The Limits of Markets? A Personal Anecdote on Environmentally-Conscious Consumption

So, I have a lot of ideas lined up for future posts, but I would like to actually discuss something that happened to me tonight. My other posts require a bit more research, but I think this is still quite relevant, especially for those who take moral quandaries with them to heart in everyday life.

I was at the grocery store tonight knowing that I should probably get new dishwasher detergent. To most, this is a trivial problem. The smart person would probably have gotten the cheapest stuff available at Costco or Walmart, but they were closed and I am probably not going to go to Costco by bus any time soon or go to Walmart at all. We could have a whole debate about how ethical big warehouses are, Walmart in particular, considering its treatment of workers and its executives' political persuasion. I digress though, as that is not the issue I want to talk most about.

I'll try this again now. I was at Safeway to buy dishwasher detergent. The typical student would probably just grab the first thing they saw. A smarter student would have done some research and figured out which brand is cheapest. Either way, it wouldn't take more than a minute before they mindlessly purchased something and went on their way. However, being a semi-eco freak, I gave a lot of thought to the environmental impact of my decision. Should I get liquid, tablet, or powder? Which brand? And should I get the "green" stuff even if it's more expensive? How do I know that "biodegradable" is really important at all and not just a pseudoscientific buzzword designed to lure the eco-conscious shopper? Of course, a true hippie would not even buy anything at a store, and certainly not a "Bright Green" branded (AKA Safeway branded) product. I don't, however, necessarily think that all chemicals are evil or that GMOs are inherently bad or that the "eco-friendly" choice is even the best option for society.

In the end, I brought the "green" stuff after several minutes of deliberation. But I don't really know whether my decision was right, even for the planet. Perhaps the higher cost reflects a greater energy input, or perhaps it does not clean as well, meaning even greater material use and water use necessary to clean dishes. Or maybe it is actually better since the regular stuff requires greater inputs to clean our lakes and rivers. The "right" decision may even have a location dependence since some areas may be more at-risk to human-caused toxicity than others.

I highly doubt that even a fraction of a percent of consumers think about any of these issues, and I don't really think my choice was more educated than anyone else's. I feel the same struggle when deciding on what food to buy, what clothing to buy, or what computer to buy. Often I choose not to purchase anything at all, and if this meets my needs, it is almost certainly the most eco-friendly decision. For food, I make my life easier by being a vegetarian. But I know that I am oversimplifying things-not all vegetables are exactly good for the environment or even for animals. If I really cared, I would be mostly a vegan and avoid energy-intensive fruits and vegetables whenever possible. That still doesn't tell me whether I should buy organic or fair-trade, or local, or in bulk, or avoid quinoa. In principle, these all sound good, but organic can be more energy-intensive and land-intensive, fair-trade could just be higher cost for little benefit in conditions, local tends to mean small-scale and inefficient, bulk could just be large-scale and destructive, and why should we criticize quinoa over growing rice in drought-ravaged California? I don't have all the answers and don't want to think about such dilemmas all the time.

So where does economics come into play here? Basically, in an ideal world, I wouldn't really have to make a decision. The final price tag would include all possible environmental and social impacts, so the only thing I would have to care about is performance. However, this would only be possible with a multitude of taxes based on local environmental impacts. It would also mean that there should be no advertising, other than listing the performance per unit input. Of course, then the decision would be easy and there would be no need for branding and product differentiation. But that is not the real-world, where externalities are usually untaxed, advertising is rampant, and people are drawn in by catchy logos. A preferred libertarian solution is proper allocation of property rights (for example, detergent providers would be responsible for the runoff they create), but this is not really any more easily applicable than taxes.

Sometimes the only way to make sure that we are not completely destroying the planet is through sensible regulation-of water, of air, of soil. For dishwasher detergent, phosphorous was essentially banned, so even the regular stuff I could have gotten would not lead to eutrophication. But at what point should the regulation stop? Clearly our lives are filled with toxic, environmentally destructive products, even in EPEAT gold electronics and vegan shoes. Education is hardly the answer-no one can be expected to put in even 5% of the thought I do, and I still have no idea if I made the moral choice. If anyone has a practical and helpful way to solve these quandaries, I'd love to know, but I don't think there is always a good answer as there are always tradeoffs. I should have a later post devoted to my feelings on the term "sustainability" as it relates to our economy and way-of-life. For now, I'll leave you to ponder all the intricacies of your next purchasing choice, big or small. The only thing you'll likely learn is that you really have no clue and should just go back to blithely buying whatever the heck you want.

