1 ECO 605 Case Study Module #8 1. Analyze different methods of economic development and the impact on the environment. 2. Estimate willingness to pay as a measure of the benefits of pollution reduction in developing countries. 3. Summarize recommendations on the emissions policies of different countries, using ambient indices to influence company executives who are considering expansion into a developing country. Prompt: The objective of this case study is to analyze the governmental policies of different countries and their willingness to pay for economic and environmental qualities. You will make recommendations in one to two paragraphs to influence the policy makers or executives of expanding corporations. You must address each part of the case study as described below. Part 1: Analyze Different Governmental Policies In Chapter 18 of the course textbook, the authors emphasize effective means to reduce environmental degradation. One approach is command and control (CAC), which many believe is the most effective. Chapter 18 provides an example in Exhibit 18.2 (p. 386). It provides a lesson on rapid economic development and CAC. In the example, the government is not focused on economic preservation during rapid economic development but instead takes a risk. The Aral Sea is the price for the recommended economic growth. There are strategies a country can use to repair or control for these types of environmental disasters. Create a short presentation with four to six slides on effective strategies for the economic redevelopment of the Aral Sea. Design your presentation as though you have been tasked with influencing government leaders and interested constituents. The contents of your presentation should include the following: Slide 1 This is the title page. Include your name and the course title. Slide 2 Problem (title): Introduce problems from designated areas of the northern and southern areas of the Aral Sea (Table 18.3, p. 385). Slide 3 2 Solutions (title): Emphasize just one of the three strategies listed on page 387 of the textbook, and add an example using data or images to make a strong recommendation. Slide 4 Summarize the content in a conclusion by identifying the long-run or short-run approaches. Part 2: Estimate Environmental Cost-Benefits by Identifying Willingness to Pay (WTP) Willingness to pay (WTP) provides environmental economists with information that can be used to estimate environmental cost benefits. Chapter 18 of the course textbook provides data on environmental benefits from various countries that have invested in WTP to make improvements on specific environmental issues. The following countries use benefit-measurement studies to determine WTP: Australia, Finland, France, Germany, Israel, the Netherlands, Norway, Sweden, and the United Kingdom. Directions: Use the data from Table 18.3 (Chapter 18, page 385) to create a table or graph to show each country’s WTP for environmental benefits. Then, in one to two paragraphs, describe how an environmental economist would use this data to influence policy. Part 3: Executive Summary: Proposal for Effective Strategies for Economic Development in Developing Countries We has discussed many factors that affect ambient pollution levels. The differences are described on page 376 of your textbook in two ways: *As differences in the efficient, or desired, levels of ambient quality * As differences in the extent to which each country, through policy and enforcement, has achieved these efficient levels. Yet there are other factors to consider as well, such as the emissions and the assimilative capacity of the environment. Another factor is the opportunity costs of pollution control and differences between relatively rich and the other relatively poor countries (p. 378). For example, consider the phenomenon of SO2 pollution, which typically gets worse as countries initially begin to develop and then improves as development leads to higher per capita incomes. Directions: Imagine that a multinational business firm has hired you to write an analysis. The company is making plans to move some of its operations into a developing nation. Make recommendations on whether the company should be held to the environmental standards of its country of origin (the United States) or to those of the country in which it is operating. Use the data on environmental quality from Shapiro Library resources, such as Data-Planet Statistical Datasets (database) to analyze the emissions output and policies of different countries. Details of the European Trading Scheme EXHIBIT 18.2 3 The European Trading Scheme (ETS) began in 2005. The aggregate European-wide cap consisted of a collection of national caps, as specified by the individual countries themselves in their national allocation plans. They applied only to CO2. The total number of allowances originally distributed exceeded actual emissions in the six industrial sectors included (electricity and heat