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Cort Hammond
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Admittedly, there are a number of things that I don't quite understand about Hausman's argument. For example, why does he believe that CVM is ok for private firms but not for government work? I can only imagine that he objects to the idea of wasting government money? Anyhow, it seems that as long as CVM undershoots the actual non-market value of something, then it is better than ignoring the value and allowing the tragedy of the commons to continue at the same rate. Of course, Hausman seems to indicate that only revealed preference methods are truly acceptable since they avoid issues with bias. However, he should recognize that these methods require data that may be unrecorded or difficult to collect, especially in developing countries. For example hedonics cannot be applied well to finding the value of a beach when there is a situation where there are few hotels all on a beach. In this case there would be very little to compare with. I would agree that CVM has its place and that as long as the estimated price is not above the actual, it is an imperfect solution, but better than none.
I was shocked by the second image on CNN’s slideshow that documented the March 14th dead zone that formed in Lagoa Rodrigo de Freitas. It is estimated that over 65 tons of fish died as a result of organic nutrient-rich run-off during a rainstorm that increased BOD and lead to a hypoxic event. The worst event occurred in 2000 when 100 tons of fish died. This clearly demonstrates the interconnectivity of the land and bodies of water. These hypoxic events are seasonal and have been occurring since the 1980s, which indicates that they result from urbanization. Using a quick land use analysis program, I estimated that around 40%-50% of the area around the lake is urban. While this is a high number, it doesn’t account for the severe dead zones. Interestingly runoff problems are difficult to solve with economic incentives since stormwater systems are controlled by the city and situations can be unique. Therefore, it is likely that a non-market valuation of the lake would be most effective in improving public policy. If cities were aware of the future costs of restoring lakes, then better drainage systems could be installed. Indeed, a policy shift has driven the local sanitation company to revise the areas drainage system. Furthermore, attempts have been made to restore mangroves and increase the natural water flow from the sea. I don’t doubt that more work could be done to value lakes and provide a non-market cost associated with anthropogenic hypoxic events.
This is not the first of such calculations. Dr. Jacobson published an estimate of the global renewable energy installations needed back in March 2011 to meet the global energy demand by 2050( As Sasha said, it would be interesting to know how these numbers were calculated. Perhaps the methods used in the 2011 paper are similar to those in the upcoming one. Appropriately, one of the first papers cited is the Stabilization Wedges paper. In the 2011 paper they list the following criteria: "WWS (Wind, Water, Sunlight) energy system characteristics, current and future energy demand, availability of WWS resources, numbers of WWS devices, and area and material requirements." If the claims for New York seem bold consider that in his global report, Dr. Jacobson claims that converting the energy supply to WWS energy flows would save 30% of the world's energy consumption and only a ~0.59% increase in land use. These numbers look very promising. Even if the numbers for this global study and the New York study are estimates they are likely quite good ones. After all, energy consumption Of course the economic benefits are harder to calculate. However, since scientists tend to favor safe estimates, it may be that reductions in health costs and other externalities from non-renewable energy are actually much greater. I think that the most important statement that Dr. Jacobson reiterates is that the barriers to successful implementation are social and political, not so much technological. The question to ask is whether a complete conversion to renewable energy by 2030 is optimal. To reach this goal with economic incentives a tax on emissions would have to mount rapidly to push firms to abate emissions to the degree that only full conversion to zero-carbon energies would liberate them from the tax. Conceivably some of the upper limit optimal tax calculations ($200 or more per ton of Carbon), if accurate would provide such strong price signals. As awesome as this clean economy sounds, I doubt the resolve of policymakers and citizens in making it happen.
