“So what is a resource economist (or an environmental economist) anyway?”

Many people ask me this.  They may know what an economist is (or think they do, anyway – an economist is a social scientist, not an accountant or a financial analyst), but they may be flummoxed when I say I was trained an environmental economist.  “What does the environment have to do with the economy?” they might ask.  To me, it’s an odd question. My answer would be “everything.”  All you have to do is read the paper or watch the news, and the stories just leap out at you.  Internationally?  Try the recent “island building” by China, which has to do with strategic control of the South China Sea, but also with control of valuable mineral deposits on continental shelves.  Nationally?  If the California drought weren’t enough (see lead article), think of fracking, or President Obama’s recently proposed clean water regulation.  Locally?  Recent proposals to change mining regulations in Maine.  Closure of the scallop fishery. The Regional Greenhouse Gas Initiative. The list goes on.

An economist is someone who studies the ways in which people and societies choose to allocate their scarce resources. We may make recommendations on how to do that most efficiently, or most equitably, or in order to maximize “consumer surplus.”  As a resource economist (or an environmental economist – it is a somewhat artificial distinction, and I am trained in both), I specialize in integrating environmental issues into planning and policy, in order to make more effective and responsible economic decisions.

It’s not always easy – environmental services like flood control or groundwater recharge, or environmental damages like pollution-induced asthma or damage to wetlands are not easily translated into economic terms. But what is not measured cannot be well-managed.  I believe in and advocate for sustainable economic development – using our resources in such a way so that future generations can be at least as well off as the current generation.  That phrase -sustainable economic development – has been misused, misaligned, and is, as Nobel economist Robert Solow once put it, “an essentially vague concept.”  But he also noted that vague does not mean useless or empty.  We should use the concept of sustainability as a guide to policies on investment, conservation, and resource use.  Since resource use includes all consumption and production activities, that covers a lot of ground.  All of economics, as a matter of fact.  So rather than a sub-discipline of economics, I prefer to think of it as the “uber-discipline.” 

What do you think?

The Regional Greenhouse Gas Initiative  (RGGI, pronounced “Reggie” for short) holds its next auction on March 11th.  I’m going to devote this post (and possibly the next one) to what RGGI is, the economic theory behind it,  and what it means for the state of Maine. (A little caveat is in order here: like all my blog posts,  this one is meant to educate and entertain,  but it is not meant as a rigorous economic analysis. I do this in my free time,  after all.  ☺)

RGGI is a multi-state carbon-trading exchange. Pollution trading markets have been in existence for decades, most notably (at least here in the US) the sulfur dioxide market that was established in 1995 and existed in its original form until 2011, when it morphed into a few different programs. But that’s another blog post for another day.

Carbon dioxide trading programs (or greenhouse gas trading programs more generally) have been around since 2005, when the first phase of the European Union’s Emissions Trading System was created under the Kyoto Protocol.

The general idea is that some central authority sets a “cap” on the amount of pollutants (usually measured in tons) that an entity such as a state or a country can emit in a given year. Then, the units that are subject to the cap (usually a subset of firms or companies that emit carbon dioxide) look at the going price per ton of emissions, compare that to the cost of abating a ton of emissions, and then decide whether to engage in abatement or to buy “permits,” each allowing them to emit one unit of emissions.  Theoretically, at least, if the price of a ton of carbon is set high enough, more firms will engage in pollution reduction.

As you can imagine,  the questions surrounding the development of a new market like this are complex,  fascinating to me and other economists, and mind numbing to the general public. I’ll spare you the details.  Fortunately,  RGGI is well-established,  so for our purposes they don’t matter anyway.

According to its website, RGGI is “a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector.” (http://www.rggi.org/)  Although there are plenty of other entities that emit CO2 (most notably transportation, production of metal and mineral products such as steel, iron, and cement, and the manufacture  of chemicals), the power generating industry is the largest single source of CO2 emissions in the US at 38%. (Transportation is not far behind, though, at 32%.)

In this case,  RGGI sets a “cap” on emissions for the entire multi-state area.  Regulated companies (power utilities with a generating capacity over 25 megawatts) are required to keep permits equal to their emissions. Permits are auctioned off on a quarterly basis, and the proceeds go to programs to increase energy efficiency and “accelerate the deployment of renewable energy technologies.” 

