Environmental Economics

Daily Demand and Supply: Mary Jane's Last Dance?

With reference to Colorado proposing a 30% tax on recreational marijuana sales (15% excise tax and 15% sales tax),

Jeffrey Miron, an economics professor at Harvard University and a senior fellow at the Cato Institute, a libertarian group ... said that as long as federal marijuana laws continued to be unsettled, collecting taxes would be challenging. Moreover, he said, there is no way to predict how many customers would continue to buy on the black market.

After Prohibition ended in 1933, states levied taxes on alcohol, in part because they were desperate for revenue after the Great Depression. But that shift, Dr. Miron noted, was undertaken with the full support of the federal government.

“It’s easy to get a little overexcited that legalizing marijuana is going to solve the world’s budgetary problems,” Dr. Miron said. “But the question for the tax revenue part of this will be how much the federal government allows these markets to come completely above ground.”

via www.nytimes.com

The revenue collected from a tax will hinge on the relative price-elasticities of demand and supply.  The less price elastic the demand for a good, the more revenue can be collected with a tax--because people still buy the good even at higher prices.  With federal support for marijuana sales it is likely that demand for legal marjuana would be much less price elastic, and a state tax would raise much more revenue for the state than without federal support--making the tax more effective at raising revenue. 

But then again, I guess it depends on whether the goal of the tax is to raise revenue.

And I wonder if the demand for Doritos has increased in Colorado?

If so, maybe they should tax Doritos instead.

 

Old and dirtier or new and cleanlier

U.S. environmental regulators likely will delay finalizing rules to limit carbon emissions from new power plants, a measure that has been one of President Barack Obama’s top strategies to fight climate change, the Washington Post reported yesterday.

The rules were proposed by the Environmental Protection Agency nearly a year ago. They are expected to be revised to set a separate standard for coal-fired plants, as opposed to natural-gas-fired plants, the newspaper said.

The administration had been expected to tackle emissions from existing power plants, which are responsible for up to 40 percent of U.S. emissions, after finalizing the rules on new plants.

An administration official said the report was not accurate because the EPA still was working on the rule. The official did say that sifting through the massive volume of comments was time-consuming.

The EPA’s regulatory tracker said the so-called greenhouse-gas “New Source Performance Standard” for new power plants was to be finalized by the end of this month.

But Gina McCarthy, nominated to head the EPA and who was in charge of EPA rules as assistant administrator for its office for air and radiation, hinted last month that finishing the proposal might take extra time because it had received nearly 2 million comments.

McCarthy will face a Senate confirmation hearing in April, Capitol Hill sources said, and is expected to get pushback from lawmakers from states that are heavily reliant on coal.

The EPA proposal says new plants can emit no more than 1,000 pounds of carbon dioxide per megawatt-hour, a standard that effectively blocks construction of new coal-fired plants.

via www.dispatch.com

As many know, I'm not a fan of arbitrary standards that create inflexibility for meeting goals.  

Why not set a price (or set a quantity) and let the market sort it out?

A prediction that did not come true

More quotes from the old days:

To Steven Kelman, who teaches public policy at Harvard University's Kennedy School of Government, the problem with costbenefit analysis is that it is blind to such issues as human rights. Parallels in Movie

''It's like the doctors in the movie 'Coma,' '' he said, ''who killed healthy people to use their organs to save other people and defended themselves by saying, 'We saved two people for every one we killed.' ''

Here, he added, was a case of arguing that anything should be permitted if the benefits outweigh the costs.''The very process of placing a monetary value on such things as human life and pristine wilderness devalues those things,'' Mr. Kelman contended.

If the Government starts placing a monetary value on life, he said, ''it will discount the great value we place on saving life, and we will be doing less and less of it.''

via www.nytimes.com

It seems to me that valuing lives has led to stricter life-saving regulations. 

