Environmental Economics

The law of unintended consequences strikes again

Back in 2009, the “Cash for Clunkers” federal program was supposed to be a boon for the environment and the economy. During a limited time, consumers could trade in an old gas-guzzling used car for up to $4,500 cash back towards the purchase of a fuel-efficient new car. It seemed like a win for everyone: the environment, the gasping auto industry and cash-strapped consumers.

Though almost a million people poured into car dealerships eager to exchange their old jalopies for something shiny and new, recent reports indicate the entire program may have actually hurt the environment far more than it helped.

According to E Magazine, the “Clunkers” program, which is officially known as the Car Allowance Rebates System (CARS), produced tons of unnecessary waste while doing little to curb greenhouse gas emissions.

The program's first mistake seems to have been its focus on car shredding, instead of car recycling. With 690,000 vehicles traded in, that's a pretty big mistake.

According to the Automotive Recyclers Association (ARA), automobiles are almost completely recyclable, down to their engine oil and brake fluid. But many of the “Cash for Clunkers” cars were never sent to recycling facilities. The agency reports that the cars’ engines were instead destroyed by federal mandate, in order to prevent dealers from illicitly reselling the vehicles later.

The remaining parts of each car could then be put up for auction, but program guidelines also required that after 180 days, no matter how much of the car was left, the parts woud be sent to a junkyard and shredded.

via news.yahoo.com

Ecolabeling survey

From the inbox:

We are currently undertaking a research project on the buying habits of consumers related to ecolabeled products. The project is based on a questionnaire.

The questionnaire should not take more than 10 minutes for completion. 
For the language-specific questionnaire please follow the link below:

- English version
https://www.surveymonkey.com/s/6BB6WXW

- French version
https://www.surveymonkey.com/s/PMFP3RR

- German version
https://de.surveymonkey.com/s/6BBMR7N

With kind regards, 

Mohamed Achabou
[email protected]

Ingmar Schumacher
[email protected]
http://ischumacher.npage.de/ingmar-schumacher.html

This one took me only 6 minutes.

So what if the cart is before the horse?

Here is an interesting perspective, for all you revenue recycling fans (increase environmental taxes and decrease income taxes), we've just permanently cut income taxes for 99%+. Now it is time to pay for those tax cuts (since the Laffer curve is upward sloping in this range of tax rates). Andrew Samwick:

Maybe the next step is as Brad DeLong suggests -- they are now Obama's tax cuts, so he has to find a way to fund them.  A large carbon tax to recover much of the revenue would complete the "Green Tax Swap" that I have long wanted to see.  ...

After increased taxes for the .01%, could a carbon tax be the least onerous tax increase?

If 2013 isn't the year of the carbon tax post, at least 1/7/13 can be declared carbon tax post day. From Slate via E2 Wire:

Fifty-fix percent of people in the U.S. would support a tax on carbon emissions that would cost roughly $600 per year to help cut the deficit, according to a new poll.

The finding arrives as carbon tax proposals are generating increased interest among policy wonks and climate activists, although political leaders in both parties have spurned the idea.

The online research firm YouGov asked respondents to choose from 10 deficit-cutting options — such as income tax increases, various spending cuts, entitlement reductions and others — that they find “least painful.”

But the poll, conducted for Slate magazine, has a catch: The survey requires each respondent to select enough options to provide at least $900 billion in deficit reduction by 2022.

Within that framework, a carbon tax that would save $159 billion in 2022 received a 56 percent approval rating, according to Slate, which said the poll was conducted among a “representative sample” of 1,000 people.

The carbon tax had the fifth-highest approval rating in the poll. It’s more popular than proposals such as a national sales tax, cutting Medicare or Social Security benefits, and repealing the expansion of health insurance coverage. ...

The most popular choice, with an 84 percent approval rating, was to allow the Bush-era tax rates to expire for at least some people. ...

Will 2013 be the year of the carbon tax blog post?

Now that we've broken the no-new-taxes-ever-again pledge, maybe there is a non-zero probability that carbon taxes might be considered. Here is some evidence from Ireland that a carbon tax might be a decent idea:

Over the last three years, with its economy in tatters, Ireland embraced a novel strategy to help reduce its staggering deficit: charging households and businesses for the environmental damage they cause.

The government imposed taxes on most of the fossil fuels used by homes, offices, vehicles and farms, based on each fuel’s carbon dioxide emissions, a move that immediately drove up prices for oil, natural gas and kerosene. Household trash is weighed at the curb, and residents are billed for anything that is not being recycled.

The Irish now pay purchase taxes on new cars and yearly registration fees that rise steeply in proportion to the vehicle’s emissions.

Environmentally and economically, the new taxes have delivered results. Long one of Europe’s highest per-capita producers of greenhouse gases, with levels nearing those of the United States, Ireland has seen its emissions drop more than 15 percent since 2008.

Although much of that decline can be attributed to a recession, changes in behavior also played a major role, experts say, noting that the country’s emissions dropped 6.7 percent in 2011 even as the economy grew slightly. ...