They also allow “offsets,” which is an interesting story in itself.  Offsets allow firms to invest in greenhouse gas reduction activities in order to get a “credit”. Once they apply that credit,  they may not need to buy as many emission permits as they would have.   There’s a lot of controversy about whether credits are actually effective or not,  but I’ll go into that in a later blog post.

So,  is RGGI effective? Turns out that’s a really difficult question to answer. “Effective” could mean, “does RGGI cost less than reducing the same amount of emissions with traditional regulation (command and control) would?” Or, “has it reduced emissions more than in the absence of regulations?”  There are many different ways of asking – and answering – that question.

Let’s start with the cost. There’s no easy way to compare the cost of the program with the cost of traditional “command and control” regulations. (Many people might say that the program is very expensive – which it is – but the relevant question is not how much the program costs, but how much it costs relative to the alternative.)  The problem with traditional regulation, as many economists see it,  is that command and control regulations aren’t flexible. They say something like,  “Thou shalt not emit more than X tons per day,” never mind how expensive it may be for the firm to comply.  Theoretically,  this sort of permit system should be cheaper,  but there’s really no easy way to know.  And, the media is touting the fact that RGGI states managed to reduce greenhouse gasses 20% faster than non-RGGI states, while still increasing their economies.  (Again,  the true test is: how fast would those economies have grown under an alternative regulatory scheme?  But those counter-factuals are difficult to prove.)

What about emissions reduction? Well, under the  EPA’s recently proposed carbon dioxide guidelines, the nine states that make up RGGI would only have to reduce their emissions collectively by 38% by 2030 (from a 2005 baseline), whereas RGGI claims that the collaborative has already exceeded that goal. 

So,  if seems as if RGGI is a success,  at least,  insofar as its own stated goals. There are other criteria by which to measure success as well: equity (meaning,  who bears the costs and who rapid the benefits,  and are they distributed equally), actual effectiveness (as measured by “is it enough to do what needs to be done?”), and perhaps whether it is successful at providing incentives to change behavior as well.

My next blog post will focus on these issues,  at least,  as much as I can.  Stay tuned!

Like everyone else in Maine, I’ve been distracted by the winter storms, Valentine’s Day, etc., so I missed this little bit of information:  On Tuesday (Feb 12, 2015), there was a hearing at the Department of Marine Resources on regulations around the harvest quota for the upcoming elver season. As I said in one of my earlier posts, the elver (baby eel) fishery in Maine is incredibly lucrative, always controversial, and sometimes even dangerous.

In order to try and protect the elver fishery, the Department of Marine Resources in Maine has implemented two types of regulation: a license system and a quota system. All elver fishermen have to be licensed by the state (poaching is a big problem), and the quota system means that the total allowable catch cannot exceed a certain amount.  For the 2015-2017 season, that quota is set at the amount of the 2014 harvest.  That represents a 13.6% cut from the quota from last year, even though it wouldn’t represent a drop in the landings (http:// http://www.ellsworthamerican.com/maine-news/waterfront/elver-fishermen-face-big-quota-cuts).  However,  the Commission was actually considering shutting down the elver fishery in Maine, so the fact that the quota equals the harvest from last year represents a boon for the industry (http:// http://www.ellsworthamerican.com/maine-news/waterfront/maine-elver-fishermen-see-quota-cut).

One question in my mind: why did half the licensed elver fishermen not fulfill their quota last year?  Economic theory would suggest that a permit to fish elvers is an economically valuable resource – so why were they not used to the fullest? Was it because it was a bad year for elvers market (the price per pound was down substantially from the 2013 season)? Or some other reason?

My last blog post was about combined sewer overflows  (CSOs) and how in Portland,  Maine,  millions of gallons of stormwater and raw sewage combined can flow into our rivers and bays after a heavy rain.

In this blog post,  I’ll talk about some of the ways in which municipalities can “fix” CSOs, and in particular,  I’ll talk about Portland’s new stormwater fee and some of its economic implications.
Municipalities have essentially three choices they can use to control CSOs: containment, separation, and “green solutions”. Containment is, as is name suggests, simply “containing” the combined sewage until a better time to treat it. It is essentially increasing the capacity of the system before it overflows –  not “fixing” the CSO, just making it so it’s not needed so often.  This is a relatively low cost option,  although still pretty expensive. If you live in Portland,  you might remember when Back Cove Boulevard was closed for so long.  They were installing these huge storage tanks (conduits) to contain the raw sewage/stormwater cocktail from a heavy rain  until it could be sent to the treatment plant. The one installed in Back Cove has a capacity of 3.5 million gallons – enough to prevent sewage entering the cove in a relatively heavy rainfall,  but there is some speculation that it might not be enough to completely eliminate discharges in some of the intense rains we saw last spring and fall.

