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Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings PowerPoint ® Lecture prepared by Jay Withgott Scott Brennan Jay Withgott Environmental.

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Presentation on theme: "Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings PowerPoint ® Lecture prepared by Jay Withgott Scott Brennan Jay Withgott Environmental."— Presentation transcript:

1 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings PowerPoint ® Lecture prepared by Jay Withgott Scott Brennan Jay Withgott Environmental economics and environmental policy 2

2 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings This lecture will help you understand: Relationship between science and policy The policy process and U.S. environmental laws International environmental policy Classical economics Ecological economics Economic growth and sustainability

3 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Central Case: San Diego and Tijuana’s Sewage Pollution Problems and Policy Solutions The Tijuana River crosses from Mexico into the U.S.; its pollution affects people on both sides of the border. Transboundary environmental issues are hard to resolve. Citizens have pressed policymakers to develop solutions, such as a bi-nationally managed sewage treatment plant.

4 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Economics Economics is a discipline that deals with how we value and perceive our environment. Economics influence our decisions and actions. Figure 2.1

5 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Economics Studies how people use resources to provide goods and services in the face of variable supply and demand. Most environmental and economic problems are linked. Root “eco” gave rise to both ecology and economics.

6 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Types of modern economies Subsistence economy = People meet needs directly from nature and agriculture; do not buy most products. Centrally planned economy = National government determines how to allocate resources. Capitalist market economy = Buyers and sellers interact to determine prices and production of goods and services.

7 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Government roles in a market economy Even in capitalist market economies, governments intervene to: Eliminate unfair advantages/monopolies Manage the commons Mitigate pollution Provide safety nets Provide social services

8 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Conventional view of economic activity Conventional economics focuses on interactions between households and businesses; views the environment only as an external “factor of production.” Figure 2.11a

9 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Environmental view of economic activity Environmental economists see the human economy as within the environment, receiving resources and services from it. Figure 2.11b

10 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Ecosystem goods and services Natural resources are “goods” we get from our environment. “Ecosystem services” that nature performs for free include: Soil formation Water purification Climate regulation Pollination Nutrient cycling Waste treatment etc.

11 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Classical economics Adam Smith: Competition between people free to pursue their own economic self-interest will benefit society as a whole (assuming rule of law, private property, competitive markets). This idea is a pillar of free-market thought today. It is also blamed by many for economic inequality.

12 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Neoclassical economics Focuses on psychology of consumer choice. The market favors equilibrium between supply and demand. Figure 2.12

13 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Precepts of neoclassical economics Resources are infinite or substitutable. Long-term effects are discounted. Costs and benefits are internal. Growth is good. Each of these can contribute to environmental problems.

14 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Precepts of neoclassical economics Resources are infinite or substitutable. Some certainly can be replaced. Others are nonrenewable. Can we count on their replacement once they are exhausted?

15 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Precepts of neoclassical economics Long-term effects are discounted (the future is given less weight than the present). Decisions are made that maximize short- term benefits… … even if there are severe long-term costs.

16 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Precepts of neoclassical economics Costs and benefits are internal. Figure 2.13 Often, costs are external to the transaction. Uninvolved people are affected. E.g., water pollution downstream from the polluter.

17 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Precepts of neoclassical economics Growth is good. Growth as a means toward human happiness is one thing; Growth as an end in itself is another.

18 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Why are economies still growing? Some critics have long predicted that limited resources would doom growth-oriented economies. But advances in technology have allowed ever-greater resource extraction and efficiency... so far. Figure 2.14

19 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Environmental and ecological economists Environmental economists: Human economies can be made sustainable through improvements in technology and efficiency. Ecological economists: Any economy dependent on growth is ultimately unsustainable; economies cannot overcome environmental limitations; economies should be circular, not linear.

20 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Steady-state economy An economy that does not grow or shrink, but remains stable The ecological economist’s preferred alternative Wealth and quality of life, they maintain, can continue to rise.

21 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Nonmarket values Ecosystem services have value that is not usually expressed in monetary terms.

