lecture 2 environmental economics and environmental policy

Lecture 2Lecture 2

Environmental Economics and Environmental Policy

Environmental Economics and Environmental Policy

What will I learn today?What will I learn today?

• Understand a great example of International Pollution

• Understand Economic theory • How economic decisions impact the

environment.• The History of U.S. Environmental Policy and

the institutions involved• How environmental policy is formulated.• How had President Bush done?

• Understand a great example of International Pollution

• Understand Economic theory • How economic decisions impact the

environment.• The History of U.S. Environmental Policy and

the institutions involved• How environmental policy is formulated.• How had President Bush done?

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Mexico America

THE BORDER

Case Study: Tijuana’s SewageCase Study: Tijuana’s Sewage

San Diego and Tijuana’s Sewage Pollution Problems and Policy Solutions

• The beaches south of San Diego boast some of the world’s best waves for surfing.

• These days, however, most surfers avoid the temptation.

• The heavily polluted Tijuana River flows across the international border from Mexico and empties into the sea.

• Discharging millions of gallons of untreated wastewater into the Pacific Ocean.

San Diego and Tijuana’s Sewage Pollution Problems and Policy Solutions

• The beaches south of San Diego boast some of the world’s best waves for surfing.

• These days, however, most surfers avoid the temptation.

• The heavily polluted Tijuana River flows across the international border from Mexico and empties into the sea.

• Discharging millions of gallons of untreated wastewater into the Pacific Ocean.



WaterShed for the Tijuana River

Movie:Movie:

Watch this clip from a concerned citizen group

Cost:Cost:

• Pollution has effected the economy of the region:– Medical costs from illness have increased

due to the pathogens in the sewage– Raw sewage changes sea life by lowering

water oxygen levels, this leads to less fish.– Tourism is reduced from bad press and

beach closures– About $1.5 billion a year.

• Pollution has effected the economy of the region:– Medical costs from illness have increased

due to the pathogens in the sewage– Raw sewage changes sea life by lowering

water oxygen levels, this leads to less fish.– Tourism is reduced from bad press and

beach closures– About $1.5 billion a year.

Short Sighted SolutionsShort Sighted Solutions

• The U.S. government built a sewage treatment plant to clean the water as soon as it comes over the border.

• However, within two years that plant was regularly over used and now it pumps raw sewage into the ocean once more.– Population growth– Movement of U.S. companies to Mexico for cheap

labor– Workers for these new companies

• All add to the problem

• The U.S. government built a sewage treatment plant to clean the water as soon as it comes over the border.

• However, within two years that plant was regularly over used and now it pumps raw sewage into the ocean once more.– Population growth– Movement of U.S. companies to Mexico for cheap

labor– Workers for these new companies

• All add to the problem

Lesson to learn:Lesson to learn:

• The environment and the economy are interlinked.

• The new lesson that economists are learning now is that environmental protection is GOOD for the economy.

• The short term view is still based on classic economics and considers just humans

• The longer term view based on the new economics considers human action tied to the environment.

• The environment and the economy are interlinked.

• The new lesson that economists are learning now is that environmental protection is GOOD for the economy.

• The short term view is still based on classic economics and considers just humans

• The longer term view based on the new economics considers human action tied to the environment.

Understand Basic EconomicsUnderstand Basic Economics

• ECONOMICS is the study of how people decide to use scarce resources to provide goods and services, based on demand.

• An ECONOMY is a social system that converts resources into goods and services.

• ECONOMICS is the study of how people decide to use scarce resources to provide goods and services, based on demand.

• An ECONOMY is a social system that converts resources into goods and services.

• Modern economics developed in the mid-1800s

• Classical Economics assumes that free self-interest (with some rules) will regulate the market.– ?

• Neoclassic economics assumes that you need to add human nature into the mix - better known as the supply and demand model.

• Neither of these two consider the impact on the environment!

• Modern economics developed in the mid-1800s

• Classical Economics assumes that free self-interest (with some rules) will regulate the market.– ?

• Neoclassic economics assumes that you need to add human nature into the mix - better known as the supply and demand model.

