Enviro Econ Notes PDF

INTRODUCTION AUG 26th · Human Development Index · IPCC (intergovernmental Panel on climate change · Wildfires in California How can economics solve environmental problems ? - economic incenti...

INTRODUCTION AUG 26th · Human Development Index · IPCC (intergovernmental Panel on climate change · Wildfires in California How can economics solve environmental problems ? - economic incentives - transfer resources money from one area to another ENVIRO ECON INTRODUCTION.. WED AUG 28th , Major environmental issues ? What is economy ? How can economics help us solve these issues ? c study of allocation of scare resources Economics + Enviro · restraint ; immediate gain vs. long-term benefit · how do we encourage markets to make beneficial decisions Macroeconomics : inflation , enconomic growth enviro. Macroeconomics : water cycle , carbon system · most severe risks globally in next 10yrs > - 50 % environmental Microeconomics : resources , optimize individual action for best return enviro. Microeconomics : economic valuation , property rights rules to determine efficient allocation of natural resources + enviro. Services should enviro issues transcend economics ? ·. - can use other incentives like morals , ease of access , fashion trends ex · Preserve open land w/ high commercial development value ? enviro. Protection Policies often measured rejected for economic cost - + · What do we do for economic advantage ? - cars => gas , taxes - Al lenergy + water use) - fast Fashion Fracking - + fossil fuels -> more Stable Politically + - mining + deforestation lower $ but enviro. - justice problems · environmentally-friendly development is possible yet any kind of development will have impacts ex. Waste water treatment , thrifting , long-term sustainable energy like solar, ecotourism 1. health benefits + enviro. Protection ex reducing greenhouse gas reduces death from air pollution TWO APPROACHES TO ENVIRO. ECON FRI , AUG 30th environmental economics : mainstream ecological thought to apply economics to environment (traditional , conservative , similar to how we think of econ · diff rules for private vs. Public goods · logic on nonrenewable resources based on supply demand + traditional econ. thought · externality : a 3rd party not part of the transaction is affected from consumption of that good ecological economics : places economic activity in context of biological + ↑ hysical systems · uses concepts from natural sciences : broader · carrying capacity : size of the pop , that can be supported by the resources avaliable · human activity must be limited by enviro Carrying capacity · scale effect : something on one scale doesn't necisarily work on another INFRASTRUCTURE · buildings highways , , any alteration of enviro. We have created to exist in + (second nature) enviro. aspects working WITH urban areas ex. incorporating natural spaces in Urban L. River. A gray infrastructure : requires lots of support for maintenance green infrastructure blue infrastructure 3 evolve + change w/ enviro. Change CONCEPTUAL FRAMING OF ENVIRO ECON.. - money flows back when resources given - where raw material being converted to commodities land : natural resources enviro. enters here ; supported by Capitol from house  · 2 points of contact for enviro. s quality of resources diminished when used as sink economic analysis : state of enviro. + economy , the changes and why these conditions exist , how we can bring improvements in enviro. positive econ : how system connected (ex how market responds to changes. in interest rates) · understand the system ; What is going on ; no judgment or value normative econ : trying to find ways to improve system · What is not going right ; what we valve ; what we think should happen · value + desire associated (PROFIT (BALANCE) I traditional ecological · carbon tax · diff motivations · gas is inelastic (necessar investing in quality so governed by supply + · gas governed by amount in world demand · not logging over a certain amount · how do you make it · what is a balancedPhysical system ? efficient from a cost · policies tax subsidies but focus , , on perspective ? BALACE not MAXIMIZING PROFIT · technology development · cost is 2nd priority · subsidies ECONOMIC CONCEPTS EXTERNALITIES WED SEP4th , demand : percieved marginal benefit consumers obtain from consuming 1 additional Unit ex. the joy of eating burgers decreases we each burger SUPPly : Marginal cost of production ; cost of producing I more unit of a good or service benefit for max min Cost economic efficiency equilibrium. : , no