Environmental Economics

Please tell me there is a co-author named Ferb

I don't want to take all of the credit but were started this blog in the middle of last decade:

For six decades, Americans have tended to drive more every year. But in the middle of the last decade, the number of miles driven — both over all and per capita — began to drop, notes a report to be published on Tuesday by U.S. Pirg, a nonprofit advocacy organization.

People tend to drive less during recessions, since fewer people are working (and commuting), and most are looking for ways to save money. But Phineas Baxandall, an author of the report and senior analyst for U.S. Pirg, said the changes preceded the recent recession and appeared to be part of a structural shift that is largely rooted in changing demographics

via www.nytimes.com

And Tim's "drive less" mantra hit NPR in 2006.

Freakonomics: The Downside of More Miles Per Gallon

Stephen Dubner:

Our latest Freakonomics Radio on Marketplace podcast is called “The Downside of More Miles Per Gallon.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)

The gist: the Federal gas tax is a primary source of infrastructure funding but, politically, it has proven a hard tax to increase. Furthermore, because the tax is a fixed amount (18.4 cents per gallon) rather than a percentage, gas-tax revenues don’t rise even when gas prices do — as has been happening lately.

Even worse, as modern cars travel further on a gallon of gas (good news, right?), they contribute even less money for the roads they travel. And cars are going to get even more fuel-efficient.

So what’s to be done? Some politicians want to get rid of gas taxes in favor of an increased sales tax — which, Eric Morris argues, is a bad idea, since it shifts the burden to non-drivers.

A more promising idea, under exploration in many areas, is to switch to a tax based on how many miles you drive.

via www.freakonomics.com

Here is the link to our (mostly Tim's) posts on a mileage tax.

Dang fine trees

I'll be making a site visit to these trees over the holidays:

After more than a decade of work by Kentucky highway officials and more than $850,000 spent in federal and state money redesigning U.S. 42 in Prospect, city officials now say they don’t want the project as it stands.

There is something they want more: Trees.

Trees are one of Prospect’s main attractions, and the state’s widening plan would wipe out at least 200 mature trees, including oaks and maples, on the mostly residential east side of U.S. 42, officials said. The City Council recently adopted a resolution opposing the proposal. ...

The plan called for widening about a mile of U.S. 42 through Prospect — between Harrods Creek and River Road — and originally included a grassy median with turning lanes. City officials, business leaders and residents had pressed for the widening — saying it was needed to handle traffic, which has almost doubled since 1991.

But now Mayor Todd Eberle said the widening would “destroy” Little Hunting Creek Park and move the roadway almost to the doorstep of City Hall. He said attitudes about the widening project have changed as Prospect has evolved during the past decade.

The only alternative — widening the road on the north side — would wipe out parking lots and cost more because utilities would have to be moved, and city officials have said some businesses might have to relocate. ...

The state highway plan budgeted up to $3.3 million for the project, which was also noted as a high priority in the plan. The current widening proposal would cost $2.4 million, transportation officials have said.

Other proposals, which included widening on the north side, ranged from $4.9 million to more than $11 million.

via www.courier-journal.com

Here is what I wrote before I continued reading:

Grrrrr ... HOW MUCH MORE WOULD IT COST!!! Taking the difference and dividing by 200 I could boast that I know how much each tree is worth when I visit my family while driving that stretch of 42.

I do this all the time, read a bit of something I find interesting, excerpt it, write something (that I think is) clever, realize I should read the rest of the article before posting and making a fool of myself, finding that my snark is answered later in the article, delete what I first wrote and then write something not so fun. Well, for some reason I don't have the heart to delete the above text. 

Anyway, each tree might be worth between $12,500 and $43,000. 

When marginal benefits are lower than marginal costs

One of my favorite T/F questions is: "If you can't do something right, then you shouldn't do it at all." The answer, if you interpret "doing something right" as maximizing benefits (i.e., doing it until marginal benefits are equal to zero), is false. Most activities should be done a bit inadequately, where marginal benefits equal marginal costs. Perfection should not be a goal. 

One example is the goal of the 1972 Clean Water Act to eliminate all discharges into navigable waterways (or something like that). Here is another:

Mark Teague Road near Pittsboro in rural Chatham County is a half-mile-long strip of gravel that cuts through some woods and then dead-ends at a vacant brick ranch house surrounded by farmland.

The state road looks more like a driveway for Elizabeth Hopp, whose family lives in one of three houses off the lane. When crews showed up recently to widen the road bed, build erosion control for a pond and get ready to pave the road with asphalt, she wondered why the state was upgrading a road that goes nowhere. The cost to taxpayers: $225,000.

“I don’t really see the need for this,” Hopp said. “Maybe this is some kind of progress, but it seems sort of strange to me.”

The state’s deputy chief roads engineer, Jon Nance, said the Department of Transportation is just following orders from the General Assembly.

Indeed, DOT will spend millions this year in an ongoing mission, launched in 1989 by lawmakers and then-Gov. Jim Martin, to improve and pave every state-maintained dirt and gravel road in North Carolina.

