Environmental Economics

The cromulent economics blog

recent posts

About the authors

  • “Conferences and workshops in environmental, energy, and natural resource economics”

    Via caseyjwichman.com:

    Conferences and workshops in environmental, energy, and natural resource economics

    • Canadian Resource and Environmental Economics Working Group

    Bigger conferences

    • Northeastern Agricultural and Resource Economics Association Annual Meetings

  • If we all line up on the coast, count to 3, and jump in the ocean yelling “CANNONBALL” I think we could splash out enough water to counter sea-level rise*

    Alabama Rep. Mo Brooks on possible causes of sea level rise:

    "What about erosion?…Every time you have that soil or rock, whatever it is, that is deposited into the seas, that forces the sea levels to rise because now you've got less space in those oceans because the bottom is moving up."

    Anyone still question the need for more science education in our schools?

    *Flashback to my childhood…Dad, almost daily: "Leave some damn water in the pool!"

  • As Vice President Biden would say, “This is a BFD”

    FB18-032
    FISHERY BULLETIN ISSUE D    ATE: May 17, 2018
    CONTACT: Frank.Helies@noaa.gov, Sustainable Fisheries, 727-824-5305

     Request for Comments: Limited Opening of Recreational and Commercial Red Snapper Fishery in South Atlantic Federal Waters

     

    KEY MESSAGE:

    NOAA Fisheries requests comments on a proposed rule for Amendment 43 to the Fishery Management Plan for the Snapper-Grouper Fishery of the South Atlantic Region (Amendment 43).  The proposed actions would specify recreational and commercial annual catch limits for red snapper beginning in 2018.

    • Red snapper recreational and commercial seasons would open in South Atlantic federal waters for limited harvest beginning in 2018.  
    • The South Atlantic Fishery Management Council approved Amendment 43 after recent scientific information indicated an increase in the red snapper population since 2014.
    • NOAA Fisheries determined the proposed limited harvest beginning in 2018 is neither expected to result in overfishing, nor prevent continued rebuilding of the population.

    *The comment period on the proposed rule begins on May 17, 2018, and comments are due by June 18, 2018.*

    Source: http://sero.nmfs.noaa.gov/fishery_bulletins/2018/032/index.html

  • Daily Demand and Supply: Government prevents entire island population from getting crabs*

    From NBC.com:

    This community voted overwhelmingly for Donald Trump. But now his immigration changes are killing its livelihood — legendary crabs that are a mainstay of the local economy and a regional delicacy.

    For decades, Hoopers Island, known for its crabbing industry, has relied on a federal seasonal work program — known as H-2B visas — to keep its businesses humming. This has allowed employers to hire foreigners, mostly Mexican women, to come temporarily to pick crab meat.

    But this year, the cap on H-2B visas — and a shift from the first-come, first-served based model to a lottery system that has disadvantaged Hoopers Island seasonal workers — has left the island without 40 percent of the visas they have needed in the past.
    The economics here are pretty straight forward.  The number of workers supplied at any particular wage is equal to the number of domestic workers willing to work at that wage, plus the number of H2B (foreign) workers willing to work at that wage.  For example, if the crab-picking wage is $10 per hour, and the number of domestic workers willing to pick crabs at $10 per hour is 100, and the number of H2B workers willing to pick crabs for $10 per hour is 200, then the total number of workers supplied at a wage of $10 per hour is $300.  If the number of H2B visas are cut by 40%, then the number of H2B crab pickers willing to work at $10 per hour becomes 120, and the total number of workers supplied at $10 per hour is now 220.  In other words, restricting the number of foreign workers results in a decrease in the supply of labor to the crab-picking industry.   So what are the effects of a decrease in the supply of labor in teh crab-picking industry?
     
    • Wages for crab-picking will increase.  A decrease in supply of crab-pickers will cause the equilibrium price of crab-pickers to increase.  Those crab-pickers who are hired will get higher wages.
    • The number of domestic crab-pickers will increase.  At higher wages, the number of domestic crab-pickers willing to work will increase.  Since the supply of foreign crab-pickers has been reduced, a part of the shortage of workers will be filled by drawing new domestic crab-pickers into the crab-picking jobs.
    • The total number of crab-pickers will decrease.  As with any decrease in supply, the equilibrium quantity of workers in the crab-picking market will decrease as the supply of workers decreases.  The gain in domestic workers is more than offset by the loss of H2B workers.  

    So in the market for crab-picker we will have higher wages for more domestic workers, with fewer H2B workers in the market, and lower total employment among all crab-pickers.  SO if you are a protectionist, this doesn't sound all bad.  We have more domestic workers employed at higher wages.  Right?

    Well, sort of.  We also have to think about what else happens.

    Right now we have full employment.  With full employment, those domestic crab-pickers have to come from somewhere. The only place from where they can come are other, similar, jobs.  SO another effect is:

    • A decrease in supply of H2B workers in the crab-picking industry will decrease the supply of domestic workers in other industries–driving up those wages as well.

