Increasing CAFE Standards: Still a Very Bad Idea

In a recent Joint Center Working Paper, Gerard and Lave respond to our recent work critiquing proposed increases in existing Corporate Average Fuel Economy (CAFE) standards. Gerard and Laveassert that, at least in the right environment, there is a place for CAFE standards. We suggest, however, that Gerard and Lavehave not really made any dent in our arguments, and have not provided any rationale for the CAFE program to exist. Indeed, much of the Gerard and Lave'sargument is self-contradictory.

Index Manipulation, the CFTC, and the Inanity of DiPlacido

Commodity markets are designed to enhance the flow of commoditiesand reduce risks for both buyers and sellers. Unfortunately, these marketscan be open to market manipulation, with economic actors functioning todistort markets and gain profits from engaging in activities that distortprices. This issue has increased in prominence over the last several yearsdue to concerns about the manipulation of various energy markets. The nature of market manipulation, the role of the primary enforcer ofsuch rules -- the Commodity Futures Trading Commission (CFTC), and itsrecent decision in DiPlacido are reviewed in this paper. The CFTC decision demonstrates its deficient understanding of both manipulationlaw and the actual workings of commodity markets. In particular, the CFTC appears to have no ability to discern the difference between procompetitivetrading according to supply-and-demand forces, and themarket manipulation that destroys markets. This raises significantquestions about whether the CFTC, the designated expert agency in thisarea, can be trusted to protect commodity markets from manipulation.

Impacts of Long-Range Increases in the Corporate Average Fuel Economy (CAFE) Standard

CAFE standards have been in place since 1978. After the increase in petroleum prices in 1998-99, CAFE standards again arose as a public policy issue. This paper attempts to model the impact of higher CAFE standards on producer and consumer welfare, gasoline consumption, externalities from increased driving, and the emissions of traditional pollutants, given that CAFE standards are successful in inducing manufacturers to engage in technology forcing. The study then examines CAFE standards from a cost-benefit and a cost-effectiveness viewpoint. In particular, a long-run 3.0 MPG increase in the CAFE standard would impose social welfare losses of $5.556 billion per year and save 5.1 billion gallons of gasoline per year. This amounts to a hidden tax of$1.09 per gallon conserved. An 11 cent per gallon increase in the gasoline tax would save the same amount of fuel at a welfare cost of $275 million per year. The 3.0 MPG increase is thus 20 times more expensive than the gas tax increase. The marginal welfare costs of long-term increases in the CAFE standard amount to$1.26 per gallon and exceed by a factor of five recent estimates of the marginal societal benefits from avoided externalities. Increasing the CAFE standard is therefore neither cost-effective nor cost-beneficial.

The Complexity Dilemma in Policy Market Design

Regulators are increasingly pursuing their policy objectives by creating markets. To create a policy market, regulators require firms to procure a product that is socially useful but that confers little direct private benefit to the acquiring party. Examples of policy markets include pollutant emissions trading programs, renewable energy credit markets, and electricity capacity markets. Existing scholarship has tended to analyze policy markets simply as market-based regulation. Although not inaccurate, such inquiries are necessarily incomplete because they do not focus on the distinctive traits of policy markets. Policy markets are neither typical regulations nor typical markets. Concentrating on policy markets as a distinctive type of market brings to light common characteristics of such markets, which in turn generates insights into how they can be used more effectively to implement policy. In particular, this Article focuses on a recurring fundamental challenge in policy market design: managing complexity. Typical markets manage complexity through market forces. As a regulatory creation, however, policy markets require regulators to manage their complexity. This poses what we call the complexity dilemma, which requires regulators to balance strong pressures both toward and away from complexity. The central argument of this Article is that although policy markets are an important part of a regulator’s toolkit, they are also subject to complexity that limits their usefulness. Understanding the complexity dilemma and its crucial role in policy market design forms an essential step toward progress in improving the design and function of these markets

Ecosystem response to increasing hurricane disturbance: Comparing nutrient cycling dynamics associated with early- and late-successional tree species in a wet tropical forest

Puerto Rico has seen changes in the frequency and severity of disturbances in recent years as hurricanes become more frequent and more intense under climate change. In ecosystems experiencing increasing disturbances, we expect that species composition will shift as early successional trees become more common. These changes to species composition and community ecology are likely to affect terrestrial nutrient cycling both directly and indirectly, and it is still not well understood how shifting community composition may alter ecosystem functioning. To address this gap, I measured carbon (C) and nitrogen (N) variables in soils, microbial biomass, roots, leaves, and soil greenhouse gas fluxes within 1 m of individuals from three tree species (5 replicates per species) across a topographic gradient in El Yunque National Forest in Puerto Rico. The three species of interest are likely to be differently affected by changing hurricane regimes: an early successional tree species (Cecropia schreberiana), a secondary successional species (Prestoea montana), and a late successional species (Guarea guidonia). I hypothesized that the soil area surrounding early successional and late successional tree species would exhibit differences in carbon and nitrogen cycling and the resulting soil greenhouse gas emissions. I found that there were significant species-related differences in leaf composition, soil nutrients, and soil gas fluxes. G. guidonia had the highest %C and %N in senesced leaves compared to the other two species, having on average 6.39% and 8.38% higher %C compared to C. schreberiana and P. montana respectively. Senesced G. guidonia leaves had on average more than 50% higher %N compared to P. montana, and nearly double the %N of C. schreberiana at 90.55% more on average. All three species had statistically distinct C:N ratios, with G. guidonia having the lowest at 28.859 ± 2.435 (compared to 39.988 ± 2.274 for P. montana and 51.522 ± 3.751 for C. schreberiana), and thus likely decomposing the fastest. C. schreberiana and G. guidonia had statistically distinct amounts of extractable C and N associated with the soil at the base of each tree (p \u3c 0.01). While the soil CO2 flux associated with each tree did not differ significantly between species, the CH4 flux was significantly higher in the soil near P. montana compared to the other two species, averaging around -0.052 ± 0.155 compared to -0.608 ± 0.123 and -0.685 ± 0.041 for C. schreberiana and G. guidonia respectively, suggesting that P. montana is associated with lower soil CH4 uptake. In combination, my results suggest that, as the successional state of the forest shifts to be dominated by early successional species for longer stretches of time due to increasing incidence of large-scale hurricane disturbance, the nutrient cycling of this forest may also be altered drastically

