VW is (obviously) still making the news. There are rougly 8m cars with the defeat device in Europe, worldwide an estimated 11m. So there’ll be rather large costs that VW will face in the near future. Those costs will compromise the liability law suit costs from not adhering to the regulation, the fraud costs, the costs of taking the defeat devices out of the 11m cars, the reduction in demand especially in the US where VW’s cars are not going to be used to such an extent anymore, the reputational loss, the loss of the competitive edge, and the costs of needing to restructure its production lines.

In general, everyone is simply angry with the fact that a company like VW is toying with them, with the trade-mark Made in Germany, with the regulations, and that they could get away with it for nearly a decade. BUT, this is also not the first incidence of this kind, other car manufacturers have toyed with people’s lifes to a similar extend, see the discussion HERE. For example, Ford and General Motors have done even worse.

We know that all companies are relying on Cost-Benefit Analysis in their decisions, and too often the company’s private benefits minus expected liability costs exceed the costs of adhering to safety standards. That, obviously, is the reason for governmental regulations in nearly all markets as well as a huge literature on liability laws. And these regulations should not be cheap-talked. For example, the Clean Air Act in the US is estimated to have led to an additional two years of life expectancy in the US alone.

There are unfortunately some who question the importance of this scandale. Tyler Cowen, a well-known economist, for example, believes that corporate fraud is not the biggest problem. He writes that the World Health Organization is estimating that roughly 7m people die each year due to air pollution, so on that scale VW’s fraud is more a rounding error than anything else. John Whitehead from env-econ.net takes him on and trashes this argument.

The real problem is that everyone dies?

There are two messages here. The first is that the VW’s fraud is not a big deal for two reasons. First, after putting the numbers of deaths in the appropriate context, they are just a rounding error. I disagree with this approach because there is nothing in economics, that I’m aware of, to suggest that the proportion of deaths matters whatsoever.

The second reason this isn’t a big deal is because we all cause air pollution every day, am I right or what? Through our own inability to stop killing people by our daily driving and cooking, we are just as guilty as VW! I disagree with this argument because air quality regulations are designed to reduce deaths when the benefits of doing so are less than the costs.

As a bonus, energietransition.de discusses inhowfar the VW scandal may help induce a shift towards more electrical vehicles on the market. And it is argued that the outlook is good:

The VW scandal is a window of opportunity to embarrass the German government into real support for progress in the transport sector – and German car makers into true cleantech innovation. Until recently, Merkel took strict EU car regulations to be a threat. The lesson now is clear: save German car makers by making them leaders in clean technology!

Finally, there is always the question of why we so desperately continue to rely on cars at all. Alexandros Nikitas discusses some options with which we could wean ourselves off them, while Jillian Anable argues that not using the car for even just a day may already help in breaking our habit of relying on them so extensively.

I just came across a new paper entitled “Influential Publications in Ecological Economics Revisited“, by Robert Costanza, Richard B. Howarth, Ida Kubiszewski, Shuang Liu, Chunbo Ma, Gael Plumecocq and David I. Stern. These authors rank articles published in Ecological Economics over the past decade (2004-2014) according to their citations in order to find out which articles had the most inward influence on the field itself, and which articles had the most outward influence on other disciplines.

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  • In order to go through with `his’ project Hinkley Point C, Chancellor Osborne of the UK makes a deal with China. The point seems more and more like this: Without China there is no more international investor left over for UK to finance Hinkley Point C. In return, the whole reason why the Chinese want to invest in Hinkley Point C is so that they can actually get the contract for the Hualong on the Bradwell site in UK. Seems like a reasonably strategic from a Chinese point of view – invest in Hinkley Point C, thereby get a ticket to build their first nuclear power plant in a nuclear-renowned country (UK), and this would be their way of buying themselves into the international market. The question is: Does the UK population know that if Hinkley Point C goes through then this does not imply that one nuclear power plant will be build but three, and one of them build by the Chinese? Do they really want to give their control over their electricity bill to international investors, and furthermore the control over their nuclear power plant fleet?
  • This week I will present in St Petersburg, Russia, at the very interesting 4th International Workshop on Natural Resources, Environment and Economic Growth, organized by Department of Economics (European University at St. Petersburg, Russia) with the financial support of ExxonMobil and the research center CORE (Université catholique de Louvain, Belgium). You can find more information HERE. I will be talking about: When does Insurance provide a Contribution to Climate Policy? I will give a more detailed talk about the same topic at the Environmental Seminar in INRA, Nancy, the week after on the 8th October.

