Environmental Economics

EDF: Mississippi River Delta and Natural Infrastructure Economist (2-year Post-doctoral Position)

With world attention focused on both the environment and the economy, Environmental Defense Fund (EDF) is where policymakers and business leaders turn for win-win solutions. This leading green group, with programs from Boston to Beijing, has tripled in size over the past decade by focusing on strong science, uncommon partnerships and market-based approaches. You can be part of a vibrant workplace that welcomes diverse perspectives, talents and contributions, where innovation and a focus on results are a way of life.

The need for climate adaptation in coastal environments in the US (and around the world) and the development of resilient and protective systems in those same areas are increasing and in some cases already keenly felt. Much of this adaptation will require infrastructure, ranging from traditional flood barriers to natural infrastructure (dunes, floodways, wetlands, receiving basins, barrier islands, multiple use retention areas, etc.). This work is typically capital intensive and often expensive, and responsibility for design, construction, operations, maintenance and financing often split among various public authorities. Within the US, a fundamental need for efficient and available financing systems for this critical infrastructure work exists, as current US financing systems (federal and state appropriations, state funding and matches, long standing taxes and user-fee based systems) are not providing necessary resources or efficiency in delivering those resources. (This need is global, though our focus for this work is currently domestic.) 

The Economist we are seeking would examine existing infrastructure finance systems, and work to develop new concepts, ideas and approaches for financing of coastal adaptation and resilience needs. We anticipate a primary focus on financing of natural infrastructure (i.e., natural defenses and ecological engineering) that lessen the potential impacts of sea level rise and storm damage on coastal communities. The approaches would include, but would not be limited to public finance (taxes, fees, community bonds, etc.), private (market and philanthropic), and ecosystems services. This analysis and these approaches are intended to help shape the organization’s policy positions and support its advocacy, and to help broaden the thinking and policy applications for financing these kinds of projects nationally. The Economist’s analysis will ideally include thought leading original publishable research with the potential to drive the development of this field, “in-house” analyses for use by other staff within the organization, as well as white papers aimed at policy makers, journalists, and the public at large. 

The initial primary focus of the work within EDF will be on financing options around ongoing restoration and protection needs within the Mississippi River Delta (filling a significant gap in our work in the Delta) and then assessing ideas for broader applicability or utility to other coastal locations in the United States. The Mississippi River Delta is the site of the largest adaptation effort underway in the country today. More broadly within EDF, we would expect this area of work to be applicable to other Ecosystems Program activities, and could potentially support an ongoing collaboration between the Oceans and Ecosystems programs and the Office of the Chief Economist on coastal resiliency in the Northeastern United States.

The Economist can be based in Washington, DC; New York City, NY; Boston, MA; with a preference for Washington, DC. S/he will work closely with and under the guidance of EDF’s Chief Economist Frank Convery and work with other economists, natural scientists, and policy specialists throughout EDF. S/he will officially report to the Deputy Director, Water Programs. S/he may also have managerial responsibilities for more junior staff.

You can apply here: https://www.edf.org/jobs/mississippi-river-delta-and-natural-infrastructure-economist-2-year-post-doctoral-position

This reminds me of reviewing economics grant proposals written by engineers

Source: http://xkcd.com/1570/

"Ohio State’s jersey 'coincidence'”

John Clay:

In his basketball notebook a couple of weeks back, Jerry Tipton wrote about the issue of schools selling jerseys with numbers that often correlate to the most recognizable players on the team. The players themselves receive no money from the sales. The story included UK AD Mitch Barnhart saying, “I think there are very few iconic players anymore … Our coaches have sort of been our icons, if you will.”

Jay Bilas, long-time critic of the practice, tweeted out a link to a story Tuesday from The Lantern in which Ohio State will sell only jerseys with two numbers this season. The Buckeyes will limit sales to No. 1 and No. 15. The school said past sales show No. 1 is the most popular jersey number. And No. 15 is being sold because this is the 2015 season.

Ohio State said any other inference is just a “coincidence” according to the article.

