Topic: Energy and Environment

The Myth, and Insight, of Owens Valley

Yesterday’s Washington Post included an article on the political battle between Las Vegas and northern Nevada over access to northern Nevada’s groundwater.

Unhelpfully, the article repeated the myth of Owens Valley, the southeastern California valley that, a century ago, became part of the nation’s first major water rights agreement. Under the deal, valley residents sold their property and water rights to Los Angeles, and much of the valley’s water was carried away by aqueduct to fuel the city’s growth into a major metropolitan area.

The Post repeats the myth faithfully:

The specter of California’s Owens Valley looms over the area, as people recall the aqueducts that almost 100 years ago turned a lush agricultural community into an environmental disaster so that water could be delivered to Los Angeles.

[…]

William Mulholland, as head of the Los Angeles water department in 1904, conceived the idea of an aqueduct from the Owens Valley. “He had no interest in draining the valley, he had no interest in creating that wasteland,” [Bob Fulkerson, state director of the Progressive Leadership Alliance of Nevada] said. “He did not want that to happen, but that’s what did happen because once the siphon was started it was impossible to turn it off.”

University of Arizona professor Gary Libecap, in research he summarized in a Summer 2005 Regulation article, has effectively exploded this myth.

Far from being a “lush agricultural community,” historical data show Owens Valley contained small, relatively low-production farms with a total of only about 50,000 acres in cultivation. Much of the valley’s income came from livestock, not planting. The area featured a fairly short growing season, high elevation, alkaline soils, and poor access to markets. In short, Libecap concludes, “Those data suggest that Owens Valley farmers may have been quite anxious to sell their land to an interested buyer.”

The Los Angeles–Owens Valley deal provided that buyer. Libecap’s research shows valley landowners were offered considerably more money for their property and water rights than what their farms were worth. The payments became even more enticing after the California legislature and courts forced the city to sweeten the deals.

That may ultimately prove the solution to the Nevada problem. As Ronald Coase famously argues, original distribution of property rights will not prove an impediment to ultimate efficiency so long as transactions costs are minimal. Put more simply, Las Vegas likely needs to up its offers to northern Nevada counties in order to get the water it needs. And, given Vegas’s growth rate, that bid is likely forthcoming.

Rent-Seeking Weasels

We’ve all heard about how actor-director Rob Reiner sponsored an initiative in California in 1998 to raise cigarette taxes to fund preschool programs. Reiner then became chairman of the state agency created by the initiative. And then he funneled $230 million of state spending through the ad and PR agencies that had worked on the initiative. And then he spent another $23 million of state money to support Proposition 82 this spring, to create universal preschool programs. He had to resign from his position, and voters turned down Prop 82.

But he’s not the only person sponsoring an initative that would benefit himself, his family, or his friends. A wealthy real estate developer who thought stem cell research would benefit his diabetic son spent $3 million of his own money to get Californians to create a $3 billion taxpayer-funded stem cell research organization, which he then became chairman of.

And now comes Vinod Khosla, a founder of Sun Microsystems and former partner in the fabulously successful Silicon Valley venture capital firm Kleiner, Perkins, Caufield and Byers, and recently number 1 on Forbes magazine’s Midas list of “the people who most successfully use venture capital to create wealth for their investors.” He’s been the subject of two admiring profiles in the Washington Post (one reprinted from Slate) in the past two days for his latest venture: ethanol. If Vinod Khosla says ethanol is a good investment, don’t bet against him. Or against fellow Silicon Valley megamillionaire Bill Gross, who says that “reinventing energy … dwarfs any business opportunity in history.”

But if it’s such a good investment, why is Khosla ”supporting an initiative on this fall’s ballot in California that would tax oil companies to generate $4 billion to help encourage the use of alternative energy,” as Slate writer Daniel Gross notes? Khosla told Post columnist Sebastian Mallaby that he wants just a little help from the federal government, too: “Khosla wants government to require auto companies to make more flex-fuel cars that run on gasoline or ethanol… .  Khosla wants government to require big gasoline distributors to install ethanol pumps at a tenth of their gas stations.” Oh, and a better subsidy.

Taxing your competitors to subsidize your industry is a rent-seeker’s dream. Usually you have to be more subtle about it. But if you have a “green” business idea, you can get liberal journalists to write gushing stories about you without even stopping to ask, “Hey, aren’t you going to benefit from these initiatives and laws you’re pushing? Isn’t that sort of like, you know, corporate welfare? Like we’re always accusing the oil industry of?”

We shouldn’t bet against Khosla. But if his latest investment is really such a great business opportunity, we should feel free to vote against subsidizing it.

