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An Economic Perspective on Environmental Justice

Addressing, and even measuring, EJ is harder than it looks.

Lots of people are talking about environmental injustice – from the Flint drinking water crisis to claims that cap-and-trade policies in California increased pollution near poor, minority neighborhoods. These are important issues, so it’s crucial to understand what’s going on and implement the right policies.

I recently read a fantastic review of the economic research on environmental justice (EJ). It’s a paper by Banzhaf, Ma and Timmins published in an economics journal that’s designed to be accessible (it is, really!), so I highly recommend it. Here are a couple of the authors’ points.

Measurement is Hard

You might think it’s easy to determine that there’s systematic environmental injustice: just measure whether non-white and low-income communities are exposed to more air, water and other forms of pollution than richer, whiter communities. But, when you go to the data, it gets messy. For example, are you trying to correlate pollution exposure and racial composition at the county level or by smaller neighborhoods?

Banzhaf and co-authors (I’ll refer to them as BMT for short) point out that these seemingly innocuous measurement decisions can matter. For example, in the schematic below, there’s a clear pattern of environmental injustice – the yellow triangle pollution sources are only in the blue squares, meant to identify neighborhoods where non-whites are in the majority. If researchers have access to neighborhood-level data, they would detect the environmental injustice.

But, if researchers have access to data with less geographic resolution, say the areas defined by the black squares on the right, the data would suggest no relationship between demographics and pollution – every black square has the same number of pollution sources and the same mix of white and non-white neighborhoods. Getting finer grained pollution measurements can be difficult, though, as Meredith’s recent post pointed out.

Source: Banzhaf, Ma and Timmins, Journal of Economic Perspectives, 2019.

And, finer grained measurement won’t necessarily identify more environmental injustice. For example, some fine-grained spatial measurements are designed to be homogenous – think of gerrymandered congressional districts. If pollution disperses equally from a source located in a neighborhood dominated by lower income households, but the researcher thinks the pollution follows the exact contours of the gerrymandered neighborhood, measurements based on the fine-grained neighborhood could overstate the number of low-income people who are exposed.

In practice, BMT conclude that as researchers have come across more geographically precise data sets, they have generally found more dramatic correlations between local pollution and low-income and non-white communities.

Solutions Can Backfire

Now imagine you have overcome the measurement issues and identified a clear example of environmental injustice – say a polluting plant in a predominantly low-income neighborhood. And, even better, you’ve persuaded the local policymaker to do something about it. To continue the daydream, imagine that the policymaker succeeds in not only convincing the plant to reduce pollution, but also creating a local green space right next to the now-clean plant. Sounds great, right? Victory for the EJ advocates.

Not so fast. Because, before you know it, wealthier people figure out that this is now a nice neighborhood with a great park, and a couple of them move in. Starbucks and Soul Cycle figure out that there are wealthy people in the neighborhood, so they open local franchises, and more wealthy people, who like to live within walking distance of coffee and expensive exercise classes, move in. Eventually, you’ve got what BMT call environmental gentrification. The poor people who the well-intentioned policymaker set out to help are priced out of their now-expensive rental units, and their wealthy, absentee landlords are happily cashing larger rent checks.

These darn market forces are powerful.

Attribution is Tricky

In our example, the policymaker were able to pinpoint the polluting plant in the low-income neighborhood and do something about it. But, BMT also point out that figuring out the root cause of the environmental injustice can be difficult. Which policies should we try to change to address it?

Here in California, that difficulty is encapsulated in the debate about the impact of our landmark cap-and-trade program on environmental justice. A 2016 report from the USC Program for Environmental and Regional Equity (PERE) received a lot of attention for concluding that pollution from many CA plants located in disadvantaged communities went up after they were subject to cap-and-trade. The report was subsequently published here.

The Gavin Power plant in Ohio, famous (as my previous post explains) because its owner bought out a local town impacted by its pollution.

