Environmental Economics

SCOTUS and BCA

I'm missing something here (Supreme court blocks Obama's limits on power plants):

The Supreme Court on Monday blocked one of the Obama administration’s most ambitious environmental initiatives, an Environmental Protection Agency regulation meant to limit emissions of mercury and other toxic pollutants from coal-fired power plants.

Industry groups and some 20 states had challenged the E.P.A.’s decision to regulate the emissions, saying the agency had failed to take into account the punishing costs its rule would impose.

The Clean Air Act required the regulation to be “appropriate and necessary.” The challengers said the agency had run afoul of that law by deciding to regulate the emissions without first undertaking a cost-benefit analysis.

Writing for the majority, Justice Antonin Scalia wrote: “It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits. Statutory context supports this reading.”

The E.P.A. had argued that it was not required to take costs into account when it made the initial determination to regulate. But the agency added that it had done so later in setting emissions standards and that, in any event, the benefits far outweighed the costs.

The two sides had very different understandings of the costs and benefits involved. Industry groups said the government had imposed annual costs of $9.6 billion to achieve about $6 million in benefits. The agency said the costs yielded tens of billions of dollars in benefits.

The decision, Michigan v. Environmental Protection Agency, No. 14-46, does not strike down the rule, but it means the E.P.A. will have to review and rewrite it, taking costs into consideration. Industries will be expected to comply with the current rule until a revised one is issued.

And here WaPo:

The costs and benefits of the mercury regulations are themselves a matter of vigorous dispute. The EPA’s opponents say that the annual costs of compliance under the rule would be $9.6 billion but that the benefits of reduced emissions of hazardous air pollutants amount to only $4 million to $6 million.

The EPA and environmental groups estimate the savings to be at least $37 billion, a figure that includes costs related to as many as 11,000 premature deaths and more than a half-million lost days of work each year.

This is from the executive summary of the EPA's RIA [PDF]:

This rule will reduce emissions of Hazardous Air Pollutants (HAP), including mercury, from the electric power industry. As a co-benefit, the emissions of certain PM2.5 precursors such as SO2 will also decline. EPA estimates that this final rule will yield annual monetized benefits (in 2007$) of between $37 to $90 billion using a 3% discount rate and $33 to $81 billion using a 7% discount rate. The great majority of the estimates are attributable to co-benefits from 4,200 to 11,000 fewer PM2.5-related premature mortalities. The monetized benefits from reductions in mercury emissions, calculated only for children exposed to recreationally caught freshwater fish, are expected to be $0.004 to $0.006 billion in 2016 using a 3% discount rate and $0.0005 to $0.001 billion using a 7% discount rate. The annual social costs, approximated by the compliance costs, are $9.6 billion (2007$) and the annual monetized net benefits are $27 to $80 billion using 3% discount rate or $24 to $71 billion using a 7% discount rate. As discussed in Chapter 3, costs were annualized using a 6.15% discount rate. The benefits outweigh costs by between 3 to 1 or 9 to 1 depending on the benefit estimate and discount rate used. There are some costs and important benefits that EPA could not monetize, such as other mercury reduction benefits and those for the HAP other than mercury being reduced by this final rule. Upon considering these limitations and uncertainties, it remains clear that the benefits of the MATS are substantial and far outweigh the costs. Employment impacts associated with the final rule are estimated to be small.

Is the legal issue the fact that the rule was proposed and then the benefit-cost analysis was conducted (instead of conducting the BCA, finding positive net benefits, and then proposing the rule) or is the legal issue the fact that Justice Scalia prefers the lower benefit estimates?

Note: Here is a previous post on the BCA.

My first RateMyProfessors review in two years!

From my sophomore level environmental and resource economics class:

Im an environmental chemistry major so i had to take the class for my major. He's a nice guy, he doesnt seem full of himself like people have said on here. for lectures he just kind of draws graphs with abbreviated notes and arrows so its kind of hard to follow if you dont know much about economics. lots of extra credit though, and really laid back

via www.ratemyprofessors.com

Oh, but I am. I am soooo full of myself. 

I'm not at the Hilton Hawaiian Village, Waikiki ...

