Environmental Economics

M RafiqIM Sciences

What is Environmental Economics?Environmental economics is the study of

how the economy affects the environment,

how the environment affects the economy,

and the appropriate way to regulate economic activity so as to achieve an optimal balance between competing environmental and economic goals.

The economy affects the environment• U.S. carbon emissions are forecast to drop by 5% due to the recession

In many cases, wealthy countries have lower pollution emissions (despite their greater GDP), as wealthy countries can afford expensive pollution control technologies.

The environment affects the economy:

• Warming from climate change affects the skiing industry.

Sulphur dioxide and particulate emissions can increase asthma, increasing sick days,which reduces GDP

The appropriate way to regulate:

The Waxman-Martin climate change bill proposed regulating greenhouse gas emissions in part with a cap-and-trade with a safety valve.

The house bill has other provisions. It imposes a technology standard: new buildings must meet certain energy efficiency requirements.

An effective ban on incandescent light bulbs goes into effect at the end of the year

Achieving an “optimal balance:”

• Nylon production produces nitrous oxide, a greenhouse gas which is much more warming than carbon dioxide.

To eliminate emissions costs about $10-20 million per factory for scrubbers, plus catalysts that cost $1 million per year.

Is the benefit of reduced nitrous oxide emissions worth the cost

• In Baltimore, reducing total suspended particulates (TSP) in the air from 115 micrograms per cubic meter to 87 micrograms costs approximately $15 million. Is the benefit worth the cost

Topics

Within the above general ideas are many topics to study;

Can the market economy achieve an optimal balance between nitrous oxide scrubbers and other things we might care to produce? If not why?

How do we determine what the optimal balance is?What is the least cost way to regulate pollution emissions?How do we regulate pollution that originates in one country

and lands in another?

• How much do households value a good environment

Approach

A. Positive versus Normative

B. Moral neutrality. Environment is not morally imperative ……. No need for the subject

Rather we say what should be produced more??

Environment friendly or other goodsRelated is how we treat households and firms

incentives or command and control

Resource and ecological economics

Natural resource economics deals with the production and use of non-renewable resources such as oil, and renewable resources such as forests.

Environmental economics is concerned with market failures causing excessive pollution or insufficient protection of the natural world.

This distinction is a fine one, and in some cases overlap exists.Rather than discuss pollution, an environmental topic, one

could discuss clean air, which is a renewable resource.The production of wood from forests sometimes results from

insufficient protection of the natural world. But we will not be talking about oil extraction in this class.

Differences Environmental economics is a static

viewResource economics is dynamicEcological economics on the other

hand consider; ecosystem & ecosystem in broader

sense…long term health of the ecosystem

‘Energy theory of value’

Other important issues

Important contribution of EE to ECO. is demand for non market goods

Revealed preference Vs. Sated Preferences Important area of discussion the

measurement and estimation methods Regulation… asymmetric information,

technological changes, institutions, empirical properties of regulatory framework, theoretical issues of regulatory design

Free trade….exploitation, environmental regulation barriers to trade???

Global Environmental Problems & Policy Solutions

The idea is to get a glimpse of environmental problems across the globe , their magnitude and changes over time

Policy solutions/regulations

Quick survey

Focus is on four main categories

Air Pollution, Water Pollution, Toxic emission, Ecosystem Health

Air Pollution

Particulate matter are the large (less than 10 µg, denoted PM10) and small (less than

2.5 µg, denoted PM2.5) soot and smoke particles. These damaging particles are linkedto heart and lung disease. A principle source is diesel emissions.

Sulphur dioxide (SO2) causes acid rain and is linked to asthma and bronchitis. A primarysource is the burning of coal for electricity

Air pollutionCarbon monoxide (CO) is a poisonous gas

produced through fuel combustion.• Nitrous oxide (NO) and nitrogen dioxide

(NO2), collectively (NOx) are greenhousegasses that also contribute to ground level ozone (smog) problems. Road traffic andmany industrial processes contribute to NOx emissions.

• Hydrocarbons and volatile organic compounds (VOCs) are emitted via fuel combustion and from evaporation of solvents. Some are carcinogens and others lead to smog.

