Monday, October 31, 2011

Willingness to pay for electric vehicles and their attributes 
Abstract: This article presents a stated preference study of electric vehicle choice using data from a national survey. We used a choice experiment wherein 3029 respondents were asked to choose between their preferred gasoline vehicle and two electric versions of that preferred vehicle. We estimated a latent class random utility model and used the results to estimate the willingness to pay for five electric vehicle attributes: driving range, charging time, fuel cost saving, pollution reduction, and performance. Driving range, fuel cost savings, and charging time led in importance to respondents. Individuals were willing to pay (wtp) from $35 to $75 for a mile of added driving range, with incremental wtp per mile decreasing at higher distances. They were willing to pay from $425 to $3250 per hour reduction in charging time (for a 50 mile charge). Respondents capitalized about 5 years of fuel saving into the purchase price of an electric vehicle. We simulated our model over a range of electric vehicle configurations and found that people with the highest values for electric vehicles were willing to pay a premium above their wtp for a gasoline vehicle that ranged from $6000 to $16,000 for electric vehicles with the most desirable attributes. At the same time, our results suggest that battery cost must drop significantly before electric vehicles will find a mass market without subsidy.

by Michael K. Hidruea , George R. Parsonsb , Willett Kemptonc , Meryl P. Gardnerd
aDepartment of Economics, University of Delaware, Delaware, United States
bSchool of Marine Science and Policy and Department of Economics, University of Delaware, United States
cCollege of Earth, Ocean, and Environment, Department of Electrical and Computer Engineering, University of Delaware, United States
dDepartment of Business Administration, University of Delaware, United States
Resource and Energy Economics via Elsevier Science Direct
Volume 33, Issue 3, September 2011, Pages 686-705
Keywords: Electric vehicles; Stated preference; Discrete choice

New Tactics and Billions to Manage City Sewage
The Bloomberg administration is set to commit $2.4 billion in public and private investment to applying new environmental technology to an old problem: the flow of untreated sewage and storm water into New York City’s waterways.

City officials announced ... that the State Department of Environmental Conservation had tentatively assented to a proposal by the city to introduce infrastructure to retain storm water before it reaches the sewer system and overloads it.  The approach reflects a shift from traditional sewage-control methods like underground storage tanks and tunnel systems to techniques like green roofs with plantings, porous pavement for parking lots and depressions for collecting water in parks.
The federal Environmental Protection Agency promotes these newer forms of infrastructure as a cost-effective and environmentally preferable alternative to conventional overflow management.

Sewer overflows are the biggest water-quality problem in the metropolitan region, preventing many waterways from meeting federal standards for fishing, swimming and healthy habitats for wildlife. Each year, up to 30 billion gallons of overflow enters New York Harbor, Jamaica Bay, Newtown Creek and other waterways.

The city plans to spend $1.5 billion of its own money in the next 20 years on the infrastructure project. An additional $900 million in private investment is to be secured by imposing requirements for residential and commercial development, like limits on the amount of runoff allowed from a new project. (The city will still spend $1.6 billion more over the same period on traditional sewage-control projects.)
City officials said features like plantings would help reduce the sewage overflows by 40 percent by 2030 and cut the city’s sewer management costs by $2.4 billion over 20 years, helping to keep water bills down for utility customers

by Mireya Navarro
The New York Times
October 19, 2011

Policy-Instrument Choice and Benefit Estimates for Climate-Change Policy in the United States
Abstract: This paper provides the first willingness-to-pay (WTP) estimates in support of a national climate-change policy that are comparable with the costs of actual legislative efforts in the U.S. Congress. Based on a survey of 2,034 American adults, we find that households are, on average, willing to pay between $79 and $89 per year in support of reducing domestic greenhouse-gas (GHG) emissions 17 percent by 2020. Even very conservative estimates yield an average WTP at or above $60 per year. Taking advantage of randomized treatments within the survey valuation question, we find that mean WTP does not vary substantially among the policy instruments of a cap-and-trade program, a carbon tax, or a GHG regulation. But there are differences in the sociodemographic characteristics of those willing to pay across policy instruments. Greater education always increases WTP. Older individuals have a lower WTP for a carbon tax and a GHG regulation, while greater household income increases WTP for these same two policy instruments. Republicans, along with those indicating no political party affiliation, have a significantly lower WTP regardless of the policy instrument. But many of these differences are no longer evident after controlling for respondent opinions about whether global warming is actually happening.