... for the Western Economic Association International 90th Annual Conference (June 28- July 2, 2015); but my co-authors are:

Program Addenda (6/25/15) | Preliminary Program (5/20/15) | Participants Directory (5/20/15)

Session Information & Instructions | Housing Information | General Information 
Participating Allied Societies | Exhibitor Info

via www.weai.org

Tanga McDaniel is presenting "Payment and policy consequentiality in contingent valuation" (see the 6/25 Addenda) and Pamela Wicker is presenting "The Germans' support for hosting summer Olympic games." Both papers find that respondents who think the survey is consequential (i.e., think that it might influence policy) are willing to pay more than others in a hypothetical referendum. 

Wading through EPA's climate change mitigation benefits study

From The Hill (EPA report touts big benefit to US from global climate policies):

The Obama administration unveiled a new weapon Monday in its fight against climate change, with a report showing billions of dollars in domestic benefits from aggressive international climate policies.

The report from the Environmental Protection Agency (EPA) cuts across many areas of concern and sectors of the economy, including public health, electricity, water resources and agriculture.

It’s meant to show Americans and world leaders alike what could happen by the end of the century if climate change goes unabated and what it would look like to cut greenhouse gas emissions significantly.

It comes at an important time for President Obama’s climate agenda, as House Republicans vote this week on a pair of bills to significantly weaken or outright repeal the administration’s limits on power plants’ carbon dioxide emissions, the main and most controversial pillar of Obama’s second-term climate push....

The analysis specifically looks at the benefits in the United States by the year 2100 if world leaders successfully limit global warming to 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels.

It finds billions of dollars in avoided problems and costs in each of six areas: health, infrastructure, electricity, water resources, agriculture and forestry and ecosystems.

It does not account for the costs of the carbon controls, since it does not analyze specific policies. But officials said the costs would pale in comparison to the benefits.

The last sentence begs for more explanation so I went looking. Here is what they say about benefits (first paragraph) and costs (second paragraph) in the Key Findings section:

This report includes as many climate change impacts as feasible at present, but is not all-inclusive. It is not intended to be as comprehensive as major assessments, such as those conducted by the U.S. Global Change Research Program (USGCRP), which capture a wider range of impacts from the published literature.⁷ By using a consistent set of socioeconomic and climate scenarios, CIRA produces apples-to-apples comparisons of impacts across sectors and regions – something that is not always achieved, or even sought, in the major assessments. Also, the assessments typically do not monetize damages, nor do they focus on quantifying mitigation benefits. CIRA’s ability to estimate how global GHG mitigation may benefit the U.S. by reducing or avoiding climate change impacts helps to fill an important literature and knowledge gap.

The CIRA analyses do not serve the same analytical purpose nor use the same methodology as the Social Cost of Carbon, an economic metric quantifying the marginal global benefit of reducing one ton of carbon dioxide.⁸ In addition, the costs of reducing GHG emissions,⁹ and the health benefits associated with co-reductions in other air pollutants, are well-examined elsewhere in the literature¹⁰ and are beyond the scope of this report.

Here is footnote 9:

