Tietenberg Tom, Lewis Lynne. Environmental & Natural Resource Economics
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Dynamic Efficiency and Sustainable Development 102
Introduction 102
A Two-Period Model 103
Defining Intertemporal Fairness 107
Are Efficient Allocations Fair? 108
EXAMPLE 5.1 The Alaska Permanent Fund 110
Applying the Sustainability Criterion 110
EXAMPLE 5.2 Nauru: Weak Sustainability in the Extreme 112
Implications for Environmental Policy 113
Summary 114
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Discussion Question 115
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Self-Test Exercises 115
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Further Reading 116
Appendix: The Mathematics of the Two-Period Model 117
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Depletable Resource Allocation: The Role of Longer
Time Horizons, Substitutes, and Extraction Cost 118
Introduction 118
A Resource Taxonomy 119
Efficient Intertemporal Allocations 123
The Two-Period Model Revisited 123
The N-Period Constant-Cost Case 124
Transition to a Renewable Substitute 125
Increasing Marginal Extraction Cost 127
Exploration and Technological Progress 129
EXAMPLE 6.1 Historical Example of Technological Progress in the Iron
Ore Industry 130
Market Allocations of Depletable Resources 131
Appropriate Property Rights Structures 131
Environmental Costs 132
Summary 134
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Discussion Question 135
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Self-Test Exercises 135
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Further Reading 136
Appendix: Extensions of the Constant Extraction cost Depletable
Resource Model: Longer Time Horizons and the Role of an
Abundant Substitute 137
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Energy: The Transition from Depletable to Renewable
Resources 140
Introduction 140
EXAMPLE 7.1 Hubbert’s Peak 141
Natural Gas: Price Controls 142
Oil: The Cartel Problem 146
Price Elasticity of Oil Demand 147
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Income Elasticity of Oil Demand 148
Non-OPEC Suppliers 148
Compatibility of Member Interests 149
Fossil Fuels: Climate Considerations and National Security 151
The Climate Dimension 151
The National Security Dimension 152
DEBATE 7.1 How Should the United States Deal with the Vulnerability
of Its Imported Oil? 154
EXAMPLE 7.2 Strategic Petroleum Reserve 156
The Other Depletable Sources: Unconventional Oil and Gas, Coal,
and Nuclear Energy 157
Unconventional Oil and Gas Sources 157
EXAMPLE 7.3 Fuel from Shale: The Bakken Formation 158
Coal 159
Uranium 159
Electricity 163
EXAMPLE 7.4 Electricity Deregulation in California: What Happened? 166
EXAMPLE 7.5 Tradable Energy Credits: The Texas Experience 167
EXAMPLE 7.6 Feed-in Tariffs 168
Energy Efficiency 169
Transitioning to Renewables 170
Hydroelectric Power 170
Wind 171
Photovoltaics 171
DEBATE 7.2 Dueling Externalities: Should the United States
Promote Wind Power? 172
Active and Passive Solar Energy 172
Ocean Tidal Power 173
Liquid Biofuels 173
Geothermal Energy 174
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Hydrogen 174
Summary 176
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Discussion Questions 177
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Self-Test Exercises 177
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Further Reading 178
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Recyclable Resources: Minerals, Paper, Bottles,
and E-Waste 180
Introduction 180
An Efficient Allocation of Recyclable Resources 180
Extraction and Disposal Cost 180
Recycling: A Closer Look 182
Recycling and Ore Depletion 183
Factors Mitigating Resource Scarcity 184
Exploration and Discovery 184
EXAMPLE 8.1 Lead Recycling 185
Technological Progress 186
Substitution 186
EXAMPLE 8.2 The Bet 188
Market Imperfections 188
Disposal Cost and Efficiency 189
The Disposal Decision 189
Disposal Costs and the Scrap Market 191
Subsidies on Raw Materials 191
Corrective Public Policies 192
EXAMPLE 8.3 Pricing Trash in Marietta, Georgia 192
DEBATE 8.1 “Bottle Bills”: Economic Incentives at Work? 194
EXAMPLE 8.4 Implementing the “Take-Back” Principle 196
Markets for Recycled Materials 197
E-Waste 197
Pollution Damage 200
Summary 201
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Discussion Questions 202
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Self-Test Exercises 202
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Further Reading 203
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Replenishable but Depletable Resources: Water 204
Introduction 204
