Environmental Economics

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Environmental Economics

• Of Cows and Cars
• Peter Berck

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Cows
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Calif is tops!
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Production

• Dairy
• Inputs that are paid for
• Feed
• Water
• Labor
• Land
• Inputs not paid for
• Removal of ammonia compounds by air
• Removal of nitrogen and phosphorus to water

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Suppose they paid for pollution
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Response to a pollution charge

• Could trap manure in a pond, digest it, and burn
  the methane in an engine.
• Buys capital goods (engine, pond)
• Sells electricity (but it wont pay for engine,
  pond)
• Doesnt pollute as much
• Suppose that farmer had to pay for release of
  methane, etc. Would that tip the balance to
  cleaner production?
• As price paid for right to pollute goes up,
  amount of pollution per unit output goes down.
  Amount of other inputs goes up.

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Two effects of pollution charge

• Pollution per unit of output goes down (she buys
  the generator and pond)
• Quantity of polluting output goes down (her
  supply curve shifts in and less polluting output
  is produced in equilibrium)

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Question

• (Hypothetical) A tax of 100/ton of organic
  gasses emitted would induce the farmer to use the
  generator and decrease his emissions by 75.
• Would the farmer rather be ordered to use the
  generator or would she rather face the tax?

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Question

• If farmers have to clean up (this is real see the
  draft scoping plan for GHG!)
• It will cost them more to make milk
• Will the price of milk go up?
• Can consumers avoid paying for cleanup?
• Who does the general public think pays?

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Sacred Cars Efficient Cleanup
MCA is marginal cost of abatementcost to clean
up the next unit of pollution
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The Case for Tradable Permits

• It costs powerplants much more than it costs cars
  to clean up 1 ton of Nox. At original allocation
• We need to remove 21 mt from the air.
• Which is better
• Cars and powerplantsmust abate as in original
• Powerplants pays cars money and cars clean up
  another 4mt.

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What could be Wrong

• power pays cars and cars lie about cleaning up.
• power is in an unpopulated place and cars are in
  the center of a city
• Pollution is just wrong and power shouldnt be
  allowed to pollute (but it isnt wrong for my car
  to pollute, just yours)

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Politics

• California may not clean its air by prohibiting
  2-stroke lawn mower engines.
• California must add alcohol to its gasoline, even
  though we dont believe that is the best way to
  clean the air.
• California won the right to regulate heavy trucks
  in its State Implementation Plan.

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Model

• Politicians need votes
• Can have popular position
• Can get and use them to advertise