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Category: Environmental Law

1

Do Initial Allocations of Property Rights Matter?

If the last two years of American economic life have demonstrated anything, it is that property rights are not static.  Sometimes things that were once private property become public property (see, e.g., Motors, General).  Sometimes things that were once public property become private property, then become public property again, before they presumably become private property again (see, e.g., Mae, Fannie).  And sometimes things that were once considered inherently communal and thus inamenable to private property rights at all, become divided and privatized (see,e.g., the air).

Tradeable carbon emissions allowances are an example of the latter.  There’s a lot to like in the cap-and-trade programs proposed under the Waxman-Markey and Kerry-Boxer bills.  I hope some robust version of them passes and becomes law.  But one sticky issue that needs to be resolved is how initial allowances to fill airspace with carbon gases should be allocated.  Options include auctioning off all of the allowances, giving the allowances to existing carbon producers, and, most politically palatable, something  in between – some mixed proportion of free allocations and auctions.

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Economist Robert Stavins, in the Coasean tradtion, has insightfully argued that  (with some caveats, including that transaction costs in this cap-and-trade program are similar to the transaction costs in others) the initial allocation of allowances doesn’t matter in most significant ways:  it will have no effect on the distribution of allowances after trading, and will have no effect on the total magnitude of emissions and their attendant social costs.

But there is another factor economists have not addressed, that could effect the total magnitude of emissions and their attendant social costs, and that may well depend in part on the method of initial allocations: compliance.

Law Professor Christine Parker and political scientist Peter May, among others, have demonstrated that compliance with business regulation is highest when the regulated businesses believe that the regulatory regime is fair.  Lower levels of compliance reduce the effectiveness of the regulation in producing the desired outcome, and increase the costs of achieving it.  In the world of carbon emissions, this would mean a higher total magnitude of emissions and a reduced benefit to the public through the higher costs required to achieve them.

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My research into Icelandic fisheries suggests that in moving natural resources from communal to private property through cap and trade programs, initial allocations of rights do have an important effect on the perceived fairness of the regulatory regime, and thus on the willingness of the regulated to comply with it.

In Iceland, the government decided to protect fish stocks by freely allocating tradeable fishing rights and implementing catch quotas.  Permits were issued to fishing vessel owners based on their average catches during a three-year test period.  New entrants to the industry must now buy their way in by purchasing or leasing rights from others through the Icelandic Quota Exchange.  Although the system has been successful in reducing the overall catch, the perception that it is unfair has led to open defiance.  In an extraordinary case before the Icelandic Supreme Court, one fishing company did openly what many apparently do quietly — defied the system on the grounds that it was unfair.  

Transactions costs, of course, are inevitable, but it is not transaction costs that have produced resistance to the Icelandic system.  Rather, resistance is itself is a type of transaction cost, broadly construed, produced by the perceived unfairness of the initial allocation of rights.  In other words, the initial allocation of rights does indeed effect the overall effectiveness of a private property system. 

There has been considerable uproar over the potential free allocation rights to current carbon emissions producers.  Whether or not, as a matter of classical economic theory, the initial allocation of rights should effect the overall effectiveness of the program, the perception of fairness or unfairness will probably effect compliance with the system, and that in turn will effect its overall effectiveness.  It is important, therefore, for policy makers to bear in mind that the perceived fairness of initial allocations of property rights does indeed matter.

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Asteroidgate: The Rocket, Not the Asteroid, Packs the Punch

global_warmingEric Posner muses about Asteroidgate:

Suppose that astronomers around the world alerted us that a large asteroid is headed in our direction, and might collide with the earth in the year 2012.  The astronomers cannot give us a precise probability of collision because of many imponderables . . .  To build a defense system—say, rockets that would intercept the asteroid and knock it off course—would cost hundreds of billions of dollars . . . As is always the case, there are a few dissenters . . .   A scandal erupts when emails at the West Anglia Space Research Unit are released, and shows that some scientists tried to arrange a boycott of a journal that published a few articles of the skeptics.  At the same time, thousands of astronomers not connected with the West Anglia Unit continue to insist that the risk of a collision is very high . . . A few questions.  In this scenario, would there emerge an industry of non-credentialed “astronomy skeptics” in the press and public comparable to the current batch of “climate skeptics”?  My instinct is that the world would quickly get to work building the rocket system, and disregard the views of the skeptics.  Is this right or wrong?  If it is right, is there some reason to think that climate science and astronomy are different, justifying the skepticism about climate science that does not (yet) exist about astronomy?

