Category: Uncategorized

Quarterly Journal Reviews

Quarterly Journal Reviews

1. Economic valuation of green and blue nature in cities: A meta-analysis

Marija Bockarjovaa, Wouter J.W. Botzena, Mark J. Koetse

Ecological Economics 169 (2020)

Environmental economists have long maintained that nature and the ecological services that nature provides are vastly undervalued. This undervaluation of “natural capital” relative to other types of capital is one of the primary drivers of environmental damage.  But getting the prices right – putting a “value” on the environment – is not an easy thing to do well. Many times we rely on complicated statistical models (see below) to attempt to  “tease out” the value that people put on the environment by looking at their actions, or by their responses to carefully designed surveys.

Environmental economists have been relying more and more in recent years on a methodology called “benefit transfer.” Essentially, this is a method by which the value of a certain environmental good or service in one area is simply applied (transferred) to another area. While easier and certainly cheaper, there are serious methodological concerns about the technique.

One way of circumventing some of those difficulties is to use a method called meta-analysis – whereby many different environmental valuation studies are brought together in one large dataset and analyzed for any statistical regularities. This particular study examined 60 such studies worldwide, focusing on the economic value of nature in cities, to determine characteristics that are associated with either a higher or lower stated value.

The authors find, not surprisingly, that an area’s average income level is associated with a higher stated value. “The interpretation is that natural areas in regions with a 1% higher income have a 1.4 to 1.5% higher value.” They also find that areas with a higher population density also have higher values.  Secondly, the authors look at the vehicle through which the value is elicited- in other words, whether the survey respondent was asked to value urban nature through a tax, an entry fee, or a donation to a fund. Interestingly, results demonstrate that “nature values elicited by means of a tax as a payment vehicle were systematically valued lower compared to values elicited by means of other payment mechanisms, such as an entry fee or a donation to a fund.” Finally, the authors examine different types of urban green space, and find that parks are the highest valued type of urban greenspace, followed by “blue sites” (Iakes, rivers, ponds, etc.).

2. Who Cares? Future Sea Level Rise and House Prices Land Economics • May 2020 • 96 (2): 207–224

Olga Filippova 

Cuong Nguyen 

Ilan Noy 

Michael Rehm

Does the finding that a property is at risk from sea level rise lead to a decrease in property value? This article takes advantage of a unique case study in New Zealand to address that question. In 2012, the Kapiti Coast District Council produced and published detailed projected erosion risk maps. The Council then notified property owners in areas deemed to be at risk, and placed that information on memorandums that were then made available to every potential property buyer. Later, in 2014, the council had to remove the maps from online access, due to the actions of a small but vocal group of property owners worried about the effect of the information on property values. These events set up a perfect experiment for the researchers, as they could compare property values and sales during the time that the information was made available to the period when it was not. 

After conducting the analysis, the authors conclude the following: “Overall, given the known hazard risks, buyers are still willing to pay the same premium for these coastal properties, and appear to largely ignore the new information they received in 2012. In short, the erosion risk information being placed in the LIM reports seems to have had little effect on property pricing.”  While this effect may seem counter- intuitive, it is actually consistent with other studies examining the effect of what is seen as a risk in the distant future. While other studies have found that current flooding affects property values, people react less strongly to threats that are seen as hypothetical or occuring in the distant future. 

3. Legacies of Lead: Estimating Home Buyer Response to Potential Lead Exposure

Nicholas B. Irwin Land Economics • May 2020 • 96 (2): 171–187

Much like the previous study, this study examined the effect of a potential environmental threat – this time lead exposure – on property values. In this study, however, the author found that houses most likely to contain lead and located in areas that had been labeled “at risk” by the state of Maryland experienced a substantial price penalty of 7.7%. Using sophisticated statistical techniques, the author was able to determine that the price penalty was “attributable solely to the information about potential lead exposure,” not to other characteristics of the property or the area. Furthermore, the author found that the negative effect persisted and actually became stronger over time.

The author also found evidence that neighborhood composition shifted following the implementation of the program, “with a decrease in the number of white mortgage applicants in at-risk areas and an increase in the spread of incomes for all mortgage applicants.” The author then warns of the unintended consequences of such a program, noting:

“the goal of the policy was to prevent childhood lead exposure by coarsely targeting potential lead risk areas, which shifted home buyers’ perceptions of risk based on an entire area’s designation as a risk zone. This then capitalized in the form of lower house prices for houses located in the at-risk areas most likely to contain lead, which, in turn, altered said neighborhoods as they became less attractive to some while becoming more affordable for others. These changes in neighborhood composition could be leading indicators for longer-term cycles of neighborhood decline due to a perceived stigma of living in an at-risk area.” 

