Environmental Economics

Is the Exxon Valdez court battle finally over?

The event arguably most responsible for launching John's and my careers (even though neither of us had a direct hand in it) may finally be settled (from the Washington Post):

Oil giant Exxon Mobil Corp. has decided not to appeal hundreds of millions of dollars in interest on punitive damages resulting from the 1989 Exxon Valdez oil spill.

...

Legal battles over the Exxon Valdez spill have lasted years but now appear to be ending. The only remaining sum in dispute is $70 million in court fees, Cudmore said.

An Anchorage jury in 1994 awarded plaintiffs $5 billion. That was cut in half by the 9th Circuit. The Supreme Court in a split decision reduced the total to $507.5 million.

Oesting said the plaintiffs' have "clearly prevailed" in the case, even if the original $5 billion judgment was drastically reduced.

Please send all future messages to my gmail account

Yikes. Could things get any worse at NCSU (Amid outcry, ...)?

... in 2005, ... top administrators created a job for Mary Easley, who was then first lady. The picture that emerges from more than 1,300 pages of documents provided to a federal grand jury is of N.C. State leaders who acted at the behest of the highest-ranking person in state government: Gov. Mike Easley.

The former chancellor who helped arrange the deal, James Oblinger, is expected to appear today at the federal courthouse in Raleigh, where a grand jury is meeting. Federal prosecutors are interested in several aspects of Mike Easley's actions as governor, including the circumstances surrounding Mary Easley's job.

The dealing on that job was done among several high-ranking players: the governor, Oblinger and a key friend of the Easleys, NCSU trustee McQueen Campbell. From memos, documents, e-mails and interviews, it is clear that Oblinger and provost Larry Nielsen paid little attention to the perception of their decisions but instead were focused on carrying out the wishes of their superiors – and then defending the job.

Lessons learned:

1. Don't hire the governor's spouse, even if a real estate deal brokered by the governor's friend and the governor's sweet price on a lot in that development might depend on it:

The land deal, at a development called Cannonsgate in Carteret County, got its permits in early June and the sale would close a month later. Campbell later claimed in a letter that his political contacts helped secure the permits faster than any other developer could. Campbell's knowledge of the project gave him such an inside track that by December he had secured one of the best lots in the development for the governor, who paid a lower price than others nearby.

2. Watch what you say in your university email:

Oblinger had denied knowing much about the 2005 events, but said in a statement as he resigned that the new [email] documents produced for the grand jury had refreshed his memory. He has not elaborated.

Mike Giberson on anti-price gouging laws

From last week (Predictable consequences of anti-price gouging laws):

West Virginia Governor Joe Manchin released a statement last Thursday indicating his disappointment with Marathon Oil’s decision to temporarily halt sales to independent gasoline retailers in a part of the state affected by flooding and a May 9 declaration of emergency. The May 9 emergency declaration triggered the state’s price gouging law, and Marathon told Convenience Store Petroleum Daily News that it would lose money on sales made under the capped prices. ...

The governor’s statement notes that the state’s “anti-price-gouging laws allow businesses to increase prices to recoup costs if the increase is directly attributable to additional costs imposed on the business.” I wonder if the phase “directly attributable to additional costs imposed on the business” has been well clarified in the courts. Several states seemed to have ramped up prosecution of price gouging – for instance, this report on Georgia notes that fines have ranged up to $20,000 plus restitution for price gouging during supply disruptions last September. Since wholesale gasoline costs have increased over the three weeks since the declaration of emergency, clearly Marathon’s costs have gone up. But how much of the cost increase is “directly attributable to additional costs imposed on the business”?  In such an environment, Marathon may have reasonably decided not to risk a lawsuit by pursuing the opportunity to “recoup costs” under the law.

Here is the comment I left at the Energy Collective: The next progression in the government "fixing" of a well-functioning market (see, e.g., agricultural policy) is for WVa to pass a law covering the losses of companies that don't "price gouge" and remain open during a state of emergency. At least this would be more honest. If society wants to help those who are suffering from some form of disaster then society (everyone) should pay, not just companies who are as unfortunate as people living in the disaster prone areas.

Does this make hurricane prediction more or less confusing?

As I consider a Gulf Coast late summer vacation and with hurricane season less than two weeks away, I think hurricane forecasters just made things more confusing (From CNN.com):

The National Hurricane Center is no longer including storm surges and flooding in its hurricane categories out of concern that people aren't heeding proper warnings, because the surges haven't always matched the levels predicted in each category.

Officials are worried that Texans did not heed storm surge warnings for Hurricane Ike last year.