But, the PERE report confuses correlation with causation. A number of other things also changed in California right around the time that the cap-and-trade program started. For example, the San Onofre Nuclear Generating Station (SONGS) closed despite cap-and-trade, which made it marginally more profitable. Replacing the electricity that a 2,000+ MW nuclear plant had produced played a big role in driving up pollution from fossil fuel plants in California. (Meredith’s blog post elegantly discusses the critiques of the PERE report and Lucas and Catie Hausman’s paper documents the impacts of the nuclear plant closure on fossil-fuel generation in California. Also, a paper by Kyle Meng at UC Santa Barbara finds that cap-and-trade did not lead to more pollution in disadvantaged communities in California.) Unfortunately, I’ve run into a number of people who are convinced that cap-and-trade is bad for environmental justice no matter what.

BMT conclude with a recommendation that may seem surprising from economists – it’s not some perfectly designed tax. Instead, they suggest, “giving local populations a seat at the table when making decisions that affect the local environment.” Political institutions could matter, but will they matter enough? For example, California recently set up the Disadvantaged Communities Advisory Group to “review and advise” on the environmental justice implications of energy regulations. Let’s hope the group is impactful.

Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.

Suggested citation: Wolfram, Catherine. “An Economic Perspective on Environmental Justice” Energy Institute Blog, UC Berkeley, May 6, 2019, https://energyathaas.wordpress.com/2019/05/06/an-economic-perspective-on-environmental-justice/

Catherine Wolfram View All

Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, University of California, Berkeley. ​During Academic year 2018-19, she will serve as the Acting Associate Dean for Academic Affairs at Berkeley Haas. She is the Program Director of the National Bureau of Economic Research's Environment and Energy Economics Program, Faculty Director of The E2e Project, a research organization focused on energy efficiency and a research affiliate at the Energy Institute at Haas. She is also an affiliated faculty member of in the Agriculture and Resource Economics department and the Energy and Resources Group at Berkeley.

Wolfram has published extensively on the economics of energy markets. Her work has analyzed rural electrification programs in the developing world, energy efficiency programs in the US, the effects of environmental regulation on energy markets and the impact of privatization and restructuring in the US and UK. She is currently implementing several randomized controlled trials to evaluate energy programs in the U.S., Ghana, and Kenya.

She received a PhD in Economics from MIT in 1996 and an AB from Harvard in 1989. Before joining the faculty at UC Berkeley, she was an Assistant Professor of Economics at Harvard.

23 thoughts on “An Economic Perspective on Environmental Justice Leave a comment

  1. Economics at its best helps to promote the general welfare. Ad hoc objectives such as sustainability, renewability, and environmental justice that are not carefully tied to general welfare are likely to detract from that mission. BMT define environmental justice as “inequitable exposure to nuisance,” as if it is to be sought separately from overall justice. This overlooks the Kaplow-Shavell approach to Fairness and Welfare according to which the efficiency-equity tradeoff needs to be assessed overall, not within each project/policy. If nuisances are allocated according to efficiency, this may imply a need to readjust distribution, using the most efficient instruments (e.g. a negative income tax and improved public education). This perspective helps to pinpoint the constitutional locus of the remaining problems. One is that the intended distribution of political power is not delivered de facto. The other is that public policy is not broadly accountable to the takings clause of the Fifth Amendment.

    • “Economics at its best helps to promote the general welfare. Ad hoc objectives such as sustainability, renewability, and environmental justice that are not carefully tied to general welfare are likely to detract from that mission.”

      Two points on this: First, that sustainability, renewability and environmental justice are not as easily measured as financial transactions of private goods does NOT mean that they are NOT integral to the general welfare. Do not confuse money with general well being. Economists have gotten away with sloppy thinking along this line, and economists should be applauding these efforts to define other dimensions of the general welfare that are not yet well measured.

      Second, very little public policy is concerned with “promoting the general welfare.” Markets and commercial activity through disparate actors are largely responsible for that. Public policy is always concerned with the distribution of that welfare, either across society or across time. Economists’ mission is to develop policy proposals that balance these objectives. Falling back on the old shibboleth the “economists can only speak to efficiency” really makes the profession irrelevant for all purposes.

