Environmental Economics

Picking winners is usually not a good idea

But this time, let's hope that it is (Ford gets ...):

U.S. Department of Energy Secretary Steven Chu received a standing ovation from Ford Motor Co. employees Tuesday when he announced that the Dearborn, Mich., automaker would receive $5.9 billion in loans for the development of fuel efficient cars.

Chu said one of the Obama administration's priorities is to award and disburse the loans as quickly as possible to move the nation towards energy independence.

Part of the money will go towards Ford's retooling of the Louisville Assembly Plant to convert it from building Explorer sport utility vehicles to an as-yet unidentified fuel-efficient model by 2011, the Energy Department said. Ford has said it would spend up to $500 million overhauling the Fern Valley Road plant. ...

In total, Ford President and CEO Alan Mulally said Ford intends to spend $14 billion in the United States on advanced technology over the next seven years. Ford anticipates that it could draw on the first portion of the loans within 35 days. Ford will be permitted to tap additional funds as it invests money in the future.

Chu announced an $8 billion package of loans that also includes $1.6 billion to Nissan and $465 million to Tesla Motors. The loans are the first from a $25 billion program created in 2007 and authorized by Congress last year.

Nissan will retool its plant in Smyrna, Tenn., to build electric vehicles and construct a battery manufacturing plant. Tesla will use its loans to build electric vehicles and electric-drive powertrains in California.

30 premature deaths + 2,000 missed work days + 9,000 coughs = $325 million

From the EPA:

Invista will pay a $1.7 million civil penalty and spend up to an estimated $500 million to correct self-reported environmental violations discovered at facilities in seven states, the U.S. Environmental Protection Agency (EPA) and the U.S. Justice Department announced today. The company disclosed more than 680 violations of water, air, hazardous waste, emergency planning and preparedness, and pesticide regulations to EPA after auditing 12 facilities it acquired from DuPont in 2004.

“By correcting these violations, Invista will reduce harmful air pollution by nearly 10,000 tons per year,” said Catherine R. McCabe, Acting Assistant Administrator of EPA’s Office of Enforcement and Compliance Assurance. “Invista is making a clean start in a settlement that achieves significant environmental benefits, and we encourage other new owners to do the same.”

...The emission reductions resulting from correcting these violations will result in estimated annual human health benefits valued at over $325 million, including 30 fewer premature deaths per year, 2,000 fewer days/year when people would miss school or work, and over 9,000 fewer cases of upper and lower respiratory symptoms.

I'm thinking there are more benefits somewhere* because $501.7 million cost > $325 million in health benefits.

CORRECTION: Reader Matt kindly pointed out my idiocy.  The $325 million is annual.  At 10% interest that's $3.25B in total health benefits.  And according to my finely tuned math senses that's more than $501.7 million in cost. 

*Or self-reported violations aren't subject to BCA?

Cow farts*, fish oil and climate change

Sometimes the oddest solutions are surprisingly effective (from CNN.com):

The benefits to humans of omega 3 fatty acids in fish oils are well documented, but a new study has found that fish oils can have a wider benefit to the environment -- by reducing the amount of methane produced by cows.

The report produced by University College Dublin found that by including two percent fish oil in the diet of cattle they achieved a reduction in the amount of methane released by the animals.

Lowering methane emissions is important for the environment, as the gas given off by farm animals is a major contributor to greenhouse gas levels...

Approximately 50 percent of Irish agricultural methane emissions result from farm animals, which has led to suggestions that, to help combat global warming, the numbers of cattle, sheep and goats should be capped.

The researchers believe that it may not be necessary to limit the number of farm animals if their methane levels are reduced through diet.

*I know it's childish, but it's Friday.  Oh, and it made you click, didn't it?

Regulators v Legislators

What is the best way to regulate CO2 emissions if 'not regulating' is removed as an option?  That seems to be the question facing the new administration, pitting the EPA against Congress.

The Environmental Protection Agency is expected to act for the first time to regulate carbon dioxide and other greenhouse gases that scientists blame for the warming of the planet, according to top Obama administration officials.

