1 / 18

RYERSON UNIVERSITY Environmental Applied Sciences and Management ES 8926 ENVIRONMENTAL ECONOMICS

RYERSON UNIVERSITY Environmental Applied Sciences and Management ES 8926 ENVIRONMENTAL ECONOMICS. Notes for Class # 5 October 12, 2011

brittany-peters
Download Presentation

RYERSON UNIVERSITY Environmental Applied Sciences and Management ES 8926 ENVIRONMENTAL ECONOMICS

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. RYERSON UNIVERSITYEnvironmental Applied Sciences and ManagementES 8926ENVIRONMENTAL ECONOMICS Notes for Class # 5 October 12, 2011 CHAPTERS 5, 6 , 7, 8

  2. NOTES AND ANNOUNCEMENTS • Review Quiz #1 • Topics for Term Project • Articles for Mid Term Essay

  3. REVIEW DISTORTIONS & MARKET FAILURES • Monopoly, Oligopoly Market Structure • Government Interventions • Price Controls • Barriers to Entrance or Exit • Subsidies • Externalities, Social Costs • Pollution • Destruction of Habitat & Open Space • Public Goods Issues & Characteristics • Open Space, Access to Waterfront, Parks • National Defence, Local Security • Light houses, Broadcast Media, Education • Health Care • (Lack of) Property Rights • Depletion of Un-owned, Open Access Resources

  4. REVIEW DISTORTIONS & MARKET FAILURES • Public Goods • Demand Expresses Marginal WTP • Derive Aggregate Demand for Public Good by Vertical Adding MWTP at Given Quantities • Env. Quality Improvements are Public Benefits • Producers of Pub. Goods Cannot Extract Full WTP From Users Because • Free-rider Effect • WTP Values Not Revealed in a Market • Typically Private Production of Public Goods Less Than Socially Desirable and Efficient.

  5. NORMATIVE vrs POSITIVE ECONOMICS • Positive Economics – Study, Description, Evaluation of How Economic Systems, Firms, Institutions and Individuals Behave and Operate – How do the work? – Objective Observations and Conclusions, Supposedly “Value Free” • Normative Economics - How Should an Economy, Firms Institutions or Individuals Operate or Behave - Subjective Views and Opinions Based on Individual Values and Biases.

  6. Measures of Efficiency • SocialEfficiency– Competitive Markets • Private and Public, Market and Non-market Costs and Benefits Included in Demand and Supply (Cost) Factors, and • D (MR) = S (MC) = Max Net Social Value/Surplus • Allocative Efficiency - Value of Benefits Equal to or Greater Than Value of Costs • Cost-efficiency - Implement the least-cost method or means to achieve a given end, objective or benefit. • Productivity - Units of Output / Unit of Input (Labour)

  7. TARGET LEVELS OF POLLUTION OR ENVIRONMENTAL PROTECTION • No Release, Pristine Pure – eg. Virtual Elimination, Zero Discharge, Bans • Threshold Ambient Concentration/Exposure Criteria • No Known Adverse Effects • Lowest Possible Risk Levels, eg. 1: 100,000 or better • Technical/Engineering Criteria • LAER • BAT; BAT,EA; BPT • Economic Criteria - Balance Benefits and Costs

  8. ECONOMIC MODEL FOR NORMATIVE TARGET-SETTING • Balance Environmental Damages With Abatement Costs • Environmental Damages • Pollution Releases -> Ambient (Air, Water, Soil) Concentrations -> Marginal Dose-Damage/Response Relationships -> Populations Exposed -> Environmental, Biological, Human Health Effects -> Monetary Value Estimates • Cumulative, Non-accumulative pollutants • Marginal Damage Functions Fig 5-1 • Total Damage = Area Under Marginal Damage Curve • Some Reveal Thresholds

