Environmental Economics
Of Cows and Cars
Peter Berck
Cows
Calif is tops!
Production
• Dairy
– Inputs that are paid for
•
•
•
•
Feed
Water
Labor
Land
– Inputs not paid for
• Removal of ammonia compounds by air
• Removal of nitrogen and phosphorus to water
Suppose they paid for pollution
D
S’
price
S
Quantity of Milk
Response to a pollution charge
• Could trap manure in a pond, digest it, and burn
the methane in an engine.
– Buys capital goods (engine, pond)
– Sells electricity (but it won’t pay for engine, pond)
– Doesn’t pollute as much
• Suppose that farmer had to pay for release of
methane, etc. Would that tip the balance to
cleaner production?
• As price paid for right to pollute goes up, amount
of pollution per unit output goes down. Amount
of other inputs goes up.
Two effects of pollution charge
• Pollution per unit of output goes down (she
buys the generator and pond)
• Quantity of polluting output goes down
(her supply curve shifts in and less
polluting output is produced in equilibrium)
Question
• (Hypothetical) A tax of $100/ton of organic
gasses emitted would induce the farmer to
use the generator and decrease his
emissions by 75%.
• Would the farmer rather be ordered to use
the generator or would she rather face the
tax?
Question:
• If farmers have to clean up (this is real see
the draft scoping plan for GHG!)
– It will cost them more to make milk
• Will the price of milk go up?
• Can consumers avoid paying for cleanup?
• Who does the general public think pays?
Abated by Cars (million tons)
22.1
19.4
15.4
7.1
0
1.8
MCA Powerplants
1.6
1.4
$ per lb.
1.2
Sacred
Cars:
Efficient
Cleanup
0.93
0.8
Initial Abatement Allocation
0.6
0.45
0.43
MCA Cars
0.2
0
0
2.7
6.7
Abated by Powerplants (million tons)
15
22.1
MCA is marginal cost of
abatement—cost to
clean up the next unit of
pollution
The Case for Tradable Permits
It costs powerplants much more than it costs cars
to clean up 1 ton of Nox. At original allocation
We need to remove 21 mt from the air.
Which is better:
1. Cars and powerplantsmust abate as in original
2. Powerplants pays cars money and cars clean
up another 4mt.
What could be Wrong
• power pays cars and cars lie about
cleaning up.
• power is in an unpopulated place and cars
are in the center of a city
• Pollution is just wrong and power shouldn’t
be allowed to pollute (but it isn’t wrong for
my car to pollute, just yours…)
Politics
• California may not clean its air by
prohibiting 2-stroke lawn mower engines.
• California must add alcohol to its gasoline,
even though we don’t believe that is the
best way to clean the air.
• California won the right to regulate heavy
trucks in its State Implementation Plan.
Model
• Politicians need votes
– Can have popular position
– Can get $ and use them to advertise