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Learning Outcomes

TopThis course provides an overview of the theory and analytical tools used by economists to analyze alternative regulations and policies for dealing with environmental problems including technology standards, emission taxes,and marketable permits. During this course we will analyze policies addressing various environmental problems including conventional air pollution, overuse of natural resources, and climate change as part of the general focus on the problem of economic growth and efficiency. We will employ tools from microeconomic theory, including consumer theory, firm theory, welfare economics, benefit-cost analysis, and general equilibrium theory to study the relationship between the economy and the natural environment.

Prerequisites

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Syllabus

TopPP5157 – Economics of Environmental Regulation
Lee Kuan Yew School of Public Policy, National University of Singapore
Fall 2015

Instructor:                   Ron Shadbegian: spprjs@nus.edu.sg
Time:                           Thursday 2:00 – 5:00
Classroom:                  SR 3-5
Course Description: This course provides an overview of the theory and analytical tools used by economists to analyze environmental problems and alternative regulations and policies for dealing with them including technology standards, emission taxes, and marketable permits. Over the course of the semester we will use this theory and set of analytical tools to analyze various environmental problems including conventional air pollution, overuse of natural resources, and climate change as part of the general focus on the problem of economic growth. We will employ tools from microeconomic theory, including consumer theory, firm theory, welfare economics, benefit-cost analysis, and general equilibrium theory to study the relationship between the economy and the natural environment. By the end of the semester you should have a firm understanding of how economists analyze the efficiency and cost-effectiveness of public policies in the real-world. Moreover, you should understand and be able to use the theory and analytical tools economists employ to analyze regulations in the context of benefit-cost analysis to help policymakers make informed choices about environmental policy.
Office hours: TBD.
Required Texts: None
Reading List: In lieu of a textbook, I will assign readings ahead of each class. This list contains the expected required readings and additional optional references to help further your understanding of the material. I may occasionally add or subtract readings as we go along.
Supplementary Texts:
Environmental Economics and Management (Fourth or Fifth Edition), by Callan and Thomas (this can be borrowed from me)
U.S. EPA - Guidelines for Preparing Economic Analyses (2010) (available on line at http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/Guidelines.html)
Grading: Your grade for the class will be divided between:

Class participation and attendance (10%)
Midterm Exam (30%)
Non-Cumulative Final Exam (40%)
Class presentation (20%)

The midterm will take place on TBD. The final exam will occur on Thursday, Nov. 26^th 1:00-4:00.
Academic Integrity

Students in this class should adhere to NUS Honour Code, which can be found at http://www.nus.edu.sg/registrar/adminpolicy/acceptance.html#NUSHonourCode. In addition, the LKY School’s Code of Conduct (http://www.spp.nus.edu.sg/Code_of_Conduct.aspx) lists academic integrity as one of its six important values. Violations of these codes in any form, including cheating in exams and plagiarism, will not be tolerated and will immediately lead to the student getting zero marks and follow-up action.
Plagiarism includes copying all or any part of your classmate’s assignments. To avoid giving the impression that you are passing off other people’s work as your own, you will need to acknowledge conscientiously the sources of information, ideas, and arguments used in your paper. For this purpose, you will use the ‘footnote style’ according to the Chicago Manual of Style, the guidelines for which can be found online at http://www.dianahacker.com/resdoc/p04_c10_s2.html in the companion website for Diana Hacker’s A Writer’s Reference. Please also refer to the handout that was given to you at the Workshop on Plagiarism conducted during the Orientation period.

Use of laptops is discouraged during lectures unless its purpose is related to this course. Instructor reserves the right to ban laptops if their use distracts students. Using cell/smart phones is prohibited during lectures and exams.

Class 1: Microeconomic Foundations of Environmental Regulation
Main topics: Supply and demand under perfect competition; welfare economics; market failures and externalities; benefit-cost analysis; measuring changes in consumer welfare; partial vs general equilibrium analysis
Required Readings:
U.S. EPA (2010) - Guidelines: Appendix A Economic Theory
Callan and Thomas: Ch.2 and/or any good Microeconomic Theory textbook

Class 2: KEY CONCEPTS IN ENVIRONMENTAL ECONOMICS

Main Topics: What is environmental economics; Coase theorem; characteristics of public vs. private goods; tragedy of the commons; externalities; private vs. social planner’s problem
Required Readings:

Coase, R. (1960). “The Problem of Social Cost” Journal of Law and Economics 3: 1- 44.