When Hurricane Ike slammed into the Texas coast last year with Category 2 winds (96-110 mph), it had a storm surge of 15 to 20 feet. That's a level more in line with the scale's description of a Category 5 storm, which has winds greater than 155 mph. A Category 2 hurricane, the Saffir-Simpson scale said, was likely to bring a storm surge of only 6 to 8 feet.

Ike was the third most destructive storm ever to make landfall in the United States. It was responsible for at least nine deaths, eight of which were in Texas.

According to CNN's Sean Morris, forecasters and emergency management officials feared that many residents of South Texas did not heed the warning of an anticipated severe storm surge because Ike was listed as only a Category 2 storm. Storm surge and flooding, not winds, almost always cause more deaths in a hurricane or tropical cyclone, he said.

But, in my slightly educated opinion, people are likely to pay more attention to the Category than they are to the secondary storm surge information.  Which sounds worse: "Here comes a Category 2 hurricane with a possible 15 foot storm surge", or "Here comes a Category 4 hurricane with a possible 8 foot storm surge."  Quite possibly, the first storm would cause more damage, but I would venture that human nature leads people to pay more cautious attention to the menacing sounding Category 4.  Then again, I could be wrong.

A research proposal

The storm after the storm (Utilities expected ...):

Louisville Gas & Electric spent more than $45 million to restore power to homes and businesses after the ice storm that battered Kentucky in late January -- nearly double the amount of damage caused by the remnants of Hurricane Ike last September.

Kentucky Utilities, whose customers across the state were particularly hard hit in the ice storm, paid out nearly $62 million to restore power.

The utilities, both owned by E.On U.S., filed their costs with the state Public Service Commission late last week, the first step in eventually asking ratepayers to cover the expenses through higher rates. ...

If the commission approves LG&E's proposed rate increases for the ice storm, typical Louisville electricity users would see their monthly bills increase by another $1.60 for five years, said Chris Whelan, a spokeswoman for E.On U.S. ...

The article goes on and allows people to gripe about actually having to pay for something extra. Do we fuss at McDonald's when we must pay more money to supersize it?

This leads to a great, and I mean really great, research idea. Survey utility customers and ask:

• Would you be willing to pay a one-time fee of $A to have your power restored in X days relative to Y days if the outside temperature is Z?

Let A, X, Y and Z vary. A goes from $1 to $200 and X < Y. Let Z vary so that you can estimate the value of statistical life.

If average willingness-to-pay is greater than $96 ($1.60 x 12 x 5) the commission should approve the rate hike. If average willingness-to-pay is less than $96 then electricity companies should not worry about incurring the extra expenses to get power back on quickly.

I predict that we'll have H sub t-1 hurricanes in time t (+/- 1)

From the inbox:

THE NUMBERS GUY, by Carl Bialik
from The Wall Street Journal.
 
Climatologists who each year predict the number of hurricanes that will threaten the U.S. have a sorry track record. Yet their forecasts continue to garner headlines.

http://online.wsj.com/article/SB124096550135766317.html?mod=djemnumbers

I'm speechless

From The Onion (FEMA unveils ...):

The Federal Emergency Management Agency on Monday unveiled its new $48.2 million Phone Tree Response System, a program designed to alert every American in the event of a large-scale disaster. "The safety of our great nation is the responsibility of all 300 million of its citizens, so make sure you memorize the names and phone numbers of the three people you are supposed to call," said acting FEMA administrator Nancy Ward, who assured reporters that, in the event of a chemical or biological attack, President Obama would be notified first so that he could inform Vice President Joe Biden, Defense Secretary Robert Gates, and Meredith Soto of Winslow, AZ. "Remember: If they don't pick up, leave a message telling them there's a national emergency, and then call the next name listed in the 176,935-page, 253-volume directory until someone answers." According to FEMA officials, regular tests of the phone tree will be conducted on a semiweekly basis to identify any numbers that are no longer in service.

How do they expect this to work? Wow, another big and stupid government program.

Picture of the Day

Source: SC Wildfires worst in 30 years:

South Carolina's biggest wildfire in more than three decades - a fire four miles wide - destroyed dozens of homes Thursday and threatened some of the area's world-famous golf courses at the height of the spring tourist season.

Happy Anniversary?

Missed this while sitting on the beach in southern California. Yesterday was the 20th anniversary of the Exxon Valdez oil spill. Not really a reason to celebrate, bout it did go a long way toward launching the field that has supported two unnamed but world (in)famous environmental economics bloggers.

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.