Environmental Economics: Theory and Policy in Equilibrium ppt

Integrated approaches to environmental policy such as integrated waste agement in general and policies for waste electrical and electronic equipment in man-particular consider “waste” as

Springer Texts in Business and Economics

For further volumes:

http://www.springer.com/series/10099

Hans Wiesmeth

Environmental Economics

Theory and Policy in Equilibrium

With Contributions by Judith Marquardt

ISBN 978-3-642-24513-8 e-ISBN 978-3-642-24514-5

DOI 10.1007/978-3-642-24514-5

Springer Heidelberg Dordrecht London New York

Library of Congress Control Number: 2011940769

pringer-Verlag Berlin Heidelberg 201

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Printed on acid-free paper

Faculty of Business and Economics

Chair of Economics, esp Allocation

Theory

01062 Dresden

Germany

hans.wiesmeth@tu-dresden.de

Climate change is one of the cross-border environmental issues which has

sub-stantially gained importance and public attention over the last decade From a

theo-retical point of view, tackling this issue amounts to solving the allocation problems

for a global environmental commodity As long as there are no straightforward andfunctioning “global” allocation mechanisms, this will remain a challenge for in-ternational environmental policy The text addresses this issue in various chaptersand sections, which each have a different focus Of course, international efforts to

curb greenhouse gas emissions, the various cap and trade policies, for example, are

included in this analysis together with critical assessments

Overfishing has been on the agenda of national and international organizations for decades However, the increasing globalization accompanied by technological

innovations and rising demand seems to exacerbate the alarmingly poor state ofthe world’s marine stocks As is the case for climate change, there is no promisingmultinational policy on the horizon to date The text therefore retains this issuefrom the former book with some additional information and analysis related to theinternational context

Integrated approaches to environmental policy such as integrated waste agement in general and policies for waste electrical and electronic equipment in

man-particular consider “waste” as part of the allocation problems Therefore, the three

“R”s, reducing waste, reusing or recycling discarded commodities, have to be sonably implemented in a practical context This requires a holistic approach, inte-

rea-grating appropriate signals from all stages of a product’s life span, including design

and the post-consumption phase Extended producer responsibility is meant to vide incentives for a design for environment, and is introduced into the text together

pro-with integrated waste management and policies for waste electrical and electronicequipment

v

Of course, the monograph presents and analyzes the standard theoretical tools

which are required for environmental economics, although resource economics is

not included in the text, beyond the issue of overfishing Classical instruments of

environmental policy are also discussed, always with a link to theory.

It is, generally speaking, one of the characteristics of this monograph to oughly analyze practical environmental issues with theoretical tools which are of-

thor-ten taken from equilibrium analysis, although in various situations, especially in

an international context, the market mechanism has to be replaced by some otherallocation mechanism – negotiations, for example These two hallmarks then jus-tify the title of the monograph: “Environmental Economics – Theory and Policy inEquilibrium”, and the text was written with this concept in mind

This textbook is suitable for undergraduate and graduate courses on theoretical

and applied environmental economics The material in Part II and Part IV is,

how-ever, more demanding from a formal point of view, and addresses readers, who arefamiliar with microeconomics on at least an intermediate level The various casesincluded in the text provide sufficient material for discussions in class

This textbook owes a great deal to many people Undergraduate and graduate

students, and research associates at Dresden University of Technology, Hanoi versity of Science and International School of Economics at Tbilisi State University

Uni-have played an important part in the development and further development of this

text I am indebted to my colleagues Bernd Bilitewski from Dresden University

of Technology and Martin Wittmaier from Bremen University of Applied Sciences,

who introduced me to the exciting world of waste management and drew my terest to many policy issues in this area The editors at Springer, Barbara Fess andMarion Kreisel, were quite helpful in providing technical assistance Finally, I amvery grateful to my former colleague, Judith Marquardt, who, as native speaker,proofread and provided further helpful advice regarding international aspects

in-Dresden,

1 Introduction 1

1.1 Ecology and Economy: Unequal Partners? 1

1.1.1 Environmental Economics 3

1.1.2 Why is Theory Needed for Environmental Policy? 4

1.2 Survey of the Book 5

References 9

Part I The Environmental Movement 2 Differing Views on the Environment 13

2.1 The Europeans and the Environment 13

2.1.1 Environmental Awareness in Europe 14

2.1.2 Conclusions for Environmental Economics 15

2.2 The Environmental Movement in the US 17

2.3 The Developing World and the Environment 20

2.3.1 China and the Environment 20

2.3.2 India and the Environment 22

2.4 Attitudes Towards the Environment: A Summary 23

References 24

3 The International Dimension of the Environment 27

3.1 International Environmental Issues 27

3.1.1 Global Environmental Commodities 27

3.1.2 Consequences of Globalization 29

3.1.3 The Environment and International Trade 30

3.2 International Conferences and Environmental Agreements 31

3.2.1 The United Nations Conference on Environment and Development (UNCED) 31

3.2.2 The United Nations Framework Convention on Climate Change (UNFCCC) 36

3.2.3 The Kyoto Protocol 37

vii

viii Contents

3.2.4 Copenhagen, Cancun, Durban and Rio? 39

References 41

Part II Theoretical Environmental Economics 4 Basics of Environmental Economics 45

4.1 Fundamental Concepts 45

4.1.1 Environmental Awareness and Perceived Scarcity 45

4.1.2 Environmental Commodities and Allocation Problems 47

4.2 Efficiency as a Normative Criterion for Environmental Economics 48 4.2.1 Economic Efficiency and the Environment: Theory 49

