Market Forces

How the Suspension of EPA Regulations Fails to Recognize the COVID-19 Crisis and Social Costs

COVID-19’s burden on healthcare systems worldwide, a mounting death toll, and the impacts this has on people across the globe is truly alarming. In addition to the public health crisis, the pandemic has also brought most countries’ economies to their knees. Governments are making decisions today that will resonate for decades for future generations, which is why interventions must be intelligent and forward-looking, while practical, rapid and cost-effective. 

One of the macroeconomic aspects that has critical ramifications is determining what is deemed essential, in terms of jobs and services. Food, health care, and emergency services are clearly essential. And while policymakers can debate the merits of other positions, make no mistake, pollution monitoring and enforcement are also critical.

EPA’s Suspension of Enforcement

On March 26, EPA administrator Andrew Wheeler announced that the agency would suspend enforcement against violations of a broad set of environmental regulations, with no end date. This announcement effectively provides companies across the United States with a waiver from clean air and other public health protections, and has massive implications for human health at a time when keeping citizens healthy is paramount. We know air pollution causes diabetes, heart and lung diseases and worsens asthma, putting people at higher risk of severe effects of COVID-19. In fact, recent analyses find areas with high air pollution levels before this crisis reported higher COVID-19 death rates.

The naive expectation is that companies will continue to abide by the law and self-report any pollution amid the pandemic. This ignores well-established economics literature demonstrating how self-regulation does not work. Even if it is argued that reducing regulation will ease economic burdens at a time when it should be redirected for economic stimulus – that is also a fallacy that is undercut by the current administration’s analysis.

The Clear Benefits of Environmental Regulation

Every year, the Office of Management and Budget (OMB) performs a benefit-cost analysis (BCA) of all government agencies and federal rulings. The table below is taken from the most recent OMB report that did a thorough analysis and took a retrospective look over a 10 year period. [n.b, slated for release in 2017, this report was not made public until 2019. OMB only released one report during the Trump administration years, which was one-fifth of the length of previous ones, only did single-year BCAs, and was released two days before Christmas in 2019.]

Estimates of the Total Annual Benefits and Costs of Major Federal Rules (For Which Both Benefits and Costs Have Been Estimated) by Agency, October 1, 2006 – September 30, 2016 (billions of 2020 dollars). Sorted from best to worst Benefit-Cost Ratio, figures rounded to the nearest billion.

Agency# of RulesBenefitsCostsBenefit-Cost Ratio
2020$2020$
Environmental Protection Agency (EPA)39215 to 76250 to 61 4.3 to 12.6
Joint DOT and EPA449 to 8612 to 22 4.2 to 3.9
Department of Labor1011 to 303 to 7 3.6 to 4.2
Department of Health and Human Services187 to 352 to 7 3.1 to 5.0
Department of Energy2723 to 449 to 13 2.6 to 3.3
Department of Transportation (DOT)2725 to 459 to 17 2.6 to 2.6
Department of Justice32 to 51 to 1 2.1 to 4.0
Department of Agriculture51 to 21 to 1 1.2 to 1.4
Department of Homeland Security41 to 21 to 1 0.8 to 1.6

The table above underscores the crucial role EPA regulations play in human health and benefits to society. For each dollar spent on EPA’s programs, Americans derive a $4-13 benefit in the form of improved livelihoods. In general, rules exhibiting the greatest benefit-cost ratio relate to air pollutants, which have a great deal of interplay in terms of at-risk populations for COVID-19 and associated respiratory impacts. An EPA report focusing on the Clean Air Act amendments of 1990 finds a central estimate of a 32$ return for each dollar invested. Critically, these analyses do not monetize all of the health benefits of regulations, and thus these figures likely undercount the true benefits to society (the costs, however, are much more certain).

In terms of their benefit-cost ratio, EPA and major environmental rules result in benefits to the public that far outweigh their costs to government and industry. These rules are designed to preserve and protect human life and ecosystems. Removing protections presents a tremendous social cost.

Of course, EPA’s ability to enforce regulations during a pandemic has its limits. We wouldn’t want to put anyone at risk of contracting coronavirus. Still, there are ways to continue enforcement. EPA could redesign monitoring initiatives to continue digitally in places where this isn’t already the case. But announcing a sweeping, indefinite suspension that ignores most of what we know from behavioral economics and human nature makes little sense.

While the future is full of uncertainty, and economic turmoil is already here, we need to think carefully and critically about how to best protect people, the environment, and avoid slipping into a deep recession. Removing EPA’s ability to provide health protections to society during a public health crisis is lunacy. Doing it in the name of cutting costs is entirely misguided, as each dollar taken away results in an additional $4 to $13 in social costs.

