Environmental Economics

Kumbaya

... the central conceit of the narrative — cap and trade is more politically acceptable than a straight carbon tax — happens to be true. I’m pretty sure no one ever said cap and trade would unite all interest groups for a rousing chorus of kumbaya. After all, most of the organized opposition to climate change legislation isn’t ideological in nature. The issue, as ever, boils down to money. Any meaningful restrictions on emissions — carbon tax, cap and trade, command and control, whatever — are going to push costs onto polluters, and are therefore going to encounter considerable resistance. But a carbon tax never had a snowball’s chance of passage, and here we are in 2009, with climate legislation looking more likely by the minute.

Source: Did Environmentalists get played on Cap and Trade?

Delta Dawn, what's that flower you have on?

Could it be a faded rose from days gone by?
And did I hear you say?
He was a-meetin' you here today?
To take you to that mansion in the sky?

Questions, questions. Here are a few for your students, courtesy of the WSJ Weekly Review (via me):

Small Cars are Dangerous Cars
by Sam Kazman
Apr 17, 2009

TOPICS: Environmental Regulation, Regulation

SUMMARY: Fuel economy zealots can kill you.

CLASSROOM APPLICATION: "The super-high efficiency minicar has become the Holy Grail for many environmentalists. But on Tuesday, a new study on minicar safety tossed some cold water on the dream. The Insurance Institute for Highway Safety (IIHS) reported that in a series of test crashes between minicars and midsize models, minis such as the Smart car provided significantly less protection for their passenger." The article is great for classroom discussions of opportunity cost and trade-offs because it explicitly notes the trade-off in changing vehicle weight between crashworthiness and fuel efficiency. "Greater weight may increase crashworthiness, but it also decreases miles per gallon, so there's an inevitable trade-off between safety and efficiency."

QUESTIONS:
1. (Introductory) Construct a graph with crashworthiness (death rate per 1000 crashes) and fuel efficiency (miles per gallon). Construct a production possibility frontier. Discuss how vehicle weight changes can lead to movements along the frontier.

2. (Advanced) Research question. Explain the following empirical phenomenon. "The death rate in minis in multi-vehicle crashes is almost twice as high as that of large cars. And in single-vehicle crashes, where there's no oversized second vehicle to blame, the difference is even greater: Passengers in minis suffered three times as many deaths as in large cars." That is, compared to large vehicles, why do minis do relatively better in multi-vehicle crashes that in single-car crashes? Does this empirical phenomenon imply that at least some large vehicles are strictly inside the production possibility frontier?

3. (Introductory) Should the Environmental Protection Agency take into account the added risk of small vehicles when setting fuel efficiency standards?

4. (Advanced) What methodology could the EPA use to determine these monetary values?

I know the answer to #4 without studying. I'm smart that way.

Greed is Good Again

Just yesterday I played Gordon Gekko's 'Greed is Good' speech (below) from the 1987 movie Wall Street in my principles of microeconomics class to illustrate the thinking behind market efficiency.*

Today, this:

Wall Street's all the rage again -- literally. And Oliver Stone and Michael Douglas have decided they have more to say about it.

Stone has just closed a deal with Fox to direct the follow-up to "Wall Street," now tentatively called "Wall Street 2," with Douglas starring. This would provide an unusual amount of continuity since Stone directed and co-wrote, with Stanley Weiser, the original 1987 exploration of the inner workings of the finance sector and its complicated relationship with greed.

*I contrasted that with this clip on the perils of capitalism from the play Marx.

I predict that we'll have H sub t-1 hurricanes in time t (+/- 1)

From the inbox:

THE NUMBERS GUY, by Carl Bialik
from The Wall Street Journal.
 
Climatologists who each year predict the number of hurricanes that will threaten the U.S. have a sorry track record. Yet their forecasts continue to garner headlines.

http://online.wsj.com/article/SB124096550135766317.html?mod=djemnumbers

Between the anterior median sulcus and the anterolateral sulcus

Fire! Fire! Fire!

The Obama administration's plan to impose a cap-and-trade system to cut U.S. greenhouse gas emissions would result in 1.9 million job losses and cost the average household $1,400 a year by 2020, according to a new study released on Tuesday. ...

The [U.S. Chamber of] Chamber is one of almost 200 associations that are members of the Coalition for Affordable American Energy, which commissioned the study.

Source: Obama emissions plan to cost $1400 per family (Hat tip: Carlos Ferreirra).