Rick Van Brimmer, assistant vice president for Affinity Trademark Management, said that it is merely a coincidence that two team standouts in redshirt senior quarterback/H-back Braxton Miller (1) and junior running back Ezekiel Elliott (15) sport the two number choices that are represented.

via johnclay.bloginky.com

My University of Kentucky football jersey, the one I wear when I watch games, is #11. 2011 is the year that Kentucky broke their 26 year losing streak against the University of Tennessee (with a wide receiver playing QB for the first time since high school). Just sayin'. 

The benefits of the Flames' proposed new arena are likely less than the costs

I remember going to the Flames games growing up in Tucker, GA in the early 1970s (and playing street hockey!):

The Calgary Flames’ plan for a new $890 million arena/stadium complex would require the public to pay $690 million of it, and that doesn’t include the potential $300 million cleanup of a creosote contamination. Don’t do it, Calgary! What are they gonna do, move to Atlanta?

via deadspin.com

I wonder where the team name came from, Sherman's March? After a bit of research, the answer is yes! Odd (Remember that time we tried to secede from the union because of slavery/"state's rights", so the yankees came to town, beat us to a messy pulp and and then torched the place? That was so great we should name a sports team after it.).

Anyway, here is what we found in Whitehead et al. (2013) about the benefits (use value) of a new downtown hockey arena in Calgary:

There are a number of alternative benefit-cost analysis scenarios and we consider only one. We estimate the benefits of a new arena by the sum of consumer surplus of additional seats and the additional consumer surplus of improved seating of the existing number of seats. We assume the new arena reaches the maximum NHL capacity of 21,273 seats and the additional seats are filled with (revealed preference) nonattendees. The per game consumer surplus for additional seats in a new arena is $45 and $16 for those metropolitan residents in the Calgary and Edmonton markets who do not currently attend games. Forty-one home sellout games would generate annual consumer surplus of $3.6 million and $2.8 million in Calgary and Edmonton for the additional seating capacity. The Calgary Flames would generate additional consumption benefits with a new arena. Current metropolitan attendees in the Calgary Flames market would enjoy an additional $12 in consumer surplus per game in a new arena. At current arena capacity over 41 home games, the annual benefit of additional quality for the existing number of seats is $9.5 million. The total annual benefit of a new arena in Calgary is $13 million. ...

We consider two alternative discount rates: 2% and 7%. With a 2% discount rate and consumption benefits accruing for 30 years, the present value of consumer surplus is $292 million in Calgary .... With a 7% discount rate, the present value of consumer surplus is $162 million in Calgary .... A new NHL arena costs between $275 million and $450 million. ... Considering the Calgary Flames, the consumption benefits only justify a new arena in a best case scenario: at the lower end of the range of arena costs and when future consumption benefits are discounted at 2%.

The addition of the civic pride benefits (nonuse value) don't push it over (Johnson et al. (2012)):

After discounting and aggregating, the estimated benefits of a downtown location for a new arena complex are about $33.2 million, unadjusted for hypothetical bias, in both cities. Adjusted for hypothetical bias, it is about $24.1 million in Calgary and about $24.6 million in Edmonton.

Good luck Calgarians!

Do you think they listened to me last year on harmful algal blooms?

This summer’s Lake Erie algae bloom is almost certain to be the worst on record, warn the scientists who study the lake.

via www.dispatch.com

Here is what I said to a group of local environmental professionals about Lake Erie Harmful Algal Blooms last year:

We’ve heard a lot today about solutions for high phosphorous loads in Lake Erie and the resulting harmful algal blooms.  As an environmental economist, I’m told my role in this discussion is to provide a balanced look at the potential costs of reducing phosphorous loadings into Lake Erie, the benefits of those reductions to society, and the burden of the costs of phosphorous reductions. 

Some of you may be wondering, what is an environmental economist? An environmental economist is an economist who applies the science of economics to environmental issues.  I am not an environmentalist.  Don’t get me wrong, I care about the environment.  But I am realistic about the role that incentives, trade-offs, and profits play in finding solutions to environmental issues that lead to sustainable human well-being.   I recognize the reality that the economy and the natural environment are inextricably linked and attempting to separate the study of each creates a situation in which neither is sustainable.  Economic, social and environmental sustainability requires the realization that no single solution exists.

