Course:ECON371/UBCO2024WT1/NewsWiki/group5week1
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Wiki report #1
Source
Problem
The Amazon rainforest is arriving at an irreversible tipping point due to excessive deforestation, threatening its role in global carbon storage and biodiversity conservation.
Summary
The Amazon rainforest is often referred to as the “lungs of the Earth”, as it plays a critical role in absorbing carbon dioxide and regulating global climate. Deforestation has increased to previously unheard-of levels, according to recent reports, and "up to half of the Amazon rainforest could hit a tipping point by 2050" (Watts, 2024). Watts states that "as a result of water stress, land clearance, and climate disruption" this is all occurring. Scientists continue to warn us that the Amazon may be approaching this tipping point, where the rainforest's ecosystem could collapse, severely reducing the rainforest's ability to act as a carbon sink. The result of losing so much of the rainforest is an accelerated rate of climate change and significant biodiversity loss. Policymakers and environmental groups are urging immediate action to curb deforestation and protect the remaining forest, but their efforts are being slowed by political, economic, and enforcement challenges(international coordination, informal economies, etc.). The loss of the Amazon would greatly contribute to rising global temperatures and disrupt weather patterns, affecting agriculture and water resources worldwide. The Amazon rainforest also provides many tangible and intangible products and experiences that we use today(ex. pharmaceuticals and tourism).
Economic concepts
An externality occurs when a third party is affected due to actions of others without bearing responsibility. It can be a positive or negative externality depending on its consequences (Eldridge, 2023). A positive externality occurs when the consequences faced by the third party are favourable. i.e. planting trees to enhance the beauty of the neighbourhood benefits all residents. On the other hand, negative externality brings unfavourable outcomes to third parties. It plays a significant role in the field of environmental economics (Eldridge, 2023). In environmental economics, a negative externality occurs when there is environmental damage, such as oil spills, deforestation, and air pollution that impacts individuals, communities, and the ecosystem. It leads to climate change, biodiversity loss, and habitat destruction. Certain consumption, production, and investment decisions can have an immense impact on the environment that derails the quality of environment for the next decade or more. This prompts governments intervention (Externalities: Prices Do Not Capture All Costs, 2017).
A public good is a commodity or service that is offered to all individuals in the community, managed by the government and funded through taxation. i.e. clean air, clean water, roads etc (Fernando, 2024). Public goods are non-rival and non-excludable. Non-rival means the supply of the good does not diminish as people use it more, whereas non-excludable means that the good is available to all citizens (Fernando, 2024). Each country's government makes decisions on the supply of public goods that is illustrated on their national budget (Fernando, 2024).
Prof: A public good is, as described, non-rival and non-excludable. That governments typically supply public goods is not necessary to the definition. The characteristics of a public good means that people will free ride on the contributions of others, and as a result a less than efficient level of the public good is often provided. Government intervention occurs to correct this, by taxing people and using the revenue to provide the public good. Such actions move us closer to the efficient situation than the market on its own would achieve.
Application of concepts
This article displays two important economic concepts, that is negative externalities and impaired access to public goods. It explains how human activities have diminished the well-being of the Amazonian ecosystem, urging the need for "remedial action" to restore eroded areas (Watts, 2024). The forest is currently facing drought, heat, and fire and land clearance, all of which contributes to lesser rainfall and increased carbon emissions (Watts, 2024). Reduced rainfall can expose the environment to extreme heat, reducing forest productivity and the capacity of carbon storage (Watts, 2024). The Amazon, home to a wide variety of species, play a crucial role in global biodiversity, is being severely impacted by human actions. These activities lead to a several negative externalities, including pollution from carbon emissions, habitat destruction and biodiversity loss. This article presents a classic example of negative externalities because costs like environmental degradation and reduced ecosystem are not borne solely by the those who engage in harmful practices but are instead spread across society and future generations.
Prof: There are certainly externalities here. Part of the challenge for the ecological health of the Amazon is the elevated global carbon dioxide levels. The damage to the Amazon, and those who care about it, is the external cost from carbon emissions. In the other direction, the deforestation occurring in the Amazon adversely affects others inside and outside Brazil who are worse off because the Amazon is less effective as a climate regulator.
Access to public goods, such as clean air, fresh water, and a stable climate is diminished as essential resources are compromised. These are global benefits shared by everyone on the planet. The effects of carbon emissions, through logging and fires, are felt by the deterioration of air and water quality, as well as the disruption of climate stability due to changes in the water cycle (Watts, 2024). Deforestation and carbon emissions accelerate global temperatures, hindering the forest's ability to provide essential resources to the planet (Lenaker, n.d.).
Prof: The atmosphere can be considered a public good, in that the state of the atmosphere, at least as far as the climate is concerned, affects everyone. It is therefore non-excludable. That actions anyone takes to protect the state of the atmosphere are shared by everyone highlights that it is non-rival. Drawing these connections is what you should do for these analyses.
Conclusion
The Amazon’s deforestation represents one of the clearest cases of environmental market failure, driven by externalities and the under provision of public goods. There will need to be immediate policy interventions to protect the forest, reduce climate change, and preserve the biodiversity of our planet for future generations.
References
Eldridge, S. (2023, July 7). Negative externality | Definition, Economics, Examples, & Facts. Encyclopedia Britannica. https://www.britannica.com/topic/negative-externality
Externalities: Prices do not capture all costs. (2017, May 10). IMF. https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Externalities
Fernando, J. (2024, May 31). What are public goods? Definition, how they work, and example. Investopedia. https://www.investopedia.com/terms/p/public-good.asp
Lenaker, A. (n.d.). Global emissions and local deforestation are combining to create dangerous levels of heat stress in the tropics. World Resources Institute. https://www.wri.org/insights/deforestation-heat-stress-tropics#:~:text=These%20processes%20also%20play%20a,C%20(1.8%20degrees%20F).