Fullerton, D., and R. Stavins (1998). “How Economists See the Environment.” Nature 395: 433-434.

Hardin, G. “Tragedy of the Commons.” Science 162: 1243-1248.

Optional Readings:

Solow, R. “Sustainability: An Economist’s Perspective.”

Stavins, Robert (2004). “Environmental Economics” in New Palgrave Dictionary of Economics, 2^nd Edition.

Class 3: KEY CONCEPTS IN ENVIRONMENTAL ECONOMICS (cont)

Main Topics: Coase theorem (graphically); illustrating the Pigovian tax in graphs; imperfect competition; standards vs market based approaches

Required Readings:

Cropper, M., and W. Oates (1992). “Environmental Economics: A Survey.” Journal of Economic Literature 30(2): 675-740. For midterm, read pp. 675 – 700.

Murray, Brian (2014) “Pigouvian Taxes” in Environmental and Natural Resource Economics. Editors: Habb, Timothy, and John Whitehead. Greenwood: pages 258-260.

Baumol, W., and W. Oates (1988). Section on market power and Pigovian tax, The Theory of Environmental Policy.
Helfand, G. (2013) “Standards” in Encyclopedia of Energy, Natural Resources, and Environmental Economics. Editor: Shogren, J. Elsevier: Pages 217-221.

Segerson, K. (2013). “Price Instruments” in Encyclopedia of Energy, Natural Resources, and Environmental Economics. Editor: Shogren, J. Elsevier: Pages 185-192.

US EPA (2010). “Regulatory and Non-Regulatory Approaches to Pollution Control.” Chapter 4 in Guidelines for Preparing Economic Analyses. Environmental Protection Agency.

Class 4: CONTROLLING POLLUTION

Main Topics: Pigovian tax vs. cap-and-trade; distributional implications; other policy instruments; regulating across space and time;

Required Readings:

Goulder, L., and I. Parry (2008). “Instrument Choice in Environmental Policy.” Review of Environmental Economics and Policy 2(2): 152-174.

Rubin, J. and S. Siriwardena (2013). “Quantity Instruments” in Encyclopedia of Energy, Natural Resources, and Environmental Economics. Editor: Shogren, J. Elsevier: pages 204-211.

Optional Readings:

Burtraw, D. (2013) “SO2 Program” in Encyclopedia of Energy, Natural Resources, and Environmental Economics. Editor: Shogren, J. Elsevier: pages 212-216.

Carlson, C., D. Burtraw, M. Cropper, and K. Palmer (1998). “Sulfur Dioxide Control by Electric Utilities: What Are the Gains From Trade?” World Bank Policy Research Working Paper #1966.

Class 5: UNCERTAINTY AND INSTRUMENT CHOICE

Main Topics: prices vs. quantities under uncertainty; combining instruments

Required Readings:

Requate. T. (2013) “Prices versus Quantities” in Encyclopedia of Energy, Natural Resources, and Environmental Economics. Editor: Shogren, J. Elsevier: Pages 193-203.

Spence, M., and M. Weitzman (1978). “Regulatory Strategies for Pollution Control.” in Economics of the Environment: Selected Readings, edited by Robert Dorfman and Nancy Dorfman, W.W.
Norton, New York (1994).

Pizer, W. (1999). “Choosing Price or Quantity Controls for Greenhouse Gases” Climate Policy Issue Brief #17. Resources for the Future.

Optional Readings:

Pizer, W., D. Burtraw, and W. Harrington, R. Newell, and J. Sanchirico (2006). “Modeling Economy-Wide versus Sectoral Climate Policies Using Combined Aggregate-Sectoral Models.” The Energy Journal 27(3): 135-168.

Weitzman, M. (1974).“Prices vs. Quantities” Review of Economic Studies 41(4): 477-491.

Class 6: MIDTERM <TBD>

Class 7: BENEFIT COST ANALYSIS AND THE DISCOUNT RATE

Main Topics: introduction to benefit-cost analysis; concept of a baseline; discounting; quantifying benefits

Required Readings:

US EPA (2010). Guidelines - “Baseline.” Chapter 5 in Guidelines for Preparing Economic Analyses. Environmental Protection Agency.

US EPA (2010). Guidelines - “Discounting Future Costs and Benefits.” Chapter 6 in Guidelines for Preparing Economic Analyses. Environmental Protection Agency.

