The whole article is nearly 16,000 words.
Chapter XIV
Land, natural resources and the environment
Summary summary
Natural Resource Economics
When a natural resource cannot be regenerated quickly, so that its supply is most basically fixed, it is a non-renewable resource. Renewable resources, on the other hand, mean that their supply can be replenished regularly and can produce unlimited utility if properly managed.
When the benefits of the utility of natural resources can be fully obtained by manufacturers or consumers, it can be distributed. Examples include vineyards and oil fields. Natural resources are non-allocatable when their costs or benefits cannot be fully borne or acquired by the owner. In other words, they create externalities.
Income from fixed elements such as land is called pure economic rent, or rent for short. Since the supply curve of land is vertical and completely inelastic, rents are price-given rather than price-determining.
Factors like land, which are inelastic insublement, will continue to provide the same amount even when their factor returns decrease. It is for this reason that Henry George once pointed out that the essence of rent is surplus, not the necessary remuneration for guiding the efforts of elements. This provided the basis for his proposal to impose a flat tax on the natural value added of the land. While increasing tax revenues, such taxes do not pass on to consumers or distort production. Modern tax theory further expands this view by arguing that taxation of goods with less elasticity of supply or demand minimizes the loss of efficiency because these taxes have fewer distortions in economic behavior.
environmental economics
Environmental problems are caused by externalities in production or consumption. Externalities are acts that impose undetected costs or benefits on others, so that their effects cannot be fully reflected in its market price.
The most extreme cases of externalities are public goods, such as national defense. For public goods, all consumers in a group enjoy the same consumption and cannot be excluded from that group. Public health, inventions, parks and all have the characteristics of public goods. They differ from private goods (such as bread), which can be divided and offered to individual individuals.
An unregulated market economy will produce too much pollution and too little pollution control. Unregulated manufacturers determine the amount of pollution control and other public goods by comparing private marginal benefits with private marginal costs. Efficiency, however, requires that the marginal benefits of society equal to the marginal costs of society.
Economists emphasize that effective management of externalities requires rational pricing of natural and environmental resources. This includes ensuring that market participants bear the full cost of their actions.
There are many ways in which governments can internalize or correct inefficiencies caused by externalities. Solutions include decentralized or private means (e.g. negotiation or liability rules) and government enforcement (e.g., pollution emission standards or emission taxes). Experience has shown that no one approach can cure all diseases, but many economists believe that greater use of market instruments can improve the efficiency of regulatory systems.
Global public goods are a very difficult problem because they cannot be solved simply through markets or national governments. When issues such as global warming threaten ecosystems and our standard of living, countries must work together to devise new tools to push for international agreements.
pick:
Land is a good investment because people can no longer grow it a little more. —Will Rogers
If you look at any economic process, it is driven by an organic combination of the three basic elements of land, labor, and capital. In Chapter 1, we already know that land and natural resources can provide the foundation and fuel for our economy; that durable capital goods and intangible capital are used together in the production process; and that human labor is to cultivate the land, operate capital stocks, and manage the production process.
The previous chapters have explored economic theories about the marginal productivity of prices and factors, and the role of labor in the economy. This chapter continues to analyse factors of production and explore how market mechanisms play a role in terms of land, natural resources and the environment. Let's start with non-renewable inputs such as land and natural resources. Then we will turn to the hot topics in environmental economics. These topics relate to important market failures, as well as discussions about global warming and its countermeasures.
Natural Economics
Tens of thousands of years ago, when obscurantist humans began to produce, their economy was based on hunting, fishing and gathering, with abundant natural resources, but few capital goods, except for some sharp stones and branches. Today, we may all take it for granted that we enjoy clean air, abundant water, and unpolluted land. And if we ignore the limitations of our natural environment, what kind of threat will human beings be exposed to?
Environmentalists who emphasize the restrictions and fears of danger believe that human activities pose a threat: land pollution, depletion of natural resources, destruction of complex natural ecosystems, and catastrophic climate change. Wilson, a prominent biologist at Harvard University, made the following poignant warning, expressing the views of environmentalists vividly:
Environmentalism... Seeing humans as a biological species that is closely dependent on the natural world... Many of the planet's vital resources are being depleted, the mass of the atmosphere is deteriorating, and the world's population is expanding to dangerous levels. Natural ecosystems, the source of a healthy environment, are being irreversibly degraded... Whenever this harsh reality and its consequences haunt me, my confusion cannot help but become radical: Does humanity want to self-destruct?
Those who believe in this catastrophic vision point out that humanity must practice "sustainable" economic growth and learn to survive under the constraints of scarce natural resources, or we will have to devour all kinds of tragic and irreparable consequences.
The other extreme of the above problems is the "abundanceist" or techno-optimist. They argue that the depletion of both natural resources and technological capabilities is a distant thing. This optimistic view suggests that we can achieve sustained economic growth and higher living standards, and that human ingenuity is sufficient to cope with any resource constraints or environmental problems. If the oil runs out, there is also the big secret of coal. If that's not enough, rising energy prices can trigger solar, wind and nuclear developments. In their view, technology, economic growth and market forces are the saviors of humanity, not the bane. Julian. Simon is a brilliant example of technological optimists, writing:
Just ask the people in the room, is our environment getting dirtier or cleaner? Most people must answer that it is getting dirty." Yet it is an indisputable fact that the air in the United States (and other wealthy countries) is now safer to breathe than it has been in decades. The number of contaminants, especially particles as major pollutants, has declined. In the case of water, the proportion of drinkable water in the areas tested in the United States has been increasing since data were began in 1961. Our environment is getting healthier. And from either angle, this trend will continue.
