Env Economics Final
2. Compare and contrast weak and strong sustainability. Which idea best represents the beliefs of neoclassical economists (NCE) and why? Which idea best represents the beliefs of ecological economists (EE) and why? Discuss in terms of substitution of capital.
- Weak: neoclassical economists, technological optimistic, globalization: maintain overall K with SUBSTITUTION, don't need natural K: nature is highly resilient. Internalize the externality. - Strong: ecological economists, technological pessimists, economy: wholly owned subsidiary of nature: Maintain total stock of natural K, can't be substituted, preserve or enhance it to protect the well-being of future generations. Nature is fragile. Weak vs Strong: making an idea on SUBSTITUTION between the different forms of K and natural K.
9. Refer to "All the World's Carbon Pricing Systems in One Animated Map..." and the content folder for "Environmental Taxes" on Bb. Give three examples of environmental pollution taxes and describe each. Are these examples working well? Are any of the examples controversial and why?
1. British Columbia carbon tax ( since 2008): make fossil fuels bear the cost of their pollution so people and businesses will use less of them. Everything that releases carbon emissions: cost increased will renewable and efficient energies: became more affordable under this tax. Bc's per capita emissions have declined by more than 15%. Revenue neutral design: money from tax directly returned to public via refunds and tax credits (tax cuts). Tax has not increased since 2012. controversy? 2. Seattle unit pricing program: evaluated before the introduction of curbside recycling. System since 1961 but ) raised rates per can substantially over the years of study (1985 to 1987) without suggesting a good substitute. Citizens: increased trash compaction. controversy, waste disposal: inelastic. 3. The U.K: carbon tax since 2013. Technically, the tax is a "carbon price floor" that functions as the minimum price that fossil fuel producers pay to emit CO2. Whenever the carbon price in the EU's Emissions Trading System (ETS) is less than the U.K. minimum: the producers pay the difference to the British Treasury. Called "top up" tax since it was intended to top up European carbon prices. Controversy: future of the carbon price floor is uncertain; it has only be fixed out to 2021," as some argue that the tax will be mooted by closure of remaining coal-fired capacity in the U.K. and that its continuance will lead to increased emissions through importation of cheaper and dirtier electricity from the European continent.
10. Refer to "All the World's Carbon Pricing Systems in One Animated Map..." and the content folder for "Cap and Trade" in Bb. Give three examples of cap and trade systems and briefly describe each (hint: good examples in CA, the NE US, the EU, and China). Are these examples working well? Are any of the examples controversial and why?
1. California cape and trade: stationary sources can purchase & scrap highly polluting vehicles & obtain pollution credits to avoid clean air upgrades at their plants. Not really working and env justice concerns because increases hot spots + incentive and pb with fraud. 2. Acid rain legislation (1990): permits grandfathered at 1986 levels. Emissions decreased and health benefits + dramatic cost savings due to long run changes in technology. 3. North east & mid-Atlantic states: Regional Greenhouse Gas Initiative (RGGI): stabilize CO2 emissions from electric power sector at projected 2009 levels & then decrease by 10% from there through 2018. 90% of permits auctioned, offsets allowed.
12. Watch the video on Bb about Payment for Ecosystem Services (PES) from the James Hutton Institute. Read "Carbon Cache: Native American Community and Carbon Market." How does PES relate to the Coase theory that we explored earlier this semester (hint: cigarette smoking and office workers)? Why would policy makers add PES (and related instruments like carbon offsets) to their "tool box" of policy instruments? Why not?
12. Watch the video on Bb about Payment for Ecosystem Services (PES) from the James Hutton Institute. Read "Carbon Cache: Native American Community and Carbon Market." How does PES relate to the Coase theory that we explored earlier this semester (hint: cigarette smoking and office workers)? Why would policy makers add PES (and related instruments like carbon offsets) to their "tool box" of policy instruments? Why not?