• Neither of these two consider the impact on the environment!



WHAT TYPES OF ECONOMYS ARE THERE?• Subsistence Economy

– rely on the environment to supply needs.

• Capitalist Market Economy– U.S. where supply and demand work. Government

intervention is minimized

• Centrally Planned Economy– Socialist (Communist) governments dictate how

the market is priced

WHAT TYPES OF ECONOMYS ARE THERE?• Subsistence Economy

– rely on the environment to supply needs.

• Capitalist Market Economy– U.S. where supply and demand work. Government

intervention is minimized

• Centrally Planned Economy– Socialist (Communist) governments dictate how

the market is priced

ACTIVITY:ACTIVITY:

1. Discuss the free-market system. Do you like it?

2. Name at least one negative of it?

3. Name at least one positive of it?

4. Is it compatible with protecting the environment?

U.S. environmental policyU.S. environmental policy

• The United States provides a good focus for understanding environmental policy in constitutional democracies worldwide.

• Why?• First, the United States historically pioneered innovative

environmental policy. • Second, U.S. policies have served as models—both of success

and failure—for many other nations and international government bodies.

• Third, the United States exerts a great deal of influence on the affairs of other nations.

• Finally, understanding U.S. environmental policy on the federal level enables us to better understand environmental policy at local, state, and international levels.

Environmental policy, like all U.S. policy, results from actions of the three branches of government



Legislative BranchLegislative Branch

• Statutory law, or legislation, is created by the legislative branch, or Congress, which consists of the Senate and the House of Representatives.

• Statutory law, or legislation, is created by the legislative branch, or Congress, which consists of the Senate and the House of Representatives.

Executive branchExecutive branch

• Legislation is approved or rejected by the president, who heads the executive branch.

• The president may also issue executive orders - specific legal instructions for government agencies.

• Once statutory laws are enacted, their implementation and enforcement is assigned to the appropriate administrative agency within the executive branch.

• Legislation is approved or rejected by the president, who heads the executive branch.

• The president may also issue executive orders - specific legal instructions for government agencies.

• Once statutory laws are enacted, their implementation and enforcement is assigned to the appropriate administrative agency within the executive branch.

Judicial BranchJudicial Branch

• The judicial branch consisting of the Supreme Court and various lower courts, is charged with interpreting law.

• This is necessary because social norms, societal conditions, and technologies change over time, and because Congress must write laws broadly to ensure that they apply to varied circumstances throughout the nation

• The judicial branch consisting of the Supreme Court and various lower courts, is charged with interpreting law.

• This is necessary because social norms, societal conditions, and technologies change over time, and because Congress must write laws broadly to ensure that they apply to varied circumstances throughout the nation

History of U.S. environmental policy

History of U.S. environmental policy

• There are 3 periods of history over which the U.S. environmental policy has been formulated.– 1780s to late 1800s– Late 1800s to mid 20th century– Mid 20th century to present

• There are 3 periods of history over which the U.S. environmental policy has been formulated.– 1780s to late 1800s– Late 1800s to mid 20th century– Mid 20th century to present

The Western FrontierThe Western Frontier

• Laws enacted during the first period dealt primarily with the management of public lands and accompanied the westward expansion of the nation.

• Environmental laws favored – settlement and – mining

• Laws enacted during the first period dealt primarily with the management of public lands and accompanied the westward expansion of the nation.

• Environmental laws favored – settlement and – mining

U.S. environmental policy of this era reflected the public perception that Western lands were practically infinite and inexhaustible in natural resources.

Typical Laws:– The Homestead Act of 1862 allowed any citizen to claim, for

a $16 fee, 160 acres of public land by living there for 5 years and cultivating the land or building a home.

– The Mineral Lands Act of 1866 provided land for $5 per acre to promote mining and settlement.

– The Timber Culture Act of 1873 granted 160 acres to any citizen promising to cultivate trees on one-quarter of that area.

U.S. environmental policy of this era reflected the public perception that Western lands were practically infinite and inexhaustible in natural resources.

Typical Laws:– The Homestead Act of 1862 allowed any citizen to claim, for

a $16 fee, 160 acres of public land by living there for 5 years and cultivating the land or building a home.

