New York University Professor Maria Damon Wagner Graduate School of Public Service Office: Puck 3004 P11.2472(001), Spring 2010 Office Hours: Tue. 2-4pm Course Time: Wednesday 4:55-6:35 p.m. Location: 504 Silver Center ENVIRONMENTAL ECONOMICS Course Description This course develops economics tools for environmental policy analysis and management. Economics can offer unique perspectives on incentives to deplete and/or protect environmental resources, and can provide insights on valuing environmental resources and incorporating these values into policy design. We explore ways that economics can be used to define, analyze, and resolve environmental problems, emphasizing the optimal role for public policy. The economic perspective is placed within a broader management perspective and ways in which these can be integrated are discussed. Broad concepts considered include: valuing social benefits provided by the environment; evaluating the social costs and benefits of alternate environmental policies; determining the optimal level of pollution control and choosing policies to achieve it; and managing natural resources, both renewable (e.g. forests, fisheries, and water) and nonrenewable resources (e.g. oil and minerals). The class format will consist of lectures, discussion, and group projects. Grading is based on two exams and one group project, each worth one third of the final grade. The group project will be discussed in more detail subsequently. The required text is Environmental and Natural Resource Economics, by Tom Tietenberg. This is available for purchase at the NYU Professional Bookstore. Other required readings are available online or on the course Blackboard site. When available, links to the readings are provided in the course schedule, below. All other readings, and/or instructions for accessing them on the web, will be made available on Blackboard throughout the semester. Many of the assigned articles can be found in The RFF Reader in Environmental and Resource Policy, 2nd Edition, Wallace E. Oates, editor, Washington: Resources for the Future, 2006. Students are encouraged to purchase this book, which is available on Amazon.com, and assigned readings from this book are often available online (if logged into the NYU system). 1
Course Schedule Below is a schedule of lecture topics and readings. Chapter numbers indicate readings in the Tietenberg text, and an asterisk (*) indicates that a reading is optional. Week 1 (January 20) Course Overview Review of Relevant Concepts in Microeconomics and Welfare Economics Benefit-Cost Analysis Ch. 1: Visions of the Future Fullerton D., and R. Stavins. How do economists really think about the environment? RFF Discussion Paper 98-29, 1998. http://www.rff.org/documents/rff-dp-98-29.pdf Week 2 (January 27) Discounting how do we weigh costs and benefits in the future against those today? Overview of environmental valuation Classification of benefits from environmental protection Ch. 2: Valuing the Environment: Concepts RFF Reader, Ch. 5: Brennan, T. Discounting the Future: Economics and Ethics (Blackboard) Goulder, L. H. and R. N. Stavins, 2002. Discounting: An Eye on the Future, Nature, 419, Oct. 17, 673-674 http://www.nature.com/nature/journal/v419/n6908/pdf/419673a.pdf Polasky, S. "What's nature done for you lately: measuring the value of ecosystem services." Choices. 2008: 43-46. http://www.choicesmagazine.org/magazine/pdf/article_20.pdf 2
Week 3 (February 3) Overview of Environmental Valuation Revealed-preference methods: Travel Cost Method Ch. 3: Valuing the Environment: Methods The Viewing Value of Elephants, G. Brown, Jr., in Economics and Ecology: New Frontiers and Sustainable Development, E.B. Barbier, ed., Chapman and Hall, London, 1993. (Blackboard) Week 4 (February 10) Stated preference methods: Contingent Valuation Hedonic pricing Begin on Property Rights Krupnick, A. and Juha Siikamaki. How people value what nature provides. Resources. Spring 2007: 14-16. http://www.rff.org/rff/news/features/upload/28493_1.pdf Contingent Valuation and Lost Passive Use: Damages from the Exxon Valdez Oil Spill, Richard T. Carson, Robert C. Mitchell, Michael Hanemann, Raymond J. Kopp, Stanley Presser, and Paul A. Ruud, Environmental and Resource Economics (25) No. 3, July 2003. Banzhaf, H.S., D. Burtraw, D. Evans, and A.J. Krupnick, 2005. Forever Wild, But Do We Care? How New Yorkers Value Natural Resource Improvement. Resources: Summer 2005. http://www.rff.org/publications/resources/documents/158/rff- Resources-158_ForeverWild.pdf Chay, K. and Greenstone, M. Does Air Quality Matter? Evidence from the Housing Market Journal of Political Economy, April 2005, 376 424. http://elsa.berkeley.edu/~kenchay/ftp/binresp/publish/jpe_housing.pdf 3
