Category: Environment

Taking the Measure of Plastic Bag Bans

Taking the Measure of Plastic Bag Bans

MichaelisScientists [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)]

Americans go through 102.1 billion plastic bags each year, and those bags end up everywhere. Whether they’re in whale stomachs, or in our water as microplastics, the volume has people concerned.

In an effort to reduce the amount of plastic, bans on single-use plastic bags are on the rise. California and New York already have state-wide bans, and Maine has just become the third state to do so. In other states, cities like Boston, Seattle and Chicago have their own bans, and more seem likely to follow.

While it’s popular to attack plastic bags, it’s still important to ask questions to make sure the bans are necessary and effective.

Are plastic bags as bad as people think? What are the alternatives, and are they any better? What impact do these bans have on people’s behavior and the environment?

It turns out that when you look at the whole lifecycle of different bags, and the unintended consequences of the bans, the results aren’t straightforward.

Cost of Bag Production

The environmental cost of production is a good starting point in measuring the impact of different bags. Contrary to what you might think, from this perspective, plastic bags win out.

Plastic bags are made by using ethylene. Ethylene   is a by-product of the crude oil refining process and natural gas production.   Manufacturing plants have also gotten very efficient at making plastic, so this process doesn’t generate many greenhouse gases per bag.

Paper bags, on the other hand, require cutting down trees and then processing them in an energy-intensive way. A 2005 Scottish study noted that paper bag production uses about four times as much water as plastic and creates three times the amount of greenhouse gases. It should be noted that in the United States, many paper manufacturing facilities use biofuels and co-gen systems to generate the power used in the manufacturing process which may mitigate some of these emissions.

Even cotton tote bags aren’t better for single use. This is because you need to factor in the land and water used to grow the cotton, as well as the processing and production. One study found that you’d need to use the tote bag at least 131 times to be better than a single-use plastic bag, based on the production impact.

Recycling and Decomposing

One of the biggest problems with plastic bags is what happens after they’re used. This is true whether they’re used once or a couple of times.

While the bags can technically be recycled, municipalities don’t accept them with other recyclables. This puts the burden on the consumer to save them and bring them to a place that will accept them, and most people don’t go to the trouble.

When plastic doesn’t get recycled, it either goes into a landfill or ends up as litter.

In a landfill, plastic takes an average of 500 years to decompose. The volume of these bags in the trash also comes at a cost. California alone spends $25M annually on disposal of plastic waste in landfills.

Paper, on the other hand, decomposes in just two to six weeks. It can also be easily recycled.

Other Impacts of Plastic in the Environment

Additionally, when plastic ends up as litter, the environmental impact is much worse than with paper.

Plastic has become one of the most common kinds of waste products, with much of it ending up in the ocean. A study from UC Santa Barbara found that each year, the world’s oceans receive almost 8 million metric tons of plastic.

As an example of how widespread this is, a recent dive by American explorer Victor Vescovo found a plastic bag at the bottom of the Mariana Trench, seven miles below the surface.

One of the biggest concerns with this is the impact on marine animals. Many are tempted to eat plastic bags, thinking they’re food, but instead the bags block their digestion.  As many as 1 million sea animals die each due to the plastic in the oceans. Among them was a dead sperm whale found in April 2019 with 48 pounds of plastic in its stomach.

A less publicized issue is the fact that plastic bags can cause problems in urban settings by clogging waterways and drains. This was discovered as one of the primary factors in flooding in Bangladesh in 1988 and 1998, which led them to ban plastic bags in 2002.

Microplastics are another concern. These form when the plastic breaks down into smaller and smaller pieces.

No one has enough evidence to show any specific health impacts of microplastics, mostly because it is unethical to ask human test subjects to ingest microplastics due to known health hazards of plastic in general, but the amount and range makes it worth watching. A 2017 study found that 94% of tap water samples from the United States contained microplastics and other studies have found high concentrations of microplastics in fish and shellfish commonly eaten by humans.

Another study also noted that when plastic bags are exposed to sunlight, they begin to give off ethylene, and continue to do so even after the sun sets.  This ethylene can contribute to the creation of atmospheric carbon monoxide, a greenhouse gas.  

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These factors are what make the plastic bag bans so popular, even though from a production standpoint, they can do less environmental damage than the alternatives.

Considering Consumer Behavior

One issue that policymakers often overlook is how consumers will react to their policies. Production and disposal are only one part of the story. It’s also important to consider if people actually do reuse those bags, for what purpose, and how consumers will change their behavior after a plastic bag ban.

In some cases, people do use the plastic bags again, though often only one other time. The most common examples are to line small trash cans and to pick up after dogs. Those needs don’t disappear with the bans, and those are things you can’t use tote bags for.

As a result, one side effect of the bans is that people buy more trash bags for those purposes. Rebecca Taylor, an economist at the University of Sydney, saw a 120% increase in sales of small, four-gallon trash bags. From an environmental perspective, trash bags are worse than the single-use bags, since trash bags are thicker than grocery bags. This means they use more plastic, and it takes longer for them to degrade.

A quick glance at the comments section of the Portland Press Herald, in an article announcing the ban, revealed that many commenters were “hoarding” their plastic bags in response to the ban, or even buying rolls of plastic bags in advance of the law’s April 2020 effective date.

Additionally, the use of paper bags increases significantly after bans. A survey of a few areas in California found that paper bag usage jumped from 3% to 16%. This meant increased production for paper bags, as well as higher volumes of paper trash.

Still, the bans do encourage people to reuse bags by 40%. The bans also reduce the amount of plastic that ends up as trash, which is the other piece to consider.

Conclusion – It’s Complicated

Economists are notorious for responding “it depends” when asked a question comparing two alternatives.  The impact of bans on plastic bags is no different.  Depending on what you measure, you can find support for using plastic bags, and support for banning them.   

It’s important to remember that the impact doesn’t stop with the manufacturing. It continues with how the bags are used, and what happens with them when they’re no longer in use. It’s also important to recognize that no law is ever passed in a vacuum. We need to consider how people will respond, what alternatives are available to them, and what the unintended consequences may be.   

References:

Defining Safety Levels for Particulates Could Hurt Your Health – and the Economy

Defining Safety Levels for Particulates Could Hurt Your Health – and the Economy

You’ve probably heard about some of the recent changes from the Environmental Protection Agency (EPA). But you might have missed the proposal about particulate matter (PM), since it didn’t get as much press. Or even if you saw it, you might not have recognized all the implications because they’re not immediately obvious.