– The Mineral Lands Act of 1866 provided land for $5 per acre to promote mining and settlement.

– The Timber Culture Act of 1873 granted 160 acres to any citizen promising to cultivate trees on one-quarter of that area.

The Western FrontierThe Western Frontier

Preservation OrdersPreservation Orders• In the late 1800s public perception and government

policy toward natural resources began to shift. • Laws of this period aimed to mitigate some of the

environmental problems associated with westward expansion. – In 1872 Congress Yellowstone National Park.– Then a national park system– Then a national forest system, and – And a national wildlife refuge system These developments reflected a new understanding that

resources were exhaustible, and required legal protection.

• In the late 1800s public perception and government policy toward natural resources began to shift.

• Laws of this period aimed to mitigate some of the environmental problems associated with westward expansion. – In 1872 Congress Yellowstone National Park.– Then a national park system– Then a national forest system, and – And a national wildlife refuge system These developments reflected a new understanding that

resources were exhaustible, and required legal protection.

Pollution AwarenessPollution Awareness

• Americans found themselves better off economically but living amid dirtier air, dirtier water, and more waste and toxic chemicals.

• Today, largely because of environmental policies enacted since the 1960s, pesticides are more strictly regulated, and the nation’s air and water are considerably cleaner.

• Americans found themselves better off economically but living amid dirtier air, dirtier water, and more waste and toxic chemicals.

• Today, largely because of environmental policies enacted since the 1960s, pesticides are more strictly regulated, and the nation’s air and water are considerably cleaner.

Roll backs @ BushMartRoll backs @ BushMart

• Some of the tougher regulations on clean air, and water, have been eroded mainly by the current Bush government– Pro business measures enacted.

• The U.S. has now been surpassed by many countries which now have stricter and better environmental protection laws.

• Some of the tougher regulations on clean air, and water, have been eroded mainly by the current Bush government– Pro business measures enacted.

• The U.S. has now been surpassed by many countries which now have stricter and better environmental protection laws.

Earth DayEarth Day

• Earth Day is now celebrated in many nations

• Earth Summit took place in 1992

• Many nations are shifting policies to support sustainable development!!!

• Earth Day is now celebrated in many nations

• Earth Summit took place in 1992

• Many nations are shifting policies to support sustainable development!!!



Who shapes international law?Who shapes international law?

• United Nations• World Bank• European Union• World Trade Organization• Nongovernmental organizations

– The Nature Conservancy– Greenpeace– WWF…

• United Nations• World Bank• European Union• World Trade Organization• Nongovernmental organizations

– The Nature Conservancy– Greenpeace– WWF…

United NationsUnited Nations

• Of several agencies within it that influence environmental policy, most notable is the United Nations Environment Programme (UNEP), created in 1972

• It helps nations understand and solve environmental problems.

• No real powers to enforce, except economic aid.

• Of several agencies within it that influence environmental policy, most notable is the United Nations Environment Programme (UNEP), created in 1972

• It helps nations understand and solve environmental problems.

• No real powers to enforce, except economic aid.

World BankWorld Bank

• Largest source of funding for economic development.

• Funds dams, roads, infrastructure, etc.

• Not always considered to have taken the best actions!– It has funded many unsustainable projects.

• Largest source of funding for economic development.

• Funds dams, roads, infrastructure, etc.

• Not always considered to have taken the best actions!– It has funded many unsustainable projects.

European UnionEuropean Union

• The EU also seeks to remove trade barriers among member nations.

• It has classified some nations’ environmental regulations as barriers to trade.

• Trade barriers take priority over environmental regulations between member countries.

• The EU also seeks to remove trade barriers among member nations.

• It has classified some nations’ environmental regulations as barriers to trade.

• Trade barriers take priority over environmental regulations between member countries.

World Trade OrganizationWorld Trade Organization• Based in Geneva, Switzerland, the

World Trade Organization (WTO) was established in 1995.

• The WTO represents multinational corporations and promotes free trade

• WTO has real authority to impose financial penalties on nations that do not comply with its directives.

