Environmental Economics

North Carolina is becoming a banana republic

Not that I think a renewable portfolio standard is the best way of encouraging renewable energy, but I can be almost certain that this isn't the best way to run state government:

Over objections of Democratic lawmakers, a Senate committee approved legislation Wednesday to end the state’s 6-year-old renewable energy program.

Opponents of the bill loudly voted “No!” to show their frustration at the Republican chairman’s decision not to count individual votes. In what was clearly a razor-thin margin, both sides said they would have won if votes had been counted.

“North Carolina is not a banana republic,” Democratic Sen. Josh Stein of Wake County, one of the no votes, said after the meeting. “That was no way to run a proceeding.”

The contentious vote in the Senate finance committee was preceded by a 45-minute debate and public comment, during which farmers, the N.C. Pork Council and N.C. Farm Bureau urged Senators to keep the current policy in place because it’s encouraging investment in projects that use methane from swine waste lagoons as a fuel to generate electricity.

A similar bill was defeated 18-13 in a House committee last week, and its sponsor, Rep. Mike Hager, attended the Senate debate. Hager has vowed to keep bringing up his bill as well. ...

The dispute is over a 2007 law that requires electric utilities to use solar power and other forms of renewable energy, up to 12.5 percent in 2021 and thereafter. The law allows power companies to pass on extra costs to customers. As a result, Duke Energy residential customers pay 22 cents a month and Progress Energy customers pay 42 cents a month for the renewable subsidies. ...

Critics said the policy subsidizes non-competitive industries, while those who favor the policy said it has created new jobs and generated economic activity during a recession and its aftereffects.

via projects.newsobserver.com

I've had this to say about green technology-forcing new jobs (and this and this).

"Follow the Plastic Bag Example, Nudge Polluters to Pay"

Gernot Wagner (cross-posted from EDF Voices):

Nudge is the best kind of book. It presents the type of head-slappingly obvious solutions to public policy problems that make you wonder why you needed a book to tell you about them in the first place. Place the veggies before the French fries in the cafeteria, and people will eat more greens. Enroll employees into retirement programs with the option of opting out rather than in and they’ll save more as a result.

Such nudges are the best kinds of policy interventions: minimum intrusion, maximum freedom of choice, maximum relative impact. But one area in which Nudge comes up short is global warming. Putting smiley faces on your electricity bill as a reward for using less electricity than your neighbor, something oPower has done with utilities around the country, helps bring down electricity use by 1 to 3%. Better than zero, but not the solution by a long shot.

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.

 

Onion or True?

On Thursday, April 25, 2013, the House will begin consideration of H.R. 527, the Responsible Helium Administration and Stewardship Act, under a rule.  H.R. 527 was introduced on February 6, 2013 by Rep. Doc Hastings (R-WA) and was referred to the House Natural Resources Committee, which held a markup and reported the bill by a voice vote.

via www.gop.gov

Of course you need to read this in a high pitched voice.

 

Daily demand and supply: ethanol (i.e., theory of 17th best)

Don't be frightened when you get to the parts where it says "Congress set out to create" and "lawmakers assumed." This stuff happens all the time and we need to just get accustomed to it:

Nearly 10 percent of the nation’s ethanol plants have stopped production over the past year, in part because the drought that has ravaged much of the nation’s crops pushed commodity prices so high that ethanol has become too expensive to produce.

A dip in gasoline consumption has compounded the industry’s problem by reducing the demand for ethanol.

The situation has left the fate of dozens of ethanol plants hanging in the balance and has unsettled communities that once prospered from this biofuel. ...

Congress set out to create an ethanol industry that would produce enough to make up 10 percent of every gallon of gas pumped into a car, but the lawmakers assumed that demand for fuel would grow. Instead, it has shrunk to 8.7 million barrels a day from 9.7 million in 2007, said Larry Goldstein, an economist and a director of the Energy Policy Research Foundation. And with corporate average fuel economy rules now in place to double the number of miles that the average car gets per gallon by 2025, “you know we’re on a trend,” he added.

via www.nytimes.com

A single policy that would provide incentives for ethanol production AND increased fuel economy would be a carbon tax (or cap-and-trade).

What makes 'smart' gas price coverage?

Yesterday, I posted this.  Last night I got this:

Hi Tim,

I read with interest this item on the Environmental Economics website…Would like to get your thoughts on what would constitute “smart” gas price coverage…

We struggle with how best to cover gas prices each and every time prices spike!

Regards, Greg Agvent, Director of Planning, CNN

My thoughts on what would constitute 'smart' gas price coverage?

1. Interview me (I didn't send this). 
2. (I sent this) In short, the issue of gas price coverage comes down to one about the 'need to do something' about gas prices. In many cases, gas price fluctuations are the result of natural market forces (it might be changes in world supply, or changes in demand).  Because gas consumption is viewed as a necessity by many, the immediate reaction to rising prices tends to be "do something."  But prices, when adjusting due to market forces, create signals for consumers to make better decisions. For example, if gas prices are kept artificially low, consumption will be kept artificially high.  The problem with doing something about high gas prices is that doing something interferes with the signals that markets are sending.
   
   To get more to your question of what constitutes 'smart' coverage, smart coverage will recognize the differing roles of market forces and policy forces.  Policies to remedy uncomfortable, but natural, market conditions represent bad economics.  Policies to remedy market misallocations are good economics. Politicians 'doing something' to make people complain less, well...

