2016 Conference - Session 2

Session 2 - Thursday, March 17, 10:45am - 12:15pm

A.2: Issues in Climate Policy

Chair: Fran Sussman, ICF International

Presentations:

1.     The Budgetary Implications of Climate Mitigation and Adaptation at the State Level in the US, Elisabeth Gilmore* and Travis St. Clair, School of Public Policy, University of Maryland

While there has been considerable debate about the appropriate activities for mitigating and adapting to climate change for central governments, less attention has been paid to the role of subnational governments, despite the fact that state and municipal entities may be better positioned to identify opportunities - especially for adaptation. In this paper, we focus on the role of state governments in the U.S., and in particular on the implications of climate change for state budgets, which already face pressure from diverse areas, such as unfunded pensions, growing health care costs, education, and infrastructure. First, we review the current level of state policies and expenditures with respect to climate mitigation and adaptation activities. Second, we investigate a range of policy instruments and financing options that are available to states for additional investments, and offer tentative projections of state climate-related spending in the near- to medium-term. Finally, we explore the sensitivity of state expenditures to federal policies that may have a substantial impact on state-level regulations and tax incentives. We find that states have many opportunities to integrate climate-related investments and incentives with existing programs and that doing so can yield substantial benefits for state budgets over the long-term; however, states with lower capacity and greater budgetary pressures may face increased trade-offs in budget allocations in both the short- and long-term. We conclude with some initial thoughts on how states can manage these budgetary risks through a range of policy instruments and public and private financing options.

2.     Political Feedbacks and the Social Cost of Carbon, Michael Livermore,* University of Virginia; Peter Howard and Trevor Turner

Political and social consequences from increasing global temperatures can affect the ability of governments to adopt policies to limit greenhouse gas emissions. Prior climate damages that affect political stability or international relations could undermine the efforts of future societies to avoid additional harms posed by rising global temperatures. This positive sociopolitical feedback has the potential to increase damages in the long-run as societies fail to anticipate and respond to future climate risks.

This paper explores the potential effects of political-climate feedback loops on the social cost of carbon. Using a unique dataset, this paper explores the relationship between conflict and international environmental cooperation. Given the growing evidence that climate change increases the probability of social and political conflict (Hsiang et al., 2011; Hsiang and Burke, 2014), this paper provides the first evidence of a political-climate feedback loop. This paper then explores the potential consequences of sociopolitical feedbacks through two modeling experiments. Using DICE-2013, the first examines the effects on total damages if the rate of decay of emission intensity declines at a specified temperature threshold. Using RICE, the second examines the effects of increased difficulty in climate negotiation beyond the specified temperature threshold. The paper finds substantial effects from sociopolitical feedbacks, with the social cost of carbon exhibiting substantial sensitivity to modeling assumptions around this effect. The paper concludes with a discussion of the next steps necessary in testing for the existence of these positive feedback effects.

3.     Impact of Market Conditions on Payments for Forest-Based Carbon Sequestration, Seong-Hoon Cho,* University of Tennessee; Juhee Lee; Roland K. Roberts; Edward T. Yu; and Paul R. Armsworth

Market fluctuations are an important source of uncertainty related to the benefits and costs of payment programs for forest-based carbon sequestration. Failing to anticipate the potential uncertainties in market dynamics that affect the benefits (expected return from forestland) and costs (expected returns in other uses—opportunity costs) of retaining forestland may undermine the cost efficiency of payment programs. The objective of this study is to determine the different payments to forestland owners needed to achieve a target level of carbon sequestration under different market conditions. We develop supply curves for sequestered carbon using the aforementioned relationship under three different market conditions, namely the 2001-2006 real estate upturn, the 2006-2011 period that includes the real estate downturn, and the 2001-2011 period that combines the two periods (pooled period). The empirical results using a case study of 17 Tennessee counties and 1 Kentucky county show that (i) a payment system may be more effective during an upturn than during the pooled period or during a downturn, (ii) higher payments are required for any given target level of carbon supplied during the pooled period or during the downturn than during the upturn, and (iii) a higher maximum amount of carbon supplied can be achieved during the upturn than during the pooled period or during the downturn. Given past literature, these findings may be controversial and thus interesting in the sense that we would expect the opposite if the decision were based on the opportunity cost of retaining forestland and forestland owners’ willingness to accept payment, both of which depend on variations in the expected returns from competing land uses. Instead, our findings suggest that market conditions affect the dynamics of deforestation response to changes in the net return from forestland conversion to urban use and consequently affect the cost efficiency of payment programs.

