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					Neoclassical Economics
                Review
    Two Primary Criteria for
            Policy Analysis:
1. Economic Efficiency
2. Equity

Neoclassical Economics/Environmental
Economics focuses on Eco Efficiency
Ecological Economics focuses on BOTH
Welfare Economics
 Welfare economics is the branch of economics that 
  evaluates the economic implications of alternative 
  resource allocations.
 Welfare analysis answers the following questions:
   Is a given resource allocation efficient?
   Who gains and who loses under various allocations and 
    by how much?
Economic Efficiency
 Pareto Optimality: An efficient allocation of 
  resources is one in which it is impossible through any 
  change in resource allocation to make 1 person better 
  off without making someone worse off.
 All gains from trade exhausted.
 Leads to questions:
   Who wins, who loses from the efficient allocation?
   What factors prevent pareto optimality?
   How can we create an environment that allows 
    mutually gainful trades?
Model of Perfectly Competitive
Market
 Assumptions Behind our Market Model
 Neoclassical Economics Review Problems 1
 Possible Justifications for
Government Involvement in
         Economy
        MARKET FAILURES
Role of Government in
Environmental Protection
 Country comparisons: Government Spending as a % 
  of GDP. (Source: www.heritage.org/index)
   Hong Kong: 19.2%
   Singapore: 17%
   Canada: 42.9%
   Sweden: 51.3%
   USA: 42%
   Russia: 39%
   Cuba: 70%
   What is a market solution to the following government
                        regulation?
   Advantages & Disadvantages of government regulation?
              Who is helped and who is hurt?

The 1992 National Energy Policy Act (H.R. 776) requires 
that all new toilets flush with only 1.6 gallons of water, 
less than half the amount they used in the 1980s.
   http://vimeo.com/5859442
   Advantages & Disadvantages of the government policy?
              Who is helped and who is hurt?




The Volumetric Ethanol Excise Tax Credit which took 
effect in 2005 gave a tax credit of 45-51 cents to gasoline 
refiners for every gallon of ethanol they blended with 
gasoline. The tax credit cost $5.7 billion in subsidies in 
2011. (ended 12/31/11) Note: Ethanol subsidies were in 
place for 30 years. 
Ethanol is primarily produced from corn grain
starch in the United State
 Some studies suggest that corn-based ethanol has a 
  negative energy balance (it takes more energy to 
  produce a fuel than the amount of energy the fuel 
  provides). 
 However, recent studies using updated data about 
  corn production methods demonstrate a positive
  energy balance (it takes less energy to produce a fuel 
  than the amount of energy the fuel provides) for corn 
  ethanol.
 See handout
Advantages & Disadvantages of a government regulation over
                   the private solution.
             Who is helped and who is hurt?



Installation of Energy Star-approved solar-power
systems before the end of 2016: tax credit of 30 % of 
the cost.
  -The tax credit for 30% of the cost of installed equipment, 
  is set to drop to 10% at the end of 2016. 
  - The growth of solar power was helped by a 2009 federal 
  stimulus package that extended a tax credit and provided 
  other investment incentives for the industry.  
                       Oil Subsidies
http://environment.nationalgeographic.com/environme
nt/energy/great-energy-challenge/global-energy-
subsidies-map/
“What's particularly baffling is that while government 
support given to environmentally beneficial renewable 
power sources is subject to seemingly endless media 
and political scrutiny, the 500% larger subsidies given 
to oil, gas and (to a much lesser extent) coal rarely get 
much attention”. From: Fossil fuel subsidies: a tour of the data, The
Guardian, 1/18/12
http://www.guardian.co.uk/environment/datablog/2012/jan/18/fossil-fuel-subsidy
           More on Oil Subsidies
 “One rationale for subsidising fossil fuels is to help lift 
  poorer members of society out of energy poverty. 
  However, IEA data suggest that the poor receive a 
  disproportionately small amount of the benefits. As 
  the following chart shows, in most cases the poorest 
  20% of the population typically receive only around 5
  –10% of the benefits of the subsidies, suggesting that 
  if the policies are designed for poverty alleviation, 
  then they're not working properly.” From: Fossil fuel 
  subsidies: a tour of the data, The Guardian, 1/18/12
         More on Oil Subsidies
“It won't be easy [to reduce fossil fuel subsidies], of 
course – not least because of the powerful influence of 
the fossil-fuel lobbying machine. I don't know of any 
good global data about the relative size of the fossil fuel 
and renewables lobbies, but where figures are available, 
the hydrocarbon brigade massively outspend those 
pushing for clean energy – by a factor of 12 in the US, 
according to one estimate”. 
http://www.energyboom.com/policy/clean-energy-
lobby-dwarfed-billion-dollar-fossil-fuel-expenditures-
washington

				
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posted:1/22/2014
language:Spanish
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