4.2.2 Economic Efficiency and the Environment: Applications 50

References 52

5 Allocation Problems in a Market Economy 53

5.1 Efficient Equilibrium Allocations 53

5.1.1 The Model Economy 53

5.1.2 Market Equilibrium 56

5.2 Environmental Effects in a Market Economy 59

5.2.1 The Concept of an External Effect 59

5.2.2 Analysis of an Externality 61

5.2.3 Market Equilibrium with External Effects 63

5.3 Public Commodities in Environmental Economics 66

5.3.1 The Prisoners’ Dilemma in an Environmental Context 67

5.3.2 The Prisoners’ Dilemma and the Kyoto Protocol 70

5.3.3 The Tragedy of the Commons 74

References 75

6 The Internalization of External Effects 77

6.1 External Effects and Missing Markets 77

6.1.1 Supplementing the Market System 79

6.2 The Pigou Tax 83

6.3 Firm-Specific Prices for an Environmental Commodity 87

6.4 Tradeable Emission Certificates 89

6.5 Pollution Rights 91

6.6 The Coase Theorem 98

References 101

7 Public Goods in Environmental Economics 103

7.1 The Lindahl Mechanism 103

7.1.1 The Concept of a Lindahl Equilibrium 103

7.1.2 Lindahl Equilibrium and Incentive Compatibility 106

7.2 Core Equivalence in a Public Goods Economy 108

7.2.1 The Core of an Economy with a Public Good 108

7.2.2 The Cost-Share Equilibrium 111

7.2.3 Core Equivalence and Cost-Share Equilibria 114

Contents ix

7.3 Implications for the Kyoto Protocol 117

References 122

Part III Environmental Policy 8 From Theory to Policy: Information Deficits 127

8.1 Informational Requirements Regarding the Structure of the Markets 127 8.1.1 The Competition-Price Mechanism 129

8.2 Information Deficits in International Environmental Policy 131

8.3 Information Deficits Regarding Hazardous Materials and Processes 132 8.4 Consequences for Environmental Policy 134

References 136

9 Command-and-Control Policy 139

9.1 Environmental Standards and Framework Conditions 139

9.1.1 Standards in Economic Systems 140

9.1.2 Ecological Efficiency of Standards: Examples 141

9.1.3 Framework Conditions, Standards and the Private Finance Initiative 142

9.2 The Refillables Quota Issue 143

9.2.1 Facts and Developments Regarding Refillable Packaging 144

9.2.2 The Refillables Quota Issue and the German Packaging Ordinance 147

9.3 Economic Feasibility of an Environmental Policy 149

9.3.1 The Concept of Economic Feasibility 149

9.3.2 Economic Feasibility: A Formal Analysis 150

9.3.3 Economic Feasibility in a Practical Context 156

References 157

10 Integrated Approaches to Environmental Policy 159

10.1 Extended Producer Responsibility (EPR) 159

10.1.1 General Aspects of Waste Electrical and Electronic Equipment (WEEE) 160

10.1.2 EPR Approach to WEEE in Germany 163

10.1.3 EPR Approach to WEEE in Japan 165

10.2 Integrated Waste Management (IWM) 167

10.2.1 The Concept of IWM in Environmental Economics 168

10.2.2 The Implementation of IWM 169

10.2.3 IWM in Germany 173

10.3 Renewable Energy Sources 175

10.3.1 The German Renewable Energy Sources Act (EEG) 176

10.3.2 The EEG in Practice 177

10.4 Integrated Approaches: A Summary 179

References 180

x Contents

11 The Price-Standard Approach to Environmental Policy 183

11.1 Market-Oriented Environmental Policies 183

11.2 Pollution Tax 185

11.2.1 Relevant Features of the Pollution Tax 185

11.2.2 Cost Efficiency of the Pollution Tax 187

11.2.3 Cost Efficiency with Spatial Differentiation 189

11.3 Ecotaxes 191

11.3.1 Aspects of an Ecotax 191

11.3.2 Theoretical Considerations Regarding an Ecotax 192

11.3.3 The Ecological Tax Reform in Germany 193

11.4 Tradeable Emission Certificates 195

11.4.1 Relevant Features of Markets for Tradeable Certificates 195

11.4.2 Emission-Oriented and Immission-Oriented Trading Schemes 196

11.5 Experiences with Markets for Tradeable Certificates 199

11.5.1 The EU Emission Trading System (EU ETS) 199

11.5.2 A Critical Assessment of the EU ETS 202

11.5.3 The US Cap and Trade Policy 203

11.5.4 Cap and Trade Policies in Other Parts of the World 207

References 208

12 The Allocation of International Environmental Commodities 211

12.1 International Environmental Agreements 211

12.2 The Principal-Agent Problem in Environmental Policy 213

12.2.1 Stability and Efficient Mitigation Strategies 214

12.2.2 The Role of Adaptation Strategies 219

References 225

Part IV The Environment in the Globalized World 13 Trade and the Environment: The Legal Context 229

