The Cost of Environmental Regulation - UNIVERSITY OF CALIFORNIA, BERKELEY

Knowledge Area (KA)	Subject of Investigation (SOI)	Field of Science (FOS)	Percent
605	6050	3010	100%

Progress 10/01/04 to 10/01/09

Outputs
OUTPUTS: This project maintained and enhanced a general equilibrium model of the State of California. The model was used to evaluate a large number of potential greenhouse gas reducing policies. Policies included a low carbon fuel standard, a limit on greenhouse gas emissions by automobiles, and a renewable energy standard for the electric sector. The general findings of this project were that the policies would not be expensive to California. None of the proposed policies were very costly in their own right. The automotive standards were found to save money. The costs of the other types of standards were largely offset by their tendency to replace out of state fossil fuels with energy generated from in state economic activity. This project examined the use of essentially rural land for urban type housing. The extent of exurbia in Sonoma county was found to be quite large from an examination of parcel maps. While this type of housing does not accommodate many people, it does take upwards of three acres per household, as opposed to suburbia that takes on the order of 5 households per acre. Given that households chose this housing type, many types of habitat were infringed upon. We built a model to find the optimal parcels to save from development that traded off the cost of the parcel, the biological value of the parcel and the probability that the parcel would be developed. Unlike previous models we find that neither parcels very close to urban areas nor ones very remote are optimal to choose for preservation. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Not relevant to this project.

Impacts
The major impact of this project was to provide policy advice to the California Air Resources Board, a Cal EPA agency. The policies evaluated under this contract were evaluated in cooperation with Cal ARB and were presented to the Board. Based partially upon this research, the Board did adopt polices limiting automobile emissions and mandated low carbon fuel use.

Publications

Final Report for: The Economy-Wide Effects of Climate Change Strategies California Air Resources Board Agreement Number: 05-316. 2009
A Spatial Dynamic Model of Exurban Development by Peter Berck and David Newburn. Paper presented to US EPA Land Use Workshop. June 2009. Washington, DC.
P. Berck, E. Leiptag, A Solis and S. Villas-Boas. "Patterns of Pass-through of Commodity Price Shocks to Retail Prices." American Journal of Agricultural Economics. December 2009.
A. Levy and P. Berck. Theoretical Implications of Endogenously Changing Carrying Capacity and Concern for the World's Population and Environment. Economics Working Papers, 2009 - ideas.repec.org

Progress 01/01/08 to 12/31/08

Outputs
OUTPUTS: We estimated the economic effects of a group of greenhouse-gas-reducing measures that were proposed as a regulatory strategy for California. The measures include command and control measures for transport, structures, and industry as well as a cap and trade program for carbon. We found that the proposed measures reduced greenhouse-gas output by 169MMt at no cost to state gross product. The scoping plan was slightly expansionary, particularly for the agricultural sector. We examined the indirect land-use effects of higher U.S. agricultural prices using time-series methods. Brazil is believed to be the producer most likely to increase its agricultural land in response to higher prices. We found that increases in land use for corn and beans was moderate, and the increase in land use for sugar was very small. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
The results of this research form the basis for the economic conclusions in the Climate Change Scoping Plan adopted by the California Air Resources Board on December 12, 2008.

Publications

Berck, P. 2008. Macroeconomic Impacts for the State Alternative Fuels Plan. Report to California Energy Commission.
Berck, P., and Manley, J. 2009. The overdevelopment of water resources. In Essays in Honor of Yoav Kislev, Nova.
Berck, P.; Roland-Holst, D.; Kellog, R.; Nie, L.; and Stohs, S. 2008. Policy Options for Greenhouse Gas Mitigation in California: Preliminary Results from a New Social Accounting Matrix and Computable General Equilibrium (CGE) Model. Report to California Energy Commission, PIER Energy-Related Environmental Research.

