Environmental Economics

Daily Demand and Supply: Bill Nye Explains the Law of Demand...and Carbon Pricing, MFers.

Warning:  NSFW (Unless you work at a University and part of your job is to watch stuff like this and post it on a blog).

The highlights of this have been around all week, but most of the clips are just Bill Nye the Science Guy saying "motherf***ers.   But this segment on Last Week Tonight really does a nice job of simply explaining how Carbon Pricing works.  If you don't want to watch the whole thing, just fastforward to the 9:27 mark or so, and sit back and enjoy.

Bill Nye explains the Law of Demand from 10:21 to 10:37.

Now if I can just figure out how to use this in class without trigger warnings.

5 out of 7 continents isn't bad, right?

We're working on PhD recruitment this week (if you applied to OSU AEDE and were accepted, join us, we're FUN!).  I put together a Google map with our PhD placements since 2007.  A bit scary that I might be influencing thinking for this many people and this wide an area.   

 

Is Climate Change Fair?

Just got around to reading the Hsiang et al piece in Science on the inequitable economics impacts of climate change.  Here's the abstract:

Estimates of climate change damage are central to the design of climate policies. Here, we develop a flexible architecture for computing damages that integrates climate science, econometric analyses, and process models. We use this approach to construct spatially explicit, probabilistic, and empirically derived estimates of economic damage in the United States from climate change. The combined value of market and nonmarket damage across analyzed sectors—agriculture, crime, coastal storms, energy, human mortality, and labor—increases quadratically in global mean temperature, costing roughly 1.2% of gross domestic product per +1°C on average. Importantly, risk is distributed unequally across locations, generating a large transfer of value northward and westward that increases economic inequality. By the late 21st century, the poorest third of counties are projected to experience damages between 2 and 20% of county income (90% chance) under business-as-usual emissions (Representative Concentration Pathway 8.5).

Here's a pretty picture (with a really long caption) that sums things up:

Caption: County-level median values for average 2080 to 2099 RCP8.5 impacts. Impacts are changes relative to counterfactual “no additional climate change” trajectories. Color indicates magnitude of impact in median projection; outline color indicates level of agreement across projections (thin white outline, inner 66% of projections disagree in sign; no outline, ≥83% of projections agree in sign; black outline, ≥95% agree in sign; thick white outline, state borders; maps without outlines shown in fig. S2). Negative damages indicate economic gains. (A) Percent change in yields, area-weighted average for maize, wheat, soybeans, and cotton. (B) Change in all-cause mortality rates, across all age groups. (C) Change in electricity demand. (D) Change in labor supply of full-time-equivalent workers for low-risk jobs where workers are minimally exposed to outdoor temperature. (E) Same as (D), except for high-risk jobs where workers are heavily exposed to outdoor temperatures. (F) Change in damages from coastal storms. (G) Change in property-crime rates. (H) Change in violent-crime rates. (I) Median total direct economic damage across all sectors [(A) to (H)].

Env-Econ Summary: We're all screwed, just some of us are screwed more than others.   

Raise your hand if you want to work with me...

The Department of Agricultural, Environmental, and Development Economics (my department) in the College of Food, Agricultural and Environmental Sciences (my college) at The Ohio State University (my university) is hiring for four new faculty positions--and I am not ashamed of taking advantage of this blog to promote the positions.  If you have (or are close to earning) a PhD with interests in agricultural economics, environmental economics, regional economics, development economics or some combination of those fields along with other interests, then we can probably align your interests with one of our four positions. 

Come join me in a top rated department (according to the National Research Council at least) in a top 20 public university (according to US News at least) in the Best Opportunity City in the U.S. (according to Forbes at least).

