Kahn on green nudges and environmental ideology

I saw Matt Kahn present this paper at the POWER conference in Berkeley. It is not surprising, but is nevertheless interesting and previously unexplored. There are, as he notes, some important policy implications regarding targeting messages to recipients that are likely to motivate pro-social behavior. Slate has a column on the research here. Kahn provided this abstract of the paper on his blog:

"Nudges" are being widely promoted to encourage energy conservation. We show that while the electricity conservation “nudge” of providing feedback to households on own and peers’ home electricity usage works with liberals, it can backfire with conservatives. Our regression estimates predict that a Democratic household that pays for electricity from renewable sources, that donates to environmental groups, and that lives in a liberal neighborhood reduces its consumption by 3 percent in response to this nudge. A Republican household that does not pay for electricity from renewable sources and that does not donate to environmental groups increases its consumption by 1 percent.

The green jobs myth

Max Schulz writes in the Manhattan Institute's City Journal about the Obama administration's commitment to green jobs. Regrettably lacking in economic reasoning, he does credit Frederic Bastiat with debunking in the 1800s the notion that putting people to work is itself social welfare improving. This notion--that in times of recession and high unemployment we should employ people to dig holes and fill them in again--has been used to promote the green jobs agenda. But spending on green jobs will only improve welfare to the extent the green workers make stuff or provide services that are welfare enhancing. Digging holes and filling them back in doesn't contribute to social welfare.

If saving lives isn't the goal . . . ban DDT

My very first job working for my advising professor was writing a handbook chapter on the economics of pesticides. Lichtenberg and Zilberman proposed the "safety-rule approach" to pesticide policy determination that combines a probabilistic risk assessment model with a safety-rule decision mechanism. It yields estimates of the uncertainty-compensated trade-off between risk and social cost can be used for policy determinations that rely on formal decision criteria like benefit-cost or risk-benefit. In the context if this kind of criterion, it is clear that bans on DDT, particularly in Africa, are suboptimal. The potential to save lives far exceeds the risks of adverse health effects. One million people die from malaria annually and yet malaria was once nearly eradicated by DDT and could today be killed off once and for all. Yet, those who fight to save millions of lives from malaria do so with one hand tied behind their backs. The dubSJ editorialized in defense of DDT yesterday and suggested that some in the environmentalist movement don't share the goal of many in the health world of actually saving lives:

Earth Day founder Gaylord Nelson, a U.S. Senator from Wisconsin, was a leading opponent of the insecticide DDT, which remains the cheapest and most effective way to combat malarial mosquitoes. Rachel Carson's 1962 book, "Silent Spring," misleadingly linked pesticides to cancer and is generally credited with popularizing environmental awareness. But other leading greens of the period, including Nelson, biologist Paul Ehrlich and ecologist Garrett Hardin, were also animated by a belief that growth in human populations was harming the environment.

"The same powerful forces which create the crisis of air pollution also are threatening our freshwater resources, our woods, our wildlife," said Nelson. "These forces are the rapid increase in population, industrialization, urbanization and scientific technology." In his book "The Population Bomb," Mr. Ehrlich criticized DDT for being too effective in reducing death rates and thus contributing to "overpopulation." Hardin opposed spraying pesticides in the Third World because "every life saved this year in a poor country diminishes the quality of life for subsequent generations." For these activists, malaria was nature's way of controlling population growth, and DDT got in the way.

As with other chemical-use policies and regulation of agricultural biotechnology, policy on DDT could benefit from a dose of Zilberman-Lichtenberg cost-benefit logic.

Where are the green jobs?

The dubSJ reports today that cities from Tampa to Honolulu are trying to invigorate their economies with green jobs. Despite the pledges by politicians from Tulsa to Honolulu, the green jobs aren't yet coming. California is, of course, banking on green jobs replacing brown jobs that will be lost with implementation of AB32. But as UC Berkeley's AnnaLee Sexenian says, it may be a bunch of hype:

People are jumping on a bandwagon. . . Washington needs something to sell. It can't be a panacea for everyone.

The green jobs won't replace all the brown jobs she says. Well, duh! It is Le Chatelier's Principle at work.

New tactics needed for today's war on environmental damage

Today's dubSJ features compelling commentary on how the environmental challenges we face today demand a different strategy. Its author is William Ruckelshaus, the first-ever administrator of the U.S. EPA. He contends the job was relatively easy in the 1970s and 80s: the problem was visible ("yellow sludge flowing into blue rivers," "black smudges against the barely visible blue sky") and the benefits of action accrued to those who undertook the costs (the costs of pollution were borne more or less instantaneously in the form of poor health and environmental degradation). Today, Enemy Number 1 is invisible and imposes costs not on the current generation, but on future generations:

On these kinds of issues where the payer and beneficiary are not the same, the American people are ideological liberals and operational conservatives. They are all for the promised results; they just don't want to pay for them. Little wonder that most people will tell their pollsters they are in favor of reducing the impact of our current lifestyle on future generations, but their scant support for policies that will accomplish that belie their commitment.

