PowerPoint Presentation - Environmental Economics and Ecological

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1、ECONOMICS AND THE ENVIRONMENTlHow much is clean air worth?lCan you charge somebody for damaging your air?lHow much are you willing to pay for clean air?lShould you have to pay for clean air?lHave you ever caught a fish off the UST pier?lIs cutting down the rainforests efficient?lWhat market incentiv

2、es are there for research on the environment?lHow can the environment be priced and sold?lDoes Hong Kong have any mechanisms for valuing its environment?Lecture Objectives:lReview Advantages and Limitations of Market Economics lUnderstand how economics is creating new principles and guidelines for b

3、usiness activity.Comparing:lNeo-classical EconomicslEnvironmental EconomicslEcological EconomicslTo reveal policy implicationslWhat is an economy supposed to do?lWhat is the Neo-classical approach?What is a market?lA system of exchangeWhat is exchanged?lResources:land,labor,capital(ie.goods or servi

4、ces in some form)How does the market work?lMatching of supply and demandWhy is the market such a good system?lOptimal use of resources:buyers force competition on suppliers;greatest return for the efforts of supplierslPareto efficiency:“a situation where it is impossible to make one person better of

5、f without making anyone else worse off”Meaning:allocation of resources to the uses that will bring the greatest overall increase in production and monetary value by matching producers with the highest biddersWhat enables the market to work?lPrice or Value settinglProfit motivelPrivate propertylGover

6、nment and other regulating institutions Does the market operate perfectly?1.General Market Failures:lMonopoly;l information asymmetry;l missing markets;l transaction costs.Market FailureslWhat company did you buy your air from?lHow much did you pay for your air?How was that price set?lHow clean was

7、the air you bought?How do you know?lHow can a company stop other companies from dirtying its air?What can you do if someone makes your air dirty after you bought it?lWhat rate of return should a company expect to get from investing in air quality?2.Environmental Market Failures:lFailure to value the

8、 environment:unpriced use values;option values;existence values;bequest valueslLack of informationlExternalitieslCommon Access Resources/SinkslDiscounting the futurelMissing MarketsExternalitiesl“An unintended cost or benefit of production or consumption that is not reflected in the price of the rel

9、ated transactions.Externalities are often borne by people who are not parties to the transactions that create them.”ExternalitieslDefine the externalities of your company:who are the parties to the monetary transaction and who or what pays for the impacts of the transactionDiscounting the Future wit

10、h Net Present Value(NPV)NPV=x/(1+.10)nyrsX+your present money value.10=the discount ratenyrs=the power of how many years down the future you are looking atNPV of 100 dollars in five years with a discount rate of 10%is 100/(1+.10)5 or$62.09Environmental&Ecological Economics1.Why should CLP pay for po

11、llution controls in Guangdong rather than in Hong Kong?2.Are there any economic tools we can use to value Hong Kongs environment?3.Are air-conditioned shopping malls reasonable substitutes for clean air and clean beaches?4.What impact would the use of the Mai Po conservation area for building houses

12、 have on Hong Kongs net worth?Cleaner air on horizon by years end:Liao Improvements to Guangdong power plants will cut pollution,says minister lGuangdongs biggest cluster of power plants,at Humen in Dongguan-which are blamed for much of Hong Kongs air pollution-are being equipped with desulphurisati

13、on devices to cut emissions.lIn the longer term,Dr Liao hopes a cross-border emission trading scheme can be set up to assist other power plants in Guangdong to cut emissions in a more cost-effective manner.In the meantime,the government has started talks with CLP Power and Hongkong Electric on emiss

14、ion reduction and an emission trading scheme.Hong Kong administration states preference for system to be used in cross-border emissions tradingthe government says a cap and trade method is best for Hong Kong.Under this system,the government would set an emissions cap as well as a timetable for this

15、to be lowered.The capped quantity of emissions would then be distributed to sources of air pollution,including power plants and large factories,in the form of emission allowances or permits.Polluters who fail to meet the requirements of the cap would have to buy emissions reduction credits from othe

