Environmental Economics

"And this is the year 2015? 'October 21st, 2015.' "

"We are the future"*:

Funny story:  Students will sometimes (often?) come to me toward the end of a semester with some version of the question: 'Dr. Habb,' (they always either spell it or pronounce it wrong), 'Is there anything I can do to improve my grade?' My response is always the same: 'A flux capacitor would help.'

I always chuckle.

They don't. 

*txt from my 17yo this am. (c what I did there?)

 

Sargassum--A Potential Economic Disaster?

A slimy, brown monster, after slithering free of the Bermuda Triangle, is devouring beaches from Florida to Texas and the Caribbean.

It’s not the plot of a bad science fiction movie, although it involves a whole lot of bad science — just zero fiction.

It’s big, it’s unstoppable, it sometimes disappears only to return. And the powers that be want to keep this threat under wraps.

It’s called Sargassum seaweed and it’s growing out of control, so tourism officials from the best beach towns in the world know that if you knew, you’d stay away. Instead, they’re sticking their heads in the sand and hoping you’ll do the same.

via www.nydailynews.com

I've been following this story with a bit of interest since a trip to Mexico last March. The beaches there were covered daily with a thick line of stinky seaweed that rendered the beaches unusable (fortunately the swim up bar at the pool was still usable). At the time I wondered if the seaweed was impacting tourism, but not knowing much about it I assumed it was a localized phenomenon.

Since, I have learned that the problem extends well beyond the localized beaches of Mexici to almost all of the heavily visited beaches of the Caribbean islands, the U.S. and Latin American Gulf Coasts, and now even Africa. No one is sure of the cause--many have been offered: climate change (dang coal), excess nutrients run-off (dang farmers), oil dispersants used for the BP/Deepwater Horizon spill (dang BP)--but one thing is fairly certain: Given the quantities, the unpleasantness and the widespread nature of the problem, prolonged exposure is likely to have significant economic consequences for tourism driven economies in the area.

Maybe someone should look into that?

Political Calculations revises an old post

Because I can be a jerk:

Not long ago, John Whitehead reviewed one of our posts on the topic of junk science and opened a can of mild umbrage at one of the sites we linked to through a much older post as a resource for debunking bad science in the media.

Since that post was so six years ago, we thought it was long past time to update and expand that original list of resources, which we did both in our original post and now here for greater visibility.

• Snopes.com - The Internet's premier reference for urban legends, folklore, myths, rumors and misinformation.
• Quackwatch - If it's medical or health-related and not for real, you'll likely find it here.
• Climate Skeptic - Like Quackwatch, but aimed at the poorly supported aspects of global climate change science.
• JunkScience.com - Steven Milloy's site surveying a number of highly questionable scientific claims made in today's media reporting. Update 19 September 2015: Over time, we find that the site's quality in critiquing a number of science reports is mixed overall, combining a number of valid analyses with others that fall somewhat short. For an example of the latter, see John Whitehead's recent discussion of the site's coverage on the topic of contingent valuation, where negative conclusions about particular studies would appear to have been reached without necessarily being backed by sound evidence, or without consideration that the scientists behind the studies being criticized had addressed their points of criticism.
• Junkfood Science - Sandy Szwarc's blog covering ongoing issues with media reporting of nutrition-based junk science.
• Mythbusters - did you think we'd create a list like this and forget the Mythbusters?
• John Stossel - the media's leading questioner of questionable claims, from consumer issues through politics, who also blogs.
• Biggest Junk Science Stories of 2014 - Added 19 September 2015: Hopefully an annual tradition. RealClearScience offers a summary of the biggest junk science stories of 2014. (Here's 2013's edition.)
• Bad Science - Added 19 September 2015: UK science columnist's Ben Goldacre's site on the topic of science that doesn't measure up.
• Retraction Watch - Added 19 September 2015: An invaluable site that didn't exist when we first began assembling our list of resources. Retraction Watch focuses on the mistakes made by scientists who published erroneous results that subsequently required them to alert their peers and to wit

