Tag Archives: externalities

the end of “shareholder primacy”

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From Project Syndicate:

The Business Roundtable, an association of the most powerful chief executive officers in the United States, announced this month that the era of shareholder primacy is over.

Does this signal a new era where companies consider a broader range of values and stakeholders than just the latest stock value? Stakeholders could include employees, customers, and maybe even present and future generations of the public at large, for example. Let’s not get too crazy and include plants, animals, and rocks just yet. Not so fast – according to this article, this is just a reaction to the growing power of institutional investors such as pension funds. Rich and powerful managers and board members are trying to protect their own jobs and fortunes like they always do.

UK solid waste framework

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The UK is tackling the idea of making companies responsible for the packaging they produce. This makes perfect sense because it will raise revenue in the short term, but hopefully give them the incentive they need to design with “reduce, reuse, recycle” in mind in the longer term.

Businesses and manufacturers will pay the full cost of recycling or disposing of their packaging waste, under a major new government strategy unveiled by the Environment Secretary today (Tuesday 18 December 2018).
The move will overhaul England’s waste system, putting a legal onus on those responsible for producing damaging waste to take greater responsibility and foot the bill.
The announcement forms part of the government’s ambitious new Resources and Waste Strategy, the first comprehensive update in more than a decade. It will eliminate avoidable plastic waste and help leave the environment in a better state than we found it for future generations.

Washington State carbon tax on the ballot

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Washington State has a carbon tax on the ballot in the November election. The oil industry is fighting it tooth and nail, but it also has high-profile backers.

A $3 million boost in spending is largely due to an influx of cash from BP America, one of the major oil companies operating refineries in the state. Phillips66, formerly the led donor, has given $7.20 million, followed by Andeavor (the former Tesoro) at $4.3 million.

Supporters of the carbon fee have raised over $12 million, or half of what Big Oil has put into defeating the measure. Its backers include businesses such as Microsoft, the American Lung Assn., Gov. Jay Inslee, environmentalist and labor leaders.

The latest infusion to the “Yes” side is a $1 million donation from former New York Mayor Michael Bloomberg. Microsoft cofounder Bill Gates has donated $1 million.

Interesting that the oil industry is tentatively supporting a national carbon tax at the same time they are fighting this so aggressively. It suggests they are afraid of these state-level taxes and would rather do some wheeling and dealing in Congress to get a weaker deal in place that would block stronger taxes like this one.

more on Americans for Carbon Dividends

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This group, which includes Exxon Mobil, is proposing a four-part plan:

  1. A $40 per ton tax on carbon rising annually at a gradual rate;
  2. Tax revenues generated would be refunded to all citizens (hence the name, “Carbon Dividends”);
  3. This plan would terminate the EPA’s regulatory authority over carbon emissions and specifically terminate the recently enacted Clean Power Plan;
  4. Require “border carbon adjustments to level the playing field and permit American competitiveness.” (Other relatively high CO2 emitting countries apart from the US are China and Russia).

This article I am linking to is highly skeptical, as are some prominent environmental groups, due to the restrictions it would place on EPA regulation. I’m not sure yet whether I would support it. So far EPA regulation has not accomplished anything. Oil and gas companies must be afraid that it eventually will, and see this as a choice between a predictable and manageable business cost versus an unknown but potentially unlimited risk. What isn’t mentioned here is protection from litigation, which I have heard might also be part of the deal. They might be afraid of that too.

I support pollution taxes in general. I have made a career of helping regulated entities (water utilities in my case) deal with EPA regulations, and I don’t see them as particularly rational, effective, or economical even when the underlying laws are well-thought-out. It might be worth trying something different. Once we have a carbon tax on the books, the actual amount can be adjusted until it is effective, and the concept can potentially be applied to other types of waste and pollution.

alternatives to GDP

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This article in The Conversation (which is a new publication to me) goes through some of the alternatives and potential augmentations for GDP.

