Environmental Economics

What is a California beach town willing to pay to avoid oil drilling?

Numbers. I can't resist:

On Tuesday, the residents of Hermosa Beach are going to vote yet again on an oil and gas drilling initiative — whether to allow a contract with the energy company E&B Natural Resources Management to proceed despite a current drilling ban.

The contract, which could mean hundreds of millions of dollars for the local government, received final approval from the City Council in 1992, but it has been in limbo ever since. A vote to block the drilling would come at an unusual cost: $17.5 million in damages to the energy company, the equivalent of about half the annual general fund budget in this city of almost 20,000 people. ...

“It’s a little more than we probably should have paid,” Mayor Peter Tucker said, referring to the deal for potential damages. “But if it gets us out of this constant, constant oil issue we’ve had hanging over us for 30 years, I think it’s money well spent.” ...

An environmental-impact statement commissioned by Hermosa Beach listed nine potential areas of concern that it said the company would be unable to mitigate, including air quality, aesthetics and noise. ...

Supporters of the project say the fears voiced by opponents — declining property values, offensive odors and the potential for a spill that could spray fuel into the water, on the beach or over neighboring houses — are exaggerated. ...

The company anticipates that the drilling would produce 35 million barrels over the 34-year life of the project, producing a potential $500 million windfall for Hermosa. (The revenue projection was made when the price of oil was close to $100 a barrel; it is about half that now.) ...

The city has a surplus of close to $7 million that it has put aside to help pay the penalty. The rest would be paid in roughly $800,000 annual installments.

“An $800,000-a-year payment to preserve the quality of life and the special beach community that we have certainly seems worth it,” said Stacey Armato, one of the leaders of the anti-drilling effort.

via www.nytimes.com

Voting against oil would lead to a loss of between about $250 million to $500 million over 34 years. Using the midpoint, that is about $550 per person per year (undiscounted). Losing the $7 million surplus is $350 per person. The $800,000 a year payment is $40 per person per year.

So, the total cost of voting no is a one-time $350 payment and about $600 per person per year. Multiply by 2.5 to get the household costs. 

Marine debris results in lost recreational value*

Marine debris has many impacts on the ocean, wildlife, and coastal communities. A NOAA Marine Debris Program economic study released today shows that it can also have considerable economic costs to residents who use their local beaches.

The study found that Orange County, California residents lose millions of dollars each year avoiding littered, local beaches in favor of choosing cleaner beaches that are farther away and may cost more to reach. Reducing marine debris even by 25 percent at beaches in and near Orange County could save residents roughly $32 million during three months in the summer.

via marinedebris.noaa.gov

I just like when things I work on get press releases.  You can download the full report here.

*Warning: Blatant self-promotion

Long term sea level rise forecasts, tourism and the real estate industry

Lori Montgomery (who I spoke with on the phone for this article due to this study*) in the WaPo:

... [Willo] Kelly [a lobbyist for Realtors and home builders on the Outer Banks] worries that codifying the 39-inch forecast would crush the local economy, which relies entirely on tourism and the construction, sale and rental of family beach houses. In Dare County alone, the islands’ largest jurisdiction, the state has identified more than 8,500 structures, with an assessed value of nearly $1.4 billion, that would be inundated if the tides were 39 inches higher.

Even with an eight-inch forecast, 414 Dare County properties worth $70 million would be marked for inundation. If the state ever activates the Web site that lets potential investors search by address, Kelly said, “all of a sudden, those properties would be worthless.”

Nationwide, $700 billion of coastal property could be below mean sea level by the end of the century — and an additional $730 billion could be at risk at high tide — without new policies to forestall climate change, according to a new report by the Risky Business Project, a high-powered group of financial and political figures who are set to meet Wednesday with senior Obama administration officials. So far, locals say there is no sign that the housing market on the Outer Banks is suffering. Nags Head’s town manager, Cliff Ogburn, said that the town is doing a booming business in building permits and that “occupancy is as high as it’s ever been,” having rebounded from the dark days before 2011. That is when Nags Head and Dare County spent $36 million to repair severe erosion on 10 miles of beachfront, where encroaching waves had claimed nearly a dozen houses and the seaside swimming pool at the Nags Head Comfort Inn.