No Consensus

The Wall Street Journal reports that “as gas prices again approach $3 a gallon, consumers are buying new vehicles that are faster and heavier than ever,” much to the annoyance of the EPA. Sometimes, no matter how much we hector and even tax and regulate them, the masses just persist in doing what they want to do in defiance of elite opinion. The story reminded me of several other stories that I wrote up recently at the Guardian blog:

A weekend article in the FT comes with this teaser: “A generation ago, Shin Dong-jin was trying to stop South Korean women from having babies. Now his planned parenthood foundation has the opposite problem–there aren’t enough babies being born. He must persuade the country to go forth and multiply.”

Apparently Shin Dong-jin is just the only person in South Korea who knows, at any given time, how many children people should have. But people make their own decisions.

The FT piece reminded me of some other recent articles about how stubborn people just won’t do what the planners want. A front-page headline in the Washington Post read: “Despite planners’ visions, outer suburbs lead in new hiring.” I was particularly struck by the lead:

As a consensus builds that the Washington region needs to concentrate job growth, there are signs that the exact opposite is happening.

Over the past five years, the number of new jobs in the region’s outer suburbs exceeded those created in the District and inner suburbs such as Fairfax and Montgomery counties … contradicting planners’ “smart growth” visions of communities where people live, work and play without having to drive long distances.

Maybe if tens - hundreds - of thousands of people aren’t abiding by the “consensus,” there is no consensus: there is just a bunch of government-funded planners attending conferences and deciding where people ought to live. It’s like, “Our community doesn’t want Wal-Mart.” Hey, if the community really doesn’t Wal-Mart, then a Wal-Mart store will fail. What that sentence means is: “Some organised interests in our community don’t want Wal-Mart here because we know our neighbours will shop there (and so will we).”

Similarly, another Post story reported that the Ford motor company has dropped a pledge to build 250,000 gas-electric hybrid cars per year by the end of the decade. Environmentalists accused the company of backpedalling: it seems not many people want to buy hybrid cars - even though the planners want them to.

Again and again, individuals insist on making their own decisions rather than conforming to planners’ visions and purported consensuses.

Vanuatu: Islands of Fire or Heaven on Earth?

There is an egregiously dumb “study” out today that reports that Vanuatu—best known as a place to hide money from the taxman and the site of “Survivor: Vanuatu - Islands of Fire”—is the world’s happiest country. The real travesty is that this study is being reported by reputable news outlets as if it wasn’t just the product of a few ideologues making stuff up. Bloomberg’s headline says, “Vanuatu, Pacific Islands, Lead U.S., World in Happiness Ranking.” UPI’s headline reads, “Pacific’s Vanuatu ‘happiest country’.” Sounds sort of official, no? Here’s the start of the Bloomberg article:

Vanuatu, a group of South Pacific islands populated by fisherman and farmers, is the world’s happiest place, according to a study published today.

The U.S. and U.K. are among the world’s least happy countries because of their higher consumption of natural resources such as oil, according to an index compiled by the New Economics Foundation, a London-based researcher. The biggest malcontents were in Zimbabwe, ranking bottom.

So, if you consume oil, you are therefore unhappy? Who is this New Economics Foundation? What’s the methodology here? Bloomberg:

The New Economics Foundation is a research group that organizes campaigns on environmental and economic issues such as debt relief. It was set up in 1986 to question the agenda of the Group of Eight leading industrialized nations.

The Happy Planet Index covers 178 countries by multiplying life expectancy by life satisfaction, and dividing it by environmental impact in each country, including carbon emissions. The index was compiled over two months, using United Nations life expectancy figures from 2003, World Database of Happiness statistics from 2005 and the World Footprint Network’s research on consumption and environmental impact.

The NEF from this description looks to my jaundiced eye like a front for hyper-ideological activists out to oppose the creation of wealth. Maybe they are. But they also have a very nice website. And they have partnered with the Office of the Deputy Prime Minister in the U.K. So maybe editors are duped by the luster of intellectual legitimacy.

But really! Multiply life expectancy by life satisfaction and divide it by environmental impact? That is, to be over-charitable, completely arbitrary. This is an index of, at best, the New Economic Foundation’s ideological preferences. It is a totally intellectually vacuous product meant to garner headlines, and it worked, to the shame of the Bloombergs and UPIs of the world.

