Environmental Economics

"What are the Benefits and Costs of EPA’s Proposed CO2 Regulation?"

Robert Stavins reviews the RIA:

Given the fundamental economic arithmetic of a global commons problem, it would be surprising – to say the least – if EPA were to find that the expected benefits of the proposed rule would exceed its expected costs, but this is precisely what EPA has found.  Indeed, its central estimate is of positive net benefits (benefits minus costs) of $67 billion annually in the year 2030 (employing a mid-range 3% discount rate).  How can this be? ...

First, EPA does not limit its estimate of climate benefits to those received by the United States (or its citizens), but uses an estimate of global climate benefits.

Second, in addition to quantifying the benefits of climate change impacts associated with CO₂ emissions reductions, EPA quantifies and includes (the much larger) benefits of human-health impacts associated with reductions in other (correlated) air pollutants.

Of course, even if benefits exceed costs at the given level of stringency of the proposed rule, it does not mean that the rule is economically efficient, because it could be the case that benefits would exceed costs by an even greater amount with a more stringent or with a less stringent rule.  However, if benefits are not greater than costs (negative net benefits), then the rule cannot possibly be efficient, so I will stick with the all-too-common Washington practice and simply ask whether the analysis indicates a winner or a loser at the proposed rule’s given level of stringency.  In other words, the question becomes, “Is the proposed rule welfare-enhancing (even if it is not welfare-maximizing)?” ...

The combined U.S.-only estimates of annual climate impacts of CO2 ($3 billion) and health impacts of correlated pollutants ($45 billion) greatly exceed the estimated regulatory compliance costs of $9 billion/year, for positive net benefits amounting to $39 billion/year in 2030.  This is the key argument related to the possible economic efficiency of the proposed rule from the perspective of U.S. welfare.  If EPA’s global estimate of climate benefits ($31 billion/year) is employed instead, then, of course, the rule looks even better, with total annual benefits of $76 billion, leading to EPA’s bottom-line estimate of positive net benefits of $67 billion per year.  See the summary table below.

The Obama Administration’s proposed regulation of existing power-sector sources of CO2has the potential to be cost-effective, and if you accept these numbers, it can also be welfare-enhancing, if not welfare-maximizing.

That said, I assume that proponents of the Obama Administration’s proposed rule will take this assessment of EPA’s Regulatory Impact Analysis as evidence of the sensibility of the rule, and opponents of the Administration’s proposed actions will claim that my assessment of the RIA provides evidence of the foolishness of EPA’s proposal.  So it is in our pluralistic system (not to mention, in the context of the political polarization that has gripped Washington on this and so many other issues).

via www.robertstavinsblog.org

Willingness to pay to win the World Cup

Better late than never:

On 12 June the FIFA World Cup kicks off. 32 of the best football teams in the world will start vying for the title of being the best at the biggest sport in the world. In an international survey of about 8,000 people in 15 countries we asked what the World Cup title means to people in the competitors’ home countries. Almost a quarter in our survey is willing to give up their mobile phone for a month if it meant their team would win! Our economists also looked at a range of economic indicators to investigate the World Cup teams and the attitude of their fans. ...

1. Spain would prevail if…

If the “value” of all the players in a football team actually could decide the results of the World Cup, Spain would prevail this summer as our analysis shows its squad of 23 has the highest total market value at EUR675 million. Hosts Brazil are third and England seventh, boosted by the EUR49 million value of Manchester United forward Wayne Rooney.

...

4. Argentina is willing to sacrifice the highest sum of money if it meant their team would win.

Chileans top the table on the measure of willingness to sacrifice a sum of money if it meant their team would win. They would be willing to give up EUR526 on average to see their team win. Adjusted for GDP to facilitate a like for like comparison, Argentina rises to the top. 