Now the beach looks great, the tourists are back and Duck, Kitty Hawk and Kill Devil Hills are talking to the county about beach nourishment projects of their own.

I don't necessarily agree that "codifying the 39-inch forecast would crush the local economy." The wealth of property owners would fall as real estate prices fall and the construction industry would take a significant hit (and one might argue that the coastal construction industry should pay attention to long term sea level rise forecasts). But, the rental market should manage to stay active. Sea level rise doesn't much affect the demand to go to the beach. Whatever the effect on the local economy, avoiding inconvenient science is not the answer. 

*I explained that removing a oceanfront row of houses would transfer oceanfront value to the next row of houses. This makes the $70 million cost likely too high for loss of those 414 properties. Here is what we found in Bin et al. (2010): 

For Dare County, a total of 25,232 residential properties are used in the analysis with the total assessed value of $11 billion. Depending on the sea-level rise scenarios, the number of residential properties at the risk of inundation ranges between 487 (2030-Low) and 3737 (2080-High). Without discounting, the residential property value loss in Dare County ranges from $136 million (1.24 percent of the total assessed value) to $1040 million (9.45 percent of the total assessed value). Based on the 2 percent discount rate, the estimated loss ranges from $81 million (0.74 percent) to $231 million (2.10 percent). 

The "2030-Low" sea level rise scenario is a little more than 4 inches (0.11m) and the "2080-High" scenario is almost 32 inches (0.81m). 

Quote of the Day (with a snarky comment)

"Erosion is only a peril to property," [coastal geologist Robert Oldale of the U.S. Geological Survey] added. "If we build on the shore, we must accept the fact that sooner or later coastal erosion will take the property away.”

via www.weather.com

Gee, maybe we should subsidize coastal property insurance.

Sheesh.

Long Term vs. Short Term Disaster Prediction

Seeing this post on Vox got me thinking - I wonder how housing prices vary in response to disaster risk when the risk is forecasted over a longer term rather than a shorter term?  I've read a bit of the literature on the housing price response to hurricane risk and climate change-based flood risk (from a certain blogger here as well as my undergraduate advisor no less) and covered some basics but I don't think I've seen a comparative study.

It seems that short term risk predictions would be more likely to be internalized in the price.  For one, disasters such as hurricanes seem to strike more often so they're often more salient in homeowners' minds.  Additionally, many of the predictions often comprise of statements such as "more intense hurricanes are likely to hit X area over the next 8 years," which seems a little more digestable than "there is a 56.2% chance of having a huge earthquake somewhere in your relative vicinity over the next 50 years" which is how many earthquake studies read.

Given the housing prices in the San Francisco Bay Area, where I live, I find it hard to believe that climate change risk and earthquake risk are being appropriately priced into the housing stock around here.  That being said, it is also entirely possible that there are governmental programs that are distorting risk pricing as well.  Discount rates could play into this as well - I suppose many people will just discount away any risk beyond some threshold (see here for what economists tend to think about discount rates in comparison to observed discount rates).

If anyone has a good place to point me for articles comparing short run and long run distaster risks and how (or if) it is priced into housing stocks, I would be grateful for the reading!

Map of the day: Morehead City Harbor Federal Navigation Project

Source: http://www.protectthebeach.com/smp/bbrp/Pumpout/iop/2014/2014%20iop%20update.html

I was voted "most studious" in 8th grade

But we didn't have the internet. From the inbox:

We are 8th grades students at [redacted] School in [city]. We are currently doing a project about the North Carolina Ocean and coast in science. We need to teach a class to our classmates. Our topics are environmental and economical importance to out coast/ocean, environmental concerns, economic concerns relating to the coast, and human impact on the ocean/coast. We were wondering if you have any advice. Also, if you knew of an easy demonstration we could show our class to explain this more visually. Thank you for your help.

Here are a couple of great websites from NOAA:

1. National Ocean Service -- Economics: National Ocean Watch (ENOW) -- try the ENOW Explorer, county snapshots link, the webinar
2. National Marine Fisheries Service Economics Program -- try the Interactive Fisheries Economic Impact Tool and Fisheries Economics of the U.S. 2012

 

Well it's about dang time...

