Module Overview

PP5101 (Economics and Public Policy I)  or PP5501 (Economic Applications for Public Organisations) or equivalent such as BMA5001/MMT5001 (Managerial Economics) with at least a B grade.

PP5227 ENVIRONMENTAL POLICY AND NATURAL RESOURCE MANAGEMENT

(WITH AN APPLICATION TO CLIMATE CHANGE)

AY 2009-10 Semester 2

Instructor:

Associate Professor Shreekant Gupta

OTH Building, Level 2, Wing B

Phone: 6516-6796; Email: sgupta@nus.edu.sg

Class Time/Venue: Monday 6:30 p.m. - 9:30 p.m. (Manasseh Meyer Block SR2-2)

Module description:

This module introduces students to fundamental concepts, analytical methods and public policy options in managing environmental and natural resources using the tools of economic analysis. What is economics from a practical, problem-solving point of view? And how can we use economics to analyse and solve environmental problems?  The answers to these questions are the two central themes of this module.

Broadly speaking, economics is the science of how scarce resources are allocated: how people and firms do this allocation and how society might want to make decisions about scarce resources.  When viewed in this way, it is clear that economics might provide a useful framework within which to analyze environmental problems and approaches to solve them.  Because many environmental problems are caused by economic activity (carbon emissions, over-harvesting renewable resources, toxic releases as a by-product of industrial production, urbanization), we will examine different approaches to adjusting human behavior and therefore the externalities associated with it.  We will also study methods for valuation of environmental services and for quantification of environmental damages.  Much of what is learnt in the module will be applied to the problem of climate change (global warming).

To do all this in a meaningful way will require a lot of work.  The pace will be quick and the out-of-class workload will be heavy. (Expect an average of 6-8 hours of work per week outside of class.)  The purpose of the course is to give you a solid foundation in those aspects of economics and quantitative policy analysis that are important to environmental and natural resource management and policy. 

Note: In order to register for this module you are required to have had an introductory course in microeconomics at the level of Pindyck and Rubinfeld or an equivalent text and have secured at least a B in the module (see prereq above).

Module objectives:

Upon completion of the module, the students should be able to:

(i)      understand and articulate the most common causes of environmental and natural resource policy problems;

(ii)    diagnose a given environmental or natural resource policy problem and understand the strengths and weaknesses of major policy options in dealing with the problem; and

(iii)   understand the political economy of designing and implementing environmental and natural resource policies in a given political, economic and social environment.

Module requirements and grading:

Participation in class discussion makes a significant contribution to the learning process. Students are expected to complete all reading assignments prior to each class meeting, and to be prepared to respond to questions and to engage in class discussion.

There will be individual homework/min-projects assigned approx. every two weeks consisting of problems and qualitative questions.  The grade for the module will be determined as follows:

            Homework/mini project (details to be posted on IVLE)    50%

            Mid-term (closed book) week 7                                      20%

            Final exam (open book) May 3, 2010                              30%

Useful Internet Resources:

1. Publications/journals:

[Note: All journals listed below are available online through NUS Library E-Resources.]

The Economist a weekly London-based newspaper is a useful (and well written) source of economic and environmental news and information that will help you ‘think like an economist’ as well as providing insights on topical economic and environmental matters.  Reading it regularly will help you better understand and analyze important issues of the day, e.g., what are the causes and consequences of climate change and what are the policy prescriptions being discussed (such as emissions trading)  Several articles from this newspaper will be assigned.  Free online access is available through the NUS Library E-Resources: http://www.economist.com.libproxy1.nus.edu.sg/index.cfm

Environment and Development Economics (EDE)

Environmental and Resource Economics (ERE)

Journal of Environment and Development (JED)

Journal of Environmental Economics and Management (JEEM)

Resource and Energy Economics (REE)

Review of Environmental Economics and Policy (REEP)

2.  Organizations:

South Asian Network for Development and Environmental Economics (SANDEE)

Economy and Environment Program for Southeast Asia (EEPSEA)

Intergovernmental Panel on Climate Change (IPCC)

Resources for the Future, Washington D.C. (RFF)

World Bank research on environmental issues

3.  Miscellaneous:

Environmental Economics blog

DRAFT LECTURE OUTLINE

Syllabus (Readings marked * are optional) :

0.  Introduction--what is environmental economics, micro economics and welfare and

     economics review (assigned)

Kolstad: Chapters 1-4

Perman: Chapter 1, 5 (Parts I and II)

Kenneth E. Boulding. 1966.  “The Economics of the Coming Spaceship Earth,” in H. Jarrett (ed.) Environmental Quality in a Growing Economy, Resources for the Future/Johns Hopkins University Press.  [Also see Box 1.1 in Perman, Chapter 1, p. 9.]

