Environmental Economics

REU: Estimating a random effects panel regression model in NLOGIT

Continuing my research experience for undergraduates (REU) obsession, I have an independent study student this semester who is estimating determinants of votes on a renewable portfolio standard and the resulting willingness to pay with some leftover data from Landry et al. (2012). Here is the abstract that we submitted for a poster presentation at the student research fair: 

Willingness to pay for a national renewable energy portfolio standard

This research focuses on the relationship between outside variables and a positive vote by North Carolinians for a new national Renewable Energy Portfolio Standard.  Under this new law, electric utilities in North Carolina will be required to meet up to 12.5% of their energy needs through renewable energy resources such as wind, solar and geothermal sources. The Renewable Energy Portfolio Standard would likely increase electric bills for North Carolina electricity consumers. The data for this research is from a 2010 survey of North Carolina residents. The survey had two parts. The first part of the survey was done by telephone and then the same respondents were asked to complete an internet survey. I will conduct a bivariate linear probability model regression and look at the effect of the rise in consumer’s electricity costs on positive votes for the policy. Willingness to pay for the policy will be estimated. The determinants of the votes are variables such as concern for climate change, income, and years to live, etc. 

I'll post more on this as we get closer to April 23. But, the department bought a student copy of Limdep and we covered how to estimate the panel model today (after some background reading). On the fly I decided I wanted to do one of those cool video screen shots with a voice over so that it would be relatively easy to work through some new software. I used the Google and found Screencast-o-matic. After less than 10 minutes, including my botched first attempt (which I called a rehearsal), I uploaded my video to YouTube. I used the free version but will probably pay the $15 for teaching my biz stats II class in the fall. I didn't do any consumer research, are there other good products out there?

Check it out!

I don't think these are "very good points"

Tyler Cowen:

From Adam Ozimek, here are some very good points, which I had not previously pondered:

…what a carbon tax does is push the required cost threshold up. This would allow solar to become the more profitable source of energy in the US sooner and increase the speed of its dominance here.

However, a carbon tax would raise the threshold in the US relative to the threshold for developing countries.  In other words, the race for solar companies in the U.S. becomes to be cheaper than dirty energy + a carbon tax, which is a higher threshold than being cheaper than dirty energy alone, which is the threshold in many developing countries.

It is easy to see how this could cause downward march in solar costs to slow, and as a result solar would reach the threshold for China, India, and other developing countries perhaps much much later.

If this is true, it would suggest that for clean energy to become globally dominant faster it’s better for the U.S. to just subsidize solar innovation and let the untaxed U.S. market price of dirty energy stand as a strong incentive for solar to drive costs lower.

To see this, consider a world where solar was already dominant in the U.S. with current technology and costs, perhaps via a total ban of dirty energy. The supply curve of the installed base of solar technology would be much more price inelastic than the supply curve of today’s installed base of dirty energy due to higher fixed costs and lower marginal costs.  This means a steeper residual demand curve for marginal innovators that provides less market share rewards for marginal declines in price, and therefore lower rewards for marginal cost cutting.

In this way, a carbon tax could make global warming worse.

via marginalrevolution.com

First, a subsidy for solar would act just like a tax on oil and coal in terms of timing. To see this consider a standard model of the "switch point" (below). The brown lines (dirty = brown, get it?) are the Hotelling price price and the price path with a carbon tax. The green lines are the prices of the backstop (clean = green, get it?) fuel with and without a subsidy. Point A is the switch point with no government policy. A carbon tax and a clean fuel subsidy leads to about the same switch point (points B and C). 

Second, once the clean fuel grabs market share it still has the incentive to reduce costs. Just like any group of business firms that operate in a competitive market, each firm has an incentive to cut costs to grab market share from its competitors. It is not true that once the solar industry grabs the market share it is done innovating. I think this makes the developing country argument irrelevant.  

Second Third, I have no idea what is going on in the paragraph beginning with "to see this." Why would clean fuel supply be more inelastic if there is a ban on dirty fuel? I don't think the number of demand side substitutes affects the cost structure of an industry. This result doesn't show up in the micro textbooks (including managerial economics for MBAs), is it in the industrial organization books? And why does the residual demand become more steep? With the strawman of a ban on dirty fuel this might make sense because there are fewer substitutes. But at the switch point there is no ban, the dirty fuel substitute is always there.

So, I don't see how a carbon tax could make climate change worse. What am I missing?

