Wednesday, April 16, 2008

ECON 260: A backlog of links

Here are several interesting environmental economics items from the past week:

The Environmental Economics blog explains who actually pays a tax (aka tax incidence): Part 1, Part 2. Here, the ideas in these post get applied to McCain's plan to "help" people by eliminating the gas tax for the summer -- the conclusion prices paid at the pump won't fall, oil companies will capture the entire benefit of the tax reduction.

The PEW Center Climate Change's "Climate Change 101: Cap and Trade" document.

Some economists' view of the implications of happiness research on benefit cost analyses.

Reliance on voluntary carbon emissions (the Bush admin strategy) has some flaws (the idea is that if consumers prefer green companies, companies that go green can capture profits -- the evidence from Wall Street suggest that people don't believe this is likely to happen:

Porter and van der Linde (1995) and Reinhardt (1999) argue that environmentally responsible investments can improve corporate financial performance. They propose that pollution-reducing investments create “green goodwill,” which differentiates the firm’s products and increases its market share. Such investments may also reduce production costs and the risk of future environmental liabilities, as well as give the firm a competitive advantage if subsequent regulatory actions force industry rivals to follow. In addition, Heinkel, Kraus and Zechner (2001) suggest that if investors refuse to hold the stock of polluting firms, the cost of capital may rise to the point where it is optimal for some firms to undertake environmentally responsible investments.

In joint work with Karen Fisher-Vanden, I examined the positive net present value assumption underlying the U.S. policy for climate change (Fisher-Vanden and Thorburn, 2008). Specifically, we studied the stock market’s reaction when companies joined Climate Leaders, a voluntary government-industry partnership in which firms commit to a long-term reduction of their greenhouse gas emissions. Importantly, when the firms announced to the public that they were joining Climate Leaders their stock prices dropped significantly. Controlling for general market movements, the average abnormal stock return was -0.9% over a three-day window and -1.5% over a five-day window around the announcements. For the 46 sample firms that joined Climate Leaders, the total loss in market value was $16 billion. The stock price decline was smaller for firms in carbon-intensive industries, where regulatory action is more likely (and thus partially anticipated in the stock price), and greater for high-growth firms, suggesting that the green investments crowd out growth-related capital expenditures.

The relationship between US energy policy and food riots.

In response to the happiness research link, I think it is a valid point. I don't think that the new research in happiness invalidates cost-benefit analysis. In fact, knowing more about what makes people happy makes it easier to create a realistic cost-benefit analysis. Now that we know that people recover quicker from injuries and respond less to increased income we can adjust our estimates accordingly.
Regarding the paper on cap and trade:

The cap and trade plan sounds great in theory, but in order to address global warming this paper still holds the reductionist assumption: If we deal with carbon, we deal with global warming.

However, carbon emissions are not as simple as traditional pollutants like CFC's or DDT or sewage running into the water. Achieving the appropriate level of carbon emissions will entail more than just putting a limit on how much we can put into our atmosphere. We also need to:

Put a lot of investment into the alternative technologies

Change our infrastructure to make alternative technologies useful

Think about industry and environment in inclusive terms

Bam! Eat that, cap and trader!
Regarding the food riot blog:

The ethanol subsidy is a total catastrophe. What a buzzkill! Instead of subsidizing the production of more corn to make more oil to make more biodiesel (which means by the time we actually get to the biodiesel we've had to put so much energy into the process that we don't net that much fuel gains) municipalities should offer free waste oil pickup from large frying operations: cafeterias, restaurants, and probably some factories.

The waste oil can be turned into biodiesel, and these places won't have to pay for the wast oil to be taken away (which they usually do have to pay for). The government can then sell biodiesel at cost or at minimal profit, and reduce the price of gasoline. Or it can use it in City buses to reduce the cost of bus fare. Booya!
The conclusion of Part 2 in the first link is fairly blunt. Environmentalists like James Kunstler argue that our culture is addicted to oil. People have a strong reluctance to scale down the scope of their lives and refuse to give up their lives in suburbia leading to our dependence on fossil fuels. This argument is oversimplified and I believe we would be dependent on oil regardless of the extent we scaled down our living standards. Still, in the case presented by those environmentalists, GAS would fall in category three.
Post a Comment

Subscribe to Post Comments [Atom]

<< Home

This page is powered by Blogger. Isn't yours?

Subscribe to Posts [Atom]