Environmental Final
What were some of the predictions of Keynes' "Economic Possibilities for our Grandchildren"?
"Assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not-if we look into the future-the permanent problem of the human race." Thus for the first time since his creation man will be faced with his real, his permanent problem — how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well. By the year 2030, people will be economically satisfied, thus there would be more than enough stuff to go around, and people will no longer be driven by personal gain, and hopefully people will care more about creating a better future for their grandchildren than their economic status.
About what is the range of discount rates currently used by economists?
0-5%; sometimes higher.
What are the two components of the social rate of time preference?
1. (ε*c) where ε=elasticity of marginal utility of consumption; c=growth in per capita consumption - this measure is dependent on the assumption that future economic growth is going to continue. 2. ρ=pure rate of time preference; usually greater than 1 bc we care more about ourselves than future gens (moral value would be 0)
What is the most environmentally damaging fossil fuel? What is the cleanest?
1. Coal - responsible for ~42% of total global CO2 pollution 2. Oil/Gas - ~21% 3. Biomass 4. Nuclear 5. Wind 6. Solar 7. Hydropower
What are some of the requirements for a successful PES program?
1. Conditionality: conditions must be met, and strict 2. Additionality: PES must be something they do in addition to what they do currently 3. Permanence: contract needs to be permanent 4. No leakage: everyone must comply
What are some of the advantages and disadvantages of using taxes to regulate pollution?
1. Easier to measure and regulate. For instance, suppose a technological innovation that lowers the cost of carbon reduction is discovered. Under a carbon tax, carbon emissions would automatically be reduced more, while under a cap-and-trade system, permit prices would decrease as a result of the change, and could result in some firms actually increasing emissions. 2. It could likely be implemented more quickly, which is important to consider given that the need to decrease emissions is critical. 3. A carbon tax delivers a greater degree of price stability than a cap-and-trade system does, as fluctuation in permit prices could result in price volatility Disadvantages: 1. Difficult to achieve politically 2. Lag in consumer response to gas price changes. Gas is a relatively inelastic good in the short-term, therefore a large increase in price would be required to decrease consumption. In the long-term, gas is less inelastic as consumers have more time to adjust their consumption habits
What are the main approaches for determining the discount rate?
1. Market interest rates 2. Social rate of time preference equation: SRTP =ρ+(ε*c) where ρ=pure rate of time preference (should be near 0); ε=elasticity of marginal utility of consumption; c=growth in per capita consumption 3. Contingent valuation: Using surveys to ask respondents about their willingness to pay (or occasionally willingness to accept) under hypothetical scenarios
What are the four basic approaches to pollution policy?
1. Regulation: a law that seeks to control environmental impacts by setting standards or controlling the uses of a product or process. 2. Technology-based approach: sets requirements that firms or products incorporate a certain pollution control technology; also BACT approach 3. Pollution Tax: setting a per-unit tax on each unit of pollution produced 4. Tradable-Permit System (cap-and-trade): the total number of permits issued equals the desired target level of pollution; they can be allocated freely or through auctions; once allocated the permits can be traded or transferred to other producers. Firms can choose for themselves whether to reduce pollution or to purchase extra permits - but the total volume of pollution emitted should not exceed the max. amount set by the total number of permits.
Are we (the world) likely to run out of oil any time in the foreseeable future?
2019 BP report shows global reserves as 1,730 billion barrels. For the foreseeable future, the EIA predicts that over time, global reserves will likely increase as new technologies increase production at existing fields and as new projects are developed.
What discount rate do most economists suggest using for analyses of climate change?
75% of expert economists believe a 2% discount rate is acceptable. Mean around 3%, median was around 2%.
Why is a 5 degrees Celsius global average temperature increase considered so dangerous?
A 5C temp increase would make all of the negative impacts on ecosystems, extreme weather; distribution; economy and ecology; would almost certainly occur, as well as irreversible and abrupt changes that would result in universal horrible damages.
How would a carbon tax affect the price of different fossil fuels?
A carbon tax is a levy applied to fossil fuels based on how much carbon dioxide they release when burned. Coal, for example, releases more carbon pollution than natural gas to produce the same amount of energy. The federal carbon tax will raise the price of coal more than the price of natural gas, or oil and gas.
What is voluntary simplicity?
A choice to live with less material goods in an attempt to pursue a more meaningful life.
What is a discount rate?