This proposal is to define a safety threshold for what’s called PM 2.5, and it’s a reversal of the EPA’s prior stance. Until recently, the EPA said that no amount of particulate matter can be considered safe. Changing that could have serious impacts on our health – and the economy.

What is PM 2.5, and where does it come from?

Even if you’ve never heard of particulates, you’re likely familiar with them. These are the fine particles of liquids and solids that contribute to haze-filled cities and poor air quality. In fact, another name for PM is particle pollution.[1] This is because the tiny size allows these particles to get everywhere – including deep in your lungs.

PM 2.5 is a specific kind, named because the particles are only 2.5 micrometers in size. For comparison, an average human hair is 75 micrometers in width.[2]

These tiny materials are everywhere, coming from a number of places, including cigarettes and fireplace smoke. But the vast majority come from two sources:

–          50% is from industrial production, with 20% of that from coal-powered plants

–          35% is from gas-powered vehicles of all kinds[3]

Costs and benefits with current policy 

Under the current policy, with no level of particulate matter considered “safe,” any reduction of PM 2.5 below current levels is considered a benefit, and can be included in federal cost-benefit analyses.

In other words, if regulations to reduce greenhouse gases simultaneously reduce PM 2.5 (as they would, given that they share many of the same sources), that reduction counts as a co-benefit. And those co-benefits can play a significant role in the cost-benefit analysis of any proposed regulation to reduce greenhouse gases.

For example, the Clean Power Plan from the Obama era had an estimated $20 billion in climate benefits. But the benefits go up when you consider that the same technology used to reduce power plant emissions would also cut PM levels. Those changes result in an additional $13 to $30.3 billion in health benefits, effectively doubling the benefits.

Similarly, the Mercury and Air Toxics standards save $4 to $6 million by reducing toxins. And in this case, the co-benefit from reducing particulates is even higher, coming in between $37 and $90 billion.[4]

Proposed change reduces benefits

Now, under the proposed changes, lowering PM levels below the suggested “safety levels” won’t count as a benefit. After all, if anything below the threshold is already considered safe, bringing it down even further won’t be helpful.

This means that moving forward, climate change initiatives like the Clean Power Plan wouldn’t be able to factor in the lower levels of PM 2.5. And without that, the initiative might not get implemented, because the cost would be considered too high without the co-benefit to offset it.[5]

Damages from air pollution

 The impact on regulations is a concern, but those aren’t the only considerations. Air pollution already causes damages between $75 and $230 billion annually. And PM 2.5 contributes more to that than their size indicates.

Even though these particulates only account for 6% of emissions by weight, they cause 23% of the damages. The damages from PM 2.5 alone are between $17.25 and $52.9 billion annually. [6]

Health and economic impact

Most of the economic damage caused by PM 2.5 is due to increased health costs.[7] Health issues associated with PM 2.5 include:

–          Respiratory illnesses like bronchitis

–          Premature death

–          Low birth weight

–          Higher risk of asthma

–          Greater risk of heart disease

–          More instances of lung cancer

These conditions all carry increased economic cost. Some of this is a result of increased medical care, such as hospital visits and medication. [8]

But the costs also come from lost work time and reduced productivity. People who need to take time off for appointments and medical care won’t be as effective. Similarly, those who can’t breathe as well have less energy and will be less productive, even if they don’t require urgent care.

In addition, since particulates contribute to poor air quality, people might be more likely to stay inside. This means lost revenue from outdoor recreation and the potential of reduced health from lower levels of activity.

Poor air quality actually could have a negative impact on region’s workforce. Putting a priority on quality of life is becoming more common – including looking at factors like air quality. If an area has a distinct haze, or higher levels of respiratory conditions, people may choose to leave, or to not move there to begin with.[9]

Conclusion

While it’s impossible to identify all the effects of the EPA’s proposed safety threshold, it’s clear that the negative impacts could be far-reaching. Given that, the EPA and other agencies should take all of the risks into account before accepting a change that could cause such extensive damages to our environment, our health, and our economy.

Photo Credit:   Eltiempo10 [CC BY-SA 4.0], from Wikimedia Commons

[1] https://airnow.gov/index.cfm?action=aqibasics.particle

[2] http://www.sciencemag.org/news/2018/08/kill-climate-rule-trump-s-epa-wants-redefine-danger-soot

[3] http://www.rff.org/blog/2007/what-do-damages-caused-us-air-pollution-cost

[4] http://www.sciencemag.org/news/2018/08/kill-climate-rule-trump-s-epa-wants-redefine-danger-soot

[5] Ibid

[6] http://www.rff.org/blog/2007/what-do-damages-caused-us-air-pollution-cost

[7] Ibid

[8] https://www.brookings.edu/blog/jobs/2011/05/06/we-are-what-we-breathe-the-impacts-of-air-pollution-on-employment-and-productivity/

[9] https://www.forbes.com/sites/quora/2018/05/29/how-the-air-quality-where-you-live-might-be-affecting-your-health/#2881f8b37017

Keeping the Lights On Doesn’t Mean More Pollution

Keeping the Lights On Doesn’t Mean More Pollution

Photo – Creative Commons/Flickr Amy the Nurse

In August of 2017, Energy Secretary and former governor Rick Perry proposed to strengthen subsidies to coal- and nuclear-fueled electricity plants.  Why?  According to his proposal, coal and nuclear power plants are indispensable to our national security by virtue of the fact that they can store energy on-site. And, since the past few years have seen declines in both coal and nuclear facilities in the United States, the concern is that the nation’s electricity grid will be less reliable in the future. The proposal would have guaranteed cost recovery and a fair rate of return for generators that can store at least 90 days’ worth of energy on site.  Fortunately, the Federal Regulatory Commission rejected it.  Even so, it’s still worth looking at the pros and cons of such a proposal.

More power outages and more disruptions would, of course, harm our energy-intensive economy. As the recent spate of hurricanes (including high winds in my home state of Maine) have shown, such energy disruptions can be costly. In fact, 2017 was the costliest year in terms of economic damages from natural disasters in the US.

