March 27 ENV222 lecture format.docx

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School of Environment
Kenneth Mac Donald

ENV222 March 27, 2012 Market institutions - pricing carbon Lecture format Lecture purpose: examine barriers and likelihood of solution of institutions (rules) requiring internalization of environmental cost; case study internalizing environmental cost of carbon dioxide emissions. 1. Review: institutions as problem (Feb. 7 lecture): the problem of externalities, need for rules to internalize cost of environmental damage . concept of "price signal" (p. 421): if product price is higher due to rules requiring environmental protection, other less damaging products will be more competitive, allowing market, guided by the state, to work toward environmental protection 2. Government policy instruments for requiring cost internalization: . law-based regulation: risk management, standard setting . taxation: specific tax on material, energy or product . subsidy: subsidy for fossil fuels undermines cost internalization (p. 416) subsidy in the form of feed-in tariff . ecological tax reform (reader p. 415) . reduce tax on “good” things: investment and labour . increase tax on “bad” things: materials and energy used for production . keep revenue neutral, ie no over-all increase in annual government tax revenues Definitions: 1) price elasticity (reading – extent to which price change reduces demand for a product, depends upon how essential that product is) 2) revenue neutral - a new tax does not increase total government revenue, because it is offset by a decrease in another existing tax 3. Cost internalization to date for solid waste and toxic substances . solid waste: limited internalization, see reader p. 410 product take-back; focus has been upon recycling rather than re-use or reduction . toxic substances: more successful, regulations limiting toxic emissions in place; some success removing toxic substances as manufacturing input, eg Biphenyl A, but limited 4. Internalizing climate change costs associated with carbon dioxide . policy goal: 1) changing from fossil fuels to renewable fuels; 2) increasing fossil fuel efficiency . barriers to moving from fossil fuels to renewable fuels . current state of technology . wind and solar intermittent; lack of energy storage technology . environmental effects of renewables, eg wind turbine controversy . government and investor preference for large, concentrated sources (eg one coal-fired plant) over smaller, dispersed sources . market barriers: relative cost - coal is cheapest fuel available . political barriers . policy uncertainty, makes investment in renewables more risky
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