Abstract: We extend the theory of quality-adjusted expenditure indices to estimate benefits from public investment. In particular, we model the selection of new instruments (in the form of remote-sensing devices) to enhance the longest-operating U.S. satellite-based land-observing program, Landsat. We then apply the model to the use of Landsat in measuring global forest carbon sequestration. Improving measurement of the role of forests in storing carbon has become a prominent concern in climate policy. By characterizing the value of Landsat data in forest measurement, the expenditure function allows us tohelp inform public investment decisions in the satellite system. The expenditure function also makes explicit the sensitivity of the selection of instruments for the satellites to the value of Landsat information, thus linking instrument choice explicitly to policy design.

Abstract: We demonstrate the diffusion in use of Earth observations data in social science research. Our study is motivated by the continuing debate among policymakers over the value of the nation’s investment in Earth observations. We also consider the role of related factors including the spread of geographical information systems (GIS; a complementary tool for using Earth observations data) and the role of data prices. We first estimate a diffusion curve and then draw from standard bibliometric methods to evaluate further the extent to which the research field is growing. We realize that these aspects of the value of Earth observations are often part of policy debate, but we offer insights into how to substantiate and document these claims. We find evidence of increasingly widespread use of Earth observations in an ever-widening number of applications and geographic regions. GIS and data prices influence this diffusion. However, we see less evidence of a community of practice within the large social scienceliterature represented in our data. These findings have implications for steps to take to increase the benefits of Earth observations.

Abstract: This paper informs the discussion of carbon price policies by examining the potential for adverse impacts on domestic industries, with a focus on detailed sector-level analysis. The assumed policyscenario involves a unilateral economy-wide $10/ton CO2 charge without accompanying border tax adjustments or other complementary policies. Four modeling approaches are developed as a proxy for thedifferent time horizons over which firms can pass through added costs, change input mix, adopt new technologies, and reallocate capital. Overall, we find that a readily identifiable set of industries experience particularly adverse impacts as measured by reduced output and that the relative burdens on different industries are remarkably consistent across the four time horizons. Output rebounds considerably over longer time horizons, and the adverse impacts on profits diminish even more rapidly in most cases. Overthe short term employment losses mirror output declines, while gains in other industries fully offset the losses over the longer horizons. At the same time, leakage abroad is considerable in some sectors, particularly when reductions in exports are considered.

Abstract: Despite the growing importance of voluntary programs as tools for environmental management, they have been subject to quite limited evaluation. Program evaluation in the absence of randomized experiments is difficult because the decision to participate may not be random and, in particular, may be correlated with the outcomes. The present study is designed to overcome these problems by gauging the environmental effectiveness of two voluntary climate change programs—the U.S. Environmental Protection Agency’s Climate Wise program and the U.S. Department of Energy’s Voluntary Reporting of Greenhouse Gases Program, or 1605(b)—with particular attention to the participation decision and how various assumptions affect estimates of program outcomes. For both programs, the analysis focuses on manufacturing firms and uses confidential census data to create a comparison group and to measure outcomes (expenditures on fuel and electricity).Overall, we find that that the effects from Climate Wise and 1605(b) on fuel and electricity expenditures are no more than 10 percent and probably less than 5 percent. Virtually no evidence suggests a statistically significant effect of either Climate Wise or 1605(b) on fuel costs. Some evidence suggests that participation in Climate Wise led to a slight (3–5 percent) increase in electricity costs that vanished after two years. Stronger evidence suggests that participation in 1605(b) led to a slight (4–8 percent) decrease in electricity costs that persisted for at least three years.

