WHY I LIKE ENVIRONMENTAL ECONOMICS. Lecture / Hunt Allcott MIT Department of Economics

Transcription

1 WHY I LIKE ENVIRONMENTAL ECONOMICS Lecture / Hunt Allcott MIT Department of Economics

2 What is Environmental Economics? Economics is the study of the allocation of scarce resources. This helps us understand how much money society should spend on environmental quality and how environmental policies should be structured. Why not have zero pollution? Specifically, economics helps us to understand: The value of pollution abatement. The costs of pollution abatement. The welfare effects of different policies to control pollution.

3 Example: Using Economics to Reframe Climate Change Trends Damages Abatement Costs

4 Variation in Global Surface Temperatures 0.8 Global Departures in temperature ( o C) from the 1961 _ 1990 average Data from thermometers Year Image by MIT OpenCourseWare.

5 Expected impact on global climate SRES A1F1 Temperature change ( o C) SRES A SRES B Year Sea-level rise (m) A1F1 A Year B2 Image by MIT OpenCourseWare. Change in global surface temperature Source: Hadley Centre (UK) Model 3 A1F1 Change in global mean sea level

6 Expected impact on U.S. climate Year Average Daily Mean Temperature (Annual) Poly. (Average Daily Mean Temperature (Annual)) Source: Author s Calculations From National Center for Atmospheric Research, Community Climate System Model (CCSM) 3 A2

7 Distribution of Annual Daily Mean Temperatures (F), < >90 Daily Mean Temperatures Days Per Year Note: Population-weighted average over all counties

8 Changes in Distribution of Daily Temperatures Under Hadley 3 A1FI and CCSM 3, A2 Change in Distribution of Annual Daily Mean Temperatures (F) CCSM 3, A2 Scenario Hadley 3, A1F1 Scenario < >90-20 Image by MIT OpenCourseWare.

9 1.0 Estimated Response Function Between Daily Temperature and Mortality: Females < >90 Impact of a Day in 20 Daily Mean Temperature (F) Bins on Annual Female Mortality Rate, Relative to a Day in the F Bin Annual Deaths Per 100,000 Poly. (Annual Deaths Per 100,000) Note: Population-weighted sum of age-specific response functions

10 Predicted change in annual female and male mortality 8,000 6,000 4,000 2,000 0 < >90-2,000-4,000 Daily Mean Temperature (F) Change in Annual Male Mortality Change in Annual Female Mortality

11 Estimated Response Function Between Daily Temperature and Residential Energy Consumption < >90 Impact of a Day in 20 Daily Mean Temperature (F) Bins on Annual Residential Energy Consumption, Relative to a Day in the F Bin Quadrillions of BTUs Poly. (Quadrillions of BTUs)

12 Predicted change in annual residential energy consumption < > Daily Mean Temperature (F) Quad BTU

13 Results from India (Preliminary) Estimated Mortality Impact of a Day in 20 Temperature (C) Bins on Log Annual Mortality Rate, Relative to a Day in the 20 o - 24 o C Bin +1 std 0.04 Log annual mortality rate per < log-linear model std > Image by MIT OpenCourseWare.

14 Carbon Emissions Projections Emissions Abatement Pathway BAU Global GHG emissions GtCO 2 e per year Technical measures < 90 per tco 2 e Technical measures per tco 2 e 1 (high-level estimates) Behavior changes (high-level estimates) Peak at 550 ppm, long term stabilization 550 ppm, expected 3 o C increase Peak at 510 ppm, long term stabilization 450 ppm, expected 2 o C increase Peak at 480 ppm, long term stabilization 400 ppm, expected 1.8 o C increase Image by MIT OpenCourseWare.

15 Abatement Cost Curves (McKinsey) Cost Real 2005 dollars per ton CO 2 e Residential electrons Residential buildings- Lighting 0.2 Commercial electronics Commercial buildings - LED lighting Fuel economy packages - Light trucks Commercial buildings 0.4 Fuel economy packages - Cars U.S. MID-RANGE ABATEMENT CURVE combined heat and power 0.6 Residential buildings - New shell improvements Commercial buildings - CFL lighting Industrial process improvements 0.8 Cellulosic biofuels Commercial buildings - New shell improvements Residential water heaters 1.0 Industry - Combined heat and power Existing power plant conversion efficiency Commercial buildings - Control systems 1.2 improvements Conservation tilage Residential buildings - Shell retrofits 1.4 Coal mining - Methane mgmt Nuclear newbuild 1.6 Onshore wind - Low penetration Manufacturing - HFCs mgmt Natural gas and petroleul systems management Active forest management 1.8 Abatement cost <$50/ton Afforestation of cropland Coal power plantsccs rebuilds with EOR 2.0 Reforestation Distributed solar PV 2.2 Winter cover crops Afforestation of pastureland 2.4 Biomass power - Confining Commercial buildings - HVAC equipment efficiency Coal power plants - CCS new builds with EOR Onshore wind - Medium penetration Solar CSP 2.6 Onshore wind - High penetration Coal power plants - CCS new builds Residential buildings - HVAC equipment efficiency 2.8 Industry - CCS new builds on carbonintensive processes Potential Gigatons/year Car hybridization Coal-to-gas shift - dispatch of existing plants Coal power plants - CCS rebuilds Image by MIT OpenCourseWare.

16 The Economics of Climate Change What costs of climate change? What forms of costs? How should we value environmental amenities? What costs of greenhouse gas emission abatement? How do we abate emissions? Fuel switching, changes in demand patterns, energy efficiency, sequestration Present-future tradeoffs: What discount rate to use? Irreversibility/option value How to design policy? Taxes? Trading? R&D subsidies? Clean Development Mechanism offsets? Equity How to decide which policy option?

17 Syllabus Course Modules: 1. Social Choice and the Role of Government 2. Economic Efficiency and Benefit-Cost Analysis 3. Externalities and Public Goods 4. Optimal Regulation of Pollution 5. Risk and Uncertainty 6. International Trade 7. Environment, Growth, and Development 8. Measuring Benefits 9. Natural Resource Economics 10. Policy Application: Airborne Particulates 11. Policy Application: Climate Change 12. Policy Application: Energy Efficiency

18 How I Teach Name cards Interactive Class participation matters Goal: prepare you to think about environmental economics in: Econ PhD programs Consulting or industry jobs Policy analysis/think tank jobs Government Tools: Theory Stata

19 Innovating Teaching this class very differently this year Different learning modes: In-class participation Business school cases Theory In-class simulations Empirical exercises in problem sets New class modules: Energy efficiency Climate change policy Theory of natural resource extraction Environmental issues in developing countries Pursue feedback throughout the semester

20 Questions for the Class Background Why interested in environmental economics? What environmental problems most of interest? Background on me.

21 Big Questions Why did the environmental movement take off in the 1960s? Is it really possible to create a market for pollution? How well do these markets work? Are pollution taxes better or worse than cap-and-trade programs? Is there a race to the bottom in environmental regulation? How does international trade affect the environment? What is the relationship between economic development and environmental quality? Are poor countries under-polluted, as Pritchett/Summers have claimed?

22 Big Questions Are we running out of resources? What does sustainability mean in economic terms? How do you measure the value of a polar bear? Is there an Energy Efficiency Gap? Get ready to answer these questions on Thursday

23 Answers to Big Questions Get ready to begin answering these questions on Thursday.

24 MIT OpenCourseWare / Environmental Policy and Economics Spring 2011 For information about citing these materials or our Terms of Use, visit: