Natural Resources, the Environment and Agriculture

Transcription

1 Natural Resources, the Environment and Agriculture Topics Agriculture and the environment Land use in the U.S. and Texas Chemical use Property rights Externalities Public goods Pollution Ecosystem services Potential solutions Land Use in the U.S. - Acres Source USDA/ERS Major Land Uses Data

2 Land Use in the U.S. - % Source USDA/ERS Major Land Uses Data 2007 Land Use By State - % Shifts in Land Use U.S. 2

3 Population Growth Texas Figure 3. Texas' top 25 growth counties in terms of absolute population change, 1997 to Data Source: US Census, and Texas State Demographer's office. Source IRNR Population Density - Texas Figure 1. Texas' Population density as reflected in nighttime illumination (Data Source: National Geophysical Data Center, 2003). Source IRNR Shifts in Land Use Texas Figure 2. Loss of farms, ranches, and forestlands in Texas, 1997 to Red areas indicate areas of relatively high land conversion from agriculture to other land uses (Raw Data Source: Texas State Comptroller of Public Accounts). Source IRNR 3

4 Brazos County: Roads and city boundaries College Station: Original city boundary at incorporation in

5 U.S Notice the Bakken and Eagle Ford Oil Fields did not show up in 2010 Picture Eagle Ford Water Pollutants Agriculture Related 5

6 Nitrogen Use and Price Index Source USDA/ERS Water Use in the U.S. Source USGS Water Use in the U.S Source USGS 6

7 Water Use in the U.S. Source USGS Agriculture and the Environment Agriculture (crop + grasslands) / Forests 84% of land use in the lower 48 states Use varies by region / state Losing agricultural land to urban / other uses Problem is not necessarily the amount of land but type / location of the land Agriculture major contributor to pollution Agriculture major water user BUT we can not live without agriculture Environmental Issues Multitude of issues Range from individual (land degradation) to regional (water pollution) to global issues (global warming) AGEC 350 Environmental and Natural Resource Economics AGEC 422 Land Economics Discuss two issues Pollution externalities Ecosystem services public goods 7

8 $ Marginal cost $ Marginal cost $ Marginal cost Optimal Level of Pollution MC* MC of Control MC of Damages Set MC Damages = MC Control Why? Key optimal level does not equal zero Q* depends on the shape of the curves Technology, pollutant, human impacts, location etc. Q* Quantity pollution emitted Optimal Control Level MC* MC Control MC Damages Total Costs Of Damages Total cost of Control 0 Q* Q m Quantity pollution emitted Controlling Too Much MC Control Is greater than MC Damage MC* MC Control a b MC Damages Total Costs of Control Total cost of Damages 0 Q 1 Q* Q m Quantity pollution emitted 8

9 $ Marginal cost $ Marginal cost $ Marginal cost Controlling Too Little MC Control Is less than MC Damage MC* MC Control c MC Damages Total cost of Damages Total Costs Of Control 0 Q* Q 2 Q m Quantity pollution emitted MC of Damages Decreases MC of Control MC of Damages Decrease in MC of Damages MC* Q* Quantity pollution emitted MC of Damages Increases MC of Control MC of Damages MC of Damages Increase MC* Q* Quantity pollution emitted 9

10 $ Marginal cost MC of Control Changes MC of Control MC of Damages MC of control increases MC* MC of control decrease Q* Quantity pollution emitted Property Rights Definition A bundle of entitlements defining the owner s rights, privileges, and limitations for use of a resource Instrument of society Help people form expectations Transactions Two bundles of property rights are exchanged Value of these bundles of rights determines the value of the exchange Example - buying a car Property Rights - Characteristics Universality All resources are privately-owned and all entitlements are completely specified Exclusivity All benefits and costs accrued as a result of owning and using the resource accrue to the owner and only the owner Transferability All rights can be transferred in voluntary trades Enforceability Property rights should be secure from involuntary seizure from others 10

11 Property Rights - Efficiency Well-defined Rights Promote Efficiency Owners of have a powerful incentive to use the resource efficiently because misuse results in a decline in the resource value Primary Function Guide incentives to achieve a greater internalization of costs and benefits Emergence of Property Rights Emerge with new or reevaluation of harmful effects or changes in tastes and preferences Dynamic system Video to Introduce Externalities Externalities Exclusivity violated Cost or benefit not being internalized Market will not be at society s efficient point Govt. intervention maybe necessary Positive Externalities Gardens, landscapes Negative Externalities Pollution water, air, noise, etc. 11

12 Price ` Price ` Externality Efficient Point MC society = MC private + externality MC private Society s efficient point given by MC society = Demand P* = 3 and Q* = Demand Quantity Externality Market Equilibrium MC society = MC private + externality MC private Market equilibrium given by MC private = Demand P m = 2.50 and Q m = Demand Quantity Externalities - Summary Market vs. society optimum Price in market is to low Too much quantity is produced Too much of externality is produced Government intervention Tax Coase Theorem Command and control Transferable rights 12

