Environmental Economics

In defense of Ted Gayer

In response to my Avent/Krugman/Gayer post the other day and the subsequent comments, a post on energy efficiency investments wrote itself (you can find it at Energy Collective).

The summary: Gayer's original piece makes sense and is being misinterpreted by the critics. He is not saying energy efficiency investments don't make sense from a social point of view. He is saying that the casual claim of negative net costs is not quite right. To illustrate this I extend the sidewalk dollar bill analogy to a more complicated transaction focusing on the discount rate.

Here is how I conclude:

So, I think the criticism made by Avent and Krugman is a bit unfair. It seems that all three players in the spat reach the same conclusion about the economics of climate change: that government action is necessary to provide incentives to firms to adopt energy efficiency investments. The best government action could be cap-and-trade or a carbon tax. I’m always surprised at the intensity of the debate among economists who basically agree over their disagreements about the minutiae of the issue.

And with that, I wish you a happy new year!

2009 embiggens the Energy Collective

Tim and my env-econ.net posts appear over at the Energy Collective and I'm on their blogger board. This past year the site got big (i.e., was embiggened):

2009 was a watershed year for TheEnergyCollective, in which we broke from our small-but-lively-with-great-contributors status to something, well, more substantive, more newsworthy and definitely more popular.  The year saw our number of annual visitors climb from under 30,000 to over 250,000, and we delivered over 4M page views.

Wow, that is fantastic growth (env-econ.net gets about 30,000 annual visitors). Congrats!

2010: Sunspots or CO2?

Over the past few years, sunspot activity has gone down while CO2, well, hasn't.  Result:  A slowdown in temperature increases (if not a decrease).  What will happen if sunspot activity goes up?  We might be about to find out.

2009 is ending with a flurry of sunspots. Indeed, if sunspot 1039 holds together for the rest of today (prediction: it will), the month of December will accumulate a total of 22 spotted days and the final tally for the year will look like this:

 
The dark line is a linear least-squares fit to the data. If the trend continues exactly as shown (prediction: it won't), sunspots will become a non-stop daily occurance no later than February 2011. Blank suns would cease and solar minimum would be over.

If the past two years have taught us anything, however, it is that the sun can be tricky and unpredictable. Stay tuned for surprises.

via spaceweather.com

On Fullerton and Karney's "evaluation" of the Waxman permit allocation

Guest post from Jim Roumasset:

The editors of The Economists' Voice claim that Fullerton and Karney give the Waxman-Markey bill "minimally passing marks," though you won't find that in the actual article. F-K's figure 1 shows that 30% of permits under Waxman-Markey would be initially auctioned off, with the percentage falling to an average of 17.5 percent from 2015-2025. Published too late to impact the Kerry-Boxer bill, their conclusion that more permits should be auctioned and the revenue recycled to lower payroll taxes may still be considered in the Senate-House reconciliation process.

Their conclusion is too kind, however. Sometime ago, Goulder and company estimated that cap and trade without revenue recycling would be welfare reducing. And that's before accounting for leakage and the distortionary mandates and subsidies that have been attached to the bill.

F-K also note that W-M calls for permits to electricity LDCs (local distribution companies) for the purpose of reducing the fixed cost of electricity bills. Really? I don't know about other areas, but my fixed costs are too small to be reduced much (unless they go negative, thus incurring perverse incentives). They could always use increasing block pricing, but that's not what the legislation says. Even in areas with large enough fixed costs to make the scheme work, consumers typically don't decompose electric bills in their heads. If the variable part goes up and the fixed part goes down, consumers won't entirely internalize the increased marginal rates, which is the whole point of carbon pricing.

The bills need some serious work. Otherwise we will be left with nothing but guilt assuagement. (It's a word; no kidding!)

Energy gaps - Paul Krugman Blog

Ryan Avent takes on Ted Gayer so I don’t have to. Mr. Gayer tries to dismiss some of what I’ve said about the cost of climate-change policy by mocking a McKinsey study showing that a substantial amount of conservation would actually save money, that is, have a negative cost.

But Ryan is actually too kind. Gayer doesn’t just have a logical problem; he appears to be unaware that there is a large economics literature on the subject of the energy-efficiency gap: the apparent failure of consumers and firms to take energy-saving measures that would actually save them money. The point is that it’s not just McKinsey that finds this result: lots of people do.

Now, there are some questions about how to interpret the whole thing. But I think it’s fair to say that there’s a lot of evidence for cheap conservation, at least in the early stages.

via krugman.blogs.nytimes.com

At the risk of angering the gods, I kind of agree with Gayer. The energy efficiency advocates sometimes seem to oversell. The breakeven point for solar panels, weatherization,  wind turbines and my solar water heater can be far down the road, and even further if (a) cost savings are discounted at 7% instead of 2% and (b) government subsidies are treated as a cost. The upfront costs are substantial.

"Fullerton and Karney take a look at the allocation of permits under the Waxman-Markey bill"

Fullerton, Don and Karney, Daniel H. (2009) "The Allocation of Permits in U.S. Climate Change Legislation," The Economists' Voice: Vol. 6 : Iss. 12, Article 2. DOI: 10.2202/1553-3832.1636Available at: http://www.bepress.com/ev/vol6/iss12/art2

via www.bepress.com

What I learned today

What I learned today -- Spending a few days visiting friends in Atlanta. Went to the Georgia Aquarium today. Nice place, but crowded. Apparently the tropical lionfish my brother used to keep in his saltwater aquarium has invaded the Atlantic Coast of the U.S. and is wreaking havoc. OK, not his fish, but that specie.

Look for an NCAA basketball BCS

Claiming that determining an unquestioned national champion through a playoff system "went against the very idea of sporting competition," and that the sheer exuberance of college basketball fans was "a shocking and nauseating display of everything wrong with collegiate athletics," top BCS officials roundly condemned the NCAA Tournament Monday.

"I frankly cannot even believe what I'm seeing, and I can't stomach the sight for long," said a pale, trembling Jack Swarbrick, the Notre Dame athletic director who, along with the commissioners of the major conferences, manages the complicated system of polls and computer rankings that make up the Bowl Championship Series in college football. "The elegant logic of actually having teams play one another instead of having a council of their betters select which team is superior to which—that is not what sports is all about."

"And the fans...urgghh...simply enjoy their teams' triumphs or mourn their defeats. Where are the heated arguments? Where are the unsettled disputes that will fester forever?" said Swarbrick, a sheen of feverish sweat curdling on his face. "Oh, God, I think I got vomit on my tie."

via www.theonion.com

My kids wanted to watch the dog show on ESPN2 last night (the poodle was best in show) before Kentucky played (and lost) in the Music City Bowl (we're the only team in the FCS that can't throw for 100 yards per game). The dog show has one judge using his own subjective ranking system. Reminded me, a little, of the BCS rankings. To me, the 16 team FCS playoff system is far superior.

Picture of the day

Here is my road after the Christmas Day ice storm (the power went off after all the presents were opened and before the annual x-mas frittata [cooked yesterday] and came back on after 36 hours [we were lucky]). More pics are posted in the photo album.

My Christmas wish for you--pa-rum-pum-pum-pum

David Bowie and Bing Crosby said it all:

Peace on Earth, can it be
Years from now, perhaps we'll see
See the day of glory
See the day, when men of good will
Live in peace, live in peace again

Peace on Earth, can it be
Every child must be made aware
Every child must be made to care
Care enough for his fellow man
To give all the love that he can

I pray my wish will come true
For my child and your child too
He'll see the day of glory
See the day when men of good will
Live in peace, live in peace again