Environmental Economics

Finally, we're running government like a business (a bad one)

When there is an increase in demand a business firm will increase output. In the case of a park, you need more employees to make sure the quality of the product stays high. But, no:

Handling throngs of visitors has long been a tough task for a dwindling number of Park Service employees. The task has gotten tougher as visitation has jumped and staffing has shrunk.

The amount of full-time equivalent park employees in the National Park Service fell 20% between the 2010 and 2023 fiscal years, according to federal data. Park visitation rose 16% to 325.5 million over that stretch, and the park service got more land to oversee.

Officials now face difficult choices about how to manage some of America’s most prized parcels of land. In smaller parks, they close visitor centers and bathrooms and stop tours when they don’t have staff to manage them. Travelers say they’ve come to expect reduced services or to spend a good chunk of their day waiting in line at popular parks. Rangers report more vandalism and damage. ...

In larger parks such as Zion, funding from nonprofit partners and labor from volunteers helps fill gaps. How best to staff the park remains an exercise in triage, former employees say. Visitation has increased over 70% since 2010 at Zion. It welcomed more than 4.6 million people in 2023. The number of full-time equivalent employees has dropped about 8% in that stretch, according to federal figures. ...

Visitation to parks accelerated during the Park Service’s centennial celebration that began in 2015, then skyrocketed during peak pandemic years.

Government funding for staffing hasn’t kept up. Republicans and Democrats are at odds over how much more that funding could shrink. The latest funding bill, which passed the House before the summer recess, would eliminate more than 400 positions next year, according to Democrats on Capitol Hill. A spokeswoman for the Republican-led House Appropriations Committee says a recent one-time influx was enough to restore some past staffing cuts and that the number of personnel assigned to parks isn’t directly correlated to budgets.  

The National Park Service manages an appropriated budget of about $3.5 billion when it needs closer to $5 billion for staffing and capital improvements, says Kristen Brengel, senior vice president for government affairs at the National Parks Conservation Association, a nonprofit advocacy group.

Some of the other problems mentioned in the article are due to crowding and we're not quite ready to ration the popular National Parks to reflect capacity constraints or the realities of reduced government funding. 

Source: America’s National Parks Are Beset by Long Lines, Increased Vandalism (WSJ)

A pure example of free market environmentalism (almost)

From the local paper (Foothills Conservancy making progress to permanently protect iconic Blowing Rock view): 

Foothills Conservancy of North Carolina announced significant progress toward the purchase and permanent protection of a 332-acre parcel of land in Blowing Rock that contains the headwaters of the Johns River and is part of an iconic view seen from The Blowing Rock attraction, U.S. 321 and other locations within the town limits of Blowing Rock.

The property is positioned on the Blue Ridge escarpment, partially located in both the Blowing Rock and Globe communities of Caldwell County, and is part of the viewshed corridor of the immediate sweeping and magnificent mountainous panorama. The Johns River, a major tributary of the Catawba River, begins on the property, and the land harbors a number of significant natural communities and threatened plant and animal species documented by the North Carolina Natural Heritage Program.

Leveraging its experience and national reputation for successfully protecting high-value conservation projects, Foothills Conservancy has raised over $3,200,000 for the permanent protection of this land. The Conservancy has received substantial grant funding for this project from the North Carolina Land and Water Fund, the N.C. Department of Justice’s Ecosystem Enhancement Grant program, and a recently awarded $200,000 grant from the Glass Foundation. Thanks to this grant funding, and combined with considerable support from several private donors, Foothills Conservancy is now only $750,000 shy of reaching its overall fundraising goal of $4 million.

We teach that voluntary contributions will come up short when allocating goods that you can't exclude anyone from consuming it and anyone's consumption doesn't negatively affect another's consumption. Free market environmentalists point to the work of conservancies as a counter example. So, two things:

• The "Blowing Rock" view is excludable, it costs me $9 to see that particular view and I've never been even though it is only 20 minutes away (there are good substitutes). 
• The Foothills Conservancy does great work in the private sector but, like many conservancies, they are getting help from the government. 

