Environmental Economics

Lael Brainard on climate change

From Reuters* (Biden to name Fed's Lael Brainard as top economic adviser): 

U.S. President Joe Biden is expected to name Federal Reserve Vice Chair Lael Brainard to the White House's top economic policy position as early as Tuesday, a source familiar with the matter said on Monday. ...

Markets' response was muted in Asia hours, with bonds and the dollar steady along with U.S. futures, and analysts said the implications of the appointment weren't very clear.

"We don't know what to infer from this," said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

"Under normal circumstances I would have thought that her advice to Biden would be very pro stimulus," he said.

First, ignoring the fact that that last quote might be flippant or taken out of context, under normal circumstances an economy doesn't need stimulus, right? An economy might need stimulus during a recession, but that is an abnormal situation. 

Second, my first question was -- what about climate change? So I Googled. Here she is discussing climate change in an speech at the October 2021 Federal Reserve Stress Testing Research Conference titled "Building Climate Scenario Analysis on the Foundations of Economic Research": 

Economic analysis suggests that climate change could have profound consequences for the level, trend growth, and variability of economic activity over time and across regions and sectors. Some of these effects could occur gradually, while others could occur relatively quickly in the presence of "tipping points." Policy, technology, and behavioral responses could similarly have material financial consequences. Against this backdrop, the Federal Reserve is carefully considering the potential implications of climate-related risks for financial institutions and the financial system, with scenario analysis emerging as a potential key analytical tool for that purpose.

Climate change is projected to have profound effects on the economy and the financial system, and it is already inflicting damage. The Sixth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC) notes that "if global warming increases, some compound extreme events with low likelihood in [the] past and current climate will become more frequent, and there will be a higher likelihood that events with increased intensities, durations and/or spatial extents unprecedented in the observational record will occur."

We can already see the growing costs associated with the increasing frequency and severity of climate-related events. The total cost of U.S. weather and climate disasters over the last 5 full years exceeds $630 billion, which is a record. During this period, massive flooding in the Midwest has caused billions of dollars in damages to farms, homes, and businesses. The California Department of Insurance has documented growing problems with the availability of fire insurance for homeowners, and the state legislature provided new protections for wildfire survivors. Last year was the sixth consecutive year that the United States experienced ten or more billion-dollar weather and climate disasters.6 And this summer, Hurricane Ida alone is estimated to have caused more than $30 billion in insurance losses.

The pandemic is a stark reminder that extreme events can materialize with little warning and trigger severe financial losses and market disruptions, and the IPCC Sixth Assessment Report is a reminder of the high uncertainty and potential costs associated with climate-related risks. It will be important to systematically assess the resilience of large financial institutions and the broader financial system to climate-related risk scenarios. ...

So, no surprise, the National Economic Council will be led by someone who takes climate change seriously. But still, good to know.

*The WSJ article is better but it might cost money. 

Hotelling's switch point just got later

Hotelling's Rule is a theory of nonrenewable natural resources that says that prices of such resources will rise at the rise of interest over time (all else equal). When there is a backstop fuel, think renewables like wind and solar, the "switch point" is when society switches from nonrenewables to renewables because the price of renewables is lower. I've posted the video from my 2000 level class that discusses the switch point below. Of course, it is out of context so a masochist will want to start at 10-1. 

All that is background to this story from the WSJ: BP’s CEO Plays Down Renewables Push as Returns Lag. Here is the gist: 

BP Chief Executive Bernard Looney plans to dial back elements of the oil giant’s high-profile push into renewable energy, according to people familiar with recent discussions.

Mr. Looney has said he is disappointed in the returns from some of the oil giant’s renewable investments and plans to pursue a narrower green-energy strategy, the people said. He has told some people close to the company that BP needs to do more to convince shareholders of its strategy to maximize profits in areas where it has a competitive advantage, including its legacy oil-and-gas operations.

In some of the conversations, Mr. Looney has said he plans to place less emphasis on so-called ESG goals—a catchall term for environmental, social and governance—to help clarify that those aren’t distracting the company from its ability to deliver profits, the people said.

Mr. Looney, the people said, is casting the moves as a modest short-term course correction rather than a major strategic pivot for the 114-year-old company.

The article continues will details but it sure looks like this is some evidence that Hotelling's switch point is moving further into the future. 

Episodic Release in Ohio: Train Derailment Forces Controlled Burn of Toxic Chemicals

From NPR on February 8th (Residents can return home after crews burned chemicals in derailed tanker cars):

"About 50 cars, including 10 carrying hazardous materials, derailed in a fiery crash Friday night on the edge of East Palestine. Federal investigators say a mechanical issue with a rail car axle caused the derailment."

The derailed cars belong to Norfolk Southern who worked with the EPA to conduct a controlled burn of the chemicals, causing an evacuation of the area: 

"Authorities in East Palestine had warned that burning vinyl chloride that was in five of the derailed tanker cars would send hydrogen chloride and the toxic gas phosgene into the air."

