Tuesday, October 30, 2007

Venezuela and the "Anti-Pigou" Club: The Consequences of Cheap Gas

President Hugo Chávez may not name Greg Mankiw to be his Secretary of the Treasury. If you are a fan of cross-country comparisons, then President Chavez's "low" (i.e negative) gas taxes are helping to sketch out a demand curve. While environmentalists want higher gas taxes to help "green" the vehicle sector and reduce aggregate greenhouse gases, President Chavez may need to reduce his subsidies to reduce a budget deficit. This article claims that both Iran and Venezuela face the challenge of a populist "freakout" if the entitlement of cheap gas is taken away from the people.

October 30, 2007
Venezuela’s Gas Prices Remain Low, but the Political Costs May Be Rising

CARACAS, Venezuela, Oct. 29 — In a country moving toward socialism, the beneficiaries of government largess here are still people like Nicolás Taurisano, a businessman who dabbles in real estate and machinery imports. He is the proud owner of a Hummer.

Motorists in the United States smarting from rising gasoline prices, take note: Mr. Taurisano pays the equivalent of $1.50 to fill his Hummer’s tank. Thanks to a decades-old subsidy that has proven devilishly complex to undo, gasoline in Venezuela costs about 7 cents a gallon compared with an average $2.86 a gallon in the United States.

“It is one clear benefit to living in an otherwise challenging country,” said Mr. Taurisano, 34, who also owns a BMW, a Mercedes-Benz, a Ferrari and a Porsche.

Many Venezuelans consider the subsidy a birthright even though it bypasses the poor, who rely on relatively expensive and often dangerous public transportation. Economists estimate that it costs the government of President Hugo Chávez more than $9 billion a year.

Critics of Mr. Chávez, and the president himself, agree that the subsidy is a threat to his project to transform Venezuela into a socialist society, draining huge amounts of money from the national oil company’s sales each year that could be used for his social welfare programs.

Gasoline prices have often been a taboo subject for Venezuelan governments. There are memories of the riots in 1989, in which hundreds, perhaps thousands, of people died after protests set off by an increase in gasoline prices that resulted in higher transportation costs. That instability helped set in motion a failed coup attempt by Mr. Chávez in 1992, which first thrust him into the public eye.

After his re-election to a six-year term last December, when his political capital was abundant, Mr. Chávez called the gasoline prices “disgusting” and said his government was planning to raise them with a measure “financed by those who own a BMW or a tremendous four-wheel drive.” But he turned his attention to other matters, avoiding the touchy subject.

The link between social peace and gasoline so cheap it is almost given away is evident to many motorists. “If you raise gasoline, the people revolt,” said Janeth Lara, 40, an administrator at the Caracas Stock Exchange, as she waited for an attendant to fill the tank of her Jeep Grand Cherokee at a gas station here on a recent day. “It is the only cheap thing.”

During an oil boom that is lifting the incomes of both rich and poor, Venezuela is grappling with Latin America’s highest inflation rate, about 16 percent. The local currency, the bolívar, has plunged almost 50 percent in unregulated trading this year, reaching a record low of about 6,000 to the dollar in October (the official rate is fixed at 2,150 to the dollar.) Gasoline is one of the few products subject to price controls here that is in relatively ample supply. Newspapers have been filled recently with tales of consumers struggling to find milk. Last month, eggs were scarce.

Economic uncertainty makes it harder to tinker with fuel prices because a small increase could cascade. There could be an impact on the poor, with higher costs for food and other goods for which transportation costs are important, said Francisco Rodríguez, a former chief economist at the National Assembly.

One option is to keep the price of diesel cheap, because it is used in most freight and public transportation, while raising gasoline prices for relatively prosperous car owners. Another idea is to give transportation vouchers to people in poor neighborhoods.

“We are gradually moving toward an economic storm because of our addiction to cheap fuel,” said Orlando Ochoa, an economist at Andrés Bello University in Caracas.

Scholars trace the origins of Venezuela’s subsidy to the 1940s, when leftists imposed caps on gasoline prices after overthrowing the government of Gen. Isaías Medina Angarita. Because profits on sales of gasoline went to foreign oil companies at the time, the measure was seen as a way of redistributing oil revenues to Venezuelans.

Leaders were forced to raise prices in the 1980s and ’90s in the midst of financial distress. But Mr. Chávez has been hesitant to raise gasoline prices since his presidency began almost nine years ago.

Venezuela is not alone among oil-rich countries grappling with subsidized gasoline. Iran, a close ally, was shaken by unrest in June when its government rationed gasoline, which cost 34 cents a gallon at the time. But a thriving car-buying habit rivaled by few nations is forcing the government here to sell greater amounts of cheap gasoline.

Vehicle sales in Venezuela climbed 49 percent in the first nine months of the year from the same period last year, in part because cars are seen here as an investing hedge against economic uncertainty. Not only has the bolívar dropped in value, but there is also concern over real estate as squatters are allowed to take control of vacant properties.

Fuel smuggling into neighboring Colombia, where prices are much higher, is also rife. Domestic fuel consumption is up 56 percent in the past five years, to 780,000 barrels a day, said Ramón Espinasa, a former chief economist at Petróleos de Venezuela, the national oil company. One-third of oil production now goes to meet the subsidy, he said.

Petróleos de Venezuela has disputed such estimates but recently stopped providing public figures on domestic fuel sales. A spokesman at the company said officials were not available to comment on the matter.

Despite government efforts to open the market to car manufacturers from Iran and China, bulky, gas-guzzling sport-utility vehicles from the United States remain among the most sought-after automobiles here.

Perhaps the most coveted S.U.V. of all in Venezuela is the Hummer, an ethical quandary for Mr. Chávez.

“What kind of a revolution is this?” the president said on his television show this month, after a report here that General Motors was planning to import 3,000 Hummers to meet a rising demand. “One of Hummers?”

“No,” he said with the angry tone of a schoolmaster, answering his own question while announcing a measure that makes it more expensive to import Hummers and other luxury items like whiskey. “This is a revolution of truth.”

José Orozco contributed reporting from Caracas.

Monday, October 29, 2007

The Battle of the Green Cars: Tax Credits, Price of Gasoline and Environmentalism

How costly is it for a "green" consumer to vote with her wallet? As this article reveals, the tax subsidy for buying a hybrid is being phased out for vehicles made by Toyota and Honda. Who will bear the incidence of this subsidy phaseout? In english, will the price of these vehicles fall? Will such vehicles be much less profitable? Were tax incentives really the reason that the Prius "took off"?

The article claims that the Prius "paysoff" in 18 years but this hinges on how many miles a household drives, their discount factor and the yearly price of gasoline. The article could have been more subtle about identifying different types of households; If I drive 20,000 miles per year and the interest rate is 0% and if the price of gasoline (inflation adjusted is $5 per gallon) and if the hybrid achieves 50 MPG and lives for 15 years, then over 15 years;

20000/50 = 400 gallons of gas per year if I own a Prius = $2000 a year in gas expenditure; the PDV of $2000 a year for 15 years = $30,000

In comparison , if the conventional vehicle I would have bought got 25 MPG, then
20000/25 = 800 gallons * 5 = $4,000 per year for 15 years = $60,000 gas bill

I realize that I'm ignoring the rebound effect here but I point is that the hybrid is a pretty good deal for this specific consumer in this price environment. How many consumers are like this guy? Note that he didn't need a tax incentive to buy the Prius. Note, that he wasn't an environmentalist! The guy was solving a cost minimization problem not a utility maximization problem. So, there are 2 types of hybrid buyers; the people who drive a lot and the environmentalists. This WSJ author hasn't thought enough about the heterogeneity here and how this aggregates to determine aggregate market shares for the "green" product.

Environment (A Special Report) --- The Economics of Hybrids: For most U.S. consumers, they're still a money-losing proposition
By Mike Spector
1706 words
29 October 2007
The Wall Street Journal
(Copyright (c) 2007, Dow Jones & Company, Inc.)

It's getting a lot easier to buy a hybrid -- but not necessarily cheaper.

Amid heightening concerns over America's proclaimed oil addiction, skyrocketing fuel prices and global climate change, auto companies are making more gasoline-electric hybrid cars and giving consumers more choices than ever before.

But marketplace dynamics in the U.S. -- including higher prices charged by the car companies, dwindling tax credits given to fuel-efficient cars and low gasoline taxes -- haven't yet allowed a hybrid or other more-efficient vehicle to become an economical choice for many consumers.

In Europe, by contrast, several countries offer significant tax breaks to people who buy more-efficient vehicles. And high fuel taxes also are propelling Europeans to invest in a more-efficient ride.

There are several hybrids on the market now, using different technologies. But basically, a hybrid consists of a traditional internal-combustion engine paired with an electric motor. The electric motor gets its power from a storage battery, which is replenished by a recharging system within the car's powertrain. Electric motors boost power to the gas engine, allowing manufacturers to install smaller -- and thus more-efficient -- motors in these cars. Most hybrids sport four-cylinder engines as opposed to the six- or eight-cylinder motors found in many vehicles.

There are essentially two types of hybrids on the mass market today, often dubbed "mild" or "full" hybrids, each with fuel-sipping and emission-curbing features. A mild hybrid shuts off the engine at a full stop; uses regenerative braking, which utilizes dissipated energy from braking to recharge the battery; and uses the electric motor to help power the gas engine.

A full hybrid does all of those things, but adds another big fuel-saving feature: electric-only driving, in which a vehicle runs on the electric engine alone at low speeds. That's why hybrids get better mileage in city driving than high-speed highway cruising. The laws of physics still apply, so you shouldn't expect a hybrid SUV to get incredible mileage. But it
will get better mileage than its gasoline counterpart.

Hybrids are currently the most popular green vehicle choice in the U.S. In the first seven months of this year, new hybrid-vehicle registrations nationwide rose 49% from the year-earlier period to 215,997, according to R.L. Polk & Co., an automotive-research firm in Southfield, Mich. Hybrids make up about 2% of the U.S. light-vehicle market.

Economics are still getting in the way of greater adoption, however. One reason is the tax system. Americans get a tax break for buying hybrids -- the starting amount varies by model -- but the more hybrids an auto maker sells, the smaller the tax break becomes on any hybrid models from that maker. After a manufacturer sells its 60,000th hybrid, the tax break starts to phase out. Buyers can claim the full credit during the calendar quarter after the quarter in which the manufacturer reaches the 60,000 limit. Then, the credit is sliced in half. It is reduced by half again after another six months. Six months after that, the credit disappears.