  9. ABATEMENT COST FUNCTIONS -1 • “Abatement” • End of Pipe/Stack Treatment • Process Changes • Input Substitutions/Changes • Energy, Materials Conservation and Efficiency • Recycling • Production Reduction • Pollution Loadings = Mass/Time (kg per day) • Pollution Concentrations = Mass/Vol (gram/M3, mg/l)

  10. ABATEMENT COST FUNCTIONS - 2 • Aggregating Marginal Abatement Costs = Application of Equimarginal Principle • Each Plant Abate to Same Marginal Cost Levels to Achieve Desired Pollution Reduction • Figure 5-5 Horizontally Add Pollutant Reductions at Equal Marginal Cost Levels

  11. SOCIALLY EFFICIENT LEVELS OF POLLUTION RELEASES • Marginal Damage Function = Marginal Abatement Cost Function • Figure 5-6 • Socially Efficient Levels of Pollution are Seldom Zero Pollutant Releases • Value of Benefits (Damages Avoided/Reduced) =/> Abatement Costs

  12. ABATEMENT COSTS & PROFITS • Competitive Firms and Markets • Pollution Damages (External, Public Costs) Result in Excess Outputs/Production (Fig. 5-7) • Abatement Costs + Operating Costs = > • Pollution Damages Internalized => • Higher Operating Costs => • Reduced Output/Production => • Foregone Profits • “Competitiveness Issue” • Competitive Market => Reduced Profits => Plant Closures => Lay-offs • Monopoly/Oligopoly => Higher Prices => Cheaper Imports

  13. FACTORS THAT MITIGATE ADVERSE ECONOMIC, FINANCIAL AND COMPETITIVENESS EFFECTS • Ability to Raise Prices • Ability/Opportunities to Reduce Input Costs • Reduce, Recover, Recycle • Process Changes • Pressure Suppliers • Implementation Timing • Tax System, Tax Concessions • Magnitude of Abatement/Environmental Protection Costs Small Relative to • Exchange Rate • Interest Rate • Labour Contracts • Raw Material, Energy Prices

  14. BENEFIT-COST ANALYSIS • Objectives = Value Benefits - Costs • Economic Feasibility of Single Option • Determine Socially Efficient Scale of Public Project • Ranking of 2 or More Options • Advantages • Informs Public Expenditure Decisions • Avoid Losers • Encourage Efficiency of Public Expenditures

  15. BENEFIT-COST ANALYSIS - CRITICISMS • Justify larger budgets • Avoid political discussion and debate about Public Projects • Can’t Quantify or Value Benefits, Cut Public Programs • Environmental resources, benefits Unpriced, Unvalued • Future damages, benefits discounted • Monetary values alone hide important information and social issues • Env. benefits = intangible perceptions, difficult to quantify, value. • Uncertainties in natural science methods, data, human behaviour, responses, methods to estimate economic values => estimates subject to wide ranges, low credibility. • BCA appropriate where consequences small relative to economy as a whole. Large effects (extinctions, pollution of ocean, climate change) can alter fundamental preferences & price sets => reduce reliability of BCA for decision-making. • Intergenerational sustainability of environmental resources.

  16. BCA - FRAMEWORK • Describe Project, Program, Scale, Perspective • Identify, Quantify, Value Inputs, Outputs, Social/External Costs and Benefits • Evaluate, Compare Quantities & Values of Benefits and Costs

  17. BCA – EVALUATION & DECISION CRITERIA • Evaluation Criteria – Compare Outputs, Results, Consequences of Options, Projects, Policies • Decision Criteria for Accepting, Rejecting, Ranking • B-C = Net PV Benefits • B/C ratio • Capitalized Value, Asset Value, Internal Rate of Return of Annual Benefits

  18. BCA TOPICS • Discounting, Choice of Discount Rate • Uncertainty • Expected Values • Sensitivity Analyses • Monte Carlo Techniques • Distribution, Equity • Horizontal, Vertical Equity • Proportional, Regressive, Progressive Programs and Policies

More Related