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

Decommissioning Klamath River dams comes to fruition

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In 2006, M.Cubed prepared a report for the California Energy Commission that showed PacifiCorp, owner of the four dams on the Klamath River, would be financially indifferent between decommissioning or relicensing the projects with the Federal Energy Regulatory Commission. That conclusion has since been reinforced by a 75% decline in replacement renewable power costs since then. That study opened the door for all parties to negotiate an agreement in 2010 to move forward with decommissioning.

In 2015, I wrote here about how that agreement was in peril. I tracked the progress of the situation in the comments in that post.

Fortunately, those hurdles were overcome and the decommissioning began this year in 2023. Copco 2 has now been completely removed and the project is moving on to the next dam.

After all four dams are taken we can see how successful this approach might be in restoring rivers on the West Coast.

This is the initial report on the economics of decommissioning versus relicense conducted for the California Energy Commission.

Deciding if solar installation is suboptimal requires that the initial premises be specified correctly

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A recent article “Heterogeneous Solar Capacity Benefits, Appropriability, and the Costs of Suboptimal Siting” in the Journal of the Association of Environmental and Resource Economists finds that distributed solar (e.g., rooftop solar) is not being installed a manner that “optimally” mitigates air pollution damages from electricity generation across the U.S. Unfortunately the paper is built on two premises that do not reflect the reality of available options and appropriate pricing signals.

First, the authors appear to be relying on the premise that sufficient solar, grid-scale or distributed, can be installed cost-effectively across the U.S. While the paper includes geographic variations in generation per installed kilowatt of capacity, it says nothing about the similarly widely varying costs per kilowatt-hour. They do not acknowledge that panels in the Pacific Northwest will cost twice that of those in the Desert Southwest. This importance of this disparity is compounded by the underestimate of the social cost of carbon and the possible conflation of sulfur dioxide and particulate matter damages. The currently accepted social cost of GHG emissions developed by the U.S. Environmental Protection Agency (US EPA) is ranges from $50 to $150 per tonne in 2030 (and recent studies have estimated that this is too low), compared to the outdated $41 per tonne in the article. Most of the SO2 damages arise from creating PM so there is likely double counting for these criteria pollutants. (The study also ignore the strong correlation between GHG and SO2 emissions as coal is the biggest source of both.) The study also fails to account for the enormous transmission costs that would be incurred moving solar output from the Desert Southwest to the Northeast to mitigate the purported damages.

Second, the authors try to claim that rooftop solar has not relieved transmission congestion by looking at grid congestion prices. The problem is that this method is like looking at an empty barn and saying a horse never lived there. Congestion pricing is based on the current transmission capacity situation. It says nothing about the history of transmission congestion or the ability and efforts to look forward to mitigate congestion. The study found that congestion prices were often negative or small in areas with substantial rooftop solar capacity. That doesn’t show that the solar capacity has little value–instead it shows that it actually relieved the congestion effectively–a completely opposite conclusion.

In contrast, the California Independent System Operator (CAISO) calculated in 2017 (contemporaneously with the article’s baseline) that at least $2.6 billion in transmission projects had been deferred. And given the utilities’ poor records on load forecasting, these savings have likely grown substantially. CAISO had anticipated and already relieved the congestion that the authors’ purported metric was searching for.

This disparity in economic results highlights the nature of investing in long-lived infrastructure that requires multiple years to build–one cannot wait for a shortfall to emerge to respond because that’s too late. Instead, one must anticipate those events and act even when its uncertain. This study is yet another example of how relying on the premise that short-run electricity market prices are reflective of long-run marginal costs is mistaken and should be set aside for policy analysis.

Make “Sustainable Food” the Economic Engine of Downtown Davis

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Many communities around the region, such as Sacramento and Woodland, have jumped on the “farm to fork” bandwagon to promote their relationships with agriculture. Davis can distinguish itself from the crowd by taking this a step further to promote itself as the center of “sustainable food.” In doing this, Davis can develop placemaking that is the key to economic development and vitality.

Davis is home to one of the top-rated food production research universities in the world in UC Davis. The City of Davis should leverage this position and strengthen its relationship to reinvigorate the downtown. The City has an opportunity as part of its Downtown Davis or Core Area Specific Plan to define a vision to achieve that goal.

Sustainable food minimizes damages to the planet in its cultivation, production, preparation, consumption and disposal. It is largely plant-based because this is the most direct way to deliver calories and protein to our diets. Animal production has much higher waste products, resource consumption, greenhouse gas emissions, and tainted food per calorie or gram of protein. For example, based on U.S. Department of Agriculture statistics, beef production emits four times as much greenhouse gases (GHGs) per calorie than soybeans or wheat and twice as much GHGs per gram of protein. Given California’s goal to be a “net carbon zero” emitter by 2045, the state will need to take a wide range of steps to cut emissions across the board, including in food production and consumption. Sustainable food is also more ethically consistent and healthful than our current food production and consumption patterns.

Sustainable food has been in the press frequently of late, with numerous stories in the Bay Area media. San Francisco has become the venture capital center of the world—especially for sustainable food–but real estate is becoming too expensive there to allow an industry that focuses on physical products sufficient space. Davis is close enough to that center for easy communication, but still has comparatively inexpensive land.

