Environmental Economics

A North Carolina Coastal Resources Commission Economic Committee (CRC-EC)

I vote yes:

In addition to a new nomination process, the CRC unanimously adopted a draft charge for the science panel. The panel is responsible for providing scientific reports and conducting scientific studies for the CRC. However, after the panel released a study that estimated the future impact of sea level rise drew public criticism, suggestions were made at several public meetings that more factors – such as financial and social ones – needed to be considered in science panel studies.

Mr. Emory said, though, that there may be certain products the commission would want that takes economics into account, as well.

“What they’re supposed to do is bring us the science,” he said. “But there’s been some legislation calling for economic and social factors to be included as well.”

CRC marine ecology member David Webster suggested creating a specific economic committee to address the economic side of issues taken up by the commission. Coastal land development member Larry Baldwin said that if cost comparisons are done of some coastal issues, like terminal groins, there are serious financial considerations with every aspect.  

via www.carolinacoastonline.com

This might take some of the economic input to coastal management out of the hands of coastal developers. 

Are you high?

Some economics of jetties (i.e., terminal groins) in North Carolina:

A 2010 jetties study from the legislature found the cost of building jetties from $3.5 million and $10 million, and that up to another $2 million would be spent every year for maintenance that included replacing sand washed away from the backside of the structures. The study, however, also found that over 30 years the economic benefits of the protective structures ranged from $27 million at Ocean Isle to over $320 million at Bald Head Island.

via hamptonroads.com

Ignoring the obvious questions behind the benefit numbers ... discounting the annual costs at 3% over 30 years, taking random numbers from a uniform distribution of the variable costs and benefits, then the average net present value of a jetty is about $200 million. 

Ok, not ignoring the obvious questions about the benefits ... $320 million at Bald Head Island? That is about $3.2 million in benefits for each resident household over 30 years. That number seems unrealistically high. Discounting at 3% over 30 years, it is about a $165,000 annual household benefit. 

My Google search didn't find anything about the study except this summary: http://dcm2.enr.state.nc.us/CRC/tgs/finalrecs.pdf. 

Quote of the day

Surprise! Anti-science at the Outer Banks:

In December, soon after Hurricane Sandy and two nor’easters, Dare County Commissioner Allen Burrus, geologist Robert Young and attorney Derb Carter from the Southern Environmental Law Center were interviewed on “The State of Things,” a public-radio program on WUNC.

“You never understand nature but so much,” Burrus said, adding that Highway 12 is “really convenient,” and that he was concerned about “people that live in other places telling us what we need to do and how we need to do it.”

He said “the lead professor” at East Carolina University (an apparent reference to geologist Riggs) sells books and gives talks and “has very little science to back his opinions.”

When the general public is funding a quasi-public good then the general public has a right to make suggestions about what you need to do and how you need to do it. If you don't want to be told what to do then Dare County should sell revenue bonds and make NC-12 a toll road. And then Dare County would be holding the risk if Dr. Riggs is right about how the North Carolina barrier islands tend to move and are likely to be diminished by sea level rise. 

Here is how Dr. Young put it:

“I’m a little bit disappointed that Mr. Burrus would disparage the credibility of a group of scientists at ECU who have worked hard to develop an incredibly good understanding of the geology of eastern North Carolina. To suggest that the science that they’re doing is somehow motivated by the royalties that one receives from a book that’s published by the University of North Carolina Press is a little bit over the top. … I’m just afraid that … the path we’re going down is not going to provide that access that everyone would like to have.”

Just when I had decided never to go to the Outer Banks again they go all maritime history on me

Still more benefits of replacing the Bonner Bridge!

The public will be able to climb the spiral staircase to the top of the Bodie Island Lighthouse for the first time Friday and take in an unusual view of the Outer Banks.

It’s unusual because just about all you’ll see from up there is the Atlantic Ocean on one side, Pamlico Sound on the other, and the marsh grass and maritime forest in between. ...