Progress 01/01/07 to 12/31/07

Outputs
We examined the impact on California real output, employment, and personal income of three potential scenarios for increasing the use of alternative fuels in California. Broadly, all three scenarios would slightly increase state personal income in almost all years. The maximum increase in personal income was less than 0.2 percent (two-tenths of a percent). The increase in personal income requires substantial government expense that must be sourced from existing programs, however. Results were disseminated at a public hearing and will be publicly disseminated as a report of the California Energy Commission. We examined the pure theory of exurban location and found that the limitation on small lot sizes in exurban areas necessitated by the use of septic systems induces a 'leap frog' pattern to this type of development. We showed the general form of the optimal location for an exurbanite and how it depends upon a dynamic envelope theorem. We also showed that exurbanites can be strictly better off living in exurbia than in their next best location. The results have been disseminated in academic conferences.

Impacts
The CGE modeling of California's response to Greenhouse-gas Regulations has been used in regulatory proceedings before the California Energy Commission. The results were considered as part of the rule making for the State Alternative Fuels Plan. The CGE modeling of California's response to Greenhouse-gas Regulations has also been presented to the U.S. District Court for Vermont and was cited by the Court as part of the reason for its decision to permit Vermont to adopt the California rules on automobile emissions of greenhouse gasses.

Publications

Beatty, T.K.M., Berck, P. and Shimshack, J.P. 2007. Curbside recycling in the presence of alternatives. Econ. Inquiry 45(4.
Berck, P., Brown, J., Perloff, J.M. and Berto Villas-Boas, S. 2008. Sales: Tests of theories on causality and timing. Int. J. Ind. Organ. forthcoming.
Berck, P., and Newburn, D.A. 2007. The importance of sewer extension costs for determining the value of future development on agricultural lands. Rev. Agr. Econ. 29(3:510-517.

Progress 01/01/06 to 12/31/06

Outputs
We demonstrated the importance of considering density of development as well as probability of development in the prediction of land conversion. Using a random parameter logic model of land development in Sonoma County we found that the extent of the sewer and water service area was the major determinant of the type of development of rural land. An increase in the extent of the sewer and water service area would double the probability of development to high and very high density uses. However, large parts of Sonoma County are outside the service area and lands there have substantial probability of being developed at low and very low densities. Low and very low density development are the dominant form of land conversion in the county.

Impacts
The majority of conversion of land from rural usage to dwellings occurs outside of the service area boundaries. Rural land preservation policies need to focus on attracting these residents to more densely populated places.

Publications

Berck, P. 2006. Forestry in a New Era. Journal of Forest Economics. 12:1 (1-3).
Berck, P. Lipow, J., Steinhauser, R. 2006. Tax Smoothing and the Cross-Country Pattern of Privatization. World Development.
Newburn, D. Berck, P., Merenlender, A. 2006. Habitat and Open Space at Risk of Land-Use Conversion: Targeting Strategies for Land Conservation. American Journal of Agricultural Economics.
Newburn, D., Berck, P. 2006. Modeling Suburban and Rural Residential Development Beyond the Urban Fringe. Land Economics.
Berck, P., and Hess, H. P. 2006. Assessing the Economic Impacts of Large-Scale Environmental Regulations in California. In The Theory and Practice of Environmental and Resource Economics. Edited by Thomas Aronsson, Roger Axelsson, and Runar Brannlund. Cheltenham: Edward Elgar Publishing Limited.

Progress 01/01/05 to 12/31/05

Outputs
The efficient targeting of parcels for inclusion in ecological reserves requires consideration of the costs and benefits from the parcel as well as the likelihood that the parcel will be developed in the absence of action. In the case of conservation purchases in Sonoma County, we find that there are 33% more acres in undeveloped status within the target conservation areas when benefits, costs, and likelihood are considered than there are when just benefits and costs are considered.

Impacts
The project shows how the Sonoma Open Space district can achieve maximum conservation for their fixed budget.