In general, mainstream economists have always tried to stand between the two extremes of environmentalists and stedders. They acknowledge that humans have been using the earth's resources for many years. Economists generally emphasize the fact that the effective management of the economy requires a reasonable pricing of natural and environmental resources. In bendong we will briefly introduce some perspectives on pricing scarce natural resources and managing the environment.
The type of resource
What are important natural resources? They include land, water and atmosphere. Fertile soils provide us with food and wine; there is oil and mineral deposits beneath the surface. Water provides us with fish, entertainment, and a very efficient way of transport. The precious atmosphere not only provides us with breathable air and sunset views, but also provides space for aircraft to fly. Natural resources (including land), like labor and capital, are also a factor of production. They are factors of production because we can derive output or satisfaction from their services.
When analyzing natural resources, economists often distinguish between them from two perspectives. The most important of these distinctions is whether resources are allocatable or non-allocatable. When a manufacturer or consumer has access to the full economic value of a product, the product is called an appropriable resource. Allocatable natural resources include land (the economic value of soil fertility is earned by farmers when they sell wheat and wine produced on the land), mineral resources such as oil and gas (the owner can sell minerals on the market to obtain its economic value), and forests (the owner can sell land or trees to the highest bidder). In a well-functioning competitive market, allocatable natural resources are efficiently priced and allocated.
The second natural resource, the inappropriable, is a resource whose costs or benefits cannot be fully attributed to its owners. In other words, an undisturbable resource is a resource with externalities. (Recall that externalities are those situations in which production or consumption imposes irreparable costs or gives benefits that are not compensated to other groups. ）
Examples of undistractable resources can be found in every corner of the globe. Let's take an example of the decline in stocks of important fish such as whales, tuna, bluefish, fresh fish, etc. A herd of tuna is not only used as food for dinner, but is also the mother of the next generation of tuna. However, this reproductive potential is not reflected in market prices. Thus, when a fishing vessel catches a yellow-tailed tuna, it does not compensate society for its actions that deplete its future reproductive potential. This is why there is a tendency to overfish without regulating fishing practices.
This leads to a central conclusion in natural resource and environmental economics:
When market participants do not fully reap the costs or benefits of using natural resources, externalities occur and the market provides false signals and distorted prices. Generally speaking, the market will overproducle externally uneconomical products, and for external economic products, the market will underproduction.
The way the resource is used depends on whether the resource itself is renewable or non-renewable. Nonrenewable resources are those resources that are basically fixed. A clear example is fossil fuels, which sank into formations millions of years ago and can be considered non-renewable relative to the time scale of human civilization. There are also non-fuel mineral resources such as copper, silver, gold, stone and sand.
The second category is renewable resources, whose utility can be regularly replenished and, if properly managed, can produce endless utility. Solar energy, arable land, river water, forests and fish are all important renewable resources.
The principle of the efficient use of these two resources manifests itself in very different requirements. The efficient use of non-renewable resources requires a limited number of resources to be reasonably arranged in a reasonable and orderly manner in terms of their use time: should low-cost natural gas be used now, or should it be preserved for future use? Instead, for renewable resources, it is wise to ensure that the utility of such resources is continuously accessible in a reasonable way, for example, by properly managing forests, protecting fish stocks during the reproductive period, and monitoring the pollution status of rivers and lakes.
This chapter discusses the economics of natural resources. In this section, we first focus on land resources, trying to grasp the pricing principles and mechanisms behind this fixed amount of resources. Section II (section B) we will turn to environmental economics, discussing a number of important public policies that address issues such as air, water and land pollution, as well as global issues such as climate warming.
Fixed land and rent
Land is the most valuable natural resource. Legally, ownership of "land" includes a range of rights and obligations, such as the right to possess, the right to farm, the right to refuse to use, and the right to build. Unless you plan to run your company on a balloon, land is an essential factor of production for any commercial activity. An unusual feature of land is that it is fixed in quantity and completely inelastic to prices.
Rent as a fixed factor income
The price of a fixed factor is called rent, or pure economy rent. What economists call "rent" is not only in terms of the land element, but also uses it to discuss all the factors that are fixed in supply. If you pay Alex Rodriguez $3 million a year to make him play for your baseball team, that money can be seen as rent to use this unique element of his. Rent is denominated in dollars per hour and unit fixed element. The rent for desert land in Arizona can be as little as 50 cents per acre per year, while the rent for land in Central New York or Central Tokyo can be $1 million per acre per year. It is important to remember that the term "rent" has a special and specific meaning in economics, that is, rent is the payment of a fixed factor of production that uses supply. "Rent" in everyday life usually includes other meanings, such as the cost paid for renting an apartment or building.
