Wednesday, January 9, 2013

Markets and the Environment Chapter 1

I think that this book is a fairly basic overview of environmental economics, but perhaps I could use a better primer on the topic.  Just FYI, if you're seeing an ECN 125 label, the post is mostly for my energy economics class.

I don't have the book yet, so I didn't get through all of the first chapter.  It doesn't appear that the book is math-heavy.  It's probably not worth the $20 it costs to buy, but I might get it anyway.  Of course, the central premise of environmental economics is how we can use economic approaches to mitigate environmental issues.  The basic idea is to measure the costs and benefits of various policy options and choose the best one.  Easier said than done of course.  One big contrast between environmentalists and environmental economists is their differing views on free markets.  Environmentalists say that markets are the problem leading to so much pollution today.  Economists counter that the problem is that there is no market for pollution/environmental destruction.  If companies actually could profit solely by improving the environment, then they would.  Generally, markets are thought to be more efficient at achieving the same goals than increased regulation.

There is one interesting point mentioned about climate change economics. Keohane and Olmstead propose that climate change abatement is a public good-that is, something that is freely enjoyed by everyone regardless of their contribution.  This means that countries that don't reduce emissions will still benefit while other countries may sacrifice economic benefit for environmental gain.  Of course, this creates a prisoner's dilemma where the Nash equilibrium involves no attempts to mitigate climate change, making everyone worse off.  Unfortunately, the reality is that few countries are willing to make the effort necessary to significantly limit warming, and the countries that are doing their part are not going to offset the increased emissions from the rest of the world.

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