Mixed signals: market incentives, recycling, and the price spike of 1995

Environmental economics assumes that reliance on price signals, adjusted for externalities, normally leads to efficient solutions to environmental problems. We explore a limiting case, when market volatility created ‘mixed signals’: prices of waste paper and other recycled materials were suddenly extremely high in 1994–1995, then plummeted back to traditional low levels in 1996. These rapid reversals resulted in substantial economic and political costs. A review of academic and business literature suggests six possible explanations for abrupt price spikes. An econometric analysis of the prices of wood pulp and waste paper shows that factor which explained price changes in 1983–1993 contribute very little to understanding the subsequent price spike. From the econometric analysis and from other sources, we conclude that speculation must have played a major role in the price spike, perhaps in combination with modest effects from changes in government policy and in export demand. If speculatively driven price spikes can disrupt an environmentally important industry such as recycling, what is the appropriate role for public policy? When price volatility is sufficiently disruptive, then measures to control or stabilize prices, rather than interfering with the market, might help to make it more efficient.     

Metal prices and the business cycle

Metal price fluctuations have recently been of interest not only because of their cyclical volatility but also of their interaction with business cycles. A related issue is whether metal prices move together sufficiently to collectively reflect macroeconomic influences. Correlation or the tendency for prices to move together has been termed “comovement”, where the commonality in prices reflects the tendency of commodity markets to respond to common business cycle and trend factors. Metal prices are known to respond to macroeconomic influences and the latter might well explain the common factor which causes them to move together. Our goal is to provide an estimate of the common factor in metal prices and to relate this factor to important macroeconomic influences. The prices we study are for aluminum, copper, tin, lead and zinc; the macroeconomic variables include industrial production, consumer prices, interest rates, stock prices, and exchange rates. Our results confirm that the common factor in metal prices can be related to such macroeconomic influences.     

Methodology for CO2 chain analysis

The paper presents a methodology for CO₂ chain analysis with particular focus on the impact of technology development on the total system economy. The methodology includes the whole CO₂ chain; CO₂ source, CO₂ capture, transport and storage in aquifers or in oil reservoirs for enhanced oil recovery. It aims at supporting the identification of feasible solutions and assisting the selection of the most cost-effective options for carbon capture and storage. To demonstrate the applicability of the methodology a case study has been carried out to illustrate the possible impact of technology improvements and market development. The case study confirms that the CO₂-quota price to a large extent influence the project economy and dominates over potential technology improvements. To be economic feasible, the studied chains injecting the CO₂ in oil reservoirs for increased oil production require a CO₂-quota price in the range of 20–27 €/tonne CO₂, depending on the technology breakthrough. For the chains based on CO₂ storage in saline aquifers, the corresponding CO₂-quota price varies up to about 40 €/tonne CO₂.     

The macroeconomic determinants of volatility in precious metals markets

This paper models the monthly price volatilities of four precious metals (gold, silver, platinum and palladium prices) and investigates the macroeconomic determinants (business cycle, monetary environment and financial market sentiment) of these volatilities. Gold volatility is shown to be explained by monetary variables, but this is not true for silver. Overall, there is limited evidence that the same macroeconomic factors jointly influence the volatility processes of the four precious metal price series, although there is evidence of volatility feedback between the precious metals. These results are consistent with the view that precious metals are too distinct to be considered a single asset class, or represented by a single index. This finding is of importance for portfolio managers and investors.     

Growth and green income: evidence from mining in Chile

This paper estimates the true economic income for the Chilean mining sector, using the welfare foundations for the usual net domestic product (NDP) income measure of the traditional National Accounts System (NAS) provided by [Weitzman, M., 1976. On the welfare significance of national product in a dynamic economy. Quarterly Journal of Economics. 90, 156–162; Weitzman, M., 2000. The linearised Hamiltonian as comprehensible NDP. Environment and Development Economics. 5, 55–68]. The total depletion of natural capital caused by mining is calculated by estimating, on the one hand, the depreciation of resources (using the net price approach) and, on the other, the environmental costs provoked by mining activity. The results show that, correcting the usual GDP measure for man-made capital depreciation plus the total loss of natural capital, the standard mining GDP measure of the NAS overestimates by 31–36% the economic income generated by Chile's mining sector during the period 1985–1996.     

Impact of crude oil pollution on species number and live standing herbaceous crop biomass

Summary The impact of crude oil spill on the number of plant species and the above-ground live standing crop biomass (AGLSCB) of a herbaceous plant community was assessed. The spillage had a devastating effect on the herbaceous community and especially on the component herbaceous annuals. At least 80–90% of the species were absent in the affected areas in comparison to nearby unaffected areas, most of these being annuals. Perennial species were generally less affected. The total herbaceous production for a period of 12 months in the polluted areas was 885.1 gm^–2 compared with 4860.7 gm^–2 for the unaffected areas. The average monthly production in the polluted areas was 73.8 gm^–2 compared with 405.0 gm^–2 for the unaffected areas.Dr Debojit Baruah is the senior author of this paper and he is a research scholar at Dibrugarh University. Dr Sarada K. Sarma is a Pofessor in the Botany Department of Guwahati University in Assam.     