Rent (or purely economic rent) is the remuneration paid for the use of a fixed factor of production that is supplied. 】
[Market equilibrium Because the supply of land is fixed, the supply curve of land is completely inelastic, that is, vertical. In Figure 14-1, the demand and supply curves intersect at point E. The rent of land must be close to this equilibrium price. Why? 】
If the rent is higher than the equilibrium price, all manufacturers will need fewer land sites than they can supply. Some landowners cannot rent out their land; they have to rent out their land at a lower rent, and the rent of the land comes down. Similarly, rents do not stay below equilibrium levels for long. The market will only be in equilibrium if the demand for land is exactly equal to a fixed supply (in this case, competitive prices).
Assuming that the land can only be used to grow corn, if the demand for corn rises, the demand curve of the cornfield will move to the upper right and rents will rise. This illustrates an important feature of the land: the high value of the land is due to the high price of corn. This is also a good example of a factor demand as a derived demand A demand for a pair of elements is derived from the demand for the product produced by the factor.
Because the supply of land is inelastic, and land always functions for the products it can produce, the value of land is derived entirely from the value of the products it can produce, and vice versa is not true.
Taxation of land
The fact that the supply of land is fixed leads to an important conclusion. Consider the land market in Figure 14-2. Suppose the government starts to impose a 50% tax on all land rents, not to mention that there is no tax on buildings or new facilities.
The overall demand for land has not changed since the tax was levied. In Figure 14-2, when the price (including tax) is $200, the demand for land is still equal to the fixed supply of land. Therefore, due to the fixed supply of land, the market rent (including tax) of land services will not change at all, and it is still at the initial market equilibrium point E.
So, how will the rent received by landowners change? Since the quantity of demand and supply does not change, the market price is not affected by taxes. The tax was then entirely deducted from the landowner's income.
We can see this in Figure 14-2. The money paid by the farmer and the money received by the landowner are now two completely different things. For landowners, when the government intervenes to take away 50% of rents, the effect is the same as the impact of the owner's net demand from DD to D'D'. The landowner's after-tax equilibrium income is now only E'. Taxes are entirely borne by the owners of completely inelastic elements of supply.
Landowners will certainly complain. But in perfectly competitive conditions, there is nothing they can do about it. Because they cannot change the total supply of land, and the land is always to be used to obtain something, it is better to get half a loaf of bread than no bread at all.
At this point, you may want to understand the impact of this tax on economic efficiency. The surprising result is that taxing rents does not cause distortions or economic inefficiencies. The reason for this astonishing result is that a tax on purely economic rents does not change anyone's economic behavior. The demanders are not affected because their willing prices have not changed; neither is the behavior of the suppliers, because the supply of land is fixed and it is impossible to react. As a result, the after-tax economy operates exactly as it did before the tax, and the land tax does not bring distortion or inefficiency.
Taxing purely economic rents does not lead to distortion or inefficiency.
Henry George's Single Tax Campaign
The pure economic rent theory was the basis of the single tax movement in the late 19th century. At that time, the population of the United States grew rapidly as people from all over the world immigrated to the United States. As the population grew and the railroads extended into the western United States, rents soared, bringing lucrative profits to lucky or visionary people who had pre-purchased land.
Some people ask, why are these landowners allowed to receive so much non-labor income of land appreciation? One has done a lot of work on economics
The thought-provoking journalist Henry George (1839-1897) epitomized this sentiment in his best-selling book Poverty and Progress (1879). In his book, he suggests that property taxes on land should be used as the primary means of government financing, while all other taxes on capital, labor, and new facilities on land should be reduced or exempted. George believed that such a single tax could improve income distribution without compromising economic productivity.
Although the U.S. economy clearly did not go too far in the direction of the idea of a single tax, many of George's insights gained the attention of later generations of economists. In the 1920s, the British economist Frank Ramsey developed George's method by analyzing the efficiency of different types of taxes. This led to the development of the efficiency principle (or Ramsey principle). This analysis shows that when the price elasticity of supply or demand in a sector is very small, taxation of a sector results in minimal distortion.
The reasoning behind the Ramsey tax is basically the same as shown in Figure 14-2, if the supply or demand of a commodity is highly inelastic, the taxation on that sector will have little impact on production and consumption, and the resulting distortion will be very small.
In the introductory part of this chapter, we learned about some of the debates about environmental issues. A stern warning came from Paul Ehrlich and Ann Ehrlich. In 2008, the two environmentalists expressed their concerns this way:
We humans have finished picking the low fruit and using the richest land. To feed a growing population, the metals smelted must come from richer ores, while natural gas and water will need to be obtained from deeper wells and transported farther away. The so-called "critical" land, the last stronghold on which we usually depend and maintain the basic ecosystem biodiversity, will increasingly need to grow more crops to sustain people and livestock, as well as the household use of various recreational vehicles (SUVs) ... Global warming is bound to be a major threat, although it may not yet be one of the biggest environmental problems. Changes in land use, poisoning on the planet, increased potential for widespread epidemics, conflicts over scarce resources, and the possible use of nuclear weapons in conflicts, and all population-related hidden dangers, will increasingly demonstrate their threat to humanity.
Many technocracists, however, argue that these concerns are exaggerated. Our task is to try to learn about economic forces that can control environmental degradation. In this section, we will reveal the externality characteristics of the environment, explain why they create economic inefficiencies, and analyze possible solutions.
