Environmental Issues & Problems
ENV 150
Guillaume Mauger
Today: Environmental Economics & Policy
Tragedy of the Commons
Pricing 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
Links / Readings for Tuesday
Durning, 2009: "Revised and updated: Things I love--and
hate---about Waxman-Markey"
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!
More Writing Resources
– http://daily.sightline.org/daily_score/archive/2009/07/10/14-things-ilove-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-becareful-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
Video on Plagiarism:
http://library.camden.rutgers.edu/Educational
Module/Plagiarism/
outline for today
Tragedy of the Commons
Environmental Economics & Policy
• Tragedy of the Commons
• Pricing Carbon
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…
Imagine we’re all shepherds…
• We share grazing land (public access).
Brilliant Idea: get one more sheep
• We each have 5 sheep.
GAIN: more profit
• Sheep population = carrying capacity
LOSS: degradation of land
Imagine we’re all shepherds…
Imagine we’re all shepherds…
Brilliant Idea: get one more sheep
Inevitable result:
GAIN: more profit
(not shared: mine only)
All herders get the same idea
LOSS: degradation of land
(shared: we all pay)
Land is overgrazed, destroyed
(the “commons”)
Tragedy of the Commons
Tragedy of the Commons
Individual incentives can sometimes lead individuals
to make choices that are bad for the group as a
whole.
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.
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 two options: drive or take the bus.
• Only one goal: shortest possible commute.
• Only one goal: shortest possible commute.
source: Yoram Bauman, UW
The commute game
source: Yoram Bauman, UW
Which is better for you?
• 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.
1. Take the bus.
2. Drive.
• The bus gets stuck in traffic just like every other
vehicle, so you can always get to work 10 minutes
faster by driving.
source: Yoram Bauman, UW
source: Yoram Bauman, UW
Which is a better social outcome,
i.e., outcome for the whole group?
1. Everyone takes the bus.
This is an example of a
“Market Failure”
Individual incentives are not aligned
with what is best for the group.
2. Everyone drives.
source: Yoram Bauman, UW
Tragedy of the Commons has
two parts:
1. It is better for the group as a whole if
everyone 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 negative
externality 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 if
everyone takes the bus.
2. Each person individually prefers to
drive.
Negative externality: My driving creates
an external cost by creating
congestion that slows down everyone
behind me.
Example:
Roommates sharing a kitchen
Example:
Splitting the bill at a restaurant
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.
1. It’s better for the group as a whole if
everyone orders a moderately priced
dish instead of the expensive steak.
2. Each person individually prefers to
order the filet mignon.
Negative externality: I create external
costs by leaving dirty dishes for my
housemates.
Negative externality: I create external
costs by ordering the steak because I
only pay 1/n of the cost of my meal.
Example: Dirty coal
1.
2.
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.
Each person individually prefers to buy coal-based
energy because it’s the lowest cost to the
individual.
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 by
selling 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.
•
•
•
•
Educate
Appeal to conscience
Allocate resources (quotas)
Regulate impacts (fines)
Does education work?
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.
•
•
•
•
Educate
Appeal to conscience
Allocate resources (quotas)
Regulate impacts (fines)
Do appeals to conscience work?
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.
•
•
•
•
Educate
Appeal to conscience
Allocate resources (quotas)
Regulate impacts (fines)
Allocating resources?
Depends:
on enforcement: will you get caught?
who gets the allotments?
how are quotas set? who decides?
Regulate impacts:
$500 fine for worse traffic
Vote on Proposition 1:
Drivers get a $500 fine
What do you choose?
•
Take the bus.
•
Yes.
•
Drive your car.
•
No.
•
•
•
•
Educate
Appeal to conscience
Allocate resources (quotas)
Regulate impacts (fines)
example solution:
“market mechanisms”
“Mutual coercion, mutually agreed upon”
Does it work?
Again, it depends:
design of legislation, incentives
enforcement
everyone has to agree that it’s worth it
Market forces are strong…
The tragedy of the fishery
…so why not use them to protect the
environment?
1.
2.
“Market mechanisms” can be used to
correct externalities and align individual
incentives with social goals.