When it was completed in 1872, the Bodie Island Lighthouse sent its warning to sailors along a stretch of the Outer Banks that had been dark since an earlier lighthouse was destroyed during the Civil War. Its light was magnified by a Fresnel lens, made of 344 glass prisms that were removed during the restoration and cleaned, and now have been reassembled atop the 170-foot tower.

Except for one weekend in 1988, the public has not been allowed to climb the 214 steps to the top of the Bodie Island Lighthouse, first because it was a working lighthouse and then because it was in such poor shape it wasn’t considered safe.

Congress set aside about $3.1 million to renovate the lighthouse in 2009. But the job proved more difficult than expected when workers discovered that metal braces holding up the gallery and lantern decks near the top had cracked and needed to be replaced. The National Park Service, which owns the lighthouse, needed to find an additional $1.89 million before work could resume last year.

Workers have repaired weathered masonry and stone, replaced corroded metal parts and strengthened the supports for the 10 flights of spiral stairs. They also installed better interior lighting and electrical wiring, as well as a fire detection and suppression system.

The Bodie Island Lighthouse will be the fourth Outer Banks lighthouse, after Cape Lookout, Cape Hatteras and Currituck Beach, to let the public climb to the top. The Bodie Island and Cape Hatteras lighthouses will open for the season Friday and remain open through Columbus Day, Oct. 14.

Tickets to climb both lighthouses, which cost $3.50 to $8, will be free Friday.

via www.newsobserver.com

Some fun with the numbers:

• At $5 per ticket about 200 tourist days, the cost will be paid off in one season if about 25,000 visitors a day climb those steps. All we need to get those kinds of numbers is a "NC Lighthouse Trail" marketing campaign!
• The cost overrun of 37.8% is about the number, 40%, that is in my head for sensitivity analysis in benefit-cost analysis. For example, if an engineer estimates the cost of a capital project at $1 million, increase to $1.4 million for a worst base case analysis. 

Things I've learned about travel and England

I know many of you are wondering to yourself 'Where is Tim and why hasn't he posted in a few days.  I enjoy Tim's posts so much more than John's."  Well, I'm in England (Plymouth to be precise) for a three day workshop on trends in U.S. and U.K. appraches to ecosystem valuation--I'm representing the U.S. perspective in case you were wondering.  Anyway, I will have more on the workshop later, but for now I wanted to give you things I've learned about traveling to England.  Please keep in mind, as if you needed reminding, I am a stupid American.  

Thoughts (In chronological order):

• Getting up at 3:30AM to catch a flight sucks.
• Getting up at 3:30AM to catch a flight after staying up until 12:00AM the previous night sucks more.
• Getting up at 3:30AM to catch a flight after staying up until 12:00AM the previous night on the night when the the U.S. decides to still observe daylight savings time (or goes off daylight savings time, I can never keep that straight) sucks worse.
• Getting up at 3:30AM to catch a flight after staying up until 12:00AM the previous night on the night when the the U.S. decides to still observe daylight savings time (or goes off daylight savings time, I can never keep that straight) only to learn upon landing at Dulles airport that your flight to London has been cancelled...well you can fill the rest in.
• Twelve hours in an airport is boring.
• I can actually sleep on a plane.
• But I chose to first watch a movie (The Life of Pi), because 1) it was free and 2) I'm stupid.
• At Heathrow airport they make you walk approximately 5K (3.1 miles American--see how I slipped in the European metric there?) to get to customs.  That's a long way after sleeping only 5 hours total in the previous 48.
• Paddington Station does look like the kind of place a cuddly bear in a blue raincoat would really want to hang out.
• People in Paddington Station seem as though they are all in a hurry.
• Everything around Paddington Station looks the same.  It is hard to tell the houses from the hotels from the dentist office.
• Light switches--down is on, up is off? Can we get a little uniformity please?
• You have to turn on the outlets or your computer, cell phone and ipad won't charge.  Just sayin'.
• You have to turn on the outlets?
• Again, Down is on, up is off.
• Even if a shower has a faucet on the wall, and even if you stand to the side, it doesn't mean that if you turn on the water you won't get an unexpected freezing shower from the other facucet on the ceiling.
• The open bus tour is a great way to see London if you only have a few hours.
• Correct that.  The open bus is a great way to see London if you only have a few hours and it is above 0 degrees Celsius (That's 32F for you Americans).  Otherwise, it's freaking cold up there.
• A lot of buildings in London are very old and remind me of that movie Mary Poppins or those books by that Charles Dickens guy.
• Fish and Chips is really just fried fish and French Fries.  I think they named it something fancy to trick us stupid Americans.
• Riding trains is fun.  Especially if you have a backwards seat.
• Sheep.  A lot of them. Just an observation from the window of the train.
• Not sure why England has a reputation for dreary weather with sunsets like this...