22 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Nonmarket values Use value: worth of the direct use of a resource Option value: worth of things we conserve, possibly to use later Figure 2.15b,c

23 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Nonmarket values Aesthetic value: worth for beauty or emotional appeal Scientific value: worth for scientific research Figure 2.15d,e

24 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Nonmarket values Educational value: worth for teaching and learning Existence value: worth of existence, even if we never experience something directly Figure 2.15a, f

25 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Nonmarket values Cultural value: worth of things that define or sustain a culture Figure 2.15g

26 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Viewpoints: Environment vs. economy? Pete Geddes Eban Goodstein “One “cost” of environmental protection that is blown out of proportion is job loss. Contrary to popular belief, there is no net “jobs- environment tradeoff” in the economy, only a steady shift of jobs to cleanup work.” “Economic progress is a prerequisite for environmental quality. Hungry folks don’t have the luxury of investing in the preservation of endangered songbirds. The real enemy of the environment is poverty, not affluence.” From Viewpoints

27 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Valuation of ecosystem services Environmental economists have assigned monetary values to ecosystem services. Costanza et al., 1996: $33 trillion per year! From The Science behind the Stories

28 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Market failure Markets “fail” when their prices do not take into account: Positive effects such as ecosystem services or Negative effects such as external costs

29 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Combating market failure Governments can use various methods to guard against market failure relating to environmental concerns, e.g.: Green taxes penalizing harmful activities Subsidies to encourage beneficial activities Ecolabeling to tell consumers how products were made or harvested Permit trading to use market-based incentives for pollution control

30 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Policy A rule or guideline that directs individual, organizational, or societal behavior Environmental policies are developed by governments to regulate behavior of individuals, corporations, and government agencies.

31 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Environmental policy Addresses issues of equity and resource use Prevents overexploitation of public resources (tragedy of the commons) Ensures that some people do not harm others while benefiting from common resources

32 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Science, policy, and solutions Science informs policy directly. Science also informs the public and the private sector, which influence policy. Policy is one path to solving environmental problems. Figure 3.1

33 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings External costs Pollution from Mexico flows in the Tijuana River into the U.S. But some of this pollution is from U.S.-owned factories in Mexico. Figure 3.2

34 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings External costs Users of river water can create external costs for other users downstream. Figure 3.3

35 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings What can hinder environmental policy? Opposition from landowners fearing loss of control over land Opposition from businesses, developers, and industry groups fearing government regulation Human tendency (especially businesses, media, politicians) to focus on short-term problems and ignore long-term problems

36 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings First wave of environmental policy in the U.S. Laws to promote land settlement and resource extraction; for example: General Land Ordinances, 1785, 1787 Homestead Act, 1862 Mineral Lands Act, 1866 Timber Culture Act, 1873

37 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Land settlement U.S. policy encouraged settlers like these in Nebraska, circa. 1860, to move west. Figure 3.7a

38 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Mining in Alaska Resource extraction Figure 3.7b,c Logging in Washington

39 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Second wave of environmental policy in the U.S. To address impacts of the first wave; for example: Creation of national parks Creation of national forests Soil conservation policy Wilderness Act, 1964

40 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Third wave of environmental policy in the U.S. Modern environmental activism and policy arose in response to pollution and other problems. Silent Spring Earth Day EPA and National Environmental Policy Act Clean Air Act, Clean Water Act

41 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Rachel Carson and Silent Spring Carson’s 1962 book brought attention to pesticide dangers and catalyzed environmental awareness. Figure 3.8

42 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Rivers on fire The petroleum-polluted Cuyahoga River in Ohio caught fire, showing the need for action against water pollution. Figure 3.9

43 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Earth Day Earth Day began in 1970… Figure 3.10a,b …and is bigger than ever today.

44 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings EPA and NEPA In 1970, President Richard Nixon: Signed the National Environmental Policy Act (NEPA) into law Created the Environmental Protection Agency (EPA) by executive order0 Figure 3.11

45 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings EPA Was directed to: Conduct and evaluate research Monitor environmental quality Set and enforce standards (e.g., for pollutants) Assist states in meeting standards Educate the public

46 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings NEPA Created the Council on Environmental Quality Mandated environmental impact statements for public projects and has: Prioritized understanding our impacts on the environment Slowed down or prevented environmentally destructive development Given citizens a say in the policy process

47 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Key environmental protection laws, 1963-1985 Figure 3.12

48 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Legislation Major laws such as the Clean Water Act (1977) were passed throughout the 1960s, ‘70s, and ‘80s. The Clean Water Act capped efforts to clean up waters badly polluted since the 1800s.

49 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings International law Conventional law arises from conventions or treaties agreed to among nations. (e.g., Montreal Protocol to protect ozone layer) Customary law arises from practices or customs held in common by most cultures. (e.g., resource use should be equitable and one nation should not cheat another.)

