Environmental Economics

"Pricing Freight Transport to Account for External Costs"

From CBO Working Paper 2015-03 (by David Austin):

Although freight transport contributes significantly to the productivity of the U.S. economy, it also involves sizable costs to society. Those costs include wear and tear on roads and bridges; delays caused by traffic congestion; injuries, fatalities, and property damage from accidents; and harmful effects from exhaust emissions. No one pays those external costs directly—neither freight haulers, nor shippers, nor consumers. The unpriced external costs of transporting freight by truck (per ton-mile) are around eight times higher than by rail; those costs net of existing taxes represent about 20 percent of the cost of truck transport and about 11 percent of the cost of rail transport.

This study examines policy options to address those unpriced external costs. The options would impose taxes based on the weight or distance of each shipment, increase the existing tax on diesel fuel, implement a tax on the transport of shipping containers, or increase the existing tax on truck tires. The analysis estimates what would have occurred in 2007 had the simulated policies already been in place and had any initial, short-term transitions in response to the policies already occurred.

Adding unpriced external costs to the rates charged by each mode of transport—via a weight-distance tax plus an increase in the tax on diesel fuel—would have caused a 3.6 percent shift of ton-miles from truck to rail and a 0.8 percent reduction in the total amount of tonnage transported. Such a policy would have eliminated 3.2 million highway truck trips per year and saved about 670 million gallons of fuel annually (including the increase in fuel used for rail freight). On net, accounting for the effect of fuel savings on revenue from the fuel tax, such a policy would also have generated about $68 billion per year in new tax revenue and reduced external costs by $2.3 billion. Adopting instead the other policy options that were studied would have resulted in smaller changes in tonnage and ton-miles and smaller increases in tax revenue. All of the policy options would have narrowed the gap in the share of external costs paid in taxes by truck versus rail.

via www.cbo.gov

Can't a friend catch a break*?...sheesh

From the inbox:

Dear Dr. Haab,

You agreed to review Manuscript Number XXXXXXX on 01-19-2015 and your completed review was due by 03-05-2015.

Your review is now 25 days late.  Therefore I would be grateful if you would submit you review as soon as possible...

Sincerely,

John Whitehead

Associate Editor

*Alternative Title: I'm part of the problem.

More on: "I don't think these are 'very good points'"

On 3/29/2015 4:32 PM, Adam Ozimek wrote:

John,

 

I appreciated your recent post in reply to mine on carbon taxes. I've written a reply here where I've tried to make my point more explicitly and clearly, because I think there was some misunderstanding in terms of the case I was trying to make:

 

http://www.forbes.com/sites/modeledbehavior/2015/03/29/carbon-tax-economics-revisited/

 

Thanks,

 

Adam Ozimek

My reply:

Adam,

Thanks for the clarification. I tried to post a comment at your blog but I haven't gotten email permission in 30 minutes.

The big problem, I think, is that you said "In this way, a carbon tax could make global warming worse." This statement is misleading. If you actually meant to say that a carbon tax could make climate change worse relative to solar innovation grants then it would be more accurate to say that a carbon tax might be less effective at arresting climate change than solar innovation subsidies. Taken out of context, like Tyler Cowen did at MR, the statement can be interpreted to make the case that "free market environmentalism" (for lack of a better term) would be a much more effective non-policy than an actual government policy like a carbon tax. There are many readers out there who would rejoice at this interpretation. Everyone likes a free lunch.

I'm not convinced that solar innovation grants would be more effective than a carbon tax for several (largely uniformed) reasons: how does government pick these winners? Would the innovations affect fixed costs or variable costs? If fixed costs, then that would have less of an effect on price (is that right?). I still think any solar subsidy (per unit or innovation grants) lowers the price path and so we're still talking about reaching the switch point sooner or later. Looking at your graphs, it really matters how elastic vs inelastic those supply curves are. You picked the extremes to make the point but the relative elasticities are not that extreme, are they? And it seems like your model suggests that firms try to maximize market share instead of maximizing profit. If the industry is competitive then in the long run they will earn zero economic profits and then it doesn't really matter how much market share you might have.

Finally, it is hard for me to get past the notion that government should tax a bad thing and not tax a good thing in order to increase the efficiency of the economy. A revenue neutral carbon tax seems like it does just that.

Thanks,

John W.

 

 

Here is the original post: http://www.env-econ.net/2015/03/new-arguments-on-a-carbon-tax.html

The Tricky Economics of Ongoing Subsidies for People Who Want Their Beach and Eat it Too

Some good stuff (new research) from a colleague of mine here at Ohio State (Sathya Gopalakrishnan--who I was smart enough to hire) and a couple of other 'contributors' from some schools in North Carolina*:

The value of many oceanfront properties on the East Coast could drop dramatically if Congress were to suddenly end federal beach nourishment subsidies, a new study by researchers at three universities finds.  

In beach nourishment, new sand, often dredged from nearby inlets or the offshore sea floor, is added to an eroding beach to widen it and help prevent future erosion.

“The expectation that the federal government will continue to provide subsidies for erosion-control measures has significantly inflated property values in many coastal communities,” said Dylan E. McNamara, associate professor of physics and physical oceanography at the University of North Carolina Wilmington. “If these subsidies were suddenly removed, our model suggests values could experience a rapid and dramatic adjustment downward.”

“Values could erode by as much as 17 percent in towns with high property values and almost 34 percent in towns with low property values,” said Martin D. Smith, professor of environmental economics at Duke University. “This would be analogous to the bursting of a bubble.”