You can make a contribution to this public good at the Foothills Conservancy webpage: https://www.foothillsconservancy.org.

Note: Photo courtesy of Foothills Conservancy via the Watauga Democrat.

Env-Econ Book Review: The Fishermen and the Dragon

I just finished reading Kirk Wallace Johnson's The Fishermen and the Dragon: Fear, Greed, and a Fight for Justice on the Gulf Coast. Here's my book review (from the view of an Environmental Economist of course).

The Fishermen and the Dragon tells the true story of the evolution of the Texas Gulf Coast crab and shrimp fisheries in the post-Vietnam era. The era is important to the story because tension builds along the Texas coast when post-war Vietnamese refugees locate to the Gulf Coast creating economic competition and (racial) tension between the existing anglers and the refugees. The racial tensions play out against the backdrop of the encroachment of the Ku Klux Klan into post-war political asylum issues and the the environmental problems that come along with rapid industrialization of the Gulf Coast. 

So why would an environmental economist care? Honestly the story has a bit of everything: Tragedy of the commons, Coasian bargaining, Ostrom-like institutional building, credible (and incredible) threats, industrial organization, the role of government in regulating the commons, natural resource damages (oil spills), environmental and health externalities, social and environmental justice. 

Part Erin Brokovich (an initially reluctant environmental crusader), part John Grisham-like southern legal thriller tinged with undertones of racism, part Pat Conroy-like description of the hardships of coastal life, this true story reads like a popular fiction thriller.

If I have one complaint, it would be that there is a slight disjoint between the story of race tensions between the refugees and local fishers, and the story of corporate greed and environmental disaster. There is overlap in the main characters, but stories seem to be separated in both time and presentation.

Nevertheless, a good read with Env-Econ lessons abound. 

I give it a solid four out of five beers raised.

 

You just have to take some time to get to know Congestion Pricing

New York City will implement its first congestion charge program by the end of 2023... perhaps. The charge was passed in 2019 but has faced delays until present. Unsurprisingly, New Yorkers don't love it... but it will grow on them (if you'll forgive my out of sample prediction). The figure below reports percent of residents supporting congestion charges across five different cities:

In history, even business owners don't oppose the tax. In theory, demand falls for businesses within the congestion zone as it becomes more expensive to access these places. However, demand can also rebound for these places as customers realize reductions in the time costs of travel to get into the city. Leape (2006, Journal of Economic Perspectives) discusses survey results suggesting congestion pricing is OK by many commercial places: 

"A survey of 500 firms carried out in early 2004 found that 72 percent of
businesses felt that the road charging experiment was working (with 14 percent
saying it was a failure) and 58 percent felt it improved London’s image (with 15
percent saying it gave London a bad image to outsiders). Overall, a plurality of
firms felt the impact on London’s economy was neutral (32 percent) with equal
numbers identifying positive and negative effects (26 percent) (Clark, 2004)."

All the while, vehicle entry to London fell by 27% and time spent sitting at idle or traveling less that 6mph fell by 33%. 

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. 

Where's my carbon dividend check!? Semi-coherent thoughts on the Inflation Reduction Act

While teaching emissions control policies this last week to my undergraduates, I revisited my signature of the Economists’ Statement on Carbon Dividends (now signed by over 3600 economists). It’s been four years since the origin of the statement, and despite it being the most agreed-upon policy statement in the history of economics, no federal greenhouse gas emissions charge exists today.

