Environmental Economics

Thanks for All the Fish!

Dear Everyone,

I've had a great time guest blogging over here, and I hope to see you over at my daily blog (aguanomics).

Today's post: What is Aguanomics?

Thanks John and Tim -- see you in the comments section!

Cheers!

David

The Wrath of Kahn

John just sent me a link to this at Environmental and Urban Economics via google reader (I thought he was on vacation). 

Academics write at a leisurely pace. Perhaps an upcoming NBER Summer Institute deadline or a January AEA Session date makes you pick up the pace to actually meet a deadline. In March 2008, Ed Glaeser and I released this report where we used a variety of data sets to measure a standardized household's greenhouse gas emission if this household lived in 66 major metropolitan areas (i.e Houston, Los Angeles, Boston etc). The Glaeser/Kahn Short Report on the Urban Greenhouse Gas Footprint

We continue to refine our approach and will pretty soon release our academic paper as an NBER Working Paper. This paper uses 10 different data sets to generate our estimates. We have micro data on transportation and gallons of gasoline, data on home electricity use, natural gas use, home fuel oil use, commercial building energy consumption, electric utility emissions factors etc. We need micro data to standardize the data. If rich people live in New York and poor people live in New Orleans, New York will look "brown" not due to urban form and climate but due to income effects. The poor do not have the resources to consume a lot and this shrinks your footprint.

Unknown to me, we had a rival on the "big think" points of our study. Brookings contracted with a talented team to write their own study on rankings cities with respect to their carbon footprint. Here is their report; Brookings Brief .

The New York Times has picked up the story based on the Brookings study and I am a pinch envious. In our defense, I bet that our study's core methodology is more rigorous and more accurate than theirs but their ranking looks a fair bit like ours. California's cities rank great because of the climate, that the electric utilities use natural gas rather than coal, and households consume relatively little electricity in California.

In hindsight, I wish that I had made a bigger public relations push with our study as we continued to refine it for academic reviewers.

I'll admit, I took the easy way out by just looking at the AP story--without digging further.  And I'll agree that academics often do a poor job of promoting their own work.  But I love this:

In our defense, I bet that our study's core methodology is more rigorous and more accurate than theirs but their ranking looks a fair bit like ours.

Academics hate to get scooped.  And a good academic fight is always fun to watch--as long as I'm not in it.  I fight dirty--and usually lose.

A Pause for Thought

This post is slightly philosophical (no gas prices here!), so put on your thinking cap.

And stop for a moment to imagine what kind of philosophical question would appear on this blog.

Hold that thought. If I don't get to it, feel free to ask your question in the comments.

So -- I want to talk about pauses and information.

The pause refers to stopping to consider what has just been asked of you. William Buckley was a master of the pause, stoners are good at pauses, kids often make you pause, and most professors know about that terrifying (for them? for the students?) pause following their question.

What happens during that pause is that someone is thinking about something they have not previously considered. They are putting the question in a context that combines their knowledge, opinion, belief and audience. A thoughtful answer will illuminate the question (and the respondent) to the questioner and bystanders. Socrates had it right.

Apply this notion to environmental topics. The first thing you know is that many people do not pause on environmental questions. This may be because they are expert on the topic (and do not have to pause) or because they are opinionated (and do not want to pause). Those who do pause before responding (and blog readers often do -- because words are patient) often learn while teaching.

The reason that pauses matter more with respect to environmental topics (as opposed to, say, which motor oil to use) is that we have so little information on the environment, which brings me to a related issue.

On global warming, water quality, or GMO foods, we know very little. We can model dynamics as if we know (setting parameters, guessing variables, assuming functional forms, etc.), but our information  environment is worse than the case with blind men and an elephant. We are many men who do not know (or believe) they are blind, cannot talk to each other, and are feeling different elephants. 

The information problem (or knowledge problem :) is absolutely profound in environmental studies, and environmental economics in particular. That's because most environmental science does not include human behavior. Economics, as a social science, must include human actions and reactions as an endogenous component that will not only complicate calibration (how will humans respond?) but also alter the system from within (Heisenberg Uncertainty Principle on steroids).

It gets worse. People have strong emotions about the environment and opinions on what is true, false, good and bad (the morality!). From this, we know that they will acknowledge or ignore information in proportion to its contribution to their beliefs -- reinforcing, rather than reducing prejudices. This behavior is not economical (since the gains to trade among different views are largest when there is little common knowledge), but that does not stop people from acting that way. (Not us, of course!)

The "solution" to the resulting problems (people talking past each other and deadlock) is a greater respect for, and use of, the pause.

Bottom Line: Think about it.

Green Acres: Who has a bigger carbon footprint?

Interesting story on a study out of Georgia Tech comparing per capita carbon footprints by city:

While cities are hot spots for global warming, people living in them turn out to be greener than their country cousins.

Each resident of the largest 100 largest metropolitan areas is responsible on average for 2.47 tons of carbon dioxide in energy consumption each year, 14 percent below the 2.87 ton U.S. average, researchers at the Brookings Institution say in a report being released Thursday.

Some highlights:

• Cities with the largest carbon footprints are mostly in the eastern half of the country from Indiana to western Pennsylvania -- areas that rely heavily on coal for electricity production and natural gas for heating.
• Lexington, Kentucky, had the biggest per capita carbon footprint: Each resident on average accounted for 3.81 tons of carbon dioxide in their energy usage. At the other end of the scale was Honolulu, at 1.5 tons per person.

It's tempting to conclude that any carbon reduction policy should target the highest emitters.  But that would be faulty logic--or at least bad economics.  Efficient policy design requires policies target the least cost reductions.  That may or may not be the biggest emitters.  The easiest way to guarantee a policy is efficient?  Establish a price for carbon and let it be traded--I'll bet you could see that coming a mile away.

