7 - Economics and the Environment Flashcards
what is this specific unit about?
how the economic activity affects the fragile biosphere of our planet and how the resulting problems can be addressed
how is this chapter linked with previous chapters?
we saw that production and distribution of goods and services (the economy) takes place within society and the biosphere and therefore affects the environment
what is the chapter about at the bigger picture?
the conditions in which affect the overall interaction between markets, households, firms, governments and the world
(affect but also affected)
why do environmental problems matter?
next generations will suffer from the consequences of actions taken by previous generations and as human beings we care about others
how can environmental damage be reduced?
through well designed environmental policies that balance the cost of reducing environmental damage against the benefits
what is an overview of the environmental policies that can be used?
- ones that use taxes or subsidiaries
- others use direct prohibition or limit the use of environmentally damaging materials and practises
what has happened to many mineral resources over the last 200 years?
- prices haven’t changed much (overall trend is flat, even with some fluctuations)
- extraction has increased drastically
- indicates that supply of raw materials is vast
what has the transformation is living standards been a result of?
combination of human ingenuity and available resources such as coal, soil and water
what has happened to some available resources?
not abundant anymore or free
others such as minerals are still abundant
(forests, biodiversity and clean water ar becoming scarce)
why is managing renewable resources so hard?
- absence of prices
- fragility of enviro under pressure from growth of echoic activity leading to progressive degradation and self reinforcing collapse
what happened to the atlantic cod?
due to it being an open access resource, many used the area for industrial fishing and round the mid 70’s cods numbers started to decline and less than fifty years after they have almost completely gone, showing how our need to supply is harming the biotic environment
what is a self reinforcing ecosystem collapse?
whereby the initial effects by humans are then made worst by the ecosystems themselves (positive feedback system)
amazon rainforest is likely to become a self reinforcing, e.g reduce size, reduce rain, drought, fires
also global warming
what are two aspects of environmental degradation and what is the difference between them?
- depletion of commodities
- global warming
commodities are priced and traded (some resources may self correct as prices of scarce commodities rise)
enviro effects usually only corrected through policy or political action (which is harder)
how can this chapter be linked with last semester?
externalities, incomplete contracts and missing markets
where is the economy embedded?
within society which is embedded in the environment
what is the cost/beneift, market faille and remedies associated with taking an international flight?
- increase in carbon emissions
- private ben and external cost
- taxes/quotas
similar to market failures how does climate change arise form?
missing markets
when free markets don’t maximise their sociertal welfare
what is the difference between local enviro problems and climate change?
climate change is global and effects everyone with different interest who will all be affected in different but similar ways
what do scientists think is the greatest threat to future human wellbeing?
climate change
why is climate change used as a focus of efficiency and fairness?
shares five features with other environmental problems
- stabilising yearly emission is not sufficient (need to decreasE)
- irreversibility
- worst case scenario (uncertainty of the scale of damage)
- global problem needing international cooperation
- conflicts of interest (impacts differ - future gen)
how is economic activity linked to climate change?
burning of fossil fuels for energy, industrial revolution
why will stabilising emissions not cause a benefit in terms of climate change/
cfhangingthe flow of carbon dioxide will cause a constant increase in the stock of co2
what are abatement policies?
policy designed to reduce environmental disaster
how are enviro problems including climate change addressed?
through abatement policies
what re examples of abatement policies?
- discovering and adopting technologies that are less polluting
- consume fewer or less enviro damaging goods
- banning or limiting use of enviro harmful substance
what is problems with eliminating all co2 emissions?
the economic costs would exceed the enviro benefits
what are people views influenced by?
self interest
but also about the effects on others
what do abatement policies include?
taxes on emissions s and incentives to use fuel efficient cars
how can a cost curve be used in abatement policies?
show the relationship between the reduction in enviro probs and the cost of this abatement
how come the cost curve for abatement and greenhouse gases is likely to be inaccurate?
as technologies are being produced all the time, prices fall so the ways in which we abate and the prices we do it for a likely to change
what can we use the marginal cost curve for abatement for?
estimate how much abatement we get for any level of expenditure, assuming we implement the most efficient methods first
(feasible set would be anything within this marginal cost curve)
ou wouldn’t pick a point in the interior of the feasible set as it would be inefficient e.g. you can get another method for a cheaper price
how do you calculate marginal rate of transformation for enviro quality and decrease in consumption?
increase in enviro quality / decrease in consumption
steeper the slope = smaller opportunity costs of further enviro improvements
what two principles will the policy maker use to make decisions on level of abatement?
