Category Archives: Valuing the environment

Not always in dollars and cents but economics informs us about the trade offs and our willingness to make them

When is $100 billion not that big?

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When it’s measured against $18,675 billion ($18.7 trillion) produced by the U.S. economy. The Heritage Foundation issued a report claiming the Obama Administration imposed $107 billion in new burdens over seven years. That sounds like a huge amount, but that’s only 0.6% (six-tenths of a percent) of the economy. And that’s spread over seven years which means that this the reduction in the GDP growth rate was only 0.08% (eight hundredths of a percent) per year. Against an annual average growth rate of over 2%, that’s a trivial amount. Another way to think of it is this way: if you had a dinner bill from Applebee’s for $19, would you not by dinner it if cost a dime more? Probably not–you wouldn’t even notice.

Plus, the HF’s estimate ignores the benefits of those regulations. This graphic from the OMB that shows the estimated relative benefits to costs of regulation.

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I won’t dig too deeply into the Heritage Foundation’s analysis other than to make a couple of notes about about alternative perspectives that I am familiar with:

  • Heritage Foundation claims that the Clean Power Plan has cost $7.2 billion as the single largest increment. Yet Lawrence Berkeley National Laboratory (which is much better qualified on this issue than the HF) just released a study showing the net financial “costs” of the various renewable portfolio standard (RPS) requirements is actually a benefit $47 to $109 billion. (And that ignores the environmental benefits identified in the report.)
  • After the 2008 financial debacle, the industry was going to face increased regulation to reign in its behavior during the previous decade. So increased regulation under Dodd-Frank is to be expected. And the better question might be what is the drag on the economy from high financial-related transaction costs? One study found that transaction costs may be as high at 45% in the U.S. economy. The financial and legal sectors likely are a bigger drag than government regulation.
  • On FCC net neutrality, see a previous post about how bigger corporations and economic concentration reduces innovation, which leads to reduced growth. Net neutrality is intended to fight that concentration.

CEQA has no effect on California growth

Bay Area Economics conducted a study for the Rose Foundation that found that CEQA regulations have had no appreciable effect on economic growth in California.ceqaprocesssoil_procflow_web_01top-02-02

Here’s a summary of the findings:

The report includes a number of significant findings, including:

  • There is no quantitative evidence that CEQA has a retarding effect on the state’s economic prosperity.
  • Legislative changes to CEQA aimed at streamlining the CEQA process to encourage infill development are working. In San Francisco, only 14 environmental impact reports were prepared in the last three years. In that time, 100 projects proceeded with CEQA exemptions or expedited review.
  • Despite rapid population growth and development, the number of CEQA lawsuits statewide has remained constant over the past 14 years. Between 2013 and 2015, legal challenges were filed in 0.7 percent of projects subject to CEQA review.
  • Less than one percent of projects subject to CEQA review face litigation.
  • Direct costs for complete environmental reviews under CEQA typically range from 0.025% to 0.5% of total development costs.
  • California is the 11th most densely populated state in the nation. Its urban areas compare favorably to cities around the country with regard to the rate of infill vs. greenfield development.
  • The state’s largest cities show ongoing improvement in walkability. California is home to 12 of the nation’s 50 most walkable cities.
  • CEQA does not hamper the development of affordable housing in urban areas. Although the need to provide more affordable housing in California is undisputed, when compared to other states, California produces the second highest number of affordable housing units per 100,000 residents in the nation.

Maven’s Notebook: “Normative science has a corrosive effect on the entire scientific enterprise”

‘Normative science’ has a corrosive effect on the entire scientific enterprise, says Dr. Robert Lackey These days, scientists in environmental science, natural resources, ecology, conse…

Source: MAVEN’S NOTEBOOK – Water news

Preserving biological diversity in Costa Rica

We just returned from a trip to Costa Rica, including the cloud forest in Monteverde. We even got to see the wonderful Quetzal (see above) and hear the Three-wattled bellbird. That region is increasingly dependent on eco-tourism to support it biological reserves. Most of those are privately owned, with the national parks appearing to be more “rural preservation” zones than the ecological protection areas that we have in the U.S. The question is whether relying so heavily on eco-tourism is a desirable and sustainable path for preserving the biological diversity in such a resource-rich area?

Tourism can have a big environmental footprint from travel modes as well as pushing the local labor force from productive agriculture to service jobs. Already, 300,000 people annually visit a community with 5,000 residents. Several people in Monteverde mentioned that they were reluctant to support improving road access (which is difficult now) because it could bring in more visitors, particularly cruise-ship buses that are typically not as interested in a “close to nature” experience.

One option is to train the workforce to provide the means of maintaining and observing the local ecosystem. This could include both nature guides for eco-tourists, scientific observation and analysis, and habitat restoration.

Another question is whether the local workforce should be trained to transform the habitat to match the climate change that is likely to occur in the region? Human activities such as cattle grazing and crop and forest cultivation tend to impede natural transformations that might mitigate climate change impacts in the local ecology. We might have to acknowledge that existing local habitats will change and certain species will disappear, but that we should move to substitute appropriate habitat for other species to escape to from their disappearing habitat.

Environmental impacts of pot

I saw this interesting RFP come in:

The California Department of Food and Agriculture requires the services of an environmental consulting firm to prepare an environmental impact report for its Medical Cannabis Cultivation Program.

Awareness has increased about how marijuana cultivation has affected water diversion, pesticide use, energy use and forest habitat. The results of this study will be interesting.

The shaky foundation of benefit-cost analysis

A post by Tim Brennan at RFF on the uncertain foundations of benefit-cost analysis. (Another RFF post explores the question of whether policies should influence preferences.) The bottom line: that we can’t rely on a cut-and-dried economic analysis to define the “most efficient” policy action.

His conclusion is that we need to turn back to policymakers to decide, rather than relying on the “high priests” of economists:

The best alternative may be to use a fair and open democratic process to choose those who would change (or ignore) revealed preferences. This sounds more radical than it is; we do it all the time. We elect officials who directly or indirectly make choices according to noneconomic values based on ethical rights or distributive justice. Moreover, we also cannot forget that though economics takes preferences as given, they have to come from somewhere. Manipulating preferences is already part of public policy, most notably using education to inculcate preferences to be good citizens as well as to acquire useful skills. Although the puzzles mentioned here are real, we may not have the choice to ignore them, much as we might prefer to do so.

 

Another market mechanism saving the environment

EDF posted a blog about the resuscitation of U.S. fisheries and how two-thirds of those fisheries are now sustainable thanks to changes in management practices. At the core of those programs are market-based incentives with individual transferable quotas (ITQ). Fishermen are allocated a certain amount of catch within a season and they can trade those quotas among themselves. The overall cap maintains the sustainability of the fishery while individual fishermen can catch an amount that best meets their own objectives and constraints.

A second element that’s often part of these programs is a buyout program to reduce the size of the overall fleet. This reduces the risk for the boats that remain in the fleet while compensating those who exit for their losses.

These are examples of successful “cap and trade” programs. These lessons are applicable to managing water rights and reducing GHG emissions.