Environmental Economics – ECON 2390 Course Orientation

1. Environmental Economics – ECON 2390Course Orientation January 18, 2010

2. Introduction to the course • This is a course in environmental economics. • We will apply the tools of micro-economic policy to questions of • pollution control, • climate change, • environmental quality, • bio-diversity, etc. • We seek to develop policy rooted in principles of economicefficiency and fairness (equity) • Analysis will replace opinion

3. Class Etiquette • The only rule is “do not disturb your colleagues while in class.” • If you cannot be without your cell turned on or if you must remain in constant text communication with your 200 close friends, please seek therapy. • During exams all cell phones, MP3 players, and other devices will remain off and stored. Only conventional (non-phone) electronic calculators will be allowed. • Please be completely familiar with the rules on academic honesty • Plagiarism and Cheating http://webapps.cc.umanitoba.ca/calendar10/regulations/plagiarism.asp • Impersonation at an examination http://webapps.cc.umanitoba.ca/calendar10/regulations/exams/exams_personations.asp

4. Managing the course • Read ahead. • Plan on reading the assigned chapters at least twice. • Make sure you understand and can explain the key terms at the end of each assigned chapter. • The note (available through my web site are supplementary and eligible for the exam). • Make a practice of reading the two national papers (Globe and Mail and National Post), especially with respect to current environmental issues. • Students who get an A, have a good understanding of current affairs.

5. True or False or ? • Over the last 100 years, the forest cover in Canada has declined • Over the last decade, the air quality in Canada’s largest cities has declined • Lake Winnipeg’s percentage of dissolved phosphorous has increased because of intensive commercial agriculture • Waterfowl (geese, ducks ,etc.) populations on the Prairies have declined since 1980 • The world is getting warmer.

6. Assumptions and preconceived notions are the main impediment to clear analysis c:\personal\videos\Rosling Standard of Living and Fertility.mp4

7. Notes for Chapter 1 ECON 2390

8. Definition of economics • Analysis of choices (consumer and investor), among alternatives that have different benefits and costs (net benefits) to maximize the welfare the individual decision-maker. • Determination of the optimum mix of private, collective, and coercive decision-making to maximize social welfare.

9. Key ideas • Incentiveshave a critical role in producing environmental degradation and in designing environmental policies, and • Analysing short and long-run benefits and costs of environmental improvements is the foundation of policy • Pollution can be produced by private, collective and coercive economic systems (e.g., China is a major producer of greenhouse gases (GHG). • The profit motive is not the cause of pollution – some of the worst pollution has been produced in socialist and former communist countries. • As incomes rise, countries tend to become more interested in environmental quality. However…. • As incomes rise, individuals tend to pollute more and use more energy because they can afford more toys and lifestyle (vacations in Mexico)

10. What is pollution? • External effect (externality) to a production or consumption process • Externalities are public goods. • Public vs. private goods • A pure private good is a producer or consumer commodity or service that involves only two parties to the exchange – the consumer (buyer) and the producer (seller). A pure public good involves consumption and production that must involve everyone. The seller cannot control who participates in consumption. • Caution – public goods (and “bads”) have nothing to do with the “public” sector. • a public “good” involves the inability of the producer to exclude consumption and therefore the inability for the producer to appropriate all the value • a public “bad” is produced by any operation, public or private, that forces those who are not parties to the transaction accept the external effects and by-products

11. Efficiency and ethics • Moral outrage is useful only to bring attention to a problem, it usually complicates the development of sound policy. • However, the distribution of the benefits and cost are critical issues for all economic policy. • People, private firms, voluntary organizations and government routinely cause pollution because they have limited resources and have goals that focus on the welfare of the household, firm and organization. • Avoiding pollution raises costs or takes time, which are scarce. Dealing with pollution diverts resources from other worthwhile goals.

12. Trade-off (production) • The Production Possibility Frontier (PPF) shows all combinations of goods/services and environmental quality within a given technology and institutions. • Movements out reflect more wealth. • Movements out are caused by technological advance and institutional change. • The shape of the PPF can be changed by policy. • Why is the relationship convex (i.e., why does the slope become steeper as it approaches each axes? • Developed countries typically have PPF that dominate those of developing countries.

13. Trade-off (consumption) • Indifference relationships show preferences by society. • Society A has a taste for more stuff, while society B prefers environmental quality. • Why are the relationships concave? That is why does the slope moderate as it approaches either axis? • These are often referred to as “community indifference curves.”

14. The shape of the CIC reveals preference

15. Advice for Chapter 1 • Make sure you understand the following key ideas • PPF • Environmental Kuznets curve • Trade-offs and sustainability • Externality (the key idea in the course) • The key terms on page 23