L1 - Environmental Economics (Map26)

8/10/2019 L1 - Environmental Economics (Map26)

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Introduction to Environmental

Economics

Dr. Maria Plotnikova

Lake Baikal pulp and paper mill


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Readings

Economics of the Environment

Heal, Geoffrey, Climate Economics, 09.06.2008 - the article can be found under

EnvironmentTopic on voxeu.org

Wara, Michael, Is the Global Carbon Market Working? (2007) Nature, vol. 445/8

pp. 595-596

Economics of Recycling and Waste

Wilson, David et al (2009) Building Recycling Rates through the Informal Sector,

Waste Management 29, pp. 629-635

Fahmi, Wael, and Keith Sutton (2006) Cairo's Zabaleen Garbage Recyclers:

Multi-Nationals' Takeover and state Relocation Plans, Habitat International 30,pp. 809-837


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Introduction

What is Environmental Economics?

concerned with relations between the

economy and the environment/natural

resources and ways to allocate resources,regulate economic activity to achieve a

balance between economic, environmental

and other potentially conflicting goals of

society

Why do Environmental Problems persist?


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What does Environmental

Economics study?

Natural Resources: Depletable,renewable, non-renewable resources

Agricultural & Food Economics

Renewable, Common property resources(fisheries, wildlife)

Biodiversity

Pollution, climate change Connections between Development,

Poverty, Environment


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Environment as an asset

Economics views environment as an asset

that produces (environmental) services

Positive economics (describes cause and

effect, value-free)

Normative Economicsvalue-laden

Sustainability


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Sustainability

At minimum the future generations should be left

no worse off than current generations

Sustainability as a non-decreasing well-being (the

value of total capital stock=natural+human-madeshould not decline)

Sustainability as nondeclining value of natural capital

(assumes that natural and human-made capital are

not very substitutable) Sustainability as nondeclining physical service flows

from selected resources


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Why do environmental problems

persist?

Negative externalities

Consumers demand the good

Producers produce and pollute when it is the

cheapest way to dispose of waste

Many environmental goods have features

of public goods; public goods are

underprovided for

Solutions?


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Externalities as a source of market

failure

An externalityexists whenever the welfare

of some agent, either a firm or household

is affected by actions of some other

agents. There are positive and negativeexternalities.


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Negative externality

Under market allocation The output of the commodity causing pollution

externality is too large

Too much pollution is produced

The prices of products responsible for pollution aretoo low

As long as costs are external no incentives to searchfor ways to yield less pollution per unit of output

Since release of pollutants into the environment ischeap, recycling and reuse of pollutants is not doneas it incurs cost


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Positive externality

External benefit/reduction of cost at no

cost to the recipient

Internalizing externalities: the beneficiary

should compensate the source of positive

externality

Network externalities: connection to

network of individual user increases

benefits to all users


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Solutions

Understand institutional set-up

Increase environmental consciousness

(Re)Assign property rights Regulation, incentives structure aimed at

desired outcomes vis--vis environment


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Public Goods

Non-Rival

Non-Excludable

Examples of Public Goods

National defence Immunization

Air, water quality

Transportation infrastructure (lighthouse)

Research and Development, Education? Would private provision of public goods yield efficient

allocation?No, usually underprovided


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Under-provision of Public goods

Inefficient (lower) provision of public goodsoccurs because each one is able to become freerider on each others contribution

Consumers capture the benefit provided byother people because of non-rival, non-excludable properties of public goods think why fireworks are usually done by municipalities

and not private firms

free-riding from nonrival, hard-to-excludeconsumption


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Mitigation vs. Adaptation policies

Pollution by one country imposes ave externality onneighbouring countries

Mitigation action by one country imposes a +veexternality on other countries

Adaptation is a geographically-specific policy (localpublic good)


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Mitigation

Afforestation/decrease in deforestationhas added benefit of preservingbiodiversity

carbon market: industrial enterprises buycarbon (permits) from farmers that createcarbon sinks


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Carbon Dioxide Emission Estimates from Fossil-Fuel Burning,

Hydraulic Cement Production, and Gas Flaring for 1995

Source: Carbon Dioxide Information

analysis Centre, U.S. Dept of Energy


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Top 20 Emitting Countries by Total Fossil-

Fuel CO2 Emissions for 2006(1) China

(2) United States of America

(3) Russian Federation

(4) India

(5) Japan

(6) Germany

(7) United Kingdom

(8) Canada(9) South Korea

(10) Italy

(11) Islamic Republic of Iran

(12) Mexico

(13) South Africa

(14) France

(15) Saudi Arabia

(16) Australia

(17) Brazil

(18) Spain

(19) Indonesia

(20) Ukraine


analysis Centre, U.S. Dept of Energy


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History of Environmental

agreements

1992 Earth Summit in Rio de Janeiro

Kyoto Protocol top-down approachwill

expire in 2012

No specific targets for developing countries

US, Australia did not ratify Kyoto because of

no caps on developing countries emissions


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Analysis Centre, U.S. Dept of Energy


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Global Climate Change Policy

Institutions Intergovernmental Panel on Climate Change (IPCC)

evaluates scientific evidence on climate change

United Nations Framework Convention on Climate Change(UNFCCC)a framework document produced at Rio 1992 summit, set forth conferenceof parties (COP) annual meetings to oversee implementation

The Kyoto Protocollimits on total emissions by the industrialized countries, establishing aprescribed number of "emission units"

International Emissions Trading

EU Emissions Trading Scheme"cap-and-trade" scheme

Joint ImplementationIndustrialized country can invest in an emission reduction project in another

industrialized country and get credits

Clean Development Mechanismindustrialized country can invest in an emission reduction project in a developing

country and obtains credits


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Copenhagen UN Climate Change

conference Unlike the Kyoto accord, it leaves up to the Governments

to introduce climate actionsbottom-up approach

A stand-off between developing and developed countries China does strongly oppose that its emission cuts be monitored

and verified Brazil: developed nations should pay its historic debt more

financial support for developing countries esp. to preventdeforestation in the Amazon region

Oppose legally binding promises as these would hampereconomic development


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Copenhagen

Technology Transfer for Developing

countries

China wants developed countries to commit

1% of their GDP to fund climate change-mitigation activities

Western companies are worried about

intellectual property rights in technologytransfer


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Conservation vs. Geoengineering

Slow global warmingthrough reducedconsumption, increasedenergy efficiency

the use of human-made changes to

the Earth's land, seas, atmosphere atmospheric seeding: release

sulfur particles or other aerosolsinto the atmosphere to reflect thesun's rays back into space - same

as what happens when volcanoeserupt; But sulfur seeding could destroy

atmospheric ozone

Ocean fertilization with iron toincrease uptake of C02 from theatmosphere a rise in iron-limited phytoplankton

populations has adverseconsequences

Geological Carbon sequestration

and storage on a smaller scale


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Climate sceptics

Bjorn Lomberg: For the most of the worldpopulation, the environment is a distantthing. In order to make them care for the

environment the same way we do in theWest, we have to make sure that their kidsstop dying

Climate-Industrial Complex

Money should be spent on R&D

Bring Cost-Benefit, cost-effectiveness intoenvironmental debate


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Corporate Environmentalism

Greenwash: companies recognize theconsumers are willing to pay a premiumon green products

selective disclosure of positiveinformation about a companysenvironmental or social performance,without full disclosure of negativeinformation on these dimensions (Lyonn,Maxwell, 2005)

L1 - Environmental Economics (Map26)

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