Environmental Economics

A rose by any other name

In the latest AERE Newsletter, AERE President Trudy Cameron argues that the ill-named "value of statistical life" should be recalled "willingness to pay for a microrisk reduction." Here is the conclusion:

The consumers of our research need to be steered away from the mistaken impression that economists presume to decide, on behalf of society, the intrinsic value of a human being. If you have any doubts at all about the damage to economists reputations from misinterpretation of the concept of a VSL, or the amount of wasted reputational capital and person-hours at various government agencies every time another sensational article about the VSL appears in the press, please take a look at the seventeen-page compendium of quotes entitled "One Hundred Reasons Why We Should Replace the Value of a Statistical Life (VSL) with Willingness to Pay for a Microrisk Reduction" (http://www.uoregon.edu/~cameron/WTPM/VSL_confusion.pdf).

And let's not forget the VSL on the Colbert Report.

Recession

From the New York Times:

It's Official: U.S. Economy in Recession

The National Bureau of Economic Research, a panel of academic economists charged with the official designation of business cycles, said that the United States economy has been in recession since December 2007, when economic activity peaked.

And the demand for environmental quality is falling.

Silly green infighting*

From the inbox (Climate activists invade ...):

As the UN Framework Convention on Climate Change opened today in Poznan, Poland, grassroots climate activists took over the Washington DC office of Environmental Defense. The activists stated that they had targeted ED, one of the largest environmental organizations in the world, because of the organization’s key role in promoting the discredited approach of carbon trading as a solution to climate change.

Dr. Rachel Smolker of Global Justice Ecology Project and Global Forest Coalition read a statement, which said in part, “My father was one of the founders of this organization, which sadly I am now ashamed of. The Kyoto Protocol, the European Emissions Trading Scheme and virtually every other initiative for reducing emissions have adopted their market approaches. So far they have utterly failed, serving only to provide huge profits to the world’s most polluting industries. Instead of protecting the environment, ED now seems primarily concerned with protecting corporate bottom lines. I can hear my father rolling over in his grave.”

The activists rearranged furniture in the office, illustrating how marketing carbon is “like rearranging the deck chairs on the Titanic.”  Others held signs reading “Keep the cap, ditch the trade” and “Carbon trading is an environmental offense.”

"Keep the cap, ditch the trade"? Guys, how about this alternative slogan:

"Lower the cap, keep the trade"

Repeat over and over until you understand what has gone wrong and how it can be fixed.

Next thing you know they'll be invading  my office (myoffice.JPG) and rearranging my 3 chairs!

*Note: if you ignore them they'll stop.

Jobs Schmobs

From Mankiw:

One thing all economists agree on: If there are public investment projects that pay a high rate of return, those are worth paying for, even if it means more borrowing. But that is always true. Even if we were at full employment and there were no possible employment effects of fiscal stimulus, we should undertake public investments that pass a cost-benefit test.

Final 2008 Atlantic Hurricane Tally: 8

The 2008 Atlantic hurricane season may have been slower than expectations, but it was was consistent with expectations and costly:

The 2008 Atlantic hurricane season ended Sunday, marking the finish of one of the busiest and costliest hurricane seasons ever.

The damage caused by this year's Atlantic hurricanes is estimated at $54 billion, according to the National Climatic Data Center. That's second in recorded history only to 2005, the year Hurricanes Katrina and Rita devastated the Gulf Coast. The total that year was an estimated $128 billion.

Government studies have noted that, when adjusted for inflation and other factors such as population density in coastal areas, some hurricane seasons from early last century could be seen as more expensive.

Still, the huge financial impact of this year's storms took their toll on an already-struggling economy.

It was the fourth busiest Atlantic hurricane year since 1944. The National Climatic Data Center said 2008 is "the only year on record in which a major hurricane existed in every month from July through November in the north Atlantic."

MRE Outstanding Articles in 2007

From the inbox:

IIFET and NAAFE are pleased to share the announcement below.

