More on ethanol from the Freakonomics blog. Bottom line if you read the Technology Review article: if oil is $100/barrel, your government's mandate to produce ethanol will cost you 42 cents per gallon of ethanol. But if oil prices fall to $40/barrel the cost to you rises to a whopping dollar a gallon.
Why? Well one way to get a handle on this is to ask what corn is grown for in this country. The Technology Review article reports that current ethanol mandates will require that about 45% of all corn acreage go to fuel, not food by 2015. Think about the consquences of that! (Or of already using 22% of corn acreage for ethanol.)
(The underlying study on all of this is by Wallace Tyner, an agricultural economist at Purdue University.)
Friday, March 7, 2008
ECON 300/ENVA 340: Link to McKibben
Here is the link to McKibben's review (and others) of Lomborg's Cool It! For Tuesday, March 11 you should provide an analysis of three specific points made by McKibben, using the relevant sections of Lomborg. (Double the usual credit - 10 points).
Sunday, March 2, 2008
ECON 340/ENVA 300: Discounting problems for March 6 (edit - now Thursday)
I know you have a ton of midterms coming up, but we need to get some practice and understanding of discounting. Please complete and hand in the following in class Tuesday:
1. Using r=4%, find the PV of $100 received
a. 5 years from now.
b. 10 years from now.
c. 20 years from now.
d. 50 years from now.
e. 100 years from now.
2. Repeat 1, using r=1%
3. Graph PV of the $100 vs. time using your answers from (1) and then from (2). This should be done either using graph paper, or a graphing program such as that in Excel. You should show two curves: the first shows how PV declines with a discount rate of 4%, and the second how it declines with a discount rate of 1%.
4. The best explanation I can find on the discount rate(s) used in the influential Stern Review is in its set of FAQS . Go to these and:
a. In section 8 what specifically does it say about the rate(s) used to discount future costs of climate change to the present? Read very carefully and be very precise in you answer.
b. Using other sections of the FAQS, what temperature change does the Stern Review use in estimating damages, and how large are the damages it estimates from climate change?
1. Using r=4%, find the PV of $100 received
a. 5 years from now.
b. 10 years from now.
c. 20 years from now.
d. 50 years from now.
e. 100 years from now.
2. Repeat 1, using r=1%
3. Graph PV of the $100 vs. time using your answers from (1) and then from (2). This should be done either using graph paper, or a graphing program such as that in Excel. You should show two curves: the first shows how PV declines with a discount rate of 4%, and the second how it declines with a discount rate of 1%.
4. The best explanation I can find on the discount rate(s) used in the influential Stern Review is in its set of FAQS . Go to these and:
a. In section 8 what specifically does it say about the rate(s) used to discount future costs of climate change to the present? Read very carefully and be very precise in you answer.
b. Using other sections of the FAQS, what temperature change does the Stern Review use in estimating damages, and how large are the damages it estimates from climate change?
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