Would subsidizing coal and nuclear facilities really have been the best solution? To answer that, we need to take a deeper look.  When I teach cost-benefit analysis, I encourage my students to consider the baseline – what would have happened in the absence of the policy or proposal in question. The number of coal and nuclear plants in this country has been declining for decades. The decline can be attributed to several factors, including environmental regulations, but mainly the declines are due to market forces (low electricity prices, declining electricity demand, and new supplies from natural gas) and aging infrastructure. Without taking a close look at the finances of the plants in question, we can assume that at least some of these plants would have been likely to follow.  Increasing subsidies to already struggling nuclear and coal plants would likely have been just another case of throwing good money after bad.

When considering the costs and benefits of the proposed plan, there would have been several different categories, each accruing to different groups.  The beneficiaries of the plan would likely have been owners and shareholders of the qualifying coal and nuclear plants.  Their consumers, as well, may have benefited from a lower average wholesale price of electricity; however, the proposal recommended adding a surcharge to consumers’ bills in order to cover the costs. According to the analysis done by Resources for the Future, the drop in the wholesale price of electricity would not have been enough to cover the surcharge.

Moreover, practitioners of cost-benefit analysis need to carefully consider all the costs and benefits of a proposal, not just those that are easily monetized.  A complete analysis of the costs and benefits of Secretary Perry’s proposal should include the damages caused by pollution from coal and nuclear-powered plants to humans and agriculture. (While the generation of electricity from nuclear plants does not create air pollution, the mining for uranium does create environmental destruction.) Such external costs are in reality a passive subsidy that coal and nuclear plants have enjoyed for decades. An additional subsidy would exacerbate the problem. According to the analysis done by Resources for the Future, the proposed plan would have immediately increased sulfur dioxide and nitrogen oxide, two pollutants generated by the combustion of fossil fuel.  This increase in emissions is linked to an increase in premature deaths caused by respiratory diseases such as chronic bronchitis and emphysema. Once environmental costs are factored in, net benefits to society would have been decidedly negative.

The next question is: would the subsidies have alleviated the problem of grid instability? The answer to this question actually lies in the question itself.  Is there really a problem of power disruption caused by declining coal and nuclear plants? Some recent research by the Rhodium Group says no.  Researchers examined the data collected by the Department of Energy whenever an electricity generator experiences an outage or a disturbance.  Results indicate that disruptions in fuel supply were responsible for less than 1 one hundredth of one percent of lost customer service hours between 2012 and 2016.  The remainder were caused by disruptions to energy distribution  Primarily, those disruptions were caused by severe weather, not by supply disruptions.  The FERC ultimately agreed when it rejected Secretary Perry’s proposal.

However, the FERC did agree that the reliability of the grid was an issue looking into.  If the goal of Secretary Perry’s proposal was to increase the reliability of the grid – not just to prop up nuclear and coal – there are several less costly and ultimately beneficial ways of doing so.  One such possibility is to replace our nation’s aging energy-related infrastructure, much of which dates to the 1950s and 60s. Energy infrastructure actually received a “D+” on the 2017 report by the American Society of Civil Engineers. Upgrading the energy infrastructure would come with many ancillary benefits.

A second alternative would be to invest in distributed energy and microgrids.  Distributed energy is the use of small, decentralized power generation and storage systems. While larger utilities consider the rise of distributed energy to be a threat to the existing system, the greater use of distributed energy could actually increase the resilience of our current, outdated system.  However, doing so will require innovations in monitoring, modeling, “smart switches,” and other technologies to manage peak demand and integration.

A third possibility is to invest in better long-term energy storage. Lithium ion batteries may be our best choice for now, but other storage technologies, such as flow batteries or zinc air batteries.  But by far the best alternative – one that should be a crucial part of any solution – is energy conservation.  A unit of energy conserved is one that doesn’t need to be generated.  You don’t get much more reliable than that.

The Rising Cost of Hurricanes

The Rising Cost of Hurricanes

The hurricane season of 2017 has been a severely damaging one. Hurricane Harvey devastated parts of Texas, Maria savaged Puerto Rico, and Hurricane Irma dealt a punishing blow to an already-reeling Florida (not to mention Nate and Jose). As I write this, Hurricane Ophelia – the tenth named storm in a season that was predicted to be “less active than usual” – is brewing in the eastern Atlantic. Whatever the cause of this increase in hurricane frequency, though climate change is a likely culprit, no one can deny that these storms are growing more costly

The World Health Organization estimates that the global cost of hurricane damage per season is rising by 6% a year. (That’s in real dollars, not nominal, by the way, so inflation doesn’t factor into it.) If storms are increasing in strength and frequency, why is more not being to mitigate the costs?

Two words: incentives and avoidance.

Economists believe that people respond to incentives. Make an activity less expensive, and more people will engage in it. Make an activity more expensive, and the level of activity will drop off. Why is that important here?

It turns out that if policy makers make it relatively inexpensive to build your house in a floodzone, lo and behold, more people are going to build their houses in floodzones. Houses that are built in floodzones are, no big surprise, more prone to flooding. According to the Economist magazine’s recent article, Harris County, Houston’s home, has allowed 8,600 homes to go up in the 100-year floodplain. (The 100 year floodplain is not, despite its name, an area where a flood is expected to occur every 100 years. A 100 year floodplain is an area that has a 1 percent chance of being flooded in any given year. That means, over the life of a 30-year mortgage, the change of a such a flood occurring is just about 26 percent.) The more houses located in a floodplain, the greater the expected cost of such a flood. Simple math.

Not only that, but by developing in the floodplain, much of that land was converted from prairie land to impermeable surfaces, like roads, driveways, and sidewalks. Coastal prairie land can absorb large amounts of rainfall. Concrete and asphalt cannot, leading to more flooding and more runoff, and more erosion of existing soil, as the velocity of the water is increased by those impermeable surfaces. The act of putting more development in vulnerable areas is a double whammy – you’re putting more homes in harm’s way, and you’re taking away the natural infrastructure that helps protect against flooding in the first place.

I also mentioned “avoidance” as one of the reasons why hurricane costs have been increasing. It’s no surprise that most people tend to avoid thinking about negative information, and that applies to getting insurance. According to the Insurance Information Institute, only 12 percent of American homeowners had flood insurance in 2016. While most banks and mortgage companies require flood insurance if your home is in a high-risk area, federal law does not require coverage in a moderate to low risk area and almost 25% of all flood-related claims come from those areas. Why is that? Maybe they see it as too expensive, or they’re putting it off. Maybe they’ve simply made a bad bet. Or perhaps they expect the federal government to foot the bill. Even if the government does cover some of the damage (and the federal government did cover about 80% of Hurricane Katrina’s damages), that still means that taxpayers may be subsidizing an increasingly risky bet.