This is a clever scenario, and its gives me a launching pad to talk about why climate-change skeptics and believers have reacted so differently to the same set of information: namely the stolen East-Anglia emails.

The Cultural Cognition Project has a perspective on this problem which may be helpful.  Dan Kahan, Don Braman, Paul Slovic, John Gastil, and Geoffrey Cohen wrote a paper called The Second National Risk and Culture Study: Making Sense of – and Making Progress In – The American Culture War of Fact. Using a large random and nationally representative study sample, the paper confirms that Americans are deeply divided over basic questions about the climate, such as “how much risk does global warming pose for people in our society?” Those divisions track the cultural identities that the project has often explored — and which relate back to pioneering work by anthropologist Mary Douglas. That is, group-grid theory.

Of particular interest, Kahan et al. tested the hypothesis that individuals’ perceptions about the same set of facts about the severity of the problem turned on what policy solutions were recommended to deal with it.  When the policy solution was nuclear power, hierarchical and individualist Americans were far less likely to discredit global warming facts than when the solution was an expanded set of anti-pollution measures.  Such individuals find expanded anti-pollution policy threatening to their identities: it suggests restriction of market activities (upsetting to individualists) and it implicitly challenges the legitimacy of the ruling order (upsetting to hierarchs).  Confronted with such a threat, individuals are less likely to credit information about increased risks of warming.  Conversely, egalitarians and communitarians were more likely to see global warming as a severe threat when the solution was anti-pollution control.

What does such research teach us?  Well, for one, it makes reactions to “climate-gate” easier to understand.  We know that people are looking at the benefit/risk calculus in highly polarized ways.  The East Anglia emails, which go to the weight of the evidence about warming, is yet more fodder in that filtered debate.  This  polarization is (notably) neither partisan nor conscious.

More importantly, the research suggest a very concrete strategy for those who worry about climate change and who want to see their position persuade unbelievers: you should be more attentive to finding politically congenial solutions, and spend less energy trying to use data to convince those you disagree with.  Thus, former VP Gore’s approach, which focused on staking out a data-driven position on the scope of the problem, has at best produced a fragile coalition in support of change, which will be undermined quickly when individuals are presented with alternative data, information about imperfect scientists, or threatening policy solutions.

Rounding back to Eric’s post,  the reason that asteroidgate seems like a clear example where an organized opposition would not emerge is that neither the underlying disaster nor the policy solution poses a threat to the identities of large and discrete groups of Americans. Expensive rockets simply aren’t the bogeymen that private-property-destroying pollution controls are.  The case would be different if the solution to our asteroid problem were to unequally burden a minority group.  In that scenario, egalitarians and communitarians would be much less likely to credit the risks of a massive asteroid than would hiearchs and egalitarians.

2

Braking Away

One of the benefits of being at GW is that I get to talk to Dan Solove in person. When I saw him on Wednesday, he reminded me that blogging doesn’t always have to be about my past books or future projects. Thanks, Dan!Traffic Sign

Depending on where you live, today or tomorrow is “Bike to Work” Day.  Bicycles have been around the US since at least 1866, when Pierre Lallement received patent no. 59,915 for a velocipede.  I’ve been an avid year-round bike commuter for 8 years now (aside from my 2 years in Kinshasa, Congo, when I couldn’t walk around the block without an escort), and, like most zealots, I like to proselytize. Now that I’ve converted to a bike commuter, I extol the economic and environmental benefits of riding:  bicycles don’t use any fossil fuels to get you from one place to another; an 8-mile bicycle trip keeps out about 15 pounds of pollutants from the air we are breathing; and somewhere between 6-20 bikes can be parked in one car parking space (mine is parked as a piece of art in my office).  Just as importantly, however, bike commuting is really fun. It is fast: even at my pace on the bike of 10-15 mph, I breeze right past people in cars. And it’s wonderful for my mental health. One of my friends interviewed me for a story she wrote for Good Housekeeping magazine (!) about how people find serenity. I told her I find serenity through writing articles and blog posts, but she wasn’t convinced; not until I told her about my bike commuting did she put pen to paper. So, as one corporate sports giant might say, Just do it!