The least that I can do is CAIR*

Benefit-cost analysis be darned:

The fallout has begun just one day after a federal appeals court scrapped a major EPA rule designed to curb long-distance drifting power plant pollution — and Louisville’s air quality may pay the price.

A Western Kentucky utility told the Kentucky Public Service Commission Wednesday that it intends to abandon pollution controls that would have allowed it comply with the U.S. Environmental Protection Agency’s Cross-State Air Pollution Rule, also known as the transport rule. 

Henderson-based Big Rivers Electric Cooperative, which owns and operates four generating stations and a 1,266-mile transmission system, could save its customers about $225 million by dropping pollution controls required for the transport rule, said Marty Littrel, cooperative spokesman.

via www.courier-journal.com

Stavins and Schmalensee conclude:

Existing studies providing estimates of the Transport Rule’s benefits and costs consistently find that benefits outweigh costs, on a national basis, often by a wide margin.

*With apologies to Kid Rock.

Similarly, I've entered into a private deal with a fair trade coffee farmer*

Export-led growth: 

Kentucky coal producers have reached an agreement to export 9 million tons of coal annually to India for the next 25 years in a $7 billion deal that is a boost to the region’s sagging mining industry.

The deal, which would equate to about 8 percent of Kentucky’s annual coal production, could help India avert power outages like the one last week that left more than 600 million people without electricity, India officials said.

via www.courier-journal.com

The environmental tradeoff is increased problems from mining in Kentucky, worsening air quality in India and climate impacts. 

*I woke up one morning last month without a single bean. I was forced to suffer the indignity of instant. 

Polluter pays (some) principle

In response to city budget deficits: 

Saying they need to stop relying on the city’s general fund, Louisville Metro Air Pollution Control District officials plan to collect an additional $1.5 million in fees by 2014 from the several hundred businesses they regulate. ...

The district enforces the federal Clean Air Act in Louisville along with its own regulations. Some programs ... go beyond federal requirements. About 36 percent of its budget comes from grants, with much of that from the U.S. Environmental Protection Agency. Penalty fees make up about 13 percent, while the permit, emissions and program fees account for a total of 37 percent.

via www.courier-journal.com

Louisville's general fund currently covers the other 14%. Assuming that the general fund comes from taxpayers, they are being charged twice for pollution reduction. First through taxes and second through higher prices for the polluting goods they purchase. 

Charging polluters to fund air pollution regulations, in proportion to their pollution, is akin to a Pigouvian tax. The regulatory fees would provide an incentive to reduction air pollution. 

When the negative externality is lost jobs (and churches), higher taxes are ok?

I'm using "higher taxes" loosely here, but in the same way that anti-regulatory folks call any price increase a higher tax:

American Electric Power, which is based in Columbus, Ohio, is proposing a $1 billion retrofit to allow the plant to continue burning coal and has asked Kentucky regulators to approve a 30 percent increase in electricity rates to pay for the work. ...

Channeling the animosity toward Washington and fears about their livelihoods, coal producers, union leaders, landowners and railroads came together to pressure American Electric Power to back down on its plan to close the coal furnaces at Big Sandy. They have leaned on county judges, state legislators and other politicians to attempt to silence public criticism of the 30 percent electricity rate increase and to pressure the Kentucky Public Service Commission to approve the retrofit project.

Saving coal, they argued, justified the rate increase, which would cost the average residential customer about $472 a year in addition to the typical $1,580 annual bill today.

“I will grant you it is going to cost a lot of money to retrofit that plant,” said Nick Carter, the president of a company that represents landowners whose properties hold billions of tons of coal reserves. “But how many teachers will be laid off and how many churches will have to close if Big Sandy stops burning coal?”

This would be a neat contingent valuation question: Would you be willing to pay $A each month in higher utility bills in order to avoid the closing of Q churches? (please ignore that it is an open ended question, instead of a referendum). Where is A and Q are randomly varied over respondents in order to test for price and quantity (i.e., scope) effects. 