An example of why we started this blog...and why it is still relevant

Bear with me, this might take a minute to get to the point.  In 2005, John and I started Env-Econ with the following mission:

The Environmental Economics blog is dedicated to the dissemination of economists’ views on current environmental and natural resource issues. We hope this blog will help bring economists’ views on environmental issues further into the mainstream. The intended audience includes the general public and students. Posts are non-technical. [emphasis added]

I added the emphasis to that in light of a comment I received this morning on this post from yesterday.  As background: in the post, I asked an academic colleague to give me a back of the envelope calculation of the social value of beach renourishment.  At the end of the post I linked to the academic article on which my colleague based the back of the envelope calcualtion--mainly to give credit where credit is due and also to let any reader so inclined to take a look at what goes into making the sausage that is Env-Econ.  Anyway, one of our readers was so inclined--and apparently didn't like what  they saw in the sausage factory:

I tried to read and understand Sathya Gopalakrishnan's abstract and I can't. I need an interpreter. I'm pretty sure it's English. Maybe someone could get a "grant" to find out just what percent of the US adult population accurately understands her language? Maybe I'm just dumb. I do have a B.S. degree from a highly regarded university but that was a long time ago.

A few points:

1. What percentage of the US adult population accurately understands her language is irrelevant for the abstract.  The abstract is intended for an audience of academic environmental economists and as such the relevant question is 'What percentage of the world population of those interested in academic issues relevant to environmental economists understand her language?'  Based on almost 20 years of experience (including a stint co-editing the journal in question), I would venture a guess that the percentage is very high--but the denominator in that percentage is pretty small.
2. The commenter has discovered one of the dirty little secrets of academics.  We academics like to use jargon, big words and complicated phrasing to make it intentionally difficult to understand what we are trying to say.  In doing so we create a nice barrier to entry into the profession. It takes years of additional education just to be able to learn the language of our discipline.  That education is costly both in terms of resources and time expended.  But for those who clear the barrier, the level of complication helps to keep the supply of academics who can make things as unnecessarily complicated as we do, and more importantly understand that complication, low.  And we all know that decreased supply increases prices (in this case wages).  So, you see, unnecessary complication is necessary.  It's a means to self-preservation and higher wages.
3. There are usually less complicated ways to explain highly technical stuff without losing the basics of what is being said.  That is the purpose of this blog.  Allow me to illustrate.  Here is an excerpt from the academic abstract in question:

We use the empirical results to parameterize a dynamic optimization model of beach nourishment decisions and show that the predicted interval between nourishment projects is closer to what we observe in the data when we use the estimate from the instrumental variables model rather than OLS. As coastal communities adapt to climate change, we find that the long-term net value of coastal residential property can fall by as much as 52% when erosion rate triples and cost of nourishment sand quadruples.

To the non-academic (hopefully many of our readers), that reads as follows:

We use the [blah] to [blah-blah] of beach nourishment decisions and show that the [blah] between [blah] is closer to [blah] when we use the [blah-blah] from the [HOLY S***]. As coastal communities adapt to climate change, we find that the [blah] of coastal residential property can fall by as much as [a bunch of made-up crap].

So in good Env-Econ fashion allow me to interpret the abstract:

Using a bunch of complicated statistics and math that no one else has thought to use, we find that beach house prices fall when beaches wash away or when the cost of putting more sand on the beach goes up.

That, our dear readers, is why we started this blog.

No need to thanks us.

