schedule environmental issues & problems env...

Environmental Issues & Problems

ENV 150Guillaume Mauger

Today: Environmental Economics & Policy

Tragedy of the CommonsPricing Carbon

Tuesday: Guest -- Yoram Bauman, “stand-up economist”

Announcements:

Renewable Energy assignment -- keep for Quiz #4

DUE TODAY: Quiz #3 and corrections (TURN IN BOTH!!!)

DUE ASAP: S-L Hours & Agency Evaluation of you

Schedule• Today, 12/3

– Environmental Economics & Policy

• Tues, 12/8– Yoram Bauman

– Course Review / wrap-up activity

• Thurs, 12/10– Quiz #4

– Peer Review papers -- bring current draft!

• Tues, 12/15– Quiz #4 review

– Paper and Presentation work

• Thurs, 12/17– DUE: Research paper, timesheet, agency eval.

– Final Presentations!

Links / Readings for Tuesday

Durning, 2009: "Revised and updated: Things I love--and

hate---about Waxman-Markey"

– http://daily.sightline.org/daily_score/archive/2009/07/10/14-things-i-

love-and-6-i-hate-about-waxman-markey

Bauman, 2009: "Carbon Cap: Be careful what you wish for"

– http://www.standupeconomist.com/blog/economics/carbon-cap-be-

careful-what-you-wish-for/

Leondard, 2009: "Story of Cap & Trade". (Video)

– http://storyofstuff.com/capandtrade/

Williams and Zabel, 2009: “The Huge Mistake” (Video)

– www.youtube.com/watch?v=BA-QufQzuWU

More Writing Resources

Video on Plagiarism:

http://library.camden.rutgers.edu/Educational

Module/Plagiarism/

outline for today

Environmental Economics & Policy

• Tragedy of the Commons

• Pricing Carbon

Tragedy of the Commons

The Tragedy of the Commons

At the end of a thoughtful article on the future of

nuclear war, Wiesner and York (1961) concluded

that: "Both sides in the arms race are ... confronted

by the dilemma of steadily increasing military power

and steadily decreasing national security. It is our

considered professional judgment that this

dilemma has no technical solution. If the great

powers continue to look for solutions in the

area of science and technology only, the result

will be to worsen the situation."

Garrett Hardin, Science, 1968

Hardin’s Example:

Grazing on common land

Imagine we’re all shepherds…

• We share grazing land (public access).

• We each have 5 sheep.

• Sheep population = carrying capacity


Brilliant Idea: get one more sheep

GAIN: more profit

LOSS: degradation of land


Brilliant Idea: get one more sheep

GAIN: more profit

LOSS: degradation of land

(not shared: mine only)

(shared: we all pay)


Inevitable result:

All herders get the same idea

Land is overgrazed, destroyed

(the “commons”)


Individual incentives can sometimes lead individuals

to make choices that are bad for the group as a

whole.

Example: The commute game. Imagine a simple world

where everybody just goes back and forth between

work and home.

• Only two options: drive or take the bus.

• Only one goal: shortest possible commute.

source: Yoram Bauman, UW


Individual incentives can sometimes lead individuals

to make choices that are bad for the group as a

whole.

Example: The commute game. Imagine a simple world

where everybody just goes back and forth between

work and home.

• Only two options: drive or take the bus.

• Only one goal: shortest possible commute.


The commute game

• If everybody takes the bus, the commute takes 20

minutes (including 10 minutes to walk to the bus stop

and wait for the bus).

• If everybody drives, the commute takes 120 minutes

because of traffic jams.

• The bus gets stuck in traffic just like every other

vehicle, so you can always get to work 10 minutes

faster by driving.


Which is better for you?

1. Take the bus.

2. Drive.


Which is a better social outcome,

i.e., outcome for the whole group?

1. Everyone takes the bus.

2. Everyone drives.


This is an example of a

“Market Failure”

Individual incentives are not alignedwith what is best for the group.

Tragedy of the Commons has

two parts:

1. It is better for the group as a whole ifeveryone makes Choice A instead of

Choice B

2. Each person individually prefers to

make Choice B regardless of others’

choices

What’s going on: there is a negativeexternality associated with Choice B.

Other examples of

Tragedy of the Commons?

All of these examples involve

“Externalities”Example: Traffic congestion

1. It’s better for the group as a whole ifeveryone takes the bus.

2. Each person individually prefers todrive.

Negative externality: My driving createsan external cost by creatingcongestion that slows down everyonebehind me.

Example:

Roommates sharing a kitchen

1. It’s better for the group as a whole if

everyone cleans up after themselves.