Modeling the Production and Uses of Biological Resources from the Viewpoint of Energy Flow in a Rural Village in Sichuan,China

This study aimed at clarifying the impact of deforestation and afforestation on the quality of life in a village in Sichuan Province, China. We devised a conceptual model of bioresource production and use based on quantified energy flow. The basic structure of the model has three sectors: production, use, and externals. We developed comprehensive methodology to quantify the model. Bioresource use per person in 1997 was 3.7 GJ for food, 10.2 GJ for fodder, 0.2–0.4 GJ for building material, 12.8 GJ for fuel, and 1.8 GJ for fertilizer, totaling 28.6–28.8 GJ.We used four environmental indicators to evaluate bioresource production and use: a biological productivity indicator, a use-efficiency indicator, a supply–demand balance indicator, and a self-sufficiency indicator. Use of these indicators showed that supply-demand balance of fuel was dramatically improved from 30% to 85% by afforestation, but 99% of bioresource use still depends on domestic products. Thus, it is necessary to improve biological productivity and promote the efficient use of bioresources to achieve sustainable living in the area. Massive deforestation in the 1950s caused a direct shortage of building material and fuel wood. The shortage of wood led to a stagnation in the rebuilding of houses, and fuel wood was substituted with crop residues. Because crop residues had been used for fertilizer and fodder, their use as fuel caused a shortage of fertilizer and fodder. This was an indirect impact of deforestation on peoples quality of life.     

Whither copper prices? : Golden years or a return to bust?

By comparing the 1964–1973 period of exceptional strength in the copper price with current market conditions, a more informed judgement can be made about the longevity of the current boom in the copper price. Preconditions for an extended period of strong real prices appear to be in place, while there are few signs of an imminent price collapse.     

Oil windfalls in Brazil and their long-run social impacts

In 1997, Brazil changed the regulatory framework of its oil and gas sector. After this change, a restrict subset of localities started to receive large amounts of oil rents. The goal of this paper is to evaluate whether such rents distributed under this law contributed to improving some social indicators relative to the national average in the eligible municipalities. We used a “difference-in-differences” measurement to compare changes in selected social indicators within affected Municipalities in the last two decades, taking the unaffected districts as control group. The Municipal data on social indicators were collected from three National Censuses, conducted in 1991, 2000 and 2010. Results show that royalties had a positive and statistically significant impact on household’s access to electric wiring, piped water and waste collection, as well as in the decrease of illiteracy rate. This means the eligible districts were able to improve some of their social indicators in the long-run.     

Iron ore spot price volatility and change in forward pricing mechanism

To examine the impact of the change in forward pricing mechanism on the volatility of iron ore spot prices, we model the iron ore daily price of Platts IODEX from October 7, 2008 to September 21, 2012. The identified iron ore spot price tends to be less volatile after the introduction of quarterly pricing mechanism. Our main approaches are as follows: (i) to decompose the spot price of Platts IODEX into two subsamples and relate the result of the structural break to the date of the switch in the iron ore forward pricing mechanism; (ii) to apply the EGARCH (1, 1) model to simultaneously capture the long memory and the asymmetric effect on the volatility of the iron ore spot price; and (iii) to delineate the news impact curve to further interpret the asymmetric effect.     

Aggregate eco-efficiency indices for New Zealand--a principal components analysis

Eco-efficiency has emerged as a management response to waste issues associated with current production processes. Despite the popularity of the term in both business and government circles, limited attention has been paid to measuring and reporting eco-efficiency to government policy makers. Aggregate measures of eco-efficiency are needed, to complement existing measures and to help highlight important patterns in eco-efficiency data.This paper aims to develop aggregate measures of eco-efficiency for use by policy makers. Specifically, this paper provides a unique analysis by applying principal components analysis (PCA) to eco-efficiency indicators in New Zealand.The study reveals that New Zealand's overall eco-efficiency improved for two out of the five aggregate measures over the period 1994/1995–1997/1998. The worsening of the other aggregate measures reflects, among other things, the relatively poor performance of the primary production and related processing sectors. These results show PCA is an effective approach for aggregating eco-efficiency indicators and assisting decision makers by reducing redundancy in an eco-efficiency indicators matrix.     

