Environmental Economics

Breaking news: "State parks won’t be closed because of the shutdown" (WSJ)

From the WSJ (National Parks Will Close if Government Shuts Down):

National parks will close their gates if lawmakers don’t pass legislation to keep the federal government funded by the end of this week.

The Biden administration announced Friday morning that sites run by the National Park Service will close if government funding lapses on Sunday. The administration will release a full contingency plan later Friday. The closures would roll out over the weekend and into Monday if a shutdown does occur, a senior Interior Department official said.

The closures will affect national parks, including sites like Yosemite and Yellowstone, and other monuments and sites like the National Mall and memorials in Washington, D.C. During the shutdown, thousands of park rangers will be furloughed.

Visitors will still be able to access some parks during the shutdown. While some parks have entry points that can be closed to guests, visitors could go to many other federally run destinations that are easier to access. State parks won’t be closed because of the shutdown.

The nonprofit National Parks Conservation Association, citing government data, projects that the parks could see nearly one million fewer visitors and an economic loss of as much as $70 million for every day that the destinations are closed in October.

Here is one reason to close them down:

During the most recent government shutdown, the Trump administration kept national parks open with lower staffing levels. As travelers continued to visit, trash and toilet facilities overflowed at some locations. Visitors also caused damage to some locations, including Joshua Tree National Park.

...

The Government Accountability Office rebuked the Trump administration for keeping the parks up and running. In a 2019 legal opinion, the GAO said the administration ran afoul of federal rules that dictate how money can be spent during a lapse in appropriations. The GAO also warned that similar moves in the future would be considered “knowing and willful violations” of the law.

Thanks Kevin!

Oh, and the WSJ felt obliged to add this:

State parks won’t be closed because of the shutdown.

Because ... um, they're state parks?

Peak oil (demand)

From the WSJ (Oil Demand Expected to Peak This Decade as EVs Boom): 

Rising demand for crude oil is set to slow to a trickle within five years and peak before the end of the decade, as electric-vehicle uptake surges and developed nations rapidly transition to cleaner sources of energy, according to a prominent energy forecaster.

The International Energy Agency, a group funded by some of the world’s largest oil consumers, expects demand for transport fuels derived from oil such as gasoline will be the first to peak before starting a steady decline—hastened by a sharp uptick in EVs and a long-lasting shift to remote working spurred on by the Covid-19 pandemic.

Rapidly growing Asian economies will continue to prop up the global appetite for oil in the coming years, and demand for jet fuel, naphtha and other oil products with industrial uses will continue to tick higher, the IEA said in a report released Wednesday. But even in China, which has long been the powerhouse of global oil demand, the appetite for crude will slow markedly before the end of the decade. India will surpass China as the main driver of oil growth as soon as 2027, the IEA said.

The forecast, which the IEA made in an annual report that considers oil demand as far away as 2028, isn’t the first time the Paris-based group has laid out a timeline predicting a zenith for oil. But it envisages a far more rapid shift away from fossil fuels than previously expected—a shift that has been sharply accelerated by the Covid-19 pandemic and the energy crisis that followed Russia’s invasion of Ukraine.

Joe Manchin: “If I can’t go home and explain it to the people West Virginia, I can’t vote for it. I just can’t. I’ve tried everything humanly possible. I can’t get there,”

The latest attack on private enterprise baffles

If I hear 'woke' used as a slur one more time ... it won't be the last time because, evidently, it is good for ratings (How Environmentally Conscious Investing Became a Target of Conservatives): 

It’s been a widely accepted trend in financial circles for nearly two decades. But suddenly, Republicans have launched an assault on a philosophy that says that companies should be concerned with not just profits but also how their businesses affect the environment and society. 

More than $18 trillion is held in investment funds that follow the investing principle known as E.S.G. — shorthand for prioritizing environmental, social and governance factors — a strategy that has been adopted by major corporations around the globe.

Now, Republicans around the country say Wall Street has taken a sharp left turn, attacking what they term “woke capitalism” and dragging businesses, their onetime allies, into the culture wars.