Don Fullerton and Robert Stavins. 1998. “How Economists See the Environment,” Nature (October 1998) volume 395, no. 6701, pp: 433-34. [Reprinted in Stavins, Chapter 1.]

Robert N. Stavins. 2004.  “Environmental Economics,” John F. Kennedy School of Government, Harvard University, Faculty Research Working Papers Series, October 2001, RWP04-051.

* Maureen L. Cropper and Wallace E. Oates. 1992.  “Environmental Economics: A Survey,” Journal of Economic Literature, Volume 30:675-740.

1.  The Theory of Externalities (1 lecture)

Kolstad: Chapter 5

Perman: Chapter 5, Part III

Garrett Hardin. 1968.  “The Tragedy of the Commons,” Science, Volume 162, Issue 3859, pp: 1243-48. [Reprinted in Stavins, Chapter 2.]

* J. Ledyard. 1987.  ‘Market Failure” in J. Eatwell, M. Milgate and P. Newman (eds.). The New Palgrave: A Dictionary of Economics, W.W. Norton [Denoted PALGRAVE]

2.  Property Rights and the Coase Theorem (1 lecture)

Kolstad: Chapter 6

Perman:  Chapter 5, pp 137-139

R.H. Coase. 1960. “The Problem of Social Cost,” Journal of Law and Economics 3:1-44.  [Reprinted in Stavins, Chapter 3.]

R.D. Cooter. 1987. “The Coase Theorem” in PALGRAVE.

* Tamara Todorova. 2007.  “The Coase Theorem Revisited: Implications for Economic Transition ,” Atlantic Economic Journal, Volume 35:189 – 201.

* Michael R. Butler and Robert F. Garnett. 2003.  “Teaching the Coase Theorem: Are We Getting It Right?”  Atlantic Economic Journal , Volume 31:133 – 145.

3.  The Design and Implementation of Environmental Policy (4 lectures)

Perman: Chapters 6, 7, and 8.

A. Overview (assigned)

Kolstad: Chapter 8

Robert N. Stavins. 2001.  “ Experience with Market-Based Environmental Policy Instruments,” John F. Kennedy School of Government, Harvard University, Research Working Papers Series, October 2001, RWP00-004.

Tom H. Tietenberg. 1990.  “Economic Instruments for Environmental Regulation,” Oxford Review of Economic Policy, Volume 6, Number 1, pp: 17-33.  [Reprinted in Stavins, Chapter 15.]

B. Pigouvian Taxes and Effluent Fees

Kolstad: Chapter 7

C. Tradable Permits

Kolstad: Chapter 9

D. Choice Between Taxes and Quotas under Uncertainty

Kolstad: Chapter 10

E. Implementation of Environmental Policy (assigned)

Robert N. Stavins. 2003.  “Market-Based Environmental Policies: What Can We Learn from U.S. experience and Related Research?” John F. Kennedy School of Government, Harvard University, Faculty Research Working Papers Series, July 2003, RWP03-031.

Robert W. Hahn. 1989.  “Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders,” The Journal of Economic Perspectives, Vol. 3, No. 2. (Spring, 1989), pp. 95-114.

Paul Joskow and R. Schmalensee.  1998.  “The Political Economy of the Market-Based Environmental Policy: The U.S. Acid Rain Program,” Journal of Law and Economics, Vol 41, No. 1, pp. 37-83.

R. Schmalensee et. al. 1998.  “An Interim Evaluation of Sulfur Dioxide Emissions Trading,” The Journal of Economic Perspectives, Vol. 12, No. 3, (Summer, 1998), pp. 53-68.

Robert N. Stavins. 1998.  “What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading,” The Journal of Economic Perspectives, Vol. 12, No. 3, (Summer, 1998), pp. 69-88.  [Reprinted in Stavins, Chapter 17.]

Allen Blackman and Winston Harrington. 2000.  “The Use of Economic Incentives in Developing Countries: Lessons from International Experience With Industrial Air Pollution,” Journal of Environment and Development. Vol. 9, No. 1, (March 2000), pp. 5-44.

