1 Welcome to Environmental and Natural Resource Economics

2 First things first…

3 Environmental Econonomics The study of choice under conditions of scarcity. –How can we address environmental problems, given our limited resources? 7.2 billion people on earth (+ 1 billion in next 8 years). –How can we provide _____ to all? Safe drinking water, adequate nutrition, housing, energy, material needs, etc. –How can we prevent/reduce further environmental degradation? Pollution, deforestation, species extinction, etc.

4 How do we analyze environmental issues? An analytical topic, not a moral one. - Morality is subjective (Economics is not). Suppose a regulation to reduce pollution may be imposed on firms. Jobs would be lost. Jackie: “I believe pollution is immoral, so the regulation should be imposed.” Skip: “I believe unemployment is immoral, so the regulation should not be imposed.” Who’s right? I am! “Will society be better or worse off with this regulation or a different one?”

5 Analytical Perspective All relevant choices involve some costs and some benefits. –Should always consider both before deciding what to do. Something should only be done if it improves overall well-being of society. Will improve overall well-being only if benefits>costs. We should not maximize environmental quality regardless of consequences to economy nor maximize economic output regardless of consequences to environment.

6 Benefit/Cost Approach Benefits/costs are anthropocentric. –Does not mean that we only consider direct usefulness to humans. –Based on clear notion of the value people place on things. Decision Rule: –If Marginal Benefits>Marginal Costs it should be done (it makes economic sense). Mastercard is wrong – nothing is “priceless”. Not even human life! (but maybe….)

7 Baby Panda Bears Approximately $10,000,000

8 Why “price” environmental attributes? Does not mean you can buy it! Don’t want people to confuse “not having a value” with “having no value.” Make the value of the environment more apparent. Lots of difficult choices need to be made. Applying values can help us make better choices. –If it’s all “priceless” there’s no way to evaluate anything. –Often tradeoffs are involved. We can’t do it all. –Don’t have unlimited resources to devote to protect the environment.

Relevant Topics/Questions Nonmarket Valuation How much is the potential loss of a human life worth? Clean water or air? An acre of wetlands? An entire species? A single sea turtle? Should a regulation be imposed which will improve environmental quality but cost jobs? Should a project be allowed which will damage the environment but create jobs? How much should BP have to pay as a result of spilling 200 million gallons of oil in the Gulf of Mexico?

10 Energy/Natural Resources: What is our current energy mix and what are projections for the future? What are the most effective policies to ___ ? –reduce our dependency on oil –reduce our dependency on foreign oil –reduce our dependency on fossil fuels –reduce the price of energy –reduce the environmental impact of energy –increase the amount domestic energy produced –increase the amount of renewable energy produced –increase the number of domestic jobs associated with energy production Relevant Topics/Questions

Pollution: What is the “efficient” level of pollution? –The amount of pollution that maximizes net benefits to society. How can we calculate it, and what is the most cost effective way to get to this level? Should a coal fueled plant be allowed to emit unlimited amounts of carbon dioxide into the atmosphere? Should an individual be allowed to drive a gasoline powered automobile?

What should we do about ____? This class is not about providing answers. Whether you and I (or anyone else) agree with each other is irrelevant. It’s about how to objectively analyze complex issues and to help inform decision making. Remember this for your paper… What could be done? What should be done? Why? See you Thursday!