The state has spent hundreds of millions in the past two decades to blacktop 13,000 miles of roads, bringing asphalt to the driveways of nearly 200,000 homes, DOT records show.

Crews are still at it and now are reaching the bottom of the list, with only 1,842 miles still eligible for paving. They are working in the most rural and least populated spots, such as Mark Teague Road, and in hard-to-pave, mountainous terrain in the west, such as at Lower North Fork Road in Jackson County near the Tennessee border.

Note that the state of North Carolina is not flush with cash.

A little bit like the tail wagging the dog?

Typically, cars and gas are complements. On the other hand, according to the rules of introductory micro, when gas prices are rising, gas and hybrids are substitutes:

Americans are buying record numbers of hybrid and electric cars as gas prices climb and new models arrive in showrooms, giving the vehicles their greatest share yet of the U.S. auto market.

Consumers bought a record 52,000 gas-electric hybrids and all-electric cars in March, up from 34,000 during the same month last year.

The two categories combined made up 3.64 percent of U.S. sales, their highest monthly market share ever, according to Ward’s AutoInfoBank. The previous high was 3.56 percent in July 2009, when the Cash for Clunkers program encouraged people to trade in old gas guzzlers for more fuel-efficient cars.

via www.newsobserver.com

I always need convincing ... Let's say you are torn between two similarly ranked upscale mid-sized cars: the Chevy Volt and the Volkswagon CC. Something in-between a high end and a stripped down CC costs about $5000 less and delivers 9 MPG less on the highway and 14 MPG less in the city. To keep the math easy, let's say there is a 10 MPG difference. If you drive 12,000 miles per year then you save 1200 gallons per year. If the price of gas is between $3 and $4 per gallon then you save between $500 and $667 each year on gas. All else equal, it only pays to buy the hybird if you expect to keep your car for a long time (10 years at $3/gal, 7.5 years at $4/gal; at a discount rate of zero). Only in the case of a 100% city driver does the hybrid begin to make financial sense. You would need to keep your car for 4.375 years to make the hybrid pay off (at a discount rate of zero).

So, I can understand why someone would buy a hybrid -- saving the planet, etc -- but I don't fully understand why there are big changes in demand when gas prices rise a bit. Unless, there is a chunk of consumers at the margin eco-friendly margin who only need a small bump in gas prices to get them to go green.

Beware ex-ante cost estimates

Louisville C-J:

Already awash in red ink, the massive Olmsted Dam project on the Ohio River west of Paducah will be even more expensive — with a total cost approaching $3 billion.

The Army Corps of Engineers has a new cost estimate that adds $800 million to Olmsted’s bottom line, based on its continuing with the innovative and previously untried construction technique that was chosen about 15 years ago.

But in an effort to trim some of that extra cost, the corps is now considering switching back to a traditional construction method for the longest segment of the dam.

Officials also plan to review whether a switch could avoid construction delays now estimated at up to four years, for a project that’s already a decade behind schedule.

That means that the twin locks that are already part of the Olmsted Lock and Dam project — and were completed in 2002 — could be almost two decades old before they become operational in 2020, the corps says.

Benefit-cost anlaysts should routinely conduct sensitivity analysis over cost estimates, where the cost estimate is the base case (there is not best case) and the worst case is 20% to 45% higher (e.g., here).

User fees (post #425)

Louisville C-J:

Tolls of $1 to $10 per crossing will be used for far more than just paying for construction of two new bridges over the Ohio River, Kentucky and Indiana officials say.

The millions of dollars in annual revenue the tolls are expected to generate will also pay for maintaining and repairing the new bridges for at least 40 years — and potentially fund the replacement of the Kennedy Bridge around 2050, Kentucky highway officials said.

That means that Louisville-area residents could continue paying tolls to cross East End and downtown bridges long after their construction debt is paid off around 2058. ...

... the Louisville-Southern Indiana Bridges Authority ... said they will be “in the range” of $1 each way for frequent commuters, $2 for other passenger vehicles, $5 for box trucks and $10 for larger tractor-trailer rigs. Tolls would begin when the first bridge is built as early as 2017 and no later than 2018.

Traditionally, tolls have been used simply to repay the construction of bridges, but in this case the fees are also expected to pay all costs of maintaining and repairing the bridges and to also accumulate reserves that will be set aside for replacing the Kennedy Bridge.

Some local lawmakers argue it’s unfair to Louisville and Southern Indiana residents to pay those costs through tolls while federal highway funds that come from gasoline taxes are free to be spent elsewhere.

Rep. Jim Wayne, D-Louisville said the nearly $500 a year that commuters would pay to cross the Ohio River for their jobs amounts to “an unfair burden and an unjust tax.”

“We are subsidizing the rest of the state through this kind of financing structure,” he said.

Actually, commuters are more likely to pay more like $250 (5 days, 50 weeks) to use something that they value much higher. This does not seem to be an unjust tax to me. In fact, it seems like exactly the right way to finance an expensive capital project -- let the users pay. The problem seems to be in assigning gas taxes to pay for roads. I can see how that happened, politicians are loathe to be seen pricing a government service or project directly.

