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Economic Currents

Keep up to date with the latest UHERO news.

Expensive Exotics: Snakes in Hawaii

Last month a juvenile ornate tree snake (Chrysopelea ornate) was captured by military personnel near the airfield at Hickam Air Force Base. Inspectors from the Hawaii Department of Agriculture were notified and took custody of the foot-long snake. Ornate tree snakes are mildly venomous and are related to the brown tree snake (Boiga irregularis), which has devastated the ecosystem in Guam and threatens the environment and economy of Hawaii.

Snakes are not native to Hawaii and have the potential to invoke more than just fear in visitors and residents. The arrival and establishment of snakes could have hefty economic consequences to the state in terms of control costs and damages. Co-director of UHERO’s Project Environment, Dr. Kimberly Burnett, studied the potential economic outcome of a brown tree snake invasion in Hawaii as part of her Ph.D. dissertation. Depending on assumptions regarding control methods and population growth upon arrival, the snake could easily cost Hawaii $200-$300 million in management and damages including power outages, lost bird species and medical expenses related to snakebites. That's about equal to half the value of all the crops produced in Hawaii in 2011.  For more on the economic consequences of invasive species in Hawaii, visit UHERO’s Project Environment.

 

--Kimberly Burnett

Photo credit flying snake: Dr. Allen Allison, Bishop Museum

Photo credit brown tree snake: Kimberly Burnett, UHERO


What is a Watershed and Why Does it Matter?

Over the years, the term “watershed” has evolved from signifying the divide separating one drainage basin from another to the drainage basin itself. A drainage basin or catchment area is a section of land drained by a river and all of its tributaries. Watersheds come in all shapes and sizes, and the U.S. Environmental Protection Agency estimates that there are 2,267 watersheds in the United States and Puerto Rico alone. In Hawai‘i, much of the water captured in our watersheds eventually drains into subsurface groundwater aquifers.

Watershed conservation activities (e.g. feral animal control, non-native weed control, native reforestation) can increase the amount of water captured as groundwater recharge, which is especially important given that groundwater provides 99 percent of Hawaii’s domestic drinking water. The benefit of a healthy watershed becomes even clearer when one considers the increasing trend in water scarcity owing to a growing population, rising per capita income, and climate change. Ecosystem services generated by a watershed area extend well beyond groundwater recharge provision, however.

A previous UHERO study estimates that the present value of ecosystem services generated by natural capital embodied in the Ko‘olau Watershed is in the range of $7.4-14.0 billion, assuming that the state of the watershed remains at the status quo and groundwater is optimally managed. While the benefits associated with water resources ($4.7-9.2 billion) are by far the largest, a variety of other ecosystem services also generate substantial value: species habitats ($0.5-1.4 billion), biodiversity ($0.7-5.5 million), subsistence ($34.7-131 million), hunting ($62.8-237 million), aesthetic values ($1-3.1 billion), commercial harvest ($0.6-2.4 million), and ecotourism ($1-3.0 billion). Other services which are difficult or impossible to quantify, such as cultural importance, increase the total value further.

-- Chris Wada


Investigating the Potential for Seawater Air Conditioning in Waikiki

Researchers at the University of Hawai‘i at Mānoa recently concluded a study into the potential for seawater air conditioning (SWAC) in Waikīkī. The study was led by the University of Hawai‘i Sea Grant College Program (UH Sea Grant) in partnership with the the Economic Research Organization at the University of Hawai‘i (UHERO) to investigate various aspects of seawater air conditioning and its applicability to Waikīkī. In examining the appropriateness of SWAC technology, researchers compared SWAC with ‘business as usual’ and various renewable energy and other energy efficiency options. Each option was analyzed in terms of: 1) generation capacity; 2) applicability to existing policy standards; 3) economic factors; 4) environmental and social factors; and, 5) energy and supply security.


 

According to the findings of the report, while SWAC may be more costly than other efficiency/conservation options, its ability to provide an uninterrupted supply of cool air gives it a solid advantage over the use of more intermittent renewable energy technologies (such as wind and solar power) for air conditioning purposes. For Waikīkī, where demand for air conditioning is constant, SWAC has the potential to decrease the cost of air conditioning and reduce the amount of harmful emissions that are released as a by-product of generating electricity from fossil fuels.