Abstract: Governments investing in long-lead technology development programs face considerable uncertainty as to whether the investment eventually will “pay off” for the taxpayer. This paper offers a framework to inform long-lead technology investment. We extend the theory of quality-adjusted cost indices to develop a conceptually rigorous, but data parsimonious, means of estimating consumer benefits from a new technology. We apply this model to a possible future electricity generation technology, space solar power (SSP). The United States, Japan, and other governments have begun investing in SSP but lack the benefit of a relevant economic context for informed decisions. We frame and analyze the economic relationship between SSP and competing electricity generation technologies with respect to direct costs, environmental externalities, and reliability. We also explicitly incorporate uncertainty and consider differences in the resource endowments available to electricity markets by considering four distinct world geographic regions.

Abstract: The animal husbandry industry is a major emitter of methane, which is an important greenhouse gas. The industry is also a major emitter of ammonia, which is a precursor of fine particulate matter—arguably, the number-one environment-related public health threat facing the nation. We present an integrated process model of the engineering economics of technologies to reduce methane and ammonia emissions at dairy operations in California. Three policy options are explored: greenhouse gas offset credits for methane control, particulate matter offset credits for ammonia control, and expanded net metering policies to provide revenue for the sale of electricity generated from captured methane gas. Individually, any of these policies appears to be sufficient to provide the economic incentive for farm operators to reduce emissions. We report on initial steps to fully develop the integrated process model that will provide guidance for policymakers.

Abstract: A key question in developing effective mitigation strategies for ozone and particulate matter is identifying which source regions contribute to concentrations in receptor regions. Using a direct approach with a regional, multiscale three-dimensional model, we derive multiple source-receptor matrices (S-Rs) to show inter- and intrastate impacts of emissions on both ozone and PM2.5 over the eastern United States. Our results show that local (in-state) emissions generally account for about 23% of both local ozone concentrations and PM2.5 concentrations, while neighboring states contribute much of the rest. The relative impact of each state on others varies dramatically between episodes. In reducing fine particulate concentrations, we find that reducing SO2 emissions can be 10 times as effective as reducing NOx emissions. SO2 reductions can lead to some increase in nitrates, but this is relatively small. NOx reductions, however, lead to both ozone reductions and some reduction in nitrate and sulfate particulate matter.

Abstract: In this study we use datasets from the 1995 and 2000 Community Water Supply surveys to examine the production costs of water supply systems. We first estimate the economies of scale in water supply by estimating the total unit cost as well as individual component cost elasticities. For total unit cost elasticity, we find that a 1% increase in production reduces unit costs by a statistically significant 0.16%. For individual component cost elasticities, we find that higher economies of scale exist in capital costs, outside costs, other costs, and materials costs; labor costs and energy costs exhibit lower but still positive economies of scale. These economies of scale may reflect production economies or suggest that larger systems are better than smaller systems at bargaining and can obtain inputs at a lower unit cost. Importantly, bargaining gains and some production economies do not necessarily depend on water systems’ becoming physically interconnected.

Abstract: We develop and estimate an index-based measure of expected consumer welfare under various carbon emissions control policies in the electricity generation sector. This approach estimates welfare effects by a somewhat less data intensive methodology than econometric approaches or more complex modeling. We include anticipated technological change in the production of renewable and nonrenewable power generation during the next two decades. We estimate welfare improvements from 2000 to 2020 as renewable energy technologies continue to be improved and gradually adopted, compared with a counterfactual scenario allowing for continual improvement of nonrenewable generation technology. We formally incorporate uncertainty. We evaluate the model under alternative carbon emissions control policies, including policies that create incentives through price mechanisms and policies that mandate the composition of the generation portfolio. We focus on three countries that differ widely in their power fuel mix: India, Germany, and the United States.

Abstract: In this paper, we develop an integrated cost-benefit analysis framework for ozone and fine particulate control, accounting for variability and uncertainty. The framework includes air quality simulation, sensitivity analysis, stochastic multi-objective air quality management, and stochastic cost-benefit analysis. This paper has two major contributions. The first is the development of stochastic source-receptor (S-R) coefficient matrices for ozone and fine particulate matter using an advanced air quality simulation model (URM-1ATM) and an efficient sensitivity algorithm (DDM-3D). The second is a demonstration of this framework for alternative ozone and PM2.5 reduction policies. Alternative objectives of the stochastic air quality management model include optimization of the net social benefits and maximization of the reliability of satisfying certain air quality goals. We also examine the effect of accounting for distributional concerns.

