environment

Notes from North of 49ºN

Last Friday, the Torontoist listed its 2009 “Heroes & Villains” and one of the heroes was the mandatory 5¢+ fee for plastic bags {for all retail} that went into effect on June 1st.  A columnist for the Toronto Star, Peter Gorrie, called it a sham, but his arguments are based on a logic that doesn’t account for behavioural change, i.e., a reduction of consumption and use of disposable bags, as people adjust to not using them.  He made several assumptions::

1. Plastic bags aren’t a major environmental hazard, in terms of garbage load and marine hazards
2. Manufacturing plastic bags use fewer resources than paper
3. Plastic bags can be re-used by consumers

He makes the following point, though::

“If the nickel fee makes us more aware the bags do have value and carry a slight environmental price tag, fine. If that prods us to consider using less of everything, even better. At most, though, it’s a potent symbol of how we embrace the trivial instead of doing what’s really required.”

I get where he’s coming from, but I don’t think he’s on the right track.

1. Diverting petroleum resources away from disposable bags that wind up in landfills or in the Great Pacific Garbage Patch by reducing consumption makes both economic and environmental sense.  If the policy in aggregate reduces consumption and conserves finite resources, at the expense of convenience, it’s a win in my book.
2. This assumes that the policy will not curb demand for disposable bags of all kinds.  I’m not aware of Toronto retailers shifting to paper.
3. While plastic bags can be re-used for other purposes, does the existence of a secondary use warrant unconstrained continued usage?  This assumes a demand for plastic bags for all purposes that is unyielding.

More interesting is the quote above, as he wants the public to have more real consciousness about reducing consumption, which is a good thing, but feels the tax embraces the trivial.  This is where social science comes in.

Prospect theory is part of the field of economic psychology, developed by Daniel Kahneman and Amos Tversky, which serves as a rival theory to the rational expected utility model, which is prevalent in economics.  Prospect theory is richer and more robust {sounds like a coffee} than expected utility, as it has greater explanatory power.  A cornerstone of the theory is how people treat gains and losses differently.  The classic example used is which do you prefer::

• a 2% credit card surcharge  -or-
• a 2% cash discount

So, let’s create a hypothetical example.  There’s a camera that a retailer sells at a cash price of $100 and a credit price of $102, i.e., two prices depending on the terms of payment.  Which would consumers prefer::

• A stated price of $102, but with a cash discount price of $100
• A stated price of $100, but with a credit card surcharge of $2, so the credit price is $102

These are equivalent scenarios, but most people don’t like the surcharge and prefer the cash discount.  It’s viewed as a “loss” that people will often go to great lengths to avoid and in prospect theory this is called loss aversion.  On the other hand, as gains increase, they are valued less, which fits economists’ “law” of diminishing marginal utility. These perceptions open the door for framing effects.

Who cares, it’s just 5¢, right?  The 5¢ charge is effectively a tax on using an economic “bad” or environmental externality and the consumer perceived the loss of wealth to be greater than the 5¢.   It’s the money plus a wee bit of a psychological carrying charge to boot.  The consumer once got bags for “free” {actually the cost was imputed in prices}, but now must either furnish their own bags {diminished convenience} or pay 5¢ per bag {out-of-pocket costs}, so now they are subject to losses.  The loss aversion means the 5¢ can serve as a big disincentive for their use, particularly in a recessionary economy.  One supermarket chain, Metro {Dominion} instituted a 5¢ fee across Ontario and Québec, resulting in a 70% reduction in plastic bag use. What this tells me is that the status quo wasn’t entrenched and the policy is helping to alter behaviours.  What I’m hoping is that policies like this help to reduce the 4B plastic bags handed out annually, just in the province of Ontario.

Whoa, hold the phone.  Why not offer cash back for not using plastic bags?  Looking at the prospect theory graph, refunds for not using plastic bags aren’t perceived to be worth it.  In aggregate, getting a few nickels back is perceived to be worth less than the money, so many consumers may not feel compelled to change their behaviour.

In terms of a plastic bag surcharge policy, the carrot loses to the stick.

Twitterversion:: @Torontoist 2009 “hero,” the 5¢ plastic bag fee, is a policy that follows sound social science theory, based on Nobel laureate’s work. @Prof_K

Song:: The Submarines-“Modern Inventions”

In the classroom and with conversations with researchers, I’ve discussed the idea that the environment is a luxury, in light of more pressing matters, such as food, jobs, etc. So, if we have a negative by-product of an activity {an externality such as pollution}, it creates a social cost that may be unfairly borne by others.  A key question is how to allocate such social costs, in light of competing interests?  What if these social costs in the form of taxes harm employers to the point where jobs are threatened?  Which should prevail?

