Environmental Economics

Free Webinar: Valuing Environmental Catastrophes (with an impressive lineup of experts if I do say so myself!)

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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%. 

Episodic Release in Ohio: Train Derailment Forces Controlled Burn of Toxic Chemicals

From NPR on February 8th (Residents can return home after crews burned chemicals in derailed tanker cars):

"About 50 cars, including 10 carrying hazardous materials, derailed in a fiery crash Friday night on the edge of East Palestine. Federal investigators say a mechanical issue with a rail car axle caused the derailment."

The derailed cars belong to Norfolk Southern who worked with the EPA to conduct a controlled burn of the chemicals, causing an evacuation of the area: 

"Authorities in East Palestine had warned that burning vinyl chloride that was in five of the derailed tanker cars would send hydrogen chloride and the toxic gas phosgene into the air."

Hazardous transport derailments happen from time to time. In 2005, Norfolk Southern also had a train accident in which two of its trains collided due to a faulty railroad switch (image below). 

The EPA regulates emissions transport by requiring all hazard-carrying train companies to register with the EPA, to maintain an accurate manifest of the chemical aboard, and to report and move swiftly to remediate any spill or leak. So, it appears the approach is one in which we recognize that train crashes are infrequent, but when they occur the most important thing is to have an accurate idea of what the heck we just spilled into the environment (so we can quickly remediate). 

While Norfolk Southern failed to timely-report the 2005 incident (and paid a fine), it appears they followed protocol with this weeks incident. Still, they are being sued for economic damages by local businesses and residents. And they may face civil suit payments for violations of the Clean Water Act. In 2005, they paid nearly $4M for the spill of several tons of cholrine as well as diesel fuel into the water supply.  

*All information for the 2005 Graniteville, SC spill can be found here: EPA Report Graniteville Spill

Electric vehicles made up 10% of the market for the first time in 2022

From the WSJ (EVs Made Up 10% of All New Cars Sold Last Year): 

Electric-vehicle sales crossed a global milestone last year, achieving around 10% market share for the first time, driven mainly by strong growth in China and Europe, according to fresh data and estimates.

While EVs still make up a fraction of car sales in the U.S., their share of the total market is becoming substantial in Europe and China, and they are increasingly influencing the fortunes of the car market there as the technology goes mainstream. The surge in EV sales also contrasted with the broader car market that suffered from economic worries, inflation and production disruptions.

...

Other manufacturers reported a similar divide of strong growth in sales of electric cars—boosted in part by the availability of a wider array of models in addition to market leader Tesla Inc.—and weak or declining sales of conventional vehicles. Ford Motor Co., Mercedes-Benz Group AG and BMW each said their EV sales more than doubled in 2022, while their total vehicle sales declined.

The biggest reason for the increase seems to be sales in China but there have been increases in the rest of the world:

This is likely to change with subsidies in China expiring after more than 10 years and the new $7500 US subsidy from the Inflation Reduction Act (WaPo: Sparks Will Fly in the Electric-Car Trade War).

If you want to know what to think about the EPA's move to relax fuel economy standards ...

My knee jerk reaction was faux anger -- everything Pruitt seems to reek and the 2012 standards were supported by benefit-cost analysis (1, 2). But for some reason I decided to wait and see what someone who know more about this issue (i.e., someone at RFF) had to say. I'm glad I did as Virginia McConnell and Alan Krupnick wrote this on Friday (We Need to Take a Longer View of Fuel Economy Standards):

The announcement this week that the Trump administration is reopening the CAFE/GHG rules for light-duty vehicles was expected. The widely known stance of the administration on climate change, Environmental Protection Agency (EPA) Administrator Scott Pruitt's criticism of the Obama policy, and the dramatic reductions in oil imports (thereby diminishing the energy security rationale for fuel economy standards) all contributed to the reconsideration of the 2022-2025 model year standards. But what happens next is key for whether the Trump administration and the auto companies can be part of the solution for addressing long-term climate policy. ...

And if you want balance and benefit of the doubt that last sentence is it since it seems clear that the Trump administration does not want to be part of the solution for addressing long-term climate policy. They go on to describe problems with fuel economy standards and how they can be improved (more flexibility). A balanced view suggests that the current fuel economy standards can be improved.

Yet, I'm a little disappointed because they start from the presumption that technological standards are inevitable in the automobile sector. Maybe so but it is never a bad time to point out that, even with the built in flexibility, a higher gas tax would efficiently solve many of the problems with imposing fuel economy standards on the auto industry. Here is what I wrote back in 2011:

Note that fuel economy standards are not the most cost-effective way to cut emissions and reduce oil imports. Cap and trade and carbon tax policies could achieve the exact same environmental and national security goals at a lower cost. The reason is that economic incentive-based policies provide the signal (in the form of higher energy prices) to improve fuel economy and pursue other ways of reducing emissions. If the other ways are cheaper, consumers and firms will have incentives to go down those paths. It is a shame that the political system makes higher fuel economy standards more feasible to achieve.