So what then, from my perspective as an environmental economist, is the fundamental issue surrounding harmful algal blooms?  Excess nutrient loads into Lake Erie are the result of misalignment of incentives.  The profit incentives of the on-farm sector fail to fully capture the costs of nutrient application decisions to the non-agricultural sectors.  The cost-savings incentives of industrial and municipal sources of run-off fail to fully capture the downstream costs of urban run-off.  The consume-now incentive of today’s consumers fails to fully capture the cost of today’s decisions on future generations.

None of these statements are judgments on the intent of individual farmers, or municipal decision makers or society today in making decisions that impose excess costs on others.  In fact, in my experience, most people want to do the right thing.  Farmers care about environmental issues.  Municipalities care about water quality.  Today’s generation cares about the future.  Yet when consumption and production decisions are made, reality differs from intent. 

For example, when I drove here this morning, I gave no thought to the cost my car exhaust imposes on others.  I know that my exhaust contributes to increased atmospheric pollution.  I know that by driving I increase the likelihood of health issues for those with breathing issues.  I know that my driving contributes to long-term climate change.  Yet, other than being a genuinely nice person, I have no incentive to incorporate those external costs into my driving decisions.  The price of driving does not fully reflect the external costs.

Prices are the economy’s rationing mechanism.  It is prices that drive economic decisions.  Prices provide signals.  It’s prices that serve as a market’s way of reflecting the value of something.  And if prices fail to fully reflect the current and future costs and benefits of production and consumption, markets will misallocate society’s scarce resources. 

In political and social discussions we hear a lot of talk the need for less government regulation, the need for free markets.  In general I agree with free market advocates.  But in order for a market to do its job of allocating society’s scarce resources today and into the future, that market must capture ALL costs and benefits.  Otherwise a market is not truly a free market.

In the case of the environment, we can think of the problem as one of the failure of markets to properly price the services the environment supplies.  In effect, the environment is treated as a free input in production and consumption.  It is only natural that if something is free we will use more than we would if it is priced at its true value.  If gas were free, I would use a lot more of it.  Because the cost of environmental degradation is not captured in markets, we use more of it than we would otherwise.  It might be tempting then to conclude that markets are the problem.  I agree to a certain extent.  Markets are failing to properly account for costs and benefits.  But markets are also the solution. 

To solve the harmful algal bloom problem, we need to find ways to better capture the external costs of using nitrogen and phosphorous in the markets in which they are used—and then allow the resulting incentives work to solve the problem.  To do so, we can focus on the quantity of phosphorous, or we can focus on the price.  Quantity restrictions are effective if monitored effectively, but effective monitoring is difficult.  Effective quantity restrictions will reflect in market prices.  However, ill-designed quantity restrictions can result in regulatory costs that are higher than needed. 

Regulating prices, on the other hand, allow the users to make decisions that reduce their own costs.  By allowing the freedom to choose how to adapt to higher prices, price-based policies can achieve the same outcomes as quantity restrictions at lower cost. 

However, many of the price-based solutions have a negative reputation:  taxes, subsidies, cap and trade, user fees.  But as an environmental economist, I recognize that solutions that build environmental costs into market decisions allow individuals to make the decisions that are in their own best interest. The result is what’s best for society.

Unfortunately, we are talking about a problem of magnitude that hoping people will do the right thing is not an option.  While voluntary programs are attractive politically, achieving a 40% reduction in Lake Erie phosphorous loadings, if that is indeed the goal, is going to require more than reliance on goodwill.  Real, sustainable, solutions are going to require a recognition that prices need to capture the full social costs of nitrogen and phosphorous use.  Anything short of that will lead right back here next year, hoping the problem solves itself. [emphasis added]

Here's more from the Dispatch article:

Those scientists have recommended cutting the amount of phosphorus that reaches Lake Erie by 40 percent from 2008 levels in order to reduce algae.

To do that, farmers in will have to change the way they operate. Scientists say manure and fertilizers that wash from farm fields are responsible for a large portion of the phosphorus that gets into the lake.

Ohio State and other universities are studying ways farmers can keep phosphorus out of the Lake Erie watershed.

Chris Winslow, interim director at Stone Lab and Ohio Sea Grant, said soil testing could help.

