Sustainability Exam notes

Lesson1:
Different ideological views about relationships between economics and the environment

1. Cornucopian view —> optimistic view

- individuals who assert that the environmental problems faced by society either do
not exist or can be solved by continued progress and provision of material
items/recourses can be met by similarly continued advances in technology or the
free market
- Cornucopians hold an anthropocentric view of the environment and reject the ideas
that population-growth projections are problematic and that Earth has finite
resources and carrying capacity to maximize profit+economic growth
cornucopia is ancient basket. Describes abundance. Used in Greek mythology to describe
abundance of all goods/resources etc. From a cornucopian view, the earth is full of different
resources, they are abundant with respect to our needs. We can use them and use them to
increase our profit and economic growth. We will always find new resources or find a few to
use them in a different way. Use whatever you can get. Just use it to increase economy and
make a profit

2. Deep ecology
- The opposite —> economy is the problem
- living environment as a whole should be respected and regarded as having certain
basic moral and legal rights to live and flourish, independent of its instrumental
benefits for human use
- Minimum interaction between economy and people to some extend: economic
growth is bad
- We should reduce the use of resources
- Reduce the impact of the human kind of earth
- Go back in times of technology
opposite vision. Humanity is the problem. The earth should be left alone, we shouldn’t use
any natural resources. We shouldn’t modify anything of the environment. Human kind is the
problem. We should leave the world as it is, we shouldn’t change anything. The earth must
continue with minimum interaction of man/people. We don’t have the right. Economic
growth is bad, it shouldn’t be pursued. We should lower the use of natural uses and reduce
the size of our economy. We have to reduce the impact of mankind of the earth.

 Current population is in the middle of these two positions

NIMBY (Not in my backyard)

- Phenomenon in which residents of a neighbourhood designate a new development
(e.g. shelter, affordable housing, group home) or change in occupancy of an existing
development as inappropriate or unwanted for their local area
- is a characterization of opposition by residents to proposed developments in their
local area, as well as support for strict land use regulations
typical expression of many people when they face a decision that could be taken by public
authorities relating to the building of plants/technical solution etc. They could are beneficial
to environment. People say yes it is good, but not in my back yard. For example; we need a
new railway to reduce the amount of cars/trucks needed. Yes, this could be good and
acceptable, but don’t do it in my surroundings. Another example; we need a place where we
can compost our organic material instead of ‘throwing” it away. We must have a plant to
make compost out of it so we can use it as fertilizer. Very good idea, but not in my back
yard.

NIMTO (Not in my terms of office)

Touch decisions have to be made by decision makers. But, often they are postponed. Of
course they are important, but I’m not dealing with them in my terms of office. We will deal
with them later.

BANANA (Build Absolutely Nothing Absolutely nowhere at no cost)

- often used to criticize the ongoing opposition of certain advocacy groups to land
development
- You don’t need to build anything. Stop everything. Related to deep ecology

1. Externalities
- cost or benefit caused by a producer that is not financially incurred or received by
that producer
 occur in an economy when the production or consumption of a specific good or
service impacts a third party that is not directly related to the production or
consumption of that good or service
- can be both positive (beekeeper) or negative (pollution of cars) and can stem from
either the production or consumption of a good or service.
- Beekeeper: positive effect of the keeper on the farmer. But farmer does not pay
beekeeper for that —> no transaction, positive gain on both the private level and
social level
- Pollution: A corporation may decide to cut costs and increase profits by
implementing new operations that are more harmful to the environment. The
corporation realizes costs in the form of expanding operations but also generates
returns that are higher than the costs. However, the externality also increases the
aggregate cost to the economy and society making it a negative externality.
Externalities are negative when the social costs outweigh the private costs

- The costs and benefits can be both private—to an individual or an organization—or

social, meaning it can affect society as a whole
Implications
- Externalities lead to market failure (Mis-Allocation of resources) because a product
or service's price equilibriumdoes not accurately reflect the true costs and benefits
of that product or service.
- Equilibrium, which represents the ideal balance between buyers' benefits and
producers' costs, is supposed to result in the optimal level of production
Market failure happens when price mechanism fails to allocate scarce resources efficiently
or when the operation of free market forces lead to a net social welfare loss. It exists when
the competitive outcome of markets is not satisfactory from the point of view of society
  Due to negative and positive externalities, information gaps, public goods, monopoly
power, immobility and inequality
 Price/revenue positive externalities should be higher than negative externalities. The
price of a product should be in balance with the externalities involved.