And those bets are becoming riskier. What was once considered a 100-year storm – that is, where the probability of one occurring is one percent annually – is now occurring more frequently. Scientists estimate the likelihood of a storm of a certain size occurring based on historical figures – and we know that more intense storms are happening more often. (For a great discussion of how the US Geological Survey draws the “flood maps,” see this piece from Five Thirty Eight.)

It’s not only the insurance companies, the homeowners, or the federal government who shoulders the increasing costs of hurricanes and other natural disasters. Municipalities can see a blow to their tax base, a rise in the cost of borrowing, and even the possibility of litigation if it’s found that the municipality issued building permits or approving subdivisions that increase the potential of flooding.

What can be done to stop these costs from continuing to increase? Well, for a starter, communities need to take a good long look at their land use regulations. We need to stop subsidizing bad risks. It should be more, not less, costly to build in flood plains. We need to stop subsidizing the conversion of wetlands and other buffer zones to development. We need to preserve our natural infrastructure. And, we need to implement more resiliency efforts.

Municipalities should also make sure that businesses and homeowners fully understand the potential costs of not having flood insurance We need to make sure that the people involved in these kinds of decisions have a clear understanding of the full social and environmental costs of their actions. These moves make economic sense as well as environmental sense.

rbouvier consulting’s mission is to promote a more transparent economy by making sure that social and environmental costs are included in economic decisions. Visit our website to find out more.

Economic Resiliency in the Face of Climate Change

Economic Resiliency in the Face of Climate Change

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Climate change is expected to have a number of effects in Maine, including coastal flooding, sea level rise, and changing precipitation patterns, among others.  Many efforts are already underway to help protect communities from those effects, including zoning changes, new building requirements, armoring or elevating critical infrastructure, and the like. These efforts all fall under the heading “climate resiliency planning,” as they make a community more resilient to the disruptions wrought by changing weather patterns.

Ensuring that a local economy is resilient to climate disruption is nearly as important as physical resiliency. The local economy is a complex web of interactions between customers, workers, businesses, non-profits, and government agencies within the region. Economic resiliency planning can help to make sure that that web does not break – or, at least, is easily rebuilt – after a disaster.

Current approaches to assessing the impact of climate change too often ignore economic changes that are likely to occur.  Climate change poses physical threats to current businesses, true, but it also poses economic ones, as supply chains dry up, input prices rise, or competitive advantages shift. Focusing on preserving the economic status quo will do little good if advancing sea level rise and increasingly variable weather patterns result in a markedly changed economic landscape.

The first step in developing an economic resiliency plan for a local economy is to anticipate the likely physical changes that will accompany climate change, by taking a look at what areas of a particular municipality are likely to be impacted by certain events.  If you’re located on the coast, or if your town center is situated near a river, as is the case for many Maine towns, flooding from hurricanes or other large storms might be a priority.  Or, access may be more of an issue.  If your town has one or two main routes in and out of town, how likely are these routes to be block by high water, or by downed trees from wind damage? Many communities have already begun this work, through projections from the National Oceanic and Atmospheric Administration (NOAA) or from the United States Environmental Protection Agency.  Through this work, communities can get an idea of what physical assets are at risk from climate-related events.

Next, establish a baseline.  What are the largest employers in the municipality? What are the largest sources of tax revenue? What are the key industries, and what is the sectoral composition of the economic base? Where do most of the non-resident employers live, and what routes are they likely to take to work?  This will create a starting point to assess the local economy’s vulnerability to climate-related disruption.  The results may not always be what you think.

For example, many of Maine’s historically most important industries – agriculture, forestry, fishing, and tourism – depend heavily on the climate.  The output from these industries is likely to be directly impacted by any climate disruptions.  Agriculture, for example, could be both positively and negatively affected by climate change, as higher temperatures lead to a longer growing season, but also to increased need for irrigation.  These are the industries that are deemed “climate-sensitive in supply” by economists.

But there are also industries that are “climate-sensitive in demand” – where consumer demand for goods and services is likely to be affected by changing weather patterns or the physical effects that come with them.  Tourism, certainly, is one of these (both positively and negatively).  Energy is another.

Less obvious, perhaps, are the effects of underlying price changes and linkages between industries.  Let’s give an example.  Suppose that an increase in hot, humid weather in the northeast leads to increased demand for air-conditioning.  (Most areas in Maine now see fewer than four days a year when the heat index rises above 95 F, but that is predicted to change under most projections.)  The increased demand for air-conditioning will likely lead to increased electricity prices.  Those higher prices will ripple through the economy, affecting everything from family’s budgets to food prices to costs to businesses.

Finally, labor productivity might be affected by climate change.  Why? For those of us who have jobs in air-conditioned buildings, and as such are relatively shielded from the climate, the outdoor temperature might not affect our productivity.  But for the proportion of Maine workers who work outside, or do not have access to air conditioning, heat-related stress can be a factor, much as it is for livestock in Maine. Moreover, the effect of warmer temperatures on growing seasons works for pollen-producing plants as well, leading to increased rates of asthma and allergies. The spread of insect-borne diseases, such as Lyme, may affect productivity as well (not to mention impacting the health care sector).

Once the likely changes to the local economy are anticipated, policies can be put in place to help reduce risks.  Some of these policies might include encouraging local businesses to engage in disaster preparedness with others rather than in isolation, developing a directory of local businesses that can assist in rebuilding after a disaster, and identifying alternative procurement routes in case of a disruption in transportation infrastructure.

Planning for economic resiliency is less about rebuilding the day after a disaster, and more about planning so that economic disruptions are minimized should a disaster occur.  And it doesn’t have to be a stand-alone process.  In fact, it shouldn’t be.  Planning for economic resiliency should be integrated into planning efforts at all levels, from economic development to housing and infrastructure planning. While a disaster almost by definition is unpredictable, we do have the ability to anticipate the changes that will come with a changing climate.  We should take the time now to ensure that those changes don’t derail the local economy.

