Environmental Economics

An Earth Day post a couple of days late

Climate protectionism

From the WSJ (World’s First Carbon Import Tax Approved by EU Lawmakers): 

The European Union’s parliament approved legislation to tax imports based on the greenhouse gases emitted to make them, clearing the final hurdle before the plan becomes law and enshrines climate regulation in the rules of global trade for the first time.

Tuesday’s vote caps nearly two years of negotiations on the import tax, which aims to push economies around the world to put a price on carbon-dioxide emissions while shielding the EU’s manufacturers from countries that aren’t regulating emissions as strictly, or at all. The tax gives credit to countries that put a price on carbon, allowing importers of goods from those countries to deduct payments made for overseas emissions from the amount owed at the EU’s borders. ...

Governments and lawmakers in other countries are already under pressure to follow suit. The U.K. is debating whether to introduce a carbon border tax, while Democrats in Congress proposed legislation to create one. Bipartisan support for the idea is growing in the U.S., said Kevin Dempsey, president of the American Iron and Steel Institute, which represents companies such as Nucor Corp. and ArcelorMittal SA.

Of all the types of protectionism that are trending (e.g., here, here), this one might not be so bad.

 

Monday's Misleading Headline: A short-term dip does not a trend make

Gallup reports: "Concern About Several Environmental Problems Dips in U.S."

Here's the evidence.

So, I downloaded the data, redrew the graphs, added trendlines, then deleted the original data to better suss out the underlying trends without all the confusing squiggly lines. Here you go.

Oh, and I gave it a new title: No Obvious Conclusion Can be Drawn about Trends in Attitudes Toward Environmental Problems in the U.S.

The Society for Benefit-Cost Analysis is offering six professional development workshops this year

via the SBCA email list:

The Society for Benefit-Cost Analysis is offering six professional development workshops this year, organized by leading experts. They include the following; more information is available here: https://www.benefitcostanalysis.org/workshops.

• Benefit-Cost Analysis for Beginners (Glenn Blomquist and David Weimer)
• Economics of Addiction (Elizabeth Botkins, Aaron Kearsley, Don Kenkel, David Watkins)
• Estimating Program Effects (Craig Thornton, Anu Rangarajan, Randall Brown)
• Valuing Nonmarket Benefits (Vic Adamowicz, Cathy Kling, Nic Kuminoff, Dan Phaneuf, Christian Vossler, John Whitehead)
• Estimating Costs (Jason Price, Doug Meade, Brad Wong)
• Benefit-Cost Analysis for U.S. Regulations (Aliya Sassi, Elizabeth Quin, Chris Dockins, Charles Griffiths, Aaron Kearsley)

We hope you will join us for what promises to be a terrific set of workshops, and will forward this email to anyone else who might be interested.

EPA: The benefits of proposed automobile tailpipe standards are estimated to be $1 trillion more than costs

From the WSJ (EPA Seeks to Boost EVs With Toughest-Ever Rules on Tailpipe Emissions):

The Biden administration is proposing new limits on vehicle tailpipe emissions, seeking to spur U.S. auto makers to generate two-thirds of their sales through electric vehicles in a decade.

The new standards for light-duty vehicles, announced Wednesday by the Environmental Protection Agency, will apply to the 2027 to 2032 model years. They would be the nation’s toughest-ever restrictions on car pollution and one of President Biden’s most aggressive moves yet to combat climate change.

The proposal moves beyond Mr. Biden’s ambitious target for half of all new-vehicle sales to be electric-powered by 2030. The EPA projects that the EVs could account for 67% of new- vehicle sales by the 2032 model year. ...

The EPA estimated that the benefits of the proposal would exceed costs by at least $1 trillion. The proposal is expected to avoid 7.3 billion tons of carbon-dioxide emissions through 2055, EPA Administrator Michael Regan said.

Does anyone know where I can find that benefit-cost analysis? I'm wondering what social cost of carbon estimate they are using, among other things. The Google didn't help. 

OIRA has released its proposed revisions to OMB Circular No. A-4 and the comment period is open

From Richard L. Revesz, Administrator, Office of Information and Regulatory Affairs via a Society for Benefit-Cost Analysis email blast:

I am excited to share with you that the Office of Information and Regulatory Affairs (OIRA) has released its proposed revisions to OMB Circular No. A-4: Regulatory Analysis. The preamble to the proposed revisions provides further information as to the nature of the proposed changes and identifies issues for which public comment may be particularly useful. The proposed Circular is available at https://www.whitehouse.gov/wp-content/uploads/2023/04/DraftCircularA-4.pdf, and the preamble to the proposed Circular is available at https://www.whitehouse.gov/wp-content/uploads/2023/04/DraftCircularA-4Preamble.pdf.