To this assessment I would only add that the problem is also a function of the fact current generations that do not contribute to solutions share in the benefits. The basic problem, then, is that in both a spatial and a temporal dimension, the benefits of action on climate change are not fully internalized to the actors. I do believe most would act to protect their offspring if they knew with some degree of certainty that costly action was necessary to protect future generations and if they knew others wouldn't be allowed to free ride. The fact that GHG emissions are a global public bad (that span's traditional political jurisdictions), then, is the biggest obstacle to a climate change solution. It isn't the delay in reaping rewards.

Ruckelshaus is in favor of Pigouvian taxes, roughly speaking, and opposed to heavy regulation in order to solve current environmental problems:

We need more democracy, not less. Trying to enact rules centrally to control the behavior of hundreds, sometimes thousands of people in a watershed when their individual contribution is minuscule, but collectively overwhelming, is futile. We have been trying a command-and-control, top-down approach for the past four decades to control non-point sources of water pollution. The examples of the Great Lakes, Chesapeake Bay and Puget Sound are grim testimony to our failure. If one solution doesn't work, the answer is not to push it harder but to look for new approaches.

This suggests he opposes the current EPA administrator's efforts to regulate carbon emissions under the Clean Air Act. He also suggests that getting good information in the hands of the public will lead them to make "correct" decisions. I am not so convinced, but this premise is something I am currently trying to test empirically in several different contexts. In the end, Ruckelshaus is an optimist, having faith that we can "harmonize human prosperity and growth with environmental protection."

The UK Telegraph, in an unsigned editorial, doesn't want climate scientists to get off so easy after an investigation this week found them innocent of any intentional wrong doing:

A majority of scientists maintain that global warming is a man-made phenomenon. However, they must be prepared to acknowledge that there is another view, for which evidence can also be adduced, even if it seems to conflict with the received wisdom. The findings of the Oxburgh inquiry are not an excuse for again closing down the climate-change debate to the exclusion of those who take a sceptical attitude to what is arguably the most important issue facing the world.

How many carbon emissions has the icelandic volcano caused?

Yikes! At least all that ash is expected to cool the planet in the short run.

Is climate change policy still alive?

I had thought climate change legislation would be way on the back-burner at least until after the mid-term elections. After the bruising health care debate and Obama's movement on education reforms, I suspected, as did others, that the political capital needed to move another big policy had been depleted or diverted elsewhere. Now, however, Reuters is reporting that we may see a vote on climate change this summer. It sounds like the leadership is not ready to commit to passage before the mid-terms, particularly with Democrats facing a tough election cycle (Mid-terms are generally difficult for the party in the White House) and the economy still in recovery mode:

Once the senators formally sketch out their bill, Senate Democratic Leader Harry Reid will decide the next steps in a year crowded with competing legislative priorities and congressional elections in November.

The bill could face stiff opposition from lawmakers in states with economies heavily dependent on oil and coal.

The proposed legislation would end state and regional carbon policy and preclude the U.S. EPA from regulating carbon under the Clean Air Act, according to Reuter's sources.

'Hockey Stick' used "inappropriate" methods

The Financial Times reported Wednesday that the famed 'hockey stick' paper by Michael Mann that purports to show tremendous warming in recent years is, in fact, based on "inappropriate" methods. Climate change skeptics have seized on the hockey stick and the 'Climate Gate' emails that suggest a "trick" was used in Mann's analysis to "conceal the decline" in temperatures. President of the Royal Statistical Society David Hand cautioned that the conclusions of a report by the University of East Anglia and the Royal Society should not be construed as dismissing global warming. As the report states:

It is very surprising that research in an area that depends so heavily on statistical methods has not been carried out in close collaboration with professional statisticians.”

An ongoing review will determine whether British freedom of information laws were violated by the cadre of scientists collaborating with Phil Jones, the head of the Climate Research Unit and East Anglia University, who has reportedly been suicidal since Climate Gate erupted shortly before the winter holidays last year.

What economics tells us about AB32

This week I received an email seeking signatures for an "open letter from economists to the people of California in support of the state's efforts to reduce global warming emissions." The letter comes from Jasmin Ansar, of the Union of Concerned Scientists, and already bears the signatures of several people from my department, including a member of my research committee, Max Auffhammer. The letter itself is fairly mundane (I have pasted the full contents at the end of this post), but two sentences cry out for some commentary.