*Photo Credit: Maine Emergency Management Agency. Flooding in Gardiner, Maine. 2013.

Can Maine benefit from mining?

Can Maine benefit from mining?

With Maine’s forested lands and iconic rocky shoreline, the notion that forestry and fishing were once the mainstays of Maine’s economy should come as no surprise to anyone familiar with the state. But mining?

Well, yes – although you wouldn’t know it from looking at today’s employment figures.  But in addition to the geological phenomena that endowed Maine with its rocky soil and many lakes,  Maine was also blessed with an abundance of minerals from volcanic activity – at least in certain areas. In the late 1800s, Maine experienced something of a mini-boom in metallic mining – mining for iron, silver, copper, and zinc. However, a sudden drop in prices led to the abrupt decline of the industry, and Maine did not experience much mining activity until World War II.

In the mid-1970s, however, increased mineral exploration led to the development of several important caches, mainly copper, zinc, and lead. Those deposits have not been mined – yet. Why? The answer is complicated, but it has to do (at least partially) with the Callahan Mine, near Brooksville, ME in Hancock County.  After the zinc and copper mine ceased operation in 1972, the area was found to be contaminated with polychlorinated biphenyls (PCBs), arsenic, and lead, among other heavy metals. The Environmental Protection Agency began a remedial investigation in 2004, with remedial action beginning in 2010. Clean-up is on-going, with passive treatment systems installed within the tailings impoundment and the removal of contaminated soils, either disposed of off-site or placed within a confined aquatic disposal (CAD) cell in another abandoned mine pit (Goose Pond). Full cleanup is expected to cost at least $23 million.

Unfortunately, even though remediation activities are ongoing more than 40 years after the site closed, groundwater at the site is still considered unfit for human consumption, and shore birds and other organisms are at risk. Part of the former mine site is located within the Goose Pond Estuary.

Within this context, the Maine legislature passed mining restrictions in the early 1990s that effectively prohibited metal mining. As a result, any mining activity in Maine was restricted to non-metallic mining (quarrying for rock, for example), at least until 2012.  While there still has been no active metallic mining since the 1990s, there sure has been a lot of activity.

In 2012, the Maine Department of Environmental Protection was directed by the Legislature to “modernize” the state’s 20 year old mining rules.  The new rules consisted of two parts: a section requiring permits for mineral exploration; and a section regarding the permitting process for mining-related activities.  The first part was adopted in 2013, but the second part was not approved by the legislature, hence creating an inconsistency between the existing mining rules and the Mining Act. The result has been a regulatory mess. In May of 2015, the Legislature’s Environment and Natural Resource Committee voted 8-5 to amend these rules again, but the resulting amendment failed to pass the Legislature.  By this time, both pro- and anti- mining positions were firmly entrenched.

Most recently, the Board of Environmental Protection voted unanimously to endorse a new set of regulations.   The proposed regulations attempt to resolve some of the shortcomings that had been pointed out last year. However, questions remain.

As an environmental and natural resource economist, my job is to look at the potential costs and benefits of any proposed legislation.  On the benefits side are the potential jobs and increased tax revenue that could come about from any development. On the costs side, of course, are the possible negative effects on the environment.

Let’s take a look at the benefits side of the equation. Anthony Hourihan, director of land development for Irving (a mining company with interests in Bald Mountain, one of the sites at the center of this debate), suggested that allowing this type of mining in Maine could result in 300 direct jobs and 400 indirect jobs, and a projection of $126 million in state and local taxes. Given that the proposed mining area lies in Aroostook county, an area of the state that experiences chronic persistent poverty and currently has an unemployment rate of 5 percent (as compared to 3.8% statewide and only 3.1% in Cumberland County), that is no small benefit.

But who will get these jobs?  Mining is not primarily a blue collar occupation any more -in fact, writes Phillipe Dolzone , a writer for the Balance, an online financial advice site, “The increasing complexity of the mining process and involved technology nowadays requires a much higher level of skills, including computer literacy.  As a result, most of the mining groups will more likely hire recently graduated students from high school programs in mining or technical school programs.”  Currently, Maine has none of these. So the first step in ensuring these jobs go to locals is to encourage any mining company that wants to establish a presence in Maine to incorporate a local training program, perhaps by partnering with a local Community college or trade school. One of the pitfalls of this “potential jobs” argument is just that- the jobs are potential. The job of a good economic development director is to ensure that those promised jobs do, in fact, materialize.

While a return to the days of mining camps is unlikely in Maine, companies may find it less costly to import talent from elsewhere rather than to foster it locally.  That may also be a boon to the area -if families come to Aroostook county for the mines and decide to stay, that itself is economic development.  It really depends on how long the mining activity is expected to last at a particular site. That,  in turn,  depends on the amount of reserves at the site and the rate of extraction, which in turn is determined by the price of the minerals and the cost of the technology needed to remove them.

That was the easy part. Now to look at the potential costs. Open pit mining,  which is the most common method and that most likely to be used in Maine, has the potential to expose radioactive elements,  as well as potentially contaminate groundwater and surface water. As minerals may be present in small quantities in a geographic area,  large quantities of ore need to be refined to get at it. Contaminants may be released into the water through separation of the minerals from the surrounding rock, where slurry containing mine tailings, water, and pulverized rock (which may in itself contain toxic or radioactive materials) is created. Other potential environmental costs are disruption to ecosystems and endangered species habitat,  large scale water extraction, and erosion.   Finally, some environmental groups have expressed concern that mining activity could affect Maine’s tourism industry.

To minimize these costs (and to maximize net benefit), the tailings or residue from mining activity must be contained and disposed of in a way that doesn’t adversely affect sediments, groundwater or surface water. Much of the waste that is generated is likely to be toxic or radioactive, and so proper disposal is essential.

Likewise, in order to minimize the harm done,  proper siting techniques need to be used. The mine’s footprint, including any access roads, must be sited in such a way that they don’t impact sensitive areas or endangered species habitat, or have the potential to increase flooding,  deforestation,  or erosion.

The biggest issues in the current fight over mining rules in Maine seem to be about both where mining can and can’t occur,  and what safeguards (environmental and financial) are in place to ensure restoration of the site after mining activities cease, as well as to pay for clean up should a disaster occur.