Of course, my initial reaction was correct. The current EPA does not deserve the benefit of the doubt and this move is simply designed to weaken environmental regulations because there are regulatory costs that industry doesn't like (even if the costs are less than the benefits). There is no economic analysis involved this decision. This is a business decision.

(1) Here is the EPA announcement: GHG Emissions Standards for Cars and Light Trucks Should Be Revised.

(2) Background: Here is Joshua Linn and Alan Krupnik commenting after Pruitt's Congressional testimony before the inauguration: Fuel Economy Standards: Take the Time to Get It Right. 

Infrastructure week and [shhhh...] climate change

Hey, ignoring the potential for climate change doesn't make me look like a complete idiot (Trump's infrastructure ...)!

Since the beginning of his administration, Mr. Trump and his appointees have steadily worked to roll back climate change regulations. Mr. Trump’s E.P.A. chief, Scott Pruitt, has taken the lead role in the administration’s efforts to undo climate policies and question the validity of climate science. On Wednesday, Mr. Pruitt suggested that global warming could benefit humanity.

Those views are contradicted by research conducted by his own agency.

The 2017 E.P.A. report warned that some 6,000 bridges nationwide face a greater risk of damage in coming decades from the effects of a warming climate. It provides analysis showing that “proactive adaptation” — essentially, planning for global warming before you build — could save the government up to 70 percent in future costs of repairing damage caused by climate change-driven weather events such as deluges, coastal flooding and heat waves. ...

Already the Alaska Highway, built atop permafrost that was never expected to go away, has started buckling as the permafrost melts. A 2010 study concluded that the highway is one of the state’s 4,576 miles of paved road, 5,000 miles of unpaved road, 253 airports, 853 bridges, 131 harbors and 819 miles of railroad that could be damaged by a warming climate in coming decades. The study concluded that the impact of climate change on Alaska’s infrastructure could reach up to $7.6 billion by through 2080.

These costs are about zero if your discount rate is 95%. 

"Trump to 'consider' raising the gas tax"

While the efficiency of a higher gas tax is well-known, one can only imagine the laughter emitting from the oval office after the "transportation group" packed up their proposal and left: 

President Trump on Monday said that he is open to raising the gas tax to help pay for infrastructure projects.

In an interview with Bloomberg News, Trump said he would "certainly consider" a gas tax hike “if we earmarked money toward the highways.” 

White House Press Secretary Sean Spicer later stressed during a briefing that Trump did not endorse a gas tax increase.

Instead, according to Spicer, Trump told Bloomberg that he would consider the request of a transportation group that met with him and expressed support for raising the gas tax.

Trump has made enacting a $1 trillion infrastructure package one of his top priorities.

The federal gas tax hasn't been increased since Bill ClintonBill ClintonPress: Obama making bank Trump to 'consider' raising the gas tax BuzzFeed toasts free press at alternative WHCA party MORE was president, and there has been bipartisan opposition to raising it.

via thehill.com

Add the "transportation group" to the list of efficient-environmental-policy-loving suckers. 

One million jobs at risk?

Maximilian Auffhammer at the Energy Institute at Haas blog:

Maybe the most significant development is President Trump’s call for a review of the Corporate Average Fuel Economy standards, which were updated under the Obama Administration requiring the auto industry to deliver a fleet average of at least 54.5 mpg by 2025. This means that the average new car sold would achieve roughly the fuel economy of a current day Toyota Camry Hybrid. This is no doubt ambitious and US manufacturers have complained publicly about the significant costs this would entail, which would be largely passed through to consumers (or so they claim). ...

The CAFE standard was introduced after the 1973-4 oil embargo and is so complex that a number of my colleagues are spending significant parts of their careers understanding it and its consequences. The most recent version of the standard regulates vehicles by class (passenger cars vs. light trucks) and within class by footprint (trackwidth times wheelbase). ...

If you do the back of the envelope calculation, this is equivalent to a roughly 28% improvement in gallons per mile (the right measure) from the 2017 model year to 2025 for all passenger cars and small footprint light trucks and a 17% improvement for the bigger “light” trucks. This sounds like a lot. And the car industry is crying wolf. A number of think tanks are immediately translating this burden into massive domestic job losses. However, if you read the collected works of the brilliant former EI student Chris Knittel, you will know that auto manufacturers have funneled technical progress into more power rather than into more fuel efficiency. For example, a 1980 Honda Civic in its base model had 55 horsepower which got 34 mpg. The 2017 base model has 158 horsepower and gets roughly 35 mpg. Same fuel economy – thrice the power. The argument has forever been: “Power. It’s what consumers demand”. Chris’ paper suggests that the historical improvements in fuel efficiency amounted to about 2% per year. The Obama goals are about 3% a year. So an acceleration would be required, yet it’s not a moonshot.

In other words, 1 million jobs are not at risk from higher fuel economy standards. 

Gas prices were $4/gallon in 2013

To appreciate challenge of decarbonizing transport, see: 16 yrs since intro, hybrids are just 2% US auto sales - and falling from 2013 peak. pic.twitter.com/aFAYIEnbtO

— Teryn Norris (@TerynNorris) January 13, 2017