2. Nature of Environmental Goods (and services)

Properties Rival (may only be Not rival (multiple people
possessed or consumed by a can use it)
single user)
EXCLUDABLE Private goods Club goods
NOT EXCLUDABLE (you Common goods (e.g. fish -> Public goods
cannot exclude people from everybody can catch the fish (e.g. landscape, biodiversity)
using it) (you can’t exclude anybody,
but not anybody can use the
fish at the same time),
water for irrigation). With
common good, problem of
over-usage

3.Inter-generational issue and discount rate

- Is it appropriate to take into account the inter-generational problem?
- Who and how can evaluate costs and/or benefits for future generation?
- The choice of the interest (or discount) rate is affected and can affect how we
consider the issue of future generation
- Discount rate: the choice of the selfish old man vs the choice of the optimistic young
man
 What is the importance/relevance of people now on the future.
 Which discount rate should we use when we make analysis
- A ‘discount rate’ for the consumption of future generations from current
investments for their benefit is typically composed of two parts: ‘time preference’
and an allowance for the lower marginal utility of consumption due to higher
average levels of consumption in the future. Time preference would be involved if
one were postponing one's own consumption;
- it has little or nothing to do with income redistribution, which is what greenhouse
abatement is about. A lower marginal utility of consumption is an anomaly in income
redistribution: we rarely deliberately transfer consumption from the less to the more
well-to-do. Time may serve as a kind of measure of distance; we may prefer
beneficiaries who are closer in time, in geographical distance, in culture, surely in
kinship. Perhaps to keep our thinking straight we should use a term like
‘depreciation’, rather than ‘discounting’.

4. Distribution of costs and benefits over time and space

- OVER TIME —> Short run, medium run, long run, very long run ... —> depends on
what sector we are looking at what can be defined as “short” and “long”
 Very long run = for example potential (radioactive) pollution that could last centuries
- IN PLACE —> Local (some pollution like micro powder/micro pollution in cities),
regional, national, global (climate change, greenhouse gases)
 Sometimes it is different to pinpoint on what scale you should look at it. For example
a local action can have a global effect
- AMONG GROUPS OF PEOPLE AND/OR COMPANIES AND/OR COUNTRIES
- PRIVATE vs PUBLIC

5. Distribution of COSTS and BENEFITS among different subjects

 AMONG GROUPS OF PEOPLE AND/OR COMPANIES AND/OR COUNTRIES
 PRIVATE vs PUBLIC

6. Irreversibility of many environmental effects

 Extinction of species is forever. How can we evaluate a loss that is «forever»?
 A drastic change of the geography of a place is (or can be) forever: a big dam can
change a place (a valley) forever ...
 A contamination with a new species of vegetable/animal/fungi can be forever: e.g.
Louisiana crawfish (Procambarus clarkii) in Italian rivers, Asian Bug (Halyomorpha
halys) in Italy, sheat fish (siluro), etc.
 Modifying shape of mountains (for mines) is also irreversible
 Non-ambiguous animals that are spread by mistake are irreversible
 Can create problems in ecosystems

7. Imperfect and incomplete scientific knowledge

 Even science has limits: our scientific knowledge is not (and will never be)
«complete» and «completely correct»
 We know a lot and can learn a lot but to do this we need to study, do research,
discover etc.
- So while on one side we need to use the best scientific information and knowledge
that we have, we also need to consider the possibily that due to the incompleteness
of our knowledge, in some case it is very important to apply a «precautionary
principle», quite often applied in European legislation
—> Supports need of more scientific research

8. Imperfect and asymmetric information

 Information about effects of some technologies or investments on the environment,
in particular long term effects, quite aften are simply not known by all economic
agents and policy makers. Consumers do not know the role of all additives used in
food, or all contaminants that can be present in many food even if the scientific
knowledge is available.
 Information about technologies (and pollution, for example) are available to
producers but NOT necessarily to consumers or policy makers (there are many
examples of such asymetric information).
 Regulation and information sector may (or should) play a key role in spreading
correct and complete information.
 Asymmetric; Few stakeholders have a lot of info, the rest does not. Inequal
distribution of info. Pollution often due to the fact that technology caused pollution,
 and someone knew about the high risks in some areas, but they didn’t say anything.
Not even policy makers knew.
 We need good knowledge of what is going on before new technologies/products are
approved
 EFSA and EMA key role, you need collaboration high level scientists, we want
independent scientists.