An Open Letter to Republican Politicians

Dear Republicans,

I am not going lie here: I am a liberal. I'm atheist, pro-abortion, pro-gay marriage, pro-socialized medicine, pro-gun control, etc. But I am no socialist, I recognize that markets are generally the best way of maximizing welfare. I don't like onerous regulations, pet-project spending, and needless giveaways, even to companies or causes that I support. I would be willing to cast aside my opinions on other issues if you will just do one thing: support a carbon tax. Nay, not just support it, make it the centerpiece of your campaign. I keep on hearing that there are Republicans out there who secretly believe that climate change is real. Go ahead, come out of the closet. I will support you and so will many other "liberal" environmentalists. We're not all preordained to believe that markets are inherently evil and that Wall Street is the devil incarnate. Listen to the companies you so champion and the economists that you employ. 

You all say that a carbon tax is a massive government intervention, but it's not. It can easily be revenue neutral (ie a per-capita dividend and/or lowering of other taxes), an approach supported by Al Gore and the burgeoning Citizen's Climate Lobby. I will fully support a carbon tax you propose that is coupled with the phasing out of all renewable energy subsidies and standards, all fuel economy standards, all efficiency mandates. The only caveat is that it must be a high and rising tax that will enable us to seriously put a dent in our carbon emissions. That is a tough sell, I know. But it is something that is supported by a great many of your own economists, and championed by former Bush and Romney advisory Greg Mankiw. A carbon tax is also supported by the late great Nobel-Prize winning University of Chicago economist Gary Becker. Multiple other highly important Republican advisers have championed the cause, from Bush Treasury Secretary Hank Paulson to Reagan Secretary of State George Shultz. Many of the businesses you purport to champion are fully embracing of the necessity of cutting CO2 emissions. They include some of the big businesses that you say you support: Monsanto, Exxon, BP, Shell, Coca Cola, Dupont, Nestle, Unilever, Microsoft, Duke Energy, and others have publicly stated multiple times that they support a revenue-neutral carbon tax. Do you really think that the largest energy, tech, chemical, and consumer service companies in the world want to implement a socialist, economically crippling policy?

Look, I am not going to pretend that it will be easy. A carbon tax will impose real costs on energy consumers and producers and may not grow GDP. But if you believe that climate change is real, it is worth it. You're right, coal is dying and the industry could undergo a slow demise with carbon pricing legislation.  If properly monitored, natural gas from fracking (well-regulated and monitored) has the potential in the midterm to slow the rise of CO2 emissions. And gas exports can help emerging economies in India, China, and Africa get access to electricity without destroying the air in all of their cities. Where renewables or nuclear energy are not economically viable, fossil fuels may still play a role with carbon sequestration. A carbon tax would level the playing field between all technologies instead of favoring solar, wind, and biofuels as is the case today. Essential to any carbon tax proposal would be the removal of all GHG policies currently in place, thus limiting the bureaucratic overreach of the EPA. If you actually are willing to negotiate, you could help lower corporate income taxes and labor-taxing revenue streams. You could help compensate and retrain working-class families in polluting industries who may lose their jobs. Obviously nothing will perfectly satisfy both sides, but there is a lot for you to gain on issues that Democrats would otherwise be unwilling to negotiate. 

You may have heard the news about the Climate March and thought that it was just an assortment of activists who want to impose a new socialist order. I assure you that not all of us think this. But when the only choices for environmentally conscious citizens are subsidies for renewables or a party that supports subsidizing coal, oil, logging, and gas with no regard to pollution, habitat, or climate change impacts, we don't really have much choice. But don't listen to me, listen to all of the employers and conservative economists who are otherwise your stalwart allies.

Respectfully,

Naor Deleanu

The Follies of Zero Net Energy

Zero Net Energy is here! I lived in it last year in fact. Except it's not sustainable. Or really net-zero.

West Village hasn't really achieved its goals (generating 87% of the energy it uses), but the numbers are worse than that really. Look at the model. Zero-net energy refers to the operating energy costs. That doesn't include the construction cost of utilities, homes, roads, solar panels, etc. The building costs are typically 7-9% of residential energy impacts, but I would guess that the number here is actually much higher. This is a new development that required new roads, a new bike bridge, and new utility poles, and it is designed to be more much more energy efficient than the typical new development. So that means we are at likely under 75% of total energy impacts covered by on-site generation. Even considering generation, the "net-zero" label is rather dubious. The model assumes only 50% occupancy in apartments for 1/6th of the year. The apartments are solely for students, so perhaps this is not unreasonable for purely accounting purposes. However, it's not like students are not going to use energy if they are away from home. Encouraging higher occupancy should be a goal, not an impediment of sustainable design.