Traditional air conditioning systems require large amounts of energy to cool air to the desired temperature. In contrast, SWAC technology harnesses the cooling properties of cold seawater to achieve the same purpose, reducing the amount of electricity required. SWAC is particularly relevant to Hawai‘i, where the close proximity of deep, cold, ocean water to areas of high population make it an ideal location to implement the technology. In addition, the first seawater air conditioning unit was invented by a UH Sea Grant researcher in the early 1980’s.

When surveyed, 62 percent of O‘ahu residents indicated support for SWAC development in Waikīkī, compared to 8 percent opposed and 30 percent neither supporting nor opposing. Individuals more familiar with SWAC technology were more likely to support its development than those who were not aware of the technology (69 percent in favor compared to 54 percent). Slightly less than half of O‘ahu residents, 46 percent, also supported the use of public funds to help develop SWAC in Waikīkī, versus 26 percent opposed and the remaining 28 percent neither supporting nor opposing.

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The University of Hawai’i Sea Grant College Program is part of the University of Hawai‘i at Mānoa’s prestigious School of Ocean and Earth Science and Technology. It supports an innovative program of research, education and extension services directed to the improved understanding and stewardship of coastal and marine resources of the state, region and nation. Science serving Hawai’i and the Pacific for over 40 years.

UHERO is a unit within the College of Social Sciences (CSS) at the University of Hawai‘i at Mānoa. Established in 1997, UHERO is dedicated to informing public- and private-sector decision making through rigorous, independent economic research on the people, environment and economies of Hawai‘i and the Asia-Pacific region.

The College of Social Sciences (CSS) at the University of Hawai‘i at Mānoa is engaged in a broad range of research endeavors that address fundamental questions about human behavior and the workings of local, national and international political, social, economic and cultural institutions. Its vibrant student-centered academic climate supports outstanding scholarship through internships, and active and service learning approaches to teaching that prepare students for the life-long pursuit of knowledge.

 

 

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Environmental Security in the Asia-Pacific Ring of Fire: Exploring the Water-Energy-Food Nexus

 This month, UHERO’s Project Environment will be commencing a joint project with Japan’s Research Institute for Humanity and Nature (RIHN). Climate change and economic development are causing increased pressure on water, energy and food resources, presenting communities with increased levels of tradeoffs and potential conflicts among these resources. The water-energy-food nexus is one of the most important and fundamental global environmental issues facing the world. As water is the central matter within this cluster, we will focus on the inherent tradeoffs between water and food, and water and energy.

We will take a regional perspective to address these global environmental problems. The geological and geomorphological conditions in our study area (Japan, Philippines, and Thailand) are heavily influenced by the so-called “Ring of Fire” around the Pacific Ocean. Within these areas, the hydro-meteorological conditions are dominated by the Asia monsoon. The populations that live under these natural conditions face elevated risk and potential disaster as negative impacts, while also benefitting from positive ecological goods and services. There are numerous tradeoffs and conflicts within the water-energy-food nexus, as well as among various stakeholders in the region. The objective of this project is to maximize environmental security by choosing management structures and policies that optimize both the water-food and water-energy connections in Asia-Pacific coastal regions.

The general resource management framework developed in this 5-year project will be relevant and replicable in all regions facing accelerated development and climate change, including Hawaii. Specific case studies in Japan include an investigation into the economic and environmental tradeoffs involved in local hot springs and a proposed geothermal development (water-energy), as well as the tradeoffs between groundwater use and a local fishery (water-food). Policy implications derived from this work would be useful to resource managers, planners, and other decision makers around the world.

Lead Institution: Research Institute for Humanity and Nature
Project homepage

-- Kimberly Burnett


The Hawaii Clean Energy Initiative (HCEI): Watt, Me Worry?