production, oil refineries, coke ovens, metal ore and steel operations, cement kilns, glass and ceramic producers, and pulp and paper mills). Over the next few years allowance prices dropped from a peak of 30€ per ton to almost zero. The second phase of the program ran from 2005 to 2012. While initial allowance allocations were given away free, a small quantity were now auctioned. Allowance prices at first recovered, but then collapsed again under the influence of the worldwide recession of those years. Controversy arose over extending the system to other sectors, especially airlines. Fines for noncompliance were increased, from 40€ per ton in the first phase, to 100€ per ton in the second phase. Limited amounts of allowance banking were allowed. Phase III runs from 2013 to 2020. The concern that free allowance allocation was leading to windfall profits led to an increase reliance on allowance auctions; in electricity production it is anticipated that 100 percent of the allowances will be auctioned. Phase III also will involve a shift away from individual country caps, to an overall European cap set by the European Union. Continued weakness in allowance prices has led authorities to “back load” the allowance allocation procedure, meaning to push back the allocation of 900 million allowances until 20192020. Authorities also established a “market stability reserve” essentially a central bank for allowances, to reduce the over allocation problem. Source: Sidney M. Field, Carbon-Trading in the Air: Why Europe Should Clamp Down on International Aviation Emissions, unpublished paper, 2015. See also: Pew Center on Global Climate Change, The European Union Emissions Trading Scheme: Insights and Opportunities, accessed September 2015, http://www.c2es.org/docUploads/EUETS%20White%20Paper.pdf. 372 (Field 371-372) Field, Barry, Martha Field. Environmental Economics, 7th Edition. McGraw-Hill Learning Solutions, 01/2017. VitalBook file. The citation provided is a guideline. Please check each citation for accuracy before use. TABLE 18.3 Greenhouse Gas Emissions Data for Selected Countries, 2012 4 GDP per Total Emissions Emissions Population Emissions Capita Emissions per ($1,000 % of (1,000) per Capita 1 ($1,000) (MtCO2e) GDP) Total → tons ← U.S. 314,112 51.5 6,235 19.8 0.44 13.9 France 65,639 40.9 457 6.9 0.19 1.0 China 1,350,695 6.2 10,976 8.1 2.43 24.5 India 1,236,590 1.5 3,014 2.4 2.2 6.8 World 7,089,269 10.4 44,816 6.3 0.79 (Field 373) Field, Barry, Martha Field. Environmental Economics, 7th Edition. McGraw-Hill Learning Solutions, 01/2017. VitalBook file. The citation provided is a guideline. Please check each citation for accuracy before use. Pag.376A New Global Greenhouse Climate Agreement Many ideas have been put forward for an international plan that will follow the lapsed Kyoto Protocol.7 Although the exact form of any future agreement 376 is in doubt, the criteria that ought to govern an agreement are reasonably straightforward: 1. The quantitative targets of GHG reductions that should be aimed for, in the short and long runs. Experience with the targets established under the Kyoto Protocol has led to the idea that new negotiations should start by having countries individually commit to quantitative targets. 2. The benefits and costs of achieving these targets, with particular emphasis on having policies and procedures that are cost-effective. 3. Equity concerns in terms of how the burden of emission reductions should be distributed among rich and poor countries. 5 4. Flexibility concerns in terms of the ability to shift plans in the face of new scientific information, and to change the terms of participation by countries within and outside the agreement. To these should be added a whole set of considerations dealing with the political and institutional aspects of an agreement, and its implementation. There is widespread acceptance, at least among economists, that for a new GHG treaty to be efficient and cost-effective, it must incorporate incentive-based techniques. Some have suggested that there be designed a system of transferable GHG emission permits at the international level. Countries would be assigned quantitative targets, much as in the current agreement. Sources within each country would then be given transferable permits, which could be traded within or across country borders, similar to the current European Trading Scheme (ETS). Besides striving for cost-effectiveness, a program of this type could address questions of international equity. The current belief is that it will cost developing countries less, relative to their current wealth, to reduce CO2 emissions than developed economies. Thus, the direction of transfers would go in general from more developed countries to less developed countries. On top of this, developing countries might be given proportionately larger numbers of permits in the initial distribution. In buying these extra permits, developed nations would be transferring