Furthermore, it cheapens the work of real social scientists attempting to measure happiness and well-being. I worry that much of the happiness work is ideologically loaded, but most of it is at least an honest attempt study human welfare empirically. Too much of it, however, is stuff like the NEF’s index, basically an attempt to persuasively define something like “happiness” so that it comports with a statist, anti-growth agenda. This is sheer politics brazenly posturing as social science. If the Cato Institute published a study that, say, mutliplied life satisfaction by the rate of economic growth and then divided it by government spending as a percentage of GDP, and called it “The Happy World Index, ” would editors think twice? I hope they would. In fact, I bet they would. So why did this trash get through the filter?

The NEF is no doubt ideologically irritated by the fact that, say, carbon emissions per capita and reported life satisfaction are positively correlated. Here, for illustration, is a graph from Nation Master. If you’re concerned about “environmental impact” why not divide life satisfaction by life expectancy? Dead people don’t use fossil fuels!

More seriously, the NEF’s program to define wealth, happiness, and progress along their narrow ideological lines is an attempt to circumvent serious debate about human well-being by building substantive judgments about the relative priority of competing values into the project of measuring things we all care about. It’s a too-easy trick to simply define “happy” as whatever it is you think is important, and then show that places that best exemplify what you think important are the “happiest” ones. They present it as a significant finding that “Self appointed world ‘leaders’ – the G8 - score generally badly in the Index.” But they designed it so that the world’s wealthiest countries would come out poorly. Yes, the most productive economies use the most energy. But that doesn’t get headlines. This sort of thing does not advance human knowledge one iota. It’s certainly not newsworthy.

By the way, a denizen of Vanuatu can expect to live a full decade less on average than an American. And GDP per capita there is $3,346 a year, compared to $41,399 in the U.S. Now, the happiness data show very clearly that self-reported happiness increases sharply as a function of income up to around $10-$15,000 a year, when it begins to level off. I can’t actually find data for Vanuatu in the World Database of Happiness, the cited source. But unless the Islands of Fire is a massive outlier, Vanuatuans could become significantly happier by tripling or quintupling their wealth. Becoming happier by becoming wealthier—by growing the size of the surplus from economic cooperation—would very likely require an increase in Vanuatu’s energy use, and that would cause them to plummet down the NEF index. (It must be admitted, however, that the Vanuatu Statistic Office has a truly awesome website. Welcome to 1997!)

NEF is selling a “sustainable development” agenda. The point they’d really like to get in the papers from their study is this: “Overall, we are over-burdening the Earth’s currently available biocapacity,” which is a bit surprising in a study ostensibly about happiness. Now, sustainable is good and unsustainable is bad, but the biocapacity stuff is mostly nonsense. I guess they needed a “new economics” because the old economics didn’t fit their agenda. For an “old economics” tonic, check out Jerry Taylor’s excellent 2002 paper, “Sustainable Development: A Dubious Solution in Search of a Problem.” Here’s a snippet from the abstract:

[T]he fundamental premise of [sustainable development]—that economic growth, if left unconstrained and unmanaged by the state, threatens unnecessary harm to the environment and may prove ephemeral—is dubious. First, if economic growth were to be slowed or stopped—and sustainable development is essentially concerned with putting boundaries around economic growth—it would be impossible to improve environmental conditions around the world. Second, the bias toward central planning on the part of those endorsing the concept of sustainable development will serve only to make environmental protection more expensive; hence, society would be able to “purchase” less of it.

Or look at Jerry’s Julian Simonesque essay “The Growing Abundance of Natural Resources”:

That [overburdening or “overshooting”] argument, however, is in direct contradiction to every possible measurement of resource scarcity and the march of recorded history. If overshoot occurs when we use resources faster than they are created by nature, then the world has been in accelerating “overshoot” for the last 10,000 years, or ever since the development of agriculture. Moreover, our best “feedback” on scarcity—market prices—tells us that resources are expanding, not contracting.

There is simply no non-crazy sense in which Vanuatu is the world’s happiest country. And there is no credible empirical reason for docking countries on any kind of index of human well-being for producing a lot of wealth. The evidence says that the happiness of poor populations like Vanuatu’s would skyrocket with swift economic growth. But growth is exactly what NEF is trying to limit. Their pseudo-study encourages us to be complacent about the poverty of Vanuatu, which is, after all, the “happiest” place on our “happy planet,” on the basis of the fact that they use almost no energy. If you really care about the well-being and happiness of the world’s poor, then agressively misleading publicity stunt studies like this one, and the people who author them, deserve nothing but our scorn.

