ECON 340/ENVA 300: Exam 2 Review

Exam 2 Review

The exam will be closed book, but do bring a calculator. There will be lots of emphasis on DOING the various examples we've worked on in class. The exam focuses on material since the first exam: see both the original and revised course outline for specifics.
Here is my outline for the exam:
1. Climate footprint: work through a problem on how a change in behavior changes carbon emissions.
2. Why do environmental problems occur? Use the idea of externalities.
3. Discount a stream of future benefits.
4. Complete a simple benefit cost example.
5. Summarize the basic conclusion of the Stern Review of Climate, "mainstream" conclusions in the economics literature on addressing climate change, and Weitzman's critique of the Stern Review.
6. Outline Lomborg's basic argument and rhetorical approach (McKibben helps understand this) that we should not commit to costly policies to reduce climate impacts, at least at this time.
7. Illustrate the idea of increasing abatement costs on a graph.
8. What does the equimarginal principle mean? Illustrate on a graph.
9. What is the basic idea of an emission standard?
10. What is the basic idea of how pollution taxes work?
11. How does cap and trade work?
12. Which policy is not consistent with the equimarginal principle? Consequence?
13. Show behavior under each of these policies given a numerical example (i.e. given an abatement cost schedule for two firms.)
14. Show consequences: cost-effectiveness/efficiency and equity.
15. What do weak and strong sustainability mean? Implications for climate?

ECON 300/ENVA 340

(from OECD Glossary of Statistical Terms)

Weak Sustainability

All forms of capital are more or less substitutes for one another; no regard has to be given to the composition of the stock of capital. Weak sustainability allows for the depletion or degradation of natural resources, so long as such depletion is offset by increases in the stocks of other forms of capital (for example, by investing royalties from depleting mineral reserves in factories).

Strong Sustainability

All forms of capital must be maintained intact independent of one another. The implicit assumption is that different forms of capital are mainly complementary; that is, all forms are generally necessary for any form to be of value. Produced capital used in harvesting and processing timber, for example, is of no value in the absence of stocks of timber to harvest. Only by maintaining both natural and produced capital stocks intact can non-declining income be assured.


Source Publication:
United Nations, European Commission, International Monetary Fund, Organisation for Economic Co-operation and Development, World Bank, 2005, Handbook of National Accounting: Integrated Environmental and Economic Accounting 2003, Studies in Methods, Series F, No.61, Rev.1, Glossary, United Nations, New York, para. 1.27.

The cost of ethanol

More on ethanol from the Freakonomics blog. Bottom line if you read the Technology Review article: if oil is $100/barrel, your government's mandate to produce ethanol will cost you 42 cents per gallon of ethanol. But if oil prices fall to $40/barrel the cost to you rises to a whopping dollar a gallon.

Why? Well one way to get a handle on this is to ask what corn is grown for in this country. The Technology Review article reports that current ethanol mandates will require that about 45% of all corn acreage go to fuel, not food by 2015. Think about the consquences of that! (Or of already using 22% of corn acreage for ethanol.)

(The underlying study on all of this is by Wallace Tyner, an agricultural economist at Purdue University.)

ECON 300/ENVA 340: Link to McKibben

Here is the link to McKibben's review (and others) of Lomborg's Cool It! For Tuesday, March 11 you should provide an analysis of three specific points made by McKibben, using the relevant sections of Lomborg. (Double the usual credit - 10 points).

ECON 340/ENVA 300: Discounting problems for March 6 (edit - now Thursday)

I know you have a ton of midterms coming up, but we need to get some practice and understanding of discounting. Please complete and hand in the following in class Tuesday:

1. Using r=4%, find the PV of $100 received
a. 5 years from now.
b. 10 years from now.
c. 20 years from now.
d. 50 years from now.
e. 100 years from now.

2. Repeat 1, using r=1%

3. Graph PV of the $100 vs. time using your answers from (1) and then from (2). This should be done either using graph paper, or a graphing program such as that in Excel. You should show two curves: the first shows how PV declines with a discount rate of 4%, and the second how it declines with a discount rate of 1%.

4. The best explanation I can find on the discount rate(s) used in the influential Stern Review is in its set of FAQS . Go to these and:

a. In section 8 what specifically does it say about the rate(s) used to discount future costs of climate change to the present? Read very carefully and be very precise in you answer.

b. Using other sections of the FAQS, what temperature change does the Stern Review use in estimating damages, and how large are the damages it estimates from climate change?

Just shut up about the virtues of walking ...

Oh dear. Should Dr B stop touting the obvious good of walking rather than driving all over the Siena campus? (Neglecting of course the frostbite we'll all work to avoid over the next few frigid days.) Now we here from John Tierney , based on Chris Goodall, the author of “How to Live A Low-Carbon Life.” :

If you walk 1.5 miles ... and replace those calories by drinking about a cup of
milk, the greenhouse emissions connected with that milk (like methane from the
dairy farm and carbon dioxide from the delivery truck) are just about equal to
the emissions from a typical car making the same trip. And if there were two of
you making the trip, then the car would definitely be the more planet-friendly
way to go.

And paper versus plastic?

How much reduction, if any, in greenhouse emission would result from banning
plastic grocery bags or forcing stores to recycle them? (The New York City
Council recently passed a bill requiring stores to recycle them.) To come up
with a good number, you’d have to consider what happens to the bags in a
landfill (is the carbon sequestered there, the way it is with old newspapers,
and does the landfill recapture any methane that escapes? You ‘d also have to
consider how much energy, both human and non-human, is expended in recycling the plastic bags or switching to alternatives. I can’t promise these numbers would
matter to the opponents of plastic bags — this sounds to me more like a moral
crusade — but it’d be good to have them.

Indiana does Daylight Savings Time

Question: does DST save energy? Check out Marginal Revolution, which pointed me to a summary of one answer -- from the natural experiment as most of Indiana recently chose to truly side with Eastern Time by including its DST variant.