1 / 28

Environmental economics 2

Environmental economics 2. 2 different approaches. Ecological paradigm: concerned with the health and survival of ecosystems Economic paradigm: concerned with maximizing human welfare BUT: does that mean current welfare (short-term) or future welfare (long-term)??. Ecological paradigm.

amity
Download Presentation

Environmental economics 2

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Environmental economics2

  2. 2 different approaches • Ecological paradigm: concerned with the health and survival of ecosystems • Economic paradigm: concerned with maximizing human welfare • BUT: does that mean current welfare (short-term) or future welfare (long-term)??

  3. Ecological paradigm • Ecologists think of maximizing long-term welfare • What do we call that? • Sustainability

  4. Economic paradigm • Economists often concerned with how the environment affects human well-being • Environment has no value by itself (intrinsic value)

  5. Environmental economics • Maximizing human welfare MUST INCLUDE properly valuing ecosystems and the costs of environmental degradation

  6. Environmental economics • To an economist, environmental issues fall into two areas: • Generation of wastes and pollutants as unwanted byproducts of human activities • The management of renewable and nonrenewable natural resources

  7. How much is too much? • How much pollution should be permitted? • Current levels too high? . . . Or too low? • Shouldn’t pollution be zero? • Why or why not?

  8. Market economy • For many goods, supply and demand determine a market equilibrium. • Examples: iPads, Modern Warfare II, bananas • BUT: for natural resources or environmental quality • Not true market goods • Hard to price

  9. Externalities • Key concept • Whenever an economic activity creates ``spillovers’’ on people not directly involved in the activity, there is an externality. = unintentional side effects • Usually negative

  10. KEY Slide Externalities are social costs Supply + social cost • When externalities occur, a company’s private production cost is NOT the same as the social cost of production. • Social costs might include costs of pollution cleanup or added healthcare costs • When external costs are ADDED to the costs of production, the supply curve shifts left (for a given price, suppliers will supply less) supply What happens to the price of a product if externalities are Included?

  11. Externalities • A factory that pollutes a river creates involuntary costs (negative externalities) for anyone using the river • Fishermen –can’t fish or can’t eat catch • Boaters –unable to boat or increased maintenance • Swimmers – lose swimming spot; increased illness • Water suppliers – costs of making water safe

  12. Externalities • There can be positive externalities • Examples? • Your neighbor paints her house and improves her yard with new landscaping. She bears all the cost. She reaps some benefit. • YOU and other neighbors also benefit

  13. How deal with externalities? • Several ways • Command-and-control (government regulation) • Tax • Subsidy Economic • cap-and-trade incentives

  14. Command-and-control • The traditional way of dealing with environmental regulation in the U.S. (and elsewhere). • Regulators – usually the federal or state government – sets standards or limits on some activity, such as pollution emitted.

  15. Command-and-control • Ambient standard • Regulator sets the amount of a pollutant that can be present in a specific environment. • E.g.: government sets limit on ground-level ozone (say, 100 ppm) in an area • Indirect: the limit is on the level in the atmosphere, not on specific polluters.

  16. Command-and-control • Emission standards • Limit the amount of emissions from a specific firm, industry, or region • Doesn’t set allowed level in environment, but tries to reduce pollution company by company.

  17. Command-and-control • Technology-based standard • Require polluters to use particular technology to control pollution. • E.g.: power plants that are required to install scrubbers on their smokestacks.

  18. Command-and-control • Why use c-and-c? • Clear outcome • Easy to monitor compliance • Drawbacks • Information can be hard to come by • The regulated industry has incentive for dishonesty • Gathering information can be expensive • Regulated industries may have no incentive to find innovative ways to meet standards

  19. Command-and-control • Drawbacks (continued) • Not always cost effective • Marginal cost for limiting pollution likely to vary among sources • Means: some companies may be able to reduce pollution much more cheaply than others

  20. Command-and-control • Command-and-control is comforting to politicians and people: governments know what they are asking for, people know what they are getting; companies know what they are supposed to deliver; the only people who do not like it are economists. • The Economist, September 2, 1989

  21. Tax • Fee charged to polluter • Value determined by the regulator • Goals: • Discourage environmentally damaging activity • Raise revenue (often to be used for environmental projects) • Internalize the externality

  22. Tax • A tax may be imposed on a product that causes environmental harm, such as a pollutant. • The tax is a way to INTERNALIZE the externality—that is, to REVEAL the true cost of the product (including the social costs such as environmental degradation or health impacts). • What is the effect? • Environmental economists LIKE pollution taxes!

  23. Tax • Example: • Gasoline tax • Much higher in Europe than the US • Environmental taxes were about 3.5% of total tax revenue in the US in 2003 • About 7% in Europe

  24. Tax • Advantages • The source (regulated industry) can determine most cost effective way to reduce emissions • Economically efficient: polluter will reduce emissions as long as that’s cheaper than paying the tax. • The regulator (government) doesn’t need as much information (such as on control techniques) so less expensive to implement

  25. Tax • Disadvantages • Taxes are politically unpopular • Fairness: gas tax, for example, may be perceived as harming the poor the most

  26. Subsidy • A reverse tax • Payments—by governments—for desirable activities • ‘A result of a government action that confers an advantage on consumers or producers, in order to supplement their income or lower their costs’ • For example: there have been subsidies for purchasing fuel-efficient cars—money back or a tax break.

  27. Subsidy • Disadvantages • May make it seem like environmentally friendly behavior must be paid for, rather than is a responsibility. • Subsidies have a cost—government is paying for them • Subsidies may require government to pick winners

  28. Subsidies & taxes • Possible negative effect of both: • May decrease people’s environmental ethic, because they may feel that if they pay the tax or forego the subsidy, they have a right to pollute and no further responsibility. • DISCUSS

More Related