Environmental Economics

Are payments for environmental services in the President's new budget?

High school friend of Env-Econ (Chuck) asks: what are your thoughts on the farm part of this?  First an excerpt:

On agriculture, wealthy farmers would get less money from the federal government -- and none, three years down the line -- under proposals in Obama's first budget.

Obama's proposed fiscal year 2010 budget "phases out direct payments over three years to farmers with sales revenue of more than $500,000 annually," according to the list.

At present, "direct payments are made to even large producers regardless of crop prices, losses or whether the land is still under production."

But according to the list, "Large farmers are well-positioned to replace those payments with alternative sources of income from emerging markets for environmental services, such as carbon sequestration, renewable energy production, and providing clean air, clean water, and wildlife habitat."

The new proposed budget cuts the Market Access Program which provides "funding for overseas brand promotion." It cuts cotton subsidies and "proposes to eliminate the requirement for the government to pay the storage costs of cotton that is put under loan by the USDA. Cotton is the only commodity for which this assistance is provided."

My thoughts?  Jublilation. Joyous vindication.  Disciplinary pride. 

Reducing or removing inefficient farm income policies is long overdue...with the added bonus of cheaper food.  Sounds like a win-win to me.

You can't eat GDP, depression edition

GDP godfather Simon Kuznets was the first to warn about its limitations: "The welfare of a nation can...scarcely be inferred from a measurement of national income as defined above." He wrote that during the last depression. What's really depressing is that we still haven't found something better, and not for a lack of want.

Today's Financial Times analysis leads with one of the worst reasons why GDP shouldn't be used as a measure of how well we are doing as a nation:

Across the world, standard measures of economic performance are suddenly producing terrible results. Maybe it is time to change them.

Fortunately, it gets a lot better from there. The article surveys one of Nicolas Sarkozy's lesser known initiatives:

a 24-member commission of prominent economists led by Joseph Stiglitz and Amartya Sen, both Nobel prize winners, is due to report in April on ways of improving our economic bookkeeping. The aim is to render economic data more comprehensive, more intelligible to the public and more relevant for policymakers by taking into account such factors as environmental degradation and quality of life.

I wouldn't hold my breath for the April report to have all the answers, but who knows, perhaps it takes another depression recession to come up with a better GDP measure.

Are they going to do this for every citation? If so, then I'll be overwhelmed with email ;->

From the inbox:

Dear Dr. Whitehead,

It is our pleasure to inform you that your publication has been cited in a journal published by Elsevier.

Through this unique service we hope we can offer you valuable information, and make you aware of publications in your research area.

Best regards,

Author Support

Your article:
Combining willingness to pay and behavior data with limited information
Whitehead, J.C.
Resource and Energy Economics
volume 27, issue 2, year 2005, pp. 143 - 155

has been cited in:
Public support for reducing US reliance on fossil fuels: Investigating household willingness-to-pay for energy research and development
Li, H., Jenkins-Smith, H.C., Silva, C.L., Berrens, R.P., Herron, K.G.
Ecological Economics
volume 68, issue 3, year 2009, pp. 731 - 742

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.

Would you rather people think the environment is free?

Hey John, Duck, I'm about to go on an ecological econ rant.

Periodic guest blogger at env-econ and full-time blogger at aguanomics, David Zetland, does a nice job of summarizing the case for placing dollar values on environmental assets.  I have a couple of things to add and a small quibble.

We are used to paying for oil, coal, fish and other things "out there" in Nature -- either because someone owns the rights to those resources or its costs money to get them from "the commons."

Contrast our attitudes towards resources with our attitudes to the environment, which we are accustomed to "consume" for free.

As the environment is threatened and becomes more scarce, perhaps we have to think of it as a resource -- and one that is worth paying for.

Exactly.  Prices ration goods.  As long as the price determining mechanism (markets in most cases) fully capture all of the costs and benefits associated with production and consumption, the resulting price will result in an efficient--and in most cases fair (yep, I said it--markets produce fair outcomes in many cases, depending of course on how you define fair)--allocation of resources. 

Principles of micro teachers can thank me later

In our never ending attempt here at Env-Econ to make the jobs of lazy principles of micro teachers easier, here's a story you can use to illustrate: 1) Elasticities, 2) Substitutes, 3) Incidence of taxations, 4) Direct versus indirect externalities and life cycle impacts, 5) Paper or Plastic?  Enjoy.