CAFE Adieu

In a recent paper, Gerard and Lave critique an analysis by Kleit and Lutter, and contend that there are sound economic reasons for CAFE. In this paper Kleit argues that Gerard and Lave fail to present any new arguments for the implementation of CAFE standards.

Commodity Exchanges and Antitrust

Historically, commodity exchanges have been viewed as natural monopolies, not subject to competitive forces. But in recent years, both technology and regulatory changes have allowed for competition between rival exchanges in various contracts. With competition comes the regulation of competition. The traditional method of regulating competition is through court adjudication of the Sherman Antitrust Act. But in regulated industries, antitrust authority must be shared in some way with the regulatory authority. Then, it must be implemented by the relevant government entity. This article will explore the impact of competition on this industry and how the exchanges are dealing with the resulting antitrust issues. Not surprisingly, there have been several allegations of anticompetitive activity in violation of the antitrust laws of the United States. Indeed, at least two lawsuits have been filed, and one complaint has been brought to the Commodity Futures Trading Commission (“CFTC”). Here we review the economics of commodity exchanges, and the nature of competition between exchanges. We then examine the new forces for competition in exchanges offering commodity contracts. After this introduction to commodity exchanges, we review the basic economic and legal foundations of antitrust law. We then provide an analysis of antitrust mandate of the CFTC and examine the legal doctrine of implied immunity as it applies to the CFTC. Finally, we discuss various types of antitrust cases, and applies these legal and economic theories to recent case

Grid Governance in the Energy-Trilemma Era: Remedying the Democracy Deficit

Transforming the electric power grid is central to any viable scenario for addressing global climate change, but the process and politics of this transformation are complex. The desire to transform the grid creates an “energy trilemma” involving often conflicting desires for reliability, cost, and decarbonization; and, at least in the short run, it is difficult to avoid making tradeoffs between these different goals. It is somewhat shocking, then, that many crucial decisions about electric power service in the United States are made not by consumers or their utilities, nor by state public utilities commissions or federal regulators. Instead, for much of the country, those decisions are made by entities known as regional transmission organizations (RTOs). These RTOs, which straddle and blur the boundary between private and public methods of social ordering, establish and run wholesale electricity markets, coordinate dispatch, keep the grid in balance, and plan infrastructure for the grid of the future. These responsibilities put RTOs at the center of the energy trilemma—a position that sits in significant tension with their ambiguous status, incentives, and accountability.To fully understand how RTOs work and the role they are playing in the energy transition, it is necessary to examine where they came from, what assumptions animated their creation, and, finally, how those assumptions have been undermined by the changing landscape of the energy sector. This article aims to both explain what RTOS have become and highlight what might need to change to make them effective arbiters of the tensions at the heart of the energy trilemma. Our central argument is that RTOs emerged as institutions wedded to a peculiar model of democratic governance—corporatism—that no longer fits in the trilemma era. Corporatist governance lodges responsibility for negotiating public policy in an exclusive committee of representative stakeholders from the private sphere, and this neatly encapsulates the historical roots and contemporary practice of RTOs. However, we argue that the challenges facing the corporatist model of grid governance have become intractable, as the energy trilemma has not only raised the stakes of the tradeoffs involved but has also introduced new tradeoffs and new stakeholders who have no seat at the corporatist table. As a result, a democratic deficit threatens to impede efforts to navigate the energy trilemma unless reforms are implemented—specifically, reforms to make RTOs more open and responsive to the full range of stakeholders in the energy trilemma era

Public Housing Authorities in the Private Market

Decreasing federal resources since the 1980s, policy devolution to the local level, and expansion of market-based approaches for affordable housing delivery have resulted in public housing authorities (PHAs) evolving from public organizations to hybrid organizations that encompass public and private characteristics. Although federal rules guide their implementation of U.S. Department of Housing and Development (HUD) programs, PHAs are created locally under state authorizing legislation. Under what conditions do PHAs create new affordable housing using their ability to employ both public and private means of service delivery? Although PHAs have the ability to create new units outside the traditional assisted stock, no clear estimate of the number of units created using these newer means exists, or even a count of how many PHAs are engaging in such activities. Descriptive analysis allows for estimates of this basic information. A multivariate analysis using data from a national survey of PHAs, content analysis of state enabling legislation, and publicly available data sets suggests that whereas the local market context partially predicts affordable housing ownership outside of the public housing program, state enabling legislation and local institutional relationships also facilitate housing production. We estimate that in 2013, PHAs owned more than 150,000 units outside of the traditional HUD-assisted housing stock