Hazardous transport derailments happen from time to time. In 2005, Norfolk Southern also had a train accident in which two of its trains collided due to a faulty railroad switch (image below). 

The EPA regulates emissions transport by requiring all hazard-carrying train companies to register with the EPA, to maintain an accurate manifest of the chemical aboard, and to report and move swiftly to remediate any spill or leak. So, it appears the approach is one in which we recognize that train crashes are infrequent, but when they occur the most important thing is to have an accurate idea of what the heck we just spilled into the environment (so we can quickly remediate). 

While Norfolk Southern failed to timely-report the 2005 incident (and paid a fine), it appears they followed protocol with this weeks incident. Still, they are being sued for economic damages by local businesses and residents. And they may face civil suit payments for violations of the Clean Water Act. In 2005, they paid nearly $4M for the spill of several tons of cholrine as well as diesel fuel into the water supply.  

*All information for the 2005 Graniteville, SC spill can be found here: EPA Report Graniteville Spill

If you need an example of a negative externality for your class today then here is a good one from NOAA

From NOAA Research News (One facility makes a big contribution to Salt Lake’s winter brown cloud):

The 2.4 million people who live along Utah’s Wasatch Front experience some of the most severe winter particulate matter air pollution in the nation. Now, analysis of measurements taken during NOAA research flights in 2017 indicates that emissions from a single source, a magnesium refinery, may be responsible for a significant fraction of the fine particles that form  the dense winter brown clouds that hang over Salt Lake City. 

The finding was published this week in the journal Environmental Science and Technology.

This diagram depicts the estimated influence of halogen emissions on the generation of PM 2.5 by halogens, including chlorine and bromine, based on measurements during NOAA research flights over the Salt Lake basin in Utah in January - February 2017. Credit: Caroline Womack, NOAA/CIRES

Lead author Carrie Womack, a CIRES scientist working at NOAA, said analysis of airborne measurements directly from the plume rising from the US Magnesium refinery during a 2017 winter air pollution study in Utah found that emissions of chlorine and bromine, known as halogenated compounds, were significant contributors to the persistent winter brown clouds. 

And here is a great picture of a negative externality if your students don't believe you: 

The (horrible) gift of government shutdowns?

The US government did not shut down in FY 2023. That is immensely unremarkable...

But, I had a social media memory pop up about the most recent shutdown in the US, so I'm going to write about them. It was the longest shutdown in US history: 35 days (December 22nd 2018 to January 25th 2019) because agreement could not be reached to fund a giant wall between the United States and Mexico. The federal government has had major shutdowns under each of its last three presidents, so it will probably happen again soon. *See the end of this post for a quick primer on how shutdowns occur.  

Flashback 10 years: I was in grad school during a sixteen-day shutdown in 2013 under President Obama and was deep in literature on the local impacts of EPA Superfund remediation. Several papers estimate the impact of cleanups on local housing markets (when they are discovered, housing prices fall; when they are cleaned, housing prices increase). I remember thinking, 'WHAT A HORRIBLE GIFT a shutdown is researchers!' Horrible because shutdowns are very costly (380,000 federal employees were furloughed due to the 2019 shutdown), but a gift because shutdowns may be a true, sharp, random shock to government programs that are uncorrelated with local characteristics. They hurt... but, they give us a good shot at some causal estimates of program impacts! 

But... thankfully... this line of research is pretty much a non-starter in environmental... I think. Today (2.9.2023) I searched "government shutdown" in JAERE, JEEM, REEP, and ERE and found 0 results of environmental econ papers that work with government shutdowns. And that may good news for society... because when shutdowns happen, the EPA mostly stays operational if it involves human health. The EPA actually regularly publishes a contingency plan for government shutdown. All cleanups underway (or site discoveries) that involve immediate harm to human health continue operation. Benign waste sites and work-in-progress at safe sites get halted.  

Good for society, bad for researchers. If a Superfund site does experience a shutdown pause, it's likely becuase it is not a risk to human health... which means it is perhaps not located near a large population, and potentially correlated with other local characteristics. Darn... exogeneity ruined. 

There may be other interesting environmental questions to answer with shutdowns, however. For example, I found a paper by Todd Gabe in Applied Econ Letters estimating the impacts of shutdown-induced National Parks closures on local tourism and gate fees. Insofar as we don't get to observe high quality counterfactual data in a world where massive national parks don't exist, government shutdowns may provide us the opportunity to value the local impacts (hey, John! Talking about valuation over here!). 

**A quick primer: each year, congress has to pass twelve budget appropriations to fund crucial entities, like many of the EPAs activities. The twelve bills are consolidated into one large appropriations bill and usually passed at the end of the year. If congress can't pass the bill, they can pass a "continuing resolution" which uses the previous year's budget to fund activities until the new appropriations pass. If they can''t do either of those, the government shuts down until the appropriations pass. The BIG result is that many government programs come to a screeching halt. 