Posted in Clean Air Act, Uncategorized / Leave a comment

What Night-time Lights Tell us about the World and its Inhabitants

Night viewMost people are familiar with the iconic image of North Korea at night—Pyongyang stands as a beacon of light amid of what looks almost like a large body of water—but what is, in fact, land draped in complete darkness. That imagery revealed details about what was previously unknowable due to the country’s cloak of secrecy—its meager electricity use and level of poverty. My colleagues Daniel Zavala-Araiza, Gernot Wagner and I took an even deeper look at how well night-time lights can account for other measures of socio-economic activity in a new article published today in the journal PLOS ONE.

I got interested in what these images could tell us back in 2012 when I started attending the Geo for Good conference, an annual event hosted by Google where nonprofits and researchers learn how to use geospatial tools such as Earth Engine. Gernot, Daniel and I started wondering what interesting applications we could explore with night-time lights data, and see what we could learn by examining the entire 21-year record of the National Oceanic and Atmospheric Administration’s Defense Meteorological Satellite Program (DMSP) at the country level. We took that dataset and compared it to a much wider scope of other datasets. By using a distributed, parallelized platform such as Earth Engine, the scope of this research and our analysis is able to be larger than prior studies.

The prevalence and magnitude of night-time light is an alternative, standardized, and relatively unbiased way to gather information about important socio-economic indicators like CO2 emissions, GDP, and other measures that would in some cases be unknowable. For example, these data helped estimate the size of the informal economy of Mexico in a 2009 study by Ghosh et al.

We’re hoping that by combining all of these methods, data sets, and tools, researchers can develop an even better understanding of how we relate to the environment, so we can ultimately become better stewards of it. Google Earth Engine, Hadoop and Spark are powerful examples of such tools —our hope is that our fellow researchers will ask and pursue new questions, so we can advance the conversation even further.

Posted in International, Technology, Uncategorized / Leave a comment

Alternative Facts: 6 Ways President Trump’s Energy Plan Doesn’t Add Up

Photos by lovnpeace and KarinKarin

This blog was co-authored with Jonathan Camuzeaux and is the first in an occasional series on the economics of President Trump’s Energy Plan

Just 60 days into Trump’s presidency, his administration has wasted no time in pursuing efforts to lift oil and gas development restrictions and dismantle a range of environmental protections to push through his “America First Energy Plan.” An agenda that he claims will allow the country to, “take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own.”

Putting aside the convenient roundness of this number, the sheer size of it makes this policy sound appealing, but buyer beware. Behind the smoke and mirrors of this $50 trillion is a report commissioned by the industry-backed Institute for Energy Research (IER) that lacks serious economic rigor. The positive projections from lifting oil and gas restrictions come straight from the IER’s advocacy arm, the American Energy Alliance. Several economists reviewed the assessment and agreed: “this is not academic research and would never see the light of day in an academic journal.”

Here is why Trump’s plan promises a future it can’t deliver:

1. No analytical back up for almost $20 trillion of the $50 trillion.
Off the bat, it’s clear that President Trump’s Plan relies on flawed math. What’s actually estimated in the report is $31.7 trillion, not $50 trillion, based on increased revenue from oil, gas and coal production over 37 years (this total includes estimated increases in GDP, wages, and tax revenue). The other roughly half of this “$50 trillion” number appears to be conjured out of thin air.

2. Inflated fuel prices
An average oil price of $100 per barrel and of $5.64 per thousand cubic feet of natural gas (Henry Hub spot price) was used to calculate overall benefits. Oil prices are volatile: in the last five years, they reached a high of $111 per barrel and a low of $29 per barrel. They were below $50 a barrel a few days ago. A $5.64 gas price is not outrageous, but gas prices have mostly been below $5 for several years. By using inflated oil and gas prices and multiplying the benefits out over 37 years, the author dismisses any volatility or price impacts from changes in supply. There’s no denying oil and gas prices could go up in the future, but they could also go down, and the modeling in the IER report is inadequate at best when it comes to tackling this issue.

3. Technically vs. economically recoverable resources
The IER report is overly optimistic when it comes to the amount of oil and gas that can be viably produced on today’s restricted federal lands. Indeed, the report assumes that recoverable reserves can be exploited to the last drop over the 37-year period based on estimates from a Congressional Budget Office report. A deeper look reveals that these estimates are actually for “technically recoverable resources,” or the amount of oil and gas that can be produced using current technology, industry practice, and geologic knowledge. While these resources are deemed accessible from a technical standpoint, they cannot always be produced profitably. This is an important distinction as it is the aspect that differentiates technically recoverable from economically recoverable resources. The latter is always a smaller subset of what is technically extractable, as illustrated by this diagram from the Energy Information Administration. The IER report ignores basic industry knowledge to present a rosier picture.