At the time (January of 2019), the earth sat at about 1 degree Celsius above long-term average predictions, gaining at about 0.2 degrees Celsius each decade on average. That puts us above the 1.5 degree threshold set by the Paris Agreement in 2015 by around 2050. I’ll be alive for this…

As an aside: when I think about 0.2 degrees in a decade I think about turtles…

“A few degrees make a huge difference. At sand temperatures of 31.1 degrees Celsius (88 degrees Fahrenheit), only female green sea turtles hatch, while at 27.8 degrees Celsius (82 degrees Fahrenheit) and below, only males hatch.” – Buis (2019) “A degree of Concern: Why Global Temperatures Matter”

Back to the point…what initially attracted me to the economists’ statement was its simplicity; the way it seemed to cut through all of the common issues of aggressive climate policy. A carbon tax with a border adjustment and level dividend checks to all US households. Put a bow on it! It avoids all the costly, small-sided, industry-by-industry negotiations of thresholds or a la carte subsidy creation. It’s nearly immune to rent-seeking by lobbyists. In fact, an emissions charge provides the incentive for polluters to do BETTER than these thresholds, avoiding the tax altogether if possible (0 emissions). I was in love.

Then, the Inflation Reduction Act (strange name for a climate bill, but I’ve always enjoyed aligning economic and environmental incentives, so I dig it) dropped in 2022 with no emissions charge. The largest, most coherent climate strategy of all time in the US came to be and the near-entirety* of my profession was ignored! WHAT!?! I’m grateful khakis are coffee-stain colored. How are we to react to this?

My gut was to get pissed at politics. K-street won again... a lot of subsidies in this bill! But, in theory, subsidizing a perfect substitute can serve as an implicit (and equal) tax on the unsubsidized good, ceteris paribus. For example, power generation is a quarter of the GHG emissions problem (EPA). By some estimates, the carbon dividend policy’s emissions reductions would be achieved largely through the power sector (80% of emissions reduced, according to a Columbia University Center on Global Energy Policy report by Kaufman and Gordon, 2018). The Inflation Reduction climate bill provides payments to prevent nuclear decommissions, as well as tax credits for renewable energy generation. According to a blog post by Noah Kaufman just last week, this amounts to a $70/ton implicit emission charge on natural gas and $30/ton charge on coal… not perfect substitutes, but substitutes all the same.

So, perhaps just as the major climate bill is hidden in an inflation bill, our beloved carbon tax is dressed as a subsidy for strong carbon substitutes. If power generators (and perhaps households) do not switch to the cleaner, cheaper inputs, they are taxing themselves. And I do like Paul Krugman’s argument here as well… the carbon tax is good at incentivizing firms to find new ways to reduce emissions (using given tech), but weak in getting firms to discover new technologies to reduce. In his NYT opinion piece, he notes that the massive cost reductions for renewable energy got their big nudge from government aid. That is, of course, in the absence of a carbon tax… we don’t have a world where we observe tech advancements under a carbon tax. But, given the cross-aisle political throwdowns that happen with anything named “tax”, perhaps green energy subsidies (aka implicit dirty-energy taxes) are as good as we can do?

There’s more to pick at in the IRA. For the reasons I disliked clunky, source-by-source regulation, this bill seems to have a lot more transaction costs than a carbon tax would cause. But, I haven’t well-combed the CBOs estimates enough to see if administrative burdens are considered a cost.  Additionally, I supported lump-sum revenue distribution for environmental justice concerns. While it appears the IRA’s subsidies to lower energy costs (and incentivize heat pumps and the like) target the vulnerable, there’s more to study about the distributional impacts of to the tax part of the bill… which, to be fair, is a focus of the bill... for another post. 

*yes, 3600 = ALL of us

Water, water, nowhere?

Growing up on the east coast, and now living in the mid-west, water quantity has never been an issue for me or my work (water quality is an issue, but quantity, less so). APPARENTLY* water quantity is an issue in the western U.S. So how do you solve the common resource problem when the water sources flow/pass through at least seven states? By ignoring the elephant (California) in the room:

The seven states that depend on the Colorado River have missed a Jan. 31 federal deadline for reaching a regionwide consensus on how to sharply reduce water use, raising the likelihood of more friction as the West grapples with how to take less supplies from the shrinking river.