9. The CIRA project estimates the benefits to the U.S. of global action on climate change. Importantly, the costs of GHG mitigation are not assessed in the project. As such, the analysis presented in the report does not constitute a cost-benefit assessment of climate policy. The costs of reducing GHG emissions have been well examined in the scientific literature (see references below), where recent assessments have used multiple economic models to investigate the sensitivity of costs to policy design, assumptions about the availability of low carbon-emitting energy technologies, socioeconomic and demographic changes, and other important sources of uncertainty. The one instance in the CIRA project where mitigation costs are considered is in the electricity sector (see Electricity section for details). For that sector, the impact of climate change on costs to the U.S. electric power system is estimated along with the costs associated with GHG emission reductions in that sector. See: Fawcett, A., L. Clarke, and J. Weyant. 2013. Introduction to EMF 24. The Energy Journal. DOI:10.5547/01956574.35.SI1.1; White House Council of Economic Advisors. 2014. The Cost of Delaying Action to Stem Climate Change. Executive Office of the President of the United States; CCSP. 2007. Scenarios of Greenhouse Gas Emissions and Atmospheric Concentrations (Part A) and Review of Integrated Scenario Development and Application (Part B). A Report by the U.S. Climate Change Science Program and the Subcommittee on Global Change Research, Clarke, L., J. Edmonds, J. Jacoby, H. Pitcher, J. Reilly, R. Richels, ... and M. Webster (Authors). Washington, DC: Department of Energy; Kriegler, E., J.P. Weyant, G.J. Blanford, V. Krey, L. Clarke, J. Edmonds, ... and D.P van Vuuren. 2013. The role of technology for achieving climate policy objectives: overview of the EMF 27 study on global technology and climate policy strategies. Climatic Change. DOI:10.1007/s10584-013-0953-7; and Kriegler, E., K. Riahi, N. Bauer, V.J. Schwanitz, N. Petermann, V. Bosetti, ... and O. Edenhofer. 2015. Making or breaking climate targets: the AMPERE study on staged accession scenarios for climate policy. Technological Forecast and Social Change. DOI:10.1016/j.techfore.2013.09.021; Energy Economics. Volume 31, Supplement 2, Pages S63-S306 (2009). International, U.S. and E.U. Climate Change Control Scenarios: Results from EMF 22. Edited by Leon Clarke, Christoph Böhringer and Tom F. Rutherford.

Yikes! I guess I need to wait for an economist better than me to dig through those references to get some benefit and cost comparison. 

And, from the Methods of Analysis page, here is where you go to read the peer-reviewed background:

The methods and results of the CIRA project have been peer reviewed in the scientific literature, including a special issue of the journal Climatic Change entitled “A Multi-Model Framework to Achieve Consistent Evaluation of Climate Change Impacts in the United States.”1 The research papers underlying the modeling and results presented herein are cited throughout this website and are listed in Section B of the Technical Appendix.

There is no section B at the Technical Appendix link ... but footnote 1 says this:

1. Martinich, J., J. Reilly, S. Waldhoff, M. Sarofim, and J. McFarland, Eds. 2015. Special Issue on “A Multi-Model Framework to Achieve Consistent Evaluation of Climate Change Impacts in the United States.” Climatic Change.

Google Scholar gets you to the journal article which is open access, so there is no excuse not to read it (other than the time costs). 

The brochure [PDF] is a good place to get a summary without getting lost in the webpages. 

 

MTurk costs more (so what?)

It still costs less than all of the higher quality substitutes, right?

This week Amazon changed the terms for a service that has become a standard tool in social-science research, and many scholars are complaining that it will mean higher costs to conduct surveys.

The service is called Mechanical Turk, and it is a marketplace that connects people on the Internet looking for paid piecework with anyone who has a small task and is willing to pay someone to do it. The concept is known as crowd-work, and many researchers have used it to pay strangers small amounts to take part in social-science surveys.

Amazon announced on Monday that it would take a larger commission on each gig, increasing its percentage to 20 percent from 10 percent next month. That means researchers will have to pay Amazon 20 percent of the roughly $7 or $8 per hour that respondents earn for completing a survey. Researchers have said the change will mean a significant extra charge to younger scholars who have relied on the service to quickly gather a large number of survey responses at a low cost.

Mechanical Turk is probably the most popular research pool in the social sciences right now, said Carey Morewedge, an associate professor of marketing at Boston University. While graduate students conducting research once had to spend a day or two surveying undergraduates, they can now gather at least double the number of responses in two hours using Mechanical Turk, he said.

via chronicle.com

Here is a recent working paper that used MTurk data: http://econpapers.repec.org/paper/aplwpaper/15-03.htm. Here is what we say about it:

MTurk is a crowdsourcing internet marketplace for work that enables researchers to access a representative sample of individuals willing to participate as survey respondents and is growing in popularity for online experiments and surveys. In terms of developing nationally representative samples, recent research has examined and compared the demographic characteristics of MTurk users to other sampling techniques and found that MTurk users are more representative than samples derived from experimental lab studies and in-person convenience samples. 

