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2022 | Buch

Environmental Economics

Theory and Policy in Equilibrium

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Über dieses Buch

Revised and updated for the 2nd edition, this textbook provides an analysis and investigation of the most essential areas of environmental economic theory and policy, including international environmental problems. The approach is based on standard theoretical tools, in particular equilibrium analysis, and aims to demonstrate how economic principles can help to understand environmental issues and guide policymakers.

Current topics including climate change, overfishing and integrated approaches to environmental policies are carefully analyzed in this framework, and a multitude of practical examples from various parts of the world is presented. Addressing undergraduate and graduate students, this book is a must read for everybody interested in a better understanding of environmental economics.

Inhaltsverzeichnis

Frontmatter
Chapter 1. Introduction
Abstract
This introductory chapter raises first the seemingly delicate issue of addressing environmental issues with economic tools and instruments. After all, environmental degradation is not in a small part the result of economic activity, and a contradiction between economy and ecology seems obvious. The concepts of sustainability and sustainable development, which have become increasing visible and important in recent decades, help to reduce this dichotomy, which nevertheless appears again and again in practical contexts. After that, environmental economics, the main theme of this book, is briefly contrasted with ecological economics, another school of thought that deals with environmental issues. Subsequently, the role of economic theory in environmental economics is explained, especially in a practical context. It turns out that environmental policy has to take over the task of an allocation mechanism. This must be studied carefully, also by means of the equilibrium approach. An overview shows the structure of this monograph.
Hans Wiesmeth

The Environmental Movement

Frontmatter
Chapter 2. Differing Views on the Environment
Abstract
Environmental degradations occurred and are occurring everywhere, although they tend to vary with the economic system, the state of the economy, the geographic area, the climatic conditions, and the density and growth of the population – to cite just a few relevant factors. Moreover, the perception of environmental problems and the attitude towards the environment seem to depend critically on the state of the economy with consequences for tackling cross-border environmental issues. In this context, this chapter attempts to “take stock” of the environmental situation in developed countries and emerging economies. The survey includes the actions, or rather the reactions, regarding a more or less rigorous environmental regulation. In view of differing attitudes towards the environment, the challenges arising from a growing number of global environmental problems still have to be mastered.
Hans Wiesmeth
Chapter 3. The International Dimension of the Environment
Abstract
Transnational environmental problems such as acid rain, ozone depletion, global warming or overfishing have gained increasing importance in recent decades, and will continue to influence, even dominate, international negotiations on political, economic and ecological issues. This chapter outlines the international environmental negotiations on these transboundary environmental issues, including the environmental pressures associated with globalization. Thereafter, the United Nations Conference on Environment and Development (UNCED) in 1992 with the Rio Declaration and the Agenda 21 is taken as a starting point for international environmental concerns, in particular with regard to climate change, which dominates the public debate. The United Nations Framework Convention on Climate Change (UNFCCC) has resulted in the Kyoto Protocol and many other Conferences of the Parties (COP) with the aim of reducing global greenhouse gas emissions. The focus in this chapter is on a first analysis of relevant issues, which will be reconsidered in later chapters.
Hans Wiesmeth

