Environmental Economics

"You can't put a price on a Truffula tree" ???

From the inbox:

Hello!  Thought you might enjoy CollegeHumor Original animation, “The Conservative Lorax,” a satirical take on how the story of The Lorax might be presented by those who are not so environmentally friendly...Say, on something like the “Fox Seuss Network.”  Here’s a link to check out what The Lorax could be like as a Wall Street suit: http://www.collegehumor.com/video/6804067/the-conservative-lorax

Knowledge Problem: CO2 emission reductions: fracking, recession, renewables?

Lynne Kiesling:

Several people have pointed out the remarkable fact that carbon dioxide emissions from fossil fuel combustion have fallen almost to 1995 levels. As the Institute for Energy Research noted,

The Energy information Administration reports that energy-related carbon dioxide emissions in the United States are 2.4 percent less in 2011 than they were in 2010, and 9.1 percent less than in 2007 when they hit their peak level. Why are carbon dioxide emissions on a downward trend?

IER identifies the main hypotheses for this reduction: economic recession reduces energy use, high oil prices reduce petroleum consumption, switching from coal to natural gas for electricity generation, and some switching to renewables for electricity generation.

At The Atlantic, Alexis Madrigal charts out the changes over time in the share of electricity generation coming from coal, natural gas, and petroleum. His main point is the dramatic pace of change in the past two years in the switch from coal to natural gas, a pace not usually seen in electricity generation. Ron Bailey at Reason points to the role that fracking has played in the drastic reduction of the absolute and the relative price of natural gas (and, as IER noted, EPA regulations increase the relative price of coal, exacerbating the price effect underlying the switch). Merrill Matthews at Investor’s Business Daily also attributed the reduction to the increase in fracking. When an energy source that’s got half the carbon emissions effect also gets cheaper in absolute terms as well as relative to coal, economic and environmental benefits are aligned (I will defer to Mike and his earlier posts on the environmental impacts of fracking itself.

Perhaps Walter Russell Mead is correct, and we’re heading toward a new American century with unanticipated energy abundance in the US, Canada, and offshore of Brazil.

via knowledgeproblem.com

AAARRRGGGHHH!!!

From the inbox:

I’m using your ... 2008 JES paper as a reference ..., and I came across a rather funny typo I thought I would share with you, just in case you want to keep track of these things.

It comes in the references cited (check out the very last word in the title). It gave me a bit of a chuckle, as I wondered what “quasi-public foods” might look like. Don’t you just love it when things like that sneak through?

Carson, R.T., Flores, N.E., Martin, K.M. and Wright, J.L. (1996) Contingent valuation and
revealed preference methodologies: comparing the estimates for quasi-public foods. Land Economics 72: 80–99.

 

Daily Demand and Supply: The effect of expectations

Corn prices surged to a new record high Tuesday, as the worst drought in more than 50 years continues to plague more than half the country.

Almost 90% of the United States' corn crops are in drought ravaged areas, according to the U.S. Department of Agriculture, and nearly 40% are situated in the hardest hit spots.

Corn prices have soared more than 50% during the past six weeks as the crops continue to shrivel in relentless dry heat throughout the Midwest. They jumped another 0.7% Tuesday to a record high of $8.20 per bushel on the Chicago Board of Trade.

via buzz.money.cnn.com

Expected decreases in future supply will increase prices today.

Polluter pays (some) principle

In response to city budget deficits: 

Saying they need to stop relying on the city’s general fund, Louisville Metro Air Pollution Control District officials plan to collect an additional $1.5 million in fees by 2014 from the several hundred businesses they regulate. ...

The district enforces the federal Clean Air Act in Louisville along with its own regulations. Some programs ... go beyond federal requirements. About 36 percent of its budget comes from grants, with much of that from the U.S. Environmental Protection Agency. Penalty fees make up about 13 percent, while the permit, emissions and program fees account for a total of 37 percent.

via www.courier-journal.com

Louisville's general fund currently covers the other 14%. Assuming that the general fund comes from taxpayers, they are being charged twice for pollution reduction. First through taxes and second through higher prices for the polluting goods they purchase. 

Charging polluters to fund air pollution regulations, in proportion to their pollution, is akin to a Pigouvian tax. The regulatory fees would provide an incentive to reduction air pollution. 