9. Economic value of human life

- Even if it seems impossible to calculate the monetary value of a human life, this is
done every day explicitly or in an implicit way
- Insurances have ways to calculate the value of human life lost because of accident in
different kind of events.
- When we accept a risk connected to a probability (evne very low) to loose our life, in
order to avoid some costs (e.g. excessive speed in highways) we are implicitly
considering a certain value of oure life.
- In many environmental analysis we need to calculate or at least use an «acceptable»
and «reasonable» value of human life (see example of asbestos ban)
 How can we put a value on human life (monetary)
 At the end, when we want to find out the balance between costs and benefits
regarding a new activity. Quite often we have to punt a value on human life to
establish the balance.
 It is very important to make this value explicit

10. Property rights

 In environmental economics property rights are often under scritiny because in
many different approaches seem to require e new definition of property rights, or a
different distribuzion of new property rights
 Example: tradable emission permits, distribution of CO2 emission rights (or limits)
among countries/companies/sectors are example of property rights redistribution
 Right to clean air or right to pollute?
 Distinction between Western and Eastern world in private property
 We could provide limitation to private property when we have to save public interest
 We can regulate resources
 Role for public intervention

Lesson 5: Agriculture, common agricultural policy and the environment

The agricultural sector: perhaps the best example of perfect competition

- Homogenous products —> every product from different suppliers is the same
- Large number of (small) producers (price taker)
- Large number of (small) buyers/consumers (price takers)
- Perfect information about prices and technologies
- No barriers to entry
- No externalities
  Therefore farmers are price takers (result of demand and supply) —> cannot
influence the market price of their products

Evolution of the agricultural sector and technology

- The role of (exogenous) technological progress —> Push —> technical progress
 Increased productivity (of labor and land —> less workers, more outcome)
 Less labor required (exodus from rural areas to urban ones = urbanization) —> k
substituted l
 Possibility to support economic development with labor from the agricultural sector
- The role of economic development —> Pull —> economic development towards a
good agrifood system
 Increased available per-capita income
 Increased demand of food (not just agricultural products)
 Increased degree of processing (=> development of the food industry)
 New services required (transportation, conservation, packaging, ...)

Technological change and technical progress

- Technological change is exogenous (due to other reasons) to the sector —>
technologies that become available
- Technological progress to some extent, the result of interaction between tech.
opportunities and evaluation and adoption by farmers in the “real” farming system
(mistakes and improvements) —> technologies that can be applied successfully
- With innovation more technologies become available
- New technologies generate positive effects for society, politics..
- Technologies can be applied in many different sectors
Low income countries
- New technologies can be applied in low income/developing countries (knowledge to
use it, capital to buy and repair)
 the refer no opportunity to promote local income and their economic sector
 Need of attention to have a look if technology is appropriate for specific economies

Technological and economic uncertainty

- Technological uncertainty
 arises due to introduction of new technology in the industry and its application and
future R&D process [7]. This has got direct implication on decision making for
activities such as new product development which involves perception of high
technological uncertainty by the project leaders focusing on the applicability of the
technology in the project and changes in the future production process due to
availability of new technology 
 Probability of achieving a goal, or know how to achieve it, cannot be determined by
current technological knowledge
Implications:
 ????
- Economic uncertainty
- Economic uncertainty implies the future outlook for the economy is unpredictable.
When people talk of economic uncertainty, they usually imply there is a high
 likelihood of negative economic events. Economic uncertainty could involve. —>
predictions of a higher or more volatile

Implications
 Supply Side Shock. A rise in oil prices or rise in commodity prices would cause an
increase in the cost of production for firms. This would cause cost-push inflation. A
supply-side shock can lead to stagflation – a combination of higher inflation and
lower economic growth. A supply-side shock can be difficult to deal with (e.g Central
Bank can’t solve inflation and lower growth by changing interest rates. Interest rates
can either target lower inflation or higher growth – but not both at the same time.
 Demand Side Shock. A global economic downturn will have a strong impact on
reducing growth in all countries. For example, if the EU enters into a recession, it will
affect UK exports and UK economic growth.
 Financial instability. Bank closures could cause a bank run and loss of confidence in
the financial system.

