Environmental Science and International Politics: Acid Rain in Europe, 1979-1989, and Climate Change in Copenhagen 2009

By David E. Henderson; Susan K. Henderson | Go to book overview

Appendix 2. Introduction to Environmental Economics

Economics, sometimes referred to as the “dismal science,” attempts to quantify economic activity and predict ways to optimize it. This game will make use of economic data in the form of gross domestic product (GDP). Although GDP is the most widely used mea sure of economic activity, it has a number of serious problems.

The ultimate goal of environmental economics is a cost-benefit analysis for a policy or product. The costs must include not only direct costs but also costs avoided. Thus, acid rain policy must consider not only the costs of pollution abatement but also the costs avoided—for example, avoiding the need to replace buildings or other infrastructure that will not be destroyed if acid rain is prevented.

Environmental economics provides an analysis of different approaches to reaching environmental goals in order to determine which is the most cost effective. One example is the debate over how to reduce acid rain. One approach is to legislate limits on emissions for each industry or plant. An alternative is to establish a market for emissions, set a cap for the total emissions, and allow emission rights to be bought and sold as in a stock market. The United States adopted this approach to reducing sulfur pollution in the 1980s. Many European countries are more familiar with the “command and control” approach. In part this is because European governments own much of the energy production, so it is less susceptible to market forces. The question for environmental economists is to decide which of these approaches achieves the best reduction of acid at the lowest cost.

One limitation of cost-benefit analysis is that the costs of policies are often immediate and the benefits do not appear until much later. Again using acid rain as an example, it may cost billions of dollars to put scrubbers on power plants to remove sulfur emissions. The resulting reduction in acid rain may save ten times this amount in building repairs and health care costs avoided as a result, but the savings accumulate over a period of decades and may be hard to quantify. The evaluation of future costs and benefits are adjusted to reflect their present value in a process called discounting.

From the point of view of those involved in environmental economics, GDP is a crude and misleading instrument for studying economic health and growth. GDP is really a mea sure of how money flows in the economy. Some of that flow comes from using up available resources that cannot be replaced. For example, if a country produces oil, and the production is counted in the GDP, at some point the oil will be gone. So the flow of money represents the loss of a resource that cannot be replaced, in that oil is essentially like capital that can only be spent once. Thus, a higher GDP based on consuming a limited resource is not a positive item at all—it cannot be sustained when the resource is gone.

Some of the factors that increase the GDP may make the economy look better but are actually costs. The cost of medical care due to air pollution brings more money into the economy in the form of drugs, medical bills, and hospitalization, but we would all agree that more of such costs are a detriment to society.

Yet another example of the weakness of using GDP as a mea sure of economic health is the case where labor that was provided with no actual cost suddenly becomes costly, as when a spouse gets a job and needs a house keeper or babysitter. Similarly, if a product becomes scarce due to depletion and becomes more expensive, this can also increase the GDP and make the economy look better.

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Environmental Science and International Politics: Acid Rain in Europe, 1979-1989, and Climate Change in Copenhagen 2009
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Note to Instructors viii
  • How to Play These Games 1
  • Contents 8
  • Figures and Tables 11
  • 1 - Historical Background 14
  • 2 - The Game 35
  • 3 - Roles and Factions 41
  • 4 - Core Texts and Supplemental Readings 44
  • Bibliography 106
  • Acknowledgments 109
  • Appendix 1- Introduction to Environmental Philosophy 110
  • Appendix 2- Introduction to Environmental Economics 116
  • Appendix 3- Using Numbers to Make Arguments 119
  • Appendix 4- Study Questions for Reading Assignments 121
  • Contents 124
  • Figures and Tables 127
  • 1 - Historical Background 129
  • 2 - The Game 153
  • 3 - Roles and Factions 159
  • 4 - Core Texts and Supplemental Readings 162
  • Acknowledgments 164
  • Appendix 1- Green House Gases 165
  • Appendix 2- Chemicals in Fossil Fuels 168
  • Appendix 3- Quantitative Look at Combustion Reactions 172
  • Appendix 4- Leaked Draft Document by Danish Delegates 180
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