 

via www.ing.com

Hat tip: Joni Charles

Video of the Day: Reverse Climate Psychology

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JEL (52,2) p. 424 - Addressing Global Environmental Externalities: Transaction Costs Considerations

It is always an event when an environmental paper shows up in an AEA journal:

Libecap, Gary D. 2014. "Addressing Global Environmental Externalities: Transaction Costs Considerations." Journal of Economic Literature, 52(2): 424-79.

DOI: 10.1257/jel.52.2.424

Abstract

Is there a way to understand why some global environmental externalities are addressed effectively, whereas others are not? The transaction costs of defining the property rights to mitigation benefits and costs is a useful framework for such analysis. This approach views international cooperation as a contractual process among country leaders to assign those property rights. Leaders cooperate when it serves domestic interests to do so. The demand for property rights comes from those who value and stand to gain from multilateral action. Property rights are supplied by international agreements that specify resource access and use, assign costs and benefits including outlining the size and duration of compensating transfer payments, and determining who will pay and who will receive them. Four factors raise the transaction costs of assigning property rights: (i) scientific uncertainty regarding mitigation benefits and costs; (ii) varying preferences and perceptions across heterogeneous populations; (iii) asymmetric information; and (iv) the extent of compliance and new entry. These factors are used to examine the role of transaction costs in the establishment and allocation of property rights to provide globally valued national parks, implement the Convention on the International Trade in Endangered Species of Wild Fauna and Flora, execute the Montreal Protocol to manage emissions that damage the stratospheric ozone layer, set limits on harvest of highly-migratory ocean fish stocks, and control greenhouse gas emissions.

via www.aeaweb.org

Where I was this weekend

Highly recommended:

In North Carolina’s northwest corner, seven mountain and foothill counties share far more natural beauty and cultural treasures than anyone could ever explore in one lifetime.

You know the mountains are cool and lovely, and you know they’re out there – somewhere. But until you start looking, you can’t imagine what you’ll find. ...

21. Alleghany County

Doughton Park, Blue Ridge Parkway

The parkway can get busy on the weekends around Asheville, Boone and Blowing Rock, but many North Carolinians never make it as far north as 7,000-acre Doughton Park, where the mountain landscape opens up to reveal less forest and more rolling meadows. The North Carolina Birding Trail invites birders to hike with their binoculars, and it points to the special appeal of a spot called Mahogany Rock at the north end of Doughton near Milepost 234. It’s a great place to monitor the migrating streams of hawks, falcons, merlins, eagles and other birds of prey each fall. The National Park Service also has preserved, on its original location, the 1885 Brinegar Cabin that was home to a family of subsistence farmers. If you’re lucky, when you duck inside the cabin door, you’ll meet Jackie Sloop, an interpretive park ranger who grew up in nearby Caldwell County. As she spins wool to be woven with linen into a sturdy fabric called linsey-woolsey, Sloop talks of the challenges faced by Martin and Caroline Brinegar until the National Park Service acquired their cabin for the parkway in 1937. Doughton Park lost major amenities several years ago with the closing of the Bluffs Lodge hotel, a gift shop and restaurant. Luckily, there’s a good restaurant and motel about 3 miles away on N.C. 18 near Laurel Springs, just off the parkway. Freeborne’s Eatery and Lodge has a laid-back vibe that appeals equally to traveling bikers and local families out for Sunday dinner. 

via www.charlotteobserver.com

The cabin was awesome. 

Eerie Quote of the Day

Does this sound like a Sci-Fi movie to you?*

“I think because [the new drugs would be] attacking such a vast area of the organism, the potential for mutation might be slowed, but I don’t think we could ever say it won’t evolve,” [Mark Fielder, professor of microbiology at Kingston University] said. “It is another step forward, another piece in our armoury to overcome the organisms. The more we understand, the better chance we have.”

via www.independent.co.uk

*It's not.  It's the reality of antibiotic resistant bacteria.

I'm picturing Morgan Freeman as the President, delivering the slightly optimistic news before the organism mutates again and peoples' eyes start popping out.

