OFFSETTING NEW CO2 EMISSIONS: A RATIONAL FIRST GREENHOUSE POLICY STEP

This paper describes and assesses a policy to slow the increase of carbon dioxide (CO2) emissions in the atmosphere. Policy governing new CO₂ sources would either prevent emissions, procure compensating emissions reductions, or sequester emissions in sinks. The paper uses electric power plants to demonstrate the mechanics of the policy and the control or offset choices. Offset options include scrubbing, fuel switching, investments in energy conservation and efficiency, and afforestation.
Costs per ton ofC0₂ sequestered range from $1.35 for planting shade trees to $59.41 for scrubbing. All options except scrubbing cost less than $11.00, and the median cost is around $6.00 per ton removed. Planting trees on erodible cropland in conjunction with the Conservation Reserve Program combines the goals of reduced erosion, surplus agricultural production, and greenhouse warming. This policy is a first sane step toward reducing the accumulation of greenhouse gases. Having an international framework for managing emissions is most desirable. In the interim, however, the United States can demonstrate environmental leadership, generate substantial conservation benefits, and spark ingenuity in searching for alternatives, broadening the options, and lowering the ultimate costs of reducing CO₂ emissions.     

Scenario Analysis of Chinese Passenger Vehicle Growth

This article reports on a simulation and scenario analysis of Chinese passenger vehicle growth and resulting energy demand and CO₂ emissions. The model includes provincial level logistic growth functions with saturation levels representative of neighboring Asian economies, income growth measured in international dollars, and both estimated and literature-based income elasticities. Scenarios explore variation in key parameters, including income and population growth rates, elasticity income ranges, fuel economy, and vehicle saturation. Countrywide base case results estimate growth from 4.22 to 54.33 passenger vehicles per thousand people from 1995 to 2025. Resulting passenger vehicle oil demands and CO₂ emissions increase nearly 17-fold.     

Emissions Trading, Wealth Transfers and the Wounded Bull Scenario in Power Generation

Electricity generators accept that emissions trading is fundamental to meeting CO₂ reduction targets. But unless a percentage of permits are allocated, existing generators will face non-trivial wealth transfers. Seldom contemplated in academic works are the adverse economic consequences of an all-auction approach to emissions trading. Using Victoria to illustrate, we find that once CO₂ prices exceed $17.50/t, the marginal coal generator facing large wealth transfers will withhold generating capacity to raise prices and recoup stranded investments, thus becoming a 'wounded bull' in the market place. This has material welfare implications with modelling results indicate an intermediate-run 300 per cent increase in wholesale power prices.     

Social Security and personal saving: 1971 and beyond

Feldstein (1996, 1974) reported that Social Security in the U.S.A. reduced personal saving (“saving”) in 1992 (1971) by $416 ($61) billion. I reestimate his life-cycle consumption specification using data from the latest NIPA revision, correct his calculations, and find that the implied reduction in 1992 (1971) saving is now $280 ($22) billion, 48% (16%) of actual net private saving, with a standard error of $114 ($14) billion. If structural breaks around WWII and the 1972 Social Security amendments (which raised real per capita SSW by 22%) are allowed, and the market value of Treasury debt included in the specification, the reduction in 1971 and 1992 saving attributable to Social Security is at most 0.55 times its standard error, and 12% of net private saving. I then reestimate the preferred specification of Coates and Humphreys (1999), allowing for these structural breaks and relaxing other restrictions. The implied effect of Social Security on saving is again statistically zero. First version received: September 2000/Final version received: September 2001 RID="*" ID="*"  I thank Les Oxley for pointing out that correcting for AR(1) residuals is not a categorical imperative but a cultural relative, in which case common factor restrictions are crucial.     

EQUITY AND EFFECTIVENESS OF POSSIBLE CO2 TREATY PROPOSALS

The Montreal Protocol on chlorofluorocarbon control established an important precedent for global environmental treaties that include both developing countries and industrial countries. This paper evaluates seven possible treaty proposals to control carbon dioxide (CO₂) emissions. Growth-rate control proposals fail on effectiveness of control or on equity differences between developing countries and industrial countries. Complex proposals link policies in population growth, economic development, world energy taxation, and forestation. These complex proposals, which appear to be both effective and equitable, can defer or avoid CO2 doubling.     

