ECON 610 Notes 4-26

Summary of Clean Tech Notes -Three basic problems:

1.) Envt regulations, whether command and control or incentive-based, often times are inadequate to efficiently achieve improvements in environmental quality without significant reductions in output. Happens a lot with incentive-based. (Doesnt cover the set-up costs, etc) 2.) Clean tech tends to be susceptible to political influence- tend to be rather info intensive, requiring a lot of science background, which opens opportunity for abuse. Obama administration has backed some energy-efficient tech that werent scientifically sound, for instance. 3.) Path dependence- once a set of environmental technologies have been installed, the infrastructure and related investments tend to make alternative future options less feasible (might be able to cross over). Part of the problem is that we dont know what future prices will be, which means a start-up contingent on oil prices rising might fail if the oil prices dont rise. To solve this, government can be consistent- a 2-year congressional cycle isnt consistent with developing a long-term energy plan. Wed probably need a national energy plan, and stick to that plan, so that wed be less likely to make path dependence mistakes. Fundamentally its a problem of not being able to predict the future very well. Mass transit may have made sense once upon a time, but to do it now in the Midwest would be incredibly expensive.

-Clean tech definition:

1.) Economically feasible in the near term 2.) Provides comparable quality services with existing tech 3.) Has to be competitive with existing technologies- could be based on social costs or private costs. Doesnt necessarily mean the tech will be accepted in the marketplace without subsidies, because it wont be privately optimal without government support. 4.) Should be more environmentally benign than existing technology in theory, but that may be questionable- depends on whether you buy into the cradle to grave understanding of environmental impact (sometimes people have pretty clear political views on this question). Ethanol has general equilibrium impacts on things like food prices, etc, too, which means that it can have some impacts. However, alternative forms of ethanol can have a different impact. Example: electric cars. Looking at their total envt impact, not clear that theyre better than cars. Electricity could come from anywhere, although it may come from coal-fired power plants now, meaning that it might be worse than gasoline. -None of the clean technologies will make much of a difference over the next 5-10 years, which includes ethanol. Even if all of the people in the US switched, it would only lead to a <10% reduction in oil use. -Hydro-power might be an example of a truly clean technology, but its not environmentally benign. Doesnt create pollution, but it can cause earthquakes, displacing native cultures, etc etc. -Market obstacles- things making clean tech less profitable than it could be otherwise 1.) Imperfect information among the potential users regarding potential cost advantages- users are aware of the potential for trumping up savings, which creates a presumption against adopting these techs 2.) High set-up or switching costs, which is part of the problem with using incentive-based mechanisms for pushing people to clean tech. It is true that incentives work to adopt pollution abatement tech, but it might not outweigh the cost of setting up the technology. As a result, the regulation might have to be very large to get people to change. 3.) High discount rates might bias against clean tech- most of the benefits extend into the indefinite future, meaning the near term-focused person will undervalue the switch. Payback period- insist that the installation of the tech might cover the costs of setup within a certain period. A lot of techs fail this test. 4.) Might be perceived as risky- if risk-averse, might be disinclined to install them, as opposed to investing in something the firm can be fairly confident in. -Government obstacles1.) Government subsidies- agriculture, for example, tends to promote certain types of crops that are pollution-intensive 2.) Quotas, ceilings, floors, tax incentives, etc 3.) If we do not recognize GHGs are contributing to global warming, then there is no question that fossil fuels are being subsidized by not internalizing external costs from emissions. Without carbon taxes, clean tech wouldnt be competitive at the ~$100 a barrel for oil level. -Two types of technologies- at what point is the tech competitive with existing technology? 1.) Large scale- requires a large volume of output to be competitive- does the clean tech exhibit significant economies of scale? 2.) Small scale- doesnt require much production to be cost competitive- things like solar panels, redesigned buildings, etc.

Promoting Clean Tech

Large-scale-To promote large scale, government support of R&D would be helpful, private firms might not have much incentive to undertake much of that research themselves. -Having a clear plan at the national level would also create some certainty for the firms, like EU countries. Never had a real national energy plan since 35 years ago. A lot of bits and pieces that might suggest a direction the government should go, but no general commitment. -If left with uncertainty about the governments position on clean tech, have to calculate investment based upon the average of the two possible worlds. That kinds of uncertainty can lead to inefficient choices by private firms. Also explains why they tend to lobby Congress. -Another thing to do might be to promote production, such as giving production tax credits, government purchases, price supports, etc. -Upsteam focus is necessary to provide quick payouts to overcome political barriers- lack of direction is one of the most fundamental problems with the USs energy plan. A lot of people are penalized for taking a long-term stance- people backlash against 2025 focus.

-Standards and regulations might force new technologies- example: CAF standards on automobiles, energy efficiency requirements on appliances and buildings, etc. -Government investment in necessary infrastructure- only way to overcome things like electric car battery doesnt give much range. Thatll be an obstacle without a station to pull into a recharge your battery. Private firms dont really have much incentive to produce those stations. That means Nisan would have an incentive to create specialized electric refueling station, etc. This is a place where government intervention could be particularly helpful. Rhode Island has set up some fueling stations, for instance. If Lawrence built in charging stations, it would encourage people that live in the city to invest in electric cars. Small-scale-Improve the dissemination of product information- try to provide unbiased reports about competing types of clean tech. As of now, most information is provided from firms that have an incentive to lie about costs and benefits. -Market small-scale clean technologies through large firms- regulating utilities could provide audits and information about what would be the best ways for you to achieve energy efficiency in your home, with the products available from the power company. -Technical assistance in installing and using clean technologies- independent possibly from the suppliers of the tech -Offer tax subsidies, tax credits, low interest rate loans for stuff like energy star appliances.

Indirect benefits-Moving away from pesticides and agriculture can have indirect benefits- not just direct benefits to water quality and stuff -Maybe less oil extracted to produce pesticides, less equipment and fuel necessary to make use of pesticides, etc. -A lot of times, people dont look enough at the secondary effects of the fuel. -In general, the indirect environmental effects tend to be greater if you can recycle something, or reuse technology, which tends to be greater than general focus on reduction (that tends to be a bailout, just use existing tech less).

Environmental Problems in Developing Countries -What is a developing country?

-Generally defined in terms of per-capita income, even though there is a vary large disparity within these countries. -Average life expectancy is often low -Educational level obtained tends to be low -Infant mortality tends to be very high -Human Development Index- used since 1990 that takes an equally weighted index of education, wealth, health

What are the environmental problems?

-One problem is unsafe drinking water- human disease related to contaminated water, human habitation in excess, etc. Causes e-coli, cholera, etc. -Inadequate sewage facilities -Indoor air pollution- cooking on open fires, inadequate ventilation. -No worker safety laws- means that often people are put in hazardous environments -Lack of education about use of technologies/environmental risks that exist. Probably have some knowledge about the risks associated with drinking water are, but not general risks. -Inefficient land systems, or no well-defined property rights that are enforceable by law. Thats one of the problems by the Amazonian rainforest to satisfy the needs of poor farmers. -Lack of infrastructure to address environmental problems- who do you contact even if you have a problem? At lot of that probably has to do with lack of education and intimidation of the ruling powers. -Lead-based paints, inks, etc. -Deforestation and soil erosion -High population levels exacerbates virtually any problem that exists with the environment