I don't think I realized my promised energy savings.

Yikes!

Note: Part Uno.

Well, geezus, if you phrase it that way only a heartless son-of-a-gun would be against it ...

Oh.

So I used the google to try to find the Rasmussen poll and found this "Right-wing hack Rasmussen ...":

Now I don't know what to think!

So I pulled out my survey methods book, critically examined the Rasmussen survey questions and concluded that they aren't quite up to standards. In other words you couldn't use these to estimate the benefits of climate change mitigation for policy analysis.

But, if you did, you'd find that average annual willingness-to-pay is about $101 using the lower bound Turnbull (interpretation: while the median willingness-to-pay is less than $1, the lower bound mean is right about $100).

Further, studies that use more appropriate questions (more rigorous policy scenarios, explaining the benefits and costs, etc) might find that willingness-to-pay is, at least, a dollar a day. Here is one example: Berrens et al, JEEM, 2003.

Source: A dollar a day could keep climate change away.

Hat tip: CF

Regulators in South Carolina refused today to grant Duke Energy a water-quality certification the utility needs to renew its hydroelectric license for the Catawba River. ...

Two environmental groups, the S.C. Coastal Conservation League and American Rivers, had challenged the S.C. certification. They said it would have allowed Duke to release too little water from its dams for aquatic creatures, including the endangered shortnose sturgeon. ...

Duke has worked to renew its Catawba license, first granted in 1958, for several years. License renewal would allow Duke to continue managing the river and 11 Catawba reservoirs for up to 50 more years.

Eisen-Hecht and Kramer (JAWRA, 2002), in a Duke Power funded study, estimated that the annual benefit of maintaing the current level of water quality in the Catawba River is about $75 million (with the population limited to water basin counties). This study is largely irrelevant to the current SC decision (dam water releases vs water quality management policy), but I thought I'd mention it since it is almost relevant and it allows me to demonstrate my knowledge of the 1990s CVM literature. 

A more relevant question is: what is the value of the shortnose sturgeon? No way there is a paper on that, right? Way (see below). Sturgeon value is increasing in environmental awareness and income (i.e., protection of sturgeo is a normal good -- like steak).

If the $27 willingness-to-pay value of Maine residents reflects the value of South Carolinians -- ahem, cough, cough, cough, excuse me, cough --then the benefits of sturgeon protection to South Carolina is about $40 million (based on 1.5 million households in 2000). I can't tell from the paper if these are annual or one-shot benefits, if hypothetical bias was addressed, etc, but suppose they are annual and everything else is fine. At a 10% discount rate in perpetuity the present value of benefits are $400 million. Crap, I'm inclined to ask Duke to release more water (without reconsideration of my assumptions!)!

Senior Democrat senators said on Wednesday they would change a provision that imposes carbon taxes on imports following warnings that the clause in the House’s cap-and-trade bill could spark a global trade war.

The House’s bill contained tough provisions to impose carbon tariffs, aimed at protecting American companies’ competitiveness against imports from countries without equivalent carbon emission controls to those in the US.

...

A recent report from the WTO said that such “border tax adjustments” could in theory be made consistent with WTO rules, but trade lawyers stress that crafting such laws is likely to be very difficult in practice

The economics here are simple:  If the U.S. prices carbon domestically (through Cap and Trade), then imports have to be priced accordingly, or the world price for similar products will be lower than the domestic price.  The result will be more domestic purchases of foreign produced carbon intensive products and potentially leakage of U.S. industry to non-carbon pricing nations who potentially produce similar products with lower carbon efficiency than domestic manufacturers currently use.  This has been the U.S.'s stance in international carbon negotiations all along and the primary reason the U.S. never signed onto Kyoto.  Now, domestic carbon policy without border price adjustments puts domestic producers at a competitive disadvantage and will likely result in more imports of carbon intesive products and potentially higher carbon emissions globally. 

Ahem: http://ideas.repec.org/p/apl/wpaper/05-01.html

The average Triangle driver wasted 34 hours and burned 22 gallons of gas while stewing in traffic jams in 2007. That's 2 hours and 1 gallon worse than in 2006 but the same as in 2005, according to a new national report on urban road congestion.

Commuters across the country cut back on their driving as gas prices rose sharply in 2007 and spiked above $4 a gallon in 2008. Pump prices are comfortably below $3 these days, but traffic counts have stayed down because we have fewer jobs to drive to -- and less money to spend at the mall.

I clicked the "No Open Access" button.

Waxman-Markey: The Devil is in the details

Ever wonder what's in all those 1500 pages (including the 300 page amendment added the day of the House vote)? That's a lot of details. Here are a few items warranting further economic input.