13.1 The Framework Conditions for International Trade 229

13.2 Environmental Aspects of the GATT and the WTO 231

13.3 Regional Trade Agreements 235

13.3.1 The Environmental Policy of the EU 235

13.3.2 The North American Free Trade Agreement (NAFTA) 237

13.4 Consequences for the Integration of Trade and the Environment 240

References 242

14 Overfishing 245

14.1 The State of Fishery Resources 245

14.2 Short-Run Supply of the Fisheries 247

14.2.1 Interdependence of Fisheries 248

14.2.2 Short-Run Supply and Fixed-Stock Equilibrium 250

14.3 Integration of Economical and Biological Aspects 254

14.3.1 A Biological Growth Process 254

Contents xi

14.3.2 The Bioeconomic Equilibrium 255

14.4 The Market Equilibrium 259

14.5 Conclusions from the Formal Analysis 262

14.5.1 An Analysis of Externalities in the Fishing Industry 263

14.5.2 Attempts to Internalize Externalities in Fisheries 264

14.5.3 Quota Management Systems 265

14.6 Fisheries Policies 268

14.6.1 Subsidies and Overcapacity in the Fishing Industry 268

14.6.2 Evaluating the Common Fisheries Policy of the EU 271

14.6.3 A Glance at the US Fisheries Policy 274

14.7 Overfishing: A Summary 277

References 278

15 Integration of Trade and the Environment 281

15.1 Bhagwati’s “Genuine Problems” 281

15.2 Trade and the Environment: A Formal Approach 283

15.2.1 The Model 283

15.2.2 Autarky Equilibrium 287

15.2.3 Free Trade Equilibrium 289

15.3 Trade and the Environment: The Formal Integration 292

15.3.1 From Autarky to Free Trade 292

15.3.2 Harmonizing Environmental Standards 293

15.4 Regulation 295

15.5 Stackelberg Equilibrium 297

15.6 Integrating Trade and the Environment: A Summary 300

References 300

Index 303

List of Figures

5.1 (Theory) Aggregate supply set without external effects 54

5.2 (Theory) Market equilibrium without external effects 58

5.3 (Theory) Market equilibrium with external effects – Example A 62

5.4 (Theory) Market equilibrium with external effects – Example B 62

6.1 (Theory) Marginal social cost of pollution – Example A 85

6.2 (Theory) Marginal social cost of pollution – Example B 86

6.3 (Theory) Property rights assigned to one sector – Example A 93

6.4 (Theory) Property rights assigned to one sector – Example B 96

7.1 (Theory) Core equivalence for cost-share equilibria 115

8.1 (Policy) The competition-price mechanism 129

9.1 (Economic Viability of Recycling) Case without recycling 151

9.2 (Economic Viability of Recycling) Case with recycling 153

11.1 (Policy) Offset system with several control points and emission sources 198

12.1 (Principal-Agent Approach) Raising environmental awareness 217

12.2 (Principal-Agent Approach) Effect of adaptation 223

12.3 (Principal-Agent Approach) Effect of adaptation (details) 224

14.1 (Fishery) Global trends in the state of world marine stocks 246

14.2 (Fishery) Reaction curves and fixed-stock equilibrium 250

14.3 (Fishery) Equilibrium output and the efficiency parameters 252

14.4 (Fishery) Sustainable catch for various levels of the resource stock 255

14.5 (Fishery) Bioeconomic equilibrium 256

14.6 (Fishery) Stability of the bioeconomic equilibrium 257

14.7 (Fishery) Efficiency parameters affecting the bioeconomic equilibrium 258

xiii

xiv List of Figures

14.8 (Fishery) Efficiency parameters affecting aggregate supply, case 1 25914.9 (Fishery) Efficiency parameters affecting aggregate supply, case 2 26014.10 (Fishery) Increasing market demand affecting equilibrium 26114.11 (Fishery) Efficiency parameters affecting equilibrium 26214.12 (Fishery) Optimal allocation of quota 26715.1 (Nash Equilibrium) Structure of a game – simultaneous decisions 28515.2 (Trade and Environment) Autarky equilibrium with internationalenvironmental effects 28815.3 (Trade and Environment) Free trade equilibrium with regional

environmental effects 29015.4 (Trade and Environment) Free trade equilibrium with internationalenvironmental effects 29115.5 (Harmonization) Free trade and regional environmental effects 29415.6 (Harmonization) Free trade and international environmental effects 29515.7 (Nash Equilibrium) Structure of a game – sequential decisions 29715.8 (Stackelberg Equilibrium) Autarky with international

environmental effects 29815.9 (Stackelberg Equilibrium) Free trade with international

environmental effects 299

Germany (1991-2009) 14710.1 (Waste Management) Packaging consumption in Germany

(1991-2006) 17411.1 (EU ETS) Carbon allowances for various member states of the EU 201

xv

APS Ambient Permit System

CAA US Clean Air Act

CAIR US Clean Air Interstate Rule

CCS Carbon Capture and Storage

CEE Central and Eastern Europe

CER Certified Emission Reduction

CFC Chlorofluorocarbon

CFP EU Common Fisheries Policy

COP Conference of the Parties

CO2 Carbon Dioxide

CPRS Australian Carbon Pollution Reduction Scheme

CTE Committee on Trade and Environment

DfE Design for Environment

DIW German Institute for Economic Research

DM Deutsche Mark

EAP European Community Environment Action Programme

EC European Commission

ECSC European Coal and Steel Community

EEC European Economic Community

EEG German Renewable Energy Sources Act

EEZ Exclusive Economic Zone

EFF European Fisheries Fund

ElektroG German Electrical and Electronic Equipment Act

EPA US Environmental Protection Agency

EPR Extended Producer Responsibility

EPS Emissions Permit System

ERU Emission Reduction Unit

EU European Union

EU ETS European Union Greenhouse Gas Emission Trading System

FCMA US Fishery Conservation and Management Act

FDA US Food and Drug Administration

xvii

xviii Acronyms

FIFG EU Financial Instrument for Fisheries Guidance

FRG Federal Republic of Germany

GATT General Agreement on Tariffs and Trade

GATS General Agreement on Trade in Services

GDP Gross Domestic Product

GDR German Democratic Republic

GIZ German Agency for International Cooperation

GNP Gross National Product

GTZ German Technical Cooperation Agency

GW Gigawatt

HARL Japanese Home Appliance Recycling Law

IARI Indian Agricultural Research Institute

IEA International Energy Agency

IMF International Monetary Fund

IPA EU Instrument for Pre-Accession Assistance

IPCC Intergovernmental Panel on Climate Change

IWM Integrated Waste Management

IUU Illegal, Unreported and Unregulated Fishing

kWh Kilowatthour

MEA Multilateral Environmental Agreement

MERC USAID Middle East Regional Cooperation Program

MRS Marginal Rate of Substitution

MRT Marginal Rate of Transformation

MSW Municipal Solid Waste

MWh Megawatthour

NAFTA North American Free Trade Agreement

NMFS US National Marine Fisheries Service

NOAA US National Oceanic and Atmospheric Administration

OECD Organization for Economic Cooperation and Development

PFI The Private Finance Initiative

PPP Public-Private Partnership

RAC EU Regional Advisory Council

RTA Regional Trade Agreement

SEA EU Single European Act

SO2 Sulfur Dioxide

TAC Fisheries: Total Allowable Catch

TRIPS Agreement on Trade-Related Aspects of Intellectual Property RightsUBA German Federal Environmental Agency

UNCED United Nations Conference on Environment and DevelopmentUNECE United Nations Economic Commission for Europe

UNEP United Nations Environment Programme

UNFCCC United Nations Framework Convention on Climate Change

US United States of America

USAID United States Agency for International Development

USDA US Department of Agriculture

Acronyms xix

WEEE Waste Electrical and Electronic Equipment

WTO World Trade Organization

WWF World Wildlife Fund

Chapter 1

Introduction

Abstract This introductory chapter raises first the seemingly delicate issue of

ad-dressing environmental issues with economic tools and instruments After all,

envi-ronmental degradations are to some extent the result of economic activities, and acontradiction between economy and ecology seems to be obvious Thereafter, the

role of economic theory is explained together with a deeper analysis of the librium approach to environmental economics The need for appropriate allocation mechanisms, both on a national and an international level, to tackle environmental problems, will be discussed before a survey reveals the structure of this monograph.

equi-1.1 Ecology and Economy: Unequal Partners?

An economic imperative in the form of a potential loss of international

competitive-ness with ensuing higher unemployment rates has often been cited by well-knownrepresentatives of the private sector to argue against the implementation of higher

environmental standards Conversely, rigorous environmentalists point to the creasing scarcity of environmental resources, which are of utmost importance for practically all economic activities Therefore, the protection of the environment has

in-to take absolute precedence over further economic progress

This apparent dichotomy between ecology and economy is, without doubt, of

substantial relevance for the further economic and social development of all parts

of the world Unfortunately, as the above statements make clear, ecology and omy are not independent of each other On the contrary, they are closely linked

econ-and intertwined This fact has been recognized econ-and clearly stated by the Brundtlecon-and Commission, formally the World Commission on Environment and Development,

which was established by the UN in 1983 in view of the increasing role of global

environmental issues The commission is named after its chairperson Gro Harlem Brundtland, a longtime Prime Minister of Norway In her foreword to the famous report of the commission, also called the Brundtland Report and published in 1987,

DOI 10.1007/978-3-642-24514-5_1,

© Springer-Verlag Berlin Heidelberg 2012

H Wi smeth, Environmental Economics: Theory and Policy in Equilibrium

Springer Texts in Business and Economics,

e

2 1 Introduction

Gro Harlem Brundtland points to this inseparable relationship between environmentand development:

Our Common Future

Report of the World Commission on Environment and Development

(excerpt from [1], Chairman’s Foreword)When the terms of reference of our Commission were originally being dis-cussed in 1982, there were those who wanted its considerations to be lim-ited to “environmental issues” only This would have been a grave mistake.The environment does not exist as a sphere separate from human actions,ambitions, and needs, and attempts to defend it in isolation from humanconcerns have given the very word “environment” a connotation of naivety

in some political circles The word “development” has also been narrowed bysome into a very limited focus, along the lines of “what poor nations should

do to become richer”, and thus again is automatically dismissed by many inthe international arena as being a concern of specialists, of those involved

in questions of “development assistance”

But the “environment” is where we all live; and “development” is what we all

do in attempting to improve our lot within that abode The two are rable Further, development issues must be seen as crucial by the politicalleaders who feel that their countries have reached a plateau towards whichother nations must strive Many of the development paths of the industri-alized nations are clearly unsustainable And the development decisions ofthese countries, because of their great economic and political power, willhave a profound effect upon the ability of all peoples to sustain humanprogress for generations to come

insepa-Later in this report, the commission introduced the concept of sustainable ment, which thereafter gained widespread acceptance and was introduced into the

develop-economic and environmental literature:

Our Common Future

Report of the World Commission on Environment and Development

(excerpt from [1], Ch 2)Sustainable development is development that meets the needs of the presentwithout compromising the ability of future generations to meet their ownneeds It contains within it two key concepts:

• the concept of ‘needs’, in particular the essential needs of the world’s

poor, to which overriding priority should be given; and

1.1 Ecology and Economy: Unequal Partners? 3

• the idea of limitations imposed by the state of technology and social

or-ganization on the environment’s ability to meet present and future needs.Thus the goals of economic and social development must be defined interms of sustainability in all countries – developed or developing, market-oriented or centrally planned Interpretations will vary, but must share certaingeneral features and must flow from a consensus on the basic concept ofsustainable development and on a broad strategic framework for achievingit

Therefore, ecology and economy are integrated and should not be torn apart It

re-mains true, of course, that what could be called environmental awareness is of

dif-ferent relevance in difdif-ferent countries Developing countries with high growth ratesseem to be less interested in environmental issues than industrialized countries On

the other hand, the ecological footprint of a citizen of an industrialized country

ex-ceeds that of a citizen of a developing country by far But then again, a richer societyhas the means to address pollution of the environment and, even more important, toprevent or reduce further pollution

What is then the role of environmental economics in this context? The answer to

this question will be explored in the following subsection

1.1.1 Environmental Economics

Once the intrinsic relationship between the economy and the environment is

ac-cepted, the role of environmental economics is (almost) straightforwardly mined by the concept of environmental commodities, which helps to “embed” en-

deter-vironmental issues into the economic framework The term “commodity” refers tothe fact that the environment with its multitude of characteristics affects the well-being of mankind directly and indirectly, similarly to “regular” commodities This

together with the perceived scarcity of many environmental commodities implies a consideration of these commodities in the allocation problems, the basic problems

of each economic system regarding what and how many units, how and for whom

to produce

From an economic point of view the ultimate goal of environmental economics

is then to attain an optimal solution of the allocation problems with

environmen-tal commodities taken into account In principle, this can be achieved by applying

appropriate allocation mechanisms The market mechanism, however, has to be mented in this context due to missing markets resulting from externalities.

aug-Nevertheless, the equilibrium approach to environmental economics provides the

tools to cope with most of these externalities, at least in a theoretical context Thus,

the theory of environmental economics consists to a great extent of framework ditions which allow an integration of the environmental commodities into the mar- ket mechanism to attain an optimal allocation with respect to all commodities In an

con-4 1 Introduction

international context, however, the market mechanism has to be replaced by other

allocation mechanisms, such as the core together with international negotiations.

Consequently, from a theoretical point of view, there seems to be no dichotomybetween ecology and economy In particular, there is no subordination of ecology

to economy Thus, the question arises, where does this dichotomy, which evidentlydoes exist, come from? More precisely, what are the reasons for this “gap” betweenenvironmental and economical issues?

In a practical context, informational deficits regarding optimal allocations quire the introduction of standards such as a maximum permissible concentration

re-of certain air pollutants To achieve these standards, which are, re-of course, mental standards, economic resources have to be deployed The fact that there are

environ-concurrent employment possibilities for these resources contributes then to the chotomy: more economic growth and higher environmental standards can becomefierce competitors for these resources

di-Given these informational deficits, which limit the direct application of cal environmental economics to practical problems, what is then the role of theory

theoreti-for environmental policy? The next subsection will briefly elaborate on this aspect.

1.1.2 Why is Theory Needed for Environmental Policy?

A quick survey of current environmental policies across the world reveals a colorfulmixture of environmental regulations, instruments and tools, and of negotiations,both on a national and an international level Direct links to theory in the form ofmarkets for emission certificates, for example, are scarcely visible

However, a thorough understanding of theory can help to structure and designenvironmental policies, which are needed to effectively reach a standard or a certainenvironmental goal Thus, environmental policy is about constructing, designing

and applying allocation mechanisms for special tasks To illustrate this important

point, a few examples shall be given:

helps to understand why it generally takes a long time to “motivate” a vast jority of consumers and/or producers to adopt environmentally friendly behavior,

ma-if there is no immediate and direct benefit “perceived” with such behavior ory recommends addressing each individual agent in such a case

a polluter Theory, however, demonstrates that a pollution tax, which is the

ap-plied form of a Pigou Tax, is the equilibrium price on an artificial market, which has to be established to internalize an external effect In general, consumers and

producers will have various options to react to this “new” market Not every ternative will be environmentally friendly, and a thorough “market analysis” isrequired to understand reaction strategies of individual agents

al-1.2 Survey of the Book 5

manage-ment or extended producer responsibility target environmanage-mental aspects in all

stages of the life cycle of particular commodities in order to reduce waste andpromote recycling It is easier to design such a policy if one understands that an

integrated approach is based on the reduction of waste, or rather the integration

of waste into the economic allocation problems

can be interpreted as an allocation mechanism for a global environmental

com-modity, the reduction of greenhouse gas emissions Again, familiarity with therelevant concepts from economic theory can help to identify certain negotiationstrategies to attain a desired outcome

These examples serve to indicate that many environmental policies do have ory content”, even if this may not be evident at first glance Thus, theory helps tounderstand the functioning of environmental policies, and knowledge of theory isrequired to design effective environmental policies

“the-As a conclusion to this section, ecology and economy, as well as theory andpolicy in environmental economics should be considered “equal” partners Theydepend on each other, they complement each other and they need each other

1.2 Survey of the Book

The following survey will help to understand the structure of this monograph andthe relations between the various parts and chapters

