Environmental Economics

And we're still over a month away from Inauguration Day

Maximilian Auffhammer at the Energy Institute at Haas blog with no cute name:

The GOP has long prayed at the temple of Milton Friedman. Friedman, who was one of the most brilliant thinkers of this past century ... was at the forefront of arguments that markets are incredibly effective at allocating scarce resources. At the heart of (t)his argument lies the assumption that markets are “perfectly competitive”. This means that everyone has perfect information, no individual firm or person can influence price, transactions costs are low, there is no public goods or externality problem and the list goes on. If such a unicorn market is left alone, agents in it will maximize social welfare, so there is no need for government intervention. ...

The classic case of a market failure is an externality. If a power plant emits a pollutant, which causes kids in a neighboring city to fall ill, the absence of government intervention will lead to an inefficiently large amount of pollution.

Government should intervene to maximize welfare at the output level where the marginal benefit from emitting the last unit of pollution is equal to the marginal damage it causes. That amount in most cases is not zero ...

... The archbishop (=department chair) in the church of Milton Friedman is …. an environmental economist! The holder of the Milton Friedman chair in economist at the University of Chicago Economics department is … an environmental economist: Michael Greenstone. ... To top this, last week he was also named head the University of Chicago’s Becker-Friedman Institute for Research in Economics, named for two conservative Nobel Prize winning economists who spent their careers there. See what I’m getting at here? The world’s top economists at conservative departments *do not* believe in laissez faire all the time. This, you would think, should make it more palatable for the GOP leadership to support sensible environmental regulation.

If the Trump administration is going to increase efficiency of environmental regulation by replacing costly standards with more efficient incentive based regulations, you will see me dance a Schuhplattler. I’ll post a video on this blog for you.

But no matter where you look, there is almost obsessive talk of “government overreach”. ... While killing off the Clean Power Plan will not bring coal back from the dead, it will certainly significantly hamper the necessary progress on the rollout of renewables and energy efficiency required to make progress towards the scientifically determined targets to avoid the worst consequences from climate change. The possible abandonment of the Paris Agreement will surely result in a higher emissions path for the US and possibly the rest of the world. (China and India only signed on because the US did.) Further, we have recently learned that the Social Cost of Carbon in federal rulemaking is at risk. The Social Cost of Carbon is a number used in federal benefit cost analysis, to incorporate the global damages from greenhouse gas emissions. The president could, for example, instruct agencies to use a domestic cost of carbon, which is a fraction of the true damages from carbon emissions. This would further increase emissions. ...

I have said this before. The GOP is the party of markets. Most environmental and energy economists love nothing better than a good market based regulation. I hope that the GOP and Trump administration will relearn what free market economics is all about. It’s not about the absences of regulation. It’s about sensible regulation.

Here is more on Milton Friedman, the University of Chicago and putting a price on negative externalities: http://www.env-econ.net/2015/06/environmental-and-urban-economics-why-is-environmental-economics-flourishing.html.

A social cost of carbon witch hunt in the Department of Energy

It's going to get bad before it gets worse:

The Trump transition team has issued a list of 74 questions for the Energy Department, asking agency officials to identify which department employees and contractors have worked on forging an international climate pact as well as domestic efforts to cut the nation’s carbon output.

The questionnaire requests a list of those individuals who have taken part in international climate talks over the past five years and “which programs within DOE are essential to meeting the goals of President Obama’s Climate Action Plan.”

Trump and his team have vowed to dismantle specific aspects of Obama’s climate policies. The questionnaire, which one Energy Department official described as unusually “intrusive” and a matter for departmental lawyers, has raised concern that the Trump transition team was trying to figure out how to target the people, including civil servants, who have helped implement policies under Obama.

Thousands of scientists have already signed petitions calling on the president-elect and his team to respect scientific integrity and refrain from singling out individual researchers whose work might conflict with the new administration’s policy goals. This potential clash could prompt a major schism within the federal government, with many career officials waging a battle against incoming political appointees. ...