These findings have clear implications for environmental justice, and point to the need to think carefully about the unintended consequences of a program such as this one. Yes, residents should be made aware of the potential risks of the area in which they live; but the policy also may have created a situation where some individuals were able to escape that risk, while others may have been forced to accept a tradeoff between homeownership and increased environmental risk.

Resilience in the Age of COVID-19

Resilience in the Age of COVID-19

An example of climate change resilience planning chart

In our field, the term “resiliency” is typically thought of as resiliency to climate change . However, economic resiliency can also be resiliency to any sort of disaster – economic, human- caused, or “natural”. Economic resiliency or an economic resiliency study (sometimes called a vulnerability assessment) involves taking a good hard look at your community or your company, its strengths and weaknesses, and the connections between its various parts. If one part of the system breaks down, what are the impacts of that on the larger system? If one component is particularly vulnerable to an outside threat, are there alternatives if (when?) disaster strikes?

COVID 19 is making these vulnerabilities abundantly clear. Although vulnerability to climate change and vulnerability to a pandemic are different threats, , they involve some of the same basic questions. A closer look actually reveals some connections between the two seemingly different issues. 

For example, let’s look at why the United States has had such a difficult time rolling out adequate testing. Yes, the capacity is there, as the federal government has said, but the theoretical capacity is different from the actual ability to complete the entire sequence of events from start to finish. It actually is a good case study that illustrates the connections between public health, supply chains, and climate change.

Let’s start by looking at the chain of events that has to take place in order to carry out a successful testing regime. Yes, we need to have a lot of tests available -and we need to have a lot of medical personnel able to administer those tests. Most tests are administered via a swab that is inserted in the patient’s nose to where the nasal passage intersects the back of the throat, meaning we need to have an adequate number of specialized swabs available. After the specimen is obtained, the swab then needs to be transported in sterile saline  to a lab for analysis. Once at the lab, there needs to be an adequate amount of materials to run the analysis, including chemicals, machinery, and people. Only then can the results be made available. Looking at the chain of events and the things needed for each event to occur can reveal a lot about the vulnerability of a system. A chain is only as strong as its weakest link, as the maxim goes.

Remember Hurricane Maria? Hurricane Maria savaged Puerto Rico in 2019. It turns out that most of our country’s manufacturing of saline and saline bags is located on the island. The testing swabs mentioned in the previous paragraph need to be stored in saline in order to be transferred to a lab for testing. While health economists highlighted this weakness in the medical supply chain during the flu season of 2018, it was not adequately addressed.

 This example underscores the idea that analyzing vulnerability to an unexpected event – whether to a hurricane or a pandemic – follows the same formula: Vulnerability = exposure times probability times impact. It also highlights the fact that vulnerability to one disaster (hurricanes) can exacerbate vulnerability to another ( a pandemic).That vulnerability can have serious economic implications, as we are finding.

Our next blog post will be on economic vulnerability to COVID-19, and the way communities can build resilience.

Black Lives Matter

Black Lives Matter

Black Lives Matter

When talking about sustainability we often use the metaphor of a three legged stool.  We take great pains to explain how each leg – economic, social, and environmental – is essential to ensure that the stool will hold the person who sits on it. The person in this metaphor is us, human beings and the world we live in.

If these three pillars are the stool’s support, justice is the glue that holds them together. Without justice the stool will not stand. If we take an honest look at the sustainability table we are all gathered around, the faces are mostly white, and there is no place to sit.  

This is not new. Racism is present in every aspect of our culture. Our own movement of environmentalism has a history that is rooted in racism

The death of George Floyd at the hands of Minneapolis police officers has placed our failures as individuals, and as a culture, before us. We can’t deny the lack of justice in our country.  We can’t claim to be working towards a more sustainable world and turn away. 

As a company and as individuals we support and stand with Black Lives Matter.  We acknowledge our own shortcomings, our own biases, and our own culpability in the unjust society that privileges us at the expense of others. We are committed to educating ourselves, to investigating the consequences – intentional and unintentional – of our actions and the policies we support, and to emphasize the essential role of justice and equality in working towards a more truly sustainable society. 