Dawn of AI: Is ChatGPT autonomously sending emails now?

From the inbox:

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Thank you for considering us.

Huh?

AERE@SEA abstract submissions are open (a brief history of @AereOrg sessions at regional economics meetings)

Here is the link: https://aere.memberclicks.net/conference---sea. The deadline is the end of February. 

For the first time since 2006 I'm not chairing the committee that is organizing these sessions. Please forgive me, but I'm going to take a victory lap*. 

These sessions began with a meeting called by Jim Kahn in the 1990s at the Southern Economics Association meeting. Me and another guy showed up. The problem was low quality environmental economics sessions and the proposed solution was to organize our own sessions. The conversation moved to Murphy's Bar at some point and, importantly, Glenn Blomquist, Mark Dickie and others got on board. The group began with a funny name, Southern Appalachian Committee for Resource and Environmental Economics (SAppCREE), and that's who sponsored the sessions (I was at East Carolina University at the time so don't blame me for the App). These started out small with a few sessions. According to the Wayback Machine, SAppCREE sponsored 3 SEA sessions in 1997 in Atlanta (I'm not sure if that was the first year but there is a good chance it was). Here is the first session on the program: Valuation of Environmental Health Effects. There was also a hedonics session and a teaching panel moderated by Jim Kahn with Lynne Lewis, Susan Kask, David Martin and myself as panelists. 

There were 3 more sessions in 1998 and 4 more in 1999. Look at this one from 1998 (hoo boy). In 2000 we dropped the Appalchian and just became SCREE to generate interest beyond the southern Appalachian region (haha). SCREE sponsored 4 sessions in 2000, 5 in 2001 and 4 in 2002.

Around about that time I was on the AERE Board of Directors and I wondered out loud, why doesn't AERE sponsor sessions at the SEA meetings? I mean, Don Epp organized AERE sessions for a couple of years at the EEA meetings and AERE members have been doing "SCREE" for several years. They all looked at me funny and said OK but the AERE/ASSA program committee is going to have to look at the sessions and approve them because you, non-R1 guy, are not to be trusted. I followed orders and got the program approved for a number of years by the committee but "forget" to ask one year and no one noticed (that's when we went all heterodox). AERE and SCREE jointly sponsored 4 sessions in 2003, 8 in 2004 and ... ugh, the Wayback Machine has failed me and the SEA isn't posting their conference archives anymore. 

So, here is a, perhaps imperfect, reconstruction from my files of the number of AERE sessions at the SEA meetings since 2006:

We dropped discussants about 10 years ago and found that the Q&A sessions were better for most presenters. Without discussants you don't need a polished paper. I think this accounts for the increased participation after 2015. As a result, I think, the AERE@SEA sessions have evolved into a place where graduate students and new assistants are the bulk of the presenters.

The dip in the number of sessions is articial because, as an experiment, AERE organized sessions with 5 papers each. For example, in 2019 we could have had 15 sessions with 4 papers each but we organized 12 sessions with 5 papers each. We've decided to go back to 4 papers.

The spike in 2020 was due to covid -- everyone needed something to do and an online conference doesn't cost much (we did the AERE happy hour over Zoom). The dip in 2021 was the in-person SEA meeting before the vaccine. We were required to wear masks, but it that was scary.  A lot of people begged out. 

I don't know the dates but AERE began organizing sessions at the other regional meetings following the success of the AERE@SEA sessions. Trudy Cameron (WEAI), Lea-Rachel Kosnick (MEA) and Kelly Maguire (EEA) started these. Jimena Gonzalez took over the AERE@EEA sessions and, just recently, Noelwah Netusil began organizing the AERE@WEAI sessions.

Many thanks to everyone who were involved in the SEA sessions in a big way: Jim Kahn, Glenn Blomquist, Sarah Stafford, Will Wheeler, Sarah Jacobson, Shana McDermott, Chris Dumas (who did I forget?) and especially Lynne Lewis, Jill Caviglia-Harris and Brian Vander Naald (who all arranged a very nice send off for me in November). Brian is taking over the sessions (with help from Lynne and Jill and maybe me) and I'm looking forward to writing my abstract, sweating it out waiting to see if it is accepted and, hopefully, presenting a silly valuation paper in an AERE@SEA session in 2023 in NOLA.

*Note: Here is what prompted my reminiscence (see AERE@SEA is "cool"):

Camp Resources, Aug in NC.
Heartland Workshop, Sep(?) at Univ. Of Illinois.
The CU-Boulder workshop usually meets in the fall.
The AERE sessions at the southern econ association meetings (Nov), this year in New Orleans.

