Chapter 18: Economics and the environment Flashcards
Abatement
Practices to limit or reverse environmental damages.
Abatement policies
Policies designed to reduce (abate) environmental damages. See also: Abatement.
Natural resources
The estimated total amount of a substance in the Earth’s crust.
Natural reserves
The amount of a substance that it is economically feasible to extract given existing technologies.
Global greenhouse gas abatement cost curve
This shows the total cost of abating greenhouse gas emissions using abatement policies ranked from the most cost-effective to the least. See also: Abatement policies.
Environment-consumption indifference curve
A curve on which all points are combinations of environmental quality and consumption that are equally valued by an individual or policymaker.
Marginal productivity of abatement expenditures
The marginal rate of transformation (MRT) of abatement costs into improved environment. It is the slope of the feasible frontier. See also: Marginal rate of transformation, Feasible frontier.
Opportunity cost of abatement expenditures
The marginal rate of substitution (MRS) of consumption for environmental quality. It is the slope of the environment-consumption indifference curve. See also: Marginal rate of substitution, Environment-consumption indifference curve.
Price-based environmental policies
Policies that use taxes and subsidies to affect prices, with the goal of internalising the external effects on the environment of an individual’s choices.
Quantity-based environmental policies
Policies that implement environmental objectives by using bans and regulations.
Cap and trade
A market for the rights to pollute. The maximum amount of emissions that an economy can generate is legally capped (it becomes a scarce resource). Allowances are issued to firms for each unit of permitted pollution. In order to be able to pollute, a firm needs to buy allowances for each unit of pollution. If the firm expects to pollute more, it needs to buy more allowances from other firms. If a firm expects to pollute less, it can sell its allowances to other firms.
Contingent valuation
Survey-based technique used to assess the value of nonmarket resources (for example, environmental costs and benefits). Also known as: Stated-preference model.
Hedonic pricing
A method used to infer the economic value of unpriced environmental or perceptual qualities affecting the price of a marketed good based on revealed preference—that is, the price people pay for one thing compared to another. See also: Revealed preference.
Discounting future generations’ costs and benefits
A measure of how we value today the benefits of our actions to others who will live in the future.
The polluter pays principle
A guide to environmental policy according to which those who impose negative external environmental effects on others should be made to pay for the damages they impose, through taxation or other means.