The Potential for Water Scarcity 205
The Efficient Allocation of Scarce Water 208
Surface Water 209
Groundwater 211
The Current Allocation System 212
Riparian and Prior Appropriation Doctrines 212
Sources of Inefficiency 214
DEBATE 9.1 What Is the Value of Water? 218
Potential Remedies 219
Water Transfers and Water Markets 219
EXAMPLE 9.1 Using Economic Principles to Conserve Water in California 220
EXAMPLE 9.2 Water Transfers in Colorado: What Makes a Market
for Water Work? 221
EXAMPLE 9.3 Water Market Assessment: Austrailia, Chile,
South Africa, and the United States 222
Instream Flow Protection 223
Water Prices 223
EXAMPLE 9.4 Reserving Instream Rights for Endangered Species 224
EXAMPLE 9.5 Water Pricing in Canada 229
Desalination 230
Summary 231
DEBATE 9.2 Should Water Systems Be Privatized? 232
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GIS and Water Resources 233
Summary 233
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Discussion Questions 234
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Problems 234
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Further Reading 235
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A Locationally Fixed, Multipurpose
Resource: Land 237
Introduction 237
The Economics of Land Allocation 238
Land Use 238
Land-Use Conversion 239
Sources of Inefficient Use and Conversion 240
Sprawl and Leapfrogging 240
Incompatible Land Uses 242
Undervaluing Environmental Amenities 242
The Influence of Taxes on Land-Use Conversion 243
DEBATE 10.1 Should Landowners Be Compensated for
“Regulatory Takings”? 244
Market Power 245
Special Problems in Developing Countries 246
DEBATE 10.2 What Is a “Public Purpose”? 247
Innovative Market-Based Policy Remedies 249
Establishing Property Rights 249
Transferable Development Rights 249
Wetlands Banking 250
EXAMPLE 10.1 Controlling Land Development with TDRs 250
Conservation Banking 251
EXAMPLE 10.2 Conservation Banking: The Gopher Tortoise
Conservation Bank 252
Safe Harbor Agreements 252
Grazing Rights 253
Conservation Easements 253
Land Trusts 254
EXAMPLE 10.3 Using a Community Land Trust to Protect Farmland 255
Development Impact Fees 256
Property Tax Adjustments 256
DEBATE 10.3 Does Ecotourism Provide a Pathway to Sustainability? 257
EXAMPLE 10.4 Trading Water for Beehives and Barbed Wire in Bolivia 258
EXAMPLE 10.5 Tax Strategies to Reduce Inefficient Land Conversion:
Maine’s Open Space Program 259
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Summary 258
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Discussion Questions 260
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Self-Test Exercises 260
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Further Reading 261
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Reproducible Private Property Resources:
Agriculture and Food Security 262
Introduction 262
Global Scarcity 263
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Formulating the Global Scarcity Hypothesis 264
Testing the Hypotheses 266
Outlook for the Future 267
EXAMPLE 11.1 Can Eco-Certification Make a difference? Organic
Costa Rican Coffee 277
DEBATE 11.1 When Organic Goes Mainstream:
Do You Get What You Pay For? 278
The Role of Agricultural Policies 278
Summing Up: Agriculture in the Industrialized Nations 280
DEBATE 11.2 Should Genetically Modified Organisms
Be Banned? 281
EXAMPLE 11.2 Are Consumers Willing to Pay a Premium
for GMO-Free Foods? 282
Distribution of Food Resources 282
Defining the Problem 283
Domestic Production in Developing Countries 283
Climate Change 286
Feast and Famine Cycles 286
Summary 290
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Discussion Questions 291
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Self-Test Exercises 291
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Further Reading 292
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Storable, Renewable Resources: Forests 293
Introduction 293
Characterizing Forest Harvesting Decisions 294
Special Attributes of the Timber Resource 294
The Biological Dimension 295
The Economics of Forest Harvesting 296
Extending the Basic Model 299
Sources of Inefficiency 301
Perverse Incentives for the Landowner 301
Perverse Incentives for Nations 304
Poverty and Debt 305
Sustainable Forestry 306
Public Policy 307
EXAMPLE 12.1 Producing Sustainable Forestry through Certification 308
EXAMPLE 12.2 Conservation Easements in Action: The Blackfoot
Community Project 310
Royalty Payments 311
Carbon Sequestration Credits 311
EXAMPLE 12.3 Does Pharmaceutical Demand Offer Sufficient
Protection to Biodiversity? 312
EXAMPLE 12.4 Reducing Emissions from Deforestation and Forest
