Markets and the environment
• Markets are structures that allocate value-if market signals are
allowed to reach individuals and market prices include all the social
costs and benefits of individual actions-responses to problems will
be rapid and efficient.
• When that does not happen you have a market failure.
• The market has failed to value sufficiently, for example, clean
water, or keeping toxic chemicals out of the environment, or the
value of the atmosphere with reduced carbon emissions.
Markets and Resource Arenas/Property
Rights
• Private Property-owned and used by individual.
Others can be excluded.
• Public property-jointly owned by all citizens
through agencies.
• Common property resources-owned by a
community of people that set rules for its use.
• Open access resources-owned by no-one, state
of “propertylessness”
The Tragedy of the Commons
• Article published in Science in
1968 by the famous biologist
Garrett Hardin.
• Applied his ideas in the field of
foreign assistance and
immigration in 1974 Living on a
Lifeboat, BioScience, 24(10).
Had a lot of impact at the level
of public policies. Argued that
common property systems led
inevitably to ecological
degradation.
•Hardin’s model presumes a pasture
that is the common property of the
community, open to all. But if it
belongs to all, it belongs to no one in
particular.
•Each herdsman receives a
direct benefit from grazing his
animals in the pasture.
• He suffers delayed costs, not
inmediate ones, with the deterioration
of the common pasture due to his use
and the use of others.
• Each herdsman has the motivation to
add more animals because he receives
the benefit from each animal and only a
portion of the costs of the degradation
of the pasture.
• In the short term, he will be
motivated to add more animals,
to take advantage of the pasture
that is left before others start
grazing additional animals.
•…The
tragedy is that
strategies that are
individually rational lead to
results that are collectively
irrational.
“That
is the tragedy…Each person is closed in a system that
leads him to increase his herd without limits-in a world that is
limited. Ruin is the destiny towards which everyone rushes,
each one pursing his rational interest in a society that believes in
liberty.
• In 1990 what is considered the most important work on the
subject, Governing the Commons by Elinor Ostrom (Indiana
University).
• Much of the initial work on the commons focused on
fisheries, where the arguments of Hardin appeared to have
the most impact.
• But most of those publications were criticizing Hardin,
especially from anthropologists and others that observed
commons management in developing countries. The
tragedy of the commons was not observed there.
• Basic confusion of Hardin
Difference between an “open access resource” and a
“closed access resource”
• an open access resource is owned by nobody, no clear
property rights; a closes access resource has an owner
who can enforce rules over use of the resouce
Thus, the problem of the “Global Commons”
•
No one “owns” the ocean or the
atmosphere.
• they are “open access” resources
• The global “community” must devise
“rules” that “govern” access to them
Ecological Economics-Prices and the Environment
• Markets-abstractions to represent the interaction among
the costs of production, the asking price and the price
consumers are willing to pay for goods and services.
Prices are determined by supply and demand (309 in
harper).
•
Thus, economics is the science of scarcity. When a
good or service is abundant, the price is low. When a
good or service is scarce, the price is high.
Uncalculated Costs in Product Prices: The
Role of “Externalities”
• what are externalities?
• Externalities are common in virtually every area
of economic activity. They are defined as third
party (or spill-over) effects arising from the
production and/or consumption of goods and
services for which no appropriate compensation
is paid.
• Externalities can cause market failure if the
price mechanism does not take into account
the full social costs and social benefits of
production and consumption.
• Social cost includes all the costs of production of the
output of a particular good or service. We include the
third party (external) costs arising, for example, from
pollution of the atmosphere.
• SOCIAL COST = PRIVATE COST + EXTERNALITY
For example: - a chemical factory emits wastage as a
by-product into nearby rivers and into the atmosphere.
This creates negative externalities which impose higher
social costs on other firms and consumers. e.g. clean
up costs and health costs.
More on externalities
• Full costs of keeping crude oil flowing not reflected in the
price at the pump.
• Cost-accounting problems-difficulties and costs of
collecting information.
• How much do we value the future environment? The
problem of discounting.
Public Policy, Taxes and the Environment:
Towards “Green Taxes
• Taxes generate revenue for government.
• What kinds of things do we currently tax?
• (incomes, sales, property)
• Tax “breaks” are used to induce a certain kind of
behavior i.e. tax reductions for mortgage payments
encourage homeownership.
•
“Subidies” (lower taxes) for things like oil exploration
encourage oil exploration.
Tax Shifting: Taxing Goods and Taxing Bads
•
Environmental Public Policies for the future? Can use
tax policy to achieve a cleaner environment?
• Now, tax policy is aimed at taxing “good things” or
“goods”, that is income, sales, property. These are all
“good” things for the economy, things that we want to
have happen.
