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  • The benefits of environmental regulations cannot be simply willed away (and why I’m too slow to be an Ivy-Leaguer)

    A couple of weeks ago, soon after EPA Administrator Pruitt's announcement to introduce a rule changing the role of cost-benefit analysis in design of environmental regulations, I wrote an op-ed and submitted it to the NYTimes for consideration.  They politely declined (by ignoring the submission) so I submitted it to the Washington Post.  They too, politely declined (by ignoring the submission).  Finally I sent it to The Conversation and they politely declined (for real this time), basically saying I was too slow and Joe Aldy beat me to it. 

    D'Oh–damn Ivy-Leaguers.

    So although this repeats a lot of what Joe said in his piece for The Conversation, here's my take on why reducing the role of cost-benefit analysis at the EPA is dangerous. 

    In 1981, President Reagan signed Executive Order 12291 requiring both the costs and benefits of any new major regulation be considered prior to federal implementation.  For the decade prior to Executive Order 12291, federal and state environmental regulators struggled to find cost effective ways to implement environmental regulations imposed by the Clean Air and Clean Water Acts of the early 1970’s.  Unfunded mandates imposed on states resulted in inertia that saw few environmental improvements during the decade after the Clean Air and Clean Water Acts were passed, and regulatory stalemates were a regular occurrence due to the perceived high cost of implementation.  By requiring cost-benefit analysis, Reagan’s Executive Order promised to reduce the cost of regulation by selecting only those regulations that promised to provide benefits in excess of costs, thus promoting environmental improvements without over-burdening economic growth after the lean economic times of the 1970’s.

    Those in favor of less costly regulation applauded the use of cost-benefit analysis for regulatory decisions.  As a 1981 story in the New York Times put it:

    “Administration and business officials and others who applaud the President's decision say that the uniform application of cost-benefit analysis…will stem the tide of unnecessary regulation that they say have been a severe and growing burden to the nation’s economy. “

    Opponents of Executive Order 12291 countered that the use of cost-benefit analysis was simply an end-around for those opposing environmental regulation, that putting ‘prices’ on environmental goods diminished the contribution of environmental goods to the collective good, and that comparisons based solely on dollars can be easily manipulated.  

    Despite the objections, Executive Order 12291 was issued and cost-benefit analysis has become a standard tool for environmental policy analysis.  In fact, cost-benefit analysis has been so successful as a tool for policy analysis that every administration since Reagan has endorsed its use. 

    Until now.

    On June 7, EPA Administrator Scott Pruitt, announced the intent to introduce a new EPA rule for public comment addressing cost-benefit analysis that effectively suggests removing the measurement of many co-benefits in consideration of environmental regulations.  In a surprising bit of irony, Administrator Pruitt argues that the measurement of benefits in consideration of environmental regulations has resulted in the implementation of too many costly regulations that harm business and has hampered economic growth—the exact argument that Reagan-era administration and business officials used in favor of cost-benefit analysis in 1981. 

    What has changed since 1981? The simplest answer is that economists who specialize in the measurement of the benefits of environmental improvements have clearly demonstrated that there are large and measurable benefits to society of improving environmental quality thus providing justification for economically defensible environmental regulations.

    Post-executive order 12291, a burgeoning line of academic inquiry emerged for the measurement of the benefits of environmental regulations.  Putting benefits on equal footing with costs required the measurement of benefits that are not ‘priced’ in typical markets.  Assigning ‘prices’ to non-market environmental outcomes, like the benefits of improved drinking water quality, or the benefits of preventing early deaths from excessive exposure to dirty air proved to be a manageable task, and highly valuable.  By measuring the costs AND benefits of proposed regulations, federal agencies, like the EPA, were quickly able to implement low cost environmental regulations that yielded societal benefits that far exceeded the costs of implementation without stifling economic growth.  For example, in a 2005 retrospective assessment of the costs and benefits of the sulfur dioxide cap-and-trade program in the EPA’s Acid Rain Program implemented under Title IV of the 1990 Clean Air Act, economists found that the costs of sulfur dioxide reductions from coal-fired electricity generation were half of what was expected, and after including the health, recreation, and aesthetic benefits of reduced sulfur dioxide emissions, the benefits of those reductions exceeded the costs of the Acid Rain Program by a factor of 40!  