A discount rate is the rate of return used to discount future cash flows back to their present value.
What are payment for ecosystem services (PES) programs?
A system in which providers/stewards of ecosystem services are paid by the beneficiaries of those services, leading to sustainable management. PES can reduce market failures, increasing economic efficiency.
About what percentage of U.S. plant closings and layoffs are a result of environmental regulation?
About 0.1% of U.S. plant closings (a layoff "event") and layoffs are a result of environmental regulation.
What are some of the advantages and disadvantages of using a system of tradable permits to regulate pollution?
Advantages: 1. An effective permit system would tax heavy-polluting firms and also generate public revenue. 2. Reduces the costs of reducing pollution 3. Each firm can choose to reduce carbon emissions through a variety of cost-effective strategies - these could include replacing older plants, investing in energy efficiency, or funding forest expansion to increase carbon storage. Disadvantages: 1. Relatively complex to understand and could be difficult to measure. 2. May be difficult to reach consensus in the number of tradable permits to be distributed.
How are people in developing countries more dependent upon natural resources?
Agricultural/Environmental employment - ex: 60-80% of people in sub-Saharan Africa and some parts of Asia are working in ecosystem services, thus their economy is more dependent on the environment than developed countries.
What is sensitivity analysis?
An analytical tool that studies how the outputs of a model change as the assumptions of the model change. Sensitivity analysis measures the effect of changes in a variable on the project's NPV. To perform a sensitivity analysis, all variables are fixed at their expected values, except for the variable in question which is allowed to fluctuate. Resulting changes in NPV are noted.
How strong is the scientific consensus that humans are causing climate change?
Around ~91-100% (studies: 100% in 2004; 97% in 2009; 97% in 2010; 97% in 2013; 91% in 2014; 93% in 2014; 97% 2015) Average: ~96%
What is behavioral economics, and how does it differ from traditional economics?
Behavioral economics is the application of psychological, social, and emotional factors to understanding economic decision‐making.
What is benefit transfer? Is it normally considered valid?
Benefit Transfer: assigning or estimating the value of a resource based on prior analysis of one or more similar resources. Validity is questionable because oftentimes benefits are not comparable, and the things being compared may differ too much.
What is the evidence regarding the EKC?
Best evidence is with SO2; but studies suggest it does not apply to other environmental impacts (i.e., CO2 emissions).
What developed country collects the lowest amount of environmental taxes, as a percent of GDP?
Brazil - 2.04% US - 2.76%
What is decoupling?
Breaking the correlation between increased economic activity and similar increases in environmental impacts. That is, as a country becomes more developed, its dependence on environmentally damaging activity is broken.
How can a travel cost model produce estimates of consumer surplus?
By deriving a demand curve and finding the area under it.
How can we determine which firm will sell permits, and which firm will buy permits?
By determining which firm's marginal cost is higher, at the margin (compare the costs of producing nth unit).
What is the main advantage of using standards to regulate pollution?
By imposing a uniform rule on all producers, we can be sure that no factory or product will produce hazardous levels of pollutants (i.e., reduces hot spots). In some cases, a pollutant can be universally banned (i.e., DDT).
What is the major anthropogenic greenhouse gas?
CO2 accounts for 76% of the warming impact of human greenhouse-gas emissions Methane (CH4) - 14% N20 - 6% Fluorine Gases - 2%
What did the NOAA panel conclude regarding the validity of contingent valuation? What were some of its recommendations?
CV studies may produce valid estimates of non-use values, they made some of the following recommendations for CV studies: 1. in-person surveys are preferred because they best maintain respondent's concentration and allow for the use of graphics 2. WTP questions are preferred to WTA, in order to avoid unreasonably high answers 3. WTP questions should be framed using a Yes/No format with a specific price; bc the Yes/No format aligns with actual consumer decisions about whether to buy something - rarely must consumers actually think about their max WTP. 4. The sensitivity of WTP to the scope of the damage should be explored (i.e., one CV study asked one group of respondents their WTP to protect 2000 birds vs 2,000,000 birds and their WTP amounts were insensitive. 5. Follow-up questions should be included to determine whether respondents understood the hypothetical scenario and why they answered the way they did. 6. The respondents should be reminded of their income constraints and that funds used for the scenario cannot be used for other purposes. They also recognized the likely tendency to exaggerate WTP in CV surveys and thus its recommendations tend to produce conservative WTP estimates as a partial or totally offset to this bias.