Resources:

Black Lives Matter

Environmentalism’s Racist History

How Sustainability Professionals can Uplift the Black Community

Third Quarter Journal Reviews

Third Quarter Journal Reviews

1. Can proximity to urban green spaces be considered a luxury? Classifying a non-tradable good with the use of hedonic pricing method Edyta Łaszkiewicz⁎, Piotr Czembrowski, Jakub Kronenberg  Ecological Economics 161 (2019) 237–247

In this article, the authors examine apartment rents in Lodz, Poland, to see whether proximity to “green space” (defined as parks, forests, cemeteries, and allotment gardens) could be considered a luxury good, by which the willingness to pay increases disproportionately as income increases. The authors examined how apartment rents varied according to distance to green space, while controlling for other factors such as square footage and other characteristics. Results demonstrate that proximity to parks and forests has a positive effect on apartment rents – in other words, the closer the park or forest, the higher the apartment rent. However, the results demonstrated that proximity to cemeteries has a negative effect on apartment rents. Although the authors did not discuss this, there is an environmental justice component at play here – if proximity to urban green space is considered a luxury good, then low-income housing is likely associated with a lack of urban green space.

2. From supply to demand factors: What are the determinants of attractiveness for outdoor recreation? Lea Tardieua, Laetitia Tuffery  Ecological Economics 161 (2019) 163–175

Sites such as national parks and other outdoor recreation parks must pursue the dual goal of environmental conservation and attracting recreation.   Managers of such sites constantly face the challenge of increasing visitors without destroying the attributes that appeal to such visitors in the first place.  However, models that predict how attractive a site is to recreation are typically different from those that predict how ecosystem services vary by site. Because of this, it is difficult for managers to evaluate land use tradeoffs. The authors of this study combine data on visitation to a national park in France with spatial data showing characteristics of the specific areas that were visited, and simultaneously relied on a model that predicts habitat quality (the InVEST software). The authors find a negative correlation between the attractiveness of a site to recreation and habitat quality, implying that the two goals (increasing recreation and preserving biodiversity and habitat quality) are at odds. This is not terribly surprising. However, the integration of the economic “travel cost” model with the habitat quality model may be helpful to evaluate the trade-offs arising from land use change proposals.

3. Microclimate effects of wind farms on local crop yields Daniel T. Kaffine Journal of Environmental Economics and Management 96 (2019) 159–173

In Maine, as well as in other states, the possibility of using wind farms to generate more renewable electricity has become a key strategy in mitigating climate change. In many cases, wind farms are sited on agricultural farms as a possible added source of income to farmers. However, one of the possible externalities of wind farms – the effect of wind farms on crop yields – has not been much studied in the economics literature. This article examines microclimate effects: the changes in local temperature, moisture, and carbon dioxide concentrations due to “vertical mixing, turbulence, and wakes created by wind turbines that extend well-beyond their local footprint” (p 159). The article itself is fascinating – describing the scientific microclimate effects of wind farms and their resulting effects on crop yields (soy, wheat, corn, hay, and wheat). Fortunately for advocates of wind power, effects of wind farms on crop yields are either positive (in the case of corn, soy, and hay) or statistically insignificant (in the case of wheat). 

4. The effects of recreational cannabis legalization on forest management and conservation efforts in U.S. national forests in the Pacific Northwest Mark Klassen⁎,1, Brandon P. Anthony Ecological Economics 162 (2019) 39–48

A fascinating and timely study, this article considers the effects of recreational marijuana legalization on forest management and conservation efforts.  The authors point out that illicit drug crop cultivation has actually been identified as a “major stressor impacting the management of public lands,” as over half of the marijuana plants eradicated in 2008 had been grown on public lands. The environmental impacts of such illegal cultivation has led to removal of native vegetation, diversion of natural waterways, agro-chemical pollution, and littering. Furthermore, safety concerns organized crime syndicates had made it difficult for national forest employees and researchers to pursue management goals. Finally, the US Forest Service had to spend resources on monitoring and enforcement, meaning that they could not devote those same resources to other pursuits. The authors attempted to discover whether the legalization of marijuana had reduced the amount of illegal grow sites, which in turn would reduce both environmental and safety concerns. They conclude that “the legalization of recreational cannabis is significantly correlated with a reduction in the annual number of discovered grow sites in national forests in Oregon, while found insignificant in Washington (47).”

2019 Second Quarter Journal Reviews

2019 Second Quarter Journal Reviews

Measuring Willingness to Pay for Environmental Attributes in Seafood

Hilger, J., Hallstein, E., Stevens, A.W. et al. Environ Resource Econ (2019) 73: 307. 