More objectively, perhaps, an April 2009 RFF working paper finds that if carbon allowances are "auctioned and returned per capita to every consumer" in a progressive manner then the annual costs are annual benefits to those in the first five income deciles and rise from virtually nil to less than $800 for the 10th decile [Impact of Cap-and-Trade AFPN.pdf].

"A very famous sports economist" ...

... my ass. In the Winter 2009 Region Focus feature article "Ballpark Boom" (PDF) I'm described simply as "an economist" on page 27:

Bruce Johnson of Centre College in Kentucky has done some of that research. He worked with an economist to determine what people in Lexington, Ky., would pay for a new arena for the University of Kentucky basketball team and for a new minor league baseball stadium.

The last time I was simply "an economist" was around 1994. During that year I became known as "the economist who says and does silly things." This lasted for a number of years. Since March 15, 2007 I've been known as "a very famous sports economist."

The worst part is that Kentucky is not even in the Fed's 5th District:

The Richmond Fed is one of 12 Reserve Banks that, together with the Board of Governors in Washington, D.C., make up the Federal Reserve System. Our region takes in Virginia, Maryland, North Carolina, South Carolina, the District of Columbia and most of West Virginia. Our offices are in Richmond, Baltimore and Charlotte.

I think there should be a Federal Regulation, the people who work for the Fed's magazines should only interview people IN THEIR OWN DANG FED DISTRICT.

Note: I'll relive the suffering of indignity in the next issue of my alumni magazine. I'm sure.

In case you were wondering how the recession is affecting me

I'm being furloughed (Furloughs ordered ...):

Gov. Beverly Perdue signed an executive order this morning, calling for unpaid furloughs of all state employees.

All teachers and state employees will receive a pay cut of 0.5 percent and in exchange will receive 10 hours of time off, at a time they choose. Although workers will see their pay cut in May and June, they may take their 10 hours of flexible time off between June 1 and Dec. 31.

...

The emergency steps respond to a worsening budget shortfall in the current fiscal year. ...

In addition, a nice little wind farm study might be shut down.

In case you were wondering why I didn't flame your comment last Thursday ...

... I was at the World Bank presenting this (preliminary, i.e., not ready for prime time) paper:

Joint Estimation of Revealed and Stated Preference Averting Behavior: An Application to Improved Municipal Water Supply in Kathmandu, Nepal

by Subhrendu K. Pattanayak and John C. Whitehead

Abstract. In this paper we demonstrate an approach to combining and jointly estimating revealed and stated preference data for drinking water quality and improved water supply. The application is to piped-water services in Kathmandu, Nepal. The revealed preference model uses averting behavior method data on the decision of whether to treat water. The stated preference model uses contingent valuation method data on the decision of whether to hook up to an improved water system. The bivariate probit model is used to jointly estimate the determinants of the decisions. We test for common coefficients across the revealed preference and stated preference data and find evidence that parameters related to the willingness to pay for health risk reductions are statistically equal while other coefficients vary. Households are willing to pay $3/month (US$) to reduce health risks. Averting behavior data suggests that water treatment generates an additional $3/month in joint production benefits (e.g., improved taste). The willingness to pay for the reduction in health risks, joint production and improved water supply is $18/month.

Feel free to download the paper (PDF) and/or presentation (PDF) while supplies last.

I'm speechless

From The Onion (FEMA unveils ...):

The Federal Emergency Management Agency on Monday unveiled its new $48.2 million Phone Tree Response System, a program designed to alert every American in the event of a large-scale disaster. "The safety of our great nation is the responsibility of all 300 million of its citizens, so make sure you memorize the names and phone numbers of the three people you are supposed to call," said acting FEMA administrator Nancy Ward, who assured reporters that, in the event of a chemical or biological attack, President Obama would be notified first so that he could inform Vice President Joe Biden, Defense Secretary Robert Gates, and Meredith Soto of Winslow, AZ. "Remember: If they don't pick up, leave a message telling them there's a national emergency, and then call the next name listed in the 176,935-page, 253-volume directory until someone answers." According to FEMA officials, regular tests of the phone tree will be conducted on a semiweekly basis to identify any numbers that are no longer in service.

How do they expect this to work? Wow, another big and stupid government program.

In a more perfert world this would be on my reading list

From the inbox:

CONGRESSIONAL BUDGET OFFICE
The following has been added to CBO's Web site (www.cbo.gov):

• Background Paper: How CBO Estimates the Costs of Reducing Greenhouse-Gas Emissions http://www.cbo.gov/doc.cfm?index=9923