Chapter 18: Environmental Economics

1. Chapter 18: Environmental Economics Big Question: Can We Put a Price on Scenic Beauty, Endangered Species, and the Quality of Life?

2. Environmental Dollar Values The dollar cost of pollution control is rising. Although costly, cleaning our environment has economic benefits. Tangible factors are easier to assess than intangibles.

3. The Environment as a Commons Garrett Hardin’s “the tragedy of the commons” (a commons is land owned by the public and used by all the farmers of the town): Each farmer tries to maximize personal gain. Adding one more cow produces a positive and a negative value. The benefit to the farmer of selling a cow is greater than his share of the negative cost of overgrazing. But complete freedom in a commons inevitably ruins the commons.

4. Low Growth Rate and Low Profit as a Factor in Exploitation Nineteenth-century whalers didn’t try to conserve whales.

5. Externalities: Costs that Don’tShow Up in the Price Tag • An externality: a factor with side effects and consequences, that do not reflect on market prices • Examples of externalities: air and water pollution

6. Case Study: Sudbury's Nickel Smelter What is the true cost of clean air over Sudbury? Who should bear the burden of these costs?

7. Natural Capital,Environmental Intangibles, and Ecosystem Services • Ecosystems maintain clean air and water. • Bees pollinate an estimated $20 billion worth of U.S. crops. • Bacteria fix nitrogen in the oceans, lakes, rivers, and soils.

8. Valuing the Beauty of Nature Another environmental intangible is landscape aesthetics. One problem in aesthetic valuation is personal preference.

9. The Advantage and the Price of Scenery Beautiful views, but high risk from mudslides, earthquakes, and fires

10. How Is the Future Valued? Weighing the present against the future: is a bird in the hand worth two in the bush? Present value is hard to assess. Future value is even harder. Is spending on the future always a good investment?

11. The Cost of Prevention versus the Cost of Damage Example: The failure of the levees in New Orleans during Hurricane Katrina: the cost of strengthening the levees would have been less than the dollar value of the flood damage. Link to “Hurricane Katrina Cost” http://www.msnbc.msn.com/id/9281409

12. Wealthy Societies Value the Environment The wealthier society becomes, the more it values the environment. We are richer than our ancestors. How would they have known what sacrifices would be important to us? Conclusion: Do not throw away or destroy something that cannot be replaced if you are not sure of its future value.

13. Risk–Benefit Analysis

14. Global Issues: Who Bears the Costs? Should developing nations pay as much as industrialized nations? Developing nations think industrial nations should shoulder the costs. Viewing a global issue in terms of what benefits individual nations may be too restricted.

15. Environmental Policy Instruments How does a society achieve an environmental goal? Policy instruments: • moral suasion • laws and regulations • market processes, subsidies, licenses • government investments

16. Pollution Control and the Law of Diminishing Returns When have we done enough to consider the environment “good”? At some point, you need to spend more and more to get less and less.

17. Direct Control of Pollution Three common methods of direct control of pollution: • Setting maximum levels of pollution emission • Requiring procedures and processes that reduce pollution • Charging fees for pollution emission Many people feel the third approach works best

18. Chapter 18: Environmental Economics Questions? E-mail us at eschelp@uw.edu