Environmental Economics

Aguanomics: Water Chat -- Haab and Whitehead

Thanks David!

Earlier this week, I talked to Tim Haab and John Whitehead, professors at THE Ohio State University and Appalachian State University, respectively.

Tim and John got their PhDs in the early 90s and started env-econ blog in 2005, for fun and to improve the public's knowledge of environmental economics.*

We discussed how much time they put into blogging (30 min to 2 hrs/day), how blogging affects their research (no) and teaching (yes), their influence on environmental policy (slight) and people's knowledge of environmental economics (better), and why they bother (beer?).

We also talked about how 90 percent of the work in an academic paper goes into convincing 10 percent of readers that the paper makes sense. Those numbers worry me.**

Listen in to our 46 minute conversation (18MB MP3).

via www.aguanomics.com

If you listen, try to laugh with us, not at us.

Green vs. Green

Read this and I'll help you draw the picture:

Just weeks after regulators approved the last of nine multibillion-dollar solar thermal power plants to be built in the Southern California desert, a storm of lawsuits and the resurgence of an older solar technology are clouding the future of the nascent industry.

The litigation, which seeks to block construction of five of the solar thermal projects, underscores the growing risks of building large-scale renewable energy plants in environmentally delicate areas. On Jan. 25, for instance, Solar Millennium withdrew its 16-month-old license application for a 250-megawatt solar station called Ridgecrest, citing regulators’ concerns over the project’s impact on the Mohave ground squirrel.

At peak output, the five licensed solar thermal projects being challenged would power more than two million homes, create thousands of construction jobs and help the state meet aggressive renewable energy mandates. The projects are backed by California’s biggest utilities, top state officials and the Obama administration.

But conservation, labor and American Indian groups are challenging the projects on environmental grounds. The lawsuits, coupled with a broad plunge in prices for energy from competing power sources, threaten the ability of developers to secure expiring federal loan guarantees and private financing to establish the projects.

via www.nytimes.com

Put climate change on the vertical axis, ground squirrels and desert tortoises (torti?) on the horizontal and find a point of resource allocation. Add a discount rate and move that point to the southeast.

Four paragraphs that explain how Libya affects U.S. gas prices

I learn something new (almost) every day:

More broadly, economists are concerned that if oil prices stay high this year, they could slow the already fragile global economic recovery. As a general rule of thumb, every $10 increase in the price of a barrel of oil reduces the growth of the gross domestic product by half a percentage point within two years.

Libya produces less than 2 percent of the world’s oil, and exports little to the United States. But the high quality of its reserves magnifies its importance in world markets.

Libya’s “sweet” crude oil cannot be easily replaced in the production of gasoline, diesel and jet fuel, particularly by the many European and Asian refineries that are not equipped to refine “sour” crude, which is higher in sulfur content. Saudi Arabia has more than four million barrels of spare capacity and has promised to tap it if necessary, but that capacity is mostly for sour grades of oil.

Should the turmoil in Libya last for more than a few weeks, oil experts predict that European refiners will be forced to buy sweet crude from Algeria and Nigeria, two principal sources of sweet crude for the United States. That would probably push up American gasoline prices, which have already risen 6 cents a gallon over the last week to an average of $3.19 for regular grade.

via www.nytimes.com

Picture of the day

Free market environmentalism and Coase

From the inbox:

I wanted to point you toward our most recent blog post, discussing the Coase theorem (state that under free-marketing conditions, society will arrive at its optimum level of pollution) and the reasons it’s inapplicable to real life.

Here’s the post:

http://daily.sightline.org/daily_score/archive/2011/02/21/the-coase-isnt-clear

Thought you might be interested to see it.

At the risk of giving attention to someone just seeking attention*: you have my attention.

From the post:

But unfortunately, free-market sincerity only goes so far:  it's possible to be perfectly sincere and also deeply misguided.  And, in fact, that's the conclusion that this article in the Journal of Economic Issues reaches.  The authors, Robin Hahnel and Portland-based Kristen Sheeran, have constructed a convincing case that the key intellectual pillar of free-market environmentalism -- a bit of theoretical economics known as the Coase theorem -- has almost no relevance to how pollution markets would play out in the real world.

Some disclosures:  I haven't fully read the JEI article.  I'm not critiquing the article (although I do wonder why, if the article is a thorough dismantling of a Nobel Prize winning argument as the blogger claims, it landed at the 110th ranked journal**?). I'm commenting on the summary of the article by a blogger whose Communications Associate sent me an e-mail.  

With that--No relevance? 

Now you really have my attention.

So what's this Coase theorem thing all about?

In a nutshell, Nobel-winning economist Ronald Coase proved mathematically that, with a system of guaranteed pollution property rights and under ideal "free-market" conditions, society as a whole would get exactly the amount of pollution that its members want -- no more and no less. 