Publications

Berck, Peter, and Helfand, Gloria E. 2005, Spring. "The Case of Markets versus Standards for Pollution Policy." Natural Resources Journal, Vol. 45, No. 2.
Newburn, David; Reed, Sarah; Berck, Peter; and Merenlender, Adina. 2005, October. "Economics and Land-Use Change in Prioritizing Private Land Conservation." Conservation Biology, Vol. 19, No. 5, pp. 1411-1420.
Berck, Peter. 2005. "Contested Trade in Lumber and Logs." In International Agricultural Trade Disputes: Case Studies in North America. Edited by Andrew Schmitz, Troy Schmitz, Won Koo, and Charles Moss. Tuscaloosa: University of Alberta Press.

Progress 01/01/04 to 12/31/04

Outputs
We examined three methods of choosing land for inclusion in a conservation reserve in both a theoretical framework and using data from the approximately 16,000 undeveloped parcels in Sonoma County, California. We found that there are significant losses to targeting land without considering the probability that the land will be developed without conservation action. Standard cost benefit criterion target lands that are too remote and are too unlikely to be developed relative to optimum targeting. We also found that a standard method for correcting for spatial autocorellation, choosing a subsample so as to create a greater distance between plots, induces a sample selection bias and is less desireable than running a regression without correction. The long-running softwood lumber dispute between the US and Canada has as a central claim of the US producers that the Canadian system is not a market system. We examined the production response to price in British Columbia, Washington, and Oregon and found that production is more responsive, not less responsive, to price changes in BC than in parts of the US.

Impacts
We examined the relation between GDP and water availability and found that most economies were harmed by extra rain and that only a very few economies in very dry places benefit from extra rainfall.

Publications

Berck, P. and Helfand, G.E. 2005. The Case of Markets vs. Standards for Pollution Policy, Natural Resources Journal, forthcoming.
Berck, P. and Goldman, G. 2003. California Beverage Container Recycling and Litter Reduction Study. A Report to the California Legislature. Department of Conservation, State of California. April 13, 2003.
Newburn, D., Reed, S., Berck, P. and Merenlender, A. 2005. The importance of economics and land use change in reserve site selection on private lands. Conservation Biology, forthcoming. Berck, Peter. Contested Trade in Lumber and Logs. In International Agricultural Trade Disputes: Case Studies in North America. Edited by Andrew Schmitz, Won Koo, and Charles Moss. Tuscaloosa: University of Alberta Press, in press.
Berck, P. and Manley, J. 2005. The Overdevelopment of Water Resources. In Essays in Honor of Yoav Kislev, forthcoming.

Progress 01/01/03 to 12/31/03

Outputs
We examined the California beverage container redemption program and found that the major determinant of the container return was the level of the deposit. The analysis was done quarterly at the county level and controlled for differences in temperature, income, residential density, and hours that recycling centers were open. Our results show the percent of containers returned, by mode of return, for different levels of the deposit (called California Refund Value). In addition to paying for the return of containers, the deposits are used to partially finance curb side pickups of recycling and the return of plastic and glass containers from recycling centers to the point of their reuse (such as a furnace for glass cullet.) We found that doubling the deposit would increase return and still leave sufficient funds for the subsidization of these other recycling activities.

Impacts
The California Legislature raised the California Refund Value from 2.5 cents to 4 cents.

Publications

Berck, P., Costello, C., Hoffman, S., and Fortmann, L. (2003) Poverty and Employment in Forest-Dependent Counties. Forest Science 49:763-777.
Helfand, G.E., Berck, P., and Maull, T. (2003) The Theory of Pollution Policy. Handbook of Environmental Economics, vol.1. Kenneth J. Arrow and Michael D. Intriligator, eds., pp.249-303. Amsterdam: North-Holland Publishing.
Berck, P., and Hoffmann, S. Preservation and Employment. (2003) in Recent Accomplishments in Applied Forest Economics. Edited by F. Helles, N. Strange, and L. Wichmann. Dordrecht: Kluwer Academic Publishers.
Helfand, G.E., and Berck, P. (2003) The Theory and Practice of Command and Control Regulation. Hampshire: Ashgate Publishing.