Theoretical Environmental Economics

Frontmatter
Chapter 4. Basics of Environmental Economics
Abstract
Not unlike regular commodities, the state of the environment affects the well-being of humanity – locally and globally, in the short term and in the long term. It is therefore quite natural to integrate the “environment” into the economic system, to analyze the “environment” in the context of the economic allocation problems that are and have been relevant to each economic system in each period. The concept of environmental economics refers precisely to this situation and does not imply or intend to subordinate the environment to the economic system. In view of these remarks, this chapter then introduces the concept of an environmental commodity and discusses relevant, characteristics. Moreover, the integration of the environment into the economic system leads to interesting details regarding economic efficiency and environmental impact.
Hans Wiesmeth
Chapter 5. Allocation Problems in a Market Economy
Abstract
The following sections provide a formal description of how to solve the allocation problems in a simple model of a market economy. The analysis is initially limited to the case of an economy with private commodities on regular markets, which serves as a “benchmark”. After that the investigations are extended to an economy which includes environmental or external effects. The formal model, adapted to specific externalities, shows the impact of environmental effects on the basic structure of the economy and the effects on the functioning of the market mechanism. The final section refers to public commodities and the public good characteristics of many environmental commodities.
Hans Wiesmeth
Chapter 6. The Internalization of External Effects
Abstract
Environmental or external effects are not sufficiently integrated into the market system, leading therefore to “market failure” in the sense of an inefficient market equilibrium. The “internalization” of external effects intends to restore efficiency and reestablish optimality of the equilibrium allocation. Since external effects signal missing markets, the main idea to be examined in this chapter is the immediate establishment of “artificial” markets, thereby directly “completing” the market system, or the assignment of “property rights” to the environmental commodities concerned. The various tools to achieve this task are formally related.
Hans Wiesmeth
Chapter 7. Public Goods in Environmental Economics
Abstract
Environmental commodities are often characterized by properties of public goods: individuals cannot (or should not) be excluded from consuming a particular commodity (for example, the protective services of the Earth’s ozone layer); moreover, available supply is more or less independent of the number of consumers. These characteristics “drive” the conclusions of the Prisoners’ Dilemma and the Tragedy of the Commons and imply additional difficulties for the allocation of public goods. The resulting “overuse” of environmental commodities is a consequence of individually rational behavior and can be observed even in industrialized countries despite a presumably high environmental awareness. Thus, the private provision of these public commodities can be inefficiently low, necessitating an appropriate modification of the relevant economic framework and the allocation procedures. In this context, this chapter then investigates properties of the Lindahl equilibrium, analyzes cost-share equilibria and the property of core equivalence with an application to the allocation of global public or environmental commodities.
Hans Wiesmeth

Environmental Policy

Frontmatter
Chapter 8. From Theory to Policy: Information Deficits
Abstract
The results obtained in Part II demonstrate that solutions to “market failures” related to and as a result of environmental effects or public environmental commodities are in principle available. The main tools recommend completing the market system with instruments such as the Pigou tax or a market for tradeable emission certificates. Alternatively, the assignment of property rights in the context of the Coase Theorem can prove helpful in redirecting market forces to an efficient allocation. Given this theoretical framework, this chapter illustrates the role of the information that is needed by the public administration to internalize the externalities. It will become clear that environmental policy is substantially affected by a lack of necessary information. In particular, information is missing with respect to the detailed structure of relevant markets, information is often missing regarding potentially hazardous materials or processes, and there is usually not enough information on the effectiveness of certain policies in an international context. These information deficits then have immediate consequences for environmental policy, which aims to prevent pollution at local or global level.
Hans Wiesmeth
Chapter 9. Command-and-Control Policy
Abstract
This chapter provides insights into relevant features of command-and control policies in an environmental context. The first section refers to environmental standards, which replace the generally unknown efficient levels of certain environmental commodities. The necessity to choose appropriate standards contributes substantially towards environmental policy developing into a separate policy area, competing with economic policy, labor market policy and others for financial and public support. The U.S. Clean Air Act (CAA) and the German Federal Immission Control Act (BImSchG) will help to analyze the concept of ecological efficiency. Thereafter, framework conditions, mostly for stimulating consumers and motivating private business companies to engage in environmental activities, will be investigated. The Private Finance Initiative (PFI) applied to environmental policy characterizes the orientation of this section. The incentive compatibility of commands and framework conditions will be addressed by means of the refillables quota issue. In addition, standards and framework conditions should be economically feasible or economically reasonable. This concept appears in a variety of legal papers, acts and ordinances related to environmental policy. What does it mean and what are its implications from an economic point of view?
Hans Wiesmeth
Chapter 10. The Price-Standard Approach to Environmental Policy
Abstract
Similarly to the command-and-control policy, the price-standard approach focuses on attaining certain environmental standards – but by “motivating” the economic agents to join with their knowledge and their information. This corresponds to internalizing the environmental effects through completing the market system. The price-standard approach, by decentralizing decisions, thus “imitates” the pricemechanism to reach the standards. As known from Part II, this can be achieved by means of a Pigou tax, which can be interpreted as the “equilibrium price” on an artificial market, or by establishing a market for tradeable certificates. These tools are helpful for incorporating individual knowledge into decision-making. In addition to some theoretical issues, this chapter analyzes various practical approaches, including ecological tax reforms, the EU Emissions Trading Scheme, and the attempt to introducing a cap and trade policy in the U.S.
Hans Wiesmeth
Chapter 11. International Environmental Commodities and the Principal-Agent-Approach
Abstract
The increasing relevance of cross-border environmental issues is mirrored in the quest for effective allocation mechanisms for international environmental commodities. More or less detailed cost sharing proposals are part of the international climate agreements and thus become relevant “mechanisms”. For strategic goals the negotiations, which precede these international agreements, are gaining increasing importance. For example, a country wants to help or motivate others to participate effectively in activities to reduce transboundary environmental pollution. In contrast to the classic principal-agent approach, it is not so much the unobservable effort of the agent that is the main obstacle to an efficient outcome, but the question of appropriate instruments to achieve the goal. In this chapter, therefore, tools in this context are examined and their practical relevance analyzed. After a brief survey on the role of international environmental agreements as an allocation mechanism, the principal-agent approach is used to investigate stable and efficient allocations resulting from international negotiations. Mitigation strategies and adaptation strategies in relation to climate change are addressed in particular, also in a formal model.
Hans Wiesmeth
Chapter 12. Holistic Environmental Policies
Abstract
Environmental policies, for example to achieve climate neutrality, to implement the European Green Deal or the circular economy, require holistic thinking: it is necessary to consider the entire lifecycle of products and to involve various stakeholders in the policies. This chapter first motivates the holistic approach. It then discusses the principle of extended producer responsibility (EPR), including its practical applications, in particular for waste electrical and electronic equipment (WEEE). Integrated waste management provides the idea for better integrating environmental commodities into the economic allocation problems. The resulting integrated environmental policies (IEP) are characterized by certain “constitutive elements” and are intended to act as an allocation mechanism, partially replacing the market mechanism in a setting with external effects. The last section gives an outlook on a circular economy, its definition and the role that holistic policies play in its implementation. As a practical example, an IEP for packaging waste in Germany is being drafted, which highlights the challenges associated with the implementation of a circular economy.
Hans Wiesmeth

