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Economic Currents

Keep up to date with the latest UHERO news.

The Water-Energy-Food Nexus

The water-energy-food nexus is one of the most important and fundamental global environmental issues facing the world today. The US Geological Survey estimates that the United States used 201 billion gallons per day (bgd) of freshwater for thermoelectric power generation and 128 bgd for irrigation in the year 2005. Combined, energy generation and irrigation accounted for roughly 80% of all water withdrawals over that period. At the same time, energy is a key input for the production of freshwater. A 2006 study prepared for the California Energy Commission estimated that the electricity required to process one million gallons of water in a typical urban water system ranges from 4,000 kWh per million gallons in Northern California to 12,700 kWh in Southern California, and water-related energy use comprised over 19% of total energy use in the state. Although the wide range in values suggests that water-related energy use depends on a variety of location-specific factors, the interconnectedness of the resources is clear.

As demand for each of the resources grows, examining tradeoffs will become especially important. For example, biofuels may be developing into a viable alternative to petroleum, but the implications for water resources will be considerable. The UHERO Project Environment team will be working with the Research Institute for Humanity and Nature to develop a framework capable of quantifying such tradeoffs. The project will focus heavily on coastal regions in the Asia-Pacific “Ring of Fire”. For more on economic approaches to water and energy management, visit UHERO’s Project Environment.

---Christopher Wada

UHERO 101.8: Are All Tax Credits Created Equal?

Posted August 16, 2013 | Categories: Blog

The intention of well-designed tax credit programs is to incentivize individuals or organizations to invest or participate in a commodity or service that will increase the greater good (by, for example, stimulating the economy and/or reducing environmental damage), but that they might not invest in without this additional benefit. As many states do, the State of Hawaii offers a dizzying number and variety of tax credits. A quick rundown from last year’s Schedule CR and X, to give you an idea:

1. Refundable Food/Excise Tax Credit
2. Credit for Low-Income Household Renters
3. Credit for Child and Dependent Care Expenses
4. Credit for Child Passenger Restraint
5. Enterprise Zone Tax Credit
6. Low-Income Housing Tax Credit
7. Credit for Employment of Vocational Rehabilitation Referrals
8. High Technology Business Investment Tax Credit
9. Credit for School Repair and Maintenance
10. Renewable Energy Technologies Income Tax Credit
11. Capital Goods Excise Tax Credit
12. Fuel Tax Credit for Commercial Fishers
13. Ethanol Facility Tax Credit
14. Motion Picture, Digital Media, and Film Production Income Tax Credit
15. Important Agricultural Land Qualified Agricultural Cost Tax Credit
16. Carryover of the Energy Conservation Tax Credit
17. Carryover of the Individual Development Account Contribution Tax Credit
18. Carryover of the Technology Infrastructure Renovation Tax Credit
19. Carryover of the Hotel Construction and Remodeling Tax Credit
20. Carryover of the Residential Construction and Remodeling Tax Credit

Recently, the Rhode Island legislature adopted a law requiring that state tax credits undergo a process of regular and rigorous evaluations. This law will require RI to assess the benefits and costs of tax credits, deductions, and exemptions. The evaluations are opportunities to examine the success of tax credit programs, for example whether the incentives affected individual and business decisions, the cost of the program to taxpayers, and the overall level of benefit brought in by the tax credit. These types of assessments will give decision makers information regarding possible changes to the program, if the costs were found to be greater than the benefits, for example.

In Hawaii there are also a number of personal income tax deductions that could be examined, including (but not limited to) the exceptional tree deduction, where individuals may deduct up to $3,000 per “exceptional tree” for qualified expenditures made to maintain the tree on private property (Ordinary trees do not qualify: the tree must be designated as an exceptional tree per Chapter 58 of the Hawaii Revised Statutes). Periodic assessments of each state tax credit and deduction may give decision makers a clearer understanding of the most useful programs. UHERO has done research on some of Hawaii's most generous tax credits, high tech and solar photovoltaic. Eliminating or redesigning inefficient programs and using the best policies as guides for future legislation could move the state towards a more efficient, fair tax system and improve economic conditions across the state.

---Kimberly Burnett and James Jones

Coastal Zone Management in Hawaii

Hawaii has 750 linear miles of coastline that include all of our beaches, an array of cliffs, bays and other features that count among our most treasured natural resources. Development of these resources is a key source of economic growth, but ensuring that this development is carried out in a manner that preserves, protects and (where possible) restores them is important for their long term value.