    Since the environmental movement of the 1960’s and 1970’s, economists have largely come down in support of the use of efficient regulation, based on cost-benefit analysis, to address environmental concerns.  A 1990 survey of members of the American Economic Association found that 60% of economists surveyed disagree with the statement “Reducing the regulatory power of the Environmental Protection Agency (EPA) would improve the economic efficiency of the U.S. economy.”  Only 12% agreed with the statement.  These numbers remained largely unchanged when the survey was repeated in 2000.  A more recent survey of members of the Association of Environmental and Resource Economists found that 96% of those surveyed disagree with the statement that “Unregulated markets provide public goods in optimal quantities.”  This was the single statement that yielded the highest level of agreement among the economists surveyed—a group notorious for being unable to agree with each other.  In short, there is a surprising degree of agreement among economists that environmental regulation is not only good for the environment, but when designed properly is defensible on economic grounds and unlikely to limit economic growth. 

    Contrary to early fears, putting a ‘price’ on the environment has encouraged decision makers to recognize the scarce nature of our natural capital.  Rather than reducing “all decisions to simple-minded weighing of dollars,” the pricing of nature has forced everyone to recognize that the alternative to pricing nature is assuming it is free to exploit.  Assigning dollar values to the benefits of our natural and environmental resources allows us to use the power of markets and economics to design policies and regulations that benefit all. 

    The benefits of many environmental regulations and the resulting environmental improvements are large, demonstrable, and economically defensible and cannot be simply willed away.

  • Vote for economists!

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  • TFW your paper appears in volume 9 issue 2 right after your colleague’s & co-author’s & MS student’s paper

    Jbca062218

    Here is the link: https://www.cambridge.org/core/journals/journal-of-benefit-cost-analysis/issue/5BBABD92F31946106B429917E9F12D5F

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

    From the inbox:

    Dear colleagues,

    I want to inform you of recent decisions regarding standing committees under the auspices of the Science Advisory Board (SAB).   On the recommendation of the SAB Staff Office, the SAB, unanimously agreed, at our 5/31/18 administrative meeting, to retire three of our current seven standing committees.   The committees being retired are Ecological Processes and Effects Committee (EPEC), the Environmental Economics Advisory Committee (EEAC) and the Environmental Engineering Committee (EEC).  This decision was made after considering numerous management issues including projected workload and consideration for the efforts and responsibilities of getting Special Government Employees (SGEs), such as yourselves, hired by the Agency.  Things we considered included: the amount of effort it takes to hire SGEs (both on your end and at EPA), the ethics responsibilities that comes with being an SGE, and the significant public process needed to empanel these groups in accordance the Federal Advisory Committee Act.  For all these reasons, I feel it is my responsibility to ensure we have a workload to justify the process and hours of work done by the public, the SGEs and the Agency.  In the case of EPEC, EEAC, and EEC, the decision was made by the SABSO and the Board that the workload does not justify the effort.  To that end, today I have instructed my staff to post the following message on our SABSO web site announcing the decision.

    On May 31, 2018, the Science Advisory Board unanimously voted to restructure its supporting standing committees from seven to four. The Board discussed the recent and anticipated matters to come before the Board and found the mix of expertise represented by its current members, the use of ad hoc panels, or augmenting standing committees provides a necessary, responsible, and sufficient approach to provide advice to the Administrator.  The SAB approved retiring the Ecological Processes and Effects Committee (EPEC), the Environmental Economics Advisory Committee (EEAC) and the Environmental Engineering Committee (EEC).   When issues arise in these three areas, the current make-up of the Board sufficiently represents expertise to oversee work on these subject matters and convene panels as statutorily authorized.  For any future advisory requests on ecology, economics or engineering, the SAB Staff Office plans to create ad hoc panels chosen specifically for the topic under consideration.  The SAB’s decision was designed to enhance efficiency based on anticipated workload and upcoming activities.  The four remaining standing committees are the Agricultural Science Committee (ASC), the Chemical Assessment Advisory Committee (CAAC), the Drinking Water Committee (DWC) and the Radiation Advisory Committee (RAC).

    Thank you all for your willingness to serve the Agency and the Unites States in your critical role as SGEs.  The SAB can undoubtedly benefit from your expertise. I hope that we may consider you for service on future SAB committees or panels. We appreciate your time and effort, and hope that you will continue working with the SAB as new opportunities arise. The SAB Staff Office thanks you for your participation and willingness to be considered. 

    If you wish to discuss this further please feel free to reach out to me.   

