Environmental protection doesn’t cost jobs

There’s an excellent summary just posted by Paul Norton at the Larvatus Prodeo blog of an important work published in 1999 by US environmental economist Eban Goodstein. The Trade-Off Myth explodes a number of "green policies cost jobs" myths.

Some highlights:

Goodstein's survey of the available economic literature and research found that there was no [jobs versus economy] tradeoff at a macroeconomic level. The effects of environmental protection and regulation were minor compared to other factors including the monetary and fiscal policies of the state. On balance they were found to produce a slight employment benefit and economic stimulus due to the effects of public expenditure on environmental protection, corporate investment in abatement measures and accelerated technological innovation, the stimulus to the environmental protection industry, and the adoption of more labour-intensive production processes.

And in response to the familiar cry by big business that 'If we have to comply with new regulations we'll move overseas and take the jobs with us':

There were few examples of relocation of US plants to pollution havens... This was because: the cost of environmental regulation was small compared to overall business costs (especially wages); costs were only one factor in relocation decisions; modern production technology obviates environmental compliance costs by incorporating pollution control devices to begin with; and environmental compliance could yield benefits outweighing the costs.

Well worth a read.

Australia's national parks

I haven't talked much about national parks here but some blogs that have good discussion on national parks issues (particularly from an economic perspective) are the Environmental Economics blog (this recent post on park user fees is an interesting one), Neo Commons (written by a retired US Park ranger) and the Commons Blog. If you're interested in national parks and other conservation areas, check them out.

If you're concerned about Australia's national parks and reserves, you should also consider making a submission to the current Australian Senate Inquiry into Australia's national parks, conservation reserves and marine protected areas.

The Inquiry will examine the funding and resources available to meet the objectives of Australia's national parks, other conservation reserves and marine protected areas, with particular reference to:

• the values and objectives of Australia's national parks, other conservation reserves and marine protected areas;
• whether governments are providing sufficient resources to meet those objectives and their management requirements;
• any threats to the objectives and management of our national parks, other conservation reserves and marine protected areas;
• the responsibilities of governments with regard to the creation and management of national parks, other conservation reserves and marine protected areas, with particular reference to long-term plans; and
• the record of governments with regard to the creation and management of national parks, other conservation reserves and marine protected areas.

Submissions close on 1 March. There's already a few submissions up on the Inquiry website.

Why regulate the environment?

The NSW Independent Pricing and Regulatory Tribunal has been asked by the Premier to undertake a breathtakingly wide-ranging review of regulation in the State:

Review of the burden of existing regulation in New South Wales, identification of priority areas where regulatory reform could provide significant immediate gains to business and the community, and development of recommendations to improve the efficiency of Government regulation.

According to the terms of reference:

Well designed and targeted regulation is one of the central tools used by Government to deliver the social, environmental and economic goals of business and the broader community. However, regulation should only be used where it is needed, and efforts should be made to avoid inefficient regulation and minimise that which may be unnecessarily costly, excessive, or overly complex. Regulations that impose unnecessary burdens can impede competition, productivity, investment and innovation.

The purpose of the review is to:
1. identify areas of NSW Government regulation which are imposing a significant, unnecessary regulatory burden on business and the community; and indicate priority areas in which regulatory reforms could provide significant immediate gains to business and the community; and
2. develop recommendations for Government action to significantly improve the efficiency of regulation and reduce unnecessary regulatory burden on business and the community, including consideration of non-regulatory or incentive-based options for achieving this outcome.

The issues paper (PDF) contains some interesting discussion about the rationale for government regulation. The big ones:

• Monopolies: Counter tendency to raise prices and lower output.
• Natural monopolies: Facilitate competition, while harnessing benefits of economies of scale, by providing third party access to natural monopoly infrastructure.
• Externalities: Compel producer or consumer to bear full costs of production or consumption rather than pass on to third parties or society.
• Open-access externalities: Create property rights to promote conservation of scarce natural resources.
• Information inadequacies: Advise consumers to allow informed decisions (and hence the efficient functioning of the market).
• Continuity and availability of service: Ensure socially desired level of ‘essential’ service.
• Anti-competitive behaviour (eg, predatory pricing, collusion): Prevent anti-competitive behaviour and protect consumers from the ill-effects of market domination.
• Unequal bargaining power: Protect vulnerable interests where markets fail to provide for equal bargaining power.
• Scarcity and rationing: Public interest allocation of scarce resources.
  Distributional justice and social policy: Distribute according to public interest; prevent undesirable behaviour.
• Planning: Protect interests of future generations; coordinate altruistic intentions.

There's also some discussion of the impacts of regulation 'heavy-handed' and 'light-handed' regulation and alternatives to regulation, with some focus on market based instruments for environmental protection.

Well worth a read and if you've got something to say, you can make a submission up until 24 February. There'll be a draft report out at the end of March and a final report end of June.

The economic costs of bad public transport

Today’s Sydney Morning Herald has a couple of decent articles on the economic costs of Sydney’s worsening transport system, based on an economic analysis commissioned by the newspaper.