• These penalties can on occasion play major roles in shaping environmental policy.

• Based in Geneva, Switzerland, the World Trade Organization (WTO) was established in 1995.

• The WTO represents multinational corporations and promotes free trade

• WTO has real authority to impose financial penalties on nations that do not comply with its directives.

• These penalties can on occasion play major roles in shaping environmental policy.

• Brazil vs U.S.

• Brazil and Venezuela produce polluting gasoline.

• EPA wanted clean burning gasoline and banned imports of polluting gasoline.

• WTO ruled that the ban was illegal.

• WTO can be anti-environmental

• Brazil vs U.S.

• Brazil and Venezuela produce polluting gasoline.

• EPA wanted clean burning gasoline and banned imports of polluting gasoline.

• WTO ruled that the ban was illegal.

• WTO can be anti-environmental

World Trade OrganizationWorld Trade Organization

Consider:Consider:• If Nation A has stricter laws for environmental

protection than Nation B, and if these laws restrict the ability of Nation B to export its goods to Nation A, then by the policy of the WTO and the EU, Nation A’s environmental protection laws could be overruled in the name of free trade.

• Do you think this is right? • What if Nation A is a wealthy industrialized country

and Nation B is a poor developing country that needs every economic boost it can get?

• If Nation A has stricter laws for environmental protection than Nation B, and if these laws restrict the ability of Nation B to export its goods to Nation A, then by the policy of the WTO and the EU, Nation A’s environmental protection laws could be overruled in the name of free trade.

• Do you think this is right? • What if Nation A is a wealthy industrialized country

and Nation B is a poor developing country that needs every economic boost it can get?

Science can be “politicized”Science can be “politicized”

• Unfortunately, sometimes policymakers choose to ignore science and instead allow political ideology alone to determine policy.

• This complaint has been lodged against the George W. Bush administration by an unprecedented number of scientists.

• In 2004, the Union of Concerned Scientists released a statement titled, “Restoring Scientific Integrity in Policy Making,” which faulted the Bush Administration for manipulating scientific information for political ends; censoring, suppressing, and editing reports from government scientists; placing people who are unqualified or who have clear conflicts of interest in positions of power; ignoring scientific advice; and misleading the public by misrepresenting scientific knowledge. By mid-2007, more than 12,000 scientists had signed on to this letter.

• Bush appointee Philip Cooney, a lawyer with no scientific background and a former oil industry lobbyist, edited several key U.S. government reports on climate change to portray scientific findings as far more uncertain than they actually were and to downplay the threats most scientists see in climate change.

• Cooney resigned when this was revealed, and the Exxon-Mobil corporation hired him just days later.

• Bush appointee Philip Cooney, a lawyer with no scientific background and a former oil industry lobbyist, edited several key U.S. government reports on climate change to portray scientific findings as far more uncertain than they actually were and to downplay the threats most scientists see in climate change.

• Cooney resigned when this was revealed, and the Exxon-Mobil corporation hired him just days later.

Science can be “politicized”Science can be “politicized”

• NASA ordered one of its employees, world-renowned climate scientist James Hansen, to refrain from speaking out after he publicly recommended that the United States reduce its greenhouse gas emissions to combat climate change.

• He refused to back down, and after the matter garnered media attention, NASA changed its policies, allowing its scientists more freedom to speak out.

• However, NASA also quietly deleted a portion of its own mission statement that Hansen had cited in his defense, which read that NASA sought

• “to understand and protect our home planet.”

• NASA ordered one of its employees, world-renowned climate scientist James Hansen, to refrain from speaking out after he publicly recommended that the United States reduce its greenhouse gas emissions to combat climate change.

• He refused to back down, and after the matter garnered media attention, NASA changed its policies, allowing its scientists more freedom to speak out.

• However, NASA also quietly deleted a portion of its own mission statement that Hansen had cited in his defense, which read that NASA sought

• “to understand and protect our home planet.”

• Interior Department deputy assistant secretary Julie MacDonald, a Bush appointee with no background in wildlife biology, edited scientific reports assessing species being considered for protection under the Endangered Species Act, ignoring her scientists’ conclusions without offering evidence of her own.