Researchers from the UNCW, Duke and The Ohio State University published their findings today in the open-access peer-reviewed journal PLOS One.

Alarming as the new numbers are, the researchers caution that their findings should not be viewed as the last word on the issue nor should they be interpreted as a policy recommendation to continue the federal subsidies.

“This analysis doesn’t include all the factors that affect coastal property values, but the erosion-related factors we examine are important ones, and the model is grounded in hard empirical data,” said A. Brad Murray, professor of earth and ocean sciences at Duke. “We expect our model’s predictions to be close to what could actually happen.”

To assess the effect federal beach nourishment subsidies have on property values --  and what the impact might be if subsidies abruptly ended -- the researchers incorporated historic and current resale values of oceanfront homes on nourished beaches and un-nourished beaches in North Carolina into a specially designed stochastic dynamic optimization model. They also incorporated three types of erosion that commonly affect beach width and stability in the state: chronic background erosion caused by rising sea levels or differences in alongshore sediment transport; sporadic erosion of nourished beaches from storms; and temporary increases in erosion that can occur as beaches adjust to recent nourishment.

By analyzing the data, the model clearly showed that “if the beach is being protected from erosion by nourishment, a large part of the value of the house comes from that protection,” said Sathya Gopalakrishnan, assistant professor of agricultural, environmental and development economics at Ohio State.

Though the model is based on North Carolina data, its findings are broadly applicable, said Gopalakrishnan. “It lines up well with the range of property values and environmental parameters found on most other East Coast sandy shorelines with the exception of a few urban areas like Atlantic City,” she said.

Between 1995 and 2002, the federal government spent $787 million on beach nourishment and has historically subsidized two-thirds of the total nourishment costs incurred by coastal communities. In recent years, however, some legislators have called for deep cuts in federal spending on nourishment or ending the subsidies outright.

“It’s a complicated issue, especially at a time when rising sea levels and increased storminess are projected.” said Smith. “No one wants to foot the bill for unnecessary subsidies. But if you don’t pay for defensive nourishment and end up having to pay more in disaster relief, it doesn’t make economic sense.”

Said McNamara, “Our results suggest that if nourishment isn’t a long-term strategy the federal government wants to use to manage eroding coastlines, a gradual removal is more likely to smooth the transition to more climate-resilient coastal communities.”

Dylan McNamara at University of North Carolina at Wilmington, and Marty Smith and Brad Murray at Duke (although I'm sue Sathya is the brains of the operation).

One of the worst sentences I've ever written

Circa 2000:

The most striking result from table 7 is that choice set definition has very little effect on the trip cost coefficients which range from –0.053 to –0.057 even though the choice set definitions in table 2 eliminate an average minimum of 13% and maximum of 82% of the available sites.

Something like this would be better:

The most striking result from table 7 is that choice set definition has very little effect on the trip cost coefficients even though the choice set definitions in table 2 eliminate an average minimum of 13% and maximum of 82% of the available sites.

Explaining why economics majors rank near the top in salaries earned

Beginning of Spring Beer Post (for Tim)

My wife is a Marylander and she is obsessed with blue crabs and Old Bay, so we have tried many food items with Old Bay. The typical approach is just to pour a ton of the spice in or on everything, so I was a little skeptical when I heard that Flying Dog was putting out an Old Bay-seasoned beer (Dead Rise Summmer Ale). However, it's really good. It's a nice refreshing ale with just the right hint of Old Bay. Look for it on taps and in the store.

 

 

This work is not a product of the United States Government or the United States Environmental Protection Agency, and the author is not doing this work in any governmental capacity.  The views expressed are those of the author only and do not necessarily represent those of the United States or the US EPA.

Graphic of the Day: You sir, are no Galileo

In the demented political mind of Ted Cruz, denying that climate change is caused by humans is equivalent to Galileo denying that the earth is flat (yep, that's the logic).  Or perhaps there is a political motive behind this pronouncement (shocking, I know).

The astute will notice that one of these results is not like the others.

As the WaPo opinion concludes:

The Galileos on climate change are, like Galileo, the scientists. The people pushing back on the science are, like Cruz, those who favor the status quo. Cruz's comments, from start to finish, are simply not correct.

Job-killing regulations

On Mars:

Fearing that any further delay might prevent their movement from having any meaningful impact, a consortium of leading conservationists confirmed Wednesday it is attempting to get a head start on preserving the planet Mars.

The newly formed group, known as the Redder Tomorrow Foundation, has reportedly begun fundraising, developing awareness campaigns, and crafting policy proposals, all with the aim of establishing safeguards to protect the natural beauty and delicate balance of the fourth planet from the sun. ...

According to sources, the Redder Tomorrow Foundation recently began setting targeted goals to ensure the preservation of Mars’ untouched terrain, noting that thousands of breathtaking geological formations—including numerous mile-wide craters, a cave located in the Tharsis bulge, and a large swath of the Olympia Undae dune fields—were facing imminent threats from development and industrialization. ...

Sources from the Redder Tomorrow Foundation confirmed that it has had no problem raising funds now that most donors to conservationist causes have realized their efforts on Earth are a lost cause.

via www.theonion.com

Is paying fair value the same as paying the full value?

Snark warning.

CONGRESS long ago established a basic principle governing the extraction of coal from public lands by private companies: American taxpayers should be paid fair value for it. They own the coal, after all.

...let them be received, Not without fair reward (Timon of Athens I.ii.189)

Lawmakers set a royalty payment of 12.5 percent of the sale price of the coal in 1976.

...seems fair to me.  You?