There are potential benefits and costs to mining in Maine.  The job of good policy is to ensure that institutions are in place to maximize the benefits and minimize the costs – as well as to ensure an equitable distribution of costs and benefits.  These include policies on local hiring, training and education, proper siting, and financial safeguards. Only then should each proposal be evaluated on its own merits.

I personally would like to see more economic development in Aroostook County. But only if that development does not come at excessive cost to the environment and to other industry.

What are your thoughts? Post them here!

The Social Cost of Carbon: Implications for Maine (Part II)

The Social Cost of Carbon: Implications for Maine (Part II)

My most recent blog post, “The Social Cost of Carbon: Implications for Maine (Part I),” went into some of the details behind calculating the social cost of carbon – a number that is used to illustrate the economic damages anticipated by climate change and therefore linked to carbon dioxide emissions.
This blog post will be a bit more policy oriented.  Once we arrive at a social cost of carbon, what do we do with it?  How can we use it to reduce the amount of carbon that’s emitted into the atmosphere?

Essentially, there are three policy options to reduce climate change.  One is what economists like to call “command and control.”  This is standard regulation – where each company or industry is given a standard beyond which they are not allowed to pollute.  If they are found to have polluted beyond that standard, they are then (typically) fined a certain amount.

The second and third option are what economists call “incentive-based regulation.”  Rather than give companies or industries a hard and fast limit, this type of regulation gives the regulated community an incentive to reduce emissions.  The incentive could be in the form of a subsidy for each unit of pollution reduced, or, alternatively, a tax system could be put in place.  In that case, the firm’s incentive to reduce pollution is the avoided tax on each unit. (From an economic perspective, there is actually no difference between a tax and a subsidy when it comes to determining the “efficient level” of pollution.  From a political perspective, of course, there is a huge difference.)

A third option is to implement a trading scheme.  The idea is simple: firms are distributed a certain number of permits or “rights” to pollute. (The permits could be initially distributed free of charge, or the permits could be auctioned off.)  Firms that could then reduce a unit of pollution more cheaply than the permit price would do so, and sell the unused permit on the market to other firms that have a more difficult time reducing pollution.  The firm’s incentive to reduce is the price that they get from selling their permit.  Creating a market like this is not without its difficulties, and markets for pollution have met with varying degrees of success.  One pollution market close to home is RGGI, the Regional Greenhouse Gas Initiative, which is the topic of one of my earlier blog posts.  The revenue gained from auctioning off the permits goes to energy-saving initiatives.

One of the major difficulties in both of these is to set the “right” price – too low, and not enough firms will reduce their emissions; too high, and it can create political dissatisfaction and a drag on the economy.  (A side note: unbridled carbon emissions are already creating havoc with Maine’s economy – but that will be the topic of a later blog post.)

A second major difficulty (what I like to call the “liberal’s paradox) is that implementing a carbon price will necessarily be regressive – the burden of the tax will be felt disproportionately among lower-income households.  A price on carbon – whether it’s a tax or a permit system – will raise the price of carbon-intensive goods and services, such as fossil fuels and conventionally-generated electricity.  Low-income households spend a higher percentage of their income on fuel and electricity than do higher-income households.  What to do? It turns out that what you do with the revenue from the tax (“revenue recycling”) can moderate or even negate the regressivity of the tax.

The think tank Resources for the Future (RFF) has published a series of articles addressing this very topic.  I’m going to address three possibilities for revenue recycling.  Two of them have to do with reducing taxes on other things – shifting the burden from taxing economic “goods” (like income and labor) to taxing economic “bads” (like pollution).  (After all, if part of the point of a tax is to alter behavior, why tax good things like income and employment?)  The third has to do with returning the revenue directly to the people.  So I’m going to focus on three alternatives: tax carbon, but lower the tax on labor income; tax carbon, but lower the tax on capital income; and tax carbon, but return the revenue to the people in the form of a dividend or a lump-sum rebate.

RFF analyzed these three alternatives for their impact on different income groups to see which groups were “better off” after the tax and revenue-recycling scheme, and which were “worse off.”  (It’s important to note that RFF did not analyze the effects of reducing carbon emissions – the primary goal of the tax, after all! – on the welfare of each of these groups.  It’s well-known that low-income populations are the most sensitive to climate change, and therefore the group most likely to benefit from a reduction in greenhouse gas emissions.)

What they find, summarized, is this: the labor tax recycling scenario found that almost all groups ended up slightly worse off (the groups’ welfare or well-being declined by less than a half of a percent), but that the highest income group ended up with the biggest decline in welfare.  The capital tax recycling scheme benefited the highest income group, while generating a reduction in welfare for all other income groups of less than one percent.  And the lump sum rebate scheme benefited the lowest income group by more than three percent, while harming the highest income group by almost two percent.  From an efficiency perspective, the capital tax recycling scheme is the most efficient (that is, the policy that “distorts” the economy the least).

I’ll replicate RFF’s graphic here:

Source: 2015. Williams, Roberton C., Burtraw, Dallas, and Morgenstern, Richard. “The Impacts of a US Carbon Tax across Income Groups and States.” Washington, DC: Resources for the Future).

Why such differences?  Largely, it has to do with where individuals earn their income.  Generally speaking, high-income households get a larger percentage of their income from capital (stocks, bonds, and property), while middle-income people rely more heavily on income from labor.  Low-income people typically get a larger percentage of their income from transfer payments, which not only include food stamps and unemployment insurance but also Social Security.  That explains why lowering the tax on capital would exacerbate the regressiveness of the carbon tax, while lowering the tax on labor would be slightly progressive.

What about here in Maine?  I wasn’t able to get data directly for Maine, but only for New England as a whole.  As it turns out, all the schemes end up diminishing the welfare of New England residents, but the lump-sum rebate actually performs the worst.  Why?  The answer mainly has to do with the fact that, overall, New Englanders receive a relatively high percentage of their income from capital as opposed to labor.

How about Maine, though?  Is that the case? Looking at the Bureau of Economic Analysis for 2015, I noticed that Mainers as a whole received about 60% of their personal income from wages and salaries.  An additional 22.5% comes from personal transfer receipts, which include Social Security benefits, medical benefits, veterans’ benefits, and unemployment insurance benefits.  (By far the majority of these personal transfer receipts are retirement income and income from other benefits, excluding unemployment insurance benefits and income maintenance programs such as general assistance.)  A little less than 18% comes from capital and property income.