What are some examples of green nudges?
Car Stickers: Presenting "green" electricity as the default choice: colored lights show real-time electricity usage, how much money you can save in fuel costs, and more prominent fuel efficiency information. Electricity Consumption Reports that compare your consumption to your neighbors. Based on elasticity data, such info is equivalent to raising prices about 10-30% in reducing demand.
What is the main advantage of a carbon tax over a cap-and-trade system?
Carbon taxes provide price certainty
What types of green nudges seem to be the most effective?
Commitments; defaults; maybe changing price
What are the traditional assumptions about consumer behavior in economics?
Consumers are rational - they seek to maximum their own utility. Consumers know their preferences - which options increase utility the most. Consumers have "perfect" information. Consumers are consistent with their choices.
What is contingent ranking? Why do some economists prefer it to contingent valuation?
Contingent Ranking: respondents are not asked directly about their WTP, rather they are presented with various scenarios and asked to rank them according to their preferences. Presence of biases in CV studies may be reduced. People may think about their actual preferences more.
What is the cost-of-illness method? Why do we say that it only provides a lower-bound to economic value?
Cost of Illness Method: Out-of-pocket costs, lost work time, economic value of mortality The true WTP would be greater, since the market-based costs may not capture the full losses to individuals from illness.
What is cost-benefit analysis?
Cost-Benefit analysis (CBA) is a tool for policy analysis that attempts to monetize all the costs and benefits of a proposed action to determine the net benefit.
What is the defensive expenditures approach? In principle, why does it provide only a lower-bound estimate of economic value?
Costs associated with avoiding environmental contaminants provides information about the benefits of improved environmental quality. It only provides how much people are willing to pay to avoid a certain cost; thus it is a lower-bound estimate of WTP, not consumer surplus. Ex: a house may be willing to pay more to avoid contaminated drinking water than they are actually currently spending.
About what is the current atmospheric concentration of carbon dioxide?
Current CO2 Concentration: ~400 ppm
Are we (the world) likely to run out of coal any time soon?
Current global coal reserves are about 900 billion tons, over enough for 100 years of supply at current consumption rates. Probably not - as other energy sources become cheaper, coal is becoming less desirable and therefore consumption is predicted to decrease.
What has been happening to the cost and global supply of wind energy in recent years?
Declining costs: ~$135 in 2009 to ~$42 in 2018.
What are direct use values? Can you give an example? (Forest)
Direct Use Value - value of harvesting the trees and selling; value of non-timber products; hiking and hunting in the forest
What are some examples of policies that can encourage a transition to renewable energy?
Direct payments or favorable loans - gov't can pay a company a per-unit subsidy for producing particular products
How can a future marginal net benefit curve be discounted (both by using a graph and by presenting it numerically)?
Discount formula is PV (B) = B / (1+r)^n This is the y-axis intercept.
Do the benefits of environmental protection in the U.S. appear to outweigh the costs?
EPA regulations provide a B/C ratio of 3.2 to 13.1. EPA regulations provide about 70% of the net benefits of all federal regulations.
What is meant by a steady-state economy?
Economic growth is dependent on natural resources, and natural resources will - at some point - be completely depleted, assuming that we continue increasing economic growth, resulting in decreasing economic growth. Therefore, in order to maintain economic growth in the long-term, we must institute policy that will induce the economy to function at a "steady-state" equilibrium, at which the availability of natural resources is constant with respect to time.
How do economists define "economic value"?
Economic value can be described as a measure of the benefit from a good or service to an economic agent, usually measured in dollars.
What is the main advantage of using a technology-based approach to regulate pollution?
Enforcement and monitoring costs are relatively low - unlike a pollution standard that requires firms' pollution levels be frequently monitored to ensure compliance, a BACT regulation might require only occasional checks to ensure that the equipment is installed and functioning properly.
About what percentage of GDP in the U.S. is spent on environmental protection?
Environmental protection accounts for about 2% of total GDP, but creates about 4% of all jobs.
How long will it take for sea level rise to stabilize if carbon emissions are reduced to near zero?
Even if CO2 emissions are reduced to near zero, sea level rise will continue for several centuries to millenia.
What is the evidence regarding whether PES programs are effective at reducing poverty?
