Natural Resources, the Environment and...

transcript

Natural

Resources,

the Environment

and Agriculture

Topics

• Agriculture and the environment

– Land use in the U.S. and Texas

– Chemical use

• Property rights

– Externalities

– Public goods

• Pollution

• Ecosystem services

• Potential solutions

Source USDA/ERS Major Land Uses Data - 2012

Land Use in the U.S. - Acres

Land Use in the U.S. - %

Source USDA/ERS Major Land Uses Data 2012

Land Use By State - %

https://www.ers.usda.gov/publications/pub-details/?pubid=84879

Shifts in Land Use – U.S.

• Figure 1. Texas'

Population density

as reflected in

nighttime

illumination (Data

Source: National

Geophysical Data

Center, 2003).

Population Density - Texas

Source IRNR http://irnr.tamu.edu/Default.aspx

Population Growth – Texas

Source https://nri.tamu.edu/news/2017/september/texas-land-trends-report-shows-changes-in-rural-working-lands-operators/

Growth 1997-2012 and projected growth to 2050

Shifts in Land Use – Texas

Source https://nri.tamu.edu/publications/research-reports/2019/changes-in-texas-working-lands-5-year-summary-report/

Brazos County: Roads and city boundaries

College Station: Original city boundary at incorporation in 1938

1938 - 2010

U.S. 2012Notice the Bakken and Eagle Ford Oil Fields – did not show up in 2010 Picture

Eagle Ford

Water Pollutants

Agriculture Related

Source USDA/ERS

Nitrogen Use and Price Index

Nitrogen 1960 -2015 Prices 1960 - 2018

Source USGS https://www.usgs.gov/mission-areas/water-resources/science/trends-water-use

Water Use in the U.S.

Source USGS

https://pubs.er.usgs.gov/publication/fs20183035

Summary of Water Use in the U.S. 2015

Source USGS https://www.usgs.gov/special-topic/water-science-school/science/total-water-use-united-states?qt-

science_center_objects=0#qt-science_center_objects

Source and Use of Water in the U.S.

Source USGShttps://www.usgs.gov/mission-areas/water-resources/science/trends-water-use

Water Use in the U.S.

Source USGS

https://www.usgs.gov/special-topic/water-science-school/science/total-water-use-united-states?qt-science_center_objects=0#qt-science_center_objects

Water Use by State

Agriculture and the Environment

• Agriculture (crop + grasslands) / Forests

– 84% of land use in the lower 48 states

• Use varies by region / state

• Losing agricultural land to urban / other uses

– Problem is not necessarily the amount of land but

type / location of the land

• Agriculture major contributor to pollution

• Agriculture major water user

• BUT – we can not live without agriculture

Environmental Issues

• Multitude of issues

– Range from individual (land degradation) to regional

(water pollution) to global issues (global warming)

– AGEC 350 Environmental and Natural Resource

Economics

– AGEC 422 Land Economics

• Discuss two issues

– Pollution – externalities

– Ecosystem services – public goods

Optimal Level of Pollution

inal cost

MC of Damages

MC of Control

Quantity pollution emitted

Key – optimal level does not

equal zeroQ* depends on the shape of the curves

Technology, pollutant, human impacts,

location etc.