Among the impacts of worsening congestion are lower wages, investment and household consumption and higher inflation. The cause, according to the report, is too many cars and the solution lies in better pricing of public versus private transport:

If these predictions are to be avoided, a big shift in public attitudes on at least two issues is required: public transport and taxation. The city is relying less on public transport and more on cars, and the best way to reverse this trend is with prices.

The report says motorists now get "heavy subsidies" for using the road. They are receiving what economists call an inappropriate price signal - that is, the true cost of the activity is not being felt by the user. The cost of using a car needs to reflect the full social and economic cost of driving. If this is done, public transport should gain a big price advantage over cars and therefore more people will be encouraged to use it. But embedded cultural expectations - especially the growing emphasis on comfort and convenience - count against public transport. The centre's modelling suggests that in the future motorists will have to pay much, much more for the privilege of driving. Attitudes to taxation and government debt will have to shift.

The full report will be available soon from the Centre of International Economics website and should make interesting (if familiar) reading.

Debunking dodgy data

The New Economist blog has drawn my attention to an upcoming book that sounds fascinating, if a little esoteric. Beautiful Evidence is, as far as I can tell from the author’s website, about presenting data and information, especially in graphic form.

The chapters on “corrupt techniques in evidence presentations - what alert members of an audience or readers of a report should look for in assessing the credibility of the presenter” are online (in draft form) and should be particularly useful for anyone who needs to critically analyse industry or government (or other) spin – like, say, Sydney Water’s Environmental Impact Statement on the proposed desalination plant at Kurnell.

The Larry Emdur Institute for Behavioural Economics?

If anyone else out there has a preoccupation with reality TV and game shows ranging from Temptation to Temptation Island and justifies it on the basis of the insights it can offer into social psychology and behavioural economics (anyone?)… you’ll appreciate this article in the Wall Street Journal titled Why Game Shows Have Economists Glued to Their TVs.

Especially cool are the links to academic game show research available on the web.

Perhaps this could be a career move for Larry Emdur after the canning of the Australian Price is Right last October.

The Asia Pacific Climate Summit: Big business as usual

Seeing as I live in Sydney and write about environmental economics, you could be forgiven for asking why I haven’t written anything about last week’s Asia Pacific Climate Summit in Sydney. That's the meeting of the Kyoto naysayers – Australia, the US, China, Japan, India and South Korea.

Well, the truth is that nothing much happened. Really.

But here are some quotes to give you a flavour of the meeting, made in response to journalists' questions about whether we should really just leave climate change solutions up to the private sector:

From US Energy Secretary, Samuel Bodman:

The people who run the private sector, who run these companies, also have children and grandchildren, and they too live and breathe in the world and would like [climate change] dealt with effectively.

From Australia's Minister for Foreign Affairs, Alexander Downer:

The corporate world increasingly realises it has to be responsible. We are not trying to run some kind of police state. We don't support targets. We don't support that system.

So, business as usual then?

Some interesting sites

The Ecosystem Marketplace, run by the 'Katoomba Group' (comprising government agencies, non-profit groups, businesses and academic institutions) is a source of information on markets and payment schemes for ecosystem services - services such as water quality, carbon sequestration and biodiversity. Their idea is that by providing solid information on prices, regulation, science, and other market-relevant issues, markets for ecosystem services will one day become a fundamental part of our economic and environmental system, helping give value to environmental services that have, for too long, been taken for granted.

Imagining Australia is a blog about Australian public policy, with an emphasis on economic policy.

The New Economist blog has some interesting pieces about global economic issues, from a London-based macroeconomist.

How lawyers are like crack cocaine dealers

It’s Friday afternoon so let’s take a little break from environmental issues. I’ve been reading the entertaining Freakonomics: A rogue economist explores the hidden side of everything which included a chapter explaining why most cocaine dealers in the US live at home with their ‘Moms’.

The authors of the book stumbled on a treasure chest of data on crack cocaine gangs’ business operations in the ‘projects’ in Chicago. A young academic economist befriended (sort of) a gang and followed their activities. The gang leader, unusually, had gone to business school and was a business manager before deciding he could make more money heading up a gang. And he had kept meticulous books on the gang’s revenue and expenditure, something that is unusual for gang leaders to do. One of the gang members gave the books to the economist just before he was murdered by the gang and the books provide a unique insight – it’s not often that you can run your ruler over the accounts of a drug dealing business.

He found that the business model was a fairly typical pyramid structure. At the top was a group of men who were called, appropriately, the Board of Directors. They oversaw all operations in an area. They took about 20% of the revenue of each gang. At the top of each gang (which was like a franchise) was a leader, who earned about $100,000 (tax free of course). Under him were 3 deputies who earned vastly less – about $700 a month. The authors reckon this is about $7 an hour – or roughly minimum wage. Under them were about 25 – 75 actual dealers - called ‘footsoldiers’ - and they made about $3 an hour (which is why they live at home). Much less than minimum wage for an unpleasant and dangerous job.

Call me weird, but as I read through the chapter the thing that struck me was the parallels in the structure and business model and players to a large law firm.

