Environmental Economics

Bad news for Saturn owners (e.g., Tim)

From the WSJ's Evening Wrap:

General Motors said it would close its Saturn operation after Penske Automotive Group ended its effort to acquire the brand.

Penske said it decided not to purchase Saturn due to concerns about where it would acquire vehicles after GM stopped making them for the dealership chain.

Penske in June agreed to acquire the brand with the exception of its manufacturing operations.

Background: D'oh

Another esteemed economist's views on cap and trade, carbon taxes and the double dividend

Alan Randall, preeminent environmental economist (and my Department Chair--yep I'm sucking up), is in the process of putting together a 3rd edition of his popular graduate text, Resource Economics*--this time co-authored with John Bergstrom.  In response to a hallway conversation over Mankiw's double-dividend argument in favor of a carbon tax over cap and trade, Alan sent me this excerpt from the third edition:

A double dividend?  Even if a pollution tax and a quantity control (a standard, or tradable permits) were otherwise equivalent, we might perhaps prefer the tax for fiscal reasons.  Specifically, because government must raise revenues and most revenue-raising mechanisms distort economic incentives, a pollution tax might be argued to do not one but two good things: help clean-up the environment and reduce government reliance on distorting taxes.  However, economists have argued that this "double dividend" is, at least in part, a matter of wishful thinking.  The argument is that, yes, a pollution tax would restore efficiency in the polluting sector and reduce emissions, and reduce reliance on distorting taxes, but it would also introduce an inefficient excise tax on the commodity produced in the polluting process (say, electricity).  Excise taxes, too, are distorting, and it has been argued that workers facing such a tax would demand higher wages, imposing additional costs on the economy.

A preemptive strike by EPA?

Is this announcement (from my inbox) an attempt to force the hand of Congress, or an admission by the administration that climate legislation is a nonstarter in an upcoming election year?

U.S. EPA Administrator Lisa P. Jackson will announce today in a keynote address at the California Governor's Global Climate Summit that* *the Agency has taken a significant step to address greenhouse gas (GHG) emissions under the Clean Air Act. The Administrator will announce a proposal requiring large industrial facilities that emit at least 25,000 tons of GHGs a year to obtain construction and operating permits covering these emissions. These permits must demonstrate the use of best available control technologies and energy efficiency measures to minimize GHG emissions when facilities are constructed or significantly modified.

A producer surplus test question

From the C-J (Yearling sale posts largest declines in its history):

The 66th annual Keeneland September Yearling Sale concluded a dismal 14-day run on Monday — posting the largest decreases in the history of the auction, which is the biggest for 1-year-old thoroughbreds in the world.

The sale’s $191.9 million gross was down 41.5 percent from last year, with only 3,159 yearlings sold, compared to 3,605 last year, a 12.4 percent decline.

This year’s average sale price of $60,734 was down 33.2 percent, while the median of $22,000 was down 40.5 percent.

Questions:

1. What was the gross revenue last year?
2. What is the change in gross revenue?
3. Assuming that the change in market equilibrium is due entirely to a demand shift, calculate the change in producer surplus.
4. Why do your answers to 2 and 3 differ?

Check out CO2isgreen.com!

"Because we all need CO2." From GatE (Co2 pollution is good):

When one watches the following advert paid by the coal industry it is hard to know whether to laugh or cry.

Only in America. 

There is even a Facebook page. I'm thinking this is a very, very subtle joke. Of course, I'm often wrong!

Another quote of the day

A comment on Krugman's negative externality graph:

Is it just me or do those economics graphs add a major stumbling block in the way of understanding the point? The first thing I have to do is stare at them to try and translate the pictures into words so that the concept penetrates the skull.

Sounds like a standard economics teaching evaluation comment!

My latest post at the Energy Collective

I call it: Economists Debate Waxman-Markey. Yuck. It begins like this:

Ah! Liberals versus conservatives, economists criticized for their politics … don’t you love the economic debate over … the cap-and-trade part of Waxman-Markey. Did you think I was going to say “economic stimulus” or “health care”?