But seriously, when a price increase funds job protection the benefits of the policy equal the cost and the net effect is zero. This is simply a transfer from consumers to producers. 

Quote of the day

Actually, two (Even in Kentucky ...):

Across the United States, the industry is under siege, threatened by new regulations from Washington, environmentalists fortified by money from Michael R. Bloomberg, the billionaire mayor of New York City, and natural gas companies intent on capturing much of the nation’s energy market.

So when the operator of the Big Sandy plant announced last year that it would be switching from coal to cleaner, cheaper natural gas, people here took it as the worst betrayal imaginable.

“Have you lost your mind?” State Representative Rocky Adkins, a Democrat and one of Kentucky’s most powerful politicians, thundered at Michael G. Morris, the chairman of the plant’s operator, American Electric Power, during an encounter last summer. “You cannot wave the white flag and let the environmentalists and regulators declare victory here in the heart of coal country.”

Because, if the environmentalists declare victory, that means the air is clean. And that would be bad. Very bad.

Coal and electric utilities, long allied, are beginning to split. More than 100 of the 500 or so coal-burning power plants in the United States are expected to be shut down in the next few years. While coal still provides about a third of the nation’s power, just four years ago it was providing nearly half.

The decline is largely because new pollution rules have made coal plants more costly, while a surge in production of natural gas through the process of hydraulic fracturing, known as fracking, has sent gas prices plummeting. Together, the economics of coal have been transformed after a century of dominance in Washington, state capitals and the board rooms of electric utilities.

“The math screams at you to do gas,” said Mr. Morris, whose company is the nation’s largest consumer of coal.

I'd rather the math scream at me than one of Kentucky's most powerful politicians.

I don't even have time to read this morning

Recommended reading (Inching Toward Energy Independence in America):

Across the country, the oil and gas industry is vastly increasing production, reversing two decades of decline. Using new technology and spurred by rising oil prices since the mid-2000s, the industry is extracting millions of barrels more a week, from the deepest waters of the Gulf of Mexico to the prairies of North Dakota.

At the same time, Americans are pumping significantly less gasoline. While that is partly a result of the recession and higher gasoline prices, people are also driving fewer miles and replacing older cars with more fuel-efficient vehicles at a greater clip, federal data show.

Taken together, the increasing production and declining consumption have unexpectedly brought the United States markedly closer to a goal that has tantalized presidents since Richard Nixon: independence from foreign energy sources, a milestone that could reconfigure American foreign policy, the economy and more. In 2011, the country imported just 45 percent of the liquid fuels it used, down from a record high of 60 percent in 2005. ...

How the country made this turnabout is a story of industry-friendly policies started by President Bush and largely continued by President Obama — many over the objections of environmental advocates — as well as technological advances that have allowed the extraction of oil and gas once considered too difficult and too expensive to reach. But mainly it is a story of the complex economics of energy, which sometimes seems to operate by its own rules of supply and demand.

No comment, as I have only read one+ of five web pages. It appears to be a must read for anyone interested in energy, the environment and economics. Later, I may have something inane to say (fingers crossed).

And here is a new (to me) pop-up box from the NY Times:

Beginning in April, visitors to NYTimes.com will have access to 10 free articles per month instead of 20.

 

Video — Regulating Monopolies « Knowledge Problem

Lynne Kiesling:

I am pleased to announce my first video in the Learn Liberty series — “Regulating Monopolies: A History of Electricity Regulation“.

It’s a brief overview of the economic history of the origins of the electricity industry and its regulation, and points towards the extent to which in the 21st century we are now having to confront the downsides of regulation, particularly with respect to environmental quality and the creation, adoption, and diffusion of digital technology. And I must give a big thank you to the production folks at the Institute for Humane Studies; I have never been comfortable in front of a camera, but they made it as easy as it could be, and the historical photos they found to illustrate some of the events I discuss are fantastic.

I hope you enjoy it, and share it with your friends!

"Challenges for the 21st Century" includes air quality.