— Casey Wichman (@cjwich) February 6, 2023

Have you ever known that person that has a ton of great ideas but never gets them done? That's the renewable energy industry

From the WSJ (Investors Plow Into Renewables, but Projects Aren’t Getting Built): 

Even as developers plan an unprecedented number of grid-scale wind and solar installations, project construction is plummeting across the U.S.

Despite billions of dollars in federal tax credits up for grabs and investors eager to fund clean energy projects, the pace of development has ground to a crawl and many renewables plans face an uncertain path to completion. Supply-chain snags, long waits to connect to the grid and challenging regulatory and political environments across the country are contributing to the slowdown, analysts and companies say.

New wind installations plunged 77.5% in the third quarter of 2022 versus the same period the year before, according to S&P Global Market Intelligence. New utility-scale solar installations likely fell 40% in 2022 compared with 2021, according to a report from the Solar Energy Industries Association and research firm Wood Mackenzie.

The decline belies enormous demand for renewable projects. The industry is ready to launch a would-be building spree after last year’s spending and climate law, the Inflation Reduction Act, extended and increased tax credits for wind and solar projects and introduced new incentives for green hydrogen and battery storage for the electric grid. The success of the IRA, the Biden administration’s climate targets and many state decarbonization plans hinge on adding massive amounts of renewable energy into the grid.

One problem is that the industry can't find parts:

Efforts to create a domestic solar supply chain to meet U.S. project demand are expected to take a few years. Meanwhile, panel imports, 80% of which come from Chinese and other Asian makers, have slowed following U.S. legislation aimed at cracking down on labor abuses in China. Several thousand shipping containers of solar panels have been detained by U.S. Customs near ports such as Los Angeles, according to some estimates.

Another problem is that they can't get connected to the grid:

A bigger unknown is the time and cost to get new batteries or solar or wind farms connected to the grid, as grid operators and interconnecting utilities must study the projects’ likely impact on the power system and any needed network upgrades before signing off on them. ...

Grid operators have been overwhelmed by requests, and several are trying to overhaul their processes. There were around 8,100 projects in line in the U.S. in 2021, up from 5,600 in 2020, each requiring a technical review. Interconnection wait times rose to about 3.7 years for projects delivered between 2011 and 2021, up from around 2.1 years for projects built in the decade prior, according to a study last year by Lawrence Berkeley National Laboratory.

And finally, you knew there had to be a NIMBY problem:

Just 23% of the power-generation projects seeking grid connection from 2000 to 2016 were ultimately built. Completion rates were even lower for wind, at 20%, and solar at 16%. Around 19 gigawatts of wind and more than 60 gigawatts of solar were withdrawn from interconnection processes in 2020 and 2021, according to the national lab.

The certainty of securing local permits also varies market by market, even within the same state, along with the willingness of a community to welcome large renewable energy projects, Mr. Rand said.

I'm sure that the U.S. Congress is busy trying to figure all this out, so no worries.

Ummm, @PeterGleick, I addressed this 5,958 days ago: Free markets are, in fact, not free

"Dr. Peter Gleick is a leading scientist, innovator, and communicator on global water and climate issues." He is also a frequent Tweeter and sometimes instigator. Yesterday he tweeted this:

I'm fairly certain Dr. Gleick knows there are a large number of 'atypical' economists who understand the non-market values of water (I'm not sure what a non-economic value is because value is inherently economic). Anyway, here's what I wrote on this exact topic (Are Free Markets Free?) almost 15 years ago...

Jack Knetsch: 1933-2022

I just learned that Jack Knetsch died back in August. Here is the obituary from Simon Fraser University:

Jack was a Professor in SFU’s Economics Department and the School of Resource and Environmental Management from 1974 to 1998, at which time he transitioned to Professor Emeritus. Jack received his PhD from Harvard University and worked at Resources for the Future in Washington, DC, before coming to SFU.

Jack was an excellent teacher, mentor and colleague, but he especially made his mark through contributions to leading economics research. With co-authors like Daniel Kahneman, Jack’s experimental research challenged some of the key underlying assumptions of neoclassical economics, with significant implications for the methods used to estimate the monetary value of environmental losses. He had over 200 publications, with many of these in the top economics journals. And some of his collaborators (Kahneman, Thaler) were eventually recognized with the Nobel Prize for the innovative research path to which Jack contributed.

Here is a link to a 1968 book review of the Clawson and Knetsch's 1966 Economics of Outdoor Recreation: Review of Clawson and Knetsch Economics of Outdoor Recreation (PDF). Hotelling is credited with the suggestion for the travel cost method but it was Clawson and Knetsch (1966) who figured out how to do it. 

He was still conducting research in his late 80s. Here is the Google Scholar page for publications since 2019: https://scholar.google.com/scholar?as_ylo=2019&q=jack+knetsch&hl=en&as_sdt=0,34.