In a bid to sway the process after contentious negotiations reached an impasse, six of the seven states gave the federal government a last-minute proposal outlining possible water cuts to help prevent reservoirs from falling to dangerously low levels, presenting a unified front while leaving out California, which uses the single largest share of the river.

The proposed pact between the other six states (Arizona, Colorado, Nevada, New Mexico, Utah, and Wyoming) lays out a plan to preserve water in Lake Mead (Nevada) and Lake Powell (Arizona):

The Consensus-Based Modeling Alternative includes, but is not limited to, the following modeling criteria for [Bureau of Reclamation] to consider and analyze:

• Adjustments to the existing ‘07 Guidelines, including reduced releases from Lake Powell and Lake Mead to ensure the deliverability of water downstream and power production.
• Adjustments to Lower Basin contributions required under Drought Contingency Plan.
• Accounting for more than 1.5 million acre-feet of losses within the Lower Basin that are necessary to protect infrastructure.
• Additional combined reductions of 250,000 acre-feet to Arizona, California and Nevada at Lake Mead elevation 1,030 feet and below.
• Additional combined reductions of 200,000 acre-feet to Arizona, California and Nevada at Lake Mead elevation 1,020 feet and below, as well as additional reductions  necessary  to protect Lake Mead elevation 1,000 feet.
• Actions outlined within the Upper Basin State’s Drought Response Operations Agreement.
• Additional voluntary conservation measures that take into account hydrologic shortage in the Upper Division States.

It's going to be interesting to water whether the group of six can hold together their coalition against the influence of California:

“While our goal remains achieving a seven-state agreement, developing and submitting this consensus based alternative is a positive step forward in a multi-phased environmental review process critical to protecting the Colorado River system.” said John Entsminger, Southern Nevada Water Authority General Manager.

*Facetious

By pure coincidence, I am the Founding President and Grand Poobah of the newly established National Center for the Valuation of Natural Capital at THE(tm) Ohio State University*

Thirty years ago, I proposed a dissertation topic to establish a set of national income accounts for Green National Income. It was rejected as too grand (and honestly, I had no idea what I was talking about at the time). Fast forward to news out of Davos yesterday:

President Joe Biden’s administration will launch an effort to more accurately count the nation’s natural resources in official economic statistics, saying the data are needed to give a true picture of US output.

This is the next big step in the evolution of the field environmental valuation, and a potential boon for recruiting PhD students to Universities that specialize in valuation (ahem).

*Not true, but I often (once?) tell people that TOSU has the largest collection of experts in environmental valuation at any University. I have no idea if that is true, but I've yet to be proven wrong. 

 

The Information Value of Pigouvian Pricing

I recently read an article in the journal Economics and Philosophy, written by Lisa Herzog, which has nothing whatsoever to do with environmental economics but nonetheless I think has interesting implications for it and for Pigouvian pricing in particular.  

In case you are unfamiliar with it, the journal Economics and Philosophy is a scholarly journal publishing articles on topics related to (wait for it) economics and philosophy.  And, often, the philosophy of economics.  This is an area that I have become interested in recently, influenced no doubt by my years as an undergraduate philosophy major.  

In the article, Herzog addresses and basically dismantles Hayek's model of the price mechanism in markets as being an efficient way of processing and distilling information necessary for buyers and sellers.  Hayek's idea is basically that the world is a complicated place, and markets have lots of complicated information about costs, benefits, demands, etc.  But, once markets determine a price for something, that price contains all of the information that buyers and sellers need to make their optimal decision. Herzog quotes Hayek: markets process "dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess." 