- consider only abatement policies on the frontier of the feasible set
- chooses combination of enviro quality and consumption that puts her on the highest possible indifference curve
to satisfy both condition must find point of feasible frontier that equates the MRT with the MRS
what would produce different choice about abatement levels in terms of policy markers?
- different values: if people cared less about enviro
- costs of abatement: if it was cheaper then feasible set would be steeper
why do conflicts of interest arise?
enenvironmental quality is never the same for everyone
some people benefit more than other depending on location and income
who bears the cost of abatement?
outcome depends on who has the most bargaining power
would like to chive a middle point in which both parties benefit
what are two types of policy based decisions?
- price based policies
- quantity based policies
what is a price based policy?
a policy that uses taxes or subsidiaries to affect prices, effect to internalise the decision on individual
what is a quantity- based policy?
policies that use environmental objectives using bans, caps and regulations
what is the policy cap and trade?
combines legal limit on amount of emissions with incentive based approach assigning abatement required to meet this legal limit
- gove set total level of abatement required
- give creates permits
- permits are traded (kyoto protocol)
- firms submit permits to gov to cover their emissions
what is the largest co2 cap and trade scheme in the world?
2005 EU trading scheme
11,000 polluting installations across the EU
why has cap and trade been more favourable over tax in terms of carbon?
advantage of flexibility, ability to set carbon price and then control way n wchih permits are allocated and traded gives policy marker two levers in contrast to single tax
to implement enviro policies what is needed?
need to measure the value of abatement
what two methods can be used to measure the benefits of abatement?
- hedonic pricing
- contigent valuation
what is hedonic pricing?
called a revered preference approach as it uses people economic behaviour to reveal what their preferences are
e.g. studying house prices
identifies price factors
what is contingent valuation?
easiest and widely used
survey technique used to asses the value of non market techniques
simply ask people
e.g. 1989 oil spill in Alaska court survey asking respondents how much they would pay to prevent another oil spill
stated preference approach, accepts statements of their values as indicative of their true preferences
what is the green growth accounting framework?
environment is considered an asset that can be used up
therefore envrinoental degradation reduces the assets of the society in much the same way
how can tax affect how consumers alter their behaviour?
through the income and substitution effect
IE = choices more limited than before as price gone, real income fallen
SE = as prices rise you substitute for something cheaper
what is a challenge to policy makers ni regard to the dynamics of the biosphere?
environment has its own natural processes so that small initial changes could lead to mush larger effects, resulting in faster and greater deterioration n
what is a prudential policy
used when there is a potential tipping point in an unstable equilibrium
places high value on reducing the likelihood of disastrous outcome even if its has high costs compared to other objectives
what unusual challenges does climate change pose?
- those affected by our choices today include regeneration in the distant future
- problem cannot be solved by national govs acting alone
what does game theory help to understand in terms of climate change?
the obstacles to its solution
complete self interest in climate change game theory does what?
makes the ‘business as usual’ scenario the dominant strategy
what temp was targeted in the paris meeting 2015 UN conference on climate change?
stables temp at 2 degrees above pre industrial level, virtually all countries committed
what can be used to measure effects on future generations?
discount rate
social discount rate puts a present value on costs and benefits that will occur at a later date
important in working out how much todays society should invent in limiting effects of climate change in future
what does high discount rate mean?
less weight on the future and less investment is needed to guard against future costs
what does low discount rate mean?
supports view that we should act now to protect future generations from climate change impacts