4.     Sensitivity of the Social Cost of Carbon to Analysis Framing Decisions, Anne Smith,* NERA Economic Consulting and Paul M. Bernstein

In 2010, an Interagency Working Group (IWG) of the Federal government developed its own estimates of the social cost of carbon (SCC) that it recommended for use in regulatory impact analyses of Federal regulations that would alter carbon dioxide (CO2) emissions. An updated set of SCC values was released in 2013. These Federal SCC estimates have been derived using three well-known climate change integrated assessment models (IAMs). The position of the IWG was that its SCC estimates could be considered representative of the best available science (and its uncertainty) because it used the existing IAMs without changing any of their internal assumptions about carbon cycling and economic damage relationships. This presentation discusses how an IAM analysis is also dependent on a variety of “framing choices” that are not scientific in nature and are in the hands of IAM users. It identifies four important analytical framing judgments made by the IWG for its SCC estimates, discusses the basis for those and potential alternative judgments, and demonstrates the sensitivity of the SCC estimates to reasonable alternative judgments, using the same IAMs that the IWG used. The results demonstrate that the IWG’s range of SCC values has been determined as much by the choices of analytical framing assumptions made by the members of the IWG as it has been by science and economic assumptions made by the original IAM developers. The relevance of decision context for selecting framing choices will also be discussed.

B.2: Recent Examples of Benefit-Cost Analysis in Consumer Financial Regulation (Roundtable Discussion)

Chair: Howell Jackson, Harvard Law School

Panelists to Include:

1. Scott Bauguess, Securities and Exchange Commission

2. Will Dobbie, Princeton University and NBER

3. Paul Rothstein, Office of Research, Consumer Financial Protection Bureau

4. Erik Sirri, Babson College

5. Glen Weyl, Microsoft Research New England and University of Chicago

For many years, benefit-cost analysis was not a common feature in consumer finance. Most financial regulators were not subject to OIRA oversight and even those that were did not find their regulatory impact statements subject to stringent review. Especially with respect to estimating the benefit of consumer financial regulation, the field has not traditionally been well developed. As recounted in Jackson & Rothstein (forthcoming 2016), however, federal agencies responsible for consumer finance have started to produce more substantial benefit analyses. This roundtable will focus on the benefit analysis in three recent regulations in the field of consumer financial regulation: a CFPB regulation on mortgage servicing, a SEC regulation on crowdfunding, and the Department of Labor’s 2015 proposal on fiduciary duties. For each regulation, an economist from the academic community will first review and comment upon the benefit analysis employed by the agency’s rulemaking. The emphasis would be on assessing how well the analysis in question made use of relevant academic work on the topic and on considering what future academic work might be useful for improving benefit-cost analysis on such subjects in the future. We have also invited agency representatives to respond to the academic economist’s comments, both as to the content of the benefit analysis presented, and as to profitably lines of future academic research. This roundtable tracks a recommendation from Jackson & Rothstein that academic economists be engaged more directly in the work of agency benefit-cost analysis in the field of consumer finance.

C.2: Learning from Experience

Chair: Rose Odom, US Coast Guard

Discussant: David Luskin, US Department of Transportation

Presentations:

1.     Implementation-Infidelity Break-Even Analysis: A New Way to Evaluate the Potential Consequences of Scale-up, Dan Acland,* University of California, Berkeley; and Ravi Agarwal

Many programs in the domains of public health, such as social welfare, education, and criminal justice, among others, are developed and evaluated as pilots. Cost-effectiveness and benefit-cost analysis of such pilot programs are increasingly common, and increasingly important for policy makers. Frequently there are concerns about how the costs and effectiveness of such programs may be affected by changes in implementation that may occur as they are scaled up for implementation by government agencies or non-profit contractors. However, as yet there is no systematic methodology for quantitatively assessing the possible effect of what we call “implementation infidelities” on cost-effectiveness ratios or net-benefit calculations. In this paper we develop and apply a new methodology which we call “implementation infidelity analysis” (IIA), which provides an intuitively tractable tool for decision makers to consider the likelihood that specific, foreseeable implementation infidelities will undermine the cost-effectiveness or net benefits of programs under consideration for scale-up. Both costs and effectiveness are modeled as functions of key parameters that are intuitively comprehensible to decision makers. Break-even analysis relative to a benchmark or baseline is then conducted on those parameters. The method is presented using an illustrative example of a simple HIV testing program, and is then applied to a major pilot program for treatment of tuberculosis patients in India.