Evidence suggest in most PES applications; the economic costs outweigh the economic benefits. The main problems are that the poorest don't have ownership of natural resources, and even if they do, they often lack knowledge about how to apply for payments.
What is the evidence regarding whether PES programs are good for the environment?
Evidence suggest most PES applications tend to allocate the benefits more towards the resource owners rather than the workers; thus the benefits are allocated unfairly. In terms of the environment, most (but not all) studies found that PES studies were beneficial for the environment, or had no effect.
How does exported pollution harm people in developing countries?
Exporting pollution to developing countries increases environmental impacts that are hazardous to health - thus through exporting pollution, we are essentially exporting deaths.
How do externality costs vary for renewable and nonrenewable energy sources?
Externality costs for renewables are much lower than for nonrenewables. Around
Have the costs of wind and solar energy been declining faster or slower than generally expected?
Faster than expected.
What are some of the projected impacts of global climate change, as average temperatures increase?
For an increase of 2C; there are risks to many ecosystems; a certain increase in extreme weather; negative effects to many regions - likely equatorial countries (distribution); mixed positive but mostly negative impact on economy and ecology; and a low risk of irreversible and abrupt changes; as well as rising sea levels
About what percent of the world's energy comes from fossil fuels?
Fossil fuels (coal, oil, and natural gas) accounted for over 80% of global energy consumption in 2018.
What is fracking? What are the main concerns about fracking?
Fracturing fluid is pumped into the well, the pressure causes the rock surrounding the pipe to crack, the proppants hold open these cracks to allow the trapped natural gas to escape, then gas flows up the well to be collected. Potential risks: Groundwater contamination, air quality degradation; immense water usage.
What are some of the ways that climate change will disproportionately harm people in developing countries?
Geography: most developing countries are located around the equator, where it is warmer. Thus, they are more susceptible to disease epidemics as a result of increased temps caused by climate change. Lack of resources Agricultural/Environmental employment - ex: 60-80% of people in sub-Saharan Africa and some parts of Asia are working in ecosystem services, thus their economy is more dependent on the environment than developed countries.
What is the Earth Atmospheric Trust?
Global GHG cap with all permits auctioned and proceeds go into the Earth Atmospheric Trust. Create a global cap-and-trade system for all greenhouse gas emissions; Auction off all emission permits, and allow trading among permit holders; Reduce the cap over time to stabilize concentrations of carbon emissions to 450 parts per million of carbon dioxide; Deposit all the revenues into an Earth Atmospheric Trust, administered by trustees serving long terms and provided with a clear mandate to protect Earth's climate system and atmosphere for the benefit of current and future generations; Return a fraction of the revenues derived from auctioning permits to all people on Earth in the form of an annual per capita payment (especially helps poor people). Climate change adaptation/mitigation cost is 1% of GWP, about $900 billion (gross world product = $85 trillion); Remainder is distributed on a global per capita basis, $0.5 to $3.5 trillion per year. With 7.7 billion people, annual dividend = $65 to - $455 per person.
Are more investments globally currently going toward renewables or fossil fuels?
Global investments in renewables: ~$286 B Global investments in fossil fuels: ~$160 B
What energy sources have the highest and lowest net energy ratios?
Hydropower - >100; Coal - 80; Oil - 35; Natural Gas - 10; Wind - 18; Photovoltaic cells - 6.8
How will technological improvements affect pollution levels with a pollution tax?
If a technological innovation that lowers the cost of carbon reduction were to be discovered, carbon emissions would automatically be reduced more under a carbon tax.
How will technological improvements affect a system of tradable permits?
If a technological innovation that lowers the cost of carbon reduction were to be discovered, permit prices would decrease as a result of the change, and could result in some firms actually increasing emissions under a cap-and-trade system.
If all countries meet their NDCs, what are the implications for the global average temperature?
If all countries meet their NDCs, it is unlikely that and the target increase in the global avg temp is 2C would be met, because majority of countries submitted insufficient NDCs. If we did somehow meet the 2C target, then we could be confident that some moderate environmental impacts could occur (such as moderate sea level rises; and the destruction of coral reefs); rather than extreme and irreversible impacts like permafrost melting, extreme sea level rises, destruction of the Amazon rainforest, etc.
What is the problem of using the rate of return on financial investments as the discount rate?
If rate of return gets too high, opportunity cost gets higher. Bad bc we are linking decision of whether to take action on climate change to a financial rate; also financial rates are subject to volatility.
