Environmental Economics

It's gotta be the Nerlens post

This is too crazy for me to be making up!

One thing that bothers me, @john_env_econ has got to be one of the worst twitter handles ever. Any suggestions about something better? @johnwhitehead and @whiteheadjc are already taken. Twitter for dummies suggests @handsomejohn but, I don't know, I am really good looking but calling myself handsome seems a little vain. 

"How Much Money Did The Knee Injury Cost Nerlens Noel?"

Deadspin:

If we assume that a healthy Nerlens Noel goes first or second in an historically thin NBA draft, he lost somewhere between $4 million and $5 million over the next three years—all because he vaporized his knee in February while playing amateur basketball as a nominally unpaid intern at Kentucky.

According to the NBA's rookie salary scale, Noel would have been owed an average of $4.6 million per year over the next three seasons if he had been drafted No. 1 overall, and about $4.1 million per year if he had been taken at the No. 2 spot. But Noel fell to the sixth spot in the draft, and he's set to make around $2.7 per year during his first three seasons in the league.

Why the drop?

... it was almost certainly the injury, a torn ACL, that sandbagged Noel. "The knee looks bad," an anonymous executive told ESPN.

"Environmental programs must justify their costs by the benefits that improved environmental quality provides to society"

Krugman took his blog post and made it a column:

... environmental action could actually have a positive effect. Suppose that electric utilities, in order to meet the new rules, decide to close some existing power plants and invest in new, lower-emission capacity. Well, that’s an increase in spending, and more spending is exactly what our economy needs.

More spending is exactly what our economy needs right now but it is not clear that (a) this is the right kind of spending (i.e., of the broken window sort) or (b) regulatory induced spending will be needed for the macroeconomy when it is likely to occur, unless you want to forecast a weak recovery for the next five years.

Just a quick glance at Google Scholar suggests that there isn't much research to back up any "effects of climate policy on the macroeconomy" assertion. Climate change policy needs to be evaluated on its real merits ... benefits and costs using microeconomics ... like they are doing over at Common Resources.

Also, in the words of Palmer, Oates and Portney in the 1995 JEP article criticizing the Porter hypothesis: "environmental programs must justify their costs by the benefits that improved environmental quality provides to society."

More on flexible carbon standards from RFF

Nathan Richardson and Clayton Munnings at Common Resources:

Reading agency intentions is hard, but until recently the EPA seemed likely to pursue an inflexible (but more legally defensible) approach. The President’s post-speech memo to EPA suggests this may be changing. It calls for “approaches that allow the use of market-based instruments, performance standards, and other regulatory flexibilities.” That’s good news, and may be the most important policy change this week, rather than anything in the speech itself. We as researchers have long advocated a bold approach from EPA, despite reservations about legal defensibility of some options.

A tradable performance standard or similar flexible approach would show ambition to squeeze substantial GHG reductions out of the CAA. The legal risks associated with this approach are real, but can be minimized. One option is to make more ambitious elements of the standards severable, so that a court can reject them without eviscerating the entire program. Another is to leave flexibility decisions to states, which play a major role in existing-source rules under the law.

Here is my previous post on this subject.

I said that a long time ago, but I didn't think to put it in an NBER working paper...Dammit

There may be an economic cure for the nation’s obesity: Hike the price of food.

Raising the price of a calorie for home consumption by 10 percent might lower the percentage of body fat in youths about 8 or 9 percent, according to new research from the National Bureau of Economic Research.

via www.washingtonpost.com

On March 9, 2006, over SEVEN YEARS AGO, I wrote in this very space:

I think... the main cause of the upward trend in weight in the U.S...FOOD IS CHEAP and getting cheaper.  I present as exhibit A the graph on the right.   The graph maps the relative price of food (as measured by the BLS Consumer Price Index for all food realtive to the overall CPI for all goods) from 1980-2005.  As you can see, food prices have fallen dramatically since 1980 relative to other goods.  The economist in me says "Hmmmm...food is getting cheap relative to other goods, maybe people are eating more."  But the story gets better.