      • Thanks, Richard. Let me address your points in reverse order.
        2. Kaplow and Shavell’s position is that public policy and the design of the legal system should be ALL about promoting the general welfare, which we think about as a social welfare function that includes fairness. (Others, e.g. Rawls, McAdams, argue that you can’t entirely redress unfairness in the legal system with instruments of income redistribution.)
        1. Sustainability in economics is all about making sure that the SWF embodies intergenerational equity and that the production function and equations of motion incorporate the interdependence between the economy and nature (Solow on sustainability and Stavins 2003 on the three pillars of sustainability). Anand and Sen and (separately) Dasgupta argue that sustainability should be viewed as a characteristic of a consumption (or utility) path, not a separate objective. Of course this does not preclude its measurement, about which there is a large literature (and a new Elsevier journal).

        • Kaplow and Shavell’s position is as unrealistic as other Chicago School positions that somehow we can design complete institutions and markets that can resolve all of these issues. Rawls et al have a more realistic perspective on what can be accomplished.

          I agree that sustainability might be measurable. You raised it as an issue that was outside of the measure of general welfare, but perhaps we can agree that it is actually part of the measure of general welfare.

          • Not sure there’s much of a Chicago School left, but (as employers of the SWF) Kaplow and Shavell would be dismayed to learn they are part of it. As Georgescu Roegan put it, abstraction is “the most valuable tool of any science.” He went on to say that one shouldn’t stop with the results of abstract analysis, but take the next step of connecting it to reality. I suppose K-S would agree.

            In the Anand-Sen/Stavins/Dasgupta tradition, sustainability is the part of welfare concerned with fleshing out its intertermporal dimension and ecol-econ connectedness.

  2. “It’s not some perfectly-designed tax…” If so, it would be the first. : )

    Catherine, “giving local populations a seat at the table when making decisions” seems like the best any solution could be. I don’t understand concerns about “environmental gentrification,” however. In some areas of Los Angeles (Baldwin Hills, for example), drilling for oil lowered the prospects for residential homes even before they existed. When developed, lower-income families moved there simply because housing was affordable. Worrying whether cleaning environmental pollution in these areas will limit future prospects for low-income families is bizarre – the assumption being, “low-income families should continue to live in toxic surroundings for the benefit of others.” No – if anything, we should be prioritizing the cleanup of areas where society’s most vulnerable citizens live, with benefits for everyone.

    “San Onofre Nuclear Generating Station (SONGS) closed despite cap-and-trade, which made it marginally more profitable…”

    SONGS had never been unprofitable. In 2011, the plant was generating clean electricity at a marginal cost of $.0316/kWh – cheaper than gas, cheaper than renewables + fossil fuel backup. The challenge SONGS faced, and other nuclear plants continue to face, is competing with utility holding companies generating electricity using gas bought from their own subsidiaries – then passing its cost on to customers. This self-dealing, banned under FDR’s Public Utilities Holding Company Act of 1935, was enormously profitable – it essentially permitted electricity monopolies of the 1920s to write their own checks. Since the Act was repealed in 2005, the practice has returned with a vengeance.

    • “SONGS had never been unprofitable. In 2011, the plant was generating clean electricity at a marginal cost of $.0316/kWh ”

      On a fully going forward basis that includes the “capital addition” fuel production and assembly, and the avoidable operations and maintenance costs, SONGS cost twice as much as that. Don’t confuse its fuel-only cost which is only relevant for plants that can vary output on a momentary (or at least daily) basis with the full year, or even full lifetime, costs that can be avoided by shutting down a plant for months, or even years, at a time. It’s this perspective that made the high cost of replacing the steam turbines readily apparent and why the two units were justifiably closed. This perspective makes nuclear plants unprofitable in comparison to most other technologies.

      • SONGS’s nuclear operations and maintenance costs are included. See the first two columns in each section of Table 8.4.
        All fuel expenses are included as well – see:
        FERC Form 1 p110, “Comparative Balance Sheet (Assets and Other Debits)”, lines 7-13
        “Nuclear Fuel in Process of Ref., Conv., Enrich., and Fab.”
        “Nuclear Fuel Materials and Assemblies-Stock Account”
        “Nuclear Fuel Assemblies in Reactor”
        “Spent Nuclear Fuel”
        “Nuclear Fuel Under Capital Leases”
        “(Less) Accum. Prov. for Amort. of Nucl. Fuel Assemblies”
        “Net Nuclear Fuel”

        Replacing both steam generators at any nuclear plant does not require “months, or years.” The 2012 replacement of both generators at Davis-Besse in Ohio was completed in 54 days for $600 million – 11% of the $5.5 billion cost to shut down and decommission SONGS.