Foolishness High as an Elephant’s Eye…

Kudos to the New York Times for Sunday’s article critically examining the United States’ dubious infatuation with ethanol. A sample:

For all its allure, though, there are hidden risks to the boom. Even as struggling local communities herald the expansion of this ethanol-industrial complex and politicians promote its use as a way to decrease America’s energy dependence on foreign oil, the ethanol phenomenon is creating some unexpected jitters in crucial corners of farm country.

A few agricultural economists and food industry executives are quietly worrying that ethanol, at its current pace of development, could strain food supplies, raise costs for the livestock industry and force the use of marginal farmland in the search for ever more acres to plant corn… .

But many energy experts are also questioning the benefits of ethanol to the nation’s fuel supply. While it is a renewable, domestically produced fuel that reduces gasoline pollution, large amounts of oil or natural gas go into making ethanol from corn, leaving its net contribution to reducing the use of fossil fuels much in doubt.

The article is not without its faults; for instance, it gives an uncritical airing of the opinion that American agriculture should be used for “food first, then feed” for livestock, “and last fuel.” (If the economics are such that demand for ethanol is more intense than the demand for corn chips, then why shouldn’t U.S. corn go to ethanol? Of course, that’s an enormous “if.”) Still, the NYT article is a very welcome departure from the claptrap on ethanol offered by other media.

Rapanos, Raich, and Agency Discretion

One interesting question lurking in the background of some recent Supreme Court cases is the scope of discretion executive agencies receive when they assert very broad power over areas that are traditionally committed to state authority. Traditionally, under the Court’s landmark 1984 decision in Chevron v. Natural Resources Defense Council, courts are supposed to defer to an agency’s “reasonable” interpretation of its authority when the statute does not clearly speak to the question at issue. The question is, what happens when an ambiguous statute buts up against the outer boundaries of federal constitutional power?

After Gonzales v. Raich, the question was all the more pressing. Raich held that Commerce Clause concerns are at a low ebb when Congress regulates an interstate market “comprehensively.” In that context, when Congress finds that regulating local conduct is essential to the larger regulatory scheme, the majority in Raich said it will defer to Congress’s judgment. As Cato’s amicus brief in Rapanos argued:

If, after Raich, agencies can use legislative history, statutory purpose, or context to manufacture ambiguity nowhere apparent from the text of a statute, and if, in turn, agencies interpreting their power under “ambiguous” statutes are granted both the full quantum of deference owed to Congress under Raich and under Chevron, the potential for agency aggrandizement is immense, indeed.

In light of these and other concerns, we argued, Congress (at a bare minimum) must clearly state in the text of the statute that it intends to push the envelope of federal power before agencies can assume the power and discretion to step into an area traditionally regulated by states.

Scalia appears to take these concerns seriously. First, he notes: “Even if the phrase ‘the waters of the United States’ were ambiguous as applied to intermittent flows, our own canons of construction would establish that the Corps’ interpretation of the statute is impermissible.” In other words, the Court’s constitutional concerns trump agency discretion under an ambiguous statutes–even one that constitutes comprehensive regulation under Raich. This is an important qualification of the traditional Chevron test, one that reigns in the worst excesses of Raich.

Second, in footnote 9, Scalia underscores that before an agency can reach local conduct under a comprehensive regulatory program, Congress must clearly authorize it to do so in the statutory text. Only then will the Court consider whether the agency’s authority is consistent with the Constitution’s division of power between the federal government and states.

The troubling thing about Roberts’ concurrence is that, on one reading, he would appear to take a far more expansive view of agency discretion. He says:

Agencies delegated rulemaking authority under a statute such as the Clean Water Act are afforded generous leeway by the courts in interpreting the statute they are entrusted to administer. See Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 842-845 (1984). Given the broad, somewhat ambiguous, but nonetheless clearly limiting terms Congress employed in the Clean Water Act, the Corps and the EPA would have enjoyed plenty of room to operate in developing some notion of an outer bound to the reach of their authority.

The proposed rulemaking went nowhere. Rather than refining its view of its authority in light of our decision in SWANCC, and providing guidance meriting deference under our generous standards, the Corps chose to adhere to its essentially boundless view of the scope of its power. The upshot today is another defeat for the agency.

Its far from 100% clear what kind of test Roberts envisions here. But the best reading is this: If the agency deliberates about its constitutional and statutory authority in a “limiting way” in the context of public notice and comment procedures, he would give the agency “generous” deference, even the EPA would draw lines different (and more expansive) than those that Scalia’s plurality opinion draws. In effect, Roberts would give an agency treading close to the constitutional boundary the same deference that the Court grants to Congress under Raich if the agency draws any limits, no matter how slight, on its authority–precisely the interpretive method we raise red flags about in our brief.

