Monthly Archives: October 2011

198 – Chinese air pollution

China impresses visitors with what a “can do” place it is. One thing they haven’t decided to do yet is fix their air pollution problem. Beijing residents seem to be fairly oblivious to it but I found it hard to ignore.

In the 19th century, London was famous for its air pollution. The endless smog made its residents sick (and sometimes killed them), put a layer of grime on everything in the city, and reduced visibility drastically. The main cause was burning of coal in homes and factories. After about 1890, thanks to reductions in living density, the growing use of gas for cooking, and, to a small extent, the Public Health Act of 1891, air quality in London began to improve. Pollution fell steadily over the following century, reaching about 3% of its 1890 level by 2000 (Fouquet, 2011).

Air pollution in Beijing today is actually not as bad as it was in London 120 years ago, but it’s pretty bad. I spent three days there last week, and found the pollution endlessly fascinating. At times, one could not even see a block away. Apart from the physical feeling of having something bad in my chest, and the need to cough regularly to clear it, the smog affected me psychologically. The fact that I couldn’t see far enough to get any sort of perspective of the lie of the land, and couldn’t see whether it was sunny or cloudy above the murk, made me feel closed in.

Just like in London, a major contributor to the problem in Beijing is coal, although this time it is being burnt in power stations rather than homes and factories. As well, there are many other sources, as you’d expect in a city of 21 million people.

In the second half of the 20th century, regulation made important contributions to reducing air pollution in London and in other western cities. Environmental economists also convinced some governments to use market approaches, particularly in the US. These too have been very successful in some cases, with the most famous example of this approach being the use of a cap-and-trade system to reduce sulphur dioxide pollution in the US. (This scheme has recently fallen over for administrative/legal reasons, rather than economic ones, but that’s another story).

I expected the bad air pollution in Beijing, as it’s been widely reported. What I wasn’t prepared for was how bad it was outside major cities. I visited the Three Gorges Dam — perhaps the ultimate example of “can do” in the world. From the tourist lookout built to help tourists admire the dam, one’s ability to appreciate this awesome engineering achievement was somewhat hampered by an inability to actually see it!

Here is a photo, taken from the lookout, of the dam wall.

And here is a shot from the dam wall across the reservoir towards the scenic gorges.

One of our guides told us that the main problem was a phosphorus mine nearby. Another said that the area had always been subject to fog, but that it had got worse recently. To the extent that it is caused by pollution, it is, perhaps, surprising that they allow it to occur here, shrouding such an an iconic symbol of national achievement.

Nevertheless, this being China, every problem is an economic opportunity. I was originally bemused to see, just near the lookout, a booth offering to take photos of tourists with the dam behind them. It seemed like a forlorn venture, given the poor visibility. I couldn’t understand why they seemed to be doing a steady trade.

But look at the name of the business. They aren’t joking. Realising that people would be mighty disappointed to come to the dam and walk away without a decent photo, someone hit upon the brilliant idea of photographing people and then using Photoshop to add them to a photo of the dam taken on a rare clear day — well, relatively clear. How could I resist! Giggling madly, I bought the following totally fake picture. Priceless!

I expect that, sooner or later, China will apply its “can do” approach to environmental management. Perhaps it has already started. The China Daily while I was there had an article titled ‘Environmental rule set to shift’. It said, “Local governments at all levels are expected to face stronger obligations to protect the environment, and polluters will face much heavier fines, according to a draft proposal to amend China’s decades-old Environmental Protection Law” (China Daily, 10 Oct 2011, p.7). It will be fascinating to see whether this is the start of a new environmental commitment.

David Pannell, The University of Western Australia

 Further reading

Fouquet, R. (2011). Long run trends in energy-related external costs, Ecological Economics 70: 2380-2389.

197 – The Danish fat tax

About a week ago, Denmark introduced a new tax on fat in foods, in an effort to improve the health of Danes. The general idea is consistent with the sort of thing that environmental economists often recommend for other bad things, like pollution (e.g. a carbon tax). But is it sensible in this case? I have my doubts.

My daughter is currently living in Denmark and struggling a bit with the high cost of living there. So a further cost increase is the last thing she wants.