via politicalcalculations.blogspot.com

Don't miss the 9/19 update. I was writing my CVM dissertation when the Exxon Valdez thing happened and trying to get my paper published during the beginning of round 1 of the CVM debate (here is my presentation on Round 2). The high stakes of the Exxon natural resource damage assessment brought out some odd behavior amongst environmental economists. My papers, along with a number of others, received a lot of unfair criticism (on the other hand, the topic was hot and the pages of JEEM were filled with CVM). One result of that debate still today is that the CVM is either (1) purposefully or (2) naively misunderstood by an increasing number of economists* and others. My feeling was that junkscience.com fell into category (2) as a result of category (1). I appreciate Ironman's edits.

An unfortunately named journal

A colleague received an email that alerted me to this one:

Asian Social Science (ASS) is an international, double-blind peer-reviewed, open-access journal published by the Canadian Center of Science and Education. The journal focuses on the following topics: anthropology, sociology, politics, culture, history, philosophy, economics, education, management, arts, laws, linguistics and psychology. It provides an academic platform for professionals and researchers to contribute innovative work in the field. The journal carries original and full-length articles that reflect the latest research and developments in both theoretical and practical aspects of society and human behaviors.

via ccsenet.org

There are other ASS journals out there, by the way. I'm not sure what they were smoking when they considered journal names. And yes, this one is on Beall's list. 

I enjoyed the journal naming discussions for JAERE. My favorite was Cathy Kling's suggestion of Bulletin of Environmental Economics Research (BEER).

Grist: "This conservative economist makes the case for a carbon tax"

I quit reading the Grist a long time ago because they don't heart ("hate" is a very strong word) economists. But, they might be falling in love with one of them:

N. Gregory Mankiw is, if not a household name, a dorm-room one. His Principles of Economics textbook is the standard for most college intro-to-econ courses, with more than a million copies sold. A professor at Harvard, Mankiw teaches the university’s most popular undergraduate course, Econ. 10.

He’s also well known in Republican circles. President George W. Bush named him chair of the Council of Economic Advisers in 2003, and in 2006, Mitt Romney brought on Mankiw as an economic adviser, a role the economist played throughout Romney’s 2012 presidential bid.

But though he calls himself a conservative — “I want limited government,” he explains — Mankiw advocates a carbon tax, a position notably at odds with all of the current GOP presidential candidates. He articulated his reasons in a recent New York Times op-ed, “The Key Role of Conservatives in Taxing Carbon.”

We called him up to get his perspective on the rift over climate change among Republicans, and his advice on how to sell a carbon tax to conservatives. ...

Q. Why a carbon tax and not a cap-and-trade system?

A. A carbon tax is much simpler. In cap-and-trade, one of the issues becomes: how do you allocate those permits for carbon emissions? A fully auctioned cap-and-trade system is very, very close to a carbon tax. But in practice, people who write the bills often don’t auction [all the permits] off, and [politicians] start using these permits to start paying off particular constituencies politically. That means that you’re basically pricing carbon, but you don’t have the revenue that you can use to reduce people’s taxes.

...

Q. Elon Musk is an advocate of a carbon tax, with the idea that it could catalyze the cleantech industries, and possibly be a job-creation engine.

A. Again, I wouldn’t push a carbon tax as a huge job creator. Some jobs will be created, some jobs will be destroyed. Some industries will grow, some industries will shrink. I don’t think the overall economy’s going to boom.

via grist.org

There are a number of questions with a lot of great answers (e.g., regarding climate science: "I can read the consensus of scientists, so I take that as a given and go on with economics.") I've excerpted only two, on familiar themes. One answer I agree with and one I don't. 

I don't agree on the preference for a carbon tax over cap-and-trade with the reason being that politicians will enjoy passing out free permits. This is comparing an ideal carbon tax, with no tax breaks, with a politicized cap-and-trade. I see nothing about politics to suggest that a carbon tax will be immune to enjoyment of politicians passing out tax breaks.

