Environmental & Economics - BU

Contents56Dynamic Efficiency and Sustainable Development102IntroductionA Two-Period ModelDefining Intertemporal FairnessAre Efficient Allocations Fair?EXAMPLE 5.1 The Alaska Permanent FundApplying the Sustainability CriterionEXAMPLE 5.2 Nauru: Weak Sustainability in the ExtremeImplications for Environmental PolicySummary 114 Discussion Question 115 Self-Test Exercises 115 Further Reading 116Appendix: The Mathematics of the Two-Period Model102103107108110110112113Depletable Resource Allocation: The Role of LongerTime Horizons, Substitutes, and Extraction CostIntroductionA Resource TaxonomyEfficient Intertemporal AllocationsThe Two-Period Model RevisitedThe N-Period Constant-Cost CaseTransition to a Renewable SubstituteIncreasing Marginal Extraction CostExploration and Technological ProgressEXAMPLE 6.1 Historical Example of Technological Progress in the IronOre IndustryMarket Allocations of Depletable ResourcesAppropriate Property Rights StructuresEnvironmental CostsSummary 134 Discussion Question 135 Self-Test Exercises 135 Further Reading 136Appendix: Extensions of the Constant Extraction cost DepletableResource Model: Longer Time Horizons and the Role of anAbundant 132137Energy: The Transition from Depletable to RenewableResources140IntroductionHubbert’s PeakNatural Gas: Price ControlsOil: The Cartel ProblemPrice Elasticity of Oil DemandEXAMPLE 7.1140141142146147ix

xContentsIncome Elasticity of Oil DemandNon-OPEC SuppliersCompatibility of Member InterestsFossil Fuels: Climate Considerations and National SecurityThe Climate DimensionThe National Security DimensionDEBATE 7.1 How Should the United States Deal with the Vulnerabilityof Its Imported Oil?EXAMPLE 7.2 Strategic Petroleum ReserveThe Other Depletable Sources: Unconventional Oil and Gas, Coal,and Nuclear EnergyUnconventional Oil and Gas SourcesEXAMPLE 7.3 Fuel from Shale: The Bakken FormationCoalUraniumElectricityEXAMPLE 7.4 Electricity Deregulation in California: What Happened?EXAMPLE 7.5 Tradable Energy Credits: The Texas ExperienceEXAMPLE 7.6 Feed-in TariffsEnergy EfficiencyTransitioning to RenewablesHydroelectric PowerWindPhotovoltaicsDEBATE 7.2 Dueling Externalities: Should the United StatesPromote Wind Power?Active and Passive Solar EnergyOcean Tidal PowerLiquid BiofuelsGeothermal EnergyHydrogenSummary 176 Discussion Questions 177 Self-Test Exercises 177 Further Reading 1788Recyclable Resources: Minerals, Paper, Bottles,and E-WasteIntroductionAn Efficient Allocation of Recyclable ResourcesExtraction and Disposal CostRecycling: A Closer LookRecycling and Ore DepletionFactors Mitigating Resource ScarcityExploration and 80180182183184184

ContentsEXAMPLE 8.1 Lead RecyclingTechnological ProgressSubstitutionEXAMPLE 8.2 The BetMarket ImperfectionsDisposal Cost and EfficiencyThe Disposal DecisionDisposal Costs and the Scrap MarketSubsidies on Raw MaterialsCorrective Public PoliciesEXAMPLE 8.3 Pricing Trash in Marietta, GeorgiaDEBATE 8.1 “Bottle Bills”: Economic Incentives at Work?EXAMPLE 8.4 Implementing the “Take-Back” PrincipleMarkets for Recycled MaterialsE-WastePollution DamageSummary 201 Discussion Questions 202 Self-Test Exercises 202 Further Reading 2039Replenishable but Depletable Resources: WaterIntroductionThe Potential for Water ScarcityThe Efficient Allocation of Scarce WaterSurface WaterGroundwaterThe Current Allocation SystemRiparian and Prior Appropriation DoctrinesSources of InefficiencyDEBATE 9.1 What Is the Value of Water?Potential RemediesWater Transfers and Water MarketsEXAMPLE 9.1 Using Economic Principles to Conserve Water in CaliforniaEXAMPLE 9.2 Water Transfers in Colorado: What Makes a Marketfor Water Work?EXAMPLE 9.3 Water Market Assessment: Austrailia, Chile,South Africa, and the United StatesInstream Flow ProtectionWater PricesEXAMPLE 9.4 Reserving Instream Rights for Endangered SpeciesEXAMPLE 9.5 Water Pricing in CanadaDesalinationSummaryDEBATE 9.2 Should Water Systems Be 1222223223224229230231232xi

