Expensive new EPA plan pushes for clean Chesapeake

A Washington Post article today describes a new EPA initiative designed to clean up the Chesapeake. While Marylanders stand to benefit if the Bay gets cleaned up, this article points out that most of the costs, which look to be well upward of $2 billion, lie with the headwater states.

Political ramifications: Maryland Governor Martin O'Malley predictably released a supportive statement, but I'm a little more surprised to see Virginia's Gov. McDonnell doing the same thing. I guess it's easier to play nice up front than to come out against the plan when it has been clear for awhile that this is where things were going.

Technical concerns: I'll have to read the report to get more details, but apparently cuts of 20-25% are called for each of nitrogen, phosphorus, and sediment. I'm not sure how they're going to monitor that, but at least the plan identifies some very specific areas such as sewage treatment in West Virginia and in Virginia as well as agricultural pollution in Maryland.

Bringing together all the stakeholders and achieving the lowest cost reductions is a huge challenge when each faces different incentives. This looks like another huge test of the command and control model of pollution control: hopefully it can succeed in spite of the high costs.

Adjusting the demand curve

New data on the amount of emissions has pushed the Air Resources Board in Los Angeles to lower emissions standards. Usually shifts in this direction come from the business community asking for help, but this time seems different (though the cries for help are also there, which is no surprise given the economy). Environmentalists oppose the move, saying that externalities are still larger than is being acknowledged. It's always tough to find an equilibrium when the market's not there to help.

Externalities are irrelevant

William Baumol has a cute comment in a recent review of his life's work:

I remember once asking Hayek whether, in the real world, externalities could justify some government intervention in the marketplace. He replied that this was true in theory but so rare and insignificant in practice that it hardly merited attention.

Backstops

Another basic principle of resources in the same newspaper today: clean energy suppliers should be worried, apparently, because some of the raw materials they use in making products such as compact fluorescent light bulbs come mostly from China. In other news, we can mine them here, but it's not worth it, apparently even with China slapping a hefty tax on exports.

If it's cheaper to do it over there, the market says to do it over there. Yes, economic models will be off by the way they assume away the costs of getting back into the mining game, but is that so huge? Seems to me that if and when it's worthwhile, we'll do it, but apparently it's not worth it even for CFL manufacturers to get into the business. If they aren't worried about it enough to secure their own supplies, should the rest of us be?

When one resource gets depleted it gets more expensive, and when it's more expensive people look for alternate sources. The alternate source is called a "backstop." In this case it looks like US rare earths are a backstop for Chinese rare earths.

Economics: making tough choices

I'm finally done with giving grades and it's time for me to turn my attention to preparing for next semester, when I'll be teaching Resource Economics. That class starts off by looking at tough choices, and there's a great example of that in today's NYT. Water in California is scarce and most likely getting scarcer. So how can they balance the needs of their population for water for household use, with the needs of an endangered species of fish, with the demands of one of the country's most productive agricultural regions? The job of an economist is to sort these things out based on the estimated benefits of all of these uses: where will the marginal impact of lost water be felt the least? Of course, in this case and many others economists really aren't called upon: the stakes are high enough that no one wants a (relatively!) objective analysis. That's when politics takes over, for better or for worse.

Should society pay millions per life to save lives?

It's not often that the tradeoffs are made so clear in the mainstream media. Today's NYT:

The delayed smog rule would lower the allowable concentration of airborne ozone to 60 to 70 parts per billion from the current level of 75 parts per billion, putting several hundred cities in violation of air pollution standards. The agency says that the new rule would save thousands of lives per year but cost businesses and municipalities as much as $90 billion annually.