Externalities
We have come into contact with the concept of externality, which means an act of imposing an undceived cost or benefit on others, or an act whose effects cannot be fully reflected in its market price.
Externalities take many forms: some are positive and some are negative. When a manufacturer discharges toxic wastewater into a stream, fish and plants are killed and the landscape value of the stream decreases. Because the manufacturer does not need to compensate people for damage to the stream, this is a negative or harmful externality. When you get a new flu vaccine, those who don't get the new vaccine will also benefit from you because they have less chance of getting the flu virus. This is a positive or beneficial externality.
Some externalities have universal effects, while others involve only a small number of people. In the Middle Ages, if a lymphoid plague virus carrier entered the city, all the people in the city could die of the Black Death; and on windy days, if you chewed onions on the football field, the influence of externalities was not easy to notice.
Public and private goods
To illustrate the concept of externalities, let's look at the extreme example of a public good, a product or service that is offered to all people with the same difficulty as it is offered to one person.
A typical example of public goods is national defense. Nothing is more important to society than national security. But defense, as an economic product, is completely different from private goods such as bread. 10 loaves of bread can be divided into many portions per head, and the bread I have eaten will not be eaten again by others. And once defense is provided, it has the same impact on everyone. Whether you are a hawk or a dovish, a pacifist or a militant, an old man or a youth, an illiterate or a well-educated person, you will receive the same security protections that the army provides as all the inhabitants of the country.
A clear contrast is that decisions about the level of production that provide public goods like defense involve submarines, cruise missiles, tanks, and so on to protect each of us. In contrast, the decision to consume private goods, such as bread, is a purely private act. You can eat 4, 2 or no, in short, it's entirely up to you to decide, without having to make sure everyone else has a certain amount of bread to consume.
National defense is an extreme example of public goods that attracts attention. But if you think again about smallpox vaccines, Hubble, clean drinking water, and many similar government programs, you'll find the basic characteristics of public goods. It can be summarized as follows:
Public goods (also translated as "public goods" or "public goods" are those that benefit every member of society, whether the individual wants to consume them or not. Private goods, on the contrary, are items that can be divided, can be consumed by different people, and have no external benefits or external costs to others. The effective provision of public goods usually requires the efforts of the government, while private goods can be efficiently distributed by the market. 】
Global public good
Perhaps the most intractable market failure is the global public good. Global public goods refer to an externality whose effects cannot be inextricably extended throughout the planet. Important examples include the mitigation of global warming (discussed later in this chapter), the prevention of ozone depletion, and research and development to prevent avian influenza. The problem of global public goods is particularly difficult to deal with because of the lack of efficient market or political mechanisms for effective allocation. Market failures are due to the lack of proper incentives on the part of individuals to produce and the inability of individual countries to enjoy exclusively the benefits of investment in global public goods.
How are global public goods different from other items? If a major storm destroys the U.S. corn harvest, the price system will guide consumers and farmers back into a supply-demand balance. If america's road system needs to be modernized, voters will lobby the government to develop a more efficient transportation system. But if global public goods problems arise, such as global warming or antibiotic research and development, neither market participants nor individual countries will be properly motivated to look for efficient outcomes. The marginal cost of investment by any individual or country would be much lower than the marginal return of global residents, so underinvestment is inevitable.
Market inefficiencies caused by externalities
Abraham Lincoln once said that governments should "do for people what they want to do, but they simply cannot do or do well on their own." Pollution control meets this criterion, as market mechanisms cannot impose appropriate restrictions on polluters. Manufacturers will neither voluntarily reduce emissions of toxic chemicals nor change their practice of dumping toxic waste into dumps. Pollution control has always been considered a legitimate function of government.
Analysis of inefficiencies
Why does external uneconomicalness like pollution lead to economic inefficiencies? Suppose there is a coal-fed thermal power plant (The Black Bright Power Plant) that emits a large amount of toxic fumes containing sulfur dioxide, thus creating external uneconomical. Of course, some sulfides will also affect the manufacturer itself, so the plant needs to be repainted frequently, and the medical expenses of employees will increase. Still, the main impact of the damage was "external" to the plant, affecting the entire region: problems with vegetation and buildings, multiple respiratory diseases for nearby residents, and even a range of problems such as maternal miscarriages and infant deaths.
As a manufacturer with the goal of maximizing profits, the Black Bright Power Plant must decide how many pollutants it should emit. If pollution is left unchecked, its workers, plants and profits will be damaged. On the other hand, if all the gases emitted are purified, they need to pay an expensive price. The cost of complete and thorough purification will certainly be too large, making it impossible for the Black And Bright Power Plant to survive in a competitive market.
Therefore, the manufacturer manager will choose a profit-maximizing level to reduce pollution. At this level, the benefits that power plants derive from 1 unit more pollution or "pollution reduction by 1 unit" (private marginal benefits) are exactly equal to the increased cost (marginal cost of purification) from an additional "1 unit of pollution reduction". According to economic and engineering codes, when the amount of pollutants purified by a power plant is 50 tons, the private profits of the manufacturer are maximized. At this level, the private marginal benefits of factories are exactly equal to the private marginal costs of decontamination, which is $10 per ton. In other words, when the black and bright power plant only considers the problem from the perspective of private cost and generates electricity at the minimum cost, it will discharge 350 tons of pollutants and only purify 50 tons.