Also, Ozimek goes on to say:

There are some alternatives to this view though. First, is that taxing dirty energy and using all the money for subsidies of clean tech innovation is really more efficient than subsidies without taxes. And after all, the money for subsidies will need to come from somewhere. In addition, one can imagine that economies of scale and learning by doing are extremely important in this industry. This would mean solar companies taking over the U.S. market will accelerate the decline of costs and speed up the point where it becomes cost competitive for the rest of the world.

This is point D in the diagram. I don't know if point D is more "efficient" than B or C. It does hurry up the switch point but efficiency really depends on the benefit-cost analysis and determining the optimal switch point. 

The "war on coal" continues

David J. Hayes and James H. Stock:

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.

Lawmakers set a royalty payment of 12.5 percent of the sale price of the coal in 1976. Forty years later, those payments remain stuck there, with actual collections often much less. Studies by the Government Accountability Office, the Interior Department’s inspector general and nonprofit research groups have all concluded that taxpayers arebeing shortchanged.

This is no small matter. In 2013, approximately 4o percent of all domestic coal came from federal lands. A recent study by the independent nonprofit research group Headwaters Economics estimates that various reforms to the royalty valuation system would have generated $900 million to $5.6 billion more overall between 2008 and 2012.

This failure by the government to collect fair value for taxpayer coal is made more troubling by the climate-change implications of burning this fossil fuel. Taxpayers are already incurring major costs in responding to the effects of global warming. Coastal infrastructure is being battered by sea rise and storm surges; forests are being devastated by climate-aided pest infestations; and studies are suggesting that temperature rises have increased the likelihood of devastating droughts in California.

Moreover, as the Council of Economic Advisers documented in a report last July because of the long-lived nature of greenhouse gases in the atmosphere, these costs will continue to rise.

The Interior Department, which manages energy resources on federal lands, has acknowledged that reforms are needed. In January, the department took a first step by proposing more scrutiny on the self-reported sales that coal companies use as the basis for royalty payments. It also must address other well-documented problems, including large discounts routinely applied to these payments, and noncompetitive lease sales.

But the department should not stop there. The federal government should also take into account the economic consequences of burning coal when pricing this fuel. The price for taxpayer-owned coal should reflect, in some measure, the added costs associated with the impacts of greenhouse gas emissions. ...

via www.nytimes.com

Recruiting Mentors and Mentees for the NAREA CAM Program

Announcing a really terrific opportunity for young scholars:

The Career Advancement and Mentorship (CAM) Program sponsored by the Northeastern Agricultural and Resource Economics Association (NAREA) is a mentoring program held in concert with the NAREA Annual Meeting.  The CAM program is a unique opportunity for pre-tenured faculty and early career scholars to develop and enhance professional networks, receive one-to-one mentoring from an experienced member within the environmental and agricultural economics community, and to attend a dinner and discussion on issues of concern to early career scholars. 

The CAM program consists of two parts: 
1) Induction and dinner to be held during the NAREA Annual Meeting in even years. There is no fee for this program, but space is limited. 
2) A biennial year-long one-on-one mentoring program held on odd years.  Even years will serve as cohort reunions and opportunities to review on year-long accomplishments and debrief on program goals.

More information and a link to the application form for mentees is here. Anyone with questions--or an interest in mentoring--can let me or Jill Caviglia-Harris know.

(One note: Participants are absolutely not limited to those residing in the Northeast, but attendance at the NAREA summer meetings is expected. The next two locations are Newport, RI and Bar Harbor, ME!)

 

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.

 

No S**t!

State environmental regulators are investigating more than a dozen farm manure spills that have seeped into creeks, rivers and ditches during the past two weeks.

Most of the spills reported to the Ohio Environmental Protection Agency have been linked to farmers who had put livestock waste on frozen and snow-covered fields. The spills come at a time when state lawmakers are moving toward banning the practice in the state's agriculture belt.

Gov. John Kasich has called for the ban as one way to reduce the pollutants that are feeding the annual algae blooms on Lake Erie that contaminated the drinking water for 400,000 people in Ohio and Michigan last August.

Rising temperatures and melting snow, especially in the last few days, have caused the manure to run off the fields and pollute waterways in the western part of Ohio where agriculture dominates the economy.

Water samples near the spills have found very high ammonia levels that can harm fish, but so far there haven't been any large-scale fish kills, Ohio EPA Director Craig Butler said.