And I most definitely agree that a carbon tax will not create jobs. 

Raise your hand if you want to work with me...

The Department of Agricultural, Environmental, and Development Economics (my department) in the College of Food, Agricultural and Environmental Sciences (my college) at The Ohio State University (my university) is hiring for four new faculty positions--and I am not ashamed of taking advantage of this blog to promote the positions.  If you have (or are close to earning) a PhD with interests in agricultural economics, environmental economics, regional economics, development economics or some combination of those fields along with other interests, then we can probably align your interests with one of our four positions. 

Come join me in a top rated department (according to the National Research Council at least) in a top 20 public university (according to US News at least) in the Best Opportunity City in the U.S. (according to Forbes at least).

Our open positions are:

• Assistant or Associate Professor in Global Economic Modeling: a tenure-track assistant/associate professor position in the area of global economic modeling and integrated assessment. Economic modeling approaches of particular interest include dynamic optimization and computable general equilibrium modeling, as well as familiarity with approaches for handling decision making under uncertainty. Individuals with experience integrating economic models with physical/biological models are encouraged to apply.
• Assistant or Associate Professor in Sustainable Food and Farm Policy:  tenure-track assistant/associate professor position to conduct innovative research on policies related to food, farming and sustainability and to provide intellectual leadership to the Department and to the University’s Discovery Theme Initiatives in the area of sustainable food and farm policy. 
• Assistant Professor in Agribusiness: a tenure-track assistant professor with teaching and research responsibilities in agribusiness.  Applicants with interests in agricultural markets and marketing, finance, supply and demand analysis, industrial organization, international trade or agricultural and food policy, that complement a primary interest in agribusiness are encouraged to apply.
• Assistant or Associate Professor in Sustainable Development and Economy: an assistant/associate professor, tenure-track position to develop an internationally recognized program of research and teaching focused on sustainable development and the trade-offs among economic development, social equity and environmental protection in international or regional contexts.  Areas of interest include, but are not limited to: economic growth; equity; resource use; technological change; socio-ecological systems; sustainable and resilient communities. 

Click on the links for full descriptions and application info.  

Deaton and Muellbauer, Economics and Consumer Behavior (1980)

I had this book once:

The idea of duality has proved to be a powerful device in modern work on the economics of consumer behaviour. The authors have used duality to provide an integrated and accessible treatment of this subject. The book focuses on applications of the theory to welfare economics and econometric analysis. The book begins with four chapters that provide a self-contained presentation of the basic theory and its use in applied econometrics. These chapters also include elementary extensions of the theory to labour supply, durable goods, the consumption function, and rationing. The rest of the book is divided into three parts. In the first of these the authors discuss restrictions on choice and aggregation problems. The next part consists of chapters on consumer index numbers; household characteristics, demand, and household welfare comparisons; and social welfare and inequality. The last part extends the coverage of consumer behaviour to include the quality of goods and household production theory, labour supply and human capital theory, the consumption function and intertemporal choice, the demand for durable goods, and choice under uncertainty.

But it's now gone from my shelf. Would whoever borrowed it please return? It's more valuable now. "An almost ideal demand system" was published the same year. It has been cited 374 times since 2014. Is this the Deaton paper that has had the most impact on environmental and resource economists? Here is one example where we have found it useful (with my favorite appendix ever).

Add "yieldco" to the (long) "list of things I don't understand"

I'm resisting the urge to try to conjure a useful comment on this one in order to (1) veil my ignorance and (2) further convince myself that I think I know everything:

Only a few months ago, it seemed that the renewable energy sector could do little wrong: Stock prices were soaring and money was pouring in as investors flocked to get in on the action.

That is no longer the case. Low oil and gas prices have roiled the energy markets, and the specter of rising interest rates has rattled investors’ confidence in the industry’s returns. Although energy and financial experts say that the basics of the business remain sound, the lofty stock prices have tumbled, leading renewable energy companies to scramble for new approaches to their businesses.

