Transcript Document

Economics and The
Environment
John Perez-Garcia
Forest Economist
The Sustainability Paradigm
Meeting essential needs (jobs, food,
energy, water and sanitation).
Conserving and enhancing the resource
base.
Reorienting technology.
Merging environmental concerns and
economics in decision making.
2
Presentation Summary
Key Economics Issues
What is Economics
Demand and Supply
Economic Specifics and the Environment
Decision Making and Cost Benefit Analysis
Summary of Key Issues
3
Key Economic Issues
What is the correct level of environmental
protection?
How should this be decided?
How should this level be achieved?
Who should bear the cost?
Requires an interdisciplinary approach
Economics, Ecology and Ethics
4
What is Economics?
Allocation of scarce resources
If there is no scarcity, there is no problem
Scarcity rent
Externalities
Willingness to Pay
5
Economics and The
Environment
Firms
Input
The Economy
Output
Households
6
Economics and The
Environment
The Environment
Firms
Input
The Economy
Output
Households
7
Resource Economics
The Environment
Energy
Air
Firms
Input
The Economy
Output
Water
Amenities
Households
Raw Materials
8
Environmental Economics
The Environment
Firms
Input
The Economy
Households
Pollution
Output
Wastes
9
Economics and The
Environment: Strategies
Conservation
Energy
Air
The Environment
Firms
Input
The Economy
Pollution
Output
Water
Amenities
Raw Materials
Households
Wastes
Recycle
Substitutes
10
Economics and The
Environment: Strategies
Conservation
Energy
Air
The Environment
Firms
Input
The Economy
Water
Amenities
Raw Materials
Households
Pollution
Remediate
Output
Restore
Remove
Wastes
Recycle
Substitutes
11
Environmental Economics
Applying economic theory to
environmental goods and services.
Includes the supply of environmental
“bads” (Pollution and wastes).
Includes the demand for environmental
goods and services that avoid damages
from “bad” output.
12
Individual Demand = Benefits
Price
Quantity
13
Individual Demand
$8
Price
$ per unit
Total Willingness to Pay
$5
6
Quantity
14
Supply = Cost
Price
Quantity
15
Supply
Price
Total Cost
Quantity
16
Market Equilibrium = Efficiency
Price
Quantity
17
Market Equilibrium = Efficiency
Price
Total Net Benefits
Quantity
18
Market-based Solutions
Using economic principles to achieve
efficient levels of environmental protection
Defining property rights
Internalizing environmental costs of
production
Creating scarcity
19
Economics and The
Environment
Market failures and
externalities
Cost of production are
external to the price of
the product
Lack of well-defined
property rights
Internalizing
environmental values
Price
Quantity
20
Economics and The
Environment
Market failures and
externalities
Cost of production are
external to the price of
the product
Lack of well-defined
property rights
Internalizing
environmental values
Price
Quantity
21
Economics and The
Environment
Market failures and
externalities
Cost of production are
external to the price of
the product
Lack of well-defined
property rights
Internalizing
environmental values
Price
Quantity
22
Economics and The
Environment
Market failures and
externalities
Cost of production are
external to the price of
the product
Lack of well-defined
property rights
Internalizing
environmental values
Price
Quantity
23
Decision Making
Cost benefit analysis
Project definition
Classification of impacts
Conversion into monetary terms
Discounting
Project assessment
Sensitivity analysis
24
A Cost Benefit Analysis of
Forests and Fish Rules:
A Case Study
25
Existing Buffers
A sampled section with a single ownership and stream data.
26
Proposed Buffers
A sampled section with a single ownership and stream data.
27
Net Buffers
A sampled section with a single ownership and stream data.
28
Potential Costs: CBA
Potential Costs
Lost revenues due to timber asset retirement
Net costs associated with road planning and
maintenance
Setup costs to delineate riparian management
zones, unstable slopes, etc
Net income losses due to employment losses.