Subsidies and mandates

1. Renewable electricity standard. 20% of electricity generation should come from renewable sources.  This sounds potentially costly, but there's a loophole in the fine print. Up to 8% of the requirement can be satisfied by not actually producing with renewables but using energy-saving devices, possibly including those that have been previously installed.
2. "Cash for Clunkers." The definition of clunkers is generous, and you can trade your "clunker" in for an SUV that gets 22mpg. How much money would be wasted paying for something that will happen anyway? To what extent would carbon savings be offset by producing new cars to replace perfectly serviceable ones?
3. Smart grids. Which kind? There are municipal smart grids, home grids, wide-area synchronous grids, intragrids, intergrids, unified smart grids, super grids, SuperSmart grids and more.  Some proponents believe that smart grids will be able to accommodate the heavy reliance on renewables implied by an 80% cap (to be effected by 2050). It doesn 't compute. The big problem with wind and solar power is storage. Large, integrated grids lower the demand for storage through diversification, but their ability to substitute for storage is limited.  Surely smart grids will enhance the ability of utilities to effect demand conservation, but whether these gains will pay for the mandates and subsidies is an open question.
4. Subsidies for plug-ins. Again a mixture of mandates and subsidies, both for expanded production of electric vehicles and state and utility obligations to build regional infrastructures to support plug-ins.  Whether intentionally or not, this appears to be a buyout for the coal lobby.
5. Building codes for energy efficiency.  The whole point of market-based instruments is to effect the minimum-target achievement. Why do we still need command and control?

Allocation of allowances

1. Thirty percent of the allowances would be allocated directly to local distribution companies, mandated to use them exclusively for the benefit of customers. We can't be sure that these mandates will be entirely effective;  it's easy to imagine a public utility commission accepting a plea for an unnecessary price increase on the grounds that things could have been worse. On the other hand, if the allowances are indeed used to give customers relief through lump-sum rebates (as intended), customers may not correctly discern the effective jump between the intramarginal and marginal price and may react to the overall size of their bills instead.
2. "Output-based updating allocations" are also potentially troublesome inasmuch as they blunt the incentives imparted by the carbon market price. These have also been proposed as a device to maintain international competitiveness and limit leakage but this appears to be a case of one instrument for multiple objectives. (See also http://theenergycollective.com/TheEnergyCollective/41734 ).

Leakages

Would unilateral greenhouse mitigation by the U.S. lead to increased action by other countries? There are at least three reasons why the reverse might be true. 

1. In the simple theory of public goods, the increase in the public good by one player lowers the marginal benefit to another, thus lowering her incentive to cooperate. 
2. In general equilibrium, unilateral or  multilateral action increases the carbon tax in the mitigation coalition but lowers it in other countries. If those non-signatories such as China have a comparative advantage in energy intensive production and use less energy-efficient technology, things can get worse instead of better. http://ideas.repec.org/a/eee/jeeman/v25y1993i2p162-176.html http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1340394
3. There may also be a perverse anticipation effect. The more mitigation actions spread, the more the petro-chemical suppliers will increase production while they still can, much as the threat of nationalization. This exerts downward pressure on petro-chemical prices, incenting increased consumption. http://ideas.repec.org/a/eee/jetheo/v10y1975i1p42-53.html

Costs

1. According to the CBO, the American Clean Energy and Security Act (ACES ) would cost the average household only $175 a year by 2020. But the CBO admittedly excludes the reductions in the GDP that would result from the cap and focuses on 2020, before the more serious reductions in permits and offsets kick in. The Heritage Foundation's more comprehensive estimate puts the cost at less than $2000 per family of four by 2020 but almost $7000 by 2035. Maybe they exaggerated. On the other hand, HF did not attempt to estimate the dynamic costs of lost innovation and specialization that inevitably result from market replacement where only market correction and coordination are warranted. So their estimate could be "conservative."
2. Carbon price: The CBO says $28 in 2020, presumably in 2009 dollars.  Other studies, including by the EPA, suggest that the offsets will make the price even less, possibly creating no emission reductions by 2020. After 2020 the price would increase markedly; how much, nobody knows.  Carbon "scrubbing" from coal-fired utilities removes only about one-half of the carbon, reliable underground storage is likely to be expensive at the margin, and renewables have limited potential  due to storage problems. On the other hand, new inventions (e.g. new methods of energy production, carbon sequestration, geothermal drilling, photovoltaic storage) may allow the target to be met at relatively low carbon prices. Price uncertainty of course implies cost uncertainty as well.