Separation involves actually “fixing” the CSO – separating the pipes so that even in a heavy rain, sewage goes to the treatment plant,  while stormwater goes to the ocean/river.  This could be done in new development,  perhaps,  but in a place like Portland,  it would be exceedingly expensive. Effective,  for sure,  but expensive.

“Green solutions” include things like: paving with porous pavement rather than pavement that’s completely impervious (instead of simply running off, rainwater trickles through and is typically filtered by a layer of gravel below,  before seeping into the ground);  rain gardens, which are grasses, plants, and flowers that “like to get their feet wet” in low lying areas,  so that runoff gets filtered before entering any waterways,  and other structures,  like “wet ponds” that retain runoff before releasing it.  A great local example might be the Wishcamper Center at the University of Southern Maine, or,  the beautiful “yardscaping” on the Back Cove trail or at Capisic Pond.

Rain garden near Back Cove.  Photo printed in the Portland Press Herald, http:// http://www.pressherald.com/2010/07/04/rain-garden-gives-city-a-green-way-to-stop-flow-of-pollution-_2010-07-04/

These can be expensive options as well,  and wouldn’t be able to be easily ramped up to the scale necessary,  but they have added benefits that are not easily measured: improved flood control, increased groundwater recharge,  habitat and food provision for birds, bees,  and other creatures (berries, flowers,  and seed bearing fruits could be easily integrated into the design), as well as pure aesthetic appreciation.

Portland has chosen to address its CSO issues by a combination of these solutions, with an emphasis on storage. This is reasonable from a financial perspective,  although I personally would like to see more green infrastructure. As always,  the problem is how to pay for it.

Portland has chosen to go with a stormwater fee,  based on the amount of impervious surface a property has.  The more impervious surface (driveways and other paved areas, as well as roofs), the greater the total bill.  (If you live in Portland, you can look up your bill here: http:// http://www.cleangrowthcleanwater.com/calculator.)  Properties with less than 400 square feet of impervious surface are exempt,  and then the fee is levied on increments of 1,200 square feet.  The fee is not levied on public sidewalks or paths,  either.

Now,  most economic policies can be evaluated on the basis of efficiency and equity,  and in this case,  I would add,  ease of implementation and impact on the community. Let’s look at efficiency first.  In this case,  that means “does the fee achieve its goal in a cost-effective manner?”  Here,  I think the question to ask is,  well,  what are its goals? If the goal is to reduce the amount of stormwater runoff from your property,  then I, frankly,  would say no. Let’s take a look at how the fee is structured. It’s based on increments of 1,200 square feet (the first “tier” is 400 to 1,799 square feet).  If I have a property that has, say 1,849 square feet, and I have a dilapidated shed with about 50 square feet of roof surface, then I might be tempted to tear it down to get myself into the lower tier.  But unless you can easily get your property down into the lower tier,  you have no incentive to reduce the amount of impervious surface area that you have. (Except even that example doesn’t work,  because when the city is estimating your impervious surface,  they round to the nearest 1,200 square feet. It would take some serious work to get yourself into the lower tier.) 

You can apply for credits,  which is great: if you install a rain garden or detention pond on your property,  you can apply for and hopefully get a credit. Most homeowners probably won’t take advantage of this,  but some larger commercial entities with large parking lots might. So the fee doesn’t give homeowners much of an incentive to reduce the runoff from their property, which a truly effective fee would. (It would be great if they gave you a credit for having a rain barrel, but that gets into ease of implementation – what if you had one but it wasn’t hooked up? Would the city have to go around to make sure you were actually using it? Not likely.)

Moreover,  a perfectly targeted stormwater fee would not only measure the amount of impervious surface,  but also look at the slope of your property, the velocity of discharge,  etc. That doesn’t make a lot of sense from an implementation point of view.

However,  if the goal of the fee is to pay for the improvements to the system in a relatively cost-effective and equitable manner,  then yes,  I would say the fee is efficient.

