Environmental Economics

Picture of the day: Pete Groothuis presents some of our preliminary CVM results

Quote of my lifetime: We need a "That was some weird sh*t" category

I'm not sure why we haven't thought of this before, but we need a category for just plain odd statements from politicians/policy makers.  Thankfully, George W. Bush** has given us the perfect title for the category:

Former President George W. Bush reportedly thought President Trump's inauguration speech "was some weird shit."

Bush attended Trump's inauguration, sitting near former President Clinton and Hillary Clinton as well as former President Obama and Michelle Obama.

According to a new report by New York magazine, three people present at the event say they heard Bush say "That was some weird shit" after the swearing in ceremony concluded.

An example:

Scott Pruitt, the head of the Environmental Protection Agency, is facing criticism over his decision not to ban a controversial farm pesticide. Pruitt insists his move is based on “sound science,” but it overrides his own agency’s research showing chlorpyrifos pose a health risk to children and farm workers, possibly inhibiting brain development.

That was some weird shit.

Another?

In case you needed reminding, it’s a bad time to be a scientist in the US. If you work for a federal research group, you’ve been muzzled, had your funding cut to historically low levels, and been told by a committee of anti-intellectual parrots that you’re constantly lying.

Earlier this month, the word “science” was removed from the Environmental Protection Agency’s (EPA) mission statement under the auspices of a man who doesn’t think carbon dioxide warms the planet. Now, it seems that the Department of Energy’s (DoE) climate change research office has banned the use of the phrase “climate change”.

As reported by Politico, a supervisor at the DoE’s Office of International Climate and Clean Energy told the staff in no uncertain terms that the phrases “climate change”, “emissions reduction”, and “Paris agreement” are not to be used in written memos, briefings, or any form of communication.

That was some weird shit.

I have a feeling this could quickly become our most populated category of post.

*Does anyone else find it funny when legitimate journalists have to write titles with words like 'shit' in them, and thy choose to just use an asterisk 'sh*t'?  I know that they are supposed to write at a 3rd grade level, but I'm pretty sure even a 3rd grader can figure out what the word is supposed to be.

**I love the irony in the same man who once said ""And so the fact that they purchased the machine meant somebody had to make the machine. And when somebody makes a machine, it means there's jobs at the machine-making place." and "Too many good docs are getting out of the business. Too many OB-GYNs aren't able to practice their love with women all across this country," and so many others, says Donald Trump's inauguration was weird shit.  I guess weird shit knows weird shit.

I bailed out at the last minute

From the inbox:

The Society for Benefit-Cost Analysis Ninth Annual Conference and Meeting took place on  March 15-17 in Washington, DC.

Thank you to all who attended! We had a record registration of approximately 320 conference attendees from 16 countries, and appreciate all that you did to help make this year's events so successful and productive. 

Presentations in 46 program sessions covered topics related to regulation, health policy, transportation project assessments, climate policy, retrospective benefit-cost analysis and more. Presentation abstracts and select slides are available on our website here. ...

On Thursday, the keynote address was given by Katherine G. Abraham, Chair of the Commission on Evidence-Based Policymaking.  Video of the address is available on YouTube.

We were pleased to award Steve Aos , former Director of the Washington State Institute for Public Policy, the Outstanding Achievement Award for sustained outstanding achievement in the field of benefit-cost analysis. The Board also awarded Richard Belzer  the 2017 Richard Zerbe Distinguished Service Award recognizing his exceptional service to the Society as a board officer from 2008-2016.

The Journal of Benefit-Cost Analysis editors recognized "The Good, the Bad, and the Ugly: A Unified Approach to Behavioral Welfare Economics" by Douglas Bernheim ; "Rational Benefit Assessment for an Irrational World: Toward a Behavioral Transfer Test" by W. Kip Viscusi and Ted Gayer ; and "Contingent Valuation and the Policymaking Process: An Application to Used Nuclear Fuel in the United States" by Deven E. Carlson, Joseph T. Ripberger, Hank C. Jenkins-Smith, Carol L. Silva, Kuhika Gupta, Robert P. Berrens,and Benjamin A. Jones; as Best JBCA Articles of 2016.