Conference updates:

  • Monday (09/28): Conférence de Jean Tirole (Prix Nobel d’Economie 2014) à 15h30 en amphithéâtre Poincaré
    “Climat, chômage, avenir de l’Europe, économie industrielle…”
  • Reminder: The next lunch seminar in environmental and resource economics of PSE and Université Paris Panthéon-Sorbonne will take place Thursday October 1st 12:30-13:30 in room S/3 in the annex of the Maison des Sciences Economiques.
  • Conférence de la  Chaire Finance Durable et Investissement Responsable, 2 novembre 2015, à Paris, de 8h30 à 14h. Auditorium Amundi 91-93, boulevard Pasteur, 75015. More information HERE.

Finally it came to my attention as well, this is directly from the US Environmental Protection Agency (EPA), originally published 18 September 2015: vw

EPA is issuing a notice of violation (NOV) of the Clean Air Act (CAA) to Volkswagen AG, Audi AG, and Volkswagen Group of America, Inc. (collectively referred to as Volkswagen). The NOV alleges that four-cylinder Volkswagen and Audi diesel cars from model years 2009-2015 include software that circumvents EPA emissions standards for certain air pollutants…

This results in cars that meet emissions standards in the laboratory or testing station, but during normal operation, emit nitrogen oxides, or NOx, at up to 40 times the standard…

The allegations cover roughly 482,000 diesel passenger cars sold in the United States since 2008.

What is the implication of this?

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  • Fake meat solution: Many people changed to a vegetarian diet simply for moral reasons, or because they understood that there are serious health impacts from regular meat consumption. For example, it is now widely-accepted that eating meat every day is roughly as dangerous for you as smoking a pack of cigarettes every day. Thus, if you are a health-conscious person, or if you rank the welfare of animals sufficiently highly, yet at the same time if you enjoy a tasty burger, then fake meat may be just the alternative that you were searching for!
  • Investors fear the upcoming decommissioning of nuclear plants in Germany:  Estimates for decommissioning of German nuclear power plants ranges from 30-70 billion euros. In contrast, the provisions for dismanteling made by Germany’s nuclear utilities are 39 billion euros, certainly at the lower end of the cost spectrum. Given that costs in the nuclear industry tends to be underestimated by a factor of 1.5 to 2, we can imagine that the final costs will be even higher. As a result, investors are selling their shares from German nuclear utilities. I attach below the share prices for E.ON and RWE in Germany. As you can see, their shares prices have significantly dropped during the past two years.
  • World can be 100% renewable energy at no/little extra costs: Zachary Boren has done a good summary of the latest Greenpeace Energy (R)evolution Scenario. The bottom line is that, according to estimates by Greenpeace, the world can completely phase out BOTH non-renewables AND nuclear by 2050 at no extra costs. Has anyone deeply analyzed the assumptions of Greenpeace? It seems a bit optimistic, I mean the zero extra costs result. But hey – in effect – even at some extra cost should this be an interesting option. I mean, from our integrated assessment climate change models, basically bigger economic growth models with a climate change feedback, we economists generally find that it is optimal to continue to rely on fossil fuels for quite some while at to accept some degree of warming. But it is also clear from these models and subsequent sensitivity analyses that the more additional realistic feedbacks and information we add, like uncertainty, like health costs from fossil fuel use, potential for technical change in the renewable sector, etc, the earlier will we want to switch to renewables and phase out non-renewables. I think while we economists focus too much on the optimal policy given our limited models, we may also want to consider that small economic costs of completely phasing out nuclear and non-renewables may be strongly outweighed by a world without human-induced climate change and fewer worries about nuclear accidents.

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