Let’s look at equity, now.  If a tax, rather than a fee, were implemented,  then any tax-exempt organization would be, well, exempt. That would include universities and religious organizations,  many of which have large impervious surfaces. Also, taxes would go into the municipality’s general fund,  for which there’s usually a lot of competition and changing priorities.  Revenue from the stormwater fee would be dedicated to improving CSOs and reducing stormwater flows. The fee is also (moderately) progressive: though it’s not explicitly tied to income, one would assume that the amount of impervious surface on a property is correlated with income,  although perhaps not exactly. http:// http://www.stormh2o.com/SW/Articles/The_Stormwater_Utility_Will_It_Work_in_Your_Commun_212.aspx

Finally,  let’s consider the impact on the larger community. One of the objections that’s been raised is that this is just another fee that will make Portland uncompetitive. I find that argument pretty unconvincing. Study after study has shown that among factors that influence firms’ location decisions, a well-educated and highly skilled labor force is among the highest,  whereas environmental compliance costs – even taxes – are among the lowest.  In today’s economy,  where a skilled workforce is less and less tied to a particular industral locale, jobs tend to follow workers,  rather than the other way around.   And since Portland consistently ranks among the top cities in which to live, a stormwater fee is unlikely to influence firms’ decisions. Moreover,  most New England cities are dealing with the same issues, which means that Portland is not losing a comparative advantage,  relative to other, similar – sized towns. After all,  dealing with CSOs is a federal law,  not just a local one. In comparison to other town’s stormwater fees,  Portland’s is pretty comparable (www.crwa.org/…_/Stormwater/Municipal_SFM_Case_Studies_Repo.pdf). 

The “uncompetitive” argument also implies that if Portland didn’t implement this fee,  nothing would be done. That’s not the case,  though. Portland needs to do something about its CSOs,  not out of any misplaced “green” notions,  but because of a consent decree with the EPA over 20 years ago. So,  it’s disingenuous to say that the fee is an added cost levied by an overzealous City council. Blame the EPA if you want,  but Portland would have to do something about its CSOs even if it didn’t implement this fee. The alternative is a tax (drawbacks already mentioned), or perhaps a bond (which might affect the City’s rating), or doing nothing (Portland was already fined for something similar not too long ago).

Finally,  consider the impact of the construction and other activity that dealing with the CSO issue will bring about. A study by the University of Maryland Environmental Finance Center, funded by the National Fish and Wildlife Foundation, found that “[c]ivil engineering, landscape architecture, environmental engineering, construction, nurseries and horticulturists, cistern manufacturers and others are among those likely to see increased demand” from all the activity. Smart companies may actually benefit from the increased business – and be able to capitalize on being part of a “green” solution.

Image from the Massachusetts Water Resources Authority (mwra.org).  Photo taken without permission,  but I don’t think they’d mind.  At least I hope not.

In the women’s bathroom on the fifth floor on one of the buildings in which I used to teach,  there was a sticker on the wall: “I am not a trashcan!  The trash you flush might end up in the ocean.”  Underneath it,  someone had written in magic marker,  “So where does our poop go?”  Most people don’t think about where their poop goes at all – they flush the toilet,  and it just goes “away.”  And if they do think about it,  they think what my six year old daughter does: that it goes to the treatment plant.

The reality is not quite so simple,  at least here in Portland,  Maine.  Under normal circumstances,  what we flush down the toilet goes to the treatment plant.  But under what are called “heavy flow conditions,” then yes,  what we flush down the toilet COULD end up in the ocean.

The reason has to do with the pipes that connect or homes to the treatment plant, something that many of us don’t usually consider. Many of those pipes serve a dual purpose: not only do they convey wastewater to the treatment plant,  but runoff from what are called “impervious surfaces” as well. Impervious surfaces are roads, driveways, roofs,  sidewalks – anything that water just runs off of,  not seeps into.

Portland was first settled in 1632.  OK,  so the infrastructure is not that old,  but  a significant part of Portland’s wastewater infrastructure dates back to the 1870s. So why is that a problem? It turns out that many of the pipes that convey sewage from our houses are designed with a relatively low capacity. After all, Portland was a much smaller city back then. It isn’t usually a concern: under average conditions,  the pipes are more than adequate to convey all our waste.  But after a heavy rain (or snowmelt – think about what’s going to happen when all this snow melts!), those pipes are overloaded with both sewage and runoff,  and all of it – raw sewage,  oil from cars, salt from the roads,  cigarette butts,  you name it – can end up in the ocean. Yuck.

