Environmental Economics

Because I truly care about your teaching evaluations

From the WSJ's Microeconomics Weekly Review:

Pollution Credits Let Dumps Double Dip
by Jeffrey Ball
Oct 20, 2008

TOPICS: Environmental Regulation

SUMMARY: America's garbage dumps are reaping a windfall from the fight against global warming. But their payday might not be doing much to reduce greenhouse-gas emissions.

CLASSROOM APPLICATION: The article reports on the cap-and-trade system in which a government imposes a maximum amount of a pollutant that can be emitted in an economy. The government then allocates, either by auction or historical pollution levels, rights to pollute to manufacturers. A market then opens up for the permits, in which sellers give up their rights to pollute and buyers gain additional rights. The article highlights the case in which energy companies, for example, are purchasing rights from small landfills. With rights to emit methane gas, landfills capture the gas, sell it on the methane market as fuel, and also sell their permits. One interesting note is that the Federal Trade Commission also is examining whether the marketing is deceptive -- in particular, whether credits really represent emission cuts that wouldn't otherwise have happened.

QUESTIONS:
1. (Introductory) Describe the cap-and-trade system. Research question: Describe the command-and-control system.

2. (Advanced) In a cap-and-trade system, should garbage dumps be granted the right to emit methane gas? Does the answer depend on the ease in which garbage dumps can capture and sell the gas?

3. (Advanced) Describe the efficiency advantages of the cap-and-trade system over the command-and-control system.

Reviewed By: James Dearden, Lehigh University

Building houses on sand

Andy Coburn of WCU's Program for the Study of Developed Shorelines in an N&O editorial on coastal development:

With Ike's damages estimated to exceed $30 billion, and with images of Katrina still burned deeply into our collective conscience, the N.C. Coastal Resources Commission has inexplicably voted to gut coastal development rules and allow houses to be built closer to the ocean.

I predict higher oil prices*

From the NYTimes News Alert email:

OPEC to Cut Output by 1.5 Million Barrels a Day

The OPEC cartel ordered a cut in oil production of at least 1.5 million barrels a day on Friday. The reduction will come into effect on Nov. 1, according to Ali Al-Naimi, the Saudi oil minister.

Oil prices have more than halved since peaking at $147 a barrel in July. After the OPEC statement, the price for Brent crude immediately dropped below $63 a barrel.

*Note: I used demand and supply analysis to develop this prediction.

I need your help...

I'm doing some background work for a project on the potential environmental and economic impacts of various mixes of transportation fuels. 

Engineers have developed an index of the global warming potential of transportion fuels.  The index covers the entire life cycle of the fuel from extraction to consumption.  For example, the index for gasoline measures the global warming potential of the entire production and consumption chain for gasoline from extraction of the crude through transportation, refining and ultimately consumption. 

The index is measured on a scale of 0 to 100 with a score of 0 meaning the fuel has no global warming potential.  Higher index values indicate greater global warming potential with 100 being the maximum.

The index capture all of the potential global warming effects including coastal area damages, agricultural effects, forest damage and plant and animal effects. 

For your reference, the global warming potential index for gasoline is 75.

With that as background, suppose the government were considering two different policies--we'll call them A and B--both of which would result in a different fuel mix for transportation and different global warming potentials.  The two mixes would have no effect on the gas mileage of your car, but may affect the price of fuel at the pump.

Current gas prices are $2.50 a gallon.

Policy A has a global warming potential index of 50 and would result in an increase of $1.00 a gallon at the pump.

Policy B has a global warming potential index of 65 and would result in an increase of  $.50 a gallon at the pump.

In the comment section, please indicate which policy you would prefer:

• Policy A: Global warming potential=50, Fuel price increase=$1.00/gallon
• Policy B: Global warming potential=65, Fuel price increase=$.50/gallon
• Neither, I prefer the current situation: Global warming potential=75, No change in fuel prices.

Also, feel free to comment on the information given.  I will follow-up with more information on why I am doing this later.

Halloween economics

Halloween candy is an inferior good:

Despite the spooky state of the economy, shoppers are still shelling out money for Halloween candy.