by Matthew J. Kotchen, Kevin J. Boyle and Anthony A. Leiserowitz
National Bureau of Economic Research (NBER)
NBER Working Paper No. 17539; Issued in October 2011

A cost-benefit analysis of moose harvesting in Scandinavia. A stage structured modelling approach
Abstract:: A cost-benefit analysis of moose (Alces alces) harvesting in Scandinavia is presented within the framework of an age structured model with four categories of animals (calves, yearlings, adult females, and adult males). The paper aims to demonstrate the economic content of such a wildlife model and how this content may change under shifting economic and ecological conditions. Two different harvesting regimes are explored: landowner profit maximization, where the combined benefit of harvesting value and browsing damage is taken into account, and overall management, where the costs and damages of moose-vehicle collisions are taken into account as well. An empirical analysis of the Norwegian moose stock indicates that the present stock level is far too high compared with the overall management scenario, and that the composition of the harvest could be improved.

Research highlights:

► A cost-benefit analysis of moose (Alces alces) harvesting in Scandinavia is analysed.
► Four categories of animals are considered: calves, yearlings, adult females and adult males.
► It is shown that the per animal values are instrumental in determining the optimal harvesting composition.
by Jon Olaf Olaussena, Anders Skonhoftb 
aTrondheim Business School, Jonsvannsveien 82, N-7050 Trondheim, Norway
bDepartment of Economics, Norwegian University of Science and Technology, N-7491 Dragvoll-Trondheim, Norway
Resource and Energy Economics via Elsevier Science Direct
Volume 33, Issue 3, September 2011, Pages 589-611
Keywords: Moose hunting; Cost-benefit analysis; Stage model

EDF Climate Corps Unearths $650 Million in Energy Savings
On September 21, 2011 the Environmental Defense Fund (EDF) announced the results of this summer’s EDF Climate Corps fellowships, which placed 96 specially-trained MBA and MPA students in 78 companies, cities and universities to sleuth out energy savings and carbon dioxide (CO2) reductions. Together, the 2011 Climate Corps fellows uncovered efficiencies in lighting, computer equipment, and heating and cooling systems that could:
  • Cut 600 million kilowatt hours of electricity use and 27 million therms of natural gas annually, equivalent to the annual energy use of 38,000 homes;
  • Avoid 440,000 metric tons of CO2 emissions annually, equivalent to the annual emissions of 87,000 passenger vehicles; and
  • Save $650 million in net operational costs over the project lifetimes.
“In this economy, everyone is looking for ways to save, and energy efficiency is a huge, and largely untapped, opportunity,” said Victoria Mills, managing director of EDF’s Corporate Partnerships program. “EDF Climate Corps has shown once again the magnitude of cost savings and carbon pollution reductions available to organizations that know how to look for them.”

EDF created Climate Corps to cut carbon pollution by overcoming the barriers that prevent organizations from investing in energy efficiency. Now in its fourth year, EDF Climate Corps has grown from seven fellows in 2008 to 96 in 2011. To date, projects accounting for 86 percent of the energy savings identified by 2008-2010 fellows are complete or underway.

EDF Climate Corps fellows work with host organizations to capture immediate energy savings through equipment modifications and upgrades and also on strategic projects – such as employee engagement campaigns and decision-support tools – that deliver systemic and lasting reductions in energy use and carbon pollution.
  • McDonald’s worked with Pia Jean Kristiansen, an EDF Climate Corps fellow and MBA candidate from the University of Michigan, to find creative ways to engage the company’s estimated 700,000 U.S. restaurant employees in energy efficiency initiatives.  Kristiansen’s work will result in an educational video developed to educate employees on ways to reduce an average restaurant’s energy consumption up to 10 percent.
  • Neal Tsay, an EDF Climate Corps fellow and MBA candidate from UCLA, worked with sustainability leaders at Target to develop a plan to achieve its commitment to earn ENERGY STAR ratings for 75 percent of its U.S. buildings by 2015. Additionally, Tsay sought to improve energy efficiency in Target stores by proposing initiatives that could eliminate 50,000 metric tons of greenhouse gas (GHG) emissions each year and generate several million dollars in annual energy savings.
Buildings account for 70 percent of electricity consumption and more than a third of carbon pollution in the United States. Because opportunities to save energy are not limited to the private sector, EDF expanded Climate Corps in 2009 by placing fellows in cities and universities. "Cities, colleges and others can make smart energy investments just like companies," said Michael Regan, EDF director of energy efficiency. "The program is building a diverse movement to transform how people think about energy efficiency and make it a top priority for everyone who pays a utility bill."
  • The New York City Housing Authority learned how to reduce annual heating costs by $58 million, thanks to a plan developed by EDF Climate Corps fellows Harrison Thomas and Amy Kochanowsky, who are working on degrees in business, environmental management and public policy at Duke University and the University of North Carolina-Chapel Hill. Their findings could cut the housing authority’s annual energy costs by 11 percent.
  • North Carolina Agricultural and Technical (A&T) University discovered it could save $2.5 million over the next five years by implementing the recommendations from EDF Climate Corps fellows LaKausha Simpson, a PhD candidate in engineering at A&T, and Jonathan Wilson, an MBA candidate at Wake Forest University. A&T's investments in energy efficiency measures, such as improved lighting, will pay for themselves in only three months.
See the full list of organizations participating in EDF Climate Corps and the energy-saving projects recommended in 2011. EDF Climate Corps is now recruiting fellows and host organizations for 2012. For more information, please visit or email 