    Tom Brennan

    Acting Director, Science Advisory Board Staff Office

    US Environmental Protection Agency

    Desk # 202 564 6953

    Mobile # 703 581 9300

    For your reference, here is the list of eminent scholars unceremoniously dismissed from giving advice to the EPA on matters of Environmental Economics (just wanted to put this here before we disappear from the EPA website):

     

    Boyle, Kevin   Virginia Tech Blacksburg VA
    Brandt, Sylvia University of Massachusetts Amherst MA
    Carson, Richard   University of California, San Diego La Jolla CA
    DeShazo, J.R. (George) University of California at Los Angeles. Los Angeles
    		 CA
    Evans, Mary   Claremont McKenna College Claremont CA
    Gray, Wayne Clark University Worcester MA
    Haab, Timothy   Ohio State University Columbus OH
    Johnson, F. Reed Duke University Durham NC
    Kotchen, Matthew   Yale University New Haven CT
    Neidell, Matthew Columbia University New York NY
    Opaluch, James   University of Rhode Island Kingston RI
    Phaneuf, Daniel University of Wisconsin-Madison Madison WI
    Plantinga, Andrew   University of California, Santa Barbara Santa Barbara CA
    Ready, Richard Montana State University Bozeman MT
    Smith, V. Kerry   Arizona State University Tempe AZ
    Swallow, Stephen K. University of Connecticut Storrs CT
    Van Houtven, George   RTI International Research Triangle Park NC
    Wu, JunJie Oregon State University Corvallis OR
    Zhao, Jinhua   Michigan State University East Lansing MI

     

  • Marine Resource Economics has published an unpublished paper off the reading list of “Wilen’s resource economics course at UC Davis” (fn 3)

    MRE Wilen paper

    Three of Professor Wilen's students (including current and former editors of MRE) introduce the paper like this:

    Throughout his career, James E. (Jim) Wilen has had a remarkable influence on the development of resource and fisheries economics through his path-breaking research contributions, influence on fisheries policy, and outstanding legacy as a mentor. “Common Property Resources and the Dynamics of Overexploitation: The Case of the North Pacific Fur Seal” was one of Jim’s earliest research endeavors as a young assistant professor at the University of British Columbia. Yet, it reflects many of the essential themes found in so much of his subsequent work. In publishing this paper in Marine Resource Economics, we hope to not only make it more accessible to a whole new generation of resource economists, but also to examine the impact of this unpublished mimeograph on the subsequent development of resource and fisheries economics. …

    Indeed, to our knowledge, Jim’s paper was the first paper to econometrically model both the economic and resource dynamics for a single resource.

    This is the second time, to my knowledge, that MRE has made an effort to publish an unpublished paper (here is the first). This is quite remarkable and deserving of a pat on the back. 

  • “New Group, With Conservative Credentials, Plans Push for a Carbon Tax”

    Let the demogoguery begin: 

    Proponents of a market-oriented plan to fight climate change by taxing greenhouse gas emissions and giving the revenue to American taxpayers are starting a campaign to run advertisements as early as this fall and introduce legislation in Congress as early as next year.

    The plan’s supporters have formed a group called Americans for Carbon Dividends that will lobby for the proposal. The group plans its first event on Wednesday and includes a number of well-known members, including Trent Lott, the former Senate Republican leader from Mississippi, and Janet L. Yellen, who led the Federal Reserve under President Barack Obama.

    The initiative has already won endorsements from some environmental groups, like the Nature Conservancy and Conservation International; fossil fuel giants like Exxon Mobil, Shell and BP; and major companies in renewable and nuclear energy and consumer goods.

    “It’s something that may command bipartisan consensus,” Ms. Yellen said in an interview, calling the proposal “a very exciting prospect.” Taxing carbon dioxide emissions to reduce energy use, she added, is “absolutely standard textbook economics.”

    The proposal would set an initial tax of $40 per ton of carbon dioxide produced and would increase the price over time. That would raise the cost of a gallon of gas by approximately 38 cents, the group says, with similar effects on household heating and other energy use. That could, in turn, encourage people and businesses to become more energy efficient and curb their use of fossil fuels.

    To offset the higher prices, the tax revenue would be returned to consumers as a “carbon dividend.” The group estimates that the dividend would give a family of four about $2,000 in the first year.

    The group says the plan could reduce United States emissions even further than the Obama administration pledged under the Paris climate accord.

     

    But the leaders of the group are not holding their breath. The notion that the current fractious Congress could pass a bill based on the proposal is not within their fondest expectations. Instead, their strategy is to build public support for the plan while working toward a legislative proposal that could be introduced after the midterm elections, when a new Congress might be more friendly to environmental legislation. …

    Read the rest here: https://nyti.ms/2K0ztP0

     

  • “Why a minor change to how EPA makes rules could radically reduce environmental protection”

    Joe Aldy:

    Since the Reagan administration, federal agencies have been required to produce cost-benefit analyses of their major regulations. These assessments are designed to ensure that regulators are pursuing actions that make society better off.

    In my experience working on the White House economic team in the Clinton and Obama administrations, I found cost-benefit analysis provides a solid foundation for understanding the impacts of regulatory proposals. It also generates thoughtful discussion of ways to design rules to maximize net benefits to the public.