MTurk seems to work as good as other convenience samples (link):

Abstract. Recent and emerging technology permits psychologists today to recruit and test participants in more ways than ever before. But to what extent can behavioral scientists trust these varied methods to yield reasonably equivalent results? Here, we took a behavioral, face-to-face task and converted it to an online test. We compared the online responses of participants recruited via Amazon’s Mechanical Turk (MTurk) and via social media postings on Twitter, Facebook, and Reddit. We also recruited a standard sample of students on a college campus and tested them in person, not via computer interface. The demographics of the three samples differed, with MTurk participants being significantly more socio-economically and ethnically diverse, yet the test results across the three samples were almost indistinguishable. We conclude that for some behavioral tests, online recruitment and testing can be a valid—and sometimes even superior—partner to in-person data collection.

Casler, Krista, Lydia Bickel, and Elizabeth Hackett. "Separate but equal? A comparison of participants and data gathered via Amazon’s MTurk, social media, and face-to-face behavioral testing." Computers in Human Behavior 29, no. 6 (2013): 2156-2160.

I'd like to see it compared to the inexpensive panels at Survey Sampling, Inc or SurveyMonkey to see how it performs. Has anyone tried that?

So, you agree that it is about protecting the energy industry, not the economy?

You're missing the distributional effects that mean in reality a revenue neutral carbon tax won't happen @john_env_econ

— Rupert Darwall (@RupertDarwall) June 23, 2015

 

Carbon tax: Republicans in Democratic clothing?

A revenue neutral carbon tax is what you would call a "conservative" economic proposal:

Two Senate Democrats sponsored a bill Wednesday to institute an economy-wide tax on carbon dioxide emissions, revenue that would be returned through rebates and tax cuts.

Sens. Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii) pitched their proposal at an event hosted by the conservative American Enterprise Institute, saying that their bill aligns with conservative economic principles and Republicans should support it.

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The tax would be charged at $45 per ton of carbon dioxide or equivalent greenhouse gases for coal, oil, natural gas and other hydrocarbons, collected at the place where it is produced or refined.

“The basic idea is simple: you levy a price on a thing you don’t want — carbon pollution — and you use the revenue to help with things you do want,” Whitehouse said.

“Whether you call them neighborhood effects or negative externalities, the effects of carbon pollution harm all of us.”

Whitehouse said that effects of climate change from carbon emissions amounts to a subsidy for fossil fuels, and a carbon tax would significantly cut that subsidy.

“Right now, for fossil fuel producers, that subsidy is immense, giving them artificial advantage over cleaner energy sources,” Whitehouse said. “A carbon fee can repair that failure by incorporating unpriced damage into the cost of fossil fuels. Then, the free market — not industry, not government — can drive the best energy mix for the country, with everyone competing on level ground.”

Schatz said the proposal in the bill is for “a highly efficient tax to make sure that those who emit carbon pollution pay the full cost. By pricing carbon more accurately, our bill would drive down emissions and correct a market defect that has stunted the development of renewable energy.”

They estimate their bill would bring in more $2 trillion over 10 years. All of the money would be returned in the form of a lower corporate tax rate, tax credits for workers and retirees and grants to states.

While some conservative organizations like the Energy and Enterprise Initiative and the American Action Forum have endorsed a carbon tax, it is not widely popular among Republicans.

Most GOP lawmakers disagree with Democrats about the link between greenhouse gases and climate change, and contend that a carbon tax would unnecessarily harm the economy and energy producers.

via thehill.com

I would like to hear the argument about how a revenue neutral carbon tax would harm the (macro)economy. No doubt, it would harm nonrenewable energy producers. But, if you take those who drive a lot and use a lot of electricity and redistribute the revenue then the economy should be fine. 

I can't resist. Here is a model of the macroeconomy:

Y = C + I + (G - T) + (X - M)

where Y is gross domestic product, C is consumption spending, I is investment spending, G is government spending, T is tax revenue, X is export spending and M is import spending.

If a carbon tax increases T and then the revenue is distributed to corporations, households and states, it is likely that consumer spending, investment spending and government spending will increase in equal amounts. If T = C + I + G then Y won't change.