The Environment in the Globalized World

Frontmatter
Chapter 13. Trade and the Environment: The Legal Context
Abstract
This chapter provides a brief characterization of the international dimension of environmental economics in its relation to international trade. An overview of the “links between trade and environment” demonstrates the increasing importance that these two fields have for each other. However, the international competitiveness of private companies may also be harmed by high environmental standards, even if they refer only to local pollution, and thus indicate an international dimension of local pollution. The chapter first deals with environmental aspects related to the GATT and theWTO. Thereafter, with the examples of the EU and USMCA, regional trade agreements will be investigated with respect to their environmental relevance. Strategic issues conclude the chapter with the question of the extent to which a climate club with its trade sanctions for nonparticipants could support global efforts to mitigate climate change.
Hans Wiesmeth
Chapter 14. Overfishing
Abstract
The continuing exploitation of the world’s marine fishery resources has led to many attempts to control the “race for fish” with some positive developments, but still without groundbreaking success. In order to understand the “economics of fisheries”, this chapter presents, after some introductory remarks, a formal model, which integrates economy and biology, and reveals the various externalities affecting fishing activities. The equilibrium model allows insight into the economic and biological mechanisms leading to overcapacity and overfishing, as well as the role of globalization and international trade in this context. The conclusions of the formal analysis include aspects of quota management systems and an examination and evaluation of the current fisheries policies of the EU and the U.S.
Hans Wiesmeth
Chapter 15. Integration of Trade and the Environment
Abstract
Whereas the first chapter in Part IV addresses the legal framework of international trade in its relation to the environment, this chapter attempts an integration of trade and environment. Using a formal model, topics such as unfair trade, a race to the bottom in terms of environmental standards, and a potential welfare loss are analyzed. The game-theoretic analysis shows that this interaction between trade and environment can lead to unexpected results. In particular, it should be stressed that the interests of the environment are not necessarily sacrificed when they are in conflict with those of free trade. The formal approach looks at subgame-perfect Nash equilibria of a game and models the strategic interaction of governments, producers and consumers. The analysis examines the transition from autarky to free trade in terms of both regional and international environmental effects. Further sections relate to the question of harmonization of environmental standards and to the impact of a tariff on equilibrium standards.
Hans Wiesmeth
Backmatter
Metadaten
Titel
Environmental Economics
verfasst von
Prof. Dr. Hans Wiesmeth
Copyright-Jahr
2022
Electronic ISBN
978-3-031-05929-2
Print ISBN
978-3-031-05928-5
DOI
https://doi.org/10.1007/978-3-031-05929-2

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