externalities , max benefit to buyers and sellers EXTERNALITIES + 3NAPARTY EFFECTS · side effects of car use + production... air pollution energy production mining of materials · , , contamination , , acid rain , urban smog , freeway land use · market overestimates social benefit b/c cost of externalities not considered · assign 1 Monetary value to enviro. damages $ · value on negative externality but does not cover all side effects least · at some value => If we do not assign a value , the market will automatically assign a 0 value SOCIAL MARGINAL COST CURVE · normal private production cost + enviro. Cost = total social cost · above original market supply curve b /c now includes externality costs ↑ · use additional cost for social Marginal cost to impose taxes same thing · Pigovian tax : Polluter pays principle · portion of tax passed to consumer ↑ Price (P) and ↓ quantity (a) · L · replace negative externalities wI tax price, a need to estimate social marginal · cost soldnice & well to tax correctly for max efficiency originaland Should the government always impose a tax to counter externality ? · if you don't , there will be a loss · taxes don't effect everyone equally · not reducing negative externalities , rely on community to distribute $ ex. does not reduce car emissions if people proritize driving over cost expensive to estimate right complicated tax collection · tax + upstream tax : tax on raw materials that cost most enviro. damage ex. Fossil fuels , chemicals , etc. tax can fall disproportionaly certain income groups (ex lower income · on. households spend more $ on Fossil fuels · other regulation = fuel efficiency standards or catalytic converters POSITIVE EXTERNALITIES FRI , SEP Coth ex. Vaccines (return on investment is very high) , you planting a tree requires an investment of time money that provides air fillering benefit to everyone · something we are paying for but all of society is benefitting · should positive externalities be included in our assesment of social benefit ? · yes , to optimize + encourage a certain behavior ex. every $1 invested in proposed smog standard = $3 health benefit ex - solar Panels = reduce emissions for everyone subsidy : Payment to producer benefit = cost to incentivize production of good v -$ goes down ; produce more at lower Price c lowers When cost = benefit CONSUMER + PRODUCER SURPLUS consumer surplus : diff btw max $ bigger area benefit stability * more $ : + a consumer will pay vs. actual of product producer surplus diff btw $ firm : receives vs. Price willing to sell at · consumer + producer surplus = total market benefit for QM... market equilibrium now social equilibrium now C S.. = A P S. = B + E negative externality of QX H F G. = , , dedUCt I from A , B E , to get true market benefit CLASS ACTIVITY MON , SEP 9th SOCIAL COST - PRICE - a SUPPLY Pi P · - SUBSIDY & DEMAND Q, QUANTITY PRIVATE PROPERTY RIGHTS What type of property ownership do we have ? · public , private (owned by individual) , open access (ex. air we breath · decisions made by 1 property owner affects others in that area · Ronald Harry Coase (1960s) => Social Cost · how do we minimize social cost (no need for gov. regulation · coase theorem : if property rights are well defined + there are no transaction costs , an efficient allocation of resources will result even if externalities A wants to drain B doesn't bic will increase Wetland for $5000 earning flood risk ; lose $8000 A < B will accept will pay up anything over $5000 to $8000 · farmer B is taking on rights to As land by paying money A 9 B new crop gets A will now Pay B $10 , 000 them $20 000 , to cover cost free market environmentalism : allow the free market to handle issues of resource use+ pollution regulation 1) well defined property rights + transferable 2) efficient + competitive system for parties to exchange 3) complete set of markets so owners capture social values of use of enviro asset CONCERNS W/ PROPERTY RIGHTS 1) Food processing plant uses lake waler for operation 2) Industrial operation uses lake for waste disposal Which is causing damage vs. Suffering damage ? damages # 12 - #2 on both · lake/community only considered when public property · depends on who acquired property 1st (Senior vs. junior right Would it lead to zero uncontrolled emissions if controlled by 1 firm ? - cost of damaging or reducing emmisions eX. Firm B has initial right = damages of dumping waste into lake = cost of reducing emissions ~ cost of trapping pollution from waste stream · is it worth eliminating ALL pollutants when