Toyota Motor Corp.'s popular Prius, for instance, once garnered a $3,150 credit. But Toyota sold its 60,000th hybrid in the second quarter of 2006. So starting Oct. 1 of last year, the credit dwindled, and today it's gone. That means consumers no longer get the tax break for buying a Prius, or hybrid versions of some of the Japanese auto maker's other models: the Camry, Lexus GS 450h, Lexus RX 400h SUV, Highlander SUV and the Lexus LS 600h L sedan.

Honda Motor Co.'s credits also will decline soon as the Japanese auto maker has just recently exceeded the sales cap. Other hybrids from General Motors Corp. and Ford Motor Co. should retain their full credits for some time amid lower sales volumes.

In Europe, by contrast, several countries offer significant tax breaks. In Belgium, for example, drivers get 15% of a car's price back -- maxing out at 3,280 euros ($4,640) -- if the vehicle emits less than 105 grams of carbon dioxide per kilometer, according to the European Automobile Manufacturers Association. Cars that emit between 105 grams and 115 grams get a 3% break; vehicles emitting more than 115 grams don't get anything.

Europeans also face high fuel taxes, encouraging them to buy more-efficient cars. And diesel is specifically taxed at a lower rate -- diesel engines are about 30% more efficient than their gasoline-powered counterparts because of the higher energy content in diesel fuel and the more-efficient combustion process in the engine. Diesel autos make up about half of the European market, compared with about 1% in the U.S.

Even taking a tax credit into account, U.S. consumers have to pay more when buying a hybrid because the vehicles use a lot of expensive technology. Between large battery packs and complex transmissions that join gasoline engines with electric motors, hybrids can cost anywhere from $2,000 to $7,000 more than comparable nonhybrid cars.

Take GM's Saturn VUE Greenline sport-utility vehicle, which sells for $1,300 more than its gasoline-engine only counterpart after factoring in a tax credit, according to Edmunds.com, an auto-research firm. (This and other specific comparisons are for 2007 models.) It would take nearly five years to recoup that premium in savings at the pump with gas around $2.79 a gallon, according to Edmunds, assuming you drove about 15,000 miles a year. If higher taxes increased gas prices to about $6 a gallon -- roughly the price in Europe -- it would take about two years.

The VUE Greenline gets about 27 miles per gallon in combined city and highway driving, a
good uptick from the four-cylinder, front-wheel drive gasoline-engine version, which gets about 23 mpg.

Toyota's Prius, which gets a leading 46 mpg combined but no longer qualifies for the tax credit, costs over $7,000 more than the auto maker's compact Corolla. It would take nearly 18 years to recoup the premium, or more than twice the time you might expect to own it. Even with a more favorable comparison to the less-efficient Camry sedan -- which costs about $4,200 more -- Prius owners would still need about 6.5 years to get their money back in fuel savings.

That means the Prius isn't necessarily an economical buy despite its superior mileage. "If you want to save money on fuel, just buy a car with better gas mileage," says Jeremy Anwyl, chief executive of Edmunds.

Some hybrids are geared more toward performance than efficiency. The prime example is the Lexus LS 600h L sedan, which has a V8 engine in its hybrid drivetrain. The car, priced at more than $100,000, marks Lexus' attempt to market a super-luxury car with added hybrid cachet for wealthy consumers who have a green streak. The sedan gets just 21 mpg in combined city/highway driving, better than a comparable BMW model but a bit worse than the less-expensive Lexus GS 450h.

Auto dealers say consumers had unrealistic expectations about the economics of hybrids two years or so ago, but have adjusted and now tend to buy the vehicles to make a statement.

Earl Hesterberg, chief executive of Houston-based Group 1 Automotive Inc., a large nationwide dealership chain, says a typical reaction from hybrid buyers used to be: "Hey, this thing really does still use fuel." But now consumers are more educated, he says. "The majority of people just want to feel better about themselves and that they're trying to make some effort to be more green, be more socially responsible, reduce their carbon footprint."
One long-term consideration when buying a hybrid is the relatively untested maintenance history of battery packs. If a hybrid battery fails, it will be quite expensive to replace -- likely at least $5,000 and perhaps as high as $10,000 depending on the drivetrain's complexity, says Jack Nerad, editorial director of auto research firm Kelley Blue Book.

Fortunately, hybrids have experienced few, if any, major repair problems over the past few years. And while consumers may consider these vehicles new, they've actually been in production for a while, giving manufacturers time to refine them. The first Prius hit the road in 1997 in Japan and came to the U.S. in 2000.

Most hybrids come with long warranties on their powertrain technologies -- eight years or 100,000 miles for the Prius -- that cover potential foul-ups. Still, after the warranties end, it's unclear what problems might crop up in an expensive battery pack. There's no experience with this since few, if any, people have owned a Prius for more than eight years.

A spokesman for Toyota says the company placed extended warranties on the Prius to address just such uncertainty but adds that issues with the vehicles' batteries have been "virtually nonexistent." He says the company actually expects Prius batteries to live well beyond the eight-year warranty.

Auto makers are gradually pushing toward electric plug-in hybrids, which will allow drivers to recharge a battery with a traditional outlet and go much further on electric power alone.

Such cars could be a "game changer" that eventually displaces conventional hybrids, says Mike Jackson, chief executive of AutoNation Inc., of Fort Lauderdale, Fla., a nationwide dealership chain.

Another fuel-saver on the horizon: diesel.

Many Americans think of diesel engines as noisy and dirty, but the introduction of cleaner diesel fuel in the U.S. that can meet tough emissions standards promises less pollution and wider use. Auto makers are ramping up plans to put diesels in light-duty pickup trucks and passenger cars. And auto companies eventually may employ diesel-hybrids to really boost fuel economy.

Thursday, October 25, 2007

Is the Recent Environmentalism Surge a Fad that will Pass?

As a 1984 graduate of Scarsdale High School in Westchester, New York -- I am willing to skim articles about that town. This New York Times article celebrates the rise of a more environmentally conscious culture at schools. Here the "environment" has several dimensions. The article highlights a number of dimensions that schools want to be "green" on. Permit me to ask a "treatment effects" question. If a teenager is exposed to a green educational experience does this increase the likelihood that for the rest of his/her life that this kid leads a "green" life? If so, why? Is the causal mechanism a greater appreciation for mother nature? A better sense of how one's own health is affected by environmental margins such as toxics?

Does experience with "green" increase the demand to be green? If it does then the recent environmental surge is less likely to be a fad. A fad is an exciting thing that passes (i.e hoola hoops). If people have been permanently treated, then the probability of the fad scenario is low.

October 25, 2007
Schools Embrace Environment and Sow Debate

SCARSDALE, N.Y. — Every weekday at 2:30 p.m., a line of luxury sedans and sport utility vehicles idles outside Scarsdale Middle School in Westchester County. Exhaust fumes pollute the atmosphere, even though posted signs decree this a “No Idling Zone” and students berate their parents for violating it.

“I normally do abide by it,” said Loryn Kass, 41, as she hastily turned off her BMW sedan while waiting for her daughter on a recent afternoon. “I totally support it to keep the air clean and fresh for our children.”

The school pickup line has become the latest front in a growing school-based environmental movement that has moved far beyond recycling programs and Earth Day celebrations to challenge long-accepted school norms.

Since 2004, dozens of public and private schools in Westchester and New York City and on Long Island have adopted no-idling zones, switched to plant-based cleaners in their buildings and, to a lesser extent, banned pesticides from playgrounds and playing fields, according to Grassroots Environmental Education, a nonprofit group that began a campaign this month promoting all three measures.

Similar efforts have spread across the country. The Maryland Association for Environmental and Outdoor Education, a nonprofit group, has recognized 163 Maryland Green Schools — nearly one-third of them in the last two years — for taking initiatives like preserving wetlands, banning disposable plastic water bottles or assigning environmentally themed readings.

No effort is deemed too small. In a light-bulb exchange in Southern California, students in 26 schools in San Bernardino and Riverside Counties replaced 15,734 incandescent bulbs — and counting — in their homes with energy-efficient compact fluorescent versions. Officials and educators in California are planning the first Green California Schools Summit in Pasadena in December, expected to draw more than 2,000 school board members, administrators and teachers.

Some educators contend that the environmental focus is a waste of taxpayers’ money and a distraction for schools at a time when many students are ill-prepared for college and struggling to meet minimum standards on math and reading tests.

“Students need very basic skills, and those are so much more important than getting an emotional high because they’ve done something supposedly for the environment,” said Jane S. Shaw, executive vice president of the John William Pope Center for Higher Education Policy, a public policy organization in Raleigh, N.C. She is a co-author of “Facts, Not Fear,” a 1996 book that argued that textbooks exaggerated environmental problems.

Jerry Cantrell, president of the New Jersey Taxpayers Association and a former president of the school board in Randolph, called the environmental programs an unnecessary expense, particularly for public schools facing budget cutbacks.

“The ‘ed biz’ is known for faddish endeavors,” he said. “They pick up on some new philosophy, and it seems cool and popular, and I would throw being green in with that.” But school officials counter that they have a responsibility to help students become better citizens, and that in that sense teaching them to protect the environment is no different from teaching them ethics or social norms.

“Students need to learn to give back,” said Nicholas Dyno, principal of Southampton High School, on Long Island, where graduating seniors sign a pledge saying that they will consider the environmental consequences of their future actions. Last month, at the urging of students, the school switched to a paperless attendance system that Mr. Dyno said saves 800 sheets of paper a day.

Many parents and local officials also support environmental measures at schools because of growing concerns over health risks from exhaust fumes and toxic chemicals. Last week, New York City Council members, citing asthma cases among elementary school children, proposed legislation to prohibit people from idling their vehicles more than one minute next to schools.

The green schools movement, which grew out of earlier efforts at colleges and universities, has already changed the way some schools are built. Today, an increasing number of classrooms have ventilation systems, natural lighting and automatic light and heat sensors.