Part I: The Environmental Movement

The first part of the book is devoted to the environmental movement, if not

“rev-olution”, which has penetrated and conquered most industrialized countries and anumber of developing countries since the 1970s Nevertheless, there are differences

in the perception of the environment and environmental pollution, which are

ex-plored in Chapter 2 More precisely, differences regarding “attitudes towards the

environment” of citizens of the European Union, of the United States of America,

of China and of India provide some challenges for internationally coordinated

en-vironmental policies However, there are also similarities pointing in particular tothe persistence of certain environmental problems such as “pollution in towns andcities” Also, environmental issues seem less urgent, once citizens are asked to payfor cleaning up the environment

These differences in the perception of environmental issues gain particular

im-portance in the case of international environmental pollution Therefore, Chapter 3

6 1 Introduction

investigates global environmental commodities, addresses environmental effects of increasing globalization, and studies trade-related environmental issues The final section in this chapter then presents the international activities regarding sustainable development, which originated with the Brundtland Report in 1987 (cf Section 1.1),

and which culminated with the “United Nations Conference on Environment andDevelopment” (UNCED) in 1992 The “United Nations Framework Convention onClimate Change” (UNFCCC) is an offspring of the “Earth Summit” together withthe “Kyoto Protocol” This section also highlights the various international negotia-tions with the goal of establishing a second commitment period for the reduction ofgreenhouse gas emissions in the context of the Kyoto Protocol

The results of these chapters are important as they point to some observationswhich are of relevance for theory and policy in environmental economics In thissense, this first part of the book prepares the ground for a more detailed analysislater

Part II: Theoretical Environmental Economics

The second part of the book provides the theoretical framework, the tools and

in-struments of environmental economics The basics include the concepts of mental commodities, allocation problems, and economic efficiency, which are of relevance in any economic system Among the issues addressed in Chapter 4, envi- ronmental awareness in its relation to the state of the economy plays a special role.

environ-Again, this will be of importance in an international framework

Chapter 5 introduces a simple model of a market economy with the market anism leading to an efficient market equilibrium Thereafter, environmental or ex- ternal effects lead to inefficient equilibrium allocations, sometimes referred to as

mech-“market failure” Public commodities, which are also relevant in environmental

eco-nomics, are characterized by mutual externalities Without interference, the

alloca-tion of public commodities is affected by the Prisoners’ Dilemma and the Tragedy

of the Commons These are mechanisms which are responsible for a variety of

envi-ronmental problems, including difficult “climate change negotiations”

Chapter 6 addresses the key issue of an internalization of the environmental

ef-fects First considerations point to “missing markets” as a reason for externalities.Therefore, the market system has to be “completed” in an appropriate way An im-

mediate procedure is based on certificates or emission certificates These are scarce

artificial commodities, which are linked to environmental commodities

Alterna-tively, the Pigou Tax can be interpreted as the equilibrium price on such an initially

missing market Another interpretation of the Pigou Tax refers to “closing the gap”between marginal private costs and marginal social costs of an economic activity.Unfortunately, considering this equilibrium price as a “tax” implies a connotationwhich is negative in some countries, although it is not a tax in the sense of a regular

fiscal tax.

Instead of introducing a Pigou Tax, personal prices for an environmental

com-modity can also be applied to internalize the external effect This points to missing

1.2 Survey of the Book 7

property rights as a source for environmental effects, an issue which is related to the Coase Theorem as an alternative approach to internalizing externalities This

approach, which reduces the influence of the government in contrast to the Pigou

Tax, is briefly discussed in the context of pollution rights These “rights”, which

al-low the emission of a certain pollutant, are based on a prior assignment of propertyrights regarding an environmental commodity

Chapter 7 considers the allocation of public commodities from a theoretical point

of view The Lindahl mechanism is characterized by incentive-compatibility lems, and is, in general, not suitable for practical applications The core of the econ-

prob-omy, constituting an alternative allocation mechanism, is closely related to the

con-cept of a cost-share equilibrium in the sense of core equivalence Therefore,

cer-tain cost sharing agreements, such as the Kyoto Protocol in the context of reducing

greenhouse gas emissions, are likely characterized by some stability property, which

renders them useful and interesting for practical purposes

This application-oriented analysis of the Kyoto Protocol prepares the ground for

environmental policy in the third part of the book.

Part III: Environmental Policy

Applied environmental economics has to deal with information deficits, which

pre-vent an immediate implementation of the tools and instruments discussed and uated in Part II These information deficits, analyzed in Chapter 8, refer in particular

eval-to details of market structures, insufficient knowledge on hazardous substances and processes, and various aspects of international environmental policy One of the consequences of this incomplete information is the ubiquitous presence of environ- mental standards, which replace economic efficiency in the environmental context.

After these standards have been introduced, they have to be achieved with propriate regulations All this requires government institutions which contribute to-

ap-wards the establishment of an official environmental policy with its own budgetary needs and its own policy goals One of the reasons for the dichotomy observed be-

tween ecology and economy is this development based on information deficits

In order to achieve these standards, command-and-control policies play a

dom-inant role in applied environmental economics (cf Chapter 9) Problems with this

kind of policy are mainly associated with incentive-compatibility issues, leaving

un-expected “loopholes” for households or companies The “refillables quota issue” inGermany provides a good example in this context Moreover, again as a result of theinformation deficits mentioned above, command-and-control policies have to rely

upon the application of the best available technique, for example for the reduction

of the emission of pollutants, or the economic reasonableness of certain activities, for example recycling activities Section 9.3 investigates economically reasonable

activities in the environmental context

Chapter 10 addresses integrated approaches to environmental policy They

con-stitute holistic policies which integrate signals along the product chain into

environ-mental policy Prominent examples are given by extended producer responsibility,

8 1 Introduction

regulations for waste electrical and electronic equipment (WEEE), and integrated waste management Concrete examples of these policy areas from various countries

are analyzed with respect to their incentive structure

The German approach to integrated waste management provides a good example for regulatory framework conditions, which open investment opportunities for pri- vate business The promotion of renewable energy sources in Germany constitutes

another interesting example in this context

Market-oriented environmental policies are considered in Chapter 11 These

policies make more use of the information which is available in the economy in

a decentralized way Environmental caps, pollution taxes and markets for emission certificates are the relevant examples.

