Environmental Economics

I've developed some rankings that make me the #1 researcher

And announcing it as if I totally believe it:

When a study found that the business school at the University of Missouri at Kansas City boasted the world’s No. 1 program in innovation-management research, officials from the chancellor on down basked publicly in the news.

Now an investigation by The Kansas City Star has cast substantial doubt on that glowing result.

The two authors of the 2011 paper, who were visiting scholars at the school when they did the study, apparently structured it to ensure the top ranking, the newspaper reports. Administrators at the school were aware of the reshaping of the data, the Star adds.

“I just think this paper is fatally flawed,” said Ivan Oransky, of the blog Retraction Watch.

A likely motive for the effort, the newspaper says, was to meet the expectations of Henry W. Bloch, the benefactor for whom the school is named.

The university told the Star that it stands by the study.

via chronicle.com

In my own rankings (nicknamed the "JW Economist Ranking System") would make sure I was counting total papers (not citations and not adjusted for the number of co-authors) in mid-level journals.

Here is a quote from the article:

A professor who feared that speaking out would harm his career said he and his colleagues were skeptical even as the study’s results were announced.

“We all knew that this was bullshit,” he said. “We knew that UMKC was not better than MIT and Stanford.”

Any idiot knows if you are doing contrived rankings to make yourself look better than you actually are you follow these steps:

1. Pick a ranking criteria where you are doing your best
2. Pick a timeframe during which you peaked
3. Perform the rankings and if you end up #1 ...
4. Go back to 1 and 2 and broaden the horizon of the study
5. Perform the rankings and if you end up in the top 10 with the usual suspects ahead of you ...
6. Boast that you are in the top ten! In the world!

Any idiot knows that.

All environmentalists are idiots too*

When I heard the phrase "Margarita Declaration" I had much higher (and drunker) hopes than 131 environmental groups banding together to call for an end to capitalism.

A UN-backed conference on climate change ended with a call to end capitalism. The conference, organised by the Venezuelan government, saw 130 green activist groups meet to discuss their demands.

Green website Respond to Climate Change says that at the end of the conference, the groups issued what is being called the 'Margarita Declaration', which says: "The structural causes of climate change are linked to the current capitalist hegemonic system. To combat climate change it is necessary to change the system."

This declaration will be handed to environment ministers when they meet in the UN’s talks in Lima later this year.

Participants at the meeting included the World Wildlife Fund (WWF), Climate Action Network International, Third World Network and Christian Aid.

The declaration also condemned the idea of having a so-called "Green Economy", saying this was nowhere near radical enough, and only the end of the capitalist system would solve the problem of climate change.

Look, I get the point.  Markets set prices.  Prices ration goods. Because environmental goods and services are severely underpriced by markets (in many cases that price is zero), environmental goods and services are overconsumed, underproduced, overexploited, crapped on, however you want to say it. Environmentalists are rightly concerned.

Because environmental goods and services are mispriced in a market based system, market based systems must be to blame for environmental degradation and (here's where the logic breaks down) therefore, we must abandon market based systems for allocating goods and services. 

But to paraphrase Winston Churchill, capitalism is the worst system for allocating environmental goods and services, except for the rest.  I'm always stunned by the misunderstanding and misrepresentation of market systems by environmentalists.  Markets ration scarce goods.  They do so through prices.  The problem with environmental degradation is not that markets lead to overexploitation of environmental goods and services, but rather market conditions fail to allow markets to establish the proper price for environmental goods and services.  If the price is right, people will (usually) make rational decisions. 

So, the solution to environmental issues is not to abandon markets and dictate to people the choices they should make, but rather the solution is to establish the correct set of prices that capture the full scarcity value of all goods and services, including environmental goods and services.  In some cases this might happen through the establishment of markets for environmental goods and services (for example, cap and trade) or it might happen through direct pricing of environmental goods and services (for example, emissions taxes), or it might happen through restrictions on use (for example, endangered species laws). 

Abandoning markets will not solve environmental problems, because the environment will still be viewed as free.  Prices, or some other representation of value, are still needed, and there is simply no better way to establish prices than through markets.

Poorly functioning markets might lead to environmental problems, but well-functioning markets are the best solution.

In my opinion--of course.

Now where's my Margarita?

*Since it is throwback Thursday, I decided to use a paraphrased throwback title from 2007.

Is it ironic?

I think so:

Gov. Rick Perry of Texas and Senator James M. Inhofe of Oklahoma are among the most vocal Republican skeptics of the science that burning fossil fuels contributes to global warming, but a new study to be released Thursday found that their states would be among the biggest economic winners under a regulation proposed by President Obama to fight climate change.