Progress 01/01/02 to 12/31/02

Outputs
We used the Dynamic Revenue Analysis Model to examine the effects of petroleum saving technologies on the California economy. The technologies investigated included reduced gasoline consumption from improved light duty vechicles, diesel fuel and displacement from gas-to-liquids for Fischer Tropsch diesel fuel. We found that fuel saving technologies generally reduced the level of economic activity in California, whether measured by personal income or gross state product. While the use of fuel saving technologies lowered the costs of transport, they also decreased output in the refinery sector in California. The losses from the refinery sector were found to outweigh the gains to other sectors. The losses were modest and might be entirely offset by the unaccounted for environmental gains from lower emissions of both pollutants and green house gasses.

Impacts
We presented the results to a joint hearing of the California Environmental Protection Agency and California Energy Commission for their consideration in advising the legislature on mandating fuel savings.

Publications

H. Peter Hess. Hedonic Estimation and Economic Geography, 2001. Ph.D. dissertation.
Atanu Dey. The Universal Service Obligation Imposed Cross Subsidies: The Effect on the Demand for Telecommunications Access in India, 2003.
David Newburn. Spatial Economic Models of Land Use Change and Conservation Targeting Strategies, 2002.
Berck, Peter. Why are the Uses Multiple? In Multiple Use of Forests and Other Natural Resources: Aspects of Theory and Application. Edited by Finn Helles, Per Holten-Andersen, and Lars Wichmann. Dordrecht: Kluwer Academic Publishers, 1999, pp. 3-13.

Progress 01/01/01 to 12/31/01

Outputs
We examined the methods of evaluating the impact of polices upon employment. In general, we found that the availability of data and scale of the policy change determine the method of evaluation. Small-scale policy changes, such as the reformulation of spray paint, ought to be evaluated with single-market methods while large-scale policy changes, such as the state implementation plan for the clean-air act, ought to be evaluated with economywide tools, such as computable general equilibrium models. The use of social-accounting matrix multipliers can often be justified on the grounds of data availability. Error-correction time-series methods can be used to determine multiplier relationships when they exist. A sufficient condition for there to be long-run multipliers is that the rank of the cointegrating space is one less than the number of equations.

Impacts
The findings are used to justify the modalities of evaluation of California State agencies.

Publications

Berck, P., J. Geoghegan, and S. Stohs. 2000. A Strong Test of the Von Liebig Hypothesis. American Journal of Agricultural Economics, 82(4):948-55.
Berck, P., and J. Lipow. 2000. Managerial Reputation and the Endgame. Journal of Economic Behavior and Organization, 42:253-63.

Progress 01/01/00 to 12/31/00

Outputs
With a theoretical model of the open-access regulated fishery, we found that capture of the regulatory agency by the fishers results in a long-run equilibrium with a lower fish stock than optimal. The long-run fish stock chosen by the captured regulator is determined by the simple capital-theory rule that the rate-of-growth increase equals the rate of interest. This rule is not optimal because it does not account for the increase in costs of harvest associated with a lower fish stock. The regulations set in the period of transition to the long-run equilibrium will permit the maximal amount of fishing for awhile and then slowly reduce the efficiency of fishing effort (through gear restrictions or season length) to achieve the long-run equilibrium. Other authors have persuasively argued that the U.S. Fisheries Management Councils are in fact captured by the fishers, so these results are the expected outcome for the United States.

Impacts
(N/A)

