Everyone agrees the environment is valuable
But environmental protection entails tradeoffs
- preservation vs construction
- clean air vs cheap energy
Economics is the study of how to best allocate scarce resources (ie manage tradeoffs)
- Achieved by equating benefits and costs on the margin.
- Rest of module discusses how policymakers might identify this point.
- how do you put a price on the environment?
- how do we value lives lost or saved?
- what should we do about the "losers" from environmental protection?
- how do we incorporate benefits which occur far in the future?
- to what extent should we save natural resources for future generations?
- Environmental bads (and goods) are typically externalities
- something that enters into the utility function of one agent but is chosen by another agent
- In these situations all economists agree markets will generally not maximize social welfare
- Environment canonical example of when economists this is not true. [Capitalism and Freedom]
- Markets: private MB = private MC
- Externalities private benefits social benefits
When US environmental movement took off in US in 1960s, economists had been teaching as much to grad students for decades.
- Relatedly, hyperpartisan split on environment a recent phenomenon.
Example: US lead standards
EPA's science panel recommends airborne lead be limited to 0.15 micrograms per cubic metre
How should we craft a policy to hit that goal?
- regulation: close smelters, mandate cleaner processing, limit metals consumption, etc
- tax lead emissions
- cap (-and-trade) emissions
- economists believe incentives drive outcomes
- show that using incentives, rather than "command-and-control" likely to be much more "cost-effective"
- meaning that we'll be able to achieve the same environmental outcome at lower cost
Economists know that demand slopes downward
Implication: the cheaper it is to protect the environment, the more protection people will "demand"
- what are the differences between a carbon tax and cap-and-trade?
- is it just as good to promote "green" products as it is to tax "dirty" ones?
- why don't we just ban polluting activities outright? (ie plastic straws)
- particulate matter
- acid rain program
- local Boston issues
Larger, more complex, and more uncertain than any other environmental problem. (Tol 2009)
Two major challenges:
Emissions stay in atmosphere for a long time.
Implication: costs today, benefits far in the future.
Impacts from local emissions felt globally.
Implication: countries can't solve this problem on their own.
- basic science and current work on costs
- how global stock pollutant fits in market based famework
- how should international commitments be structured?
- if states or nations can't implement a first best approach, how good are second best options
- can we "subsidize" our way out of the problem?
- can states act alone?
- Environmental economics is not an oxymoron!
- Economics is a powerful tool to understand and address environmental challenges
- Policy influence to date great example of economics in action
- Lessons and tools relevant for other policy and business settings