However, it is assumed that a group of environmentalists and economists want to examine the purification benefits of society as a whole and not just a black-and-bright power plant. In examining the overall impact, the auditors found that the social marginal benefits of controlling pollution, including health enhancement and the value of assets in neighboring areas, were 10 times greater than the aforementioned private marginal benefits. The private benefit of each additional 1 ton of emissions purified by the Black Bright power plant is $10, and the additional external benefit of $90 is for the benefit of society. Why doesn't the Black Bright Power Plant account for the additional $90 social gain stats? Because that's external to the manufacturer and has no impact on profits.
We now understand how pollution and other externalities can lead to economic inefficiencies: in the absence of regulation, manufacturers will determine the level of pollution under profit-maximizing conditions by making the private marginal benefits of purification equal to the private marginal costs of purification. When the effects of pollution spillover are severe, the level of private equilibrium is bound to be inefficient, leading to high levels of pollution and low levels of purification.
Pollution that meets social efficiency standards Can a better solution be found under the condition that private pollution control decisions are inefficient? Often, economists determine pollution levels that meet social efficiency criteria by balancing social costs and benefits. More specifically, the marginal social benefits of achieving social efficiency standards that require pollution control are equal to the social marginal costs of pollution control. 】
So how can the effective pollution level be determined? Economists offer a method called cost-benefit analysis, where the level of efficiency is determined by the equilibrium of the marginal cost and marginal benefit of a behavior. In the case of the Black Bright Power Plant, suppose that experts studied the cost data on reducing pollution and affecting the environment and found that when the pollution control team rose from 50 tons to 250 tons, the social marginal cost would equal the social marginal benefit. At this efficient level of pollution, they found that the marginal cost of pollution control was $40 per ton, and at this point, the marginal benefit of controlling the last unit of pollution was also $40 per ton.
The above-mentioned emission levels are in line with social efficiency standards, as the net social benefits are greatest at this level. Only at this level of emissions can the social marginal cost of pollution control equal the social marginal benefit. To repeat, on many occasions we have found that the outcome of an action is most efficient when its marginal cost equals its marginal benefit.
The cost-benefit analysis illustrates why "risk-free" or "zero-emission" policies are often wasteful. Reducing pollution to zero emissions usually raises the cost of pollution control to an astronomical amount, while the marginal benefits of reducing the last few grams of pollutants are meagre. And in some cases, it is almost impossible to achieve sustained zero emissions. According to the zero-risk principle, the computer industry should be shut down and all car traffic should be prohibited. In reality, economic efficiency usually requires a compromise in which the value of the industry's additional output is balanced with the loss of additional pollution.
An unregulated market economy generates a level of pollution (or other externalities) at which the private marginal benefits of pollution control equal private marginal costs. Efficiency requires that the social marginal benefits of pollution control are equal to their social marginal costs. In an unregulated economy, there will be too little pollution control and too much pollution. 】
Valuation of hazards
One of the main difficulties in developing effective environmental policies is the need to estimate the value of pollution control and other policies. If only market products and services are affected, then the corresponding measurements will be relatively simple and clear. For example, if a warming climate causes wheat yields to decrease, we can measure it by observing changes in wheat's net output. Similarly, if building a new road requires the demolition of some people's houses, we can calculate the market value of these alternatives to dwellings.
Unfortunately, however, for many types of environmental hazards, it is difficult to estimate the value of their losses. For example, environmentalists recently called on the government to introduce a ban on logging in the Pacific Northwest to protect the habitat of spotted owls. This means sacrificing thousands of lumberjack jobs and raising the price of timber as a result. But on the other hand, given the gradual disappearance of the spotted owl, how do we measure the value of the spotted owl's continued survival? As another example, in Prince Williams Strait, Alaska, a spill from the Exxon Waldez tanker polluted beaches and endangered wildlife. So how much is the life of a sea otter worth?
Economists have figured out a number of ways to estimate the value of certain behaviors and their effects that cannot be expressed directly in terms of market prices, such as the example of owls and sea otters mentioned above. The most reliable method is to first examine the impact of environmental pollution on different activities, and then calculate the market value of changes in these activities. For example, when estimating the impacts of sulphur dioxide emission sites, environmental economists first estimate the health effects of high emissions, then estimate changes in health based on surveys or based on actual human behavior, and finally determine the value of these changes.
Estimating the value involving ecosystems and the survival of different species is often the most difficult situation. How much value should society pay to ensure that the spotted owl survives? Most people have never seen a spotted owl, just as they have never seen a singing crane or Prince William Strait. Still, they are willing to assess the value of these natural resources. Some environmental economists use the concept of value to express the price that people are willing to pay for hypothetical situations, such as protecting certain natural resources from harm. This approach gets the answers it needs, but those answers aren't always reliable.
Few would doubt the proposition that a healthy and clean environment would be of high value, but measuring the true value of the environment, especially the value of the non-market part, is indeed a conundrum. 】
Graphical analysis of contamination
We can illustrate these points by Fig. 14-3. The MC with positive slope is the marginal cost curve for pollution control, and the curve with negative slope is the marginal benefit curve for reducing pollution. The MSB line above is the social marginal benefit curve for pollution reduction, and the MPB line below is the private marginal benefit curve for pollution reduction.