By contrast, carbon taxes are viewed as politically toxic in the United States. Republican leaders in Congress have pledged to block any proposal for such a tax, and President Obama has not advocated one, although the idea has drawn support from economists of varying ideologies.

Yet when the Irish were faced with new environmental taxes, they quickly shifted to greener fuels and cars and began recycling with fervor. Automakers like Mercedes found ways to make powerful cars with an emissions rating as low as tinier Nissans. With less trash, landfills closed. And as fossil fuels became more costly, renewable energy sources became more competitive, allowing Ireland’s wind power industry to thrive.

Even more significantly, revenue from environmental taxes has played a crucial role in helping Ireland reduce a daunting deficit by several billion euros each year.

The three-year-old carbon tax has raised nearly one billion euros ($1.3 billion) over all, including 400 million euros in 2012. That provided the Irish government with 25 percent of the 1.6 billion euros in new tax revenue it needed to narrow its budget gap this year and avert a rise in income tax rates.

via www.nytimes.com

Congratulations to John (and all of the other University faculty members out there) for living a stress-free life*

From CNBC.com:

And the winner of Least Stressful Job of 2013 is … university professor!(Cue the commencement music.)Professor is a newcomer to the list this year, and it shot straight to the top."If you look at the criteria for stressful jobs, things like working under deadlines, physical demands of the job, environmental conditions hazards, is your life at risk, are you responsible for the life of someone else, they rank like 'zero' on pretty much all of them!" Lee said.Plus, they're in total control. They teach as many classes as they want and what they want to teach. They tell the students what to do and reign over the classroom. They are the managers of their own stress level.The most stressful thing about being a professor?"Interacting with other professors!" Lee said.

I think I will choose to not teach any classes anymore.

*I will leave it up to you to determine whether you think this post is sarcastic.

Daily Demand and Supply: Decreased supply doesn't increase demand

For as long as I can remember we have had a subscription to Reader's Digest because, well, let's just say that the articles are just the right length for 'browsing.'.  Anyway, yesterday I was 'browsing' and came across this misguided gem:

Why a Sports Ticket Costs What it Costs:  College Football $100-$3,000

Shorter schedules and fewer home games than the pros increase demand.

Sheesh.  Changes in the supply of tickets do not affect demand.  Demand stays the same (the demand curve stays in exactly the same place). An individual fan isn't willing to pay more or less based on the number of games available.  The trick here is a decrease in supply causes the new equilibrium to be 'higher up' the demand curve than it would be if more games/seats were available.  Higher up the demand curve is a place where those with the highest willingness and ability to pay reside.  From our basics of Supply and Demand in Env-Econ 101, when you observe higher prices and lower quantities you should econsenses should immediately trigger the supply decrease signal.

Robert Frank on Pigouvian taxes

In the NY Times:

NO one enjoys paying taxes — and no politician relishes raising them. Yet some taxes actually make us better off, even apart from the revenue they provide for public services.

Taxes on activities with harmful side effects are a case in point. Strongly favored even by many conservative Republican economists, these levies are known as Pigovian taxes, after the British economist Arthur C. Pigou, who advocated them in his 1920 book, “The Economics of Welfare.” In today’s deeply polarized political climate, they offer one of the few realistic hopes for progress.

The rest of the article lays out the case for Pigouvian taxes on everything that generates negative externalities with revenue neutral lump sum rebates. While I think it is great that Prof. Frank is making this argument, I have a few quibbles:

1. Why is a vehicle weight tax the example? A gas or carbon tax would be a much more appropriate tax to implement. For example, suppose someone buys a very large car to add to their personal fleet but drives it rarely, if at all, then their tax bill would be much greater than the damage caused by the purchase. Taxing the gasoline put into the car, which is an increasing function of vehicle weight, would more directly align the tax bill with the damages. 
2. When introducing the rebate notion, Prof. Frank states: "And it’s an iron law of politics that prospective losers lobby harder to block change than prospective winners do for its adoption." Is that necessarily true? Or is it more like this: It's an iron law of politics that relatively few prospective losers with large individual costs lobby harder to block change than the relatively abundant prospective winners with small individual gains do for its adoption.
3. I realize that revenue neutral tax rebates is a gimmick to get tax-increase-phobic fiscal consersatives to agree to a tax increase, but at some point the debt-to-GDP ratio will be such that Pigovian taxes might best be designed to generate revenue. 

Let the sunshine in

MidAmerican Energy Holdings Co., a unit of Warren Buffett's conglomerate Berkshire Hathaway (BRKA, Fortune 500), has purchased two solar power projects in a deal valued at between $2 billion and $2.5 billion.

MidAmerican, the electric utility, said Wednesday it has purchased the Antelope Valley Solar Projects from SunPower Corp (SPWR).

via money.cnn.com

Wookie

Daniel Hall from High Point University gave a talk at Appstate about a month ago. It was a fine talk, but what stood out for me was his uncanny resemblance to a young Tim Haab (even the wookie-like height and beard). Thanks to Daniel for letting me share this pic: