Environmental Economics

Congrats Al McGartland

CONGRATS: Albert McGartland, director of EPA’s National Center for Environmental Economics, is the first-ever federal government economist to be named a fellow of the Association of Environmental and Resource Economists. The honor recognizes contributions to advancing environmental and resource economics.

via www.politico.com

One article should serve as sufficient explanation: http://www.env-econ.net/2015/08/for-your-syllabi.html.

"Why Dropping the Paris Agreement May not Matter Anyways." (Updated)

Brent Sohngen, (Professor of Environmental and Resource Economics at Ohio State University, climate economics expert, member of the Nobel Prize winning IPCC writing team, fairly conservative academic, and rapidly developing departmental curmudgeon) submitted the letter below to the Columbus Dispatch (we don't know yet if they will publish it, but I thought I would give Brent some blog exposure first):

President Trump has announced that he is withdrawing the US from the Paris Climate Agreement. The oddest part of this decision is that remaining in this agreement wouldn't have cost us all that much, and we'll probably meet most of the targets anyways.  The same wasn't true of the previous climate treaty, the Kyoto Protocol, which called for much deeper cuts at the time, and given the state of technology would have cost the US a lot of money and jobs to comply.

The reality is that the US has made and is making enormous strides towards reducing our carbon footprint.  Whatever the President prefers, Americans have chosen higher gas mileage, fewer smokestacks, and fewer carbon emissions. Our carbon emissions are already 11% below 2005 levels, or about 40% of way towards the Paris Agreement.

Why have we done this? It is only part to do with government, the rest is due to innovation.  In the last dozen years or so, innovation after innovation has occurred in the energy sector.  Fracking has increased the supply of natural gas and lowered prices.  As a result, natural gas has displaced coal as the preferred source of energy for new electricity production.  Natural gas is half as carbon intensive as coal and it produces practically none of the other harmful emissions that cause respiratory ailments, so electricity companies have been shifting to natural gas quickly.

Renewables have also gotten a lot cheaper, so cheap in fact that they now account for 2% of our total energy consumption in the US. Renewables are the fastest growing sector in the energy economy because they are getting cheap. The cost of solar power has fallen by 80-90% in the last decade due to innovation and economies of scale. Wind has been competitive with coal for years and continues be more widely adopted.  Gasoline consumption in the US has grown a bit recently due to lower gasoline prices, but has remained fairly stable because gas mileage has been increasing.  In 1990 we produced 0.86 tons of carbon per $1000 of income and today we produce only 0.30. 

Most of these gains have been driven by markets and states, not the federal government.  Fracking was not a government mandate, yet it's responsible for a large share of the reductions in carbon emissions in the US.   State level policies have helped, especially clean energy laws.  But these have far-reaching benefits beyond the state boundaries.  Californians have a strong preference for clean energy, so they mandate it.  Their economy adapts, and the rest of us reap the rewards in terms of more efficient solar panels and wind power, and cheaper hybrid cars.  Lots of states now have laws that require some renewable energy production.  What all these states have learned is that they can grow their economies while at the same time reducing their carbon intensity.

In addition to reducing emissions, we are also helping out by storing lots more carbon in trees, which are 50% carbon.  Current estimates suggest that our forested landscape in the US annually stores over 900 million tons of carbon dioxide, offsetting 13% of our annual emission.  This is an amazing accomplishment, driven entirely by market forces that have freed land from agricultural production, reduced forest fires, and worked to increase the supply of timber for houses, furniture, and paper.

Because of innovation and the cooperation of states with their leading industries, the US has been reducing its carbon emissions.  While the Paris Agreement encouraged us to continue these trends, the trend toward lower carbon emissions is gathering steam regardless.  This of course makes lots of people scratch their heads.  We are using cleaner energy, lowering our carbon emissions and growing our economy. Why drop out of the Paris Agreement? Even a large number of companies in the US have lobbied to stay in the agreement.  Whatever the logic, even without the federal government, carbon emissions are heading down, and this is good for the environment.  Consumers and states have to hold their companies to their sustainability goals, and fortunately, given technological trends, this should not be too hard.

UPDATE:  The Columbus Dispatch published Brent's letter. Even if I didn't get credit, I'll take credit for the scoop.

Friday Beer Post: Defunding the Green Climate Fund is the equivalent of a restaurant beer a month for the average American household

From NPR's fact check of President Trump's Paris Climate Agreement withdrawal speech: 

President Trump has repeatedly called the Paris accord a "bad deal" for the U.S. and said it will hurt the economy. One big outlay is the Green Climate Fund set up under the deal. President Barack Obama had committed the U.S. to contributing $3 billion to the fund, which aims to help developing countries adapt to climate change and develop low-emission energy technologies. Under Obama, the U.S. transferred $1 billion, but Trump's budget proposal does not include payments for the rest. But the White House could easily have stayed in the Paris accord even as it opted not to pay into the climate fund or impose emissions cuts. Read more here.

