Dollars and Environmental Sense: Economics of Environmental Issues

Chapter 3

Chapter 3.1: Overview of Environmental Economics

Modern environmental law began in the 1960sFoundation: 3 E’s: Ecology,

Equity, and EconomicsEcology: Animals &

EcosystemsEquity: The People and

Environmental JusticeEconomics: Dollars and the

Government

Chapter 3.1: Overview of Environmental Economics

Environmental Economics is not simply about money; it is about how to persuade people, organizations, and society at large to act in a way that benefits the environment, keeping it as free as possible of pollution and other damage, keeping our resources sustainable, and accomplishing these goals in a democratic framework.

Chapter 3.1: Overview of Environmental Economics

Environmental Economists also explore the reasons why people don’t act in their own best interests when it comes to the environment.

Are there rational explanations for what seem to be irrational choices?

Chapter 3.1: Overview of Environmental Economics

What we do, what we can do, and how we do it are known collectively as policy instruments.

Chapter 3.1: Overview of Environmental Economics

In the language of economics, a tangible factor is one you can touch, buy, and sell.Ex: a house lost in a mudslide

An intangible factor is one you can’t touch directly, but you value itEx: the beauty of the slope

before the mudslide

Chapter 3.1: Overview of Environmental Economics

Intangibles are harder to measure and value economically.

Who should pay for improving or protecting the environment? Those who produce the problem? Those who suffer from it? The government?

3.2: Public Service Functions of NaturePublic Service Functions: Functions performed by ecosystems that benefit other forms of life in other ecosystemsEx: forests that absorb

chemicals or marshes that treat sewage water

Also known as nature capital (by economists)

3.2: Public Service Functions of NatureExamplesBacteria cleaning water in the soil

by decomposing toxic chemicalsPollinators: birds, bats, ants,

bees, wasps, butterflies, etc.These are estimated at

pollinated about $25 billion worth of crops in the US alone

3.2: Public Service Functions of Nature

Without those pollinators, food prices go up.Colony Collapse Disorder Case

Study

3.3 The Environment as a CommonsOften, people use a natural

resource without regard for maintaining that the resource and its environment in a renewable state – they don’t concern themselves with that resource’s sustainability.

Case Study: George’s Bank in the Atlantic Ocean (HW)

3.3 The Environment as a Commons

Ex of “valuation”: argument between those who want to drill for oil in a national park, because the value and utility of the energy seem more important than the park

3.3 The Environment as a CommonsCommons: land (or another resource) owned publicly, with public access for private uses. Article: Garrett Hardin’s

“Tragedy of the Commons”

3.3 The Environment as a CommonsCase Study: in early New

England, they used grazing land for cows that any one could use it. Eventually, the land became over-grazed because there were no limits on how much the cows could eat, and the farmers didn’t have to pay for the land they were using.

3.3 The Environment as a Commons

Present Day Commons:38% of forests are on publicly

owned landsArctic sea iceThe atmosphereRecreational areas (parks)

3.3 The Environment as a Commons

What is the appropriate use of public lands?

Should all public lands be open to all public uses?

Should some public lands be protected from people?

3.4: Low Growth Rate and Therefore Low Profit as a factor in Exploitation

Low Growth Rate: not a lot being produced

EX: one way to view whales economically is to consider them in terms of whale oil.

3.4: Low Growth Rate and Therefore Low Profit as a factor in Exploitation

Two approaches:Resource sustainability: they

will harvest only the number by which the population increase. Earn money slowly.

Maximum profit: harvest as much as you can, earn money FAST

3.4: Low Growth Rate and Therefore Low Profit as a factor in Exploitation

People tend to choose maximum profit, because of the competitive nature of our market.

3.5 Externalities

Externality (indirect cost): an effect not normally accounted for in the cost-revenue analysis.costs or benefits that

DON’T show up in the price tag

Think of “Story of Stuff” video: The Radio she bought

3.5 Externalities

Ex: Air and Water pollution. You don’t pay for the pollutants that go into the air or water when you buy products.

3.5 ExternalitiesDirect costs: costs borne by the producer in obtaining, processing, and distributing a product.

Big Question: How can externalities be internalized, so SOMEONE is paying for them?

3.6 Valuing the Beauty of Nature

How do we arrive at a price for the beauty of nature?

One problem is personal preference.

House/Apartment with a view is worth A LOT more than similar apartments without a view

3.6 Valuing the Beauty of Nature

Brings up Equity: houses in nicer areas are worth more, or houses with a better environmental area. If the area becomes environmentally degraded, the properties are worth less and the people living there suffer economically.

3.7 How is the future valued?The future value of something

compared with its present value.

Ex: Suppose you are dying of thirst in a desert and you meet two people.One offers to sell you a glass of water

nowThe other offers to sell a glass of

water if you can be at the well tomorrow.

Which do you take?

3.7 How is the future valued?

Can we place a dollar value on the future existence of anything? It depends on how far in the future you are talking about.

As we get wealthier, the value we place on environmental assets increases dramatically.

3.7 How is the future valued?

What would you have liked your ancestors in 1900 to have sacrificed for our benefit today? Should they have invested in development of electric transportation? Should they have restricted whaling?

3.7 How is the future valued?

General Rule: Don’t throw away or destroy anything that cannot be replaced if you are not sure of its future value.

3.8 Risk-Benefit AnalysisRisk-benefit analysis: the riskiness of a

present action in terms of its possible outcomes is weighed against the benefit, or value of the action

With some activities, the risk is clearEX: more dangerous to stand in the middle of the

road than to stand on the sidewalk

3.8 Risk-Benefit AnalysisDeath from outdoor pollution: 1 in 100,000

Suggests that to reduce air pollution may not be important to saving lives, but to help quality of life

Also depends on the activity. More people willing to accept more risk for athletic activities than for work activities.

It is also very hard to put a value on a human life

3.8 Risk-Benefit AnalysisWe might want to choose a

slightly higher risk of death in a more pleasant environment rather than increase the chances of living longer in a poor environment… depends on the person.

What is “unreasonable” involves judgments about the quality of life as well as the risk of death.

3.8 Risk-Benefit Analysis

Answers depend not only on facts but also on societal and personal values.