Samuels paradox
?????

The evolution of the CAP

1. The objectives of the CAP in the treaty of Rome (1957)

- to increase agricultural productivity by promoting technical progress and by ensuring
the rational development of agricultural production and the optimum utilization of
the factors of production, in particular labor;
- b) thus to ensure a fair standard of living for the agricultural community, in particular
by increasing the individual earnings of persons engaged in agriculture;
 farmers were poor, support farmers income, consider independent and dependent
workers
- to stabilize markets;
- to assure the availability of supplies; (good trading relationship with other countries)
- to ensure that supplies reach consumers at reasonable prices.

Relationship between CAP objectives

The most important tool of the CAP in the first period (up to 1992)
- Variable import tariffs – 1 European Economic Community

- Variable import tariffs - 2

- Intervention price (minimum price /price floor)

 minimum price set by the government above equilibrium (to raise incomes of
producers that import goods and services e.g. agricultural products) also (to protect
workers by selling a “minimum wage” —> minimum price you have to pay to
farmers)
 Emergency sale to government if there is surplus —> welfare impacts, firm in
efficiency

Main results and effects of the first CAP

- Main goals of the art. 39 have been achieved ...
 - ... at the beginning of the ‘80s: increased productivity, income support, reasonable
prices for consumers, price and market stabilization, complete self-sufficiency for
most products ...
- Even too much: productivity was still increasing, production surpluses were
increasing ... together with costs (public intervention => increased public stocks =>
increased costs => export subsidies => big problems on international markets due to
this unfair competition

A “new”economic tool: production quota

- The dairy market was facing big problems
- The choice: strong reduction of the price or a quota system
- The milk quota system: 1984-2015 (a method of setting a limit on how much of
something a country or company is allowed to have, produce, import)
- Short term and long term effects

CAP and international relationships (EU vs USA-RoW)

- The economic crisis of mid eighties in exporting countries
- The beginning of the URUGUAY ROUND of GATT
- Trade war: the EEP of the USA and the Cairns group
- The risk of failure for the GATT
- The EU document COM(91)100

Com (91) 100: few self-critiques to the first CAP

- Responsibility with respect to the rest of the world (international markets)
- Budget constraint (combination of goods that you can afford with the combination
of income)
- The first CAP was (at least partly) responsible of negative effects of agriculture on the
environment (intensive agriculture => excessive use of fertilizers, pesticides, water,
mechanization, ...)
- The issue of unfair distribution of income support (with price intervention)

2. The new support model: The core of Mac Sherry reform

Main effects of the Mac Sherry reform

- Positive with respect to most important critiques: ok international relationships
(GATT agreement reached on 1993 and signed on 1994 with birth of WTO)
- OK budget control.
- What about a more extensive agriculture? And bout relationship between
agriculture and environment? What about income support redistribution?
Focus on Geographical indications: why they need protection
- Local products and the birth of product reputation
- The «opportunity» of imitation
- Risk for consumers and producers (of the «good» product): «the bad money drives out the
good»
- The need for protection of the geographical indications, i.e. a quality label connected with
a specific location and specific production rules

Some peculiarities of GIs

- The structure of the supply side: a large number of small and medium enterprises all
producing according to a well defined (written) standard, localized in a particular
geographical location.
- The demand side: the strong reputation earned after long period of consumption.
This reputation was bornd and built, in general, locally or regionally, and in a given
socio-economic scenario.
- A strict connection between the product and the “environment”, also the socio-
economic, historical and cultural one!

Geographical Indications in Italy (before the EU regulation)

- First national legislation for cheese was introduced in the ’30s with the objective
 To protect consumers
 And producers of the quality cheese from low price-low quality imitations.
- Law n. 125 of April 10, 1954 “Parmigiano-Reggiano”, “Grana Padano”
- In the ’70s, “Prosciutto di Parma”

GIs: the evolution of EU regulation

- Introducing GIs at the UE level
 Reg. 2081/1992: PDO and PGI
 Reg. 2082/1992: Traditional Specialty Guaranteed (TSG)
- Opening the EU system to the world
 The new reg. 510/2006 on PDO - PGI (see “eAmbrosia” database)  The new reg.
509/2006 on TSG
- Making the control system more effective
  Reg. 1151/2012: the “ex officio” protection system, the new quality schemes:
“mountain product”;“product of island farming”.
Objective Regulation 1151/2012
A scheme for protected designations of origin and protected geographical indications is
established in order to help producers of products linked to a geographical area by:
a) securing fair returns for the qualities of their products;
b) ensuring uniform protection of the names as an intellectual property right in the territory
of the Union;
c) providing clear information on the value-adding attributes of the product to consumers.