The decision, which most likely would play out in stages over a period of months, would have a profound impact on transportation, manufacturing costs and how utilities generate power. It could accelerate the progress of energy and climate change legislation in Congress and form a basis for the United States' negotiating position at United Nations climate talks set for December in Copenhagen...

Even some who favor an aggressive approach to climate change said they were wary of the agency's asserting exclusive authority over carbon emissions. They say that the Clean Air Act, now more than 40 years old, was not designed to regulate ubiquitous substances like carbon dioxide. Using the law, they say, would capture carbon emissions from new facilities, but not existing ones, blunting its impact. They also believe that a broader approach that addresses all sectors of the economy and that is fully debated in Congress would be better than a regulatory approach that could drag through the courts for years.

The finding and proposed regulations would be issued in sequence, with ample opportunity for public comment and not in a sudden burst of regulatory muscle-flexing, Jackson said. The regulations would work in concert with any legislation and not supplant it, she added.

"What we are likely to see is an interplay of authorities, some new, some existing," she said.

That is not likely to assuage critics, including many Democrats from states dependent on coal-generated electricity and manufacturing jobs, where such regulation could significantly increase costs. Representative John Dingell, the Michigan Democrat who has long championed the interests of the auto industry, said that the regulation of carbon dioxide emissions by the EPA would set off a "glorious mess" that would resonate throughout the economy.

If green jobs create air pollution are they still green?

A Pennsylvania company announced today that it has picked a site in Montgomery County, south of Greensboro, for its third North Carolina power plant that will generate electricity using poultry droppings.

Fibrowatt wants to build the plant near Biscoe. Fibrowatt has previously announced plans to build similar power plants in Sampson and Surry counties.

If the company wins approval, it wants to begin construction of the Montgomery plant next year and open it in 2012. The new plant will employ as many as 100 workers and generate up to 55 megawatts of energy, enough energy to power more than 40,000 homes.

Fibrowatt opened the nation’s first poultry litter-fueled power plant in Minnesota in 2007.

In Surry County, residents are organizing a fight to derail the proposed plant, along the Yadkin River near Elkin. Critics have questioned how much air pollution the plants will produce.

Source: Company wants to open power plant near Greensboro

My best post of 2008

I left a comment on a green jobs post the day after pagan celebration of a Christian holy day:

That is why economics is known as the dismal science. We strange economists are most adept at recognizing the opportunity costs of various decisions. No one else really seems to care if opportunity costs offset some, or all, of the benefits of a good idea.

Opportunity cost is a strange notion to some (especially intro micro students) ... it is the value of the next best alternative whenever a choice is made. For example, if I purchase a $1000 flat panel LCD TV, the true cost of the TV is not $1000, but what I could purchase instead (such as $500 in each kid's college education 529 plan [sorry kids]).

In the case of green energy subsidies, if you are an economist then you must at least wonder if this is the best way to spend the money. There are benefits of pushing down the costs of green energy (e.g., improved air quality), and there are opportunity costs. Ignoring the opportunity costs is likely to lead to wasteful spending. Considering the opportunity costs is likely to lead to better social decision making -- regardless of whether the benefits of the subsidies exceed the costs.

The notion of opportunity cost, its recognition and the inevitable result that not all great sounding ideas are really great ideas, is the most important thing that economists bring to many policy discussions. Pointing out the unpleasantantries of opportunity cost is one of the purposes of this blog. The dismal part of the dismal science can not be avoided.

Give CAIR a chance

I'm back from some holiday travels and ready to blog! (if some pesky kids would leave me alone [bah, humbug! ... or in the words of the local version of The Christmas Carol: "horsefeathers!" ... I expect to be visited by "the Guest" tonight]):

A federal appeals court in Washington reversed itself on Tuesday and temporarily reinstated a Bush administration plan to reduce pollution from coal-fired power plants.

In July, the court struck down the rule, saying the Environmental Protection Agency had exceeded its authority in devising a new emissions-trading system to reduce that pollution, and must rewrite the rule to fix its “fundamental flaws.” Environmentalists criticized the decision as a major setback for clean air.