Are gas prices becoming more volatile?

Now that I've let our guest blogger, David Zetland, get his feet wet (pun intended--he's a newly minted water economist--get it?) I decided to take up his challenge to look at world gas prices.  Then after I looked at the wikipedia gas price list, I decided I didn't really have anything useful to say (do I ever?) about world gas prices and instead I would return to my jingoistic roots and look at U.S. gas prices. 

We all know gas prices are going up.  But are they also becoming more volatile over time?  The graph to the right should look familiar--it's real (i.e. inflation adjusted) gas prices from 1990-present and there is a distinct upward trend.  But what my finely trained eye also sees is increased price variability in recent years.  So let's take a closer look...

Was Julian Simon Right about the Wrong Thing?

In a famous bet, Julian Simon and Paul Ehrlich put their money where their mouths were on the question of "running out of precious resources." Ehrlich thought that the world was going to hell in a handbasket due to overuse of resources; Simon thought that human ingenuity ("the ultimate resource") would find ways to stretch resources such that they would not "run out." The bet, made in 1980, was that the price of five metals would rise (Ehrlich) or fall (Simon) over the next decade.

By 1990, the prices were lower and Ehrlich lost.

I was at the annual dinner of the Competitive Enterprise Institute (a think tank somewhere between CATO and AEI) last night when they handed out the annual Julian Simon award for advancing the free market environmentalism that Simon espoused, and I got to thinking.

Although I am a free market type, I think that Ehrlich lost a sucker-punch bet. Economists like Simon, after all, possess abundant evidence that humans are capable of innovating around and substituting for scarce resources. Ecologists and environmentalists (Ehrlich was a biologist) do not understand human structures as well, but they do understand carrying capacity, sustainability, etc.

I think that Simon deserved to win that bet, but he would have lost a bet on the bigger picture: If there's anything that global warming should tell people, it's that human innovation affects the environment, the environment will give negative feedback, and we will just have to deal with it. The environment, like some other "goods" with few substitutes (oil, water, ocean, air) is only getting more "expensive" as its quality decays, i.e., as a healthy environment grows more scarce.

Ehrlich lost the battle, but he won the war. Too bad -- for all of us -- that his was a pyhrric victory.

Today at Aguanomics: The USDA Sees the Light, i.e., global warming is going to cause severe problems in the western US (and small ones elsewhere).

Erratum: Spelling error corrected.

Quote of the Day

When fisheries management and fuel prices collide...

"Short-term solutions are the most popular in political terms, but they have no lasting effect," said Portuguese Agriculture Minister Jaime Silva.

Silva's quote is a reaction to European anglers complaints that the allowable subsidies under EU regulation are currently too low in light of high diesel prices.  But really, couldn't this quote be interpreted as a general statement about policy design?

Who's Your Daddy?

All administrations make political appointments to executive agencies, generally at the highest level. These appointees often bring more political than technocratic knowledge with them, and they can have a serious impact on agency operations.

It doesn't take very much imagination to understand the implications of political interference with an agency that relies on its scientific credibility in advising on the design, implementation and enforcement of laws that affect everyone. The Bush-appointed Administrator of the EPA has been called to testify on his "interference" with EPA scientists, which the Union of Concerned Scientists has condemned:

On numerous issues—ranging from mercury pollution to groundwater contamination to climate change—political appointees have edited scientific documents, manipulated scientific assessments, and generally sought to undermine the science behind dozens of EPA regulations.

Take this excerpt from an article covering the testimony of EPA Administrator Johnson before the House Oversight and Government Reform Committee:

Rep. Henry Waxman, D-Calif., the committee chairman, said depositions provided by senior EPA staff members suggest that Johnson had been overruled or heavily influenced by the White House on recent EPA decisions on the smog standard, its rejected of a waiver for California on global warming regulations, and the EPA ongoing deliberations on whether to regulate carbon dioxide.

''You have essentially become a figurehead,'' Waxman told Johnson. ''... In each case, you backed down.''

He said in each of the EPA cases ''the pattern is the same. The president apparently insisted in his judgment and overrode the unanimous recommendations of EPA scientific and legal experts,'' said Waxman. ''You reversed yourself after having candid conversations with the White House.''

And those of you who want to watch Rep. Waxman trying to get an answer on "guidance" or "steering" out of Johnson (and yelling at Rep Issa (R) for trying to stop the questions) should check out this video:

Bottom Line: Political interference with the EPA is undermining its current operations and weakening its future credibility. If the Bush administration manages to discredit the EPA now, who is going to trust the EPA in the future?

Today at Aguanomics:  Right Way Wrong Way (Egypt et al. are making the food crisis worse) and Photogenic Losers and Fat Cats (a few suffer while incompetent irrigation officials stand by)

Facing my fears

Every Memorial Day weekend we meet friends at a cabin in Burnside, Kentucky.  Four adults and six kids, ranging in age from 5 to 11 (the kids, not the adults).  Saturday morning, the kids were on the porch playing, the wives were out on a lovely nature walk, and I was comfortably plopped on the couch doing absolutely nothing.  My relaxation was broken by a blood-curdling scream of "TIIIIMMMM!" from my friend and three kids sprinting up the steps screaming "SNAKE!" 

Read on...

Drive Less?

I was looking for these data the other day -- average gas prices around the world -- from $0.17/gal in Venezuela to $18.42 in Sierra Leone. Hmmm...

Oh, it's on wikipedia (that explains the $18.42/gal). Go to work, fellow editors!