It’s better for the group as a whole if everyone limits
how much they fish so that there will be enough
fish next year.
Each person individually prefers to maximize their
individual profits by fishing like crazy.
Negative externality: When I catch fish, I create external
costs by reducing your ability to catch fish next
year.
Overfishing: Cod
www.fishermensvoice.com/archives/...html
source: Yoram Bauman, UW
source: Yoram Bauman, UW
“command and control” regulation
“command and control” regulation
Solution:
Limit fishing
The race for fish
• Fish today—while you still can—before the TAC (Total
Allowable Catch) limit is reached for the year!
www.greenpeace.org/raw/image_full/internation...
• Restrict types of boats, types of gear, etc.
• Set an annual TAC (Total Allowable Catch) limit.
• Example: the 2005-2006 Alaska king crab season lasted just
4 days (250 boats caught 14m pounds).
• Dangerous for workers, consumers get frozen fish
• 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.
upload.wikimedia.org/.../220px-Redkingcrab.jpg
“like an arms race”
www-rohan.sdsu.edu/.../Ocn_books.htm
“market mechanism”
Solution: “Privatize the commons”
• Combine a TAC (total allowable catch) limit
with private property rights over that catch.
• Individual Tradable Quotas (ITQs) make it
possible 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?!?
Pricing Carbon
Why “Price Carbon”?
Why “Price Carbon”?
Why “Price Carbon”?
1. “Carbon” is shorthand for “Carbon
Dioxide” (CO2) -- the most important of
the anthropogenic greenhouse gases
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.
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 do we decide…
… how much we want to reduce
emissions?
… 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
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 reduce
emissions
– Usually accompanied by reductions in
other taxes (e.g., income, payroll, etc.)
What is Cap & Trade?
• Set a “Cap”: total allowed emissions
• Auction or Allocate permits to emit
– Cap is reduced over time by issuing fewer
and fewer permits
– Like a Carbon Tax, generally accompanied
by reduced taxes elsewhere
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
Increasing the price of carbon…
… makes it good business practice to:
• Use less fossil fuel based energy
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– Use energy more efficiently
– Use renewable energy whenever possible
– Minimize transport
– … etc.
• Manage other GHG emissions:
– Farming, deforestation, concrete prod…
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off
A Few Key Details:
A Few Key Details:
1. Doesn’t necessarily result in an
increase in costs!
2. Where costs do increase (e.g., no
options to increase efficiency), these
additional costs will be passed on to
consumers.
– Increased efficiency, reduced fossil-fuel
use, increased use of renewables -businesses who can make these changes
at least cost will be at an advantage
– An example of “tax equivalence”
A Few Key Details:
A Few Key Details:
3. Cap-and-Trade, Carbon tax…
…either way, it’s regressive
4. “upstream” vs. “downstream”
– Lower income people spend a larger
fraction of their income on energy: the
price increases will affect them more
– Result: always have to couple these with
tax reductions elsewhere or other aid
programs
– 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:
A Few Key Details:
5. Offsets can be problematic
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
Comparing the two
Carbon Tax
• No offsets allowed
Cap & Trade
• Allows offsets
• Taxes are unpopular • Not called a tax
• Price is predictable
• Prices can fluctuate
• Can’t “cap” exactly
• Sets specific cap
• Tax system exists
• New carbon market
• Simple, transparent
• Complex
• Quick to implement
• Slow to implement
• Bipartisan support?
• Republican support?
– These only count as offsets, if:
•
They wouldn’t have happened otherwise
”
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dit
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“A
– Couldn’t have happened without the funds, and
wouldn’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.
ex Carbon tax bill:
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Ex Cap & Trade Bill: WaxmanMarkey
Other, complementary approaches to
reducing greenhouse gas emissions
• CAFE standards (under Clean Air Act)
• Renewable Portfolio Standards (RPS)
– Initiative 937, 2006
•
•
•
•
•
“Waxman-Markey”, “ACESA”, … “CLEAR” in Senate …
Appliance efficiency standards
Tax breaks for renewable energy
Energy codes for buildings
Rebates for energy efficiency upgrades
Net metering