9. Overall, discuss three arguments against using the safety standard as related to the following criteria: efficient, cost effective, regressive. How might you use the case study of Flint, Michigan to add to your discussion
3 arguments against safety standard: - By definition inefficient: enshrining environmental health as a "tight" involves committing too many of our overall social resources to environmental protection: choose levels that are too high. Ex: air toxic regulation: total costs>total benefits. Protect small groups instead of looking for larger ones. - Not cost-effective: devote too many resources to attack minimal risks situation instead of high risk situations, resources are not wisely spent. - Regressive policy on income distribution: poor people pay a higher percentage of their income for pollution control or reduction and benefit disproportionately because of overregulation: can't bear the costs so greater sacrifice of other g/s. Regulation: born unevenly env racism. Ex: case study of Flint, Michigan : lead poisoning the city: poor and color communities more exposed.
6. If a policy is regressive, what does that mean? What is a progressive policy? Discuss in terms of pollution reduction, safety, and income distribution.
A regressive policy leads to a greater sacrifice of other goods and services. A regressive policy on income distribution means that poor people pay a higher percentage of their income for pollution control or reduction and benefit disproportionately, should benefit more. According to efficiency advocates, safety standard is regressive and so not fair, and can lead to env racism when minorities are more exposed.
9. Read the article by Herman Daly. Define the following terms and the associated goals: allocation, distribution, and scale. Is fair/equitable distribution guaranteed in the market? Is sustainability guaranteed in the market? How does this idea relate to intergenerational equity?
Allocation: the apportionment of scarce resources among competing uses (decide where you're going to put your stuff) efficient allocation needed (pareto optimus) Distribution: who gets those things need of fair distribution (not guaranteed) Scale: the physical size of the economy relative to the ecosystem want optimal scale Sustainability not guaranteed in market so leads to no intergenerational equity: you don't' help future generations
6. The efficiency standard involves balancing costs and benefits and finding the efficient point within the same time period (or static efficiency). What type of efficiency involves balancing costs and benefits across different time periods? Why is time such and important factor to consider for sustainability policies?
Balancing costs and benefits across different time periods: Sustainability. Time: important factor because sustainability is all about protecting future generations, well-being can't come at the expense of future generations.
2. Clean technologies (CTs) must have minimum long-run private marginal costs comparable to existing technologies to be competitive. Why?
Because if CTs can't compete on the basis of private costs in the long run, then consumers will not adopt them widely, regdless of gov efforts to promote them.
6. What characteristics do all IB/MBI instruments (e.g., taxes, cap-and-trade) have in common?
Both taxes and marketable permits systems will achieve cost-effective pollution control automatically. If permits are auctioned by the government, then C&T=PT. + Control the quantity of pollution emitted (directly vs indirectly) + Taxes and C&T generate incentives for long run innovation + have same pb: monitoring, enforcement and hotspots.
4. In general, ecological economists (EE) argue against using created (i.e., human made) capital to substitute for natural capital. For those exceptions, however, how do they determine "good" substitutes?
By focusing on uniqueness, uncertainty and irreversibility.
5. In what types of situation(s) will an IB/MBI policy instrument not be appropriate, and therefore CAC is required? (hint: think safety or emergencies) Why?
CAC: specify sectors and firms that should reduce emissions + the mechanisms they must use to do so. Ex: mandating a specific carbon dioxide scrubber technology.
3. CTs must be environmentally superior to compete with conventional technology. Why? How can you determine environmental "superiority" of CT over conventional technology?
CTs goal is to reduce emissions. CTs vs conventional: - Similar to conventional: does same thing, same purpose - Cost-competitive: private MC+ long run - Higher quality for environment Means that the techno must take into account all the major env impact of a techno: manufacturing, use and disposal (go thourgh a life-cycle analysis) because with impact can lead to the "adding up pb": when a tecno has several impacts on the env. Ex: "diapers war". Must pollute less
10. What is crowdfunding? How does it work? Look at two different examples ("Indigogo" for example). How and why might the concept of crowdfunding relate to CT?
Crowdfunding: practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the Internet You post a video in specific websites presenting why you need to money and people give you what they want, often comes with a perk. Helps funding of ecosystem: give fundings for CTs. - Indigogo: Everbody can give you money: a lot of benefits: money, place in the market, allows you to test your martekting, get extra-propotion, get customer data, curry serendipity (+ people want to help you) + successful for women. - Abundance investment: UK-based online platform that lets people lend money to projects providing a social and/or environmental good (renewable energies)
7. What is depreciation? To represent the depreciation of natural capital, economists use the difference between the price of a scarce resource and its cost of extraction. What is the term for this difference generated upon the sale of the asset? What should be done with this amount in order to guarantee sustainability for future generations? (Hint: Hartwick's Rule, Mr. Bill, Alaska Fund, etc.). What does this assume about substitution?