If farmers know how much phosphorus already exists in their soil, he said, they won’t need to add more than the soil needs to grow crops.

The state could also expand wetlands around the rivers and streams that feed Lake Erie. And farmers could install special “two-stage ditches” that would filter phosphorus from runoff before it reaches the watersheds.

So, to answer my own rhetorical title question. 

Nope.

2016 Annual Conference | Society for Benefit-Cost Analysis

Call for papers:

The Society for Benefit-Cost Analysis (SBCA) is now accepting abstracts for participation in our 2016 annual conference on Improving the Theory and Practice of Benefit-Cost Analysis. We define BCA broadly, including cost-effectiveness analysis, risk-benefit analysis, applied welfare economics, damage assessment and other methods. Applications in any public policy area are encouraged.

Submissions may address the link between theory and practice, the methods used to estimate particular types of costs or benefits, the application of BCA to specific case studies, the role of BCA in decision making, or any other relevant topic. We welcome submissions from scholars, practitioners, and others working in academia, nonprofits, business and government around the world.

Abstracts must be between 200 to 300 words in length and clearly describe the research. You may submit an abstract for an individual presentation or organize a panel. The panel may involve four presentations or three presentations with one or two discussants, or be structured as a roundtable discussion. Panel proposals must include a description of the overall focus of the panel as well as a 200 to 300-word abstract for each presentation.

The Program Committee reserves the right to select only a subset of the panel abstracts for presentation or to reorganize the panels if needed. Submissions are limited to one abstract per presenter, although you may be listed as co-author on an unlimited number of other presentations. You may submit two abstracts only if one is for an individual presentation and the second is part of an organized panel; the two abstracts must address substantially different areas of research.

Submission of an abstract for an individual presentation or panel is viewed as a firm commitment to participate in the conference if accepted. Entries received after October 16, 2015 are not guaranteed consideration by the program committee.

via benefitcostanalysis.org

I'm a carbon neutral commuter

From the inbox:

Thank you for your contribution of $8 on 8/21/2015 to the Carbon Neutral Commuter program.

100% of your contribution will be used to purchase carbon offsets.

For complete information about the program and how contributions are being spent, please visit Carbon Neutral Commuter!

And I feel fine.

Carbon tax vs cap-and-trade (again)

@aguanomics why are carbon taxes more viable worldwide?

— John C. Whitehead (@johnwhitehead81) August 17, 2015

And we went back and forth a bit from there. Recognizing that the twitter is a lousy way to communicate, David went to the blog:

One week ago, I tweeted that the Pope (!) should push for carbon taxes instead of cap and trade. In response, John Whitehead (a busy environmental economist and blogger) said "why taxes?" The following tweet exchanges were neither satisfactory nor complete, so here's a post.

Before I get into David's post it might be useful to review where I stand on the issue. In terms of addressing climate change I think that a carbon tax and cap-and-trade are 1a and 1b policies. Given that this is almost a tie, command and control policies are a distance third. As the title suggests, my perception is that many economists feel that they need to choose their favorite policy instrument and then denigrate the other. I don't understand this sort of behavior. It is like preferring chocolate to vanilla, preferring vanilla to nothing and then arguing how much better chocolate is to vanilla. You sir, will get nothing and like it!

A long time ago I did the principles level analysis of carbon tax vs cap-and-trade and found that there is little to distinguish the two. Both can achieve the efficient level of emissions reduction. Both can generate the same amount of revenue. Both provide incentives for dynamic efficiency (i.e., firms have an incentive to cut abatement costs). There is little to distinguish between the economic outcomes. 

Now, on to the David's post. After a review of both policies David provides three reasons to prefer carbon taxes:

Carbon taxes are:

1. Easy to assess (charged at source/point of entry)
2. Predictable and adjustable
3. Sources of revenue to the national treasury (or refunds to citizens)

Considering just the economics (which is what we as economists should be mostly doing), a carbon cap is also predictable and adjustable. Price floors and ceilings can be used to make the market price less uncertain. Cap-and-trade with auctioned permits (e.g., RGGI) can generate just as much revenue as a carbon tax. 