16、rs who could successfully lower their emissions below the capped levelEnvironmental Economics:From Market Failure to Government FailurelLimited information of how to deal with specific environmental problems(of area or industry)and of firms capability to deal with or hide environmental impactlLimite

17、d resources to regulate,monitor and enforce Command and Control regulations:uniform standards and technologiesPolicy Guidelines from Environmental Economics:I.Benefits of Using the Market(as opposed to CAC)l1.Cost effectiveness:example,emission trading creditsl2.Substitution and technological advanc

18、e:example,green taxesl3.Other institution/market based schemes:deposit refund schemes,environmental bonds,transferable quotas,transfer of development rights.Policy Guidelines from Environmental Economics II.Better Valuation of Non-market Valued Assetsl1.Financial Costsl2.Averting Behaviorl3.Travel C

19、ost Methodl4.Hedonic Pricingl5.Contingent EvaluationFor:Better Cost-Benefit Analysis,regulations,finesEnvironmental Economics and Ecological EconomicsWeak vs.Strong SustainabilityEnvironmental Economics and Ecological Economics:Weak vs.Strong SustainabilitylEfficiency standard vs.ecological standard

20、lDiscount rate(growth)driven vs.discount rate(growth)limiting lResources as inputs&outputs of unlimited economic system vs.economic system as limited subsystem of ecosystemlSubstitutability plementarityThe Environmental Economics Trade-offEconomyHMEEMSRecycle?Neo-classical Empty WorldFigure 1:The Ec

21、onomy as an Open Subsystem of the Ecosystem(Daly 1996:49).S=solar energy H=heat M=matter E=energynatural capitalman-made capitalEcosystemEcosystemEconomyHMEEMSRecycleEnvironmental Economics WorldEcosystemEconomyHMEEMSRecycleEnvironmental Economics WorldHEconomyEMMESRecycleEcological Economics Full W

22、orldFigure 1:The Economy as an Open Subsystem of the Ecosystem(Daly 1996:49).S=solar energy H=heat M=matter E=energynatural capitalman-made capitalEcosystemEcosystemSubstitutability vs.ComplementaritylManufactured and knowledge capital for natural capital lLand,labor and capital substitutabilitylSam

23、e service by different productlTechnological fixeslEcosystem resiliencelManufactured capital depends on natural capitallUniqueness,uncertainty and irreversibilitylEcosystem serviceslGrowth outpaces substitutionlEcosystem fragilityPolicy Influences from Ecological Economics Strict demands for environ

24、mental protection reflected in:lEnvironmental impact assessmentlNatural preservation areas(parks,reserves)lAbsolute limitations on chemicalsPolicy Guidelines from Ecological Economicsl1.Daly Rulel2.Index of Sustainable Economic Welfare(ISEW)l3.Ecological tariffs on free trade l4.Community based sust

25、ainability through self-sufficiency and diversificationPolicy Guidelines from Ecological Economicsl1.Daly Rule:Never reduce the stock of natural capital below a level that generates a sustained yield unless good substitutes are available for the services generated.Index of Sustainable Economic Welfa

26、reISEW=total output+unpaid work-environmental destruction and degradation-environmental improvement measures-depreciation of human-made capital+/-welfare distribution effectFree Trade LimitationslRegional specialization obscures view of resource exploitation,depresses ecological and social laws,weak

27、ens terms of trade and impoverishes landholderslExternalities from the shipping of goods around the worldlTherefore,tariffs to compensate or reduce free tradeCommunity Based DevelopmentlCommunity rather than corporations or government creates social conditions(wants and needs)that limit impactslGrea

28、ter self-sufficiency through decentralized controllLocal synergies for recycling and energy reductionlEthical bonds amongst business communitySumming up:lMarket success in exchange efficiencylMarket failures in:valuation,common access,externalities,and discount ratelEnvironmental economics guidelines:cost effectiveness and market-based incentiveslEcological economics guidelines:limiting growth to within global and local ecosystems*therefore reducing throughput of economy within ecological carrying capacity