Depreciation: reduction in the value of an asset with the passage of time. Difference upon the sale of an asset: Resource rent (what future generations are losing by our exploitation of natural K). To guarantee sustainability for future generation, any resource rent from exploiting natural K must be invested productively. Hence, substitution of natural K is possible as it is a neoclassical approach.
8. If CT is so good, then why isn't everyone using it? Discuss ways in which the government can encourage the adoption and spread of CT
Different obstacles: lack of substantial profit advantage (market o) + subsidy policy & failure of regulation (gov o). - Initial inv, lack of access of K - Startup cost - Pre-existing techno subsides (corn) - People don't like life style change (convenience + infrastructure) moral suasion needed - Politics/lobbyists (path dependency: after you choose a path, impossible to change)/PACs Gov can encourage it with leveling the playing field (eliminate subsides for dirty techno & internalize external costs), promote only clean env winners and subsidies to lower cost & improvements in quality
9. What is discounting? Discuss in terms of present and future values and the discount rate. What is discounting the opposite of? Relate the terms "opportunity cost" and "time preference for money" with discounting and explain.
Discounting: compare costs and benefits across time: Bringing a future sum (or FV) back to its present value (PV) or current equivalent PV = FV/(1+r)n Reflects the time value of money: because inv is productive, society are better of having a dollar today, as they can be productively invested to increase the size of the economic pie for tomorrow. Interest rate: rate at which money increases going into the future. Discount rate: rate at which future values are decreased to find an equivalent present value. Determined by the rate of return in investment and the rate of time preference. Discounting: opposite of: compounding: Taking an initial sum today (in present value or PV) and calculating its future value (FV).
1. What are marginal abatement costs (MAC)? Given a group of polluters, when is cost-effectiveness achieved (discuss in terms of marginal abatement costs)?
MAC= the decrease of cost of emissions from one unit to another. Cost effectiveness achieved when marginal abatement costs are equal for all sources
6. Compare and contrast late stage CT with early stage CT and give an example of each. What is the primary barrier to adoption of a late stage CT? What is the primary barrier to adoption of a early stage CT
Early-stage CT: not cost-competitive, must achieve economies of scale before low-price production can be achieved. Policy must promote it by: providing info to consumer + reducing the perceived risk of adoption. Require R&D fundings, techno-forcing standards and infrastructure investment. Ex: start up recycling operations. Late-stage CT: Already cost-competitive, ready to process. Promote by product labeling & certification, min design standards, utility marketing, technical assistance pgms, consumer subsidies. Ex: installation of housing insulation. Primary barrier of adopting early stage: cost-competitiveness.
7. What is economies of scale and how does this relate to different types of CT?
Economies of scale: lower cost production arising from the ability to use specialized machinery and personnel at high volumes. CTs experience economies of scale: - Small-scale: cost-compet with existing techno at low volume of production, - Large-scale: require high production volumes to achieve min long-run costs.
10. Using the EE model, what is an "empty" versus a "full" world? According to EE, under which conditions are we living today?
Empty/ cowboy eco: eco small because not enough human K to grow. Full/Spaceman: eco too big for ecosystem constraints. we are living today
5. GDP is widely recognized to be a poor measure of sustainability and social welfare. Why? Think about the four categories we discussed in class and describe four associated flaws of GDP that make it an undesirable measure of social welfare.
GDP doesn't measure the real well being of the society. It doesn't take into account: non-market act (household), costs of economic growth (climate change-externalities), natural k depreciation (used in production), and income inequality (GDP/capita) (reflects the experience of the average psn but doesn't account for distribution or equity concerns).
6. Compare and contrast the following indicators with GDP: Genuine Progress Indicator (GPI); Happy Planet Index (HPI); and Ecological Footprint (EF).
