Environmental Economics

Several benefit-cost analysis opportunities from the CBO

What is the value of a wolf? What is the value of a crane? What is the value of a praire chicken? What is the value of a marine mammal?

• H.R. 1464, Great Cats and Rare Canids Act of 2007
• H.R. 1771, Crane Conservation Act of 2008
• H.R. 3930, Lesser Prairie Chicken National Habitat Preservation Area Act of 2008
• S. 2657, A bill to require the Secretary of Commerce to prescribe regulations to reduce the incidence of vessels colliding with North Atlantic right whales by limiting the speed of vessels, and for other purposes

Note: make sure you use a stated preference method (no enough folks have revealed preferences for wolves, cranes, chickens and whales) and do a literature search (related work has already been done).

Student question on farm subsidies

From the inbox [edited for length]:

Dr. Haab

My name is [blank] and I was in your AED Econ 200 class this past fall quarter. One of my classes this quarter was Rural Sociology 378 which focuses on globalization of the world's economy and how it affects the rural populations of countries...My professor proceeded to tell the class that the main cause of [the expolitation of Jamaican grain farmers] was the farm subsidies given to US farmers...I was wondering if maybe you had any more information regarding subsidies (how they work, who gets them, why they are good/bad). I feel that they are a good thing for most US farmers. I know the professor got some of the information wrong and I called him out on it but I feel really uneducated about them...I wanted another opinion on the issue because my rural sociology teacher is obviously not an economics professor. I'm just curious to hear your take on the issue of farm subsidies.

You asked for it...

The failure of U.S. ethanol policy

Sometimes ecological economists sound like real economists*.  That is, every once in a while they make sense.  From Lester Brown and Jonathan Lewis in today's Washington Post:

Taking these together -- the environmental damage, the human pain of food price inflation, the failure to reduce our dependence on oil -- it is impossible to avoid the conclusion that food-to-fuel mandates have failed. Congress took a big chance on biofuels that, unfortunately, has not worked out. Now, in the spirit of progress, let us learn the appropriate lessons from this setback, and let us act quickly to mitigate the damage and set upon a new course that holds greater promise for meeting the challenges ahead.

Happy Earth Day.

*Relax, I'm joking.

Taking economics bashing to the next level (i.e., economics bashing on crack)

From Scientific American (The Economist Has No Clothes, Unscientific assumptions in economic theory are undermining efforts to solve environmental problems):

Unfortunately, it is clear that neoclassical economics has also become outdated. The theory is based on unscientific assumptions that are hindering the implementation of viable economic solutions for global warming and other menacing environmental problems.
...

Because neoclassical economics does not even acknowledge the costs of environmental problems and the limits to economic growth, it constitutes one of the greatest barriers to combating climate change and other threats to the planet.

Huh? Much of the environmental economics research of the past 40+ years is focused on measuring the costs of environmental problems. And on the teaching side, millions of introductory microeconomics students are told the best example of a negative externality problem is environmental pollution.

The critics wear leisure suits. And I'm offended by the naked economist picture.

Update below.

Is it economically rational to let people die?

A British friend of mine (and economist) pointed me to this rant from George Monbiot at the Guardian*:

When Sir Nicholas Stern published his study of the economics of climate change, environmentalists - myself included - lined up to applaud him: he had given us the answer we wanted. He showed that stopping runaway climate change would cost less than failing to prevent it. But because his report was so long, few people bothered to find out how he had achieved this result. It took me a while, but by the time I reached the end I was horrified.

...

Stern's methodology has a disastrous consequence, unintended but surely obvious. His report shows that the dollar losses of failing to prevent a high degree of global warming outweigh the dollar savings arising from not taking action. It therefore makes economic sense to try to stop runaway climate change. But what if the result had been different? What if he had discovered that the profits to be made from burning more fossil fuels exceeded the social cost of carbon? We would then find that it makes economic sense to kill people.