Would we generally expect contingent valuation to produce valuations that are too high or too low?
In experimental settings, people tend to report hypothetical willingness to pay values that overestimate their real willingness to pay values
What are indirect use values? Can you give an example?
Indirect Use Value - forest provides soil erosion; flood protection; carbon storage
What has been happening to the cost and global supply of solar energy in recent years?
It has been decreasing, from ~$100 in 1975 to ~$0.04 per solar panel per watt in 2016.
What is the main problem with replacement cost methods of economic valuation?
It is not a willingness to pay method; it is a proxy measure of WTP. It assumes the fungibility of environmental services: ex - is the WTP to build a seawall the same as the WTP for the lost wet land as a result? NO!! It also assumes that produced capital is a potential replacement for environmental services.
How does changing the discount rate change the allocation of a nonrenewable resource across time periods?
It makes the efficient allocation of resources be allocated more towards the present and less towards the future; compared to not discounting
What is "libertarian paternalism"? What is a "nudge"?
Libertarian paternalism is using behavioral economics to influence choices, while preserving freedom and the choice set. People may be "nudged" toward a better decision through integrating insights about boundaries, biases, and habits into the choice architecture surrounding the behavior - i.e. the physical, social, and psychological aspects of the contexts that influence and in which our choices take place - in ways that promote a more preferred behavior rather than obstruct it.
How can the efficient allocation of a nonrenewable resource be determined in a two time-period model (both by using a graph and by solving numerically)?
MNB 1 is time now curve; MNB 2 is time later curve. Set them up along two axes and determine intersection of the two curves.
How do the projected cost of compliance with environmental regulations compare with actual costs once regulations are enacted?
Many studies show that environmental regulations generally cost much less than people expect. The potential innovation to reduce compliance costs (the cost to meet regulations) is generally underestimated; thus initial compliance costs are generally overestimated, it usually costs less than projected.
How can one obtain a marginal net benefit curve given a supply and demand curve (both by using a graph and by solving numerically)?
Marginal Net Benefit=Pd - Ps max x value (quantity) * max y value *1/2
What is the problem of moral licensing?
Moral licensing is the idea that people may justify a bad decision by recalling a good decision they once made.
What are some of the concerns with corporate environmental responsibility?
Most large companies publish reports on their environmental impacts and responsibilities, but no evidence that reporting leads to improved results. Dramatic increase in "green" advertising on recent years, though significant concerns about "greenwashing." Also, concerns about "moral licensing" - the idea that people/companies justify bad environmental choices with good environmental choices.
What are the three "revealed preference" valuation methods?
Non-Economic: 1. Defensive Expenditures: Costs associated with avoiding environmental contaminants provides information about the benefits of improved environmental quality. CONS: Only provides a lower-bound estimate of WTP; Costs may be made for reasons other than reducing exposure; Only applicable for a small number of policy situations (mainly drinking water) 2. Hedonic Valuation: Breaks down the price of something into values associated with specific component characteristics. CONS: Statistical results are mixed as housing prices are influenced by so many other factors; Mainly applied to environmental characteristics that affect house prices. 3. Travel Cost Models: Use data on visitor travel costs to derive a demand curve (and consumer surplus) for a recreational site. CONS: Models only estimate use values for recreation sites; Results vary considerably - validity of transferred values is highly suspect
What is the primary difference between economic analyses that support significant action to reduce climate change and those that do not?
Nordhaus used a discount rate of 3-5%, and concluded that the optimal economic policies to reduce climate change involve modest rates of emissions reductions in the near term, followed by increasing reductions in the medium and long term ("ramping up"). Stern used a discount rate of 1.4%, and strongly recommended immediate and substantial policy action.
According to Daly, what is the primary factor necessary for a transition to a SSE?
Only when it is universally accepted that the corresponding increase in well-being by transitioning to a steady-state economy is greater than the marginal increases to well-being as a result of increases to economic growth we currently experience under traditional economic assumptions can we transition to a steady-state economy.
What are the three types of non-use values?
Option Value - the value that people place on the maintenance of future options for resource use Bequest Value - the value that people place on knowledge that a resource will be available for future generations Existence Value - the value people place on a resource that they do not intend to ever use, such as the benefit one obtains from knowing an area of a rain forest is preserved even though he or she will never visit it
What is the formula for the present value of a future cost or benefit?