2. Each person individually prefers to

leave their dishes in the sink.

Negative externality: I create external

costs by leaving dirty dishes for my

housemates.

Example:

Splitting the bill at a restaurant

1. It’s better for the group as a whole ifeveryone orders a moderately priceddish instead of the expensive steak.

2. Each person individually prefers toorder the filet mignon.

Negative externality: I create externalcosts by ordering the steak because Ionly pay 1/n of the cost of my meal.

Example: Dirty coal

1. It’s better for the group as a whole if everyone

avoids coal-based energy (the dirtiest, most

carbon-intensive fuel) in favor of natural gas, wind,

solar, etc.

2. Each person individually prefers to buy coal-based

energy because it’s the lowest cost to theindividual.

Negative externality: My pollution creates external costs

(air pollution, climate change).

caveat:

Individual incentives are not

always at odds with society’s

In fact, it’s generally the opposite.

Think of coffee:

– Baristas don’t make coffee so that you can have a nice

morning: they make coffee because they can make a living byselling it.

– Their individual interests are aligned with yours

– This is the concept of “the invisible hand” that Adam Smith

wrote about in The Wealth of Nations

So what can we do about this? Preserving the Commons

• Educate

• Appeal to conscience

• Maintain as public resource

– but allocate resources (quotas), or

– regulate impacts (fines)

• Abandon commons: Privatize

Education:

“it’s in your best interest…”

What do you choose?

• Take the bus.

• Drive your car. Does education work?

• Educate


• Allocate resources (quotas)

• Regulate impacts (fines)

Not always:it’s still faster to drive

best outcome: everyone else takes the bus except me

education alone is often not enough…

Appeals to Conscience:

“don’t be a selfish jerk!”

What do you choose?

• Take the bus.

• Drive your car. Do appeals to conscience work?

• Educate




Not always. (same problems):

it’s still faster to drive

best outcome: everyone else takes the bus

people often act like selfish jerks…

Allocate resources:

“it’s against the law…”

What do you choose?

• Take the bus.

• Drive your car. Allocating resources?

• Educate




Depends:

on enforcement: will you get caught?

who gets the allotments?

how are quotas set? who decides?

Regulate impacts:

$500 fine for worse traffic

What do you choose?

• Take the bus.

• Drive your car.

Vote on Proposition 1:

Drivers get a $500 fine

• Yes.

• No.

“Mutual coercion, mutually agreed upon”

Does it work?

• Educate




Again, it depends:

design of legislation, incentives

enforcement

everyone has to agree that it’s worth it

example solution:

“market mechanisms”

Market forces are strong…

…so why not use them to protect the

environment?

“Market mechanisms” can be used to

correct externalities and align individual

incentives with social goals.

The tragedy of the fishery

1. It’s better for the group as a whole if everyone limitshow much they fish so that there will be enoughfish next year.

2. Each person individually prefers to maximize theirindividual profits by fishing like crazy.

Negative externality: When I catch fish, I create externalcosts by reducing your ability to catch fish nextyear.

Overfishing: Cod

www.fishermensvoice.com/archives/...html

source: Yoram Bauman, UW source: Yoram Bauman, UW

Solution:

Limit fishing

www.greenpeace.org/raw/image_full/internation...

• Restrict types of boats, types of gear, etc.

• Set an annual TAC (Total Allowable Catch) limit.

• Advantage: These can help limit overfishing.

• Disadvantage #1: Economically inefficient.

• Disadvantage #2: There’s still a race for fish that can

be dangerous and inefficient.

“command and control” regulation

The race for fish

upload.wikimedia.org/.../220px-Redkingcrab.jpg

www-rohan.sdsu.edu/.../Ocn_books.htm

• Fish today—while you still can—before the TAC (Total

Allowable Catch) limit is reached for the year!

• Example: the 2005-2006 Alaska king crab season lasted just

4 days (250 boats caught 14m pounds).

• Dangerous for workers, consumers get frozen fish

“like an arms race”

“command and control” regulation

Solution: “Privatize the commons”

• Combine a TAC (total allowable catch) limitwith private property rights over that catch.

• Individual Tradable Quotas (ITQs) make itpossible to “own” part of this year’s catch.

• Advantage #1: The TAC limit overfishing.

• Advantage #2: No race for fish (b/c of ITQs).

• Note: This is just like carbon cap-and-trade!!!– Complication: Who gets the permits?!?

“market mechanism”

Pricing CarbonWhy “Price Carbon”?

Why “Price Carbon”?