I wonder if I'll hear back?

 

Daily Demand and Supply: One person's negative is another person's positive

"So I can drink a beer on my porch? But I can't smoke a joint?" asked marijuana advocate Christian Sederberg.

State Sen. Cheri Jahn, D-Wheat Ridge, said lawmakers would hesitate to regulate something legal people do on private property. What about backyard grills that send the smell of hamburgers into the nose of a neighbor who's vegetarian?, she asked.

via www.google.com

Having just returned from Colorado (where, for the record, I did not partake in the newly legal activities of the state), I read this and wondered: Are there really people out there who don't like the smell of grilled meat?

Blasphemy.

A Common Tragedy

When self-regulation, weak regulation and social norms fail to address overfishing in an aopen-access fishery (like the New England Cod fishery), sometimes drastic regulations are necessary for the long-term sustainability of the fishery...even if the short-term effects are uncomfortable:

... An advisory council voted Wednesday to slash cod catch rates by 77% in the Gulf of Maine, a region roughly the size of Indiana that extends from Cape Cod up through Nova Scotia.

That move, analysts predict, is expected to decimate fishing communities across the region and have a domino effect on seafood processors, wholesalers, distributors and retailers who all make a living off the water.

"The impact will be severe," said John Bullard, the regional administrator of the National Oceanic and Atmospheric Administration, who voted in favor of the cuts.

"It wasn't easy, but it was necessary."

A response to low cod stocks, the proposed cuts have left thousands wondering what they will do for work at the start of the fishing season in May.

Scores of fishermen gathered Wednesday in Portsmouth, New Hampshire, to hear the vote of the New England Fishery Management Council, which has since submitted its recommendations to the federal government.

"We're doomed, as they say," said fisherman Dennis Robillard, whose voice wavered as he acknowledged that his boat, the Julie Ann II, is now up for sale.

"I'm getting out. It just doesn't make any sense to me anymore."

The council also voted to cut 55% of cod catch rates in Georges Bank, an expansive area near Cape Cod, which was named by a 17th century British explorer after discovering an abundance of the ground fish.

If approved by the Commerce Department, fishermen catch rates will drop to about 3,550 metric tons of cod in the Gulf of Maine and Georges Bank.

A decade ago, they could net around 20,000.

Conservative economists heart carbon taxes

According to the National Journal:

A number of the nation’s leading conservative economists, who as a rule do not like taxes, are touting some benefits to a federal carbon tax. That group includes Gregory Mankiw, a former Romney adviser and George W. Bush-era chairman of the Council of Economic Advisors; Douglas Holtz-Eakin, Sen. John McCain’s 2008 chief economic adviser; and Art Laffer, progenitor of Reagan’s treasured Laffer Curve.

Such a tax could raise an estimated $1.5 trillion over 10 years and help wean the country from carbon-intensive fuels. And with Congress set for a season of budget fights and a possible effort to overhaul the tax code, the carbon tax is likely to reenter the conversation about getting America’s fiscal house in order. ...

So, why do some conservative economists who normally oppose new taxation support a carbon tax? Because a carbon tax, like any Pigovian tax, taxes something we want less of. And when you tax something, you get less of it. Even for the remaining cohort of climate-change deniers, Mankiw lists a slew of other downsides to carbon emissions in his Pigovian manifesto.

... most taxes, especially at the federal level, tax things we want more of: labor, investment, business activity.

Depending on how broadly or narrowly you define economic growth, these taxes either arguably or definitely hurt growth.

But a Pigovian tax creates economic growth by allowing markets to allocate resources more efficiently. ...

Liberal economists tend to like a carbon tax, too, but usually differ with conservative economists over what to do with the revenue. They’re more likely to see the revenue as an opportunity to extend government services, subsidize alternative energy, or, in the current economic environment, pursue some other form of stimulus. 

Conservative economists are more likely to advocate using the revenue to lower rates on other taxes, give everyone a tax rebate, or pay down the deficit. It’s these latter uses that are likely to dominate the discussion of a carbon tax in the coming months.

If I'd prefer revenue be used to pay down the deficit, relative to lowering other taxes or subsidizing alternative energy, does that mean I'm a conservative economist? Yikes.

Daily Demand and Supply: But at least we get ethanol*

According to a press release posted Tuesday on the official website of the National Chicken Council in Washington, D.C., the increase in the cost of corn, in tandem with other factors, has resulted in fewer birds produced overall.

“Chicken companies produced about one percent fewer birds last year, due in large part to record high corn and feed prices,” Bill Roenigk, chief economist and market analyst, was quoted as saying. “Corn makes up more than two-thirds of chicken feed and corn prices hit an all-time high in 2012, due to two reasons: last summer’s drought and pressure from a federal government requirement that mandates 40 percent of our corn crop be turned into in the form of ethanol.”

He added, “Simply put, less corn equals higher feed costs, which means fewer birds produced.”

via washington.cbslocal.com

Drought and increased input prices both serve to decrease the supply (shift the supply curve left).  A decrease in supply decreases the equilibrium quantity and increases the equilibrium price--and potentially reduces your enjoyment of the Super Bowl. 

Darn those ethanol mandates and global warming.

*Sarc