The document spanned a broad area of Energy Department activities, including its loan program, its technology research program, responses to Congress, estimates of offshore wind and cleanup of uranium at a site once used by the military for weapons research. In many cases, the inquiries meshed with the priorities of conservative groups such as the Heritage Foundation, which held a meeting on energy and environment issues in Washington on Thursday, as well as priorities outlined in a recent fundraising pitch sent by the American Energy Alliance (AEA), a wing of the Institute for Energy Research.

Thomas Pyle, who heads AEA, leads Trump’s Energy Department transition team. In a recent fundraising pitch, Pyle wrote supporters, “After eight years of the Obama administration’s divisive energy and environmental policies, the American people have voted for a change — a big change. We expect the Trump administration will adopt pro-energy and pro-market policies — much different than the Obama administration’s top-down government approach.”

One question zeroed in on the issue of the “social cost of carbon,” a way of calculating the consequences of greenhouse gas emissions. The transition team asked for a list of department employees or contractors who attended interagency meetings, the dates of the meetings, and emails and other materials associated with them.

The social cost of carbon is a metric that calculates the cost to society of emitting a ton of carbon dioxide to the atmosphere. The Obama administration has used this tool to try to calculate the benefits of regulations and initiatives that lead to lower greenhouse gas emissions.

At Thursday’s Heritage meeting, senior fellow David Kreutzer — who is a member of Trump’s Environmental Protection Agency transition team — attacked the idea of using the social cost of carbon during the regulatory process. ...

Here are questions 13 and 14:

Hey, I presented at a DOE/EPA workshop on the social cost of carbon! Chilling.

 

And the impact of fifty years of nonmarket valuation magically disappears

Poof:

A conservative group is pushing the next Congress to take several steps to undo President Obama’s climate work. 

The Competitive Enterprise Institute ... on Thursday said the GOP-controlled government taking power next year should pursue an aggressive deregulation agenda domestically and pull the United States out of international climate change work. 

In a memo outlining the group’s 2017 agenda, CEI’s energy team said lawmakers should repeal EPA rules and regulatory power, end the use of the “social cost of carbon," a metric federal departments use to assess impacts on the climate, halt the federal renewable fuels mandate and oppose any proposal to tax carbon emissions. 

The U.S., the group said, should pull out of the Paris climate agreement reached last year and stop federal funding for the United Nations Framework Convention on Climate Change, the underlying global climate treaty.

“Increasing the affordability of both U.S. and global energy is an important economic and humanitarian objective,” CEI officials wrote in their report. “Policymakers heeding the time-honored healer’s maxim, ‘First, do no harm,’ should reject policies to tax and regulate away mankind’s access to affordable energy.”

via thehill.com

This proposal makes a lot of sense unless you reckon that energy use does its own harm (e.g., negative health effects). If you suggest that the EPA should go away and the energy market should be completely free (except for subsidies, of course) then you put a zero value on health and the environment.

A note of caution to anyone thinking about writing a textbook

Andrew Gelman:

Dear Major Academic Publisher,

You just sent me, unsolicited, an introductory statistics textbook that is 800 pages and weighs about 5 pounds. It’s the 3rd edition of a book by someone I’ve never heard of. That’s fine—a newcomer can write a good book. The real problem is that the book is crap. It’s just the usual conventional intro stat stuff. The book even has a table of the normal distribution on the inside cover! How retro is that?

The book is bad in so many many ways, I don’t really feel like going into it. There’s nothing interesting here at all, the examples are uniformly fake, and I really can’t imagine this is a good way to teach this material to anybody. None of it makes sense, and a lot of the advice is out-and-out bad (for example, a table saying that a p-value between 0.05 and 0.10 is “moderate evidence” and that a p-value between 0.10 and 0.15 is “slight evidence”). This is not at all the worst thing I saw; I’m just mentioning it here to give a sense of the book’s horrible mixture of ignorance and sloppiness.

I could go on and on. But, again, I don’t want to do so.

I can’t blame the author, who, I’m sure, has no idea what he is doing in any case. It would be as if someone hired me to write a book about, ummm, I dunno, football. Or maybe rugby would be an even better analogy, since I don’t even know the rules to that one.

Who do I blame, then? I blame you, the publisher.

You bastards.

Out of some goal of making a buck, you inflict this pile of crap on students, charging them $200—that’s right, the list price is just about two hundred dollars—for the privilege of ingesting some material that is both boring and false.

