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

What type of regulation when?


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

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?


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.


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.