The system involves a tax of 16 kroner ($A3.00) per kilogram of saturated fat. Economists recognise two effects of this sort of tax: (a) it makes fatty foods more expensive relative to other goods, so people change how they allocate their income between alternative purchases (a “substitution effect”), and (b) as a result of having to pay the tax, people have less disposable income, and this leads to a reduction in their consumption of all goods, including of fatty foods (an “income effect”). Both result in less consumption of the good that’s being taxed, although the substitution effect is far more important in practice.

So the idea sounds OK, but it’s worth asking, would the approach really work in this case? The effectiveness of such a tax depends mainly on how responsive people are to the prices of the goods in question. It’s well known that responsiveness to price (which economists refer to as “price elasticity”) varies a lot between different goods.

Consumer demand for fat in foods strikes me as the sort of thing that is unlikely to be responsive to price. My reasoning includes that:

  • Fat is only one ingredient of a food, so changes in the cost of fat would have a less than proportionate effect on the cost of the food as a whole.
  • In developed countries, food is only a small proportion of our total expenditure. If its price goes up a bit, it would be possible to cope without greatly altering one’s consumption patterns.
  • People already know that fat is bad for them, but they still choose to buy fatty foods, basically because they taste good. I would not have thought that a modest increase in prices would change that much.

There is some empirical evidence to support my feeling that increasing the price of fat won’t change behaviour much. For example, Chouinard et al. (2007) find that a tax on milk in the USA in order to reduce fat consumption would have to be enormous to have much impact. For example, they say that “a 50 percent tax only lowers fat intake by 3 percent.” That’s a 50 percent tax on the milk as a whole, not just the fat component. Whole milk is about 3.3 percent fat. By my rough calculation, a 50 percent tax on milk would be about 10 times bigger than the new Danish tax, for a really small impact.

Similarly, Brownell et al. (2009) also concluded that moderate sized taxes on soft drinks basically have no impact on consumption.

Although it wouldn’t change behaviour much, these taxes would collect plenty of revenue. Indeed, if revenue collection was the aim, fat might be the ideal target for a tax, specifically because people would keep buying it, even with the tax.

This means that there is potentially an important negative consequence of the tax: it would have a disproportionately large impact on people with low incomes. They spend a larger proportion of their income on food, so the tax would have a larger proportional impact on them. Actually it might have a larger absolute impact on them, because the incidence of obesity is higher among low income groups, so presumably they spend more on fat. Chouinard et al. (2007) argued that “these fat taxes are unattractive because they are extremely regressive, and the elderly and poor suffer much greater welfare losses from the taxes than do younger and richer consumers.”

Ineffective and regressive doesn’t sound like a good tax to me.

A third problem is the specific way that this tax is designed. Apparently, the level of the tax is based on the amount of fat used in making the product, rather than the amount in the end product. If that’s true, it seems ridiculous. If the point is to improve health, why would you want to tax fat that people aren’t actually eating?

Finally, I would imagine that the system would have quite high transaction costs, such as costs of administration, reporting, monitoring, enforcement, learning, and so on. If the system would really work, they could be worth bearing, but probably not in this case.

On a more positive note, it may be that revenue from the tax could be used for other purposes that would contribute to improved health outcomes, such as research or health education. I suspect that this is the most likely route for the system to generate worthwhile benefits, although, of course, governments could use the existing tax collection system to invest in those things and thereby avoid the regressive nature of this tax.

David Pannell, The University of Western Australia

Further reading

Hayley H. Chouinard, David E. Davis, Jeffrey T. LaFrance, and Jeffrey M. Perloff (2007) “Fat Taxes: Big Money for Small Change”, Forum for Health Economics and Policy 10(2): Article 2. http://www.bepress.com/fhep/10/2/2

Kelly D. Brownell, Ph.D., Thomas Farley, M.D., M.P.H., Walter C. Willett, M.D., Dr.P.H., Barry M. Popkin, Ph.D., Frank J. Chaloupka, Ph.D., Joseph W. Thompson, M.D., M.P.H., and David S. Ludwig, M.D., Ph.D. (2009). The Public Health and Economic Benefits of Taxing Sugar-Sweetened Beverages, New England Journal of Medicine 361:1599-1605.