The discussion of the pollution tax in Section 11.2 shows that tally friendly avoidance strategies are required for a well-functioning pollution tax,

environmen-pointing to an important difference between an environmental tax and a fiscal tax

This aspect is considered in more detail in the discussion of the ecotax in

Sec-tion 11.3

Thereafter, the analysis of markets for emission certificates is followed by an investigation of various practical examples, among them the EU Emission Trading System (EU ETS), and the US Cap and Trade Policy, which has not yet been imple-

mented The chapter concludes with examples of cap and trade policies from otherparts of the world

The final chapter of Part III, Chapter 12, addresses the allocation of international

environmental commodities, in particular reductions of greenhouse gas emissions,from a practical and theoretical point of view The chapter first discusses briefly

some international environmental agreements, thereafter the principal-agent lem is applied to the context of an international environmental commodity A theo- retical investigation illustrates stable and efficient mitigation strategies for countries

prob-differing with respect to environmental awareness and costs for the provision ofthe public commodity These considerations shed some light on the question whichstrategy yields the highest “return” regarding the public commodity The current cli-

mate change negotiations, which can be interpreted as an allocation mechanism for

a global public commodity, are immediately related to this analysis

Part IV: The Environment in the Globalized World

The last part of the book provides further insights into challenges of tional environmental economics, especially international environmental policy, in

interna-the globalized world Chapter 13 directs interna-the reader’s attention first to interna-the existinglegal context, which is of relevance for international environmental issues Beyondcross-border environmental problems, many regional environmental issues acquire

an international dimension through international trade Therefore, environmentalaspects of the framework conditions for international trade are mainly addressed in

this chapter Besides the World Trade Organization it includes an analysis of gional trade agreements such as the European Union and the North American Free

re-References 9

Trade Agreement (NAFTA) The key question in this context refers to the extent of

an integration of trade and the environment in these agreements.

Overfishing has been on the agenda of national and international organizations

for at least 30 years, without much success so far Chapter 14 first develops a modelwhich integrates the biological system with the economic system and reveals vari-ous externalities The theoretical analysis is complemented with a study of various

policy alternatives and a review of fisheries policies, in particular the Common ery Policy of the EU and the US Fisheries Policy The key issue of this chapter refers

Fish-to the influence of globalization on overfishing and the resulting policy alternatives

The final chapter reconsiders the integration of trade and the environment and addresses first the issues of unfair trade with different environmental standards af- fecting trade, the race towards the bottom with competitive pressure through trade

on environmental standards, ethical preferences leading to trade restrictions, and welfare losses associated with environmental degradation through increasing trade.

With the exemption of ethical preferences, these issues are investigated in a oretical model which provides some insight into the interaction of trade and theenvironment

the-The analysis also extends to questions of harmonizing environmental standards and leadership in environmental issues, and it discusses various policy measures in the sense of a principal-agent approach adapted to this context.

Part I

The Environmental Movement

Environmental degradation of all kinds can be observed around the globe and

re-ceives differing degrees of attention The ecological revolution, which has

con-quered the industrialized world since the 1970s, has not yet had much of an effect on

many parts of the developing world On the contrary, globalization is often blamed

for placing additional burdens on these countries in the form of polluting industries,urbanization and rapidly increasing quantities of often hazardous waste

This first part of this monograph will therefore document the state of the ment in various parts of the world: the EU, the USA, China and India The factorsand the circumstances leading to environmental pollution will be investigated, and

environ-the perception of environmental problems or environ-the attitudes towards environ-the environment

will be addressed Clearly, besides the environmental degradation itself, the waythis pollution is perceived in a particular country is an important factor influencingany environmental policy In particular, international environmental policies, such

as the efforts to reduce global greenhouse gas emissions, are challenged, amongother things, with these differing perceptions

Nevertheless, the growing international dimension of a number of environmental

issues has raised environmental awareness since the early 1990s In particular, with

the United Nations Conference on Environment and Development (UNCED) in Rio

de Janeiro in 1992 a process was started, which – thanks to the Kyoto Protocol

and the current international negotiations on a global reduction of greenhouse gasemissions – is still gaining increasing worldwide importance

Chapter 2

Differing Views on the Environment

Abstract Environmental degradations occurred and are occurring everywhere, though they tend to vary with the economic system, the state of the economy, thegeographic area, the climatic conditions, and the growth of the population – to cite

al-just a few relevant factors Moreover, the perception of environmental problems and the attitude towards the environment seem to depend critically on the state of

the economy with consequences for tackling cross-border environmental issues Inthis context, this chapter attempts to “take stock” of the environmental situation invarious parts of the developed and the developing world The survey includes theactions, or rather the reactions, regarding a more or less rigorous environmentalregulation In view of differing attitudes towards the environment, the challenges

arising from a growing number of global environmental problems still have to be

mastered

2.1 The Europeans and the Environment

After the ecological revolution had reached the industrialized countries in the 1960s and the early 1970s, the European Community enacted the First Community En- vironment Action Programme (1st EAP) in 1973 In the period till 2012, the 6th

EAP provides the framework for environmental policy-making in the EU The four

priority areas identified are climate change, nature and biodiversity, environment and health, natural resources and waste According to the preamble, the 6th EAP

“should promote the process of integration of environmental concerns into all munity policies and activities in order to reduce the pressures on the environ- ment from various sources” ([3], preamble, paragraph 13) These priority areas were

Com-already relevant for the 5th EAP (1993-2000), which, with the title “Towards tainability”, focused on longer term objectives and on a more global approach – incomparison to the earlier EAPs

Sus-To what extent were the citizens of the European Union, or rather the former European Community, concerned about environmental issues? This will be briefly

, DOI 10.1007/978-3-642-24514-5_2,

© Springer-Verlag Berlin Heidelberg 2012

H Wi smeth, Environmental Economics: Theory and Policy in Equilibrium

Springer Texts in Business and Economics,

13 e

14 2 Differing Views on the Environment

analyzed in the following subsection by means of the Eurobarometer, which has

been employed by the European Commission to monitor the “evolution of publicopinion” in the member states since 1973 (cf [4])

2.1.1 Environmental Awareness in Europe

The Environment Directorate-General of the EU commissions public opinion veys to measure the attitudes and the behavior of Europeans towards the environ-

sur-ment The surveys address the general attitude towards the environment, the sonal relationship with the environment, opinions on environment policies and ques- tions regarding information on the environment.1

per-One key question usually refers to the “ranking” of the concept of environment

in Europeans’ minds: what are the first associations they tend to make with the word

“environment” and which environmental issues worry them the most The answersgiven vary, of course, over time, but “protecting nature”, “the state of the environ-ment our children will inherit” and “pollution in towns and cities” have always beenamong the priorities “Climate change”, which has only been offered as an alterna-tive in recent years, declined surprisingly from 19% in 2007 to only 13% in 2011.People seem to be losing interest in this issue, for whatever reason “Man-made dis-asters (oil spills and industrial accidents)” increased only slightly from 8% in 2007

to 9% in 2011, despite of the Deepwater Horizon Catastrophe in April 2010 and theFukushima Nuclear Catastrophe in March 2011.2However, if people are allowed topick the five main environmental issues that they are worried about, then “man-madedisasters” rank top

According to the latest Eurobarometer survey EB75.2 in 2011 (cf the Summaryand the Factsheet in [5]), the top three priorities (in percentages) for the citizens toprotect the environment are (max 3 answers):

Sort waste so that it can be recycled: 2011: 59%, 2007: 55%

Reduce your home energy consumption

(lighting, heating, household appliances): 2011: 48%, 2007: 47%

Use public transport as much as possible

instead of using your own car: 2011: 37%, 2007: 38%

Thus, only the issue of “sorting waste” gained increasing attention between 2007and 2011 Of interest are also the answers (in percentages) to the following twoquestions, which touch on the issue of the “willingness to pay” for the environment:

1 Cf [6], the website for the “Special Eurobarometer”, which also covers the “attitudes towards the environment”.

2 The fieldwork for this latest survey was carried out between April 13 and May 8, 2011, thus after the Fukushima Nuclear Catastrophe (cf [5]).