The problem is that the value of the environment is not straightforward, as they often relate to a quality of life that is embedded in particulars, not universals.  When I lived in southern California, life without a car outside of Los Angeles would have been challenging.  My housing choices would be limited, possibly affecting my quality of life.  As it turned out, my decisions were independent of my environmental impact.  I had a 20 mile commute, albeit in a hybrid, but my choices affected everyone’s quality of life in terms of pollution, as well as the amounts of global greenhouse gasses.  Should policy affect choices like this?

In our everyday lives, we all have a set of practices that we take for granted.  In Pierre Bourdieu’s parlance, this would be habitus.  These practices are tied to environmental outcomes, whether we’re aware of them or not.  We only seem to be aware of them through consciousness or cost.

I don’t think the environment is a luxury that should take a back seat in an economic downturn, as it holds sacred the current mode of production and the current practices tied to it.  Of course, this could be disruptive, but should something that’s disruptive be avoided because of the uncertainty it generates?

Let’s assume the environment is a luxury when it comes to sustainable foods.  Organics should be toast in a recession, considered to be an overpriced luxury for most consumers.  In the UK, a Guardian article notes that consumers are less willing to spend on ethically-produced products {e.g., fairtrade} and organics, but are still want quality and are willing to pay a price-premium for locally-grown produce.  This shows how complicated markets can be, how consumers’ preferences shift, and creates implications for local production and land-use in Britain, creating challenges and opportunities for sustainable agriculture.  Habitus.

Policy can “incentivize” innovation, by enforcing standards such as those mandating increased fuel efficiency {CAFE standards in the US; CAFC guidelines in Canada}, state emissions testing, and the sale of lower-emissions vehicles.  Such approaches often are mired within institutional battlegrounds, places where economic sociology offer great insights.  While environmental policies enforcing change are disruptive and force auto manufacturers to move towards a different mode of production, the end societal results can be positive.  I agree with Alexandra Shimo of Macleans that the recession is bad for the environment, as oil prices fall, the incentives for the development of alternatives to fossil fuels wane.

So, is the environment a luxury?  Well, it may well be akin to the diamond-water paradox.  Why are diamonds so expensive relative to water, where the latter we need to live.  Scarcity.  If we just allow the market to dictate decision-making, we unfortunately will only value the environment when we perceive it as growing scarce.  Will that be too late?

Twitterversion:: Some argue that environmentalism and sustainability is a luxury, as when push comes to shove, pragmatics dictate pressing concerns prevail. @Prof_K

Song:: Honey Honey (BBC Sessions) – Feist on the Green Owl compilation – lyrics

Video:: Talking Heads- “Nothing But Flowers” w/ Johnny Marr & Kirsty MacColl

Notes from North of 49ºN

It’s not often I agree with Tom Friedman, but last fall when I was preoccupied with the US general election, teaching, and associate directing a center, he was advocating not just a bailout, but a green buildup.  He quoted Van Jones, author of The Green Collar Economy::

“It’s time to stop borrowing and start building. America’s No. 1 resource is not oil or mortgages. Our No. 1 resource is our people. Let’s put people back to work — retrofitting and repowering America. … You can’t base a national economy on credit cards. But you can base it on solar panels, wind turbines, smart biofuels and a massive program to weatherize every building and home in America.”

Friedman was in favour of attaching green strings to bailouts, an idea I think warranted further study, at the very least.  Fast forward 9 months and focus on the province of Ontario, where at the federal level, the Conservatives {Stephen Harper}, and at the provincial level, the Liberals {Dalton McGuinty}, jumped on the US bailout bandwagon to a tune of $9.5B or $10.9B Canadian.  This is in addition to the Obama administration’s $49.8B.  The combined US and Canadian bailouts are worth 130 times the present value of GM.  Here’s what both Harper and McGuinty had to say about this::

“We had to save it all or have zero forever,”

–Stephen Harper, Prime Minister of Canada

“The alternative would have been a devastating blow to Ontario families and communities.”