By contrast, Connecticut receives about 66% of its personal income from wages and salaries, 12.8% from transfer payments, and over 21% from capital and property. This implies that lowering the tax on capital would not benefit the average Mainer as much as the average person from Connecticut – but without doing the calculations, I can’t be sure whether the labor tax recycling scheme or the lump sum dividend would be more or less welfare changing.

Of course, the election on November 8 may have made this a moot point.  Passing a carbon tax (or fee, as some like to call it) has had a difficult time in the past, and the election of Donald Trump has made that possibility more remote.  Any action now is likely to arise at the state level – which is why state level analysis is crucial.  Climate change will likely have a disproportionate effect on those who are least able to protect themselves.  Any actions to mitigate climate change should not increase the injury.

The Social Cost of Carbon: Implications for Maine (Part I)

The Social Cost of Carbon: Implications for Maine (Part I)

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(This will be the first in a series of blog posts on carbon emissions, their costs and implications for Maine, and existing and proposed policy prescriptions.)

Last week, an article made the rounds entitled “the social cost of carbon“. This is of special interest to me right now, because I recently began teaching Environmental Economics at the University of Southern Maine. (Being a professor used to be my full-time job. Now I’m an economic and sustainability consultant, but teaching that class one day a week keeps me up to date on the most recent articles in my field.)

The concept of “social cost” in economics is nothing new, of course.  Economists have long recognized that the production and consumption of certain goods produces negative externalities, or costs imposed on “third parties” who are not directly involved in producing or purchasing that good.  Such externalities can be called social costs, and while it’s difficult to measure such social costs, environmental economists do their best (see, for example, my recent blog post on ecosystem services).

So why this new article on the social cost of carbon, and why is it taking on a new importance now? Because the social cost of carbon has now been upheld by a federal appeals court.

The details of the case are not particularly important for our purposes here. Suffice it to say that, every time a federal agency imposes a regulation, they are required to demonstrate that the benefits of the regulation exceeds the costs.  This particular case was about improving the efficiency of commercial refrigeration equipment.  But if the government (in this case, the Department of Energy) wants to tighten efficiency standards, they need to show that the costs of meeting the new efficiency standards aren’t exceeded by the benefits.

The costs of meeting the proposed standards are relatively easy to calculate. Refrigeration equipment companies might have to use new technologies or inputs, which are presumably more expensive than current methods. But how to calculate the benefits of tighter energy standards?  Enter the social cost of carbon.

The social cost of carbon is, according to the EPA, “meant to be a comprehensive estimate of climate change damages and includes, among other things, changes in net agricultural productivity, human health, property damages from increased flood risk and changes in energy system costs.” Yet the EPA admits that the social cost of carbon does not include all damages, because “of a lack of precise information on the nature of damages and because the science incorporated into these models naturally lags behind the most recent research.”

The economic and scientific calculations that went into arriving at  the social cost of carbon are mindboggling. The estimates used three well-known (well, well-known in certain circles) integrated assessment models that consider the linkages between climate processes and economic growth. These models translate emissions into atmospheric greenhouse concentrations, from there into changes in temperature, and finally from there into economic damages.

It is an ambitious undertaking, and some would say an impossible one. There are so many uncertainties in any step along that chain. For example, the models are ill-equipped to deal with non-linearities or “tipping points.”.  In addition, the damages from an additional unit of CO2 is unlikely to have a linear effect (as a price per ton of carbon would imply), but increase as more carbon is emitted into the atmosphere. Dealing with future costs is difficult as well, as it involves “discounting the future,” a sticky ethical and legal problem as well as an economic one.

I am of the school of thought that “some number is better than no number.” Yes, the social cost of carbon as it stands now is highly imperfect and probably a gross under-estimate of the full social damages caused by a ton of carbon dioxide in the atmosphere.  However, it is better than assigning a cost of zero, which would be the implicit price had the social cost of carbon not been considered.

This blog is supposed to focus on the links between the economy and the environment in Maine. So far this blog post hasn’t done that – but be  patient!. The next blog post will focus on some of the possible solutions in terms of mitigation of climate change via a tax or a trading scheme (specifically for Maine), and the last will sketch out what’s at stake for the state. Stay tuned!

The Price of Everything and the Value of Nothing* – What are Ecosystem Services?

The Price of Everything and the Value of Nothing* – What are Ecosystem Services?

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Photo credit: flickr/bobtravis

In October of 2015, President Obama issued a memorandum directing all Federal agencies to factor the value of ecosystem services into Federal planning and decision-making. That necessarily begs the question: what are ecosystem services, and how are they relevant to the economy in Maine?    

Ecosystem services are the ways in which natural systems provide benefits to human society.  The Millennium Ecosystem Assessment categorizes ecosystem services into four main classifications:  provisioning service; regulating services; cultural services; and supporting services.  Provisioning services is just what it sounds like – physical products provided by nature, such as water, food, and raw materials, among others.  Regulating services are “benefits obtained from the regulation of ecosystem processes,” such as carbon sequestration, water purification, and soil stabilization.  Cultural services are more difficult to measure, from an economist’s standpoint: if the lobster industry were to go into a tailspin, for example, the loss to Maine would be far greater than the lost revenue and income would suggest.  We would also lose part of our culture, history, and identity.   Finally, supporting services are those services that “support” the previous three – such as biodiversity, nutrient cycling, and photosynthesis.

By its nature (pun very much intended!), this is an anthropocentric concept.  Ecologists and others will no doubt argue that nature or natural systems have intrinsic value, even if humans are unaffected by a specific ecosystem’s existence.  I won’t argue with that.  Nonetheless, quantifying and even valuing ecosystem services may be a way of bringing the benefits provided by a well-functioning ecological system into economic decision making.  Otherwise, those services may well be disregarded.

Many ecosystems on which Maine businesses depend are at risk, either through mismanagement, human intervention, or changing weather patterns.  Ecosystem decline can pose a number of risks to businesses in Maine – as well as create new opportunities.

A simple example:  My hometown, Portland Maine, is now home to a burgeoning – and fantastic – micro-brew industry.  Micro-breweries (well, any brewery, of course) rely heavily on clean water, hops, barley and malt in their input process.  These are examples of provisioning services.  Going a little bit deeper, the process also depends upon the regulating services of soil stabilization, climate regulation, water filtration, and pollination. And that’s just in the process of brewing the beer itself.  There are also ecosystem services involved in the bottling / canning of the beer (think raw materials such as aluminum or silica), and in the distribution process. And this is only the input side of the equation.

