Environmental Economics

Typical of any good economist, I think I support both sides' positions on carbon pricing

On August 19, I was asked by and then subsequently rejected by a pro-carbon pricing group (Repower America) to participate in an energy bill summit for fear that I would point out the costs to Ohio of climate policy.  Later, I was asked by and I turned down the opportunity to particpate in a GOP led energy summit here on campus for fear that my pointing out the costs of carbon pricing policy to Ohio would overshadow my belief in the benefits. 

Like this (from the Columbus Dispatch yesterday):

U.S. House Minority Leader John Boehner and other GOP House members pressed their case in Columbus yesterday against climate-change legislation, charging that it would drive more jobs out of ailing Ohio...Opponents say that "cap and trade" would unfairly harm states such as Ohio that are heavily dependent on coal-generated electricity.

So where exactly do I come down on carbon pricing?  I'm glad you asked. 

Below is an overview from an Executive Summary that I put together back in April of some ongoing research I am involved with on carbon pricing.This executive summary is in the hands of GOP and Democratic representatives from Ohio.

More dam economics

Another reason to hate Duke (SC Board denies Duke hydro permit):

Regulators in South Carolina refused today to grant Duke Energy a water-quality certification the utility needs to renew its hydroelectric license for the Catawba River. ...

Two environmental groups, the S.C. Coastal Conservation League and American Rivers, had challenged the S.C. certification. They said it would have allowed Duke to release too little water from its dams for aquatic creatures, including the endangered shortnose sturgeon. ...

Duke has worked to renew its Catawba license, first granted in 1958, for several years. License renewal would allow Duke to continue managing the river and 11 Catawba reservoirs for up to 50 more years.

30 premature deaths + 2,000 missed work days + 9,000 coughs = $325 million

From the EPA:

Invista will pay a $1.7 million civil penalty and spend up to an estimated $500 million to correct self-reported environmental violations discovered at facilities in seven states, the U.S. Environmental Protection Agency (EPA) and the U.S. Justice Department announced today. The company disclosed more than 680 violations of water, air, hazardous waste, emergency planning and preparedness, and pesticide regulations to EPA after auditing 12 facilities it acquired from DuPont in 2004.

“By correcting these violations, Invista will reduce harmful air pollution by nearly 10,000 tons per year,” said Catherine R. McCabe, Acting Assistant Administrator of EPA’s Office of Enforcement and Compliance Assurance. “Invista is making a clean start in a settlement that achieves significant environmental benefits, and we encourage other new owners to do the same.”

...The emission reductions resulting from correcting these violations will result in estimated annual human health benefits valued at over $325 million, including 30 fewer premature deaths per year, 2,000 fewer days/year when people would miss school or work, and over 9,000 fewer cases of upper and lower respiratory symptoms.

I'm thinking there are more benefits somewhere* because $501.7 million cost > $325 million in health benefits.

CORRECTION: Reader Matt kindly pointed out my idiocy.  The $325 million is annual.  At 10% interest that's $3.25B in total health benefits.  And according to my finely tuned math senses that's more than $501.7 million in cost. 

*Or self-reported violations aren't subject to BCA?

Shock*: Pricing carbon will cause economic adjustments

Foxnews seems surprised that global carbon pricing would result in changes in the allocation of carbon based production.

In the stultifying** language that is normal for important U.N. conclaves, the negotiators are known as the "Ad Hoc Working Group On Further Commitments For Annex I Parties Under the Kyoto Protocol." Yet the consequences of their negotiations, if enacted, would be nothing short of world-changing.

Fox's concern seems to be over competitive disadvantages caused for high-carbon economies.  There's nothing surprising in a UN report that says that if carbon is priced globally there will be world-wide distributional adjustments.  The real question is, what sorts of policies will need to be enacted to ensure efficient (fair?) outcomes for the countries involved?

Here's how Fox sees it (and then I'll interpret)...

Relative prices, lump sum transfers and Carbon Cap and Trade

Dave Roberts at Grist asks:

How would rebating carbon revenue to taxpayers give anyone incentive to reduce emissions?

Since Dave is such a fan of economics (and me in particular), I thought I would take a shot at explaining this one (given my past sarcasm, I know that might sound condescending.  No condescension is implied.  This is an interesting and important question and something to which I think economists can add valuable insight).

Every president since Reagan has embraced benefit-cost analysis in one way or another

Aguanomics beat me to it:

from the RESECON listserv:

Clinton's Executive Order 12866 dictates when federal agencies must conduct a cost-benefit analysis and submit it to the Office of Management and Budget for review before a regulation can be issued.