    On June 7, Environmental Protection Agency Administrator Scott Pruitt proposed changing the agency’s approach to this process in ways that sound sensible, but in fact are a radical departure from how government agencies have operated for decades.

    As the agency frames it, the goal is to provide “clarity and real-world accuracy with respect to the impact of the Agency’s decisions on the economy and the regulated community.” But I see Pruitt’s proposals as an opaque effort to undermine cost-benefit analysis of environmental rules, and thus to justify rolling back regulations. …

    Read the rest here: https://theconversation.com/why-a-minor-change-to-how-epa-makes-rules-could-radically-reduce-environmental-protection-98042

     

  • I wonder how taxidermy compares?

    From fIvethirtyeight.com:

    In 2016, cremation overtook entombment as the most common method of “body disposal” in the U.S. And death is environmentally costly: Millions of gallons of toxic fluids and tens of millions of feet of wood are put in the ground each year. One cremation emits as much carbon dioxide as a 1,000-mile car trip.

     

  • A critique of CBA from the 90s

    I've just read Elizabeth Anderson's critique of the use of cost-benefit analysis in environmental and workplace safety policy.  (It was written in 1995, so I'm a little behind.)  It appears in chapter 9 of her book Value in Ethics and Economics and is reprinted in the anthology Philosophy, Politics, and Economics.

    It's a good read for those who estimate the value of a statistical life of the willingness to pay for improvements in air quality.  I've read some other critiques of cost-benefit analysis and of non-market valuation that aren't nearly as compelling as this one is. (Disclosure: Anderson was my professor for an ethics course back in the late 90s when I was an undergraduate philosophy major at Michigan.) 

    I will argue that these goods [safety and environmental quality] are not properly regarded as mere commodities.  By regarding them only as commodity values, cost-benefit analysis fails to consider the proper roles they occupy in public life.

    Her critique of the VSL is basically that, even if you believe that the estimated VSL represents a consistent value of what people would pay for mortality risk reductions, it does not have the normative representation as it is commonly used in policy analysis.

    Market norms and social relations do not supply an adequate context for people to autonomously express how they value their lives.

    She similarly critiques the use of non-market valuation of environmental goods like clean air.  While some of her criticisms are unfair I think (she seems to overlook the fact that economists doing non-market valuation do in fact allow for valuations other than use value), there are many compelling issues to think about.  She argues that attitudes towards nature can be "intrinsic evaluative attitudes," which are not subject to monetization or trade-offs.  People can value environmental goods "in higher ways" than they value commodities, and using standard welfare economics to measure environmental (non-market) valuation will not capture this. 

    Her proposed alternative to using CBA to assess policies in these domains is to use "democratic institutions of voice," in which individuals are given autonomy through the democratic process rather than only insofar as they are willing to pay for improvements in safety or the environment.

    This chapter is well worth reading for any of us who do CBA or non-market valuation.  Even if the conclusions are wrong, we should all think more clearly about the justifications behind our analysis.

  • New editor at Land Economics

    From the University of Wisconsin Press blog:

    When Daniel W. Bromley assumed the editorship of Land Economics in 1974, the journal had just celebrated fifty years of continuous publication. Bromley is the Anderson-Bascom Professor (Emeritus) of Applied Economics at the University of Wisconsin–Madison and recipient of the 2011 Reimar Lüst Prize from the Alexander von Humboldt Foundation. Under Bromley’s leadership, the journal has flourished as a forum for scholarship on the economic aspects of natural and environmental resources. Now, forty-four years later, as Land Economics approaches its centennial, Bromley will pass the baton to Daniel J. Phaneuf.

    Phaneuf is the Henry C. Taylor Professor of Agricultural and Applied Economics at the University of Wisconsin–Madison. He boasts an impressive editorial resume, having served as the inaugural editor in chief of the Journal of the Association of Environmental and Resource Economists (JAERE) and the managing editor of the Journal of Environmental Economics and Management. He is the president-elect of the Association of Environmental and Resource Economists.

    In his first “From the Editor” feature, which will appear in Land Economics volume 94 number 3 this July, Phaneuf expresses the ambition “to maintain the journal’s emphasis on empirical and pol­icy-relevant research in the field, while con­tinuing to expand its readership and author community to include broader swaths of re­searchers in the profession.” He continues, “My early emphasis will be on increasing the journal’s visibility, circulation, and overall impact—tasks for which I will call on current authors, readers, and reviewers for assistance and sug­gestions.” Phaneuf notes that he does not anticipate making any changes in the journal’s scholarly focus or the way it is managed. …

    I'm going to miss Professor Bromley's endorsement in the revise and resubmit letter: "This paper is mildly interesting." Actually, I've been missing it a lot lately.