Maybe that’s not much of an insight – after all, many large businesses have a similar pyramidal structure. But I wondered how many of the specific observations about the incentives and behaviour of the different players in a gang might shed light on the incentives and behaviour of different players in a law firm.

I’ll explore that in the next post and look at what the parallels between drug gangs and law firms might tell us about:

• whether partners really want their workplace to promote a ‘work-life balance’,
• why the biggest threat to a partner is young lawyers who don’t want to be partners,
• why graduates spend vast amounts of time doing tasks like discovery and due diligence that don’t require legal skills and could be done more efficiently by someone else, and
• why the pressure to work huge hours might be driven as much from below as from above.

Hunting feral animals on public land

The New South Wales Government is planning to open four state forests for the hunting of feral animals, at first on a trial basis. According to the Daily Telegraph:

Recreational hunters using rifles, crossbows and dogs will be allowed to kill feral animals in state forests and on public lands in a controversial trial next month. Licensed huntsmen will be allowed to hunt feral cats, dogs, deer, goats, pigs and foxes after the State Government approved the two-day trial in four public locations from February 4. However, a declaration published in the NSW Government Gazette on Friday reveals the four state forests have already been designated as the first official, full-scale hunting grounds. The proposed order allows hunting for five years in these areas, with hundreds more to follow in March.

My understanding is that private operators already do some feral animal control on public land, but under close government supervision – quite different to opening the areas up for hunting.

This is an interesting one for environmental economics as it’s an example of harnessing private self-interest to further public goals.

It will be interesting to see the public response to this – in theory it could achieve important environmental objectives but it also raises animal welfare issues (will the animals be killed humanely?) and the idea of opening up public land to hunters is not one that would appeal to many environmentalists.

Green groups are suspicious and suggest that native animals are likely also to become targets. Some suggest that the plan will encourage hunters to deliberately stock public lands with young feral animals to hunt at a later stage. Other possible problems include danger to other users of these areas and environmental damage caused by hunters and their vehicles and hunting dogs. Apparently hunting dogs also escape and become destructive feral animals themselves.

What do you think? Is this plan a fox in wallaby’s clothing?

Tasmania's wild rivers - mighty, free and full of poo?

Happy New Year!

My girlfriend and I have just returned from a great break in Tasmania. We stayed in Hobart most of the time with some side-trips across to the West Coast and down to the Huon Valley. We walked through the signature rainforests – huon pine, celery-top pine, sassafras and huge cool climate eucalypts such as the swamp gum – and crossed or travelled up the Huon, Franklin, Derwent and Gordon rivers and the huge Macquarie Harbour. Most of these rivers are a dark cola brown from the tannins from buttongrass on the highland plains at the rivers’ sources.

A little tragically, I was on the lookout for a hot environmental issue to write about here. Given Tasmania’s reputation for pristine wilderness and clean mighty rivers, it surprised me that the big issue in the news at the time was not old-growth logging or the cancer decimating Tasmanian devil population, but the fact that Tasmania’s main river – the Derwent – is not safe for swimming:

Public health authorities have welcomed efforts by the Hobart City Council to pinpoint what has polluted a popular swimming spot on the River Derwent. People are being advised not to swim at the Sandy Bay beach until further notice, because of faecal contamination.

Director of public health, Roscoe Taylor, says people risk contracting gastroenteritis, skin infections or respiratory disorders if they swim at the city end of Nutgrove Beach. He says it is hoped the beach will be safe by next summer but other beaches on the Derwent are more problematic. "It's very doubtful that Cornelian Bay will be up to swimming standard for quite a long time," he said.

The UN’s Atlas of the Oceans has this to say about the Derwent river estuary:

Named after the Celtic word 'clear water' in 1794 the Derwent estuary population has since grown substantially and now boasts 40% of Tasmania's population along its periphery. The estuary is an important and productive area with a variety of habitats including areas of wetlands, intertidal flats, kelp beds, seagrasses and rocky reefs that support a wide range of species, including black swans, oyster catchers, migratory bird species, penguins, dolphins and seals, platypus and seadragons [and] the critically endangered Spotted handfish...

As with many estuaries, local population growth has occurred resulting in estuary waters being used more and more for recreation, industry and marine transport. The upstream Derwent river provides the majority of the regions drinking water and is a source of energy via hydroelectric power stations. However these activities take their toll. Sedimentation has increased, there is heavy metal contamination, sewage problems, which together have lowered the oxygen level is some areas as nutrients have increased. Scallop dredging has destroyed seagrass and kelp beds, and kelp has been overharvested… large wetland areas in the upper estuary have also suffered recent degradation.

I reckon the health of rivers is one of the most widespread and intractable environmental challenges around the world. It’s something that environmental economics should be ideally placed to address because it’s about resolving conflicts over a common resource.

But what solutions does environmental economics offer to this? Is there any scope to create markets for river use? Is this something better left to planning law? Or is it something that should be looked after by government? How and who should decide what mix of uses a river should be put to? How do you resolve the competing claims on a river for drinking water, hydro power, irrigation, transport, recreation (swimming, fishing, boating), the protection of natural ecosystems, urban uses, industry, agriculture, forestry and so on?

Any ideas?