$3 billion is about 0.0732% of the Trump's proposed $4.1 trillion budget. From the Census, the median household income for the United States was $55,775.  $3b in government expenditure is the household equivalent of $40.83.  

This seems appropriate (warning--slightly NSFW depending on where you work and how loud you have the volume).

"Massive job losses. Lower wages. Shuttered factories. Brownouts and blackouts."

Human sacrifice, dogs and cats living together... mass hysteria! That last bit is from Ghostbusters, of course, but it fits with the President's vision of the climate-regulated future.The rhetoric is kind of funny except that it isn't funny: 

That's the grim future that President Trump said he was trying to avoid when he announced that the United States will withdraw from the Paris climate change deal.

NERA is a well known economic research firm that is part of Marsh & McLennan, an insurance brokerage and risk management firm.

The study was done on behalf of a conservative public interest group, the the American Council for Capital Formation.

But the author of the study says the conclusions of the report are its own, and were not dictated by the sponsor.

"We never rely on [sponsors] to say what the results will be," said Sugandha Tuladhar, the study's primary author.

NERA's study looked at a variety of scenarios. Trump cited what the report calls the most likely outcome, which was the one that would hurt the economy the most.

For example, according to the report's best-case scenario, the Paris Treaty would wipe out 12,000 manufacturing jobs by 2025 along with 2.3 million jobs overall. Trump had cited the worst outlook -- a loss of 440,000 and 2.7 million overall.

The NERA study doesn't say anything about widespread blackouts and brownouts that would shut down factories. ...

Environmental experts also say the NERA study overestimates how much it will cost to cut carbon emissions.

The problem, these critics argue, is that the study assumes that efforts to cut emissions would fall almost exclusively on heavy industry, such as autos, chemicals, iron and steel and petroleum.

"Those are expensive sectors to get the emissions reductions." said Marc Hafstead, a fellow at Resources for the Future, a think tank that concentrates on energy issues. "There are costs to reducing emissions. And there will be winners and losers. But when those costs are distributed equally, there's a lot less job losses."

Hafstead conducted his own study, which found that the Paris deal wouldn't cause much of a net change in jobs, since losses in sectors such as coal would be balanced by job gains in alternative energy.

"The NERA study grossly overstates the changes in output and jobs in heavy industry," he said.

via money.cnn.com

The problem with sponsor bias is that, even if the sponsor doesn't tell you explicitly the results that they want, they tell you implicitly or you learn from experience. A consulting firm that doesn't deliver on those results doesn't get the next job. Full-time consultants who work for industry or other special interest groups tend to get captured along the way. Even when one does a credible job, the sponsors might cherry pick the results that they like best. 

Statement from RFF President (re: Paris climate agreement)

Richard G. Newell:

President Trump’s decision to withdraw from the Paris climate accord for economic reasons is extremely unfortunate and not based on evidence. The climate policies necessary to fulfill US commitments under the agreement would create very small costs relative to the size of the US economy and would be more than offset by the benefits from global pollution reduction. In short, this decision will not measurably increase jobs or GDP, but it will substantially damage US global leadership and slow progress on the transition to cleaner energy sources.

via www.rff.org

"U.S. Chamber of Commerce’s Energy Institute Misleads on Climate Action Costs"

It seems that many economists don't think the Paris climate agreement would cost that much but the President, 22 Senators and much of the Republican Party think that it will. The latter group are using a NERA study funded by the usual suspects to suggest that the costs are huge (2.7 million to 6 million in job losses have been quoted by various politicians). Here is the World Resources Institute on three things that are wrong with the NERA study:

A wide body of research shows that well-designed policies achieve reductions in greenhouse gas emissions at reasonable costs. A recent article from the U.S. Chamber of Commerce’s Institute for 21st Century Energy (“Chamber Energy Institute”) uses a NERA Economic Consulting study as evidence that meeting U.S. climate change commitments under the Paris Agreement will cause economic hardship, particularly in the manufacturing sector. High-profile opponents of climate action— such as U.S. Sen John Barrasso — are using the results of this study to attempt to make a case for withdrawing the United States from the global climate accord.

As part of our ongoing effort to promote credible and independent economic modeling, WRI reviewed the Chamber Energy Institute’s article and the associated NERA study. We found that the Chamber’s conclusions are based on a decarbonization pathway that is unrealistic and unnecessarily costly. Rather than providing support for the Chamber Energy Institute’s claim, the NERA study in fact provides further evidence that a market-driven approach can enable the United States to achieve its emissions-reduction targets at a relatively low cost.

Here are three things you need to know:

1. The Chamber Energy Institute’s claims are based on a highly unrealistic and unnecessarily expensive pathway to achieving the U.S. 2025 target. ...
2. The full NERA study shows that the United States can achieve its 2025 targets at a relatively low cost. ...
3. The NERA study assumes that innovation in clean energy slows considerably, which makes climate action appear artificially costly, particularly for 2040 results. ...

