Tag Archives: environment

08.10.2012 | A Pollution Tale With 2 Happy Endings

Sometimes green incentives can have unintended consequences.

Our story begins in an airport. About to board a flight, an environmentally concerned individual purchases “carbon offsets.” Yes, that flight will pollute the air but the offset could be used to fund a project that reduces emissions. The offset purchase is the incentive. It encourages others to pollute less if the payment is more than the reduction costs. Yes?

Maybe not.

Unfortunately, firms that produce air conditioning coolants figured out how to use payments for polluting less to pollute more. Located in countries ranging from India to Mexico, plants producing gases used in air conditioning and refrigeration started making more coolant than they otherwise would have produced. Then, by capturing and destroying harmful waste gases, they could get thousands of “waste gas credits” from the United Nations. Selling the credits made them millions of dollars. Meanwhile the buyer of the credits could now legally pollute. The result? Some of the producers are overproducing the coolant to get huge waste gas credit revenue.

Another air conditioning story that we looked at recently also had unintended consequences. Hoping to reduce pollution, Mexico subsidized low emission air conditioner and refrigerator purchases. Because they were so cheap, though and because electricity was also inexpensive, people ran them longer than the inefficient units they had previously used. The result? More emissions.

But the last chapter of our story has a happy ending. Its unlikely title is the Environmental Kuznets Curve. Connecting more affluence in poor nations to pollution, the curve reflects data showing that as people become richer, first their country pollutes more and then it pollutes less. Why? More affluent households have greater political power. More affluent countries have the resources to lower pollution. The turn around point seems to be average annual income of $11,000 in 2007 dollars.

In a second happy ending, the European Union has announced that it will prohibit coolant producers from purchasing waste gas credits for manipulated emission reductions. I am concerned, though, that people will outmaneuver whatever solution regulators figure out as a replacement.

This academic paper and this paper tell more about Kuznets Curves. My facts about coolant producers are based on this excellent NY Times article. I also recommend 2 Teaching Company lectures from economist Robert Whaples about pollution.

Posted by: adminEcon
Tags: carbon credits, CO2, environment, environmental Kuznets curves, global warming, HFC-23, incentive, India, industrial gases, marginal analysis, pollution, United Nations
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06.21.2012 | Should We Buy Local?

I just finished an omelette with eggs and spinach from a nearby farm. It tasted good, I supported local business and I helped the environment. You could say that I had my cake (but it was spinach) and ate it too.

But, here is the surprise.

If you care about your carbon footprint, then eating local is not the answer. Yes, food miles do create greenhouse gases. But a Carnegie Mellon study has concluded that the environmental impact of transporting food is relatively minimal. Instead, it’s all about dietary shift. For less than one day a week, we just have to switch from meat and dairy to chicken, fish, eggs, or a vegetable-based diet to achieve the environmental benefit of buying 100% local.

In addition, economist Steve Landsburg says that even if we wanted to use cost/benefit analysis to prove the total impact of local sourcing, it would be impossible. How can we judge whether land should have been used for tomatoes or grapes, or if local farmers would have been better off transporting their produce elsewhere or even if it was best to buy Chilean grapes because Chile is the most efficient place to grow them? Then also, there are workers, a ripple of energy use, equipment and countless other considerations.

Instead he says just to look at price.

Using a tomato as an example, Landsburg explains that the price conveys all we need to know. Assume, for example, that the local tomato laborers would have been more efficient growing grapes. As a result, the tomato supply curve would shift up and to the left because of lower yielding fields, and the price of tomatoes would increase. You don’t have to ask specifically about cost and benefit because a high or low price provides the answer.

So, did my omelette help the planet more than steak? I am not so sure.

A thanks to the Freakonomics people who suggested that “We Eat What We Are” and reminded me of locavore dilemmas. And here, economist Steven Landsburg disagrees with environmental locavores while this paper and this paper provide more information about the carbon footprint of our diet.

Posted by: adminEcon
Tags: carbon footprint, comparative advantage, cost/benefit analysis, David Ricardo, environment, food miles, locavores, methane, opportunity cost, price
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06.12.2012 | “It’s Not Easy Being Green”

Hearing Kermit the Frog say, “It’s not easy being green,” Mexican environmentalists might agree.

Since March 2009, Mexican households have been offered cash payments or subsidized loans for replacing refrigerators and air-conditioners that were more than 10 years old with new energy efficient appliances. The goal was to diminish electricity usage and carbon dioxide emissions. So far, 1.5 million households have participated.

Surprisingly, refrigerator savings were less than expected and air-conditioner use increased. Researchers believe that newer refrigerator models were larger and had extra features like ice makers that somewhat offset their energy savings. For air-conditioners, people just used them much more.