Watts, J. (2024, February 14). Amazon rainforest could reach “tipping point” by 2050, scientists warn. The Guardian.
Wiki Report #2
Source
https://www.nature.com/articles/s41598-023-49845-0
Problem
The environmental economic challenge that the article describes is the difficulty in balancing urban development with green amenities such as street greenery and green spaces. While green areas improve urban livability, in most cases they are undervalued or even negatively associated with housing prices.
Summary
Since the Industrial Revolution, rapid urbanization reduced environmental amenities in urban areas. However, green spaces have re-gained value in recent years, with property prices appreciating in response to increased greenness and sustainability efforts. Environmental amenities have several physical and mental benefits for consumers. It encourages residents to enjoy outdoors more, stay active, and reduce carbon footprint. Promoting a healthier environment also contributes to premium pricing for their neighbourhood. This study explores measurement of greenness of a whole city using street images to predict housing prices in specific areas, along with identifying other contributing factors. It utilizes robust machine learning and satellite imagery to evaluate greenness in areas to estimate housing prices.
Economic Concepts
The hedonic pricing method is a way to give products and services values based on their attributes, largely used for real estate markets by analyzing how different internal and external factors affect their price in the market. We can see this being used in the housing market by looking at house prices in similar geographic areas that can still vary vastly based on physical features included in the house ( lot size, build quality, updated appliances, pools, etc), these would be seen as internal factors that affect the price. There would also be external factors, these include proximity to water, parks, amenities, but can also be influenced by the crime rate of the neighbourhood and things like air pollution or water quality. When we are using this model we can hold the non environmental values steady and measure for the relative effect of external factors on the prices of these homes.
Regression analysis is a method of finding what variables have an impact on the topic of interest, this method is used to determine which factors can be used which factors are irreverent and how they relate to each other*. A regression analysis relies on two main types of variables, the dependent variable ( this is what you are trying to solve for), and the independent variables ( these are what you have hypothesized to have an impact on the dependent variable). An example of regression analysis can be seen through if we were to try and predict someone's height (Dependent variable) and we hypothesized that their age may play a factor, upon graphing we would see a linear relation showing that we are correct. If we were trying to predict someone's height and we used their choice of favourite colour over the years we would likely find far less of a correlation.
Prof: I would not expect a linear relationship between height and age beyond a certain age. If anything, I am getting shorter now with age.
Application of Concepts
Regression analysis is used in this article to find leading causes of price fluctuation, in this scenario, the dependent variable is the cost of houses while they were predicting the independent variable to be proximity to greenness. The first step of the study was to analyze the greenness of a whole city using Google Street View, then the researchers would calculate the greenness of the neighbourhood with point level images before determining if there is a significant correlation between their variables. The researchers realized that in cities like Bhusan the greenness seen by imagery was typically part of the street decoration meaning that more green would also equal more streets and a lower average house price, this discovery lead the team to realize that green streets don’t necessarily cause a negative correlation with prices but it indicated there may be a structural factor at play. After considering that the local context would play a role in the nature of the green they were seeing they were able to successfully find a correlation between proximity to green amenities and the cost of houses in the area, this was corroborated by other studies for showing proximity to nature or pleasant views have profound effects on the housing prices in that area.
Prof: They did use regression analysis. A large part of their work was figuring out how to measure the factors that they wanted to explore. Hence, the emphasis on the greenness index. While regression analysis was the method, I see a lot of this project as trying to come up with a measure for a nonmarket good which is difficult to clearly identify and quantify.
The hedonic pricing method can be seen throughout this article and is proven to be useful when looking at the real estate market of a given area. The researchers in this study completely isolated any internal factors the house may have and were looking purely for how the external factors (greenness) affected the housing prices in given neighbourhoods. The researchers used Google Street View to conduct this research by using a visual cue of greenness, while in some instances they found greenness lowered the value upon further inspection they realized this was due to the nature of the greenness and found that in highly commercialized/ urban areas greenness such as trees or shrubs are added as decoration but do not add any value to the homeowner. This finding was able to show that when there are not any benefits to the greenery there is no use to the homeowner and therefore no hedonic value. On the contrary, when researchers looked at neighbourhoods with close proximity to things like parks, forests or even just pleasant views the pricing of the houses significantly increased. These findings are very much in line with the definition of the hedonic pricing method.
Conclusion
The paper concludes that street greenery and larger green spaces will influence housing prices differently based on urban context. Proximity to parks may increase property values due to recreational and environmental benefits, street greenery can reduce values by signalling issues like traffic, noise, or outdated infrastructure. To maximize the positive effects of greenery, urban planners must address these underlying challenges. Simply adding street greenery won’t increase property values unless these negative associations are mitigated. Policymakers should focus on integrating greenery with modern infrastructure improvements to enhance both environmental quality and housing market outcomes.
References
An, S., Jang, H., Kim, H., Song, Y., & Ahn, K. (2023, December 19). Assessment of street-level Greenness and its association with housing prices in a metropolitan area. Nature News.
Hargrave, M. (2021, April 5). Hedonic pricing: Definition, how the model is used, and example. Investopedia. https://www.investopedia.com/terms/h/hedonicpricing.asp#:~:text=Zoe%20Hansen%20%2F%20Investopedia-,What%20Is%20Hedonic%20Pricing%3F,and%20external%20factors%20affecting%20it.
Ben-Joseph, K. (2021, August 26). What is regression analysis and why should I use it?. Alchemer. https://www.alchemer.com/resources/blog/regression-analysis/
Voxco, W. (2024, July 5). Regression model: Definition, types and examples. https://www.voxco.com/blog/regression-model-definition-types-and-examples/#:~:text=Formulating%20a%20regression%20analysis%20helps,they%20have%20a%20linear%20relationship.
