Environmental Economics

A mulligan on taxes versus subsidies...

In a post earlier this week I said:

Environmental Economists have long argued that in a simple world, a tax on 'bad' actions or a subsidy on 'good' actions can result in the same net outcome.  That is, both are economically efficient.  It's just a matter of who gains and who loses from the tax or subsidy.

Now I'm here to say...I screwed up, I was wrong, my bad.  In an attempt to make a simple point, I oversimplified and SteffenH called me on it.  So I'm asking for a Mulligan.  Read on...

Reindeer economics

From the WSJ's Evening Wrap:

How much is one of Santa's reindeer worth? According to the Danish Air Force, about $5,000. That is what they paid Olavi Nikkanoff, a Danish farmer who plays Santa Claus at Christmas, to compensate for one of his reindeer, named Rudolf, who was apparently killed by two F-16 fighter jets earlier this year. The reindeer was not shot out of the sky, however; rather, he was minding his own business on Mr. Nikkanoff's farm when the jets screamed overhead at a low altitude, scaring poor Rudolf to death. Mr. Nikkanoff said he was satisfied with the compensation and would use it to buy a new reindeer before Christmas.

Meanwhile, reindeer sausage, chips and a drink costs $5 on a street corner in Anchorage, AK.

The Endangered Species Act is Endangered

The environment surrounding The Endangered Species Act is becoming less hospitable:

Threatened and endangered, Editorial, The Oregonian: After 30 tumultuous years, the Endangered Species Act sorely needs a thoughtful, rational rewrite ...Instead, the U.S. House is bulling ahead on an ill-considered reform plan, rushing to a vote Thursday on a bill crafted largely by Rep. Richard Pombo, R-Calif., the leading critic in Congress of the Endangered Species Act. The act is "broken," Pombo says, noting that only 10 of roughly 1,300 species have recovered enough to be removed from federal protections. But ... at least all but a handful of them still exist. Only nine species have gone extinct since the act was adopted in 1973. Either way, Pombo's bill is ... ultimately ... about reducing the power of federal wildlife agencies and lifting the burden of species protections from private landowners and those who log, mine and drill in public lands.

More on ITQs at Reason.com

From How to Save New England's Fishing Villages: If only the fishers will allow it:

We know that IFQs work. They were adopted against great opposition in various Alaskan fisheries including the halibut, sablefish, and pollock fisheries in the 1990s. The halibut season was once 10 months long, but due to overfishing, the government fisheries managers kept shortening the season as way to limit catches. It didn't work; the fishers boosted their catches with better and better gear. By 1994, the halibut season was down to two chaotic 24 hour "derbies," yet the overall catch size was about the same that it had been when the season had lasted 10 months.

...

In 1995, the madness came to an end when fishers finally adopted IFQs. IFQs work by assigning rights to a percentage of a scientifically determined total annual allowable catch to specific fishers. ... Under the IFQs, the halibut season was expanded to 245 days, and fisher safety has greatly increased because boats can stay in port when the weather is bad. The pressure to overfish is now much less because IFQ holders understand that 1 percent of a bigger pie is better, so they leave more fish breeding in the sea so they can catch more in the future.

Note: IFQs are Individual Fishing Quotas, different from Individual Transferable Quotas (i.e., tradeable). Thanks to env-econ reader Joshua Corning for the tip.

Comments on Stavins' gas tax at Brad DeLong's Semi-Daily Journal

33 comments so far on Stavin's latest column at Brad DeLong's and 3 comments here (I suppose we have all the env-econ crowd either convinced or gas tax fatigued). But I think our comment/reader ratio is better (on this post) since we get less than 1/11th the readers of Brad DeLong!

My fav comments are always that a gas tax is politically infeasible so we shouldn't talk about it.

Quantity demanded for gas vs. gas demand

I found some interesting tidbits about retail gas pricing in the big-city paper (Here comes another Charlotte Gas Spike). The article concludes with this:

Dropping demand -- estimated at 5 percent to 8 percent lower than a year ago -- could help dampen price spikes, Felmy said.

"You can't always pass on price increase," he said, "because you might lose more business."

It is actually quantity demanded (a movement up the demand curve) that is dropping but that is too tricky to put in the paper. Dropping demand would be caused by something other than the gas price increase (e.g., dropping income).

This mistake in terminology happens all the time in the papers and it always bugs me. Should it? Yes, dropping demand causes prices to fall and that is the wrong prediction.

What do we think? What do we know? What can we prove?

I borrowed the title from an NFL prediction column by ESPN.com's Sports Guy Bill Simmons who borrowed the line from the 1993 movie 'And the band played on...'---a very good made for TV movie on teh CDC's initial attempts to identify and track the AIDS in the U.S.  Anyway, I thought it was an appropriate title given Saudi Arabia's recent announcement that they are doubling their previous estimates of current oil reserves. 

The Quincy Library Group: Grassroots Collaborative Decision-Making

When economists talk about environment decision-making, they are usually referring to techniques such as cost-benefit analysis, tradable pollution permits, and contingent valuation. But when non-economists – biologists, foresters, land managers, sociologists, political scientists, ecologists, etc. – discuss environmental decision-making, they virtually never mention these techniques.

Instead, among non-economists, academic analyses in recent years have concentrated primarily on techniques variously known as public participation, consensus-building, collaborative decision-making, and alternative dispute resolution. In each case, the underlying presumption is that decisions about the environment will not be made by government bureaucrats, but collaboratively by those private individuals who have an interest in how our land, water, and air are used.

Rob Stavins on the gas tax

Rob Stavins' fourth column in his "An Economic Perspective" series from The Environmental Forum deals with the gas tax. Coincidence? Maybe. Strange, but true? Mos' def'.

Here is my favorite excerpt from "A Tale of Two Taxes, A Challenge to the Hill,"

According to the U.S. Department of Energy, a 50-cent gas tax increase could eventually reduce gasoline consumption by 10 to 15 percent, reduce oil imports by perhaps 500,000 barrels per day, and generate about $40 billion per year in revenue. Furthermore, this approach would be far more effective than ongoing proposals to increase the Corporate Average Fuel Economy standards, which affect only new cars (not trucks or other vehicles) and lead to serious safety problems by encouraging automakers to produce lighter vehicles. Remember that a major effect of CAFE standards has been to accelerate the shift from cars to SUVs and light trucks (so that overall fuel efficiency of new vehicles sold is no better than it was a decade ago, despite the great strides that have taken place in fuel efficiency technologies).

See our five most recent post for more info on the gas tax, CAFE standards, subsidies for cleaner cars, etc. We'll change the subject when Congress passes a higher gas tax and the President signs it (i.e., never). Sigh.

Update: underlined word

SUV Tax or Hybrid Subsidy?

Environmental Economists have long argued that in a simple world, a tax on 'bad' actions or a subsidy on 'good' actions can result in the same net outcome.  That is, both are economically efficient.  It's just a matter of who gains and who loses from the tax or subsidy.  Well, it looks like Massachusetts (some in the legislature, that is) has decided that a subsidy for hybrid drivers may be the way to go.