14

Environmentalism by Breach of Contract

Tim DeChristopher, a Utah-based environmental activist, has discovered a new tactic in the war on global warming: intentional breach of contract. The Washington Post reports:

Instead of joining his protester friends on the snowy sidewalk outside the Bureau of Land Management office in Salt Lake City, Tim DeChristopher took a seat inside. In a room milling with oil and gas men who knew one another by sight, he was the unknown in a red parka, registering as a bidder in an auction for the rights to drill on 149,000 acres of federal land. DeChristopher was handed a red paddle bearing the number 70.

Half an hour later, he was raising it.

“I leaned forward to one of my colleagues and said, ‘This guy behind us is just running up the prices,’ ” said David Terry, a Salt Lake City oil-land man who routinely attends the BLM auctions. “And my friend said, ‘Yeah, he’s going to get stuck with a tract.’ ”

The University of Utah economics student got stuck with 13. Promising the federal government $1.8 million he does not have, DeChristopher emerged holding leases on 22,000 acres in the scenic southeast corner of Utah.

DeChristopher, of course, is judgment proof. Unlike the strategy of say the Nature Conservancy, which seeks to preserve wilderness through purchase or other contractual arrangements, DeChristopher’s goal seems to have been disruption and the running up of oil lease prices. He’s also apparently under investigation by federal agents. Not being a government contracts geek, I don’t know what federal statutes he may have broken by participating in the auction on a bad-faith basis. As an ordinary matter of contract law, however, his case creates some interesting issues.

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Philadelphia Inquirer Series on Bush’s EPA

Someone should be calling the Pulitzer Committee to nominate the Philadelphia Inquirer’s fantastic series of articles on the Bush administration’s environmental policy, titled “Smoke and Mirrors: The Subversion of the EPA.” Here’s just one part of one story that sets the tone for the series:

In January 2005, residents near the chlorine plant here discovered that it was the biggest mercury emitter in the state. Environmentalists warned them against eating fish from their beloved Hiwassee River. They appealed to the plant’s owners, Olin Corp., to do what 100 other chlorine producers had done: abandon a 19th-century process that emits tons of the dangerous neurotoxin. Olin refused.

In fall 2005, the Environmental Protection Agency weighed in – but not to take up the cause of residents. Instead, EPA called Olin with an offer. Would the Charleston plant like to be enrolled in Performance Track, an elite green club of the nation’s most environmentally progressive companies?

In return, Olin could expect regulatory breaks, such as fewer inspections and loosened requirements on hazardous waste disposal, not to mention positive publicity. Sherry Neidich, who has lived half her life a mile downriver from Olin’s plant, was stunned. “The EPA is a toothless dog,” she said. “What right does someone have to ruin my river? To poison our playground?” . . .

[The Inquirer has found that] the EPA has recruited companies with mixed – even dismal – environmental records to become Performance Track members. Despite offering members regulatory breaks and promoting the program as one that improves environmental performance, the EPA fails to independently verify that Performance Track companies actually reach their goals.

According to the series, there is widespread exasperation in the courts (even among very conservative Republican nominees) about Bush-era extremism. As James R. May, (a Widener University lawprof and chair of the American Bar Association’s annual Environment and Energy Resources conference) puts it, “All across the spectrum, judges are finding that virtually every environmental initiative of the Bush administration is illegal.”

Midnight Regulations

There was a good discussion of end-of-term regulations we can expect from the last days of the Bush Administration on the Diane Rehm show. Now the Washington Post has foreshadowed the lasting environmental impact the Bush agencies are planning:

Many of the rules that could be issued over the next few weeks would ease environmental regulations, according to sources familiar with administration deliberations. A rule put forward by the National Marine Fisheries Service and now under final review by the OMB would lift a requirement that environmental impact statements be prepared for certain fisheries-management decisions and would give review authority to regional councils dominated by commercial and recreational fishing interests.