The U.S. Green Building Council, which sets standards for environmentally friendly construction, has certified 60 green schools, including a new building at Sidwell Friends School in Washington that is constructed partly from recycled wine barrels. More than 400 other schools have applied for certification, and last month that number rose by one school a day.

While environmentalism does not come cheap, many school officials and parents say that building green schools or adopting recycling programs not only benefits the environment, but can also be good for the bottom line.

The largest suburban school district in New Jersey, Toms River, has spent $20 million in the past two years to install solar panels at seven schools, and plans to retrofit 11 more schools by 2012. District officials said their annual electricity bill of $3 million dropped by $239,000 in the first year alone.

Increasingly, schools have also sought to integrate environmentalism into their curriculums — the Ethel Walker School in the Hartford suburbs features a course called Literature of the American Environment — so it becomes a way of seeing and thinking about the world.

Dale Jamieson, director of environmental studies at New York University, said the green impulse in schools and in the population at large had taken on the same urgency that the civil rights movement did for an earlier generation.

“It’s a place where morality and personal life and behavior and social change all come together,” he said. “There’s this feeling it’s an important issue in everyday life.”

But Mr. Jamieson said that school initiatives intended to modify individual behavior, like no-idling zones and recycling programs, made little difference in solving complex environmental problems deeply rooted in society. He said that real change could be achieved only by, say, reducing human consumption and restructuring the world’s energy system.

“It’s like if you go to McDonald’s and order a hamburger and then recycle the packaging, that’s the most trivial thing you can do,” he said. “Because most of the environmental impact is in the meat production.”

Here in Scarsdale, the 4,700-student school district embarked on an environmental mission last year after the superintendent, Michael V. McGill, and parents here saw former Vice President Al Gore’s cautionary tale about global warming, “An Inconvenient Truth.” Shortly afterward, the district hired its first “sustainability education coordinator” to oversee green initiatives. It also added $140,000 the first year for “sustainability projects” to its $124.9 million budget.

“We have the luxury of getting involved in things like this,” said Steven Frantz, the sustainability education coordinator. “Our kids do so well that we’re not worried about the next test score, but that also comes with more responsibility.”

The Scarsdale district has rolled out an ambitious environmental agenda that includes a $7.5 million plan, set to be approved this month, to make buildings more energy efficient. It also has a rebate program in which individual schools will get back 75 percent of their savings from the district if they lower their energy costs from the year before.

At Scarsdale Middle School, students organized a No Idle Week last May, during which they handed out brochures and bumper stickers.

They have planted an organic garden, and collected cellphones and printer cartridges for recycling. The school even produced a music video, “10 Percent for the Future,” challenging people to reduce environmental waste by changing their personal habits.

Some of their efforts may be paying off. At least two families at the school have traded in their S.U.V.’s for hybrid vehicles.

“The kids are the ones, especially at this age, to latch on to things, and they get on to their parents,” said the principal, Michael McDermott. “It’s the subversive way to change adult behavior.”

Assuming, of course, that the parents are willing to change. While no one has complained directly to school officials, cars continue to idle outside the middle school and elsewhere around town.

Ellen Corrini, 13, said she scolded her mother a few weeks ago for leaving the car running:

“I said, ‘You should turn off the car; you’re not even in it.’”

Wednesday, October 24, 2007

Alternatives to Gasoline: Pros and Cons

The New York Times has a great special section today on cars. I didn't know that hybrid technology was an old idea.

"Then in 1994, nearly a century after Porsche’s hybrid arrived on the scene, Akihiro Wada, executive vice president of Toyota, posed a challenge before a special team of company engineers: build a car with double the fuel efficiency of contemporary vehicles. Three years later, Toyota introduced the Prius in Japan as the world’s first mass-produced gas-electric car.

Today, the Prius competes with conventional sedans as a top seller in the United States, and nearly every major carmaker in the world has either introduced hybrids or is struggling to create the technologies to make cars more efficient."

I also found this article to be quite interesting

October 24, 2007
Challenging Gasoline: Diesel, Ethanol, Hydrogen


YES, gasoline has the corner on the American car fuel market, but maybe not forever. Carmakers already produce passenger vehicles that run nicely on diesel fuel, ethanol or hydrogen. The first two are on the road in the millions around the world, and the third is moving slowly toward viability.

The catch is that the path to the pump, as Thomas Hobbes might have said, can be nasty, brutish and long. And the overall picture for pollution and energy — which the engineers call “well to wheels” — might have drawbacks to equal gasoline’s.

Still, the supply chains for diesel, ethanol and hydrogen are immature. That should change in a few years, as the most important choice for consumers in car showrooms may be what kind of fuel they want to use.

“Buying a car is not going to be about color choices or automatic versus manual transmission,” said Allen Schaeffer, the executive director for the Diesel Technology Forum, a trade association. “It’s going to be about getting into a powertrain.”

Here is a status report on the alternatives:


Carmakers are selling models in Europe that are clean, odor-free and peppy. Computer control over fuel injection has reduced diesel cars’ clattering noise, and ultralow-sulfur diesel, now widely available in the United States, has made it possible for carmakers to install filters and other devices to clean up the exhaust.

Chrysler and Mercedes-Benz are offering diesels in 45 states, and Mercedes is planning to sell one that meets the stricter requirements of California, which have also been adopted by New York, Massachusetts, Maine and Vermont.

Although diesel engines cost more to make and buy, they can make sense for a car owner. For one, they use fewer gallons per trip than gasoline engines.

Besides regular diesel fuel from petroleum, there is biodiesel. Chemicals extracted from soy or other vegetables, or from beef tallow or other animal fats, burn well in a diesel engine. These substances become waxy at low temperatures, so they are usually blended in small quantities with petroleum diesel.

But like ethanol, producing biodiesel requires farmland, which could otherwise be used to raise food. Yet making biodiesel takes less natural gas and other fossil fuels than making ethanol. A gallon of diesel will power a car 20 to 40 percent more miles than a gallon of gasoline, though the energy gain and the reduction in carbon dioxide emissions are not that large.

The reason is that diesel has more carbon than a gallon of gasoline. It also has more energy, about 138,000 B.T.U. versus about 118,000 for gasoline. That distinction may be lost on consumers, because motor fuel is sold by a unit of volume, the gallon, not a unit of energy.

Despite these issues, there is a real advantage to driving a diesel engine because it burns fuel at a higher temperature than a spark-ignited gasoline engine does, thus squeezing more work from the fuel.

Skeptics still abound. Lee Schipper, a former oil industry executive who leads a transportation and environmental study program at the World Resources Institute, said that what pushed European drivers to diesel was a tax policy that made the fuel cheaper, but buyers there tend to drive more, so they don’t save on total consumption.

“There are limits to diesel,” Dr. Schipper said. “Unless a diesel car is driven the same as a gasoline car, on 35 percent less fuel per kilometer, the CO2 benefit is marginal and may be negative.” Hybridization might be a better option, he suggested.


The United States consumes about 140 billion gallons of liquid transportation fuel a year, about 6 billion from ethanol. Half of all gasoline contains some ethanol, which ordinary cars can burn at a concentration of up to 10 percent. About six million cars can now use any mixture of ethanol and gasoline, up to 85 percent ethanol, known as E85. Domestic carmakers view ethanol as a way to cut gasoline consumption and to avoid making major changes in their production.

Ethanol has strong political support. “I’d rather be paying farmers than the people overseas for the energy that fuels this country,” President Bush told auto workers at a speech at a Ford plant in Claycomo, Mo., this year. From a driver’s viewpoint, ethanol may perform well in the engine.

But it contains only about two-thirds as much energy per gallon as gasoline. It has what Dr. Schipper calls “closet carbon,” meaning carbon dioxide is created when ethanol is manufactured, which may amount to slightly less or more than in gasoline.


President Bush said in 2003 that there was hope that a baby born that year would grow up to buy a hydrogen fuel-cell vehicle as a first car. That baby is now nearly in kindergarten, and the fuel cell still has far to go.

Fuel-cell cars require improving two fairly young technologies, fuel cells and making hydrogen for them. Honda recently announced progress on the fuel cell, which combines hydrogen fuel with oxygen from air to make electric current, a little heat and some pure water.

Fuel cells are bulky, however. Honda’s first effort, in 1999, produced 60 kilowatts, enough for a modest-size sedan, but a fuel cell weighed close to 450 pounds and filled a volume of 4.7 cubic feet. This year it has given testers a new version that is 100 kilowatts; at about 150 pounds it is one-third the size of the old one. Honda’s trick was to turn the fuel cell sideways, to improve the flow of chemicals.

But Honda will not say what the fuel cell costs; no manufacturer is open about that.

On the hydrogen aspect, environmentalists dream of ranks of windmills making electricity that will be used to split water into hydrogen. They also wouldn’t mind fields of solar cells to do the same. But such renewable power may be more useful to replace coal, which is far dirtier than gasoline. And the cheaper way to make hydrogen may be the general technique, by taking it out of the methane in natural gas.

H2Gen, a small company in Alexandria, Va., is selling a chemical processing plant that can be delivered on a truck and turns natural gas into hydrogen fast enough to support fueling several dozen cars, about right for a corner gasoline station.

So far, H2Gen’s customers have been industrial users.

A Shell station in Washington that opened a hydrogen pump in late 2004, to supply the demonstration vehicles that automakers traipse through the city, uses hydrogen produced cryogenically. At either an oil refinery in Ontario or in Louisiana, the hydrogen is chilled to an extremely low temperature, condensing into a liquid. The result is pure, though it takes a lot of energy to make. It is then put into a cylinder truck with a diesel-powered engine and hauled to Washington, which works well for a test program but hardly saves any energy.

Monday, October 22, 2007

Is Malibu a Good Place to Live?

The Malibu fires raise a bunch of questions regarding self-protection. Is climate change increasing the likelihood of fires in this beautiful area? If people anticipate this increased risk, are there investments they can make in special housing material or how they prune their shrubs and trees to protect their homes from "Mother Nature"? Are insurance companies charging these folks more for living in a dangerous area? How do the actuaries calculate the risk probabilities if these probabilities are changing over time? Is government policy unintentionally creating a moral hazard effect encouraging too many people to live there? For example, if the firemen were less good at putting out fires and risking their own lives, would fewer people live in the fire zone?

Weighing the Risks of Living in Malibu

On an unrelated note, here is a nice story about Arnold the "Green".

