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Dollars and Environmental Sense: Economics of Environmental Issues

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Chapter 27 Dollars and Environmental Sense: Economics of Environmental Issues Learning Objectives: When and how is it possible to put a dollar value on the environment? – PowerPoint PPT presentation

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Title: Dollars and Environmental Sense: Economics of Environmental Issues


1
Chapter 27
  • Dollars and Environmental Sense Economics of
    Environmental Issues

2
Learning Objectives
  • When and how is it possible to put a dollar value
    on the environment?
  • What is the tragedy of the commons and how does
    it lead to overexploitation of resources?
  • How does the perceived future value of an
    environmental benefit affect our willingness to
    pay for it now?

3
  • What are externalities and why is it important to
    evaluate them in determining the costs of actions
    that affect the environment?
  • What factors may be involved in determining a
    level of acceptable environmental risk and risk
    to human life?
  • Why it is difficult, yet important, to evaluate
    environmental intangibles, such as landscape
    beauty?

4
Value of Environmental Spending
  • The U.S. presently spends about 170 billion,
    including spending by consumers, to deal with
    pollution.
  • This investment yields comparable health and
    other benefits. Valuation of benefits involves
    both tangible and intangibles, the latter being
    far more difficult to quantify.
  • The annual budget of the EPA (Environmental
    Protection Agency) 6 billion

5
Case Study The Economics of Mahogany
  • Mahogany worth 1500-100,000 per tree
  • Roads must be built to transport logging
  • Loggers bring pollution and disease
  • Land turned to farm lands- wiping out forests
  • America- biggest consumer of Mahogany

6
Mahogany Imports 'Are Wiping out Peru Tribes'
  • Trees provide food, shelter and resources for
    people, animals and plants that live in the
    rainforests
  • Loggers bring disease and pollution previously
    unknown to tribes (no immunity)

7
The Environment as a Commons
  • Commons
  • Land or another resources owned publicly with
    public access for private uses

8
Commons
  • Often people using commons do not seek
    sustainability
  • People are selfish and think short-sided
  • Atmosphere and oceans are considered commons
  • Recreation is a problem of the commons-
    overcrowding of National Parks

9
What is the appropriate public use of public
lands?
  • Should all public lands be open to all public
    uses?
  • Should some public lands be protected from
    people?
  • The United States has a policy of different uses
    for different lands

10
Externalities
  • Externality (Indirect Cost)
  • An effect not normally accounted for in the
    cost-revenue analysis of producers and often not
    recognized by them as part of their costs and
    benefits
  • Direct Costs
  • Those borne by the producer and passed directly
    on to the user or purchaser

11
Direct Costs (Nickel Ore)
  • Traditionally, the economic costs associated with
    the production of commercially usable Nickel from
    an ore are the direct costs- costs of purchasing
    the ore, buying energy to run the smelter,
    building the plant and paying employees (Cost
    included in price)

12
Indirect Costs (Externalities)
  • Degradation of the environment from the smelter
    plant- destroyed vegetation, increase in erosion
    (loss of trees and damage to overall ecosystems),
    air pollution of the local area, and pollution of
    the local water systems

13
  • Evaluation of environmental intangibles is
    becoming more common in environmental analysis
  • Losing Public Service Functions will convert
    from indirect to direct costs
  • Public Service Functions of Nature
  • Bees pollinate 20 billion worth of crops in the
    United States yearly
  • Bacteria fix Nitrogen in the oceans, lakes,
    rivers and soil
  • Bacteria clean water by decomposing toxins
  • The atmosphere converts toxic Carbon Monoxide to
    harmless Carbon Dioxide

14
Risk-Benefit Analysis
  • Def The riskiness of a present action in terms
    of its possible outcomes
  • The relation between risk and benefit affects our
    willingness to pay for an environmental good
  • What is the future worth? How much are you
    willing to risk for today?

15
Examples of Life/Death Risks
  • Cigarette Smoke- 8 in 100 deaths
  • Automobiles - 1 in 100 deaths
  • Sunlight Exposure- 2 in 1000 deaths
  • Outdoor Air Pollution- 4 in 10,000 deaths
  • Airplane Passenger- 1 in 1,000,000 deaths

16
Pollution Risk
  • Pollution directly affects more than just our
    health
  • Ecological and Aesthetic damage can also
    indirectly affect human health
  • We might want to 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

17
Degree of Risk- Legal Processes
  • U.S. Toxic Substances Control Act- requires a new
    chemical to obtain clearance from EPA.
  • EPA determines if it can be used based on
    reasonable risk- what is considered reasonable?
  • Example DDT

18
Global Issues Who Bears the Costs?
  • Example Fossil fuels- Global Climate Change
  • The less developed countries did not share in the
    economic benefits of the burning of fossil fuels
    but they are sharing in the disadvantages of this
    activity

19
Who pays, and how?
  • It may be necessary to reduce the total
    production of greenhouse emissions- who pays, and
    how?
  • Who is responsible for cleaning and keeping clean
    our global commons?

20
Environmental Policy Instruments
  • Moral suasion- publicity, social pressure
  • Direct controls- regulations
  • Market processes- taxation, subsidies, refundable
    deposits, allocation of property rights

21
Environmental Policy Instruments
  • Government investments- damage prevention
    facilities (treatment plants), regenerative
    activities (reforestation), dissemination of
    information (pollution control, profitable
    recycling), research, education (general public
    and professional specialists)

22
Marginal Costs
  • In controlling pollutants, marginal cost is the
    cost to reduce one additional unit of pollutant.
  • With pollution control, the marginal cost often
    increases rapidly as the percentage of reduction
    increases

23
Summary
  • Economics of environmental issues are
    complicated!
  • Future worth compared with present worth can be
    important in determining levels of exploitation
    of resources
  • Evaluation of intangibles is important in
    environmental analysis
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