4. Lack of discounting causes overestimations
When economists evaluate the economic benefits of a policy that has impacts well into the future, it is common practice to apply a discount rate to get a sense of their value to society in today’s terms. Discounting is important to account for the simple fact that we generally value present benefits more than future benefits. The IER analysis does not include any discounting and therefore overestimates the true dollar-benefits of lifting oil and gas restrictions. For example, applying a standard 5% discount rate to the $31.7 trillion benefits would reduce the amount to $12.2 trillion.

5. Calculated benefits are not additional to the status quo
The IER report suggests that the $31.7 trillion would be completely new and additional to the current status quo. This is false. One must compare these projections against a future scenario in which the restrictions are not lifted. Currently, the plan doesn’t examine a future in which these oil and gas restrictions remain and still produce large economic benefits, while protecting the environment.

6. No consideration of environmental costs
Another significant failure of IER’s report: even if GDP growth was properly estimated, it would not account for the environmental costs associated with this uptick in oil and gas development and use. This is not something that can be ignored, and any serious analysis would address it.

We know drilling activities can lead to disastrous outcomes that have real environmental and economic impacts. Oil spills like the Deepwater Horizon and Exxon Valdez have demonstrated that tragic events happen and come with a hefty social, environmental and hard dollar price tag. The same can be said for natural gas leaks, including a recent one in Aliso Canyon, California. And of course, there are significant, long-term environmental costs to increased emissions of greenhouse gases including more extreme weather, damages to human health and food scarcity to name a few.

The Bottom Line: The $50 Trillion is An Alternative Fact but the Safeguards America will Lose are Real
These factors fundamentally undercut President Trump’s promise that Americans will reap the benefits of a $50 trillion dollar future energy industry. Most importantly, the real issue is what is being sacrificed if we set down this path. That is, a clean energy future where our country can lead the way in innovation and green growth; creating new, long-term industries and high-paying jobs, without losing our bedrock environmental safeguards. If the administration plans to upend hard-fought restrictions that provide Americans with clean air and water, we expect them to provide a substantially more defensible analytical foundation.

Posted in Markets 101, Politics, Trump's energy plan / Leave a comment

America needs critical energy data in a “post-fact” world: 2 quick examples

This post originally appeared on EDF’s Voices blog.

We learned earlier this month that scientists are rushing to save critical climate data on government websites before the Trump administration takes over in January. They fear that such data may be deleted and forever lost, and it’s not hard to see why.

The incoming administration has announced plans to roll back existing climate change initiatives and there have been proposals to cut research programs that support a broad range of scientific expertise, such as weather prediction critical to farmers and to states vulnerable to major disasters.

In addition to science-based climate data, however, there is concern that other critical information and analyses under the purview of agencies such as the U.S. Department of Energy may be imperiled early next year. Unbeknownst to many – including, perhaps, to the president-elect and his circle of insiders – all these datasets benefit a broad range of sectors that rely on solid economic forecasting.

Here are just two datasets that are absolutely central to the work economists and analysts do to help industry and other decision-makers interpret energy opportunities and challenges in a rapidly changing world.

1. Energy forecasts: companies depend on them

The Annual Energy Outlook reports produced by the Energy Information Administration – a 30-year-old, independent office within the Energy Department – offers economic and energy forecasts with data invaluable to the transportation and manufacturing sectors, among others. Researchers, regulators and policymakers use them, too.

It includes data on economy-wide energy consumption and electricity prices all the way down to minute information such as carbon emissions from residential clothing dryers. Companies use the report to inform energy cost projections as they strategize and forecast business operations.

This way, an aluminum smelting company that uses a very energy-intensive process, for example, can anticipate changes in energy prices and make decisions accordingly.

We already heard about a proposal to cut NASA’s climate research funding, so it’s no mystery we also worry about how a report such as the Annual Energy Outlook could be affected by a wider crackdown on scientific and economic research and data generation.

Notably, EIA was part of a controversial questionnaire the Trump administration recently sent the Energy Department.

2. Cost comparisons: help investors be smart

The cost of renewable energy is a constant source of debate and has a direct impact on innovation and investment. A utility that needs to add generation, for example, must remain informed about how the operational costs of wind turbines compare with those of a natural gas-fired power plant.

The Energy Department’s prestigious National Renewable Energy Laboratory provides a terrific amount of research on the costs of this and other sources of renewable energy, feeding them into tools such as the Transparent Cost Database.

These estimates help investors as well as consumers evaluate the cost of renewable energy sources in direct comparison to fossil fuels in an unbiased way. The outcome is smarter and more informed decisions.

Our national labs would be overseen by Texas Gov. Rick Perry if he’s confirmed as the Trump administration’s secretary of energy. The governor, who lacks the science credentials of past energy secretaries, once said he would eliminate the agency altogether.