I'm a Liberepublicrat

I took the "I Side With.com" presidential quiz and here are my results:

• Ron Paul: 86%
• Mitt Romney: 83%
• Gary Johnson: 72%
• Barack Obama: 71%

Post your results in the comments (and don't try to answer so you get a certain candidate, just answer honestly and see what you get--it's more fun to be surprised).

Greed, Green & Grains: Obamacare for Our Corn

via greedgreengrains.blogspot.com:

This has to be the funnest thing an agricultural economist could ever do...

Great job Bruce!

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
U.S. Agriculture & Drought Disaster - Bruce Babcock
www.colbertnation.com
Colbert Report Full Episodes Political Humor & Satire Blog Video Archive

Many thanks to Mike Roberts for keeping our material fresh.

Daily Demand and Supply: As Colbert put it, this $hit just got real*

There will still be milk to buy, says Roger Hoskin, an agricultural economist with the Department of Agriculture's Economic Research Service. "I can't imagine situations where you'd have people standing in line to get milk at the dairy counter. But they might not want it at the price it's selling at."

He adds that "you'll see less cheese on pizzas and in salad bars."

via www.usatoday.com

I'm OK with higher corn and meat prices, but milk and cheese?  How am I supposed to sleep without my nightly servings of cheese and crackers (ritz with cheddar) and chocolate milk (Hershey's, but lately I've taken a renewed liking to Nesquik)?

*Here's the Colbert reference for those interested.  HT: Gernot Wagner via Facebook

What I did today

You would not believe the deep theoretical results, with empirical implications, achieved by Paul Hindsley (pictured here in front of this ancient tool called the chalkboard) and myself, in just a fraction of a morning. 

It's getting hot in here (so hot) ...

In case you missed it, Krugman reads an environmental economics blog. Michael Roberts at 3G:

Update 2: Even more kudos to Krugman for linking here and expanding on my first point.  It's amazing what a link from him does to visit numbers on this little ol' blog.

Update: Kudos to Paul Krugman to drawing attention to the issue.

So, the Midwest is getting crushed by heat and drought, and crop prices are reaching new record highs.

I'm a little depressed but not at all surprised by this.  But that sentiment kind of matches everything in our economic, political and environmental world.  Aside from some major life changes and general busyness, it's probably a reason I haven't been blogging much---there's really not much to say that hasn't already been said many times.

Anyhow, to reiterate a few basic points:

1. The usual politically-correct line is that we cannot tell whether its weather or climate change.  The weather fluctuates and heat waves happen. But the data show that the relative frequency of extreme events like this has increased tremendously.  Just look a few posts back or read Jim Hansen's Climate Dice paper (PDF).  Statistically speaking, this is almost surely climate change.

2. This kind of heat for the US Midwest is already past due. I haven't crunched this season's numbers yet, but eyeballing it, this summer--about like 1988--is probably about what we should expect to be typical in the relatively near future.

3. Some new 'drought tolerant' varieties were rolled out this year. I guess we'll see how they do.  So far it seems markets are not all that impressed.

4. Don't cry for the farmers.  Prices are going up proportionately way more than yields will go down, so farm income is likely to rise on average.  And besides, they have a sweetheart deal on subsidized crop insurance.  Then they'll get disaster payments.  Unlike health care and education for poor children, safety nets for wealthy farmers has always been a prerogative with happy bipartisan support. There are probably a few farmers out there that will get hurt by this, but far more farmers will get  richer off this heat and drought than go bankrupt.

5. The biggest losers are consumers, especially the poor in food-importing developing countries.

And Roberts' post inspires Krugman's most recent column on weather variability and climate. Here is the conclusion:

Will the current drought finally lead to serious climate action? History isn’t encouraging. The deniers will surely keep on denying, especially because conceding at this point that the science they’ve trashed was right all along would be to admit their own culpability for the looming disaster. And the public is all too likely to lose interest again the next time the die comes up white or blue.

But let’s hope that this time is different. For large-scale damage from climate change is no longer a disaster waiting to happen. It’s happening now.

The loaded die analogy: normal climate has two red (hot) sides, two white (normal) sides and two blue (cold sides). A climate change die has four red, one white and one blue.