Environmental Economics

Is 18 acres here worth 43 acres there?

A plan to turn over a state wildlife area in the Sawmill Road area to a developer has one EPA official crying foul.

The Ohio Department of Natural Resources wants to give the 17.85-acre Sawmill State Wildlife Education Center, located near Sawmill and Dublin-Granville roads, to Worthington-based Klingbeil Medical Partners.

The business group would develop the site in return for 43 acres along the west bank of the Olentangy River in northern Franklin County, just south of the Delaware County line. The developer would create wetlands on the riverside property, which the state would own.

The Sawmill property has been under state control since the mid-1990s. It was created in a wetlands-conservation deal that developers of a nearby shopping center reached with the Ohio Environmental Protection Agency.

“We will be trading an area that has limited public access for an area with enormous public access,” said Carlo LoParo, a Natural Resources spokesman.

But on Jan. 4, Tom Harcarik, the Ohio EPA’s Isolated Wetland Permitting Unit supervisor, sent a memo to George Elmaraghy, chief of the agency’s surface water division, complaining about the deal.

Harcarik said the proposed deal threatens a 7.5-acre wetlands on the Sawmill property, one of the last such areas remaining within Franklin County, and sends the wrong message about the state’s preservation efforts.

via www.dispatch.com

Picture of the day: Outlier

An example for your econometrics course (source: Chronicle of Higher Education):

If one would like to create a spreadsheet for one's use, here are links to the president and faculty salary data:

• http://chronicle.com/article/Public-Pay-Table/131916/

• http://chronicle.com/article/faculty-salaries-table-2012/131433

Copenhagen Consensus 2012: Climate Change

Bjorn Lomborg:

If you had $75 billion to spend over the next four years and your goal was to advance human welfare, especially in the developing world, how could you get the most value for your money?

That is the question that I posed to a panel of five top economists, including four Nobel laureates, in the Copenhagen Consensus 2012 project. The panel members were chosen for their expertise in prioritization and their ability to use economic principles to compare policy choices. ...

When it comes to climate change, the experts recommend spending a small amount – roughly $1 billion – to investigate the feasibility of cooling the planet through geo-engineering options. This would allow us to understand better the technology’s risks, costs, and benefits. Moreover, the research could potentially give us low-cost, effective insurance against global warming.

via www.project-syndicate.org

One reason that climate change ranks low in the Copenhagen Consensus exercise is that the benefit-cost analyses conducted for the Copenhagen Consensus were required to use 3% and 5% discount rates. Since the benefits of climate policy may happen 50+ years down the road, these benefits are discounted away. Really, conventional benefit-cost analysis has some serious limitations when informing climate policy.

Also, the absence of a carbon tax (or cap-and-trade) in the recommended policies makes it appear that the expert panel rejected incentive-based policy on merit, in favor of geoengineering. I'm not sure if they did or didn't, however, as Richard Tol put it in his Challenge Paper:

There is wide agreement in the economic literature that greenhouse gas emission reduction is best done through a carbon tax. A uniform carbon tax implies equimarginal abatement costs. Climate change is a stock problem, so a price instrument is more robust to uncertainty than a quantity instrument. Taxes properly incentivise R&D. That is, climate policy is not about spending money. It is about raising money (and, of course, about finding the best way to spend the revenues raised through a carbon tax.)

...

I argue that the format of the Copenhagen Consensus is ill-suited for a problem like climate change, and that it is inappropriate for evaluating the different aspect of climate policy. Climate policy is a long programme, not a short project, and revenue should be raised through a carbon tax, rather than spent by a blue-ribbon panel. Climate policy is a portfolio of adaptation, abatement of various gases, R&D, and perhaps geoengineering. Ignoring the complementarity of these options is silly.

 

Another Breakthrough!

Ted Nordhaus and Michael Shellenberger:

Paul Krugman asserts that a carbon price is still the most important climate policy because... well, because he's Paul Krugman and he says so.

via breakthroughjournal.org

Now, I can get annoyed with Krugman as much as the next guy. But here is the part of the interview with Ezra Klein that Ackerman and Shellenberger find so offensive:

Let’s step back for a moment. What do you think we should be worrying about in 10 years?

I really think 10 years from now the signs that we’re on a runaway climate change will start to become a lot more obvious. It won’t be big rises in temperature yet, but will be enough to make people look around and say, oh my God. But by then, it will be very hard to bring it under control.

Are you a technological optimist on this?