PV = B / ( 1 + r)^n where B=future benefit; r=discount rate; n=number of time periods (years)
How does a cap-and-trade system operate?
Permits would be required for large emitters of carbon; then the permits would either be given away or sold by auction; permits would be bought and sold in a free market; and the number of permits would be gradually reduced.
What is a Hubbert Curve? Have its predictions proven true for the U.S. and the world?
Predicts that after fossil fuel reserves (oil reserves, coal reserves, and natural gas reserves) are discovered, production at first increases approximately exponentially, as more extraction commences and more efficient facilities are installed. At some point, a peak output is reached, and production begins declining until it approximates an exponential decline. Did not happen, however, because alternate oil extraction techniques were invented and used (such as fracking, etc)
What is the difference between relative and absolute decoupling?
Relative Decoupling: The growth rate of the environmental bad is positive but less than the economic growth rate, thus environmental damage declines as development continues. Absolute Decoupling: the level of environmental bad is either stable or decreasing at the same that the economy is growing. Thus absolute decoupling breaks the linkage between economic growth and environmental degradation.
Why do economists tend to prefer revealed preference valuation methods over other valuation methods?
Revealed preference valuation methods have the advantage of being based on actual market decisions. They also consider non-use values, which are essential in determining the total economic value of a good or service.
How can equilibrium price and quantity be solved for given equations for supply and demand?
Set equation for quantity supply equal to quantity demand; solve for p
How can we use a graph to show how two firms will react with a system of tradable permits?
Set up on double axis; calculate where optimal allocation is (MC1=MC2) considering what the WTP firm buying permits is and what the WTA of firm selling permits is.
What is the difference between shallow and deep green consumerism?
Shallow green consumerism: replacing standard products with "green substitutes", while maintaining the same level of overall consumption. Deep green consumerism: consuming less overall (ex: taking public transport instead of buying a car).
How can we graphically show that tradable permits will reduce the costs of reducing pollution (as compared to a standard where each firm reduces pollution by the same amount)?
Show the reduced area of control costs after the system is imposed.
What are the policy implications of regulating a stock pollutant?
Since stock pollutants can't be dispensed, even if we freeze emissions overnight, the concentration will still increase, reach a peak and then only start decreasing after emissions have reduced to zero.
What are the projections for future oil prices? Are they considered reliable?
Some predictions argue a "high oil price" prediction; a "reference" oil price and a "low oil price" prediction; basically, no one knows the future price of oil. No reliable predictions.
What are some of the biases associated with contingent valuation?
Strategic bias - when a respondent intentionally provides an incorrect WTP in order to advance a particular policy outcome. Yea-Saying: when a respondent agrees to pay the indicated amount because they perceive it as a "correct" answer or the answer that the researcher wants to hear. Range-bias: when the responders answers are influenced by the range of values presented (typically an issue with payment card/multi-bounded formats). Protest Bids: when responder states that they are not willing to pay for something because they think that they already pay too much in taxes (can be identified by asking follow-up questions). Non-response bias: when responders to a survey are not representative of the population under study. Warm glow effect: when respondents express WTP because it makes them feel better.
How can we solve for the appropriate resource depletion tax, graphically and algebraically?
Tax = The vertical shift of the original supply curve that results in the efficient quantity in the current generation (97.5 tons). Solve for tax: 200 - 0.4 (97.5) = (80 + T) + 0.6 (97.5) 161 = 80 + 58.5 + T T = $22.5 / ton Pd=Ps where Ps add T to the intercept
What are some of the other advantages of carbon taxes? Of cap-and-trade?
Taxes: easier to measure and regulate and could be implemented more quickly. Cap-and Trade: An effective permit system would tax heavy-polluting firms and also generate public revenue; reduces the costs of reducing pollution; each firm can choose to reduce carbon emissions through a variety of cost-effective strategies (i.e., funding forest expansion to increase carbon storage).
How does spending in the U.S. on environmental protection compare to other industrial countries?
The Netherlands, Austria, Italy and Korea spend about ~2% of their GDP on pollution control expenditures, while the US (and Germany) spend about 1.6%. France, Canada, Finland and Australia spend less than the US.
What are some of the expected impacts of the Green Economy, according to the UNEP model?
The UNEP model finds that investments for the green economy particularly benefit the world's poorest, as the poor disproportionately depend on natural resources for their livelihood. Thus investments in environment will increase incomes while also improving the environment.