We just ain't a-gonna pay no toll, so we crashed the gate doing 98 ...

In a perfect world, building and maintaining road ways would be free:

[redacted name*] of Raleigh wants to know why she and her husband got bills in the mail from the N.C. Turnpike Authority, illustrated with photos of their license plates, for trips on N.C. 540 near Research Triangle Park.

The bills were for $0.00. ...

Read more here: http://www.newsobserver.com/2012/02/14/1853584/road-worrier-consider-those-baffling.html#storylink=cpy

The bill is a bleak warning from the N.C. Turnpike Authority to drivers on this section of 540: It's free now. But get ready to pay.

Between now and early August, thousands of drivers can expect to receive these baffling bills for zero dollars and no obvious sense.

This three-mile leg of the 540 Outer Loop in western Wake County, from N.C. 54 to N.C. 55, has been a toll-free ride since it opened in July 2007. But, with the consent of state and federal officials, it later was incorporated into the 18.8-mile Triangle Expressway - as the link between two new sections that otherwise would have been built as separate toll roads.

In January, drivers started paying tolls electronically on the first 3.7 miles of TriEx, an extension of N.C. 147 through RTP between I-40 and 540. ...

More than 14,000 drivers have N.C. Quick Pass electronic transponders in their cars, and the Turnpike Authority has deducted about $125,000 in TriEx tolls from their accounts so far.

Another $60,000 in tolls has been billed to the owners of cars without transponders, who received invoices based on photos of their license plates. Some bills are for as little as 45 cents, and the Turnpike Authority has actually received checks for that tiny amount.

The agency wants TriEx drivers to use the N.C. Quick Pass. So it gives transponder users a 35 percent break on the toll rate. These no-charge bills serve as direct-marketing messages for drivers on a free road about to become a toll road. ...

"I have no intention of paying tolls," [redacted name] said. "I don't want to give my credit card number to the state and have a transponder, and I don't want to pay double because I don't have a transponder."

via www.newsobserver.com

Next time, I bet she'll take a cab or bus. Or ride her bike. Or form a mighty convoy ... ain't nothing gonna get in her way.

*It's easier to unfairly make fun of the anti-economic-reality quotes if you redact the name.

A recommendation to the deficit cutting panel

 I just don't get these public transit projects:

The light-rail extension to UNC Charlotte is on schedule to open in 2017, but two uncertainties hang over the project - the local economy and budget-cutting in Washington, D.C. ...

CATS said it believes the project will meet the Federal Transit Administration's threshold for cost-effectiveness, and the transit system is upbeat as to how the train extension is progressing. ...

In January, CATS announced it was eliminating two stations at the end of the line to save money. The new plan has the line ending at UNCC rather than at Interstate 485.

That decision cut $203 million and brought the estimated cost to $967 million. But CATS said Monday the price has increased by $93 million, to $1.07 billion. The main reason is that the federal government told CATS it should include additional finance charges in its construction costs because the transit system might not receive federal money as quickly as in the past.

CATS needs the FTA to pay for half of the construction - $535 million. The N.C. Department of Transportation would pay for 25 percent - $267 million - with CATS paying for the rest.

According to the Blue Line Extension Fact Sheet [PDF], there are an expected 24,500 average weekday trips by 2035. Assuming that these begin in 2017 , they grow at a 0.5% rate until 2035, and assuming that the travel time savings is 20 minutes (the total trip time across the 9 stops is 22 minutes) yields an estimate of the annual time saved at 242k hours in 2017 and increasing to 6.4m and 8.4m in 2035 and 2046 (note that average travel time to work is 25 minutes in Mecklenberg County). Assuming an hourly wage rate of $27 (household income divided by 2000 hours) and attributing 100% of the wage to the value of time saved yields an annual benefit estimate of about $8.2 million in 2017 which grows to about $35m in 2046 (discounted at 2%). Note that most all of my assumptions are likely generous.

As far as I can tell the present value of annual benefits minus the construction cost and "estimated $11.5 million in operating costs" yield a present value of net benefits of minus $464m. That means that the benefits of lower congestion, stronger neighborhoods, improved environmental quality, etc. would need to cover the difference and then sum in order to make this look like a good project. If each household in Mecklenberg County is willing to pay $10 annually for these benefits (a round number guess), households grow at 2%, and future benefits are discounted at 2%, the present value of nonmarket benefits is $76m. The net present value is minus $384m. If each household in Mecklenberg County is willing to pay $100 annually for these benefits, households grow at 2%, and future benefits are discounted at 2%, the present value of nonmarket benefits is $793m. The net benefits are $330m and the benefit/cost ratio is 1.25. Note that it takes a very optimistic willingness to pay to make the project look like a good (not great) one.

Looking at this another way, the Blue Line Extension would need to save about 6 lives each year (a reduction of about 7.5%, valued at $6 million each), for the benefit/cost ratio to reach 1.25.

Instead of a cost-effectiveness rule, I think the FTA should use a benefit-cost rule.

What did I miss?

Picture of the day

Can you see the white line in the shadow of the Lexus?