Since 1975 a permitting system administered by each county has been the primary vehicle for managing development of the coastal zone. To support decision making in the permitting process, The UHERO Project Environment team collaborated with the State Office of planning to review the way benefits provided by the program are evaluated.

Project Environment was asked to identify a set of key ecosystem services to study, selecting the services on the basis of their measurability and expected value. The final list included public access, beach and shoreline protection, marine resources, and scenic and open space. Other important but difficult to measure benefits, discussed but not incorporated in the methodological assessment, include those related to cultural values and practices.

The UHERO team visited various project sites in each of the four counties across the state and concluded that benefits of the permitting process are very site-specific, rendering a statewide assessment via benefit transfer – a valuation method that adjusts estimated values from studies completed in other locations – impractical. Instead, original valuation methods were recommended for each site, depending on the type of ecosystem service protected or enhanced, site characteristics, and the type and number of users, among other things. For example, an encroachment removal and dune restoration project at Charley Young Beach (Kihei, Maui) was estimated to have doubled the usable beach width, while expanding view corridors, reducing erosion, and replenishing sand dunes. Estimating the value of each of those benefits requires different data and methods.



The final report discusses potential valuation methods for seven case studies throughout Hawaii, and includes a primer on valuation methods, with pros and cons, as well as data requirements for each. For more on economic valuation of environmental services in Hawaii, visit UHERO’s Project Environment.

-- Christopher Wada

UHERO 101.7: School's Out, Unemployment Up?

Posted August 5, 2013 | Categories: Hawaii's Economy, Blog

Last week's Star Advertiser reported that Honolulu’s unemployment rate increased from May’s 4.0% to 4.7% in June. Is the local labor market in free-fall? Not exactly. When students graduate or are released for summer break, many of them start searching for employment. Suddenly the labor market is flooded with thousands of additional young men and women; some looking for their first full-time positions and others looking to earn spending money to bring back to school in the fall. Since not all of them find employment immediately, this often contributes to a noticeable uptick in the unemployment rate from May to June both locally and nationally. The reverse often occurs in August and September as students return to classes and exit the labor force. This is just one example of a seasonal fluctuation that can make it difficult to assess the current state of the economy. How can we tell what part of the uptick in the unemployment rate is due to regular seasonal events and what part, if any, is due to changes in underlying economic conditions? Is there a better way for us to see if the economy is on the right track and whether job seekers are getting matched up to the supply of jobs?

Rather than comparing unemployment rates directly across months, adjustments can be made to the data to remove predictable and consistent seasonal effects, the ones that happen every year (like summer vacation and Christmas), from the data. When we observe a seasonal trend that happens at the same time every year, we can use seasonal adjustment, a statistical method, to adjust the data and strip out seasonal fluctuations. The resulting seasonally adjusted series contains fluctuations that are due to factors other than regular seasonal patterns. This way unemployment rate data can be meaningfully compared across different months, and can give us a better indication of the health of the job market.

While the BLS seasonally adjusts national and state unemployment rate they do not provide this adjustment for metropolitan areas or counties. UHERO has developed techniques for seasonally adjusting unemployment rates for Honolulu as well as Hawaii’s three neighbor island counties. According to UHERO’s estimates, after removing the seasonality associated with increased summer demand for jobs, June unemployment in Honolulu actually fell from 4.1% in May to 4.0% in June.


--Kimberly Burnett and James Jones

UHERO 101.6: Recession Dating

Posted July 26, 2013 | Categories: Blog

While the U.S. economy has been out of the last recession since the summer of 2009, a new poll found that a majority of people (54%) thinks the country is still there. How are these things measured, and who decides when a recession starts and ends?

The National Bureau of Economic Research (NBER) Business Cycle Dating Committee was created in 1978 to formally determine and announce peaks and troughs in economic activity. While the popular press often states the definition of a recession as two consecutive quarters of decline in real GDP, the Dating Committee’s procedure for identifying recessions differs in several ways. The committee uses a range of economic indicators in addition to GDP, such as employment and personal income, to determine periods of expansion and contraction, and pays particular attention to monthly indicators.

Aside from the duration, the depth of the decline in economic activity is also an important factor in recessions. The Committee waits until the existence of a peak or trough is not in doubt, and until it feels confident about assigning an accurate date to those limits. It then pronounces the time between the peak and trough a recession. For example in the last recession, the Dating Committee's determination of the December 2007 peak and the June 2009 trough dates occurred 11 months and 15 months later, respectively.



---Kimberly Burnett 


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