Sunday, October 21, 2007

Why Are Serious Economists Not Quoted in Public Policy Pieces?

Today's New York Times Magazine asks a good water policy question. Climate change may reduce the supply of available water in the U.S West (i.e Las Vegas, Los Angeles, Phoenix) at the same time that regional migration and income growth is increasing the demand to live and work in such areas. Is a water shortage crisis on the horizon?

You would think that economists would be useful people to talk to for such a piece but Dr. Gertner chose not to talk to any. Did we give no useful quotes? Were we too optimistic for his tastes? Did he think we'd have nothing useful to say?

A key parameter here is the shape of household and business demand curves for water. As the price of water goes up, will people continue to have lawns in Los Angeles? Will the golf courses be covered with green grass? If people switched their outdoor consumption to "less artificial" uses, how much would this reduce aggregate water consumption?

If people switched to more efficient toliets and showers (in the face of higher prices), how much would consumption per-capita decline by ? Could consumption per-capita decline by enough to offset population growth? You would think that economists would have something useful to say. In my book , I quote Chris Timmins of Duke on this very subject.

Leading economists are working on property rights and the transfer of water from farmers to urbanites. Efficiency says that the resource (water) should be sold to the consumer who values it the most. Farmers will sell some of their asset to urbanites and everyone will be made better off but will there be a crisis? Gertner could have spoke to Gary Libecap of UCSB and Michael Hanemann of UC Berkeley and this piece would have been much stronger.

My cynical theory is that pessimism sells and neo-classical economists are naturally optimistic that certain "crises" will not be crises if we anticipate them act ahead of time. Since journalists anticipate our "optimism", they don't call us and the public suffers from being handed a slightly slanted piece of journalism.

October 21, 2007
The Future Is Drying Up

Scientists sometimes refer to the effect a hotter world will have on this country’s fresh water as the other water problem, because global warming more commonly evokes the specter of rising oceans submerging our great coastal cities. By comparison, the steady decrease in mountain snowpack — the loss of the deep accumulation of high-altitude winter snow that melts each spring to provide the American West with most of its water — seems to be a more modest worry. But not all researchers agree with this ranking of dangers. Last May, for instance, Steven Chu, a Nobel laureate and the director of the Lawrence Berkeley National Laboratory, one of the United States government’s pre-eminent research facilities, remarked that diminished supplies of fresh water might prove a far more serious problem than slowly rising seas. When I met with Chu last summer in Berkeley, the snowpack in the Sierra Nevada, which provides most of the water for Northern California, was at its lowest level in 20 years. Chu noted that even the most optimistic climate models for the second half of this century suggest that 30 to 70 percent of the snowpack will disappear. “There’s a two-thirds chance there will be a disaster,” Chu said, “and that’s in the best scenario.”

In the Southwest this past summer, the outlook was equally sobering. A catastrophic reduction in the flow of the Colorado River — which mostly consists of snowmelt from the Rocky Mountains — has always served as a kind of thought experiment for water engineers, a risk situation from the outer edge of their practical imaginations. Some 30 million people depend on that water. A greatly reduced river would wreak chaos in seven states: Colorado, Utah, Wyoming, New Mexico, Arizona, Nevada and California. An almost unfathomable legal morass might well result, with farmers suing the federal government; cities suing cities; states suing states; Indian nations suing state officials; and foreign nations (by treaty, Mexico has a small claim on the river) bringing international law to bear on the United States government. In addition, a lesser Colorado River would almost certainly lead to a considerable amount of economic havoc, as the future water supplies for the West’s industries, agriculture and growing municipalities are threatened. As one prominent Western water official described the possible future to me, if some of the Southwest’s largest reservoirs empty out, the region would experience an apocalypse, “an Armageddon.”

One day last June, an environmental engineer named Bradley Udall appeared before a Senate subcommittee that was seeking to understand how severe the country’s fresh-water problems might become in an era of global warming. As far as Washington hearings go, the testimony was an obscure affair, which was perhaps fitting: Udall is the head of an obscure organization, the Western Water Assessment. The bureau is located in the Boulder, Colo., offices of the National Oceanographic and Atmospheric Administration, the government agency that collects obscure data about the sky and seas. Still, Udall has a name that commands some attention, at least within the Beltway. His father was Morris Udall, the congressman and onetime presidential candidate, and his uncle was Stewart Udall, the secretary of the interior under Presidents John F. Kennedy and Lyndon Johnson. Bradley Udall’s great-great-grandfather, John D. Lee, moreover, was the founder of Lee’s Ferry, a flyspeck spot in northern Arizona that means nothing to most Americans but holds near-mythic status to those who work with water for a living. Near Lee’s Ferry is where the annual flow of the Colorado River is measured in order to divvy up its water among the seven states that depend on it. To many politicians, economists and climatologists, there are few things more important than what has happened at Lee’s Ferry in the past, just as there are few things more important than what will happen at Lee’s Ferry in the future.

The importance of the water there was essentially what Udall came to talk about. A report by the National Academies on the Colorado River basin had recently concluded that the combination of limited Colorado River water supplies, increasing demands, warmer temperatures and the prospect of recurrent droughts “point to a future in which the potential for conflict” among those who use the river will be ever-present. Over the past few decades, the driest states in the United States have become some of our fastest-growing; meanwhile, an ongoing drought has brought the flow of the Colorado to its lowest levels since measurements at Lee’s Ferry began 85 years ago. At the Senate hearing, Udall stated that the Colorado River basin is already two degrees warmer than it was in 1976 and that it is foolhardy to imagine that the next 50 years will resemble the last 50. Lake Mead, the enormous reservoir in Arizona and Nevada that supplies nearly all the water for Las Vegas, is half-empty, and statistical models indicate that it will never be full again. “As we move forward,” Udall told his audience, “all water-management actions based on ‘normal’ as defined by the 20th century will increasingly turn out to be bad bets.”

A few weeks after his testimony, I flew to Boulder to meet with Udall, and we spent a day driving switchback roads high in the Rockies in his old Subaru. It had been a wet season on the east slope of the Rockies, but the farther west we went, the drier it became. Udall wanted to show me some of the local reservoirs and water systems that were built over the past century, so I could get a sense of their complexity as well as their vulnerability. As he put it, he wants to connect the disparate members of the water economy in a way that has never really been done before, so that utility executives, scientists, environmentalists, business leaders, farmers and politicians can begin discussing how to cope with the inevitable shortages of fresh water. In the American West, whose huge economy and political power derive from the ability of 20th-century engineers to conquer rivers like the Colorado and establish a reliable water supply, the prospect that there will be less water in the future, rather than the same amount, is unnerving. “We have a very short period of time here to get people educated on what this means,” Udall told me as we drove through the mountains. “Then once that occurs, perhaps we can start talking about how do we deal with it.”

Udall suggested that I meet a water manager named Peter Binney, who works for Aurora, Colo., a city — the 60th-largest in the United States — that sprawls over an enormous swath of flat, postagricultural land south of the Denver airport. It may be difficult for residents of the East Coast to understand the political celebrity of some Western water managers, but in a place like Aurora, where water, not available land, limits economic growth, Binney has enormous responsibilities. In effect, the city’s viability depends on his wherewithal to conjure new sources of water or increase the output of old ones. As Binney told me when we first spoke, “We have to find a new way of meeting the needs of all this population that’s turning up and still satisfy all of our recreational and environmental demands.” Aurora has a population of 310,000 now, Binney said, but that figure is projected to surpass 500,000 by 2035.

I asked if he had enough water for that many people. “Oh, no,” he replied. He seemed surprised that someone could even presume that he might. In fact, he explained, his job is to figure out how to find more water in a region where every drop is already spoken for and at a moment when there is little possibility that any more will ever be discovered.

Binney and I got together outside Dillon, a village in the Colorado Rockies 75 miles from Aurora and just a few miles west of the Continental Divide. We met in a small parking lot beside Dillon Reservoir, which sits at the bottom of a bowl of snow-capped mountains. Binney, a thickset 54-year-old with dark red hair and a fair complexion, had driven up in a large S.U.V. He still carries a strong accent from his native New Zealand, and in conversation he comes across as less a utility manager than a polymath with the combined savvy of an engineer, an economist and a politician. As we moved to a picnic table, Binney told me that we were looking at Denver’s water, not Aurora’s, and that it would eventually travel 70 miles through tunnels under the mountains to Denver’s taps. He admitted that he would love to have this water, which is pure snowmelt. To people in his job, snowmelt is the best source of water because it requires little chemical treatment to bring it up to federal drinking standards. But this water wasn’t available. Denver got here before him. And in Colorado, like most Western states, the rights to water follow a bloodline back to whoever got to it first.

One way to view the history of the American West is as a series of important moments in exploration or migration; another is to consider it, as Binney does, in terms of its water. In the 20th century, for example, all of our great dams and reservoirs were built — “heroic man-over-nature” achievements, in Binney’s words, that control floods, store water for droughts, generate vast amounts of hydroelectric power and enable agriculture to flourish in a region where the low annual rainfall otherwise makes it difficult. And in constructing projects like the Glen Canyon Dam — which backs up water to create Lake Powell, the vast reservoir in Arizona and Utah that feeds Lake Mead — the builders went beyond the needs of the moment. “They gave us about 40 to 50 years of excess capacity,” Binney says. “Now we’ve gotten to the end of that era.” At this point, every available gallon of the Colorado River has been appropriated by farmers, industries and municipalities. And yet, he pointed out, the region’s population is expected to keep booming. California’s Department of Finance recently predicted that there will be 60 million Californians by midcentury, up from 36 million today. “In Colorado, we’re sitting at a little under five million people now, on our way to eight million people,” Binney said. Western settlers, who apportioned the region’s water long ago, never could have foreseen the thirst of its cities. Nor, he said, could they have anticipated our environmental mandates to keep water “in stream” for the benefit of fish and wildlife, as well as for rafters and kayakers.