First, there is this:

In fact, being an early mover to reduce emissions could yield economic (as well as climate) benefits for California.

This is the green jobs argument that has been articulated by backers of AB32 ad nauseum.  But as I have begun to argue in an op-ed that will likely never be published anywhere except in this space, the green jobs that will be produced in order to feed demand for green products in California need not be located in California. In fact, one might expect green goods to be produced outside California because even the production of green products causes greenhouse gas emissions, which will be priced in California but not elsewhere. As the Wall Street Journal noted in an op-ed against AB32 this week, the Air Board's own analysis concedes our dirty firms are especially mobile and therefore likely to leave. So Californians will be compelled to invest in green products from Nevada and Texas in order to avoid energy costs increases induced by AB32. The claim of economic benefits to California is dubious.

Equally dubious is the suggestion that AB32 will yield climate benefits to California. Greenhouse gases are a global public bad, which means emissions anywhere affects people everywhere. So reducing emissions in California affects California's climate only in so far as it causes a (very) marginal reduction in global emissions and that marginal reduction in emissions causes a reduction in climate change. Roughly, California emits 6% of all U.S. emissions and the U.S. emits 20% of worldwide emissions. So California is responsible for about 1% of worldwide emissions. If we reduce our emissions by 25% as per the intent of AB32, then we will reduce annual world emissions by one-fourth of one percent by 2020. If we extrapolate from the IPCCs A2 scenario, this means AB32 will reduce temperatures by 0.002 degrees Celsius per year. I am guessing no one will notice of California is 0.002 degrees cooler than it otherwise would have been in 2020. By 2100, it will be 0.16 degrees cooler than without AB32--and this only if we assume there is no leakage and AB32 succeeds. Some climate benefit! I find it stunning that such respected people in my profession would sign onto a statement that is just so objectively wrong.

There is one context in which AB32 will provide real benefits to California, and it is included in the letter's list of AB32 merits:

Furthermore, policies that reduce global warming pollution are likely to provide immediate benefits to the health and welfare of residents by reducing local pollutants.

 This is true. Carbon, itself, is not a pollutant (in spite of what the U.S. EPA may say as it tries to regulate carbon under the Clean Air Act). It is naturally occurring chemical that is harmless to humans. Still, carbon emissions are correlated with emissions of chemicals that are pollutants and are hazardous to people, plants and animals. To the extent we send our carbon-intensive industries away, we also send our pollutants away. OK. Fine. But that is about the only sliver of truth in this letter, which has already been signed by a nobel-laureate. Is the consensus among climate scientists also based on this kind of empty rhetoric?

Here is the rest of the letter (and below it, the email that brought the letter to my attention):

The Most Expensive Thing We Can Do is Nothing
An Open Letter on Clean Energy and Global Warming from Economists


We believe that the state of California should proceed to control global warming gases and not delay as some are advocating.

In a 2006 letter, many of us stated that "Global warming gases will be best managed through a combination of policy approaches. Emissions caps combined with a range of regulatory and market-based implementation mechanisms offer a particularly potent strategy because they provide clear incentives for changes in business practices and the development of new technologies." We continue to believe this.

While global climate change poses significant risks to the California economy, we believe that well-designed and judiciously phased-in strategies to limit global warming pollution can reduce emissions substantially in the long run at modest cost to the state. In fact, being an early mover to reduce emissions could yield economic (as well as climate) benefits for California. Well-designed strategies can stimulate innovation and efficiency, which could help the state become a technological leader in the global marketplace.

We continue to support the efforts of the California Air Resources Board to implement the 2006 state law, the Global Warming Solutions Act.

The current recession and the very high unemployment rate in California present daunting challenges. Some have argued that these economic conditions warrant suspending the implementation of emission reduction policies. We disagree. Delaying action now and waiting for the future before initiating accelerated action to reduce global warming gases will be more costly than initiating action now. Acting now is more likely to limit further environmental degradation, lower the cost of mitigation, and spur innovation in renewable energy and conservation technologies. Furthermore, policies that reduce global warming pollution are likely to provide immediate benefits to the health and welfare of residents by reducing local pollutants.

For these reasons we urge continued support for policies that reduce greenhouse gas emissions. These policies can improve our energy security, create new business opportunities and more jobs, and provide incentives for innovation.