GPI: social, eco and env indicators: defensive expenditure (personal pollution abatement) all in dollars value so can compare it across countries and vs GDP. HPI: Ask people if they are happy: Substitute Well Being but has different issues. EF: measures how fast we consume resources & generate waste (energy, timber, paper, food etc) compared to how fast can nature absorb our waste and generate new resources.
9. What is a green bank? Refer to the Green Bank Network (GBN) link on Bb. How does it work? Look at two different examples. How and why might the concept of green banks relate to CT
Green bank: a public or quasi-public entity established specifically to facilitate private investment into domestic low-carbon, climate-resilient infrastructure. Following core characteristics: - a mandate focusing mainly on mobilizing private LCR investment using interventions to mitigate risks and enable transactions; - innovative transaction structures and market expertise; - independent authority and a degree of latitude to design and implement interventions; - focus on cost-effectiveness and performance. Ex: - UK Green Investment Bank: worked on biomass for energy, energy efficiency, waste reduction and offshore wind. - US: Connecticut Green Bank: solar and energy efficiency GB finance and support clean energy projects.
8. Watch the video clip of Herman Daly (the father of ecological economics). What is growth versus development? How does it relate to quantity and quality? Knowing this distinction, how does it relate to Daly's idea of a "steady state economy?"
Growth: quantitative increase in physical dimensions by assimilation of materials more stuff, bigger. Ex: cancer Development : qualitative change in evolution things are getting different, maybe better different and evolving stuff. Ex: planet Earth Embryo: growth & dvpmt Human economy: quantitative (relative to earth) and qualitative change: Human K not limiting factor anymore: now: remaining national K Because the biosphere is finite, every economy has to at some point cease growing and adapt itself to a dynamic equilibrium, something like a steady state. Birth rates must equal death rates, and production rates of commodities must equal depreciation rates. The sustainable economy must at some point stop growing, but it need not stop developing.
11. What is the effect of high interest rates on projects with long-term benefits (and costs), say greater than 20 years? Why would a low interest rate be better? Why are high interest rates a major obstacle to sustainability?
High interest rates on projects with long term benefits greater than 20 years: lower net present value: further you go, less money you get and smaller is the NPV. Low interest rate better because you get more money. Major obstacle for sustainability: higher is the discount rate: the less important are benefits earned down the road and the more important are initial expenses.
7. What are hot spots? How are they related to IB/MBI policy instruments?
Hot spots= high local concentration of pollutants. They are one of the biggest issues with IB regulations because IB systems create hot spots for concentrated and no uniformly mixed pollutants
1. Define the terms in the I=PAT equation. Use the analogy of carbon dioxide and cars or choose your own and consider and discuss the following scenarios: a. What happens to I when P increases? b. What happens to I when A increases? c. What happens to I when both P and A are increasing? d. What would need to happen to T if both P and A are increasing, but we would like to keep I at the same level? How might the equation change? e. What would need to happen to T if both P and A are increasing, but we would like to decrease I? How might the equation change? f. What could be done about A such that I would decrease? How might the equation change?
I (Env Impact)= P(Population) x A(Affluence) x T(Technology) A. Impact increases B. If consume more : more waste : impact increases C. Impact increases D. T should increase in the good way: green technology I=(PxA)/T E. T should increase in the good way so impact would decrease? F. A should decrease
4. Which approach (CAC vs. IB) has higher monitoring and enforcement needs and why?
IB needs higher monitoring and enforcement of violation. IB can't work without those things because the key of this regulation is to reduce pollution and so emissions have to be monitored and laws have to be put in place so that firms don't free ride and pollute more than what they should.
3. How do the command-and-control (CAC) versus incentive-based (IB; also known as market based incentive or MBI) approaches differ in terms of cost-effectiveness? In terms of technological innovation? In terms of short versus long term?
IB: more cost-effective in the short run, provides better incentives for firms to seek out new techno to decrease pollution control costs in the long run. Cost effectiveness achieved only if the marginal cost of reduction equals for each pollution source. Taxes and permits generate better incentives for long run techno progress in pollution control than CAC. CAC has also higher costs than IB.
2. Are the marginal abatement costs (i.e., MC for pollution reduction) of polluters readily available information, especially to the public or policy makers?
Imperfect information: no available information because don't know how many permits are there so some go out of business because can't buy permit as no more and so don't have other choice but quite: market power + each year cape decrease which means that they don't renew all the permits.
