and replacement of new trees.


I am far away from the literature and no expert but I sense a programme here and maybe one specific to UK and UK peat lands, tree afforestation etc. would be very useful in basic research.  Essentially, the same argument for seas and oceans and their contribution to carbon sinks.

Basic climate research is not super weird. But I think there are big basic knowledge gaps here which could be very valuable and items like trees are not best suited to private actors.

Progress Studies

  • How innovation happens, how to make it better. Same for social and ethical progress. Also,

  • Creativity, flow, educational mastery


This is weirder although Tyler Cowen, Patrick Collinson et al is making it a lot less weird.


This would need to go beyond “Cities and innovation clusters show agglomeration affects” (known and somewhat trite, IMO, in that difficult for policy to seeming build upon) but can we drive real insights here? Small teams? Big teams? Collaboration from cross-disciplines which are neither too far, nor too close. The impacts from regulation (are the de-regulation cries correct in all respects? ). 

There will be a tendency to look at this in the hard sciences and the inventions, innovations etc. there (and there is a literature here). And I think understanding that will be useful especially eg in medical science, software and the like, but my weird question is what about social progress?

There is consensus today that slavery is bad. I think that counts as social progress. But how does that happen? What role does “culture” play?

I think society is increasingly valuing eg autistic thinking and (while there is much further to go), we have given some more rights and some more status to the spectrum of autistic thinking and other areas like this.

I think some rigorous work here would be insightful and useful. If the productivity or progress can be raised in these areas there could be strong benefits.

Running along side this, I’d be interested in rigorous work on Team and Individual productivity progress.

There could be an enormous win if robust findings could be confirmed here.

For example, Paul Graham (extremely successful in the start-up founder and investment space) has argued that maker time and manager time are very different schedules.

Essentially, maker time requires good lengths of the day devoted to the creative projects  (in my view, related to what we know about flow) whereas manager time needs shorter chunks of meeting time.

Where manager time interferes with maker time, you get a huge negative impact to maker productivity.


If this is correct and if we can guide for it, this could improve productivity and be of general benefit. Would this be progress? I think so, and of general public good. Why are there so many time management books? Tyler Cowen amongst others often asks about people’s “personal productivity function” ?  Can we actually discover anything robust here?

Let’s go one step further, we seem to have some tentative ideas about sleep and productive circadian rhythms of the day for certain people (eg night owls).

We have tentative ideas about intermittent fasting or diet and potential health benefits.

Is there any work on trying to combine these factors or ideas? 


If you current have poor productivity, but what you should do is change to a nightowl, maker schedule on an intermittent fasting schedule - could your productivity significantly increase?


And then how about combining this within teams? There is work on psychological safety*, and some thoughts as to  innovation seems to happen when teams understand each other’s work but are not too close or not too far away - but can we combine any of these possible insights?


From this can we create even more builder teams, like the Tesla’s, Stripes., etc of the world.


Perhaps it is too abstract and too difficult to do rigorously, but I think this would be a weirdly good area for UK ARPA to examine.

As extension, I’d look in to how we foster creativity. Specifically, I’d be interested in extending the work around “flow” and any rigorous study on the structure of “story” or “narratives”. And also an examination of forms of “educational mastery” 


Flow

Why flow? There is some suggestion that flow can significantly increase creative productivity (although there might be downsides in using flow to enter practice states that don’t lead to new development). Rigourous work around here that might be more widely applied could have strong benefits. Same for overall creativity.

Mihaly Csikszentmihalyi (Creativity: Flow and the Psychology of Discovery and Invention, 2013) has done work here but can it be extended and made wider known? If it can raise the creativeness of our top 20% (or anyone) could there be huge gains?

Drama and story

The basis of most (western) dramatic structure was written by Aristotle in his poetics around 330 BCE - so over 2300 years ago. While we have had some incremental changes and Shakespeare arguably stepped up this form there are a couple of way of thinking about this. One is that drama and story has been stagnating for a long time but another is that there is something fundamental about story structure that has persisted over centuries (maybe something Lindy? As Taleb might say)


Given the way that story/narrative/myth seems to really impact human behaviour (intersubjective myth for instance) and in world where humans might benefit being resistant to mis-information - I think there could be good gains from a rigourous study here.


Thinkers like Ray Dalio put strong weight on the hero quest story arcs in life and my weird suggestion is that a study around what we know about “story” as a social science exercise  would be insightful. 