Estimates of the direct and indirect cost savings associated with heart disease that could be avoided through dietary change in the United States

Aims: Diets high in saturated fat are associated with elevated risk of heart disease. This study estimates the savings in direct (medical care) costs and indirect (job absenteeism) costs in the US from reductions in heart disease associated with substituting monounsaturated fats (MUFA) for saturated fats.

Materials and methods: A four-part model of the medical care cost savings from avoided heart disease was estimated using data on 247,700 adults from the 2000–2010 Medical Expenditure Panel Survey (MEPS). The savings from reduced job absenteeism due to avoided heart disease was estimated using a zero-inflated negative binomial model of the number of annual work loss days applied to data on 164,577 adults from the MEPS.

Results: Estimated annual savings in medical care expenditures resulting from a switch from a diet high in saturated fat to a high-MUFA diet totaled ～ $25.7 billion (95% CI = $6.0–$45.4 billion) in 2010, with private insurance plans saving $7.9 billion (95% CI?=?$1.8–$14.0 billion), Medicare saving $9.4 billion (95% CI?=?$2.1–$16.7 billion), Medicaid saving $1.4 billion (95% CI?=?Aims: Diets high in saturated fat are associated with elevated risk of heart disease. This study estimates the savings in direct (medical care) costs and indirect (job absenteeism) costs in the US from reductions in heart disease associated with substituting monounsaturated fats (MUFA) for saturated fats.

Materials and methods: A four-part model of the medical care cost savings from avoided heart disease was estimated using data on 247,700 adults from the 2000–2010 Medical Expenditure Panel Survey (MEPS). The savings from reduced job absenteeism due to avoided heart disease was estimated using a zero-inflated negative binomial model of the number of annual work loss days applied to data on 164,577 adults from the MEPS.

Results: Estimated annual savings in medical care expenditures resulting from a switch from a diet high in saturated fat to a high-MUFA diet totaled ～ $25.7 billion (95% CI = $6.0–$45.4 billion) in 2010, with private insurance plans saving $7.9 billion (95% CI?=?$1.8–$14.0 billion), Medicare saving $9.4 billion (95% CI?=?$2.1–$16.7 billion), Medicaid saving $1.4 billion (95% CI?=?$0.2–$2.5 billion), and patients saving $2.2 billion (95% CI?=?$0.5–$3.8 billion). The annual savings in terms of reduced job absenteeism ranges from a lower bound of $600 million (95% CI?=?$100 million to $1.0 billion) to an upper bound of $1.2 billion (95% CI?=?$0.2–$2.1 billion) for 2010.

Limitations: The data cover only the non-institutionalized population. Decreased costs due to any decreases in the severity of heart disease are not included. Cost savings do not include any reduction in informal care at home.

Conclusions: Diets high in saturated fat impose substantial medical care costs and job absenteeism costs, and substantial savings could be achieved by substituting MUFA for saturated fat.     

The Welfare and Resouce Allocation Implications of the U.S.Dairy Quotas

This paper examine the welfare and resource allocation implications of the U.S. dairy quotas. A computable general equilibrium model detailing five dairy sectors and nine aggregate sectors is calibrated to a 1989 benchmark of the U.S economy. The model is used to simulate the removal of the U.S.dairy quotas both the with and without a first-best subsidy to maintain a dairy farm output objective. Welfare, production, trade, and employment results are provided. The welfare cost of the U.S dairy quotas ranges from $0.7 to $1.0 billion. The first-best subsidy ranges from $2.0 to $2.3 billion or approximately $1.4 million per full-time equivalent job maintained in the dairy farm sector [F13, Q17]     

