Ecological Economics Lecture 08 13th May 2010 Rui Pedro Mota Tiago Domingos Environment and Energy...
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Transcript of Ecological Economics Lecture 08 13th May 2010 Rui Pedro Mota Tiago Domingos Environment and Energy...
![Page 1: Ecological Economics Lecture 08 13th May 2010 Rui Pedro Mota Tiago Domingos Environment and Energy Section Department of Mechanical Engineering.](https://reader035.fdocuments.in/reader035/viewer/2022070412/5697bf721a28abf838c7ec43/html5/thumbnails/1.jpg)
Ecological EconomicsLecture 08
13th May 2010
Rui Pedro MotaTiago Domingos
Environment and Energy SectionDepartment of Mechanical Engineering
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World Bank’s Genuine Savings
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World Bank’s Genuine Savings
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Criteria for Sustainability, Pezzey (2004) EDE
• An economy is sustainable at time t if and only if the representative agent’s current utility does not exceed the maximum level of utility which can be sustained forever from t onwards.
• One-sided sustainability test:
un-sustainable development.
• Multisector results in real terms.
– Real Net Income,
– Genuine Saving,
–
0 0dY
QI ordt
P C Q IY
dY R dWR
dt dt Q I
Q IConsumption Investment
Variation in Real Net Income
Variation in Welfare
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Small Open Economy
• Include – stocks of commercial forests,
– welfare costs of air emissions,
• The capital stocks are :
– Domestic man-made capital,
– Net foreign capital held privately or by the government,
– Stock of commercial natural resources
• Production
K : ( , ,S)fK K
dKI CFC
dt
ff R X MdK
rK X Mdt
Q (R R )
d XdS
dt G(S) R R
d M d XI F K M X C a f ( , R R ) (R R ,S)
r – interest rate
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Small Open Economy
• Households’ utility function depends on material consumption rate and (negatively) on the flow of emissions
• The vector of emissions depends on production and abatement expenditure.
• Maximize welfare subject to the above relations and having as controls consumption, , all forms of extraction, , abatement expenditure and trade balance .
• Conventional (SNA) NNI:
• Green Net National Income:
• Genuine Saving (Adjusted Net Saving):
(C) : ( ,E)U U C
E( ( ),a)F
( )C t R ( ), R ( ), R ( )d X Mt t ta( )t ( ) ( )M t X t
: fNNI C K K
R(Q f ) S e ER tY NNI Q
R(Q f ) St R tQK Q NNI C Q
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Small Open Economy – Table of symbols( )C t Consumption rate at time t
( )U Utility
E( ) Rate of emissions of air pollutants
( )F Production function
a Abatement expenditure
, , ,iR i d X M Extraction of natural resources for domestic use, exports and from imports.
M X Imports - Exports
r Constant nominal interest rate
S Stock of resources
K Man-made capital,
RQ Resource price
R Constant real interest rate
(R R ,S)d Xf Cost of extraction of resource
e Marginal cost of abatement = Marginal damage cost
Rf Marginal cost of abatement
fK Net foreign capital
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Small Open Economy
• Starting from conventional SNA aggregates:
– Deduct the damage from flow pollution emissions,
– Deduct (add) the value of rents from resource depletion (or not),
e E
R(Q f ) SR
-20000
0
20000
40000
60000
80000
100000
120000
140000
1990 1995 2000 2005
Mill
ion
€
GNI
CFC
Air emissions
Forest Depl.
Tech. Progress
GNNI
Pot GNNI
GNNI, T=100
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GNNI and GS in Portugal – Air Emissions
• How to value a unit of emissions?– Marginal benefit of avoided emission,
– Marginal cost of emission (MDC), or
– Marginal abatement costs?
• Marginal cost of emission per emitted pollutant [€2000/ton]:
[€2000/t] Best Low High
SO2 6872 3472 9972
NH3 7399 3699 10999
NOx 2040 1140 3040
VOC 1150 450 1550
PM2,5 44000 22000 64000
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• Models point to measure emissions at the – Marginal cost of abatement (MCA), or
– Marginal social cost (MSC) = Marginal benefit of abatement (MBA), a.k.a. Marginal Damage Costs (MDC)
• Measurement away from the optimum– c, over-polluting (assumed current state) => a is upper bound
– d, under-polluting => b is lower bound
Social costs vs Marginal abatement
Constant MDC
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GNNI and GS in Portugal – Air Emissions
0
10
20
30
40
50
60
70
1990 1995 2000 2005
% o
f to
tal c
ost
SO2
NH3
NOx
VOC
PM2,5
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GNNI and GS in Portugal – Forests
• National Forest Inventory 2005/06
• Average Volumes:
Conifers
Eucalyptus
95/98 05/06[m3/ha]
88.5
55 55
82.5
0
200
400
600
800
1000
1200
1400
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
10^3
ha
Conifers
Eucalyptus
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GNNI and GS in Portugal – Forests
-200
-150
-100
-50
0
50
100
1990 1995 2000 2005
mill
ion
€ConiferousEucalyptus
The depreciation of commercial forests in Portugal is on average 10% of the contribution of forestry to national product (around 4%).
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Forest Depletion in Genuine Savings
• Net Forest Depletion = Net Rent / GNI * 100
• Net Rent = (Production - Increment)*Unit Rent
• Stock Changes = Increment – Production
• Unit Rent = Price – unit cost
• Whenever depletion is positive the WB assumes it to be zero. Bias towards unsustainability.
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GS in Portugal
• Without the value of time – Decreasing tendency throughout the period and negative GS after 2002.
• With the value of time – Decreasing tendency until 2001, but GS are always positive.
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• In 1993, SO2 costs of emissions, which represent around 30% of total emission costs, decreased substantially. Increases welfare but does not counteract the loss of production.
Sustainability Message
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What’s Missing?
• The depletion of water resources.
• The depletion of biodiversity.
• Depletion of stocks of fish.
• Inclusion of the value of ecosystem services.
• Soil quality.
• Distributional issues (intragenerational concerns).
• Other assumptions ...