If only everyone in this nation could see Dr. Alley speak... As Dr. Alley indicated, there are really no major questions as to whether we should act on climate change; and there is little hope that any solution besides a price on carbon will bring about the necessary action. The technology, as we have seen in numerous papers, is already available. It is aggravating to see such petty division over such a critical issue. However, division occurs across more than just party lines. Even among those who recognize the need for action, there are those who argue against cap-and-trade solutions. This further weakens the case of economic incentive solutions. One prominent example is the pop-culture green Anne Leonard and her video "The Story of Cap & Trade," in which she scares the public about cap-and-trade being a financial scam and about how it is not a perfect solution. This type of language is exactly the sort of appeal to pathos that gets us into the ideological mess. She identifies the give-away of permits, the potential for offset permit scams, and distraction from a real solution as the major problems. These certainly are problems, but they are not reason to abandon the whole idea. While she doesn't say that that economic solutions are strictly bad, her proposed solution is confusing; she says that a strong cap and carbon fees (taxes) are required. In a tax-based solution, a cap is not needed! She should be advocating an emissions tax only so as to help point the public in a logical and focused direction. She also ignores that case of the RGGI, which has seen such success. Overall, this video adds to the fear of market solutions. We are to the point where some action is better than none at all. So, it is not just conservatives who are weakening the case for climate legislation. Clearly, this is not a 'liberal' policy, it is a policy of those who are looking to move forward logically rather than becoming mired in an endless debate over the 'best' solution. There is still a chance to unify around logic.
Toggle Commented Mar 9, 2013 on Another Political Football at Jolly Green General
The off-the-charts pollution (and the resulting unrest) is what is forcing China to at least take steps towards reducing pollution. As mentioned on Tuesday, the proposed carbon tax is quite the commitment considering China’s past record on being unwilling to commit to reducing emissions. It is likely that China hopes that a tax on carbon will in effect be a tax on all forms of pollution and will result in better air quality. The Washington Post has an article that describes the ups and downs of China’s proposed tax: At first, I was surprised and impressed that China had taken the initiative to solve its pollution problems. However, if this article is correct the tax is unlikely to have much of an effect. It is estimated that tax will start at $1.60 per ton of carbon and eventually go to $8 by 2020. In many of the articles we have read, estimates for the costs of carbon (to which the tax should be set equal) range from $20-$80. And this is just for the carbon-related damages. If China hopes to lower its smog-contributing pollution the costs are even higher than those estimated for carbon. As a consequence, the tax will not drive firms to abate at anywhere near the optimal level. Ultimately, this article points out many of the pitfalls that plague emissions reduction programs with economic incentives. The article points to the pervasive loopholes that mark the lack of a comprehensive emission verification program. This is a hopeful step because it may bring the world one step closer to cooperation; perhaps the US can be convinced to follow suit and outdo China. Another issue is that China has not decided to go all in which means that there may be uncertainty over what to expect in the short term. Rather than reducing pollution using a single comprehensive tax, command and control policies have been announced.
Toggle Commented Mar 1, 2013 on Off The Charts at Jolly Green General
The full press release linked in the article includes a number of other changes to the program. Apparently, they have added a protocol for companies that want to offset their carbon emissions with forestry. Further on in the document, the major benefits of the RGGI program are listed. They claim that the revenue from the first 3 years of the program generated $1.6 billion in net economic benefit by the end of the next decade. The net economic benefit is consumer + producer surplus. I have to wonder how this was calculated (and extrapolated). Also, it is claimed that the program creates 16000 job-year in the region. This was the first time I have come across the term "job-year" (perhaps this makes be ignorant), this clearly a much better measurement of job creation than the pure number of jobs since a 1 year job is not equivalent to a 10 year job. Also, it is incredible to think that all of these reductions (45% below 2005 levels!) only come with an approximate increase in electricity bills of 1%. Perhaps the most intriguing fact is that the report barely mentions climate change, only listing that a benefit of the program is "community climate protection". The focus is clearly on painting this as an effort to improve efficiency, innovation, and air quality. This illustrates an important step in selling the idea of a carbon trading program: the focus must be on efficiency; climate change is still lacking in the views of the public as a reason on its own to put a price on carbon. Of course, this is great news; the ongoing success of a carbon trading program (in sprite of economic stress) seems proof enough that the US is ready for a carbon emissions trading program and that such a program would not only lower greenhouse gas emissions, but also increase innovation and efficiency. The fact that companies did not manage to lobby RGGI into relenting on its cap, may be an indicator that a national program would have the same resilience.