We look forward to next year's conference: March 14-16, 2018 in Washington, D.C.!

OK, I'll pencil in 3/14-16, submit an abstract, get accepted and then realize I can't do 17 different things at the same time and withdraw from the conference. Sigh.

Ooh, Ooh, Ooh! Can I be King? Pleeeeeaaaaase!?

 Now things are really getting fun:

In an extraordinary speech the EU Commission president said he would push for Ohio and Texas to split from the rest of America if the Republican president does not change his tune and become more supportive of the EU. 

The remarks are diplomatic dynamite at a time when relations between Washington and Brussels are already strained over Europe’s meagre contributions to NATO and the US leader’s open preference for dealing with national governments. 

And in case you thought 'He didn't really say that, did he?'

He did.

 

President Trump's EO re: SCC: say one thing and do another

Here's the bit of the EO on the SCC pic.twitter.com/ipanNZfaKA

— Bob Kopp (@bobkopp) March 28, 2017

There are some inner contradictions in the EO. Section 5 says use the best available science and economics. But then the recommendations exactly ignore the best available science and economics:

1. Section B simply tosses the best available science (for some background go here and here). OMB Circular A-4 (dated 2003) doesn't mention climate change except as a source of uncertainty so I'm not sure how it replaces the work done by the interagency working group (EPA and DOE). 
2. In terms of discounting OMB Circular A-4 requires the use of a 7% discount rate with sensitivity analysis using a 3% rate. The 7% rate is not appropriate for climate change* but it is hard to argue with a 3% rate**. But even 3% is in contrast to the evidence supporting declining discount rates for long-lived projects (e.g., Arrow et al. REEP, 2014). 

If you Google the subtitle of this post the first item that appears on my machine is hypocrisy at Merriam-Webster. 

Notes:

*From OMB Circular A-4 (p. 33):

The 7 percent rate is an estimate of the average before-tax rate of return to private capital in the U.S. economy. It is a broad measure that reflects the returns to real estate and small business capital as well as corporate capital. It approximates the opportunity cost of capital, and it is the appropriate discount rate whenever the main effect of a regulation is to displace or alter the use of capital in the private sector.

**From OMB Circular A-4 (p. 33-34):

The alternative most often used is sometimes called the "social rate of time preference." This simply means the rate at which "society" discounts future consumption flows to their present value. If we take the rate that the average saver uses to discount future consumption as our measure of the social rate of time preference, then the real rate of return on long-term government debt may provide a fair approximation. Over the last thirty years, this rate has averaged around 3 percent in real terms on a pre-tax basis. For example, the yield on 10-year Treasury notes has averaged 8.1 percent since 1973 while the average annual rate of change in the CPI over this period has been 5.0 percent, implying a real 10-year rate of 3.1 percent.

Here is the PDF of the version of OMB Circular A-4 currently posted at https://obamawhitehouse.archives.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf. A search of the OMB web page for "Circular A-4" only leads to mention of the document and not the document itself. 

Quote of the Day: "The fact is places like Ohio were getting dramatically cleaner anyways"

From the front page of the Columbus Dispatch:

As President Donald Trump signed an executive order Tuesday easing environmental regulations, he said to coal miners standing nearby: "You know what it says, right? You're going back to work.

But it's not quite that simple.

The announcement could have mixed effects in Ohio, where cheap natural gas, mechanization and competitive renewable technologies have contributed to an industry-wide move away from coal.

"That's going to happen no matter what. That's just economics," said Brent Sohngen, an environmental and resource economist at Ohio State University.

"The fact is places like Ohio were getting dramatically cleaner anyways. This just makes it 10 percent slower, 20 percent slower."

Brent is a colleague here at Ohio State.  He is also conservative (for an academic environmental economist), studies climate change, and has won a Nobel Prize*.

*Nobel Peace Prize...along with 1500 of his close colleagues as a member of the IPCC writing team.

The new phone book is here!

