Environmental Economics

High Modernism, Metis, and Pigou

I just finished reading Seeing Like a State by James C. Scott.  I've been thinking quite a bit about its implications for environmental policy and in particular the standard neoclassical policy prescriptions for the environment (i.e. Pigouvian taxes and/or cap-and-trade).  

The book has somewhat of a libertarian/conservative/small-government angle to it, though it's a captivating read and worth checking out especially if you don't encounter arguments like that very much.  The basic premise is a critique of certain types of government interventions into the market and into society.  The type of interventionist policy that Scott criticizes he calls "high modernism," which involves a faith in science and technology to re-order and re-shape society and the economy in a way that improves people's lives. The motivating examples of high modernism include the Bolshevik Revolution and major planned cities like Brasilia. Scott argues that high modernism ignores local and individualized knowledge and as a result often results in spectacular failure that can make people's lives substantially worse.

Rather than relying on high modernist technocrats, Scott puts more stock into what he calls "metis," the local, practical knowledge that high modernism ignores.  It's been noted elsewhere that this argument is somewhat Hayekian, but it also strikes me as very Burkean: a fundamental reason for trusting traditional institutions is that they capture the accumulated metis of a society.

So, what are the implications for environmental policy, and what are neoclassical Pigouvians like myself supposed to get out of this?  Pigouvian neoclassical welfare economics and its policy implications seem like textbook examples of high modernism - technocrats (like me!) are overruling the locals and telling them how the economy ought to be run, at least when it comes to environmental externalities like carbon pollution.  However, it also seems like market-based policies like pollution taxes and cap-and-trade programs respect metis in an important way that command-and-control policies don't, since they still give freedom to people and businesses to more or less make decisions on their own (the only interference being a slight tweak of the market incentives from the policy instrument). 

Would a metis-loving, high-modernist-hater like Scott approve of Pigouvian taxes?  I would like to think that he would.  The fact that there is a growing conservative push for market-based climate policy, including a GOP Representative recently sponsoring a carbon tax bill, makes me think so.

Field research: measuring beach width for a random utility model

"House votes to disavow carbon tax"

From The Hill:

The House passed a nonbinding measure Thursday to denounce a carbon tax, calling it “detrimental” to the United States.

The resolution, sponsored by House Majority Whip Steve Scalise (R-La.), states that a tax on emissions of carbon dioxide — the most prevalent greenhouse gas that causes climate change — “would be detrimental to American families and businesses, and is not in the best interest of the United States.”

It passed 229-180 with two members voting "present."

Six Republicans voted against the resolution: Reps. Carlos Curbelo (Fla.), Brian Fitzpatrick (Pa.), Trey Hollingsworth (Ind.), Mia Love (Utah), Francis Rooney (Fla.) and Ileana Ros-Lehtinen (Fla.).

Seven Democrats broke with their caucus to vote “yes”: Reps. Sanford Bishop (Ga.), Henry Cuellar (Texas), Vicente González (Texas), Conor Lamb (Pa.), Stephanie Murphy (Fla.), Tom O’Halleran (Ariz.) and Kyrsten Sinema (Ariz.), who is running for the Senate.

Two lawmakers voted “present,” indicating neither support nor opposition: Reps. Ryan Costello (R-Pa.) and Michelle Lujan Grisham (D-N.M.). ...

Democrats dismissed the resolution as a waste of time instead of defending carbon taxes. ...

“Here we have a fake debate and fake legislation that’s going nowhere, instead of actual real hearings,” said Rep. John Larson (D-Conn.). ...

“It’s a stupid resolution, either way. It said nothing,” said Rep. Mark Sanford (R-S.C.).

He added that all the various problems with carbon taxes the resolution listed "apply to the present gas and diesel taxes, and aviation taxes, which we already have in place.”

 

Daily Demand and Supply: Where's the Beef? (and cheese and soybeans)

Following the political dominoes of international trade policy can be mind-boggling, but the basic economic principles can be simple.  A tariff placed on U.S. products by another country (like meat, cheese, and soy beans) will reduce the amount (supply) of U.S. meat, cheese, and soy beans sold in other countries, and increase the amount of meat, cheese, and soy beans available for the U.S. market.  In the U.S. market, this represents an increase in supply which will increase the amount meat, cheese, and soy sold in the U.S. and decrease the price of each good. 

How big can this effect be? 

Here are soybean futures prices in the U.S. for the last three months (from NASDAQ):

And here's a VOX story about the current supply glut of meat and cheese in the U.S. (only partially caused by tariffs, and partially caused by other interesting agricultural policies), which will eventually cause meat and cheese prices to fall in the U.S.

There’s a lot of uncertainty these days. So here’s a comforting thought: The United States of America will not run out of cheese or meat anytime soon.