xiiContentsGIS and Water ResourcesSummary 233 Discussion Questions 234 Problems 234 Further Reading 23510A Locationally Fixed, MultipurposeResource: LandIntroductionThe Economics of Land AllocationLand UseLand-Use ConversionSources of Inefficient Use and ConversionSprawl and LeapfroggingIncompatible Land UsesUndervaluing Environmental AmenitiesThe Influence of Taxes on Land-Use ConversionDEBATE 10.1 Should Landowners Be Compensated for“Regulatory Takings”?Market PowerSpecial Problems in Developing CountriesDEBATE 10.2 What Is a “Public Purpose”?Innovative Market-Based Policy RemediesEstablishing Property RightsTransferable Development RightsWetlands BankingEXAMPLE 10.1 Controlling Land Development with TDRsConservation BankingEXAMPLE 10.2 Conservation Banking: The Gopher TortoiseConservation BankSafe Harbor AgreementsGrazing RightsConservation EasementsLand TrustsEXAMPLE 10.3 Using a Community Land Trust to Protect FarmlandDevelopment Impact FeesProperty Tax AdjustmentsDEBATE 10.3 Does Ecotourism Provide a Pathway to Sustainability?EXAMPLE 10.4 Trading Water for Beehives and Barbed Wire in BoliviaEXAMPLE 10.5 Tax Strategies to Reduce Inefficient Land Conversion:Maine’s Open Space ProgramSummary 258 Discussion Questions 260 Self-Test Exercises 260 Further Reading 9249249250250251252252253253254255256256257258259

Contents1112Reproducible Private Property Resources:Agriculture and Food Security262IntroductionGlobal Scarcity262263Formulating the Global Scarcity HypothesisTesting the HypothesesOutlook for the FutureEXAMPLE 11.1 Can Eco-Certification Make a difference? OrganicCosta Rican CoffeeDEBATE 11.1 When Organic Goes Mainstream:Do You Get What You Pay For?The Role of Agricultural PoliciesSumming Up: Agriculture in the Industrialized NationsDEBATE 11.2 Should Genetically Modified OrganismsBe Banned?EXAMPLE 11.2 Are Consumers Willing to Pay a Premiumfor GMO-Free Foods?Distribution of Food ResourcesDefining the ProblemDomestic Production in Developing CountriesClimate ChangeFeast and Famine CyclesSummary 290 Discussion Questions 291 Self-Test Exercises 291 Further Reading 292264266267Storable, Renewable Resources: ForestsIntroductionCharacterizing Forest Harvesting DecisionsSpecial Attributes of the Timber ResourceThe Biological DimensionThe Economics of Forest HarvestingExtending the Basic ModelSources of InefficiencyPerverse Incentives for the LandownerPerverse Incentives for NationsPoverty and DebtSustainable ForestryPublic 4295296299301301304305306307xiii