And, the worst thing is, this isn’t even your only introductory statistics book! You publish others that are better than this one. I guess you figure there’s a market for anything. It’s free money, right?

And then you go the extra environment-destroying step of printing a copy just for me and mailing it over here, just so that I can throw it out.

Please do me a favor. Shut your business down and go into something more productive to the world. For example, you could run a three-card monte game on the street somewhere. Three-card monte, that’s still a thing, right?

via andrewgelman.com

I mostly agree with the p-value criticism (attaching ambiguous qualifiers to significance levels seems silly) but p-values can be useful. I like them as a continuous measure of statistical significance, I don't see anything special about the .01, .05 and .10 cutoffs, when paired with discussion/recognition of economic significance. I just recently had one of these situations. I tried some alternative specifications of a voting model and found a result that I thought might be interesting that was supported by statistically significant coefficients (e.g., p = 0.08*). After a couple of late night tweets boasting about my accomplishments I realized that the marginal effect was nothing. Sad.

*And don't tell me that a coefficient with p = 0.08 is not statistically significant. It is statistically significant at the p = 0.08 level. 

"What You Should Know About the Professor Who Has Trump’s Ear on the Economy"

From the Chronicle of Higher Education:

Peter Navarro, a professor and author who became known during the presidential campaign as the only academic economist directly advising the Trump campaign, continues to be one of the most public voices on economic matters for President-elect Donald J. Trump as he prepares to take office next month.

Last Friday, Mr. Navarro gave the transition team’s official response to the latest federal jobs report (although unemployment continued to fall, he maintained that the level of job recovery "further demonstrates an urgent need for President-elect Trump’s America First economic plan"). And later that day, when Mr. Trump broke nearly 40 years of diplomatic protocol and spoke directly to the president of Taiwan, at least one account highlighted the likely role that Mr. Navarro’s get-tough-with-China influence may have had on the president-elect’s actions.

Mr. Navarro, who is 67, is a Harvard-trained professor of economics and public policy who has been on the faculty of the business school at the University of California at Irvine since 1989. Before that, he spent two years as an assistant professor of business and government at the University of San Diego.

His ties to Mr. Trump began years before the campaign, when Mr. Navarro produced a film in connection with his 2011 book, Death by China: Confronting the Dragon — A Global Call to Action (Pearson FT Press). He sent the film to Mr. Trump, and soon got back an endorsement from the real-estate developer that called the film "right on."

This past October, a column in the The New Yorker speculated that if Mr. Trump won, "Peter Navarro would likely become the single most powerful economic adviser in the United States." The author of the piece also said he found some of Mr. Navarro’s ideas on China and trade "so radical" that he couldn’t find another economist who fully agreed with them.

Little-known nationally, Mr. Navarro attracted wider attention this summer, thanks in part to a Bloomberg View column by Tyler Cowen, an economics professor at George Mason University, who, while praising Mr. Navarro as a "one of the most versatile and productive American economists of the last few decades," also characterized Mr. Navarro’s recent writings on China as "a series of emotional diatribes against the Chinese government." He also wrote, "If you want to read one thinker to understand Trump on China, it is Navarro."

In an interview with The Chronicle this week, Mr. Cowen said Mr. Navarro’s broad protectionist ideas — like Mr. Trump, he urges slapping huge tariffs on Chinese goods to reduce the trade deficit — are out of step with generally accepted economic theories. "There are plenty of economists who defend some form of protectionism," said Mr. Cowen, to help a growing economy or to bolster selective industries. But "close to no one," he said, agrees with Mr. Navarro’s idea that a trade deficit is bad on its face. ...

If you were in graduate school in the late 1980s, you probably know this one: Richard Carson and Peter Navarro, "A Seller's (and Buyer's) Guide to the Job Market for Beginning Academic Economists," Journal of Economic Perspectives, vol. 2, no. 2, Spring 1988 (pp. 137-148). It's the same guy (and the Richard Carson is the same one you might be familiar with too). 

I'm no macroeconomist but (but I'm not going to let that stop me) someone tell me why we shouldn't be worried about inflation? The Fed will begin to allow interest rates to rise very soon but it will take a while to get to the point where monetary policy is no longer expansionary, taxes will fall and government (infrastructure) spending will increase sometime soon. If all three shift the aggregate demand curve to the right (when the economy is not in a recession) then prices will rise. Or am I missing something?