Graphical analysis tips for contamination
It is useful to consider pollution control or purification as a "good product" when analyzing pollution. On the graph, we measure marginal costs and benefits on the vertical axis and dirt control or pollution removal on the horizontal axis. The trick here is to remember that stain control is a "good product", so it is positive on the horizontal axis. Similarly, you can use 400 units far from the origin as the new origin, and take pollution as a kind of (harmful) and measure it with negative values. It can be seen that zero pollution control is 400 units of pollution, while 400 units of pollution control means zero pollution.
The unregulated market equilibrium point is I, and the private marginal cost and benefit at point I are equal. At this point, only 50 tons of pollution are controlled, and the private marginal cost and marginal benefit per ton is $10. However, unregulated markets are inefficient. By increasing the amount of pollution control by 10 tons through an experiment, we will walk to point 1 is inefficient: marginal benefits and costs are represented by the strip section to the right of point I; for the increased amount of purification, the marginal benefit is the entire strip area under the MSB curve, while the marginal cost is the area under the MC curve; and the net benefit is the bar shadow part between the two curves.
Efficient pollution levels are achieved at point E, where the social marginal benefits of pollution control are equal to the marginal costs, and both MSB and MC are $40 per tonne. At the same time, because MSB and MC are equal, there is no difference between the two curves for increasing the amount of dirty control, so there is no net benefit for additional pollution control. Instead of the unregulated situation, we can also sum all the small bars representing the net income from the shaded part to the E point to calculate the net income under the effective solution. This calculation shows that regional ISEs represent the added benefits of effective pollution control.
Policies to correct externalities
What is it to deal with an inefficient weapon caused by externalities? The most common approach is government anti-pollution programs, which guide manufacturers to correct externalities through direct control or economic incentives. A more nuanced approach would be to clarify and strengthen the management of property rights in order to lead to more effective solutions through consultation among the private sector. In this section we will discuss these approaches.
Government programs
[Direct control: Almost all pollution and other external effects affecting health and safety are controlled by the government through direct regulation; this is often referred to as social regulation. For example, the Clean Air Act of 1970 reduced the prescribed emissions of the three main pollutants by 90 per cent. In 1977, new manufacturers were required to reduce their sulfide emissions by 90%. Under a series of regulations published over the past few decades, manufacturers must phase out the use of ozone-depleting chemicals. That is the role of regulation. 】
How does the government implement pollution control? We continue to discuss the example of the Black Bright power plant. The country's Environmental Protection Agency may require the Black Bright power plant to increase the amount of purification to 250 tons. Under the command-control type of control, the controller only needs to give the required pollution control technology and detailed regulations of the construction site, and order the manufacturer to implement it, and the manufacturer or all manufacturers have little room for new tricks or bargains. If the criteria are reasonably determined (a very important "if"), the result may reach the pollution level of the effective rate discussed earlier in this section.
In theory, regulators can choose pollution control laws to ensure economic efficiency, but in reality this is unlikely. In fact, many pollution controls suffer from increasing government failures. Pollution controls, for example, are often decided before marginal costs and marginal benefits are compared, without which efficient levels of pollution control cannot be determined.
Moreover, standards are inherently a clumsy thing. Efficient pollution control levels require equal marginal costs of pollution control for various pollution sources. Command-and-control controls typically do not take into account the differences that exist between manufacturers, regions, and industries. Regulation is therefore "one-size-fits-all" for both large and small businesses, urban and rural, and high- and low-pollution industries. Even though manufacturer A costs only a fraction of a ton of purification capacity, both plants are required to meet the same standards. As a result, low-cost manufacturers receive no incentive to reduce pollution below pollution standards, even if it would be more economical to do so. Further research also showed that the use of the command-control control method incurs unnecessary costs in achieving environmental goals.
Market approach: emission fees. To avoid the shortcomings of direct control, many economists suggest that environmental policy should rely more on market mechanisms. One way to do this is to collect emissions fees, which require manufacturers to pay taxes equal to their external hazards for their pollution. If the external marginal cost to the community from the Black Bright Power Plant is $35 per tonne, then the appropriate emissions charge would be $35 per tonne. This is really to internalize the impact of externalities in order for manufacturers to pay the social cost of their actions. Calculating its private costs, the Black Bright Power Plant finds that at point E of Figure 14-3, adding another 1 ton of pollution would cost it $5 internally and emissions $35, for a total marginal pollution cost of $40 per ton. By comparing the new private marginal benefits (private revenues plus emissions fees) and marginal pollution control costs, manufacturers will control their pollution levels to efficiency levels. If the emissions fee is calculated precisely (there is a very important "if"), then the manufacturer seeking the maximum profit will be led to an efficient level by a modified "invisible hand", at which point the social marginal cost of pollution and the marginal benefit of society are equal.
Another analysis method is shown in Figure 14-4, which is similar to Figure 14-3. Using the direct control method, the government ordered manufacturers to reduce 250 tons of pollutants (or no more than 150 tons of emissions). This would cause emission standards to fall on a thick vertical line.