extra amounts of wealth to the developing countries, which they could use to switch to low-carbon development paths. Whether this type of system could be designed to include all of the major GHG-emitting countries is an open question. One idea could be to first develop a series of regional CAP programs, as in the ETS and the Regional Greenhouse Gas Market of the northeastern United States. Once these markets are functioning smoothly they could be tied together by allowing interprogram trading. There are also many advocates of an international program of carbon taxes. Levied upstream, at points of fuel production, these taxes would filter through economies and shift prices of goods and services according to their contribution to global warming. Many individual countries, especially those of Europe, have instituted carbon taxes in recent years.8 Whether any significant international effort can be mounted to establish a worldwide carbon tax is highly problematic. A tax high enough to produce significant coordinated CO2 reductions would be especially burdensome in developing countries. Support might be encouraged if the proceeds of the tax could be shared among countries so as to reduce the overall impact on poorer nations. Another suggestion to increase the political palatability of a global carbon tax is to start it off at a relatively low level, with some delay by developing nations (analogous to the Montreal Protocol), and gradually increase it over time. In international agreements, real questions come up about monitoring and enforcing. Selfmonitoring by the individual countries is likely to be the only practical solution to this issue because it is unlikely that countries would willingly permit international monitoring efforts. The United Nations lacks executive power to enforce international environmental agreements. The International Court of Justice (ICJ) acts chiefly as a place for discussing disputes and lacks 6 mechanisms to enforce rulings. This leaves enforcement up to a combination of moral pressure and whatever unilateral actions states might take, such as trade sanctions. Enforcing a tax might be easier to enforce than a CAP program, because a tax can be implemented as a carbon tax on energy producers or importers, whereas a CAP program requires that the quantities of emissions of all sources, and their permit trades, be monitored and reported. An important factor not mentioned so far is the costs to the various countries of doing nothing: that is, simply adapting to global warming. These costs are likely to place limits on the extent to which any particular country will readily accept CO2 emission reduction requirements, as no country is likely to want to spend more in control costs than the cost of accommodating to the change. For cooler countries in higher latitudes, with relatively little critical shoreline, adaptation costs may be fairly “modest.” Countries in the opposite situation will have very high costs of adapting to higher temperatures and rising sea levels. Countries differ also in terms of agricultural adaptability, the ability to shift crops, crop varieties, cultivation methods, and so on, to maintain production in the face of climate changes. So countries are likely to have very different (Field 375-377) Field, Barry, Martha Field. Environmental Economics, 7th Edition. McGraw-Hill Learning Solutions, 01/2017. VitalBook file. The citation provided is a guideline. Please check each citation for accuracy before use. Pag.378 Estimating the Social Cost of Carbon In Chapter 6 we discussed briefly the concept of regulatory impact analysis. For the past 30 years, this type of analysis has been required when federal agencies introduce new regulations, or change existing ones. Essentially the requirement is to estimate the benefits and costs of the regulations, with the presumption that any proposed regulation would not go forward unless net benefits were positive. Among the regulations that the contemporary EPA is required to promulgate are those having the objective of reducing future GHGs. Thus it must have some notion of what it is worth to reduce future GHGs by a given amount. The term for this is the social cost of carbon (SCC). It is a marginal value: a monetary estimate of the global external (i.e., non-market) costs of one CO2-equivalent ton of future GHGs. It’s obvious that estimating the value is fraught with difficulties. It requires estimating the longrun future costs of all the impacts expected to occur: more frequent and intense storms, sea-level rise, higher production costs, human health effects, and so on. And these impacts must be expressed in a common metric; usually this is in dollars of reduced future GDP. So estimating the SCC involves dealing with all the uncertainties of climate change, both the uncertainties of 7 scientists who are trying to understand the physical effects and natural and social scientists trying to predict impacts on humans