US EPA (2010). Guidelines - “Analyzing Benefits.” Chapter 7 in Guidelines for Preparing Economic Analyses. Environmental Protection Agency. ADD PAGES REQUIRED

Maguire, K., N. Owens, and N. Simon (2004). “The Price Premium for Organic Baby Food: A Hedonic Analysis.” Journal of Agricultural and Resource Economics 29(1): 132-149.

Optional Readings:

Cropper, M., and W. Oates (1992). “Environmental Economics: A Survey.” Journal of Economic Literature 30(2): 675-740. pp. 700- 740.

Class 8: BENEFIT COST ANALYSIS (cont)

Main Topics: benefits; quantifying costs – engineering vs. social costs; second-best

Required Readings:

US EPA (2010). “Analyzing Costs.” Chapter 8 in Guidelines for Preparing Economic Analyses. Environmental Protection Agency.

Parry, I. (2013). “Green Tax Design in the Real (Second-Best) World” in Encyclopedia of Energy, Natural Resources, and Environmental Economics. Editor: Shogren, J. Elsevier: Pages 161-168.

Optional Readings:

US EPA (2012). Retrospective Study of the Costs of EPA Regulations: An Interim Report of Five Case Studies.

Class 9: CLIMATE CHANGE AND ENERGY EFFICIENCY

Main Topics: Economics of climate change (instrument choice, uncertainty; SCC; energy efficiency gap;
Required Readings:
Council of Economic Advisers (2014). “The Cost of Delaying Action to Stem Climate Change.” (prepared by James Stock, Ron Shadbegian and Nathan Wozny)

Stern, N. (2006). The Stern Review: The Economics of Climate Change. Executive Summary.

Mendelsohn, R. (2008). “Is the Stern Review Economic Analysis?” Review of Environmental Economics and Policy 2(1).

Nordhaus, W. (2011). “The Economics of Tail Events with an Application to Climate Change.” Review of Environmental Economics and Policy.

Weitzman, M. (2011). “Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change.” Review of Environmental Economics and Policy

Griffiths, C., E. Kopits, A. Marten, C. Moore, S. Newbold, and A. Wolverton (2012). “The Social Cost of Carbon” Valuing Carbon Reductions in Policy Analysis” in Fiscal Policy to Mitigate Climate Change: A Guide for Policymakers. International Monetary Fund.

Klemick, H. and A. Wolverton (2013). “Energy Efficiency Gap” in Encyclopedia of Energy, Natural Resources, and Environmental Economics. Editor: Shogren, J. Elsevier: Pages 74-81.

Allcott, H., and M. Greenstone (2012). “Is There an Energy Efficiency Gap?” NBER Working Paper #17766

Optional Readings:

Böhringer, C. and A. Lange “European Union’s Emission Trading System” in Encyclopedia of Energy, Natural Resources, and Environmental Economics. Editor: Shogren, J. Elsevier: Pages155-160.

Tol, R., and G. Yohe. (2006) “A Review of the Stern Review.” World Economics 7(4)

Class 10: CLIMATE CHANGE AND ENERGY EFFICIENCY (cont) , and ENVIRONMENTAL AND ECONOMIC GROWTH, and INCOME DISTRIBUTION

Main Topics: firm location and environmental regulations, pollution havens, environmental Kuznet’s curve.

Required Readings:

Carson, R. (2010). “The Environmental Kuznet’s curve: Seeking Empirical Regularity and Theoretical Structure.” Review of Environmental Economics and Policy.

Levinson, A. ”Pollution Havens Hypothesis” and “Environmental Kuznets Curve.” New Palgrave Dictionary of Economics, 2^nd edition. Multiple dictionary entries.

Optional Readings:

Aldy, J., A. Krupnick, R. Newell, I. Parry, and W. Pizer (2010). "Designing Climate Mitigation Policy." Journal of Economic Literature, 48(4): 903–34.

Gray, W. and R. Shadbegian “When Do Firms Shift Production Across States to Avoid Environmental Regulation?” NCEE Working Paper #2002-02.
Greenstone, M., E. Kopits, and A. Wolverton (2012). “Estimating the Social Cost of Carbon for Use in U.S. Federal Rulemakings: A Summary and Interpretation” Review of Environmental Economics and Policy, forthcoming.