FOUR REVOLUTIONS IN ELECTRIC EFFICIENCY

Demand prospects for electricity are being altered profoundly by four synergistic types of revolutionary change: new technologies for improved end-use efficiency, new ways to finance and deliver those technologies to customers, cultural change within utilities, and regulatory reforms to reward efficient behavior. Dramatic energy savings achieved so far have been largely in direct fuels and not in electricity, mainly due to price distortions and unique market failures. Resulting inefficient use of electricity is misallocating some $60 billion a year to unnecessary expansions of U.S. electric supply. Yet the best technologies now on the market could save about 92 percent of U.S. lighting energy, about half of motor energy, and much of the electricity used for other purposes. Complete retrofit could deliver equal or better services with only a fourth of the electricity now used. The levelized cost of that quadrupled end-use efficiency averages about 0.6 cents/kWh– well below short-run marginal cost. Analogous oil-saving potential from the best demonstrated technologies is about 80 percent of present oil consumption at an average cost below $3/bbl, partly because two of the 9–10 prototype cars already tested at 67–138 miles per gallon are said to cost nothing extra to make. Many utilities already save large amounts of electricity very quickly and cheaply by financing customers' efficiency improvements through loans, gifts, rebates, or leases. Even more promising is an emerging “negawatt market” making saved electricity a fungible commodity subject to competitive bidding, arbitrage, derivative instruments, secondary markets, etc. Utilities can make more money selling less electricity and more efficiency. They can earn a spread on the difference in discount rates between themselves and their customers. They can save operating and capital costs while avoiding the associated risks and, under emerging regulatory reforms, can even keep as extra profit part of what they save. They also can generate tradeable emissions rights under the new Clean Air Act. Some utilities now properly ignore sunk costs and seek to minimize marginal variable costs. These utilities, driven by economic– not accounting–principles, find this approach both profitable and operationally advantageous.     

THE REAL RATE OF U.S. NATIONAL SAVING

The conventional measure of national saving in U.S. accounts does not include saving in consumer durables, public investment, or intangible capital. It reflects a measure of net foreign investment that relates in considerable part to original cost rather than market values. It also does not include real capital gains.
Comprehensive, adjusted measures of national saving are calculated for as many of the years from 1946 to 1989 as relevant components are available. They generally suggest much larger rates of national saving than are usually recognized. They also cast a sharp and substantially different light on the likely effects of policies designed to increase provision for the future.     

Estimating the long-term effects of utility energy conservation programs: A Pacific Northwest example

The Bonneville Power Administration operated a Residential Weatherization Pilot Program from 1980 through 1982. The program provided free home energy audits to 7200 electrically heated homes in the Pacific Northwest and gave zero-interest loans to weatherize 4100 of these homes. The total cost of the program was almost $11 million.The pilot program and its regionwide successor are intended to provide benefits to the Pacific Northwest region for roughly 30 years in terms of reduced residential energy consumption. Therefore, it is important to determine the durability of the electricity savings due to the program. Estimates of long-term savings affect power supply planning in the region and influence the economics of the program itself (i.e., the level of funding that BPA can justify for the program).This article presents empirical results concerning the total and net energy-saving affects of the BPA pilot program 1, 2, and 3 years after participation. The total annual electricity saving experienced by households that received an energy audit and a weatherization loan averaged 5300 kWh 1 year after participation, increasing to 6000 and 6500 kWh 2 and 3 years after participation, respectively. The net annual electricity saving that can be directly attributed to the program for these audit plus loan households averaged 4500 kWh (15% of preprogram use) 1 year after participation and declined slightly to about 4300 kWh 2 years and 4200 kWh 3 years after participation.The article uses these empirical findings with a simple simulation model to estimate the effects of the program into the future. Assuming that electricity prices remain constant after 1984, total energy savings increase to a level of 7000 kWh, while net energy savings decrease to 3600 kWh for the audit plus loan households. Alternative electricity price scenarios are discussed.     

Measurement of Dematerialization/Materialization: A Case Analysis of Energy Saving and Decarbonization in OECD Countries, 1960–95

This article establishes a conceptual framework for dematerialization and materialization, and develops a complete decomposition model for measuring them. Based on our conceptual framework and method, dematerialization in the energy use of the OECD from 1960 to 1995 has been analyzed. During this period, the increase in energy demand was 3597.95 Mtoe. However, the improvement of energy efficiency decreased energy demand by 827.20 Mtoe, and structural shifts decreased energy demand by 139.04 Mtoe. Thus, real energy demand only increased by 2631.71 Mtoe, and the energy saved was 966.24 Mtoe and the energy saving rate was 17.98% for this period. The energy saving rate was about 0.56% per year. In the same period, the increase of CO₂ emissions was 9672.95 Mton. The fuel switching, the improvement of energy efficiency, and structural shifts decreased CO₂ emissions by 1899.67, 2150.31, and 379.07 Mton, respectively. Real CO₂ emissions only increased by 5243.93 Mton, the decarbon was 4429.02 Mton and the decarbonization rate for the period was 29.57%. The decarbon rate was about 0.997% per year. These results show that significant dematerialization has been achieved in the OECD during this period.     