The West’s predicament, though, isn’t just a matter of limited capacity, bigger populations and environmental regulations. It’s also a distributional one. Seventy-five years ago, cities like Denver made claims on — and from the state of Colorado received rights to — water in the mountains; those cities in turn built reservoirs for their water. As a result, older cities have access to more surface water (that is, water that comes from rivers and streams) than newer cities like Aurora, which have been forced to purchase existing water rights from farmers and mining companies. Towns that rely on groundwater (water pumped from deep underground) face an even bigger disadvantage. Water tables all over the United States have been dropping, sometimes drastically, from overuse. In the Denver area, some cities that use only groundwater will almost certainly exhaust their accessible supplies by 2050.

The biggest issue is that agriculture consumes most of the water, as much as 90 percent of it, in a state like Colorado. “The West has gone from a fur-trapping, to a mining, to an agricultural, to a manufacturing, to an urban-centric economy,” Binney explained. As the region evolved, however, its water ownership for the most part did not. “There’s no magical locked box of water that we can turn to,” Binney says of cities like Aurora, “so it’s going to have to come from an existing use.” Because the supply of water in the West can’t really change, water managers spend their time looking for ways to adjust its allocation in their favor.

Binney knew all this back in 2002, when he took the job in Aurora after a long career at an engineering firm. Over the course of a century, the city had established a reasonable water supply. About a quarter of its water is piped in from the Colorado River basin about 70 miles away; another quarter is taken from reservoirs in the Arkansas River basin far to the south. The rest comes from the South Platte, a lazy, meandering river that runs north through Aurora on its way toward Nebraska. Binney says he believes that a city like his needs at least five years of water in storage in case of drought; his first year there turned out to be one of the worst years for water managers in recorded history, and the town’s reservoirs dropped to 26 percent of capacity, meaning Aurora had at most nine months of reserves and could not endure another dry spring. During the summer and fall, Binney focused on both supply and demand. He negotiated with neighboring towns to buy water and accelerated a program to pay local farmers to fallow their fields so the city could lease their water rights. Meanwhile, the town asked residents to limit their showers and had water cops enforce new rules against lawn sprinklers. (“It’s interesting how many people were watering lawns in the middle of the night,” Binney said.)

Water use in the United States varies widely by region, influenced by climate, neighborhood density and landscaping, among other things. In the West, Los Angelenos use about 125 gallons per person per day in their homes, compared with 114 for Tucson residents. Binney’s customers generally use about 160 gallons per person per day. “In the depths of the drought,” he said, “we got down to about 123 gallons.”

Part of the cruelty of a Western drought is that a water manager never knows if it will last 1 year or 10. In 2002, Binney was at the earliest stages of what has since become a nearly continuous dry spell. Though he couldn’t see that at the time, he realized Aurora faced a permanent state of emergency if it didn’t boost its water supplies. But how? One option was to try to buy water rights in the mountains (most likely from farmers who were looking to quit agriculture), then build a new reservoir and a long supply line to Aurora. Obvious hurdles included environmental and political resistance, as well as an engineering difficulty: water is heavy, far heavier than oil, and incompressible; a system to move it long distances (especially if it involves tunneling through mountains or pumping water over them) can cost billions. Binney figured that without the help of the federal government, which has largely gotten out of the Western dam-and-reservoir-building business, Aurora would be unwise to pursue such a project. Even if the money could be raised, building a system would take decades. Aurora needed a solution within five years.

Another practice, sometimes used in Europe, is to drill wells alongside a river and pull river water up though them, using the gravel of the riverbank as a natural filter — sort of like digging a hole in the sand near the ocean’s edge as it fills from below. Half of Aurora’s water rights were on the South Platte already; the city also pours its treated wastewater back into the river, as do other cities in the Denver metro area. This gives the South Platte a steady, dependable flow. Binney and the township reasoned that they could conceivably, and legally, go some 20 or 30 miles downstream on the South Platte, buy agricultural land near the river, install wells there and retrieve their wastewater. Thus they could create a system whereby Aurora would use South Platte water; send it to a treatment plant that would discharge it back into the river; go downstream to recapture water from the same river; then pump it back to the city for purification and further use. The process would repeat, ad infinitum. Aurora would use its share of South Platte water “to extinction,” in the argot of water managers. A drop of the South Platte used by an Aurora resident would find its way back to the city’s taps as a half-drop in 45 to 60 days, a quarter-drop 45 to 60 days after that and so on. For every drop the town used from the South Platte, over time it would almost — as all the fractional drops added up — get another.

Many towns have a supply that includes previously treated water. The water from the Mississippi River, for instance, is reused many times by municipalities as it flows southward. But as far as Binney knew, no municipality in the United States had built the kind of closed loop that Aurora envisioned. Water from wells in the South Platte would taste different, because of its mineral and organic content, so Binney’s engineers would have to make it mimic mountain snowmelt. More delicate challenges involved selling local taxpayers on authorizing a project, marketed to them as “Prairie Waters,” that would capitalize on their own wastewater. The system, which meant building a 34-mile-long pipeline from the downstream South Platte riverbanks to a treatment facility in Aurora, would cost three-quarters of a billion dollars, making it one of the most expensive municipal infrastructure projects in the country.

When Binney and I chatted at the reservoir outside Dillon, he had already finished discussions with Moody’s and Fitch, the bond-rating agencies whose evaluations would help the town finance the project. Groundbreaking, which would be the next occasion we would see each other, was still a month away. “What we’re doing now is trading high levels of treatment and purification for building tunnels and chasing whatever remaining snowmelt there is in the hills, which I think isn’t a wise investment for the city,” he told me. “I would expect that what we’re going to do is the blueprint for a lot of cities in California, Arizona, Nevada — even the Carolinas and the Gulf states. They’re all going to be doing this in the future.”

Water managers in the West tend to think in terms of “acre-feet.” One acre-foot, equal to about 326,000 gallons, is enough to serve two typical Colorado families for one year. When measurements of the Colorado River began near Lee’s Ferry in the early 1920s, the region happened to be in the midst of an extremely wet series of years, and the river was famously misjudged to have an average flow of 17 million acre-feet per year — when in fact its average flow would often prove to be significantly less. Part of the legacy of that misjudgment is that the seven states that divided the water in the 1920s entered into a legal partnership that created unrealistic expectations about the river’s capacity. But there is another, lesser-known legacy too. As the 20th century progressed, many water managers came to believe that the 1950s, which included the most severe drought years since measurement of the river began, were the marker for a worst-case situation.

But recent studies of tree rings, in which academics drill core samples from the oldest Ponderosa pines or Douglas firs they can find in order to determine moisture levels hundreds of years ago, indicate that the dry times of the 1950s were mild and brief compared with other historical droughts. The latest research effort, published in the journal Geophysical Research Letters in late May, identified the existence of an epochal Southwestern megadrought that, if it recurred, would prove calamitous.

When Binney and I met at Dillon Reservoir, he brought graphs of Colorado River flows that go back nearly a thousand years. “There was this one in the 1150s,” he said, tracing a jagged line downward with his finger. “They think that’s when the Anasazi Indians were forced out. We see drought cycles here that can go up to 60 years of below-average precipitation.” What that would mean today, he said, is that states would have to make a sudden choice between agriculture and people, which would lead to bruising political debates and an unavoidable blow to the former. Binney says that as much as he believes that some farmers’ water is ultimately destined for the cities anyway, a big jolt like this would be tragic. “You hope you never get to that point,” he told me, “where you force those kinds of discussions, because they will change for hundreds of years the way that people live in the Western U.S. If you have to switch off agriculture, it’s not like you can get back into it readily. It took decades for the agricultural industry to establish itself. It may never come back.”

An even darker possibility is that a Western drought caused by climatic variation and a drought caused by global warming could arrive at the same time. Or perhaps they already have. This coming spring, the United Nations’ Intergovernmental Panel on Climate Change will issue a report identifying areas of the world most at risk of droughts and floods as the earth warms. Fresh-water shortages are already a global concern, especially in China, India and Africa. But the I.P.C.C., which along with Al Gore received the 2007 Nobel Peace Prize earlier this month for its work on global-warming issues, will note that many problem zones are located within the United States, including California (where the Sierra Nevada snowpack is threatened) and the Colorado River basin. These assessments follow on the heels of a number of recent studies that analyze mountain snowpack and future Colorado River flows. Almost without exception, recent climate models envision reductions that range from the modest to the catastrophic by the second half of this century. One study in particular, by Martin Hoerling and Jon Eischeid, suggests the region is already “past peak water,” a milestone that means the river’s water supply will now forever trend downward.

Climatologists seem to agree that global warming means the earth will, on average, get wetter. According to Richard Seager, a scientist at Columbia University’s Lamont Doherty Earth Observatory who published a study on the Southwest last spring, more rain and snow will fall in those regions closer to the poles and more precipitation is likely to fall during sporadic, intense storms rather than from smaller, more frequent storms. But many subtropical regions closer to the equator will dry out. The models analyzed by Seager, which focus on regional climate rather than Colorado River flows, show that the Southwest will ultimately be subject to significant atmospheric and weather alterations. More alarming, perhaps, is that the models do not only concern the coming decades; they also address the present. “You know, it’s like, O.K., there’s trouble in the future, but how near in the future does it set in?” he told me. “In this case, it appears that it’s happening right now.” When I asked if the drought in his models would be permanent, he pondered the question for a moment, then replied: “You can’t call it a drought anymore, because it’s going over to a drier climate. No one says the Sahara is in drought.”

Climate models tend to be more accurate at predicting temperature than precipitation. Still, it’s hard to avoid the conclusion that “something is happening,” as Peter Binney gently puts it. Everyone I spoke with in the West has noticed — less snow, earlier spring melts, warmer nights. Los Angeles this year went 150 days without a measurable rainfall. One afternoon in Boulder, I spent some time with Roger Pulwarty, a highly regarded climatologist at the National Oceanographic Atmospheric Administration. Pulwarty, who has spent the past few years assessing adaptive solutions to a long drought, has a light sense of humor and an air of optimism about him, but he acknowledged that the big picture is worrisome. Even if the precipitation in the West does not decrease, higher temperatures by themselves create huge complications. Snowmelt runoff decreases. The immense reservoirs lose far more water to evaporation. Meanwhile, demand increases because crops are thirstier. Yet importing water from other river basins becomes more difficult, because those basins may face shortages, too.

