I am writing today to announce the closure of the New Mexico Independent. After three and a half years of operation in New Mexico, the board of the American Independent News Network, has decided to shift publication of its news…
While environmental activists played their part yesterday during demonstrations at the capitol building, going so far as to dress up as solar panels and to sing the tune of “You Are My Sunshine,” their counterparts, the anti-cap-and-trade contingency who has…
Roughly one quarter of University of New Mexico students are unimpressed with the state’s flagship public school, according to a survey that questioned college students about their higher education experiences.
Recent articles in the Washington Post and here in the New Mexico Independent about the SunZia Southwest Transmission Project pointed out the irony that expanding the use of renewable energy so as to reduce the rate of climate change may damage the environment in other ways.
But why does this dilemma occur?
The fact that the SunZia project is slated for New Mexico indicates that due to our natural environment, we are able to produce wind and solar energy at a lower explicit cost than most other states. Cost-effective production of renewable energy requires large-scale production.
And because New Mexico is largely a rural state, however, much of the renewable energy produced will be sold to urban markets outside the state. This necessitates the construction of long transmission lines.
This is where the dilemma arises: these transmission lines can potentially affect the habitat ranges of threatened birds species and may run through sensitive environmental areas.
How frustrating! In our attempts to reduce our greenhouse gases, we will likely harm the environment in other ways. However frustrating it may be, this realization is the core of the economic perspective: every action
involves trade-offs.
In other words, there are no free lunches.
If almost every action has both benefits and costs, how does one decide whether or not to take that action?
We generally don’t have to explicitly consider the benefits and costs of every action. A well-functioning market will result in an efficient outcome. In this case, however, as with most issues affecting the environment, it
isn’t so easy. As noted above, the production of renewable energy has implicit costs — costs you don’t explicitly pay for, but still exist.
In this case, harm to the environment or impacting the habitat ranges of birds are implicit costs and should be considered. The problem is that because these costs are not explicitly paid, they are ignored in
market mechanisms.
So, given that an action has both benefits and costs and that the market won’t take care of this problem on its own, how would an economist think about this problem? We use something called benefit-cost analysis.
This is an intuitive concept that says you should compare the value of the benefits and the costs and only if the benefits of the policy exceed the costs should you implement the policy. Note that doing this type of comparison involves valuing the benefits and costs in the same units, usually dollars.
As always, the devil is in the details, and there are all sorts of issues such as how do you value the benefits and what is the appropriate timeframe for comparing the benefits and costs.
Lets ignore these issues for the moment, and focus instead on the more general issue of what are the relevant benefits and costs for the SunZia project.
There are, in fact, two questions that one could address using benefit-cost analysis. The first is whether one should build the transmission line at all, given the associated environmental costs.
Benefits might include the economic benefits for areas in which wind power and solar power are located; benefits from additional construction employment; and the value of emitting fewer greenhouse gases. Costs might include explicit construction costs; the value of the negative impact on environmentally sensitive areas; the value of any negative impact on habitat ranges. This would not be a small or easy study. Especially difficult would be determining the value of reduced greenhouse gas emissions and the value of negative impacts to the environment and habitat ranges.
The second question would ask whether benefits from shifting the transmission line to less sensitive areas or away from areas affecting the habitat ranges of threatened bird populations are greater than the $1 million per mile construction costs of building the transmission lines. This have now become an infinitely more answerable question.
One might expect that shifting transmission lines away from sensitive areas such as Bosque del Apache, which has lots of visitors, is more likely to pass this test. Lets do a very simple back-of-the-envelope calculation.
The average number of visitors to Bosque Del Apache from 1993-2003 (just the range in which I happen to have data) is 129,270 (personal communication). The average visitor would have to have a value of $7.73 per visit to justify each additional mile of transmission line built to avoid the Bosque del Apache.
The average net economic value in the United States for wildlife watching for state residents is estimated by U.S. Fish and Wildlife Service (“Birding in the US: A Demographic and Economic Analysis”, 2001) at $42 (in 2009 dollars) per visit and the value for out-of-state residents is $161 (also in 2009 dollars) per visit. Eighty percent of those doing wildlife watching are participating in bird-watching.
These numbers put the $1 million/per mile cost in context: although this number is large, the aggregate value for birding is also likely to be quite large.
The first-blush conclusion flows naturally from here: The benefits of moving transmission lines several miles away from Bosque del Apache would exceed the costs of doing so.
Jennifer Thacher is an assistant professor of economics at the University of New Mexico.
