Environmental Economics

Just in time for the holiday season: My review of Climatopolis

Climatopolis by Matthew E. Kahn

The quick summary is that this is a great book for the general public  and should be required reading for environmentalists (but only a good book for economists -- see the next two paragraphs) . Matt accepts the mainstream forecasts of climate change, assumes that governments won't get around to dealing with it (no carbon tax) and raises the "what's next?" question. Matt then uses economic analysis to speculate about how people might adapt to climate change, which would mitigate some of the scary outcomes you hear from the scaremongers. Of course, people will adapt. People have always adapted. But ...

As I was reading as an economist, however, I couldn't get over a couple of concerns. First, Matt loves living in cities and sometimes the book degenerates into a bit of cheerleading. The impression I get is that the smart people who live in cities (I guess dumb people live out in rural areas) will adopt the magic technology and figure out the best thing to do when the world heats. For example, when describing the problems of the rural poor in developing countries, the solution to the exacerbation of those problems by climate change is that the rural poor should simply move to cities. I'm not exactly sure how that would help when there is already an urban poor problem.

Another concern is that the book mostly ignores what could be the enormous costs of adaptation (e.g., coastal cities will adapt by building seawalls), the increased costs of living in cities (i.e., traffic, poor air quality) and other costs (i.e., Matt applies a simple labor migration model to cross border migration and assume costs of migration are zero -- while firms like the lower wage workforce, when have countries welcomed immigrants with open arms?). I'm sure that this was not the intention, and the costs are mentioned, but some readers (i.e., climate change skeptics) need to hear that adaptation won't be painless.

As an economist, I'm looking forward to the second volume/edition of Climatopolis where the magic of cities is explained to non-urban economists and some of the costs are highlighted (making a better argument for a carbon tax or cap-and-trade).

Finally, to dispell some of the criticisms of the book made by folks who aren't reading closely* or read closely but don't like the message and therefore distort (I'd look for the links if I wasn't supposed to be wrapping gifts):

1. No, Matt is not arguing against rational climate policy, there are numerous passages where a hefty carbon tax is advocated.
2. No, Matt is not making forecasts (the Moscow heat wave criticism), he is speculating using microeconomic theory, probabilities and expected values (just like economists are supposed to do).
3. No, Matt is not saying climate change won't turn out really bad, he is saying that adaptation will make it less bad if it is not catastrophic (i.e., don't get distracted if Matt doesn't get climate science 100% correct, no economist will because ... we're economists! as long as we get the basics correct, our models still apply).
4. No, Matt doesn't totally overuse the word nerd,..., OK, maybe it is overused a bit!

*There is a good chance that I didn't read closely enough. The comments section is where you can tell me where I got the review wrong. Page numbers please!

Env-Econ Christmas Quote of the Day

"On a national average, we've never had Christmas Day with gasoline at three dollars or higher," said Tom Kloza, chief oil analyst with Oil Price Information Service, an energy trade publication based in Wall, N.J.

via money.cnn.com

Definitive proof of global warming?

Date: December 22, 2010

Place: Columbus, Ohio (My office)

Our building is 60+ years old.  We have steam heat. And no individual control over office temperatures.  New energy saving insulated windows were installed this past summer.  They work well.  And they don't open.  My airconditioner is on.

We just finished our paper for the ASSA meetings

"Economics Blogs and Economic Education," by Haab, Schiff and Whitehead, was prepared for presentation at the "Teaching Undergraduate Economics" session at the 2011 ASSA meetings. Take a look ... if you dare: Download Economics Blogs and Economic Education 12-20-10.

Why, by blog hits of course!

Q.

How should a college professor’s talent/value be calculated and quantified? Which metrics would you use? Do you bring these things up at your annual review? – Lenny

A.

What a delicious question! I believe this was something that the Texas A&M system has been trying to do, and Daniel Hamermesh was critical of the measurements that the system was using to value professors. If you pick the wrong performance metrics, then you’re going to produce incentives that cause professors to pursue sub-optimal activities. For baseball teams, it’s fairly simple to assume that team owners are profit maximizers, so identifying qualities that lead to winning, which increases revenue, are easy to identify. In academia, what is it that universities are trying to maximize? Prestige, donations, spreading knowledge, etc.? And in many cases, it’s hard to quantify exactly what professors are bringing to a university quickly. What if a professor spends years researching innovative methods that revolutionize his/her discipline. He/she might receive some grants and prizes along the way, but down the road that professor may produce many wealthy alumni who give back generously many years after graduation, possibly after the professor has already died. Capturing this value is difficult.

Annual reviews do include metrics such as publications (quantity and quality), teaching evaluations, direct service contributions, etc. Some schools have very detailed criteria (for example, a publication in American Economic Review is worth a 3 percent raise), while some schools have subjective evaluations by department chairs and deans who decide how much to allocate out of a pool of funds based on performance. Even though the criteria are not always explicit, department chairs have an incentive to keep good faculty in place, and therefore reward faculty who do things that cause them to get hired away. Good teaching may be important, but it’s hard to signal to outside institutions. So, a professor who is publishing in top journals will likely get better raises. And ultimately, everyone knows that the best way to get a raise in academia is to shop yourself on the market and get an outside offer. The downside of allowing the collective wisdom of the outside market to fully govern compensation is that faculty devote resources to applying for jobs at the expense of devoting more resources internally.

via freakonomics.blogs.nytimes.com

He who will not be named

Who is this guy?