“You don’t need to know all the numbers of the future exactly,” Pulwarty told me over lunch in a local Vietnamese restaurant. “You just need to know that we’re drying. And so the argument over whether it’s 15 percent drier or 20 percent drier? It’s irrelevant. Because in the long run, that decrease, accumulated over time, is going to dry out the system.” Pulwarty asked if I knew the projections for what it would take to refill Lake Powell, which is at about 50 percent of capacity. Twenty years of average flow on the Colorado River, he told me. “Good luck,” he said. “Even in normal conditions we don’t get 20 years of average flow. People are calling for more storage on the system, but if you can’t fill the reservoirs you have, I don’t know how more storage, or more dams, is going to help you. One has to ask if the normal strategies that we have are actually viable anymore.”

Pulwarty is convinced that the economic impacts could be profound. The worst outcome, he suggested, would be mass migrations out of the region, along with bitter interstate court battles over the dwindling water supplies. But well before that, if too much water is siphoned from agriculture, farm towns and ranch towns will wither. Meanwhile, Colorado’s largest industry, tourism, might collapse if river flows became a trickle during summertime. Already, warmer temperatures have brought on an outbreak of pine beetles that are destroying pine forests; Pulwarty wonders how many tourists will want to visit a state full of dead trees. “A crisis is an interesting thing,” he said. In his view, a crisis is a point in a story, a moment in a narrative, that presents an opportunity for characters to think their way through a problem. A catastrophe, on the other hand, is something different: it is one of several possible outcomes that follow from a crisis. “We’re at the point of crisis on the Colorado,” Pulwarty concluded. “And it’s at this point that we decide, O.K., which way are we going to go?”

It is all but imposible to look into the future of the Western states without calling on Pat Mulroy, the head of the Southern Nevada Water Authority. Mulroy has no real counterpart on the East Coast; her nearest analog might be Robert Moses, the notorious New York City planner who built massive infrastructure projects and who almost always found a way around institutional obstructions and financing constraints. She is arguably the most influential and outspoken water manager in the country — a “woman without fear,” as Pulwarty describes her. Pulwarty and Peter Binney respect her willingness to challenge historical water-sharing agreements that, in Mulroy’s view, no longer suit the modern West (meaning they don’t suit Las Vegas). According to Binney, however, Nevada’s scant resources give Mulroy little choice. She has to keep her city from drying out. That makes hers the most difficult job in the water business, he told me.

Las Vegas is almost certainly more vulnerable to water shortages than any metro area in the country. Partly that’s a result of the city’s explosive growth. But the state of Nevada has the historical misfortune of receiving a smaller share of Colorado River water (300,000 acre-feet annually) than the other six states with which it signed a water-sharing compact in the 1920s. That modest share, stored in Lake Mead along with water destined for Southern California, Arizona and northern Mexico, now means everything to Las Vegas. I traveled to Lake Mead on a 99-degree day last June. The narrow, 110-mile-long lake, which at full capacity holds 28 million acre-feet of water (making it the largest reservoir in the United States), was at 49 percent of capacity. When riding into the valley and glimpsing it from afar — an astonishing slash of blue in the desert — my guide for the day, Bronson Mack of the Southern Nevada Water Authority, remarked that he had never seen it so low. The white bathtub ring on the sides of the canyon that marks the level of full capacity was visible about 100 feet above the water. “I have a photograph of my mother on her honeymoon, standing in front of the lake,” Mack, a Las Vegas native, said. That was in 1970. “It was almost that low, but not quite.”

Over the past year, it has become conceivable that the lake could eventually drop below the level of the water authority’s intake pipes, the straws that suck the water out for the Las Vegas Valley. The authority recently hired an engineering firm to drill through several miles of rock and create a deeper intake pipe near the bottom of the lake. To say the project is being fast-tracked is an understatement. The day after visiting Lake Mead, I met with Mulroy in her Las Vegas office. “We have everything in line to get it running by 2012,” she said of the new intake. But she added that she is looking to cut as much time off construction as possible. Building the new intake is a race against the clock, or rather a race against a lake that keeps going down, down, down.

Mulroy is not gambling the entire future of Las Vegas on this project. One catchphrase of the water trade is that water flows uphill toward money, which is another way of saying that a city with ample funds can, at least theoretically, augment its supplies indefinitely. In a tight water market like that of the West, this isn’t an absolute truth, but in many instances money can move rivers. The trade-off is that new water tends to be of lower quality (requiring more expensive purification) or far away (requiring more expensive transport). Thanks to Las Vegas’s growth — the metro area is now at 1.8 million people — cost is currently no object. The city’s cash reserves have made it possible for Mulroy to pay Arizona $330 million for water she can use in emergencies and to plan a controversial multibillion-dollar pipeline to east-central Nevada, where the water authority has identified groundwater it wants to extract and transport. Wealth allows for the additional possibility of a sophisticated trading scheme whereby Las Vegas might pay for a desalination plant on the Pacific Coast that would transform seawater into potable water for use in California and Mexico. In exchange, Nevada could get a portion of their Colorado River water in Lake Mead.

So money does make a kind of sustainability possible for Las Vegas. On the other hand, buying water is quite unlike buying anything else. At the moment, water doesn’t really function like a private good; its value, which Peter Binney calls “infinite,” is often only vaguely related to its price, which can vary from 50 cents an acre-foot (what Mulroy pays to take water from Lake Mead) to $12,000 an acre-foot (the most Binney has paid farmers in Colorado for their rights). Moreover, water is so necessary to human life, and hence so heavily subsidized and regulated, that it can’t really be bought and sold freely across state lines. (Enron tried to start a water market called Azurix in the late 1990s, only to see it fail spectacularly.) The more successful water markets have instead been local, like one in the late 1980s in California, where farmers agreed to reduce their water use and sell the savings to a state water bank. Mulroy and Binney each told me they think a true free-market water exchange would create too many winners and losers. “What you would have is affluent communities being able to buy the lifeblood right out from under those that are less well heeled,” Mulroy said. More practical, in her mind, would be a regional market that gives states, cities and farmers greater freedom to strike mutually beneficial agreements, but with protections so that municipalities aren’t pitted against one another.

More-efficient water markets might ease shortages, but they can’t replace a big city’s principal source. What if, I asked Mulroy, Lake Mead drained nearly to the bottom? Even if drought conditions ease over the next year or two, several people I spoke with think the odds are greater that Lake Powell, the 27-million-acre-foot reservoir that supplies Lake Mead, will drop to unusable levels before it ever fills again. Mulroy didn’t immediately dismiss the possibility; she is certain that the reduced circumstances of the two big Western reservoirs are tied to global warming and that Las Vegas is this country’s first victim of climate change. An empty Lake Mead, she began, would mean there is nothing in Lake Powell.

“It’s well outside probabilities,” she said — but it could happen. “In that case, it’s not just a Las Vegas problem. You have three entire states wiped out: Arizona, California and Nevada. Because you can’t replace those volumes with desalted ocean water.” What seems more likely, she said, is that the legal framework governing the Colorado River would preclude such a dire turn of events. Recently, the states that use the Colorado reached a tentative agreement that guarantees Lake Mead will remain partly full under current conditions, even if upstream users have to cut back their withdrawals as a result. The deal supplements a more fundamental understanding that dates to the 1920s. If the river is failing to carry a certain, guaranteed volume of water to Lee’s Ferry, which is just below Lake Powell, the river’s lower-basin states (Nevada, Arizona and California) can legally force the upper-basin states (Colorado, Wyoming, New Mexico and Utah) to reduce or stop their water withdrawals. This contingency, known as a “compact call,” sets the lower-basin states against the upper, but it has never occurred; it is deeply feared by many water managers, because it would ravage the fragile relationship among states and almost certainly lead to a scrum of lawsuits. Yet, last year water managers in Colorado began meeting for the first time to discuss the possibility. In our conversations, Mulroy denied that there would be a compact call, but she pointed out that Las Vegas’s groundwater and desalination plans were going ahead anyway for precautionary reasons.

I asked if limiting the growth of the Las Vegas metro area wouldn’t help. Mulroy bristled. “This country is going to have 100 million additional people in it in the next 25 to 30 years,” she replied. “Tell me where they’re supposed to go. Seriously. Every community says, ‘Not here,’ ‘No growth here,’ ‘There’s too many people here already.’ For a large urban area that is the core economic hub of any particular area, to even attempt to throw up walls? I’m not sure it can be done.” Besides, she added, the problem isn’t growth alone: “We have an exploding human population, and we have a shrinking clean-water supply. Those are on colliding paths. This is not just a Las Vegas issue. This is a microcosm of a much larger issue.” Americans, she went on to say, are the most voracious users of natural resources in the world. Maybe we need to talk about that as well. “The people who move to the West today need to realize they’re moving into a desert,” Mulroy said. “If they want to live in a desert, they have to adapt to a desert lifestyle.” That means a shift from the mindset of the 1930s, when the federal government encouraged people to settle in the West, plant water-intensive crops and make it look like the East Coast. It means landscapes of parched dirt. It means mesquite bushes and palo verde trees for vegetation. It means recycled water. It means gravel lawns. It is the West’s new deal, she seemed to be saying, and I got the feeling that for Mulroy it means that every blade of grass in her state would soon be gone.

The first impulse when confronted with the West’s water problems may be to wonder how, as scarcity becomes more acute, the region will engineer its way back to health. What can be built, what can technology accomplish, to ease any shortages? Yet this is almost certainly the wrong way to think about the situation. To be sure, construction projects like a pipeline from east-central Nevada could help Las Vegas. But the larger difficulty facing Pat Mulroy and Peter Binney, as they describe it, is re-engineering the culture and conventions of the West before it becomes too late. Whether or not there is enough water in the region for, say, the next 30 or 50 years isn’t necessarily a question with a yes-or-no answer. The water managers I spoke with believe the total volume of available water could be great enough to sustain the cities, many farms and perhaps the natural flow of the area’s rivers. But it’s not unreasonable to assume that if things continue as they have — with so much water going to agriculture; with conservation only beginning to take hold among residents, industry and farmers; with supplies diminishing slowly but steadily as the Earth warms; with the population growing faster than anywhere else in the United States; and with some of our most economically vital states constricted by antique water agreements — the region will become a topography of crisis and perhaps catastrophe. This is an old prophecy, dating back more than a century to one of the original American explorers of the West, John Wesley Powell, who doubted the territory could support large populations and intense development. (Powell presciently argued that river basins, not arbitrary mapmakers, should determine the boundaries of the Western states, in order to avoid inevitable conflicts over water.) An earlier explorer, J. C. Ives, visited the present location of Hoover Dam, between Arizona and Nevada, in 1857. The desiccated landscape was “valueless,” Ives reported. “There is nothing there to do but leave.”