xivContentsProducing Sustainable Forestry through CertificationConservation Easements in Action: The BlackfootCommunity ProjectRoyalty PaymentsCarbon Sequestration CreditsEXAMPLE 12.3 Does Pharmaceutical Demand Offer SufficientProtection to Biodiversity?EXAMPLE 12.4 Reducing Emissions from Deforestation and ForestDegradation (REDD): A Twofer?EXAMPLE 12.5 Trust Funds for Habitat PreservationSummary 314 Discussion Questions 316 Self-Test Exercises 316 Further Reading 317Appendix: The Harvesting Decision: ForestsEXAMPLE 12.1EXAMPLE 12.213Common-Pool Resources: Fisheries andOther Commercially Valuable SpeciesIntroductionEfficient AllocationsThe Biological DimensionStatic Efficient Sustainable YieldDynamic Efficient Sustainable YieldAppropriability and Market SolutionsEXAMPLE 13.1 Open-Access Harvesting of the Minke WhaleEXAMPLE 13.2 Harbor Gangs of Maine and Other Informal ArrangementsPublic Policy toward FisheriesAquacultureDEBATE 13.1 Aquaculture: Does Privatization Cause MoreProblems than It Solves?Raising the Real Cost of FishingTaxesIndividual Transferable Quotas (ITQs) and Catch SharesEXAMPLE 13.3 The Relative Effectiveness of Transferable Quotas andTraditional Size and Effort Restrictions in theAtlantic Sea Scallop FisherySubsidies and BuybacksMarine-Protected Areas and Marine ReservesThe 200-Mile LimitThe Economics of EnforcementPreventing PoachingDEBATE 13.2 Bluefin Tuna: Is Its High Price Part of the Problemor Part of the Solution?EXAMPLE 13.4 Local Approaches to Wildlife Protection: ZimbabweSummary 351 Discussion Questions 353 Self-Test Exercises 353 Further Reading 354Appendix: The Harvesting Decision: 52356

Contents1415Economics of Pollution Control: An OverviewIntroductionA Pollutant TaxonomyDefining the Efficient Allocation of PollutionStock PollutantsFund PollutantsMarket Allocation of PollutionEfficient Policy ResponsesEXAMPLE 14.1 Environmental Taxation in ChinaCost-Effective Policies for Uniformly Mixed Fund PollutantsDefining a Cost-Effective AllocationCost-Effective Pollution-Control PoliciesDEBATE 14.1 Should Developing Countries Rely on Market-BasedInstruments to Control Pollution?Cost-Effective Policies for NonuniformlyMixed Surface PollutantsThe Single-Receptor CaseEXAMPLE 14.2 Emissions Trading in Action: The NOx Budget ProgramThe Many-Receptors CaseOther Policy DimensionsThe Revenue EffectEXAMPLE 14.3 The Swedish Nitrogen ChargeEXAMPLE 14.4 RGGI Revenue: The Maine ExampleResponses to Changes in the Regulatory EnvironmentPrice VolatilityInstrument Choice under UncertaintyProduct Charges: An Indirect Form of Environmental TaxationEXAMPLE 14.5 The Irish Bag LevySummary 390 Discussion Question 391 Self-Test Exercises 392 Further Reading 393Appendix: The Simple Mathematics of Cast-EffectivePollution ource Local and Regional Air Pollution397IntroductionConventional PollutantsThe Command-and-Control Policy FrameworkThe Efficiency of the Command-and-Control ApproachDEBATE 15.1 Does Sound Policy Require Targeting New Sources via theNew Source Review?DEBATE 15.2 The Particulate and Smog Ambient Standards ControversyCost-Effectiveness of the Command-and-Control Approach397397398400401402404xv

xviContentsControlling SO2 Emissions by Command-and-Controlin GermanyAir QualityInnovative ApproachesSmog Trading (RECLAIM)Emissions ChargesRegional PollutantsAcid RainEXAMPLE 15.2 Adirondack AcidificationEXAMPLE 15.3 The Sulfur Allowance Trading ProgramEXAMPLE 15.4 Why and How Do Environmentalists Buy Pollution?EXAMPLE 15.5 Technology Diffusion in the Chlorine-Manufacturing SectorSummary 419 Discussion Questions 421 Self-Test Exercises 422 Further Reading 422EXAMPLE 15.11617Climate ChangeIntroductionThe Science of Climate ChangeNegotiations over Climate Change PolicyCharacterizing the Broad StrategiesDEBATE 16.1 Should Carbon Sequestration in the Terrestrial BiosphereBe Credited?The Precedent: Reducing Ozone-Depleting GasesEXAMPLE 16.1 Tradable Permits for Ozone-Depleting ChemicalsThe Policy Focus of the Climate Change NegotiationsThe Evolution of International Agreements on Climate ChangeEXAMPLE 16.2 The European Union Emissions Trading System (EU ETS)Complementary StrategiesControversiesDEBATE 16.2 Is Global Greenhouse Gas Trading Immoral?Policy TimingCreating Incentives for Participation in Climate ChangeAgreementsSummary 438 Discussion Question 440 Self-Test Exercises 440 Further Reading 440Mobile-Source Air PollutionIntroductionThe Economics of Mobile-Source PollutionImplicit 434435435436437442442444444445446