4. What is Life Cycle Analysis (LCA)? What inputs and outputs are tracked? What common environmental impacts are evaluated? What is a systems boundary? What is a functional unit?
LCA: the analysis of the life-cycle of a product from production, manufacturing, use, to disposal: from cradle (raw materials) to grave (disposal): Biggest emissions: transportation + use. Environmental inputs: raw materials and energy Economic inputs: semi-finished products and energy, transport Environmental outputs: solid waste, air and water emissions Economic outputs: finished product Results include quantities of pollutants released into environment (by media or stage) and amount of energy and materials used. System boundary: Defines the scope of the analysis: choose system boundaries to keep LCA manageable given resources devoted to the study. Functional unit: establishes the basis for comparison between products according to the function of the product.
8. What are LULUs? What does NIMBY mean? What does NIABY mean? What does BANANA mean? (see Peter Sandman article)
LULUs: Locally Unwanted Land Uses: sites for the disposal of waste (hazardous, radioactive or just non-hazardous municipal waste). NIMBY: Not In My Backyard (find another location) NIABY: Not In Anyone Backyard (find alternatives) BANANA: Build Absolutely Nothing Anywhere Near Anyone (ex: subway)
3. Discuss the views of Malthus on population growth and food production. What is the Malthusian population trap? What did Malthus fail to anticipate in his predictions? Give two examples of how his views have been discredited.
Malthus: 1798 "An essay in the principle of population": Food grow: arithmetically/ healthy pop grow: geometrically. Malthusian pop trap: pop growth would outstrip food supply, leading to increasing human misery, famine, disease, war Failed because agri output has not grown arithmetically: green revolution: increased crops + pop doesn't always grow geometrically: contraception. 1972 book: "The limits to growth" + 2009 study on planetary boundaries.
3. Define man-made capital, human capital, social capital, and natural capital. How are these terms related to one another under the assumption of weak sustainability? Under strong sustainability?
Man-made: goods that are used to produce other goods and services, such as machines, tools, buildings and infrastructure and can also include "financial capital'. Human: skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country. Social: idea of community, community bonds, networking cohesiveness. Natural capital: input that nature provides for our production and consumption processes. Weak sustainability: overall K stock to support a high quality of like is maintained and can be achieved by using adequate substitute for natural K. Strong: requires maintaining the total stock of capital of each form of capital separately: no substitute
5. Why would a manufacturer use LCA? Why would a policy maker use LCA? Why would a consumer use LCA? Give examples of products for which LCAs have been completed. Could findings from an LCA become input to a benefit-cost analysis?
Manufacturer: use LCA for product development, improvement & camparison choice of env performance indicator + states market claims that influence market behavior. Policy maker: use for public information campaigns, Ecolabels, Support for regulations/legislation, Procurement decisions, Benchmarking Consumer: provides understanding of the human health and environmental impacts that are traditionally not considered, to better inform decision makers + decrease the negative env impact for future generations. LCA for plastic bottles, cloth diapers, PVs. Finding couldn't become input for bca because LCA relates to the function of the product, not production or consumption values.
12. Discount rates used to evaluate profitability in a private investment are different than those used to evaluate environmentally related (i.e., social) investment project. Why is there a difference between the market discount rate and the social discount rate? What is the range of typical values for a social discount rate? Which is typically higher and why? Which is typically lower and why? What is the "right" discount rate to use?
Market discount rate: for business which seek to maximize profits using their opportunity cost of K. Social investment project: used by gov for society (for env protection), has to decide what rate of discounting choosing, to be sure not to over or underinvest in protecting natural K. Range of typical values for a social discount rate: 2.5, 3, 5. lower to be more attractive, so people want to invest in it. Market discount rate is higher: because rate of return in inv and time preference have high rates. For several, time preference + growth should be 0 so rate should be 0 too. Right discount rate to use is greater than 0.
11. Compare and contrast how neoclassicals (NCE) and ecologicals (EE) feel about: a. substitution of created and natural capital b. technology c. resilience of nature and ecosystems d. globalization e. role of government
NCE: allow substitution, technophile, nature: highly resilient, for globalization, sustainability achieved through a well-functioning & properly regulated market system (internalize ext). EE: no substitution, technophobe, eco: wholly owned subsidiary of nature, no globalization, gov need an expanded role in aggressively protecting nature.