This is probably too leftfield for them, but my next idea could be more mainstream and that is an examination of “educational mastery” especially in the context of online or Khan academy type innovations.

Educational Mastery

Patrick Collinson writes: “Educational psychologist Benjamin Bloom found that one-on-one tutoring using mastery learning led to a two sigma(!) improvement in student performance. The results were replicated. He asks in his paper that identified the "2 Sigma Problem": how do we achieve these results in conditions more practical (i.e., more scalable) than one-to-one tutoring?

In a related vein, this large-scale meta-analysis shows large (>0.5 Cohen's d) effects from direct instruction using mastery learning.

Is this a true effect and can we do more about it? Can it scale using online methods? 1-1 video ? Or if not, is there value to eg. randomly (or not) selecting some students and giving them mastery type learning. If just these small groups have two sigma improvements - could we see some significant gains?

I think ARPA could well study something in this area.  Nintil* did a thorough research round up suggesting the Bloom effect was not as large. But, 1-1 teaching did have a very robust effect. 

We could find a number of people willing to give 1-1 teaching as extra and maybe a number of students (across high performing or medium/low performing groups). If 1-1 can dramatically improve performance would this be worth studying or working on?

Building faster

Lastly, in this area it would be useful to examine why we seemed to be able to build infrastructure and certain other items faster 50 years ago. First, how true is this? UK managed to build Olympic sites in a moderately fast time frame but not eg. the tube extensions. This might not exactly be an ARPA area, but I think it could under pin a lot of innovation. (cf again Cowen, Collinson).

I think there’s an enormous amount that we do better, but can we learn from where we had speed before. Are there robust findings here? Or it just a nice to think venture capital thing.

My last huge area is on healthcare. 

Healthcare progress

I would also suggest there is work done on studying healthcare progress. Now there is a huge literature here, but I see less in a cross-disciplinary nature. This is intersectional with some other ideas here, but it would be what discoveries have most improved human health and how can we have more of them? What are the barriers or not.

Hand washing, weight control, diet, exercise and other low cost interventions are known but how best to synthesise this and can it be combined with newer technolofy and how intersectional with the social determinats of health?

This area will be a focus areas coming off the pandemic, but there is - to my reading - limited work on synthesing how best human health can be improved and the barriers to it.


And this is because of the incentives of where the private sector will focus its innovation and capture public good improvements or not. 


There are potentially very strong and perhaps moderately easy wins here. Two areas would be cost/benefits of areas of drug regulation. The UK has a particular opportunity here.


For instance, it could use EMEA and US  regulatory equivalence but go further and decide to approve certain medications quicker than those regulators. ( I think patient choice could be interesting here, post phase II and/or safety studies)

The UK could extend ideas it has started on “challenge trials” to see if this could significantly speed up areas of therapy development. There are areas probably more areas suitable for challenge trials and areas less suitable and not only COVID. ARIA could run a programme assessing and potentially funding some of this.  

Where would the cost/benefits of challenge trials help the UK/World in certain disease areas?


ARIA could go beyond narrow areas of regulation and even challenge trials but try an synthesis areas of public health.


Can robust work be done on how eg digital health data combined with preventative interventions could make huge, inexpensive, health interventions.   I think this could be a huge area. Many pilot trials have started (eg see a lot of the work Optum do) but some rigorous programmes here could be of enormous value.


In sum, we have ARIA. Let it explore some weird ideas. A few more transformational weird ideas would be a good thing and won’t displace all the other R&D things we are doing.


Links:

Dominic Cummings blog

On trees, World in Data but here on the conflicts in the data and conflicting data here.

Paul Graham, maker time

On Flow: Mihaly Csikszentmihalyi. Creativity: Flow and the Psychology of Discovery and Invention, 2013

Nintil on educational mastery

Patrick Collinson, fast things. And Cowen and Collinson on Progress Studies. 

Policy Exchange: https://policyexchange.org.uk/wp-content/uploads/Visions-of-Arpa.pdf

ON ARPA https://benjaminreinhardt.com/wddw


NetZero framework, HSBC engagement

Progress in sustainable investing was quite notable this week. Pretend sustainability - greenwashing - comes about because bad faith actors realise there is a genuine force, demand / trend and want to benefit from it. 