If we look at the price of 'fats and oils', 'sugar and sweets' and 'fruits and vegetables' relative to 'All foods', again we see a not so surprising result (see the other graph to the right).   The prices of fats and sweets have fallen since 1980 relative to all foods while the prices of fruits and vegetables have risen dramatically. 

So why are people gaining weight?  Sure part of it might be genetic or social or environmental, but I think it's equally plausible that the reason is economic.  If the price of food falls relative to other goods, and the price of fatty and sweet food falls relative to other foods, what would you expect?  People will substitute eating fat and sweet foods for more expensive alternatives like eating fruits and vegetables and exercising.**

Why do we care?  The CDC estimates that Medicaid and Medicare expenditures for overweight and obese people were between $25 and $50 billion in 1998.  Can anyone say 'Fat Tax'?  I'm now ducking.

That's one big broken window*

Christine Lagarde, the managing director of the International Monetary Fund, said Thursday that climate change will drive job creation.

“Climate change will create jobs. It will create disasters before it creates jobs, but it will create jobs,” Lagarde said on the MSNBC program “Morning Joe.”

via thehill.com

*Bastiat

Haggle properly. Your review isn't worth 80 Euro/hour.

Awesome response from a potential JEM referee: 

Dear Prof. John C. Whitehead,

Reviewer [name redacted] has declined the invitation to review this manuscript. The reviewer has provided the following comments:

Due to the fact of raising costs for your journals especially for institutions like universities, while simultaneously rooting your business in using authors and reviewers from the sciences not being charged, I decided to do no more free of charge reviewing for Elsevier journals.

I can offer you reviewing articles for 80 Euro/ hour.

Please note that the biggest sort of freebie for the academic publishing industry is content. I have no idea about this particular researcher, but my guess is that those who put forward this sort of highly principled response to a review request aren't so rigid when it comes to submitting papers to for-profit journals (or if the review request is from JEEM or REE). The difference is, reviewing papers is a public good with only a single line on your vita that no one cares about. Submitting papers generates many more private benefits.

New working paper*

From the inbox:

Thank you for your submission, A RECREATION DEMAND MODEL OF THE NORTH CAROLINA FOR-HIRE FISHERY. The following URL links to the abstract page for this submission in the SSRN eLibrary. If the full-text paper is included with your submission, you can also download a copy of your paper from this web page.

http://ssrn.com/abstract=2284939

This is a short, simple paper but I like the model and results. We have two measures of cost per trip: travel cost and the charter fee. For those anglers who travel for the (self-reported) primary purpose of a charter fishing trip, the effect of each type of cost on the location decision is the same so that the cost per trip is the sum of travel costs and charter fees. For those anglers who enjoy a day of charter fishing as a secondary purpose of taking the trip, travel costs and charter fees have different effects on the location decision. 

Here is the abstract:

In this paper we measure the recreational economic benefits of the for-hire recreational fishery in the coastal region of North Carolina. We estimate a single trip random utility model for primary purpose and secondary purpose anglers with data from a field survey of charter and head-boat passengers. We find that primary and secondary purpose anglers exhibit significantly different behavior with regards to cost. However, once costs are weighted for secondary purpose anglers the value of catch is not statistically different across groups. For primary purpose anglers, the willingness to pay per trip is between $1800 and $2000 for one additional billfish (per angler), between $55 and $65 for one additional coastal migratory pelagic fish, $39 for one additional mackerel, and the willingness to pay per trip for an additional snapper-grouper is between $61 and $94. The net economic value for a charter boat trip averages $624 per angler per trip, and net economic value for a head boat trip is $102 per angler per trip.

*Our RePEc coordinator is attending the EAERE meetings (and it looks like the presentation is today) so I'm relying on Craig Landry to do the dirty work at SSRN. 

