Tuesday, August 30, 2011

The Fine Line Between Environmental Concerns and Economic Recovery

Blog Post Based on Battle Lines in US Test Case for CO2 Controls by Ed Crooks, published in the Financial Times on August 22nd, 2011 and on New Jersey Quits RGGI, Bans Coal Plants (http://www.environmentalleader.com/2011/05/27/new-jersey-pulls-out-of-rggi-bans-coal-plants).

A recent article in the Financial Times brought back an interesting and important question: whether the fragile US economy can cope with tougher environmental regulation. This issue rose up because the only current working cap and trade scheme for carbon emission in the United States may set tighter limits on emissions in the next year.

The Regional Greenhouse Gas Initiative

Some of you might not know what is the Regional Greenhouse Gas Initiative (RGGI). The RGGI is the first market based carbon emission trading platform in the United States. It was formed in 2003 and includes ten Northeastern states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont.  The objective of the RGGI is to reduce carbon emission from the power sector by 10% by 2018 (www.rggi.org). The permits were emitted in the fall of 2008 and the first three years of compliance began in January 2009. Electricity generators can buy the permits at quarterly auctions and can be traded. The profits from the sale of the permits are used to promote renewable energy and energy conservation.  This means that electricity generators need to buy carbon emission permits in order to have the “right to pollute”. The cap limits the total amount of emissions that the power plants can produce in aggregate. By restraining the cap it is possible to cut down the total carbon emitted over the years.

Critics of the RGGI

Last May, the Governor of the State of New Jersey announced that his state would leave the RGGI at the end of the year. The main reason for New Jersey to leave the scheme was the inefficiency of the plan to reduce carbon emissions effectively. According to Governor Christie, the emissions aren’t currently expensive enough to change industry behavior.  This same conclusion is also highlighted in the article in the Financial Times. The recession led to a reduction in the price of natural gas, a cleaner energy source, which is now used as a substitute for coal and oil. The recession also caused a lower demand for energy. This resulted in a lower amount of carbon emitted which means that the demand for permits is really low, which leads to lower permit prices, resulting in making the scheme not as effective as it was planned. In order to gain efficiency, the cap would need to be reduced to be a bigger constraint, unfortunately, some people believe that this could hurt investment and employment in the states included in the RGGI by driving up energy cost.  Can the fragile economic recovery survive with harder environmental regulation? Chris Christie also fears that this could open the door to a certain competitive advantage for the states that are not included in the RGGI. According to Christie, plants in neighboring states could drive out of business cleaner plants from New Jersey. This could end up defeating the purpose of the RGGI if the first place.

It is hard to know what is the right thing to do in this situation. The RGGI wants to encourage cleaner energy production and a reduction of carbon emissions now rather than pay for depollution later on. But it could also hurt the fragile economy of the participating states and give an unfair advantage to bigger polluters in other states that can produce dirtier energy at a cheaper price. What are your thoughts on it? Do you think the RGGI would be more effective in a healthy economic environment?

Thursday, August 11, 2011

The Value of Nature Services

I came across an interesting article in the New York Times about putting a price on nature. In some of my classes during my graduate studies, we were studying different methods and theories that can help value natural resources such as the travel cost method and contingent valuation, so this subject was of particular interest to me. The article is about The Nature Capital Project that was created by Stanford University, the University of Minnesota and The Nature Conservancy. The idea behind this project is to put a value on the benefits we get from the different element of nature in order to take them into consideration when building projects that can alter or affect it.

You may wonder, what exactly is the capital of nature? The information on the project’s website gives some examples on the type of benefits or “services” we receive from nature:

• Plants counteract climate change by capturing carbon dioxide
• Wetlands purify water flowing into lakes and streams
• Forests soak up rain, reducing the risk of floods
• Worms turn waste into life supporting soil.

There is, of course many other examples of nature services that aren’t listed here. The tougher question is now: How do you value nature services? They do not come with a price tag, but the organization came up with InVEST, a tool that allows the decision-makers to quantify the importance of natural capital, to assess the tradeoffs associated with alternative choices, and to integrate conservation and human development (naturecapitalproject.org). A classic example of tradeoff when it comes to nature is cutting a forest in order to produce energy vs. keeping the forest in order to protect an area from flooding and erosion. Does the cost of finding an alternative way to produce energy outweigh the risk associated with not having the protection from the forest anymore? In this scenario, a lot more needs to be taken into consideration to evaluate the problem accurately, but it gives an idea of how complex tradeoffs can be.

The InVEST tool, from the Natural Capital project, helps evaluate the different alternatives for a project considering the biophysical and economical factors. This tool can be used by government, non-profits as well as private companies that are interested in doing their part in terms of protecting the fragile balance between nature and human needs.

For more information check out the website: www.naturecapitalproject.org.