Week 5 (February 17) Market Failure Externalities Public Goods Ch. 4: Property Rights, Externalities, and Environmental Problems Frank, R.H., 2008. Economic View: The Invisible Hand Is Shaking. The New York Times, May 25. (Blackboard) RFF Reader, Ch. 14: Parry, I. Is Gasoline Undertaxed in the United States? Resources, 2002. http://www.rff.org/rff/documents/rff-resources-148-gasoline.pdf Mankiw, G.N., 2006. Raise the Gas Tax. The Wall Street Journal, Oct. 20 (Blackboard) Coase, R. 1960. The Problem of Social Cost. Journal of Law and Economics. (Blackboard) Group project proposals due Wednesday, February 17 th by 12 noon, on Blackboard. Week 6 (February 24) Exam #1, in class. Week 7 (March 3) Open access resource use and the Tragedy of the Commons Renewable resource management Fishing (open-access versus optimality) Ch. 7: The Allocation of Depletable and Renewable Resources: An Overview Ch. 13: Renewable Common Property Resources: Fisheries and other Species 4
, cont. (Week 7) The Tragedy of the Commons, G. Hardin, Science (162) pp. 1243-1248, 1968. Tierney, J, 2000. A Tale of Two Fisheries, New York Times Magazine, August 27. (Blackboard) Week 8 (March 10) Economics of pollution control Defining the efficient level of pollution Cost-effective policies Ch. 15: Economics of Pollution Control: An Overview Ch. 16: Stationary-Source Local Air Pollution Ch. 17: Regional and Global Air Pollutants: Acid Rain and Atmospheric Modification RFF Reader: Ch. 9 "Market based approaches to environmental policy. Resources." Paul Portney. http://www.rff.org/rff/documents/rff-resources-151-marketapproaches.pdf Week 9 (March 17) Spring Break no class. Week 10 (March 24) Guest Lecture: Sophia Kalantzakos, Global Distinguished Professor of Environmental Studies and former Deputy Minister of Labor in Greece What s going on in Europe: renewable energy and the future of green jobs Tentative (others TBD) Ch. 8: Energy: The Transition from Depletable to Renewable Resources Smith, R., 2007. The New Math of Alternative Energy: Does Going Green Finally Make Economic Sense? The Wall Street Journal, Feb. 23. (Blackboard) 5
Week 11 (March 31) : Policy instrument choice: Command-and-control, pollution taxes, and cap-and-trade The effect of uncertainty on policy instrument choice Information disclosure RFF Reader: Ch. 38 "Choosing price or quantity controls for greenhouse gases." William Pizer http://www.rff.org/rff/documents/rff-ccib-17.pdf Prices Versus Quantities Review of Economic Studies, 41(4) pp 477-491, Martin Weitzman Prices vs. Quantities Revisited: The Case of Climate Change William A. Pizer Resources for the Future Discussion Paper 98-02 * Correlated Uncertainty and Policy Instrument Choice, Journal of Environmental Economics and Management, 30 pp 218-232, (1996), Robert Stavins. Tietenberg, T., 1997. Information Strategies For Pollution Control, Keynote address at the Annual conference of the European Association of Environmental and Resource Economists, Tilburg, Netherlands, June. http://www.colby.edu/personal/t/thtieten/info_strat_full.pdf Week 12 (April 7) Case studies: SO 2 allowance trading Applying concepts learned so far (economics of pollution control and valuation methods) to designing a policy to phase out toxic hull paints in California. What Can We Learn from the Grand Policy Experiment? Lessons from SO 2 Allowance Trading, R.N. Stavins, The Journal of Economic Perspectives (12), pp. 69-88, 1998. 6
, cont. (Week 11) An Interim Evaluation of Sulfur Dioxide Emissions Trading, R. Schmalensee, P.L. Joskow, A.D. Ellerman, J.P. Montero; E.M. Bailey, The Journal of Economic Perspectives (12), pp. 53-68, 1998. * To learn more about the Acid Rain market and other links to pollution trading markets in general, see: http://www.epa.gov/airmarkt/progsregs/arp/basic.htm and http://www.epa.gov/airmarkets/trading/index.html Carson, R.T., M. Damon, L. T. Johnson, and J. A. Gonzalez (2008) Conceptual Issues in Designing a Policy To Phase Out Metal-Based Antifouling Paints on Recreational Boats, Journal of Environmental Management 90(8), June 2009. * Damon, M. "The Role of Heterogeneity in Driving the Speed of Pollution Abatement", working paper. Week 13 (April 14) Climate Change and a Closing Policy Perspective Nicholas Stern, The Economics of Climate Change: The Stern Review, Executive Summary. Nordhaus, W. 2007. Critical Assumptions in the Stern Review on Climate Change. Science 317: 201-202 Stern, N., and C. Taylor. 2007. Climate Change: Risk, Ethics, and the Stern Review. Science 317: 203-204. * Sterner, T., and U. M. Persson. 2008. An Even Sterner Review: Introducing Relative Prices into the Discounting Debate. Review of Environmental Economics and Policy 2 (1): 61-76. * Mendelsohn, R. 2008. Is the Stern Review an Economic Analysis? Review of Environmental Economics and Policy 2 (1): 45-60. Exam #2: Take-home; you will have a 48-hour window (determined based on students schedules) between the April 14 th and April 21 st class periods. 7
Week 14 (April 21) Group Presentations Week 15 (April 28) Group Presentations Final Group Projects due Wednesday, April 28 th by 12 noon, on Blackboard. 8