Some recent posts examining estimates of the social cost of carbon (SCC) noted that the SCC applies to the world as a whole: it is the global concentration of CO2—irrespective of the geographic origin of emissions—that prompts concern over climate change. How does that fact translate into costs facing one or another CO2-emitting country?
Pennsylvania has seen the development of more than
5,000 7,000 hydraulically fracked shale gas wells since 2004. The fracking process itself requires water and other liquids to work, not to mention rigs, other equipment, and labor, to fully develop the well. The water used in hydraulic fracturing is primarily brought to and from a well via tanker trucks, sometimes requiring more than a thousand trips per well—and much of these trips are along rural roads or through small towns.
Until now, there have been no statistical estimates of the causal effects these tanker trucks have on accidents, and the consequences of such accidents on human morbidity and mortality, and property damage. Such impacts would constitute external damages from shale gas development—damages that the companies (and regulators) may not take into account when they make decisions about developing the resource.
Now we are able provide preliminary analysis of the data that link well development activities to traffic—related accidents at the county level in Pennsylvania. On one hand, we expect to find such links because any increase in traffic will lead to increases in accidents, other things equal. This is a social cost of economic development and growing wealth. However, these links with shale gas development can be made—at least tentatively—because of the large degree of spatial and temporal variation of shale gas well development and knowing whether a heavy truck was involved in the accidents.
On Friday, I wrote that EPA’s newly-proposed performance standards for GHG emissions from new power plants (NSPS) mostly preserved the agency’s earlier approach of putting gas- and coal-fired plants in the same “source category”:
It’s true that the new proposal would revert to EPA’s past approach of separating steam plants, including natural gas combined cycle plants (category “Da”), and pure gas turbines (category “KKKK”), but that longstanding approach does keep most coal and gas generation in the same category.
Upon closer reading, I don’t think that’s correct. EPA’s decision to keep the Da and KKKK categories intact, rather than creating a new, combined, TTTT category, does appear to split gas and coal. That’s not good. As I noted in Friday’s post, existing-source performance standards (ESPS) to be proposed next June will almost certainly use the same category definitions. If coal and gas remain separate, then it’s much more difficult for the agency to legally permit trading between the two. This sharply limits the cost-effectiveness of the ESPS – either emissions reductions will be less than if trading were allowed, costs will be higher, or both.
Drawing from more than 20 years of economic study, Daniel F. Morris and Clayton Munnings argue that the regressive impacts of a carbon tax can be addressed by well-crafted policy.
In some circles, a tax on carbon dioxide emissions is presented as a bogeyman that will make poor people even poorer. As quiet discussions continue about the viability of carbon taxes to help address the nation’s fiscal issues, the potential impacts to low-income groups from higher energy prices will no doubt be used to fight against progress. Economic research from the past few years, however, suggests the negative effects of carbon taxes on these groups are not as extensive as politicians would tell us.
Although putting a price on carbon may possibly have regressive impacts, economic estimates can overstate these impacts by using short-term or nonrepresentative income measures. In fact, some research suggests that a carbon tax may even be progressive in certain cases. Moreover, it would not be difficult to craft market-based control policies that protect vulnerable classes of citizens while reducing the country’s greenhouse gas emissions.
In a recent RFF issue brief, we underscore both these points. We surveyed more than 20 years of economic study to determine how households are impacted by carbon taxes and how to limit or offset income losses to low-income populations. The results provide some useful guidelines for designing carbon taxes in the United States. Critical findings include the following:
- Carbon taxes are probably not as regressive as they are often characterized, and they appear even less regressive when using measurements based on annual household consumption or accounting for tax effects for producers. In some cases, they may be slightly progressive.
- Regional differences in the effects of a carbon tax are small.
- Government programs that index to inflation may contribute to a more progressive tax.
- Low-income households can be compensated for increased prices with carbon tax
revenue. If it is returned through direct rebates, the results will be progressive and reach more households, but targeted tax swaps may have similar effects.
To read the rest of this article, click here.
Update: I’ve revised my understanding of EPA’s proposal and this post is no longer correct. See the update here.
EPA released a major and long-awaited proposed regulation today, but the most important news might be something it didn’t do, and how that affects the next major step in regulating carbon under the Clean Air Act.
Today’s release is a revised proposal for performance standards applying to new fossil-fuel power plants (new source performance standards, or NSPS). As widely expected, the proposal includes separate standards for coal and gas plants – 1100 lbs of CO2 per megawatt-hour for the former, and
800 1000 lbs/mWh for most some of the latter. This division into two standards is the biggest change from the proposal the agency released last year, which would have set a single standard of 1000 lbs/mWh for both.
This is not a big change, at least for purposes of this rule. It superficially appears to give coal a bit more leeway, but new coal is still extremely unlikely to be able to meet the standard without carbon capture and storage technology—which EPA and others are aggressively promoting when they talk about the rule, though it is not yet commercially available. EPA administrator Gina McCarthy called the new proposal “flexible” in a speech this morning because of its separate standards for coal and gas, but that’s not really flexibility. Each new plant, whether coal or gas, still has to meet the applicable standard. This isn’t due to any conservatism or lack of creativity on EPA’s part, however—the Clean Air Act requires each new source to meet the standard. In other words, NSPS can’t really be flexible (though existing source standards, or ESPS, probably can—more on that below).
