Lecture 15 | Environmental Economics

Cap & Trade, Economics, Money & Persuasion, Policy Instruments, Carrot & Stick, Tangible & Intangible Factors, Valuing Environment, & Damaging Environment | Key Concepts & Ideas

Environmental Economics

control pollutions, promote sustainability in capitalistic/democratic society

How is environmental economics concerned with both capitalism and democracy?

businesses and laws

Environmental economics is about _____ and ______

money, persuasion

What is a gas tax intended to do? Consider the definition of environmental economics

raise money for government, persuade people not to drive as much

How does a gas tax encourage people to behave how we want?

incentive not to drive, less driving is less pollution/traffic/wear & tear

What is the principal idea behind environmental economics?

use tools to encourage behavior from people & businesses

Policy Instruments

tools used to change behaviors

What are 4 examples of policy instruments?

laws, regulations, taxes, & subsidies

Why do we want to change the behaviors of businesses and people?

there’s something we want to protect

Tangible Factors

a physical thing you can see/touch, house, wetland, stream

What are examples of policy instruments used to protect tangible factors?

laws, wetland protection act, clean water act (rivers & streams)

Intangible Factor

not physical, still has value, sunset, clean water, fun

Explain why clean water is both a tangible and intangible factor:

water is tangible, but sense of safety to drink it intangible

Why do we want to discourage certain behaviors?

they remove/reduce the value of tangible/intangible factors

What should businesses be discouraged from? What policy instruments can we use to do so?

polluting, environmental regulations (fines for polluting/exceeding limits)

What should people be discouraged from? What policy instruments can we use to do so?

damaging public property, fines for littering, trespassing, & damaging

What principle should be respected always? How can we use policy instruments to ensure it is upheld?

precautionary principle, criminal penalties for killing endangered species

What are some ways we can use policy instruments to encourage behaviors we want?

subsidies to install solar panels, HOV lanes for carpooling, subsidies for farmers to grow less profitable crop, getting a nickel back for recycling

What are the most effective/best policy instruments?

include BOTH carrot/encouragement and stick/discouragement

How does the gas tax employ both the carrot and the stick?

stick = cost of gas going up, carrot = incentives to buy hybrid/electric

How does the Cap & Trade model employ both the carrot and the stick for CO2 emissions?

stick = new taxes on emitting, carrot = ability to profit trading unused credits

Consider a company that is dumping waste into a river. What is key to remember about making environmental economic decisions?

complex decisions, balance rights & costs

Describe how valuing environmental damage can be easy:

when you can assign monetary value to the damage

Describe how valuing environmental damage can be difficult:

difficult to associate monetary value with damage to experiences

Which of the following is NOT an example of valuing environmental damage that is easy?

agricultural runoff leads to a nearby pond becoming a scummy mess

Which of the following is NOT an example of valuing environmental damage that is difficult?

you buy a property and build an evaporation pond that ruins the soil and leads to $1.5 million loss in value

How do those damaging the environment have the upper hand in defending the damage they caused?

easy to value their profits, hard to value the damage

Commons

resource openly available to all, provides benefits, environment

What are 5 common benefits the environment provides?

cfrrp: clean air & water, food, raw resources, recreation, pollution processing

What is the effect of a private entity damaging the environment?

lose access to benefits worth $33 trillion

Factory A and Factory B both use the river to produce their goods. Factory A dumps their waste into the river upstream of Factory B. How does this affect Factory B?

spend money to clean water, charge customers more, outcompeted by A

What are the two perspectives of recreation?

common good to enjoy, too much traffic causes damage

What is a policy instrument that can be used to balance enjoyment and protection of recreational sites?

admission/entrance fees

Describe how using entrance fees for recreational sites applies to the principles of environmental economics:

generates money to fix damage, discourages too many people from visiting

What are 4 reasons why people damage the environment?

sibr: short term, individual profit, believe benefits end, resources grow slowly

Describe how people thinking short term harms the environment:

lag time, no one wants to give up benefits today to prevent losses in future

Describe how individual profit being more valued than aggregate loss harms the environment:

more concerned with personal gain than how the benefits cost the entire group

Describe how no one believing environmental benefits will end harms the environment:

minimize our effect on environment, nimby, no one thinks their impact harms environment

Describe how environmental resources growing slowly actually causes people to harm the environment more

get the resource before someone else does