Degradation (REDD): A Twofer? 313
EXAMPLE 12.5 Trust Funds for Habitat Preservation 314
Summary 314
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Discussion Questions 316
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Self-Test Exercises 316
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Further Reading 317
Appendix: The Harvesting Decision: Forests 318
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Common-Pool Resources: Fisheries and
Other Commercially Valuable Species 320
Introduction 320
Efficient Allocations 321
The Biological Dimension 321
Static Efficient Sustainable Yield 323
Dynamic Efficient Sustainable Yield 325
Appropriability and Market Solutions 327
EXAMPLE 13.1 Open-Access Harvesting of the Minke Whale 330
EXAMPLE 13.2 Harbor Gangs of Maine and Other Informal Arrangements 331
Public Policy toward Fisheries 332
Aquaculture 332
DEBATE 13.1 Aquaculture: Does Privatization Cause More
Problems than It Solves? 335
Raising the Real Cost of Fishing 336
Taxes 338
Individual Transferable Quotas (ITQs) and Catch Shares 339
EXAMPLE 13.3 The Relative Effectiveness of Transferable Quotas and
Traditional Size and Effort Restrictions in the
Atlantic Sea Scallop Fishery 344
Subsidies and Buybacks 345
Marine-Protected Areas and Marine Reserves 345
The 200-Mile Limit 347
The Economics of Enforcement 347
Preventing Poaching 349
DEBATE 13.2 Bluefin Tuna: Is Its High Price Part of the Problem
or Part of the Solution? 350
EXAMPLE 13.4 Local Approaches to Wildlife Protection: Zimbabwe 352
Summary 351
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Discussion Questions 353
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Self-Test Exercises 353
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Further Reading 354
Appendix: The Harvesting Decision: Fisheries 356
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Economics of Pollution Control: An Overview 359
Introduction 359
A Pollutant Taxonomy 359
Defining the Efficient Allocation of Pollution 361
Stock Pollutants 361
Fund Pollutants 362
Market Allocation of Pollution 365
Efficient Policy Responses 366
EXAMPLE 14.1 Environmental Taxation in China 367
Cost-Effective Policies for Uniformly Mixed Fund Pollutants 368
Defining a Cost-Effective Allocation 368
Cost-Effective Pollution-Control Policies 370
DEBATE 14.1 Should Developing Countries Rely on Market-Based
Instruments to Control Pollution? 375
Cost-Effective Policies for Nonuniformly
Mixed Surface Pollutants 376
The Single-Receptor Case 376
EXAMPLE 14.2 Emissions Trading in Action: The NOx Budget Program 377
The Many-Receptors Case 381
Other Policy Dimensions 383
The Revenue Effect 383
EXAMPLE 14.3 The Swedish Nitrogen Charge 384
EXAMPLE 14.4 RGGI Revenue: The Maine Example 385
Responses to Changes in the Regulatory Environment 386
Price Volatility 387
Instrument Choice under Uncertainty 387
Product Charges: An Indirect Form of Environmental Taxation 388
EXAMPLE 14.5 The Irish Bag Levy 389
Summary 390
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Discussion Question 391
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Self-Test Exercises 392
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Further Reading 393
Appendix: The Simple Mathematics of Cast-Effective
Pollution Control 395
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Stationary-Source Local and Regional Air Pollution 397
Introduction 397
Conventional Pollutants 397
The Command-and-Control Policy Framework 398
The Efficiency of the Command-and-Control Approach 400
DEBATE 15.1 Does Sound Policy Require Targeting New Sources via the
New Source Review? 401
DEBATE 15.2 The Particulate and Smog Ambient Standards Controversy 402
Cost-Effectiveness of the Command-and-Control Approach 404
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EXAMPLE 15.1 Controlling SO
2
Emissions by Command-and-Control
in Germany 406
Air Quality 407
Innovative Approaches 409
Smog Trading (RECLAIM) 409
Emissions Charges 410
Regional Pollutants 411
Acid Rain 412
EXAMPLE 15.2 Adirondack Acidification 413
EXAMPLE 15.3 The Sulfur Allowance Trading Program 415
EXAMPLE 15.4 Why and How Do Environmentalists Buy Pollution? 417
EXAMPLE 15.5 Technology Diffusion in the Chlorine-Manufacturing Sector 420
Summary 419
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Discussion Questions 421
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Self-Test Exercises 422
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Further Reading 422
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Climate Change 424
Introduction 424
The Science of Climate Change 425
Negotiations over Climate Change Policy 427
