Archive for Policy

New York’s Energy Highway: Public Comment until July 31

In his 2012 State of the State address, Governor Andrew M. Cuomo put forward an initiative to upgrade and modernize New York State’s electric power system.  The goal is to systematically plan new electricity generation and transmission in the state with all the relevant government agencies and private developers at the table.

The first stage of the proposal was a request for information about proposed generation and transmission from developers, utilities, and interest groups.  These responses are in, and are shown on these maps:

NY Energy Highway Transmission

Ny Energy Highway Generation Map

The Energy Highway taskforce will be taking comments from the public on these proposals until July 31, and issue an action plan based on all the information received sometime this fall.

More information is available at the NY Energy Highway website.

You can submit comments here.

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Risk Aversion and Pricing Climate Risk

I felt the “Editor’s Corner” article in the most recent Financial Analysts Journal (Sept/Oct 2011) “Pricing Climate Change Risk Appropriately” does an excellent job explaining why the possibility of extreme climate scenarios justifies a considerably higher price for carbon than would be warranted under the most likely or average scenario: Humans are risk averse.

Equities… have low prices (and high expected returns) because their cash flows are discounted by society at high rates. The reason has to do with the anti-insurance aspect of equities: Their cash flows are highest in good states of nature whereby the value placed on the cash flows is low. In contrast, efforts to mitigate climate change by pricing carbon emissions will be most valuable to society if climate change turns out to have catastrophic consequences for society’s well-being. Because of this insurance aspect, society should be willing to pay higher prices for climate change mitigation.

FAJ Executive Editor Robert Litterman goes on to explain the mechanics behind carbon pricing models and their flaws, as well as why equity analysts are uniquely qualified to do these assessments.

I’ve long thought that financial market theory is uniquely applicable to understanding climate and the measures needed to mitigate climate change. what I don’t understand is why I hear so few analysts talking about it, so it was very refreshing to come across this article applying a deep understanding of economic pricing theory to what the greatest challenge the world will confront in the 21st century.

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Fossil Debt

An off-hand comment by Marc Gunther in an article on Solyndra about the started an email chain between the two of us on green jobs.

We agree that most of the debate is silly, but I see some interesting economics underlying green jobs. I explore those ideas in this article: The Microeconomics of Green Jobs.

The article also gave me the opportunity to explore a parallel between using fossil fuels and running up the deficit:

[I]f we spend too much borrowed money to create jobs today, the long-term drag on the economy caused by paying back the debt will leave everyone worse off.

Economic growth fueled by the extraction of non-renewable resources is very similar to economic growth fueled by debt. When we extract these resources and use them, we increase economic activity today, but their non-renewable nature means that we lose the opportunity to extract and use them tomorrow. Hence, the economic stimulus today comes at the cost of an economic drag tomorrow, and the future economic drag will generally be larger than today’s stimulus, since improving technology should allow us to get more benefit from each unit of resource in the future.

Using renewable resources to stimulate growth does not have this problem: Tapping the wind or the sun for energy today does nothing to diminish the wind or sun tomorrow.

In my mind, this is a deep contradiction in current Conservative politics: they don’t like debt (and I agree) but they do like fossil fuels.

I’d be a conservative, if being a conservative actually meant conserving things.

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Savoring the Irony

I recently bought an e-Bike (Currie Technologies iZIP Hybrid Via Mezza), mainly for trips to the grocery store. There are some serious hills between me and the grocery store, and I’m not up to tackling them with a full load of groceries.

It may be a cheatercycle, but especially on hot days like today, it’s very nice to be able to take advantage of the cooling breeze you get while you’re pedaling without having to pedal so hard you’re overheated anyway. If an electric motor gets me to take the bike when I would have been tempted to get into the car, it’s a good thing.

I couldn’t resist riding it to the DMV today to register my car. How’s that for irony? Of course it would be better if I could get by without the car at all, but I live a bit to rural for that.

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The Rebounding Rebound Effect & How to Dodge Jevons’ Paradox

There’s a new paper from the Victoria Transportation Policy Institute looking into the price elasticity of both miles driven and fuel use. The author, Todd Litman, has done an in-depth literature survey which will be of interest to readers who liked my recent look into Jevons’ Paradox.

Jevons’ Paradox, also known as the rebound effect, states that increasing efficiency can lead to increased use of a resource, because the resource is now cheaper. I pointed out that this is only true in elastic markets, where the use of a resource is sensitive to price. In inelastic markets, it makes sense to mandate efficiency, because efficiency will not greatly increase use. In elastic markets, the best policy avenue is to increase the marginal price of usage.

One great example of this is the potential benefits of smart metering. While the early results of smart metering trials were very positive, seeming to show that average people would reduce their energy use by 10-15% when given good data, more recent and broader trials have shown that the actual effect is much smaller. The difference is that the early trials tended to be focused on particularly price-sensitive populations, such as people who had trouble paying their electricity bills who reduced their energy use for Woodstock Hydro. More recent trials have shown much lower reductions in bills because they have been serving the general populace, not just a particularly price sensitive subgroup, like the poor or people who volunteer to have smart meters installed.