I thought the article would point out how certain people in Congress were concerned that the government was investing people's money in underperforming companies for reasons other than maximizing returns but I didn't find that. All it says is this:

It is unclear whether applying environmental and social principles to investing is actually good for business. Some studies have shown that companies that embrace environmental and social goals outperform their peers in the long run. But other studies show the opposite. And as the stock market slumped last year, oil and gas stock prices rose sharply.

If private investment companies choose to avoid the oil and gas industry for long run climate change reasons, it seems that is a free market decision that certain people in Congress should not be getting upset about. It seems that all that these certain people in Congress care about is that people keep investing in oil and gas companies.

Apparently the environment is politically divisive

From a recent Pew Research Survey, greedy nationalistic capitalist Republicans don't give a relative $&*^ about environmental issues compared to tree-hugging bleeding-heart Democrats.

 

Consumption-Based vs. Income-Based Carbon Footprints

The idea of an individual's or a household's carbon footprint is how much that person or household contributes to climate change.  All anthropogenic climate change is caused by humans (by definition), so let's take all the humans who have ever lived and divide up the responsibility for climate change amongst them.  What fraction of climate change is my fault?

To calculate one's carbon footprint, we look at the things we buy and do.  E.g. when I drive my car and burn gasoline, when I run my air conditioner, when I take a flight, or when I eat a steak, I add up all the greenhouse gases emitted in doing those activities and making those products.  All those greenhouse gases thus make up my carbon footprint, and therefore are my "fault."

The notion of a carbon footprint has encountered some controversy.  The argument against it, summarized in this NY Timed op-ed, is that focusing on individuals' or households' carbon footprints is distracting from the fact that climate change is ultimately the "fault" of big corporations, especially fossil fuel companies.  In fact, the notion of a carbon footprint was invented by a PR firm hired by an oil company, BP.  According to this argument, that was done to shift the responsibility from the true perpetrators and onto ordinary people just trying to live their lives in a world that's run on fossil fuel.  Auden Schendler writes, in the op-ed:

Nor was BP alone among the big oil companies communicating this message. A study by Naomi Oreskes and Geoffrey Supran at Harvard published in May in the journal One Earth found that since 1972, ExxonMobil has consistently used “rhetoric aimed at shifting responsibility for climate change away from itself and onto consumers.”

The counter-argument to this argument is that, while the fossil fuel companies and airlines, etc., are the ones emitting all of these greenhouse gases, they're only doing it to sell stuff to consumers.  It's ultimately then the consumers who are to "blame" for climate change; big oil wouldn't be pumping out oil if consumers didn't want to drive cars.  This counter-argument is popular among neoliberals and mainstream economists. It's pretty much what I believed.

But then I read this article, and listened to this podcast interview, both by Matt Huber, a geography professor who is writing a book called "Climate Change as Class War."  Carbon footprints show that the rich are disproportionately contributing to climate change - they consume more, and pretty much everything consumed by anyone has embedded carbon.  But Huber argues that even this degree of regressivity in the contribution of the rich towards climate change is understated, because the carbon footprint is based only on someone's consumption or spending, and not on how they earned the income that they spend.  This excerpt has been nagging at me:

Here’s a hypothetical example: take a CEO of an airline company. This person spends eight to twelve hours per day helping to organize a fleet of thousands of planes that emit millions of tons of carbon dioxide per year. As CEO, their income and stock options are primarily derived from this activity, planning and expanding air travel as a commodity for sale.

Now imagine our CEO goes home in their SUV and eats a steak for dinner. Why is this activity the only one we focus on when talking about “carbon inequality”? Surely the SUV and steak are drops in the bucket compared to their everyday role as a titan of aviation capital.

There is a lot in Huber's article that is Marxist, which is maybe off-putting for some people.  But even if you're not Marxist, there is a core point in there that seems to me intriguing: why is my carbon footprint based only on my consumption and not on my income sources?