1. What is natural capital and how does it relate to sources and sinks? What are sources and sinks? How does human consumption and production rely on natural capital? Discuss the tradeoff that takes place between human production and consumption (i.e., economic growth) and environmental quality.
Natural capital: input that nature provides for our production and consumption processes. Human production and consumption processes rely on the environment as a source of raw materials. Humans exploit the environment as a sink for waste materials. Both make the natural K. Pollution: overuse of sinks while resource degradation: overharvesting of resources. Humans reduce the stock of natural K available for future generations in two ways: - Emission of stock pollutants (pollutant with long term consequences) or flow pollutants (quick, no long term impact) which deplete env sinks. - Exploitation of natural resources, renewable or not: overharvesting of sinks. Hence, with economic growth, they can consume more and so there is more production, which leads to more resources depletion and a lower environmental quality.
4. Discuss the view of neo-Malthusians (like Paul Ehrlich) and how their views differ from the original views of Malthus (hint: affluence). Why are neo-Malthusians sometimes referred to as "peakniks," "gloomsters," or "doomsters?"
Neo-Malthusian view: other resources constraints exist than arable land: agri requires massive qtties of water, energy, fertilizers and pesticides. And not because food production increase >pop increase that will continue. Rising affluence lead to massive increase in demand of meat which is resource intensive. Peaknics: people believing that there are picks everywhere, population and food peaks.
7. Draw the models of NCE (circular flow of exchange value) and EE (economy as a subset of the environment). Discuss the implications of how the two models differ. What is throughput?
Neoclassical: nature is highly resilient; sustainability achieved thought a well-functioning & properly regulated market system. EE: economy is a wholly owned subsidiary of nature
10. What is net present value (NPV) and how is it used to evaluate whether individual projects are considered efficient? What does "PV" mean? What does "net" mean? How does NPV relate to cost-benefit analysis at the policy level?
Net Present Value: discounted present value (PV) of the flow of cash over time associated with a project - NPV > 0, accept the project, net worth will increase with the project - NPV < 0, reject the project, net worth will decrease with project - NPV = 0, indifferent, net worth unchanged PV= Present value Net = benefits - costs; find difference between receipts and expenditures at each time period. NPV= PV- ( FV/(1+r)n ) Use of present value in benefit/cost analysis: a higher discount rate means a lower present discounted value. Hence, current costs and benefits are weighted much more heavily than those occurring in the future. When you have high time preference and high economic growth: raising interest rates: must evaluate alternative investments. Gov policymakers must choose a discount rate for analyzing policy decisions such as deciding how much sock pollution to allow. However, inv can be under or overinvest in protecting natural K, so benefit-costs analysis is needed to determine the right trade-off btw investing in protection vs creation of other types of k. So with a good b/c analysis, net benefits to future and current generations to protect the env should be maximized.
8. What is a positive time preference for money? How is this related to sustainability? Would people rather have money now or in the future? Would investors prefer a shorter of longer time period until they receive a return on their investment?
Positive time preference for money: well-known desire to consume more today, regardless of the consequences for tomorrow: goes against sustainability. Society and individuals are better of having dollars today, as investments can be productively invested to increase the size of the economic pie for tomorrow. Investors would prefer a shorter time period until they receive a return on their inv, because with time the rate decreases.
On what grounds is the safety standard defended ethically? Talk about personal liberty in your answer.
Relies on a liberty of argument, putting heavy weight on welfare reduction from pollution. Safety standards are defended on personal liberty grounds.
If safety standards that are considered to be too strict (and hence inefficient) were to be relaxed, what could be done with the freed up resources? (Hint: has to do with compensation.)
Resources could be used for long term investments (new techno, innovation) and compensate the ones that suffer from pollution. For examples with LULUs: sites for disposal waste: impose negative externalities but society as a whole benefit from having toxic facilities with monetary compensation.
What is the "safe" level of environmental protection used in this book (e.g. 1 out of ...)? What is the "unsafe" level of environmental protection used in this book? Are these levels based on cancer or non-cancer risk?