ContentsPolicy toward Mobile SourcesHistoryStructure of the U.S. ApproachCAFE StandardsDEBATE 17.1 CAFE Standards or Fuel Taxes?Alternative Fuels and VehiclesEXAMPLE 17.1 Project XL—The Quest for Effective,Flexible RegulationEuropean ApproachesEXAMPLE 17.2 Car-Sharing: Better Use of Automotive Capital?An Economic and Political AssessmentTechnology Forcing and SanctionsDifferentiated RegulationUniformity of ControlThe Deterioration of New-Car Emissions RatesLead Phaseout ProgramEXAMPLE 17.3 Getting the Lead Out: The Lead Phaseout ProgramPossible ReformsFuel TaxesCongestion PricingEXAMPLE 17.4 Zonal Mobile-Source Pollution-ControlStrategies: SingaporePrivate Toll RoadsParking Cash-OutsFeebatesPay-As-You-Drive (PAYD) InsuranceAccelerated Retirement StrategiesEXAMPLE 17.5 Modifying Car Insurance as an Environmental StrategyEXAMPLE 17.6 The Car Allowance Rebate System: Did it Work?EXAMPLE 17.7 Counterproductive Policy DesignSummary 467 Discussion Questions 469 Self-Test Exercises 469 Further Reading 46918Water PollutionIntroductionNature of Water Pollution ProblemsTypes of Waste-Receiving WaterSources of ContaminationTypes of PollutantsDEBATE 18.1 Toxics in Fish Tissue: Do Fish-ConsumptionAdvisories Change Behavior?Traditional Water Pollution Control PolicyEarly LegislationSubsequent 1472472472476478479480481xvii

xviiiContentsThe TMDL ProgramThe Safe Drinking Water ActOcean PollutionCitizen SuitsEfficiency and Cost-EffectivenessAmbient Standards and the Zero-Discharge GoalNational Effluent StandardsWatershed-Based TradingEXAMPLE 18.1 Effluent Trading for Nitrogen in Long Island SoundMunicipal Wastewater Treatment SubsidiesPretreatment StandardsNonpoint Source PollutionAtmospheric Deposition of PollutionThe European ExperienceDeveloping Country ExperienceEXAMPLE 18.2 Economic Incentives for Water Pollution Control:The Case of ColombiaOil Spills from TankersCitizen SuitsAn Overall AssessmentSummary 504 Discussion Questions 505 Self-Test Exercises 506 Further Reading 50619Toxic Substances and Environmental JusticeIntroductionNature of Toxic Substance PollutionHealth EffectsPolicy IssuesEXAMPLE 19.1 The Arduous Path to Managing Risk: Bisphenol AMarket Allocations and Toxic SubstancesOccupational HazardsEXAMPLE 19.2 Susceptible Populations in theHazardous WorkplaceProduct SafetyThird PartiesThe Incidence of Hazardous Waste Siting DecisionsHistoryRecent Research and the Emerging Role of Analysis Using GISThe Economics of Site LocationEXAMPLE 19.3 Do New Polluting Facilities AffectHousing Values and Incomes? Evidence in New EnglandEXAMPLE 19.4 Which Came First—The Toxic Facility or the MinorityNeighborhood?The Policy 8518519520520522522