Macroeconomic effects

If the benefits (properly calculated to include environmental benefits) exceed the costs, you don't need mandates; there is a way to package the reform as a win-win. If the costs exceed the benefits, the project/policy-reform shrinks social welfare. Applying a multiplier would be double counting because the costs of employing unemployed factors should have already been incorporated in the shadow prices of those factors (Tresch, Public Finance: a Normative Theory, http://www.jstor.org/pss/2720229, http://www.jstor.org/pss/2720975 ). Why should the U.S. emulate the Spanish model for creating green jobs? According to "Study of the Effects on Employment of Public Aid to Renewable Energy Sources" [PDF] every green job has cost Spain 2.2 other jobs via misallocated capital (Tilting at Green Windmills). How much would green jobs cost in Waxman-Markey?

-- Jim Roumasset

U.S. power plant emissions of sulfur dioxide dropped sharply in the first half of the year as the electricity industry prepared for tighter regulation in 2010, Genscape said Monday.

Sulfur dioxide emissions were down 24 percent compared to the first half of 2008, much more than would be expected due to the recession and lower electricity demand, the power industry data provider said in its quarterly review of energy trends.

"The industry is clearly going through a dress rehearsal for the implementation of the Clean Air Interstate Rule (CAIR) in 2010, and judging by allowance prices as well as the fundamental data, it is a stellar performance," Genscape said.

...

But the decline in SO2 is largely because of the new rules coming in 2010 and an allowance scheme that favors early implementation, the power data provider said.

"Most of the decline in sulfur emissions is not due to the recession or even to the switch from high-sulfur coal to lower sulfur grades and to gas," Genscape said, noting many plants have installed equipment to remove SO2 from emissions.

"It makes sense to start cutting emissions early if the equipment is in place since pre-CAIR vintage allowances will retain their full face value of a ton of SO2, while from 2010 onward, each permit will be worth only half a ton," Genscape said.

LG&E and Kentucky Utilities electricity rates would increase by about $10.50 per month for a typical home in three years, and $18 a month by 2020, under the climate change bill passed by the U.S. House of Representatives, according to company officials. ... 

The federal Environmental Protection Agency has said it would cost households $80 to $111 per year, while opponents of the bill have estimated much larger costs. The conservative Heritage Foundation says the bill "would slap the equivalent of a $4,609 tax on a family of four by 2035."

One thing about cost projections in the distance future. As history shows, income grows over time. A $40,000 income in 2010 that grows at a 2% rate would be $64,000 in 2035. It is tempting to compare long term cost projections to incomes today, because it is much easier than doing the math to figure out incomes in the future. 

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Link: http://www.sierranevada.com/beers/torpedo.html

Sometimes referees make you work really hard. This is one of those. Celebration time!

Note: Dan Phaneuf and Chris Dumas are co-authors (+ 3 more non-economists). Here is a link to an earlier version of the paper: http://econpapers.repec.org/paper/aplwpaper/07-17.htm.

After a quick review of cap-and-trade, Kolstad takes aim at three concerns:

Although it is true that permit costs will be passed on to consumers, the respected nonpartisan Congressional Budget Office estimates the costs per household to be $165 per year – hardly a heavy burden. Furthermore, the costs are fairly evenly spread among various income classes.

In terms of industries that will be hard hit, it is true that some industries that emit a lot of carbon or use a lot of fossil-fuel-based electricity may see their costs rise. Most industries will see costs rise less than 1%. A few industries will see larger increases, but most of these are bulk-material industries (such as cement), the production of which is highly local and not likely to move overseas. ...The bigger picture, however, is that there may well be job losses in some sectors but gains in others, as cleaner energy technologies grow.

Another criticism is that the bill has very weak targets for reducing greenhouse gases. It is true that for the next five to ten years the cap is quite loose – in fact it increases every year through 2016. And as a result, during this period, the price of allowances is expected to be very low. But eventually, and this is the important part, the cap does tighten. In twenty years, the goal is to have greenhouse gas emissions 42% below 2005 levels. That would be a remarkable achievement that would overshadow any slow beginning or temporary giveaways that might be in the bill.

But the problem without a comeback is this:

Probably the biggest shortcomings in the bill are not the cap-and-trade portion but all the other sections, particularly those dealing with agriculture and biofuels. Biofuels, for instance, are exempted from the cap even though they can be a major source of GHGs. Agriculture is generously granted offsets that can be used in lieu of permits, and the offset program is overseen by the U.S. Department of Agriculture.

Good luck to the Senate getting rid of those!

Hat tip: Krugman.