Wiki Report #3
Source
https://www.cbc.ca/amp/1.7043590
Problem
The Ontario First Nations leaders claim that the federal carbon tax disproportionately affects their communities. This is because they experience increased costs for essential goods and services like fuel, especially in remote areas, without sufficient rebates or subsidies. They argue this causes an unfair economic burden, violating their constitutional rights.
Summary
Ontario First nations communities are challenging the federally imposed carbon tax, they are arguing that this tax is unfairly burdening their communities. The Ontario leaders have begun to file a judicial review arguing that the tax is disproportionately impacting their communities who largely rely on carbon intensive transportation that is essential for their gathering of goods, delivery of food services, and hunting. They are also arguing that the carbon pricing rebates have not been designed with their communities socio economic positions as many of these rebates are attached to income taxes which are not collected on reserves, leaving them at a loss. In response to the increased costs affecting their ability to hunt, fish, and harvest the Ontario first nations communities are pushing for either a complete exemption from the carbon tax or a full compensation for the costs it entails.
Economic Concepts
General equilibrium represents a theory in real world economics that economic changes are mutually dependent on one another, where changes in one aspect could influence changes in other aspects (Bergman, 2005). In this context, rise in carbon pricing offsets a rise in the costs of other goods and services. Some communities have limited alternatives, ultimately placing a heavier financial burden on them (Stefanovich, 2023). On another hand, increasing carbon prices could encourage consumers to switch to efficient alternatives, as companies increase their fuel prices. It promotes a greener environment and fights against climate change (Ministry of Environment and Climate Change Strategy, 2024). Therefore, the carbon tax policy effects have impact on different aspects of the economy.
Prof: I find this a bit confusing. General equilibrium analysis looks for an equilibrium when all the interconnected markets are included in the analysis. This contrasts with partial equilibrium, which considers only a single market, or small number of markets, with many effects not considered.
Willingness to Pay (WTP) refers to the maximum amount an individual is willing to pay for a product or service (Willingness to Pay: What It Is & How to Calculate, 2020). In most cases, customers are willing to pay a value below the threshold. WTP can be affected by various factors such as income, age, geography, necessity, brand loyalty, expectations etc. Companies often set their prices based on their ability to maximize profits and enhance customer satisfaction (Willingness to Pay: What It Is & How to Calculate, 2020).
Application of Concepts
Through general equilibrium effects, the carbon tax's effects extend beyond the immediate financial burden on First Nations communities, influencing the broader economic system. In First Nations communities, increased fuel costs for essential activities such as transportation and heating reduce disposable income, thereby lowering spending on other goods and services. As a result, it weakens the local economies. The higher costs imposed by the carbon tax would also ripple through supply chains, raising the price of goods that rely on transportation into remote areas. Without adequate alternatives like renewable energy infrastructure, First Nations are disproportionately impacted. As fuel prices rise, the equilibrium across the entire regional economy shifts, deepening economic inequality and reducing overall welfare.
Willingness to pay (WTP) Illustrates the economic disconnect where there is a gap between the economic value that policymakers assign to carbon reduction strategies and what First Nations communities are willing to pay for these clean initiatives. The carbon tax was designed to encourage a shift away from fossil fuels by making them more expensive, but First Nations have a low WTP for this transition. The additional fuel costs burden these communities, which rely on trucks, boats, and snowmobiles for activities like hunting and fishing. Limited access to rebates causes many First Nations individuals to face fuel costs that are disproportionately high relative to their incomes and available resources. On top of this, being in remote locations exacerbates the issue, as goods have to be flown in. The legal action against the carbon tax by Ontario First Nations reflects the government’s failure to account for these unique economic conditions. The tax may be intended to reduce greenhouse gas emissions, but the current structure neglects the specific needs of First Nations communities. In order to resolve this, we need tailored policy solutions that recognize the lower WTP and higher opportunity costs faced by these communities. Without action, the carbon tax may continue to cause unfair financial strain on Indigenous populations, undermining both reconciliation efforts and environmental justice.
Prof: I think your general equilibrium explanation is good. FN communities depend on many things that use fossil fuels, and have few immediate options to change that. I see less connection to WTP. Issues of income distribution, equity, etc. stand out to me.
Conclusion
In conclusion, although the carbon tax was introduced with an intent to reduce greenhouse gas emissions and promote sustainability it has been shown to disproportionately impact the First Nations communities in Ontario and likely Canada. Through the concepts of willingness to pay and general equilibrium, the policy reveals a disconnect between its goals and the realities we see in these communities. Without the implementation of a thoughtful solution such as exemptions or compensations, the carbon tax risks worsening the economic inequalities the First Nations communities are already facing.
Prof: The suggestion in the article that all carbon tax collected be rebated is interesting. The tax collected in each province is rebated to people in that province. I could imagine something similar with First Nations. This would be treating them as equivalent to provinces, which in some ways seems an appropriate recognition of their status as nations. It would require some way of figuring out whether it would be rebated to each community / reserve, or to each recognized nation, many of which represent multiple communities. What this would do is leave the incentive to reduce emissions in place, but provide the First Nations with the revenue from the tax, which they could then decide how to use. They could choose to subsidize fuel, which would simply cancel the tax for their members. Or they could invest in things that result in using less fuel, such as insulating buildings, investing in geothermal heating systems, expanding storage so that less supply trips are needed, etc.