Paul Krugman, in his September 24^th column (“It’s easy being green”), rips those he disagrees with: “the campaign against saving the planet rests mainly on lies” and “partisan opposition to President Obama trumps any concerns about intellectual honesty.” In the article he is ripping Glenn Beck, but in his blog he points the finger at fellow (well-respected) economist Martin Feldstein.

In the middle I defend Feldstein after carefully reading his June 1 piece in the WaPo ("Cap and Trade: All Cost, No Benefit") and the Krugman interpretations (here and here). I also write a paragraph on my twin policy rant (cap-and-trade plus revenue recycling does not equal cap-and-trade). Then I end like this:

... certain economists should quit calling people liars in their public discourse. Not nice.

My climate policy views are closer to Krugman's than Feldstein's but, jeez, you can clarify someone's argument, point out its limitations and even discover errors without calling someone a "liar" and "intellectually dishonest".

Feel free to do your own bit of name calling (e.g., pinhead) in the comments section!

Quote of the Day from a professor of finance (finance?)

From The Gov Monitor (When They Meet At The Climate Change Conference in Copenhagen):

“The single most important action to reduce carbon dioxide emissions is for all nations of the world to agree to binding emission limits when they meet at the Climate Change Conference in Copenhagen.” So says Professor of Finance Don Fullerton ["an expert on taxation and environmental economics"] from the University of Illinois, who is one of the speakers at this week’s meeting of finance ministers in Göteborg.

More quotes of the day:

“I consider that the sectors not under the EU Emissions Trading System could also be made to face a tax on carbon dioxide emissions. This policy is cost effective because it is expected to provide incentives for businesses to cut emissions by any of the cheapest ways possible”, says Don Fullerton.

...

“It is not realistic to believe that we can cut carbon dioxide emissions without any costs at all”, says Don Fullerton. “But the world still gains by cutting emissions now, because the cost of doing so is less than the cost of global warming if we don’t act. The longer we wait, the greater the consequences in the form of sea level rise, loss of biodiversity etc. The cost of stopping global warming later on will be higher.”

In Don Fullerton’s view, all countries of the world must act together to reduce emissions and reach an agreement in Copenhagen. “A small set of nations cannot do it alone, because one set of emission cuts could be more than offset by increases in carbon dioxide emissions elsewhere. When the governments have reached an agreement in Copenhagen and each nation has to cut emissions, then the most important policy for each nation is to put a price on emissions, either by an emissions trading system or a tax on greenhouse gas emissions”, concludes Don Fullerton.

Krueger rescues Feldstein from Krugman: the political economy of cap and trade

Another guest post from Jim Roumasset:

The diagram in Paul Krugman's NYTimes piece provides a good starting point. The rents in the diagram are appropriable by either taxes or by auctioning permits.  Since Feldstein counts the rents as costs, he is thought to be worse than Glenn Beck, at least regarding the analysis of Waxman-Markey. But does anyone believe that Martin Feldstein doesn't know the difference between excess burden and rents? It's odd that trade-economist Krugman has forgotten Anne Krueger's famous AER article on rent-seeking.  Those rents are up for grabs.  As much as economists may recommend appropriating the permit rents for revenue-recycling via auction, the political system has its own objectives. In the polar extreme, the rents are entirely dissipated by competitive rent-seeking -- both the Harberger Triangle and the Krueger Rectangle are costs in that case.

#4 on the list of things that can shift a demand curve to the right*: Anticipation of higher future prices.

From Bloomberg.com:

The U.S. Northeast may have the coldest winter in a decade because of a weak El Nino, a warming current in the Pacific Ocean, according to Matt Rogers, a forecaster at Commodity Weather Group.

“Weak El Ninos are notorious for cold and snowy weather on the Eastern seaboard,” Rogers said in a Bloomberg Television interview from Washington. “About 70 percent to 75 percent of the time a weak El Nino will deliver the goods in terms of above-normal heating demand and cold weather. It’s pretty good odds.”

... 

Hedge-fund managers and other large speculators increased their net-long positions, or bets prices will rise, in New York heating oil futures in the week ended Sep. 22, according to U.S. Commodity Futures Trading Commission data Sept. 25.

*#1: Prices of other goods and services, #2: Changes in income, #3: Changes in tastes/preferences, #5: Changes in the number of buyers