The newest issue of Resources magazine looks at the need for collaboration to solve complex environmental challenges. Highlights include an interview with RFF Resident Scholar Len Shabman on developing a “payment for environmental services” program, lessons learned from climate policies in California and Sweden, and more, including:
Regulating Emissions from Bioenergy: What Life-Cycle Assessments Tell Us
As the US Environmental Protection Agency considers whether to apply emissions standards to wood biomass fuel, new research suggests that this renewable energy source will actually generate net emissions reductions over the course of its lifetime.
Evaluating New Approaches to Increase Funding for State Parks
Margaret A. Walls
Financially struggling state park systems are in need of fresh sources of funding, whether from user fees, privatization, dedicated public funds, or voluntary contributions. Determining the right approach requires careful consideration of the advantages and disadvantages of each option.
The Endangered Species Act at 40: New Tools for Conservation
Lynn Scarlett, Rebecca Epanchin-Niell, and Matthew McKinney
After four decades of implementing the Endangered Species Act, the challenge now is to engage private landowners, encourage large-scale conservation, increase collaborative management, and incorporate new sources of funding.
Designing a Fair Carbon Tax
Daniel F. Morris and Clayton Munnings
The past 20 years of economic research suggests that the negative effects of carbon taxes on low-income groups are not as extensive as some believe.
Is the shale gas boom good or bad for climate? It largely depends on methane.
Methane, the primary constituent of natural gas, is a double-edged sword in climate terms. It burns much cleaner than coal—about half of the CO2 emissions and far less of most other pollutants for the same energy output. But released directly into the atmosphere it’s a much more potent GHG than CO2, at least over the short term. This leads to a pretty simple prescription: burn all the methane you pull out of the ground. But it is probably impossible to prevent all leaks, so the advantage of natural gas over coal, and its prospects as a “bridge” fuel, depend on exactly how much “fugitive” methane emissions occur. Estimating real world emissions is very hard, and has been surrounded by controversy. At something a bit over 3% emissions of total methane production, natural gas no longer beats coal in GHG terms (though this, too, is controversial, and depends on assumptions and policy goals).
EPA’s “bottom-up” estimates of fugitive methane emissions are pretty low—less than 2% of gas produced for all stages of gas production, processing and distribution, though these numbers are much lower than EPA’s previous estimates. Other “top-down” studies have found much greater emissions, as high as 6-12% in a Utah field. All of these studies have come under considerable criticism, with the result that fugitive methane emissions are widely regarded as the most important unanswered question on the environmental impact of the gas boom. A new study, funded in part by the Environmental Defense Fund and long-awaited by researchers, aims to fill part of that that gap. Results released this week look at gas production by measuring methane emissions from almost 200 natural gas production “sites” including production wells, newly drilled wells, and related facilities. Results for other parts of the gas lifecyle will be released later.
Affordability of Flood Insurance
This year, the Biggert-Waters Act of 2012 will remove the subsidies from many home flood insurance policies to reflect “the full ‘risk-based’ rate,” triggering significant rate increases for many homeowners. This has caused business groups, politicians, and others to call for a delay of “some of the largest increases until the 2015 fiscal year.”
In a new RFF issue brief, RFF Fellow Carolyn Kousky and co-author Howard Kunreuther of the University of Pennsylvania’s Wharton Risk Management and Decision Processes Center write that the National Flood Insurance Program (NFIP) “must address affordability, but that this should not be done through discounted premiums.” They propose a new approach: creating a voucher program coupled with financing risk reduction measures through low-interest loans. “By requiring hazard mitigation,” they write, “future disaster losses would be reduced for both the NFIP and for the low- and moderate-income families.”
Carbon Tax Referendum
Prime Minister-elect of Australia and Leader of the Liberal Party Tony Abbott said that the parliamentary election in his country was a “referendum on the carbon tax.” In the United States, however, perception is split. Rep. Earl Blumenauer (D-OR) was quoted saying that he doesn’t think it’s “an international referendum on a carbon tax,” while Rep. Corey Gardner (R-CO) said “I think it’s very much a warning.” And Sen. Sheldon Whitehouse (D-RI) feels that “ultimately a [US] fee on carbon pollution is inevitable.”
Although political debates will continue, RFF’s Raymond Kopp, senior fellow and director of RFF’s Center for Climate and Electricity Policy, believes that “it’s time to end the discussion of the impact a carbon tax would have on US economic growth . . . it has no substantial impact.” He cites new analysis by RFF researchers showing that a “broad-based, revenue-neutral tax on carbon dioxide emissions would have imperceptible effects on macroeconomic growth as measured by GDP.” Read the full report here or watch a video discussion of the findings here.