While the RGGI is an amazingly well implemented program that can serve as a case study to model future greenhouse gas reduction policies, the resistance to the program makes sense. The fact of the matter is: this regional system is somewhat unfair. Since climate change is, by definition, a global problem, a regional program is not an efficient solution. Understandably, companies in one of the 9 participating states feel (and rightly so) that they are being forced to compete unfairly since they are charged for emissions, when companies in neighboring states are not. Basically, there is a free rider problem; since greenhouse gases have only global effects, the whole world benefits from the reductions, but only companies in these states pay. The result is push-back and pseudo-logical arguments from companies in regulated states that hope to persuade the public into diminishing the emissions standards (and lowering total abatement costs). The next logical step, as many have pointed out, is to instate a national cap and trade program that operates on the same principle. While this would go some of the way towards making emissions trading fair, this solution still falls well short of the optimal solution. In this case, the push-back would be even greater as companies argue that the cap and trade system is preventing fair competition of US firms with international firms. As with the 9-state RGGI, a national greenhouse gas initiative would still allow companies in other nations to free-ride on localized abatement efforts. It is for this reason, that a stricter Kyoto protocol is absolutely necessary (a global market for emissions is a must). Without global participation in greenhouse gas trading, there will be too many interest groups who argue that they are being unfairly treated (and in a way they are). There is no question that this tax is efficient even at the regional scale (especially when revenue from auctions is reinvested in clean tech). However, since the individual makes selfish decisions, in order for these decisions to benefit society, incentives have to be uniform enough to prevent individuals from making decisions that return us to a state where negative externalities are ignored.
Wow, all these great comments covered the article thoroughly. So, I decided to read the paper: "The Life and Death of the Dutch Groundwater Tax" The paper that Zetland attached at the end of this article is similarly intriguing. Apparently, in the 1970s there were problems with desiccation, which were solved with command-and-control solutions. In this paper, Zetland tells us that the Groundwater Tax (GWT) was intended to reduce wasteful consumption of groundwater in 1998. He then shows how the tax was repealed in the face of opposition. I found Zetland's conclusion the most useful; he states that in order for an Pigouvian tax on an externality-producing good to be successful one must: --1. record economic, social and environmental targets before and after the tax --2. analyze the "marginal impact" on existing taxes and regulation (especially at the local level) --3. avoid forcing taxes on a single group or special interest as they will fight it --4. avoid "greenwashing" and focus on environmental outcomes "Greenwashing" : for those who have not heard the term, it is the fact-distorting use of an environmental agenda to sell an idea (tax, product, ideology) that in truth has no environmental benefits. In this case, the Dutch government was greenwashing by using an environmental protection pretext to levy a tax in order to close an income gap. Data showed that demand was not decreased significantly (and surface water consumption went up) because the tax targeted Drinking Water Companies who had such inelastic demand that they pushed back and had the tax repealed. Arguably, Zetland's 3rd principle could be stated as: "Stick to the Pigouvian tax and target moderately elastic demand in the general public; avoid using a Ramsey tax (fiscal tax) that targets very inelastic demand in order to maximize profit (this is what occurred with the GWT." That's the gist of what Zetland's last 3 lines mean, but his article is worth a read. Clearly, these 4 principles are extremely important and could be applied in almost any situation. Clearly policy stakeholders need to me more cognizant of avoiding by inefficient, greenwashed taxes.
