ECONOMICS OF THE ENVIRONMENT
Climate Change
o A change in global or regional climate patterns because of
increased levels of atmospheric carbon dioxide produced by use of
fossil fuels.
o Difficulties when addressing policies:
Capping emissions is not enough stock of CO2 matters, not the flow
May be irreversible long-lasting effects
Requires global cooperation as effects come from all over the world.
Conflicts of interest (between/within countries & generations)
Worst-case scenario is catastrophic. Need range of scenarios.
Abatement
o Abatement policy: designed to reduce environmental damages
(abate (reduce) pollution and environmental damage)
o Examples:
Discovering/adopting technologies that are less polluting
Choosing to consume fewer environmentally damaging goods
Banning use of environmentally harmful substances/activities
o Cost-Benefit Analysis: what are the trade offs of consuming more
and having a less polluted environment?
Immediately eliminating all CO2 emissions would result in
economic costs that outweigh the benefits
o Assumptions for analysis:
Assume everyone lives forever (unrealistic/don’t know future pref)
Assume everyone experiences the same level of
environmental quality
Assume an “ideal policymaker” or “benevolent dictator” who
seeks to solely satisfy citizens interests.
Assume all citizens have same preferences
Different groups in society place a different value on enviro
quality, with some groups being more affected by abatement
policies than others, leading to conflicts of interest.
o Feasible set of outcomes: actions and consequences
Consider ways that resources can be diverted from their
current uses to reduce environmentally degrading effects of
economic activity
nation adopts polices the limit environmental damage =
ABATEMENT POLICY
o Quantity Abatement: amount by which emissions are reduced
Incentives to use fuel efficient cars, taxes on pollutant
, ABATEMENT MARGINAL COST CURVE
o Abatement policies address climate change.
o degree of abatement chosen depends on the relative costs and
benefits.
o Cost curve: shows per-unit cost of abating greenhouse gas
emissions using policies, ranked from most cost-effective to least
(MCC)
o Opportunity Cost: reduced consumption
o Each bar represents a change that could reduce carbon emissions.
o Height shows cost of using tech to reduce carbon emissions.
o Width shows the reduction of CO2 emissions, compared to a level
without policy intervention
*short bar: a lot of
abatement per euro
spent.
* wider bar: means this
method has higher
potential to abate
emissions
* Some have no costs
and rather save money
to allow for abatement.
LEAST COST ABATEMENT CURVE
o shows all the combinations of environmental quality (E) and cost
of abatement, when the abatement technologies are adopted in
ascending order of cost.
o use cost curve to show how much abatement we get for any given
level of expenditure
o ASSUMPTION: we implement the most efficient methods first
1. start with the cheapest and more efficient measures first.
2. As we move towards the less efficient measures the curve
becomes flatter because we are devoting more resources to
less efficient causes
Climate Change
o A change in global or regional climate patterns because of
increased levels of atmospheric carbon dioxide produced by use of
fossil fuels.
o Difficulties when addressing policies:
Capping emissions is not enough stock of CO2 matters, not the flow
May be irreversible long-lasting effects
Requires global cooperation as effects come from all over the world.
Conflicts of interest (between/within countries & generations)
Worst-case scenario is catastrophic. Need range of scenarios.
Abatement
o Abatement policy: designed to reduce environmental damages
(abate (reduce) pollution and environmental damage)
o Examples:
Discovering/adopting technologies that are less polluting
Choosing to consume fewer environmentally damaging goods
Banning use of environmentally harmful substances/activities
o Cost-Benefit Analysis: what are the trade offs of consuming more
and having a less polluted environment?
Immediately eliminating all CO2 emissions would result in
economic costs that outweigh the benefits
o Assumptions for analysis:
Assume everyone lives forever (unrealistic/don’t know future pref)
Assume everyone experiences the same level of
environmental quality
Assume an “ideal policymaker” or “benevolent dictator” who
seeks to solely satisfy citizens interests.
Assume all citizens have same preferences
Different groups in society place a different value on enviro
quality, with some groups being more affected by abatement
policies than others, leading to conflicts of interest.
o Feasible set of outcomes: actions and consequences
Consider ways that resources can be diverted from their
current uses to reduce environmentally degrading effects of
economic activity
nation adopts polices the limit environmental damage =
ABATEMENT POLICY
o Quantity Abatement: amount by which emissions are reduced
Incentives to use fuel efficient cars, taxes on pollutant
, ABATEMENT MARGINAL COST CURVE
o Abatement policies address climate change.
o degree of abatement chosen depends on the relative costs and
benefits.
o Cost curve: shows per-unit cost of abating greenhouse gas
emissions using policies, ranked from most cost-effective to least
(MCC)
o Opportunity Cost: reduced consumption
o Each bar represents a change that could reduce carbon emissions.
o Height shows cost of using tech to reduce carbon emissions.
o Width shows the reduction of CO2 emissions, compared to a level
without policy intervention
*short bar: a lot of
abatement per euro
spent.
* wider bar: means this
method has higher
potential to abate
emissions
* Some have no costs
and rather save money
to allow for abatement.
LEAST COST ABATEMENT CURVE
o shows all the combinations of environmental quality (E) and cost
of abatement, when the abatement technologies are adopted in
ascending order of cost.
o use cost curve to show how much abatement we get for any given
level of expenditure
o ASSUMPTION: we implement the most efficient methods first
1. start with the cheapest and more efficient measures first.
2. As we move towards the less efficient measures the curve
becomes flatter because we are devoting more resources to
less efficient causes