Characterizing the Broad Strategies 427
DEBATE 16.1 Should Carbon Sequestration in the Terrestrial Biosphere
Be Credited? 428
The Precedent: Reducing Ozone-Depleting Gases 428
EXAMPLE 16.1 Tradable Permits for Ozone-Depleting Chemicals 430
The Policy Focus of the Climate Change Negotiations 431
The Evolution of International Agreements on Climate Change 432
EXAMPLE 16.2 The European Union Emissions Trading System (EU ETS) 433
Complementary Strategies 434
Controversies 435
DEBATE 16.2 Is Global Greenhouse Gas Trading Immoral? 435
Policy Timing 436
Creating Incentives for Participation in Climate Change
Agreements 437
Summary 438
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Discussion Question 440
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Self-Test Exercises 440
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Further Reading 440
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Mobile-Source Air Pollution 442
Introduction 442
The Economics of Mobile-Source Pollution 444
Implicit Subsidies 444
Externalities 445
Consequences 446
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Policy toward Mobile Sources 446
History 446
Structure of the U.S. Approach 447
CAFE Standards 449
DEBATE 17.1 CAFE Standards or Fuel Taxes? 451
Alternative Fuels and Vehicles 452
EXAMPLE 17.1 Project XL—The Quest for Effective,
Flexible Regulation 452
European Approaches 453
EXAMPLE 17.2 Car-Sharing: Better Use of Automotive Capital? 454
An Economic and Political Assessment 455
Technology Forcing and Sanctions 456
Differentiated Regulation 457
Uniformity of Control 457
The Deterioration of New-Car Emissions Rates 457
Lead Phaseout Program 459
EXAMPLE 17.3 Getting the Lead Out: The Lead Phaseout Program 460
Possible Reforms 460
Fuel Taxes 460
Congestion Pricing 461
EXAMPLE 17.4 Zonal Mobile-Source Pollution-Control
Strategies: Singapore 463
Private Toll Roads 463
Parking Cash-Outs 464
Feebates 464
Pay-As-You-Drive (PAYD) Insurance 464
Accelerated Retirement Strategies 464
EXAMPLE 17.5 Modifying Car Insurance as an Environmental Strategy 465
EXAMPLE 17.6 The Car Allowance Rebate System: Did it Work? 466
EXAMPLE 17.7 Counterproductive Policy Design 467
Summary 467
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Discussion Questions 469
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Self-Test Exercises 469
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Further Reading 469
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Water Pollution 471
Introduction 471
Nature of Water Pollution Problems 472
Types of Waste-Receiving Water 472
Sources of Contamination 472
Types of Pollutants 476
DEBATE 18.1 Toxics in Fish Tissue: Do Fish-Consumption
Advisories Change Behavior? 478
Traditional Water Pollution Control Policy 479
Early Legislation 480
Subsequent Legislation 481
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The TMDL Program 483
The Safe Drinking Water Act 483
Ocean Pollution 484
Citizen Suits 485
Efficiency and Cost-Effectiveness 485
Ambient Standards and the Zero-Discharge Goal 485
National Effluent Standards 486
Watershed-Based Trading 490
EXAMPLE 18.1 Effluent Trading for Nitrogen in Long Island Sound 492
Municipal Wastewater Treatment Subsidies 493
Pretreatment Standards 494
Nonpoint Source Pollution 494
Atmospheric Deposition of Pollution 497
The European Experience 498
Developing Country Experience 499
EXAMPLE 18.2 Economic Incentives for Water Pollution Control:
The Case of Colombia 500
Oil Spills from Tankers 500
Citizen Suits 502
An Overall Assessment 503
Summary 504
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Discussion Questions 505
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Self-Test Exercises 506
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Further Reading 506
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Toxic Substances and Environmental Justice 508
Introduction 508
Nature of Toxic Substance Pollution 509
Health Effects 510
Policy Issues 510
EXAMPLE 19.1 The Arduous Path to Managing Risk: Bisphenol A 512
Market Allocations and Toxic Substances 512
Occupational Hazards 513
EXAMPLE 19.2 Susceptible Populations in the
Hazardous Workplace 515
Product Safety 516
Third Parties 517
The Incidence of Hazardous Waste Siting Decisions 518
History 518
Recent Research and the Emerging Role of Analysis Using GIS 519
The Economics of Site Location 520
EXAMPLE 19.3 Do New Polluting Facilities Affect
Housing Values and Incomes? Evidence in New England 520
EXAMPLE 19.4 Which Came First—The Toxic Facility or the Minority
Neighborhood? 522
The Policy Response 522
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