Environmental Economics

A carbon tax is "obvious" and "essential"

Jared Bernstein:

Broadly speaking, two things matter when it comes to the tax system: First, as just noted, the system needs to raise enough revenues to cover the fiscal obligations and economic challenges we face. Second, our tax system should reduce, not exacerbate, market-driven inequality. Those with the highest incomes should face the highest tax rates, and the public tax collection infrastructure should protect the code’s progressivity by blocking tax avoidance and prosecuting tax evasion. ...

Thus, we need to raise more revenues in a way that is progressive and reduces tax avoidance and evasion. What changes might be made that are consistent with these criteria? While most tax increases should be directed at the top, it’s a mistake to limit tax hikes to the very wealthy. ...

With that said, here’s what I’d recommend to progressively raise more revenue, both on the individual and business side of the tax code. My goal is not to be exhaustive—there are many good ideas I don’t explore, some of which are contained in the recent Obama budget—but to set forth more of a modular framework (as opposed to all-out “tax reform,” a recipe for an endless, fruitless, muddled debate) and provide numerous examples of the type of ideas that fit neatly into it. ...

8. A tax on carbon. This one is obvious and essential. Yes, it would raise taxes on non-rich people (and many such taxes include a rebate to lower-income people who spend more of their income on energy). But it’s a defensible tax increase.

The Obama administration recently proposed a $10-per-barrel tax on oil, which raises $319 billion over ten years. Especially given how cheap oil has recently become, I appreciate their motivation, but I’d rather raise the federal gas tax. This tax is how we fund both highway infrastructure and the federal contribution to public transit, and it has been stuck at 18.4 cents a gallon in nominal terms since 1993. Meanwhile, the costs of maintenance have gone up, as has vehicle mileage, so no wonder the Highway Trust Fund is always broke. We and our politicians have conspired to create a magical world where we can maintain our roads and bridges and support our urban mass transit without paying for it.

A tax on fossil fuels is essential partly because they're socially underpriced. Here, the National Cooperative Refinery Association oil refinery is silhouetted against the setting sun in McPherson, Kansas.

Moreover, and this is of course the other huge reason we need to raise the tax liability on fossil fuels: They’re socially underpriced. This is an opportunity to tax a seriously threatening negative externality, breaking the curse of magical thinking on transportation infrastructure, and raise needed revenues. There’s even been a touch of bipartisan support for the idea. (That’s why I’d go for this over the oil surcharge.) One such plan raises the gas tax by 12 cents a gallon over two years (6 cents per year) and then indexes it to inflation. That would raise $180 billion over ten years.

via prospect.org

 

"Economics of Coastal Erosion and Adaptation to Sea Level Rise"

Sathya Gopalakrishnan, Craig E. Landry, Martin D. Smith, and John C. Whitehead:

Abstract. This paper provides a review and synthesis of geoeconomic models that are used to analyze coastal erosion management and shoreline change. We outline a generic framework for analyzing risk-mitigating and/or recreation-enhancing policy interventions within a dynamic framework, and we review literature that informs the nature and extent of net benefit flows associated with coastal management. Using stated preference analysis, we present new estimates on household preferences for shoreline erosion management, including costs associated with ecological impacts of management. Lastly, we offer some guidance on directions for future research.

Expected final online publication date for the Annual Review of Resource Economics Volume 8 is October 05, 2016.

via www.annualreviews.org

I'm the last author alphabetically and participatory but, still, it is cool to see this one in "print." 

Take an econometrics course

We just added an additional quantitative course to our majors. When students start complaining I'll point them here:

The knock that liberal-arts graduates can have a tough time landing a first job is borne out by the data. Yet a new analysis of help-wanted postings for entry-level jobs suggests that those graduates can improve their job prospects markedly by acquiring a small level of proficiency in one of eight specific skill sets, such as social media or data analysis. In most cases, those skills increase salary prospects markedly, as well.

The analysis can help diffuse the debate over the value of a liberals-arts education versus a career-focused one, says Matthew Sigelman, chief executive at the job-market-analytics company Burning Glass Technologies. The company undertook the analysis as part of its continuing study of the job market. "Employers really value soft skills that are the bedrock of a liberal-arts education," he says. But many employers are also looking for applicants with additional, specific skills, such as knowledge of Java or other programming languages, or proficiency with graphic-design tools like InDesign or Adobe Suite. "It’s not a matter of shutting down the classics department and turning it into a business degree," he says.

Burning Glass routinely data-mines three-and-a-half-million job ads a day. For this analysis, it combed through the wording of a year’s worth of job ads for entry-level positions requiring a bachelor’s degree, and it found about 955,000. It then dug deeper to see how many more positions might be "unlocked" for recent graduates if they had one or more additional skills.