So in some ways it’s a good thing if you support sustainability ideas because it means there’s real substance somewhere.  Let me note two items of substantive progress this week.



First, the IIGCC lead collaboration that has led to a net zero Paris Aligned investment framework. Many asset owners and investors support the framework and it’s a very significant step in harmonising efforts on what netzero for companies might mean. Still much work to do, but worth noting this step. You can view the framework here (my linkedin).



Second, a collaborative investor engagement has led to HSBC aligning its financing commitments to a low carbon world. You can view their letter here (my linkedin).

Why 1857 French patent law made Basel wealthy and birthed Swiss Pharmaceuticals

  • Why is Basel (Switzerland) one of the richest places in the world

  • Why the WWF would not exist without pharmaceuticals

  • The fallout from a national patent monopoly


Answer: the French patent monopoly of the fuschine dye lead to manufacturing moving to Basel and leading to modern pharmaceuticals which are a pivotal part of the economic history of Switzerland. Fritz Hoffman (1868 - 1920)  was a founder of Hoffman-La Roche which today is Roche, a leading pharmaceutical company. Luc Hoffman (1923 - 2016) was Fritz’s grandson and co-founded the WWF.

In some corners of the internet (Twitter) Matt Yglesias caused a minor fuss by suggesting that copyright should be shorter on the grounds that in the US Life+70 years is a poor trade off for society benefits vs incentives for individual artists.*


This might seem very esoteric to many of us and maybe who cares that Mickey Mouse cartoons are still under copyright but the roots of the debate are actually, in my view, very important to how scientific progress might happen (or not) and have had major historical outcomes including why Basel (and Switzerland) are so rich today, why the World Wildlife Fund (WWF) exists and at what pace might we invent new pharmaceuticals or other medical inventions. Let me lead you through why this might be.


Switzerland is rich and I think there are strong arguments that it is one of the best if not the very best country in the world as it has so very high scores across wealth, health, happiness, peace and freedom. (Perhaps its only blemish would be after-tax gini coefficient is fairly average amongst the OECD)


-2nd (vs Norway) on the Human Development Index (HDI) 

-5th on GDP / Capita (IMF, World Bank)

-10th on Peace Index

-4th on Life expectancy

-3rd on Happiness Index

-2nd on Human Freedom Index


Observers may point to its culture, its federated system of government, and how it fared in the World Wars. All of these are factors contribute, but one overlooked part of its economic history might be the strength of its pharmaceutical/chemical industry and that in turn rests upon innovation, patents and litigation.


In 1856, William Perkin discovered the dye “mauve” and he filed for a patent. He was actually trying to isolate quinine and thus working in the great tradition of accidentally discovering something else (cf. more recently Viagra). Perkin’s discovery paved the way for the new dye industries. One of the most important new dyes was aniline red or fuschine (important for French high clothing fashion at the time).  The French firm, Renard Frere patented the fuschine invention in Britain and France in 1859 and so had a monopoly.

The ability to patent (although even in the 1850s firms were worried about the strength of patents and relied on trade secrets) was an important incentive to develop dyes but it was also a potential barrier to using the invention to develop more dyes or, of course, if you wanted to compete in manufacturing the same product.


In fact, innovation was spurred to look at other process and second (and then third and fourth) generation dyes were based on other chemicals (azo then alizarin - in fact alizarin substitutes for a “natural” product which raised the question still debated today as to what extent a patent can be granted onto an “invention” based on nature eg. DNA).


This is important as the modern pharmaceutical industry occurs at this time as an offshoot of the dye industry which it eventually overtakes.


The patents surrounding this started off the litigation and patent wars between countries and companies which still echo today (and have cousin debates eg copyright) because so much profit was at stake for companies and for countries both innovation and tax and industry.


This also coincides with the emergence of the “corporate lab” and the notion of incremental innovation being patentable if there is something “new in the art”. 


In house teams of scientists collaborated to overcome technical challenges and large number of large pharmaceutical companies today (arguably a majority of the top 20) can trace roots to a company formed in this period or shortly after (Bayer, Pfizer,Eli Lilly, Roche, Novartis, AstraZeneca, Glaxo SmithKline, Sanofi).


So why the rise of German companies in the 1860s and 1870s? Government supported education, training and industrial policy… yes… lots of competent chemists…. Yes and then there was essentially no enforcement of British and French patents (for fuschine dye) which German companies could copy and mass produce.