Martin D. Smith, Junjie Zhang & Felicia C. Coleman Receive the 2007 Dr. S.-Y. Hong Award for Outstanding Article in Marine Resource Economics

The editors of Marine Resource Economics are pleased to announce the recipient of the 2007 Hong Award for Outstanding Article in MRE.  Established by Dr. Seoung-Yong Hong, President, Inha University, Incheon, Korea, this award is given annually to recognize outstanding works published in MRE.

MRE Outstanding Article 2007

Martin D. Smith (Duke University), Junjie Zhang (UCSD) & Felicia C. Coleman (Florida State University), Structural Modeling of Marine Reserves with Bayesian Estimation, MRE Vol. 22(2):121-136.

MRE Outstanding Article 2007: Honorable Mention

Jon Olaf Olaussen (Sor Trondelag University College), Playing Chicken with Salmon, MRE Vol. 22(2):173-193.

Ju-Chin Huang (University of New Hampshire), P. Joan Poor (St. Mary’s College of Maryland) & Min Qiang Zhao (Ohio State University), Economic Valuation of Beach Erosion Control, MRE Vol. 22(3):221-238.

Award Selection:

Selection is made annually by the associate editors of Marine Resource Economics.  Only articles that have been published in Marine Resource Economics are eligible for consideration.  The award consists of a monetary prize and recognition on a perpetual plaque housed in the Department of Environmental & Natural Resource Economics at the University of Rhode Island.

Congrats Marty, Ju-Chin et al.!

Inkstain gets it!

From Inkstain:

Dan Yurman calculates the jobs he thinks would be created by expanding the federal loan guarantees for nuclear power:

The Federal loan guarantee program for construction of nuclear power plants, set by Congress at $18.5 billion, could if expanded to cover the entire fleet of 21 proposed new reactors, create nearly 80,000 construction jobs, and more than 17,000 permanent operations jobs over the next 10-15 years.

I rather think John Whitehead’s macroeconomic argument about green jobs applies here. There are jobs to be had creating the infrastructure necessary to supply our nation’s energy needs. If they are not created in providing that energy through nuclear power, they will be created in providing it with coal, or wind, or whatever. To the extent that more jobs are created by doing it with nuclear energy than with other approaches, that merely means nuclear energy is less efficient.

My analysis suggests we could maximize energy-related job creation by hiring a bunch of extreme athletes to pedal those silly bike machines you see in late night infomercials. Hook ‘em up to the grid. All the food they have to eat would also add farm sector employment. Win!

(OK, I’m being flip. Just as Whitehead argues with “green jobs,” there may very well be good reasons for pursuing an expansion of nuclear energy. But job creation should not be one of them.)

This is what I'd add:

Over 10-15 years the government spending created jobs will simply replace those in another sector of the economy. The new construction jobs will hire workers away from other construction projects increasing the wages of construction workers. The higher wages will reduce the quantity demanded of construction workers from the private sector.

Another offset will occur from the source of the federal funding. The higher taxes will reduce consumer demand for goods and services and reduce jobs in the consumer spending sector of the economy. If the government borrows the money, the jobs will be a net gain if the deficit is externally funded by China and others. However, this sort of deficit financing is unsustainable over the long term. At some point the debt to GDP ratio will rise to a level where foreigners will feel super nervous about loaning the U.S. government money. At that point interest rates spike (this is known as crowding out) and all heck breaks loose.

Finally, the permanent jobs will simply offset the job losses in other non-nuclear power plants.

What I did yesterday...

In a noble effort to ward off the pending caloric gluttony of the rest of the day, official oldest daughter of env-econ and I battled the 25 degree weather of Dublin, OH and ran in the 2008 Flying Feather Four Miler.  The results:

• Abby Haab (12 y.o), 41:13, (10th place female out of 45 in the 14 and under age group).
• Tim Haab (39 y.o.), 41:17, (too embarrassed to list a place, but he finished, and paced his daughter.  Unfortunately she outkicked him to the finish.  But she carries 100 lbs less).