Environment Defense Fund  (EDF)
Press Release dated September 21, 2011

Conservation of resources in the pulp and paper industry derived from cleaner production approach
Abstract: This paper analyses the utilization of water and recycled fiber from waste paper for ... production in one Serbian cardboard mill. Water and fiber consumption, wastewater generation and its characteristics, as well as sludge recirculation were monitored during production of various paper types, with different grade and weight. The aim was to evaluate production rationality and running stability concerning water and fiber utilization and possibilities for their conservation. Cleaner production measures inside the mill and in the effluent treatment plant were suggested for the improvement of wastewater quality and water conservation. Savings in water and fibers were estimated, with ... respect to economic and environmental aspects of proposed cleaner production measures.
► Analyzed cardboard mill has high water consumption and low fiber use efficiency.
► Suggested cleaner production measures provide 50% decrease in water consumption.
► End-of-pipe measures increase fiber and filler recovery for estimated 28%.
► The investment of 865,000 € would bring total savings of ca. 3.0 M € in 9 months.
► We have confirmed that cleaner production pays-off in a cardboard production.

by Darja B. Žarkovića , Vladana N. Rajaković-Ognjanovićb, Ljubinka V. Rajakovićc
aBelgrade Polytechnic College, University of Belgrade, Brankova 17, Belgrade, Serbia
bFaculty of Civil Engineering, University of Belgrade, Bulevar Kralja Aleksandra 73, Belgrade, Serbia
cFaculty of Technology and Metallurgy, University of Belgrade, Karnegijeva 4, Belgrade, Serbia
Resources, Conservation and Recycling via Elsevier Science Direct
Volume 55, Issue 12, October 2011, Pages 1139-1145 
Keywords: Water; Fiber; Conservation; Paper mill; Cleaner production

Influence of residential water use efficiency measures on household water demand: A four year longitudinal study 
Abstract:: In response to increasing water demand, Miami-Dade County, FL, USA implemented water conservation incentives for the residential customers. These incentives include rebates and unit exchange programs for showerheads, toilets and clothes washers. In this study, impacts of the water conservation incentives on water demand were analyzed. Water savings and water use trend shifts of the customers were evaluated during the first four years after the implementation of water conservation practices. About 6–14% reduction in water demand has been observed during the first and second years. The water savings continued during the third and fourth years at a lower percentage. Water savings for water use efficiency measures were about 28 (10.9%), 34.7 (13.3%) and 39.7 (14.5%) gallons per household per day for the showerhead, toilet, and clothes washer programs; respectively. Adoption of more than one type of water efficiency appliance contributed to additional saving in residential water use.
by Mengshan Leea , Berrin Tansela, Maribel Balbinb
aFlorida International University, Civil and Environmental Engineering Department, Miami, FL, USA
bMiami-Dade County Office of Sustainability, Miami, FL, USA
Resources, Conservation and Recycling via Elsevier Science Direct
Volume 56, Issue 1, November 2011, Pages 1-6
Keywords: Water conservation; Water use efficiency measures; Showerhead; Toilet; Clothes washers; Water demand management

Sunday, October 30, 2011

Estimates of the Social Cost of Carbon: Background and Results from the RICE-2011 Model
A new and important concept in global warming economics and policy is the social cost of carbon or SCC. This concept represents the economic cost caused by an additional ton of carbon-dioxide emissions or its equivalent. The present study describes the development of the concept as well as its analytical background. We estimate the SCC using an updated version of the RICE-2011 model. Additional concerns are uncertainty about different aspects of global warming as well as the treatment of different countries or generations. The most important results are: First, the estimated social cost of carbon for the current time (2015) including uncertainty, equity weighting, and risk aversion is $44 per ton of carbon (or $12 per ton CO_{2}) in 2005 US$ and international prices). Second, including uncertainty increases the expected value of the SCC by approximately 8 percent. Third, equity weighting generally tends to reduce the SCC. Finally, the major open issue concerning the SCC continues to be the appropriate discount rate.

