Fun Video: Environmental Economics (Functions of Environment) Video Lecture | Economics CUET Preparation - Commerce

Adriene: Welcome to Crash Course Economics.
I’m Adriene Hill
Jacob: And I’m Jacob Clifford. Economics
is about choices, and how we use our scarce
resources. It’s not just about producing
and consuming, it can also be about conserving.
Adriene: Maybe counterintuitively, economics
has a lot to add to discussions of how we
can balance our desire for prosperity and
growth, with the need to protect our natural
resources. Today we're going to look at environmental
economics and think about how economics can
help us keep our planet livable.
[Theme Music]
Pollution is going to happen, it’s a by-product
of human existence and there is no way that
we can get rid of it all. In fact, one of the ways
we know about earliest the societies is by
looking at their trash heap, something archaeologists
call middens, because it sounds better than “dumps.”
But the fact that humans produce all kinds
of waste doesn’t mean that we have to embrace
islands of trash floating in the oceans, a
layer of smog over industrial cities, and
toxic chemicals in our rivers. For sake of
simplicity though, we’re going to focus
on one type of pollution: carbon dioxide emissions.
They’re one of the primary greenhouse gases.
These greenhouse gases basically blanket the
earth and are causing climate change.
CO2 levels are the highest they've been for
millions years which is why environmentalists
consider it a “planetary emergency.” There's
a lot of effort going into how to remove
greenhouse gases from the atmosphere, how
to make cities more resilient to climate change,
but in the interest of time we’re going
to focus on efforts to reduce the amount of
new pollutants getting spewed into our atmosphere.
Jacob: The economic solution is pretty simple.
Step one, identify the sources of the most
air pollution. Done. We know exactly what
it is. It’s factories that burn fossil fuels
for energy, industries that use oil and coal to produce
things, and vehicles with internal combustion engines.
Step two, decrease the supply of these technologies
and products or decrease the demand for them.
That’s it, it’s simple. But, the implementation
of these policies gets complicated.
Let’s look at decreasing supply. As we mentioned
in the last video, one of the biggest problems
with having countries independently enforce
environmental regulations is the Tragedy of
the Commons. No one owns the atmosphere, so
there is very little incentive for countries
to keep it clean and switch to expensive green
technologies if no one else is going to. It’s
not like there is some global environmental
police punishing countries for polluting.
While a country like Trinidad and Tobago has
a huge carbon output per capita, its small
population means it’s only producing a small
fraction of global CO2.
The other option is to decrease the demand
for fossil fuels, possibly by finding alternate
green energy sources. But we’re already
very reliant on fossil fuels, and markets
have made the production of those fuels very
cheap. So, any new type of energy will have
a hard time beating the established system.
So we can either wait patiently for new technologies
to develop and get cheaper, or we can speed
up the process by manipulating markets with
government subsidies, taxes, and regulations.
Adriene: In the case of pollution, there are
long-term side effects, like climate change,
that consumers often don’t take into account
when they buy products. Remember negative
externalities? When the full cost of a product
doesn’t line up with the costs that manufacturers
or consumers pay? Pollution represents a market
failure -- a situation where markets fail to
produce the amount that society wants.
To address this, some economists argue that
government intervention is not only justified,
but essential. There are all kinds of different
ways intervention can happen — all of them
meant to encourage producers and consumers
to choose to pollute less.
One solution is for the government to come
out and set very specific rules about how
much specific industries can pollute. Forget
markets. You're gonna follow our pollution rules.
Another way governments encourage people to
pollute less is by providing price incentives.
Those incentives can encourage individuals
to make choices that are better for the environment.
The government could add taxes to gasoline
purchases, or, on the other hand, provide
subsidies for people who drive electric cars.
Governments can also create permit markets
— basically setting a limit on how much
firms can pollute, and allowing those firms
to buy and sell pollution permits. You’ve
probably heard these called “cap and trade”.
Proponents of cap and trade argue that it
can successfully limit emissions, without creating
hard and fast rules that might hinder economic growth.
And, governments can subsidize the development
of a specific technology or industry—in
an effort to make that technology more competitive
with the alternatives. A country might help
support the development of solar or wind energy.
As of 2014, around 10% of the energy consumed
in the United States came from renewable sources,
which is pretty much in line with the global
average. Current predictions are that by 2040
15% of the world energy consumption will come
from renewable sources.
But, alternative energy sources, for the most
part, just aren’t cheap enough yet, so the
majority of our energy is likely to continue to come
from non-renewable sources, at least for now.
Jacob: We don’t have the time to sit back
and wait for new technologies to get cheaper,
and there's no guarantee that the technologies
that the government picks will be cost effective.
Perhaps the solution is not to get rid of fossil fuels,
but instead be more efficient with those fuels.
But that has drawbacks, too. Some energy economists
argue that the expected gains from energy
saving technologies, are offset by something called
the rebound effect. Let’s go to the Thought Bubble.
Adriene: Let’s say Hank uses a gallon of
gas to drive to work everyday. Then, partially
to help the planet but mostly to help his
wallet, he buys a new fuel efficient car that
only takes half a gallon of gas for the same
commute.
He saves money and there's less pollution.
It is a win-win. But the rebound effect says
that the benefits of energy efficiency might
be reduced as people change their behavior.
With the money he saves, Hank might start
driving more than he normally would or he
might go on a vacation in Hawaii. That leads to
more consumption and possibly even more emissions.
Also, if greater fuel-efficiency makes driving
less expensive it might encourage more people
to buy cars and increase the overall use of
gasoline. And even if people didn't increase
their driving, the new fuel efficiency could
decrease the demand for gas, making fossil
fuels cheaper and more readily available for
other uses.
The possibility of the rebound effect doesn’t
mean we shouldn’t invest in energy saving
technologies. It just means that we have to
keep in mind how consumers will behave. It’s
also the reason why it's important to have economists
involved in the discussion of environmental policy.
The tools of economics can help analyze
the incentives and figure out what might work best.
Thanks Thought Bubble. Okay, so we’ve identified
another problem. But before you get so angry
that you kick over a barrel of oil and light
it on fire, keep in mind that there is hope.
Most countries are actively trying to address
the problem of greenhouse gases.
The international community has been trying
for decades to work together to protect the
environment with varying success. There are
international treaties that commit countries
to reducing greenhouse gas emissions. UN negotiations
are underway to create a new climate change
agreement — that could be adopted in December
2015.
Private companies and governments are
also funding research into green technology.
In the U.S. the American Recovery and Reinvestment
Act of 2009 allocated billions to fund renewable energy.
China is also vowing to clean things up, and,
in fact, leads the world in renewable energy
investment. So, now that most countries recognize
there is a problem, the hope is that they’ll
figure out a way, or more likely a lot of
ways, to start addressing it. Environmental
economists say that is not just governments
and producers that need to change, it’s
also consumers. Conserving and consuming more
thoughtfully likely need to be a part of our
daily lives if we want to protect the environment.
But just bringing our reusable grocery bags
to the store isn’t going to save the planet,
even if it says it on the bag. Bigger and
more costly interventions like improving insulation
and changing thermostats might have more impact,
but we need to recognize individual action
alone isn’t going to be enough. Industries,
governments, and individuals; we’re in this
together. Thanks for watching, we’ll see
you next week.
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