196 – The web vs journals

After last week’s PD, describing the difficulties we had publishing a journal paper about INFFER (Investment Framework for Environmental Resources), a reader emailed to ask, why bother? Why not just put a manual or report about INFFER on the web? This prompted me to think about the relationship between putting information on a personal web site and publishing in a peer-reviewed research journal. They are very different beasts.

As it happens, as well as having a new journal paper (Pannell et al., 2011), we also have a beautiful new web site for the INFFER project: www.inffer.org. The old version was looking a bit amateurish and outdated, but the new one looks professional and contemporary, and should be more intuitive for users.

The web site already contains documentation about INFFER at various levels of detail: from brief introductions to comprehensive user manuals. There is information about existing users and 30 pages of Frequently Asked Questions.

So, given that all this is available on the web site, why would we go to so much bother to publish an article in a peer-reviewed journal? There are several reasons.

Firstly, journal publication provides a degree of quality assurance that may help to increase our credibility with potential users. The rigour of the analysis is assessed by expert, anonymous, independent reviewers, so having made it to publication should help to convince people that the work has substance. Of course, the peer review process is neither perfect nor exhaustive, but it should increase people’s confidence to some degree.

A second reason is to enhance one’s own critical assessment of the work. The act of writing a paper that you know is going to be peer reviewed is rather different from other writing. It sharpens the mind to know that anonymous reviewers will have the freedom to criticise your work. One thinks more clearly about potential limitations of the work, in anticipation of what reviewers might say.

Thirdly, you hope to reach an additional group of readers. In truth, the audience for an active web site is vastly greater than the audience for almost all journals, but there may still be different people, and different types of people, who access the journal version.

Finally, for a professional researcher, journal publication is probably the most important measure of performance and success. My university is happy that that I use the web like this to communicate about issues related to my research, but when it comes to evaluating my research, anything that I just put on the web counts for nothing. That’s fair enough, given how easy it is for anyone to put any old rubbish on the web.

One might ask the converse question: if research has been published in a peer-reviewed journal, why also include it on a web site? There are good reasons to do this as well.

  1. To increase the number of readers. As a generalisation, readership of web pages dwarfs the readership of journal articles. Here’s an extreme example. I don’t know how many people would have read Pannell (1997) if I had not put a pre-publication version of it on the web, but my guess would be, a few hundred. That number of readers is tiny compared to the number of people who download the paper from my web site each year after finding it in Google. Over the past 12 months, it has been downloaded 17,500 times! I’m sure they don’t all read it, but plenty do.
  2. To promote journal articles. Some of those extra readers may follow up and read the journal article version of the work, if you give them the details. I’m confident that a web presence also helps to increase the extent to which certain papers are cited by other research authors. Pannell (1997) is a good example.
  3. Speed of publication. I can “publish” something on the web a few minutes after I finish writing it. Journal publishing speeds have increased since they started using web-based systems to manage the review process, but a six-to-twelve month lag between submission and publication is still normal.
  4. Detail. On the web, I can publish something that is much less detailed than a journal article if I want, increasing its accessibility to many readers. I can also provide much more detailed documentation for models and frameworks than one could ever get published in a journal. I can also publish something of the nature of a user manual, which you’d never get into a journal.
  5. Ease of reading. When I write journal articles, I try to make them readable, but there is only so far you can go in that direction in a journal context. On the web, there is no such constraint.
  6. Updateable. Once published, a journal article is forever. The most you can do to update it is publish an erratum, if necessary, or maybe write a follow up article some years later. By contrast, I can update something I have put online as often as necessary.

In summary, I publish in journals for quality assurance and professional recognition, and I publish on-line to increase the size of the audience. It makes sense to do both.

David Pannell, The University of Western Australia

Further reading

Pannell, D.J. (1997). Sensitivity analysis of normative economic models: Theoretical framework and practical strategies. Agricultural Economics 16: 139-152. Pre-publication version of full paper (100 K)

Pannell, D.J., Roberts, A.M., Park, G., Alexander, J., Curatolo, A. and Marsh, S. (2011). Integrated assessment of public investment in land-use change to protect environmental assets in Australia, Land Use Policy 29(2): 377-387. doi:10.1016/j.landusepol.2011.08.002. Journal web site here

29(2): 377-387