Environmental Economics

RFF on the Issues: The VW Scandal and Diesel Fuel Cars

From the inbox:

The Volkswagen emissions scandal is putting pressure on many countries to take a closer look at their vehicle emissions testing for cars that run on diesel fuel. It seems that such engines are actually worse for the environment than previously thought, and this issue is particularly important in Europe, where about half of new vehicles run on diesel fuel.

RFF’s Joshua Linn and Virginia McConnell conclude that “meeting strict standards for nitrogen oxide emissions from vehicles alone might not be so difficult.” Diesel-powered cars emit less carbon dioxide but more nitrogen oxides than gasoline-powered cars, and reducing both nitrogen oxides and greenhouse gas emissions “will be challenging for vehicles, and especially for diesel vehicles.” Illustrating this tension, Linn’s research, “Explaining the Adoption of Diesel Fuel Passenger Cars in Europe,” suggests that many consumers are attracted to diesel-powered cars because of their higher fuel economy. RFF’s Casey Wichman weighs in in a new blog post, “Valuing Private Goods with Public Benefits: Confessions of a ‘Clean’ Diesel Owner,” noting: “The weight I initially placed on the environmental bona fides of my car is now more of a burden than a benefit.”

"Volkswagen Says 11 Million Cars Worldwide Are Affected in Diesel Deception"

This story continues to boggle the mind:

A scandal that has battered Volkswagen’s image in the United States spread to the automaker’s core market in Europe on Tuesday, when the company said that 11 million of its diesel cars were equipped with software that could be used to cheat on emissions tests. That was more than 20 times the number of cars previously disclosed.

The company also said it would set aside 6.5 billion euros, or about $7.3 billion — the equivalent of half a year’s profits — to cover the cost of making the cars comply with pollution standards. ...

Volkswagen said on Tuesday that the scandal would cut deeply into this year’s profit. And the company’s shares plunged again, ending the day 35 percent below the closing price on Friday, before news of the diesel deception broke. As a result, the company’s stock market value has declined about €25 billion in two days of trading.

via www.nytimes.com

Do the finance folks still do event studies? If so, here is a dissertation chapter!

Footnote that may only interest me: why the unequal treatment of the euro?

• 6.5 billion euros
•  €25 billion

VW Quote of the day

From yesterday, actually (I accidentally saved this one as a draft):

“I feel totally ripped off,” said John Decker, 55, a photographer from Sacramento, who owns a 2013 Jetta SportWagen with the diesel engine. “It just reeks of fraud and that they intentionally misled the buyers of their vehicles into thinking these were clean diesels, environmentally good cars, that were fun to drive.”

via www.nytimes.com

"VW’s Deepwater Horizon?"

Maximilian Auffhammer at the uninspiringly named Energy Institute at Haas blog:

Last week one of the biggest environmental scandals since the Deepwater Horizon disaster made its way to somewhere near the bottom of page 11 of most major newspapers. VW admitted to systematically cheating on emissions tests of its Diesel vehicles. This might sound snoozy, until you read up on the details. ...

In a Lance Armstrongian feat of deception, VW has now admitted to having installed a piece of software called a “defeat device” that turns on the full suite of pollution control gadgets when cars are being smog tested. As soon as you leave the testing station and head out for your Yosemite adventure with Fluffy barking in the back, your car emits 10-40 times (!!!!!!!!!!!) the amount of NOx you just reported on your smog check card. ... The EPA will almost certainly sue VW. The penalties involved here are significant. The EPA can ask for $37,500 per incident, which amounts to roughly $18 billion in fines. Plus there will likely be criminal charges filed against VW executives. ...

In my eyes there are two interesting economic points to be made here. The first, maybe more headline worthy, is trying to determine the optimal fine in order to deter other manufacturers from engaging in such behavior. An economist would argue that what we have here is the classic case of an externality. By selling the dirtier vehicles, VW exposed kids, adults and dogs to massive quantities of local air pollutants. VW is responsible and should be liable for this. Hence VW should correct this market failure by paying the full external costs it caused. This calculation would involve estimating the economic damages from this additional air pollution and passing the bill on to VW. My back of the envelope calculation suggests that for the NOx portion this is about $232 per vehicle over three years (far from $37,500).