• Following MacDonald’s edits, species that Fish and Wildlife Service scientists recommended for protection were not granted protection.

• Such high-profile cases appear to be the tip of an iceberg.

• In the past several years, scientists at government agencies - particularly those working on politically sensitive issues such as climate change or endangered species protection- say they have repeatedly found their work suppressed or discredited, and their jobs threatened.

• Many have chosen self-censorship. • When taxpayer-funded science is suppressed or

distorted for political ends, by either the right or the left, we all lose.

• Such high-profile cases appear to be the tip of an iceberg.

• In the past several years, scientists at government agencies - particularly those working on politically sensitive issues such as climate change or endangered species protection- say they have repeatedly found their work suppressed or discredited, and their jobs threatened.

• Many have chosen self-censorship. • When taxpayer-funded science is suppressed or

distorted for political ends, by either the right or the left, we all lose.

Command and ControlCommand and Control

• Much environmental policy has set rules or limits • and threatening punishment for violating these

rules or limits, in what is often called a command-and-control approach.

• The command-and-control approach has resulted in some major successes.

• Without doubt, our environment would be in far worse shape today were it not for this type of government regulatory intervention.

• Is this the only way?

• Much environmental policy has set rules or limits • and threatening punishment for violating these

rules or limits, in what is often called a command-and-control approach.

• The command-and-control approach has resulted in some major successes.

• Without doubt, our environment would be in far worse shape today were it not for this type of government regulatory intervention.

• Is this the only way?

Command and Control works..Command and Control works..



Incentives and rewardsIncentives and rewards• Subsidy - a government giveaway

– Tend not to work as the may be used to support unsustainable activities rather than environmentally sustainable ones

• Tax breaks - reducing the tax burden - wind power or buying a green car.

• Green Taxes - adding taxes for those who wish to pursue undesirable activities.– The idea is to add to the costs of doing business.– Polluter Pays

• Permits - tradable pollution permits– Coal powered power stations & sulfur dioxide

• Subsidy - a government giveaway– Tend not to work as the may be used to support

unsustainable activities rather than environmentally sustainable ones

• Tax breaks - reducing the tax burden - wind power or buying a green car.

• Green Taxes - adding taxes for those who wish to pursue undesirable activities.– The idea is to add to the costs of doing business.– Polluter Pays

• Permits - tradable pollution permits– Coal powered power stations & sulfur dioxide

Consider:Consider:

• Some environmental activists oppose emissions trading because they view it as giving polluters “a license to pollute.”

• How do you feel about emissions trading as a means of reducing air pollution? Would you favor command-and-control regulation or market-based permit trading? What advantages and disadvantages do you see in each?

• Some environmental activists oppose emissions trading because they view it as giving polluters “a license to pollute.”

• How do you feel about emissions trading as a means of reducing air pollution? Would you favor command-and-control regulation or market-based permit trading? What advantages and disadvantages do you see in each?

EcolabelingEcolabeling

• Government forces manufacturers to indicate on the label how the food was made and of what.

• Consumers buy the ‘right’ foods– Non-genetically modified foods

• Government forces manufacturers to indicate on the label how the food was made and of what.

• Consumers buy the ‘right’ foods– Non-genetically modified foods

ConclusionsConclusions

• Remember the fundamentals of environmental policy introduced here.

• Economic success need not just be based on a growing market.

• By understanding these fundamentals, you will be well equipped to develop your own creative solutions to many of the challenging problems we will encounter later in this class.

• Remember the fundamentals of environmental policy introduced here.

• Economic success need not just be based on a growing market.

• By understanding these fundamentals, you will be well equipped to develop your own creative solutions to many of the challenging problems we will encounter later in this class.


• Most current economic models still do not acknowledge that there is interaction with the environment at all!!

How silly is that!

We learnt last time the humans are part of the environment and cannot be removed from it

• Most current economic models still do not acknowledge that there is interaction with the environment at all!!

How silly is that!

We learnt last time the humans are part of the environment and cannot be removed from it

lecture 2 environmental economics and environmental policy

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