References
Bergman, L. (2005). Chapter 24 CGE Modeling of Environmental Policy and Resource Management. In Handbook of environmental economics (pp. 1273–1306). https://doi.org/10.1016/s1574-0099(05)03024-x
Stefanovich, O. (2023, November 30). Ontario First Nations leaders say federal government’s carbon tax is discriminatory. CBCnews. https://www.cbc.ca/amp/1.7043590
Ministry of Environment and Climate Change Strategy. (2024, April 2). British Columbia’s Carbon Tax - Province of British Columbia. https://www2.gov.bc.ca/gov/content/environment/climate-change/clean-economy/carbon-tax
Willingness to pay: What it is & how to calculate. (2020, October 20). Business Insights Blog. https://online.hbs.edu/blog/post/willingness-to-pay
Wiki Report #4
Source
https://journals.plos.org/climate/article?id=10.1371/journal.pclm.0000052#abstract0
Prof: Very nice paper. Bit heavier read than a typical news story.
Problem
The ongoing debate over how to create and apply carbon taxes effectively, particularly their structure and how to distribute the generated revenue raises concerns about the potential negative economic impacts, the regressive nature of the tax, and the long-term viability of funding for public services as cleaner technologies are adopted.
Summary
The paper analyses the concept that revenue from carbon taxes should not simply replace other forms of taxation, highlighting crucial considerations regarding the overall economic and environmental impacts of this strategy. An important point raised is that current research tends to underestimate the potential advantages of carbon taxes while placing excessive emphasis on their drawbacks. This skewed perspective may hinder the recognition of the effectiveness of carbon taxes in promoting cleaner technologies and reducing emissions. Additionally, the paper brings attention to the fact that, unlike more consistent taxes, carbon taxes may yield diminishing returns as society embraces cleaner technologies, potentially jeopardizing funding for essential public services.
The paper also explores the intricate debate surrounding the ideal carbon tax rates and the most effective use of the generated revenue. There is a divide of opinions between those who propose using the revenue to reduce other taxes to minimize economic disruption and those who argue for compensating low-income households, acknowledging that carbon taxes may disproportionately affect them.
Throughout the text, the author continues to stress the importance of adopting a more balanced perspective on carbon taxes, one that takes into account both the economic and environmental benefits. The paper warns us that we must be cautious in relying solely on current economic models, as they may not fully capture the positive outcomes of implementing carbon taxes. There is a need for policies that not only increase revenue but also align with broader environmental objectives.
Economic Concepts
Externalities are a positive or negative outcome of a market transaction that is borne by third party individuals, who are not directly involved in the transaction. An externality can be created when there is production or consumption in the transaction. Governments and companies can amend these positive or negative outcomes through financial or social measures (Kenton, 2024).
Pigouvian Tax is a tax levied on a market transaction that has negative costs on the environment, which are additional costs are incurred by third party individuals, not directly involved in the transaction. The goal of the tax is to correct market failure by making the producer or consumer responsible for the external costs of their actions imposed on others. By externalizing these costs, the tax advocates for more socially efficient outcomes. Examples include tobacco, sugar, and carbon taxes (Tax Foundation, 2024).
Application of Concepts
Externalities: The externality expressed in this paper is the negative effects of the imposed carbon tax on individuals who are not responsible for emitting large amounts of pollution. This is an externality as the third party (people who are emitting high levels of pollution) are having a direct and negative effect on individuals who are not responsible for these actions. Other negative externalities that are being placed upon non polluters include climate change, health problems, and environmental degradation. The carbon tax is therefore a tool to address the externalities imposed on these non polluters as it will hold the polluters accountable for their actions and incentivise them to change their ways, in doing so they will vastly reduce the negative externalities’ effects on other individuals.
Prof: The tax is not an externality. The externality is the cost imposed on people from the emissions of other people. The third party are those people who didn't gain any of the benefit of burning the fuel, but are forced to bear some of the costs of that.
Pigouvian Tax: A Pigouvian tax is evident in this paper as a Carbon tax fits the description perfectly, a carbon tax is designed to address negative externalities, these costs are not imposed on the market but instead they are taken on by the public taxpayers. The carbon tax has a goal of reducing harmful effects on the population (pollution) and the model is to impose a tax on the activities that cause these harmful effects. The carbon tax makes the individuals who emit the most pollution to proportionately pay for their actions, this helps incentivise them to reduce their carbon output, choose more sustainable practices, and look towards cleaner technologies. In the paper there is an emphasis on the benefits of the carbon tax in the short term, but, the author also states the importance of analyzing not just current economic models but also models in the future to explore how the effects of the carbon tax may be diminished as society adopts more sustainable technologies, this could leave a large deficit in money available for public amenities.
Prof: A Pigouvian tax is a tax that internalizes the cost of the externality by making producers and/or consumers pay for the damages done by the actions that generate an externality. The point of the tax is to create an incentive to reduce the externality generating activity to the level where the marginal social cost (private cost plus external cost) is equal to the marginal benefit of the activity. A key point of the article is that the external cost is hard to estimate, and is therefore seldom not included as part of the analyses. Or, it is hard to determine what the correct Pigouvian tax should be.
Conclusion
In conclusion we can see that more studies need to be done emphasizing the benefits of carbon taxes to help the uptake of these strategies by the public, we must also however plan for a future in which these strategies have been effective in changing the pollution rate and are no longer large sources of profitability for the government as we do not want to be blindsided by this change, we can do this by analyzing projections of the future economic effects of these taxes and plan accordingly.
References
Prasad, M. (2022). Hidden benefits and dangers of carbon tax. PLOS Climate. https://journals.plos.org/climate/article?id=10.1371%2Fjournal.pclm.0000052#abstract0
Kenton, W. (2024, June 18). Externality: what it means in economics, with positive and negative examples. Investopedia. https://www.investopedia.com/terms/e/externality.asp
Tax Foundation. (2024, February 8). Pigouvian Tax Definition | TaxEDU Glossary. https://taxfoundation.org/taxedu/glossary/pigouvian-tax/#:~:text=A%20Pigouvian%20tax%2C%20named%20after,sugar%20taxes%2C%20and%20carbon%20taxes.
