ECON30011 ENVIRONMENTAL ECONOMICS. Subject Guide

Transcription

1 ECON30011 ENVIRONMENTAL ECONOMICS Semester 2, 2011 Subject Guide Prepared by John Freebairn Department of Economics 1

2 Introduction Welcome to ECON 30011, Environmental Economics. In this subject we explore how society can best make decisions about environmental goods, such as the preservation of wildlife and natural icons, and environmental bads, such as pollution of water and the atmosphere. Primarily they are issues of market failure stemming from the nonrival and/or non-excludability properties of environmental goods and bads. The course applies principles of microeconomics to describe the market failure, the desired social optimum, and to evaluate the pros and cons of different forms of government intervention to correct the market failure, including establishing property rights, taxes and subsidies, and regulations. Illustrative applications of the general principles will include greenhouse gas emissions and climate change, the allocation of water between irrigation and environment flows, and the preservation of native plants and animals. Learning Outcomes 1. Subject Objectives Explain the externality and public good reasons for market failure and their relationship to environmental problems Explain the differences between corrections for market failures using command and control regulations and economic price-based incentives Critically evaluate the different government intervention options for dealing with environmental problems Describe and evaluate different methods for valuing the environment Apply the theories discussed to current issues of environmental problems Critically analyse alternative policy proposals for environmental degradation 2. Generic Skills High level of development: critical thinking; problem solving; application of theory to practice; oral communication; written communication; synthesis of data and other information Moderate level of development: collaborative learning; team work; receptiveness to alternative ideas; accessing data and other information from a range of sources Some level of development: statistical reasoning; use of computer software 2

3 Contact Details Lecturer Coordinator: John Freebairn Room: 634, Arts West Phone: Consultation hours: Thursday Or, appointment after lecture or via for a mutually convenient time. Protocol While academic staff endeavor to address queries received via , it is more appropriate to resolve substantive questions face-to-face during normal consultation hours. With this in mind, we encourage all students to familiarize themselves with the consultation hours offered by lecturers and tutors in this subject. Please note that we are only able to respond to student s coming from a University address. Please do not use personal addresses such as Yahoo, Hotmail or even business addresses. s from non-university addresses may be filtered by the University s spam filter, which means that we may not receive your . All correspondence relating to this subject will only be sent to your University address. Note that you must first activate your University address before you can send or receive s at that address. You can activate your account at this link: Lectures and Seminar/Tutorial Times and Location Tuesdays am am, Lecture, Arts West (previously Economics & Commerce), Theatre 2 Tuesdays am noon, Seminar/Tutorial, Arts West, Theatre 2. Starting week two Thursdays am noon, Lecture, Old Arts, Theatre B Audios of lectures will be posted on LMS. 3

4 Assessment Assessment Task Due Weighting Essay 4.00 pm, Thursday 6 30% October, 2011 Participation in 10% tutorial/seminar End-of semester exam: two hours Assessment period 60% Text Book Kolstad, C. (2009), Environmental Economics, International Edition, Oxford University Press, New York. Other References In the Library there are a large number of excellent text books with titles on Economics of the Environment, Environmental Economics and Resource Economics which are good reads, and worth consulting for a different perspective. Some of particular interest include: Tietenberg, T. and Lewis, L. (2009), Environmental and Natural Resource Economics, Eight Edition, Pearson, Boston. Wills, I. (2006), Economics and the Environment, Second Edition, Allen and Unwin, Sydney. (Australian examples) References to some journal articles are given in the following course outline, and in the lecture notes which will be posted on LMS. 4

5 Course Outline 1. Introduction. What is environmental economics? Economics in general, and the environment as a component. Important distinguishing characteristics of environmental goods and bads. General analytical framework: market failure; more desirable allocations; choice of policy intervention instruments; implementing market failure corrections. Some examples for later analysis. Kolstad, chapters 1 and 2 2. Social choices for environmental goods and bads. Different views on the value of the environment. Individual utility and budget functions as the base of individual demands, or willingness to pay (WTP), for environmental goods and services. Issues in aggregating individual preferences to evaluate society welfare gains; these include Pareto improvements, Pareto improvements with compensation, and potential Pareto improvements, and voting systems. Kolstad, chapter 3 3. Markets as a solution. The efficiency of markets: Pareto efficiency; the first and second welfare theorems; general equilibrium and partial equilibrium models; and restrictive assumptions. Many environmental goods and services have the characteristics of non-rival and non-excludability, or the absence of property rights. Externalities and public goods models of market failure: the direction of, and magnitude of, efficiency losses; directions for improved allocations; and, some illustrative examples. Kolstad, chapters 4 and 5 4. Policy instruments to correct market failures in the allocation of resources to environmental goods and bads. Evaluation of the different options in terms of: how they correct a market failure; effects on equity or redistribution; comparative strengths and weaknesses. Options include: establish property rights and Coase theorem; Pigovian taxes; subsidies; regulation, or command and control; and marketable permits. General principles and illustrative applications. Kolstad, chapters 6, 7, 8 and 9 5

6 5. Some examples; the allocation of water between irrigators and the environment; climate change in a global context; preservation of wildlife via national parks. Clarke, H. (2011), Some Basic Economics of Carbon Taxes, Australian Economic Review, 44(2), Freebairn, J. (2011), Allocating Limited Water, Australian Economic Review, 44(2), Gillard, J., Swan, W. and Combet, G. (2011), Securing a Clean Energy Future: The Australian Government s Climate Change Plan, Australian Government, Canberra, July. Grafton, Q. (2010), How to Increase the Cost-effectiveness of Water Reform and Environmental Flows in the Murray-Darling Basin, Agenda, 17(2), Productivity Commission (2011), Carbon Emission Policies in Key Economies, Research Report, Canberra. 6. Valuing the environment. Different types of non-market benefits of environmental goods and services. Compare and contrast individual utility model for deriving the demand and marginal willingness to pay (MWTP) functions, and for estimation, of private goods (rival and excludable) relative to many environmental goods (non-rival and/or non-excludable). The theory of, the application of, and some of the pros and cons of: hedonic price models; household production models, including defensive expenditures and the travel cost model; and stated choice or hypothetical market models, including contingent valuation. Some example applications. Kolstad, chapters 15, 16, 17 and Some real world challenges. Imperfect knowledge about the marginal abatement cost function and the comparison of a price versus a quantity intervention instrument. Imperfect knowledge and/or costly monitoring of firm pollution levels, and some implications for policy design. The double dividend issue of interactions of a price on pollution with existing distorting taxes. Kolstad, chapters 10, 11 and 14 6