Abstract: Improved technology is often cited as a means to alter the otherwise difficult trade-off between the economic burden of regulation and environmental damage. Focusing on energy-saving technologies that mitigate the threat of climate change, we find that both energy prices and financial health influence technology adoption among a sample of industrial plants in four heavily polluting sectors. Based on a model linking technology adoption to growth in aggregate efficiency, we estimate that a doubling of energy prices, after raising the growth rate to 2.1%, would require slightly more than 50 years to generate a 50% improvement in aggregate efficiency relative to the baseline forecast.

Abstract: Most of the United States have laws mandating the recycling of municipal solid waste (MSW). In order to comply, municipalities recycle quotas of materials, without regard to fluctuating prices. An inventory system is proposed that allows municipalities to be sensitive to materials prices as they recycle in accordance with state mandates. A dynamic model is developed; it uses historical secondary material prices as exogenous inputs to minimize the net present value of MSW recycling system cost. The model provides a cost-effective method for municipalities to achieve their MSW recycling targets. The savings is approximately $1.43 per ton of MSW generated based on total MSW management costs of $13.5 per ton. The model also allows one to investigate the effectiveness of various strategies for increasing the recycling rate. These strategies include: reducing the transportation cost for recyclables, supporting the market price of selected secondary materials, and landfill bans on selected materials. This model may also be used to investigate the effect of market price changes on the portfolio of materials held in inventory for recycling.

Abstract:

Who will pay for new policies to reduce carbon dioxide and other greenhouse gas emissions in the United States? This paper considers a slice of the question by examining the near-term impact on domestic manufacturing industries of both upstream (economy-wide) and downstream (electric power industry only) carbon mitigation policies.

Detailed Census data on the electricity use of four-digit manufacturing industries is combined with input-output information on interindustry purchases to paint a detailed picture of carbon use, including effects on final demand. This approach, which freezes capital and other inputs at current levels and assumes that all costs are passed forward, yields upper-bound estimates of total costs. The results are best viewed as descriptive of the relative burdens within the manufacturing sector rather than as a measure of absolute costs. Overall, the principal conclusion is that within the manufacturing sector (which by definition excludes coal production and electricity generation), only a small number of industries would bear a disproportionate short-term burden of a carbon tax or similar policy. Not surprisingly, an electricity-only policy affects very different manufacturing industries than an economy-wide carbon tax.

Abstract:

In this paper we develop a cost index–based measure of the expected consumer welfare gains from innovation in electricity generation technologies. To illustrate our approach, we estimate how much better off consumers would be from 2000 to 2020 as renewable energy technologies continue to be improved and gradually adopted, compared with a counterfactual scenario that allows for continual improvement of conventional technology. We proceed from the position that the role and prospects of renewable energy are best assessed within a market setting that considers competing energy technologies and sources. We evaluate five renewable energy technologies used to generate electricity: solar photovoltaics, solar thermal, geothermal, wind, and biomass. For each, we assume an accelerated adoption rate due to technological advances, and we evaluate the benefits against a baseline technology, combined-cycle gas turbine, which experts cite as the conventional technology most likely to be installed as incremental capacity over the next decade. We evaluate benefits against both the conventional combined-cycle gas turbine prevalent at this time and a more advanced combined-cycle gas turbine expected to be employed during the coming decade. We estimate the model for two geographic regions of the nation for which renewable energy is, or can be expected to be, a somewhat sizable portion of the electricity market—California and the north central United States.