Supreme Court Trims Reach of the Clean Water Act, For Now

As noted, the Supreme Court decided the much anticipated consolidated Commerce Clause-flavored challenges to the Clean Water Act, Rapanos v. United States and Carabell v. United States, trimming back the scope of federal wetlands regulation. (Cato filed an amicus brief in support of the petitioners in Rapanos, which you can access here.) The decision is a mixture of equal parts good news and not-quite-so-good news.

The good news is Justice Scalia’s opinion for the court, joined by three other justices: the Chief, Justice Thomas, and Justice Alito. The not-quite-so-good news is the concurrence, written by Justice Kennedy–the all important fifth vote–which significantly qualifies Justice Scalia’s plurality decision, and the concurrence written by Chief Justice Roberts.

First, a bit of background.

 The Clean Water Act, among other things, regulates point source pollution (pollution discharged through a drain of some sort). The Act says regulators can impose criminal sanctions for any pollution into “navigable waters,” defined as “waters of the United States.” But one bit of the Act, imposing reporting requirements and such on state dredging programs, refers to federal waters “adjacent to” navigable water. Federal environmental regulators suggest, based on this apperance of the word “adjacent,” that the Act covers some non-navigable waters.

Indeed, federal regulators go much, much further than that. They argue that any land with a “hydrological connection” to navigable water is within federal regulatory authority. That means even a trickle of surface water or ground water that might eventually wend its way off a land-locked piece of property, trickling drops into a navigable body of water scores of miles away, or more, is within federal power. Hence, the prosecution of John Rapanos: A Michigan commercial developer, Mr. Rapanos dumped sand on one parcel of land in preparation for a real estate development. He was slapped with criminal charges–and threatened with jail time–because grains of that sand may be carried by rainwater through on old run-off drain and, after an epic journey through culverts, creeks and ditches, end up in the Kawkawlin River, twenty miles or so away.

Needless to say, this reading of the Clean Water Act stretches its text past the breaking point. Says Scalia’s opinion:

The extensive federal jurisdiction urged by the Government would authorize the Corps to function as a de facto regulator of immense stretches of intrastate land-an authority the agency has shown its willingness to exercise with the scope of discretion that would befit a local zoning board. We ordinarily expect a “clear and manifest” statement from Congress to authorize an unprecedented intrusion into traditional state authority. The phrase “the waters of the United States” hardly qualifies.

Likewise, the Corps’ interpretation stretches the outer limits of Congress’s commerce power and raises difficult questions about the ultimate scope of that power. Even if the term “the waters of the United States” were ambiguous as applied to channels that sometimes host ephemeral flows of water (which it is not), we would expect a clearer statement from Congress to authorize an agency theory of jurisdiction that presses the envelope of constitutional validity.

In sum, on its only plausible interpretation, the phrase “the waters of the United States” includes only those relatively permanent, standing or continuously flowing bodies of water “forming geographic features” that are described in ordinary parlance as “streams[,] … oceans, rivers, [and] lakes.” The phrase does not include channels through which water flows intermittently or ephemerally, or channels that periodically provide drainage for rainfall.

Read by itself, the upshot of Scalia’s opinion is a significant victory for federalism. It rejects environmental regulators’ “hydrological connection” test for federal jurisdiction over wetlands and, furthermore, requires that regulated wetlands have a continuous, standing surface connection to navigable water. It recognizes, moreover, that the Clean Water Act is at the periphery of federal commerce power.

Unfortunately, the Chief Justice’s and Justice Kennedy’s concurring opinions muddy the water (bad puns not intended).

First Kennedy. Kennedy says the Clean Water Act doesn’t raise difficult questions of federal commerce power. Instead, based on a simple interpretation of the Act’s text and legislative purpose, he contends only that regulators lack control over any water–surface or ground, continually running or intermittent–without a “significant nexus” to navigable water. What this means exactly we don’t know. Kennedy wants the lower courts to come up with a significant nexus text–one more bite at the apple, in other words.

Chief Justice Roberts, moreover, invites the EPA to engage in formal notice and comment rulemaking (that’s legalese for a regulatory proceeding that announces a new rule after public input) about the scope of federal power over wetlands and suggests that if it engages in such rulemaking, it would deserve great leeway in the lines it draws. This is a very significant qualification, as it suggests he would be less inclined to second-guess the agency in such a case, even if it draws lines around federal authority that are different than the Court’s preferred lines. Roberts’ concurrence deepens my suspicion that he is more committed to a broad theory of agency discretion than any other justice on the Court, including Scalia.