and other elements of the biosphere. In 2010 a federal working group brought together the results from a large number of climate/economy simulation models used to predict future impacts. The resulting numbers are shown in Table 18.4. The estimates are shown by year and using three different discount rates. For example, one form of carbon emitted in 2015 will result in a stream of damages into the future; when the stream is discounted at a rate of 5 percent then its present value is $12.00. With lower discount rates, the estimated present values of damages are higher. Remember that these numbers are averages of the various simulation runs of all the studies. The estimates go up with time because emissions in later years are assumed to cause greater damages in economies that are already stressed by climate change up to that date. The last columns shed light on the possibility of extreme outcomes. For example, for 2015 emissions, 95 percent of the studies evaluated showed estimated damages of $116 per ton or less. In other words, 5 percent of the studies predicted more extreme outcomes, that is, damages in excess of $116 per ton. We have mentioned that the estimates may be useful in guiding regulatory decisions by the EPA. Another is a guide to setting carbon taxes. Recall that a carbon tax of, say, $14 per ton would provide emitters of CO2 (and CO2 equivalent), an incentive to abate emissions up to the point where marginal abatement costs are $14 per ton. Since $14 is the SCC, emissions at that point would be at the socially efficient level. There is at least one dimension of this result that is problematic. It is that the SCC as shown in Table 18.4 are global damage costs, while national policies of (TABLE 18.4 Social Cost of CO2, 2015–2050* (in 2011 Dollars) Discount Rate and Statistic 5% 3% 2.5% 3% Year Average Average Average 95th percentile 2015 $12 $39 $61 $116 2020 13 46 68 137 2025 15 50 74 153 2030 17 55 80 170 2035 20 60 85 187 2040 22 65 92 204 2045 26 70 98 220 2050 28 76 104 235 (Field 379) 8 Field, Barry, Martha Field. Environmental Economics, 7th Edition. McGraw-Hill Learning Solutions, 01/2017. VitalBook file. The citation provided is a guideline. Please check each citation for accuracy before use. Field 378) Field, Barry, Martha Field. Environmental Economics, 7th Edition. McGraw-Hill Learning Solutions, 01/2017. VitalBook file. The citation provided is a guideline. Please check each citation for accuracy before use. ECO 605: Module Eight Case Study Guidelines and Rubric Overview: The case studies in this course are designed to actively involve you in environmental economics reasoning and to help you apply the course principles to complex real-world situations. In the case studies, you will use data analysis to make informed recommendations and communicate in a professional manner. The Module Eight Case Study examines comparative environmental policies, willingness to pay, and effective strategies for economic development in nonindustrialized countries. In your submission, you will demonstrate the following skills: 1. Analyze different methods of economic development and the impact on the environment. 2. Estimate willingness to pay as a measure of the benefits of pollution reduction in developing countries. 3. Summarize recommendations on the emissions policies of different countries, using ambient indices to influence company executives who are considering expansion into a developing country. Prompt: The objective of this case study is to analyze the governmental policies of different countries and their willingness to pay for economic and environmental qualities. You will make recommendations in one to two paragraphs to influence the policy makers or executives of expanding corporations. You must address each part of the case study as described below.  Part 1: Analyze Different Governmental Policies In Chapter 18 of the course textbook, the authors emphasize effective means to reduce environmental degradation. One approach is command and control (CAC), which many believe is the most effective. Chapter 18 provides an example in Exhibit 18.2 (p. 386). It provides a lesson on rapid economic development and CAC. In the example, the government is not focused on economic preservation during rapid economic development but instead takes a risk. The Aral Sea is the price for the recommended economic growth. There are strategies a country can use to repair or control for these types of environmental disasters. Create a short presentation with four to six slides on effective strategies for the economic redevelopment of the Aral Sea. Design your presentation as though you have been tasked with influencing government leaders and interested constituents. The contents of your presentation should include the following: o Slide 1 This is the title page. Include your name and the course title.  