Trying to work at home

I'm reading a paper on the computer and a 6 year old gets in my lap:

6 year old: read that to me

me: naw, it is too boring

6 year old: please read it to me

me: OK. In equation (14) e(∙) is an endogenous regime switching function in which the regimes ...

6 year old: stop, that IS boring

Where I'll be at noon tomorrow

Section 110, Row A, Seat 1 (2 or 3) [first row behind the visitor's bench, left hand side (as you are looking at it) 40 yard line]:

No. 13 South Carolina State (10-2) at No. 2 Appalachian State (10-2), 12 p.m., ESPNU

Not so fast international climate negotiators!

From the WSJ Morning Brief:

The United Nations Climate Change Conference that begins in Poznan, Poland, next week will in some ways mark the end of an era. The U.S.'s long-standing opposition to climate regulation is vanishing, offering new opportunities for cooperation with its allies in Europe and beyond, but to some extent, international climate negotiators will remain in limbo until Jan. 20, when President-elect Barack Obama enters the White House.

My guess is that international climate negotiators might be waiting until at least January 20, 2010 when the income effect increases the demand for climate change policy (i.e., hopefully, the U.S. and other economies will be in the recovery stage of the business cycle [too much to hope that we're in the expansion phase]).

Happy Thanksgiving

A Thanksgiving energy tip from TerraPass:

Don’t open the oven door to peek at what’s cooking inside unless you actually need to check something. Instead, turn on the oven light and check the cooking status through the oven window.

The problem, of course, is that it is much more fun to open the oven door and peek. Must all holiday energy saving ideas be so dreary (e.g., the vegetarians might suggest avoiding the turkey altogether in order to save energy)?

Anyway, go Lions!

Happy Thanksgiving

Following up on John's travel post...

Despite plummeting gas prices and unusual last-minute holiday deals on airplane tickets, more people are expected to stick close to home this Thanksgiving.

In fact, the Automobile Association of A merica says the 41 million Americans expected to take trips at least 50 miles for Thanksgiving is about 600,000 less than traveled last Thanksgiving.

The reason, as a surly economist might say? It's the economy, stupid.

"The economy is in such bad shape. ... They're still really hesitant to take that trip," said Beth Mosher, spokeswoman for AAA Chicago.

In comparison, over the July 4 weekend when gas prices were far higher than the same weekend the previous year, the number of travelers dropped just 2.3 percent, she said. At that time, the economic news wasn't as dire as it is now.

Demand and supply in the airline industry

Airlines have announced price cuts targeting leisure travelers through the usually busy winter holiday season and beyond. Analysts view the moves as an attempt to woo back consumers who are putting off trips in response to the unfolding economic crisis.

Translation: income falls (or is expected to fall or is more uncertain), demand falls creating a surplus and price falls.

The downturn is emerging as the biggest threat to the industry since it was buffeted by summer fuel prices. Now fuel prices are retreating, but so is the demand for seats.

Translation: Don't buy airline stock.

In theory, there should be few empty airline seats. Airlines have eliminated about 200,000 seats per day by zapping routes and grounding planes.

Translation: Supply fell ...

The reduction was supposed to give airlines room to raise fares. But analysts say winter sales suggest that airlines are struggling to fill their planes.

Translation: But demand has fallen even farther ...

And where you have empty seats, you have discounts, says Rick Seaney, chief executive of FareCompare.com, which allows travelers to compare prices among Web sites.

Translation: Creating a surplus which leads to falling prices.

Source: Holiday airfares drop and ticket demand slumps.

Food Fight!

From the Columbus Dispatch:

Fending off criticism that they fear could jeopardize ethanol subsidies, Ohio corn growers shot back at corporate food producers yesterday, saying they continue to charge high prices and reap big profits even as corn prices plunge.