2.1 The Europeans and the Environment 15

How important is protecting the environment

to you personally?

Percentage of answers for “totally important”: 2011: 95%, 2007: 96%Are you wiling to buy environmentally friendly

products even if they cost a little bit more?

Percentage of answers for “totally agree”: 2011: 72%, 2007: 75%The answers to the question regarding the “most effective ways of tackling environ-mental problems” prioritize the “introduction of heavier fines for offenders”, which

is with an acceptance rate of 36% in 2011 far ahead of “providing more information

on environmental issues”, which gained only 26% Only 15% of those asked favor

“introducing or increasing taxation on environmentally damaging activities”.91% of those interviewed “agree totally” that “the big polluters (corporations andindustry) should be mainly responsible for protecting the environment”, whereasonly 56% consider “protecting the environment” as a “very important” personalduty, and for an additional 36% it constitutes a “fairly important” personal duty.Moreover, 69% of the citizens believe that they themselves are not doing enough

“to use natural resources efficiently”

And, finally, “economic factors” (to the extent of 85%), the “state of the ment” (to the extent of 77%) and “social factors” (to the extent of 75%) influence

environ-“quality of life” substantially

What does all these mean? What conclusions can be derived from these surveys?3What can one learn for “environmental economics”?

2.1.2 Conclusions for Environmental Economics

First of all, it is important to mention that “economic factors”, the “state of theenvironment” and “social factors” are dependent on each other Economic growthobviously affects the social situation Moreover, the environment can be further pol-luted through economic activities, or economic resources can be used to clean upthe environment or prevent further environmental pollution In many countries en-vironmental degradation and social factors such as poverty are strongly correlated.Thus, and this is a first lesson for “environmental economics”, the economical andthe ecological conditions should not be separated when investigating environmentalissues Given the existing, persistent dichotomy between ecology and economy, this

is not an easy thing to accomplish In fact, this dichotomy results from informationdeficits, which tend to increase the “gap” between economical and environmental is-

3Observe that answers to some of the questions in the Eurobarometer surveys are not only

pro-vided in aggregate form, but also for the individual member states of the EU This allows, in principle, an interesting analysis of the differences in attitudes among the citizens of the member states, which shall, however, not be further pursued in the context considered here (cf., for example, [5]).

16 2 Differing Views on the Environment

sues (cf the discussions in the introductory chapter (Section 1.1), but also in Part III,

in particular Subsection 9.1.1)

Some environmental concerns such as “protecting nature”, “the state of the ronment our children will inherit” and “pollution in towns and cities” have occupiedhigh ranks and even top ranks in the surveys for at least ten years This is, firstly, aclear indication that it is difficult to tackle some environmental problems success-fully and once and for all Of course, in the context of “environmental economics”this immediately entails the question, why is this the case? A hint for an answer isprovided by the fact that the three issues cited result from individual decisions andactivities So, it is in the hands of the economic agents to continue polluting theenvironment or to prevent future pollution, at least to a large extent It is not too dif-ficult to keep the streets clean, to not dump waste in the forests, to use one’s own carless, or to prevent water pollution Therefore, the question should be reformulated

envi-as follows: why do people disapprove of the pollution in towns and cities on the onehand, and contribute towards exactly this pollution on the other?

Man-made disasters, however, seem to have only a short-lived effect They areusually soon forgotten, till the next disaster starts to worry people Similarly, envi-ronmental issues which extend over some period of time rarely receive the attentionthey deserve and should receive if it is difficult to experience personally severe anddirect consequences This is, for example, true for “climate change”, especially, iflong and hard winters seem to contradict the forecast of “global warming”

The question regarding the “top three environmental priorities” reveal activities,which are comparatively easy to carry out (sorting waste for recycling purposes),

or they help to save money (reducing home energy consumption), or are difficult

to monitor on an individual level (using public transport) Therefore, it seems to beeasy to award them high priority The question regarding the “personal importance”

of the environment in combination with the “willingness to pay” for environmentallyfriendly products demonstrates the dilemma: when people are asked to contributepersonally towards the protection of the environment, they seem to lose interestand their enthusiasm wanes This is clearly also an aspect which is relevant for

“environmental economics”

A somewhat related situation can be observed with the answers to the questionregarding the “most effective ways of tackling environmental problems” The prior-itized answer of an “introduction of heavier fines for offenders” points again to “theothers” – the “polluters” should be penalized However, as soon as there is a slightchance that one might oneself be affected by an environmental tax, this instrumentsuddenly becomes much less interesting So, people tend to blame others for en-vironmental degradation and, therefore, consider policies with a potential effect ontheir own economic situation less appropriate

Finally, the fact that 91% “agree totally” that the big polluters should be mainlyresponsible for protecting the environment, and the fact that only 56% consider theprotection of the environment a “very personal” duty points again in the same direc-tion: “the others” are always more responsible for all issues related to environmen-tal problems than oneself This “attitude” is important and relevant for a number ofcases of environmental degradation

2.2 The Environmental Movement in the US 17

In summary, this brief analysis of the “attitudes of European citizens towards

the environment” helps to explain, among other things, the persistence of certain

environmental issues, such as the highly ranked “pollution of towns and cities” If

it is mainly the “others”, who are blamed for polluting the environment, then thisattitude should be changed It is one of the tasks of “environmental economics” toprovide appropriate incentives

The following section investigates environmental issues in the US Although vironmental awareness in the US is supposedly as high as in the EU, differences

en-in the perception of the environment and of environmental problems lead to

differ-ent attitudes towards the environmdiffer-ent These differences can hinder negotiations oncross-border environmental problems The current international negotiations on thereduction of greenhouse gas emissions demonstrate the different positions amongindustrialized countries and between industrialized and developing countries regard-ing this issue

2.2 The Environmental Movement in the US

On April 22, 1970, the US celebrated Earth Day This is, probably, the birthday

of the environmental movement in the US The following excerpt from an article published in the EPA Journal in 1988, provides some background information.