        As I explained above, nuclear is unprofitable compared to natural gas not because its fuel is uneconomical, but because it’s too economical – the high energy density of uranium means very little is needed to make a lot of energy. $Billions of profit in natural gas sales are denied energy holding companies with both electricity and gas subsidiaries.

        • The SONGS accounts you list do not include the capital additions that are rolled into SCE’s ratebase. Those are calculated separately and don’t show up as a distinct FERC account. That is the large cost components of ongoing operations.

          The steam turbine replacement went awry at SONGS, as so many nuclear construction and maintenance projects do. They were going to have to be replaced a second time and would cost substantially more because of the mess made the first time.

          And then there’s the nuclear decommissioning costs, which are currently underfunded. But those are essentially sunk costs that we’re stuck with.

          Here’s the issues that nuclear advocates need to answer before we can consider moving forward with that technology: https://mcubedecon.com/2019/04/26/the-two-problems-to-be-addressed-head-on-by-nuclear-power-advocates/

          • All fuel and maintenance are included in SCE’s (and Sempra’s) rate base – they’re legitimate costs of doing business. Both companies would be remiss if they didn’t apply for compensation from ratepayers to which they’re entitled – they’d be sued by their own shareholders for mismanagement, and they’d lose.
            No, the SONGS steam turbine replacement didn’t go “awry” – the first replacement was successfully completed, but vibrating tubes in the generators rubbed against the generator housing and began to leak. They were leaking at a rate of 65 gallons/day, less than half of the amount requiring shutdown, but Unit 3 was shut down as a precaution. And no, it wouldn’t cost “substantially more” to replace them – they were under warranty by MHI, their manufacturer.
            Nuclear decommissioning is a sunk cost. What wasn’t sunk was the capital cost of building SONGS – a functional, carbon-free source or energy with at least 40 more years of service.

          • All fuel and maintenance costs were included in SCE’s (and Sempra’s) rate base – they’re legitimate costs of doing business. Both companies would be remiss if they didn’t apply for compensation from ratepayers to which they’re entitled – they’d be sued by their own shareholders for mismanagement, and they’d lose.
            No, the SONGS steam turbine replacement didn’t go “awry” – the first replacement was successfully completed, but vibrating tubes in the generators rubbed against the generator housing and began to leak. They were leaking at a rate of 65 gallons/day, less than half of the rate requiring shutdown, but Unit 3 was shut down as a precaution. And no, it wouldn’t cost “substantially more” to replace the steam generators – they were under warranty by manufacturer MHI.
            Nuclear decommissioning is a sunk cost, as were the construction costs originally billed to ratepayers when SONGS was shut down prematurely.
            But we’re getting off track here, and I really don’t “need to answer” more debunked anti-nuclear talking points. Suffice to say SONGS (like Diablo Canyon) was profitable, but didn’t allow its utility holding companies to gouge ratepayers for fuel. Why anyone other than unprincipled shareholders would support that is beyond me – it’s certainly not in the public’s best interest.

          • Only capital investment is included in ratebase. Maintenance costs are accounted for separately. I don’t dispute that they are legitimate–I am pointing out that much of this is avoidable on a going forward basis if the plant is closed for a seasonal, annual or permanent basis.

            The new turbines failed because the replacement when awry. And the turbine failure rate was growing and Unit 3 was showing the same symptoms, so of course is was shut down.

            As I pointed out the decommissioning fund is underfunded. The utilities’ requests for additional funding illustrates this situation. The costs are sunk because we have to act to manage the waste. The point is that for new plants we can also avoid that cost which has been underestimated.

            And as I’ve shown the nuclear plants are only “profitable” at natural gas prices. And not at all for new or relicensed plants. Diablo Canyon would have cost over $100/MWH after being relicensed according to PG&E’s own calculations. And SONGS faced needing a new cooling system that would have similarly driven its costs to those levels.

