The cost of air pollution

A new study out of MIT calculates the long-term economic costs of lax air pollution standards in China. These costs include increased expenditure on health care and lost work and leisure time due to illness. The study estimates the total lost value (between 6 & 9 percent of GDP) and suggests that even modest pollution control efforts could have turned the loss into an economic gain via enhanced productivity. However, the authors of the study did not estimate the costs of implementing tighter standards. These would have to be accounted for to understand the true net change in economic welfare.

In related news, the US EPA is putting forth seven new environmental regulations for air pollution in the US. These regulations are being criticized for the extra costs that they will impose on businesses that have to comply. Read about it here at the News & Observer. The costs are indeed real (the price everyone pays for power will increase), but this is only half the story. There are also significant benefits to pollution control, as shown in the above MIT study. Fewer deaths and less illness means more productivity. Less illness means people can work harder, longer, stronger and smarter. Fewer sick children and elderly means parents and caregivers can work more. Framing the issue based only on an estimate of the costs or benefits is incorrect and misleading. We need both.

More on energy externalities

Great article here at Politico describing the external costs of our energy.
Everyone should read this.

The most important question of our age?

I think this is it: What is the backstop energy source?

The only options right now are nuclear, solar, hydro, geo, and of course fossil fuels like oil, natural gas and coal. Every one has pros and cons, which means this is great stuff for economic analysis. Will nuclear ever be safe? Will coal ever be clean? Will solar ever be cost effective? Is there something else on the horizon?

We know that we have to start addressing these questions, but we can't agree on how to do it.

Here's a link to an article discussing the results of a survey of consumer attitudes. Here's another poll on the same set of issues. Note the serious split between those that say "more" and those that say "less" for just about everything currently on the table. No wonder our politicians can't put together an energy policy... no matter what they advocate, around half the country will be opposed.

Pigouvian tax on gasoline

Interesting article here at 3P.

Note the importance of incentives in affecting behavioral change and the discussion of standards vs. market-based policies. I also like the discussion of the vulnerability to price shocks. Curtailing our use of gasoline is a kind of insurance against economic instability. As much as I like these arguments for raising the price of gas, we also have to recognize reasons for keeping the price of gas low (at least for some users). The U.S. is really big geographically speaking, so within country commerce may depend more critically on cheap transport than in smaller nations. Check out the linked Economist article. It's short and good.

Hog farms and water quality

Here's a story from Reuters about command-and-control regs on hog farms that are intended to improve water quality (in Manitoba). This is clearly an interesting application of cost-benefit analysis.

What are the benefits of tighter restrictions? Are these values market or non-market? For the non-market components, what valuation procedures might be used to estimate the monetary value of better water quality?

What are the costs of the restrictions? How might they be estimated?

The Coase Theorem in action

Here's a story at the WSJ about some really rich people arguing over views from their mansions.

Here's the part where the Coase Theorem comes in.

Hat tip: Tim Haab

This week

For the rest of the week I'll be in Port of Spain, Trinidad, attending a conference on sustainable development in coastal communities. Read about it here, and here. I'm giving a talk on Friday.

Driving externalities

Interesting (and kinda scary) example of estimating the external cost of an activity: Pollution from idling vehicles in traffic leads to premature deaths.

Read about it here at USA Today.

People don't seem to want electric cars

At least in the U.S.

The opposition seems to come from driving range issues and battery cost. From what I understand the battery cost worries are overblown. I'd consider buying one if they weren't so expensive, even with the subsidy. Right now I drive a beat-up old Honda Civic (1992 model and still runs like a champ), and get incredible gas mileage.

We know that gas prices are changing the way people drive and affecting purchasing power. Read about it here and here. So, what will it take for people to make big changes?

Outsourcing emissions

A new study published in the Proceedings of the National Academy of Sciences suggests that declines in emissions in developing world are misleading in terms of pollution gains by those nations. In short, while developed nations may be producing less emissions within their own borders ("territorial emissions"), they are consuming more products produced abroad where pollution standards are less stringent. When these "consumption emissions" are factored in, developed nations are actually producing more emissions, not less. China is the clear global leader in terms of manufacturing and outsourced emissions. My brother-in-law is currently living in China with his family (he designs running shoes for Nike), and tells us that sometimes the air is so bad that they can't go outside.

Can anyone think of a micro-level example where individual consumers outsource their pollution?

Hat tip: ENN