Energy savings programs are tough to design and evaluate. As with refrigerators and air-conditioners, changing incentives can have unpredictable consequences. In addition, even if an energy savings program does not save energy, it still could provide considerable benefits far beyond its costs because of better refrigeration and cooler homes. And finally, we should always remember the “rebound” effect. Explained by William Jevons in an 1865 book called The Coal Question, the “rebound” effect resulted when the energy efficiency created by the steam engine encouraged more energy use rather than less. Jevons said, “It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is truth.”

Maybe Kermit was right.

This NBER paper fully describes the Mexican cash for coolers program and if you want to read more about the rebound effect, I suggest this fascinating New Yorker article. For a more academic study, this Congressional Research Service (CRS) report explains that the “rebound” effect is most evident in a developing economy because slack demand can lead to considerable increase in energy use. In a mature market, the “rebound” effect is less pronounced.

Posted by: adminEcon
Tags: air-conditioners, American Recovery and Reinvestment Act of 2009, carbon dioxide emissions, cash for clunkers, cash for coolers, cost/benefit, developed nation, developing economy, emerging market, energy efficiency, environment, green, Mexico, negative externalities, price elasticity of demand, rebound effect, refrigerators, stimulus
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06.06.2012 | Economic Disagreement

Astronomy might help us understand US history according to biographer Walter Isaacson. We just need to think about binary systems in which 2 separately orbiting stars “are linked because of their gravitational interaction.”

The tension between Hamilton and Jefferson was his first example. One for a national bank, the other against, one for strong central government, the other said no. In separate orbits, they influenced each other and the country.

For Jobs and Gates, Isaacson says the connection was similar. As the mind and passion behind Apple, Steve Jobs was intuitive, a romantic, a perfectionist who focused on design and usability. Meanwhile, Bill Gates led Microsoft methodically, a natural at computer coding, disciplined, practical. Again, we have 2 very different men with different views of the world who affected each other and us.

And now, Pew Research has reported their newest conclusions about our political polarity and an economic binary system again seems to have evolved.

Especially for 5 economic issues, Pew tells us that the “values gap” between Republicans and Democrats has increased. Numerically, the values gap is the percent reflecting how much Republicans and Democrats disagree. For example, asked if the government should take care of people who cannot take care of themselves, because 75% of all Democrats and 40% of all Republicans said “yes,” the values gap was 35.

This table, based on their study when it began and now, displays the average size of the values gap for multiple questions in each category.

	1987	2012
Social safety net	23	41
Environment	5	39
Labor Unions	20	37
Equal opportunity	17	33
Gov’t. scope and perf.	6	33

With Republicans and Democrats forming a binary system, how might future legislation display the impact of their “gravitational interaction?”

The entire Pew Report is here and Walter Isaacson looks at Gates and Jobs in Steve Jobs, Chapter 16.

Posted by: adminEcon
Tags: Alexander Hamilton, Bill Gates, binary systems, Democrats, environment, equal opportunity, labor unions, political polarization, Republicans, role of government, social safety net, Steve Jobs, Thomas Jefferson
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02.19.2012 | Green New Yorkers

Think about life in the city. A one-bedroom apartment might have 1000 square feet located next to several other similar dwellings and all are heated and cooled by the same source. You walk nearby to get your groceries and take the subway or bus to work or school. Rather than a hybrid car, the energy efficient passenger vehicle that you use most frequently is the elevator.

The result? According to New Yorker writer David Owen, being green in Manhattan is very simple. You just have to live there.

But then, you move to the suburbs and transform your carbon footprint. You buy one car and then two. You have a house to heat and cool. You even have an extra refrigerator in your garage or basement. Everywhere, to school, to dine, to shop, you have to drive.

Our bottom line: Sometimes it takes counterintuitive reasoning to assess environmental impact.

Or, as Kermit said, “It’s not easy being green.”

The Economic Lesson

High density urban areas have much less of an environmental impact than low density municipalities. Harvard economist Edward Glaesar points out that “a single family detached house uses on average 83% more electricity than urban apartments within the United States.” Correspondingly, in his New Yorker article, David Owen talks about the high density environmental benefits of skyscrapers.

I recommend this Econtalk podcast with David Owen on the “conundrums” of being green and this econlife post on the unintended impact of wind farms and locovores.

An Economic Question: Should national leaders tilt environmental policy toward urban favoritism?

Posted by: adminEcon
Tags: cost/benefit analysis, environment, environmental impact, New York City, regulation, suburbia, urbanization
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