Climate scientists predict many weather-related extreme events may be changing in frequency or intensity as the climate warms, or their location, timing, and duration may be changing. The public also perceives a trend toward more extreme events which they pin on climate change: a 2012 poll of U.S. residents by researchers at Yale found that, by a margin of 2:1, people believe that the weather is getting worse, and a large majority believes climate change contributed to the severity of several recent natural disasters.
How costly are natural disasters? And how worse are they getting? It may seem like a simple task to add up the costs of a disaster event, but it is quite challenging in practice. How the spatial and temporal boundaries are drawn can make a difference. It is easy to double-count losses when funds are being transferred across many different groups. And while some categories of damage are easy to observe and measure, others are difficult, such as loss of family heirlooms or the economic value of pain and suffering. There are only a few reliable and comprehensive databases of disaster costs and they all likely underestimate the hypothetical true costs by failing to include hard-to-measure losses.
To obtain an estimate of the average worldwide costs of weather related extreme events—those most likely impacted by climate change—I collected yearly estimates of the total costs of weather-related disaster events globally between 2000 and 2012 from the four main institutions engaged in this exercise: Swiss Re, Munich Re, the Centre for Research on the Epidemiology of Disaster (EM-DAT database), and Aon Benfield. These institutions pull together data from various sources to generate estimates of the direct costs of disasters globally. They all have slightly different criteria for what counts as a “disaster” and use slightly different sources. Their estimates for the global costs of weather-related natural disasters are shown in Figure 1. Across these four sources, the average annual cost worldwide for weather-related disasters over this time period ranges from over $94 billion (EM-DAT) to over $130 billion (Aon Benfield).
I would like to thank Steve Bowen at Aon Benfield, Bridget Carle at Swiss Re America, and Angelika Wirtz at Munich Reinsurance Company for supplying the data.
A big question is whether disaster costs are increasing. The short answer is yes (fatalities, on the other hand, have been trending down). The question of why is more complicated. Many studies have been undertaken to tease apart different drivers of the observed upward trend in inflation-adjusted disaster costs. In these analyses, researchers standardize disaster losses by measures of wealth and population. If the trend disappears for these standardized measures, it suggests the higher costs are due to more wealth locating in risky areas. The conclusion from all these papers is that the majority of the upward trend in losses observed to date is from more people and capital locating in hazardous locations, but even after correcting for this, there may be a small upward trend for certain regions and hazards, such that climate signals are beginning to be seen in historical loss data (for example, large thunderstorms in the Eastern US). Of course, projections going forward are quite different than observing historical losses, which is what is done here.
What does the time trend look like for the four data sources in Figure 1? As a simple way to explore this, Figure 2 shows a fitted plot for each data series over the period 2000 to 2012. The upward sloping lines suggest a trend toward higher losses. Consistent with other findings that much of the trend can be explained by higher wealth, however, when these damage series are simply regressed on a time trend, it explains more of the variation of damages, as opposed to damages per unit wealth (using global GDP data from the World Bank).
Figure note: Fractional polynomial fit to each series.
There are many opportunities for cost-effective investments in hazard mitigation, and as the climate changes the risk profile of many weather-related events, we may see more such actions being taken. While it is easy to think of risk mitigation and adaptation to changing risks as one-off investments, such as installing hurricane shutters, or discrete policy changes, such as upgrading building codes, this fails to account for how deeply communities may be adapted to the current risks they face. Changing institutions, such as emergency response frameworks or water rights, which may be designed for a certain climate, is long-term process. And widespread adoption of even cost-effective, one-off measures can be a challenge, as up-front costs can be substantial and there is an on-going debate about who should bear these costs.
For more information, see:
Kousky, C. (2012). “Informing Climate Change Adaptation: A Review of the Economic Costs ofNatural Disasters, their Determinants, and Risk Reduction Options.” RFF Discussion Paper 12-28. Resources for the Future. Washington, DC, July.
This post originally appeared on Robert Stavins’s blog, An Economic View of the Environment.
On September 2nd, Ronald Coase, professor emeritus of economics at the University of Chicago Law School, Nobel laureate, and principal creator of the academic field of law and economics, passed away at the age of 102. Numerous, lengthy obituaries have appeared in the national and international press. And in an effective essay posted at the Energy Economics Exchange web site, Severin Borenstein, professor of economics at the University of California, Berkeley, wrote about the effect that Coase’s thinking had decades ago on his own intellectual development (while lamenting that the Wall Street Journal in its own tribute to Coase had twisted the implications of his work to fit the Journal’s view of the world).
The passing of Professor Coase brings to mind an essay I wrote for this blog in July of 2012, in which I recalled that a group of economists and legal scholars had gathered in December, 2010, at the University of Chicago to celebrate two notable events. One was the fiftieth anniversary of the publication of Ronald Coase’s “The Problem of Social Cost” (Coase 1960). The other was Professor Coase’s 100th birthday. The conference resulted in a special issue of The Journal of Law and Economics.
Robert Hahn (of the University of Oxford) and I were privileged to participate in the conference (a video of our presentation is available here). We recognized that the fiftieth anniversary of the publication of Coase’s landmark study provided an opportunity for us to examine one of that study’s key implications, which is of great importance not only for economics but for public policy as well, in particular, for environmental policy.