ContentsCreating Incentives through Common LawDEBATE 19.1 Does Offering Compensation for Accepting an EnvironmentalRisk Always Increase the Willingness to Accept the Risk?Statutory LawThe Toxic Release Inventory ProgramProposition 65International AgreementsEXAMPLE 19.5 Regulating through Mandatory Disclosure: The Case of LeadThe Efficiency of the Statutory LawPerformance Bonds: An Innovative ProposalSummary 535 Discussion Questions 536 Self-Test Exercises 537 Further Reading 5372021The Quest for Sustainable DevelopmentIntroductionSustainability of DevelopmentMarket AllocationsEfficiency and SustainabilityTrade and the EnvironmentEXAMPLE 20.1 Has NAFTA Improved the Environment in Mexico?Trade Rules under GATT and the WTODEBATE 20.1 Should an Importing Country Be Able to Use Trade Restrictionsto Influence Harmful Fishing Practices in an Exporting Nation?The Natural Resource CurseEXAMPLE 20.2 The “Natural Resource Curse” HypothesisThe Growth–Development RelationshipConventional MeasuresAlternative MeasuresEXAMPLE 20.3 Happiness Economics: Does Money Buy Happiness?Summary 561 Discussion Questions 562 Self-Test Exercise 563 Further Reading 563Population and DevelopmentIntroductionHistorical PerspectiveWorld Population GrowthPopulation Growth in the United StatesEffects of Population Growth on Economic DevelopmentThe Population/Environment ConnectionDEBATE 21.1 Does Population Growth Inevitably Degrade the Environment?Effects of Economic Development on Population 75576xix

xxContentsThe Economic Approach to Population ControlEXAMPLE 21.1 Achieving Fertility Declines in Low-Income Countries:The Case of KeralaUrbanizationEXAMPLE 21.2 Income-Generating Activities as Fertility Control: BangladeshUsing GIS to Map Population DataSummary 586 Discussion Questions 587 Self-Test Exercises 587 Further Reading 58822Visions of the Future Revisited578583584585586589Addressing the IssuesConceptualizing the ProblemInstitutional ResponsesEXAMPLE 22.1 Private Incentives for Sustainable Development:Can Adopting Sustainable Practices Be Profitable?Sustainable DevelopmentEXAMPLE 22.2 Public–Private Partnerships: The Kalundborg Experience589589591592594596A Concluding Comment598Discussion Questions599Answers to Self Test Exercises600Glossary623Name Index635Subject Index642

PrefaceA glance at any newspaper will confirm that environmental economics is now amajor player in environmental policy. Concepts such as cap-and-trade, renewableportfolio standards, block pricing, renewable energy credits, development impactfees, conservation easements, carbon trading, the commons, congestion pricing,corporate average fuel economy standards, pay-as-you-throw, debt-for-natureswaps, extended producer responsibility, sprawl, leapfrogging, pollution havens,strategic petroleum reserves, and sustainable development have moved from thetextbook to the legislative hearing room. As the large number of current examplesin Environmental & Natural Resource Economics demonstrates, ideas that were oncerestricted to academic discussions are now not only part of the policy mix, but theyare making a significant difference as well.New to This EditionNew Features lots of new self-test exercises (numerical problems, graphical manipulations,and word problems) for students,updated data tables,inclusion of recent economic studies,climate change now has its own chapter,the toxic substances and environmental justice chapters have now beencombined into a single chapterNew or Expanded TopicsThe ninth edition covers new topics and expands on others. These additionsinclude the following: experimental economics,oil and gas derived from shale,nuclear program in France,renewable energy credits,xxi

xxiiPreface the forward capacity market for electricity,feed-in tariffs,energy efficiency policies,The UN’s REDD program,endocrine disruptors,the BP/Deepwater horizon oil spill in the Gulf of Mex

Economic Development: Theory and Practice for a Divided World Miller Economics Today* Understanding Modern Economics Miller/Benjamin The Economics of Macro Issues . 9 Replenishable but Depletable Resources: Water 204 10 A Locationally Fixed, Multipurpose Resource: Land 237 11 Reproducible Private Property Resources: Agriculture