Then David asks and answers:

So why do so many politicians like cap and trade over carbon taxes? They can:

1. Claim big reductions based on (imaginary) baselines that have been capped.
2. Give permits to favored industries (attracting corruption).
3. Say that industry is doing something without spending money.

Carbon taxes are harder to manipulate or dodge.

So, quickly we have moved away from economic theory and into politics (sigh). These three seem to flow from the assumption that a cap-and-trade policy will undoubtedly be characterized by the issuance a large number of too many free permits. The flip side is that a carbon tax is likely to be set too low. I could easily assert that carbon taxes are easy to manipulate or dodge. Politicians could give carbon tax breaks to favored industries (attracting corruption). Is there anything in the historical record to suggest otherwise? All of these are political problems and not problems with incentive-based policy, per se.

Another Q&A with David:

But what about driving international improvements in efficiency, etc? Well, I think that theoretical promise has failed due to (1) terrible accounting for permits (e.g., failure of the "clean development mechanism") as well as (2) lots of anger over sending money abroad to get few useful results.

I guess the Kyoto Protocol had some problems, eh? My guess is that a carbon tax would not be immune from implementation problems (but I may be naive).

And David's conclusion:

Thus, I have doubled down in my support for carbon taxes (many prior posts) because they can be...

• Imposed within nations
• Used to fund national projects (or given back to citizens)
• Increased when other countries put them into place
• Easily integrated into business and personal decisions affecting emissions

Except for the third bullet, which I don't understand, these are all so true. And yet, I'm doubling down in my support for cap-and-trade (along with a carbon tax) because they can be:

• Imposed within nations
• Auction revenue can be used to fund national projects (or given back to citizens)
• Easily integrated into business and personal decisions affecting emissions

I'm also doubling down on my assertion that economists are too quick to fall into the carbon tax vs cap-and-trade trap. I think that most of economists prefer either incentive-based policy to the command-and-control or no policy status quo. 

Here is David's "bottom line":

Let's get real. Carbon taxes can reduce emissions, cheaply ($0.40/gallon!), under real political constraints.

I'm left thoroughly unconvinced that a carbon tax is so far superior on economic grounds that economists should strongly favor it. I'm also unconvinced that cap-and-trade is uniquely prone to implementation problems and uniquely ripe for corruption. My bottom line:

Let's get real. Cap-and-trade can also reduce emissions, cheaply, under real political constraints.

There are currently on-going policy experiments that provide evidence to support both bottom lines. 

Quotes of the day

America's Finest News Source:

According to a new report from the National Oceanic and Atmospheric Administration, July was the hottest month since recordkeeping began in 1880, averaging 1.46 degrees hotter than the July average and beating the previous record-setting month by .14 degrees. What do you think?

• “And if the world works together, we can make next July even hotter.”
  Mickey Copeland
  Statistics Compiler
• “Everyone knows the National Oceanic and Atmospheric Administration is always talking out of its ass.”
  Dustin Belair
  Lobster Importer
• “As a nation, we’re doing a terrible job of manipulating statistics.”
  Nan Freeberg
  Contract Approver

via www.theonion.com

Some things were just meant to be

From the inbox:

Dear John C. Whitehead,

Greetings!

Considering your published research paper of ‟A Split-Sample Revealed and Stated Preference Demand Model to Examine Homogenous Subgroup Consumer Behavior Responses to Information and Food Safety Technology Treatments” in related areas of Finance & Economics, we are very interested in publishing your latest papers in the forthcoming issues of Journal of Finance and Economics.

Journal of Finance and Economics (ISSN 2291-4951) is a peer-reviewed professional journal published by Science and Education Centre of North America, Canada. The latest open-access papers are available on our website http://www.todayscience.org/jfe.

All of your original unpublished papers are welcome. Papers can be directly submitted online through our website or sent by email in MS word format.

Hope to keep in touch by email and publish some papers for you. We would like to receive your CV if you are also interested in becoming a reviewer of our journals.

It is appreciated if you could kindly share this information with your colleagues and associates.

We look forward to hearing from you soon.

Kind regards,

Steven Manson, Journal of Finance and Economics

Science and Education Centre of North America (SECNA)

Email: [email protected]

This journal is not to be confused with the Review of Economics and Finance which likes the exact same paper!