Electronic replacing print journals

From the inbox:

I am writing to inform you about an upcoming Belk Library and Information Commons project.

This summer the Library conducted a project to deselect print titles in JSTOR. Thanks for your comments and input into the process. We plan to continue this project to target print journal volumes that are duplicated online in the archives of Sage, Elsevier, and Wiley/Blackwell.  This project concerns only the titles in those collections. 

As with the JSTOR project, reshelving and circulation statistics indicate the use of print volumes has significantly declined as more journal content has been made available online. The content from these three publishers is redundantly archived in both digital and print forms by several means in North Carolina and worldwide locations in the event of loss of service or catastrophe. As confidence has grown in archiving, many academic libraries our size are removing the print volumes.

World Cup economics

There is a large literature that shows that mega-event investment is lousy stimulus:

Brazil is looking to the FIFA World Cup, starting next week, to jumpstart its sluggish economy as millions of tourists traverse the country to see the games.

Brazil’s government estimates that the some 3.7 million people traveling throughout the country for the global soccer competition will add about $3.03 billion in spending to Latin America’s largest economy.

The bulk of that spending will come from tourists attending the actual matches, though travelers going to other events linked to the World Cup will still add $1.19 billion in direct spending, according to Brazil’s Ministry of Tourism.

However, analysts warn that the World Cup likely won’t provide any long-term economic stimulus, when the additional revenue won’t reach the levels needed to sway a $2.2 trillion economy.

“Successfully hosting the 2014 World Cup will raise Brazil’s stature on the world stage, but the benefits will be short-lived for most rated Brazilian companies, infrastructure providers, host cities and states and the Brazilian government,” analysts at Moody’s Investors Service wrote in a report earlier this year.

Brazilians aren’t all that impressed with the economic impact of the games, either.

A mere 34% of Brazilians think the World Cup will create more jobs and boost the economy, according to a survey from the Pew Research Center. Many instead say they would’ve preferred the government to direct its hefty spending on the games to education, health care and other public services.

via blogs.wsj.com

This might be a bigger problem than all of that flopping.

Snake eyes

The revenue analysis must've been done with linear extrapolation:

The state’s lottery director said in public on Wednesday the lottery cannot meet a $106 million target set by lawmakers in the state House because they wrote several other lottery restrictions into their plan, undermining a signature part of the House budget that passed on Friday.

The lottery’s target would help finance pay raises averaging about 5 percent for school teachers across North Carolina, under the House plan.

In an interview, Alice Garland, the lottery’s director since 2011, said she expressed concern about missing the target privately to a key House budget writer, state Rep. Nelson Dollar, before the House adopted its spending plan – and that documents were provided to key officials.

She said she was told by Dollar to stay quiet about it.

Dollar, a Wake County Republican, said in an interview that he did not say anything to Garland after she expressed concerns to him last week. He said he believes the lottery can reach the target set by the House and that he acted without seeing anything “in writing” that gave him reason to revise the target.

The House plan relies on turbocharging lottery sales by more than 20 percent through increased advertising statewide. More sales would mean more profits for education. But Garland told lawmakers Wednesday that the restrictions also written into the budget would “seriously impact” lottery sales – and the forecast of profits for the teacher raises.

Garland said the lottery would miss the mark set by the House by about $47 million because of the restrictions. ...

Republicans in the Senate called the House approach “foolishness” and an “absolute disaster.” A Democrat said it was a “gamble on gambling to pay teachers.”

via www.newsobserver.com

The advertising restrictions include being more forthcoming about the low probability of winning anything significant ever.

And, glass houses NC Senate! Here is the NC Senate in 2011:

The Division of Coastal Management shall be the only State agency authorized to develop rates of sea-level rise and shall do so only at the request of the Commission. These rates shall only be determined using historical data, and these data shall be limited to the time period following the year 1900. Rates of sea-level rise may be extrapolated linearly to estimate future rates of rise but shall not include scenarios of accelerated rates of sea-level rise.