At issue is the use of money to value life.  But I would rephrase the last sentence slightly--and I think this rewording makes all the difference: We would then find that it makes economic sense to kill people fail to prevent people from dieing.  I'm OK with that and I'll try to explain why.

Update: I clarify a point I made earlier below (in red).

Corn ethanol and unintended consequences

From Science:

Most prior studies have found that substituting biofuels for gasoline will reduce greenhouse gases because biofuels sequester carbon through the growth of the feedstock. These analyses have failed to count the carbon emissions that occur as farmers worldwide respond to higher prices and convert forest and grassland to new cropland to replace the grain (or cropland) diverted to biofuels. Using a worldwide agricultural model to estimate emissions from land use change, we found that corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. Biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50%. This result raises concerns about large biofuel mandates and highlights the value of using waste products.

Many of the authors are economists.

New benefit-cost analysis society!

Via Environmental Valuation and Cost-Benefit News:

Call for Papers: Conference on Implementation of Benefit-Cost for Social Programs and Meeting of the Society for Benefit-Cost Analysis; June 3-6, 2008; Washington, D. C.

Those who would like to present in a panel should submit abstracts of 250 words or less to Scott Farrow by February 15, 2008. Those who would like to facilitate a panel on any topic or be a discussant should also contact him.

Registration for the Annual Meeting will open May 1, 2008. At that time, information and registration will be available at the website of the Center for Benefit-Cost Analysis, at www.bcacenter.org. A new journal is also being planned for the organization.

A conference? A journal? Almost heaven?

The Armchair Economist takes on McCain and Romney

Steven Landsburg, most notably author of the Armchair Economist, has an editorial in today's NYTimes questioning the Romney and McCain plans to retrain workers whose jobs have been outsourced:

All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices. In other words, the winners can more than afford to compensate the losers. Does that mean they ought to? Does it create a moral mandate for the taxpayer-subsidized retraining programs proposed by Mr. McCain and Mr. Romney?

Um, no. Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?

Click for the full editorial.  Not environmental, but deals with a basic economic question: Is there an economic rationale for net winners from government policy (or removal of such policies) to compensate the losers?  An interesting read.  Let me know what you think.

A Nobel* Response to Forest Carbon Sequestration Concerns

Last week I wrote about work Brent Sohngen and colleagues are doing on incorporating forest carbon strorage into climate change negotiations.  Since really smart reactions often get lost in the shuffle of comments, I thought I would post Brent's response to the discussion following that post.  For context, reader John noted:

What all the (very worthy) eggheads at the IPCC don't talk about is the difficulty of avoiding deforestation and the whole institutional infrastructure this will involve in countries which often suffer severe capacity constraints.

Problems of enforcement aside, it is unlikely, given the extremely high discount rate of the very poor communities that often live in forested areas, that the future discounted value of carbon storage credits will out weigh future discounted value of the timber. That is to say unless more holistic strategies are put in place to offer forest communities viable alternatives to felling trees, even with payments for carbon storage the incentive structure will not be in place to achieve the desired results.

See below for Brent's--er, Nobel Laureate* Sohngen's--reaction.

*This joke never gets old.

The perfectly inelastic demand for energy

Progress Energy says it could cost $1 billion to clean up power plants:

More than $1 billion.

That's how much Progress Energy says it could pay to clean up coal-burning power plants in North Carolina and South Carolina, and more than half of the cost could fall on consumers.

The power company says that in order to comply with a 2002 environmental law, customers could pay $542 million of the total cost. That means a typical household bill would increase by about $1.50 each month.

I have Google Fatigue Syndrome (GFS). Can someone help me with the details of the "2002 environmental law"? I'd like to do a back-of-the-envelope benefit cost analysis.

Also, is the $542 million of the $1 billion, Progress Energy's estimate of the amount of the cost that they can pass on to consumers based on demand elasticity? Nope. The rest of the cost increase would be passed along to South Carolina consumers. Is the demand for energy perfectly inelastic?