So why the panic over data?

We know that many of the people picked for the Trump cabinet so far openly question climate science, or science in general, and that several of the nominees who will oversee agencies producing such data have a history of putting the interest of the fossil fuel industry ahead of progress on clean energy.

Beyond that, potential budget cuts are looming. Government agency heads opposed to climate action or investments in renewable energy could easily starve the programs that maintain, update and share data with the public if such information no longer fits the administration’s agenda.

Scientists are thus taking steps to download data in preparation for the day when access may be interrupted.

But a country needs hard facts and sound evidence to make smart decisions about its energy and economic future. So we need to continue to lean heavily on the apolitical data that hardworking researchers in government produce for our industry, farmers, entrepreneurs, local and state policymakers, and world-renowned researchers.

Perhaps more than ever before, we must protect and defend this vital information.

Posted in Climate science, Politics / 1 Response

Fossil fuels haven’t lost the race, yet. Here’s the full story.

Source: Flickr/Nick HumphriesA recent Bloomberg New Energy Finance article made a splash saying that fossil fuels “just lost the race against renewables.” It included a striking chart, depicting changes in power capacity additions with very clear diverging trends.

Although this would be a delightful turn of events, we should be wary of putting the cart before the horse.

What may be lost on many readers is the fact that Bloomberg bases its story on power capacity, rather than actual power generation. Read More »

Posted in Uncategorized / Leave a comment

We can get better biodiversity outcomes from environmental markets

This post was co-authored with Sara Snider and Stacy Small-Lorenz. 

 

Join us in Washington, DC on December 8 for a pre-ACES Conference workshop- “Getting Better Biodiversity Outcomes from Coordinated Environmental Markets.”  We welcome anyone interested in exploring the space where environmental markets, including habitat markets, interact with each other and conservation programs. Come investigate with us how biodiversity can benefit from the optimal design and coordination of markets.

Getting Better Biodiversity Outcomes from Coordinated Environmental Markets is a free pre-conference workshop for ACES Conference attendees.

Monday, December 8, 2014

1:00-4:30pm

Washington, DC

Register here for the ACES Conference and sign-up for this workshop!

Aligning Incentives to Maximize Environmental Benefits

Environmental markets have the potential to enhance and conserve key elements of ecosystems; however, this requires coordinated and informed decision-making. During the workshop, we will explore the evolution of habitat markets and how such markets should be designed to achieve the greatest net benefit, covering both biological and regulatory considerations of habitat market design. We will also discuss scenarios in which it could be appropriate to combine habitat markets with other markets (e.g. water and air quality) to create added-value incentives.  We will emphasize topics such as the interface of markets with federal conservation programs, the challenge of establishing baselines for landowners enrolling in habitat markets, as well as the economic and legal challenges of stacking.

 

Engage with Environmental Market Experts around Case Studies

Environmental markets experts will lead us through an engaging discussion of the challenges and opportunities for biodiversity markets and stacking in moderated panel and breakout discussion format. Confirmed panelists include:

  • Jessica Fox, Senior Project Manager, Electric Power Research Institute
  • Kevin Halsey, Senior Consultant, EcoMetrix Solutions Group
  • Chris Hartley, Environmental Markets Analyst, USDA Office of Environmental Markets
  • Rene Henery, California Science Director, Trout Unlimited
  • Alex Pfaff, Professor of Public Policy, Economics and Environment, Duke University
  • Morgan Robertson, Assistant Professor, University of Wisconsin
  • Jeremy Sokulsky, Chief Executive Officer, Environmental Incentives
  • David Wolfe, Director of Conservation Strategy, Environmental Defense Fund
  • Stacy Small-Lorenz, Senior Scientist, Environmental Defense Fund (Moderator)

Workshop participants will have the chance to discuss basic and complex questions around these topics by working through real-life scenarios. We will touch upon potential pitfalls, such as double-dipping, legal inconsistency, and market incompatibility, as well as the challenge of establishing baselines for landowners.  As environmental markets move forward to incentivize better biodiversity outcomes, we must be ready to collaborate and coordinate with fellow ecosystem service professionals to achieve real success.  Let’s get started at the ACES Conference!
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Enter the Conversation

EDF has a long history of creating innovative market-based solutions to our environmental challenges, including the historical trading program in the 1990s that dramatically decreased acid rain and reduced exposure to harmful pollutants. Now, we continue to develop multiple markets in order to maximize environmental benefits, such as habitat restoration and carbon sequestration. A Community on Ecosystem Services’ (ACES) Conference this December provides an in-depth forum for exploring these topics with representatives from government, academia, conservation NGO’s and the private sector.

Posted in Uncategorized / Leave a comment