Our open positions are:

• Assistant or Associate Professor in Global Economic Modeling: a tenure-track assistant/associate professor position in the area of global economic modeling and integrated assessment. Economic modeling approaches of particular interest include dynamic optimization and computable general equilibrium modeling, as well as familiarity with approaches for handling decision making under uncertainty. Individuals with experience integrating economic models with physical/biological models are encouraged to apply.
• Assistant or Associate Professor in Sustainable Food and Farm Policy:  tenure-track assistant/associate professor position to conduct innovative research on policies related to food, farming and sustainability and to provide intellectual leadership to the Department and to the University’s Discovery Theme Initiatives in the area of sustainable food and farm policy. 
• Assistant Professor in Agribusiness: a tenure-track assistant professor with teaching and research responsibilities in agribusiness.  Applicants with interests in agricultural markets and marketing, finance, supply and demand analysis, industrial organization, international trade or agricultural and food policy, that complement a primary interest in agribusiness are encouraged to apply.
• Assistant or Associate Professor in Sustainable Development and Economy: an assistant/associate professor, tenure-track position to develop an internationally recognized program of research and teaching focused on sustainable development and the trade-offs among economic development, social equity and environmental protection in international or regional contexts.  Areas of interest include, but are not limited to: economic growth; equity; resource use; technological change; socio-ecological systems; sustainable and resilient communities. 

Click on the links for full descriptions and application info.  

Wetland mitigation banking as environmental finance

There is a lot of economics and finance in this one (Envisioning profit in environmental good works):

While the state government has developed a detailed master plan for wetlands restoration in the region, and money has been promised from the federal government and the BP settlement of the 2010 oil spill, this project is getting its funding from a private equity firm. The company, Ecosystem Investment Partners, intends to profit from its good works by selling environmental restoration credits to private developers and government agencies like the Army Corps of Engineers, which need them to offset environmental damage done by their projects.

Such mitigation banks have been allowed for two decades under provisions of the Clean Water Act, but private-sector work tends to be done on a small scale to offset the effect of a single project — say, by placing a frog pond next to the new Walmart — and it tends to be unconnected to any larger environmental purpose. This project is remarkable for its ambition and scope: The company has raised $181 million from investors for this and other projects, and has bought 16,500 acres of this swamp. It could spend, by some estimates, $30 million here. ...

The process of making money out of restoring wetlands is complex, but it comes down to straightforward market principles. A policy developed under the first President George Bush calls for “no net loss” of wetlands, so when developers and government agencies tackle projects that drain or fill wetlands, they need to offset the damage either by restoring an equivalent amount of wetlands or by buying the credits from the restoration work done by others. ...

The current phase of the Chef Menteur project, a 508-acre chunk, will ultimately be worth 508 credits under the federal system. Ecosystem Investment Partners can negotiate the value of each credit with the buyers, with the price depending on factors that include the availability of other projects in the same area, the ability of the potential buyer to do its own mitigation projects and how badly the buyer needs the credits.

A federal rule issued in 2008 established a preference for any entity that damages wetlands, including the government, to use mitigation banking over doing the work itself — in part because specialists are more likely to do a better job and to tie the work to broader environmental goals. The preference could encourage private-sector involvement. That is where Ecosystem Investment Partners and similar groups come in, taking on the work and allowing the builders to focus on their projects.

But the field has yet to really take off because, as a recent paper from two Yale-trained researchers put it, the work can be expensive and financially risky, while the size of projects has tended to be too small to attract institutional investors like pension funds and university endowments. ...

Who puts money into the risky proposition of restoring swamps for profit? One of the investors is the Lincoln Institute of Land Policy, a nonprofit based in Cambridge, Mass. Katie Lincoln, the chief investment officer for the group’s half-billion-dollar endowment, said she put $10 million into Mr. Dilks’s company not as an environmental do-good project but as an investment that she expected would generate returns. “This is not a charity for us,” she said.

Some of the credits become available when the restorer commits to the project, but the full measure of credits will not be accessible until the project has been completed and has proved successful for five years. Mr. Dilks acknowledged that his company was taking on risk that extended over several years — but said calculating risk was part of what investment fund managers like himself were paid to do. Still, he said, “if you don’t have patient, long-term capital behind you, it’s really hard.”

Too much for me to have anything to say.