Two other rules nearing completion would ease limits on pollution from power plants, a major energy industry goal for the past eight years that is strenuously opposed by Democratic lawmakers and environmental groups. One rule, being pursued over some opposition within the Environmental Protection Agency, would allow current emissions at a power plant to match the highest levels produced by that plant, overturning a rule that more strictly limits such emission increases. According to the EPA’s estimate, it would allow millions of tons of additional carbon dioxide into the atmosphere annually, worsening global warming. A related regulation would ease limits on emissions from coal-fired power plants near national parks. A third rule would allow increased emissions from oil refineries, chemical factories and other industrial plants with complex manufacturing operations.

Though these moves may be reversed under the terms of the Congressional Review Act, it has not proven to be very effective in the past. Senate holds may permit just one senator to keep in place a particularly retrograde rule–and the notice and comment needed to reverse it within the executive branch may take a long time. If the hold practice remains robust, Sens. Inhofe or Coburn of Oklahoma may simply block Congressional reversal of any of these moves.

Unintended Consequences Watch: Food Crisis

Could a misguided response to global warming be the main reason for current global food shortages? That’s the apparent conclusion of an incendiary internal study at the World Bank recently leaked to the Guardian:

Biofuels have forced global food prices up by 75% – far more than previously estimated – according to a confidential World Bank report obtained by the Guardian. . . . [P]roduction of biofuels has distorted food markets in three main ways. First, it has diverted grain away from food for fuel, with over a third of US corn now used to produce ethanol and about half of vegetable oils in the EU going towards the production of biodiesel. Second, farmers have been encouraged to set land aside for biofuel production. Third, it has sparked financial speculation in grains, driving prices up higher.

If this report is true, it should be a sobering reminder for progressives that “raising consciousness” about a particular problem is useless in the context of “politics-as-usual.” Many voices warned about the consequences of food/fuel competition for grains, but were dismissed as Cassandras and neighsayers. Consider this view from Lester Brown in 2006:

Now, almost everything we eat can be converted into automotive fuel. And once the price of oil surpassed $60 a barrel last year, the business of transforming wheat, corn, soybeans and sugarcane into fuel for cars instead of food for people became hugely profitable. As crops that have long sustained us are diverted to provide fuel, we [are setting up] a battle between the world’s 800 million automobile owners, who want to maintain their mobility, and the world’s 2 billion poorest people, who simply want to survive.

$60 a barrel–would that were possible now! In any event, the food/fuel crisis is a stark indicator that go-along, get-along politics in Washington (and the corn/car/oilman alliance that drives our energy policy) can have deadly consequences. It also teaches that inequality is the most important narrative frame and context for major policy decisions. Neoclassical economic thought tends to treat the fact of inequality as secondary, and it certainly isn’t comfortable for average drivers to recognize their complicity in troubling trends worldwide. But if progressives don’t keep the harsh facts of inequality foremost in their environmental advocacy, they risk creating sham crises which provoke “cures” that are worse than the disease they purport to cure.

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The Greening of Venture Capital

It seems that everyone is going green these days, and venture capital is no exception. VCs are directing lots of money to start-ups developing more efficient solar panels, synthetic ethanols, and other clean technologies. Some see this sector as the next Internet. There is huge market potential and a favorable political climate on both sides of the aisle.

There also appears to be widespread agreement that measures aimed at existing energy sources (like carbon cap-and-trade systems) might be useful in the short term, but that innovations in clean tech are our best long-term solution. President Bush repeatedly mentioned the need for clean technologies in a recent speech on climate change, and Al Gore made headlines when he joined the leading venture capital firm of Kleiner Perkins last November. According to the Financial Times, KP just tripled its set aside for future clean tech investments.

Yet for all the VC dollars being funneled to clean tech, there is a healthy dose of skepticism about its market potential. Some think that the real story here is liberal, rich-enough VCs like KP’s John Doerr using their market power to direct investors’ money to serve an environmental cause regardless of whether the investments will turn a profit.

Am I a clean tech believer or skeptic? Answer below the fold…

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Floods and Agricultural Conservation

Today’s Washington Post has an article on suggestions by natural resources professors that the recent flooding in Iowa have some manmade bases. Some of the human-related causes include increased wetlands development, increased use of subsurface drainage pipes, lowered crop rotation (away from crops that put down deep roots, and towards shallow-rooted crops like corn), and additional generation of sediment due to agricultural and development practices.