First, let me dispel the myth that "zero-net energy" has any real economic or environmental meaning. Consider two scenarios

1.  New solar powered zero-net energy house. I'm just going to throw a random number out there, but let's just say that it costs an additional $12,269 (this is from West Village). They don't include the cost of solar panels, but they estimate a 21,126 savings in energy use (including solar water heating).  This comes out to about $0.039/kwh (assuming 20 year service life and 3% discount rate as stated in energy modeling for West Village SFH in Davis). Not terrible, but something to consider for later: the "new" (actually 2008) building standard for California gives a usage of more than 31,000 kwh/household/year. This is actually much greater than the average household usage of 18,000 kwh. Keep that in mind for later discussion in a future blog post.
2. Invest that money in energy efficiency upgrades for more homes. Estimates of energy-efficiency programs center on values of $0.03/kwh saved. Clearly, this is a better value than getting a super efficient house to that magical "net-zero." 

Obviously the second situation isn't net-zero. So what? It's a lot more important. We don't have unlimited resources, so we need to prioritize investments. Even the most enthusiastic supporters admit that there are some upgrades that are much more expensive (such as residential solar panels, not even mentioned as part of the economic analysis of energy savings for homes at West Village). And there is a point where energy-efficiency upgrades are not going to pay off. 

Let me add another point about "net-zero." Why the focus on "zero"? Why can't it be net positive energy? I think the focus on generating exactly as much energy as you consume has something to do with utility pricing (you can't get paid for using less energy), but if net-zero made actual economic sense, so would net-"negative" energy use in some circumstances. After all, the costs and benefits of energy efficiency and solar depend on local weather conditions (climate, humidity, sunlight, etc). 

I have another huge problem specifically with West Village, one that might easily be replicated in future ZNE developments. The reason why residents consumed far more energy than projected is not because of our laptops and iPhones: it's because electricity was free. None of that $100 million in development costs could have gone towards a real innovative energy pricing program, perhaps as a research project for a UC Davis economics professor who studies the subject? I've heard that utility regulation stops the developer from charging for energy consumption. That's a load of BS. Perhaps it hurts the economics, but I'm sure that $17 million in incentives plus full access to university-owned land. 

Some people may think that because all electricity is generated on-site, it doesn't matter how much energy is consumed. That is not true at all. The true environmental and social cost of energy is largely tied to the marginal cost of production. The residential solar provides a very small portion of electricity that is on the grid. If less energy is consumed, then there is more electricity available on the grid, meaning that fewer high-marginal cost power plants have to operate. The solar panels provide mostly the same benefit no matter where they are supplying energy. There are environmental benefits of both solar energy production and energy efficiency, but they are in no way related to one another. 

I hope that the future does not look like West Village. The apartments are unaffordable luxury (definitely not built for the middle class) and the complex is surrounded by a giant parking lot. It's already bad, but the rest of it is going to be even more unsustainable (see more in my next post). Zero net energy is generally a meaningless goal, and building everything as such would cost more than saving the same amount of energy through a combination of energy efficiency and innovative electricity pricing.

How to End Poverty, Help the Economy, and Save the Environment Part 2

I know that a while back I made a list of things that I would do if I was dictator of the US. I have mostly the same opinions with a few addendums. I don't have much to say about health care and Social Security.

Education

• Raise teacher salaries (a lot). I'm thinking paying public school teachers $100,000+ a year. More in cities, more in poorer districts.  (liberal)
• Lest you think I think teachers deserve everything I think we should end tenure (conservative)
• Also increase education requirements for teachers and make sure they get at least a Master's. Ideally, people will choose teaching over becoming a lawyer, doctor, nurse, or businessman/woman. (neither)
• I don't really know enough to know whether vouchers are good or not (dunno)
• Make sure everyone can afford college and doesn't need to work two jobs (hopefully at most one part-time job) to do so.  (liberal)
• No affirmative action. However, for college admissions, poverty level/upbringing should definitely matter. (conservative)
• Let colleges increase in size to meet the demand of a growing educated populace (neither)

