6 Mar 2008
Energy Star Compact Fluorescent Light Bulbs:
EPA's savings calculator exaggerates savings
by Richard Belzer
in Regulatory Economics
Following up on yesterday's post, we now look at compact fluorescent (CFL) light bulbs. June Fletcher of the Wall Street Journal reported that the payback period for CFLs is "about four months." She provided no source for this figure. More...
5 Mar 2008
Energy Star Appliances:
EPA's savings calculator exaggerates savings
by Richard Belzer
in Regulatory Economics
Wall Street Journal reporter June Fletcher says (link temporarily available to nonsubscribers) it's not easy being green at home because a lot of heavily-promoted household renovations and products cost more that they deliver in environmental benefits, including energy savings. "Most homeowners like the idea of going green," she writes, " -- until they get the bill.
With home sales slumping and consumers rethinking their remodeling budgets, building contractors and suppliers are dangling green upgrades. They hope that energy-efficient systems and products made from sustainably harvested materials will hook consumers concerned about global warming, pollution and natural resources.Some consumers are willing to pay for green goods and services even if they are not cost-effective. Making significant headway into the market, however, requires that they demonstrate cost-effectiveness. Fletcher says there are two examples of green products that pass this test: home appliances and comfact fluorescent (CFL) light bulbs. Citing estimates from US EPA's Energy Star web site, Fletcher says Energy Star clothes washers and refrigerators have a "relatively short payback" of 3.5 years and 3.1 years, respectively, and that CFLs "pay back their extra cost in about four months."
Yet with a few exceptions, green materials and construction cost extra, making them a hard sell. Enermodal Engineering, a Canada-based consulting firm, estimates the premium at 5% to 10%, depending on how extensively a builder uses recycled materials and water- and energy-efficient products. When Specpan, an Indianapolis research firm, surveyed builders recently for Building Products magazine, the greatest number estimated a 10% to 19% cost increase when going green.
Today we look at the claims for Energy Star appliances. More...
3 Dec 2007
New CAFE Standards:
Will they be cost-effective?
by Richard Belzer
in Legislation, Regulatory Economics, Regulatory Policy
Wall Street Journal reporter Mike Spector writes on the draft agreement within the Congressional leadership on Corporate Average Fuel Economy (CAFE) standards. The text of the bill is not yet available, but Spector's reporting provides useful information. More...
27 Jul 2007
Who Pays the Cost of Regulation?
Insights from corporate income tax incidence
by Richard Belzer
in Regulatory Economics
Regulation is widely understood as a tax on the activity or person being regulated. Where these activities repair genuine market failures, benefits from regulation may result. If there are benefits from, say, automobile safety regulation, one would expect the beneficiaries to be persons who otherwise would have been killed or injured at the pre-regulatory safety level.
But what about the costs of regulation? Who bears them? More...
16 May 2007
Energy Efficiency Standards for Clothes Washers:
New evidence that prices are higher and performance is lower than government regulators predicted
by Richard Belzer
in Regulatory Economics
Consumer Reports says that new clothes washers do not perform as well as their predecessors. This is not normally observed in markets. Quality improves over time, as manufacturers constantly work to improve their products to satisfy what consumers want.
Why is quality declining? CR says the culprit is federal energy efficiency regulations. Clothes washers that achieve equivalent levels of cleanliness are much more expensive, and according to CR's testing, most machines perform worse than the products they replaced.
More...
30 Apr 2007
Why Revealed Preferences Beat Stated Preferences:
The case of compact fluorescent light bulbs
by Richard Belzer
in Regulatory Economics
Both "revealed" and "stated" preferences find their way into benefit-cost analysis. "Revealed" preferences are obtained from real-world data showing what people actually do. "Stated" preferences" are obtained from surveys showing what people say. It's an old maxim that what people say isn't what they actually do. That's why economists are In benefit-cost analysis, stated preferences are useful only if they adequately mimic revealed preferences.skeptical of pubic opinion polls. So surveys that measure, even accurately, what people say are only useful if they mimic what people actually do -- or would do, if there were markets.
The battle of the sexes over compact fluorescent light bulbs confirms that economists' bias in favor of revealed preference is justified. More...