US dairy producers now have a 1.39 billion-pound surplus of cheese, according to data from the US Department of Agriculture. As the Washington Post has noted, that’s the largest domestic reserve of cheddar, Swiss, American, and other cheese varieties on record.

It means there’s enough excess cheese to arm each American citizen with a hefty 4.6 pounds of the crumbly, melty, salty good stuff. Why is this happening? Simply put: US dairy producers have been overproducing milk. Thanks to selective breeding, American cows are more productive than ever. And when demand for milk and dairy goes down in the summer, dairy producers store their excess milk as cheese, which has a longer shelf life in cold storage.

A similar glut exists for the meat industry. According to new data from the USDA, American meat producers now have 2.5 billion pounds of chicken, turkey, pork, and beef in cold storage, which is also a record, according to the Wall Street Journal. And producers are running out of warehouse space to store it all.

The meat stockpile is in part, the Journal reports, because of newly implemented Chinese and Mexican tariffs on American pork. These were set in retaliation for tariffs the Trump administration placed on Mexican and Chinese steel, among other goods. With slowing exports — and increased beef and poultry production partially due to falling prices of grain — American meat producers have more product in the freezer. Though that might be good news for American consumers, as meat prices are likely to drop a bit at the grocery store. (As Vox’s Tara Golshan reports, the escalating trade conflicts will likely impact the dairy industry as well.)

The upshot:  The increase in domestic supply caused by increased tariffs on U.S. products sold oversees will benefit U.S. consumers (through lower prices) and harm U.S. producers (through lower prices).

    

What’s the value of a clean beach? Here’s how economists do the numbers

I was asked to write an article for The Conversation that explains how economists place values on environmental goods (with examples).  Here's what I came up with.   Apologies to all of those involved in the research if this comes across as self-promoting--the perils of writing with an editor.  All of the examples mentioned in the article were team efforts--most were not my idea--and I was a minor part of each team.  It takes a village, and every village needs an idiot.

Millions of Americans head outdoors in the summer, whether for a day at a nearby lake or a monthlong road trip. For environmental economists like me, decisions by vacationers and outdoor recreators offer clues to a challenging puzzle: estimating what environmental resources are worth.

In 1981 President Ronald Reagan issued an executive order that required federal agencies to weigh the costs and benefits of proposed major new regulations, and in most cases to adopt them only if the benefits to society outweighed the costs. Reagan’s order was intended to promote environmental improvements without overburdening economic growth.

Cost-benefit analysis has been so successful as a tool for policy analysis that every administration since Reagan has endorsed using it. However, it requires measuring benefits that are not “priced” in typical markets. Fortunately, putting a price on non-market environmental outcomes, such as safer drinking water and fewer deaths from exposure to dirty air, has proved to be possible, and highly valuable. These estimates help to make the case for actions such as cleaning up beaches and protecting scenic areas as parks. ...

Ohio waterways are 'distressed.' Economists can help.

Today, Ohio Governor John Kasich will issue an executive order asking the Ohio Soil and Water Conservation Commission to declare eight Ohio waterways 'distressed' due to high phosphorous levels (phosphorous is one of the primary ingredients in commercial fertilizer): 

Frustrated by lawmakers’ refusal to consider a bill to get tougher on sources of agricultural pollution feeding Lake Erie’s chronic toxic algae problem, Gov. John Kasich on Wednesday took matters into his own hands with an executive order.

“This is just requiring farmers to figure out a way to manage their land in a more effective and environmentally friendly way,” the Republican governor said. “I believe that farmers want to do that.”

Under the order, his administration will ask the Ohio Soil and Water Conservation Commission at its July 19 meeting to designate eight watersheds or portions of watersheds with high phosphorous levels within the Maumee River Basin as “distressed.”

That would trigger the writing of rules affecting all agricultural nutrient sources, including such things as storage, handling, and application of manure; erosion and sediment control from the land; and other agricultural practices. Civil penalties could apply for violations.

Phosphorous loadings into the Maumee river watershed are the primary cause of Harmful Algal Blooms (HABs) in the Western Lake Erie Basin.  HABs cause a variety of health and economic losses including contaminated drinking water, reduced recreational activities and decreases in local housing values.  Kasich's Executive Order, followed by the 'distressed' designation will broaden the set of tools available to policy makers to address the HAB issue in Ohio.  As part of a college-wide effort to document and consolidate Ohio State's research and outreach efforts in this area, a group of environmental and agricultural economists were asked to draft a section of a report on the Economics of Nutrient Reductions to Control Harmful Algal Blooms.  While the full report isn't quite ready for public consumption, I can highlight here a few of the main points from the economics section (really these are just the opening sentences to each paragraph):

• Numerous policies have been recommended to reduce agricultural nutrient emissions, ranging from purely voluntary efforts to strict regulations. 
• While purely voluntary programs may struggle to achieve widespread application of conservation practices, or even nutrient reduction, society has developed large-scale subsidy programs to encourage these practices through the Conservation Title of the Federal Farm Bill. 
• Regulatory programs are at the opposite end of the spectrum from voluntary subsidy programs. 
• There have been [few] efforts in Ohio to use market mechanisms to reduce agricultural nutrient emissions.
• Market mechanisms use economic incentives to encourage behavioral shifts among economic actors, such as farmers.  Market mechanisms include policy instruments like pollution taxes and tradable pollution permits.  Pollution taxes work by raising prices for polluting inputs or outputs, thus encouraging farmers to use or emit less of the input or output. Tradable pollution permits impose limits on emissions but then allow trading among the regulated sources to reduce the costs of meeting the targeted aggregate abatement level.