by William Nordhaus
Yale University - Cowles Foundation for Research in Economics
Box 208281; New Haven, Connecticut 06520-8281
Discussion Paper Number 1826; October, 2011

China Takes a Loss to Get Ahead in the Business of Fresh Water
... The Beijiang Power and Desalination Plant is a 26-billion-renminbi technical marvel: an ultrahigh-temperature, coal-fired generator with state-of-the-art pollution controls, mated to advanced Israeli equipment that uses its leftover heat to distill seawater into fresh water.

... One wrinkle in the $4 billion plant: The desalted water costs twice as much to produce as it sells for. Nevertheless, the owner of the complex, a government-run conglomerate called S.D.I.C., is moving to quadruple the plant’s desalinating capacity, making it China’s largest.
As it did with solar panels and wind turbines, the government has set its mind on becoming a force in yet another budding environment-related industry: supplying the world with fresh water.

The Beijiang project, southeast of Beijing, will strengthen Chinese expertise in desalination, fine-tune the economics, help build an industrial base and, along the way, lessen a chronic water shortage in Tianjin....
At the government’s order, China is rapidly becoming one of the world’s biggest growth markets for desalted water. The latest goal is to quadruple production by 2020, from the current 680,000 cubic meters, or 180 million gallons, a day to as many as three million cubic meters, about 800 million gallons, equivalent to nearly a dozen more 200,000-ton-a-day plants....

Institutes in at least six Chinese cities are researching developments in membranes, the technology at the core of the most sophisticated and cost-effective desalination techniques.

The National Development and Reform Commission, China’s top-level state planning agency, is drafting plans to give preferential treatment to domestic companies that build desalting equipment or patent desalting technologies. There is talk of tax breaks and low-interest loans to encourage domestic production.

... Direct government investment in seawater projects does not exceed 10 percent of their cost....The government’s plans could mean an investment of as much as 200 billion renminbi, or about $31 billion, by state-owned companies, government agencies and private partners.

Beijiang’s desalination complex, built by S.D.I.C. at the behest of the Development and Reform Commission as a concept project, was almost wholly made in Israel, shipped to Tianjin and bolted together. Nationally, less than 60 percent of desalination equipment and technology is domestic.

China’s goal is to raise that to 90 percent by 2020...

Demand for water here is expected to grow 63 percent by 2030 — gallon for gallon, more than anywhere else on earth....

In Tianjin, deemed a model city for water conservation, 90 percent of water used in industry is recycled; 60 percent of farm irrigation systems use water-saving technologies; 148 miles of water-recycling pipes snake beneath the city. Apartments in one 10-square-mile area of town feature two taps, one for drinking water and one for recycled water suitable for other uses.

The Beijiang plant, one of two, supplies an expanding suburb with 10,000 tons of desalted water daily, with plans to someday pump 180,000 tons....

The Beijiang plant has faced some hiccups. The mineral-free distilled water scrubs rust from city pipes en route to taps, turning the water brown....

The global market for desalination technology will more than quadruple by 2020 to about $50 billion a year, the research firm SBI Energy predicted last month, and growing water shortages worldwide appear to ensure further growth.

... The increasingly sophisticated membrane technologies that filter salt from seawater can be applied to sewage treatment, pollution control and a legion of other cutting-edge uses. Far outpaced now by foreign membrane producers, which command at least 85 percent of the market, China is set on developing its own advanced technologies.
The list of foreign companies that have plunged into China’s desalination industry is long: Hyflux of Singapore, Toray of Japan, Befesa of Spain, Brack of Israel and ERI of the United States, among others.  And just as foreigners shifted solar-energy research and production to China, desalination companies are leaving their home bases as well. The Norwegian company Aqualyng is a partner with the Beijing city government ... and is studying moving its manufacturing facilities from Europe to China.  ERI, which is based in San Francisco and claims to have the desalination industry’s most advanced technology, is moving research facilities to China and is considering moving manufacturing as well at some later date.  Most of the foreign companies have partnered with state-owned corporations.... ERI and Aqualyng say they can become researchers and manufacturers in China without losing control of their products.
by Michael Wines
The New York Times
October 25, 2011

Howard Weinstein Named Social Entrepreneur of the Year 
Solar Ear founder and CEO Howard Weinstein was selected as social entrepreneur of the year by World Technology Network.... Solar Ear designs and manufactures a solar-powered, battery rechargeable, inexpensive hearing aid solution. Technology partner Sonomax designs in-ear technology to custom fit earpieces to each patient in a single visit.
Weinstein started Solar Ear when he saw the need for an affordable, user-friendly and ecological hearing aid. WHO estimates that approximately 278 million suffer from hearing loss of which 200 million live in developing countries. Adult-onset hearing loss is the second longest cause of years lived with a disability.