    But workers getting paid more is a good thing, right?

    Sort of, but we have to remember that workers are an input into the production of outputs.  When the price of an input increase, the supply of the output decreases.  This means:

    • A decrease in the supply of any output for which wages have gone up will see higher prices and lower quantities produced/consumed.  The decrease in the supply of labor will cause higher crab (and other food goods) prices.

    For reference, here's the current price of crabs at a Baltimore area restaurant: 

    Males by the Dozen

    • Small (5″-5 ¾″) $30
    • Medium (5 ¾″-6 ¼″) $48
    • Large (6 ¼″-6 ¾″) $68
    • XLarge (6 ¾″-7 ¼″) $101
    • Jumbo (7 ¼″-8″) $124

    Males by the Bushel

    • Small $249
    • Medium $309
    • Large $379
    • Lights (picking crabs) $120
    Yikes.
     
    *I know that's a cheap joke, but I bet John laughed.
     

  • Top 100 Economics Blogs of 2018

    Economics Blogs 2018

  • California mandates solar panels on all new homes

    If you want to build a new home in California, you will have to build one with rooftop solar, according to a new mandate from the California Energy Commission. 

    The solar rules will apply to new single-family homes and new multi-family housing of three stories or fewer. Under the plan, builders who obtain construction permits issued on Jan. 1, 2020 or later must comply.

    This is pretty much a textbook definition of a command-and-control environmental policy, a type of policy that, as I repeat ad nauseam to my undergraduate environmental economics students, is one that is very unlikely to be as cost-effective as an incentive-based environmental policy like a pollution tax or a cap-and-trade market for pollution (which California already has BTW).

    Environmental economists tend to dislike command-and-control policies.  Severin Borenstein at Berkeley wrote an email to the energy commission chair voicing his opposition, and James Bushnell at Davis has written and op-ed and a blog post arguing against it.  Both of them know a lot about energy and environmental economics, and about California's electricity markets in particular. 

    In addition to not being cost-effective, the policy will likely exacerbate another enormous problem with California's economy: the housing affordability crisis. 

    The requirements are likely to add nearly $9,500 to the construction cost per home as state officials have declared a housing crisis. Home prices have soared in California, and housing stock has failed to keep up with demand.

    There are some defenders of the policy (not just the energy commission members, who passed it unanimously). There are two main arguments.  The first is a "second-best" or a political economy argument: a cost-effective incentive-based policy may be best but is unfeasible, so let's be happy with the imperfect policy that we got.  Costa Samaras tweets:

    Lukewarm take on the Calif solar on homes mandate: should they have done something more optimum instead? Yes- & we should assess objectively. But climate policy/deep decarbonization is about coalition politics, & 2nd (9th?) best policy options often happen instead of the optimum.

    A second argument is based on induced innovation: this policy will drastically reduce the costs of solar implementation, so it is effectively subsidizing the under-provided positive externality from knowledge diffusion.

    Due to the state’s revolutionary 2019 Building Energy Code requiring solar power to be installed at time of construction for all newly built homes, over time California home buyers could see per unit prices drop to rates approaching that of some of the world’s largest utility scale solar installations ($1/W in the United States).

    Some previous research has examined the effects of solar mandates on technological innovation, and my reading of this is that the effect is there not not nearly as big as proponents argue. 

    Anyways the whole point is that no one ever listens to economists.

     

     

  • The social cost of carbon isn’t zero

    Robert Pindyck and James Stock at The Hill:

    The “social cost of carbon” (SCC) is the dollar value of the future climate damages from emitting an additional ton of carbon dioxide. During the Georgia W. Bush and Barack Obama administrations, the SCC was used in regulatory cost-benefit analysis. The SCC is also the starting point for thinking about the appropriate magnitude of a carbon tax to reduce carbon dioxide (CO2) emissions.

    Over the past year, the SCC has come under attack both from the administration and from Congress. Last fall, the administration substantially reduced the value of the SCC by using — incorrectly — a high discount rate and a narrow construction of domestic benefits. Most recently, uncertainty about the size of the SCC has been used as an argument for a House resolution opposing a carbon tax. 

    The two of us bring quite different perspectives to the SCC. While one of us (Stock) was working in the Obama Council of Economic Advisers to refine and apply the SCC, the other (Pindyck) was criticizing the computer models used by the U.S. Government to estimate the SCC, arguing that the models had major flaws and uncertainties.

    But both of us agree about the importance of the SCC — and of having a carbon fee as an important step in harnessing market forces to reduce CO2 emissions and incentivize the development of clean energy sources.

    Critics of a carbon tax argue that because of uncertainty over the correct value of the SCC, it should not be used at all for policy purposes — in effect, its value should be set to zero legislatively. In fact, some of Pindyck’s writing about this uncertainty were used (out of context and selectively) to make that case. But setting the value of the SCC to zero implies that mitigating climate change has no value and is therefore unnecessary. The idea that uncertainty means we should do nothing is completely illogical. …

    What then is the right value of the SCC? That is a tough question that both of us have thought about a lot. The models used by the government to estimate the SCC have some important weaknesses, which researchers are actively working to resolve.