Wiki Report #5
Source
https://www.cbc.ca/news/science/groundwater-study-1.3318137
Problem
This article identifies the depletion of groundwater, which is being used faster than it takes to naturally replenish for the future. Despite groundwater being three times more abundant than freshwater on earth, its availability is still finite and unevenly distributed, making it a finite resource.
Summary
A group of researchers discovered a way to come up with a rough estimate of the amount of groundwater left in the world. They found that while there is sufficient renewable groundwater on Earth, there is still an amount of groundwater that was renewed millions of years ago, now turning into old water. Underground water is replenished very slowly. There are regions in California and Egypt that are using non-renewable water (old water), which is saltier and contaminated than renewed groundwater (younger groundwater). Additionally, exhausting groundwater can reduce subsurface water levels and dry up streams, adversely impacting the ecosystem. Groundwater is largely used by more than a third of the Canadian population for everyday drinking and agriculture uses.
Economic Concepts
The Tragedy of the Commons is a fundamental concept that proves that individual self-interest can lead to the unsustainable exploitation of communal resources. This concept occurs primarily because individuals often lack adequate incentives to conserve resources that do not belong to them. The term “tragedy of the commons” was popularized by Garrett Hardin in 1968 (Spiliakos, 2019) and applies to various public goods, including air, oceans, and groundwater. Since these resources are public goods, each user is motivated to maximize their benefits, assuming that if they refrain from extraction, others will not. Without appropriate regulation or cooperative efforts, the collective long-term harm often outweighs immediate individual benefits. This tragedy accentuates the importance of collaborative action, regulatory frameworks, or some form of governance to avert the collapse of essential resources. Several solutions can be implemented to counteract this dilemma. One approach is government intervention through the creation of regulatory frameworks that limit resource use. An example could be fishing quotas or water usage rights. Another solution involves the creation of private property rights or cooperative agreements where users of the resource agree to self-regulate and manage the resource sustainably, as seen in some community-managed fisheries.
Common Pool Resources are resources that are rival and non-excludable. This means that one person’s use of the resource reduces its availability for others. It is difficult or costly to exclude anyone from using CPR's, making it hard to regulate these resources. Groundwater, fisheries, and forests are classic examples of CPRs. Managing CPRs poses a unique challenge because, although individuals benefit from using the resource, their consumption reduces its availability for others. This creates a situation where, without proper management, CPRs can be overused, leading to resource exhaustion. Effective management strategies often include rules and institutions that help to regulate access and ensure sustainable use of the resource, which can involve both formal policies and informal community agreements.
Application of Concepts
Tragedy of the commons:
Due to the non excludable, rival qualities of the freshwater supply shown in this article we are able to see the tragedy of the commons. Groundwater is not an infinite resource; this means that individual use reduces the amount available for others. As people extract more groundwater for personal or industrial purposes the supply decreases, this leaves less for others who also rely on it for drinking, farming, and other essential activities. This shows the implication of the tragedy of the commons as the negative externality from one individual is equally burdensome on the rest of the individuals partaking in that activity, which again, in this case is using the groundwater.
Common Pool Resource:
The groundwater in this case is a very clear common pool resource and we can see this due to the non excludable, rival nature of the good. Ground water is especially non excludable as it is seen as a human right and anyone with a well and a pump is able to access as much as they would like since regulations can be difficult to enforce. As previously explained we can see how this type of resource has resorted to a tragedy of the commons scenario. The lack of control over these ground water pools leads to over extraction beyond the sustainable limit and leaching of saltwater in coastal areas which diminishes the value of that water from a health standpoint. We can also see that the negative externality of tritium (as a result of nuclear testing in the 1960’s) in 55 countries has been a negative impact borne by all individuals who partake in the resource, this plays into the tragedy of the commons concept but also shows the non excludable nature as nobody is safe from this externality. As this good is used more we will see a gradual decline in the resource for all parties, and since in some places the water can take millions of years to renew we may face a very serious problem at some point in the future.
Conclusion
Groundwater depletion serves as a perfect example of the Tragedy of the Commons. The unrestrained use of a shared resource leads to its excessive exploitation. Over-extraction in regions such as California and Egypt, not only reduces future availability but also detrimentally impacts ecosystems. It is essential to implement coordinated management strategies, establish regulatory frameworks, or foster community-driven initiatives aimed at ensuring sustainable usage to tackle this pressing issue. The long-term environmental and societal repercussions will far outweigh short-term individual gains if proactive measures are not taken.
Prof: Absent effective regulation, groundwater can be an open access resource, and its use can result in a tragedy of the commons. I did not read in the article that the Tritium was at a high enough level to be of health concern. It was a convenient way to assess the age of the groundwater being used by people, as it would only be present in groundwater that has been recharged from the surface since the 1960's.
Groundwater use has an interesting natural limit, the cost of pumping. As groundwater is used, the depth to the surface of the groundwater falls further below the surface. At some point, the water has to be lifted so high that it is no longer economic to access it if the water level falls any further. At this point, the total amount extracted will equal the natural recharge, and the depth to groundwater will not fall any further.
That most of the groundwater being used by humans is in fact 'fossil' water, and essentially not renewable suggests that it should be managed like a nonrenewable resource. I.e., the rate of extraction should fall and the price increase as we move into the future. However, as water is essential to survival, this could be a serious problem for some societies.
