Environmental Economics

Lending tree

Wachovia aims for new kind of green:

Wachovia Corp. announced commitments Thursday to reduce its own impact on the environment, refuse loans to companies that log rainforests and consider more lending to projects "that have a positive impact on climate change."

And the green grass grow all-around, all-around

Scotts Miracle-Gro*, the fertilizer manufacturer, reported record sales in FY 2006.  And the company is convinced that the demand for fertilizer is price inelastic (rich suburbanites don't react to price changes).

"While it may be difficult to consider lawn-and-garden products a true consumer staple, the (sales) data suggests that consumers are unlikely to forgo purchasing our products, even in the face of macroeconomic pressures."

Hmmmm...maybe a green grass tax* is in order.  But if demand is really inelastic, all that would do is raise tax revenues and not solve the run-off problem.  Mayber that's not such a good idea. 

*Scotts Miracle Gro is local to central Ohio.  I have a few friends who work there (including a head of one of the national sales divisions).  I hope they don't read this.

Own-weight elasticity

The Daily Grist picks up on a forthcoming study that says heavier people use more gas:

Here's more motivation to go on that diet: You'll use less gasoline. Non-commercial U.S. vehicles are using at least 938 million more gallons of gasoline annually than they did in 1960 because drivers and passengers are considerably heavier and are dragging down fuel economy, says a University of Illinois study to be published in The Engineering Economist. In 1960, the average adult female weighed 140 pounds and the average male weighed 166; in 2002, the averages were 164 and 191 respectively, and 62 percent of adults were considered overweight. That 938 million gallons is no shabby amount: It represents $2.8 billion if gas is selling for $3 a gallon, and could fuel some 1.7 million cars for a year, or feed the entire U.S. gasoline addiction for three days. "We had no idea the numbers would be this big," said study coauthor Sheldon Jacobson, who calls using less fuel an "unexpected benefit" of losing that spare tire.

I'm not saying that I don't believe it, but ...

Robert Frank disses the happiness-income critique and ...

... has something to say about economic growth and environmental quality (Prospering ... ):

Critics of economic growth cite its threat to the planet’s survival. Yet it is not growth per se that threatens, but rather certain kinds of growth. Driving more S.U.V.’s causes harm, but taking more piano lessons does not. Any country with a government not beholden to corporate interests could easily curb environmentally harmful activities through taxation and regulation, redirecting spending toward things that really matter. Across developed countries, higher growth rates are actually associated with cleaner environments, not dirtier ones. The United States is the world’s largest emitter of greenhouse gases not because of its wealth but in spite of it.

What to say to a climate skeptic

AKA, what to say to Tim the next time he is a bit skeptical that climate change is a big economic problem, courtesy of the Gristmill:

No matter how many times they are bludgeoned with informed rebuttals, the same skeptical arguments about climate change keep lurching back to life like zombies. It can get tiresome searching for the same counterarguments over and over again. A new series on Gristmill aims to put all those counterarguments in one place, for easy access. Think of it as a rhetorical ammunition stash. How to Talk to a Climate Skeptic kicks off today -- check it out.

High oil profits mean economic models are working

It was tempting this morning to write a highly sarcastic post about Exxon reporting $10.5 billion in profits for the 3rd quarter of 2006.  You know, greedy sumsabeaches, and all that.  But since I'm trying to be a little less cynical these days, instead I want to talk about this:

Although oil prices were higher in the third quarter of 2006 versus the fourth quarter of 2005 and Exxon produced more crude, the costs of getting that oil out of the ground skyrocketed as oil firms raced to ramp up output, causing a huge demand for workers and equipment.

This is exactly what economic models of depletable resource extraction predict. 

Coal power

The most basic story in environmental economics, the one that even most introductory economics classes get, is that if the benefits of pollution control are greater than the costs, the polluters should be faced with government policy that gives them incentive to internalize their negative externality. That is, polluters should adopt measures that reduces the pollution to an efficient* level, increases prices of the polluting product and reduce consumption of the polluting product (it a totally clean production technology is not available). So what's up with this?

Thanks to the high prices of oil and natural gas, the electricity industry is turning back to coal, America's oldest and most abundant fossil fuel, to drive a new generation of power plants. The upshot is that even as politicians take the threat of global warming more seriously, the problem may get much worse.

Actually, if electric utilities have incentives to burn more coal then politicians aren't really taking the threat of global warming more seriously.

What is your P.E.M.T.?

P.E.M.T.--I just created the acronym, stands for Prius Equivalent Miles Travelled.  Here's a slightly tongue-in-cheek article from tmz.com (no idea what the site is, it was linked to on Drudge) on preachy 'green celebrities' and their travel habits.   Julia Roberts, George Clooney, Jennifer Lopez, Brad Pitt, Leonardo DiCaprio...all drive Prii.**  Yet all but one fly in private jets.  The article converts the air travel to Prius equivalence.  For example, one of Brad Pitt's private flights to Namibia (9400 miles) uses enough fuel to drive a Prius to the moon. 

My favorite quote:

Clooney's rep, publicist Stan Rosenfield, tells TMZ, "You clearly have no understanding of certain people's need for private transport,"

Clearly.   Keep reading to learn how to calculate your own P.E.M.T.

Carbon offsets in the rainforest

During the week I start incentive-based regulation in environmental econ, mr. nobody sends me this from BBC News (Carbon trade ...):

Carbon trading can be used to protect endangered rainforests by compensating nations that avoid deforestation, the World Bank has said.

It has suggested that industrial states offset their carbon emissions by funding projects designed to reduce deforestation in developing countries.

An example of Coase at work

Here's a nice example of bargaining solving a property rights dispute with little government intervention.  From the Baltimore Sun:

In time for a public hearing tomorrow, the Eastport Civic Association and the Annapolis Yacht Club have come to an agreement on preserving Eastport's view of the historic downtown waterfront.

Both groups support the goals of the ordinance before the City Council: to preserve an unobstructed view of downtown from Sixth Street. But that could restrict the building and redevelopment abilities of property owners.