Academic journal article Journal of Economic and Social Development

Effectiveness of Ecological Education and Awareness in Public Policy: Microeconomic Analysis of Regulation Effects at Regional Energy Market

Academic journal article Journal of Economic and Social Development

Effectiveness of Ecological Education and Awareness in Public Policy: Microeconomic Analysis of Regulation Effects at Regional Energy Market

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Being a part of public policy environmental regulation is very sensible to efficiency matter. Its benefits sometimes are hardly to be measured and are hardly to be expected soon enough to be transmitted to political benefits for the authorities today. As for the costs, environment-friendly behavior is rather expensive thing both for the state and for the society. For the State it means considerable efforts (and the budget is always limited). For the society it results in rather restrictive changes of production and consumption patterns. Being painful enough to change polluters' behavior environmental regulation affects domestic producers' competitiveness which is a crucial point for the state.

So if the regulator is wise enough to follow long-run benefits of cleaner environment, it is anxious for environmental regulation costs efficiency. Regulation costs here mean losses in public welfare which can be considered as a price of better environment for the society. The aim of the state as a regulator in this context (or even a kind of its social responsibility) is to choose the way to achieve environmental goals which guarantees a minimum public welfare loss.

Public welfare is considered usually as a sum of consumers' and producers' net incomes (incomes after expenses incurred). It is measured, as a rule, in a macroeconomic way (for national economy). In the meantime microeconomic analysis allows to measure welfare of the market actor's as a sum of consumer and producer surpluses. The last approach seems to be convenient for regulation effects analysis, since the regulation often affects some of the markets, not all of them. Still, in most cases of environmental regulation we face the losses of surpluses sum. If the society cares of the environment, it can accept these losses. But the most interesting thing is that if the people care, they can change their preferences so the environmental goal can be achieved without negative welfare changes. Going further with the concept of consumer sovereignty it can result in eco-friendly behavior of producers without any substantial efforts from the state.

To observe this idea more precisely we start from conventional microeconomic analysis of market welfare change resulting from consumer preferences alteration. We apply then this analysis to the case of Novosibirsk regional energy market and see how and when environmental regulation can bring welfare gain. Finally, we conclude whether or not regional or federal authorities in Russia are doing enough to take advantage of social awareness as an instrument of environmental policy.

2. Social awareness as an instrument of environmental policy: microeconomic analysis

The most common environmental regulators considered in the textbooks are taxes and standards - as a kind of generalization for direct (administrative) and indirect (economic) policy instruments. Both of them, as well as many other, affect producer (polluter), which results to supply decrease. Conventional microeconomic analysis demonstrates then market welfare loss as for the case of environmental tax (Figure 1). Transfer to the state is Sp1DFB, and the welfare loss is SDEF. Compare it with the case, where consumers are informed about negative effect of good's consumption or production. If they care of, they change their preferences, which results in demand decrease (Figure 2). We can reach the idea of welfare gain if we imagine the situation as following: curve D1 reflect false preferences (consumption under externalities ignorance), while curve D2 reflects consumers' real preferences. Therefore the figure between two curves cannot be interpreted as surplus loss. It seems like they don't want to buy amount Q1-Q2, but they do. So their excess expenditures are equal the figure ACQ1Q2FB, and they will gain this amount while adjusting preferences.

As for the producer's side, his surplus loss is equal to the figure ACBD. …

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