Set asides for unstable slopes
Costs associated with the forested wetlands rules
Costs associated with pesticide restrictions
Equipment zone limitation costs
Social and economic dislocation
Loss recreational and fire control access
Measures of potential costs
NPV in dollars for the state
NPV in dollars for the state
NPV in dollars for the state
NPV in dollars for the state
Not estimated, will add to costs
Not estimated, will add to costs
Not estimated, will add to costs
Not estimated, will add to costs
Not estimated, will add to net
income loss figure above
Not estimated, will add to costs
29
Cost Estimate
 Timber asset, road
planning and lost wage
costs range from 7.15 to
8.18 billion dollars
 No estimates on costs
associated with other
rules, pesticide
restrictions, equipment
zone limitation, social and
economic dislocation, and
other factors
Price
Quantity
30
Benefit Estimation
Much less straightforward
No clear relationship
between fish values
and forests
Non-market
techniques
Price
Total Willingness to Pay
$5
6
Quantity
31
Potential Benefits: CBA
Table 1. Potential costs and benefits associated with new proposed rule changes.
Potential Benefits
Measure and Effect
Improved fishery resource
NPV in dollars for the state
Improved habitat for upland wildlife
Not estimated, will increase benefits
Improved carbon sequestration
Not estimated, will increase benefits
Improved water quality
Not estimated, will increase benefits
Reduced threats to public safety from unstable
Not estimated, will increase benefits
landforms
Promote viability of industry in view of other
Not estimated, will increase benefits
alternatives
Employment benefits from implementing road
NPV in dollars for the state
maintenance plans
Tax credit benefits to landowners/harvesters
NPV in dollars for the state
32
Valuation Methods
Constructed market techniques
Contingent valuation methods
Choice experiments
Increase
Monthly
Mortgage
Payments by
Reduced
Greenhouse
Gas Emission
Reduced Air
Pollution
Reduced
Water
Pollution
Reduced
Solid Waste
Production
Plan A
$45
6 tons
15%
5%
15%
Plan B
$95
11 tons
0%
25%
5%
Plan C
$5
16 tons
25%
15%
25%
Plan D
$0
0 tons
0%
0%
0%
33
LBP Study: High Status Quo
Billions
$8
$6
$4
$2
$1
2
3
4
5
6
7
8
9
10
5% Increments in Fish Population
Columbia Freshwater
Columbia Migratory
Pacific Freshwater
Pacific Migratory
34
LBP Study: Low Status Quo
$12
Billions
$10
$8
$6
$4
$2
$1
2
3
4
5
6
7
8
9
10
5% Increment in Fish Population
Columbia Freshwater
Columbia Migratory
Pacific Freshwater
Pacific Migratory
35
Summary Table for Benefit Cost Analysis (Billion dollars)
Foregone timber asset value
Road maintenance & stream crossings
Lost wages
Set up costs
Hypothetical FIRST 5% increase in fish
population after 20 years
Increased road construction activity
Reduced excise tax
TOTALS
Net costs over Current
Situation
Low
High
2.678
2.678
2.13
2.13
2.387
3.420
0.154
0.154
0.154
7.503
0.154
8.536
Net benefits over
Current Situation
Low
High
0.154
0.154
7.0
1.789
0.154
9.097
10.3
2.684
0.154
13.292
36
Comments
We are lacking
key data on the
production
function between
riparian habitat
and fish populations.
37
CBA Limitations
There are no data that directly links the
environmental effects from new proposed rules
effects with a change in fish populations.
Programs in other sectors can potentially have a
higher impact on the fishery resource than the
new forest practices rules, hence higher net
benefits. These other programs may also have
lower impacts, hence lower net benefits.
38
The Key Issues
What is the correct level of environmental
protection?
Price
Quantity
39
The Key Issues
How should this be decided?
A combination of market-based approaches
and regulations
40
The Key Issues
How should this level be achieved?
Using cost effective approaches
41
The Key Issues
Who should bear the cost?
Those willing to pay for it.
42
The Key Issues
Requires an interdisciplinary approach
Economics, Ecology and Ethics
4343