            When you bring up an off-topic issue, you don’t get a pass because you now want to change the subject back.

          • Your claim “the steam turbine replacement went awry at SONGS” is incorrect – the reactor was in operation when it occurred, and the leak was due to unanticipated wear on steam tubes.

            And no, you haven’t “shown the nuclear plants are only profitable at natural gas prices,” that “Diablo Canyon would have cost over $100/MWH after being relicensed”, or that “SONGS faced needing a new cooling system which would have driven its cost to those levels.” Without a single reference to support these assertions, readers are left to assume they’re simply more anti-nuclear talking points.

          • Where do you think the unanticipated wear came from?

            If you were familiar with PG&E’s filings in its application to retire Diablo Canyon (A.16-08-006) you would be aware of PG&E’s filings there that detail its cost estimates. And if you were familiar with the State Water Board’s once-through cooling regulations, you would be aware of the schedules for replacement and retirement of numerous plants including SONGS. As this is a blog and not a legal or regulatory proceeding, I don’t feel an obligation to produce a lot of direct references and links. You’ve made your share of unsubstantiated assertions.

          • The unanticipated wear was a result of faulty design, not installation.

            I’m very familiar with A16-08-006. Experts in Californians for Green Nuclear Power challenged both PG&E’s cost estimates and its sham “Joint Proposal”, made behind closed doors with hand-selected, pro-fossil groups (EDF was one of many):

            http://environmentalprogress.org/edf

            We challenged PG&E’s claim it would be able to replace Diablo with carbon-free energy after the company was only able to account for 2 TWh of renewable generation out of Diablo’s 18TWh. We recognized PG&E will burn natural gas to replace the other 16TWh, after buying the fuel from one of its own 265 subsidiaries, and charging ratepayers for every cubic foot.

            We don’t object to anyone replacing coal with natural gas. We object to PG&E replacing a safe, carbon-free baseload source of electricity with gas and generating 8MT of added CO2 emissions each year in the process – simply because it can provide a better return for its shareholders.

            The story’s not over for Diablo Canyon. PG&E has failed to get a required permit from the California Coastal Commission to close it, has filed Chapter 11 bankruptcy, and is facing $30 billion in criminal liability for not maintaining its transmission. For good reason, others have a say in its future.

          • The so called “experts” from Green Nuclear Power were quickly dismissed as unknowledgeable by all of the other intervenor groups. They were dismissed as irrelevant crackpots who added nothing to the discussion. That was reflected in the fact that the Commission adopted none of their proposals whatsoever.

            All of the conditions that you listed for PG&E would make it more difficult for PG&E to relicense Diablo Canyon in 2024. It must comply with the SWRCB order or close.

            And DCPP will be replaced with enough low and zero carbon generation. Plus it’s not PG&E’s decision about replacing the power–it will be the CCAs’. In fact, almost the entire output of DCPP was being sold to CCAs through the CAISO and not used to meet PG&E’s remaining and shrinking bundled load. It was just a very stupid idea to try to force the issue in a separate proceeding when instead it was to be considered in the Integrated Resource Plan proceeding where ALL stakeholder parties are engages instead a small subgroup. The just issued IRP decision addresses the closure of DCPP.

            If you want to attribute the turbine problems at SONGS to misdesign instead, that only makes it worse as an inherent flaw.

          • Not surprised other intervenors in A16-08-006 might consider veteran nuclear engineers/biophysicists Abe Weitzberg, Ph.D. (MIT), Marty Marinak, Ph.D., (Berkeley), Alex Cannara, Ph.D. (Stanford), and Gene R. Nelson, Ph.D. (Syracuse University), “crackpots”. All other intervenors are either representatives of fossil fuel interests working to replace nuclear plants with methane, their pseudo-environmental stooges, or uninformed ideologues afraid of their own shadows.

            “Ph.D.,” by the way, stands for Doctor of Philosophy, the highest degree conferred after a course of study in American universities. Is there one other Ph.D. among other intervenors? I didn’t think so. To be dismissed by fools is a supreme compliment.