Set MC Damages =

MC Control

0 Q* Qm

inal cost

DamagesMC Control

Optimal Control Level

Total cost

of Control

Total Costs

Of Damages

0 Q1 Q* Qm

inal cost

DamagesMC Control

Controlling Too Much

Total cost

of Damages

Total Costs

of Controla

MC Control

Is greater than

MC Damage

0 Q* Q2 Qm

inal cost

DamagesMC Control

Controlling Too Little

Total cost

of Damages

Total Costs

Of Control

MC Control

Is less than

MC Damage

MC of Damages Decreases

inal cost

MC of Damages

MC of Control

Decrease in MC of Damages

MC of Damages Increases

inal cost

MC of Damages

MC of Control

MC of Damages Increase

MC of Control Changes

inal cost

MC of Damages

MC of Control

MC of control increases

MC of control decrease

• Definition

– A bundle of entitlements defining the owner’s rights,

privileges, and limitations for use of a resource

– Instrument of society

– Help people form expectations

• Transactions

– Two bundles of property rights are exchanged

– Value of these bundles of rights determines the value of

the exchange

– Example - buying a car

Property Rights

• Universality

– All resources are privately-owned and all entitlements are

completely specified

• Exclusivity

– All benefits and costs accrued as a result of owning and using

the resource accrue to the owner and only the owner

• Transferability

– All rights can be transferred in voluntary trades

• Enforceability

– Property rights should be secure from involuntary seizure from

others

Property Rights - Characteristics

• Well-defined Rights Promote Efficiency

– Owners of have a powerful incentive to use the resource

efficiently because “misuse” results in a decline in the resource

• Primary Function

– Guide incentives to achieve a greater internalization of costs

and benefits

• Emergence of Property Rights

– Emerge with new or reevaluation of harmful effects or changes

in tastes and preferences

– Dynamic system

Property Rights - Efficiency

Video to Introduce Externalities

• http://www.youtube.com/watch?v=1FQyKMxv4mA

• Exclusivity violated

– Cost or benefit not being internalized

• Market will not be at society’s efficient point

– Govt. intervention maybe necessary

• Positive Externalities

– Gardens, landscapes

• Negative Externalities

– Pollution – water, air, noise, etc.