Daily Demand and Supply: Immigration Policy and Food Prices (A non-political post with a policy conclusion)

Potential Econ 101 Exam Question:  

Suppose the supply of lower-wage workers suddenly decreases.  a) What is the effect on wages and employment in sectors dependent on lower-wage workers?  b) What is the effect in output markets dependent on employment of input markets that employ lower-wage workers?

In your answer please use basic supply and demand analysis, graphs, and provide an example as illustration. If possible, provide a mainstream news story to support your analysis.

Suggested Answer:

a) If the supply of lower-wage workers decreases (shifts to the left) the the total number of workers employed in lower-wage jobs will decrease and the wages for those lower-wage workers still working will increase (see graph below):

Example:  If a new immigration policy results in the deportation of large numbers of lower-wage workers, the total number of workers employed in lower-wage sectors will decrease and the wages of those workers working in lower-wage jobs will increase.  For arguments sake, let's call the workers legal and illegal, and suppose that illegal workers are willing to work for lower wages.  This means lower-wage workers fall at the lower tail of the worker supply curve (they will be in the southwest corner of the graph).  If mass deportation of illegal workers occurs, and wages do not rise, then total employment in these sectors will fall by the amount of the deportation.  But because lower-wage demanding illegal workers have displaced higher-wage demanding legal workers, employers in these sectors will begin to offer higher wages and draw some of the higher-wage legal workers into these sectors.  The end result is higher wages in these sectors, fewer total workers employed in these sectors, but more legal workers working in these sectors (at higher wages) than before.  A WIN for legal workers.

b) But we need to recognize that higher wages in these sectors represent an increase in input prices for output markets reliant on these inputs. An increase in inout prices shows up as a decrease in supply in the output market and higher output prices and lower output quantities (see graph):

Example (cont'd):  The decrease in the supply of workers due to a new deportation immigration policy will result in an increase in prices for outputs that rely on lower-wage workers for production.  For example, the prices of most domestically produced fruits and vegetables are likely to increase as a result of the decrease in availability of lower-wage workers and the higher wages for the legal workers.  That a LOSE for domestic fruit and vegetable consumers.

In addition, the higher prices of domestic fruits and vegetables will increase the pressure to import fruits and vegetables from countries that can produce fruits and vegetables with lower-wage workers AND the higher wages for legal workers will increase the incentives for domestic producers to lower costs in other ways, likely through technological improvements that reduce the demand for higher-wage legal workers.

Mainstream news story to support my analysis (From the Washington Post):

President-elect Donald Trump has promised a major crackdown on illegal immigration, triggering immense alarm among the country's 11 million undocumented people. But Trump’s deportation promises, if fulfilled, would ripple far beyond the lives of illegal immigrants. Deportations would affect vast swaths of the economy — with a particularly dramatic impact on agriculture.

As a result, Americans could see the cost of some fruits and vegetables soar.

Undocumented workers account for 67 percent of people harvesting fruit, according to the Agriculture Department. They make up 61 percent of all employees on vegetable farms, and as many as half of all workers picking crops.

Agricultural economists across the political spectrum say that there’s no way that workforce could be raptured up without reverberations throughout the food system — think farm bankruptcies, labor shortages and an eventual contraction of the broader economy. And even if you’re far from the agriculture industry, you could see $4 milk, low-quality oranges, and extortionately priced raspberries.

The logic behind these dire predictions is pretty straightforward. If Trump were to begin deporting farmworkers or requiring that farms verify their work status, farmers would have three ways to fill in the labor gaps. They could hire legally authorized workers, who are vastly more expensive; switch away from crops that require human laborers to harvest them; or cut production, allowing fields to fallow and fruit to go unharvested.

Whichever way you slice it, farmers pay more to produce less — which could squeeze the budgets of the very Americans who supported Trump’s immigration message. To many of them, mass deportation sounded attractive in the abstract. But practically speaking, the economy is so complex — and so interdependent — that Trump could not possibly deport the country’s 11 million undocumented people without also impacting middle-Americans’ wallets.

