Assignment #1 (Part 1) Due date: TBA
1. (15 marks) Define Ecological Economics and Environmental Economics. “Ecological
Economics and Environmental Economics are inherently complementary” explain with
example (s)
Ans: Definitions and Complementarity of Ecological Economics and Environmental Economics
Ecological Economics:
Ecological economics addresses the interaction between economic systems and the natural
environment in the pursuit of sustainable development that will maintain ecological health while
sustaining economic growth. It deals with the trade-offs between higher production and
environmental quality and endeavors to integrate the principles of ecology into economic
decision-making with respect to long-term sustainability.
Environmental Economics:
Environmental economics analyzes, from a micro-economic point of view, the impacts economic
activities have on the environment. It looks at how individual, firm, and government choice has
contributed to environmental issues and explores the option to better manage resources through
the tools and policies at their disposal, like Benefit-Cost Analysis, toward the best economic and
ecological solution.
Complementarities:
1. Scope and Approach:
Ecological Economics: Presents a broad perspective, 'embedding' economic growth within
ecological sustainability.
Environmental Economics: In connection with localized impacts, applying microeconomic
analysis to the development of policy.
Example: Ecological Economics will consider long-term ecological impacts for industrial
expansion and will recommend sustainable practices. Environmental Economics will evaluate
the policy of pollution controls to reduce immediate effects.
2. Goals and Instruments:
Ecological Economics: Aiming at holistic solutions for balancing growth with ecological health.
Environmental Economics: Utilizes Benefit-Cost Analysis as one of its tools to check for policy
efficiency.
Example: In water management, Ecological Economics recommends an integrated approach,
while in conservation policies, it is assessed by Environmental Economics.
Conclusion:
The two complement each other in providing an integrated approach to the reconciliation of
economic and environmental goals, combining long-term sustainability with specific policy
tools.
2. (15 marks) “Dealing with climate change will require a coordinated international
response” – why has it been so difficult to achieve cooperation in reducing global
carbon emissions and to mitigate climate change?
Ans : The problems of international cooperation in tackling climate change
Addressing climate change requires coordinated international action, but such cooperation
has been difficult to achieve for several reasons:
1. Historical Emissions and Responsibilities:
Conventionally, the North accounts for most greenhouse gas emissions because of earlier
industrialization. Historically, in 1990, much of the global contribution of emissions
accounted from countries of the North. Further, developing countries have historically
emitted less, though they grapple with increasingly high emissions as a result of continuous
industrialization. Establishing a basis for who should bear the burden of reducing emissions
is always hard to negotiate.
2. Differentiated Commitments
The Kyoto Protocol divided the world into developed Annex I and developing non-Annex I
countries and therefore responsibility. Annex I countries have obligations to reduce
emissions, while developing countries were given the latitude to actively promote economic
development and eradicate poverty. Moreover, it is symptomatic of the uneven responsibility
and ability of nations in groping toward uniform global targets.
3. Economic disparities:
North-South economic divides also come into play in climate negotiations: although
developed country CO2 emissions per unit GDP are low, developing countries are growing
rapidly and the growth is piling up. Then, there comes the balancing of economic growth
with emission reduction.
4. Prisoner's Dilemma: Climate change negotiations resemble a Prisoners' Dilemma because,
very often, one country might benefit from not cutting emissions if others do so, leading to
suboptimal global outcomes. Such factors are making it rather difficult to arrive at effective
international cooperation in mitigating climate change.
3. (10 marks) Classify each of the following statements as positive or normative. Explain.
• Society faces a long-run trade-off between faster economic growth and
rapid exploitation of natural/environmental resources.
• About 70 percent of Canadian wetlands have already been either
destroyed or converted into commercial uses.
• Following BC, the other provinces in Canada should introduce carbon
tax in order to reduce local as well as global air pollutions.
• Energy efficiency programs in Canada has created jobs.
• Fisheries must be privatized to survive.
Answer:
1. Society faces a long-term trade-off between achieving faster economic growth and the
rapid exploitation of natural and environmental resources.
- Classification: Normative
- Explanation: This was a normative statement because it was a value judgment relative
to a trade-off society has to be making between economic growth and caring for the
environment. Technically speaking, said as an opinion as to what society should then
place their focus on rather than a fact.
2. Approximately 70 percent of Canadian wetlands have already been either destroyed or
converted for commercial purposes.
- Classification: Positive
- Explanation: This is a positive statement in that it reflects facts on the ground in what
pertains to wetlands in Canada, based on real data and without subjective opinion or
judgment of what should be done.
3. Following British Columbia's example, other provinces in Canada should implement a
carbon tax to help reduce both local and global air pollution.
- Classification: Normative
- Explanation: This is a normative statement because it preaches on a certain kind of
policy action—in this case, implementation of a carbon tax—and boasts gains from such
an action. It prescribes what other provinces should therefore do, based on what they feel
works as policy.
4. Energy efficiency programs in Canada have resulted in job creation.
- Classification: Positive
- Explanation: That is an affirmative statement because it reflects actual outcomes of
the energy efficiency programs. That is a fact, or it could be data on which they have
created jobs, but that does not say if they are good jobs or bad jobs.
5. Fisheries need to be privatized in order to ensure their survival.
- Classification: Normative
- Explanation: This is a normative statement because it calls for an action to be taken;
privatization must occur for fisheries to survive. It calls forth a value judgment of what
needs to be done for fisheries to continue being sustainable, rather than stating a fact.
4. (10 marks) The following diagram shows the carbon-emissions market in BC.
Label the marginal benefit/marginal willingness to pay curve for emissions reduction, and
marginal cost curve of emissions reduction.
Suppose the marginal benefit curve (demand) hits the vertical axis at $20. The net benefit of
carbon emissions is maximized at 10 MT of carbon at a marginal benefit/cost of $10/MT of
carbon.
a. What is the total benefit of carbon emissions? Use the relevant concepts and show your
calculations.
Ans : The total benefit of carbon emissions is the area under the marginal benefit curve up
to the optimal level of emissions reduction.
Here:
- Base 1 = $20 (initial marginal benefit)
- Base 2 = $10 (marginal benefit at 10 MT)
- Height = 10 MT
So:
Total Benefit = 1/2 * (20 + 10) *10 Total Benefit = 1\2 * 30 *10 Total Benefit = 150 (in
monetary units)
b. What is the total cost of carbon emissions?
Ans : The total cost of carbon emissions is the area under the marginal cost curve up to
the optimal level of emissions reduction.
Assuming the marginal cost curve is constant at $10 per MT (which is the case given that
the marginal cost equals the marginal benefit at the optimal level), the total cost is:
Marginal cost * quantity total cost = 10* 10 total cost= 100
c. What is total net benefit of carbon emissions?
Ans : Net benefit is calculated as the total benefit minus the total cost:
Total Net Benefit =Total Benefit -Total Cost Total Net Benefit = 150 - 100 Total Net
Benefit = 50 (in monetary units)