Proposed climate regulations might not be too bad on the cost side

The word "flexibility" is a very good thing from the perspective of economic efficiency:

The Supreme Court has already ruled that it can be used to regulate greenhouse gases, which include carbon dioxide emissions, but figuring out how to do that within the technical requirements of the law will be a major challenge.

The administration’s thinking appears to have been influenced by a proposal from an environmental group, the Natural Resources Defense Council.

The group urged a creative approach, calling on the federal government to set a target level of greenhouse gases for each state, taking account of historical patterns. A state generating a lot of power from coal, then exporting it to other states, would not be unduly penalized, for instance.

As the environmental group envisions it, states would meet their goals by tweaking the overall electrical system, not just by cracking down on individual power plants. States might urge companies to produce more renewable power, for instance, but they could also retrofit homes and businesses to reduce energy waste, or encourage the use of clean-burning natural gas instead of coal.

States would presumably be allowed to use market signals, like a price on greenhouse emissions, to achieve their goals, as California and nine Northeastern states are already doing.

It is unclear how much all this might cost at the retail level. The Natural Resources Defense Council argues that even if prices go up, electric bills for many consumers could actually decline as their homes were retrofitted to use less energy.

Flexibility reduces costs by allowing emissions targets to be met in the cheapest way, and not with federally prescribed technology or uniform standards. And it sounds like the regional cap-and-trade plans might already be in compliance. 

The only problem is that pushing the policy design down to the individual states is risky. Won't some state legislatures try to reject the whole thing like they did with the er, um, health care thing?

Sometimes it just feels good to be wrong (really, really wrong)

Paul Krugman says the proposed climate regulations will lead to net benefits:

Lots more analysis will, I hope, be forthcoming, from both the environmental and the economic side. But there’s one crucial economic point I want to get out there right away: while the usual suspects will denounce all this as job-destroying regulation, tougher climate policy will, almost surely, be job-creating, not job-destroying, under current conditions.

Why? Well, ask yourself first how, exactly, pollution regulations are supposed to destroy jobs. They will indeed raise costs, that is, shift up the aggregate supply curve. But our economy isn’t supply-constrained right now, it’s demand-constrained; so why would this make a difference? Even if prices go up a bit, how will this reduce real demand? It’s like the argument about wage flexibility, which I’ve addressed many times in this blog: downward flexibility of wages does nothing helpful when you’re in a liquidity trap, and cost increases do no harm.

So, no job cuts. Why might new regulations actually be expansionary? Because they will provide power companies with an incentive to invest in ways that will reduce their emissions, even if they currently have excess capacity. Obama had a great phrase near the end of his speech: “Invest, divest” — that is, shift away from more to less polluting ways of doing business. And the “invest” part would be exactly what the economy needs. Yes, this is a variation of the “termites” theory, under which wrecking capacity can actually be expansionary — but that theory is right under these conditions.

In short, everything you’re going to hear about the downside of the new regulations will be wrong, at least for the short to medium run.

OK, I'm going to go ahead and be wrong (really, really wrong probably). I don't think that when business firms are forced to hire workers to meet environmental regulations it will result in no additional cost simply because those workers are currently unemployed. Won't those unemployed workers ask to be paid? Jobs will be lost as business firms adjust to these higher costs (the net impact on employment is likely trivial). And by the time this proposal hits the economy, the plan isn't supposed to be completed until a year from now and the legal action will likely push these regulations down the road another year or two, hopefully the economy will be in the expansionary phase of the business cycle. 

Finally, as I've said before, assessing environmental policy with a macroeconomic model is not the best way to assess an environmental policy. The benefits of the policy are the reductions in negative market and nonmarket climate change impacts and the costs are the negative effects in markets (resulting from lower supply of carbon intensive goods). In other words, analysts should do some benefit-cost analysis and forget about the jobs. 

Now I can only hope that I become a Krugman punching bag!