References
Most Groundwater Is Effectively a Non-renewable Resource, Study Finds. (2015, November 18). CBC. https://www.cbc.ca/news/science/groundwater-study-1.3318137
Spiliakos, A. (2019). Tragedy of the commons: Examples & solutions: HBS Online. Business Insights Blog. https://online.hbs.edu/blog/post/tragedy-of-the-commons-impact-on-sustainability-issues
Wiki Report #6
Source
https://www.nationalobserver.com/2024/08/07/news/does-logging-burned-out-forest-hurt-or-help
Problem
The article focuses on the concerns raised by B.C’s salvage logging policy which is promoting the logging of fire damaged forests to recover timber profits while boosting economies. The public, and ecologists fear that this practice will harm ecosystems and the future sustainability of these areas.
Summary
This article follows the issue surrounding salvage logging in British Columbia, salvage logging is the removal of already burnt trees (post forest fire). New regulations have facilitated the logging of wildfire affected forests to help the economic recovery of the surrounding communities and companies who largely rely on lumber for their welfare. The B.C government, among others, argue that salvaging dead trees reduces wildfire fuel and helps with the recovery of the ecosystem, however, ecologists argue that this logging damages the ecosystems and creates “biological desserts” with low biodiversity and that it also disrupts the natural regrowth process that certain species and relationships would rely on. The ecologists also believe that these dead trees carry significant value in place as they are important animal habitats and carbon stores. Overall the article highlights the disconnect between BC’s policies and its environmental sustainability goals, people are urging the government to prioritize ecosystem recovery and sustainability over logging profits and state that naturally regenerated forests are often more resilient to future forest fires.
Economic concepts
Theory of Portfolio choice: this approach evaluates the trade-offs between economic benefits and long-term environmental impacts (Matthies et al., 2019). The decision to log a burned forest poses environmental risks (i.e. biodiversity loss, soil erosion) and economic returns (i.e. timber revenue, job creation). When investors aim to optimize their portfolio, their ultimate goal is to maximize returns and minimize risks. In the perspective of environmental economics, this would be considering if short-term profits outweigh the future losses due to environmental degradation.
Intrinsic Value: this refers to the inherent value of nature in its own right, regardless of whether it directly or indirectly benefits humans (Rea & Munns, 2017). Something has intrinsic value if it is valued for what it is, rather than what how to benefits others. Similarly, ecosystems and species also have intrinsic value (Sandler, 2012).
Application of concepts
The Portfolio Choice Approach in economic theory promotes the idea of diversifying investments to create a balance between immediate returns and long-term advantages (Markowitz, 1952). This approach suggests that a careful equilibrium can be found between the short-term financial gains from timber and the broader ecological benefits of allowing natural forests to recover if we apply this to British Columbia's salvage logging practices. The recent policy in B.C. to accelerate logging in areas affected by wildfires has been introduced to generate quick timber revenue and facilitate prompt reforestation efforts. Conservation advocates suggest that such salvage logging emphasizes short-term economic outcomes at the expense of ecological resilience and biodiversity. They argue that logged and replanted sites fail to match the biological richness found in naturally regenerating forests (Lobe, 2024). By integrating the Portfolio Choice Approach, B.C. could have a diversified strategy, permitting some burned areas to undergo natural regeneration while selectively logging others. This approach is aimed at increasing long-term benefits by investing in ecological health. Doing so mitigates risks associated with soil erosion, habitat destruction, and heightened susceptibility to future wildfires. B.C. could maintain natural resilience, fostering a sustainable landscape that balances both economic and environmental priorities by adopting a more diversified approach to forest management.
Intrinsic Value measures the worth of ecosystems independent of their potential economic benefits. Using this perspective, B.C.’s forests are recognized for their intrinsic value, including burned areas that serve as critical ecosystems sustaining biodiversity, promoting healthy soils, and providing habitats for wildlife. Conservationists argue that salvage logging neglects these fundamental ecological benefits since it simplifies complex ecosystems into low-biodiversity landscapes (Lobe, 2024). Research by Dr. Karen Price proves that allowing for naturally regenerating forests, creates an environment which hosts a rich diversity of species and establishes a wide network of habitats that logged regions cannot replicate. Getting B.C. to pursue forest policies founded in ecosystem conservation rather than only industrial profit, would have to start with acknowledging the intrinsic value of burned forests. Since forests regenerating naturally helps maintain their ecological contributions and aligns with B.C.’s commitment to prioritizing biodiversity, this should not be a hard task. Intrinsic worth gives forest policies a chance to move away from salvage logging, and towards a more sustainable future.
Conclusion
In conclusion, the BC policies around salvage logging are raising important questions about choosing short term financial gains over long term environmental resilience. While salvage logging is great for recovering burnt lumber and boosting local economies, the practice can harm biodiversity, ecosystem stability and natural regeneration processes in areas affected. By using economic tools such as the intrinsic valuation method and the portfolio choice approach method we see areas for BC to improve their policies in ways that could further support the sustainability and wellbeing of these ecosystems in the future, this prioritization of the ecosystems will in turn guarantee a stable economic landscape in the future for local communities in the long run.
Prof: I like what you have done here. We can also apply more directly the forest model that we spoke about in class. Recall that in this model
V(t+1) = V(t) + G(t)
if the forest is left to grow, and the return earned if the forest is logged is
r[V(t) - C + S]
where V(t) is the value of the forest at time t, with growth added to this, and if harvested, harvest costs deducted, and the option of selling the bare land as contributing to the opportunity cost.
After a fire, the growth in value is seen as negative, as the dead trees will rot or otherwise loose value quite quickly. The article suggest that there is a cost associated with this that is being ignored. This cost comes in two forms. One is that there is ecological value lost when salvage logging takes place. The quality of the ecosystem after salvage logging is lower. This means that the C term is larger than just the cost of gathering the timber. A second cost comes in its impact on the growth of the forest, G(t). The research seems to show that the value generated by the forest, both in terms of timber and as ecological values, grows more slowly after salvage logging. This would mean that the next harvest will be further in the future, generating a lower present value from the next harvest cycle.