In Tuesday’s decision, the court said that having a flawed rule temporarily in place was better than having no rule at all. The agency must still revise the rule but has no deadline for doing so.

The regulation, known as the Clean Air Interstate Rule had been the centerpiece of the Bush administration’s re-engineering of the Clean Air Act. It set significant targets to reduce pollution around the power plants and in the downwind states whose air quality was affected by the emissions. [keep reading ...]

Here is what the EPA says about CAIR:

On March 10, 2005, EPA issued the Clean Air Interstate Rule (CAIR), a rule that will achieve the largest reduction in air pollution in more than a decade. CAIR will ensure that Americans continue to breathe cleaner air by dramatically reducing air pollution that moves across state boundaries. In 2015, CAIR will provide health and environmental benefits valued at more than 25 times the cost of compliance.

CAIR will permanently cap emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) in the eastern United States. CAIR achieves large reductions of SO2 and/or NOx emissions across 28 eastern states and the District of Columbia. When fully implemented, CAIR will reduce SO2 emissions in these states by over 70 percent and NOx emissions by over 60 percent from 2003 levels. This will result in $85 to $100 billion in health benefits and nearly $2 billion in visibility benefits per year by 2015 and will substantially reduce premature mortality in the eastern United States. The benefits will continue to grow each year with further implementation.

What's not to like about that?

What does $6.1 Million mean to Exxon?

From CNN.com:

Federal officials have fined Exxon Mobil more than $6 million after it violated a three-year-old agreement to decrease air pollution at four of its refineries.

The Justice Department announced Wednesday that the oil giant agreed to pay $6.1 million after Environmental Protection Agency officials determined the company had not sufficiently reduced sulfur emissions in its refineries in Baytown and Beaumont, Texas; Baton Rouge, Louisiana; and Torrance, California.

According to my calculations, that's the equivalent of me paying $15.72.

Rich and Clean

In this paper, the authors calculate the contribution of competing components (production, pollution controls) to overall industrial emissions, i.e.,

The Central and Eastern European countries significantly reduced their carbon dioxide (CO2) emissions between 1995 and 2003. Was this emission reduction just the fortuitous result of the major economic transformation undergone by countries in the transition? Or is it rather a result of more stringent environmental policy? The objective of the article is to answer this question through a simultaneous equation model of the demand (emissions) and supply (environmental stringency) of pollution. The supply equation takes into account the institutional quality of the country as well as consumer preferences for environmental quality. The results indicate that, all else equal, output growth would have increased industrial CO2 emissions in the Central and Eastern European countries in our sample by 31% between 1995 and 2003, and the composition effect corresponded to an increase of 8.4% of emissions. Nevertheless, the technique effect, induced by more stringent environmental policy, reduced industrial CO2 emissions by 58%, and allowed for a final beneficial result for the environment, i.e., -18% of industrial CO2 emissions in 2003 compared to 1995.

Note the time period. I'd guess that (inefficient and dirty) industrial production was plunging between 1990 and 1995, with pollution falling at the same time. From 1995 to 2003, production rose -- with cleaner technology -- while pollution continued to fall.

I wonder if China went through such a "virtuous" phase or if the dominance of state-run industry has slowed the introduction of clean technology (and competing companies) as well as more stringent (any?) environmental standards.

Bottom Line: It's possible to have growth in industrial output AND cleaner air, but you need to have real regulation and real competition. This is not the case with China.

Quote of the Day: Olympic Edition

"The mist in the air that we see in those places, including here, is not a feature of pollution primarily but a feature of evaporation and humidity."

Arne Ljungqvist, chairman of the International Olympic Committee's medical commission

Later in the story:

Official readings collated by Beijing's municipal environmental protection bureau yesterday gave an air pollution index (API) of 91 for Beijing as a whole, and 87 at the Olympic stadium. The World Health Organisation regards an API of more than 50 as high, and a reading of 100 or more is considered unsafe. The authorities monitor air quality hourly, including levels of particulates, carbon monoxide and nitrogen dioxide, and take limited readings for ozone.