11 Mar 2007
The Continuing Battle Between CO2 Puritans and Pragmatists
An update on Al Gore's carbon neutrality
by Richard Belzer
in Regulatory Economics
In July 2006, we posted an article in response to news stories about a speech former vice president Al Gore delivered at the Chautaqua Institution. According to Associated Press reporter Carolyn Thompson, Gore's "conscience is regularly challenged by a consumerism that contributes to the global warming he has made it his mission to reverse. After saying that he and his wife, Tipper, had adopted a "carbon neutral" lifestyle, he acknowledged that it was a difficult thing to do. " 'We've fallen into this pattern of consuming more and more and more and I'm part of it, I understand,' he said."
We were intrigued by the acknowledgment of personal responsibility in the news article (the speech itself does not appear to be online. So we did some research and learned that there is no generally accepted definition of "carbon neutrality." Nevertheless, the but the premise is simple. For every ton of carbon dioxide you emit, whether directly by your actions or indirectly by your consumption decisions, you undertake a compensating action or consumption decision that reduces carbon dioxide emissions by the same amount. In principle, your ledger of carbon debits would equal your ledger of carbon credits.
It's a pragmatic personal response to global warming that enables individuals to choose the optimal mix of actual CO2 reductions they want to make and how much cash they are willing to forgo instead. This is the standard economic theory prescription for solving a host of public policy problems that are defined by the existence of a negative externality in which the market price of an activity does not capture the full social cost.
We provided links to several nonprofit organizations that sell "carbon offsets" to people who want to mimic Gore's pragmatic approach. We noted that there are many other environmentalists who are highly critical of this pragmatic approach to global warming abatement. In their view, only actual reductions in CO2 emissions are legitimate and purchasing carbon offsets is not. We described this argument as being between CO2 Pragmatists and CO2 Puritans. The pragmatists are happy paying others to reduce greenhouse gas emissions on their behalf. It is no more a moral issue than paying someone else to mow the lawn. For CO2 Puritans, however, everyone must make a personal sacrifice in lifestyle, to personally share in the burden of reducing greenhouse gas emissions even if that means reducing energy consumption by (say) 60%.
The subject arose again in August when Peter Schweitzer published a commentary in USA Today claiming that Gore's professed carbon neutrality was hypocritical. Schweitzer was raising the banner of the CO2 Puritans (though it seems unlikely that he is one) because Gore had not actually reduced his "carbon footprint" in a manner consistent with his policy recommendations. Schweitzer's objections appear to have focused on the apparent disconnect between Gore's actions (which befit a CO2 Pragmatist) and his moralist rhetoric (which often tends toward CO2 Puritanism). Indeed, there is a significant disconnect between moral issues and economic remedies such as carbon offsetting, which are unambiguously amoral.
We were curious how well Gore was doing as a CO2 Pragmatist, so we posted an article estimating, based on limited information, what it required of the Gores to achieve a pragmatic form of carbon neutrality. For residential carbon-neutrality, we calculated that an annual payment of about $2,400 to one of these nonprofits would be sufficient, and noted that such an expenditure should not be a burden for Gore. For air-travel carbon neutrality, we used the conservative assumption that Gore's private air travel utilized an aircraft as fuel efficient as a Piper Seneca V. [A commenter doubts that Gore travels by Seneca V or its equivalent because it's a non-pressurized piston-driven aircraft. He also says corporate jets carrying 8 to 30 people burn 320 to 385 gallons per hour versus the 22 gph for the Seneca V. These changes would significantly increase our rule of thumb estimate of CO2 emissions from private aircraft, and of course, Gore's carbon footprint from air travel and the cost of carbon offsets necessary to neutralize it.]
Gore's carbon footprint is back in the news since the Tennessee Center for Policy Research distributed a press release containing actual electricity and natural gas consumption for the Gores' Nashville home. Subsequently, the political aspects of the story have been covered more than adequately.
Now that that aspect of the story has died down, we use it to address -- again -- the dispute between CO2 Puritans and CO2 Pragmatists. This dispute has serious ramifications for public policy on global climate change.