Publications

No publications reported this period

Progress 01/01/99 to 12/31/99

Outputs
A California-economy model that takes careful account of the local fiscal rules was constructed, validated, and used to evaluate major environmental/fiscal policies. Results show that openness to migration of labor and capital are important determinants of the dynamic effects of policy. For environmental policies (reformulating architectural coatings), there is very little loss of California employment if out-of-state manufactured substitutes are required to meet the same air-pollution standards. Economywide modeling of pollution depends on estimated costs of production in a less effluent intensive fashion. Engineering-economic estimates of these costs are likely to be too high since not all techniques are included. To reduce this bias, the estimates are used as sample data points in a frontier regression. Thus, estimates of costs of cleaning the air drop substantially. The discovery that MTBE, meant to clean the air, is a serious water contaminant was not surprising. It's a result of using two agencies with separate responsibilities for air/water pollution. Though these agencies are interested in health and cost to firms, the likely equilibrium in the common agency game led to the wrong decision about controlling pollution. There is little evidence that prices for natural resources, other than timber, will increase even in the long run. Use of cointegrated and integrated time-series models overturns previous beliefs that there is an upward trend in prices of the natural-resource series. One explanation is that government regulation of the environment makes the environment (air) very valuable at the expense of the natural resources (coal) that cause air pollution. Thus, unextracted coal may have little/no value and Hotelling's theory would predict no substantial increase in value. With timber, there is ample evidence of secularly increasing prices and evidence that government taking of timber for national parks can deplete the remaining commercial timber reserves enough to cause substantial price increases. Effects of a demand increase for timber products (housing starts) are puzzling; it increases price immediately but decreases it with a lag. One reason is that it's the difference between anticipated starts and actual starts that is important for determining the price level. Government forest policy (quantity sold) has no effect on employment in Oregon. Thus, government has no ability to promote community stability whether or not it is a goal of forest policy. While multiplier models come to a contrary conclusion, multiple time-series econometric work shows there is little effect on long-term poverty (measured by AFDC-UP participation) from changes in timber-harvest level. However, a definite increase in the use of food stamps occurs as a result of decreases in timber cutting in California counties with 10% of their employment in the timber industry. The lack of permanent joblessness is attributable to the out-migration

Impacts
(N/A)

Publications

BERCK, P. 1999. Estimation in a Long-Run, Short-Run Model. In MODERN TIME SERIES ANALYSIS IN FOREST PRODUCTS MARKETS. Edited by J. Abildtrup, F. Helles, P. Holten-Andersen, J. Fromholt Larsen, and B. Jellesmark Thorsen. Dordrecht: Kluwer Academic Publishers, 117-126.

Progress 01/01/98 to 12/01/98

Outputs
We analyzed the relationship between poverty, general employment, and timber employment in the 11 counties in California with the highest percentage of timber employment. This statistical analysis found little evidence that decreases in timber employment have increased poverty in California's timber country. The Aid to Families with Dependent Children-Unemployed Parent (IAFDC-UP) caseload, participation the poverty program most directly targeted at the out-of-work family, was only minimally affected by increasing timber jobs in California's 11 major timber counties. If increasing timber harvest actually created additional jobs, only 3 out of 100 would go to AFDC-UP recipients. The remaining 97 jobs would most likely be taken by unemployed county workers who are not in the program, county workers employed in the nontimber sector, and people from outside of the county. Changes in timber employment had no LONG-RUN impact on AFDC-UP participation in the 10 of 11 major timber counties. Together, this means that changes in timber employment simply do not have much impact on helping impoverished county residents. Even those who have recent ties to the workforce move out of or drift into welfare dependence.

Impacts
(N/A)

Publications

DABALEN, A. 1998. Essays on Labor Markets in Two African Economies. Ph.D. Thesis. Univ. of California, Berkeley. 134 p.
BERCK, P. and WARD, M.B. 1998. Trends in Energy Sources, Prices, Regulations and Technology and Their Implications for Global Growth and Pollution. In HANDBOOK ON THE GLOBALISATION OF THE WORLD ECONOMY. Edited by A. Levy. Aldershot: Edward.
BERCK, P., HESS, H.P., and SMITH, B. 1998. The Role of Transportation Infrastructure in the California Economy: The Dynamic Revenue Effects. Report to the California Department of Finance, Sacramento,

Progress 01/01/97 to 12/01/97

Outputs
Air quality regulation is based upon engineering-economic estimates of techniques for pollution abatement. Using that list of techniques directly to estimate the cost of meeting the Clean Air Act standards provides an upward-biased estimate of those costs. Recognizing that some of the listed techniques are economically inefficient and that unlisted techniques also exist leads to a much lower estimate of regulatory cost. New estimates of regulatory cost were made for many sectors of the California economy using stochastic frontier production functions. Efforts to clean up or abate pollution in one medium, such as air, often lead to additional pollution in another medium, such as water. When the two different media are regulated by different agencies, it is a problem of common agency. The common-agency problem in pollution regulation was found to lead to the wrong amount of pollution even when both regulatory agencies were equally interested in consumer health and costs to firms.