o Slide 2 Problem (title): Introduce problems from designated areas of the northern and southern areas of the Aral Sea (Table 18.3, p. 385). o Slide 3 Solutions (title): Emphasize just one of the three strategies listed on page 387 of the textbook, and add an example using data or images to make a strong recommendation. o Slide 4 Summarize the content in a conclusion by identifying the long-run or short-run approaches. Part 2: Estimate Environmental Cost-Benefits by Identifying Willingness to Pay (WTP) Willingness to pay (WTP) provides environmental economists with information that can be used to estimate environmental costbenefits. Chapter 18 of the course textbook provides data on environmental benefits from various countries that have invested in WTP to make improvements on specific environmental issues. The following countries use benefit-measurement studies to determine WTP: Australia, Finland, France, Germany, Israel, the Netherlands, Norway, Sweden, and the United Kingdom Directions: Use the data from Table 18.3 (Chapter 18, page 385) to create a table or graph to show each country’s WTP for environmental benefits. Then, in one to two paragraphs, describe how an environmental economist would use this data to influence policy.  Part 3: Executive Summary: Proposal for Effective Strategies for Economic Development in Developing Countries We have discussed many factors that affect ambient pollution levels. The differences are described on page 376 of your textbook in two ways: o o As differences in the efficient, or desired, levels of ambient quality As differences in the extent to which each country, through policy and enforcement, has achieved these efficientlevels Yet there are other factors to consider as well, such as the emissions and the assimilative capacity of the environment. Another factor is the opportunity costs of pollution control and differences between relatively rich and the other relatively poor countries (p. 378). For example, consider the phenomenon of SO2 pollution, which typically gets worse as countries initially begin to develop and then improves as development leads to higher per capita incomes. Directions: Imagine that a multinational business firm has hired you to write an analysis. The company is making plans to move some of its operations into a developing nation. Make recommendations on whether the company should be held to the environmental standards of its country of origin (the United States) or to those of the country in which it is operating. Use the data on environmental quality from Shapiro Library resources, such as Data-Planet Statistical Datasets (database) to analyze the emissions output and policies of different countries. Rubric Guidelines for Submission: The case study must follow these formatting guidelines: double spacing, 12-point Times New Roman font, one-inch margins, and APA citations. Critical Elements Analysis of Different Governmental Policies Exemplary (100%) Meets “Proficient” criteria and extends with data or an image to make a strong recommendation Identifying Willingness to Pay Meets “Proficient” criteria and extends by providing a detailed description on the effectiveness of other studies of willingness to pay Proficient (90%) Creates an original presentation with five to six slides as directed with a summary of the designated environmental economic problems of the northern and southern areas surrounding the Aral Sea, along with a strategy and a conclusion identifying longrun or short-run approaches Creates an original table or graph of the data to show each country’s willingness to pay for environmental improvements along with a description on the use of this type of data to influence policy Needs Improvement (70%) Attempts to address the environmental economic problems of the northern and southern areas surrounding the Aral Sea, but there is missing information or an error in the description of the problem, or the strategies are not clear Not Evident (0%) There is no explanation of the environmental problem or the strategies or recommendations Attempts to create an original table or graph of the data, but at least one of the details is incorrect The data in the table is incorrect or missing completely Value 30 30 Executive Summary Articulation of Response Meets “Proficient” criteria and expands the executive summary with additional data from reliable sources or provides an example to strengthen the recommendation Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy to read format Creates an accurate executive summary for executives of an imaginary company seeking recommendations for expansion considerations in a developing country Submission has no major errors related to citations, grammar, spelling, syntax, or organization Attempts to make an accurate executive summary for executives, but there is an error in the data or missing recommendations No data or recommendations are included 30 Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 10 Earned Total 100%
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