Environmental Economics

The tax simply isn't high enough

From Environmental Capital:

If Norway can’t slash emissions almost two decades after slapping a hefty pricetag on carbon, what does that say about the belief that “making polluters pay” will automatically transform America’s economy?

PhD Comics on the economic meltdown

Here is the link: http://www.phdcomics.com/comics/archive/phd092908s.gif. Make sure that you follow the grad student questions down to the econ major section ...

We're among the best out there

From the inbox:

We recently launched Blogs.com as a site to connect readers to the best blogs on their favorite topics. Our editors combed millions of blogs to put together a curated list of 1100 across several categories. We consider these sites to be the best blogs out there in terms of visibility, relevance and reputation. [emphasis added for self-gratification]

CONGRATULATIONS!  Your blog is featured on Blogs.com in the Business category: http://cts.vresp.com/c/?SixApart/dc9559a310/1d7709de19/0ff4d01c33

Woohoo!

A libertarian economist's take on the bailout

As an environmental economist who advocates government intervention in markets to correct market failures, I don't agree with everything Harvard Libertarian economist Jeffrey Miron says in this CNN.com commentary...but I don't disagree with everything either--like this:

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

In other words, markets work if we get out of the way.  They might not make everyone happy all the time, but they work. 

The RGGI price of CO2

Paraphrased from bits and pieces on the RGGI webpage:

On September 25, 2008, the Regional Greenhouse Gas Initiative conducted its first sealed bid, uniform price auction and sold 12,565,387 CO2 allowances. All allowances offered in Auction 1 were sold at a clearing price of $3.07. The next auction is December 17.

According to some basic microtheory, the marginal cost of CO2 abatement is around $3 since there is no reason to bid above your abatement cost [unless you think you can buy allowances at a low price and flip them to suckers who missed out on the low price or to those who want to flip them again creating a speculative bubble that drives the U.S. economy into the freakin' ground].

A water pricing debate at The Economist

From the inbox:

I saw your blog, Environmental Economics, and thought that you and your readers would want to know that tomorrow, September 30^th The Economist will start a two-week long Oxford-style online debate on the value of water. The proposition is “This house believes that water, as a scarce resource, should be priced according to its market value.”

Keep reading below but note, this is a long-ass email. I'm glad gmail doesn't charge by word.

For whatever it is worth, I'm a fan of water pricing. Surprise.

One more way we are the top Environmental Economics blog

Adding fuel to our friendly* rivalry with Kaahhhnnn at the Environmental and Urban Economics blog, Professor Kahn reports that UCLA received a B- on the 2009 College Sustainability Report Card.  Well, I guess the Big Ten can beat the Pac-10 every once in a while---Ohio State=B**.

*At least it's friendly on our side.  For all we know, Kahn thinks we're @$$h0!&$.

**I tried to add Appalachian State to the list, but apparently they're not ranked. 

Blind leading the dumb*

From the inbox:

What is your official stance on the bailout?  I'm trying to figure if I'll ever be able to retire.

My reply:

I hope it works.

It is probably a good idea in the short run … if it helps avoid a really bad recession … but the economy is still likely to suck for awhile.

In the long run it is a terrible idea as business firms are likely to engage in even more risky behavior since they know that government is so willing to insure them against huge losses. 

The $700 billion is about the same as our annual national defense budget, about 5% of GDP. That’s huge and scary and an enormous amount of money to borrow when we have big deficits already. Some day China might decide not to lend us more money and interest rates will spike regardless of what the Fed does.

*I teach college level macroeconomics and I approved this post. I'm also an immature jerk who can't get over an insult.

Is there any chance I'll be able to read this?

Addressing Climate Change with a Comprehensive U.S. Cap-and-Trade System
Date: 2008-09
By:  Robert N. Stavins (Harvard University)

URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2008.67&r=env
There is growing impetus for a domestic U.S. climate policy that can provide meaningful reductions in emissions of CO2 and other greenhouse gases. I describe and analyze an up- stream, economy-wide CO2 cap-and-trade system which implements a gradual trajectory of emissions reductions (with inclusion over time of non-CO2 greenhouse gases), and includes mechanisms to reduce cost uncertainty. Initially, half of the allowances are allocated through auction and half through free distribution, with the share being auctioned gradually increasing to 100 percent over 25 years. The system provides for linkage with emission reduction credit projects in other countries, harmonization over time with effective cap-and-trade systems in other countries and regions, and appropriate linkage with actions taken in other countries, in order to establish a level playing field among domestically produced and imported products.

Keywords:  Cap-and-Trade System, Carbon Dioxide, Greenhouse Gas Emissions, Global Climate Change, Carbon Taxes

JEL: Q54 Q28 Q38 Q48 Q58

I've printed this out and will carry it around with my stack of other things that I'm hoping to read but I probably won't be able to actually read it, though I'll be able to skim a few pages, until after cap-and-trade legislation is passed in the U.S. sometime during the first term of the [McCain/Obama] presidency.

2008 Atlantic Hurricane Tally: 6

Almost missed this one--probably because it hit Canada and no one noticed (I kid!):

Hurricane Kyle battered the shores of Canadian province Nova Scotia on Sunday evening before weakening and losing tropical characteristics, forecasters said.