I'm somebody now! From the inbox:

Land Economics
May 1, 2017; Vol. 93, No. 2
http://le.uwpress.org/content/93/2?etoc

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 Articles
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[snip]

Endogenous Consequentiality in Stated Preference Referendum Data: The Influence of the Randomly Assigned Tax Amount
Peter A. Groothuis, Tanga M. Mohr, John C. Whitehead, and Kristan Cockerill
Land Economics March 2017 93:258-268 doi:10.3368/le.93.2.258

http://le.uwpress.org/content/93/2/258.abstract?etoc

[snip]

Here's the abstract:

Recent empirical and theoretical research stresses it is important for survey respondents to believe that survey votes are consequential, meaning their votes can potentially influence whether a proposed policy is undertaken. We test the effect of a randomly assigned referendum tax on consequentiality, using a survey about water conservation in western North Carolina. We find that consequentiality is endogenous to hypothetical referendum responses. Specifically, as the assigned tax amount increases, respondents are less likely to find the survey consequential. As in related studies, respondents who self-report they perceive the survey to be consequential have a higher willingness to pay. (JEL Q25, Q51)

This result isn't pervasive in the unpublished regressions that I'm aware of but it has been found more than once. 

"A naïve belief that growth will take care of environmental problems should be questioned"

Following Tim's CNN Politics link:

"The previous administration devalued workers by their policies," the [White House official briefed on the plan] said. "We are saying we can do both. We can protect the environment and provide people with work." 

 

The White House official went on to argue that the best way to protect the environment is to have a strong economy, noting that countries like India and China do less to protect the environment. 

 

"To the extent that the economy is strong and growing and you have prosperity, that is the best way to protect the environment," the official said.

To begin, let's:

1. allow the White House official his/her rhetoric that Obama hates people (since workers are people and you only devalue things that you hate) (and by implication, Trump loves people); 
2. ignore the fact that the U.S. economy was basically at full employment with Obama environmental policies at Trump's January inauguration (people had work); and
3. assume that the Trump budget cuts to the EPA are designed to protect the environment.

Once we've gotten past that (and I really haven't) we can examine the environmental policy being adopted by the Trump administration. And, it turns out that the Trump administration is adopting the Environmental Kuznets Curve as its environmental policy. From Krishna Paudel (pp. 134-135):

As an economy transforms from agrarian-based to industrial-based, the increased concentration of industry causes more pollution. As an economy grows further, the service industry becomes the mainstay, international trade and pollution havens become more prominent, diminishing returns prevail, and more efficient pollution reduction techniques are used in the production process. ...

The body of literature on EKCs suggests that a naïve belief that growth will take care of environmental problems should be questioned. Stock pollutants result in cases of irreversible and sometimes catastrophic impact on the environment. In such cases, one may even see a degenerative EKC. Even if growth can address environmental problems, the cost can be significant if the time frame for abatement adoption is too slow. One also needs to consider the intergenerational welfare implications in choosing the optimal abatement time and policy.

So, the Trump administration considers the U.S. economy to be in its developing stage and ignoring the research on stock pollutants (like climate) and intergenerational welfare. 

A more modern economy faces a tradeoff between environmental quality and economic activity. If people value the environment, then they are willing to accept a loss of economic activity in order to gain more environmental quality. But, the Trump Administration, led by the guys in the Freedom Caucus (yep, the same guys), are placing zero value on the environment. 

Are jobs today worth more than the future expected costs of climate change?

I know we're not supposed to consider the benefits of regulations under the current administration, but it's questions like the title here that pop into my head when I see this:

"But I think the President has been very clear that he is not going to pursue climate change policies that put the US economy at risk. It is very simple."

And just as a reminder:

96% of [AERE members who responded to our survey] feel that unregulated markets do not provide public goods in optimal quantities.

And yes, reduced future impacts from climate change is a public good.

And as a further reminder:

Eighty-percent of environmental economists surveyed think cutting EPA regulations will not benefit the U.S. economy.

See, science is messy

Yesterday I posted about Lamar Smith and his attempts to dismiss science because it can be, well, less than certain. Here's another good example (from FIveThirtyEight's SigDig today):

A study published in Nature found that about 50 percent of the platelets in the bloodstream are made in the lungs, not in the bone marrow as previously believed.

Mr. Smith, should we now dismiss all medical studies because we have learned something new?

Just wondering.