            “DCPP will be replaced with enough…zero carbon generation,” will it? In case you haven’t been following the progression of climate change since James Hansen’s 1988 Senate testimony recognizing humans as its cause, enough is “all of it.” Not 20%, nor 40%, nor 90%, is “enough”.

            https://www.yaleclimateconnections.org/2018/06/judgment-on-hansens-88-climate-testimony-he-was-right/

            At COP21 in Paris (2015) Hansen, together with other respected climatologists Kerry Emanuel, Ken Caldeira, and Tom Wigley, made another prediction: “Nuclear power paves the only viable path forward on climate change”:

            https://www.theguardian.com/environment/2015/dec/03/nuclear-power-paves-the-only-viable-path-forward-on-climate-change

            Whether Hansen, the most recognized climatologist in the world, has yet to earn the respect of “mcubedecon” I don’t care – this discussion is already a waste of my time.

          • Among the other Ph.Ds participating in the case were Barbara Barkovich and myself. Unlike the physicists and engineers who specialize in a single technology, Barbara and I have deep resumes in resource planning and economics. One of my first consulting projects was to show that it was more economic for SMUD to close Rancho Seco than to try to continue to run it at severe losses. Saved that utility.

            That climatologists know about their field doesn’t mean that they are well informed about other fields. Hansen should stop at providing the warning rather than trying to propose solutions that he knows little about. This is a question of economics and system engineering, not mechanical engineering or physics.

  3. Thanks for this important post! Great to learn about the BMT article. Some of the concerns raised are potential concerns, rather than documented, driving issues. Take the “environmental gentrification” hypothesis, that cleanup could lead to major turnover of a neighborhood’s demographics. The BMT paper does not offer evidence that environmental gentrification is a dominant outcome of cleanup. And, even if it were, we are left with the question: should we cleanup contaminated sites in low-income communities, which then drives up property values a little (BMT indicate a 5-15% increase [BMT, p.197]); or, should we leave the contamination in place because, gosh, we wouldn’t want to make improvements to a low-income community? The point is, it’s one thing to raise a theoretical concern, it’s another thing to show that this concern is important and should shift policy.

  4. Catherine;
    I follow this blog regularly, mostly because i am not a fan of Community Aggregate power movement in California (not a fan), but over the weekend I received an article in another blog I get daily. The article is “The Enormous Costs of Wind and Solar Electricity Generation” on the Arizona Daily Independent News website (I recently moved from California to Arizona and I am not familiar with this website which is here: https://arizonadailyindependent.com/2019/05/04/the-enormous-costs-of-wind-and-solar-electricity-generation/) .
    The article claims that if all electricity was provided by solar farms it would require solar farms with a footprint of 525,312 square miles; if supplied by wind farms the footprint would be 1,808,166 square miles. In either case, it continues, due to the unreliable nature of both forms of generation, back-up power provided by coal or natural gas would be required. The article also sites a study by the American Enterprise Institute that meeting 100% of the power demand for the United States through “clean, renewable, and zero emission energy sources” would cost$490.5 billion per year and require 115 million acres of land to build wind and solar farms and have negligible effect on the emission of greenhouse gases.
    Can you comment on the numbers in the article and/or refer me to work you or the institute has completed on this? There seems to be a lot of these claims coming out these days and I am curious about the veracity of much of it.
    Thanks.

    • GIGO [garbage in garbage out].

      If SAME standards are consistently applied everywhere we wont have the gentrification issue as much

      Getting everyone to the table wont work as smoothly unless we 1: address ‘gerrymandering’, and 2: make it convenient for the non-gentry to participate [they usually have less ‘free’ time]

      Any comparisons between energy sources must take in ALL externalities. Full life cycle – extraction, use, return to earth/ environment, health and related environmental effects, etc. As an example, and granted this is just my memory with no recall of source, windmills weigh 100T per MW power capacity. They often require long almost single use roads to get the continents in. And the heavy concrete foundation. Similar issues of extraction, toxicity, disposal, and of course surface area taken up [and impact in ecosystem] apply.

      I like the idea of energy footprint much better than carbon footprint; and pricing energy [incl taxes] with all externalities [full life cycle] factored in. THEN let the so-called free markets do their magic.

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