Externalities

0 5 10 15 20 25 30

Quantity

Externality – Efficient Point

MC society = MC private +

externality

MC private

Society’s efficient point given by

MC society = Demand

P* = 3 and Q* = 7.75

Demand

0 5 10 15 20 25 30

Quantity

Externality – Market Equilibrium

externality

MC private

Market equilibrium given by

MC private = Demand

Pm = 2.50 and Qm = 10.75

Demand

• Market vs. society optimum

– Price in market is to low

– Too much quantity is produced

– Too much of externality is produced

• Government intervention

– Tax

– Coase Theorem

– Command and control

– Transferable rights

Externalities - Summary

0 5 10 15 20 25 30

Quantity

Externality – Tax

externality

MC private

Market equilibrium given by

MC private = tax =

MC society = Demand

Pm = 3 and Qm = 7.75

Demand

Hoggie the farmer’s MC

No control = $0

Low control = $20

High control = $150

Joe Nose the neighbor’s MC

No control = $100 health problems

Low Control = $20 no health problems

High Control =$0 no health problems

Farm Odor Example

Society’s Optimal

Hoggies cost of control

Joe Nose cost of damages

Hoggies wants no control

Joe Nose wants high control

Society’s total minimized at low

• Command and Control

– Engineering approach

– Set a level of control use and everyone must use that control

• Can set at zero, low, or high levels of control

• Coase Theorem

– Economic inventive based approach

– Give rights to the air to either Joe Nose or Hoggie

– Does not matter who gets the rights we will reach society’s

efficient point as long as rights are well defined and

transactions costs are low

Solution

• Coase Theorem

– Economic inventive based approach

– Give rights to the air to either Joe Nose or Hoggie

– Does not matter who gets the rights we will reach society’s

efficient point as long as rights are well defined and

transactions costs are low

• Ronald C. Coase

– British Economist

– Wheat vs. cows

– University of Chicago

– Nobel Prize Winner

Solution

• Rights to Hoggie

– Start with no control

– End up with low control

• Rights to Joe Nose

– Starts with high control

– End up with low control

– Difference who pays -- wealth impact

Rights Defined

Hoggie the farmer’s MC

No control = $0

Low control = $20

High control = $150

Joe Nose the neighbor’s MC

No control = $100 health problems

Low Control = $20 no health problems

High Control =$0 no health problems

• No matter who received the rights

– Ended at the same point

– Negotiations between the parties

– Difference who pays

• Conditions

– Low transaction costs

– Wealth effective small

• Recall rights give you wealth

Rights Defined

• Another economic incentive approach

• Permits set equal to the level of pollution desired

– To be able to pollute you must have a permit

– Permits can be bought or sold

• Firms make the following decision

– Control pollution

– Buy a permit

• Idea

– Low control cost firms will control and sell permits

– High control cost firms will pollute but buy permits

– Society’s overall cost will decline

Transferable Rights

• Optimal level of pollution is not zero

• Damages / technology helps determines optimal level

• Problem property rights are not well defined

– Exclusivity violated

– Externalities

• Engineering and economic incentive approaches

– KEY – all have different weaknesses and strengths

– Solution will depend on a mix of these approaches

– Politics along with science will be involved

Summary Pollution

• A good whose consumption is indivisible

– One person’s consumption of a good does not diminish

the amount available to others

• Key – non-rival & non-excludable in consumption

– Examples

• Warning systems (tornado sirens), landscapes, genetic diversity,

defense

– Example - ecosystem services

• Efficiency is not achieved

– Free rider

– Absence of excludability

Public Goods

• The benefits people obtain from ecosystems

• Necessary to support and maintain life and support

economic processes

• Many of these services lack adequate substitutes,

thereby requiring careful stewardship of the

ecosystems providing them

• Classification

– Provisioning (food and water)

– Regulating (flood, gas and disease control)

– Cultural (spiritual, recreation, and cultural benefits)

– Supporting (nutrient cycling) services

Ecosystem Goods / Services

Ecosystem Value Examples

Study Value

O’Rear Henry (1998) Nonmarket value for rice production and hunting

$132/acre

Turner (1991) Consumers' surplus for boating in Lake

Livingstone $35.21

Bowker and Stoll

(1988)

Whooping crane annual WTP per person $21-149

Kreuter et al. (2001) $5.58/ha/yr ($6.24 million) decline in ecosystem

services value for 1976-1991 from rangeland to

urbanized use in San Antonio area

Costanza et al.

(1997)

Ecosystems provide estimated $33 trillion in

services annually

Rosenberger and

Loomis (1999)

Ranch open space value to tourist $1,132/ group

Market Goods - Review

consumer 1

0 5 10 15 20 25 30Quantity

consumer 2

0 5 10 15 20 25 30Quantity

Market

KEY Horizontal summation of individual consumers’ demand

curve to get market demand curve

Only consumer 1

in the market

Both consumers

in the market

Market Goods - Review

0 5 10 15 20 25 30Quantity

6 11 17

Demand

Supply

Market Equilibrium

P* = 7 Q*=17

Consumer 1

Q=6 at price 7

Consumer 2

Q=11 at price 7

0 5 10 15 20Quantity

Public Goods – Ecosystem

Demand

Vertical Summation of

consumer demand curves

Why - Non-rival in consumption

Only consumer 2

Red demand curve

Both consumers

0 5 10 15 20Quantity

Public Goods

Demand

Supply

Society’s Efficient Point

Market

P*=10, Q*=8

Problem – non-rival

• At price =$10

– Consumer 1 -- 3 units of ecosystem services

– Consumer 2 -- 8 units of ecosystem services

• Let consumer 1 purchase first

– Consumer 1 buys 3 units

– Consumer 2 free rides and buys only 5 units but

consumes 8 units (3 units from consumer 1)

• Let consumer 2 purchase first

– Consumer 2 buys 8 units

– Consumer 1 free rides and buys no but consumes 3 units

(3 units from consumer 2)

Public Goods – Free Rider

• Public goods are NOT goods supply by the public

• Goods that are

– Non-rival

– Non-excludable

• Market will undersupply public goods

– Free rider problem

– Vertical vs. horizontal summation

Public Goods- Summary

• Economists play a role in designing policies that affect the environment and natural resources

• Incentives matter when designing policies at achieve desired objectives

• Agriculture impacts the environment through water pollution, air pollution, and emissions of greenhouse gases among other ways

• Agriculture also plays a major role in benefits such as ecosystem services and food production

• Government plays an active role in guiding and regulating the use of resources and impact on environment

Summary

Natural Resources, the Environment and...

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