During this period, French chemists who could not manufacture dye due to French patents moved over to Basel where there was no such patent enforcement. Thus the Swiss dye industry was given a major boost yet in fact Basel could not compete with the scale coming from Germany in the base chemical supply of fushcine and alazarin, so the Basel companies pivoted (not a new silicon valley idea) to high end dyes and, importantly, pharmaceuticals.


Basel during this time is thus also an example of an industrial cluster. The competition but the innovation spillover between Ciba, Geigy, Sandoz, Hoffman La Roche and the ability to copy French and British inventions gave a huge boost to this industry.


In France, by 1875 La Fuschine (which had patented fuschine) was bankrupt and passed out of existence.


But, Germany did introduce strong patent protections and at about the right time from the German corporate point of view. These protections came in 1877 enough time for German companies to innovate from the first inventions of 1856/1857.


This is one important complex trade off to consider. The ability for Germany to outcompete France and British dye stuff industry here is due to this delay in patent protection. Arguably this allowed much faster innovation. 


This would be the heart of case for lowering patent (or by analogy copyright) protection. This enabled a great amount of innovation (and positive wealth for Germany / society).  Japan copied this tactic for semiconductors in the 1950s/1960s.


But, if there was no protection indefinitely - there would be no further incentive to create more innovation or derive new inventions built on current innovations.


So there are claims - although perhaps one should not overstate them as of course many other factors as well - that the Swiss chemicals and pharma industry is the unexpected child of French patent law and in particular this gave Basel a significant boost.


This boost we can still see in the economy of Basel today (top 10 city by GDP/ capita)as it is one of the richest regions in the world, in one of the richest countries in the world.


Interestingly, Britain fell behind in the dye industry in this period partly due to having a patent system that could not cope with the consequences of chemical invention and then the German lead enabling German companies to file patents before British companies. This lead to the proposals of compulsory licensing / revocations (still apparent in national laws today, and for instance used in threat by the US against Bayer on Cipro in 2001).


Back to Switzerland and fastforward, so Hoffman La-Roche along with Ciba, Geigy, Sandoz (now all Novartis) became 4 (now 2) of the most successful companies in world in the 1900s. Luc Hoffman (former chair of Roche, and large shareholder) essentially used his profits derived from his wealth to co-found the WWF.


And so, my argument is that French patent law in 1857 was a pivotal casual factor in being able to have the WWF founded!


Codas:


I will have a nod here to an aspect that Milton Friedman would approve. Hoffman used his profits from Roche to found WWF. He didn’t use Roche itself as a vehicle to protect wildlife.

Arguably, Roche maximises its long term value by inventing new medicines the side effects of this are profits.


Circling back on copyright and patents. My non-expert view is that US copyright on balance is too long because there is too much benefit to individual deceased estates at life + 70 years and the cost to society from orphaned works, lack of derivatives etc. is high. Life + 20 would seem more reasonable. Or even 50 years total from publication, with 20 year extension possible


Patents for fast cycle inventions seem about right at 20 years, this covers a lot of software and a lot of devices. (Although I do think software family patents are anti-innovation)


Patents for long cycle inventions - and drugs take 8 to 12 years on average to invent - might not provide enough protection. For instance, there’s argument that the prices are not high enough for new antibiotics. The industry engages in lots of (fairly unproductive from a society view) patent extension legal tricks to extend the effective patent life beyond 10 years (10 years development time). Much better would be to stop legal tricks (including paying off generic makers) and to agree 20 years from launch (maybe keeping the paediatric extension work at 6 months), but that also stop very minor technical improvements (eg use of enantiomers or extension release innovations) from granting patent extensions in the years. In reality, this would not happen for political reasons and for the difficulty in judging what is incremental or not innovation but it would be better system. There’s quite a lot of complexity around pharmaceutical innovation which would qualify it from being a totally different class of invention in my view both because of its life extension qualities, the difficulties in legal form keeping up with advancing science (patent on modified DNA…), the effects of drug class protections on innovation, and the big differences between transformational invention (new class of drug) and incremental innovation (identifying a new crystal form of an established drug).