Federal Economic Policy

• Of course, implement a rising carbon tax (liberal but supported by conservative economists)
• Read my other posts on it
• End minimum wage and replace it with a guaranteed living wage that rises as necessary. Unlike some conservatives, I don't think this would necessarily increase economic efficiency (due to the necessary extra taxes to give out so much money), but it would actually be more progressive than current policy. (mostly conservative in theory)
• Implement a VMT Tax and slowly phase out gas tax (liberal but supported by conservative economists and some politicians)
• Driving has its own externalities, largely unrelated to pollution in America due to vehicle regulations (more to congestion, accidents, and road use)
• use it to cover road use, congestion is addressed later
• Carbon tax will mostly cover the pollution impacts for driving
• End the homeownership tax credit (neither politically, supported by all economists)
• absolutely no reason to subsidize buying houses. This is hugely destructive, encourages sprawl and disconnected communities, encourages people to live beyond their means, encourages driving, etc
• Cut defense (liberal)
• big time. Don't need so many wars
• Cut wasteful spending (conservative)
• A lot of spending is wasteful. Don't give local subsidies
• No more highways (liberal)
• We have enough roads. Maintain the ones we need, get rid of what we don't need
• Don't waste money on high-speed rail if there isn't likely to be a demand for it (somewhat conservative although I'm not against all high speed rail)
• End pretty much all corporate subsidies (liberal, but conservative in theory too)
• End the ethanol mandate (both, but more of a conservative policy)
• No brainer
• Invest a lot in basic research (liberal, but some support from conservatives)
• but be careful. Should be practical, but some spending should be on "cool stuff" like underfunded private space exploration, some high-risk, unlikely technologies
• on this note, more government investments in GMOs!
• End farm subsidies (liberal somewhat, but supported by small-government conservatives)
• all of them. no price floors, no encouraging of American-made products
•  Legalize marijuana (liberal/libertarian)
• Jail reform-less jail, more rehab (liberal)
• More non-military foreign aid (liberal) 
• Spend money on adapting to climate change (whether infrastructure or innovative solutions) (liberal)
• allow insurance companies to "price gouge" risky areas so people don't live there (conservative mostly)

Regional/Local Policy

• Dynamic electricity pricing (liberal mostly)
• Can smooth out grid, leading to lower infrastructure costs and fewer peaker power plants
• however, not so necessary if storage is cheap
• Encourage density
• End restrictive zoning codes (like in Palo Alto) (liberal, but should be supported by small-government conservatives) 
• new apartments are great, building up is good, mansions are bad
• livable, mixed-use neighborhoods (liberal, but largely a problem of aforementioned zoning issues)
• restaurants, shopping, and housing all together. I don't like Walmart, but a great example of mixed-use is a Walmart in DC that has apartments above it! Oh how great it would be to live in an apartment that is right above a grocery store (and not one owned by Carmel Partners!!!)
• eliminate parking minimums but charge a market rate for parking. I would love to live in an apartment without parking and not own a car (again, liberal, but liberatarian in theory)
• Empty lots are terrible. Eyesore, hurt walking/biking
• transit
• often a Bus Rapid Transit system may be the best option when rapid metro isn't feasible (liberal)
• consider bike-share a form of public transit as well, but only implement it where there is enough density and if it will actually benefit the municipality (liberal)
• encourage ride-sharing and carpooling. Work with employers to set up carpooling. Reduce taxi quotas and don't overregulate Lyft and Uber (liberal)
• End transit subsidies (this might be more federal policies)-encourage people to live near where they work. No reason to subsidize suburbs (liberal, but again, smaller government)
• again, high speed rail maybe, but density and regional transit are bigger issues.  (liberal)
• Better biking infrastructure (liberal) 
• look up to the Netherlands, not Portland, as an example of what ALL cities should strive for
• Congestion charges (liberal, but some support from conservative economists)
• same idea as parking-if there's high demand, people should pay more to use roads
• again, don't waste money on roads (liberal, but smaller government)
• adaptation to climate change (liberal)
• may include evacuating some areas
• encourage grey-market sharing economy (neither really, but smaller government)
• organized local exchange of used goods, ride-share and car-share as mentioned, clothing rentals, Air-BnB type apartment rentals to compete with hotels, etc
• Indoor air quality standards (liberal)
• not something I had thought much of before, but it appears to be a major problem in homes, offices, and schools

Some additional general notes

• Take advantage of technology but don't overuse it. We don't need "smart" everything. Sensors all over every location are going to cost a lot, not be extremely reliable, and may give people too much information. Not every parking spot needs a sensor for example, and not everything in a city needs to be interconnected.
• Plan for what you (realistically) hope the future will become, don't straddle the past.
• Density is good for the environment, Net-zero-energy single-family homes are not
• I haven't mentioned health care or social security. Major problems, but not stuff I'm super interested in. I'll just use the same notes as last time: make social security slightly more progressive, raise retirement age, European-style healthcare

So yeah, I'm pretty liberal. However, if you look at what I've proposed, most of it is endorsed at least in theory by conservative economists. And consider this tally:

