1. SEA at ASU Student Economics Association

2. Economics and the Environment

3. What is Economics? Economics is a social science concerned with the logic of scarcity, cost, value, and choice

4. The Role of Government Economics and the Environment ACTIVE ECONOMICS Outsourcing

5. Do you want the government deciding….. Who gets a hot dog at a football game? Who gets seats to a sold out concert? Obviously not …. Markets respond to individual choice But environmental matters are different… Or are they ???

6. Economic Food for Thought Ever wonder why your school textbooks have highlighting, scribbling, torn pages, and random comments from other people in them? What do you think?

7. In-Class Activity Round 1 Please form groups of four The candy belongs to the first person who takes it Every 20 seconds or so, your candy supply will be increased … Until someone takes it

8. In-Class Activity Round 2 Please keep the same groups of four The candy in each quadrant is yours ; only you may take it Every 20 seconds or so, your candy supply will be increased … Until you take it or eat it

9. Discussion of Activity Economics is about incentives and how incentives can be used to influence people’s choices: What were your incentives to take/leave the candy in the first round ? What were your incentives to take/leave the candy in the second round ?

10. Back to the Books What are the incentives involved with the books?

11. Private Property The puzzle for the noneconomist is why anything is private property. The puzzle for economists is why anything is not. Having found such an elegant solution to the problem of producing and allocating things, why not apply it universally?... David Friedman

12. ionand Eco Pollution and Economics

13. Two Extremes: Public control or private property

14. Corrective (Pigouvian) Taxation A. C. Pigou Economic Compromise: Tax Pollution ??? Nice idea, but hard to administer…

15. Not always… In the early 1970’s, CFCs from aerosol cans threatened the ozone layer The federal government imposed a tax on CFCs, which raised production costs Higher costs were partially shifted to consumers who searched for substitutes Enterprising businesses developed, And switched to, pump sprays

17. Acid Rain: Let’s talk about SO 2

18. The U.S. Acid Rain Program Title IV of the 1990 Clean Air Act Objective: Reduce annual SO 2 emissions by 10 million tons below 1980 levels. Two-phase (1995, 2000) tightening of restrictions “Allowance trading” system: free-market incentives to reduce pollution

19. Affected utility units were allocated allowances based on their historic fuel consumption. Each allowance permits a unit to emit 1 ton of SO 2 during or after a specified year. Allowances may be bought, sold, or banked For future years. Tradable Property Rights

21. 1993 1994 1995 1996 1997 1998 1999 2000

22. Looks a little like pork belly futures contracts ….

23. 6 5 4 3 2 1 0 Quantity (millions) Trading Volume: EPA Auctions and Private Markets

24. Sulphur Dioxide After Phase I: Forecasts, Caps, and Actual Emissions

25. Program Results 100% compliance (!) Emissions reduced No “hot spots” (!) Lower cost than expected (!) Firms traded allowances (!) Al Gore claimed to have invented the program Note: (!) denotes outcome was a surprise to industry participants, government, and New York Times reporters.

26. Markets generate prices; more specifically, prices and costs of alternative quantities. Prices generate information about costs and benefits. Information is key to effective social choice about pollution control. Command and control tends to stifle Meaningful choice and to cause higher costs of obtaining comparable outcomes. The Social Value of Markets