The study, conducted by the Center for Strategic and International Studies and the Rhodium Group, both research organizations, concluded that the regulation would cut demand for electricity from coal — the nation’s largest source of carbon pollution — but create robust new demand for natural gas, which has just half the carbon footprint of coal. It found that the demand for natural gas would, in turn, drive job creation, corporate revenue and government royalties in states that produce it, which, in addition to Oklahoma and Texas, include Arkansas and Louisiana.

The report concluded that the rule would hurt states where coal production is a central part of the economy — chiefly Wyoming, the nation’s largest coal producer. States that produce both coal and natural gas, such as Pennsylvania, would experience an economic trade-off as diminished coal production was replaced by new natural gas production. ...

The study took into account the economic costs imposed by the regulation and concluded that it would raise electricity rates by up to 10 percent in some parts of the country and eventually freeze coal production. But even taking those costs into account, Arkansas, Louisiana, Oklahoma and Texas together would experience an annual net economic benefit of up to about $16 billion, according to the study.

“The irony is that some of the states that have been the loudest in opposing E.P.A. climate regulations have the most to gain in terms of actual economic interest,” said Trevor Houser, an analyst at the Rhodium Group and a co-author of the study.

via www.nytimes.com

Given this definition of irony:

a state of affairs or an event that seems deliberately contrary to what one expects and is often amusing as a result.

In other words, all you climate change deniers should STFU

A new article in Nature: Climate Change says that the recent 15 year non-warming period is fully explained by climate models that account for El Nino and La Nina.

The question of how climate model projections have tracked the actual evolution of global mean surface air temperature is important in establishing the credibility of their projections. Some studies and the IPCC Fifth Assessment Report suggest that the recent 15-year period (1998–2012) provides evidence that models are overestimating current temperature evolution. Such comparisons are not evidence against model trends because they represent only one realization where the decadal natural variability component of the model climate is generally not in phase with observations. We present a more appropriate test of models where only those models with natural variability (represented by El Niño/Southern Oscillation) largely in phase with observations are selected from multi-model ensembles for comparison with observations. These tests show that climate models have provided good estimates of 15-year trends, including for recent periods and for Pacific spatial trend patterns.

"Washington College Students Rally to Protect Cows From Global Warming"

My favorite is 1% milk* with chocolate malt Ovaltine:

A newly released report showing that higher temperatures cause cows to give less milk is uniting climate and animal rights activists to take immediate action to counteract the negative effects of bovine heat stress.

“Cows are happy in parts of Northern California and not in Florida. That’s a good way to sum up the findings of my new research,” said University of Washington economist Rainbow Moonglow Rabinowitz. “A hot cow is a cranky cow, and a cranky cow gives less milk. So, in addition to fighting climate change, we must all struggle together to make our Bovine-American friends happier. If we fail, we risk facing a tragic “Cows With Guns” scenario.

Professional animal rights activist Sunshine Daffodil Wyzowski explained how she developed her so-far resoundingly successful methods of cow-cheering.

“We start with the assumption that cows are highly intelligent creatures,” said Wyzowski, “much like progressive college students. Therefore it’s only logical to conclude that the same things will make them happy. You know, like chanting, bongos, songs by Animal Collective (on vinyl of course), PBR, and ironic hats. If we provide our Bovine-American friends with these things in sufficient quantities, it’s only logical to conclude that we will be able to counteract the effects of climate change, which is man-made and George Bush’s fault.”

Local dairy-owner Billy Bob Jones, whose farm was the center of a recent cow-cheering event, reported mixed results.

“Well, as anyone with a lick of sense knows, cows are pretty dumb,” said Jones. “Kinda like progressive college students. And they’re easily scared by loud noises. Last week, a bunch of them overprivilged, under-brained UW snots come trompin’ onto my land, chanting, beatin’ on drums, and playin’ the gadawfulest records you’d ever heard in your life. Rattled my poor cows pretty bad. They haven’t given a drop of milk since.”

via www.imao.us

Hat tip: the Stand-up Economist

*Organic, of course.

24 Update

I know I've fallen behind on my 24 viewing for the season, but after this, I'm ready for the season to take some odd turns soon:

The Tour de France can be unforgiving and crushingly heartbreaking. On Sunday's stage 15, Jack Bauer experienced this firsthand.

Does Jack infiltrate the U.S. Postal team to stop a redeveloping EPO ring?  Does Lance Armstrong make a guest appearance as the evil ringleader?

So many questions.

Quote of the Day: A good bit of Environmental Economics put succinctly

"You show me a polluter, I'll show you a subsidy; I'll show you a fat cat who's using political clout to escape the discipline of the free market and force the public to pay his production costs. That's what all pollution is -- it is always a subsidy." ~ Robert F. Kennedy Jr.