the cost is high & cost of industrial operation to reduce e1 to ex & equilibrium => optimal most efficient level of pollution (damages = cost) Farm B should poliule at equilibrium ; Farm A will be willing to Pay anything in C area to reduce emissions ex. Firm A has initial right · damages = addt.. Cost for Firm B to Pay Firm A to keep Pollution will likely to at e (not less maybe More · * agree emissions , LIMITATIONS OF COASE THEOREM WED SEP 11th , 1) assumes no transaction costs + sometimes have to spend time to Come up w/ cost estimates or pay 3rd Party to do assesment 2) free rider effect : tendency to not pay share of cost but still attempt to receive benefit 3) holdout effect : ability of single entity to hinder multiparty agreement by making disproportionate demands 4) equity issues : under pure market system , Poor communities generally bear heaviest burden of enviro. Costs c might accept any compensation they can get rather than what they deserve 5) time limits : Property rights typically limited to current generation - continuous renegotiation 6) non-human perspective not considered included PUBLIC GOODS FRI SEP 13th , · a natural area can be part of someone's private property ex. MPA , Stream in someone's land so have rights over fish , trees , etc. · yet some things remain public good - air , Scenic resource · in general , nature is public good a THE LORAX TRAGEDY OF THE COMMONS · how we our destroying our COMMON enviro. => no incentive · PPI invest in health of Public property (ex. lawns · no one owns the trees Common property resource : accesible to a group of ppl + not subject to private ownership (belongs to several communities all Monitoring + under certain set of rules) (Membership rules regulation , , public goods : goods avaliable to all (nonexclusive) + whose use by 1 Person doesn't reduce avaliability to others (nonrival - owned by no one , managed by communion ex. National Park open-access resource : a resource that offers unrestricted access is a common property resource that lacks any system of rules governing its use ex. air , open seas - most vunreable to tragedy of the commons · public resources include police , radio signal , etc. example : small lake What is marginal · willingness to pay ur to reduce contaminant · shows individual demand curve (downwards & · as willingness d , cost to Pay ↑ ~ We don't · want to take on the costfor public properties bloc concern for free-riders > - need collective decision making example : economic Sector most efficient from market Perspective time scale 3 4 YrS - · = to < 80 % Yield not max capacity , Up to Yo boats · allocation/regulation of property benefits natural resources  · tragedy of the commons game MON , SEP 16th Competition - , time constraints resources , , and division of property drive depletion of a common resource PUBLIC GOODS CONT ~ 3 diff btw cost + revenue = & profit (blue line > similar to product curve should stop boats here but will not Stop Until Company collapse · max profit = 3 million · if we try to extract more> collapse · profit max = 700 boats · but in absence of regulation , , what will happen ? > - on individual scale , everyone will try to maximize their own concerns (don't have big scale Picture (where probably will Stop substantial decrease in profit · boats continue to go into fishery as long as SOME Profit on short-term. individual sccale diminishing returns (where should have stopped) < defines licence fee open access equilibrium 3. · maximize own returns on individual scale · tragedy of the commons Lideally should start from boat 1) (reduces profit substantially) (penalizes ppl late to process) licence fee should be cheaper w/ less boats > - increase wit boats ↳ or set fee of $4 , 000 during Peak season What if the fishery was privatized ? social benefit (access to water in case of drought) 3 human + nonhuman - - ecological benefit (biodiversity water resource Stakeholders , FISHERY MANAGMENT MECHANISMS 1) licence fee to access fishing 2) quota system limit access to resource thru restriction on species , time , etc. 3) quotas (ITQs) on tradeable rights to harvest resource ex. Permit to harvest particular quantity - rights can be sold to market - opens sector to broader group while keeping resources in check quota vs. tradeable quota · tragedy of commons both an economic + ecological problem ~ investment down the drain BENEFIT-COST ANALYSIS WED , SEP 18th · weighing cost+ benefit of doing something - limited resources (time , money - how can we increase our benefit to max possible eX how can you