    One of us (Stock) is optimistic that this research will substantially improve the estimate of the SCC. The other (Pindyck) is not, so has explored other methods of estimating the SCC, including surveying experts, a method used in other scientific fields facing complicated unknowns. (The results suggest that the SCC is much larger than the Obama administration’s estimates.) 

    Another approach is to focus on the insurance aspect, where we worry only about worst-case outcomes. That would understate the total cost of climate change because it ignores important, but less costly damages, but it also suggests that the SCC could be quite large. 

    The two of us have been on different sides of the academic debate over the SCC. But we agree that while we can’t pinpoint the value of the SCC, it isn’t zero. We agree that a carbon tax is a smart conservative step we should take now. And we agree that the right people to figure out the value of the SCC are scientists and economists, not members of Congress.

    Is there really legislation to set the social cost of carbon (SCC) to zero? I googled "Mark Meadows" + "Social Cost of Carbon" but couldn't find anything other than legislation to prohibit the use of the SCC. 

  • Hey U.S. Senate, how about a letter calling for simply ending all of those stupid #TrumpTariffs (not just the ones that hurt your states)?

    https://platform.twitter.com/widgets.js

  • A benefit-cost analysis of a red drum stock enhancement program in South Carolina

    R. J. Rhodes, J. C. Whitehead, T. I. J. Smith and M. R. Denson 

    https://doi.org/10.1017/bca.2018.1

    Published online: 11 May 2018

    Abstract: Recreational saltwater anglers from the mid-Atlantic through the Gulf of Mexico commonly target red drum. Due to concerns about overharvesting within South Carolina coupled with regional management actions, South Carolina explored the technical feasibility of stocking hatchery-produced juvenile red drum as a technique to augment the abundance of South Carolina stock. In order to assess a continued program, in 2005 a mail survey was used to collect data for estimating the economic benefits with the contingent valuation method. The theoretical validity of willingness to pay was assessed by comparison to the value of a change in red drum fishing trips that would result from the program. Benefits were compared to estimated, explicit stocking costs. We illustrate how a certainty recode approach can be used in sensitivity analysis. The net present values (NPVs) for the stocking program are positive suggesting that the program would have been economically efficient relative to no program.

    I like this paper for a number of reasons:

    • It was first presented over 10 years ago at the Southern meetings. It sat idle for 10 years and JBCA was the first journal where it was submitted. The lesson is that … don't let your data sit idle for 10 years. 
    • The paper is a benefit-cost analysis, actually used by the agency (see Stocking South Carolina's Favorite Saltwater Fish). I've been working on benefits forever but rarely get to actually compare them to costs. In addition, I got to work with real-life agency fisheries economists and biologists who had real-world constraints on the survey questions they were able to ask. I maybe learned more from this project than any other. 
    • I've taught this case study for a number of years in my benefit-cost analysis course. I haven't taught the course in years (department chair duties got int the way) but am scheduled to teach it this fall. I'll be using it again this fall to help explain sensitivity analysis, discounting, horizon values, etc. 
    • We did revealed preference (travel cost method) and stated preference (contingent valuation method) analyses to estimate benefits. The revealed preference estimates were less informative than the stated preference estimates so the latter were used in the policy analysis. This illustrates my contention that stated preference data can be useful for policy analysis but (at least for recreation) you are better off if you also consider revealed preference estimates (as a validity check — and see the next bullet point).
    • The journal referees were not much impressed with our assertion that an old case study was worthy of publication. So, I went back to my all-time favorite paper for some theory and found convergent validity between single-site recreation demand and contingent valuation. The lesson here may be that if a researcher is looking for a better understanding of behavior and preferences from stated preference data then things can be discovered and learned. On the other hand, if a researcher is looked to break stated preference methods then that can be arranged too.
    • Hypothetical bias is an issue that will likely never go away in contingent valuation (or choice experiments if folks doing that sort of stated preference study were targeted by industry-funded critics) regardless of assertions about consequentiality. In this paper we used a certainty follow-up and the analysis in the preceding bullet point to best match the willingness to pay estimates with a revealed preference estimate. From this, we used alternative certainty corrections for sensitivity analysis. As of today, this is how I think benefit-cost analysis with stated preference methods should be done. 

  • Environmental Economics takes over AEA Executive Committee

    OK, that's an exaggeration, but at least an environmental economist is an AEA Executive Committee VP candidate.  Congrats Maureen Cropper*!

     *I had the pleasure of being taught Environmental Economics by Maureen during my PhD studies at the University of Maryland.  Based on my lack of understanding of the field as demonstrated through my posts on this blog, I'll let you decide whether that disqualifies her from consideration for the Executive Committee.