This distinction is analogous to distinction between sources-side and uses-side incidence.  Under some policy change, say a tax increase, incidence refers to the distribution of the burden of the tax. There is the uses-side incidence, which is how the tax will affect prices of goods and services.  Then there is the sources-side incidence, which is how the tax will affect income, e.g. through affecting the wage or the return to capital.  The standard definition of a carbon footprint is thus a uses-side carbon footprint.  But can't we also define a sources-side carbon footprint? 

To extend Huber's example from above: consider an executive at a fossil-fuel company who happens to be very "green" in his personal consumption - he walks or bikes to work, is vegetarian.  Consider also a schoolteacher, who has to commute far to work each day to live in an affordable neighborhood, and drives a minivan to take her kids to childcare, so gets low fuel economy.  The teacher has a higher carbon footprint (based on the standard definition). But does she really hold more "blame" for climate change than a fossil-fuel executive?

(I'm putting scare quotes around words like "blame" and "fault" to keep in mind that there aren't objectively correct answers to how we divide this up - the climate doesn't care who is responsible for the greenhouse gases, it just keeps warming.  I'm not suggesting that the income-based footprint might be "more correct" than the consumption-based on, just that they are two alternate ways of defining footprints.)

 

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.

WAPO: Americans broadly accept climate science ...

Over half say driving cars and burning fossils fuels are major contributors (link). This is In spite of everything [*]:

Americans remain shaky on the details of climate science even as they have grown increasingly concerned about human activity warming the Earth, according to a national poll by The Washington Post and the Kaiser Family Foundation (KFF) that probed the public’s understanding of climate change.

The rising alarm is one of the poll’s most dramatic findings. In just five years, the percentage of people calling climate change a “crisis” has jumped from 23 percent to 38 percent.

More than 3 in 4 U.S. adults and teenagers alike agree that humans are influencing the climate. The overwhelming majority of them said it’s not too late for society to come up with solutions, but a third of adults who say humans are causing climate change don’t think they can personally make a difference, the poll found. ...

[*] If you know what I mean. 

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.

Don't Give up on Pigouvian Pricing!

Last week's midterm elections were a mixed bag for environmental policy.  Lots of initiatives went down in defeat, though some passed, and some pro-environmental candidates won.

Most notably for us environmental economists, the state of Washington failed to pass a carbon tax initiative, which would have made them the only place in the US where there is such a tax.  This defeat comes two years after another carbon tax initiative also failed at the ballot box in Washington.

So carbon taxes are now 0 for 2.  Does this mean we should give up on the idea entirely? (Sorry, Pigou)  That's basically what's being argued by several policy wonks, including James Temple at the MIT Technology Review, who writes (or at least his headline-writer writes): "People will never vote for a carbon tax, so let's stop asking."  Costa Samaras tweets that we'll have to settle for a slew of command-and-control policies rather than carbon pricing. 

This seems premature to me.  0 for 2 isn't a great start, but hardly a reason to abandon what economists have known for decades to be the most cost-effective type of environmental policy.  Rather than give up on Pigouvian pricing and start arguing for alternative policies based on their ability to be approved (by the way, plenty of command-and-control policies also failed in last week's election), I think we should work even harder trying to convince people of the merits of carbon pricing and other market-based environmental policies. 

In case you're wondering, 20 teams have come back from being down 0-2 in an NBA playoff series (the 19 teams listed here plus Cleveland last year in the conference finals).  If Lebron can do it, then so can environmental economists!

 

Quote of the day

Tim Haab on "[EPA's] rejiggered science advisory board stocked with industry types just killed three committees it has traditionally relied on":

“The message was a surprise,” Timothy Haab, an environmental economist at Ohio State University who was on the economics committee, told Earther. “I fear that losing the advisory committees could jeopardize the objectivity of the science used in making economically sound environmental decisions.”

Source: The EPA Just Killed Three Expert Advisory Committees

Background: There is no longer an Environmental Economics Advisory Committee at the EPA