The connection between the emerging field of sustainability science and the economics of sustainable development has motivated a line on interdisciplinary research inspired by the notion of “positive sustainability.” This notion is founded on three principles or pillars: (1) adopting a complex systems approach to modeling and analysis, integrating natural resource systems, the environment, and the economy; (2) pursuing dynamic efficiency, that is, efficiency over both time and space in the management of the resource-environment-economy complex to maximize intertemporal well-being; and (3) enhancing stewardship for the future through intertemporal equity, which is increasingly represented as intergenerational neutrality or impartiality. I argue that the Hawaii Clean Energy Initiative (HCEI) fails to satisfy all three pillars of sustainability, and consequently fails to achieve the "sustainability criterion" put forward by Arrow, Dagupta, Daily et al: that total welfare of all future generations not be diminished. HCEI shrinks the economy, contributes negligibly to reduction of global carbon emissions, and sparks rent seeking activity (pursuit of special privilege and benefits) throughout the State of Hawaii.

The HCEI, introduced in 2008, is a partnership between the State of Hawaii and the U.S. Department of Energy intended to lead Hawaii toward energy independence. How well does the HCEI comport with the three pillars of sustainability mentioned above? Unfortunately for Hawaii residents and their long-term welfare, not very well, despite almost unshakeable political support state-wide. The problem is not clean energy, pursuit of which, in advanced technology forms, is a worthy policy objective. The problem, rather, is the current approach to the initiative itself, with its emphasis on mandates, subsidies, and picking winners. It just doesn’t add up, starting with the HCEI goal: “...achieve 70% clean energy by 2030 with 30% from efficiency measures and 40% coming from locally generated renewable sources.” (After accounting for 30% efficiency, 40% of remaining energy use is 28%, for a total of 58% clean energy, not 70%).

What about alleged benefits of HCEI? Here’s a brief reckoning:

  • Strengthen our economy: Very doubtful. Renewable energy mandates and subsidies, coupled with the continuing monopoly power of Hawaii’s electrical utility, especially under the present revenue decoupling scheme, will maintain energy prices high, reduce consumer and taxpayer welfare, and accordingly, shrink (weaken) the economy. This was a key message of Nobel Laureate, Joseph Stiglitz, in his special lecture on sustainability at the University of Hawaii at Manoa in February 2012.
  • Increase our energy security: Not likely. Abundance of shale oil and gas is changing the global energy market, including prices and geographic sources. The future should see lower oil and gas prices and less dependence on supply from the Middle East. Even with the current high price of low sulphur fuel oil, current-technology renewable energy is not competitive in Hawaii without subsidy. Is it really better for consumer welfare to have higher, but allegedly stabler prices? Concern about supply disruption seems wildly exaggerated. After all, the mission of the U.S Pacific Fleet, headquartered in Honolulu, is to provide maritime security throughout the Asia-Pacific region, including commercial shipping to the State of Hawaii. And a natural disaster, severe enough to impede fuel delivery, would, in all probability, cause major damage to local energy infrastructure. Less severe disasters might cripple the vulnerable renewable energy sector without preventing maritime delivery of fuel. Security is enhanced, not diminished, by the diversity of energy sources.
  • Reduce our carbon footprint: A large, costly shoe for such a small foot. Hawaii currently imports about 40 million barrels of oil per year or about 0.1 million barrels per day. World-wide fossil fuel consumption (oil, coal, natural gas) comes to about 250 million barrels of oil equivalent per day (see annual data from the International Energy Agency or the U.S. Energy Information Administration). Accounting for the carbon intensity of the different fossil fuels, Hawaii’s contribution to global carbon dioxide emissions is on the order of 0.01%. HCEI will not meaningfully prevent climate change nor save the planet.
  • Make Hawaii a world model for energy independence: And serve as a model of welfare erosion as well. A common justification for independence among HCEI proponents is “keeping the money at home,” which represents crude, modern day mercantilism (exports are good; imports are bad), an economic policy that was discredited over two centuries ago by Adam Smith (The Wealth of Nations) in favor of international specialization and voluntary exchange (Endress, 2012, Economic Currents, UHERO). Pursuing independence, foregoing the welfare gains from trade, shrinks the economy.
  • Create a cleaner, more sustainable environment: Does this alleged benefit measure up to the three sustainability pillars?
  • Systems Approach: HCEI is a single-agenda program that downplays its interaction with and impact on the Hawaii’s wider economic-ecological system. Renewables are land-use and water-use intensive. Wasteful over-investment in renewable energy (i.e., subsidies and tax credits) may come, for example, at the expense of optimal watershed protection against invasive species. Marine resources, vital to sustainable tourism in Hawaii, may similarly receive inadequate attention.
  • Dynamic Efficiency: Mandates and subsidies are notoriously inefficient, because they reduce consumer and taxpayer welfare. Take the solar tax credit for example. For the fiscal year ending June 2012, Hawaii tax revenue lost due to solar tax credits (i.e., subsidies) amounted to $170 million; the Council on Revenues has adopted forecasts based on the assumption credits will rise to $240 million in the current fiscal year. That’s very likely to be an under-estimate, given the solar-installation frenzy that the commission’s announcement has engendered in anticipation of a possible credit crack-down by the Hawaii State Legislature.