use cost-benefit analysis to determine optimal study ? · compare to benefits of doing something else EFFICIENCY- OPTIMALITY golden rule of econ : every action should continue until the additional benefit of doing the action falls below additional cost 1) Pare to efficiency : if no additional change could make at least one of you better without making the other worse off ex. giving 1 student $10 = improvement of 1 situation who making everyone's situation worse-off ex · eating entire Pizza by yourself at sleepover = other ppI didn't get more hungry b/c I ate the whole Pizza Pareto · improvement : if I had 3 leftover slices and gave those out · decisions aimed at 1 group 2) Utilitarian efficiency : Maximize the Sum of everyone's utility · overall society benefit 3) egalitarian efficiency : divide benefits equally among all Members 4) Rawlsian efficiency : Maximize Utility of the least well-off Person environmental impact assesment : identification + study of all significant enviro. repercussions stemming from a course of action · NEPA (1970) - National Enviro. Policy Act - any development that disrupts enviro. has to fill this report · might not factor all disruptions like culture , human behavior , risk analysis increase cost if included  1) regulatory impact analysis : once regulations are implemented how effective (is it really working efficiently ?) ex continue to sample water after regulation implementation 2) cost-effectiveness analysis : estimates cost of diff alternatives to show how they compare in terms of cost + outcome · what is the most cost-effective way 3) damage assesment : value of damages + who's responsible + compensations for those hurt BENEFIT COST ANALYSIS · helps we making public decisions from Society's standpoint - societal level · usually for policies/programs that have unmarketed outputs ex improvements in enviro. quality is the best outcome for society highest production or zero pollution? Marginal analysis depends on group · international whaling comission... # of whales that b enefit : Science culture , meat be harvested , should cost : genetic variation , future generations , imbalance to ecosystem lost · What is a cost or benefit depends on who is making the decision and what the commodity is measurement of benefits : stems from reducing damage · measure current + future emissions · determine values of physical impacts ex. Estimation of Clean Air btw 1990-2020 Study (EPA) · cost = $65 billion · benefit = $2 trillion (avoidance of cost) COST BENEFIT ANALYSIS CONT. - Fri , Sep 20th cost of illness (CO) approach : increased medical + other costs associated w/ particular pollution-related illness · avoided costs = benefits of Pollution control EFFECTS OF POLLUTION ON PRODUCTION COST & supply curve for degraded enviro. · more pollution increases production costs · fixed price given by market supplycove a producers do not influence for price of strawberries profit from Scenario #1 men & profit from Scenario 2 - cost from Scenario #1 a revenue from Scenario #1 problems with direct damage approach ? What's not included ? · ecosystem health + long-term implications not included · direct cost of headache = $20 for Tyleno but actually a lot more pain and suffering than that · incomplete · nonmarket contributions not included · medical cost# Paint suffering of illness · PPI + Markets normally change + adjust to enviro. Pollution = cost of changing behavior ex. loss from not having strawberries MEASURING OUTCOMES · depending on where a country is in its economic journey development will effect growth rate cost + benefit · cost of benefitting enviro. diff for diff countries Social cost : all the costs stemming from an action , and are equal to private costs + external costs produces electricity > reducing air ex Power Plant air pollution pollution -. + reduces social costs + increases production cost · agricultural subsidies incentivise chemical production methods that increase agricultural output + water air Pollution c reducing subsidies would increase national income+ reduce enviro. impacts BUT some farmers will be less off 1) opportunity cost : forgone values of alternative uses of resources eX. if you buy the jacket , you can't buy the shoes 2) transfer payments : Monetary amount that flow from 1 person to the other wo affecting resource commitments or true opportunity cost ex · taxes - just $ transfered to do other things 3) enforcement costs : resources used to monitor the behavior of firms , agencies , individuals subject to regulations + sanctioning violators 4) environmental