I knew I was in love when I allowed my future husband to use the word "heteroskedastic" [see note below] as if it were a real word, even though real words don't have k's in the middle of them. But economists don't just make up words; they make up entire universes in which everything that they do can be perfectly rationalized.

via www.newsobserver.com

The economist is never named in the article. Should we out the guy? or would that be just plain wrong?

Note: You can also spell it heteroscedastic.

47 years old and deteriorating

What else, I wonder, is 47 years old and deteriorating?

A decadeslong effort to replace the deteriorating Herbert C. Bonner Bridge, connecting Hatteras Island to the mainland [note below], has won approval from the U. S. Department of Interior.

The approval announced Monday was a key victory for Outer Banks residents who had been lobbying since the 1970s for replacement of the Bonner Bridge, which they said was a disaster waiting to happen. But it was a disappointment to environmentalists who saw a new bridge as both an infringement of the Pea Island National Wildlife Refuge and an infrastructure project built on shifting sands.

Contracts could be finalized as early as late spring or early summer for a bridge that state officials estimate will cost about $300 million and take three years to complete - assuming there are no snags in the final negotiations or lawsuits.

The Obama administration decision came after some high-powered lobbying by the state's Democratic leadership. Both U.S. Sen. Kay Hagan and Gov. Bev Perdue lobbied U.S. Interior Secretary Ken Salazar.

via www.newsobserver.com

They've been lobbying for a new bridge since the 1970s? The bridge and I were only teenagers. But, come to think of it, society started dogging my sorry ass about the same time, and it has only intensified.

Here is the environmental alternative:

Some environmentalists had pushed for a 17-mile bridge over Pamlico Sound - which by some estimates would cost $2 billion - that would bypass the entire [Pea Island National Wildlife Refuge].

The environmental benefits would need to be at least $1.7 billion, $100 million per mile, to justify the long bridge (17 miles [relative to 3.3 miles]! I'd have to make a pee stop halfway across). Every household in the U.S. would need to be willing to pay a one-time $15 or so to justify the extra spending ($15 > $1.7b/120m).

In general, this is a bad idea -- building a bridge to facilitate living on a narrow ribbon of sand, which could eventually wash away. It is also inequitable as the entire country pays when only a relatively few benefit. How about this? Since there are 2 million trips across the existing bridge each year, we could place a toll of $15 per crossing to generate $30 million each year. Given cost overruns and borrowing costs, the bridge might be paid for in 20 years.

Using the same logic, the 17 mile environmental bridge would require a toll of about $100 per crossing.

Note: The Bonner bridge does not connect Hatteras Island to the mainland, it connects it to another island and you need to cross two more bridges to get to the mainland!

Terminating Climate Change

In an interview with editors at the Los Angeles Times, the outgoing California governor said he was in "no rush" to find a new job when his term ends next month. But asked specifically whether he'd consider a post working for President Obama, he said yes and began to "riff on his credentials," according to the Times' David Lauter.

Schwarzenegger, who counts legislation combating global warming as one of his signature achievements in office, suggested he might be interested in a post dealing with energy or the environment.

"I'm a big believer in environmental issues," Schwarzenegger said, who added that he wanted a post where he could use his "celebrity power … knowledge and experience" to impact public policy. "I've traveled the world. … I'm very familiar with the world."

via news.yahoo.com

The long and the short of energy efficiency

Originally on Market Forces:

David Owen asks a provocative question in the current New Yorker: If our machines use less energy, will we just use them more? He more or less says yes. The real answer comes in two parts.

For now—over days, weeks, months, and even years—energy efficiency will decrease energy use and emissions. Screw a compact fluorescent light (CFL) bulb into a socket that used to hold an incandescent and your energy use will go down. Chances are you won't leave the lights on four times as long just because light now costs a quarter.

Over time—years, decades, centuries, and millennia—more energy efficient lights and appliances will indeed mean that more people use more of them. CFLs make light more affordable. That doesn't matter to the typical U.S. household, where few light sockets remain unused because of energy costs. But globally—and over time—it does make a difference.

The Jevons Paradox

Owen goes back to 1865 and William Stanley Jevons who at 28 came up with what has later been called the "Jevons Paradox":

It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.

Jevons is right, of course. We have seen dramatic increases in energy efficiency over centuries while energy use has gone up by orders of magnitude.

Does that mean we shouldn't increase energy efficiency? Of course not. We just need to be clear about what we are getting in exchange.

Continue reading at blogs.edf.org/markets.

It's "Armanti"

Second week in a row Peter King has misspelled it:

i. Armenti Edwards, inactive. Good thing the Panthers traded the 33rd pick in the 2011 draft for that guy.

via sportsillustrated.cnn.com