In fact, to keep costs under control, Americans may end up being forced to buy more groceries from abroad, undermining Trump's effort to boost American industry.

Harry Potter and...

Someone told me that if you add 'Harry Potter and...' to the beginning of the title of a scholarly journal article, it makes it more likely that readers will actually read it.  So I thought I would try it with some of my own articles.  Enjoy.

• Harry Potter and Interesting Questions Worthy of Further Study
• Harry Potter and Woodsy the Optimal Owl
• Harry Potter and the Effects of Information about Invasive Species on Risk Perception and Seafood Demand by Gender and Race
• Harry Potter and the Financial and Psychological Risk Attitudes Associated with Two Single Nucleotide Polymorphisms in the Nicotine Receptor (CHRNA4) Gene
• Harry Potter and the Welfare Effects of Pfiesteria-Related Fish Kills
• Harry Potter and the Value of Agricultural Economics Extension Programming
• Harry Potter and the Economic Value of Marine Recreational Fishing in the Southeast United States
• Harry Potter and the Economic Benefits of Oyster Reef Restoration in the Chesapeake Bay 

You're dying to read my stuff now, aren't you?

Feel free to join in the fun in the comment section.

"Perils of Climate Change Could Swamp Coastal Real Estate"

The big data consulting firms seem to be out ahead of the academic researchers:

Real estate agents looking to sell coastal properties usually focus on one thing: how close the home is to the water’s edge. But buyers are increasingly asking instead how far back it is from the waterline. How many feet above sea level? Is it fortified against storm surges? Does it have emergency power and sump pumps?

Rising sea levels are changing the way people think about waterfront real estate. Though demand remains strong and developers continue to build near the water in many coastal cities, homeowners across the nation are slowly growing wary of buying property in areas most vulnerable to the effects of climate change.

A warming planet has already forced a number of industries — coal, oil, agriculture and utilities among them — to account for potential future costs of a changed climate. The real estate industry, particularly along the vulnerable coastlines, is slowly awakening to the need to factor in the risks of catastrophic damage from climate change, including that wrought by rising seas and storm-driven flooding.

But many economists say that this reckoning needs to happen much faster and that home buyers urgently need to be better informed. Some analysts say the economic impact of a collapse in the waterfront property market could surpass that of the bursting dot-com and real estate bubbles of 2000 and 2008. ...

Over the past five years, home sales in flood-prone areas grew about 25 percent less quickly than in counties that do not typically flood, according to county-by-county data from Attom Data Solutions, the parent company of RealtyTrac. Many coastal residents are rethinking their investments and heading for safer ground. ...

Banks and insurers need to protect their collateral and investors more by improving their methods for estimating climate-change risks and creating more standardized rules for reporting them publicly, economists warn.

In April, Sean Becketti, the chief economist for Freddie Mac, the government-backed mortgage giant, issued a dire prediction. It is only a matter of time, he wrote, before sea level rise and storm surges become so unbearable along the coast that people will leave, ditching their mortgages and potentially triggering another housing meltdown — except this time, it would be unlikely that these housing prices would ever recover. ...

In the past year, home sales have increased 2.6 percent nationally, but have dropped about 7.6 percent in high-risk flood zones in Miami-Dade County, according to housing data. Many coastal cities are taking steps toward mitigation, digging runoff tunnels, elevating roads and building detention ponds.

via www.nytimes.com

But here is a new paper that is finding some impact of Hurricane Sandy on housing prices: Rising Sea Levels and Sinking Housing Prices. This literature is likely a growth area unless I'm missing something (i.e., please add references in the comments section). 

"Rising Sea Levels and Sinking Property Values"

Abstract:

Are coastal cities adjusting to rising sea levels? This paper argues that large-scale events have the potential to ignite the process. We examine the effects of hurricane Sandy on the New York City housing market. We assemble a large plot-level dataset with rich geographic data on housing sales in New York City for the period 2003-2015, along with information on which building structures were damaged by the hurricane, and to what degree. Our difference-in-difference estimates provide robust evidence of a negative impact on the price trajectories of houses that were directly affected by Sandy. Interestingly, this is also the case for houses that were not damaged but face high risk of coastal flooding. Our results suggest that Sandy has increased the perceived risk of living in those neighborhoods. We also show that the negative effects on housing prices appear to be highly persistent.

via www.envirovaluation.org

Ortega, Francesc, and Süleyman Taspinar. Rising Sea Levels and Sinking Property Values: The Effects of Hurricane Sandy on New York's Housing Market. No. 10374. Institute for the Study of Labor (IZA), 2016.