In present-value terms we find that median consumer welfare gains over 20 years vary markedly among the renewable technologies, ranging from large negative values (welfare losses) to large positive values (welfare gains). The effect of uncertainty can lead to estimates that are 20% to 40% larger or smaller than median predicted values. Our results suggest that portfolios that give equal weight to the use of each generation technology are likely to lead to consumer losses in our regions, regardless of the role of the externalities that we consider. However, when the portfolio is more heavily weighted toward certain renewables, consumer gains can be positive.

Abstract:

Managing the growing quantity of used electronic equipment poses challenges for waste management officials. In this paper, we focus on a large component of the electronic waste stream—computer monitors—and the disposal concerns associated with the lead embodied in cathode ray tubes (CRTs) used in most monitors. We develop a policy simulation model of consumers’ disposal options based on the costs of these options and their associated environmental impacts.

For the stock of monitors disposed of in the United States in 1998, our preliminary findings suggest that bans on some disposal options would increase disposal costs from about $1 per monitor to between $3 and $20 per monitor. Policies to promote a modest amount of recycling of monitor parts, including lead, can be less expensive. In both cases, the costs of the policies exceed the value of the avoided health effects of CRT disposal.

Abstract: Accurate estimates of pollution abatement costs are crucial elements of any rational effort to set or evaluate environmental policies. One of the primary sources of this information in the United States has been the Bureau of the Census (BOC) Pollution Abatement Costs and Expenditures (PACE) survey, which collected annual establishment-level data on abatement costs for most years between 1972 and 1994. After a five-year lapse, the PACE survey was restarted in 2000, collecting 1999 data. Yet as firms have turned to more comprehensive abatement strategies involving process and design changes, pollution prevention, and recycling, the PACE survey has faced a number of problems that limit its ability to accurately measure abatement costs. At the same time, both national and international interest in understanding the true costs of environmental protection has grown, along with the complexity of the research and policy issues currently under discussion. There is now widespread interest in redesigning the PACE survey to improve its usefulness to policymakers as well as to researchers. In March 2000, Resources for the Future (RFF) convened an expert workshop to consider a wide range of issues relevant to future PACE surveys. This report describes the workshop and derives a number of conclusions based on discussions at the workshop.

Abstract: In developing countries, urban clusters of manufacturers which are "informal"—small-scale, unlicensed and virtually unregulated—can have severe environmental impacts. Yet pollution control efforts have traditionally focused on large industrial sources, in part because the problem is not well-understood. This paper presents a benefit-cost analysis of four practical strategies for reducing emissions from traditional brick kilns in Ciudad Juárez, Mexico. To our knowledge, it is the first such analysis of informal sources. We find very significant net benefits for three of the four control strategies. These results suggest that informal polluters should be a high priority for environmental regulators.

Abstract:

Expenditures for environmental protection in the U.S. are estimated to exceed $150 billion annually or about 2% of GDP. This estimate, based on largely self-reported information, is often cited as an assessment of the burden of current regulatory efforts and a standard against which the associated benefits are measured. Little is known, however, about how well reported expenditures relate to true costs. The potential for both incidental savings and uncounted burdens means that actual costs could be either higher or lower than reported expenditures.

A significant literature supports the notion that increases in reported environmental expenditures probably understate actual economic costs. Estimates of the true cost of a dollar increase in reported environmental spending range from $1.50 to $12.

This paper explores the relationship between reported expenditures and economic cost in the manufacturing sector in the context of a large plant-level data set at the four-digit SIC level. We use a cost function modeling approach which treats both environmental and non-environmental production activities as distinct, unrelated cost minimization problems for each plant. We then explore the possibility that these activities are, in fact, related by including reported regulatory expenditures in the cost function for non-environmental output. Under the null hypothesis that reported regulatory expenditures accurately measure the cost of regulation, the coefficient on this term should be zero.