Air Pollution indicators for selected citiesChina 1980 1990 1995GDP per capita (US$) 907 1783 3072SO2 concentration (Beijing) 66 107 90PM concentration (Beijing) 475 413 377CO2 emissions per capita (tonnes) 0.4 0.6 0.7IranGDP per capita (US$) 5377 4843 5351SO2 concentration (Tehran) 130 165 209PM concentration (Tehran) 226 261 248CO2 emissions per capita (tonnes) 0.8 0.9 1.1JapanGDP per capita (US$) 15538 20794 22173SO2 concentration (Tokyo) 42 19 18PM concentration (Tokyo) 61 NA 49CO2 emissions per capita (tonnes) 2.1 2.4 2.5

Environmental Kuznets Curve(EKC) Hypotheses

Air pollution Levels first rises and then declines with income

The results for many pollutants may not support the results

Carbon dioxide emissions increases with GDP

Countries suffer very little because of their own emissions

Incentive not to undertake costly emission reductions

The Case of Pakistan The ongoing development in the third world countries has led

to understanding the repercussions of environmental hazards that are prevailing in such countries.

Similar is the case with Pakistan, which with the help of a number of international organizations has started addressing the aforementioned issue.

On the basis of this review it is possible to assess the status and to determine the trends in air pollution sources, emissions, concentrations, and exposures in four metropolitan cities (Karachi, Lahore, Rawalpindi, and Peshawar) of Pakistan.

Environmental pollution in these cities is analyzed in terms of Particulate Matter (PM) and derived particle mass concentrations. Heavy metal concentrations.

Metropolitan cities of Pakistan

PM

Karachi 193μg m-3

Lahore 200 μg m-3

Peshawar 219 μg m-3

Rawalpindi 185 μg m-3

• The particulate matter concentration is major cities of Pakistan such as

•number of respiratory and nervous diseases. The origins of this high concentration pm can vary from anthropogenic to natural. • Natural sources include sea salt particles and dust of minerals while anthropogenic sources include road dust, construction, burning of biomass and emissions from industries and vehicles.

PM2.5/PM10 ratio In mentioned cities, the pm 2.5/pm10 ratio was 0.4 in

Karachi, 0.45 in Lahore, 0.31 in Rawalpindi and 0.30 in Peshawar.

The astronomic ratios as opposed to the standards set by WHO leaves a lot to be desired in terms of environmental conditions improvement.

The metropolitan cities have been plagued by environmental hazards due to vehicular emissions, industrial emissions, construction and dust from roads.

The industrial area in these cities has been close to the townships which has caused the direct diffusion of hazardous chemicals into the atmosphere in which people breath.

Heavy Metal Concentration

Government Regulations The government has been taking drastic steps for the relocation of

industrial areas to places which would have minimal effect on the quality of life. similarly, the environmental authorities have been striving to implement stringent regulations regarding vehicular emissions and the construction of roads, which would go a long way towards improving environmental condition of metropolitan cities in Pakistan.

The government of Pakistan has initiated a clean air Programmes and has also set up monitoring stations for air quality.

Although the desired standards in terms of air quality have not been established as yet, the government is heading in the right direction towards achieving the standards set by WHO.

The government is also allowing a number of international organizations for conducting scientific studies, which would help the authorities understand the measures that need to be taken for the improvement of air quality.

Water pollution Organic material deposited in water ways

and lakes Requires Oxygen decomposition Measure of water Pollution is Biological

Oxygen Demand (BOD) Water body becomes depleted of oxygen,

can not support life Further depletion leads to anaerobic

Bacteria Major type of organic waste is Human

Waste

Water Pollution 1991country GDP per

capita%pop (safe drinking water)

%POP sanitation

Child mortality rate

Burkina Faso

945 65 11 159

India 1256 74 14 131Ghana 1654 48 61 170China 1901 74 87 43Brazil 5534 88 73 69Costa Rica

5758 92 96 16

Mexico 7773 83 67 39Greece 11490 98 98 11UK 17769 100 100 9Denmark 20135 100 100 9