• But what if we taxed “bads”?
Taxing Bads…….UnTaxing Goods
•
Tax Pollution………….UnTax Enterprise.
• Tax
•
•
•
•
packaged foods associated with litter
tax every pound of pollution and toxic waste
emitted into the air, water or ground
tax agrochemical sales and tailpipe emissions
(would double the price of pesticides, boost
prices of non-recycled paper, make driving
more expensive-$135 per car on average.
From the New York Times (3/17/05)
• “That’s why America urgently needs what I call a
“geo-green” strategy, which combines
geopolitics with environmentalism. Geogreenism starts with a $1-per-gallon gasoline
tax, which would help close our budget gap,
force the U.S. auto industry to convert more of
its fleet to hybrid and ethanol technology and
thereby reduce the amount of money going to
Sudan, Saudi Arabia and Iran for oil” (Thomas
L. Friedman, Homeland Insecurity)
Untax Enterprise
•
Eliminate most business taxes, corporate
income taxes, corporate capital taxes,
occupations tax.
Tax Resource
Depletion……..UnTax
Income.
Tax
hydropower (dams rivers), tax
petroleum extraction, tax cutting
down trees (lower for certified
sustainably harvested timber),
diversion of water from rivers.
UnTax
•
state personal income and sales taxes
•
“British Columbia could generate enough from natural
resource taxes to exempt every family below the
median income from provincial income taxes.”
•
“Washington could cuts its state and local taxes by
one-third.
.
Tax Sprawl……….UnTax
Buildings
Tax Land but not buildings
Taxing Urban Sprawl
• What is Urban Sprawl?
"Sprawl" is the increased use
of urbanized land by fewer
people than in the past.
• Traditional cities were compact
and efficient, but over the past
30-50 years, the density of
land used per person has
declined drastically.
•
Although the U.S. population
grew by 17 percent from 1982
to 1997, urbanized land
increased by 47 percent during
the same 15 year period.
• The developed acreage
per person has nearly
doubled in the past 20
years, and housing lots
larger than 10 acres have
accounted for 55 percent
of land developed since
1994, according to the
American Farmland Trust.
• A property tax is actually two conflicting
taxes rolled into one: it’s a tax on the value
of structures AND a tax on the value of the
land under those structures.
• Taxing built structures discourages
building
• Taxing land values encourages building
(taxes higher on land with no buildings on
it in urban areas).
• Parking lots would
give way to buildings.
Abandoned urban lots
would become too
expensive to leave
empty. Forces urban
growth inward.
• Tax Traffic Congestion…Untax Commerce
• Congestion Pricing -near universal agreement
among transportation experts that variable tolls
offer to the only real solution to worsening
gridlock. Depends on “phantom tollbooth”
scanners.
• “SunPass is the Florida Department of
Transportation's innovative Prepaid Toll Program.
Incorporating the latest technology, SunPass has
been implemented across most of Florida's toll roads,
saving drivers' time, money, and the hassle of digging
for change”. (www.sunpass.com)
• What is Sunpass? Is it congestion pricing?
• The cost of purchasing a
transponder is $25 plus
tax, along with a required
$25 minimum initial
balance. That means you
can get started with the
SunPass system for as
little as $50+tax.
(www. Sunpass.com)
SunPass customers typically pay 25
cents less than cash customers at
most toll plazas and exits on
Turnpike roads. A trip from Sunrise
Boulevard in Broward County to the
Disney World exit costs cash
customers $15.70. SunPass
customers pay only $12.40, a
savings of $3.30 one-way, or $6.60
round trip.
reduces congestion, carbon
emissions, lost time.
Taxing Carbon (Thomas Friedman)
• On Sept. 11, 2001, the OPEC oil price was $25.50 a
barrel. On Nov. 13, 2007, the OPEC basket price was
around $90 a barrel.
• In the wake of 9/11, some of us pleaded for a
“patriot tax” on gasoline of $1 or more a gallon to
diminish the transfers of wealth we were making
to the very countries who were indirectly
financing the ideologies of intolerance that were
killing Americans and in order to spur innovation
in energy efficiency by U.S. manufacturers.
The debate according to Friedman (NY
Times, 11/14/07
• Candidate #1: My opponent, true to form, wants to raise your taxes.
Yes, now he wants to raise your taxes at the gasoline pump by $1 a
gallon. Another tax-and-spend liberal who wants to get into your
pocket.”
• Candidate #2: Yes, my opponent is right. I do favor a gasoline tax
phased in over 12 months. But let’s get one thing straight: My
opponent and I are both for a tax. I just prefer that my taxes go to
the U.S. Treasury, and he’s ready to see his go to the Russian,
Venezuelan, Saudi and Iranian treasuries. His tax finances people
who hate us. Mine would offset some of our payroll taxes, pay down
our deficit, strengthen our dollar, stimulate energy efficiency and
shore up Social Security. It’s called win-win-win-win-win for America.
