003 Environmental Economics & Economic Policy

1. Environment & Ecology 003 Environmental Economics & Economic Policy

2. What is Environmental Economics? • Economics is concerned with allocation of scarce resources—including environmental • Most environmental and economic problems are linked.

3. The environment and economy are linked • Economies receive inputs from the environment. • Process them for use • Discharge the wastes back into the environment • Traditional economists ignore the environment. • Environmental economists accept that human economies exist within, and depend on, the environment.

4. Natural Resources the Environment Provides • Renewable resources: • Perpetually available: sunlight, wind, wave energy • Renew themselves over short periods of time • These can be destroyed • Non-renewable resources: can be depleted

5. Natural Resources the Environment Provides Renewable Nonrenewable Forest Water Fruit/Nuts Fish Minerals Fossil Fuels

6. Natural Resources the Environment Provides • Waste are cleaned up • Protect against flooding and hurricane damage • Medicine • Providing space for recreation, scenery, wildlife and aesthetic enjoyment

7. Environmental systems interact • Natural systems are divided into categories • Lithosphere: rock and sediment • Atmosphere: the air surrounding the planet • Hydrosphere: all water on earth • Biosphere: the planet’s living organisms • Categorizing systems allows humans to understand earth’s complexity. • Most systems overlap Hydrosphere

8. Environmental Segments • Lithosphere • Hydrosphere • Biosphere • Atmosphere Atmosphere Biosphere Lithosphere Hydrosphere

9. Scope of Environmental Economics • Economic growth and environmental Balance • Conservation recourses • Pollution control and environment

10. Atmospheric Pollution Ozone depletion Acid Rain Global warming

11. Policy Questions -EE • What is the fundamental nature of the environmental problem? • Should the government “intervene” at all? • How clean should the environment be? • How can we achieve the desired environmental quality?

12. Economic Perspective on Environmental Management • “Free” markets will generate excessive pollution and overuse environmental services, hence, collective or public intervention is necessary • How clean the environment should be? Till MB=MC • Design of policy instruments to achieve environmental goals • Valuation of non-market goods

13. U.S. Environmental Policy Early U.S. environmental policy addressed land management.(1st wave) To promote settlement, and the extraction and use of the West’s abundant natural resources. The Western lands were considered practically infinite, and inexhaustible in natural resources.

14. Second wave of U.S. environmental policy addressed impacts of the first. During this time the government created national parks, wildlife refuges, and the forest system. Grand Canyon of the Yellowstone, 1872 by Thomas Moran John Muir & Teddy Roosevelt in Yosemite

15. Earth Day April 22, 197020 million Americans participated! The public demanded that the federal government do more to protect the environment. Why? The publication of Rachel Carson’s Silent Spring, 1962 The burning of the Cuyahoga River on several occasions in the 1950s and 1960s. The Santa Barbara, California oil spill in 1969.

16. The third wave responded largely to pollution. NEPA (National Environmental Policy Act, 1970) was signed in 1970 and require EIS (Environmental Impact Statement) for federal actions and The Environmental Protection Agency (EPA) is created. Other prominent laws followed: Two major laws were the Federal Water Pollution Control Acts (1965 and 1972) and Clean Water Act (1977).

17. Approaches to Environmental Policy Command-and-control An approach that sets strict legal limits, and punishments as opposed to financial incentives. Ex. Regulate pollutants such as SO2 and NOx Auto emissions Coal plant

18. Approaches to Environmental Policy 2. Subsidy A government giveaway of cash or publicly owned resources used to promote a particular activity. The food that subsidies support Fruits & vegetables <1% Nuts & legumes 2% Sugar, oil, starch, alcohol 15% Meat & dairy 63% Grains 20%

19. Approaches to Environmental Policy 3. Green taxes Discourages undesirable activities by taxing activities and products that cause undesirable environmental impacts. It’s a tool for policy as well as a way to fund government. Electronic waste tax Tire disposal tax

20. Approaches to Environmental Policy Markets in permits The government can issue permits to individual polluters. They may buy, sell, and trade these marketable emissions permits this provides financial incentives to reduce pollution.