“The hearing aid industry is one of the most innovative industries in the world, which is both good and bad,” said Weinstein. “Most of the innovation has been misplaced and focused on the wrong things, like developing technology for a $7500 hearing aid. That is completely out of reach for most of the world’s deaf population.” Only 12% of hearing aids manufactured are in the developing world.

Solar Ear offers hearing solutions for under $100US. The products were featured in “Brilliant Eco-Inventions; Designs to Solve the Worlds Problems,” which appeared in the November 2010 issue of National Geographic. Solar Ear products are now included in the collections of the Alexander Graham Bell Museum and the Smithsonian.
In addition to innovating new hearing aid technology, Weinstein has also developed a new business model. Solar Ear hires deaf workers throughout the world to invent, develop and assemble these breakthrough products.

“The key to our success is that our workers are deaf,” said Weinstein. “They are able to manufacture at a world-class level in part because they are deaf. People who are deaf and speak in sign language have better hand-eye coordination than hearing people. We need this special ability to micro-solder the tiny components for a hearing aid.”

Solar Ear capitalizes on its workforce on several continents, recently bringing Solar Ear workers from Botswana to Sao Paulo to teach a 6-month theoretical and practical electronics and micro-solder course. “Think about that journey, leaving rural Botswana and arriving 12 hours later in a city of 17 million people,” Weinstein said. “And for the Brazilian youths, this was the first time they had ever had a teacher who was also deaf.”

Next year courses will bring together Israeli and Palestinian youths in Jerusalem, and Muslims and Hindus in Kashmir.

World Technology Network
Solar Ear
Corporate Social Responsibility Wire
October 27, 2011

Australia's Carbon Tax: A Sheep in Wolf's Clothing?
Australian Government has produced a CO2-equivalent tax proposal with a difference, it is a short prelude to an emission trading scheme that will allow the increasing rate of emissions to continue, while being a net cost to the Treasury. That cost extends to allowing major emitters to make guaranteed windfall profits from pollution permits. The emission trading scheme suffers numerous problems, but the issues raised show taxes can also be watered down and made ineffectual through concessions. Taxpayers will get no assets from the billions of dollars to be spent buying-off the coal generators or other polluters. The scheme hopes to stimulate private investors to create an additional 12 percent in renewable electricity generation by 2020. A serious emissions reducing alternative would be to create a nationalised electricity sector with 100 percent renewable energy within a decade. We explore the difficulties of implementing meaningful greenhouse gas taxes in Australia.
According to the Australian Government ... the proposed CEP scheme, combined with its Renewable Energy Target, will invest A$20 billion in renewable energy. In addition, the commercially oriented Clean Energy Finance Corporation will be allocated $10 billion to invest in renewable energy and innovative technologies to cut pollution. The Australian Renewable Energy Agency will administer A$3.2 billion. On the surface this appears like recognition of a need for substantial change, and a large investment, but is it really? The outcome of this A$33 billion allocation is expected to be that "the equivalent of 20 per cent of Australia’s electricity will come from renewable sources by 2020". As current renewable electricity production is 8 percent, this means just a 12 percent increase in renewable energy production. The Australian taxpayer will not gain any assets for this outlay because all monies are going to fund private enterprise, commercial interests, and corporations. In addition to this A$33 billion a further A$14 billion appears to be allocated to the worst polluters. The billions to be spent on paying the coal industry to close its most polluting plants will be reinvested by that industry. They will also be able to plead for money and cheap loans under the security fund. So the public sector will be financing and underwriting private profits.
Beyond Zero Emission (2010), a not-for-profit organisation associated with researchers from the University of Melbourne. Their research shows that Australia can achieve 100 percent renewable electricity generation within a decade using technology that is commercially available now. This would totally replace base load power currently sourced from fossil fuels. Wind power and solar thermal with molten salt storage have the capacity to supply 60 percent and 40 percent of Australia’s electricity respectively. They estimate this will require an investment of A$370 billion over ten years, stated to be equivalent to costing A$8 per household per week. They project that the investment will generate a stimulus to the Australian economy that is equivalent to 3 percent of GDP over ten years and create permanent jobs around four times higher than currently exist in the domestic fossil fuel sector (Beyond Zero Emissions, 2010). Converting the 92 percent of Australian electricity not generated from renewable energy is technically feasible with existing technology and could be funded by a real GHG tax. In return for their investment the public could have a nationally owned electricity generating sector with public benefits in perpetuity.
All regulatory and public policy instruments are subject to political negotiation and can be manipulated. Different instruments inherently favour different societal actors and vested interests. Clearly while taxes favour government they can also be watered down, counterproductive and ineffectual. Levels of compensation to polluting industries can exceed acceptable standards of both efficiency and fairness. Substantial concessions in the form of tax exemptions, reductions and rebates to maintain momentum for material growth may appear in design proposals and be justified as being necessary in hard economic times. Highly polluting industries may then be able to gain more concessions than the less polluting ones. Thus GHG taxes can become primarily targeted at securing votes and jobs, and not only fail to correspond to textbook recommendations but also fail to achieve the promised internalization of social and environmental costs.
Australia has invented the 'polluter gets paid' principle to replace the 'polluter pays' principle, and the worse you pollute the more you get rewarded. Less energy-intensive industries will be penalised by having to purchase non-tradable permits at a fixed value, whereas the more energy-intensive industries are bestowed permits for free and allowed to sell them. What Australia exemplifies is how the rich and powerful polluters have been able to take control of the debate on human induced climate change, and manipulate it to their considerable financial advantage, while pretending to be the victims of an environmental hoax. 