Herzog's argument is that Hayek is ignoring important pieces of knowledge that buyers and sellers need to make morally informed choices and that are missing from the price signal.  Without this information, or "epistemic infrastructures, market participants do not act as morally responsible agents: when acting in such markets, it often seems fair to say that they do not know what they are doing."  The motivating example is buying clothes made in sweatshops overseas.  The price mechanism contains lots of information about production and transportation costs, etc., but it is missing important moral information, like the conditions of the workers and their outside opportunities.  Without this information buyers cannot make morally complete (and therefore optimal) decisions.

What does this have to do with environmental economics?  Of course, when there are negative externalities (like pollution), the unregulated market price will not reflect those externalities and thus will not provide buyers and sellers the necessary information to make optimal choices.  This is not new; this is Pigou, and even the most die-hard Hayekian would admit that market failures like externalities need to be incorporated somehow into the price signal to achieve efficiency. (Aside: maybe it's not actually Pigou, according to this working paper by my colleague Spencer Banzhaf.) 

But I think there is a deeper and less obvious point than that.  Supposing that there is a Pigouvian price on pollution that accounts for its negative externalities.  Does this price still contain the necessary "epistemic infrastructure" for all buyers and sellers to make morally responsible decisions?  If the Pigouvian price is "right" then it accounts for the spillover costs, but it's not obvious that these costs are all that is morally necessary to make informed choices.   Just like with sweatshops, there potentially are moral considerations above and beyond any cost considerations (even spillover costs) that need to be incorporated.  It it not clear that a Pigouvian price would incorporate any of this. 

Anyways, some Pigouvian price on pollution is still no doubt better than no Pigouvian price on pollution, but there is potentially a strong argument to be made here based on Herzog's article that any Pigouvian price can't get us enough information to make morally optimal choices.  

Mnuchin vs. Thunberg vs. Neoclassical Economics

Last week Treasury Secretary Steven Mnuchin insulted climate activist and Time Person of the Year Greta Thunberg by claiming that she shouldn't talk about climate policy before studying economics and college.  When asked about her suggestion for public divestment from fossil fuel companies, Mnuchin said:

Is she the chief economist, or who is she? I'm confused. It's a joke. After she goes and studies economics in college she can come back and explain that to us.

Many environmental (and other) economists were quick to pounce on Mnuchin's comment.  Their point was that in fact the theory of market failure is a central component to college economics courses, even introductory or Econ 101 courses.  Climate-change-causing pollution is a textbook (literally) example of a negative externality that causes market failure.  To claim somehow that taking a college economics class will teach you that we shouldn't regulate climate change is idiotic, goes this argument.  Paul Krugman even wrote a NY Times column on the subject: 

One can only surmise that Mnuchin slept through his undergraduate economics classes. Otherwise he would know that every, and I mean every, major Econ 101 textbook argues for government regulation or taxation of activities that pollute the environment, because otherwise neither producers nor consumers have an incentive to take the damage inflicted by this pollution into account.

By this account, it's climate activists like Thunberg who really understand textbook economic theory, while libertarian-right-wing-small-government zealots like Mnuchin don't (or won't). 

This is all true, and Mnuchin deserves his ridicule.  However, I think there is also a sense in which he is (accidentally perhaps) correct.  While market failures and externalities are taught in every Econ 101 course (I hope), they are often taught as an afterthought or an aside.  The main focus of intro econ courses is more likely the efficient functioning of the market.  Many students come out of Econ 101 (which for most is the only economics course they'll take) thinking that basically economics teaches us that markets are great and go a better job than the government can (with some minor exceptions that I can't really remember).  

The conservative bias in Econ 101 is real.  It's been called Econ 101-ism, or Economism - the idea that the simplest supply and demand, invisible hand, perfectly-functioning markets examples from Econ 101 actually describe the real world, and therefore that the proper policy solution to almost anything is to cut taxes and reduce the size of the government. 

So Mnuchin might actually not be wrong - if Thunberg took a college economics class, she might come away from it convinced of the power of markets (though probably not - she's smart enough to see through that I would think).  This all points to a problem endemic to all of economics (not just environmental economics), which starts with the way it's initially taught.