The reports of manure washing into streams in the last week are "certainly a significant number" and a cause for concern, he said.

"It's a little surprising after having all of the discussion over the past year and hearing that it's not best management practice to do this," Butler said.

Those responsible for the spills could face fines or be forced to pay the cleanup costs.

via www.sent-trib.com

1. I'm teaching externalities in my Principles of Food and Resource Economics class right now.  Now I have a current example.
2. That title was way too easy.
3. My middle daughter has recently starting reading this blog (she reads the tweets).  I'm going to owe a quarter to the swear jar for that title.  For some reason my swear jar seems to fill up faster than most. 

Big-timer at the SBCA

While not technically "">big-timing", I was able to get an action shot of a big-time economist at an SBCA session.

 

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.

Research project for the large classroom

I organized a "research experience for undergraduates" session at the SEA meetings this year. I was inspired to include some sort of research activity in any and all classes I teach. No problem, right? Problem: my sophomore level introduction to environmental and resource economics course has 88 students. I had to figure out how to implement a research project in a large classroom. I presented the following assignment in class today (Download ECO 2620 Research Project). It involves data collection (n=5), some analysis (comparison of means and linear interpolation) and writing (a 200 word abstract). I think it is do-able in classes larger than 88 with some GA help for grading. Comments and suggestions are appreciated!

 

Quote of the Day: Sensible Fracking Policy

Fracking has valuable economic and environmental benefits, and it can be done with relative safety, as long as the right rules are in place.

via www.washingtonpost.com

While I was away, the Buckeye Lake Dam story stayed

I was able to get away last week for a week of rest and relaxation (field research?).  On the flight back, I sat next to a nice dude who had recently finished building a house on family land on Buckeye Lake in Ohio.  Needless to say, he had some strong opinions on the Army Corp of Engineers' report that the Buckeye Lake Dam is in imminent danger of collapse and the subsequent decisions to leave the lake at winter pool levels (unboatable) until a solution is found (likely 3-5 years) and the Governor's decision to commit the state to build a new dam.  Unsurprisingly, the story is receiving a lot of local coverage:

The story is so compelling because we can all relate to what these folks are going through — on both sides.

From the lake side, it’s about the economy, property values and recreation.

If your livelihood were invested in a marina or restaurant on the lake, your world would be upside down with the prospect of the water being permanently drained. If you worked at one of the lake-dependent businesses, you’d be worried sick about your financial future.

If you had a home on the lake and had invested your life savings in the place, this news would have you pulling your hair out (unless you have a hairline like mine, and nature’s already done it for you).

From below the dam, it’s about public safety: protecting life and property.

If your home were in harm’s way should the dam fail, you really wouldn’t care about someone else’s home value or whether some people wouldn’t get to use their Jet Skis over the summer. You’d want to know that your family was safe, that you could sleep at night without worrying about the dam giving way.

And if you’re the government official responsible for the dam, your obligation is to protect life, period.

via www.dispatch.com

Seventh Annual Conference and Meeting | Society for Benefit-Cost Analysis

Thursday, March 19, 3:45 – 5:15 Session 4

E.4: Non-Market Recreational Welfare Effects of Changes in the Diversity and Abundance of Species

Chair: Trudy Ann Cameron, University of Oregon

Presentations:

A Combined Revealed/Stated Preference Model for Projecting the Impact of Aquatic Nuisance Species on Recreational Angling in the Great Lakes, Upper Mississippi, and Ohio River Basins, Gregory L. Poe*, Cornell University; Richard C. Ready, Pennsylvania State University / Montana State University; T. Bruce Lauber, N.A. Connelly, R.C Stedman and S. Creamer, Cornell University

The Value of Water Quality to Fishermen in the Chesapeake Bay, Matt Massey*, U.S. Environmental Protection Agency; Steve Newbold, U.S. Environmental Protection Agency

Joint Estimation of Revealed and Stated Preference Data from the Alaska Saltwater Sportfishing Economic Survey, John C. Whitehead*, Appalachian State University, Daniel K. Lew, Alaska Fisheries Science Center, National Marine Fisheries Service

The Value to Birders of Species Biodiversity: A Random Utility Model of Site Choice by eBird Participants, Sonja Kolstoe* and Trudy Ann Cameron, University of Oregon

Here is a link to the program: http://benefitcostanalysis.org/sites/default/files/Final_program_3.13.pdf