What is the main advantage of a cap-and-trade system over a carbon tax?
The certainty it provides in reaching the desired pollution level.
What is the historical trend comparing global emissions of carbon dioxide to the global average temperature?
The concentration of carbon dioxide in the atmosphere closely tracks average global temperatures.
What is the Green Economy, according to UNEP?
The concept of a "green economy" is that improved human well-being and reduced inequality can be driven by investments to reduce environmental impacts. It is based on the finding that economic growth is compatible with protecting the environment.
Should we necessarily proceed with a project/policy if the benefit-cost ratio is greater than 1?
The distribution of these costs and benefits is not taken into account! Consider whether the precautionary principle should be applied, especially if there is uncertainty regarding the probability of a catastrophic event, or if the damages of a low-probability event are irreversible. Consider the validity of measures like the VSL. Consider other options that may be better
How does environmental spending compare to other government spending as far as job creation?
The effects of major environmental policies on unemployment are more of a job shift than net job loss.
What are some the ways in which carbon taxes and cap-and-trade are the same?
The overall costs would be the same as a carbon tax. Both are economically efficient (achieve a given level of emissions reduction at the lowest possible cost) Result in the same cost increases to consumers Can generate the same amount of government revenue (assuming all permits are auctioned) Both encourage technological innovation (though with different effects)
What is meant by the "optimal" level of pollution? How can we show this on a graph?
The pollution level that maximizes net social benefits. It is represented by the intersection of the present marginal net benefit of pollution and the future MNB of pollution curves.
What is hedonic pricing? Briefly describe how it can be used to obtain estimates of environmental quality?
The price of any good or service can be thought of as the conglomeration of different attributes that the good has (some are environmentally related). Breaks down the price of something into values associated with specific component characteristics (most popular example - housing prices: air quality, energy source, water quality, noise pollution, etc) - breaks down how environmental variables can change pricing, and to what degree. Limitations: 1. difficult to put value on something like noise pollution; 2. sometimes you find that the environmental variable does noot have a major impact on housing prices; 3. Houses that tend to be more expensive are usually further away from toxic waste dumps (multivariable linearity); 4. doesn't estimate non-use values!
What are the main barriers to a world that receives all of its energy from renewable sources?
The technology already exists to implement a completely renewable energy world. While the construction of this renewable energy infrastructure would require significant investment, the primary hurdles are not economic or technological - rather, they are social and political.
What is the environmental Kuznets curve (EKC)?
The theory that a country's environmental impacts increase in the early stages of economic development, but eventually decrease above a certain level of income.
What is the Porter hypothesis?
The theory that environmental regulations motivate firms to identify cost-saving innovations that otherwise would not have been implemented.
What is the travel cost method? How does one estimate a travel cost model?
The travel cost method uses data on visitor travel costs to derive a demand curve (and consumer surplus) for a recreational sit (i.e., survey people and ask how much they spent to visit a recreation site). Limitation: only provides a lower-bound estimate of WTP; the objective is to estimate the max WTP.
Why is a focus on energy efficiency even more important than a transition to renewable energy?
The two are synergetic - favorable economics, ubiquitous resources, scalable technology, and significant socio-economic benefits underpin this transition. Net benefit is maximized when the true cost is paid for something; and a focus on energy efficiency (i.e., making existing facilities more green) is cheaper and therefore maximizes benefits more.
How can we determine the amount of tax revenue from a pollution tax (both graphically and solving numerically)?
The vertical distance between price before tax and price after tax * the horizontal distance *1/2
Is the Green Climate Fund being funded as promised by the developed countries?
The world has funded $10.2 B; but have promised $100 B by 2020.
Is the 2015 Paris climate agreement a binding treaty?
They are politically encouraged, rather than legally bound. Emphasis is on consensus-building for voluntary and nationally determined targets.
What do the most recent global data (for 2014-2018) on carbon emissions indicate?
They indicate level carbon emissions for developed countries but increasing carbon emissions for developing countries; in 1990, carbon emissions were ~20 million metric tons; projected 2050 estimate is ~43 million metric tons.
What are some of the disadvantages of using a technology-based approach to regulate pollution?
They may create litlle incentive for innovation - if a firm invents a new technology for pollution control that is more effective but increases costs, they may withhold the technology from regulators in order to avoid a requirement that it be adopted.