As noted in the article, and your exploration of the portfolio choice concept, it isn't necessarily a question of whether or not salvage logging takes place, but when and how much.
References
Lobe, S. (2024, August 8). Does logging a burned out forest hurt or help? Canada’s National Observer. https://www.nationalobserver.com/2024/08/07/news/does-logging-burned-out-forest-hurt-or-help
Matthies, B. D., Jacobsen, J. B., Knoke, T., Paul, C., & Valsta, L. (2019). Utilising portfolio theory in environmental research – new perspectives and considerations. Journal of Environmental Management, 231, 926–939. https://doi.org/10.1016/j.jenvman.2018.10.049
Rea, A. W., & Munns, W. R. (2017). The value of nature: Economic, intrinsic, or both? Integrated Environmental Assessment and Management, 13(5), 953–955. https://doi.org/10.1002/ieam.1924
Sandler, R. (2012). Intrinsic Value, Ecology, and Conservation | Learn Science at Scitable. Nature.com. https://www.nature.com/scitable/knowledge/library/intrinsic-value-ecology-and-conservation-25815400/
Markowitz, H. (1952). Portfolio selection. The Journal of Finance
Wiki Report #7
Source
https://www.climatesolutions.org/article/2021-01/why-cap-and-invest-one-strategy-carbon-reduction
Problem
Washington’s enacted the Climate Commitment Act, which introduces a cap-and-invest framework designed to mitigate greenhouse gas emissions. This initiative involves setting a limit on emissions and reallocating revenue generated from auctions into local projects aimed at environmental enhancement. A significant challenge associated with this act is achieving balance between the economic concequences, environmental objectives, and the need to address pollution in communities that are already facing disproportionate burdens.
Summary
This is an argumentative article written by Vlad Gutman-Britten debating the use of the Cap-and-invest model as an effective strategy to reduce carbon emissions. This model aims to limit emissions while using auction revenue generated through the sale of allowance permits, to invest in projects that encourage carbon reductions and promotes a greener environment. Gutman-Britten discusses the financial incentives, carbon pricing, and the global alignment of this idea that will help effectively manage the climate crisis. This strategy also allows businesses to meet compliance targets at lower costs by incorporating innovation towards their path towards a sustainable environment. On another hand, the article also discusses the challenges of adopting this strategy such as setting a fair emissions cap and ensuring that the profits are equally distributed and are efficiently re-invested in the right projects.
Economic concepts
Incentive Based Regulations: Incentive based regulations are environmental policy tools that are used to help encourage businesses and individuals alike to reduce pollution or adopt green practices by using financial based incentives rather than direct mandates. These regulations can include things like subsidies, tax credits, and tradable permits, all of which make environmentally beneficial actions appear financially smart. The overall goal of these tools is to align the public’s and corporations' economic motivations with the environmental objectives of the area by lowering the cost to comply or offering rewards for hitting targets.
Cap-and-Trade: Cap and trade models are market oriented environmental policies that are designed to reduce the overall greenhouse gas emissions by setting an upper limit or “cap” on the total amount allowed within a region (or industry). By using this tool the government can issue a fixed number of permits or allowances that each represent a right to emit a specific amount of pollution. With the permit system companies can buy, sell and trade these permits in the market place and create financial incentives for reducing emissions. Over time the cap is supposed to gradually lower which will push companies to either innovate and stay ahead of their competition or be forced to buy more permits from companies who don't need them. Overall this tool creates a flexible option for businesses to pick and choose how they hope to reach the mandatory solution, while also offering financial incentive to innovate greener technology or processes.
Application of concepts
Incentive based regulations:
This article demonstrates incentive based regulations through the adding of financial mechanisms to drive emissions down for the vulnerable communities. Carbon fees are a form of incentive based regulation as they impose a cost on each unit of greenhouse gas emissions, thus encouraging companies to reduce emissions in order to save overall. This method provides the business with flexibility to choose how they will cut these emissions. In the article they highlight the fact that revenue from carbon fees can be strategically allocated to the climate resilience projects and other public services like transit. By directing these funds to the marginalized communities we would be able to address environmental injustices, inclusing environmental racism, where these marginalized communities bear the brunt of pollution effects. The article does however note that although the incentive based regulations overall reduce emissions, they may not always successfully address the concentrated pollution in some areas. Overall in this article the incentive based regulations are proposed as a way to fight climate change while also addressing current social issues.
Cap and trade:
The cap and trade model fits into this article especially as it discusses policy tools such as Washington's climate commitment act, aiming to cap and reduce greenhouse gas emissions across the state. This approach would set a firm, gradually declining limit on total emissions produced. This helps to ensure that emissions are reduced over time steadily in order to hit targets. The article highlights that cap and trade methods set an absolute limit to pollution, therefore helping to create a clearer path to achieving the necessary reductions. The article also touches on the importance of designing a cap and trade system with community protections. They also note that revenues generated by allowing the trading can in turn fund the local community projects outlined like transit improvements, electrification, and pollution mitigation for the communities.
Conclusion
Washington’s Climate Commitment Act serves as a compelling case of incentive-based regulation through its cap-and-invest framework. This approach can balance cost-effectiveness while prioritizing environmental justice and addressing economic impacts. By putting resources back into communities, the act aims to ensure that the benefits of environmental progress are directed toward those who are most affected by pollution.
