A lunch I wish I had attended...

Matt Kahn blogs about a lunch he had with Matt Kotchen. This led to Kahn's Top 5 Big Questions in Environmental Economics. (Not in order and hat tip to Environmental Economics)

1. How large are learning by doing effects for renewable energy technologies such as wind and solar?

2. How much damage will we suffer from climate change if average world temperature increases by T degrees? Where T takes on the values 1, 2, 5, 10, 30 c? Marty Weitzman's point is that each of these states of the world have non-zero probability of taking place. So, how much damage and who suffers the damage from each of extreme weather events?

3. When carbon pricing is introduced, which industries, nations and households will bear the incidence of this taxation?

4. Are consumers indifferent between "natural capital" and man-made engineered products? So for example, think of gentically modified foods versus organic foods -- are you indifferent? Is there any price differential such that you would be indifferent or do you view the GMO as "frankenfoods" that you wouldn't touch?

5. What are the causes of environmentalism? When people are environmentalists how does this affect their answer to #4 above?

6. Building on #5, we need structural consumer demand estimates of the willingness to pay for "green" products (think of the Prius) or tofu and how these estimates vary by population demographics and ideology.

I think these are great questions and topics for discussion and research. It is interesting to note how many of Matt's questions are empirical. "How large" in #1, "How much" in #2, "how does this affect" in #5, "how [do] these estimates vary..." in #6.

Others I can think of...
How will the incidence of increasing energy/carbon prices differ in the short-run vs. long-run?

New Computing Resource

I just discovered Ajay Shah's homepage full of information about R and economic computing in general. Good example code for Maximum Likelihood Estimation as well as integrating R output into TeX files.

Env Econ Recommended Reading

Env-Econ has some links to a few good recommended readings for those interested in environmental economics, mostly Robert Stavins' columns from The Environmental Forum. Many would be good to read for an introductory environmental economics course.

Congressional Budget Office on Cap-n-Trade

The Congressional Budget Office has several policy briefs on the impacts of tradable emissions permits.

Including...
Supplemental Information About Trade-Offs in Allocating Allowances for CO2 Emissions
July 9, 2007

Trade-Offs in Allocating Allowances for CO2 Emissions
April 25, 2007

Limiting Carbon Dioxide Emissions: Prices Versus Caps
March 15, 2005

CBO's Comments on the White Paper "Design Elements of a Mandatory Market-Based Greenhouse Gas Regulatory System"
March 13, 2006

Issues in the Design of a Cap-and-Trade Program for Carbon Emissions
November 25, 2003

Shifting the Cost Burden of a Carbon Cap-and-Trade Program
July 2003

An Evaluation of Cap-and-Trade Programs for Reducing U.S. Carbon Emissions
June 2001

Who Gains and Who Pays Under Carbon-Allowance Trading?
June 2000

“Zero-Energy” home plans, in the city or in the sticks

This commentary by Matt Edens at Metro Pulse makes some good points about zero/low energy housing. Building a new house in the suburbs that requires little electricity but still requires the residents to drive everywhere may not be a step in the right direction. Just more evidence that retrofitting existing houses is a real part of the energy solution.

Those estimates aren't just an academic exercise, either. Starting in 2002, ORNL's Building Technology Center teamed up with Habitat for Humanity to build four demonstration homes outside Lenoir City. Built for less than $100,000 each, those homes' daily energy costs averaged out to a mere 82 cents a day compared to the $4-$5 of an average Lenoir City home. They weren't entirely “off the grid,” but at times, their meters more or less ran backwards. Credit for excess electricity contributed back to the power grid trimmed an average of almost $300 off each home's annual utility bill.

Larry Summers on Climate Change Policy

From the Financial Times

What then should be done either instead of or as a complement to the Kyoto approach? The place to start is with the recognition that it is much easier for governments to make and keep commitments to policies they can control than to outcomes they cannot assure. Whatever targets are negotiated or set, emphasis should also be placed on concrete measures that will have meaningful impact.

First, the US must engage in an energy efficiency programme that takes effect without delay and has meaningful bite. As long as developing countries can point to the US as a free rider there will not be serious dialogue about what they are willing to do. I prefer carbon and/or gasoline tax measures to permit systems or heavy regulatory approaches because the latter are more likely to be economically inefficient and to be regressive. The key point is that after Kyoto, where there was US vision in setting goals but no on-the-ground action, there must be real policy commitments.

Second, the major industrial countries should commit to a very large increase in funding for research in technologies that offer the prospect of reducing the concentration of greenhouse gases, such as renewable energy, carbon sequestration and energy efficient engines. They should also learn a lesson from the pharmaceutical experience and commit to making intellectual property relating to clean energy available to developing countries on preferential terms. It may be that ambitious emissions- reduction targets can be achieved with existing technology, yet new technologies could help.

Third, the World Bank, and probably the regional development banks, should be reconstituted by their shareholders as “Banks for Development and the Global Environment” and take on as a major mission the provision of subsidised capital for projects that have environmental benefits that go beyond national borders. There is much that can be done to encourage energy efficiency in almost every sector within developing countries, yet national governments have inadequate incentives to take account of global impacts. Moreover, the institutions need a new role with respect to countries other than the poorest ones at a time when the leading developing countries are actually exporting rather than importing capital.

Fourth, a goal should be set of eliminating by 2025 the more than $200bn the world spends each year on energy subsidies, and enforced through strategies such as those used for inappropriate subsidies in trade. This is a clear case where environmental and economic imperatives coincide and it is one where external political commitment is likely to be desirable in many countries, just as in the trade area. This will require considerable work on the definition of and measurement of total energy subsidies. Such work will lay a foundation for the more ambitious efforts that may be needed in harmonising world energy prices above market levels in the future.

There is a final critical process element in the policy response. Given that viable solutions depend on significant changes in developing country policies and that these countries are unlikely to make them unless they see their own interests as at stake, it is essential that they be full participants in setting the global direction. They are surely likely to do more if they can help shape policy than if it is simply the Group of Seven leading industrialised nations seeking to bring them along.

Is all of this a sufficiently ambitious agenda? Perhaps not; and perhaps political efforts to generate commitments to ambitious if remote targets can be worthwhile as powerful forces for change, as with human rights in eastern Europe. But they must be married to more immediate if less dramatic steps that have real and practical effect.

Another Vote for a Revenue-Neutral Carbon Tax

A Green Tax Swap by Gilbert Metcalf with the Brookings Institution

As the new Congress convenes, both Democratic and Republican lawmakers are proposing limits on greenhouse gas emissions. Most of these proposals are for carbon cap and trade systems similar to the European Union Emissions Trading System.

A carbon tax is another way to limit emissions. This policy brief describes how a carbon tax could be implemented and presents an analysis of a Green Employment Tax Swap (GETS). Under this proposal, a national tax on carbon emissions is paired with a reduction in the payroll tax. In particular, the brief assesses the impact of a tax of $15 per metric ton of carbon dioxide (CO2), which is used to rebate the federal payroll tax on the first $3,660 of earnings per worker. This reform is both revenue-neutral and distributionally neutral.