Continue……

Difficult water pollution is ground water pollution Leaking of surface storage facilities, either waste or

liquid storage; for example, Gasoline Chemical waste dumped Leaching of pesticides and Fertilizers into the

groundwater Surface waters, such as lakes & Rivers are ultimate

repositories of what is deposited on land Sulfur & Nitrogen Oxydes emission are deposited on

Land in dry or acidic precipitation Lakes and Rivers suffer due to Nutrients from Agriculture

runoff and acidification

Toxic Chemicals Rachel Carson’s Silent Spring, a book about the

pesticides linkage with our food chain

Causing havoc with wild birds

Lead in gasoline

Lead causes mental retardation

Besides, old toxic sites and accidental discharge

Ecosystem and Environments

Loss of habitats due to expanding human population

Forest clearing for agriculture Wetland decorations; agriculture and

housing Endangered species are ever growing

US Environmental Compliance Spending

Estimating such costs are fraught with uncertainty, nonetheless,

it is clear that compliance costs are modest in a $13 trillion dollar economy.

The US spends about one half of one percent of income on compliance with air pollution regulations.

The total compliance share for all types of pollution regulation is under 2% of GNP.

It all started in 1970’s.

Abatement spending in other developed countries is similar to the USYear US France West Germany Netherlands UK 1981 1.5 0.9 1.5 - 1.6 1982 1.5 0.9 1.5 1.2 - 1983 1.5 0.9 1.4 - - 1984 1.4 0.8 1.4 - - 1985 1.4 0.9 1.5 1.3 1.3 1986 1.4 0.8 1.5 1.5 1.3 1987 1.4 1.0 1.6 1.5 - 1988 1.3 1.0 1.6 - - 1989 1.4 1.0 1.6 1.5 - 1990 1.4 1.0 1.6 - 1.5

Environmental Regulation

A Command and Control Regulations The regulator specifies what steps the polluter must take

to reduce pollution, and usually how much pollution must be reduced.

Command and control is by far the most common form of regulation.

Command and Control regulations typically specify a TECHNOLOGY STANDARD, where the regular species the environmental performance of a particular production technology.

Command and control regulations may go even further and specify in great detail exactly how a good is to produced.

Examples: CAFE standards: minimum average fuel economy

for all cars sold by a given company in a year (currently 27.5 MPG for cars and 23.5 MPG for trucks).

Low flush toilets: maximum water use per flush (1.5 gal/flush

Coral Gables lawn watering limits (Wednesday and Saturday on the odd side of the street, and only early in the morning).

Surface coatings (e.g. furniture manufacture): limits on the types of furniture coatings, requirements to use a certain type of vent to recapture vapors emitted during painting

Examples: Renewable energy standard: house

climate change bill requires 20% of each utility company’s power to come from renewable sources by 2020.

Household appliance standards: the house climate change bill has standards for fluorescent lamps, base lamps, candelabra base lamps,

dishwashers, portable spas, faucets, televisions, buildings, and many other products. The article discusses the energy standard for light bulbs which effectively bans incandescent bulbs.

Regulations…..

B Market based instrumentsA MARKET BASED REGULATION provides economic incentives to reducepollution. Market based instruments come in 3 flavors:1. Taxes. Charge a tax per unit of pollution emitted.2. Tradable permits (cap and trade). Limit pollution, but allow the right to pollute to be traded3. Liability. Allow pollution victims to pursue compensation from polluters through the legal system

Examples

1. Gasoline taxes (gas tax), gas guzzler car taxes, “by the bag” garbage disposal fees.2. Cap and trade sulfur dioxide program, NOx cap and trade in the Northeastern states, proposed cap and trade program in the Waxman-Martin climate change bill.3. Various lawsuits associated with toxic chemical leaks.

comparison

The key difference between command and control and market instruments is that market based instruments do not proscribe any particular method of reducing pollution. Consider the gas tax versus CAFE standardsCAFE standards may create incentives for households to buy less fuel efficient used cars. Thus, we cannot even say for sure that fuel use declines with the CAFE standard.