The Movement Took Off”

(excerpt from [16], EPA Journal July/August 1988)

When President Nixon and his staff

walked into the White House on

Jan-uary 20, 1969, we were totally

un-prepared for the tidal wave of public

opinion in favor of cleaning the

na-tion’s environment that was about to

engulf us If Hubert Humphrey had

become President, the result would

have been the same

During the 1968 presidential

cam-paign, neither the Nixon nor

Hum-phrey campaign gave more than

lip service to environmental issues

Rather, their thoughts focused on

such issues as Vietnam, prosperity,the rising crime rate, and inflation.Nixon made one radio speech onnatural resources and the quality ofthe environment, which seemed ad-equate to cover an issue that stirredlittle interest among the electorate

Yet only 17 months after the tion, on April 22, 1970, the countrycelebrated Earth Day, with a nationaloutpouring of concern for cleaning

elec-up the environment Politicians ofboth parties jumped on the issue So

4 John C Whitaker was Cabinet Secretary in the Nixon administration in 1969 and a member of the Domestic Council staff from 1969 to 1973 As a member of the Domestic Council, Mr Whitaker had responsibility for environmental and natural resources policies.

18 2 Differing Views on the Environment

many politicians were on the stump

on Earth Day that Congress was

forced to close down The oratory,

one of the wire services observed,

was “as thick as smog at rush hour”

A comparison of White House polls

(done by Opinion Research of

Prin-ceton, New Jersey) taken in May

1969, and just two years later in May

1971, showed that concern for the

environment had leaped to the

fore-front of our national psyche In May

1971, fully a quarter of the public

thought that protecting the

environ-ment was important, yet only 1

per-cent had thought so just two years

earlier In the Gallup polls, public

concern over air and water pollution

jumped from tenth place in the

mer of 1969 to fifth place in the

sum-mer of 1970, and was perceived as

more important than “race”, “crime”,

and “teenage” problems, but not as

important as the perennial poll

lead-ers, “peace” and the “pocketbook”

is-sues

In the White House, we pondered

this sudden surge of public concern

about cleaning up America and

pro-viding more open spaces for parks,

and a heightened awareness of the

necessity to dedicate more land for

wildlife habitat Why, we asked, after

it was so long delayed, was the

en-vironmentalist awakening so much

more advanced in the United States

than in other countries? What

moti-vated millions to so much activity so

long after publication of Rachel

Car-son’s Silent Spring in 1962? Manyfactors seem to have been involved.First, the environmental movementprobably bloomed at the time it didmainly because of affluence Ameri-cans have long been relatively muchbetter off than people of other na-tions, but nothing in all history com-pares even remotely to the prosper-ity we have enjoyed since the end

of World War II, and which becamevisibly evident by the mid-fifties Anaffluent economy yields things likethe 40-hour week, three-day week-ends, the two-week paid vacation,plus every kind of labor-saving gad-get imaginable to shorten the hoursthat used to be devoted to householdchores The combination of sparemoney and spare time created anambiance for the growth of causesthat absorb both money and time.Another product of affluence hasbeen the emergence of an “ac-tivist” upper middle class – college-educated, affluent, concerned, andyouthful for its financial circum-stances The nation has never hadanything like this “mass elite” before.Sophisticated, resourceful, politicallypotent, and dedicated to change, to

“involvement”, it formed the bone of the environmentalist move-ment in the United States

back-Other factors included the rise oftelevision and the opportunities itprovides for advocacy journalism

In July 1970, President Nixon submitted to the Congress the Environmental tection Agency Plan, and EPA was established on December 2, 1970 A variety of

Pro-laws regarding clean air, water and solid waste were enacted, ocean dumping wasrestricted, and standards for offshore oil drilling were tightened (cf [16] and the

discussion of the Clean Air Act in Subsection 9.1.2).

2.2 The Environmental Movement in the US 19

Similarly to the situation in the EU, there were some issues regarding the ingness to pay” for a cleaner environment Polls in the early 1970s showed that therewas a demand for a clean environment, but with government money Spending one’sown money was obviously considered to be something completely different In May

“will-1971, three quarters of the population were reported to pay small price increases forpollution control, but six out of ten opposed large price increases (cf again [16]).This attitude regarding the willingness to pay is obviously comparable to the sit-uation in the EU, although the aversion against taxes, in particular pollution taxes,seems to be higher in the US Has this situation changed fundamentally in recent

years? EPA certainly built upon the power it was granted by the Clean Air Act

(CAA) of 1970 Now EPA plans to, among other things, use the CAA to control

the emissions of coal power plants, after the cap and trade system could not be plemented in 2010 (cf Subsection 11.5.3) If these plans find support, the Tennessee Valley Authority, for example, will have to install state of the art pollution controls

im-in most of its coal-burnim-ing units resultim-ing im-in a significant reduction of NOxand SO2emissions

Nevertheless, many business groups oppose this kind of regulations, referring to

a likely increase in energy costs In a Pew Research/National Journal CongressionalConnection Poll, conducted June 10-13, 2010, a sizable share of 37% still voted forkeeping energy prices low, 56% for protecting the environment (the polling resultsmentioned in this section are taken from [12])

Most recent polls on environmental issues in the US refer, however, to climatechange and global warming, the really controversial issue in the US (cf again Sub-section 11.5.3) The polls reveal that US citizens are in principle ready to face thechallenges associated with climate change According to a Virginia CommonwealthLife Sciences Survey, conducted May 12-18, 2010, a majority of 54% believe thatclimate change represents a “major problem”, and 51% say that the federal govern-ment is currently doing “too little” to reduce global warming However, as soon asthe personal willingness to pay comes in, things are different In an Ipsos/McClatchyPoll, conducted December 3-6, 2009, 48% oppose a cap and trade program, whichlowers greenhouse gas emissions significantly but raises the monthly electrical bill

by 10 dollars; 55% oppose the program, if monthly electrical bills are raised by 25dollars And, in addition, according to a Gallup Poll, conducted March 4-7, 2010,more than two thirds think that global warming will not pose a serious threat to them

or to their way of life in their lifetime (cf [12])

Thus, the “attitude of US citizens towards the environment” is not much differentfrom those of European citizens The most remarkable exception is, probably, thehandling of the issue of greenhouse gas emissions Due to the fact that the country

is – in comparison to Europe – more dependent on oil and cars, any environmentalpolicy addressing a cap on CO2emissions is going to face severe opposition, notonly from industry And due to the fact that there seems to be a general aversion tonew taxes or tax increases, at least in a significant part of the population, pollutiontaxes will not find much support in the US either

Nevertheless, the US as a major source of CO2emissions, has to be integratedinto an international agreement to reduce greenhouse gas emissions Excluding or