13 Price ` Externality Tax MC society = MC private + externality MC private Market equilibrium given by MC private = tax = MC society = Demand P m = 3 and Q m = 7.75 Demand Quantity Farm Odor Example Hoggie the farmer s MC No control = $0 Low control = $20 High control = $150 Joe Nose the neighbor s MC No control = $100 health problems Low Control = $20 no health problems High Control =$0 no health problems Society s Optimal Hoggies cost of control Joe Nose cost of damages Hoggies wants no control Joe Nose wants high control Society s total minimized at low 13

14 Solution Command and Control Engineering approach Set a level of control use and everyone must use that control Can set at zero, low, or high levels of control Coase Theorem Economic inventive based approach Give rights to the air to either Joe Nose or Hoggie Does not matter who gets the rights we will reach society s efficient point as long as rights are well defined and transactions costs are low Solution Coase Theorem Economic inventive based approach Give rights to the air to either Joe Nose or Hoggie Does not matter who gets the rights we will reach society s efficient point as long as rights are well defined and transactions costs are low Ronald C. Coase British Economist Wheat vs. cows University of Chicago Nobel Prize Winner Rights to Hoggie Start with no control Hoggie the farmer s MC No control = $0 Low control = $20 High control = $150 Rights Defined End up with low control Rights to Joe Nose Starts with high control End up with low control Difference who pays -- wealth impact Joe Nose the neighbor s MC No control = $100 health problems Low Control = $20 no health problems High Control =$0 no health problems 14

15 No matter who received the rights Ended at the same point Negotiations between the parties Difference who pays Conditions Low transaction costs Wealth effective small Recall rights give you wealth Rights Defined Transferable Rights Another economic incentive approach Permits set equal to the level of pollution desired To be able to pollute you must have a permit Permits can be bought or sold Firms make the following decision Control pollution Buy a permit Idea Low control cost firms will control and sell permits High control cost firms will pollute but buy permits Society s overall cost will decline Summary Pollution Optimal level of pollution is not zero Damages / technology helps determines optimal level Problem property rights are not well defined Exclusivity violated Externalities Engineering and economic incentive approaches KEY all have different weaknesses and strengths Solution will depend on a mix of these approaches Politics along with science will be involved 15

16 Public Goods A good whose consumption is indivisible One person s consumption of a good does not diminish the amount available to others Key non-rival & non-excludable in consumption Examples Warning systems (tornado sirens), landscapes, genetic diversity, defense Example - ecosystem services Efficiency is not achieved Free rider Absence of excludability Ecosystem Goods / Services The benefits people obtain from ecosystems Necessary to support and maintain life and support economic processes Many of these services lack adequate substitutes, thereby requiring careful stewardship of the ecosystems providing them Classification Provisioning (food and water) Regulating (flood, gas and disease control) Cultural (spiritual, recreation, and cultural benefits) Supporting (nutrient cycling) services Ecosystem Value Examples Study Value O Rear Henry (1998) Nonmarket value for rice production and hunting $132/acre Turner (1991) Bowker and Stoll (1988) Kreuter et al. (2001) Costanza et al. (1997) Rosenberger and Loomis (1999) Consumers' surplus for boating in Lake Livingstone $35.21 Whooping crane annual WTP per person $ $5.58/ha/yr ($6.24 million) decline in ecosystem services value for from rangeland to urbanized use in San Antonio area Ecosystems provide estimated $33 trillion in services annually Ranch open space value to tourist $1,132/ group trip 16

17 Dollars Dollars Dollars Dollars Dollars consumer 1 Market Goods - Review consumer = Quantity Quantity Quantity Market Only consumer 1 in the market Both consumers in the market KEY Horizontal summation of individual consumers demand curve to get market demand curve Market Goods - Review Consumer 1 Q=6 at price 7 Consumer 2 Q=11 at price Quantity Market Equilibrium P* = 7 Q*=17 Supply Demand Public Goods Ecosystem Vertical Summation of consumer demand curves Both consumers Why - Non-rival in consumption Only consumer 2 Red demand curve Quantity Demand 17

18 Dollars Public Goods Market P*=10, Q*=8 Problem non-rival Society s Efficient Point S = D Supply 5 0 Demand Quantity Public Goods Free Rider At price =$10 Consumer units of ecosystem services Consumer units of ecosystem services Let consumer 1 purchase first Consumer 1 buys 3 units Consumer 2 free rides and buys only 5 units but consumes 8 units (3 units from consumer 1) Let consumer 2 purchase first Consumer 2 buys 8 units Consumer 1 free rides and buys no but consumes 3 units (3 units from consumer 2) Public Goods- Summary Public goods are NOT goods supply by the public Goods that are Non-rival Non-excludable Market will undersupply public goods Free rider problem Vertical vs. horizontal summation 18

19 Summary Economists play a role in designing policies that affect the environment and natural resources Incentives matter when designing policies at achieve desired objectives Agriculture impacts the environment through water pollution, air pollution, and emissions of greenhouse gases among other ways Agriculture also plays a major role in benefits such as ecosystem services and food production Government plays an active role in guiding and regulating the use of resources and impact on environment 19