CUTTING CARBON EMISSIONS AT A PROFIT (PART I): OPPORTUNITIES FOR THE UNITED STATES

This article identifies and corrects shortcomings in recent modeling studies on the economics of reducing greenhouse gas emissions in the United States. The major assessments of the Kyoto Protocol—by the U.S. Energy Information Administration, the Clinton White House Council of Economic Advisers, the U.S. Department of Energy Interlaboratory Working Group, and the Stanford Energy Modeling Forum—are found to be seriously incomplete. Each study omits one or several of four major cost-reducing policy options, resulting in cost estimates that are far too pessimistic.
In the present study, these shortcomings are overcome through the integrated evaluation of all major cost-cutting policy options within a coherent least-cost framework. Three domestic policies—a national carbon cap and permit trading program, productivity-enhancing market reforms and technology programs, and recycling of permit auction revenues into economically advantageous tax cuts—are combined with international emissions allowance trading.
This analysis shows that an integrated least-cost strategy for mitigating U.S. greenhouse gas emissions would produce an annual net output gain of roughly 0.4% of GDP in 2010 and about 0.9% of GDP in 2020. On a cumulative net present value basis, the United States would gain $250 billion by 2010 and $600 billion by 2020. International flexibility mechanisms (including emissions trading) are of only secondary significance in realizing these productivity, output, and welfare gains.     

PUBLIC PROGRAMS PARE POVERTY: EVIDENCE FROM CHILE

This study examines the effect of government health care and education programs on the poor in Chile from 2000 to 2006. Results are obtained from a country-wide provincial-level panel data set with information on poverty and indigence head-count ratios, measures on the severity of poverty as captured by the Foster–Greer–Thorbecke P ₂ statistic, per capita public expenditures on health and education, as well as other variables that are thought to influence well-being. We use fixed-effects techniques to correct for time-invariant province-specific characteristics that may affect program placement. Our analysis demonstrates that per capita public health and education expenditures significantly reduce the incidence of poverty and indigence in Chile. In particular, for a 10,000 pesos (about $23) increase in provincial per capita health spending, the poverty head-count ratio decreases by 0.48 percent. Per capita education expenditures are particularly important to reducing the severity of poverty. Our results indicate that for a 10,000 pesos increase in education spending, the severity of poverty declines by as much as 1.53 percent. Furthermore, we provide evidence that public spending in Chile is non-random. In particular, government education expenditures may be allocated in keeping with compensatory motives.     

REPEAL OF PROHIBITION: A BENEFIT‐COST ANALYSIS

In spite of an estimated increase in annual alcohol‐related motor vehicle costs of $2.767 billion (1947 dollars), the net social benefit of repeal of alcohol Prohibition amounts to $432 million per annum in 1934–1937, about 0.33% of gross domestic product. Total benefits of $3.25 billion consist primarily of increased consumer and producer surplus, tax revenues, and reduced criminal violence costs. A Monte Carlo simulation shows the probability of negative net benefits is 16%. The estimated price elasticity of demand for spirits, beer, and wine are –.60, ?.56, and –.51 respectively, which is consistent with the modern literature. (JEL D61, I18, K420, I120)     

Bioenergy Crop Production in the United States: Potential Quantities, Land Use Changes, and Economic Impacts on the Agricultural Sector

The U.S. Departments of Agriculture and Energyjointly analyzed the economic potential for,and impacts of, large-scale bioenergy cropproduction in the United States. Anagricultural sector model (POLYSYS) wasmodified to include three potential bioenergycrops (switchgrass, hybrid poplar, and willow). At farmgate prices of US $2.44/GJ, anestimated 17 million hectares of bioenergycrops, annually yielding 171 million dry Mg ofbiomass, could potentially be produced at aprofit greater than existing agricultural usesfor the land. The estimate assumes highproductivity management practices are permittedon Conservation Reserve Program lands. Traditional crops prices are estimated toincrease 9 to 14 percent above baseline pricesand farm income increases annually by US $6.0billion above baseline.At farmgate prices of US $1.83/GJ, anestimated 7.9 million hectares of bioenergycrops, annually yielding 55 million dry Mg ofbiomass, could potentially be produced at aprofit greater than existing agricultural usesfor the land. The estimate assumes managementpractices intended to achieve highenvironmental benefits on Conservation ReserveProgram lands. Traditional crops prices areestimated to increase 4 to 9 percent abovebaseline prices and farm income increasesannually by US $2.8 billion above baseline.     

