Environmental Economics - Economics of Environmental Resources - Lecture Slides, Slides of Environmental Economics

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ENVIRONMENTAL

ECONOMICS

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What is Environmental

Economics?

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What is Environmental

Economics?

] Economics is concerned with allocation of scarce resources—including environmental ] Economics is the study of choice ] Environmental economics is the study of choice as applied to environmental decisions

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What is Environmental

Economics?

] EE is concerned with the impact of the economy on the environment, the significance of the environment to the economy, and the appropriate way to regulate economic activity to achieve balance among environmental economic and social goals.

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Some Definitions: Natural

Resources

] Renewable \ Renewable but Exhaustible [ Renewable Biological [ Renewable Physical \ Renewable but Nonexhaustible ] Nonrenewable

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] Nonrenewable= No process of replenishment in any meaningful time period ] Nonrenewable = Stock

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] Renewable= Different Units become available at different units of time ] Renewable = Flow

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] Economic Exhaustion versus Technical Exhaustion

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] Consumptive Use versus Nonconsumptive Use

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Consumptive Use

] Extract Fund ] Harvest Flows ] Intercept Flow ] Withdraw Fund

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Policy Questions -EE

] What is the fundamental nature of the environmental problem? ] Should the government “intervene” at all? ] How clean should the environment be? ] How can we achieve the desired environmental quality?

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Economic Perspective on

Environmental Management

] “Free” markets will generate excessive pollution and overuse environmental services, hence, collective or public intervention is necessary ] How clean the environment should be? Till MB=MC ] Design of policy instruments to achieve environmental goals ] Valuation of non-market goods

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Economy and the Environment

] Why do we care about the Natural Environment? ] What services and goods does the environment provide to us?

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Services that the Environment

provides

] Raw Material Supply \ Renewable and Nonrenewable ] Natural goods and resources \ Direct Consumption \ Life supply (air, water) \ Aesthetics and recreation ] Receptacle for wastes and residuals (emissions) ] Location in Space \ Land use

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] All services are economic goods that people are willing to pay (willing to accept payment) to receive (sell) but may or may not pass through the market. They are valuable none the less.

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What is the role of prices in a

market economy?

] Rations ] Communicates (signals) \ More productivity \ More substitutes \ More production \ More Research and Development (R and D) ] Reflects Values

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Physical principles

] Material balance : mass/matter can neither be created nor destroyed. ] Figure 2-1 Barry ] M = Rpd^ + Rcd^ [Material Inflow = Waste Discharges] ] M = Rpd^ + Rcd^ = G + Rp - Rpr^ -Rcr ] What happens to wastes? (dissipation, accumulation, assimilation)

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Options to reduce Material Flows

] Reduce M ] Reduce G ] Reduce Rp ] Increase Recycling ] Increase assimilative capacity

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Thermodynamics

] First Law of thermodynamics: Energy can neither be created nor destroyed, it can only be transformed from one form to another ] 2nd Law of thermodynamics: Energy conversions are not 100% efficient, i.e. some energy becomes unavailable waste energy (high entropy energy) with every transformation

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Are there limits to growth?

] The Pessimists vs the Optimists

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Sustainability

] Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs Brundtland report, 1987

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What is sustainability?

] Non-declining utility (consumption) ] Non declining production opportunities ] Non declining natural capital stock ] Sustainable yield of resource services ] Ecosystem stability and resilience ] Socio-economic capacity and consensus building ] Minimize ecological footprint

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Sustainability

] Q= Q (K N, KM , K H, K S )

] K (^) N=Natural capital (source & sink) ] K (^) M =Man made capital ] K (^) H= Human capital (skills, intellectual) ] K (^) S = Social capital (institutions, culture, ethics) How substitutable are these capital stocks?

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Substitutability

] Examples

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Sustainability rules

Table 1.1 (Turner)

Very weak sustainability (VWS) (Solow): \ K (^) N+ KM +K (^) H = constant \ Complete substitutability between K (^) N and KM \ Decrease in natural capital compensated by increase in manmade capital \ savings rate > depreciation rate of K (^) N and K (^) M, and savings are invested in capital stock

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Sustainability

] Weak Sustainability \ Critical natural capital(n) :No substitutes, \ Savings rate > depreciation of K (^) N and KM, \ Rate of technical change > population growth rate \ No reduction in critical natural capital (δn≤0) \ Ecosystem stability constraint K (^) N>Z