Nowhere has the retrenchment been more acute than in a newfangled financing mechanism called a yieldco. Yieldcos, public companies conceived by renewable energy companies as a way to raise cheaper capital for project development, have attracted billions in new investments.

The yieldcos buy and operate power plants, mainly those that their parent companies develop. The yieldcos then collect the contracted electricity fees and pay the bulk of them out as dividends. With investors hungry for stable returns, energy yieldcos were greeted with enthusiasm through initial public offerings of their stocks over the last year and a half. ...

The idea behind yieldcos was simple on its face: Bundle together completed or nearly completed power projects that ostensibly offered steady, low-risk cash flows in the form of power purchase agreements covering electricity payments over 15 years or so. Because they were tied to power plant developers — including Abengoa, NextEra Energy and Pattern Development — the yieldcos would have steady pipelines of projects from the parent companies and the parent companies could replenish their capital through those sales.

Part of the rationale was that energy development is expensive and renewable energy projects do not have access to tax-advantaged financing mechanisms like master limited partnerships. Those partnerships have spurred the building of oil and gas infrastructure like pipelines over the decades. ...

Nonetheless, for a while, the system proved attractive to investors, and analysts and clean-energy advocates predicted ever more activity and success in the sector. More than a dozen yieldcos have formed since 2013, and many have gone public, including 8point3 Energy Partners, a joint venture of First Solar and SunPower that raised $420 million in its initial public offering in June.

But as yieldcos proliferated — each with a hunger to bring in new projects to satisfy investor demand for growth — they drove up competition and prices for projects. Investors began to lose confidence that there would be enough projects to go around. In addition, the threat of rising interest rates made the yieldcos less attractive than more conventional financing. And depressed prices for oil and gas brought down energy values over all. ...

Several analysts and executives attributed the declines to a mismatch between the investors — which include hedge funds looking for a relatively quick return — and the investments, intended to pay back over a long time. Others said investors who were losing money in oil and gas began dumping their renewable stocks to cover those losses.

Either way, the new companies became caught in a kind of self-reinforcing downward spiral in which the drop in share prices raised dividend yields, making it more expensive to borrow money or issue equity. That, in turn, lowered the returns on new projects and pushed down share prices even more.

via www.nytimes.com

Ah, the old "investor demand for growth." Investors are a hungry and impatient lot. Make sure you sell on the way down.

Don't skimp on your reference list

Retraction Watch:

The authors of a paper that examined the best way to inspire creativity in the workplace have issued an erratum after they “failed to cite some very relevant recent papers in experimental economics.”

The paper, “Incentives for creativity,” was published by Experimental Economics only a few months ago — in May — by two researchers from the University of California San Diego and the University of Amsterdam. Sanjiv Erat and Uri Gneezy found that incentives don’t actually improve creativity, and competitive incentives can actually reduce creativity.

The notice updates the paper with references to four studies published between 2012 and 2015 ...

Journal editor David Cooper, a professor at Florida State University, said that the authors contacted him about making the changes:

I was contacted by the authors of the paper after it had been put online.  They let me know that they had failed to cite some relevant papers and asked if they could modify the text.  After checking with our production staff, I let them know that the existing article could not be modified but we could publish an erratum.  This led to the published erratum.

Second author Gneezy didn’t respond to questions about the last paragraph of the notice, and said they simply forgot to include the references:

Sometimes things are just as simple as they seem. We forgot to include the relevant recent literature in experimental economics, so we fixed it. No one complained.

Oliver Kirchkamp, second author on the paper referenced in the notice’s last paragraph, said that Erat and Gneezy cited them without prompting:

We are, of course, glad to see that Erat and Gneezy cite our paper. As far as we understand they do this on their own accord. We never contacted them in this matter.

I know a large number of authors who have to cite some relevant papers (ahem), this is a nice model of behavior for those forgetful authors!

My class went online Friday