We found this article very interesting because of our recent work with CEI on growing farmed scallop in Maine.  Most research suggests that consumers are willing to pay for environmental attributes (like sustainable harvest) in seafood, but the majority of that research are stated preference, rather than revealed preference, studies. In other words, they are studies of what consumers say they’re going to do, rather than studies of what consumers do.  It is more difficult to design a controlled experiment that adequately captures consumers’ actual behavior than it is to design a survey! This article uses a “natural experiment” by which the researchers compared sales of seafood before and after a sustainability labeling scheme (using red, yellow, and green labels) was implemented. The researchers found that consumers did express preferences for wild-caught versus farmed seafood, US-caught versus no-US caught seafood, and selective harvest methods to less selective harvest methods. Another interesting aspect of this paper is the discussion of the yellow label, which was described as “proceed with caution” on the label but actually meant that not enough information was available to make a final decision. Consumers seem to have responded to this ambiguity by substituting away from this alternative altogether.

Do energy efficiency standards hurt consumers? Evidence from household appliance sales.

Journal of Environmental Economics and Management

Volume 96, July 2019, Pages 88-107

Arlan Brucala; Michael J.Roberts

In yet another article investigating policy and its effect on consumers, this article looks at Energy Star ™ labels on washers, dryers, and air conditioners, and the effect of those standards on prices and consumer behavior.  Contrary to expectations, the authors find that stricter standards increase consumer welfare, by encouraging substitution towards more durable and energy-efficient goods.        

Urban afforestation and infant health: Evidence from MillionTreesNYC

Journal of Environmental Economics and Management

Volume 95, May 2019, Pages 26-44

This is a fascinating study of the effect of planting trees on infant health in urban areas. Whereas most of the literature on the positive effect of trees on health looks at the effect of proximity to green space on health, this article takes advantage of the MillionTreesNYC program in New York City to study the effect of planting trees on infant health. The authors use a database from the US Centers for Disease Control to compare the health of infants born to women in New York City to those born to women in similar areas where no afforestation occurred.  They take advantage of several cutting-edge statistical methodologies to control for confounding factors, such as socio-demographic factors. Their findings imply that a twenty percent increase in in urban forest cover (such as occurred under the program) decreased prematurity and low birth weight among mothers in New York City by 2.1 and 0.24 percentage points, respectively, relative to similar mothers outside of NYC. While this doesn’t seem like much, the difference in low birth weight is equivalent to that of a mother who doesn’t smoke to a mother who smokes two cigarettes a day during pregnancy. The effect seemed to be greater among African American women, indicating that urban afforestation may be significant equity effects as well.

The Buzz About B-Corps: Triple Bottom Line Accountability

The Buzz About B-Corps: Triple Bottom Line Accountability

Triplebotline [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)]


For generations most companies have measured their success or failure by the amount of profits and losses they experience.  This is in part because financial gains and losses are easy to quanitfy, but also because legally a company owes a fiduciary duty of care to its stockholders, and must weigh stockholder impact when making corporate decisions.  That impact is generally measured in dollars and sometimes is taken to the extreme of “maximizing shareholder value” above all else.  Publicly held companies, companies that sell stock to the general public, are required to prepare annual reports that contain these gains and losses and file those reports with the U.S. Securities and Exchange Commission (SEC).  Most companies also issue a similar report for their stockholders and prospective investors. 

But business is changing, and more and more companies are seeking to measure their achievements in a manner that considers more than just how much money they make; they want to include their social and environmental impact as part of their success too.  In a business world where the common approach is to increase profit and maximize the benefit to your stockholders, and in some cases face stockholder lawsuits for NOT doing this, how can you find a way to include your social and environmental impacts as part of your bottom line reporting?

Enter the benefit corporation and Certified B-Corporations (often abbreviated to B-Corp).

Benefit Corporations and Certified B-Corps came into existence to help companies that want to take a triple bottom line approach to how they do business and how they report on their success.  Benefit Corporations and Certified B-Corps are often thought to be the same thing, but there are some important differences.

Benefit Corporation

A benefit corporation is a company that has legally incorporated as a benefit corporation in their state.  Currently 34 states allow for companies to file as benefit corporations; a few of these states allow for benefit LLCs as well.  If your state allows benefit corporations, you file to become one in the same way you file to become a traditional corporation.  But what exactly is the difference between a benefit corporation and a traditional corporation? 

When you file as a benefit corporation your legal obligations and duties are expanded to include the company’s impact on society and the environment.  It allows company decision makers to take actions that might create a greater benefit to society or lessen the company’s impact on the environment even if those actions reduce company profits or shareholder value.  Company decision makers are protected from potential shareholder claims when the company takes such actions.

Benefit corporations publish annual reports just as traditional corporations do, but they don’t just report on the financial bottom line, the company’s social and environmental impacts are reported as well. 