Identifying the ecosystem services relevant to a particular industry can serve two purposes: to pinpoint areas of dependence upon natural systems in order to better predict trends that may affect that industry in the future (certain hops-growing areas may be impacted by changes in growing conditions, for example); and to highlight the value of functioning ecosystems as a part of an industry’s supply chain.  Once that value is recognized, the industry might see their own self-interest in managing those ecosystem services, so as to minimize their vulnerability.

So how do you assess your organization’s exposure to and dependence on ecosystem services?  There are basically five steps to an ecosystem services review, according to a report by the World Resources Institute, the World Business Council for Sustainable Development, and the Meridian Institute.  These steps are: selecting the scope, identifying the priority ecosystem services in your supply chain, identify risks and opportunities, and develop strategies for addressing them.  (These guidelines are for businesses, but they can be used to analyze exposure to and dependence on ecosystem services for government, municipalities, and non-profits as well.)

Well, that’s all very interesting, you might say, but how does it affect me, or businesses and organizations in Maine?  Here’s my thought: if the White House is directing all Federal agencies to incorporate ecosystem services into decision-making, how far behind can states (at least the more forward thinking ones) be? Massachusetts already has a Division of Ecological Restoration.  What about EPA regions? And once “ecosystem services” become a household name (OK, maybe a boardroom name), then the first movers, early adopters, and visionaries better be prepared.

What are your thoughts?  Post them here, email me at rachel@rbouvierconsulting.com, or visit my website at rbouvierconsulting.com.  You can also like my Facebook page, here, or connect with me on Linkedin, here.  Thanks!

*apologies to Oscar Wilde!

 

Woody Biomass: One step forward, two steps back?

Woody Biomass: One step forward, two steps back?

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Last week I was a guest in my colleague’s Renewable Energy Law class.  One of the questions I was asked had to do with Maine’s Renewable Portfolio Standard (RPS).  Maine’s RPS seems, at first glance, to be an ambitious goal (40 percent of Maine’s electricity is to come from renewable sources by 2017). However, at the time the RPS was made law, Maine was already mostly meeting that goal, thanks to Maine’s booming woody biomass industry. 

Other states in the New England Power Network can help fulfill their own RPS by purchasing renewable energy certificates (RECS) from other states in the network.  If a particular unit of energy is produced by a renewable source, that unit of energy could earn a REC, which could then be sold elsewhere.  However, even though every state in New England has a RPS (except Vermont, which has a goal), they don’t all accept the same types of energy for their RPS. Hence, there are some RECS that can be sold in some states, but not others.

Maine is the only state in New England that accepts biomass and large scale hydro to help fulfill its RPS. Therefore, any biomass facility that produces RECS can only sell them in Maine. In a report that came out detailing the performance of Maine’s RPS during the past year, a good 95% of the  Maine RPS was met through RECS generated from biomass.  And the fact that biomass credits can only be sold in Maine will depress the price of those credits -leading to less revenue for those facilities.

Which lead to one of the students’ questions: why don’t the other states accept biomass?  It’s a good question.  Leaving aside the (obvious) conclusion that Maine accepts biomass as an energy source in order to prop up its ailing wood products industry, why would other states not accept it? Isn’t biomass a renewable source of energy? And isn’t it carbon neutral ?

The answer, as any good economist knows, is “it depends.”  (My father used to say -paraphrasing Harry Truman – that what the world needs is a one-handed economist, because we’re always saying ”on the one hand….  But on the other hand…” ) Biomass is certainly a renewable source, in the strict physical sense that the “fuel” used – plant matter – is renewable.  The time it takes to regenerate, of course, depends on the growth rate of the plant matter used.

But there’s also no escaping from the grim third law of thermodynamics – that matter (or energy) can neither be created nor destroyed.  It takes power to make power.  How efficient the energy source is depends upon the energy content of the fuel and the energy used up in the process of making it.  Think lifecycle analysis.  If a unit of energy generated requires two units of energy in order to generate it, then that source isn’t really renewable – is it?

UPDATE: As my colleague Bill Strauss of FutureMetrics points out, “Every solid or liquid fuel whether coal, pellets, gasoline, diesel, natural gas, etc., gathers a carbon footprint from mining, extraction, refining, transport, etc.  Only biomass, if the net carbon stock is not depleted (i.e., the growth rate equals or exceeds the harvest rate), captures the CO2 from combustion contemporaneously…  Wood pellets are a low carbon solution… they are carbon neutral in combustion but are not carbon neutral over the supply chain.  Of course neither is anything else that depends on fossil fuel for transport etc.”

Absolutely, Bill, and thanks for that. (So people actually do read this stuff…) Check out their website!

Biofuel can be made from a number of things: corn, switch grass, trees, wood  manufacturing waste, to name a few.  And there are a number of ways biofuel can be produced – burned, fermented, digested by bacteria, or “gasified.”  The energy content of the fuel as well as the energy input needed vary widely for each process. 

As for whether it’s carbon neutral – well,  anyone who makes that claim is doing some pretty funky carbon accounting.  In the sense that the carbon released when the tree is burned is the same amount of carbon that was “stored” in the tree – then yes. But what about the carbon used in harvesting the tree?  Getting it to the processing site,  and from there to where it will ultimately be used? There’s also the fact that trees uptake carbon at different rates in their lifecycle, and that different species of trees uptake carbon at different rates. So for it to be carbon neutral, the net stock of carbon in the forest needs to remain unchanged. It’s possible, but it’s not as simple as “cut a tree, plant a tree.”

What about the claim that it’s sustainable? Again,  it depends.  If the trees are harvested at the same rate they regenerate, then yes. And, Maine’s biomass is mostly from residue from the forest products industry, so the use of waste product for energy gets a thumbs up in my book.

Recently,  two major biomass facilities in Maine went offline,  alarming the logging industry and others in the forest products supply chain. It also should alarm environmentalists.  The decline in oil prices has not only boosted demand for oil,  but depressed demand for biomass and other renewable sources of energy. Biomass may not be a perfect source of energy,  but it needs to be part of the energy solution in Maine.