OK,  so it’s pretty easy to see why that’s an environmental problem. Why is it an environmental AND an economic problem? Well, start with the fact that pollution harms fish and other aquatic life.   Add to that the fact that Portland makes a good portion of its income either directly or indirectly from the fishing industry.  Shellfish, including the iconic lobster, are particularly affected by this type of pollution.   Combined Sewer Overflows (CSOs) have been directly linked to beach and shellfish bed closures in Maine.  It’s been estimated that the economic value of coastal recreation to Maine and New Hampshire is at least $400 million a year http:// (http://www.pressherald.com/2013/07/26/maine-nh-universities-lead-beach-research-project/).  Every time a beach is closed,  due to high levels of contaminants like fecal coliform (poop, in other words), it costs the Maine economy possibly thousands of dollars. And beach closures have been increasing in recent years.

Add regulation to that.  In 1987, the Clean Water Act (which,  by the way,  was championed by Maine’s own Ed Muskie) was amended to cover stormwater discharges in its National Pollutant Discharge Elimination System. This means that municipalities that discharge stormwater to the waters of the United States must get a permit for those discharges. The permit is based partly on the water quality standards in the receiving water.  If you want to be able to swim in the water,  for example, the lower the amount of pollution allowed.  If there is more runoff in an area, then the greater the overall contaminant level is,  and therefore the smaller the “margin for error” in case something goes wrong.

The Environmental Protection Agency (EPA) issued  a control policy in 1994 that provided “guidance to municipalities and State and Federal permitting authorities on how to meet the Clean Water Act’s pollution control goals as flexibly and cost-effectively as possible” (http:// http://water.epa.gov/polwaste/npdes/cso/CSO-Control-Policy.cfm).

Combined Sewer Overflows (CSOs) are not illegal (yet).  But municipalities are required to have a plan in place to reduce them.  The City of Portland and the Portland Water District have a comprehensive plan to reduce the number of CSOs from 39 (in 1993) to 6, and to eliminate discharge to Casco Bay, Capisic Brook, the Fore River, and the Presumpscot estuary. Further goals were to minimize discharges to Back Cove and Portland Harbor (http://www.portlandmaine.gov/DocumentCenter/Home/View/5377).

As any environmental economist (or business person) would tell you, go for the low-hanging fruit first.  First eliminate the discharges where you get the most bang for your buck,  either where the gallons eliminated per dollar spent is the most,  or where the damages caused by the discharges (the benefits of elimination) are the greatest. Since the City of Portland and the Portland Water District have been at this for a long time,  one would assume that the low hanging fruit has already been picked. Now the chickens have come home to roost, to (badly) mix metaphors.  In order to go much further,  the City and the District are going to have to spend some serious bucks. There is some federal money available,  but not a lot,  and so the City is implementing a “stormwater fee”, based on the amount of impermeable surfaces a property owner has.

Now,  I’m an economist,  so I’m generally in favor of market based approaches to environmental problems. But obviously the fee is controversial,  and has been called an illegal tax by some (it’s not,  and the Maine Supreme Judicial Court weighed in on this in 2012, following the implementation of a similar fee in Lewiston in 2007.  See http://law.justia.com/cases/maine/supreme-court/2012/2012-me-42.html).

In my next post,  I’ll go over the economics of this stormwater fee,  which was approved by the Portland City Council last week ( http:// http://www.pressherald.com/2015/01/21/portland-council-approves-new-fees-on-stormwater-runoff/).  Other cities have implemented similar fees,  but have used different structures. I’ll also talk about some of the different methods that engineers (and households) can use to reduce stormwater discharges, and the general cost-benefit of each of them. So stay tuned!

I’ve had a very long hiatus from this blog, and I apologize to my faithful readers (all 4 of you)!  Without going into too much detail, my (tenured) position at the University of Southern Maine was eliminated, along with the positions of about 50 faculty members.  So the last six months have been a bit rough. But I’m back and blogging again!

Stay tuned for my next blog, on the storm water fee that the City of Portland (Maine) is about to implement! Lots of interesting stuff there.