Certified B-Corp

You may have seen the Certified B-Corporation logo popping up on websites, product labels, and office front doors in the past few years.  The Certified B-Corporation came into existence to provide a way for those in states that do not currently have the option of incorporating as a benefit corporation to be able to “consider the impact of their decisions on their workers, customers, suppliers, community, and the environment” in addition to the financial impact.

The certification is issued by the non-profit B-Lab.  Companies who wish to become Certified B-Corporations must apply via the bcorporation.net website.  They undergo a review to assess the company’s impact on “its workers, customers, community, and environment.”  If the company scores high enough on its review, they must then agree to transparency by making the report available on the B-Corp website.  Finally, they must take the step of amending their bylaws, or other legal governing documents, to “require their board of directors to balance profit and purpose” when make decisions. 

The B-Corp website states that there are currently 2,500 Certified B-Corps around the world.  There are many companies that are both benefit corporations and Certified B-Corps.  Having the third-party B-Corp certification can demonstrate that a company is not just paying lip service to triple bottom line accounting, but is actually actively pursuing a more sustainable way of doing business.

Benefit corporations and B-Corp certification provide triple bottom line minded companies with a way of doing business that is in alignment with their purpose.  Putting society and the environment on par with profits creates new avenues for such organizations to measure their success.  The transparency required provides consumers and investors with the information they need to make decisions on which companies are in line with their personal values.  In the end, having more companies that take a triple bottom line approach to doing business benefits us all.

Costly Change to Mercury Emission Standards

Costly Change to Mercury Emission Standards

On December 28, 2018, the Trump administration announced that the Mercury and Air Toxic Standards (MATS) that restrict mercury emissions were too costly and without enough benefits to make them necessary. Those in favor of the restrictions argue that the real cost comes from changing the standards.

Why is mercury an issue?

Mercury is a heavy metal that is released into the atmosphere from a variety of sources, with coal burning power plants being one fo the primary sources.  Once mercury is released into the air, rain and snow send it to the waterways, where it converts to the toxic methyl mercury. From there, it contaminates the water we drink and begins to work its way up the food chain beginning with smaller fish and accumulating at higher amounts in larger fish, such as salmon or tuna exposing humans to further risk.   

Difference in cost-benefit analysis

The debate about the restrictions e. centered around the cost-benefit analysis of MATS, and specifically around what should be considered a co-benefit.

The original analysis issued by the EPA  in 2011 factored in the co-benefits [JG1] of reducing particulate matter (PM) as well as the direct benefit from cutting back on hazardous air pollutant (HAP) emissions. In this analysis, the projected health savings were $59 billion to $140 billion annually. This more than offset the estimated $10.9 billion annual cost of regulating emissions.

Some of the health benefits identified include preventing:

  • 6,800-17,000 premature deaths
  • 120,000 cases of aggravated asthma
  • 850,000 days of people missing work
  • 5.1 million days of restricted activity

In 2018, though, the Environmental Protection Agency (EPA) produced a Supplemental Cost Finding proposing that including co-benefits related to PM is flawed, and the analysis should only consider quantifiable benefits from HAP reductions.

Using this revised approach, the health-related co-benefits would only be $4 to $6 million annually. Compared to the billions needed to enact the regulations, the new finding claims that it is not “appropriate or necessary” to regulate emissions, since it’s not cost-effective.

The proposal also indicates that while there are other benefits, they are unquantified and not enough to support the stricter standards.

Timing and intent

One of the surprises of the revised analysis is the timing. When MATS was passed, facilities had up to 5 years to meet the standards. This means that the majority have already paid to install the necessary technology to reduce emissions. Changing the standards now won’t give them that money back. On the other hand, many utilities are already recouping their investment through regulated pricing.

This has raised some questions about the intent of the supplemental analysis and who would benefit from the change.

Benefiting the coal industry

Power plants are the primary source of most pollutants, and within the power sector, coal-fired plants produce 99% of mercury emissions. They also generate the majority of other pollutants. As a result, they’re the most impacted by MATS.

Those coal plants would therefore stand to gain the most. It’s uncertain how helpful this would be, however, given that coal-fired power generation has fallen more than 40% since 2007.

Opening the door to health problems

Changing the cost-benefit approach could set a dangerous precedent. It could set a new standard the way health benefits are considered for all future standards and environmental rulings. Such a change is significant because of the potential damages.

Mercury is a neurotoxin that can damage the brains and nervous systems of unborn babies and young children. As a result, consuming fish with high mercury levels can cause serious harm, especially for children, nursing mothers, and women who are pregnant or might become so. The EPA estimates that each year, more than 300,000 newborns may have a higher percent of learning disabilities due to mercury exposure.

