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ENST 490 Section 1 : Environmental Markets: Science and Economics
Curriculum for Ecology and the Environment
Fall 2013
Tuesday-Thursday 11:00-12:15
Bingham 208
Environmental Markets: Science and Economics, Custom Textbook, McGraw
Instructor: Andy Yates
Office: Gardner 304
Office Hours: Tuesday-Thursday 9:30-11
Phone Number: 919-966-5374
Email: [email protected]
This course examines the interplay of science and economics in the design of environmental
markets. The first part of the course is an introduction to the principles of environmental
economics in general and environmental markets in particular. The second part of the course
consists of several case studies of environmental markets. These case studies introduce the
principles of environmental science and illustrate the critical role that scientific models of natural
systems play in the design of environmental markets. The first case study is water pollution
(Nitrogen) from wastewater treatment plants into North Carolina's Neuse River. The second case
study is local air pollution (N0x, S0x, ozone, PM2.5) from electric power plants in the southeast
United States. The third case study is global C02 pollution including special emphasis on carbon
sequestration and markets for carbon offsets. The fourth case study is ecosystem service markets
including wetland and stream mitigation banking.
The primary audience for this course is graduate students and advanced undergraduate students
interested in the interdisciplinary analysis of environmental issues.
There are no formal prerequisites for the course.
1. Gain an understanding of the principles of environmental economics and the design issues for
environmental markets.
2. Gain an understanding of the principles of environmental science and how these principles
inform the design of environmental markets.
3. Apply this knowledge to analyze an existing or proposed environmental market.
4. Students that complete this course should be able to contribute to interdisciplinary research
teams working on the design of environmental markets.
1. Introduction to Environmental Economics. We discuss the basic principles of economics
(demand, supply, efficiency) and show their application to the environment.
2. Environmental Markets. We discuss how to use markets to obtain environmental goals.
We also contrast environmental markets with alternative regulations such as standards
and taxes.
3. Water pollution. We give an overview of the science and regulation of water pollution.
We analyze a case study of permit markets for emissions of Nitrogen into North
Carolina’s Neuse River. Special emphasis is give to the use of SPARROW to model
emissions through the river.
4. Air Pollution. We give an overview of the science and regulation of air pollution. We
analyze a detailed case study of permit markets for emissions of N0x from electric power
plants in the South East US. Special emphasis is given to the use of CMAQ and
associated models to map flow of emissions over time and space.
5. Carbon pollution. We discuss scientific models of the effect of carbon emissions on
climate. We analyze a detailed case study on permit markets for carbon and the problems
of sequestration and offsets.
6. Ecosystem Service Markets. We analyze the determinants of ecosystem function as well
as ecosystem restoration techniques. We study the interaction of these elements with the
market structure in ecosystem service markets.
The class will be a combination of a traditional lecture format and the newer “flipped” classroom
format. For the environmental economics and environmental markets part of the course, I will
mostly lecture. For the case studies, I will assign readings in advance of class. Students should
prepare a list of 5 discussion questions for each set of readings. We will discuss these questions
in the subsequent class. Student will also turn in their discussion questions as a homework
There is a mid term exam, a final exam, a team project and the discussion questions homework
assignments. For the team project, groups of 2 students will conduct an analysis of an existing or
proposed environmental market. The output of the project will consist of a written report
(approximately 10-15 pages) and an oral presentation to the rest of the class summarizing their
findings. These presentations will take place the last two weeks of class.
The midterm exam accounts for 25 percent of the class grade, the final accounts for 30 percent of
the class grade, the team project accounts for 35 percent of the class grade. The homework
assignments count for 10 percent each.
Thursday, October 10
Thursday, December 12 (12pm)
Midterm exam
Final Exam
1. Introduction to Environmental Economics
Textbook chapters 1-3
2. Environmental Markets
Textbook chapters 4-6
Tietenberg, “Economic Instruments for Environmental Regulation,” Oxford Review of
Economic Policy, 1990.
Stavins “What Can We Learn from the Grand Policy Experiment” Journal of Economic
Newell, Richard G. and Kristian Rogers (2003) “The Market-Based Lead Phasedown,” RFF
Discussion Paper 03-37.
Burtraw, Dallas, David A. Evans, Alan Krupnick, Karen Palmer, and Russell Toth. 2005.
“Economics of Pollution Trading for SO2 and NOx.”Annual Review of Environment and
Resources 30: 352–290.
3. Case Study 1: Water Pollution
Textbook chapters 7-9
M. Doyle, J. Rigby, K. Schnier, and A. Yates, ``Market power, private information, and scale in
pollution permit markets with application to Nitrogen trading in North Carolina’s Neuse River”,
Working paper 2013.
4. Case Study 2: Air Pollution
Textbook chapters 10-13
Muller and Mendelsohn, “Efficient Pollution Regulation: Getting the prices right”, American
Economic Review, 2009, 99: 1714-1739.
Bielen and Yates, “Permit markets with acute and chronic damages”, Working Paper 2013.
5. Case Study 3: CO2
Textbook chapters 13-14
Nordhaus (1993) “Reflections on the Economics of Climate Change”, Journal of Economic
Perspectives, 7:11-25.
McKibbin and Wilcoxen (2002) “The role of economics in Climate Change Policy”, Journal of
Economic Perspectives, 16:107-129.
Kruger, Oates, and Pizer, “Decentralization in the EU Emissions Trading Scheme and Lessons
for Global Policy,” Rev Environ Econ Policy (2007) 1(1): 112-133
Pizer and Yates, “Linking and de-linking pollution permit markets” Working paper 2013.
6. Case Study 4: Ecosystem Service Markets
Textbook chapters 15-17
M. Doyle and A. Yates, ``Ecosystem Service Markets Under No-Net-Loss Regulation",
Ecological Economics, Vol. 69, 2010, pp. 820-827.
T. BenDor, T. Guo, and A. Yates, ``Optimal staging of credit releases in ecosystem service
markets'', working paper 2013.