–Dalton McGuinty, Ontario Premiere

The troubles in the industry are not new news and CBC has a chronology of layoffs.  I’ve alluded to this bailout before and the scant jobs it will save, but here are the specifics in terms of the Canadian GM assembly line::

“At present GM Canada has 12,000 hourly and salaried employees, but that number is expected to shrink to about 5,500 over the next couple of years. About 1,100 of the new total is expected to be salaried jobs, which are unrelated to assembly operations. That means Ottawa and the Ontario government are together spending an unprecedented $2.1 million for each assembly job at GM Canada they hope to save.”–Time, 1 June 2009

It’s likely that GM suppliers will also be affected, a $7.2B industry employing 45,000 workers, but it is unlikely that all these jobs are at risk.  While Canada accounts for about 19.4% of North American production, Canadian cost advantages have been eroded by a stronger Canadian dollar, a weakened US union in the UAW, and strong and strategic bargaining by the Canadian Auto Workers union.

While the situation looks gloomy for manufacturing in Ontario, quite a few are banking on green jobs.  So much so that St. Clair College has a 2-year green jobs programme and the province has a commitment to clean energy.  Currently, the province gets 25% of its electricity from coal, but wants to shut down all of its coal plants by 2014.  The province is hoping to convert some of the plants to carbon-neutral biomass, although the yields will be lower.  The slack will need to be picked up by alternatives, with greener options being wind and solar.  Ontario’s Climate Change Action Plan calls for greenhouse gas emission reduction to 6% under 1990 levels and the new Green Energy Act is meant to protect the environment, regulate, and spur investment in green technologies.

Policy & Innovation:: The California Example

The PPIC has a report on the effects of California’s Zero-Emissions Vehicle {ZEV} mandate, particularly in the 1990s and early 2000s.  During this time, the California government, through the Air Resources Board {CARB} initially set in 1990 requirements that by 1998 that 2% and by 2003 that 10% vehicles sold in California would be ZEV.  Suffice it to say, concessions were made over time, but the original mandate set the wheels in motion for innovation.  The effects of the program were::

• The policy spurred patents in near-term technologies
• CARB arguably responded to technological changes when revising the program
• Technological spillovers resulted in a greater number of indirect  innovations
• Increased market development for emerging technologies
• Broadened design parameters
• Lower emissions in California

The program, albeit complex and not without politics and controversy, shows how policy can help to shape market-based activity in ways that would not occur otherwise.

Ontario:: Good Money After Bad

While not surprising, Canada and Ontario should have considered asserting themselves more, rather than caving to bailout pressure.  Why not move forward to develop policies that help transition away from declining industries and in-line with over provincial objectives?, e.g., environmental and energy.  How I see it is that the US and Canada are bailing out a company the capital markets have little faith in and now face the daunting task of rebuilding with a new CEO, “Big Ed,” who has a reputation for being an empire-builder.  I question having an empire-builder in charge of a company needing to be leaner, a company needing to reinvent itself overnight.  Let’s hope he indeed  “learns something about cars,” and doesn’t make mistakes like this one, the old CEO Rick Wagoner copped to:: “axing the EV1 electric-car program and not putting the right resources into hybrids. It didn’t affect profitability, but it did affect image.”

While there have been debates on whether or not the US needs an auto industry {NY Times} and criticisms abound, such as this one on how GM betrayed our trust, Canada is nevertheless a 12% equity shareholder.  This creation of a capitalist-state joint venture opens up a huge can of worms, as which interests will prevail and how to balance autonomous management and control versus paternalism?  I think the answers are in economic sociology, a topic for a future post.

Song:: “Canada” – Low

Video::

Twitterversion:: #Canada #bailout of #GMfail =more #fail ? Can #Ontario still dvel #greeneconomy & innov.w/enviro&energy policy objctves? http://url.ie/1wdt  @Prof_K

Notes from north of 49ºN

While the Vancouver Canucks advance in their bid for the Stanley Cup, the British Columbia provincial election is heating up, as the NDP has pulled within 2 points (39/41 +/- 3.4) of the not-so-liberal BC Liberal Party.  The Green Party is running a distant third at 13%.

One of the big election issues is the Carbon Tax, which is a tax on pollution.  It puts a price on the social costs of environmental degradation {negative externalities}.  The carbon tax was initiated last year in BC, which should give Obama insights into his plans to address carbon reduction.  {Obama’s already talking of a nationwide “cap and trade” policy.}

BC Carbon Tax & The Economic Sociology of the Environment

The BC carbon tax claims to be revenue neutral, meaning it returns the tax in the form of lower personal and corporate income tax.  The tax shuffles funds around in the following manner where one-third of the carbon tax revenues are paid by individuals and two-thirds by industry, while two-thirds of the tax reductions benefit individuals and one-third benefit business.  A fairness issue arises, as some businesses can pass the tax along to consumers, depending on the elasticity of demand.  The carbon tax is initially (effective 7/1/08) $10 per tonne of carbon dioxide equivalent (CO2e) emissions (2.41¢ per litre on gasoline), but will increase each year after until 2012 to a final price of $30 per tonne (7.2¢ per litre).  For US readers, this is currently 7.68¢ US per gallon of gasoline and will go up to 22.9¢ in 2012 (4/30/2009 exchange rate).