Goulder, L., and W. Pizer (2006). “The Economics of Climate Change.” RFF Discussion Paper 06-06.
Harbaugh, W., A. Levinson, and D. Wilson (2002). “Reexamining the Empirical Evidence for an Environmental Kuznets Curve.” Review of Economics and Statistics 84 (3): 541-551

Jaccard, M. (2010). “Paradigms of Energy Efficiency’s Cost and Their Policy Implications: Déjà Vu All Over Again.” Modeling the Economics of Greenhouse Gas Mitigation: Summary of a Workshop.

Oates, W. (1999). “An Essay on Fiscal Federalism” Journal of Environmental Literature 37(3): 1120-1149.

Oates, W. (2001). “A Reconsideration of Fiscal Federalism.” RFF Working Paper, #01-54.

Shadbegian, R., and A. Wolverton. (2010). “Location Decisions of U.S. Polluting Plants: Theory, Empirical Evidence and Consequences.” International Review of Environmental and Resource Economics 4: 1-49.

Class 11: Economic Impact Analysis

Main Topics:   Identifying winners and losers of a regulation; impact of environmental regulations on: electricity prices, production, and labor demand; disproportionate impact on minorities and poor; impact of ambient air quality on labor productivity

Required Readings:
US EPA (2010). Guidelines: Ch.. 9 Economic Impact Analysis
US EPA (2014) Guidelines Chapter 10 Environmental Justice, Children’s Environmental Health and Other
Distributional Considerations
Berman, Eli, and Linda T. Bui, (2001) “Environmental Regulation and Labor Demand: Evidence from the South Coast Air Basin,” Journal of Public Economics, 79, 265 – 295.
Ferris, Ann and Ron Shadbegian . “Air Quality Regulations and Manufacturing Employment: Examining the Electricity Price Pathway” IZA Workshop on the Labor Market Effects of Environmental Policy (September 2014).
Shadbegian, Ron and Ann Wolverton.“Evaluating Environmental Justice: Analytic Lessons from the Academic Literature and in Practice” in Failed Promises: Evaluating the Federal Government's Response to Environmental Justice, edited by David M. Konisky. MIT Press, 2015.
Graff Zivin, J. and Neidell,M. (2012) “The Impact of Pollution on Worker Productivity” American Economic Review, 102, 3652-3673.
Ferris, Ann, Sue Helper, Alex Mas, and Ron Shadbegian. “Can Increases in Local Air Quality Lead to Higher Labor Productivity?” IZA Workshop on the Labor Market Effects of Environmental Policy (September 2015).
Optional Readings:
Becker, Randy, Carl Pasurka, and Ron Shadbegian (2013). “Do Environmental Regulations Disproportionately Affect Small Business? Evidence from the Pollution Abatement Costs and Expenditures Survey” Journal of Environmental Economics and Management 66 (2013): 523-538.
Chang, T. , J. Graff Zivin, T. Gross, and M. Neidell (2014) “Particulate Pollution and the Productivity of Pear Packers” NBER Working Paper 19944.
Ferris, Ann, Wayne Gray, Ron Shadbegian and Ann Wolverton “Do Renewable Portfolio Standards Affect Manufacturing Activity Through Higher Electricity Prices?” Presented at 2014 Association of Resource and Environmental Economists Summer Conference.
Ferris, Ann, Ron Shadbegian and Ann Wolverton (2014) “The Effect of Environmental Regulation on Power Sector Employment: Phase I of the Title IV SO2 Trading Program” Journal of the Association of Environmental and Resource Economists 1 (2014): 521-553.
Gray, Wayne, Ron Shadbegian, Chunbei Wang, and Merve Meral (2014). “Do EPA Regulations Affect Labor Demand? Evidence from the Pulp and Paper Industry” Journal of Environmental Economics and Management 68 (2014): 188-202.
Li, Teng, Haoming Liu, and Alberto Salvo “Severe air pollution and labor productivity” IZA DP No. 8916.
Shadbegian, R., W. Gray, and C. Morgan (2005). “Benefits and Costs from Sulfur Dioxide Trading: A Distributional Analysis.” NCEE Working Paper. #05-09

Class 12: Class Presentations and Wrap-Up

Preclusions

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Workload

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Workload Components : A-B-C-D-E
A: no. of lecture hours per week
B: no. of tutorial hours per week
C: no. of lab hours per week
D: no. of hours for projects, assignments, fieldwork etc per week
E: no. of hours for preparatory work by a student per week