Circular A-4, which provides guidance to agencies on how to conduct regulatory analysis, has not been revised since it was first issued in 2003. The proposed revisions to the Circular reflect new developments in economic and other scientific understanding. Our goal in these proposed revisions is to help agencies produce analyses that facilitate better policymaking. To that end, the proposed revisions address a range of issues, including discount rates, distributional analysis, and accounting for uncertainty. Proposed revisions to material on discounting help ensure that the present value of future effects, and the relationship of capital and risk to discounting, are more accurately accounted for. Proposed revisions to the material on distributional analysis will help facilitate efforts by agencies that are seeking to account for the distributional effects of regulations. And proposed revisions to the section on uncertainty, such as moving away from a default assumption of risk neutrality, will help agencies to more accurately capture the value of regulations that reduce risk.

We invite public comment from April 7, 2023, to June 6, 2023, via http://www.regulations.gov. To submit a comment during that period of time, simply type “OMB-2022-0014” in the search box, click “Search,” click “Comment,” and follow the instructions for submitting comments. All comments received will be posted to http://www.regulations.gov, so commenters should not include information they do not wish to be posted (e.g., personal or confidential business information). Receiving input from a wide range of commenters, including experts reflecting an appropriate breadth of economic and scientific perspectives, will aid in this revision process, so OIRA welcomes your help in spreading awareness of this public comment period. OIRA is also requesting nomination of experts to serve as peer reviewers of the proposed Circular, sent to [email protected], from April 7, 2023, to April 28, 2023.

As the preamble notes, public comments are helpful both when they note proposed revisions to the Circular that appropriately reflect the best available economics and science, and when they address places where further revisions to the Circular would be appropriate. I look forward to the opportunity to modernize the regulatory review process through the implementation of a revised Circular A-4, following public comment and peer review.

Finally, I wanted to note that our colleagues at OMB also released today proposed revisions to Circular A-94, which addresses the use of benefit-cost analysis in the context of federal grant funding. Those interested in providing public comment on Circular A-94 can do so at the docket OMB-2023-0011.

There are alot of potential changes including recommendations on distributional effects: 

Uncertainty:

And discount rates:

And you thought your Recreation.gov user fees were funding National Parks

Nope (As National Parks Visits Surge, Booz Allen Benefits): 

Visitors driving into Montana’s Glacier National Park this summer must buy a vehicle pass on Recreation.gov. The pass is free, but visitors pay a $2 fee to book the reservation.

Visitors might assume that, like entrance fees, the reservation charges help pay for improving trails around the park’s Running Eagle Falls or expanding the park’s volunteer program. But a chunk of the money ends up with consulting firm Booz Allen Hamilton Inc.

Booz Allen runs Recreation.gov, the website and app where people book campsites, hikes and permits on U.S. public land. The company has a five-year contract that is up for renewal this year. In its bid for the work, Booz Allen used data provided by the government to estimate that over the first five years of the contract, it would receive $87 million, and a total of about $182 million over 10 years.

Booz Allen gets paid every time a user makes a reservation on Recreation.gov, per its government contract. That has earned the company money far beyond the projections in its bid.

Booz Allen invoiced the government for more than $140 million from October 2018 to November 2022, the most recent date available, according to documents obtained by The Wall Street Journal in a public-records request. Ten months remain to be counted for that initial five-year period.

You all are a bunch of suckers:

Booz Allen leadership has described the benefits of per-transaction fee structures like the one Recreation.gov uses. “One thing I learned in B-school, for all that money, it’s a small number times a big number is a big number,” Booz Allen president and chief executive Horacio Rozanski said at the 2019 Citi Global Technology Conference. ...

The arrangement has its critics, including members of a lawsuit against Booz Allen seeking class-action status, and other die-hard national park visitors. They say the government has let a multibillion-dollar company profit by charging for access to public lands—access that used to cost less, or nothing. The lawyers said in the suit that the company is “forcing American consumers to pay Ticketmaster-style junk fees to access national parks and other federal recreational lands.”

Booz Allen says such claims mischaracterize its work and its compensation structure. Recreation.gov officials say the arrangement is an example of efficiency in government: Users get a technologically sound website at no cost to taxpayers. ...

At that point I tuned out Booz Allen while reading the rest of the article, wondering why infrastructure at the Blue Ridge Parkway is underfunded when Booz Allen is getting rich but you should read it and decide for yourself. 