Corn growers are facing off against a broad coalition including livestock groups, restaurants and corporate food companies that is calling on President-elect Barack Obama to end the nearly $5 billion in annual subsidies for the ethanol industry.

Since I've already angered the auto industry, why stop there?  I'm opposed to many (most?) farm subsidies.  I'm all for correcting externalities by subsidising beneficial behaviors and taxing costly behaviors.

But artificially inflating incomes of inefficient businesses? That's bad policy.

Reverse causality

Just as the world seemed poised to combat global warming more aggressively, the economic slump and plunging prices of coal and oil are upending plans to wean businesses and consumers from fossil fuel.

From Italy to China, the threat to jobs, profits and government tax revenues posed by the financial crisis has cast doubt on commitments to cap emissions or phase out polluting factories.

Automakers, especially Detroit’s Big Three, face collapsing sales, threatening their plans to invest heavily in more fuel-efficient cars. And with gas prices now around $2 a gallon in the United States, struggling consumers may be less inclined than they once were to trade in their gas-guzzling models in any case.

Here is a quick comment on the first sentence of the third paragraph of the excerpt (Economic Slump May Limit Moves on Clean Energy): Isn't the causality wrong here? "Detroit's Big Three lack of planning to invest heavily in more fuel-efficient cars has led to collapsing sales."

Now that's more like it

Yesterday, I tried to make the point that the environment takes a back seat to other concerns in bad economic times, even if the environmental issues haven't changed.  John eagerly pointed out that I can always go to enn.com to fine environmental news.  So here's a sampling of today's top stories:

Was Hotelling right?

The world can expect energy prices to continue their generally upward spiral in the years ahead if global energy policies remain the same, the International Energy Agency (IEA) reported this week.

OPEC still has some market power...but not as much as the U.S. stock market?

Oil rose by almost a dollar a barrel on Monday as investors considered the prospect of a further  PEC supply cut and as stock market rallied following the U.S. government rescue of U.S. bank Citigroup.

Harvard recommends inefficient economic policies.

Rich nations should make the first cuts in greenhouse gases while developing countries carry on business-as-usual for the time being, according to a report published on Monday by Harvard University.

Too many deer ...

... in Kentucky:

Even as national numbers rise, the number of deer accidents on Kentucky roads has been dropping, on average, since at least 2000, when there were 3,333 reported incidents, according to state police records.

Has anyone else noticed...

...that in times of bad economicity*, environmental news seems to become nonexistent?  How am I supposed to maintain my reputation for cutting edge analysis with a soft-and-humorous touch without Drudge or CNN or, well, anyone spouting stupidity about the environment.  All I see is the economy this, and the president-elect that (did you see he skipped church yesterday to workout?  The horror.).  Whatever happened to catastrophic climate change? 

*I made up that word because I got an announcement from higher-ups at OSU the other day that they are renewing their efforts to encourage 'interdisciplinarity' at the University. 8 syllables to say 'joint work.'

AERE-sponsored sessions at the SEA meetings

For the first time ever, AERE-sponsored sessions at the SEA meetings ran concurrently -- two sessions during each of the first 6 time slots. I attended each of the six in the valuation/natural resources track (the other track focused mostly on environmental policy) and recorded maximum attendance:

1. Friday 8 am -- 6 (everyone seemed to still be arriving, explaining the low number, I think)
2. Friday 10 am -- 21
3. Friday 1 pm -- 10
4. Friday 3 pm -- 16
5. Saturday 8 am -- 18
6. Saturday 10 am -- 16

I think attendance ran about the same in the environmental policy track. These are actually pretty good numbers, but still, in the future I'd rather have sessions that don't run concurrently. I always felt like I was missing something.

More important than attendance, session quality was excellent. Many thanks to everyone who showed up and chair, presented, discussed and rounded out the audience.

The call for papers for the 2009 SEA meetings can be found in the November 2008 AERE Newsletter.

Note: I also attended two sessions on Sunday morning and tried to burn the candle at both ends. I'm more than a bit brain dead today.