Environmental Economics

Coase in practice

It's rare to find a clear cut (pun intended) example of Coasian bargaining over nonmarket environmental amenities. Here's one--and if you read all the way to the end there's an opportunity for you--yes you--to take part in the bargaining:

In the shadow of towering Douglas firs, two deer stop and stare at a small group of humans wandering toward them.

Ninety years ago, deer like these had no place to hide. All of Heybrook Ridge was bare, and the town in the valley below was thriving.

Few complained back then about the denuded hillside. Logging and the carving of granite blocks out of nearby mountains put Index on the map. The straight, fine-grained timber was the best on the market. The granite was also choice -- used to build the steps of the state Capitol.

But last year, when the logging company WB Foresters proposed another clearcut on the ridge, town folk rallied against the idea.

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Does the noise of angels bother satan?

From the inbox:

You can tell economics has perverted my mind when the first thing that comes to mind is Coase, but perhaps that is because I just recently caught up reading Tim's latest blogs on Coase (Noise charge dismissed, kids' squeals OK):

Warning: Exposure to hurricanes may cause lung cancer

From the AP:

Teenagers in a southeast Texas county were more likely to smoke cigarettes if they or their family members were affected by Hurricanes Katrina or Rita, according to a university study.

[...]

Almost 38 percent of students who reported they had a family member hurt or killed in the 2005 hurricanes also reported that they now were smoking, according to the study. In comparison, 13 percent who did not endure a death or injury in the family said they smoked.

I'm not going to question the link, because I'm sure there is one.  But I do wonder whether the the study controls for other possible traits that might be correlated with hurricane injury risk and smoking. 

Coulda, Shoulda, Woulda

I haven't tried sarcastic commentary on a news article for a while--so here goes.  From The Independent:

In an extraordinary outburst aimed at America's failure to tackle global warming, Al Gore says that if scientific agreement on the climate crisis had been reached sooner it would have been easier to "galvanise the public and persuade Congress to act".

The failed presidential candidate claims that the stronger scientific consensus he knew was about to emerge meant "we in the US were about to shift into high gear in addressing the climate crisis". Mr Gore argues that if he had made it to the White House, he would have been able to use the office as a "bully pulpit" to achieve change.

I'm not sure which is worse--the agenda driven Gore, or the agenda driven writer.

Carbon taxes over cap-and-trade

Following up Mark Thoma's posts last night (uno and deus), here is an opinion from The Economist:

THE pressure for political action on climate change has never looked stronger. Even George Bush has now joined the leaders of other rich countries in their quest to negotiate a successor regime to the Kyoto protocol, the treaty on curbing greenhouse gases that expires in 2012.

Too bad, then, that politicians seem set on a second-best route to a greener world. That is the path of cap-and-trade, where the quantity of emissions is limited (the cap) and the right to emit is distributed through a system of tradable permits. The original Kyoto treaty set up such a mechanism and its signatories are keen to expand it. The main market-based alternative—a carbon tax—has virtually no political support.

A pity, because most economists agree that carbon taxes are a better way to reduce greenhouse gases than cap-and-trade schemes. That is because taxes deal more efficiently than do permits with the uncertainty surrounding carbon control. ...

And, thank you, thank you, thank you for this bit of truthiness:

Too many politicians pretend that carbon taxes will hurt consumers more than a cap-and-trade scheme, even though the cost of carbon permits will be passed on to consumers just as quickly as a tax.

And, here is what I've been saying (and getting royally ripped for it):

Politicians are heading down the second-best path to combat climate change, but it may be the only one that leads anywhere.

Jeffrey Frankel: Next Steps after Kyoto

Since John and Tim haven't had the heart to ask for the keys to the blog back and I still have posting privileges here, I thought I'd take advantage [cross-posted].

Jeffrey Frankel believes the Kyoto Protocol represents our best chance to address global warming, but it's "severely incomplete." Though the Kyoto Protocol's quantitative targets are not "the economist’s favourite choice, a global carbon tax, they built desirable market mechanisms such as international trading into the agreement." Here are his views on how to build a successor to the Protocol that will "build on what is good about it and fix what is most lacking." This proposal, which is part of a larger effort (see the note at the end), deals very specifically with many problems such as how to overcome dynamic inconsistency (the inability to bind future governments to today's agreements), how to encourage developing countries to join the agreement, and how to incorporate future uncertainties into the policy framework:

Next steps after the Kyoto Protocol: formulas for quantitative emission targets, by Jeffrey Frankel, VoxEU: Quantitative emission targets for the 21st century must be set sequentially, a decade at a time, within a long-term framework. A good analogy is the GATT, which produced 50 years of trade liberalisation, the specifics of which the original signers could only have guessed.

It is a sign of how resigned the world has become to an absence of enlightened leadership from the United States that some were prepared to receive positively President Bush’s new position on Global Climate Change at the recent G8 meeting in Germany. The President conceded that it is a problem that is worth addressing. It will take more than this, however, to begin genuine progress on the problem.

"Assessment of U.S. Cap-and-Trade Proposals"

And, while I'm at it (see the post above this one), this is from the NBER:

Assessment of U.S. Cap-and-Trade Proposals, by  Sergey Paltsev, John M. Reilly, Henry D. Jacoby, Angelo C. Gurgel, Gilbert E. Metcalf, Andrei P. Sokolov , and Jennifer F. Holak NBER WP 13176, June 2007 [open link]: Abstract The MIT Emissions Prediction and Policy Analysis model is applied to synthetic policies that match key attributes of a set of cap-and-trade proposals being considered by the U.S. Congress in spring 2007.

I'm a genius

Check out YouNoSneaky! and Dani Rodrik's 15 Commandments for and about economics. I like this one:

Anyone who makes exaggerated claims about their pet theories, ideas, or solutions, be they mainstream or heterodox, either doesn’t know what they’re talking about, hasn’t done their homework or is trying to sell you something. “Our results SUGGEST…” is a good indicator that a person has thought hard about their subject. At least as far as these things go. A thorough method combined with some humility should invite more attention than extraordinary claims of genius. Scientific progress takes place at the margin.

I think an increase in the gas tax will solve all of the world's problems (note: I'm a genius AND trying to sell you something).

Hat tip: Matt Hickman

CAFE Standards and the new Energy Bill

A while back I posted a definitive proof that all politicians are idiots.  Well, they're at it again.  Last night, the U.S. Senate passed a new Energy Bill.  And at first glance, it contains more overwhelming evidence of the unwillingness of Congress to pay attention to basic economic principles.

From CNN.com:

The Senate passed an energy bill late Thursday that includes an increase in automobile fuel economy, new laws against energy price-gouging and a requirement for huge increases in the production of ethanol.

In an eleventh-hour compromise fashioned after two days of closed-door meetings, an agreement was reached to increase average fuel economy by 40 percent to 35 miles per gallon for cars, SUVs and pickup trucks by 2020.

I'm not a fan of CAFE standards.  I like targeting the externalities directly (through prices) rather than command and control.  If I want to drive a gas guzzler that should be my prerogative, as long as I pay the full social cost of my driving--which I don't currently but that's because nobody is making me.  Yeah I know it's childish.

But what really scares me about this excerpt is the casual mention of "a requirement for huge increases in the production of ethanol."