Now, let's say "most GOP lawmakers" are worried that corporations, households and states will save that money (because folks in the U.S. love to save!). In that case, the supply of loanable funds will increase, interest rates will fall and investment spending will increase. 

I'm no macroeconomist, so what am I missing?

Or, is resistance to a revenue-neutral carbon tax more about protecting the energy industry?

Is it time to rethink recycling?

Once a profitable business for cities and private employers alike, recycling in recent years has become a money-sucking enterprise. The District, Baltimore and many counties in between are contributing millions annually to prop up one of the nation’s busiest facilities here in Elkridge, Md. — but it is still losing money. In fact, almost every facility like it in the country is running in the red. And Waste Management and other recyclers say that more than 2,000 municipalities are paying to dispose of their recyclables instead of the other way around.

via www.washingtonpost.com

Early on (late 1980's, early 1990's) the problem with recycling was the time cost to households.  The burden of separating paper, plastic, cans and bottles fell to the household and most households simply couldn't be bothered sorting and carrying 4 or 5 different bins to the curb (or in some cases, taking the bins to a recycling facility).  With advances in sorting technologies and the realization that recycling might be profitable, municipalities made it easier on households to recycle:  Just throw everything recyclable into the single big blue bin and we will do the rest.  The problem now is that households don;t always know what is or isn't recyclable and sorting costs have increased, while the demand for recyclable inputs has decreased.  The result:  recycling is far less profitable (and perhaps now even unprofitable).

If this is more than a cyclical downturn in the recycling sector, it might be time to think about how to increase the cost of recycling to households. 

"An interview with the Editors-in-Chief of Journal of Benefit Cost-Analysis"

From the Cambridge Journals Blog:

The U.S. Environmental Protection Agency recently covered the JBCA special issue on ‘Perspectives on Implementing Benefit-Cost Analysis in Climate Assessment’. What made this issue significant?

Climate change presents an enormous challenge to decision makers because of uncertainty, a period of analysis that spans generations, and its global scope. The potential benefits and costs are high. The JBCA special issue is significant because the articles focus on the frontiers of ongoing research applying BCA to climate change policies and the challenges that economists face in adapting BCA techniques to respond to growing demand for economic assessment. Incorporating the economics of adaptation at the local and global levels is one of the challenges. The articles focus on the state of key bodies of literature and on the challenges in the context of the BCA framework. The articles also explore how economic analysis itself contributes to broader analytical and decision-making frameworks than conventional BCA methods.

What key articles can we look forward to from Journal of Benefit Cost-Analysis in the coming volumes? Do you have plans for future themes issues?

The Summer 2015 issue will have the keynote address by Society for Benefit-Cost Analysis President Kip Viscusi, “Pricing Lives for Government and Corporate Risk Decisions.” Fall 2015 will see a collection of articles on social programs targeted to benefit young children and youths. A symposium on “[Ir]rationality, Happiness, and Benefit-Cost Analysis” is in the works for next year. These things are planned to appear along with a collection of fine articles on a variety of topics related to BCA. Topics include the energy efficiency gap, job impacts of environmental regulation, and challenges of BCA in the planning process.

via blog.journals.cambridge.org

Happy Father's Day!

I already knew this but some readers may still be ignorant:

Confirming that it is the single most frequent thought on fathers’ minds, a study released Monday by researchers at Villanova University found that the average dad thinks about sealing in meat’s juices between four and five hours per day. “Our research indicates that the typical dad thinks about sealing the juices into steaks, burgers, chops, and other meats hundreds of times over a typical 24-hour period,” lead researcher Marissa Gerard said of the study, which tracked how often fathers in their 40s pondered bringing a grill to high heat, searing the surface of a steak, and then pulling it off at just the right time to retain a juicy red color inside. “Whether a father is at work, at home, or already marinating another meat, roughly every six seconds on average, his mind starts drifting to thoughts of using charcoal or gas flames to create an evenly browned surface on a cut of meat that traps the juices inside. In a lifetime, he might spend 15 years thinking about how to prevent those juices from escaping.” The study also found that a significant number of test subjects reported spending up to eight additional hours per day thinking about getting those perfect diagonal grill marks.

via www.theonion.com