Impacts
(N/A)

Publications

DUMAS, C.F. 1997. Cross-Media Pollution and Common Agency. Ph.D. Thesis. Univ. California, Berkeley. 160p.
BERCK, P., GOLAN, E., and SMITH, B. 1997. State Tax Policy, Labor, and Tax-Revenue Feedback Effects. Journal Industrial Relations.
BERCK, P. 1997. Constructing a Price Series for Old-Growth Redwood by Parametric and Nonparametric Methods: Does Sales Volume Matter. Journal of Forest Economics. 3:35-50.
BERCK, P., and BENTLEY, W.R. 1997. Hotelling's Theory, Enhancement, and the Taking of the Redwood National Park. American Journal of Agricultural Economics. 79:287-298.

Progress 01/01/96 to 12/30/96

Outputs
There is no statistical time-series evidence for the hypothesis that natural resource prices will increase in the near future. The use of trend-stationary modeling was found to be inappropriate and to yield misleading predictions of price increases. One explanation for the lack of predicted price increase is that government regulation of the environment makes the environment, particularly air, very valuable at the expense of the natural resources that cause air pollution, such as coal. Thus, unextracted coal may have little or no value and Hotelling's theory, which predicts exponential increases in value, would then predict no substantial increase in value. Manipulation of interest rates to encourage the accumulation of natural capital may have perverse effects. In a simple economic model, it is shown that, although lower interest rates lead profit-maximizing, renewable-resource owners to hold larger resource stocks, lower interest rates also encourage development of a natural resource habitat for industrial use. Hence, lower interest rates are likely to be a poor choice for a sustainable development strategy.

Impacts
(N/A)

Publications

BURTON, D. M., and BERCK, P. 1996. Statistical Causation and National Forest Policy in Oregon. Forest Science. 42:86-92.
BERCK, P., and ROBERTS, M. 1996. Natural Resource Prices: Will They Ever Turn Up. Journal of Environmental Economics and Management. 31:65-78.
BERCK, P., and LIGON, E. 1996. The Swamp and the Shopping Center: An Interest Rate Parable. Ecological Modeling. 92:275.
BERCK, P., GOLAN, E., and SMITH, B. 1996. Dynamic Revenue Analysis in California. State Tax Notes. 11:1227-1237.

Progress 01/01/95 to 12/30/95

Outputs
Implementation of divisible, transferable, prioritized water rights is necessaryfor efficient utilization of water. The reform of the water-rights system is quantitatively more important than the allocation of rights between Palestinians and Israelis in Israel, which has a climate and water-rights system much like California. When the government takes private forest property, in this case old-growth redwood, the price of the resource remaining in private hands can increase quite dramatically. Government forest policy, the quantity sold, has no effect on employment in Oregon. Thus, the government has no ability to promote community stability whether or not that is or should be a goal of forest policy.

Impacts
(N/A)

Publications

BERCK, P. 1995. Empirical Consequences of the Hotelling Principle. In HANDBOOK OF ENVIRONMENTAL ECONOMICS. Edited by D. Bromley. Oxford: Blackwell, 202-221.
BERCK, P., and HELFAND, G.E. 1995. The Traditional Economics of Natural-Resources Management. In A NEW CENTURY FOR NATURAL RESOURCES MANAGEMENT. Edited by R.L. Knight and S.F. Bates. Covelo: Island Press, 89-100.
BERCK, P., and LIPOW, J. 1995. Water and an Israel/Palestinian Peace Settlement. In PRACTICAL PEACEMAKING IN THE MIDDLE EAST. Edited by S. Spiegel and D. Pervin. New York: Garland Publishing, 139-158.

Progress 01/01/94 to 12/30/94

Outputs
A whole economy model of California was used to show that the economic effects of environmental regulation depend heavily on capital and labor migration.

Impacts
(N/A)

Publications

No publications reported this period.