Liberalizing U.S. Trade with the Eastern Bloc: What are the consequences?

This paper provides estimates of the trade and welfare consequences of removing the high discriminatory tariffs that the United States imposes against imports from the Soviet Union and its allies. These imports are now taxed at Smoot-Hawley rates. The estimates of the trade effects exceed those of previous studies, in part because the recent “Tokyo Round” of multilateral trade concessions has increased the tariff discrimination against the non-MFN (Most Favored Nation) suppliers. The study is the first to assess the welfare consequences of eliminating this discrimination. It is estimated that the overall annual gain to the United States would be about $1.8 billion and that the annual gain to the communist suppliers would be between $1.2 billion and $1.7 billion.     

AN EXTENDED MEASURE OF GOVERNMENT PRODUCT: PRELIMINARY RESULTS FOR THE UNITED STATES, 1946–76

Expanded measures of government output include imputed values of the services of government capital, uncompensated factor services of military draftees and jurors, and net revaluations, as well as the usually included compensation of employees. The government output is allocated to consumption, capital formation and product intermediate to other sectors, on the basis of its classification in ten broad functions: defense, space research, education, health, sanitation, transportation, parks and recreation, natural resources, welfare, and general administration. Final government product in 1976, including $116 billion in defense and $125 billion in education, amounted to $450.5 billion, which was 26.5 percent of the 1976 GNP. This final government product corresponded to the BEA measure of $191.6 billion.
Total capital formation related to government is defined to include both government product which enters into capital formation in other sectors and government expenditures for its own capital accumulation. After a more rapid rate of growth in previous years, this total government capital formation in the United States in 1976 is found to exceed gross private domestic investment. A significant but only minor portion was found to be constituted by government expenditures for capital goods and change in government inventories. Investment in research and development, health and, particularly, education and training, were dominant components in capital formation related to government.     

IN DEFENSE OF ASSET MANAGEMENT THE PRIVATIZATION COMPONENT

The federal government owns one-third of the nation's land, a small fraction of which is being selected and prepared for sale. Even this small amount, however, will comprise several million acres and will yield several billion dollars in revenue for the U.S. Treasury. But the President's Asset Management Program will do more than raise revenue: It will increase the efficiency with which the lands me used and will distribute those increased benefits more broadly among all citizens, resulting in net gains in efficiency and equity. As its title suggests, the program is aimed at improving the management of the nation's real property assets¹
"Privatization" is the word most frequently used to describe the program, and a key component of the program does involve selling large amounts of land (a carefully selected proportion of the federal holdings) to the private sector. Several commentators have objected strongly to the very notion of privatization, and much of the criticism is based on caricatures of what private ownership means and its expected results. This paper will provide an explanation of the rationale of the Asset Management Program and a discussion of the most frequently heard criticisms     

THE VALUE OF VOLUNTEER LABOR AND THE FACTORS INFLUENCING PARTICIPATION: EVIDENCE FOR THE UNITED STATES FROM 2002 THROUGH 2005

According to the U.S. Department of Labor, the number of people who volunteered rose from 59.8 million in 2002 to 65.4 million in 2005. Those volunteering benefit from their activity in various ways; however, these benefits are non-pecuniary and are generally not recognized in the national economic accounts used to measure gross domestic product (GDP). This paper uses data from the 2002–05 Current Population Survey Volunteer Supplements to assign a dollar value to volunteering. Different methodologies yield annual estimates from $116 to $153 billion (in 2005 dollars) over the four years (between 0.9 and 1.3 percent of 2005 GDP). Additionally, characteristics of individuals most likely to volunteer are identified. The volunteer rate varies by demographic characteristics in addition to geographic location, labor force participation, and business sector. Furthermore, the data suggest that volunteering is a "normal good" because participation increases with income even after controlling for observables.     

ABATEMENT COST HETEROGENEITY IN PHASE I ELECTRIC UTILITIES

The market-based instruments embodied in the Acid Rain Program have been instrumental in the reduction of SO₂ and NO _x emissions from electric utilities. Economic theory suggests that tradable pollution permit systems encourage polluters to reallocate pollution burdens to take advantage of any differences in marginal abatement costs. Such reallocations improve the efficiency of pollution reduction. This article evaluates the effectiveness of the first phase of the Acid Rain Program in achieving increased homogeneity of marginal abatement costs using an output distance function approach. The results indicate that plants have been successful in adapting to this more flexible regulatory framework.