Toggle Commented Jan 22, 2013 on My Bad..... at Jolly Green General
In theory, this sort of accountability for developed nations (who have been the largest cumulative emitters of CO2) would promote justice and encourage polluting countries to curb their emissions in the face of future litigation. However there are several problems with this. One of the chief weaknesses with the Kyoto Protocol is the catch-22 between environmental justice and emissions reduction. Under the Protocol, developing nations are not subject to binding agreements to emission reductions. This seems fair when you consider that these nations have only recently started to contribute to climate change and that they need cheap energy to improve the quality of life for their people. However, this means that that a large portion of the world is exempted from emission reductions. The exemption of China, India, and Brazil is especially contentious and is a major reason for the US's failure to ratify the treaty. Clearly, China (for example) cannot be considered a strictly developing nation because there is such a wide difference between the industrial and farming areas; the poverty of the people doesn't mean that emissions are low. There is a legitimate fear that if the US cut emissions these cuts would be negated by China's rapid industrialization. Since climate change is an immediate global problem, the only solution is to agree on across-the-board reductions. This would unite countries rather than divide them and would ensure that there are no free-riders. Meanwhile to ensure environmental justice is served, developed countries would have to provide developing countries with technical and financial aid (perhaps with funds raised from emissions taxes). This way, they would be compensated for their late arrival to industrialization and polluting. While the legal approach may end of being necessary to solving the climate crisis, I fear that the solution would be messy and imperfect and could possibly alienate countries. Hopefully, it will be recognized that all nations need to make percent reductions while developed nations do owe undeveloped nations more of a helping hand; we can't just decide to reap the benefits and shut the doors of industrialization on most of the world. As a side-note, I was interested to read that judges ruled that climate change is a political issue, not a legal one. This demonstrates the extent to which science has been skewed. Leaving climate change to politicians is not different than leaving any other decision involving health to them (as the article says, it calls to mind the tobacco cases of the 1990's).
This is very interesting in relation to the Friedman article on carbon taxation. There are logically sound reason to favor a CO2 tax as a solution to the deficit and climate change. However, this article bluntly states that the bill is "highly unlikely to advance". I think that the reasons for this are lobbying and politiczation of a scientific debate. (many people still say that they don't "believe" in global warming as if it is optional). I see now how Friedman hoped to make the CO2 tax more attractive; the only way that anything will get through is if it passes the economic muster. If it can be construed in any way as hurting the economy (in the layman's sense; after all, we know that efficiency would increase as a result of a tax), then the bill simply won't make it.
Toggle Commented Jan 15, 2013 on Rumor has it..... at Jolly Green General
I agree; the debt crisis and climate change can be solved together; however, it may have to be more indirect that a straight CO2 tax. Congress' failure to reduce CO2 emissions is, as many of peers have mentioned a case of delaying a difficult decision in hopes that the solution will become clearer (and politicization). The inaction on CO2 emissions stems, at least in part, from the free-rider problem (fear that other countries with ride on the US's emission reductions). Since climate change is by definition global, I find it hard to believe that the US will ever take strong action on CO2 emissions. When numerous countries banded together to solve the problem with the Kyoto Protocol, the US failed to ratify. At the same time, there remains a strong contingent of climate denialists. It seems to me that the way around this is to focus on rounding up all immediate and physical externalities from fossil fuel use and tax these. I liked what Hank had to say about "one benefit among many." Clearly, there are wide reaching benefits that occur when fossil fuel use is reduced. Aren't the clear impacts on asthmatic conditions, fish and wildlife resources, and ecosystem health reason enough to tax fossil fuels? In addition, Thomas Friedman mentions the detrimental effects (what I would argue are externalities) of petropolitics/petrodictators in his last paragraph. These are all examples of externalities that could provide a reason (on top of impending climate change) for Congress to unite across ideological lines. I acknowledge that it is preferable to tax the externality not the product; however, in this case, it seems that after extraction, refining, shipping, and burning, petrochemicals are themselves an externality. Perhaps a direct tax on petrochemicals is a more realistic solution? Unfortunately, the US has been slow to act and I fear that the issue of global warming has been so politicized that the ideal solution (a carbon tax) would be difficult to establish. But perhaps if CO2 isn’t the target (other externalities are) Americans might be more willing to accept a tax, especially if it meant the lessening of the deficit.
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Jan 14, 2013