by Clive L. Spash and Alex Lo
WU Wirtschaftsuniversitiat Wien, Norwegian University of Life Sciences
Munich Personal Repec Archive MPRA Paper Number 33997; October 3, 2011 
via REPEC Research Papers in Economics

Speculation on Commodities Futures Markets and Destabilization Of Global Food Prices: Exploring the Connections
Abstract: In December 2010, the FAO food price index surpassed its previous peak of June 2008, and prices have been maintained at this high level through September 2011 (i.e. as of this writing). This pattern in food prices is creating justified fears of a renewal or intensification of the global food crisis. This paper reviews arguments and evidence to inform current debates on how to regulate commodity futures markets in the face of such price volatility and sustained high prices, focusing on 1) the relationship between market liquidity and price patterns in asset markets in general and commodities futures markets in particular, and 2) the relationship between spot and futures market prices for food. We find that there is strong and consistent evidence in support of the need to limit the huge increases in trading volume on futures markets through effective regulations. We also find that the opposite position—i.e. the main analytic arguments opposing market regulation—cannot be supported by the evidence. That is, we find no support for the claim that liquidity in futures markets serves to stabilize prices at their “fundamental” values or that spot market prices are formed free of any significant influence from futures markets. Given these results, the most appropriate position for regulators to assume at present is a precautionary principle: they should enact and enforce policies capable of effectively dampening excessive speculative trading on the commodities markets for food.

by Jayati Ghosh, James Heintz and Robert Pollin
University of Massachusetts PERI Political Economy Research Institute
Working Paper Number 269; October 4, 2011

Wednesday, October 26, 2011

OECD and IEA recommend reforming fossil-fuel subsidies to improve the economy and the environment,3746,en_21571361_44315115_48804623_1_1_1_1,00.html

Governments and taxpayers spent about half a trillion US dollars last year supporting the production and consumption of fossil fuels. Removing inefficient subsidies would raise national revenues and reduce greenhouse-gas emissions, according to OECD and IEA analyses.

The G20 leaders in 2009 agreed to phase out subsidies that “encourage wasteful consumption, reduce our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change”. OECD and IEA data and analysis are contributing to the follow-up on this commitment by the G20.

“Both developing and developed countries need to phase out inefficient subsidies. As they look for policy responses to the worst economic crisis of our lifetimes, phasing out subsidies is an obvious way to help governments meet their economic, environmental and social  goals,” said OECD Secretary-General Angel Gurría. “For this to succeed, we need well-targeted, transparent and timebound programmes to assist poor households and energy workers who might be adversely affected in the short-term. OECD and IEA data and analysis can help guide the process.” (Read the speech in full)

The Secretary-General and IEA Executive Director Maria van der Hoeven emphasised that subsidies to fossil-fuel consumers often fail to meet their intended objectives: alleviating energy poverty or promoting economic development, and instead create wasteful use of energy, contribute to price volatility by blurring market signals, encourage fuel smuggling and lower competitiveness of renewables and energy efficient technologies.