Well, there are different kinds of technological optimists. One kind of technological optimist says we’ll spontaneously develop technologies that give us perfectly clean energy. I think so long as fossil fuels are cheap, people will use them and it will postpone a movement towards new technologies. And then there’s geoengineering, which we may eventually use out of desperation, but is full of unintended consequences and political questions. That won’t affect all countries equally. It will hurt some countries and help others. It would be a helluva thing to throw into the global situation.

I’m a technological optimist in that I think if we had appropriate pricing, we’d find it remarkably easy. The cost of getting out of rising emissions would be much lower than legend has it. But I’m not politically optimistic that we’ll do that.

So you’re an economics optimist. You think if we got the price right, we could get the technology right.

Yes. But it’s scary stuff.

My criticism would be that no economist can really make a ten year geoforecast ("runaway climate change"). And I'd also critique the notion that anything so huge is easy. But, I don't really find anything to suggest that Krugman is being Krugman here. 

Breakthrough?

The Breakthrough Journal (Blog) rips the notion of efficient allocation of scare resources (and Gernot Wagner). Ted Nordhaus and Michael Shellenberger:

Out of real-world evidence, Wagner falls back on economic theory. "[C]arbon is a pollutant; we need make polluters pay... Price goes up, demand goes down. Economists typically call it the 'law of demand'--one of the very few laws we've got."

But no exceptions to the law of demand are required to acknowledge that it is the pace and scale of innovation, not the efficient allocation of existing emissions mitigation options, which will most determine the overall cost of mitigating and adapting to climate change.

In the end, Gernot summed up our disagreement well:

It is, in fact, economics 101 that tells us to cap or tax pollution. It's economics 102 that teaches us about the process of technical progress, a place where Breakthrough could serve a very useful purpose. Denying economics 101 while trying to make an economics 102 point, though, isn't the way to go.

But when economics 101 was created in the 18th Century, there were one billion humans on the planet, mostly living on farms, using animals, wood, and dung for energy -- about 20 exajoules of it a year. Today, there are seven billion humans, mostly living in cities using electricity and liquid fuels, consuming 430 exajoules of energy annually.

Over the next century, global energy demand will double, and perhaps triple. But even were energy consumption to stay flat, significantly reducing emissions from today's levels will require the creation of disruptive new technologies. It's a task for which a doctrine focused on the efficient allocation of scarce resources could hardly be more ill-suited.

via breakthroughjournal.org

I tend to agree, that economic incentives can't solely solve the potential climate change problem -- society is going to need some significant technological breakthroughs. But, I also tend to disagaree because a carbon tax or cap-and-trade seem to be a wonderful way to creat incentives for technological change. In order to avoid those additional costs business firms are likely to innovate.

Also, economics 101 wasn't created in the 18th Century. It was born then (Smith), developed in the 19th Century (Marshall) and the idea to tax pollution was 20th Century (Pigou). And that is my version of the history of economic thought in 30 or so words.

And in related news, Florida has banned mountaintop removal for coal

Gov. Peter Shumlin yesterday signed into law the nation’s first ban on a hotly debated natural gas drilling technique that involves blasting chemical-laced water deep into the ground.

The Democrat, surrounded at a Statehouse ceremony by environmentalists and Twinfield Union School students who pushed for the ban, said the law may help Vermont set an example for other states. The ban may be largely symbolic, though, because there is believed to be little to no natural gas or oil beneath the surface in Vermont.

via www.dispatch.com

Isn't this the equivalent of Ohio banning granite mining?

The cost of a statistical life is...

We often to talking about the value of a statistical life (John, why don't we have a primer on VSL in Env-Econ 101?), but less frequently talk about the cost of saving a statistical life.  So here you go:

A U.S. aid program aimed at helping foreign countries battle the AIDS epidemic saved 740,000 lives from 2004-2008, according to a study published Tuesday.

The U.S. President's Emergency Plan for AIDS Relief, or PEPFAR, was started by former president George W. Bush in 2003 with a five-year, $15 billion investment in global AIDS in 15 countries.

The analysis by scientists at Stanford University School of Medicine in California examined health and survival information for 1.5 million adults in 27 African countries.

The analysis found that in nine of the African countries targeted by the program, 740,000 lives were saved during a four-year span compared to countries were PEPFAR was not implemented.

"PEPFAR's success with HIV may be considered the clearest demonstration of aid's effectiveness in recent years," said the study in the Journal of the American Medical Association.

via www.mnn.com

Quick math:

$15,000,000,000 / 740,0000 lives saved = $20,270.27 per life saved.

 

If they are more than willing and able, why don't they?