The company identified skills in eight fields, and then found an additional 863,000 entry-level jobs for graduates with skills in one or more of these fields. For example, the analysis found an additional 137,000 entry-level jobs for liberal-arts graduates who had data-analysis or management skills. It also found that such data-analysis jobs paid an average of $12,700 above the average salary for jobs traditionally open to liberal-arts graduates without such skills.

Jobs for graduates with computer-programming skills paid nearly $18,000 more, and there were nearly 53,000 more of them. (An illustration depicts the salary premiums and additional job prospects for the eight skill sets Burning Glass found.)

Collectively, the average salary for the jobs requiring additional technical skills was more than $6,000 higher than the $42,730 average for jobs traditionally open to liberal-arts majors. Skills in "sales" were the only ones that did not bring a quantifiable wage premium, but the analysis did find that graduates who had such skills would be qualified for nearly 568,000 additional job openings.

via chronicle.com

 

Some benefit-cost analysis at #IIFET 2016

Source: Dale Squires et al., "Cost-benefit analysis of unilateral conservation of a transboundary bycatch resource," IIFET 2016.

SWAG at #IFET2016

"Considering John Krutilla and the Environmental Turn in Natural Resource Economics"

Spencer Banzhaf:

John Krutilla, a pioneer in environmental economics, helped to shape the field as an expert at Resources for the Future (RFF) in the mid-twentieth century. Perhaps his greatest legacy is shifting the discussion from one of economics versus the environment to consider a new economics of the environment. In a new RFF discussion paper, I tell the story of these intellectual moves. Here’s that story in brief: 

From the nineteenth century, environmentalism in the United States historically has been divided into its "conservationist" and "preservationist" impulses. The conservation camp, represented by its champion Gifford Pinchot (1865–1946), advocated conservation of natural resources to be used for human purposes, using a progressive model of rational government planning. Extending Jeremy Bentham's utilitarian maxim, it would conserve resources to deliver "the greatest good to the greatest number for the longest time." The preservation camp, represented by John Muir (1838–1914), advocated protecting wilderness from humans, rooted in a spiritual love of “Nature” for its own sake. Eschewing rational planning, it would undergird such preservation through grassroots organizations such as Muir's Sierra Club.

In the first half of the twentieth century, natural resource economics was firmly on Pinchot’s side of that schism. Thus, an interdisciplinary scientist like Aldo Leopold, with economic training and a position in a university agricultural economics department, could view the growing environmental ethic in terms of a tension between economics and the environment. Economics appeared to be about material use of resources, whereas a new environmental ethic required a love of the environment for itself. Thus, on this reading, any defense of the environment on economic grounds appeared to be too narrow.

That position began to change as the postwar environmental movement gained momentum. More than anyone, John Krutilla pushed economics to the point where it could embrace Muir’s vision as well as Pinchot’s. 

In "Conservation Reconsidered" (1967), published 50 years ago next year, Krutilla argued that if humans preferred a preserved state to a developed one, then such preferences were legitimate and belonged in the economic calculus. The traditional focus on conserving resources for material production needed to be reconsidered, he said, in light of the growing scarcity of preserved natural landscapes.

Krutilla's move coincided with a growing environmental movement on one hand and, on the other, an evolution in economists' understanding of their own discipline. Environmentalism increasingly was defined around aesthetic consumerism rather than materialistic conservationism. Economics, too, previously defined as the study of material welfare, was being redefined as the study of opportunity costs.

Krutilla pointed out that developing a landscape came at the opportunity cost of preserving it; reciprocally, preserving a landscape came at the opportunity cost of developing it. Thus, the choice to develop was inherently an economic one. In this way, Krutilla helped reorganize earlier debates that put economics and the environment at odds to frame the discussion in terms of a new economics of the environment. Taking this theory to the real world, Krutilla testified to this effect during a controversy over developing Hells Canyon on the Snake River in Oregon—thus showing that economics could be on the side of preservation. Moreover, Krutilla argued that preserved landscapes could always be developed later, whereas development was irreversible. This consideration shifted the economic decision in favor of preservation, other things equal. 

via www.rff.org

As I've said before, Krutiall (1967) was the paper that inspired me to try a dissertation using the contingent valuation method.

Daily Demand and Supply: As goes input prices, so goes output price

One of the fundamental determinants of supply is the input price.  If the price of an input increases, the supply of the output decreases (shifts left):

Here's a real world example:

Starbucks has hiked its prices just a day after increasing staff pay.

The cafe giant announced that the price of all brewed coffees will leap by 10 to 20 cents, while espressos and lattes will rise by 10 to 30 cents.

The increase comes just a day after Starbucks announced a pay rise of at least five per cent for all store employees and managers. 

Another successful conference presentation (i.e., I didn't poop my pants) #IIFET2016

Download IIFET 2006

Navin finds his name in the new phone book #IIFET2016

Erosion management in Aberdeen #IIFET2016