[The following two readings are a critique of market-based environmental policies.]

Frank Ackerman and Kevin Gallagher. 2000.  “Getting the Prices Wrong: The Limits of Market-Based Environmental Policy,” Global Development and Environment Institute, Tufts University, Working Paper 00-05.

Michael J. Sandel. 1997.  “Its Immoral to Buy the Right to Pollute,” New York Times, Dec. 15, 1997 , p. A29 (including replies printed in New York Times, Dec. 17, 1997 ). [Reprinted in Stavins, Chapter 18.]

[MID-TERM EXAM]

4.  International Environmental Problems (with a focus on climate change) (4 lectures)

Intergovernmental Panel on Climate Change (IPCC).  2007.  Fourth Assessment Report.  Synthesis Report, available at: http://www.ipcc.ch/pdf/assessment-report/ar4/syr/ar4_syr.pdf

Perman: Chapter 10.

William D. Nordhaus.  1993. “Reflections on the Economics of Climate Change,” The Journal of Economic Perspectives, Vol. 7, No. 4. (Autumn, 1993), pp. 11-25. [Reprinted in Stavins, Chapter 22.]

Thomas C. Schelling.  1998.  “The Cost of Combatting Global Warming: Facing the Tradeoffs,” Foreign Affairs 76(6), Nov/Dec, pp. 8-14. [Reprinted in Stavins, Chapter 23.]

Henry D. Jacoby, Ronald Prinn, and Richard Schmalensee. 1998. “Kyoto’s Unfinished Business,” Foreign Affairs 77, July/August, pp. 54-66. [Reprinted in Stavins, Chapter 24.]

Warwick J. McKibbin and Peter J. Wilcoxen. 2002. “ The Role of Economics in Climate Change Policy,” The Journal of Economic Perspectives , Vol. 16, No. 2. (Spring, 2002), pp. 107-129. [along with comment and reply to comment] [Reprinted in Stavins, Chapter 25.]

Tom Tietenberg.  2003.  “The Tradable-Permits Approach to Protecting the Commons: Lessons for Climate Change,” Oxford Review of Economic Policy, Nov 2003, Volume 19, No. 3, pp. 400-419.

Stern, Nicholas.  2008. “The Economics of Climate Change,” American Economic Review, 98(2), 1-37.

Stern, Nicholas.  2007. The Economics of Climate Change: The Stern Review. Cabinet Office - HM Treasury, available at:

http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/stern_review_Report.cfm

Stern Review on the Economics of Climate Change, (2006). “What is the Economics of Climate Change,” Discussion Paper.

Stern, Nicholas.  2006. “Climate Change Reply to Byatt et al,” World Economics, 7(2), 153-157.

Stern, Nicholas.  2006. “What is the Economics of Climate Change?” World Economics, 7(2), 1-10.

William D. Nordhaus. 2007. “A Review of the Stern Review on the Economics of Climate Change,” Journal of Economic Literature, Vol. XLV, 686-702.

Weitzman, Martin L., (2007). “A Review of the Stern Review on the Economics of Climate Change,” Journal of Economic Literature, Vol. XLV, 703-724.

Gilbert E. Metcalf.  2009.  “Market-based Policy Options to Control U.S. Greenhouse Gas Emissions,” Journal of Economic Perspectives, Volume 23, Number 2 (Spring 2009) pp. 5-27.

Richard S. J. Tol.  2009.  “The Economic Effects of Climate Change,” Journal of Economic Perspectives, Volume 23, Number 2 (Spring 2009) pp. 29-51.

Scott Barrett.  2009.  “The Coming Global Climate-Technology Revolution,” Journal of Economic Perspectives, Volume 23, Number 2 (Spring 2009) pp. 53-75.

Cameron Hepburn.  2007.  “Carbon Trading: A Review of the Kyoto Mechanisms,” Annual Review of Energy and Environment, Volume 32, pp. 375-393.

Pew Center on Global Climate Change.  2005.  The European Union Emissions Trading Scheme (EU-ETS): Insights and Opportunities.

Asian Development Bank.  2009.  The Economics of Climate Change in Southeast Asia: A Regional Review.  Manila: ADB.

5.  Measuring the Benefits of Environmental Improvements (3 lectures)

Kolstad: Chapters 15, 16, 17, 18

Stavins, Chapters 7 through 14

Perman: Chapters 12, 13

[further readings to be added]