My opponent’s strategy is sit back, let the market work and watch
America lose-lose-lose-lose-lose.” If you can’t win that debate, you
don’t belong in politics.
• “Think about it,” says Phil Verleger, an energy
economist. “We could have replaced the current
payroll tax with a gasoline tax. Middle-class
consumers would have seen increased takehome pay of between six and nine percent, even
though they would have had to pay more at the
pump. A stronger foundation for future economic
growth would have been laid by keeping more
oil revenue home, and we might not now be
facing a recession.”
• But U.S. consumers would have known that, with a
higher gasoline tax locked in for good, pump prices
would never be going back to the old days, adds Mr.
Verleger, so they would have a much stronger incentive
to switch to more fuel-efficient vehicles and Detroit would
have had to make more hybrids to survive.
• “This would have put Detroit five years ahead of where it
is now. “It’s called the America wins program,” said Mr.
Verleger, “instead of the petro-states win program.”
• We simply cannot go on being as dumb as we wanna be
• If you want to see America thrive by becoming the most
energy productive economy in the world — a title that
now belongs to Japan, which doesn’t have a drop of oil
in its soil — you want a gasoline tax, which will only spur
U.S. innovation in energy efficiency.
• “Contrary to intuition, the more costly the price of energy
resources, the more technological innovation and
economic growth” Harper, p. 236
New Measures of Economic and Social
Progress
• From GNP (Gross National Product-total value of all
goods and services purchased)
• To a Genuine Progress Indicator (GPI) that includes
unpaid child care and volunteer work and subtracts
externalities like traffic, pollution, and crime. While US
GDP (domestic goods and services only) grew 56% from
1982-2002, the GPI grew just 2%.
Markets alone are not the answer: Four
limitations (Harper p. 239-242)
• 1) Markets treat as equal worth all dollar values.
Whether the item was created with child labor in a toxic
waste environment or by well-paid adults in a clean
environment.
• 2) Markets don’t incorporate all values (systematically
underprice some items). The value of tree in the
marketplace is for timber only, but a tree has many other
values which are not well-priced in the marketplace
(watershed protection, amenity values)
• 3) gauge real value only in present actual exchanges.
Economic values depend on discounting future values
• 4) Markets tend to create vast systems of
social inequality that represent social costs
that affect human welfare and markets
themselves.
• Should we just let markets be “free”,
unconstrained by government?
• But markets have always been constrained by
politics and culture. We decide collectively what
we want markets to do.
• All of the market strategies for dealing with
environmental problems all require political
action to reengineer markets that deliver different
signals to producers and consumers (p.241
Harper)
Strategies for Public Policy
• 1) Technological Fixes-like compact flourescent light
bulbs.
• 2) Behavioral fixes-publicity campaigns (turn down the
thermostat, recycle your newspapers and bottles)
• 3) Cognitive fixes-aimed at creating behavioral fixespublicity campaigns.
• Legal Fixes-forcing new technologies by public policy
(raising fuel efficiency standards, requiring a certain
percentage of fuel efficient vehicles sold by a particular
date)
Policy and the Economic Production Cycle
• “end of the pipe solutions” –downstream
interventions that work after consumption
has taken place (recycling)
• Mid-stream strategies-getting people to
consume less
• Upstream strategies-making production
more environmental benign-industrial
ecology, waste = food.
Politics and the Limits of Policy
• Why is Europe so far ahead of the US in recycling, tax
and subsidy shifting, promoting alternative energy
sources, supporting international environmental treaties,
etc?
•
In the US it is “winner takes all” but in a parliamentary
system, there is proportional representation of parties in
the government, in cabinet level positions
The rollback of the “environmental
regulatory state”: the Bush administration
The Bush administration has taken the stance that less environmental
regulation is a positive thing.
The results:
• Lack of international cooperation with other nations on carbon
emissions and global warming.
• Completed clean up of toxic waste sites has fallen 52%.
• Civil citations to polluters dropped 57%.
• The environment is getting dirtier, and polluters are not caught
• 36% increase in annual beach closings due to unsafe water quality
since 2001.
• Others too numerous to mention
The benefits of environmental regulation
• Does environmental regulation have high
costs to the economy? Review Harper p.
250-252
• Ecological modernization p. 252
• Community management of commons
resources-the “tragedy of the commons”is
frequently not present in real world local
commons situations. They are not “open
access”. The tragedy of the commons is
misnamed, is really “tragedy of open
access resources” .(p 253-255)