Links:


Freedom Index: https://www.cato.org/human-freedom-index/2020


Happiness INdex: https://en.wikipedia.org/wiki/World_Happiness_Report


Matt Yglesias: https://www.slowboring.com/p/dr-seuss-ip


Peace Index: https://www.visionofhumanity.org/wp-content/uploads/2020/10/GPI_2020_web.pdf


Life expectancy: https://www.worldometers.info/demographics/life-expectancy/


Swiss Chemical industry: https://link.springer.com/chapter/10.1007/978-94-017-3253-6_2


History of Dyes: https://www.britannica.com/technology/dye/Reactive-dyes


Luc Hoffman: https://en.wikipedia.org/wiki/Luc_Hoffmann


Basel GDP: https://en.wikipedia.org/wiki/List_of_Swiss_cantons_by_GRP


Bill Gates, Wired, on invest vs divest

Institutions deploying capital – banks and pension funds – are going to be crucial in this process. There's a lot of rhetoric at the moment with businesses claiming to be purpose-driven. How can we best measure the actions large investment funds are making, and keep big organisations honest about their actions?

Most of that’s all bullshit. The return on a bond for a wind farm is no different than the return on a bond from a natural gas plant, so it's nonsense. The people who put money into Breakthrough Energy Ventures [the venture arm of Gates’ organisation Breakthrough Energy that’s working towards net zero], that's real. The governments that raise their energy R&D budget and manage to spend it well, the near-billion dollars put into TerraPower [Gates’ nuclear company] to see if this fourth-generation fission reactor can be part of the solution... Those things are real.

All this other stuff like, we're gonna make companies report their emissions. The idea that some financial metric reporting thing or some degree of divestment – how many tonnes? You’ve got 51 billion tonnes [of CO2 that needs to be removed]: when you divested, how many of those 51 billion tonnes went away?

You’ve got to invest not divest. And the notion that you just happen to own equities or bonds related to the easy things that are already economic, such as solar farms or wind farms... Whenever somebody says there's something called green finance, I say let's be numeric here: is the risk premium for clean investing lower than the risk premium for non-green investing? The answer is: just look at the numbers.

The idea that banks are going to solve this problem or that these metrics are going to solve this problem, I don't get that. Are they going to make the electricity network reliable? Are they gonna come up with sustainable aviation fuel? It's just disconnected from the problem and allows people to go off and blather as though something's happening.

(from Wired)

but also - (from Bloomberg Green)

“In 2019, I divested all my direct holdings in oil and gas companies, as did the trust that manages the Gates Foundation’s endowment,” Gates writes in the book, noting that he hadn’t held coal company shares for “several years.” Public filings of the Gates Foundation’s holdings show that, as of the end of 2019, more than $100 million remained invested in stocks and bonds of oil and gas companies, including Exxon Mobil Corp., Chevron Corp. and BP Plc. The foundation does not specifically disclose its total fossil-fuel investments.

“Bill decided to sell all of his direct holdings in oil and gas companies in 2019,” a Gates family spokesperson said in response to questions about the divestment process. “We do work with third-party investment managers for a very small portion of the stock and bond holdings. They act independently and Bill does not direct those investments.” 

… In his book, he evokes the economic criticism of divestment to explain why he didn’t do so sooner. The theory is that dumping a company’s stock, for whatever reason, isn’t likely to have any real impact on the share’s price because someone else is likely to snap up the cheap shares and take home the gains anyway.

“I didn’t see how divesting alone would stop climate change or help people in poor countries,” Gates writes. “It is one thing to divest from companies to fight apartheid, a political institution that would (and did) respond to economic pressure. It’s another thing to transform the world’s energy system—an industry worth roughly $5 trillion a year and the basis for the modern economy—just by selling the stocks of fossil-fuel companies.”

Activists argue that divestment is needed to send a strong signal. “It’s mainly to take away the social license of fossil-fuel companies,” said Henn. “It is to show that the business models of these companies is in direct contradiction to our efforts to meet the goals of the Paris Agreement.” The accord strives to keep the increase in global temperatures below 1.5 degrees Celsius from pre-industrial levels.

On a large enough scale, divestment can have a real financial impact. Royal Dutch Shell Plc acknowledged in its 2017 annual report that it “could have a material adverse effect on the price of our securities and our ability to access equity capital markets.” Coal companies are already struggling to raise financing for projects around the world.

Gates says that he ultimately made the decision for moral reasons. “I don’t want to profit if their stocks prices go up because we don’t develop zero-carbon alternatives,” he writes. “I’d feel bad if I benefited from a delay in getting to zero [emissions].”