William K. Jaeger

Biofuel Economics in a Setting of Multiple Objectives & Unintended Consequences

This paper examines biofuels from an economic perspective and evaluates the merits of promoting biofuel production in the context of the policies’ multiple objectives, life-cycle implications, pecuniary externalities, and other unintended consequences. The policy goals most often cited are to reduce fossil fuel use and to lower greenhouse gas emissions. But the presence of multiple objectives and various indirect effects complicates normative evaluation. To address some of these complicating factors, we look at several combinations of policy alternatives that achieve the same set of incremental gains along the two primary targeted policy dimensions, making it possible to compare the costs and cost-effectiveness of each combination of policies. For example, when this approach is applied to U.S.-produced biofuels, they are found to be 14 to 31 times as costly as alternatives like raising the gas tax or promoting energy efficiency improvements. The analysis also finds the scale of the potential contributions of biofuels to be extremely small in both the U.S. and EU. Mandated U.S. corn ethanol production for 2025 reduces U.S. petroleum input use by 1.75%, and would have negligible net effects on CO2 emissions; and although EU imports of Brazilian ethanol may look better given the high costs of other alternatives, this option is equivalent, at most, to a 1.20% reduction in EU gasoline consumption.

Utilization, Profitability, and the Adoption of Animal Draft Power in West Africa

Farmers in West Africas semi-arid tropics have been slow to adopt animal draft power to replace manual cultivation, defying the logic of conventional choice-of-technique analyses. This paper demonstrates that farmers can profitably adopt animal draft power when household characteristics and exogenous factors permit high utilization of animals and equipment. Empirical analysis of farm-level data indicates that low utilization is the key cause of low returns, and that a long learning period precedes achieving high utilization and benefits. Linear programming models are used to establish the importance of family size, access to land, and appropriate implements in achieving profitable adoption.

Is sustainability optimal? Examining the differences between economists and environmentalists

Abstract This paper examines a number of possible explanations for the apparent differences between economists and environmentalists concerning economic growth and sustainable development. Some of the differences are well known and relate to issues such as resource scarcity, intergenerational equity, and the composition of social capital. However, our analysis finds that while economic notions of optimal growth and the techniques of benefit-cost analysis have important advantages for evaluating complex tradeoffs because they are quantifiable, they may have potentially serious drawbacks as well. The paper focuses on two potential sources of bias in the use of welfare economics for social choice: First, there is a “conservative reinforcement” in benefit-cost analysis which is likely to produce biases against policy interventions to protect a degraded environment. Second, and perhaps more importantly, the aggregation of individual willingness to pay as a measure of social benefits is shown to be invalid in the case of “positional goods”, where the demand for the good reflects the desire of individuals to raise their own relative standing. This error may cause the economic calculus to be biased against non-positional goods, including non-rival goods such as environmental resources. These biases further complicate the already strained assumptions in utilitarian-based welfare economics that, by relying on revealed preference and consumer sovereignty, are unable to distinguish between, or apply different weights to, the satisfaction of different categories of preferences. Furthermore, because the dynamic consequences of even small biases in judging social optimality may give rise to large social costs or advance an unsustainable path, there is a danger in relying solely on a potentially biased measure of welfare as a basis for guiding social choice. The paper concludes by suggesting that efforts to correct these drawbacks of economic analysis are likely to result in approaches to sustainable development that narrow the apparent differences between economists and environmentalists.

Past and future water conflicts in the Upper Klamath Basin: An economic appraisal

[1] The water conflict in the Upper Klamath Basin typifies the growing competition between agricultural and environmental water uses. In 2001, drought conditions triggered Endangered Species Act-related requirements that curtailed irrigation diversions to the Klamath Reclamation Project, costing irrigators tens of millions of dollars. Although this event has significantly elevated the perceived risk of future economic catastrophe in the basin (and therefore the level of conflict among water users), several key changes related to water availability have occurred since 2001. These changes include reduced ESA requirements and increased groundwater pumping capacity, which have lowered the actual risk and severity of future water shortages. In this paper, we use a mathematical programming model to evaluate how these changes alter the likelihood and economic consequences of future shortages. We also consider the effect of more flexible transfers among irrigators via water markets. Our analysis indicates that future drought conditions like those seen in 2001 would have more modest economic impacts than in 2001 and that when combined with contingent groundwater supplementation and water transfer mechanisms such as water markets, both the likelihood and magnitude of economic losses among irrigators would be greatly reduced.

Carbon Taxation When Climate Affects Productivity

Based on a model where climate change affects productivity, the second-best optimal carbon tax is found to exceed marginal social damage by 53% and “marginal private damage” (aggregate households’ willingness to pay) by 73%. Annual welfare gains are estimated at

The welfare cost of a global carbon tax when tax revenues are recycled

3.58 billion when marginal damage is

Finding water scarcity amid abundance using human–natural system models

40 per ton; employment also increases. A carbon tax set at the Pigouvian rate raises welfare by only

Pay or Waive: An Economic Assessment of Property Owner Compensation Laws in the United States

3.17 billion. The seemingly contradictory results from the “tax interaction” literature are shown to arise only when the optimal environmental tax is compared to “marginal private damage,” and only for an amenity externality. (JEL Q4, H2)

The Environmental Kuznets Curve from Multiple Perspectives

Abstract This paper assessses the welfare cost of a global carbon tax when tax revenues finance reductions in existing revenue-raising taxes. The analysis finds that by lowering the excess burden from existing taxes, a revenue-neutral carbon tax policy has a positive net welfare effect in the range required to aggressively slow climate change. Based on tax efficiency considerations alone, the optimal reduction in emissions is 37 percent. When benefits from avoiding greenhouse damages are included in the model, the optimal reduction is 40 percent. Even more stringent restraints, avoiding more than 90 percent of greenhouse damages, are shown to have positive net benefits.

The Welfare Effects of Environmental Taxation

Significance Climate change will heighten the need to anticipate water shortages worldwide. The task is daunting due to water’s variability, spatial-temporal movement, feedbacks, and other system complexities. A high-resolution coupled human–natural system model identifies how both climate change and socioeconomic drivers will alter water scarcity in future decades. The results illuminate how water scarcity varies greatly across small distances and brief time periods, even in basins where water may be relatively abundant overall. These findings, and other unexpected results that may seem counterintuitive, underscore the potential value of such models for policy. Water scarcity afflicts societies worldwide. Anticipating water shortages is vital because of water’s indispensable role in social-ecological systems. But the challenge is daunting due to heterogeneity, feedbacks, and water’s spatial-temporal sequencing throughout such systems. Regional system models with sufficient detail can help address this challenge. In our study, a detailed coupled human–natural system model of one such region identifies how climate change and socioeconomic growth will alter the availability and use of water in coming decades. Results demonstrate how water scarcity varies greatly across small distances and brief time periods, even in basins where water may be relatively abundant overall. Some of these results were unexpected and may appear counterintuitive to some observers. Key determinants of water scarcity are found to be the cost of transporting and storing water, society’s institutions that circumscribe human choices, and the opportunity cost of water when alternative uses compete.