President Obama issued a memo to agency heads on January 30, 2009 directing the OMB Director, in consultation with federal agencies, to produce a set of recommendations within 100 days for a new E.O. on Federal Regulatory Review.

A Federal Register notice published on February 26, 2009 opens the process to comments from the general public.

If you have ever wished you could weigh in on the analysis and review process, here is your opportunity. The comment period closes on March 16, 2006.

View the FR notice and submit (or view others') comments here.

[In case the link doesn't work, from the http://www.regulations.gov page, paste OMB-2009-0008-0001 into the search box and you'll get a link to the correct docket. Also, turn off pop-up blockers.]

Are payments for environmental services in the President's new budget?

High school friend of Env-Econ (Chuck) asks: what are your thoughts on the farm part of this?  First an excerpt:

On agriculture, wealthy farmers would get less money from the federal government -- and none, three years down the line -- under proposals in Obama's first budget.

Obama's proposed fiscal year 2010 budget "phases out direct payments over three years to farmers with sales revenue of more than $500,000 annually," according to the list.

At present, "direct payments are made to even large producers regardless of crop prices, losses or whether the land is still under production."

But according to the list, "Large farmers are well-positioned to replace those payments with alternative sources of income from emerging markets for environmental services, such as carbon sequestration, renewable energy production, and providing clean air, clean water, and wildlife habitat."

The new proposed budget cuts the Market Access Program which provides "funding for overseas brand promotion." It cuts cotton subsidies and "proposes to eliminate the requirement for the government to pay the storage costs of cotton that is put under loan by the USDA. Cotton is the only commodity for which this assistance is provided."

My thoughts?  Jublilation. Joyous vindication.  Disciplinary pride. 

Reducing or removing inefficient farm income policies is long overdue...with the added bonus of cheaper food.  Sounds like a win-win to me.

Well-intentioned, but slightly misguided, opinion on higher gas prices

From the Christian Science Monitor, via Yahoo!:

Remember last summer, when gas prices broke new records every day and the era of "energy independence" was on the horizon? Gas is half what it was then, but not for long. When OPEC's planned production cuts hit, tightening the global supply of oil just when economies are poised to resume growth, the world may well face the worst oil crunch in history.

The way to avert the brunt of that? It might not be pretty at first, but a price floor – a government-mandated minimum – on retail gas will buy us the time we need to wean us off the oil.

I like the intent, but binding price floors cause screwy incentives for producers to overproduce. A better solution is to simply increase the federal gas tax by $1 ($2) a gallon.  Same set of incentives without the mismatch between what producers want to produce and what consumers want to buy.  Making that change (tax rather than price floor), the rest of the opinion makes better sense...

Stavins on Economics in Environmental Policy (sort of)

Taking this slightly out of context to fit in with the current discussion of the role economists play in the formation of environmental policy (see here and here), here's a quote from Rob Stavins blog:

The bottom line is that no particular form of government intervention, no individual policy instrument – whether market-based or conventional – is appropriate for all environmental problems.  There is no simple policy panacea.  The simplest market instruments do not always provide the best solutions, and sometimes not even satisfactory ones.  If a cost-effective policy instrument is used to achieve an inefficient environmental target — one that does not make the world better off, that is, one which fails a benefit-cost test – then we have succeeded only in “designing a fast train to the wrong station.”  Nevertheless, market-based instruments are now part of the available environmental policy portfolio, and ultimately that is good news both for environmental protection and economic well-being.

I would just hate for such an unreasonable position to influence policy (heavy sarc intended).

Environmental Economics vs Environmentalism

Yesterday, Dave Roberts at Grist posted his strong (extreme?) views on economists' influence on public policy--environmental policy in particular.  Rather than resort to my usual sarcastic responses, I'm going to try to put together a cohesive substance-filled argument as to why this goofy back and forth between environmentalists and economists is completely counterproductive. 

First the upshot (in case you get bored reading): We're on the same side. 

It always strikes me as odd when environmentalists attack environmental economists and particularly attack the successes environmental economists have had in influencing environmental policy.  Without data to back me up (we're blogging afterall) I'm very comfortable in saying that environmental economists have had as much if not more success in getting effective environmental regulation passed than the entire environmental lobby.  How do I define effective?  Reductions in environmental impacts at least cost to society.

Why then the extreme position by some environmentalists that economics is evil? 

I'm not going to try to answer that, you'll have to ask them, but I would like to address a couple of points that Roberts makes...