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Why Study Environmental Economics?
Transcript of Why Study Environmental Economics?
Each year, the Environmental Protection Agency issues permits or "licenses to pollute" that add up to a cap that is reduced each year.
According to the EPA, by 2010, the annual cost of the sulfur dioxide clean up (by electric utility companies) is estimated to be about $3 billion, while the annual benefits—including lower mortality; fewer hospital admissions; improved visibility; cleaner soil, lakes, and streams; and reduced damage to buildings—will exceed $100 billion. "To develop a good understanding of environmental economics one must develop an understanding of the contributions of other disciplines to the field. To be able to talk to scientists in these fields, an environmental economist must be somewhat interdisciplinary and understand how the physical and natural environment works. The same thing can be said for people who wish to make a contribution in other areas of environmental study. To be a good ecologist, political scientist, resource manager, and so on, one must develop an interdisciplinary perspective, including an understanding of environmental economics." - James Kahn,
The Economic Approach to Environmental and Natural Resources Tools Policy What is environmental economics? Economics is the study of how economies and individuals allocate scare resources. Environmental economics is primarily the study market failure (or when these decisions make society worse off – rather than better off), and the means by which external costs (or environmental issues) can be mitigated through market and other policies. The tools of environmental economics are intended to provide a foundation for policy analysis, and the means to address issues such as efficiency, intergenerational equity, and sustainability. What does environmental economics have to offer? Traditional environmental policy has been based on environmental standards (command-and-control polices). These policies have limits. Economists have added two major tools to this tool box: 1. Marketable Pollution Permits (i.e. cap and trade programs)
2. Pollution Taxes What if there was a policy that did not require all of society to "go green" or develop habits that are environmentally friendly? because we know that we cannot convince everyone to do this...... What if there was a policy or group of policies that would reduce pollution at the lowest cost to society - leaving more resources for health care, education, and national parks? Economic policies do this! Economic policies do this! Economic policies in practice Cap and trade
helped phase out lead in gasoline in the 1980s
greatly reduced acid rain pollution in the 1990s
currently in use to eliminate fishery collapse in the Pacific. How successful have these policies been? Ronald Bailey, "Carbon Taxes Versus Carbon Markets: What’s the Best Way to Limit Emissions?", 5/18/07" $3 billion costs < $100 billion benefits! You find them everywhere... Shouldn't you know what they are? Where are they going? Global Warming
REDD+ What if there was a way to create incentives for firms and individuals to reduce pollution by more than a predetermined level? Economic policies do this! Since its creation three decades ago, EPA has made great strides in protecting the environment. For the most part, these environmental improvements were made through the use of command and control regulation; that is, promulgation of uniform, and source specific emission of effluent limits. It is becoming increasingly clear that reliance on the command and control approach will not, by itself, allow EPA to achieve its mission... To maintain momentum in meeting environmental goals, we must move beyond prescriptive approaches by increasing our use of policy instruments such as economic incentives. Properly employed, economic incentives can be a powerful force for environmental improvement. -William K. Reilly, Administrator's Preface “Economic Incentives: Options for Environmental Protection” 1991 Jill Caviglia-Harris, Salisbury University