You are on page 1of 28

Lake Baikal pulp and paper mill

Introduction to Environmental
Economics
Dr. Maria Plotnikova

Readings
• Economics of the Environment
– Heal, Geoffrey, Climate Economics, 09.06.2008 - the article can be found under
Environment Topic on voxeu.org
– Wara, Michael, Is the Global Carbon Market Working? (2007) Nature, vol. 445/8
pp. 595-596

• Economics of Recycling and Waste
– Wilson, David et al (2009) Building Recycling Rates through the Informal Sector,
Waste Management 29, pp. 629-635
– Fahmi, Wael, and Keith Sutton (2006) Cairo's Zabaleen Garbage Recyclers:
Multi-Nationals' Takeover and state Relocation Plans, Habitat International 30,
pp. 809-837

Introduction • What is Environmental Economics? – concerned with relations between the economy and the environment/natural resources and ways to allocate resources. environmental and other potentially conflicting goals of society • Why do Environmental Problems persist? . regulate economic activity to achieve a balance between economic.

climate change • Connections between Development. Environment . non-renewable resources • Agricultural & Food Economics • Renewable. wildlife) • Biodiversity • Pollution. renewable.What does Environmental Economics study? • Natural Resources: Depletable. Common property resources (fisheries. Poverty.

value-free) • Normative Economics – value-laden – Sustainability .Environment as an asset • Economics views environment as an asset that produces (environmental) services • Positive economics (describes cause and effect.

Sustainability • At minimum the future generations should be left no worse off than current generations – Sustainability as a non-decreasing well-being (the value of total capital stock=natural+human-made should not decline) – Sustainability as nondeclining value of natural capital (assumes that natural and human-made capital are not very substitutable) – Sustainability as nondeclining physical service flows from selected resources .

public goods are underprovided for • Solutions? .Why do environmental problems persist? • Negative externalities – Consumers demand the good – Producers produce and pollute when it is the cheapest way to dispose of waste • Many environmental goods have features of public goods.

either a firm or household is affected by actions of some other agents.Externalities as a source of market failure An externality exists whenever the welfare of some agent. . There are positive and negative externalities.

Negative externality Under market allocation – The output of the commodity causing pollution externality is too large – Too much pollution is produced – The prices of products responsible for pollution are too low – As long as costs are external no incentives to search for ways to yield less pollution per unit of output – Since release of pollutants into the environment is cheap. recycling and reuse of pollutants is not done as it incurs cost .

Positive externality • External benefit/reduction of cost at no cost to the recipient • Internalizing externalities: the beneficiary should compensate the source of positive externality • Network externalities: connection to network of individual user increases benefits to all users .

incentives structure aimed at desired outcomes vis-à-vis environment .Solutions • • • • Understand institutional set-up Increase environmental consciousness (Re)Assign property rights Regulation.

usually underprovided . Education? – Would private provision of public goods yield efficient allocation? – No. water quality Transportation infrastructure (lighthouse) Research and Development.Public Goods • Non-Rival • Non-Excludable – Examples of Public Goods • • • • • National defence Immunization Air.

hard-to-exclude consumption .Under-provision of Public goods • Inefficient (lower) provision of public goods occurs because each one is able to become free rider on each other’s contribution • Consumers capture the benefit provided by other people because of non-rival. nonexcludable properties of public goods – think why fireworks are usually done by municipalities and not private firms – free-riding from nonrival.

Adaptation policies • Pollution by one country imposes a –ve externality on neighbouring countries • Mitigation action by one country imposes a +ve externality on other countries • Adaptation is a geographically-specific policy (local public good) .Mitigation vs.

Mitigation • Afforestation/decrease in deforestation has added benefit of preserving biodiversity • carbon market: industrial enterprises buy carbon (permits) from farmers that create carbon sinks .

Dept of Energy . Hydraulic Cement Production.Carbon Dioxide Emission Estimates from Fossil-Fuel Burning.S. U. and Gas Flaring for 1995 Source: Carbon Dioxide Information analysis Centre.

Dept of Energy . U.Top 20 Emitting Countries by Total FossilFuel CO2 Emissions for 2006 (1) China (2) United States of America (3) Russian Federation (4) India (5) Japan (6) Germany (7) United Kingdom (8) Canada (9) South Korea (10) Italy (11) Islamic Republic of Iran (12) Mexico (13) South Africa (14) France (15) Saudi Arabia (16) Australia (17) Brazil (18) Spain (19) Indonesia (20) Ukraine Source: Carbon Dioxide Information analysis Centre.S.

Australia did not ratify Kyoto because of no caps on developing countries’ emissions .History of Environmental agreements • 1992 Earth Summit in Rio de Janeiro • Kyoto Protocol top-down approach – will expire in 2012 – No specific targets for developing countries – US.

.

.

.

U.Source: Carbon Dioxide Information Analysis Centre.S. Dept of Energy .

establishing a prescribed number of "emission units" • International Emissions Trading • EU Emissions Trading Scheme "cap-and-trade" scheme • Joint Implementation Industrialized country can invest in an emission reduction project in another industrialized country and get credits • Clean Development Mechanism industrialized country can invest in an emission reduction project in a developing country and obtains credits . set forth conference of parties (COP) annual meetings to oversee implementation • The Kyoto Protocol limits on total emissions by the industrialized countries.Global Climate Change Policy Institutions • Intergovernmental Panel on Climate Change (IPCC) evaluates scientific evidence on climate change • United Nations Framework Convention on Climate Change (UNFCCC) a framework document produced at Rio 1992 summit.

to prevent deforestation in the Amazon region – Oppose legally binding promises as these would hamper economic development .Copenhagen UN Climate Change conference • Unlike the Kyoto accord. it leaves up to the Governments to introduce climate actions – bottom-up approach • A stand-off between developing and developed countries – China does strongly oppose that its emission cuts be monitored and verified – Brazil: developed nations should pay its “historic debt” – more financial support for developing countries esp.

Copenhagen • Technology Transfer for Developing countries – China wants developed countries to commit 1% of their GDP to fund climate changemitigation activities – Western companies are worried about intellectual property rights in technology transfer .

Conservation vs. – But sulfur seeding could destroy atmospheric ozone • Ocean fertilization with iron to increase uptake of C02 from the atmosphere – a rise in iron-limited phytoplankton populations has adverse consequences • Geological Carbon sequestration and storage on a smaller scale . atmosphere Slow global warming through reduced • atmospheric seeding: release consumption. seas. increased sulfur particles or other aerosols energy efficiency into the atmosphere to reflect the sun's rays back into space . Geoengineering the use of human-made changes to the Earth's land.same as what happens when volcanoes erupt.

In order to make them care for the environment the same way we do in the West. we have to make sure that their kids stop dying” – Climate-Industrial Complex – Money should be spent on R&D – Bring Cost-Benefit.Climate sceptics • Bjorn Lomberg: “For the most of the world population. cost-effectiveness into environmental debate . the environment is a distant thing.

2005) .Corporate Environmentalism • Greenwash: companies recognize the consumers are willing to pay a premium on “green” products • “selective disclosure of positive information about a company’s environmental or social performance. Maxwell. without full disclosure of negative information on these dimensions” (Lyonn.