This year, candy sales are expected to top $2.26 billion, according to the National Confectioners Association. That's up from $2.20 billion last year.

The reason is simple: People view Halloween as an affordable splurge and something that promotes time with family.

Source: Economy's frightful ...

John's Friday beer post

I just realized that I failed to subscribe to Land Economics for the first time in 20 years. I didn't subscribe because I get full text via the library but I've forgotten to scan the table of contents for an entire year(!). Needless to say, I have a lot of reading to catch up on.

And at the risk of self-promotion, I took a peak at the Top 50 cited papers and found this:

32. John C. Whitehead
Incentive Incompatibility and Starting-Point Bias in Iterative Valuation Questions: Reply
Jan 01, 2004; 80: 316-319.

42. John C. Whitehead
Incentive Incompatibility and Starting-Point Bias in Iterative Valuation Questions
Jan 01, 2002; 78: 285-297.

I'm glad to know that the reply, which corrects a mistake in the original (as pointed by the Aadland and Caplan comment) and does something else which I forget, is being read ... But, why would it have more citations than the original paper? Weird.

Weird. Drink a beer this afternoon and think about it.

I'm watching you Golden Tilefish Limited Access Privilege Exploratory Workgroup

I'm really hoping we end up with a really cool individual transferable quote (i.e., LAP) program for golden tilefish:

The South Atlantic Fishery Management Council will hold a meeting of its Golden Tilefish Limited Access Privilege Exploratory Workgroup on October 28-30, 2008.

I've been invited to the meeting but no one wants to pay for me to go. Sniff.

Source: NOAA Fishnews.

Another reason to hate Duke

Duke Energy has cut in half its $100 million plan to place solar-electric panels on hundreds of N.C. rooftops after consumer advocates for the state Utilities Commission called the proposal too aggressive and expensive. ...

Under a 2007 state law, Duke has to use renewable energy sources to generate 12.5 percent of its retail sales by 2021. Solar power has to be a small but growing part of that mix, beginning in 2010.

Under Duke's original proposal, the utility would generate 16 megawatts of electricity by installing solar photovoltaic panels on up to 850 roof and ground sites, most of them at commercial or institutional buildings. The power, enough to supply about 2,600 homes, would feed into the larger power grid.

The Utilities Commission's Public Staff, which represents consumers, objected.

Duke doesn't need the full rooftop plan to meet its solar-power obligations through 2014, the staff said. Duke has already contracted to buy 16 megawatts from a SunEdison solar farm to be built in Davidson County.

The size of the original proposal could also have handicapped development of cheaper forms of renewable energy, the staff said. Duke could “bank” excess solar credits for future years, it said, but miss the chance to generate power more cheaply if solar costs come down as expected.

Source: Duke halves ...

State Fair economics

It doesn't take the seasoned eye of a craft judge to determine that things are a mite slow at the N.C. State Fair this year.

N.C. Agriculture Commissioner Steve Troxler cites cold weather as the culprit. Vendors and fairgoers put the blame squarely on a slumping economy. Longtime vendors say business is down this year between 20 percent and 50 percent. And visitors arrive with smaller wads of bills.

Source: Attendance Drops at State Fair.

Quotes of the day

For your enjoyment, I've cut and pasted the energy and environment section from last night's debate between McCain economic advisor Douglas Holtz-Eakin and Obama economic advisor Jason Furman on Bloomberg TV's "Money and Politics."  But before you read that, here's my favorite intellectual exchange from early in the debate:

            MR. FURMAN:  No.  Actually --

            MR. HOLTZ-EAKIN:  Only in a twisted world of Democratic --

            MR. FURMAN:  -- he does -- (inaudible) --

            MR. HOLTZ-EAKIN:  Can -- would you please let me finish?

            MR. FURMAN:  The 577, the tax policy --

            MR. HOLTZ-EAKIN:  Would you please let me finish?

            MR. FURMAN:  No, no.  Let me finish, Doug.

            MR. HOLTZ-EAKIN:  That would --

            MR. FURMAN:  The 577, the tax policy --

            MR. HOLTZ-EAKIN:  That would be a courtesy, Jason --

On to the substance...no commentary from me--I'll let you be the judge.