Mayor Bloomberg wants to nickel and dime you at the grocery store - taxing you an extra 5 cents for every plastic bag you take home.

The controversial charge could raise at least $16 million for the cash-strapped city while keeping tons of plastic out of landfills, city officials said Thursday - but some outraged shoppers aren't buying it.

Nature does not do bailouts

A call for change -- no, not by Barack Obama, by Al Gore.

Gore co-authored a call for Sustainable Capitalism in today's Wall Street Journal:

At this moment, we are faced with the convergence of three interrelated crises: economic recession, energy insecurity and the overarching climate crisis. Solving any one of these challenges requires addressing all three.

The op-ed concludes that:

Today, the sustainability challenges the planet faces are extraordinary and completely unprecedented. Business and the capital markets are best positioned to address these issues.

...as long as the incentives are correct:

We...need to internalize externalities -- starting with a price on carbon. The longer we delay the internalization of this obviously material cost, the greater risk the economy faces from investing in high carbon content, "sub-prime" assets. Such investments ignore the reality of the climate crisis and its consequences for business.

Online certificate in ecological economics

From the inbox:

I'm emailing you to ask whether you would be willing to post a link on your blog regarding a new Certificate in Ecological Economics being offered online by Dr. Robert Costanza through the Gund Institute for Ecological Economics.

We are currently offering two full courses, Introduction to Ecological Economics and Introduction to Simulation Modeling, completely online. Unlike other online courses, all the content associated with these courses is freely available under the creative commons license. Besides the content being used within this course directly, additional content is also available which may be useful to others teaching Ecological Economics courses.

The Gund Institute for Ecological Economics is also beginning a library of videos related to ecological economics.  These videos can be found on both the Gund Institute website (http://www.uvm.edu/giee/?Page=videos.html&defaultmenu.html) and on YouTube (http://www.youtube.com/user/GundInstitute).

RFK on GDP, live

Obama mentioned Robert F. Kennedy's speech on the inadequacy of GDP as a welfare measure in a recent NYTimes article on Obamanomics. A commenter alerted me to a clip of that speech given on March 18, 1968:

The Glaser Progress Foundation also does a lot of good things for moving that issue forward.

HT: Terry Surguine

Obamanomics on GDP and sustainability

I'm waaay behind here -- I blame it on Ghana and the fact that the New York Times magazine hid this passage at the very end of its lengthy cover story on "Obamanomics," somewhere between ads for hardwood floors and the crossword puzzle -- but this should give some boost to all ecological economists out there, and anyone else concerned with the environment, energy and the economy:

“Two things,” [Obama] said... “One, just because I think it really captures where I was going with the whole issue of balancing market sensibilities with moral sentiment. One of my favorite quotes is — you know that famous Robert F. Kennedy quote about the measure of our G.D.P.?” ... In it, Kennedy argues that a country’s health can’t be measured simply by its economic output. That output, he said, “counts special locks for our doors and the jails for those who break them” but not “the health of our children, the quality of their education or the joy of their play.”

The second point Obama wanted to make was about sustainability. The current concerns about the state of the planet, he said, required something of a paradigm shift for economics. If we don’t make serious changes soon, probably in the next 10 or 15 years, we may find that it’s too late.

Both of these points, I realized later, were close cousins of two of the weaker arguments that liberals have made in recent decades. Liberals have at times dismissed the enormous benefits that come with prosperity. And for decades some liberals have been wrongly predicting that economic growth was sure to leave the world without enough food or enough oil or enough something. Obama acknowledged as much, saying that technology had thus far always overcome any concerns about sustainability and that Kennedy’s notion had to be tempered with an appreciation of prosperity.

What’s new about the current moment, however, is that both of these arguments are actually starting to look relevant. Based on the collective wisdom of scientists, global warming really does seem to be different from any previous environmental crisis. For the first time on record, meanwhile, economic growth has not translated into better living standards for most Americans. These are two enormous challenges that are part of the legacy of the Reagan Age. They will be waiting for the next president, whether he is Obama or McCain, and they’ll probably be around for another couple of presidents too.

The rest of the article is worth reading as well. Just be careful when you go around quoting it at your next dinner party. It's been old news for a week now.