One approach is to have a dashboard of indicators that are assessed on a regular basis. For instance, workers’ earnings, the share of the population with health insurance and life expectancy could be monitored closely, in addition to GDP…

Another approach is to use a composite index that combines data on a variety of aspects of progress into a single summary number. This single number could unfold into a detailed picture of the situation of a country if one zooms into each indicator, by demographic group or region.

One challenge is to select the dimensions that should be covered. Through an international consultative process, the commission led by Sen, Stiglitz and Fitoussi defined eight dimensions of individual well-being and social progress, including health; education; political voice and governance; social connections and relationships; and the environment.

They also mention the Better Life Index from the OECD and the Human Development Index from the UN.

Washington State carbon tax voted down

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I wrote recently about a carbon tax referendum in Washington State. Sadly (in my view), it was voted down.

The carbon tax initiative (I-732) garnered only 42 percent of the vote in Washington State. The tax was supposed to be revenue neutral by lowering the state sales tax by 1 cent and provide tax rebates of up to $1,500 per year to 460,000 low-income households. The initial $25 per ton would have boosted the price of gallon of gas by about 25 cents, and added 2.5 cents to each kilowatt-hour of coal-fired electricity, and 1.25 cents to electricity generated by natural gas. Interestingly, the proposal which aimed to cut emissions of carbon dioxide that are contributing to man-made global warming was opposed by many leading environmentalist groups. Why? Largely because of the tax’s revenue neutrality. The climate activists wanted to use the revenues to “invest” in various projects such as subsidizing solar and wind power schemes, mass transit and job training for folks put out of work by climate policies.

It’s unfortunate. Let’s review: Taxes on externalities (which occur when the activity of Group A results in a profit while unfairly imposing a cost on Group B) are a good thing for at least three reasons. First, they give Group A to engage in less of the offending activity because they now have to pay the cost rather than imposing the cost on someone else. Second, if Group A decides the activity is still worthwhile, revenue is raised for the government which it can spend on some worthy cause, like helping Group B. Third, the revenue raised by taxing bad things can be used to reduce taxes on good things, like work and savings and investment and making a profit without hurting other people. All this is good for people and the economy as a whole. The only party hurt is Group A, which had no right to profit at everyone else’s expense in the first place. The reason we don’t do this more is that Group A is able to use some of its profits to buy off politicians and mount propaganda campaigns to convince the public to vote against their own interests.

learn about carbon trading and R

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This is pretty cool – an interactive website that lets you explore a real-world carbon trading research problem while learning new tricks in R.

Many economists would agree that the most efficient way to fight global warming would be a world-wide tax or an emmission trading system for greenhouse gases. Yet, if only a part of the world implements such a scheme, a reasonable concern is that firms may decide to relocate to other parts of the world, causing job losses and less effective emmission reduction…

In their article ‘Industry Compensation under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme’ (American Economic Review, 2014), Ralf Martin, Mirabelle Muûls, Laure B. de Preux and Ulrich J. Wagner study the most efficient way to allocate a fixed amount of free permits among facilities in order to minimize the risk of job losses or carbon leakage. Given their available data, they establish simple alternative allocation rules that can be expected to substantially outperform the current allocation rules used by the EU.

As part of his Master’s Thesis at Ulm University, Benjamin Lux has generated a very nice RTutor problem set that allows you to replicate the insights of the paper in an interactive fashion. You learn about the data and institutional background, run explorative regressions and dig into the very well explained optimization procedures to find efficient allocation rules. At the same time you learn some R tricks, like effective usage of some dplyr functions.

It’s an interesting question at a time when some U.S. states and Canadian provinces have started introducing carbon trading and taxation schemes that differ from their neighbors (sometimes because their neighbors have nothing at all). Perhaps there is a win-win where a policy can gradually phase out less productive, dirtier industries while replacing them with cleaner and higher-value-added industries, then sharing enough of the wealth so everyone benefits.