The Potential Use of Chicken-Drop Micro-Organisms for Oil Spill Remediation

An examination of chicken-drop micro-organisms for oil spill remediation is presented in this work. The chicken droppings contained aerobic heterotrophs (1.2×10⁸ CFU g^–1), total fungi (3.4×10⁴ CFU g^–1) and crude oil (transniger pipeline crude, TNP) degrading bacteria (1.5×10⁶ CFU g^–1). The crude oil degraders were identified as species of Micrococcus, Bacillus, Pseudomonas, Enterobacter, Proteus, Klebsiella, Aspergillus, Rhizopus, and Penicillium. Pseudomonas aeruginosa CDB-06 and species of Bacillus CDB-08 and Penicillium CDF-10 degraded the crude oil at exceedingly high rates. Pseuedomonas aeruginosa CDB-06 degraded 65.5 percent of the crude oil after 16 days, while Bacillus sp. CDB-08, and Penicillium sp. CDF-10 degraded 65.3 percent, and 53.3 percent, respectively of the crude oil over the same period. The chicken droppings also had a pH 7.3, 18.5 percent moisture content, 2.3 percent total nitrogen, and 0.5 percent available phosphorus. Addition of oil polluted soil (10 percent (v/w) pollution level) with chicken droppings enhanced degradation of the crude oil in the soil. 68.2 percent of the crude oil was degraded in the soil amended with chicken droppings, whereas only 50.7 percent of the crude oil was degraded in the unamended soil after 16 days. The amendment raised the acidic reaction (pH 5.7) of the oil-polluted soil to alkaline (pH 7.2) within 16 days. Chicken droppings could, therefore, be used in an integrated oil pollution abatement program.     

Three Egyptian industrial wastewater management programmes

A pre-treatment programme for wastewater from factories, representing three main industrial sectors in Egypt, has been developed. The first case study was a factory producing potato-chips. Wastewater discharged from this factory was characterized by high values of BOD, SS and oil and grease (6000 mgO₂ l^–1, 6577 mg l^–1 and 119 mg l^–1 respectively). Chemical treatment using lime and lime aided by polyelectrolyte achieved good results. Residual values of BOD and SS after treatment were 97 mg l^–1 and 49 mg l^–1, respectively. Oil and grease concentrations were reduced by 91 percent. Treatment via activated sludge at a detention time of 4 hrs produced good quality effluent. The second case study was an automobile company, representing the metal finishing industry. Analyses of wastewater samples from the degreasing, phosphating and painting departments, as well as the end-of-pipe effluent were conducted. The end-of-pipe effluent contained high concentrations of oil and grease (366 mg l^–1), phosphorous (111 mg l^–1) and zinc (81 mg l^–1). Chemical treatment of end-of-pipe wastewater using ferric chloride aided by lime, produced high quality effluent. The third sector was the chemical industry. For this purpose a paint factory was selected. Characteristics of raw wastewater varied widely according to the production rate. Average values of COD and BOD were 1950 mg l^–1 and 683 mg l^–1. Oil and grease ranged from 63 to 1624 mg l^–1. Chemical treatment using ferric chloride in combination with lime at the optimum operating conditions achieved good results. Residual values after treatment of COD, BOD and oil and grease reached 120, 36 and 8.6 mg l^–1, respectively. An engineering design for each case study has been prepared.     

Estimating the volatility of mining projects considering price and operating cost uncertainties

In the real option pricing model of valuation and decision making, the estimation of future volatility is a key input parameter. For traded commodities or financial assets, past volatility is used as a proxy for predictions. But, for projects, this approach is not feasible because, in most cases, historical data of traded projects are not available. As an alternate solution, it is usually assumed that project volatility is equal to that of commodity price. In order to investigate this assumption, we estimate the project volatility considering that both commodity price and operating cost evolve as a geometric Brownian motion (GBM). Results of a hypothetical gold mining project indicate that project volatility is higher than that of commodity price and it only drops to price volatility under very unrealistic industry conditions, such as very high prices or very low production costs. In addition, we find that project volatility is independent of production capacity and taxation, but depends on increments in price and cost, as well as strongly on their degree of correlation.     

Theory of storage,inventory and volatility in the LME base metals

The theory of storage, as related to commodities, makes two predictions involving the quantity of the commodity held in inventory. When inventory is low (i.e. a situation of scarcity), spot prices will exceed futures prices, and spot price volatility will exceed futures price volatility. Conversely, during periods of no scarcity, both spot prices and spot price volatility will remain relatively subdued. We test these predictions for the six base metals traded on the London Metal Exchange (aluminium, copper, lead, nickel, tin and zinc), and find strong validation for the theory. Including Chinese inventories reported by the Shanghai Futures Exchange strengthens the relationship further. We also introduce the concepts of excess volatility, inventory-implied spot price and inventory-implied spot volatility and illustrate some applications.     