Safe level of env protection: env cancer risks < 1/1 Million. Unsafe: risks >1/10,000. Based on cancer risk.
What is cost-effectiveness in relation to the safety standard? Give an example in terms of $ per life year saved (remember the activity we did in class?). Could the safety standard tend towards too much attention focused on small risks? Explain this idea, especially in terms of cost-effectiveness.
Safety standard fails to give sufficient guidance to ensure cost-effectiveness. If regulators pursue safety at every turn, they may devote too many resources to eradicate small risks while ignoring larger ones. Indeed, the goal of the safety standard is to take extreme measures even to attack minimal risks situations instead of attacking the high ones, and this is not cost-effective. They use the money without looking at the most effective risk situation decrease. For example, increasing the number of heart transplants that are performed cost 200 669 dollars per life year saved.
Are safety standards typically too strict or too lax as compared with efficiency standards? Explain. Be able to draw the diagram of the general case of pollution reduction and depict the efficient point versus a hypothetical safety point to back up your answer.
Safety standards too strict compared with efficiency standards. It is based on fairness more than efficiency; reject benefit/cost approach to decisions about the correct amount of pollution as it is based on the health of individuals. But too strict so always inefficient as not cost-effective and regressive impact on income distribution: uneven distribution.
12. What are the similarities between neoclassicals (NCE) and proponents of the efficiency standard? What are the similarities between ecologicals (EE) and proponents of the safety standard?
Similarities NCE & efficiency: implementation of benefit cost analysis + EE & safety for them too extreme: insist there are tradeoffs and that we can pay too much for a perfect env. Similarities EE & safety: strict standards: make utilitarian argument: env protection is good for people because the society-wide opportunity cost of protection is relatively low.
13. What is the social cost of carbon (SCC)? Why is it important to know about it? What does the SCC have to do with discounting? What does it have to do with the Ramsey equation?
Social Cost of Carbon= what we need to mitigate now to avoid damages in the future: emitting 1 ton of carbon dioxide will cause $36 in damages to the planet. It is determined by a revealed time preference as we prefer now than after and an opportunity cost: what we're willing to give up now for future. It is the most important number we heard about because it should be a policy driver incentive as we could put a price on carbon and everyone would be impacted by it (+ or -). SCC uses different discount rates and so its importance changes according to the number, hence as discounting, it compares costs and benefits of pollution reduction across time. It is a way to discount climate change as its goals is to protect the environment for future generations. As the Ramsey equation, it is composed of a revealed time preference and opportunity costs.
10. The controversial World Bank memo we discussed in class in generally attributed to Lawrence Summers. What does Summers say about the efficiency of the trade in toxic waste from rich to poor countries? How do the marginal costs for clean up compare between rich and poor countries? How does the demand for a cleaner environment compare between rich and poor countries? Is such a proposal fair?
Summers' memo: migration of dirty industries to less-dvped countries are morally and economically defensible if toxic trade makes all parties better off. Marginal costs of cleanup are higher for poor people. (environmental racism and regressive) The demand for a cleaner env is greater in rich countries than in poor because they don't have the money to spend in that, so prefer to be compensated to increase their wages and their welfare. This is not fair but it is efficient as losers can be compensated by winners and so it should increase the overall welfare of the society.
5. What is the definition of sustainability used in this book? What was the "Brundtland Report?" Why is the definition so broad? Note the use of "typical" person, why is this so? How does sustainability relate to intergenerational equity?
Sustainability: development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Brundtland Report: report by the World Commission on Environment and Development (or Brundtland Comission) in 1987, proposes a global agenda for change and specifies how sustainable development can be achieved, titles "Our Common Future". Broad definition because can't precisely define needs + think about well-being instead of needs. Typical person: median psn, according to the wage, the quality of life of the average psn. Sustainability: equity across different generations: intergenerational.