There's a lot more in the draft section about the types of ongoing research environmental economists are undertaking to estimate the benefits and costs of reducing HABs, and the types of market-based policies that can achieve the necessary reductions in phosphorous loadings.  But, the upshot is this: 

• Voluntary programs to reduce phosphorous loadings have been unsuccessful in reducing phosphorous loading to optimal levels. 
• Command-and-control type regulatory programs (everyone must do A, then B) may work, but are very costly to farmers and society. 
• Market-based mechanisms, like taxes, subsidies, and tradable emissions programs, designed correctly, can achieve optimal nutrient reductions AT A MUCH LOWER COST.

There's no silver bullet to solving this problem.  Hopefully, working together, we can solve the problem as painlessly as possible. Any solution is going to cost someone something, but not solving the problem will cost a lot more.

My new working paper (with Giguere and Moore)

Valuing Hemlock Woolly Adelgid Control in Public Forests: Scope Effects with Attribute Non-Attendance
Chris Giguere, Chris Moore and John C. Whitehead

No 18-07, Working Papers from Department of Economics, Appalachian State University

Abstract: Sensitivity to the scope of public good provision is an important indication of validity for the contingent valuation method. An online survey was administered to an opt-in, or non-probability sample, panel in September 2017 to estimate the willingness-to-pay to protect hemlock trees from a destructive invasive species on federal land in North Carolina. We collected survey responses from 907 North Carolina residents. We find evidence that attribute non-attendance is a factor when testing for sensitivity to scope. When estimating the model with stated attribute non-attendance the ecologically and socially important scope coefficients become positive and statistically significant. Key Words:

Date: 2018
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Downloads: http://econ.appstate.edu/RePEc/pdf/wp1807.pdf 

The price of a coal mining job-related air pollution premature death @rff_org

Here is a summary of an analysis of part of the Trump Administration energy policy from a new RFF working paper by Daniel Shawhan and Paul Picciano:

A leaked US government memo proposes preventing the scheduled retirement of coal and nuclear power plants for two years. Using a detailed simulation model, we estimate the effects of such a policy on emissions, mortality, and coal-mine jobs.

• We estimate the effects of a proposed US policy to delay retirement of coal and saveable nuclear power plants that have announced they will close by the end of 2020.
• The policy would cause 353 to 815 premature deaths in 2019-2020 from additional emissions of sulfur dioxide and nitrogen oxides.
• The policy would support 790 coal-mine jobs (1580 job-years), though it would be likely to reduce economy-wide employment.
• These results indicate that each year the policy would cause 1 death for each 2 to 4.5 coal-mine jobs that it supports.

If coal jobs earn $80,000 then the Trump administration is willing to trade 1 premature death for a mere $160,000 to $360,000 (and loud cheers at campaign rallies). My read of the literature says that the value of avoiding a premature death is actually larger than those numbers and so this policy is an inefficient allocation of scarce resources.

Daily Demand and Supply: Who else ya' gonna call when you have a bourbon-related supply decrease paired with a negative environmental side-effect? We'll be waiting by the phone.

I'm not sure how I missed the original story, but I'm surprised John and I weren't the first call when this happened:

Whiskey barrels were piled in a mountainous heap Wednesday after the rest of a whiskey storage warehouse collapsed in Kentucky, nearly two weeks after part of the decades-old structure came crashing down.

The remainder of the massive structure collapsed at the Barton 1792 Distillery in Bardstown, Nelson County Emergency Management spokesman Milt Spalding said. No injuries were reported in either collapse, he said.

"It is a mountain of bourbon barrels," he said Wednesday.

Environmental and wildlife officials were on the scene to determine if any whiskey spilled into a nearby waterway, he said. The distillery owner Sazerac, a Louisiana-based spirits company, already was facing a state fine stemming from the initial collapse.

 

"Environmental Policy and the Assault on Science" - Policy keynote lecture with Gina McCarthy, former administrator for the United States Environmental Protection Agency during the Obama presidency

Gina McCarthy's keynote at the recent World Congress of Environmental and Resource Economists has drawn rave reviews from twitter and the inbox. So, here it is in case you had to teach summer school to save money for your kid's college (like me):