But, there is a large law and economics literature on determining the fines to achieve the optimal and efficient amount of deterrence. The problem with just passing on the external damages is that VW was not going to be caught with certainty. If the executives thought there was a 1% chance of getting caught, it might have been more worthwhile to cheat than if they thought that they were going to get caught with certainty. In this case, the penalty should be approximated by the external costs divided by the probability of getting caught. This, of course, would be significantly larger than the external costs alone. ... 

Yikes. Here is the press release from the EPA.

Climate Change and Snot

I like when The Daily Show makes my job easy:

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Environmental economics in the AER

Always a surprise:

Currie, Janet, Lucas Davis, Michael Greenstone, and Reed Walker. 2015. "Environmental Health Risks and Housing Values: Evidence from 1,600 Toxic Plant Openings and Closings." American Economic Review, 105(2): 678-709.

DOI: 10.1257/aer.20121656

Abstract

Regulatory oversight of toxic emissions from industrial plants and understanding about these emissions' impacts are in their infancy. Applying a research design based on the openings and closings of 1,600 industrial plants to rich data on housing markets and infant health, we find that: toxic air emissions affect air quality only within 1 mile of the plant; plant openings lead to 11 percent declines in housing values within 0.5 mile or a loss of about $4.25 million for these households; and a plant's operation is associated with a roughly 3 percent increase in the probability of low birthweight within 1 mile. (JEL I12, L60, Q52, Q53, Q58, R23, R31)

The key to understanding Environmental Economics is understanding unintended consequences

While uncomfortable, sometimes it pays to think beyond the obvious:

People who own all-electric cars where coal generates the power may think they are helping the environment. But a new study finds their vehicles actually make the air dirtier, worsening global warming.

Ethanol isn't so green, either.

"It's kind of hard to beat gasoline" for public and environmental health, said study co-author Julian Marshall, an engineering professor at the University of Minnesota. "A lot of the technologies that we think of as being clean ... are not better than gasoline."

The key is where the source of the electricity all-electric cars. If it comes from coal, the electric cars produce 3.6 times more soot and smog deaths than gas, because of the pollution made in generating the electricity, according to the study that is published Monday by the Proceedings of the National Academy of Sciences. They also are significantly worse at heat-trapping carbon dioxide that worsens global warming, it found.

via hosted.ap.org

I'm not saying the authors are right or wrong--I haven't read the original study and I know how findings in studies can get mangled in press blurbs.  But I've often wondered if those who buy electric cars think about electricity sources when they buy.  I get the sense that buyers are often well-intentioned ('At least I'm not burning those evil fossil fuels.') without considering the unintended (and unseen) consequences.

Something else is wrong with your Hyundai and Kia

Just a few millions:

The Justice Department and the Environmental Protection Agency announced today that the Hyundai Motor Company and the Kia Motors Corporation would pay a combined $100 million penalty as part of a settlement for overstating vehicle fuel economy standards on 1.2 million vehicles, a violation of the Clean Air Act.

The penalty is the largest ever paid for violation of the Clean Air Act, government officials said.

via www.nytimes.com

Since the travel cost variable depends on the cost of fuel per mile and the cost of fule per mile depends on miles per gallon, all of the cost per mile estimates in recreation demand models suffer from measurement error. Proceed to retract your travel cost method journal papers.

Or, nevermind, the travel cost variable is so loaded with measurement error that this addition doesn't matter. 

Video of the Day: Reverse Climate Psychology

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In one day, Ohio is already halfway to the 30% goal

While yesterday's Presidential/EPA announcement of 30% reductions in CO2 emission by 2030 sounds like a drastic reduction, the Columbus Dispatch notes that the baseline matters.  And the baseline is almost 10 years ago (2005).  For Ohio, that means they are already over halfway to the 30% goal.