OK, I'll stop there.  Coase didn't prove anything mathematically.  Here's a link to the 1960 paper that contains the underpinnings.  Scan it real quick.  No math--other than a contrived numerical example to illustrate the argument.  Coase made a compelling argument in a legal context about bilateral bargaining over property rights. 

The power of Coase's argument is that it allowed economists to focus attention on issues that weren't previously thought about rigorously:  the conditions under which bargaining will or will not work to achieve the economically efficient allocation of an externality.  No more and no less. 

Markets are bargaining sutuations.  Free markets are a specific type of bargaining situation.  Insights from Coase's arguments are pivotal in understanding when the market framework can be used in the presence of ill-defined property rights.  As Hahnel and Sheeran conclude:

Hopefully, this article helps demonstrate why the realm of real world situations where voluntary negotiations could be reasonably expected to provide efficient solutions to environmental problems is so small that free market environmentalism no more deserves a seat at the policy table than miracles deserve a role in the operating room.

Note that Hahnel and Sheeran are not claiming that the market framework cannot be used to solve environmental problems.  Rather, they seem to be pointing out, that the textbook definitions of the Coase Theorem, as bastardized by free-market environmentalism nut jobs, lose the spirit of Coase's intentions.  As Coase himself has argued on may occasions, the Coase Theroem doesn't imply that we should just step aside and watch uninhibited markets solve all the world's problems. 

There is an important role for markets and market principles in solving environmental problems.  Understanding the conditions under which markets will and won't be useful provides a critical link between theory and real world***. 

That's the beauty of Coase.

*John and I get multiple e-mails a week from communications specialists pointing us to stories we 'might be interested in.'

**I realize that may come off as elitist.  Not my intent.  I've published at far lower ranked journals--and the papers landed where they deserved to be.  That's what makes me wonder.

***Here are some more of my thoughts on the Coase Theorem.  As if you're interested in what I think.

uFollow

I  think I'm starting to like it:

uFollow is a free service that helps you keep track of your favorite bloggers and columnists. Once you create an account you can add authors, sources, and channels to the stream of articles that you receive. uFollow currently tracks more than 25,000 bloggers and columnists from over 3,500 of the world’s leading blogs, magazines, and newspapers.

However, it looks to be a substitute for my Google Reader, which I'm quite pleased with.

Here is the link to the economics channel:http://www.ufollow.com/channels/economics/

Here is the link to our page: http://www.ufollow.com/sources/environmental.economics/

 

What I did today

The AER is 100 years old?

Has it been working out? It doesn't look a day over 60:

In an article that appears in the 100^th anniversary issue of the American Economic Review (AER) – “The Problem of the Commons:  Still Unsettled After 100 Years” – I focus on some important, unsettled problems of the commons.

via belfercenter.ksg.harvard.edu

Price Gouging! Congress must do something NOW!*

Gasoline prices have jumped another nickel, to 55 cents a gallon more than a year ago, according to a study published Sunday.

The average price for a gallon of regular is $3.18, the Lundberg Survey found. That's up 5 cents from two weeks ago, publisher Trilby Lundberg said.

"That is a significant bite for motorists considering the continued deep unemployment," Lundberg said.

And it comes amid a "very wide and deep glut of gasoline supply," she added.

The spike is partly due to events in the Middle East and north Africa, Lundberg said.

The most common benchmark for crude oil is West Texas Intermediate on the futures market. That crude is "glutted, in serious oversupply," she said. "But U.S. refiners use many other crudes, some of which have been jumping on Middle East tensions."

The gasoline glut has helped prevent prices from rising even more, she said.

via www.cnn.com

*Anticipatory snark

Quote of the day

I came this close (thumb and forefinger about an inch apart) to saying "utility":

[Gov. Bev] Perdue called for closing state parks two days a week to help close a $2.4 billion budget gap. 

But the idea is worrying some in the tourism industry in Western North Carolina, which is home to Mount Mitchell State Park, Chimney Rock State Park, Grandfather Mountain State Park, Lake James State Park and Gorges State Park.

The governor's proposal would reduce funding to the state division of parks and recreation by 10 percent, or more than $3 million, but avoid cutting permanent staff at North Carolina's 39 state parks and recreation areas. ...

State parks have an economic impact of more than $400 million annually, according to an analysis by N.C. State University's Department of Parks, Recreation and Tourism Management. ...

Despite concerns by some tourism officials, closing state parks two days a week will likely have little effect on the local economy, said John Whitehead, chairman of the economics department at Appalachian State University.

He said tourists will plan trips around the closures and visitation may even itself out on other days. He said state parks are mainly visited by locals, and people will find other activities to do if state parks are closed, like going to the movies or bowling, so they will still be spending money.

“The problem is that the things that people find to do won't be as fun, won't be as attractive,” Whitehead said. “While there won't be a spending impact, there could be an impact to people's happiness levels. There are substitutes for spending, but the substitutes aren't great in terms of what we really like to do.”

via www.citizen-times.com