Other health impacts can affect all ages and include damage to the brain, heart, kidneys, liver, and immune systems. This can lead to muscle weakness, loss of peripheral vision, lack of coordination, speech impairment, and impaired hearing and walking.

Mercury is widespread – including in Maine

What makes the health implications even more worrisome is that mercury is widespread, and it lingers for a long time. A study by the EPA in 2009 found that 48% of lakes and reservoirs nationwide had levels of mercury exceeding the guidelines (0.3 parts per million).

Maine is far from immune, since prevailing winds bring mercury emissions from coal-powered plants in the west. The state of Maine already warns people that due to pollutants, they should not have more than two servings of fresh-caught fish per month, depending on where fish are caught.

But restrictions on mercury emissions have been making a difference. According to research done by Nicholas Fischer of Stony Brook University in New York, mercury has been decreasing in the Gulf of Maine. This has also led to lower levels of mercury in tuna, declining at the rate of 2% per year.

Rolling back standards has potential for increased costs in several areas

Those gains would likely be lost, though, if the new proposal goes through. Also, while the coal industry might have a reduction in costs, other sectors – such as recreation, education, and employment – could see higher costs.

For example, the original cost-benefit analysis pointed to 5.1 million days of restricted activity due to emissions. Those impacted won’t be out skiing, hiking, hunting, or fishing, something that hurts states like Maine who have economies that are dependent upon eco-tourism.

The cost impacts on  education is another factor. Mercury negatively impacts the brainmdevelopment of young children who are exposed to it; children effected by mercury exposure will need extra care and support in educational settings. According to the National Education Association, a  student who needs this sort of assistance can cost $9,369 more to educate than a student who does not need assistance.

When  these students become adults, their opportunity for employment and earnings will likely be   reduced by those early health impacts.

Mercury levels also have implications for the fishing industry. Bluefin tuna are only now beginning to make a comeback after conservation efforts. They’ve recovered enough to allow some fishing in the Gulf of Maine, including an 801-pound catch in 2018. Ttheir economic impact is considerable. In 2013, a single bluefin sold for more than $1.75 million at a Japanese auction.

Unfortunately, these tuna are also likely to have elevated levels of mercury, especially if emissions increase. If the fish become more dangerous to consume, they’ll be less viable in the Maine economy.

Additionally, mercury has a negative health impact directly on fish. Elevated mercury levels can slow growth and development in wildlife and fish, and reduce their rate of reproduction. That doesn’t bode well for an economy that relies heavily on fishing and brought in $616.50 million in 2015.

Conclusion

Although the health benefits from reduced emissions are not easily quantifiable, they are still significant and shouldn’t be discounted. It also seems counter-productive to remove standards when the costs of implementing them have already been paid. The Trump administration would do better to leave the standards in place so the people of Maine, and the rest of the country, can enjoy the benefits.


 [JG1]Define co-benefit 8

France’s Yellow Vest Riots: Death Knell for a Carbon Tax?

France’s Yellow Vest Riots: Death Knell for a Carbon Tax?


By the time this blog post comes out, the “yellow vest” riots in France may be old news. But this fall, people took to the streets of France, seemingly angered by a proposed fuel tax. Opponents of carbon taxes were quick to declare victory: if France, a country with a fairly liberal (in the American sense of the word) populace, reacted with such anger to a proposed carbon tax, then clearly it is not a sound policy.

Not so fast. As any student of political science could tell you, context matters. France’s president, Emmanuel Macron, was fairly unpopular among certain groups before the tax was proposed. Part of this was class based: Macron is seen by some as the “president of the rich,” partially due to the repeal of a tax on the very wealthy, which only served to stoke already simmering class resentments. The proposed fuel tax would have hit low-income rural voters the hardest, a constituency that was already smarting under an oil tax that Macron had implemented earlier in the year. If Macron hadn’t already angered that constituency, would the riots have occurred? It’s hard to say. France, after all, is a party to the Paris accord, and Macron was elected in part based on his promise to do something about climate change.

Secondly, not all carbon taxes are created equal. The proposed policy in France took the shape of a fuel tax, one that would have increased the already high price that French consumers pay at the pump. A certain amount of an increase in fuel price is pretty much unavoidable. As greenhouse gases are formed by the combustion of fossil fuels, policies to reduce the use of those fuels is naturally going to impact, in one way or another, the users of those fuels. But the proper design of such a policy could help lessen their impact.