The toxic blue-green algae that will spread across the western basin of Lake Erie this summer likely won’t be as dense as last year’s record bloom, experts say. However, the researchers who track Erie’s water woes say the algae could appear a month early this year, tainting water by June instead of July.

...

Blue-green algae, or cyanobacteria, are common in most lakes but grow thick in sun-warmed water by feeding on phosphorus from manure, fertilizers and sewage that storms wash into streams and ultimately lakes. The algae can produce as many as four toxins that can sicken people and kill pets.

...

State officials are beginning to focus on farms to combat the algae. For example, farmers who tend crops near Grand Lake St. Marys face mandatory limits on how much manure they can spread on fields. The state also sprayed the central portion of the lake with alum, a compound that starves algae.

...

As for Lake Erie and the much larger, 4 million-acre Maumee River drainage area, the state is pushing a voluntary program that encourages farmers to limit the use of chemical fertilizers and to reduce runoff.

...

Some clean-water advocates say they doubt the state’s Lake Erie strategy will work without mandatory limits.

“Usually, it takes more than volunteerism to make that happen,” said Sandy Bihn, the director of the Lake Erie Waterkeeper group.

Larry Antosch, the environmental policy director for the Ohio Farm Bureau Federation, said no mandate is needed.

“I think the farmers in the watershed would be more than willing and able,” he said.

via www.dispatch.com

Raise your hand if you are willing to impose cost on yourself for my sake.

Picture of the day

You can take the fisherman out of Iowa, but you can't take the Iowan out of the fisherman.

CC12 Outcome

[See background posts, ones that I wish I had written on April 26 and May 7.*]

From the inbox (today):

Dear Copenhagen Consensus 2012 authors,
 
Thank you very much for your participation in Copenhagen Consensus 2012. We greatly enjoyed working with all of the authors. It was a pleasure to meet many of you in Copenhagen last week.

I am writing to provide you with the Copenhagen Consensus 2012 panel’s ‘outcome document’, which reflects the panel's consensus conclusions.

You will note that they chose to not rank (but still highly recommend) some investments, so the list should be considered alongside the commentary they created for each topic.

Here is the CC12 Outcome website that contains the press release and "outcome document." From the press release:

A year-long project involving more than 65 researchers has culminated with a panel of economists including four Nobel laureates identifying the smartest ways to allocate money to respond to ten of the world’s biggest challenges.

The Copenhagen Consensus 2012 Expert Panel finds that fighting malnourishment should be the top priority for policy-makers and philanthropists. Nobel laureate economist Vernon Smith said: “One of the most compelling investments is to get nutrients to the world’s undernourished. The benefits from doing so – in terms of increased health, schooling, and productivity – are tremendous.” ...

The Expert Panel was presented with nearly 40 investment proposals designed by experts to reduce the challenges of Armed Conflict, Biodiversity Destruction, Chronic Disease, Climate Change, Education Shortages, Hunger and Malnutrition, Infectious Disease, Natural Disasters, Population Growth, and Water and Sanitation Shortages.

The economists evaluated how the world could prioritise the spending of $75 billion – a 15% increase on current aid spending – on issues such as chronic and infectious diseases, armed conflict, biodiversity, climate change, hunger and malnutrition, among others. ...

Months ahead of the donor decision on renewing the Global Fund’s Affordable Medicines Facility-malaria financing mechanism, the Nobel laureates find that this mechanism to make combination therapies cheaper for poor countries is a very sound investment. ...

They have also resoundingly endorsed investments to expand childhood immunization coverage, deworm more schoolchildren, and expand Tuberculosis treatment. ...

The expert panel found that geo-engineering research and development, at low cost, was worthy of some funds, to explore the costs, benefits, and risks of this technology. And they concluded that investment in early warning systems in the developing world would save lives and protect economies in the case of natural disasters.

Another sound investment is R&D into agricultural improvements. This would lower food prices and reduce hunger. It would also fight climate change by storing more carbon in forests instead of converting them to crops. And it would add to efforts to protect biodiversity.

[Bjorn] Lomborg said: “The new volume of research produced for Copenhagen Consensus 2012 adds to our knowledge about the smartest ways of responding to humanity’s challenges. And the Nobel laureates’ list shows us there are many smart investments that could help so much of the planet, for very little cost. These are the places that policy-makers and philanthropists should direct their attention.”

Here is the expert panel's proposed allocation of the US$75 billion over four years:

*Note: I had hoped to stay on top of this but my blogging had to take a backseat to directing and grading 13 senior seminar papers. Graduation was yesterday so today I'm trying to fully understand what all I put on the backburner over the past month.