11. Which IB/MBI policy instruments generate revenue for the government and how? What can the government do with the revenue? What should the government do with that revenue? Use the phrase "tax bads, not goods" and the terms revenue neutrality, progressive, and regressive in your discussion
Taxes generate revenue for the government, and they can reuse this money to invest in other new projects. Pollution taxes can be made revenue neutral by rebating pollution taxes in form of income tax cuts. Government can rebate the revenue directly back on an equal basis to all citizens (skytrust), in general, this leads to benefits for the majority of people. Indeed, by shifting taxes from a good thing to bad thing, pollution fees could be lower to the overall costs to the economy of cleaning up the environment, and this is called a progressive policy in opposite to a regressive policy, where minorities can suffer from it.
8. List and discuss the pros and cons of taxes versus cap-and-trade (C&T). If you were a polluter which one would you prefer and why? If you were a policy maker which one would you prefer and why? If you were a consumer, which one would you prefer and why? Be sure to relate your answer to P (price) and Q (quantity).
Taxes: - Taxes are cost effective, but uncertainty about abatement costs might make it necessary to readjust tax rate to reach desired reductions. - Don't know in advance actual level of pollution that will emerge - Risk of missing the target when using taxes; permits more reliable to meet the target - Taxes offer fixed price to be paid for each unit of pollution; are more expensive (emission standard + abatement costs over standard) - Politically difficult to add new taxes C&T (permits): Pros: If permits are given away: lower cost to firm; + certain pollutant level; No need for adjustment to account for economic growth or inflation; Directly control the quantity of pollution emitted (quantity instrument) Cons: Thin market; price volatility; potential for market power; permit life + Need for direct monitoring of emissions & enforcement of violation, Hotspots. Polluter: I will prefer permits give away because there is a lower cost to firm if you pollute less + certainty about what you're polluting so what you're spending. If can decrease pollution emissions, you will be able to make money opportunity cost. As the quantity of permits I buy decreases, the price I have to pay decreases too. If I want to pollute more, I just have to increase my quantity of permits. Policy maker: prefer Cape & Trade because you know the qttie will be achieved with certainty. Prefer auctions because you can get revenue from it. A tax can also be chosen. Consumer: id depends on the price. Cape & Trade: Cape & dividend: when polluter passes the increase in price to the consumer, the policy maker can put in place the revenue neutral: give refunds to people according to their income, area, n° of people in households etc.
2. Discuss the terms "technophile" and "technophobe." If the I=PAT equation above is from the point of view of a technophobe, how might the I=PAT equation change to reflect a technophile point of view? Hint: T versus T1 versus T2
Technophobe (ecological eco): think that technology increases the impact so I=PAT1 Technophile (neo-malthusians): with green eco increase, impact should decrease or good impact increase so I=(PxA)/ T2 For them: pop good because more brains are available to increase innovation (vs Malthus)
14. What are the scientific and ethical implications in the debates over not only whether to have a social cost of carbon (SCC) but also how to determine what value(s) it should take? What geographical or economic development implications apply?
There is uncertainty over the science and economics of climate change. The SSC is good for society as it impacts every individual. However, it means lowering carbon emissions, which is the opposite of what Trump is doing. We should use low or no discount rate. Under Obama it was 2.5, 3, 5 discount rates used; EPA uses 3. Climate change involves long time spans and globe-spanning geography so discount rates are a vexed subject. Future generations of the poor will suffer even more with climate change: geographically discount rate (displace suffering temporally and geographically). Disagreement on how much we should value economic impacts on future people.
7. Inequity in siting hazardous and other waste facilities has sparked a political movement called the environmental justice (EJ) movement. What are the underlying issues? Could these sub populations benefit from a safety standard? Could they possibly suffer from a safety standard if it becomes regressive?
Underlying issues: environmental racism (racial inequalities in siting of hazardous facilities): poor pay more relatively to their income but also benefit disproportionally, sometimes can't bear the cost of regulation, too much. Hence, impact on income distribution is uncertain + not clear if freeing up resources would lead to increased well-being among poor. Hard to determine if pollution control leads to net benefits or net costs on lower half of income distribution so need to be weighted carefully.
1. "Once a path is chosen, other paths are closed off." Explain this statement in terms of technology and give an example to enhance your discussion.
When infrastructure & R&D investments are used to support a chosen path, it is impossible after to change the goal that they had at the beginning. For instace, after WWII, US decided to invest in cars and infrastructures linked with that. This lead to pollution, but it was too late and impossible to change what has been done, was to late. People now use they car and don't want that to change.