From the Mrs. Obvious Files

Ohio is leading a group of drilling states working with seismology experts at energy companies, government agencies and universities across the U.S. on how best to detect and regulate human-induced earthquakes.

How do you regulate an earthquake?

The initiative follows Ohio's discovery in April of a probable link between the drilling practice called hydraulic fracturing, or fracking, and five small tremors in eastern Ohio, a first in the Northeast. In 2012, Gov. John Kasich (KAY'-sik) halted disposal of fracking wastewater surrounding a well site nearby after a series of earthquakes later tied to a deep-injection well.

Wise decision.

Ohio Oil & Gas Chief Rick Simmers tells The Associated Press state regulators seek up-to-date information in developing appropriate detection procedures and regulatory practices.

How about stand nearby and if the ground starts shaking, well, you've detected an earthquake.

One environmentalist, Teresa Mills, says ending fracking is the most effective way to halt the quakes.

Gee, ya think?

via news.yahoo.com

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!

Well it's about dang time...

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

I'm not sure this is what Coase had in mind

It's a property rights dispute.  Seems there should be a bargain to be struck.  But only if both sides are wiling to play by the rules.  Which apparently neither side is...

A 20-year dispute between a Nevada rancher and federal rangers over illegal cattle grazing erupted into an Old West-style showdown on the open range this week, even prompting self-proclaimed members of militia groups from across the country to join the rancher in fighting what they say is U.S. "tyranny."

What began as a legal fight between longtime rancher Cliven Bundy and the U.S. Bureau of Land Management has escalated as Bundy kept his cattle on the federal land, and the government has responded by beginning roundups of the livestock.

...

To environmentalists and the feds, however, he's an outlaw of sorts who owes U.S. taxpayers more than $1 million in unpaid grazing fees.

The U.S. government is rounding up Bundy's cattle that it says have been grazing illegally on public lands in Clark County for more than 20 years, according to the land-management bureau and the National Park Service.

Between Saturday and Wednesday, contracted wranglers impounded a total of 352 cattle, federal officials said. Bundy says he owns 500 of the more than 900 cattle that federal officials are planning to confiscate for illegal grazing, the Las Vegas Review-Journal reported. Bundy told the newspaper that each head of his livestock is worth about $1,000.

via www.cnn.com

Q: What do you get when you cross environmentalists with Tea Partiers?*

A: Common ground on the bad environmental economics of the ethanol mandate.

The summary:

This week, the EPA is expected to announce changes to the ethanol mandate, a 2007 law that requires energy companies to mix billions of gallons of ethanol into gasoline and diesel fuels. After six years in the mix, corn-based ethanol has lost its popularity, and a diverse group of critics is calling for the law's repeal.

Why are environmentalists in favor of a rollback/repeal?

Though ethanol fuel releases less carbon dioxide than other kinds of gas, many question if the side effects of production are worth it...Growing corn requires fertilizer, which requires natural gas to make. Fertilizer also has contaminated rivers and drinking water, says the report. And ethanol factories usually burn coal or gas, which dumps carbon dioxide into the atmosphere.

Why are Tea Partiers in favor of a rollback/repeal?

Other opponents complain the mandate — like any energy subsidy — is free market poison, claiming it "distorts fuel markets and will raise gasoline prices, especially as the increased blending requirements collide with declining demand for gasoline," reports Politico.

Strange bedfellows indeed.

And who is in favor of keeping the mandate?

Meanwhile, the ethanol industry is asking the AP to retract the story. “At best, the AP article is lazy journalism, but at worst, it appears purposefully designed to damage the ethanol industry,” American Coalition for Ethanol Executive Vice President Brian Jennings said in a statement to the press. “There was an incredibly reckless disregard for the truth in the handiwork of this hit-piece.”

And who is the American Coalition for Ethanol?

ACE is a non-profit, membership-based organization with about 1,500 members including:

• ethanol producers
• farmers
• investors
• the agriculture community
• industry suppliers
• rural electric cooperatives
• others supportive of ethanol.

Hmmmm.

*Partial credit if you answered 'Tim'