Carbon taxes can be placed at several different places in the “life” of a carbon atom. A tax on gasoline, which is what France proposed, is placed at the very end of the production and consumption process. It would affect low income and rural consumers more heavily, because those users consume disproportionately more gasoline. (Macron didn’t help his case by suggesting that rural folks carpool more often, displaying a serious misunderstanding of the lives of his rural constituents.)

Other forms of a carbon tax could be imposed (at least theoretically) during the extraction process: i.e., when the fossil fuel is extracted from the earth. In France, however, there is very little oil and natural gas production. Most of France’s energy comes from fossil fuel free nuclear power. While that means that France’s energy sector is much less carbon intensive than other countries’, it doesn’t leave them much wiggle room to reduce emissions elsewhere.

Thirdly, the way the revenue from the tax is “recycled” matters.  By recycling the revenue and returning it to households in some way, governments can reduce the regressivity of the carbon tax. Current proposals include reducing the payroll tax, reducing the capital gains tax, or simply returning it to households on a per person basis, much like the Alaskan Permanent Fund.  You can read more about revenue recycling in our earlier blog post.

The difficulty is that such schemes are complicated, and hard to explain to the general public. Add that complexity to Macron’s apparent communication problems, simmering class resentments, and increasing economic stress, and you have a problem. But don’t assume that all carbon taxes are politically infeasible. Like most other policies, they need to be designed – and communicated – effectively.

Image: Lionel Allorge [GFDL (http://www.gnu.org/copyleft/fdl.html), CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0) or FAL], from Wikimedia Commons

2018 Fourth Quarter Journal Reviews: Property Values

2018 Fourth Quarter Journal Reviews: Property Values

Property Value Impacts of Wind Turbines and the Influence of Attitudes toward Wind Energy

Richard J. Vyn

Land Economics, Volume 94, Number 4, November 2018, pp. 496-516 (Article)

This article uses a hedonic analysis to investigate the effect of wind turbines on property values, and whether that effect seems to differ between communities that are opposed to wind power, versus those that support it. Past studies investigating the effect of wind turbines on property values have been mixed, with some studies showing negative effects, while other studies show no effects. This study hypothesizes that there may be other characteristics of the communities that influence any property value effects. Results indicate that property value impacts in communities that were opposed to the wind farm prior to construction were greater than those in communities in which no prior opposition was found. The author concludes that turbine impacts in a jurisdiction “may be influenced by attitudes toward wind energy in that jurisdiction, and that public perception regarding wind energy and its potential impacts is a prominent contributing factor to the nature of observed impacts on property values.”

Rising sea levels and sinking property values: Hurricane Sandy and New York’s housing market

Ortega, Francesc and Taṣpınar, Süleyman, 2018.

 “Rising sea levels and sinking property values: Hurricane Sandy and New York’s housing market,” Journal of Urban Economics, Elsevier, vol. 106(C), pages 81-100.

This paper analyzes the effects of Hurricane Sandy on the New York City housing market from 2003-2017. Their results indicate a persistent negative effect among properties within the flood zone that had not been damaged by the storm. In contrast, properties that had been damaged by the storm suffered an immediate negative price effect that was up to three times as great, followed by a gradual convergence to the level of nondamaged properties. The authors conclude that the housing market in New York City has been affected by greater awareness of flood risk following Hurricane Sandy.

Mercury pollution, information, and property values

Chuan Tang, Martin D. Heintzelman, Thomas M. Holsen

Journal of Environmental Economics and Management 92 (2018): 418-432.

Continuing our property value theme, Tang et al. investigated the influence of mercury pollution on property values, as an implicit value of mercury pollution reduction. They looked at approximately 83,000 property transactions in New York State over a 9-year period.  Results demonstrated that property values within one mile of a lake for which an advisory had been issued were 6-7 percent lower than similar properties surrounding a lake for which no such designation had been made. Their results “can serve as a partial indication of the benefits of the Mercury and Air Toxic Standards (MATS), which includes the first mercury emission standard in the United States.” It’s worth noting that the Environmental Protection Agency is currently reviewing a proposal that could undermine the MATS.