50 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings U.S. - Mexican cooperation In 1990 the U.S. and Mexico agreed by treaty to build and operate the International Wastewater Treatment Plant to handle excess sewage from Tijuana that otherwise would pollute the river. Figure 3.18

51 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Important international bodies United Nations (UN): main body of international accord; UNEP handles environmental issues World Bank: funds major development projects worldwide European Union (EU): government body with representatives from most European nations World Trade Organization (WTO): promotes free trade worldwide Non governmental organizations (NGOs): nonprofit advocacy organizations

52 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings The environmental policy process 1.Identify the problem. 2.Identify specific causes of the problem. 3.Envision a solution and set goals. Figure 3.15

53 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings The environmental policy process 4. Get organized. 5. Cultivate access and influence. 6. Manage development of policy. Figure 3.15

54 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings The “revolving door” People often move between industry and the government agencies that regulate their industry. Figure 3.16

55 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Legislative process Bills go through a long process before becoming law, involving: Committees, subcommittees, and floor votes in both houses A joint conference committee Final approval Signature or veto by the president Figure 3.17

56 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Some approaches to environmental policy Command and control (end of pipe): government regulation; limits/standards/quotas set; penalties for violations Green taxes: charges on environmentally harmful products, activities Marketable permits: firms can buy/sell/trade permits to emit certain amounts of pollutants

57 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Many subsidies are environmentally harmful Some examples from the 2002 Green Scissors report: Mining: billions of dollars of minerals extracted from public lands leased cheaply Coal: billions of dollars to coal industry while money also goes to find cleaner energy sources Timber: hundreds of millions of dollars spent by Forest Service building roads for private logging on public land Figure 3.14

58 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Some approaches to environmental policy Command and control (end of pipe): government regulation; limits/standards/quotas set; penalties for violations Green taxes: charges on environmentally harmful products, activities Marketable permits: firms can buy/sell/trade permits to emit certain amounts of pollutants

59 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Conclusions: Challenges Many factors can hinder environmental policy. Creating or influencing policy requires commitment to following the policy process. Lobbyists, campaign contributions, and the revolving door can create conflicts of interest. International policy is especially difficult. Prevailing economic precepts can be damaging to the environment. Environmental justice remains a challenge.

60 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings Conclusions: Solutions Innovative approaches can help overcome opposition to environmental policy. It is possible to create or influence policy if one follows the policy process. Greater public participation in the political process can help reduce the roles of lobbyists, campaign contributions, and the revolving door. International policy can be pursued in a number of ways. A steady-state economy may offer an attractive alternative to a growth-oriented economy.

61 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Review The first wave of environmental policy in the U.S. was designed to: a.Prevent pollution problems. b.Facilitate settlement and resource extraction. c.Restrict use of public lands. d.Restrict use of private lands.

62 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Review According to NEPA, before the government can embark on a major development project, it must conduct a(n): a.Pollution prevention and assessment study. b.Public opinion poll. c.Business feasibility study. d.Environmental impact statement. e.None of the above.

63 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Review Which is NOT a responsibility of the EPA? a.Monitor environmental quality b.Set and enforce pollutant standards c. Conduct and evaluate research d.Educate the public e.All of the above are responsibilities of the EPA.

64 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Review Which illustrates a “command-and-control” approach to an environmental problem? a.A reward for recycling the most aluminum cans b.A five-year jail term for exceeding air pollution limits c.A contest for designing the most fuel-efficient automobile d.An exemption from the Clean Air Act during wartime e.None of the above

65 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Weighing the Issues Should executives from industry be allowed through the “revolving door” to take government jobs regulating their industry? a.No, regulating one’s former industry is a conflict of interest that undermines the regulatory process. b.Yes, government will receive people who are experienced and have inside knowledge.

66 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Interpreting Graphs and Data What law was passed in 1973? Figure 3.12 a. Wilderness Act c. Food Security Act b. Clean Water Act d. Endangered Species Act

67 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Review Which is NOT an assumption of neoclassical economics that can lead to environmental degradation? a.Resources are unlimited. b.Resources are limited. c.Long-term effects are downplayed. d.All costs and benefits are experienced by the buyer and seller alone. e.Growth is good.

68 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Review Which is an ecosystem service? a.Water purification in the atmosphere b.Crop pollination by insects c.Nutrient cycling in ecosystems d.Waste treatment by bacteria e.All of the above

69 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Weighing the Issues Should economists try to assign monetary amounts, such as aesthetic, cultural, and existence values, to “nonmarket values”? a.Yes, because this draws attention to the importance of these values. b.No, because the amounts can never be made objective and exact.

70 Copyright © 2005 Pearson Education, Inc., publishing as Benjamin Cummings QUESTION: Interpreting Graphs and Data In conventional economic theory, the price of a good is set…? Figure 2.12 a. Primarily by supply b. Primarily by demand c. By demand when quantity is low and supply when quantity is high d. By the point at which demand equals supply


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