Environmental Economics

We're doing the job for Aguanomics

From the Winston-Salem Journal (State details ...):

Federal energy regulators should deny Alcoa Inc.'s bid to keep operating a series of Yadkin River dams because the company's profit motive could conflict with managing droughts and attracting new jobs, Gov. Beverly Perdue's administration said.

The profit motive wouldn't conflict with managing droughts if water was priced efficiently. As the demand for drinking water rises the price of water would rise and Alcoa would be more than happy to supply more water for drinking. (Then the cost of electricity rises and someone blames Alcoa for that!)

Quote of the Day (that's sure to get Aguanomists fired up)

From the Dublin (Ohio) News:

"Why do we not need that [500,000 gallon water] tank," [Dublin, Ohio] Councilman John Reiner asked. "I'm hearing complaints from residents regarding low water pressure.  I'm one of these people who would like to see it changed.  I'm one of those people who, when you run the irrigation system and the dishwasher, the shower goes down to a trickle."

New book received from RFF Press

Water Policy in the Netherlands: Integrated Management in a Densely Populated Delta,Stijn Reinhard and Henk Folmer, editors, June 2009

As a low-lying delta region with a high population density, the Netherlands has long served as a study of successes and pitfalls in water management.  Water Policy in the Netherlands traces the history of water governance in the country, from technological innovations to prevent wide-scale flooding, to strategies focused primarily on improving water quality, to an interdisciplinary, integrated water management approach, which brings together perspectives from economics, hydrology, ecology, water law, and water technology.  ...

If you'd like to review this book for the Env-Econ.net blog then send me an email at john.c.whitehead at gmail dot com.

Update: We've found a reviewer!

A comment on the unfair burden of green-space-unadjusted stormwater fees

From the Charlotte Observer (Owners seek credit for Green Space):

Mecklenburg Storm Water Services has proposed increasing the fee for most homeowners next fiscal year and shifting more of the burden to the largest homes. The smallest homes would see a slight decrease.

Charlotte homeowners with more than 5,000 square feet of impervious surfaces would see their annual fee increase from about $96 to more than $200. ...

City Councilman Michael Barnes said he has received e-mails from constituents concerned that the lawns and trees they take care of wouldn't be factored into the new equation. “Bigger homes are typically on bigger lots with lawns,” he said. “There should be some accounting for that.”

Charlotte and county officials say they don't take the green spaces into account because it would take too long and too much money to tabulate and keep up with over time.

“It's been talked about, but technology-wise, we're not there yet. It might happen in the future, but it's not happening today,” said Joe Hecksher, business manager for Charlotte Storm Water Services.

He said homeowners who build retaining ponds or rain gardens or take other measures to capture significant amounts of rain can apply for credits. But just having a big lawn or a couple rain barrels probably wouldn't cut it, he said.

If you can gather data on square feet of impervious surfaces, how much harder would it be to divide by lot size? On the other hand, how much adjustment in annual fees are likely due to changes in lot size. Reducing the annual fee from $200 to $180 doesn't seem like that big of a deal (especially considering bigger homes are often owned by richer people and the marginal utility of $1 falls with income [in theory]).

Economists versus Environmentalists

David Zetland, Aguanomist, yesterday posted a great exchange between himself and environmentalist/water advocate Dorothy Green that provides a perfect illustration of the frequent disjoint between economics and environmentalism, and the struggle economists face in convincing others that correct market outcomes indeed can benefit society and the environment. 

Bottom Line (borrowed that from Aguanomics):  Environmentalists love economists until the economists start pointing out the environmentalists' bad economics.

Read on for the e-mail exchange.

Restrict quantity or raise prices? And no it's not carbon this time

I should probably leave this one up to David at Aguanomics, but I'll spout off then let David call me stupid.  From Reuters:

Despite dire warnings of water shortages due to prolonged drought, the Los Angeles City Council on Wednesday rejected a plan to ration water in the nation's second-largest city for the first time in 18 years...He said the council's rejection stemmed not from disagreement over a need for mandatory conservation measures but from questions about how the plan would work and whether it amounted to a rate hike rather than a rationing scheme.

I know water market pricing is screwy and I probably shouldn't apply market based analysis here, but I will anyway:  Rationing schemes raise prices.  That's the whole point behind cap and trade programs and why a debate over taxes versus cap and trade really comes down to questions of distribution and not market outcomes:  Quantity restrictions raise prices.  So do rate hikes.  So my question to the LA City Council would be, why are you opposed to raising prices directly but seemingly willing to support raising prices indirectly?

I love when the jokes write themselves

Australia is considering a change in their sewage charge system:

HOUSEHOLDERS would be charged for each flush under a radical new toilet tax designed to help beat the drought.

The scheme would replace the current system, which sees sewage charges based on a home's value - not its waste water output.

CSIRO Policy and Economic Research Unit member Jim McColl and Adelaide University Water Management Professor Mike Young plan to promote the move to state and federal politicians and experts across the country.

"It would encourage people to reduce their sewage output by taking shorter showers,recycling washing machine water or connecting rainwater tanks to internal plumbingto reduce their charges,''Professor Young said.

"Some people may go as far as not flushing their toilet as often because the less sewage you produce, the less sewage rate you pay.''

And what are they calling this new tax system? 

Wait for it.

Here it comes.

The pay-as-you-go rate would provide financial savings for those who reduce their waste water output.

[emphasis added because I get a chuckle out of potty humor]

Aguanomics on YouTube

Source: Video of my BRAF talk

My best post of 2008

I left a comment on a green jobs post the day after pagan celebration of a Christian holy day:

That is why economics is known as the dismal science. We strange economists are most adept at recognizing the opportunity costs of various decisions. No one else really seems to care if opportunity costs offset some, or all, of the benefits of a good idea.

Opportunity cost is a strange notion to some (especially intro micro students) ... it is the value of the next best alternative whenever a choice is made. For example, if I purchase a $1000 flat panel LCD TV, the true cost of the TV is not $1000, but what I could purchase instead (such as $500 in each kid's college education 529 plan [sorry kids]).

In the case of green energy subsidies, if you are an economist then you must at least wonder if this is the best way to spend the money. There are benefits of pushing down the costs of green energy (e.g., improved air quality), and there are opportunity costs. Ignoring the opportunity costs is likely to lead to wasteful spending. Considering the opportunity costs is likely to lead to better social decision making -- regardless of whether the benefits of the subsidies exceed the costs.

The notion of opportunity cost, its recognition and the inevitable result that not all great sounding ideas are really great ideas, is the most important thing that economists bring to many policy discussions. Pointing out the unpleasantantries of opportunity cost is one of the purposes of this blog. The dismal part of the dismal science can not be avoided.

A chance to be the median voter

From the inbox:

... the current online debate at The Economist on the value of water. Currently, 60 percent of Economist readers oppose the proposition, “This house believes that water, as a scarce resource, should be priced according to its market value.”  There are three days to vote and comment before a winner is chosen by the community on Friday, October 10th.

Here’s a link to the debate: http://www.economist.com/debate/index.cfm?action=hall&debate_id=13&sa_campaign=debateseries/debate13/spr/blog/tb2