In ten of eleven industries studied, including all of the heavily regulated industries, this null hypothesis is accepted using our preferred fixed-effects model. Our best estimate, based on an expenditure weighted average of the four most heavily regulated industries, indicates that an incremental dollar of reported environmental expenditure reduces non-environmental production costs by eighteen cents with a standard error of forty-two cents. This is equivalent to saying that total costs rise by eighty-two cents for every dollar increase in reported environmental expenditures. Using an alternative pooled model we find uniformly higher estimates. Although consistent with previous results, we believe these higher estimates are biased by omitted variables characterizing differences among plants.

Summarizing, our results enable us to reject claims that environmental spending imposes large hidden costs on manufacturing plants. In fact, our best estimate indicates a modest though statistically insignificant overstatement of regulatory costs.

Abstract:

The possibility that workers could be adversely affected by environmental policies imposed on heavily regulated industries has led to claims of a "jobs versus the environment" trade-off by both business and labor leaders. The present research examines this claim at the industry level for four heavily polluting industries: pulp and paper mills, plastic manufacturers, petroleum refiners, and iron and steel mills. By focusing on labor effects across an entire industry, we construct a measure relevant to the concerns of key stakeholders, such as labor unions and trade groups.

We decompose the link between environmental regulation and employment into three distinct components: factor shifts to more or less labor intensity, changes in total expenditures, and changes in the quantity of output demanded. We use detailed plant-level data to estimate the key parameters describing factor shifts and changes in total expenditures. We then use aggregate time-series data on industry supply shocks and output responses to estimate the demand effect.

We find that increased environmental spending generally does not cause a significant change in industry-level employment. Our average across all four industries is a net gain of 1.5 jobs per $1 million in additional environmental spending, with a standard error of 2.2 jobs—an insignificant effect. In the plastics and petroleum sectors, however, there are small but significantly positive effects: 6.9 and 2.2 jobs, respectively, per $1 million in additional expenditures. These effects can be linked to favorable factor shifts—environmental spending is more labor intensive than ordinary production—and relatively inelastic estimated demand.

Abstract:

Reported expenditures for environmental protection in the U.S. are estimated to exceed $150 billion annually or about 2% of GDP. This estimate is often used as an assessment of the burden of current regulatory efforts and a standard against which the associated benefits are measured. This makes it a key statistic in the debate surrounding both current and future environmental regulation. Little is known, however, about how well reported expenditures relate to true economic cost. True economic cost depends on whether reported environmental expenditures generate incidental savings, involve uncounted burdens, or accurately reflect the total cost of environmental protection.

This paper explores the relationship between reported expenditures and economic costs in a number of major manufacturing industries. Previous research has suggested that an incremental $1 of reported environmental expenditures increases total production costs by anywhere from $1 to $12, i.e. increases in reported costs probably understate the actual increase in economic cost. Surprisingly, our results suggest the reverse, that increases in reported costs may overstate the actual increase in economic cost.

Our results are based on a large plant-level data set for eleven four-digit SIC industries. We employ a cost-function modeling approach that involves three basic steps. First, we treat real environmental expenditures as a second output of the plant, reflecting perceived environmental abatement efforts. Second, we model the joint production of conventional output and environmental effort as a cost-minimization problem. Third, we calculate the effect of an incremental dollar of reported environmental expenditures at the plant, industry, and manufacturing sector levels. Our approach differs from previous work with similar data by considering a large number of industries, using a cost-function modeling approach, and paying particular attention to plant-specific effects.

Our preferred, fixed-effects model obtains an aggregate estimate of thirteen cents in increased costs for every dollar of reported incremental pollution control expenditures, with a standard error of sixty-one cents. This single estimate, however, conceals the wide range of values observed at the industry and plant level. We also find that estimates using an alternative, random-effects model are uniformly higher. Although the higher, random-effects estimates are more consistent with previous work, we believe they are biased by omitted variables characterizing differences among plants.

While further research is needed, our results suggest that previous estimates of the economic cost associated with environmental expenditures have been biased upward and that the possibility of overstatement is quite real.