“In a period of persistently high energy prices, subsidies represent a significant economic liability,” said IEA Executive Director Maria van der Hoeven, noting IEA estimates that subsidies that artificially reduce the price of fossil-fuels amounted to USD 409 billion in 2010 – almost USD 110 billion higher than in 2009. This is based on the IEA’s global survey to identify economies that artificially lower end-use prices for fossil fuels to below the full cost of supply.

Phasing out fossil-fuel subsidies will also provide an impetus for investment, growth and jobs in renewable energy and energy efficiency. Despite the many benefits of phasing out fossil-fuel subsidies, reform efforts have been hampered by a lack of information on the support measures in place, particularly in OECD countries.

To assist governments’ understanding of the nature and scale of their policies supporting fossil fuels, the OECD has compiled the first-ever Inventory of Estimated Budgetary Support and Tax Expenditures For Fossil Fuels. With detailed information of over 250 mechanisms that support fossil fuel production and use in OECD countries, the Inventory will be updated regularly and expanded over time to cover more countries and more support mechanisms.

Covering 24 countries, which account for about 95% of OECD’s total primary energy supply,  the Inventory shows that 54% of this support was for petroleum. Overall, the support to fossil-fuel production and consumption in OECD countries was USD 45 – 75 billion annually during the 2005 – 2010 period. The Inventory furthers  transparency and accountability, providing  estimates that will help governments and stakeholders assess these policies as they look at ways to reform subsidies.

For example:
• Germany’s historically generous subsidies to hard-coal mining fell from EUR 4.9 billion in 1999 to EUR 2.1 billion in 2009, and should be phased-out entirely  by 2018.
• France gradually phased out its support to the coal industry: from more than EUR 1 billion in 1990, producer support decreased to EUR 92 million in 2007 and then ended. This was accompanied by a range of measures meant to address the social costs associated with mine closures.
• Government energy support to consumers in Mexico was USD 629 million in 2009, but will decrease as the new national energy strategy is put into place and the government better targets subsidies directly to low income households, rather than to energy use.
• And in the United States, where support for energy producers was about USD 5 billion in 2009, the 2012 federal budget proposes eliminating a broad group of subsidies – thereby increasing government revenues by more than USD 3.6 billion.

Work by the IEA, to be published in the World Energy Outlook 2011 on November 9, demonstrates that phasing out subsidies to fossil fuels, if well-executed, can generate important economic, energy security and environmental benefits.

Fortunately there are some signs of progress: nearly half of the countries identified by the IEA as artificially lowering the price of energy to below the full cost of supply have taken steps since the since the beginning of 2010 to rationalise energy prices. “While this is an encouraging start, much work remains to be done in order to realise the full extent of benefits. It is crucial that countries follow through on their commitments by implementing reforms that are well-designed and durable,” said IEA Executive Director van der Hoeven.

Some of the strategies that governments are using to phase out fossil fuel subsidies as reviewed by the OECD and IEA analyses highlight keys to success:
• Available and transparent data are essential to inform objective discussion.
• Financial support for economic restructuring and assisting poor households can help to protect vulnerable groups.
• Integrating reforms to fossil fuel subsidies into broader structural reforms can help build support for the reforms, particularly when the money saved is used to benefit the wider public.

More OECD and IEA work on fossil fuel subsidies can be found at:
To receive a copy of Inventory of Estimated Budgetary Support and Tax Expenditures For Fossil Fuels e-mail
To receive a copy of the World Energy Outlook 2011, e-mail
Also see/hat tip

Organization for Economic Cooperation and Development (OECD)
Press Release dated October 4, 2011

Lines Go Up to Ferry Wind Energy to Major Cities
Enormous transmission towers stand beside a West Texas country road, waiting for electric wires to be strung through them.
The rush to build transmission lines is part of Texas’ efforts to promote wind power, which provides 8 percent of the state grid’s electricity. Across the state, thousands of miles of wires are being strung at a cost that has soared to an estimated $6.8 billion. The main purpose is to ferry wind energy from remote areas ... to major cities like Dallas and Fort Worth. Texas leads the nation in wind production, and the lines are intended to nearly double the state’s wind capacity.

The build-out, which Texans will pay for in future electric bill increases projected at about $5 a month per customer for years, has been contentious. Some Texas landowners have fought to prevent the lines from crossing their property, even though they receive a one-time payment for hosting them.