Another example of natural resource firms response to endangered species listings

And theses ensue:

Now, federal officials are weighing putting [the sage grouse] on the endangered species list — setting off a mad scramble among the unlikeliest of allies to save the bird and avoid disrupting the nation’s enormous growth in energy production. With a range stretching over more than 165 million resource-rich acres across 11 states, the grouse is at the center of one of the country’s most important struggles: to balance the demand for energy against the needs of nature. And in the process, it has put two environmental priorities — preserving species and fostering renewable energy — on a collision course.

“Remember the economic impact of the spotted owl and how much it reduced timber production on federal lands?” Representative Cory Gardner, Republican of Colorado, said in an interview. “The sage grouse has seven times the acreage of the spotted owl. You are looking at billions of dollars in lost economic activity, millions of dollars in lost state and local revenues and tens of thousands of jobs being lost.”

Environmentalists say the only way to save the grouse is to restrict use of the lands — whether for energy, housing, mining, ranching, hunting or recreation — which is exactly what an endangered species designation would do. Already, federal officials have delayed, altered or denied permits for more than two dozen energy projects in the West because of the bird. ...

That prospect has prompted an unusual collaboration among state and industry leaders to show federal wildlife officials, who have until September 2015 to decide on the endangered designation, how the bird can coexist with economic development. And federal officials, frequently at odds with one another over such matters in the past, are in on the act, overseeing an enormous effort among all the affected states to pre-empt the designation.

via www.nytimes.com

Remember preemptive harvesting? If you were suspicious that you might have a red-cockaded woodpecker on your land then you would go ahead and cut down your longleaf pine trees ahead of the optimal rotation.The difference here is that the natural resource is underground and you can't destroy the habitat (well, you can but the birds are already there) before the species is put on the endangered list.

"A revealed preference approach to valuing non-market recreational fishing losses from the Deepwater Horizon oil spill"

Here is the link: http://www.sciencedirect.com/science/article/pii/S0301479714003326

An example of why environmental valuation is needed

The headline says "mountaintop removal for coal hurts water quality and harms fish." Well, we knew that. Luckily, the article actually gives an idea of the magnitude:

In West Virginia’s Appalachian mountains, fish are vanishing. The number of species has fallen, the populations of those that remain are down, and some individual fish look a little skinny.

A new government study traces the decline in abundance to mountaintop removal, the controversial coal mining practice of clear cutting trees from mountains before blowing off their tops with explosives. ...

[Nathaniel] Hitt and [Doug] Chambers found that the number of species was cut in half and the abundance of fish fell by a third. The silverjaw minnow, fosyface shiner, silver shiner, bluntnose minnow, spotted bass and largemouth bass, along with at least two other species detected before their study, were no longer there. ...

“The people opposed to the coal industry are trying to pile on with more studies,” said Bill Raney, president of the West Virginia Coal Association. “It sounds like this is one of those studies that sets out to show there’s harm done. It sounds like perhaps more of the same.”

Raney said he has not seen the USGS study and cannot strongly criticize its methods or conclusions, but people “don’t just wake up in the morning and decide they are going to do mountaintop mining,” he said. “It takes three to four years to get a permit. Every aspect of the operation is analyzed.” ...

The coal the process produces provides power to hundreds of thousands of homes, industry advocates say, and creates about 14,000 jobs that pay middle-income salaries in regions where work is hard to find.

“The average mining wage is more than $66,000 per year . . . 57 percent higher than the average for industrial jobs,” according to the National Mining Association. “Mountaintop mining accounts for approximately 45 percent of the entire state’s coal production in West Virginia.”

Raney’s association disputed claims that mining destroys streams and mountains, saying state permits and government regulations require the land to be restored after use.

via www.washingtonpost.com

This is a situation where the lack of valuation for water quality and fish makes consideration of what is best for society very difficult. Armed with market transactions (and their permits that insure pristine environmental quality after reclamation) the coal industry presents the costs of regulations in dollar terms while the scientists present the benefits in species and stock status terms. That isn't a fair fight.

This is an example of why environmentalists and efficiency advocates should think that environmental valuation is needed. Getting ahead of that curve, industry argues that environmental valuation is junk science. When environmental regulation costs are monetized and the benefits are not, the costs will usually win. Since sometimes the benefits of regulation will exceed the costs there will be too little regulation and economic efficiency will be lower than it could be.

Full disclosure: I've boarded with Doug Chambers, older brother of graduate school office mate Paul, after my car broke down in WVa.