erling eide, ele day 2 2 environmental issues (problems and goals)
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Erling Eide, ELE Day 2 2 Environmental issues (problems and goals). 2.1 Examples of what might be thought to be a problem 2.2 What is the problem? 2.3 Goal analysis: Modeling priorities and policy choices. 2.1 Examples of what might be thought to be a problem. Environmental services - PowerPoint PPT PresentationTRANSCRIPT
Erling Eide, ELEDay 2
2 Environmental issues (problems and goals)
• 2.1 Examples of what might be thought to be a problem
• 2.2 What is the problem?
• 2.3 Goal analysis: Modeling priorities and policy choices
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2.1 Examples of what might be thought to be a problem
• Environmental services– Purification services (Nature as a purification plant)
– Recreation services
– Extraction of resources (animals, minerals,…)
• Problems – Degradation/reduction in these services
• Long list of what people consider as problems– Pollution damage
– Damaged recreational services
– Depletion of natural resources
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2.1 (cont.)
• Exhaustable resources (minerals, gas, oil, species…)– Depletion
• Non exhaustable resources (fish stocks, pastures, forests, clean atmosphere, clean rivers,…)– Overuse, reduction of stocks, pollution…
• STOP IT?– Pollution causes health problems. Stop it?
– Waste causes degraded recreational services. Stop it?
– Extraction of minerals reduces stock available to future generations. Stop it?
• Stop it at which level of depletion/degradation?U/ELE/H13 day 2 rev3.ptt 3
2.2 What is the problem? Externalities
• Decision makers’ behaviour: – Decision makers do not take into account the negative
effect on others of their activity.• Damage costs to others (negative externalities) not included when
producers and consumers are balancing benefits vs. costs.
• In market equilibrium consumers pay for the scarce resources used in production (at the margin), -- but not for the external effects.
• Products too cheap.
• Production too high.
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Example: The tragedy of the commons
• Definition of commons:– Resource that anybody can extract or use
– Resource rent: The surplus value after all costs of extraction or use, and normal returns, have been accounted for.
– The gift of nature
– Competition to get hold of the gift
– (Model) consequence: The tragedy of the commons: Resources depleted
• Examples of commons– Fish stocks in oceans (whales, cod,…)
– Pastures
– Atmosphere
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2.3 Goal analysis: Modelling priorities and policy choices
• Alternative goals:– Welfare based optimal emissions
– Other standards of emissions
• 2.3.1 Optimal production: See section 1.5
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2.3.2 Optimal amount of emissions -- Emissions given level of production
• Example: Pollution of a given activity (Production in a given plant is held constant)
• Costs of pollution:– Reduced environmental quality
• requires purification measures in adjacent plant
• Causes health problems
• Reduces recreation services in the neighborhood
• Costs of reducing pollution– Higher quality of inputs
– More air cleaners
– Increased quality control of production
– …
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2.3.2 (cont.)Goal: Minimisation of total costs
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EMISSIONS
COSTS
DAMAGE COSTS
ABATEMENT COSTS
TOTAL COSTS
OPTE
MINTC
FIG. 2.1 Determination of optimal emissions
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2.3 (cont.) Goal: Minimisation of total costs
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MARGINAL ABATEMENT COSTS
MARGINAL DAMAGE COSTSMARGINAL COSTS
MDC=MAC
OPTE EMISSIONS
FIG. 2.2 MARGINAL COSTS AND OPTIMAL EMISSIONS
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EMISSIONS
COSTS
DAMAGE COSTS
ABATEMENT COSTS
TOTAL COSTS
OPTE
MINTC
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MARGINAL COSTS
MDC
EMISSIONSOPTE
MACMDC=MAC
Internalizing Externalities
• Allocation of ownership rights (property rights):– To the polluter
• Contract on pollution reduction (”laissez-faire rule”)
– To the damaged party• Contract on pollution increase (”polluter rule”)
• Transferability of ownership rights
• Allocation and transferability of ownership rights makes externalities into a marketable good.– The government set the rules
– Actors act.
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EMISSIONS
COSTS
DAMAGE COSTS
ABATEMENT COSTS
TOTAL COSTS
OPTE
MINTC
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MARGINAL COSTS
MDC
EMISSIONSOPTE
MACMDC=MAC
2.3 (cont.) Internalisation of costs
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MARGINAL ABATEMENT COSTS
MARGINAL DAMAGE COSTSMARGINAL COSTS
MDC=MAC
OPTE EMISSIONS
FIG. 2.2 MARGINAL COSTS AND OPTIMAL EMISSIONS
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EhighElow
Internalizing Externalities (cont.)
• Environmental liability
• Pigouvian taxes
• Regulations
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