Travis Besier, ... said that payments for an easement could range from around $3,000 to $10,000 or more an acre, depending on factors like the property’s proximity to a large city.  In some cases, ... Oncor has needed eminent domain proceedings, in which the utility can take the land if negotiations with the landowner fail.

For [local] businesses ... the construction has brought a boom.
All lines are supposed to be completed by the end of 2013. Work is going smoothly, builders say, though there are hitches. Workers must always beware of rattlesnakes and bad weather, including high winds....
Because of the drought and tighter water restrictions, [a contractor]... had trouble getting enough water....

... The completion of the lines, ... should spur more activity in West Texas, ... currently some turbines must stop spinning at windy times because there are not enough wires to carry out the power.
by Kate Galbraith
The New York Times
October 21, 2011

Tuesday, October 25, 2011

Environmental Accounting for Pollution in the United States Economy
Abstract: This study presents a framework to include environmental externalities into a system of national accounts. The paper estimates the air pollution damages for each industry in the United States. An integrated-assessment model quantifies the marginal damages of air pollution emissions for the US which are multiplied times the quantity of emissions by industry to compute gross damages. Solid waste combustion, sewage treatment, stone quarrying, marinas, and oil and coal-fired power plants have air pollution damages larger than their value added. The largest industrial contributor to external costs is coal-fired electric generation, whose damages range from 0.8 to 5.6 times value added.

by Nicholas Z. Muller 1, Robert Mendelsohn 2 and William Nordhaus 2
American Economic Review
Volume 101, Number 5, August 2011 pages 1649-1675
1. Middlebury College
2. Yale University

Empty Fields Fill Urban Basins and Farmers’ Pockets
Three generations of Al Kalin’s family have worked their 2,000 acres of carrots and sugar beets, wheat and alfalfa for almost a century in the Imperial Valley, a scorching swath of Southern California desert that was unfit for farming until water from the Colorado River was diverted here in 1901.

But now Mr. Kalin ... can continue to farm all their land, or they can stop farming some of it and earn more than $500 an acre — more than the market value of a crop like alfalfa in a given year — simply by not using the water required to nourish those crops. Water saved is sent on to thirsty cities and suburbs to the west: San Diego, Los Angeles and Palm Springs.

With water increasingly scarce in the West, some other communities are allowing farmers to sell their allotment of it for whatever price they can find, in some cases thousands of dollars for the amount it takes to grow an acre of a crop. But ... working farms provide jobs and income to their many suppliers. There are 450 farmers in the Imperial Valley, but half the jobs held by the 174,000 residents are tied to agriculture.

When land is idled, the communities around the farms can wither.
The Imperial Irrigation District, ... controls more water than any other place in the West — about 20 percent of the annual flow of the Colorado.
Less than 5 percent of Imperial County’s 500,000 acres of agricultural land has ever been idle at any given time, many residents believe that unrestrained water sales would unravel the fabric of the community.
Some Imperial Valley farmers objected to the restrictions and sued in state court.... That suit is pending.... The Metropolitan Water District of Southern California, which is called Met and serves 17 million people, is paying Palo Verde Valley farmers seven times as much for water than what Imperial farmers receive from their irrigation district....

...The water’s price ranges from more than $200 to more than $500 per fallowed acre, though irrigating that same acre costs farmers far less. The district has not let the price go up, even as farmers see much higher prices paid elsewhere. The program is expected to end in 2017, when the cities’ needs can all be met through conservation.
Farmers in Palo Verde, who deal more directly with Met, receive a one-time payment of $3,170 to enroll an acre in the program and about $600 each year it is left fallow.
.. .
Palo Verde officials counter that their deal with Met included $6 million for a fund to create jobs; the fund’s director said it had filled about 60 by spending money to train truck drivers and invest in small businesses.
Ralph Strahm, ... is one of 100 Imperial farmers to enroll in the program.... When the price for water-intensive alfalfa drops, he does the math. If he would earn, at best, $75 more per acre than if he left the land fallow, he decides that the risk and work are not worth the return and offers to leave it idle.

At most, only 18,000 of Imperial’s 500,000 agricultural acres are in the program at the same time.
Higher prices give farmers an incentive to conserve. Economists believe that markets will help fix the uneven distribution of water around the West and may prompt a rethinking of the whole system.

An expanding geothermal industry in Imperial needs more water. And there are new uses for land: solar-power businesses file proposals almost weekly.

By Felicity Barringer
The New York Times
October 23, 2010