1. “Carbon” is shorthand for “Carbon

Dioxide” (CO2) -- the most important of

the anthropogenic greenhouse gases

2. CO2 emissions resulting from fossil

fuels are an example of a Tragedy of

the Commons. A “price on carbon”

aligns market incentives with climate

protection.

Why “Price Carbon”?

1. “Carbon” is shorthand for “Carbon

Dioxide” (CO2) -- the most important of

the anthropogenic greenhouse gases

2. CO2 emissions resulting from fossil

fuels are an example of a Tragedy of

the Commons. A “price on carbon”

aligns market incentives with climate

protection.

How do we decide…

… how much we want to reduce

emissions?

Evidence from both models and observations tells us that to

avoid dangerous consequences, CO2 cannot exceed 450

ppm, and should probably not exceed 350 ppm.

Recall: today’s concentration is at 390 and rising

How do we decide…

… how much we want to reduce

emissions?

Evidence from both models and observations tells

us that to avoid dangerous consequences, CO2

cannot exceed 450 ppm, and should probably

not exceed 350 ppm.

Recall: today’s concentration is at 390 and rising

What is a Carbon Tax?

• A simple tax on every ton of Carbon

– Result: If you use more carbon to make

energy (e.g., coal), you pay more taxes.

– Usually increases over time to reduceemissions

– Usually accompanied by reductions inother taxes (e.g., income, payroll, etc.)

What is Cap & Trade?

• Set a “Cap”: total allowed emissions

• Auction or Allocate permits to emit

– Result: If you use more carbon you have to

buy more permits. If you use less carbon

you can sell permits

– You can also buy “offsets”: pay someone

else to store carbon in exchange for

emitting more yourself

What is Cap & Trade?

• Set a “Cap”: total allowed emissions

• Auction or Allocate permits to emit

– Cap is reduced over time by issuing fewerand fewer permits

– Like a Carbon Tax, generally accompaniedby reduced taxes elsewhere

Increasing the price of carbon…

… makes it good business practice to:

• Use less fossil fuel based energy

– Use energy more efficiently

– Use renewable energy whenever possible

– Minimize transport

– … etc.

• Manage other GHG emissions:

– Farming, deforestation, concrete prod…

use less th

an

competitors!

only if using

offsets.

A Few Key Details:

1. Doesn’t necessarily result in an

increase in costs!

– Increased efficiency, reduced fossil-fuel

use, increased use of renewables --

businesses who can make these changesat least cost will be at an advantage

A Few Key Details:

2. Where costs do increase (e.g., no

options to increase efficiency), these

additional costs will be passed on toconsumers.

– An example of “tax equivalence”

A Few Key Details:

3. Cap-and-Trade, Carbon tax… …either way, it’s regressive

– Lower income people spend a largerfraction of their income on energy: theprice increases will affect them more

– Result: always have to couple these withtax reductions elsewhere or other aidprograms

A Few Key Details:

4. “upstream” vs. “downstream”

– It is much easier to regulate GHG

emissions at the “source” (well-head, at

the mine shaft, or port-of-entry), than at

the “tailpipe”

A Few Key Details:

5. Offsets can be problematic

– Some examples of offsets:

• renewable energy installations

• methane collection & combustion

• energy efficiency

• destruction of industrial GHGs

• land use and forestry, and

• transition assistance to developing countries

A Few Key Details:

5. Offsets can be problematic

– These only count as offsets, if:

• They wouldn’t have happened otherwise

– Couldn’t have happened without the funds, andwouldn’t have every been required by government.

• The carbon will be stored forever

(or for at least 1,000-10,000 years)

• The project doesn’t result in increased

emission elsewhere.

“Additio

nality”

“Perm

anence”

No “Leakage”

Comparing the two

• No offsets allowed

• Taxes are unpopular

• Price is predictable

• Can’t “cap” exactly

• Tax system exists

• Simple, transparent

• Quick to implement

• Bipartisan support?

• Allows offsets

• Not called a tax

• Prices can fluctuate

• Sets specific cap

• New carbon market

• Complex

• Slow to implement

• Republican support?

Carbon Tax Cap & Tradeex Carbon tax bill:

Inglis

Ex Cap & Trade Bill: Waxman-

Markey

“Waxman-Markey”, “ACESA”, … “CLEAR” in Senate …

Other, complementary approaches to

reducing greenhouse gas emissions

• CAFE standards (under Clean Air Act)

• Renewable Portfolio Standards (RPS)

– Initiative 937, 2006

• Appliance efficiency standards

• Tax breaks for renewable energy

• Energy codes for buildings

• Rebates for energy efficiency upgrades

• Net metering

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