Standing on the shoulders of...er...John

Following up on John's post from earlier on the potential value of beach renourishment projects (and the bad use of benefit cost analysis by policymakers), I sent the following message to one of our outstanding young faculty members (in my opinion of course), Dukie (we don't hold that against her), and bright mind thinking about coastal issues and the interplay between ecological and economic systems, Dr. Sathya Gopalakrishnan: 

Sathya...Do you have any idea (rough guess will do) of the welfare gains per dollar spent on renourishment?

Sathya's response:

I haven't seen any estimates of return on nourishment investment. 

My back of the envelope calculation based on just the hedonic valuation in NC would be $3 per dollar spent. 

For an average ocean front property valued at approx $800000, the semi log hedonic coeff (accounting for endogeneity of width) of 0.11 suggests a value of $8800 per foot of beach width. With the cost of nourishment sand is approx $5 per cubic meter and fixed cost of $1000000. The cost per foot of nourishment per ocean front home would be approx 2300 (assuming costs are distributed across 50 homes along a 1km stretch of the coastline, and a limiting nourishment depth of 10m). That would be $6500 net gain, which is approx a $3 for every dollar spent. 

And in good self-promotional fashion:

We used a similar calculation of net benefits in [our] JEEM paper simulations. 

Well played Sathya.  I'm sure you recognized the influence our blog will have on your readership.

We won't rest until every public official takes a benefit-cost analysis course

If only Congress would mandate more frequent and longer vacations we could increase the number of jobs (sarc):

According to the American Shore & Beach Preservation Association (ASBPA), which publishes the peer-reviewed “Shore & Beach,” the travel and tourism industry accounts for 10 percent of the U.S. job market, “more than all U.S. manufacturers combined.”

While officials including U.S. Rep. Mike McIntyre (D-NC7) have said every dollar invested in beach nourishment returns $320 in tax revenues, ASBPA in a press release Tuesday said the return in 2012 was as high as $570.

via portcitydaily.com

That number, 320/1, sounds high, but even so taxes are transfers so the net effect is zero. Beach nourishment spending should be compared to the consumer surplus gains of the beach trips and the value of protected property to determine if nourishment is a good idea. 

"Cuomo Seeking Home Buyouts in Flood Zones"

NY Times:

Gov. Andrew M. Cuomo is proposing to spend as much as $400 million to purchase homes wrecked by Hurricane Sandy, have them demolished and then preserve the flood-prone land permanently, as undeveloped coastline. ...

For the 10,000 or so homes in the 100-year flood plain that were substantially damaged by Hurricane Sandy, Mr. Cuomo would offer owners the pre-storm full market value of their houses. Homeowners who chose to relocate within their home county would receive a 5 percent bonus above the market value, as part of a government effort to encourage them to stay nearby. State officials said they were planning for the possibility that 10 to 15 percent of those eligible would take the buyout.

Residents of more vulnerable areas would receive a further enticement: they would be allowed to sell their homes even if the homes suffered little, or possibly even no, damage from the hurricane, and the state would pay them an additional 10 percent bonus, above market value, to sweeten the deal.

In a few dozen blocks located in areas of extreme risk, the state would offer another 10 percent bonus if every homeowner on the block agreed to sell. Local officials would be expected to determine how best to use the new open space, though they would not be allowed to build on it.

Other than the increasing moral hazardness, this seems like a good idea. But can you imagine being the one holdout on a block when everyone is counting the 10%?

Costs of beach nourishment in New Jersey

Cornelia Dean:

New Jersey has embraced this approach with gusto. Stewart C. Farrell, a professor of marine geology at Stockton College of New Jersey, said that since 1985 80 million cubic yards of sand had been applied on 54 of the state’s 97 miles of developed coastline: a truckload of sand for every foot of beach.

Dr. Farrell and his colleagues have calculated that the work cost more than $800 million — before adjusting for inflation.

Typically, the federal government pays 65 percent of the cost; the state and towns share the rest.

via www.nytimes.com

Here is a link to the book by Cornelia Dean that introduced me to this issue.

And, why not go ahead and adjust for inflation? It is quite straightforward.