Education: 3 conservative, 3 liberal

Federal policy: 12 liberal, 5 conservative. However, of the 12 liberal policies, 4 are endorsed by some to many prominent conservatives. And I count 11 out of 18 policies actually reduce the size of government, with 2 (VMT replacing the gas tax and replacing minimum wage with Basic Income) that are neutral or ambiguous. A carbon tax won't necessarily increase the size of government either if other taxes are reduced accordingly. Jail reform would hopefully reduce spending. Investments in scientific research are supported by many conservatives, although what constitutes "basic" research is a cause for debate. So spending money on climate change adaptation is the only truly liberal, big-government proposal (even conservatives who believe in climate change will say that the market will adjust with a proper carbon price. I would support things like forced relocation if it comes to that)

Local/Regional Policy

Again, much policy is involved with reducing regulations. Other suggested policies involve a setting a market price for goods (parking, driving, electricity). There is only one new proposed regulation (indoor air quality). There are some proposals for infrastructure spending (bike-share, public transit), but even there I think there is a strong place for corporate-funded transit (whether it be funding bike-share or corporate buses like Google buses)

My environmental policy:
1 area of new regulation (indoor air) that can't really be set up with a good market
3 new taxes/fees (carbon, congestion, parking)
1 reduced tax (gas, but also maybe income, payroll, and corporate taxes can be replaced with the above taxes)
3 elimination of subsidies/reduced spending (home ownership, transit, corporate subsidies, roads)
4 reduced regulations (parking, zoning, ethanol, insurance requirements)
3 increased spending (transit, adaptation to climate change, increased research)

So I guess I'm not that surprised, since I have read mostly economics. But despite the fact that I am overwhelmingly liberal and often come across as a supporter of big government, I generally want less government intrusion. I want to end many subsidies, including subsidies that generally help the poor. I am strongly supportive of wealth distribution, but I would like to see it heavily concentrated in education rather than a mishmash of inefficient subsidies. I would probably vote for a libertarian who only supported my small-government policies as long as they weren't openly hostile to other things that I strongly believe in. I am a big supporter of social engineering, but in reality, every government policy is a form of social engineering, the only question is, what are your priorities?

I think that the government should prioritize: equitable, strong education; efficient, dense communities; living wage for all, but this is obviously not a comfortable living; a healthcare system that focuses on keeping people healthy rather than curing sickness; a clean, safe living environment. I honestly don't think the government should prioritize job creation really. It should provide a realistic system of regulations that encourage the growth of business (without undue environmental destruction), but the government should not consider whether jobs will be created or destroyed. More jobs are not necessarily good, fewer jobs are not necessarily bad. Generally, the government should be there to maintain or improve the overall standard of living for Americans as well as foreigners. That said, there is perhaps a place for fiscal policy in times of boom or busts to moderate cycles.

I think the biggest thing that I have come to realize is that the best thing we can do for the environment is to promote density. Although I love electric cars compared to gas cars, I am hopeful that the future will involve almost no cars. Perhaps a self-driving taxi service charged at a rather high rate can provide emergency transportation, but I hope that the future brings cities closer to the Netherlands with biking, walking, and public transit. I believe that even today it is entirely possible to get by without a car in much of the Bay Area, if somewhat difficult. With kids, it is certainly more difficult-who is going to take the bus to a Little League game for example? But there will still be a place for private vehicles, just a reduced need, helped by ride-sharing, car-sharing, and autonomous vehicles. In addition to reduced transportation costs, density is a much better use of land and energy, allowing for more preservation of wildlife and lower overall pollution output per capita.

Thoughts? I think I have changed over the past few years. I have become much more conservative and skeptical of government. I will listen to you even if I disagree. I didn't used to support marijuana legalization and used to be a huge supporter of high speed rail. From my self-review, I can see that liberals aren't necessarily supporters of big government. That said, many of my views clash with prominent liberal groups (unions especially). There are many suburban "liberals" who don't want their neighborhoods to be turned into cities. Most liberals don't share my enthusiasm for regressive taxes. Many in both parties are unwilling to eliminate subsidies (home ownership, transit). Nearly all of my economic policy views are fairly noncontroversial among economists on both sides. That may be because I read a lot about economic policy. In practice though, there is incredible opposition to all of them (except maybe a VMT, but even that's getting flack from libertarians. And Bob McDonnell in Virginia wanted to replace the gas tax with a higher sales tax that exempted gasoline!).

Short summary: end restrictive zoning, end inefficient anti-urban subsidies and spending policies, more Pigovian taxes, pay teachers a lot more