2.     Tailored Comparison Groups: Implementing a Difference-in-Differences Analysis When the Timing of the Intervention Varies, Chris Leggett,* Bedrock Statistics, LLC; Jennifer Baxter, Industrial Economics, Incorporated; Corttney Penberthy, Seth Renkema and Andrew Rollo, U.S. Customs and Border Protection

Since October, 2011, U.S. Customs and Border Protection (CBP) has been operating a pilot program intended to streamline import processing for the trade community. Under the program, certain companies have the option to voluntarily join a CBP “Center of Excellence and Expertise” (or “Center”) that specializes in processing imports associated with a specific subset of industries. By organizing import processing by industry, CBP intends to increase the efficiency and predictability of trade processing. To evaluate the program’s effectiveness, we implemented a modified difference-in-differences analysis, focusing on efficiency-related performance measures. Under a standard difference-in-differences analysis, efficiency improvements for program participants would be compared with efficiency improvements for a comparison group, and the difference in these improvements would be attributed to program participation. This standard approach breaks down when participants are allowed to join the program at different points in time. In this case, the relevant comparison group differs across participants. We address this problem by developing benchmark performance rates for non-participants that vary over time and by analyzing participants’ deviations from these benchmark rates before and after program participation. The results indicate that substantial efficiency gains may be attributable to program participation. This work was undertaken in the context of CBP’s assessment of the benefits and costs of the program, and the methodology is applicable to retrospective benefit-cost analysis in a variety of policy contexts.

3.     Identifying Differential Effects of Consecutive Adaptation Stages When Evaluating Climate Change Adaptation Scenarios, Adriaan Perrels,* Finnish Meteorological Institute; H.A. Aaheim, H.A.; G. Ahlert; D. Crawford-Brown; C. Heyndrickx; J. Kiviluoma; F. Prettenthaler; and T. Rosqvist

In ex-ante assessments of climate change adaptation strategies, it is common practice to assume that only planned adaptation efforts are of interest, whereas so-called autonomous (or automatic*) adaptation is either ignored or assumed to be represented by the simulated responses to climate change of the economic system in absence of planned adaptation efforts.

In the EU funded FP7 project ToPDAd (Tool supported Policy Development for regional Adaption**) both sector models and macroeconomic models were used to explore different adaptation steps. Based on shared climate and socioeconomic scenario pathways (in this case RCP/SSP combinations) 7 case studies at different spatial scales were carried out concerning impacts and adaptation potential in one or several of the energy, transport and tourism sectors, while trying to distinguish between stages of adaptation (from none via automatic to planned). Three different macroeconomic models (2 CGE, 1 econometric dynamic I/O) were used to explore (1) the joint effects of mitigation and adaptation efforts at macro level, (2) use results of selected case studies to assess effects of more precise sector impact information, and (3) explore labor market effects of climate change impacts on public health and differences in effectiveness between proactive and reactive infrastructure adaptation investment strategies.

In the paper we review to what extent models were able to distinguish adaptation stages, and to what extent effects of different adaptation stages could be inferred by comparing different model simulations. Also, the benefits and limitations of combined sector and macroeconomic model use will be discussed. Finally, we discuss what these experiences imply for communication with policy makers, and how further model development and experimentation with research set-up could improve matters.

*) In the 3rd Assessment Report of IPCC Working Group 2, both terms are defined. The paper will explain the difference between the two terms when applied to economic systems.