Assessing instruments for mixed household solid waste collection services in the Flemish region of Belgium

Instruments to reduce waste can be divided into three groups: first, pecuniary incentives; second, service level; finally, measurements stimulating prevention and waste reduction. Also specific characteristics of the community determine the amount of waste generated. We evaluate whether findings in literature on effectiveness of policy measures are valid for Belgium, specifically for the Flemish region. The policy mix instituted by the Flemish authorities in the ‘implementation plan household waste 2003–2007’ and implemented by local authorities, is assessed. Multiple regression analysis identifies those measurements having the greatest impact on household solid waste.We found an income elasticity of 0.326. Also the provided service level has a significant impact. Pecuniary incentives are effective instruments in reducing waste, with a price elasticity of −0.139. Furthermore, a higher percentage of direct costs, directly attributable to waste services, borne by households, reduces waste. A consequent implementation of the ‘polluter pays’ principle proves to be effective.     

Indicators of Biodiversity and Conservational Wildlife Quality on Danish Organic Farms for Use in Farm Management: A Multidisciplinary Approach to Indicator Development and Testing

Organic farming is expected to contribute to conserving national biodiversity on farms, especially remnant, old, and undisturbed small biotopes, forests, and permanent grassland. This objective cannot rely on the legislation of organic farming solely, and to succeed, farmers need to understand the goals behind it. A set of indicators with the purpose of facilitating dialogues between expert and farmer on wildlife quality has been developed and tested on eight organic farms. “Weed cover in cereal fields,” was used as an indicator of floral and faunal biodiversity in the cultivated land, and “uncultivated biotope area” on the farm was used as a general measure of wildlife habitats. Functional grouping of herbaceous plants (discriminating between “high conservation value” plant species and “competitive”/“ruderal” species) and low mobility butterflies were used as indicators of conservation value, especially focusing on the few sites left with considerable remnant conservation value. The dialog processes revealed that the organic farmers’ ideas and goals of conservation of wildlife quality were not necessarily the same as for biologists; the farmers expressed very different opinions on the biological rooted idea, that wildlife quality is related to the absence of agricultural impact. However, farmers also stated that the information given by the indicators and especially the dialogue with the biologist had influenced their perception and awareness of wildlife. We conclude that, combined with a dialogue process, using these indicators when mapping wildlife quality could be an important key component of a farm wildlife management advisory tool at farm level.     

Assessing corporate–community involvement strategies in the Nigerian oil industry: An empirical analysis

The desire of oil companies operating in the Niger Delta to secure their social license to operate, and address their community development obligations, has led in recent years to the adoption of corporate social responsibility (CSR) policies and strategies. Drawing on quantitative and qualitative data collected in host communities within the Niger Delta in Nigeria, the paper compares the effectiveness of two different corporate–community involvement strategies. The evidence suggests that while the corporate–community foundation model has certain advantages over the in-house community investment model, both approaches suffer from a common shortcoming that limits the impact of oil companies’ efforts on community development in their host communities. The paper concludes by exploring the implications of the research findings for corporate–community involvement in the Nigerian oil industry.     

Market imperfections in recycling markets: conceptual issues and empirical study of price volatility in plastics

The effectiveness of recycling depends upon efficient functioning of secondary material markets. This paper focus on the role that price volatility can play in slowing investment and market development. However, a statistical analysis of the relative volatility of secondary and primary material prices does not confirm the widely-held belief that relative price volatility is higher in secondary than in primary materials, at least at national levels.An econometric estimation of the determinants of plastic recovery volumes in Seattle contributes to the literature in four ways: the use of monthly (as opposed to annual) data; the use of local (as opposed to national) data; the use of an explanatory variable to reflect price volatility; and, the focus on plastics, which have not been examined previously. Some tentative conclusions can be made: the results generally support the principal hypothesis that price volatility has a negative effect on recovery of secondary materials; in addition, and consistent with previous studies, price elasticities are low and insignificant; and finally, policy factors are clearly important. The concluding section treats the economic and policy implications of market inefficiency in secondary material markets.     

Oil spills on other commodities

This paper examines the effect of crude oil prices on the prices of 35 internationally traded primary commodities for the 1960–2005 period. It finds that the pass-through of crude oil price changes to the overall non-energy commodity index is 0.16. At a more disaggregated level, the fertilizer index had the highest pass-through (0.33), followed by agriculture (0.17), and metals (0.11). The prices of precious metals also exhibited a strong response to crude oil price. In terms of individual commodities, the estimates of the food group exhibited remarkable similarity while those of raw materials and metals gave a mixed picture. The implication is that if crude oil prices remain high for some time, as most analysts expect, then the recent commodity price boom is likely to last much longer than earlier booms, at least for food commodities. The other commodities, however, are likely to follow diverging paths. On the methodological side, the results show that price indices, while providing useful summary statistics, they need to be supplemented by individual commodity analysis.