Economic spillovers of PDO

- Economic event that occurs because of something else in n unrelated context
- PDO products have a good quality reputation —> imitators benefit from that by
naming their product very similar, but selling It for a lower price
Agenda 2000: a revision of Mac Sharry reform
- Agenda 2000 (approved on 1999, to last from 2000 to 2006) was a simple revision of
the Mac Sharry reform.
- The main aim was to prepare the EU to the entrance of many new member countries
from Central and Eastern Europe (after the fall of the Berlin wall on 1989)
- The main change was due to the definition of the two PILLARS of the CAP: direct
payments (for of reform)(or direct income support to farmers, 1st pillar) and rural
development (2nd pillar)
 Competitiveness (support for investments)
 Rural areas (promote better quality of life)
 Agricultural environment (organic forestry)
- The two pillars were very different in terms of amount of resources but also in terms
of management and goals:
– Co-financing (EU provides finance to member countries and individuals)
– Co-management ( EU-MS/regions manage)

Negative effects of the Mac Sharry reform (and Agenda 2000, its 1999 revision)
- The distortive effects of coupled payments on markets and different agricultures
- Coupled payments have been supporting more land income and rent than farmers’
income (rent increase, value of land increase)
- Positive (increase) effects of land rent, land value but negative for the evolution of
the sector
- Most of the financing will go to the people owning the land and not farmers who
handle land —-> no support for farmers

3. The Fischler Reform of the CAP ( approval 2003-2008, impl. 2007-2013)

- Why a reform and not a simple Mid Term Review (2003)
- A long term view
 Help farmers recognize what consumers really demand (what they produce, how to
produce..)
 - Graduality and flexibility in the implementation
- Elimination of all production quarters: milk 2015, wine 2010, sugar 2017
- Major innovation: FULL DECOUPLING (sich lösen von der norm, anders sein, decrease
in correlation)
- Definition and role of Entitlements
- Regionalization (or not) —> individual entitlement

The second pillar:

- the increased role of Rural Development (75% vs 25%) —> co financed 25% from
MC.
- Areas of intervention: competitiveness, agro-environmental m., rural development,
Leader programs. (Local Development – bottom up)

Main effects of Fischler reform

- With decoupling, elimination (substantial reduction) of rent seeking activity by
farmers and more attention to the real market
- Changes in production decision: less attention to historically more protected
products, new interest for «other» products
- Increased attention to quality aspects (product differentiation and not only price
competition)
- More attention and interest to horizontal (Producer Organizations, coop, ...) and
vertical collaboration (Interbranch Organizations, vertical contracting, ...)
The next CAP
- It was supposed to start on 2021 (after 2014-2020) but Brexit created a delay. The
present CAP will be in place until 2022.
- The new CAP will start, presumably, on 2023.
- No dramatic but few important changes are foreseen: the national strategic plan.
 Use SWOT

Not only CAP: other policies will affect the Agricultural sector
- The European Green Deal [COM(2019) 640, December 11, 2019]
- A farm to fork strategy for a fair, healthy and environmentally-friendly food system
[COM(2020) 381, May, 20, 2020]
- Recovery fund (new policies to recover after the pandemic)

A farm to fork strategy

- Decrease the risk and use of pesticides
 50% of risky pesticides need to be reduced
 Provide more information about the usage of pesticides —> only when required,
saved money
- Decreased the loss of nutrients (preserving soil fertility)
- Decease use of anti-biopics
- Improve animal welfare
- Key is how to use fertilizers!!!
  More informations/schooling, save money, less effects on the environment because
of decreased use, nutrient loss is decreased because less fertilizers are used

Is the agricultural sector moving away from perfect competition? How?

- Supply control and producers organizations (PO, marketing boards and marketing orders)
- From homogeneous to differentiated products: possible application to the agricultural
sector
- From perfect information and free access about technologies to patents (e.g. new varieties
of fruit and vegetables, GMOs, ...)
- Barriers to entry (production/processing quota system)
- Externalities: negative and positive
- Limitations to international trade