Many of these causes of flooding relate to agricultural practices. But whether the 2008 Farm Bill–the remainder of which was passed last night over an earlier presidential veto (complicated story)–will happen to address some of these potential problems will probably be in debate. A focus on growing corn is still likely to increase, given some of the biofuels production incentives contained in the 2008 Farm Bill.

Moreover, as environmentalists critical of the new Farm Bill have pointed out, the enrollment cap in the Conservation Reserve Program (in which farmers are given incentives to take environmentally sensitive lands out of crop production) is reduced from 39.2 million acres (in the earlier version of the bill) to 32 million acres in the current Farm Bill. And the enrollment cap for the Wetlands Reserve Program (in which farmers are given incentives to reserve wetlands) is reduced by 25%. And the 2008 Farm Bill didn’t contain the stronger of the contemplated Sodsaver provisions, which would have created disincentives for farmers to plow up native prairie grasses.

On the other hand, the Farm Bill also contains the first federal energy crop program to encourage the growth of cellulosic energy crops like switchgrass, which have deeper roots, And some of the payouts for the different voluntary conservation programs have increased, potentially increasing the incentives for farmers to enter these voluntary programs (in an attempt to address earlier criticisms that too often, farmers would find it more financially rewarding to opt out, rather than in).

Me, I’m still going through the various relevant provisions of this massive +200 page document to see what I think. But I’m interested in hearing from those of you who are more immersed in the agricultural side of things!

5

Hypermiling and EPA vehicle efficiency estimates

Thanks for the welcome, Daniel!

I’m just getting settled into being back in Madison after a long road trip to Texas and back, during which my partner D was generous in driving the entire time, because I am a wimpy (and not particularly skilled) driver. We decided to drive partly to reduce travel costs, and partly to lower our carbon footprint.

To make the drive more interesting, my partner (during stretches of little or no traffic) decided to practice some hypermiling techniques. The idea of hypermiling is to use various driving practices, like pulsing and gliding in order to exceed the US EPA’s estimated fuel efficiency on one’s vehicles. Some of the techniques used by hypermilers are are relatively noncontroversial (like keeping your car maintained), while others (like drafting off trucks to avoid wind resistance) are much more controversial (and many hypermilers avoid them). According to D, some of these techniques are more “fun” (like thinking about ways to use hills to one’s advantage, and planning one’s routes to avoid using the brake as much).

So what’s this foray into hypermiling accomplished? In our blue ’05 Prius, we managed to get over 70mpg (EPA’s combined city/highway estimate is 46 mpg), which is still nowhere near the over 100mpg that some hypermiling marathoners have achieved. In his defense, D’s just starting. But he still might need more practice before being anywhere near competitive in the upcoming 2008 Hybridfest MPG Challenge.

One interesting thing is the relationship between hypermiling and official estimated fuel efficiencies for vehicles. If gas prices keep increasing, will more people adopt some of the more efficient driving techniques of hypermiling? After all, there’s already been studies that suggest that the amount of driving has decreased as a result of high gas prices. So what if the amount of driving not only goes down, but the actual driving is done with gas efficiency in mind? Is there a point at which the EPA must change its techniques for estimating vehicle efficiency to adapt to changing driver practices?

Update: As commenter Jon Garfunkel points out, there’s a lot more nuance to this.

The historically cheap price of gas in the U.S. (and vast size of the country, and commutes) hadn’t encouraged enough drivers to think about buying fuel efficient cars. So the Energy Tax Act of 1978 added the “gas guzzler tax” to push the disincentives up front to the purchase of a new car (strictly speaking, it’s assessed to the manufacturer, who duly passes it along in the total sticker price.) After all, even the most economically rational consumer can best weigh in the cost of gas today, not in the future, when they’ll be buying most of it.

There’s one twist: the gas guzzler tax is calculated based on the EPA mileage estimate. And the EPA in fact changed their formula a year ago. They changed it not to reflect the obscure hypermileage subculture*, but instead some more real world factors of like the A/C, quick acceleration, etc. And thus it increased the number of cars subject to the gas guzzler tax. If fellow liberals here are looking for administrative measures over the last eight years to celebrate, this could be one of them.