21. Approaches to Environmental Policy 5. Ecolabeling tells consumers which brands use environmentally benign processes.

22. Real Progress In 1850 New Hampshire was 35% woods; today it is 80% woods. Much of Massachusetts, New Hampshire, and New York exhibit similar patterns. Costa Rica now protects 25% of its entire country in national parks.

23. Real Progress Clean Air Act, 1970 EPA successfully improved ozone (smog), carbon monoxide, sulfur dioxide, nitrogen dioxide, lead, and particulate soot in U.S. EPA announced in April of 2009 that CO2 is a pollutant and will be regulated. Source: AQMD.gov, 2009

24. Real Progress Denmark no longer imports oil because of widespread adoption of wind power.

25. Iceland no longer imports oil because of widespread construction of geothermal power plants.

26. Brazil no longer imports oil now that it uses sugar cane to make bio-fuels.

27. QUESTION: Review In a capitalist market economy: a) People get their daily needs from nature b) The government determines what is produced c) People do not purchase or trade goods d) Buyers and sellers determine production of goods e) People believe that making a profit is bad

28. QUESTION: Review Which of the following is an ecosystem service? a) Water purification in wetlands b) Climate regulation in the atmosphere c) Nutrient cycling in ecosystems d) Waste treatment by bacteria e) All of the above are ecosystem services.

29. QUESTION: Review While valuable, neoclassical economics has led to environmental problems because: a) Resources are treated as unlimited b) Long-term effects are downplayed • Costs and benefits are experienced by people other than just the buyer and seller • All of the above assumptions have resulted in environmental problems.

30. QUESTION: Review Which of the following is NOT considered an economic externality? a) Human health b) Property damage c) Price a buyer pays for a product d) Aesthetic damage e) All of the above are externalities.

31. QUESTION: Review Which of the following statements would be spoken by an ecological economist? a) The current economic system is working fine. b) The current economic system simply needs to be fine-tuned. c) The current economic system is broken and a new one needs to be developed. d) Economic systems never work.

32. QUESTION: Review ________ occur(s) when the market does not reflect the negative impact on the environment of a particular activity. a) A subsidy b) Green taxes c) Market failure d) Equity

33. QUESTION: Review _______ is defined as “policy made by the government that consists of laws and regulations.” a) Tort law b) Public policy c) Market failure d) Tragedy of the commons

34. QUESTION: Review Which of the following is a goal of environmental policy? a) Resource protection b) Elimination of free riders c) Addressing external costs • Promoting equity • All of these are goals of environmental policy.

35. QUESTION: Review Policy is formulated to prevent ________, which tempts people to cheat. a) Resource protection b) External costs • The tragedy of the commons • Free riders • Overuse of a commonly held resource by the public

36. QUESTION: Review What happened to the Cuyahoga River, which increased awareness of environmental problems? a) It smelled bad. b) People drowned in it. c) It was drained. • It caught on fire. • It was drained because of its high pollution levels.

37. QUESTION: Review NEPA requires an Environmental Impact Statement when: a) An economically expensive project is proposed b) Any state action may affect the environment c) Any federal action may affect the environment • Politicians decide one is needed • The public demands one

38. QUESTION: Review The _________ represent(s) multinational corporations to promote free trade and interpret(s) some environmental laws as unfair to trade. a) World Trade Organization b) The European Union c) United Nations Environment Programme • Non-governmental Organizations • All of these represent multinational corporations.

39. QUESTION: Review Which statement is FALSE when formulating environmental policy? a) Identification of the problem is the first step. b) Envisioning a solution to a problem involves both science and social action. c) Individuals tend to be more effective than organizations. • Lobbyists try to influence politicians. • The final step of policy formulation ends up with a proposed bill or draft law.