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Chapter 16 - Pollution, the environment, and global warming. After completing this unit, you should be able to: Describe the benefits and costs of pollution, model the externalities associated with pollution, describe the policy responses to pollution,...
Introduction to Economics: Social Issues and Economic Thinking Wendy A Stock Chapter 16 Pollution, The Environment, and Global Warming Copyright © 2013 John Wiley & Sons, Inc / ©RelaxFoto.de/iStockphoto PowerPoint Prepared by Z Pan After studying this chapter, you should be able to: Ø Ø Describe the benefits and costs of pollution Model the externalities associated with pollution Copyright © 2013 John Wiley & Sons, Inc Ø Ø Describe the policy responses to pollution Assess methods to address pollution problems what is pollution? Ø Pollution is contamination of the environment that causes instability, harm, or disruption to ecosystems Pollution can be naturally occurring or human-induced Copyright © 2013 John Wiley Benefits of pollution? Ø There are many benefits of pollution: Using cars, trains, and airplanes generates such benefits as faster transportation, face-to-face communication, and increased ability to trade goods and services with others Ø TV sets, refrigerators, Washing machines powered by electricity generation Ø Copyright © 2013 John Wiley Marginal benefits of electricity generation Copyright © 2013 John Wiley costs of pollution Ø Costs of pollution include: Ø negative health impacts Ø climate change Ø changes in wildlife habitat Ø environmental degradation Ø changes in property values Ø various costs of generating electricity Copyright © 2013 John Wiley Marginal Costs from Electricity Generation Copyright © 2013 John Wiley The Optimal Level of Pollution Copyright © 2013 John Wiley EXTERNALITIES Ø Ø Externalities occur when some of the costs or benefits of a trade are imposed on people outside the trade People outside a trade are called third parties to the trade Negative Externalities are costs imposed on third parties Positive Externalities are benefits bestowed on Copyright © 2013 John Wiley third parties Ø Impacts of power generation Ø Ø Private Marginal Costs are marginal costs that accrue only to the producers of a good or service Social Marginal Costs are marginal costs that accrue to society as a whole MC social = MC private + Negative Externality Copyright © 2013 John Wiley 10 Impacts of power generation Copyright © 2013 John Wiley 11 Environmental policies Ø Command-and-control Command-and-control methods of pollution reduction involve direct government regulation of pollution through taxes or emissions limits Ø Assigning Property Rights Copyright © 2013 John Wiley 12 Command-and-control Ø Taxes and Fees Taxes and fees increase production costs so that producers take negative externalities into account when making their production decisions Ø Emissions Limits Emissions Limits place controls or restrictions on specific sources of pollutants Copyright © 2013 John Wiley 13 Impact of a Pollution Tax Copyright © 2013 John Wiley 14 Impact of Emissions Limits Copyright © 2013 John Wiley 15 Assignment of Property Rights Ø Ø Ø Common Property Resources are resources that are collectively owned Examples: public lands and parks, air, oceans, and wildlife Tragedy of the Commons describes how collective ownership of a resource can lead to overuse and destruction of the resource From common property resources to private property resources: e.g “fishing derby”, ITQ Copyright © 2013 John Wiley 16 Tradable Pollution Rights Ø Cap and Trade System – Polluters can buy tradable pollution rights that give the right to emit a specific amount of pollutant The amount of tradable pollution rights issued is capped at the desired pollution level Copyright © 2013 John Wiley 17 An Illustration of cap and trade Firm A Firm B Ø Assuming two polluting firms A and B Ø Goal: reduce emissions from 800 to 400 tons Ø Two approaches: 1) Standard Emission Limits (each limited to 200 tons/day) Copyright © 2013 John Wiley 2) Cap and Trade (total limited to 400, allow 18 An Illustration of cap and trade Firm A Firm B 1) Under Standard Emission Limits: Total Costs = 200 x $100 + 200 x $200 = $60,000 3) Under Cap and Trade: Total Costs = 400 x $100 = $40,000 Cap © and Trade is more Copyright 2013 John Wiley efficient 19 Environmental policies in the United States Ø Kyoto Protocol, 1992 (not ratified by U.S.) Ø Clean Air Act, early 1990s Ø The Chicago Climate Exchange Ø Carbon Offsets are reductions in emissions of carbon dioxide in one place that off set or replace emissions of carbon dioxide elsewhere Copyright © 2013 John Wiley 20 Questions/Discussions “Fair-trade” coffee is sold with a certification that the coffee growers receive a “fair” price for their coffee crop In order to pay growers more, fair trade coffee is sold at higher prices than “regular” coffee Using a demand and supply model, describe the tradeoffs associated with fair trade coffee What are some of the costs and benefits of recycling as a means of environmental preservation? Copyright © 2013 John Wiley 21 Key Concepts • • • • • • • • • • • • Pollution Negative externalities Positive externalities Private marginal costs Social marginal costs Command-and-control Emissions limits Common property resources Tragedy of the commons Cap and trade system Tradable pollution rights Carbon offsets Copyright © 2013 John Wiley 22 ... A and B Ø Goal: reduce emissions from 800 to 400 tons Ø Two approaches: 1) Standard Emission Limits (each limited to 200 tons/day) Copyright © 2013 John Wiley 2) Cap and Trade (total limited to. .. Impacts of power generation Copyright © 2013 John Wiley 11 Environmental policies Ø Command -and- control Command -and- control methods of pollution reduction involve direct government regulation of pollution... Copyright © 2013 John Wiley 12 Command -and- control Ø Taxes and Fees Taxes and fees increase production costs so that producers take negative externalities into account when making their production