Here are a couple of links: 

• National Parks Continue to Set Visitation Records but Remain Underfunded and Understaffed
• Recreation.gov Use & Share Our Data

I ran Sarah Jacobson's "Ore Money Ore Problems" resource extraction game in class yesterday @SarahJacobsonEc

Here is the abstract from the paper which is forthcoming in the Journal of Economic Education:

Economic theories of the exploitation of depletable natural resources are built around a core model of intertemporal profit maximization that predicts that (barring unforeseen shocks) scarcity crises will not arise because forward looking resource owners will smooth extraction over time. The model that provides this result can seem opaque to students, but its intuition can be more easily grasped from experience. This paper shares a game that provides that experience. Participants play the role of mine owners who must decide how much to extract in each of two periods. In addition to showing how market pressures moderate intertemporal scarcity, the game also provides lessons about discounting, market power, information, and property rights. I provide all materials needed to play the game immediately or customize it.

I customized the game for my class and focused on three scenarios: 

1. Monopoly with no discounting
2. Monopoly with a 25% discount rate in the second time period
3. Competition with a 25% discount rate in the second time period

Here are the instructions I used: Ore money ore problems slides.

I had 12 out of 17 students in class (not bad for the class day after exam #2 on a beautiful afternoon) and we formed 6 miner teams of 2 students each. I passed out the record sheet, read the instructions and used Poll Everywhere to receive the period 1 extractions for each of the 6 mines (I displayed the decisions on the screen but next time I'll use my phone so decisions will be secret while students are still mining).

Here are the results (the dots are the average resource extractions over 6 rounds of the game):

The first two rounds (horizontal axis) were the no discounting rounds and the theoretical prediction is extraction in time period 1 is 50 units (vertical axis) as this equates prices across the 2 time periods. Five mines produced 100 units depleting the resource for t=2 and 1 mine extracted 50 units. These numbers were entered into the spreadsheet for all to see and everyone realized 100 is too high. We discussed this result and ran the scenario again with students overshooting with extraction rates of 0, 25, 30, 35, 50 and 50. Instead of averages, you can look at the answers and say that the number of mines producing the profit maximizing amount doubled from 1 to 2. I'm sure if we ran scenario 1 one more time we would have been close to the theoretical prediction. 

In scenarios 2 and 3 I introduced a discount rate of 25% so that future profits are 80% of current profits. Students again went in the right direction with their extraction decisions but overshot the target of 53 with 75, 75, 75, 75, 75 and 90 units extracted in the first round. The spreadsheet showed that profits with 75 units are higher than with 90 units and in the fourth scenario the extraction decisions were 50, 55, 60, 63, 65 and 69 units. I'm sure that another round of scenario 2 would have produced an average close to 53. 

In the fifth round (scenario 3) the units extracted were 48, 51, 53, 53, 60, and 100. Two of the mines produced the cooperative outcome of 53. We discussed the OPEC cartel problem and in the next round production went up slightly. I'm sure that more rounds with this scenario would lead to increased extraction in t=1 as predicted by theory. 

The game took 45 minutes after about 30 minutes of debriefing exam #2. We'll debrief the game more tomorrow and work our way through the two-period model and Hotelling's Rule. Participation in this game is going to help. 

Bottom line: The game worked great in terms of getting the point across, not so great in terms of generating theoretically predicted results but more rounds with each scenario would get us there. Next time I'll probably drop the competition scenarios and spend more time on using the equimarginal principle to maximize profits over time. 

Comments welcome!

Why do we keep getting the price of driving wrong?

For years I have railed about the need to get the price of driving right (too many posts to find and link, but here's a good one). Why, oh, why I cry, do we still keep finding needlessly complicated ways to confuse the f*** out of drivers who just want to do the right thing, but can't figure out the real cost of driving gas versus electric?

Ohio makes it especially taxing (see what I did there?):

Why it matters: Our gas tax rate is among the highest in the U.S., with the proceeds funding infrastructure needs like road and bridge maintenance.

Yes, but: An increasing number of EV drivers avoid paying this tax by not paying for gas, an issue for Uncle Sam since the cars wear down public roads like everything else.

Ohio's solution: Annual registration fees of $100 for hybrids and $200 for any plug-in EV.

I'm not opposed to a tax on EVs. They do create some externalities (congestion, electricity generation, infrastructure wear-and-tear), but I am opposed to arbitrary fees that distort the relative costs of gas vs EV. 

Let's talk to some economists and get the prices right, then let consumers make there decisions.

We're doomed: part 189

Or, at least salmon are doomed. From the NY Times (California Salmon Stocks Are Crashing. A Fishing Ban Looks Certain):

This week, officials are expected to shut down all commercial and recreational salmon fishing off California for 2023. Much will be canceled off neighboring Oregon, too.

The reason: An alarming decline of fish stocks linked to the one-two punch of heavily engineered waterways and the supercharged heat and drought that come with climate change. There are new threats in the ocean, too, that are less understood but may be tied to global warming, according to researchers.

The solution to the problem seems simple enough:

Fossil fuel emissions must be addressed, scientists say. ...

In a country where an increase in gas prices causes a national apoplexy, sure.