Signed by,

Kenneth J. Arrow
Stanford University
Nobel Laureate, Economics

Maxmillian Auffhammer
Professor of Agricultural and Resource Economics
University of California, Berkeley

Anthony C. Fisher
Professor of Agricultural and Resource Economics
University of California, Berkeley

W. Michael Hanemann
Chancellor's Professor
Department of Agricultural & Resource Economics
University of California, Berkeley

Charles Kolstad
Professor of Economics
Department of Economics & Bren School of Environmental Science and Management
University of California, Santa Barbara

Jasmin Ansar
Western States Climate Economist
Union of Concerned Scientists

The email I got forwarded:

 -------- Original Message --------
Subject:    Economist letter in support of CA global warming policies
Date:    Thu, 08 Apr 2010 14:06:48 -0700
From:    Larry Karp
To:    are-faculty@lists.berkeley.edu

Colleagues,
I am forwarding an email that solicits signatures for a petition in
support of California's climate change policies.  (Some of  you have
already signed, I know.)

cheers
>
>
>
>         
>
> ACTION ALERT
> Sign on: Economist Letter in Support of CA Global Warming Policies
>
> Dear Economist Colleagues,
> 
> I'm writing to ask you to add your name to an *open letter from
> economists
> to the
> people of California in support of the state's efforts to reduce
> global warming emissions *as required by the landmark 2006 Global
> Warming Solutions Act (also known as AB 32).
>
> Join the leaders in this effort, including Nobel Laureate Kenneth J.
> Arrow, Stanford University; Maxmillian Auffhammer, UC Berkeley;
> Anthony C. Fisher, UC Berkeley; Michael Hanemann, UC Berkeley; Charles
> Kolstad, UC Santa Barbara; and myself.
>
> In a 2006 letter, many of us urged California decision makers to take
> action to reduce global warming emissions. Our support helped lead to
> passage of AB 32. This year, state agencies and legislators are
> expected to authorize several critical components of the AB 32 policy
> package.
>
>         
> Support California's landmark climate programs today.
> Please read the economists letter supporting California's global
> warming law and sign it today! We will be accepting signatures until
> May 12, 2010.
> click here to take action
>
> Related Links
> 2006 Economists Letter (pdf)
>
> Threats to California's climate law
>
> Tell A Colleague
> Please encourage your colleagues to sign up
> and help
> increase our effectiveness in creating a healthy environment and a
> safer world. CLICK HERE
> .
>
>
>   
>
> Now, *some who oppose action—including two Texas oil companies— are
> doing all they can to turn back the clock.* They are bankrolling a
> ballot initiative that would prevent California from moving forward,
> arguing that the economic downturn demands delay. We disagree.
>
> Delaying action now and waiting for the future before initiating
> action to reduce global warming emissions will be more costly than
> acting now. Taking action now is more likely to limit further
> environmental degradation, lower the cost of mitigation and
> adaptation, and spur innovation in renewable energy and conservation
> technologies.
>
> *A letter from economics experts, like you, can make a big difference
> in public debates and with state decision makers, as it provides the
> courage to act despite some of the fear-mongering tactics from the
> opposition.*
>
> We will use the letter to engage California decision makers to shore
> up support for the state's forward-thinking policies. For example, we
> will deliver copies to members of the California Air Resources Board,
> state legislators, and other key stakeholders.
>
> The letter is open to economists with a Ph.D. who live or work in
> California, or who have done research or analysis on California
> issues. Please read the letter and sign it today! We will be accepting
> signatures until May 12, 2010.
>
> Please read the letter and sign it today!
> We will
> be accepting signatures until May 12, 2010.
>
> Thank you for joining this important effort. If you have any
> questions, please contact Jasmin Ansar at jansar@ucsusa.org
> or (510) 809-1570 or Chris Carney at
> ccarney@ucsusa.org or (510) 809-1577.
>
> Take Action Today
>
>
>
> Sincerely,
> Jasmin Ansar
> Jasmin Ansar
> Western States Climate Economist
> UCS Climate & Energy Program
>
> P.S. UCS Climate Scientist, Dr. Brenda Ekwurzel will appear on The
> Colbert Report on Comedy Central tonight, Tuesday, April 6 at 11:30
> p.m. EDT. It should be funny and informative. We hope you tune in!
>
> The Union of Concerned Scientists is the leading science-based
> nonprofit working for a healthy environment and a safer world.
>
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>
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--
Professor Larry Karp, Chair
Dept. Agricultural and Resource Economics
University of California at Berkeley
207 Giannini Hall #3310
Berkeley, California 94720-3310
Phone: (510) 642-7199
Fax: (510) 643-8911
e-mail: karp@berkeley.edu

http://www.are.berkeley.edu/~karp