Washington State’s carbon tax vote

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Washington State voters are considering a carbon tax. The proceeds would be used to offset other taxes, making it revenue neutral. This could be a national model, if we weren’t all so allergic to the word tax.

The proposal is strikingly simple and refreshingly bipartisan. According to Yes on I-732.org, I-732 would:

  • Directly address climate change by adding a tax of $25/ton on carbon emissions;
  • Reduce the statewide sales tax by 1%;
  • Add a tax credit of $1500/year for low-income households; and
  • Lower the Business and Occupation (B&O) tax on manufacturers to .001%.

This type of fossil fuel tax would be first of its kind in the United States, though it has been implemented elsewhere. According to the World Bank, 15 countries currently tax carbon. Sweden’s policy is the most aggressive, at rate of $168/ton. Closer to home, a carbon tax has been in place in British Columbia, Canada, since 2008, which has resulted in a 5-15% reduction in greenhouse gas (GHG) emissions. BC’s tax is much lower than Sweden’s, at a rate of $30/ton.

Philadelphia soda tax

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Taxes on sugary drinks have been tried and failed in a few cities, partly because the soda industry has mounted big ad campaigns against them. Now a tax has passed in Philadelphia, partly because Michael Bloomberg funded a pro-tax ad campaign. I watched this unfold in Philadelphia in real time and never heard about the Bloomberg thing until I read it in the national media just now. I guess it’s a victory over special interests, of sorts. I generally support the idea of taxing things that hurt people and using he revenue to help people. That should be what taxation is all about. It should replace less productive taxes on good things like work, saving and investment. That’s not the case in Philadelphia. They just keep raising and raising and raising, and it can’t go on forever.

instrinsic vs. utilitarian value of nature

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This thoughtful opinion piece in Trends in Ecology and Evolution talks about resolving conflicts between moral and economic arguments for conservation.

Biodiversity exists at multiple levels of organization, including at the levels of genes, populations, species, and ecosystems [11]. Although it might be argued that intrinsic value is associated with all levels of biological organization, this interpretation is of no practical use for planning and decision-making. If all levels of biological organization have equal intrinsic value, and if all species are regarded as having equal intrinsic value, then the implication is that no harm can be done in any way to any component of biodiversity [I don’t quite follow this last sentence…]. The concept of intrinsic value applied equally to all of nature therefore offers no way to prioritize and points only toward a halt to human progress because most human developments impact on nature to some degree. In practice, then, intrinsic value is commonly associated with certain species and ecosystems…

Species conservation and the beauty of nature are reasons for conservation commonly associated with intrinsic and non-use values. For instance, it can be regarded as morally right to maintain the existence of tigers in the wild, and to conserve the beauty of Yosemite Valley, regardless of human use. But accepting this should not preclude accepting arguments for conservation that are based on utilitarian value, particularly when we consider different levels of biological organization. For instance, populations of species provide vital ecosystem services such as pollination, such that loss of a population can cause loss of an ecosystem service that has utilitarian value. If the continued existence of populations of the species elsewhere means that the species itself is not threatened, or if the population lives in a human-dominated, non-wild landscape, then arguments for the intrinsic value of species and ecosystems are inadequate. Given that population declines are perhaps the most prevalent aspect of biodiversity loss [14], failure to recognize the utilitarian value of populations does a disservice to conservation.

Viewing reasons for conserving nature at different levels of biological organization thus clarifies when alternative arguments are most relevant, in particular that arguments based on intrinsic value are most commonly associated with species and ecosystem levels. This takes us some way toward melding utilitarian and intrinsic reasons for conservation, enabling both to be included within a multifaceted approach.

The article also wades into the debate on monetization.

I agree with using all the tools. We also have to recognize that even reasonable people have a range of values, and there are also unreasonable people out there, and we have to find arguments that appeal to a critical mass of people in order to make any progress.