References
Center for Climate and Energy Solutions. (2024, May 1). Cap and Trade Basics - Center for Climate and Energy Solutions. https://www.c2es.org/content/cap-and-trade-basics/#:~:text=In%20a%20cap%2Dand%2Dtrade,market%20establishes%20an%20emissions%20price
Director, V. G.-B. former W. (2021, January 20). Why Cap-and-invest? One strategy for Carbon Reduction. Climate Solutions. https://www.climatesolutions.org/article/2021-01/why-cap-and-invest-one-strategy-carbon-reduction
V. Berg, S. (n.d.). Infrastructure regulation and market reform section II. incentive regulation introduction to the fundamentals of incentive regulation. https://regulationbodyofknowledge.org/wp-content/uploads/2013/03/Berg_Introduction_to_the.pdf
Wiki Report #8
Source
Problem
In 2023, there was significant decline in M&A activity due to a rise in interest rates in Canada. The Bank of Canada pushed interest rates to tackle the inflation pressures in the economy, backfiring on M&A transactions. Additionally, the downfall of the Silicon Valley Bank (SVB) in March 2023 had an enormous impact on the tech sector. This market volatility led to a decreased investor confidence, while also being impacted by other macroeconomic conditions.
Summary
As a result of the changes in 2023, the government has initiated certain policies and tax credits to encourage the tech sector. They introduced clean tech investment tax credits, tech talent strategies, and immigration measures to foster growth and address labor shortages in the sector by bringing in skilled professionals to fill the labor gaps. Consequently, in 2024, due to BOC's interest rate cuts, uninvested capital from private equity firms, and growing influence of AI are expected to transform the tech sector. Small-to-mid cap started rejoining the market and buyers with strong financials are looking to lead acquisitions. Escalating prices were forcing sellers to work with lower valuations or other deals like minority investments. However, they were encouraged to acknowledge the regulatory risks that come from the increased use of AI.
Economic concepts
Internalizing Externalities
Externalities arise when the net costs or benefits of an action are not fully included in the price at which it is traded, and thus the market doesn’t function optimally. Negative externalities are also social costs that don’t directly come from the makers or consumers involved in a transaction. A case in point is fossil fuel burning, which generates greenhouse gas emissions that accelerate climate change and undermine public health. But even so, the market price of fossil fuels usually doesn’t include the larger social costs of their use. This can be remedied by governments enacting regulations on these ‘hidden’ costs so that private cost converges on social. The way to do that is through the introduction of a carbon emissions tax that increases the prices for polluting activities so that they better reflect their social costs.
Dynamic Efficiency
Dynamic efficiency is a very useful term that emphasizes the importance of the long-term use of resources to make investments now, paving the way for future innovation and economic development. Instead of static efficiency, which is primarily focused on the best use of resources at any given time, dynamic efficiency thinks about future consequences, such as technology developments and natural resource sustainability. The clean technology industry is living proof of fluid efficiency. We can’t only invest in renewable energy technologies now, but we can lay the foundations of a future economy less dependent on fossil fuels. Attracting the best-educated workers and entrepreneurs, this approach encourages innovation in technologies that are key to both growth and sustainability.
Dynamic efficiency emphasizes the necessity for forward-thinking policies that prioritize innovation, infrastructure development, and workforce capabilities. Without these investments, economies risk becoming stagnated and continue to rely on unsustainable practices. On the contrary, by supporting the advancement of clean technology and addressing structural challenges within the labour market, Canada positions itself to more effectively confront both present and future environmental and economic challenges.
Application of concepts
Dynamic Efficiency:
The concept of dynamic efficiency can be seen in Canada's tech M&A market as outlined in the article, this is shown by the government initiatives like clean tech tax incentives and tech talent strategy. This shows dynamic efficiency by addressing systemic shortcomings in environmental sustainability and labour supply, while also helping future focused investments. These measures ensure that resources are being properly allocated today and in the future to allow innovation in the tech sector in the future. The push towards clean tech investments aligns with dynamic efficiency because it targets the development of renewable energy and sustainable technologies, both of which are critical for long term environmental and economic success of the planet. The focus on attracting specialized talent through immigration reforms also shows an effort to keep the sector's ability to continue innovation. This forward thinking resource allocation supports adaptability and sustained productivity, these are both markers of dynamic efficiency.
Internalizing Externalities:
This article shows internalizing externalities as the government's clean tech initiatives, like the clean tech investment tax credit demonstrate the effort towards internalizing the environmental externalities associated with carbon emissions and the unsustainable energy use exhibited across the country. By providing these financial incentives for investment in renewable energy and clean technology these policies shift the burden of environmental costs back to the ones who participate in the market, which in turn encourages businesses to adopt more sustainable practices. The tech talent strategy is looking to address the labour shortages externality which is seen in specialized sectors like AI by incentivizing the immigration of highly skilled workers. This policy benefits the tech firms and the overall economy by reducing the current inefficiencies being caused by under-utilized resources.
Conclusion
While 2023 was a challenging for Canadian M&A in tech, government initiatives and the emerging role of AI guided a path for recovery. Looking forward to 2024, interest rate cuts, renewed market activity, and increased talent acquisition holds a strong future for tech. With evolving regulations and AI applications, investors are encouraged to act strategically when capitalizing on opportunities and mitigating risks.
References
LeBlanc-Lapointe, B. (2024, January). Technology takes centre stage in Canada dealmaking in 2024. Global law firm | Norton Rose Fulbright. https://www.nortonrosefulbright.com/en/knowledge/publications/4186ab3d/technologytakes-centre-stage-in-canada-dealmaking-in-2024
Theis, T. (2022). Sustainability: A Comprehensive Foundation. Full text of “Sustainability: A comprehensive foundation.” https://archive.org/stream/cnx-org-col11325/sustainability-a-comprehensive-foundation_djvu.txt