Eliciting preferences for urban parks

Toke Emil Panduro, Cathrine Ulla Jensen, Thomas Hedemark Lundhede, Kathrinevon Graevenitz, Bo Jellesmark Thorsen

Regional Science and Urban Economics Volume 73, November 2018, Pages 127-142

Yet another article investigates the effects of urban parks on adjacent property values.  The authors estimate residents’ willingness to pay for park availability in Copenhagen, Denmark, by investigating the effects of distance to a park and park density on apartment rents.  The authors claim: “‘Parks provide recreational opportunities for urban residents and visitors. Urban green spaces furthermore provide climate regulation functions, harbor biodiversity and provide other ecosystem services… However, in the absence of thorough insights into the values of urban green space, the need for such regulation [to provide urban parks] may be neglected whenever new neighborhoods are planned and developed.” One of the interesting things about this paper is that it investigates both proximity to and density of green spaces and finds that both measures are important and capture different components of willingness to pay.  The article finds that proximity to green space has a positive effect on apartment rents (meaning that people are willing to pay more to live near a green space, all else being equal), and that there may be a “saturation point” beyond which an additional park does not add significantly to household welfare. 

The Avoided Cost of Stormwater Remediation

The Avoided Cost of Stormwater Remediation

Here’s something to think about during the next rainstorm: where does all that rainwater go?  For most of us, it’s not something to which we give more than a passing thought. But if you’re concerned about saving money and protecting water quality, it’s worth a closer look.

In many older New England towns, the infrastructure that conducts sewage from our homes to our wastewater treatment plant is old, crumbling, and not up to today’s needs. During relatively dry times, the system works pretty well.  Pipes convey sewage to the sewage treatment plant where it is treated and then released.  But during times of intense rainfalls, that excess water running down our streets to our storm drains can overwhelm those older pipes. During those times, the pipes essentially overflow, and raw sewage mixed with stormwater can make it into rivers and oceans.  These discharges are called combined sewer overflows, and despite heroic efforts to separate them, they do still exist (see our prior blog posts Money Down the Drain Part 1 and Part 2).  Recently in Portland, Maine a heavy rainfall, combined with human error, contributed to a million-plus gallon spill of partially treated sewage directly into Casco Bay.

There are several different strategies for a city or municipality attempting to address its stormwater issues. Coming up with those strategies may be a job for an engineer. Prioritizing those strategies, on the other hand, may be a job for an economist: someone who can weigh the costs and the benefits of each, keeping in mind that there may be hidden costs and benefits to each alternative that are not immediately obvious. Determining the financial costs of each strategy is relatively easy.  But coming up with the benefit – the return on investment, or bang for your buck –  isn’t as straightforward.

Stormwater management can bring economic and fiscal benefits in terms of “avoided costs.” By reducing the flow of stormwater that needs to be treated, the municipality saves the money that it would otherwise have needed to treat it.  That’s not insubstantial.  Treating a gallon of stormwater can cost substantial amounts of money in operations and maintenance costs (think electricity, chemicals, filter replacement, sludge disposal, etc.). Every gallon of runoff that is diverted from the treatment plant is that much money saved.

In addition to avoided treatment costs, there are avoided property damage costs.  Floods that are caused or exacerbated by excess stormwater (sometimes called “urban flooding”) can cause damage to property. A 2014 study in Cook County, IL, found that chronic and systematic urban flooding had led to property damage claims of over $773 million over a five year period.  This number is likely a significant underestimate, as flood insurance only covered a small portion of all damage costs.  Less easily measured are the costs of disruption to emergency services like police, fire and ambulance services,  and losses to private companies  that not only may lose inventory but business as well.

The benefits of dealing with stormwater include the avoided costs of treatment, as well as the avoided costs of flood damage, but that’s not all.  Other categories of avoided costs include the costs of treating waterborne diseases. Untreated wastewater that flows into our rivers, streams, and oceans can carry with it diseases and pathogens.  Treating those diseases in humans has economic costs.  A recent study published in the journal Environmental Health estimated that the “economic burden” – defined as both direct treatment costs and indirect opportunity cost, such as lost productivity – of recreational waterborne illness cost the nation upwards of $2.2 – $3.7 billion annually.  That’s a lot of money.

Moreover, contaminated wastewater that flows into our waters can have a detrimental effect on industries that depend on clean water.  For example, a recent study from the University of Maine estimated that the closures of shellfish beds caused by toxic algal blooms linked to pollution from combined sewer overflows led to at least $3.6 million in lost revenue over a nine year period. That amounted to approximately 27.4% of revenue from those beds.

Estimating the avoided costs associated with a particular stormwater management option depends on how much stormwater is treated or diverted relative to the baseline, as well as the location attributes of the site and the impacts untreated stormwater can have on the environment it is released into.  It isn’t always easy to calculate, but it is information that is needed in order to know the true benefits of a stormwater treatment system.

Stay tuned for upcoming blog posts on the benefit of green infrastructure in stormwater treatment and the fiscal impacts of urban flooding.