What can we say about the expected future costs of renewable energy (wind and solar)?
They will likely continue to decrease, especially as it becomes more popular.
How will firms respond to a pollution tax (both by using a graph and by solving numerically)?
They will reduce pollution to a level where MC=MR.
What is total economic value?
Total Economic Value=Use Values (direct use+indirect use values)+Non-use Values (option value+bequest value+existence value)
About how do per-capita carbon dioxide emissions vary in different countries?
US ~17.05; Russia ~10.34; Japan ~9.54; Germany ~9.34; China ~6.65; EU ~6.91; France ~4.81; Mexico ~3.73; Brazil ~2.35; India ~1.69; Bangladesh ~0.45.
What does the Stern Review have to say about the costs and benefits of actions to reduce climate change?
Under business-as-usual, we could lose at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20 percent of GDP or more. In contrast, the costs of action can be limited to around 1% of global GDP each year - and a benefit/cost ratio of at least 5:1 implies a strong economic case for immediate and major policy action, as opposed to a slower "ramping up".
What are user costs and why can they be considered a type of externality?
User cost refers to the expenses borne by the owner or renter of a capital asset resulting from the use of the asset for a given period of time.
What is contingent valuation?
Using surveys to ask respondents about their willingness to pay (or occasionally willingness to accept) under hypothetical scenarios (hypothetical=contingent). It is the most widely used and controversial non-market valuation technique. Income variation is not really a large factor - i.e., variation in WTP will derive a demand curve.
What is the value of a statistical life? How is wage-risk analysis used to obtain a VSL?
VSL: Society's willingness to pay to prevent one death from environmental pollution. Wage-risk analysis: a method used to estimate the value of a statistical life based on the required compensation needed to entice people to high-risk jobs. In this approach, statistical analysis is used to determine the wage premium that needs to be paid to attract workers to particularly risky jobs.
What is the difference between willingness to pay and willingness to accept?
WTA: The minimum monetary amount required for sale of a good to be accepted by an individual. WTP: the maximum amount an individual is willing to sacrifice to procure a good or avoid something undesirable
What are the implications of the global carbon abatement curve?
We can save an enormous amount of money if we imposed some type of standard on facility constructions, such as improving efficiency of water heating, air conditioning, lighting systems, etc... The area below the curve is the amount of money the world could save, and invest towards better policies - thus the net cost to the world would be zero:0
What do data on the global carbon budget indicate about what we should do with our current global fossil fuel reserves?
We have 99 GtC left in our carbon budget; if we continue emitting carbon at about 11 GtC per year, we could use up our carbon budget by 2025, therefore we should decrease consumption in order to extend the lifetime of leftover carbon. The Paris Agreement states that 84% of remaining CO2 must be left unburned in order to have a 1/3 chance of staying below a 1.5 C temp increase, while giving a higher than 2/3 chance of staying below 2 C. 2427 GT CO2 must be kept in the ground.
What are some of the disadvantages of using standards to regulate pollution?
When the producers are not similar, it is difficult. For instance, a particular standard may be too difficult for older plants to meet, forcing them to shut down. The same standard may be too easy for other producers to meet, allowing them to emit pollution that could have been eliminated at a low cost. Requiring all firms or products to meet the same standards is normally not cost-effective; not the cheapest way to achieve a given level of pollution reduction.
How is future energy demand expected to change in the coming decades in developing and developed countries?
World energy consumption is expected to rise by nearly 50% between 2018 and 2050; remain relatively constant for developed countries but increase steadily for developing countries.
Could the defensive expenditures approach produce an estimate of value that is too high?
Yes, because people who take actions to reduce their exposure to environmental harms may also be taking such actions for other reasons (i.e., people may buy bottled water instead because they like the convenience or taste). Therefore only a portion of their defensive expenditures should be attributed to a desire for better water quality, meaning that defensive expenditures could overestimate the true WTP for better water quality.
Are renewables expected to surpass energy consumption by any of the fossil fuels by 2050?
Yes, current estimates conclude renewables will surpass all other fossil fuel consumption by 2050.
Are wind and solar currently cost competitive with fossil fuels?
Yes, now (depending on what type of installation) the cheapest energy sources are currently wind and solar power, even without subsidies.
Does the SSE imply a limitation to economic growth?
Yes; it implies that economic growth is dependent on natural resources, which are finite, thus economic growth is limited by the finite amount of natural resources.