Roger Pulwarty, for his part, rejects the notion of environmental determinism. Nature, in other words, isn’t inexorably pushing the region into a grim, suffering century. Things can be done. Redoubling efforts to prevent further climate change, Pulwarty says, is one place to start; another is getting the states that share the Colorado River to reach cooperative arrangements, as they have begun to discuss, for coping with long-term droughts. Other parts of the solution are less obvious. To Peter Gleick, head of the Pacific Institute, a nonprofit based in Oakland, Calif., that focuses on global water issues, whether we can adapt to a drier future depends on whether we can rethink the functions, and value, of fresh water. Can we can do the same things using less of it? How we use our water, Gleick believes, is considerably more complex than it appears. First of all, there are consumptive and nonconsumptive uses of water. Consumptive use, roughly speaking, refers to water taken from a reservoir that cannot be recovered. “It’s embedded in a product like a liter of Coca-Cola, or it’s contaminated so badly we can’t reuse it,” Gleick says. In agriculture, the vast majority of water use is also consumptive, because it evaporates or transpires from crops into the atmosphere. Evaporated water may fall as rain 1,000 miles away — that’s how Earth’s water cycle works — but it is gone locally. A similar consumptive process characterizes the water we put on our lawns or gardens: it mostly disappears. Meanwhile, most of the water used by metropolitan areas is nonconsumptive. It goes down the drain and empties into nearby rivers, like Colorado’s South Platte, as treated wastewater.

Gleick calls the Colorado River “the most complicated water system in the world,” and he isn’t convinced it will be easy, or practical, to change the laws that govern its usage. “But I think it’s less hard to change how we use water,” he says. He accepts that climate change is confronting the West with serious problems. (He was also one of the country’s first scientists, in the mid-1980s, to point out that reductions in mountain snowpack could present huge challenges.) He makes a persuasive case, however, that there are immense opportunities — even in cities like Las Vegas, which has made strides in conservation — to reduce both consumptive and nonconsumptive demand for water. These include installing more low-flow home appliances and adopting more efficient irrigation methods. And they include economic tools too: for example, many municipalities have reduced consumption by making water more expensive (the more you use, the higher your per-gallon rate). The United States uses less water than it did 25 years ago, Gleick points out: “We haven’t even paid too much attention to it, and we’ve accomplished this.” To go further, he says he believes we could alter not only demand but also supply. “Treated wastewater isn’t a liability, it’s an asset,” he says. We don’t need potable water to flush our toilets or water our lawns. “One might say that’s a ridiculous use of potable water. In fact, I might say that. But that’s the way we’ve set it up. And that’s going to change, that’s got to change, in this century.”

Among Colorado’s water managers, Peter Binney’s Prairie Waters project is considered both innovative and important not on account of its technology but because it seems to mark a new era of finding water sources in the drying West. It also proves that the next generation’s water will not come cheap, or come easy. In late July, I went to Aurora to meet up again with Binney. It was the groundbreaking day for Prairie Waters, which had been on the local television news: Binney and several other officials grinned for the cameras and signed a section of six-foot steel pipe, the same kind that would transport water from the South Platte wells to the Aurora treatment facility. That evening, Binney and I had dinner together at a steakhouse in an Aurora shopping mall. When he remarked that we may have exceeded what he calls the “carrying capacity” of the West, I asked him whether our desert civilizations could last. Binney seemed dubious. “Not the way we’ve got it set up,” he said. “We’ve decoupled land use from water use. Water is the limiting resource in the West. I think we need to match them back together again.” There was a decent amount of water out there, he went on to explain, but it was a false presumption that it could sustain all the farms, all the cities, all the rivers. Something will have to give. It was also wrong to assume, he said, that cities could continue to grow without experiencing something akin to a religious awakening about the scarcity of water. Soon, he predicted, we would talk about our “water footprint” just as we now talk about our carbon footprint.

Indeed, any conversations about the one will in short order expand to include the other, Binney went on to say. Many water managers have known this for a while. The two problems — water and energy — are so intimately linked as to make it exceedingly difficult to tackle one without the other. It isn’t just the matter of growing corn for ethanol, which is already straining water supplies. The less water in our rivers, for instance, the less hydropower our dams produce. The further the water tables sink, the more power it takes to pump water up. The more we depend on coal and nuclear power plants, which require huge amounts of water for cooling, the larger the burden we place on supplies.

Meanwhile, it is a perverse side effect of global warming that we may have to emit large volumes of carbon dioxide to obtain the clean water that is becoming scarcer because of the carbon dioxide we’ve already put into the atmosphere. A dry region that turns to desalination, for example, would need vast amounts of energy (and money) to purify its water. While wind-powered desalination could perhaps meet this challenge — such a plant was recently built outside Perth, Australia — it isn’t clear that coastal residents in, say, California would welcome such projects. Unclear, too, is how dumping the brine that is a by-product of the process back into the ocean would affect ecosystems.

Similar energy challenges face other plans. In past years, various schemes have arisen to move water from Canada or the Great Lakes to arid parts of the United States. Beyond the environmental implications and construction costs (probably hundreds of billions of dollars), such continental-scale plumbing would require stupendous amounts of electricity. And yet, fears that such plans will resurface in a drier, more populous world are partly behind current efforts by the Great Lakes states to certify a pact that protects their fresh water from outside exploitation.

Just pumping water from the Prairie Waters site to Aurora will cost a small fortune. Binney told me this the day after the groundbreaking, as we drove north from Aurora to the site. Along the 45-minute journey, Binney narrated where his pipeline would go — along the edge of the highway here, over in that field there and so on. Eventually we turned off the highway and onto a small country road, and Binney slowed down so I could take in the surroundings. “Here’s where you see it all coming together and all of it coming into conflict,” he told me. To him, it was a perfect tableau of the West in the 21st century. There was a housing development on one side of the road and fields of irrigated crops on the other. Farther ahead was a gravel pit, a remnant of the old Colorado mineral-extraction economy.

He drove on, and soon we turned onto a dirt road that bisected some open fields. We rumbled along for a quarter mile or so, spewing dust and passing over the South Platte in the process. Binney parked by a wire fence near a sign marking it as Aurora property. We got out of the truck, hopped over a locked gate and walked into a farm field.

For miles along the highway, we passed barren acreage that formerly grew winter wheat but was now slated for new houses. The land we stood on once grew corn, but tangles of weeds covered it now. As we walked, Binney explained that the collection wells on the South Platte would soon be dug a few hundred yards away; that water would be pumped into collection basins on this field, where sand and gravel would purify it further. Then it would be pumped back to the chemical treatment plants in Aurora before being piped to residents. “We’re standing 34 miles from there,” Binney said.

It was a location as ordinary as I could have imagined, an empty place, far from anything, and yet Binney saw it as something else. Earlier, when we crossed over the gravel banks of the South Platte, I found the river disappointing: broad and shallow, dun-colored and slow-moving, its unimpressive flow somehow incorporating water Aurora had already used upstream. James Michener, in writing about this region years ago, was dead-on in calling it “a sad, bewildered nothing of a river.” Still, the South Platte was dependable. It was also Aurora’s lifeline, buying the city 20 or 30 years of time. “What I really like about it,” Binney said, smiling as we walked from the field back to his truck, “is that it’s wet.”

Jon Gertner is a contributing writer for the magazine.

Saturday, October 20, 2007

Destined for UTube?

Accountability matters so below I give you the weblink so you can grade my television perfomance today. No listeners called in to ask questions. Does that mean that nobody was listening?

If you missed it the first time, let me offer you a second chance.
My Los Angeles cable TV debut on channel 36

You'll hear some witty banter on a number of environmental topics including my deep thoughts on whether Governor Arnold S. would be an effective tacher at UCLA.

Friday, October 19, 2007

Is Harvard Becoming "Greener" Over Time?

Can quality offset quantity of consumption such that we achieve "green growth"? Mr. Helfer does not think so. This pithy letter unintentionally summarizes a recent literature in environmental economics pretty neatly.

To Be Green Means To Constrain Consumption
Published On 10/18/2007 11:57:25 PM

Jonathan B. Steinman hopes that a wind turbine atop William James Hall and solar panels on the roof of Cabot Science Library may help inspire members of the University to become “green” (“Green Baby Steps,” comment, Sept. 10). As a Harvard employee for close to 20 years, I see little cause for such hope.

Each year since the University began computerizing, its use of electricity to power its over-abundance of computer monitors, printers and copiers—along with paper usage—has increased. During this same period student demand for more amenities appears to have no limit: libraries must be open 24 hours and serve lattes, buildings which have served satisfactorily for generations need to be updated to provide air-conditioning, and gymnasiums must have all the latest exercise gadgetry. These and other luxuries—out of reach for most of the world’s people as well as most Americans—have a heavy environmental impact.

Unless members of the University constrain their consumption, wind turbines and solar panels will do little more than serve as part of a public relations campaign.


Cambridge, MA

October 10, 2007


Thursday, October 18, 2007

My Cable TV Debut

As a young man, I watched the movie "Wayne's World" and wondered what it would be like to be on Cable TV. Saturday, I will find out. I appreciate the opportunity to appear on Beth Evans' show. We'll be discussing the role of environmental issues ins the 2008 election. My hunch is that this election will not focus on such issues but it is interesting that the Republicans sound "greener" than past cohorts of republican candidates. Will Big Fred run on a $5 gas tax? Tune in on saturday to hear my answer!

I will bring some props with me to take some attention away from my face. I'll be armed with a copy of my 2006 Brookings book and some copies of the 2006 UCLA IOE Report Card.

I'm hoping that some of my students will be watching and I've been promised a DVD containing a video of my appearance.

Do I have anything to say? I think so but my son disagrees. I view this as a stepping stone to work my way up to the Jay Leno show or Larry King Live.

Some people say I look like Quentin Tarantino others say I look like the singer Dave Matthews. We'll see if I can make the A-list. If I fail in the spotlight, I can return to my day job. I do like it!

