Dollars and Environmental Sense: Economics of Environmental Issues

Cape, trade and Carbon dioxide:

Cape and trade is the most environmentally and economically sensible approach to control greenhouse gas emissions. The "cap" is a limit on emissions; amount of pollutants release which is reduced over time while the trade creates a market for carbon allowances ( economic incentives) in form of permits, taxes, legal emissions limit etc. (per year)

There are two reasons for the economic incentives:

1. Money raising for further environmental friendly activities
2. Discourage industrial and business individuals to emit less.

Critics of direct tax believe that taxation is not a very effective measure for businesses as they pass on their taxes in their prices on the consumer ( though there is decrease in sales graph yet not very much effective). Critics of legal emissions believe that government may pace unfair burden on businesses while fixing taxes. Also the need of extensive monitoring may place burden of society's economics. These potential issues lead to the concept of "cap and trade".

Example:

suppose a coal-fired plant  has been given certain carbon allowances/ year. These allowance come as :ration coupons: which can either be spent all by one's self (by emitting the amount of pollutant each stamp permits) probably  by replacing the energy source by renewable source or this allowance can be sold to another company that is still using coal plant so that that company could increase their emissions. In short credits for one company can be sold to another one. Environmental Protection Agency (EPA) is now experienced enough to know that cap and trade really works well.

Analysis:

The proponents of cap and trade believe that pros and cons of pollution control are directly in hands of polluters ( instead of passing them to consumers). It also keeps the activity in (kind of) free market rather than forcing specific actions on individuals hence minimizes government's interference. However the opponents of cap and trade argue that it is just another tax in disguise which acts as same as direct taxation (E.g one corporation using coal as energy source will be burdened with heavy tax hence gets disadvantage versus the corporation which uses alternative energy sources. Also, the advocates of cap and trade believe that this whole ideas will help the society to move from fossil fuels to non-fossil fuels but the opponents say that the net result to be burden on everybody i.e average family energy bill would probably go to $1,500 a year. Proponents say that it has helped to decrease the level of sulphur dioxide from the atmosphere but the opponents say that just like sulphur dioxide carbon dioxide is also a pollutant and a global problem and cap and trade can't work without unusual treaties among nations. From first glance cap and trade seems to be simple and straight forward solution yet it turns out to be much more difficult.  The productivity of cap and trade depends in scientific knowledge and on economic analyses.

History of Environmental Economics:

The history of environmental law dates back to 1960's (when environmentalism initiated) and is based upon ecology, engineering and economics. Economics is always a factor in finding solutions that work are efficient and are fair. Environmental economics is not just about money rather it is about persuading people, organizations and society at large to act in away which would

1.  benefit the environment i.e. by keeping it as free as possible of pollution and other damages
2.   keeping the resources sustainable 
3. Accomplishing designated goals within a democratic framework

Environmental economics focuses on two broad areas:

1. Controlling pollution and environmental damage
2. sustaining renewable resources (fisheries, forests, recreational lands etc.)

In economics there are tangible ( which can be brought /sold) and intangible factors ( cannot be accessed directly but can be felt e.g beauty) and now the value of intangibles is gaining popularity/ importance . Huge amount money is involved in economic decisions . There re costs of pollution and loss of renewable resources  also the costs of doing something with these problems. In every environmental issue, at one hand there is desire to maintain individual freedom of choice while on the other hand  it helps to achieve specific goals.

Public Functions of Nature:

Most of the natural processes take place with out human intervention. Forests absorb particulates, salt marshes convert toxic compounds to non-toxic forms, wetlands and organic soils treat sewage etc. These are termed as public service functions of nature. Economists refer to ecological systems provide these benefits as natural capital. They act as large disposal sites for toxic gases. For example, Carbon dioxide is converted by either inorganic chemical reactions or by soil bacteria. Bacteria cleans water in soil by decomposing toxic chemicals and atmospheric nitrogen . The most important public service provider are pollinators including birds, rats, ants, bees, wasps, beetles, butterflies, moths, flies, mosquitoes etc. It is estimated that pollinating animals pollute about $15 billion worth of crops grown on 2 million acres in United States that is why the cost of pollinating these crops would be exorbitant hence any pollutant that eliminates bees would have large indirect economic consequences. The Colony Collapse Disorder (CCD) received attention in recent ears which affected food costs, agricultural practices etc.

The Environment as Commons:

Mostly use natural resource without regard for maintaining it i.e. they do not concern with resource sustainability. According to Garrett Hardin in  " tragedy of Commons" (common is a land owned publicly ) When a resource is shared:

1. its rate of exploitation is far greater than a person's share in that shared resource. 
2. Low growth rate / low productivity

It would seem that people of goodwill would understand the limits of a commons. Fro example, if a farmer  tries to maximize personal gain and must consider whether to add more cattle or not as addition of cow has both negative and positive effects on commons ( positive for the farmer i.e. economic growth and negative effects for the land at which the cow ill graze). The personal profit from selling a cow would be greater than the loss caused by degradation of the commons. Therefore the short term plan is is to add another cow but it will lead to over burden of grazing land which would lead to inadequate supply of food for all the animals. In short term everyone  gains in but in long run everyone loses. In short, complete freedom of action in a commons brings ruin to all. Without some management / control ;all  the natural resources will be destroyed . No single  government (private/ community)can succeed to halt major resource deterioration but economic analysis can be helpful. For example, 38% forests in United States are publicly owned (commons). Resources in international regions (ocean fisheries , deep ocean seabed, mineral deposits, Artic sea ice ) are not owned by a single nation. Consider the possibility of global warming or atmosphere, they are also commons. Just as Garrett  Hardin suggested people tend to respond by benefiting themselves instead of benefiting commons. Untill 1980's fire in afire place was a simple good, providing warmth and beauty but increase in population resulted in pollution of global air. Reduction in visibility and fouled air also became common in valleys. Recreation is a problem of commons i.e. overcrowding of national parks/ wilderness areas.

Scarcity Affects Economic Value The relative scarcity of a necessary resource is another factor to consider in resource use, because this affects its value and therefore its price. For example, if a whaler lived on an isolated island where whales were the only food and he had no communication with other people, then his primary interest in whales would be as a way for him to stay alive. He couldn’t choose to sell off all whales to maximize profit, since he would have no one to sell them to. He might harvest at a rate that would maintain the whale population. Or, if he estimated that his own life expectancy was only about ten years, he might decide that he could take a chance on consuming whales beyond their ability to reproduce. Cutting it close to the line, he might try to harvest whales at a rate that would cause them to become extinct at the same time that he would. “You can’t take it with you” would be his attitude. If ships began to land regularly at this island, he could leave, or he could trade and begin to benefit from some of the future value of whales. If ocean property rights existed, so he could “own” the whales that lived within a certain distance of his island, then he might consider the economic value of owning this right to the whales. He could sell rights to future whales, or mortgage against them, and thus reap the benefits during his lifetime from whales that could be caught after his death. Causing the extinction of whales would not be necessary. From this example, we see that policies that seem ethically good may not be the most profitable for an individual. We must think beyond the immediate, direct economic advantages of harvesting a resource. Economic analysis clarifies how an environmental resource should be used, what is perceived as its intrinsic value and therefore its price. And this brings us to the question of externalities.

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?