**) http://topdad.services.geodesk.nl/web/guest/home

D.2: Benefit-Cost Analysis of Transportation Policy

Chair: Neil Eisner, Consultant

Discussant: Jack Wells, US Department of Transportation (former)

Presentations:

1.     Benefit Cost Analysis of Lifesaving Regulations from the U.S. Department of Transportation, Kerry Krutilla,* Indiana University; Gabriel Pina; David H. Good; and John D. Graham

This research evaluates the quality of Regulatory Impact Analyses (RIAs) prepared by the Department of Transportation (DOT) of rulemakings that are expected to reduce mortality risks, including transportation safety regulations. Together with EPA, DOT promulgates more lifesaving regulations than all other agencies combined. One indication of the result is the decline in US annual traffic fatalities from over 50,000 to about 32,000 in slightly over 30 years (although there has been a significant uptick in fatalities in 2015) while the vehicle miles driven over the same period have doubled. State regulatory programs and market evolution toward safer vehicles have also contributed to this trend.

The sample of RIAs chosen for study assesses economically significant DOT regulations issued from 2011 through 2014. Federal register web pages were searched for “economically significant rules” for the DOT by year, and the resulting sample was further narrowed to rules that estimated lifesavings. The associated RIAs for the rules were searched for in regulations.gov, using the docket number of the rule. This procedure produced a sample of 11 RIAs.

A number of criteria were used to evaluate these RIAs, including the clarity and balance of the presentation; the reasonableness of the baseline; the credibility of the estimates of incremental changes from the baseline that the regulation is estimated to cause; and the characterization of the timing of capital investment and benefit streams. We also evaluated the uncertainty analysis of estimated lifesavings. Our study shows that the RIAs differ in quality along the attributes considered, and in the overall quality of the analysis. We make recommendations for standardizing and improving the evaluation, with respect to the baseline specification and the conduct of uncertainty analyses.

2.     Comparisons of National Guidelines for Cost Benefit Analyses Applied to Transport Investments, Emile Quinet,* Ecole Des Ponts-Paris Tech and David Meunier; Université Paris-Est

Cost benefit assessment of investments is an ongoing preoccupation that has gained interest from public authorities in many countries. Guidelines have recently been updated, including for transport investments, in several countries. In most countries several new issues are at stake, such as the so-called wider effects.

In Germany, for instance, the regular review and set-up of the Federal Transport Infrastructure Plan (FTIP) is based on assessment methodologies, which are updated regularly. The most recent update will be finalized soon. In France, the requirement for cost benefit assessment has long been enshrined in legislation concerning transportation, and it has recently been updated with a new set of guidelines. In the UK, an ongoing process of improvement is underway and incorporates many revisions to the processes used a decade ago.

This paper will review and compare the main methodological choices and updates made in national approaches (France, the Netherlands, Germany, the UK, Australia and some Nordic countries, as well as the general guidelines issued by the Commission of the European Union) including types of effects covered by CBA, comparison of some methodological choices, unit values adopted for some direct effects, and external costs (e.g. CO2), with a focus on items which are non-specific to transport (treatment of risks, discount rate, cost of public funds, etc.). We will comment on the main convergences and differences, and try to relate them to national specificities.

3.     New Developments in Cost-Benefit Analysis Applications to Transportation, Mario Scott,* Steer Davies Gleave; and Pierre Vilain

The last decade has seen a significant increase in the use of cost-benefit analysis (CBA) to guide transportation planning in the United States. This development has been tied to policies at the federal level requiring CBA for projects seeking discretionary funding, but also reflects increasing use by regional and state transportation agencies as well.

Interestingly, the current practice of CBA has included a substantial expansion in the scope of analysis from more traditional applications one would have seen in BCA textbooks from the 1990s (Mishan (1998)). We identify three major areas where CBA practice in transportation has expanded: accounting for environmental benefits and technological change; estimating wider economic benefits and; analysis of “state of good repair” projects.

Each of these extensions to the classic model reflects advances in how infrastructure is evaluated. New emissions models, combined with an increased understanding of health effects, have greatly improved the understanding of environmental impacts of transportation investments. Similarly, wider economic benefits incorporate what were primarily theoretical concepts of New Economic Geography (Krugman (1991)) into an empirical framework to assess the efficiency gains in production of improved accessibility. Finally, state of good repair projects have usually been considered too challenging to assess in a CBA context. While a CBA of these projects is still uncommon, there is a growing understanding of the data required to complete such an analysis, and increasing interest by decision-makers in this type of analysis.