Litman’s survey of price sensitivities reaches several interesting conclusions:

1) While the price sensitivity of driving is quite elastic, the price sensitivity to fuel cost is much less elastic because fuel only accounts for about a quarter of the cost of driving.
2) Price sensitivities were temporarily depressed over the last 25 years due to various demographic changes, and now seem to be rebounding. As a result, many policies meant to reduce fuel use (such as higher CAFE standards) are likely to be less effective than expected due to the rebound effect. Better policies would work to increase the marginal cost of driving without increasing the total cost. Such policies include Pay as you drive car insurance and registration.

There’s much more. I highly recommend it or anyone interested in policies to reduce our dependence on foreign oil. Blurb follows:

Changing Vehicle Travel Price Sensitivities, The Rebounding Rebound Effect ( ).

There is growing interest in various transportation pricing reforms to help reduce traffic congestion, accidents, energy consumption and pollution emissions. Their effectiveness is affected by the price sensitivity of transport, that is, the degree that travelers respond to price changes, measured as elasticities (the percentage change in vehicle travel caused by a percentage change in price). Lower elasticities (price changes have relatively little impact on vehicle travel) imply that pricing reforms are not very effective at achieving objectives; that higher prices significantly harm consumers; and rebound effects (additional vehicle travel that results from increased fuel efficiency) are small so strategies such as fuel economy mandates are relatively effective at conserving fuel and reducing emissions. Higher elasticities imply that price reforms are relatively effective, consumers are able to reduce vehicle travel, and rebound effects are relatively large. Some studies found that price elasticities declined during the last quarter of the Twentieth Century, but recent evidence described indicates that transport is becoming more price sensitive. This report discusses the concepts of price elasticities and rebound effects, reviews information on vehicle travel and fuel price elasticities, examines evidence of changes in price elasticity values, and discusses policy implications.

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Competition may just be the key to getting normal people to adopt energy efficiency. Keeping up with the Joneses is a lot more important to most people than saving money (otherwise, we’d never buy an expensive car to impress the neighbors.)

That’s why I’m excited to hear about JouleBug, a social App/game for the iPhone (and soon Android) that turns saving energy into a reality-based friendly competition.

Players compete to earn badges from various energy-saving activities

JouleBug launched today at the South by Southwest Trade show. Press release follows. Read the rest of this entry »

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New Light Rail Stations May Not Increase Transit Ridership

A report (pdf) by the Kitty and Michael Dukakis Center for Urban and Regional Policy at Northeastern University found that new rail stations and transit-oriented development often fail to increase transit ridership.

New stations can sometimes lead to gentrification that prices out renters and low-income households. Since such households are core users of transit services, the new station may have the perverse effect of actually causing local ridership to decrease.

The study did not look at system-wide effects of such stations; I would expect new stations to lead to an increase in system-wide ridership over time, since the displaced renters and low-income households will most likely continue using transit in their new neighborhood, and many of the new higher-income residents will use transit for some trips that they would not have before they lived in a neighborhood with easily accessible transit.

Here are some highlights from the report compiled by Andrew Nusca at SmartPlanet:

* For 64 percent of the neighborhoods around the new rail stations in the study (that’s 27 of 42 total), population grew more quickly than the rest of the metro area.
* 55 percent of those neighborhoods showed a “dramatic” increase in housing production.
* 62 percent of those neighborhoods showed a faster increase in owner-occupied units than the rest of the metro area.
* 50 percent of those neighborhoods showed an increase in the proportion of non-Hispanic white households relative to the rest of the metro area. (The other half showed no change or a decrease.)
* 62 percent of those neighborhoods showed an increase in median household income; 60 percent showed a boost in the proportion of households with incomes of more than $100,000.
* Perhaps most tellingly, 74 percent of the neighborhoods showed rents that increased faster than the rest of the metro area. A full 88 percent had a relative boost in median housing values, too.
* In 40 percent of the new transit neighborhoods, public transit use declined relative to the rest of the metro area.
* In 71 percent of the neighborhoods, ownership of a vehicle increased; in 57 percent, ownership of two or more cars increased.

The report was published with a “Toolkit for Equitable Neighborhood Change in Transit Rich Neighborhoods” with several sensible suggestions for moderating the adverse effects (mainly on renters and low income households) of a new rail transit station, mostly related to planning and zoning.

Of course, a transit agency primarily concerned about increasing ridership and equity at the same time might simply consider adding more and better bus service in a neighborhood, something which can be done at much lower cost than adding a new rail station. In my mind, the ideal option would be to do some of both, with new rail stations complemented by frequent bus routes that bring riders to the station from surrounding areas.

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