One of the issues brought up is that while the BC Liberal Party is imposing a tax on pollution, it’s allowing the export of carbon-producing fuels to leave the province untaxed.  In addition, the government is allowing offshore drilling for oil as part of their energy policy.  This is opening up the BC Liberals to charges of hypocrisy.

So, in the past 10 months, what has been the effect?  I think it’s impossible to gauge the results, given that gasoline prices have gone down and the BC economy is in a recession, although with lower unemployment than Washington, Oregon, and California.  I have to admit I am skeptical that the BC Liberal’s  carbon tax policy will actually reduce carbon emissions.  Why?  This Canadian Dimension editorial introduces a paradox::

“By way of comparison, the average retail price of gas in Canada, adjusted for inflation, has risen forty percent in the past five years. The increase is the equivalent of $120 per tonne of emissions — four times as much as the maximum tax proposed in B.C.

But consumption did not decline. In fact, during the same period both gasoline sales and greenhouse-gas emissions rose to record levels…

In short, the B.C. carbon tax is regressive, shifting ever more of the province’s tax burden onto working people, while reducing taxes on corporations. It will do nothing to cut emissions or slow global warming.”–“B.C.’s Carbon Tax: A Regressive Hoax” from Canadian Dimension (4/30/2008)

How can this be?  Are the economists that off-base?

As an economic sociologist, with a BA in the dismal science, I know at least some of the answers.  Increasing prices through a Pigouvian tax without consumption/production alternatives offers no incentives to alter behaviour away from carbon emitting activities.

A Northwestern sociologist, Monica Prasad, offered this interesting observation::

“The one country in which carbon taxes have led to a large decrease in emissions is Denmark, whose per capita carbon dioxide emissions were nearly 15 percent lower in 2005 than in 1990. And Denmark accomplished this while posting a remarkably strong economic record and without relying on nuclear power.”

—“On Carbon, Tax and Don’t Spend,” NYT (3/25/08)

How did Denmark do it?  According to Prasad, Danish policymakers subsidized environmental innovation by businesses and investing heavily in alternatives.  The idea here is to give incentives to move consumers and businesses away from carbon emission generating technologies towards renewable ones.  As a sociologist, I’m wary of talk of “pricing” carbon, as it attempts to reduce natural capital (i.e., the environment) with financial capital and the assignment of property rights, politicizing economic activity along the lines of power and wealth.  I’d much rather see policy aimed at moving towards a different technological curve, away from carbon, along with an increase in investments in public infrastructure (e.g., mass transit in cities/suburbs) that offers alternatives to carbon-heavy practices.

The Politics of Carbon: “Axe the Tax”

Carole James, leader of the NDP, has been advocating dumping the carbon tax in favour of a “cap and trade” approach, the direction Obama is leaning towards.  The NDP “axe the tax” stance was costing them politically, despite the tax being unpopular, as environmental groups criticized the move.  In this election, there are 85 seats up for grabs.  While the Green Party may siphon off votes from the NDP, it is very unlikely that a single seat will go to the Greens.  Given the overall BC Liberal Party stance on the environment, environmentalists may have a tough choice on May 12.  The carbon tax may fade away as a key issue, as the economy and issues of ethics and integrity might come front and center, but perhaps the economy and the environment will become an intertwined issue.

I’d like to see policies in BC and elsewhere move towards weaning citizens away from carbon.  A recent Wired Magazine article  goes over many of the issues involved in green technologies, including who will pay for the costs of innovation.  I think the BC Liberal carbon tax isn’t the best policy, as I don’t see it reducing carbon emissions and is mute on carbon-emitting fuels being exported and untaxed.  Whichever party wins, I see the BC government as playing a key role in spurring behavior changes through investments and incentives, but who will foot the bill, particularly given a tight budget?

• What are your thoughts on a carbon tax?  (In BC or even in the US)
• What are your thoughts on policies that create incentives for businesses & residences to adopt new greener technologies or retrofit carbon-based ones?
• Should policy focus on investing in new green technologies?  How much should government foot the bill? Should green be linked to economic recovery plans?
• What would the candidates & the “Fake Tweeple” candidates say?