costs : When emissions in 1 medium may cause increase into another example : wind energy power Plant * missed lecture on 9/23 - iPad died Loops horizontal equitym Vertical equity : Policy affects PPI in diff circumstances (diff income levels & ~ each group has similar/proportional benefits > - highest income benefits most - lowest income benefit most 7 MIDTERM Wed , Sep 25th 3 · MC + True/False · short answer questions from lectures · 1 or 2 application · extbook : supplement for complicated topics · lecture holes class activities , , supplementals to lecture Final * Lecture on MIDTERM VALUING THE ENVIRONMENT · still cost-benefit analysis · Value (broader) vs. Price (monetary value on certain component > cannot be marketed + diff. btw people , cultures , values , etc. · how to compare market benefits of goods/service to nonmarket benefits of ecological service + enviro. amenities ? · economics doesn't believe everyone has right to clean air - instead compares cost of degraded air and how it reduces our outcomes < benefit of clean air vs. Value of Market goods produced along w/ Pollution anthropocentric + biocentric · · econ. tries to find a way to convert nonmarket value into $ price in order to make econ. decisions total = sum of diff use + nonuse economic value values use value honuse value direct indirect option bequest existence use value use value Value value Valve · timber soil erosion control · · Welfare from · hiking/ hunting flood protection - - · polential keeping for just knowing · nontimber (fruit Carbon storage forest exists , · future future gens. mushrooms etc. ) resource openguins forest for , · future recreation - · future gens. W something our enviro. Potential · saving - resource from enviro. does for us wo us Pharmaceuticals Amazon we like knowing doing anything its there even if we are directly involved we have no benefit in harvesting using MAX WILLINGNESS TO PAY Fri , Sep 27th ENVIRO VALUATING TECHNIQUES. cost of illness method : monetizes direct+ indirect cost associated w/ illness attributed to enviro factors human capital : knowledge , skills,... ex. children education during COVID replacement cost methods : measures enviro. damages that estimates cost necessary to restore replace resource ex · applying fertalizer to restore soil fertility What get lower bound of what we're willing to pay · we habitat equivelancy analysis (HEA) : estimate economic damages of accidental releases of hazardous , chemicals , such as oil spills · extent of where thing happens + time eX 50 lost acre yrs = 10 acres of wetland lost for 5 years revealed preference methods : based on observable choices from which actual resource values can be directly inferred · travel cost method (TCM) : People's willingness to pay to visit natural resources ex. if someone pays $300 to camp , her max willingness to pay must be at least $300 · doesn't factor in everything ; only recreational direct use Hedonic pricing : explain price as a function of several components ex. Price of home as function of # of rooms ex. close to landfill + how full it is defensive expenditure approach : Pollution valuation based on expenditures households take to avoid mitigate exposure to a Pollutant ex. Pay $20/mo for bottled water then their wip for improvement in drinking water quality is at least $20/mo Stated Preference : elicit respondents willingness to pay when Valve is not directly observable contingent Valuation (CV) : uses surveys to question PPI regarding their willingness to pay for a good endowment effect : concept that ppl lend to place higher loss on things they already have + value gain less WTP < WTA contingent ranking (CR) : survey method where respondents rank a list of alternatives Protest bids : responses to contingent valuation questions based respondents opposition to question on payment vehicle , not valuation of resource strategic bias behavior : tendency for PPI to state preferences or values inaccurately to influence policy decision value of Statistical live (VSL) : willingness to pay society to avoid 1 death based on valuations of changes in risk of death $100 million· $10/yr = $1 billion (households (pay) ($ to save 50pp) $1 billion/50 = $20 million (total $/PPI save) = (value of 1 life) Wage risk analysis : estimates value of a statistical life based on required compensation needed to entice ↑ risk jobs ppI to value of human life · MIDTERM REVIEW Mon Sep , 30th · worksheets , lectures , activities · pen/pencil + calculator · something must have a dollar value to be included in cost - benefit analysis