AERE@SEA ["Abstract submission for the five regional and national meetings at which AERE sponsors sessions each year"]

From the inbox (without my name following "Dear," it becomes a term of endearment, right?):

Dear ,

We’re excited to announce the new AERE website with up-to-date information about conferences, job opportunities, and all AERE news, as well as improved functionality! 

We hope you can take a moment to explore the site, which will be your portal for:

- Access to every issue of JAERE and REEP and the AERE Newsletter;

- Registration for AERE events;

- Abstract submission for the AERE Summer Conference;

- Abstract submission for the five regional and national meetings at which AERE sponsors sessions each year;

- Announcements for conferences and jobs; and

- Information on how to nominate someone for AERE honors and awards.

Click here for the newly designed website's homepage.

The big change in the website that I'm most excited about is the institutionalization (is that a word?) of the "AERE@SEA" sessions (and other regional meetings). As Glenn Blomquist reminded me at the SEA meetings in DC, this started at Murphy's Bar in DC with a conversation between Jim Kahn, Glenn and myself about trying to organize environmental sessions. Jim and I began organizing "SAPCREE" (Southern Appalachian Committee for Resource and Environmental Economics) sessions with later became "SCREE" (dropping Appalachian). The last year that I was on the AERE board I timidly described what was going on at the regional meetings and made the case that there were a bunch of good economists who couldn't get on the AERE program at the ASSA meetings and couldn't AERE sponsor sessions at regional meetings? The board agreed and for a number of years I submitted proposed sessions to the AERE program committee their approval. After several years of rubber stamping I quit submitting them for AERE's approval and no one noticed. Since then AERE sessions have been organized for the Western and Midwest meetings (now we need an environmental champion for the Eastern meetings).

Here is some data from the first 8 years of 10 years of AERE sessions. The number of papers presented has ranged from 23 to 48 with an average of 35. The number of these papers published in peer-reviewed journals under the same title has ranged from 9 to 17 with an average of 12. The number of citations has ranged from 9 to 437 with an average of 125. Since my paper titles always seem to change from a conference to a journal, my guess is that the latter two numbers understate the quality of the work presented by AERE members at the SEA meetings. 

Table 1. AERE@SEA session data

Year	Papers Presented	Papers Published	Citations
2007	23	11	144
2008	43	17	437
2009	32	9	70
2010	34	14	123
2011	32	13	147
2012	41	10	9
2013	25	13	61
2014	48	12	12

This past year we had the most sessions (25) and papers (105) ever (Figure 1) [and the most cancellations (which got out of hand)... but that is another story]. The almost final program [PDF] included 24  sessions and 96 papers. AERE@SEA has become part of the AERE's online submission process (see the "submit abstracts" portion of http://www.aere.org/aere-sea) which should improve the quality and efficiency of session organization (I hoping: 1. no more soft deadlines, 2. no more lost abstracts, 3. fewer cancellations, 4. a program committee). 

Figure 1. 105 papers initially scheduled for presentation in the 2016 AERE@SEA sessions (5 of these were student sessions). 

1. Electricity - 4
2. Weather - 4
3. Agriculture - 4
4. Adaptation - 4
5. Residuals - 4
6. Transportation and Environmental Economics - 6
7. Stated Preferences - 5
8. Energy - 5
9. Hedonics - 3
10. Forests - 4
11. Pollution - 5
12. Technological Change and Fisheries - 5
13. Hazards - 4
14. Choice Experiments - 5
15. Health - 3
16. Renewable Energy - 4
17. Bioeconomics - 3
18. Managing Flood Risk - 4
19. Recreation - 4
20. Nudges - 5
21. Development - 4
22. Topics on the Environment and Natural Resources - 5
23. Natural Resources - 4
24. Regulation - 4
25. Climate - 3