Economics and The Environment John Perez-Garcia Forest Economist.

Economics and The Environment

John Perez-GarciaForest Economist

The Sustainability Paradigm

Meeting essential needs (jobs, food, energy, water and sanitation).

Conserving and enhancing the resource base.

Reorienting technology.Merging environmental concerns and

economics in decision making.

2

Presentation Summary

Key Economics IssuesWhat is EconomicsDemand and SupplyEconomic Specifics and the

EnvironmentDecision Making and Cost Benefit

AnalysisSummary of Key Issues

3

Key Economic Issues

What is the correct level of environmental protection?

How should this be decided?How should this level be achieved?Who should bear the cost?

Requires an interdisciplinary approach Economics, Ecology and Ethics

4

What is Economics?

Allocation of scarce resourcesIf there is no scarcity, there is no

problemScarcity rentExternalitiesWillingness to Pay

5

Firms

Households

OutputInput The Economy


6


Firms

Households


The Environment

7

Resource Economics

Firms

Households


The Environment

Energy

Air

Water

Amenities

Raw Materials

8

Environmental Economics

Firms

Households


The Environment

Pollution

Wastes

9

Economics and The Environment: Strategies

Firms

Households


The Environment

Energy

Air

Water

Amenities

Raw Materials

Pollution

Wastes

Conservation

RecycleSubstitutes

10

Economics and The Environment: Strategies

Firms

Households


The Environment

Energy

Air

Water

Amenities

Raw Materials

Pollution

Wastes

Conservation

RecycleSubstitutes

RemediateRestoreRemove

11

Environmental Economics

Applying economic theory to environmental goods and services.

Includes the supply of environmental “bads” (Pollution and wastes).

Includes the demand for environmental goods and services that avoid damages from “bad” output.

12

Individual Demand = Benefits

Price

Quantity13

Individual Demand

Price$ per unit

Quantity

$5

6

$8

Total Willingness to Pay

14

Supply = Cost

Price

Quantity15

Supply

Price

Quantity

Total Cost

16

Market Equilibrium = Efficiency

Price

Quantity17

Market Equilibrium = Efficiency

Price

Quantity

Total Net Benefits

18

Market-based Solutions

Using economic principles to achieve efficient levels of environmental protection Defining property rights Internalizing environmental costs of

production Creating scarcity

19


Market failures and externalities Cost of production

are external to the price of the product

Lack of well-defined property rights

Internalizing environmental values

Price

Quantity

20






Price

Quantity

21






Price

Quantity

22






Price

Quantity

23

Decision Making

Cost benefit analysis Project definition Classification of impacts Conversion into monetary terms Discounting Project assessment Sensitivity analysis

24

A Cost Benefit Analysis of Forests and Fish Rules:

A Case Study

25

Existing Buffers

A sampled section with a single ownership and stream data.26

Proposed Buffers


Net Buffers


Potential Costs Measures of potential costs Lost revenues due to timber asset retirement NPV in dollars for the state Net costs associated with road planning and maintenance

NPV in dollars for the state

Setup costs to delineate riparian management zones, unstable slopes, etc


Net income losses due to employment losses. NPV in dollars for the state Set asides for unstable slopes Not estimated, will add to costs Costs associated with the forested wetlands rules Not estimated, will add to costs Costs associated with pesticide restrictions Not estimated, will add to costs Equipment zone limitation costs Not estimated, will add to costs Social and economic dislocation Not estimated, will add to net

income loss figure above Loss recreational and fire control access Not estimated, will add to costs

Potential Costs: CBA

29

Cost Estimate

Timber asset, road planning and lost wage costs range from 7.15 to 8.18 billion dollars

No estimates on costs associated with other rules, pesticide restrictions, equipment zone limitation, social and economic dislocation, and other factors

Price

Quantity

30

Benefit Estimation

Much less straight-forward

No clear relationship between fish values and forests

Non-market techniques Quantity

$5

6

Total Willingness to Pay

Price

31

Table 1. Potential costs and benefits associated with new proposed rule changes. Potential Benefits Measure and Effect Improved fishery resource NPV in dollars for the state Improved habitat for upland wildlife Not estimated, will increase benefits Improved carbon sequestration Not estimated, will increase benefits Improved water quality Not estimated, will increase benefits Reduced threats to public safety from unstable landforms

Not estimated, will increase benefits

Promote viability of industry in view of other alternatives

Not estimated, will increase benefits

Employment benefits from implementing road maintenance plans


Tax credit benefits to landowners/harvesters NPV in dollars for the state

Potential Benefits: CBA

32

Valuation Methods

Constructed market techniques Contingent valuation methods Choice experiments

Increase Monthly Mortgage

Payments by

Reduced Greenhouse

Gas Emission Reduced Air

Pollution

Reduced Water

Pollution

Reduced Solid Waste Production

Plan A $45 6 tons 15% 5% 15%

Plan B $95 11 tons 0% 25% 5%

Plan C $5 16 tons 25% 15% 25%

Plan D $0 0 tons 0% 0% 0%

33

$-

$2

$4

$6

$8

1 2 3 4 5 6 7 8 9 10

5% Increments in Fish Population

Billions

Columbia Freshwater Columbia Migratory

Pacific Freshwater Pacific Migratory

LBP Study: High Status Quo

34

$-

$2

$4

$6

$8

$10

$12

1 2 3 4 5 6 7 8 9 10

5% Increment in Fish Population

Billions

Columbia Freshwater Columbia Migratory

Pacific Freshwater Pacific Migratory

LBP Study: Low Status Quo

35

Net costs over Current Situation

Net benefits over Current Situation

Low High Low High Foregone timber asset value 2.678 2.678 Road maintenance & stream crossings 2.13 2.13 Lost wages 2.387 3.420 Set up costs 0.154 0.154 0.154 0.154 Hypothetical FIRST 5% increase in fish population after 20 years

7.0

10.3

Increased road construction activity 1.789 2.684 Reduced excise tax 0.154 0.154 0.154 0.154 TOTALS 7.503 8.536 9.097 13.292

Summary Table for Benefit Cost Analysis (Billion dollars)

36

CommentsWe are lackingkey data on theproduction function betweenriparian habitat and fish populations.

37

CBA Limitations

There are no data that directly links the environmental effects from new proposed rules effects with a change in fish populations.

Programs in other sectors can potentially have a higher impact on the fishery resource than the new forest practices rules, hence higher net benefits. These other programs may also have lower impacts, hence lower net benefits.

38

The Key Issues

What is the correct level of environmental protection?

Price

Quantity 39

The Key Issues

How should this be decided?

A combination of market-based approaches and regulations

40

The Key Issues

How should this level be achieved?

Using cost effective approaches

41

The Key Issues

Who should bear the cost?

Those willing to pay for it.

42

The Key Issues

Requires an interdisciplinary approach

Economics, Ecology and Ethics

4343

Economics and The Environment John Perez-Garcia Forest Economist.

Documents

Transcript of Economics and The Environment John Perez-Garcia Forest Economist.