The revenue loss is a direct burden; but the overall loss is even worse. “Excess burden” is the additional welfare loss to Hawaii residents because subsidies distort prices and incentives in the economy, inefficiently drawing resources from other production sectors into the renewable energy sector. (The renewable sector gains at the expense of jobs and income in the rest of the economy.) On top of that is the added excess burden of tax friction: every dollar of tax revenue raised to finance subsidies costs the economy about another 25 cents. (Economists refer to this friction as the social cost of public funds.) And where do most of the solar panels now being installed in Hawaii come from? China, not the United States. Using welfare analysis made standard by economist Arnold Harberger, 1964, Professor Jim Roumasset and I estimate that the total amount of excess burden due to solar tax credits for this fiscal year will come to about $360 million. That’s $1million a day swirling down the state drain. The benefits and costs of other policy manifestations of HCEI should also be analyzed, including the interisland grid, feed-in tariffs and regulatory policies regarding consumer prices.

Intertemporal Equity: HCEI’s implicit rate of time preference is high; political imperatives are favoring the present over the future, despite public relations appeals to the contrary. Rather than allowing renewable technologies to advance with R&D and become commercially viable without subsidy, Hawaii is paying a high price and foregoing other productive investment to lock in current, suboptimal energy technology. When the overall economic-ecological system is considered, Hawaii is making inadequate additions to inclusive wealth and is thus in jeopardy of not meeting the sustainability criterion and stewardship for the future.

HCEI may serve State energy objectives, but it is not in the public interest (i.e., overall consumer/taxpayer welfare. HCEI does not enhance intertemporal well-being and can not help save the planet through meaningful contribution to global carbon reduction. And moral justifications for the HCEI fail to persuade: in what way is the undermining of sustainability in Hawaii, and hence, the intertemporal well-being of Hawaii’s citizens, a moral outcome?

So, what are the alternatives? The British energy economist, Dieter Helm (not a climate change denier), 2012, offers some constructive recommendations for rational energy policies in Europe and the United States: (1) Institute carbon taxes; (2) Increase investment in R&D for advanced renewable technologies; (3) Adopt natural gas as a transition fuel until advanced technology renewables are ready for prime time. The first two recommendations are best pursued at the national level, although Hawaii should have some comparative advantage in R&D for ocean and geothermal energy. As to the third recommendation, the natural gas option should be put on the table in Hawaii for serious study and debate. The current administration in the State of Hawaii seems open to that idea (Governor Abercrombie 2013 State of the State address).

--Lee H. Endress

References

Arrow, K., Dasgupta, P., Goulder, L., Daily, G., Ehrlich, P., Heal, G., Levin, S., Mäler, G-M., Schneider, S., Starrett, D., and Walker, B. 2004. “Are We Consuming Too Much?” The Journal of Economic Perspectives. 18(3): 147-172.

Endress, L. 2012. “Keeping the Money at Home!” Economic Currents. The Economic Research

Organization at the University of Hawaii (UHERO). Posted Jan. 23, 2012.

Harberger, A., 1964. ‘‘Taxation, Resource Allocation, and Welfare,’’ in J. Due (ed.), The Role of Direct and Indirect Taxes in the Federal Revenue System. Princeton University Press. Helm, D. 2012. The Carbon Crunch. Yale University Press.

Smith, A. 1776. The Wealth of Nations. 1994 Modern Library Edition.

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