Creating a sustainable food ecology in Davis would have five aspects:

  1. Supporting innovation in sustainable food production and distribution
  2. Providing sustainable infrastructure to support companies that are innovating
  3. Serving and delivering sustainable food locally
  4. Preparing food that is consumed locally in a sustainable manner
  5. Attracting sustainable food-oriented tourism

The City can focus development of a sustainable food industry hub in the “Flex District” proposed for the G Street Corridor in the Downtown Plan. This area could house a wider range of facilities, such as test labs, within easy access distance of the UCD campus and the Capitol Corridor train to the Bay Area. Larger research facilities can be housed in other parts of the City where larger, industrial facilities are more appropriate.

Part of the attraction to companies locating here could be a sustainable infrastructure configuration starting in this district, with a district energy network and electric microgrid supporting fully electrified space conditioning and water heating systems. The other sustainability attributes identified in the Downtown Davis Plan should be incorporated and highlighted.

We can also encourage existing restaurants to serve more sustainable food on their menus, and attract new restaurants to cater to the new sustainable food businesses and their employees. The investors and workers at these companies are much more likely to follow their ethical beliefs in their consumption choices. The City could provide incentives through reduced fees to existing businesses, and evaluate how to speed the start up of new businesses.

As part of establishing a sustainable environment, the City should facilitate switching restaurants to more sustainable preparation practices. This includes switching from natural gas to induction cooktops and convection ovens, district water heating and space conditioning, and better management of waste. (Yes, we may need to recruit chefs for this new challenge.)

Finally, Davis can become a sustainable food destination. Less than 20% of our downtown visitors are from out of town according to analysis by consultants to City working on the Downtown Davis Plan. Given our location on the Capitol Corridor train route and Interstate 80, the community has much room for growth in tourism to boost our economy beyond UCD students’ parents visiting in September and June.

Davis already has a core attraction in its world-famous Farmers’ Market. With the addition of plant-based oriented restaurants and closer integration with the Mondavi Center entertainment area, a visitor could easily spend a whole day in Davis with a quick trip on the train from the Bay Area. Implementing this vision just needs closer coordination with UCD to bring events to Mondavi and the new Shrem Art Museum on Saturdays and setting up an electric bus shuttle between there and downtown.

UCD’s Robert Mondavi Institute for Wine and Food Sciences provides an example of how local development can be both sustainable and invigorating. That locale now has a microgrid that relies on renewable power. Both UCD and the City could benefit from a closer relationship centered around sustainable food in several dimensions.

Implementing all of this vision requires going beyond the form-based zoning codes that will come out of the Core Area Specific Plan. The City needs a comprehensive economic development plan, direction and resources for its economic development staff, and a willingness to focus on removing the barriers to bringing and supporting these businesses in Davis.

(with Anya McCann, COOL Cuisine)

One CEQA reform

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DavisLiveApt

Yet another housing development in Davis is being threatened with a lawsuit under CEQA. Almost every project in town has been sued by a small cadre of citizens, with Susan Rainier the most recent stalking horse. This group was first encouraged by a suit in the 1990s that was settled for more than $100,000 that went to two individuals. (Part of those funds went to start the “Flatlander.”) That pattern has been the modus operandi ever since.

The problem is that these individuals and organizations have rarely been meaningful participants in the planning and permitting process for these projects. A valuable CEQA reform would be to require that any litigant to participate in a meaningful way in the preparation of the EIR, and that the litigant include any document or discussion in the suit that is filed. The intent of litigation in CEQA was to act on a check on failing to address any concerns raised during the deliberative process–let’s make that the case.

The legitimate environmental concerns are to be addressed during the deliberative process. The potential litigants need to develop a record during the deliberative process that fully raises their concerns. A suit should be limited to the issues raised during that process, and the required evidence clearly specified during the process. The litigants can then more fully develop counter evidence in a suit if that is the final outcome.

What type of regulation when?

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I like this taxonomy of what type of regulatory/liability framework to use in which situation posted in Environmental Economics. (Reminds me of a market-type structure I created for my 1996 paper on environmental commodity markets.) However, I think the two choices on the right side could be changed:

  • Lower right corner to “incentive-based regulation”: The damages are clear and can be valued, but engaging in market transactions is costly. For example, energy efficiency has a clear value with significant spill over benefits, but the costs of gaining information about net gains is costly for individuals. So setting an incentive standard for manufacturers or in energy rates is more cost effective.
  • Upper right corner to “command and control regulation”: The damages are known and significant, but quantifying them economically, or even physically, is difficult. There are no opportunities for market transactions, but society wants to act. In this case, the regulators would set bounds on behavior or performance.

Creative Pie Slicing To Address Climate Policy Opposition | Energy Institute at Haas

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Severin Borenstein’s post raises an important issue that economists have ignore for too long. I posted the following comment there:

We gave politicians the tool of benefit-cost analysis which they have used to justify their policy objectives, but we completely failed to drive home the requirement that those parties who are on the losing end need to be compensated as well. I looked in my edition of Ned Gramlich’s book on Benefit-Cost Analysis (who taught my course), and the word “compensation” is not even in the index! Working on environmental regulations, I regularly see agency staff derive large positive ratios for the “general public” and then completely dismiss the concerns of particular groups that will be carrying all the burdens of delivering those benefits. If we’re going to teach benefit-cost analysis, we need to emphasize the “cost” side as much as the “benefit” that politicians love to extol.

Source: Creative Pie Slicing To Address Climate Policy Opposition |

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

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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”

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‘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

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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.