Number 1 says that the NERA cost estimates are based on a policy where all of the regulations are in the industrial sector, instead of the lower cost electricity and transportation sectors. Number 2 says that the politicians are cherry picking the worst case scenarios. NERA finds that a carbon tax would trim economic growth from 2.5% to 2.44% (similar to an RFF study). NERA uses the most pessimistic Department of Energy assumption about technological progress in clean energy. 

Quote of the day

Trump saying he will work to ensure that America remains world leader on environmental issues is like OJ saying he would look for the killer

— Nat Keohane (@NatKeohane) June 1, 2017

 

Talking about saving jobs is good politics but bad economics

The President is expected to announce that the U.S. is pulling out of the "195-nation agreement on climate change reached in Paris in 2015" at 3 pm:

The United States, with its love of big cars, big houses and blasting air-conditioners, has contributed more than any other country to the atmospheric carbon dioxide that is scorching the planet. ...

A decision to walk away from the [Paris] accord would be a momentous setback, in practical and political terms, for the effort to address climate change.

An American exit could prompt other countries to withdraw from the pact or rethink their emissions pledges, making it much harder to achieve the agreement’s already difficult goal of limiting global warming to a manageable level.

It means the United States — the country with the largest, most dynamic economy — would give up a leadership role when it comes to finding solutions for climate change. ...

Mr. Trump, his Environmental Protection Agency administrator Scott Pruitt and Stephen K. Bannon, a top White House adviser, argue that meeting the terms of the Paris accord will strangle the American economy and lead to major job losses. Many in manufacturing and fossil fuel industries also want the United States to leave the pact, but corporate opinion is deeply split. Quitting Paris was a central Trump campaign pledge.

One should add the phrase, "in spite of the available evidence," to the beginning of the last paragraph. On the other hand there is an economic study [pdf] that estimates 6 million in job losses (hat tip: Sen. Rand Paul). Given sponsor bias, my opinion of that study is not high. 

"Analysts: Leaving climate deal likely wouldn't add US jobs"

Associated Press via Fox Business

President Donald Trump has declared that abandoning the Paris climate agreement would be a victory for the American economy.

Many economists have big doubts.

They say the agreement would likely help create about as many jobs in renewable energy as it might cost in polluting industries. Should the United States pull out of the pact and seek to protect old-school jobs in coal and oil, it would risk losing the chance to lead the world in developing environmentally friendly technology — and generate the jobs that come with it. What's more, over the haul, climate change itself threatens to impose huge costs on the economy.

"Withdrawing from the Paris agreement is hardly going to create jobs in the U.S.," says Cary Coglianese, professor at the University of Pennsylvania and editor of the book "Does Regulation Kill Jobs?" ''While specific environmental regulations can sometimes lead to job losses, they also can and do lead to job gains — with the result being roughly a wash." ...

Economists say that leaving the Paris deal and easing efforts to control emissions would hardly deliver a big payoff in jobs. A 2001 study by Eli Berman and Linda Bui, both then at Boston University, found "no evidence that local air quality regulation substantially reduced employment" when Los Angeles imposed stricter environmental restrictions.

"There's no doubt that regulations have costs, but they are not the primary driver of employment," says Michael Greenstone, an economist at the University of Chicago.

"Nobody knew border carbon adjustments could be so complicated"

Holy cow, the Brookings Institution is trolling President Trump with the title on the webpage. The title of the report is a bit different. We live in interesting times: 

In “The role of border carbon adjustments in a U.S. carbon tax,” Warwick McKibbin, Adele Morris, Peter Wilcoxen, and Weifeng Liu examine carbon tax design options in the United States using a model of the global economy. Through four policy scenarios the authors explore two overarching issues: (1) the effects of a carbon tax under alternative assumptions about the use of the resulting revenue, and (2) the effects of a system of import charges on carbon-intensive goods (“border carbon adjustments”). ...

In sum, a carefully designed carbon tax in the United States can reduce emissions significantly with minimal effect on the economy. McKibbin et al. find no evidence of meaningful emissions leakage abroad, even when the U.S. policy is unilateral. Using carbon tax and [border carbon adjustment] revenue to reduce distortionary taxes produces better economic outcomes overall and for most individual sectors. To the extent that policymakers wish to protect the interests of energy-intensive trade-exposed industries with [border carbon adjustments] on imports, they should endeavor to tailor the adjustments to narrow, particularly vulnerable, subsectors so as not to inadvertently appreciate the U.S. dollar and do more harm than good overall.

Following Brookings lead, who knew that foreign exchange could be so complicated?

President Donald Trump once called National Security Adviser Mike Flynn at 3 a.m. to ask about the economic impact of a strong US dollar, according to a report from The Huffington Post.

SV Date and Christina Wilke, citing sources with knowledge of the conversation, reported that Trump asked Flynn whether the strong dollar was good or bad for the US economy during the early-morning phone call. According to the sources, Flynn said he was not sure and Trump should ask an economist instead.