If the standard is set correctly, manufacturers will accept the level of social efficiency of pollution control. Therefore, due to efficient regulation, vendors will choose point E, which point of social marginal benefit MSB equals marginal cost MC.
We can also see how emissions fees work in Figure 14-4. Suppose the government charges manufacturers $35 per tonne of pollutants. Together with sewage charges, the private marginal benefits of pollution control will rise from $5 per tonne to $40. In Figure 14-4, the total private marginal return is expressed as an aggregated marginal return curve. Faced with this new incentive, manufacturers will of course choose efficiency point E in Figure 14-4.
[Market approach: Issuing emission permits for tradable emissions permits is a new method that does not require government taxation. In this way, the government determines pollution levels and allocates emission credits appropriately among manufacturers, rather than telling manufacturers how much tax they must pay per ton of pollutants, and then allowing manufacturers to choose their own pollution levels. The price of a permit is determined by the supply and demand of the permit market, which is equivalent to the emission fee. Assuming manufacturers know their production and pollution control costs, trading licenses will produce the same results as emission fees. 】
Economic innovation: pollution permit trading
Most environmental controls use order-and-control methods to restrict individual emissions of pollutants, such as energy plants or automobile plants. But this method is not suitable for all pollutant emissions. What's more, it actually makes all programs inefficient because it doesn't meet the condition that all emissions have the same marginal cost.
In 1990, the U.S. government announced a new method for controlling sulfur dioxide, the most harmful environmental pollutant, in its environmental control program. In the amendments to the Clean Air Act of 1990, the Government issued a certain number of pollutant discharge permits. Since 1990, the total permissible emissions throughout the country have been reduced year by year. The innovation of this program is that licenses can be freely traded. The electricity industry is given pollution permits and allowed to buy and sell like pork or wheat. Those who can reduce sulphide emissions at a lower cost will sell their licenses; others who need to secure more credit permits for new plants, or who have no room to reduce emissions, will find it perhaps more economical to buy licenses than to install expensive pollution control equipment or go out of business.
Environmental economists believe that increased incentives help achieve ambitious goals and are less costly than traditional command-and-control controls. Research by Tom Tietenberg, an economist at Colby College in Maine, shows that traditional methods cost 2 to 10 times more than cost-effective regulations, such as buying and selling pollution permits.
The operation of the sewage permit market has produced surprising results. Initially, the government expected the price of the license to be around $300 per ton of sulfur dioxide in the first few years, but in reality, the market price fell below $100 per ton. One of the reasons for its success was that the program gave manufacturers enough incentives to innovate, and they found that using low-sulfur coal was easier and cheaper than previously expected. For economists who argue that environmental policy should be based on market instruments, this important experiment can provide a strong argument.
Private way
Some form of government intervention is often considered essential in overcoming market failures caused by pollution and other externalities. In fact, in some cases, clear and unambiguous property rights can replace government regulation or taxation, thus solving the problem of externalities.
One way for the private sector to overcome externalities is to rely on rules of responsibility rather than direct government regulation. Under this approach, the perpetrator of the externality problem is legally responsible for compensating the victim. In fact, with an appropriate system of responsibility, externalities are internalized.
In some areas, such rules have been established and promulgated. For example, in most states, if you are injured by a reckless driver, you can claim compensation under the law. Or, if you are injured or sick due to an unsatisfactory product, the company will be responsible for the product.
Liability rules are theoretically a good way to internalize the costs of production non-marketization, but in reality, the application of liability rules is very limited. It often requires high litigation costs, which add to the cost of existing externalities. Moreover, because property rights are not complete (e.g., when it comes to fresh air), or because externalities involve a large number of businesses (e.g., pouring chemicals into streams), it is difficult or impossible for many aggrieved parties to sue.
The second approach adopted by the private sector relies on clear property rights and negotiations between different interest groups. This approach was discovered by Ronald Coase of the University of Chicago, who points out that voluntary consultations between the parties concerned often yield an efficient outcome.
For example, suppose I'm a farmer and the fertilizer I use flows downstream and poisons the fish in your pond. And further suppose you can't sue me for poisoning your fish. If your fish farming industry is profitable enough, even if you can't sue me, you will try to get me to reduce the use of fertilizer. In other words, if we restructure our two businesses and generate a net profit, we will both have enough motivation to sit together and agree on an efficient fertilizer outflow level. And, even without any government's pollution control program, that dynamic is there.
[As long as property rights are clear and transaction costs are low, especially when there are very few stakeholders, sound liability rules or negotiations can sometimes guarantee efficient results in the presence of externalities. 】
Climate change: slow or no slowdown
Of all the environmental problems, nothing worries scientists more than the threat of global warming caused by the greenhouse effect. Meteorologists and other scientists warn that the accumulation of gases such as carbon dioxide from the burning of fossil fuels will trigger global warming and other major climate changes in the next century. Using meteorological models, scientists point out that if current trends continue, global temperatures will rise by 4 to 8 degrees Fahrenheit by the next century. This will be a high temperature that has never been seen in the history of human civilization.