E.2: BCA Applied to Food and Agriculture in Developing Countries

Chair: Daniel Perez, GW Regulatory Studies Center

Discussant: Carlos Santos-Burgoa, The George Washington University

Presentations:

1.     Socio-Economic Factors Influencing Productivity Among Cassava Farmers in East Africa, Paul Mwebaze,* Sarina MacFadyen and Paul De Barro, CSIRO; John Colvin, Natural Resources Inst.; Christopher Omongo and Andrew Kalyebi, National Crops Resources Research Inst.; Donald Kachigamba, Dept. of Ag. Research Services, Malawi

Cassava is the second most important food crop in Africa after maize. It is a major staple crop for more than 200 million people in East and Central Africa, most of them living in poverty in rural areas. Recently, cassava has gained importance as a cash crop for smallholder farmers in this region. However, its production is undermined by several factors, particularly the problem of emerging and endemic pests and diseases. The whitefly (Bemisia tabaci) is the most serious pest of cassava, causing significant yield losses through direct feeding damage and as a vector of virus diseases. However, there are few empirical assessments of the economic impacts of the whitefly on smallholder producers. We are conducting a comprehensive socio-economic study covering Uganda, Tanzania and Malawi to determine the status of cassava production with the following specific research questions:(1) Is cassava production profitable? (2) Are cassava producers technically efficient? (3) What is the current adoption rate of improved cassava production technologies? (4) What is the economic impact of the whitefly on smallholder farmers?

The primary data for this study is being collected from cassava farmers in Uganda, Tanzania, and Malawi, using a pre-tested survey questionnaire that is orally administered to individual farmers. A total of 1200 respondents were selected and interviewed using a multi-stage random sampling technique. An economic analysis is being conducted using gross margin (GM) analysis, cost-benefit analysis (CBA) and a stochastic frontier production model to evaluate the costs, returns and productivity of cassava farmers in this region. We present some of the preliminary results, discuss the implications, and the further work required.

2.     Contract Farming Risks: A Quantitative Assessment, Arkins Mwila Kabungo,* African Development Bank, and Glenn P. Jenkins, Eastern Mediterranean University

The objective of this study is to identify the key risks facing each of the stakeholders in the export-focused paprika value chain in Zambia. Although a deterministic cost–benefit analysis indicated that this outgrower scheme would have a very satisfactory net present value (NPV), a Monte Carlo analysis using an integrated financial–economic–stakeholder model identifies a number of risk variables that could make this system unsustainable. The major risks include the variability of the real exchange rate in Zambia, the international price of paprika and the farm yield rates. This analysis points out that irrigation systems are very important for both stabilizing and increasing yields. The analysis also shows the limitations of loan financing for such outgrower arrangements, when at the sector level it is difficult - or even impossible - to mitigate the risks from real exchange rate movements and movements of international commodity prices. This micro-level analysis shows how critical real exchange rate management policies are in achieving sustainability of such export-oriented value chains.

3.     Estimates of the Global Burden of Foodborne Disease & Their Implications for International Benefits Assessment, Sandra Hoffmann,* USDA ERS; Roger Cook; Willy Aspinall; Brecht Devleesschauwer; Amy Cawthorne; and Tine Hald

Public health authorities view foodborne diseases as significant public health concerns in both high income and lower income countries around the world. Yet, even in high income countries, estimates of the incidence of foodborne disease have only been available in the past decade and a half. Cost of foodborne illness estimates have only become available in the U.S. in the past few years. In 2006, the World Health Organization (WHO) organized an effort to develop the first estimates of the global incidence, as well as the burden of foodborne disease. Burden is measured in terms of Disability Adjusted Life Years (DALY). The effort will develop comparable estimates of foodborne disease incidence and burden for 33 major microbial, parasitic and chemical causes of foodborne disease, for each of 6 WHO regions. The research initiative also conducted research attributing this disease burden to major food exposure pathways in 14 WHO global burden of disease sub-regions. This presentation will share results from the initiative on disease burden and attribution to food exposures. It will discuss the structure and use of DALY measures as providing a basis for comparison across diseases and regions. It will then discuss potential uses for results from this research initiative in analysis of national and international food safety policy and cost-benefit analysis. It will conclude with an exploration of the questions that this research initiative, and the global burden of disease initiatives as a body of work, raise about the role of economic benefits assessment in international health, safety and environmental policy.