22 Dec 2006
How is "Big Oil" a Lot Like "Big Pharma"?
The economics of uncertainty in large-scale investments
by Richard Belzer
in Regulatory Economics
The pharmaceutical industry and the oil industry have a lot in common besides being the target for criticism. Recent news stories suggest that they have other important economic similarities:
- It takes billions of of R&D dollars to develop new drugs or develop new oil fields.
- Many of their investments don't yield salable products or marketable fuels.
- Both industries operate in regulatory regimes in which success may lead to asset expropriation.
9 Nov 2006
Regulation After the Election, Part 1
Strange bedfellows on Election Day +2
by Richard Belzer
in Legislation, Regulatory Economics, Regulatory Policy
Now that the mid-term election is over, what does it mean for federal regulation? A good economist is never wrong as a prognosticator. The answer to every question is, "It depends." Today we start scanning the entrails of the election to map out the new regulatory environment and answer the follow-up question, "Okay, Mr. Smartypants: depends on what?"
Today we venture into the always dangerous terrain (if you will) of carbon dioxide. Take a deep breath, but hold it. It may cost you to exhale.
More...20 Oct 2006
Gas Tax Economics
Reviewing Mankiw's proposal
by Richard Belzer
in Regulatory Economics, Regulatory Policy
Harvard economics professor and former Bush administration chief economist Gregory Mankiw says in the Wall Street Journal (subscription required) that Congress should raise the gas tax.
With the midterm election around the corner, here's a wacky idea you won't often hear from our elected leaders: We should raise the tax on gasoline. Not quickly, but substantially. I would like to see Congress increase the gas tax by $1 per gallon, phased in gradually by 10 cents per year over the next decade.
He gives seven arguments for his proposed $1 per gallon increase in the gas tax: (1) carbon dioxide abatement, (2) reducing road congestion, (3) relief from counterproductive regulations, (4) balancing the federal budget, (5) burden-sharing with oil producers such as Saudi Arabia and Venezuela, (6) a preference for consumption over income taxes, and (7) enhanced national security.
Which of these arguments stands up to elementary economic scrutiny?
More...
19 Sep 2006
Agency Responses to NAS Questions on Risk Assessment Practice
by Richard Belzer
in Information Quality, Regulatory Science
In June, the ad hoc National Academy of Sciences committee empaneled to review OMB's proposed risk assessment guidance asked several affected federal agencies to provide comments.
Neutral Source has copies of these comments in our Library.
More...11 May 2006
The Gasoline Crisis, Part 12:
Is the end in sight?
by Richard Belzer
in Regulatory Economics
The Washington Times is reporting
that the Administration has "declared an end to the supply
disruptions that sent pump prices over $3 a gallon last month."
More...
10 May 2006
The Gasoline Crisis, Part 11:
Gasoline prices are down, bill to eliminate the ethanol tariff is filed;
Buried insights from the FTC, and an Essay on celulosic biomass (!)
by Richard Belzer
in Regulatory Economics
Bits and pieces from today's news, including more than you probably wanted to know about switch grass. Also, Neutral Source has dredged up November 2005 Federal Trade Commission testimony in response to the last time Members of Congress alleged nefarious conduct in the gasoline business. More...
9 May 2006
The Gasoline Crisis, Part 10:
Senators Kyl and Feinstein propose to eliminate (or is it suspend?) the 54 cent/gallon ethanol import duty
by Richard Belzer
in Legislation, Regulatory Economics
On May 5 Sen. John Kyl (R-AZ)
announced that he and Sen. Dianne Feinstein (D-CA) "will introduce legislation on Monday [May 8] to
strike the 54 cent [per gallon] ethanol import tariff:"
Kyl's press release is reproduced
below; an essentially identical version is on Sen.
Feinstein's website.
More...
27 Apr 2006
The Gasoline Crisis, Part 7:
Waiving environmental regulations
by Richard Belzer
in Regulatory Economics
EPA Administrator Stephen Johnson has responded to President Bush's directive to waive environmental regulations responsible for recent price spikes and supply shortages. But it turns out that his authority is limited. He can only respond if the governor of a state asks. More...