The greenhouse effect is a public good problem that has existed for a long time; today's behavior will affect the global human habitation climate for centuries to come. Recently, we have begun to face the cost of controlling carbon dioxide emissions: many countries have begun to save energy and use alternative energy sources (solar or nuclear) to reduce the use of fossil fuels, in addition to afforestation and other methods. All of this means that in the short term, we will have to adopt higher-cost energy, maintain a lower standard of living and a lower level of consumption. Our emission reduction benefits are set to be realized many years into the future. At that point, lower emission levels will mitigate future climate disasters and the damage to agriculture, beaches and ecosystems will be diminished.
Economists study the economic impacts of climate change in search of countermeasures that governments can adopt. Economic studies have shown that market economies in developed countries, such as the United States, may be relatively unaffected by climate change for decades to come, while agriculture, forests, fisheries and ecosystems as difficult to manage as coral reefs are likely to be the main targets of the impact.
Developing an effective strategy to control climate change requires measuring the marginal costs and marginal benefits of reducing CO2 emissions. The MC curve in Figure 14-5 shows the marginal cost of reducing pollution, with msb representing the social marginal benefit. The vertical axis measures costs and benefits in US dollars, while the horizontal axis measures the reduction in CO2 emissions. Point E in the figure represents the point of efficiency at which the marginal benefits of mitigating climate change are equal to the marginal costs of reducing emissions. This maximizes the net benefits of reducing emissions. Instead, a purely market-based solution would result in emission reductions at the origin, where the MSB is much higher than the MC with a zero value. The extreme environmentalist solution, which is to try to reduce the emissions batch to 0, will be in the marginal section on the right side of the graph, where the MC is far beyond the MSB.
How can we achieve the CO2 emission reduction level E, which represents efficiency? Since CO2 comes from the combustion of carbon-containing fuels, a "carbon tax" has been proposed on carbon-containing fuels. Fuels with more carbon , such as coal — bear heavier taxes than less carbon-rich fuels , such as natural gas. Economists have invented models that effectively estimate carbon taxes — models that balance the economic costs of high tax rates with the benefits of reducing the damage caused by global warming. They can guide policymakers as they develop policies to stop global warming.
Global Public Goods and the Kyoto Protocol
Earlier in this chapter we discussed global public goods. The way in which countries respond to global public goods is through treaty-style international agreements. The purpose of these agreements is to move from inefficient non-cooperation to efficient cooperation in the pollution game. But reaching efficient agreements is often difficult, and efforts to ease global warming are a good example. Although scientists have been warnings about climate change for more than 30 years, it wasn't until 1992 that the first major international agreement on climate change was available: the Memorandum of Agreement on Climate Change (FCCC). The FCCC contains non-binding provisions in which high-income countries commit to limiting emissions of greenhouse gases such as CO2.
When voluntary measures lapsed, a number of countries negotiated the subject of climate change and signed the Kyoto Protocol in 1997. In this agreement, both high-income countries and all-socialist countries made a binding commitment to reduce total greenhouse gas emissions by 5% by 2010 (compared to 1990), and each country has a specific target. Based on the economic theory and experience of the U.S. sulfur dioxide trading system (discussed above), the Kyoto Protocol also includes provisions that allow the sale and purchase of emission rights between countries. And when the Bush administration announced its withdrawal from the Kyoto Protocol in 2001, the agreement began to become confusing.
Economists have discussed in detail how to solve problems such as global warming. One analysis concludes that the crux of the matter is whether the market parties bear the full cost of their actions. Currently, the externalities of environmental change have not been "internalized" in most countries because the price of CO2 emissions is zero. In the absence of the right price signals, it is unrealistic to have tens of thousands of manufacturers and consumers make decisions to reduce the use of carbon-containing fuels. The economists' discussion also pointed out that in the tide of economic globalization, the participation of countries around the world, not just high-income countries, is crucial to slowing climate warming. Excluding emissions from energy-intensive developing countries like China and India would increase the cost of meeting global emissions targets, of course, in relation to a cost-effective global agreement.
The first round of the Kyoto Protocol was implemented in 2008, but it was only valid until 2012. Many concerned about the future of the world are waiting to see if the new Obama administration will join the effort, as well as whether long-term solutions can be designed, implemented, and put into effect.
"Quarrel and pollution", or "reasoning and calculation"
We've seen many environmentalists asking frustrating questions about the future of humanity. After examining this field, what conclusions can we draw? Individually, it's easy for them to develop optimistic or pessimistic views about humanity's ability to understand and deal with global environmental threats. On the other hand, it is clear that we are sailing into an unknown sea; while depleting many resources, we are changing other resources in an irreversible way; we are gambling with our world in an incomprehensible way. Like the early humans recorded in history, people today love to argue, and they have created extremely effective weapons to fight back against the debaters. At the same time, our observation and analysis capabilities are important and more daunting weapons.
On the one hand, our constant arguments and polluting behaviors, on the other hand, our ability to reason and calculate, which side will prevail in the competition between the two? Are there enough resources for today's poor to enjoy the same levels of consumption as high-income countries? Or will the rich offer them a ladder to climb up? We have not yet received a final answer to these profound questions. But many economists believe that at the heart of the answer lies in using market mechanisms in an effort to reduce pollution and other environmental factors that affect economic growth. Wise decision-making, coupled with the right motivation, will ensure that humanity will not only continue to survive, but will also usher in long-term development and prosperity.
In the next chapter, Samuelson will discuss capital, interest, and profit.
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