In the mail yesterday--get yours today (it will help our publisher recoup our whopping advance):

Beware when federal officials request innovative ideas

Here is another innovative idea, don't subsidize risky living:

A string of artificial islands off the coast of New Jersey and New York could blunt the impact of storm surges that proved so deadly during Superstorm Sandy, according to a new proposal.

It's a big proposal – one that would cost up to $12bn – but it's also the kind of innovative idea that federal officials requested as they consider how best to protect the heavily populated east coast from future storms. ...

The "Blue Dunes" proposal is part of a competition sponsored by the US Department of Housing and Urban Development to come up with novel ways to protect Americans against the next big storm. It is one of 10 projects that will be evaluated and voted on next week, but there's no guarantee any of them will receive funding. Other ideas include building sea walls around cities, re-establishing oyster colonies in tidal flats to blunt waves and creating water-absorbent nature and recreational preserves.

The artificial islands plan was created by Stevens Institute, along with the WXY architectural firm and West 8 Urban Design and Landscape Architecture. It is designed to blunt the worst effect of Sandy: the storm surge that pounded the coast. From Maryland to New Hampshire, the storm was blamed for 159 deaths, and New Jersey and New York alone claimed a total of nearly $79bn in damage. ...

The islands, 10 to 12 miles off the coast, would be uninhabited, although day trips for surfing or fishing might be allowed, Blumberg said. They would be built by pumping sand atop some hard base made of rock, concrete or other material.

Steve Sandberg, a spokesman for Senator Robert Menendez, a New Jersey Democrat, said funding for at least some of the proposals is already available as part of the $60bn in Sandy aid that Congress passed last year. Other money could come from disaster recovery grants as well as public and private-sector funding.

A gap would be left between the New York and New Jersey island groups to allow water from the Hudson River to flow out into the ocean.

Blumberg also said computer modeling has shown such islands would have produced vastly lesser damage during Sandy, Hurricane Donna in 1962 and the destructive December 1992 nor'easter.

Aside from the formidable cost, many other obstacles remain. ...

via www.theguardian.com

The most awesome part of the plan is that the $12 billion is already there! And every taxpayer in the U.S. has contributed! Why am I exclaiming like Mark Trail!

Hat Tip: Pearl

 

"Grimm-Cassidy Bill Seeks to Gut Biggert Waters Flood Insurance Reforms"

Rachel Cleetus:

In an extraordinary turnabout, House members seem set to abandon bedrock principles of fiscal conservatism by voting on a bill to undermine the Biggert-Waters flood insurance reforms. Those reforms would have put the highly-indebted National Flood Insurance Program (NFIP) in a more solvent position, benefiting taxpayers who have been footing the growing bill for costs of flooding. They would have also helped shine a light on the growing risks and costs of development along parts of our coasts threatened by sea level rise, storm surge, and flooding. ...

The Grimm-Cassidy bill goes even further than a Senate bill passed at the end of January that delayed Biggert-Waters reforms by four years, as well as a previous proposal sponsored by Representative Waters to delay provisions of the Biggert-Waters act. Rather than finding a sensible middle-of-the-road compromise that would protect coastal communities and taxpayers, the House seems to have resorted to an extremely short-sighted political maneuver.

The most damaging provision in the bill (see section 4) seeks to permanently restore grandfathered insurance premiums, in some cases based on decades-old flood risk maps. To pay for this costly provision, the bill also imposes a surcharge on all policyholders regardless of their true flood risk (see section 6). The annual surcharge would be $25 for most homeowners and $250 for businesses and second homes. ...

Rather than addressing genuine affordability concerns in an environmentally responsible way, this bill perpetuates and furthers an unfair system where some of the most risky properties will continue to be subsidized at the expense of other policy holders and taxpayers. Wealthier property owners, who own a disproportionate share of the value of at-risk coastal property, stand to benefit the most. Furthermore, it will leave homeowners unaware of their true flood risks.

Of course, Congress must address flood insurance affordability. Phasing in premium increases more slowly and accompanying that with a means-tested voucher program are among the options they should explore, as we laid out in a memo to House members last week.

via blog.ucsusa.org

Wealthy vacation homeowners seem to have a lot of political power. Who would've thunk it?

Here is a link to my thoughts on the issue.