Dear Mr. Kahn:

Thank you for agreeing to appear as a guest on the live broadcast of “Election 2008 with Beth Evans”

this Saturday, October 20, 2007 from 2:00 - 3:30PM. We look forward to you sharing your view regarding

the environment as an major issue in the 2008 Presidential Election. We also look forward to learning more

about UCLA’s Institute of the Environment.

The program will originate from the DHTV Broadband Network Studios of California State University, Dominguez Hills

in Carson, CA and will been seen live on regional cable television networks throughout Greater Los Angeles.

Tuesday, October 16, 2007

Santa Monica AltCar Expo on friday 10/19/2007

If you live in the greater Los Angeles area and you have a deep urge to hear me speak about hybrid vehicles for ten minutes, then maybe you should attend the AltCar Expo this friday in Santa Monica. I promise to sign any Readers Digest or Green City book copy that I'm handed. The prediction markets put a zero probability on either of these events taking place but I learned in game theory the importance of having a strategy ready for any unlikely state of the world.

AltCar Expo is to promote the development of alternative fuel and vehicle technologies and innovative environmental and transportation policies. The two-day event will feature panels on regional urban planning, climate change initiatives, public health concerns, and renewable energy use in transportation. More than 150 exhibits will offer an extensive presentation of the latest in electric, natural gas, hydrogen, biodiesel, ethanol, and hybrid technologies, with opportunities for guests to test drive and purchase a variety of “green” vehicles.

As a co-sponsor of the event, UCLA is pleased to showcase our expertise across an array of environmental and transportation-related disciplines. On Friday, Professor J.R. DeShazo from the UCLA School of Public Affairs and Prof. Matt Kahn from the Institute of the Environment (IoE) will co-host a panel with RAND expert and former UCLA Urban Planning Chair Martin Wachs on “The Likely Effects of Federal Climate Change Policy on the Development of Alternative Vehicles.”

Among the exhibits, the UCLA Center for Embedded Network Sensing (CENS) will present its “Personal Environmental Impact Report” to educate individuals about our daily effect on the environment around us. Other UCLA exhibitors include the Hydrogen Engineering Research Consortium (HERC) and the Department of Atmospheric and Oceanic Sciences.

Details on the AltCar Expo

Forget UCLA Basketball, Focus on the Ziman Real Estate Center

The real reason that Bill Walton and Lew Alcindor studied at UCLA was not Coach Wooden. They knew that in time that UCLA would become the leading place to study and do research on real estate and urban topics.

If you share their interests, then you should go to this website
UCLA's Ziman Real Estate Center

Home Insurance and Climate Change

As private insurers drop insurance coverage for home owners who live near coasts, the states and the federal government will become the residual claimant on these policies. The Congressional Representatives for these home owners will demand legislation to protect their constituents. Since these policies will be priced below their expected cost, such policies will represent an implicit subsidy from "safe" areas of the country (think of Illinois) to coastal areas that are at risk from hurricanes and other natural events.

If climate change makes these events more frequent and more severe, then the implicit subsidy from the U.S interior to the coasts will be larger. Suppose that the Representatives from the interior of the country recognize this and try to pass some of the costs back to the coastal states. This would encourage states on coasts such as Florida to do a better job zoning and in terms of building codes to reduce the number of "victims" at risk from such events. This political driven process would help the U.S to adapt to climate change and the process is solely driven by self interest of politicians protecting their constituents.

October 16, 2007
Home Insurers Canceling in East

GARDEN CITY, N.Y., Oct. 15 — It is 1,200 miles from the coastline where Hurricane Katrina touched land two years ago to the neat colonial-style home here where James Gray, a retired public relations consultant, and his wife, Ann, live. But this summer, Katrina reached them, too, in the form of a cancellation letter from their home-insurance company.

The letter said that “hurricane events over the past two years” had forced the company to limit its exposure to further losses; and that because the Grays’ home on Long Island was near the Atlantic Ocean — it is 12 miles from the coast and has been touched by rampaging waters only once, when the upstairs bathtub overflowed — their 30-year-old policy was “nonrenewed,” or canceled.

The Grays signed with a new company, but their case attracted the attention of consumer advocates and, in turn, the New York insurance commissioner, Eric R. Dinallo.

Mr. Dinallo’s sharp rebuke last month of the Grays’ company, Liberty Mutual Fire Insurance Company, reflected a shift in how public officials view a new reality in the homeowners’ insurance business, advocates say.

In the last three years, more than three million homeowners have received letters like the Grays’ as insurance companies, determined to avoid another $40 billion Katrina bill, have essentially begun to redraw the outline of the eastern United States somewhere west of the Appalachian Trail.

Public officials in Southern states from Florida to Texas have been fighting insurance carriers for years over rising rates and withdrawal of services, but officials in the Northeast have only recently joined the fray.

Companies including Allstate, State Farm and Liberty Mutual have “nonrenewed” policies not only in hurricane-battered places like Florida and Louisiana, but in New York and other Northern states that have not seen hurricanes in years. Since last year, those three companies and others have turned down all new homeowners’ insurance business in New Jersey, Connecticut, Rhode Island, Maryland, Massachusetts and the eight downstate counties of New York.

An independent insurance agents’ group puts the Grays among about 50,000 residents of the New York metropolitan area — and about one million homeowners in the Mid-Atlantic and New England states — whose policies have been canceled since 2004. While most homeowners have been able to find coverage with other major insurers, or with smaller companies, in most cases it is at higher rates and with larger deductibles.

The companies say they are obliged to avoid undue risks where they see them, and to remain solvent. “Considering what happened between 2003 and 2005,” said Robert P. Hartwig, president of the Insurance Information Institute, an industry lobbying group, “and considering that the best meteorological minds are telling us that for the next 15 to 20 years hurricane activity will be heavier than normal, if we didn’t do something to reduce our exposure, we’d be out of business.”

In response to a growing torrent of complaints, state officials and lawmakers have lately begun to push back, if gingerly, against the industry, which they see as overreacting to the hurricane threat in the Northeast. “My concern is that this situation is being manipulated by the insurance companies in order for them to get higher rates,” said State Senator Kenneth P. LaValle, who calls the cancellation of policies in his eastern Long Island district “more than a problem — it is a crisis.”

Mr. Dinallo, the commissioner, has focused his attention on the law: It was a single line in the Liberty Mutual letter sent to the Grays that prompted him to issue his rebuke. The line noted that one consideration in dropping their policy was that they did not have car insurance with the company.

That, Mr. Dinallo said, is illegal. Predicating one policy on another, or so-called “tie-in business,” is a violation of state insurance law, he said. Liberty Mutual said the tie-in was a secondary issue, but in response to Mr. Dinallo’s warning, Liberty Mutual, State Farm and the largest insurer in the state, Allstate, agreed to stop the practice.

Earlier this year, Richard Blumenthal, the Connecticut attorney general, also challenged insurers’ tactics, subpoenaing records from nine insurance companies that were requiring homeowners to install storm shutters if they wanted to keep their policies. “The insurers are making record profits,” Mr. Blumenthal said in an interview, “and the dire predictions of disastrous hurricanes, fortunately, have been very wrong — fortunately for everyone, including the insurers.”

Meanwhile, heated public hearings were held this year in the Rhode Island General Assembly about the lack of homeowners’ insurance in coastal areas, which include most of the state.

In Massachusetts, New Jersey and New York, lawmakers and regulators this year proposed requiring all insurance companies doing business in the states to set aside billions of dollars to help defray losses from future catastrophic storms.

At a public hearing of the New York Senate Insurance Committee last Tuesday, Senator Charles J. Fuschillo Jr. said the retreat of major home insurers had hurt the housing market. (Home insurance is required by all banks that make home loans.)

“We have people who cannot buy a house because they can’t find insurance,” he said.

Amy Bach, executive director of United Policyholders, a California-based consumer advocacy group, has watched the situation in the East with both professional and personal interest, since the policy on her parents’ Long Island home was recently canceled. Crisis or not, she said, the pattern is familiar.

“Wide-scale nonrenewal has been the knee-jerk reaction of the big insurance companies after every major disaster: hurricanes, earthquakes, wildfires,” she said.

Florida set the pattern for states in picking up the risk shed by major carriers. Its state-created Citizens Property Insurance Corporation, the insurance pool for those unable to find home insurance anywhere else, has become the state’s largest homeowners’ insurer, with 1.3 million policies.

But Massachusetts, last hit by a moderate hurricane in 1991, has also found itself in the insurance business. Its high-risk pool has doubled in size in the last five years, reaching 200,000 policies this year, which makes it the largest single homeowners’ insurance carrier in the state. On Cape Cod, 44 percent of homeowners are covered by the plan.

In New York, Connecticut and New Jersey, the number of people covered by state insurance pools has remained relatively low. The New York plan, known as the New York Property Insurance Underwriting Association, carries about 70,000 policies, most for homes in coastal areas; this year, officials said, the state pool was expecting 10,000 more.

To some extent, insurance brokers in the New York metropolitan area have closed the gap left by the major carriers by finding policies with subprime insurers, also known as the excess and surplus market. Figures provided by the Excess Line Association of New York, a group representing those insurers, show that 7,689 such policies were sold last year, and almost as many, 7,456, in the first seven months of 2007.

Robert J. Hunter, director of insurance for the Consumer Federation of America, said the extent of the retreat by major insurers “will depend a lot on what happens this year, hurricane-wise.”

Insurance companies have condensed their projections of risk, he said.

“They used to project 20 years in the future, but now it is more like 4 or 5,” Mr. Hunter said, a practice that has driven the current pull-back along the Northeast coast, where a big hurricane is overdue, according to computer analysis.

Mr. Hartwig, of the Insurance Institute, said it was more complicated than that. “What insurers are worried about is not just a hurricane in New York, but hurricanes in New York and Florida at the same time,” he said.

Betty Clark, a retired waitress living on a fixed income in a modest house where she raised her children in Eastham, Mass., on Cape Cod, said she had no idea how the tussle between insurance companies and public officials would play out. But after years of paying $742 a year, her home insurance doubled last year, to $1,440, which she would not be able to afford if not for some help from her children.

“I’ve never made a claim in all these years,” she said by telephone. “And yet, here it’s possible I’ll lose my home,” she said.

And not to a hurricane, she added.