Bob Cropf

Regulating the environment

In economics on April 13, 2009 at 1:02 PM

In class this week we’ll start regulatory policy. Of course, whenever someone mentions regulatory policy most people assume they’re talking about environmental protection. While the environment is a big piece of the regulatory puzzle in the US, it is not the only one.

Nonetheless, with Earth Day coming up in a few days, it is worthwhile to review some noteworthy trends in environmental economics. One development that has gained some attention, especially since the Obama administration has embraced it in principle, is carbon emissions trading, also known as cap and trade. In his blog, The Inspired Economist, Chris Milton writes about how the emerging carbon market can lead to a shift in current land management policies.

In another article, John Meadowcroft writing on the IEA blog, discusses the difference between stated and revealed preferences when it comes to things like protecting the environment. In the article, he uses the example of the English actress, Emma Thompson, who participated in a demonstration against expanding Heathrow airport in London (stated preference) and a few days later flew to Los Angeles to attend the Golden Globes Award ceremony (revealed preference). While most people’s stated preferences include saving the environment and reducing climate change; unfortunately, their consumption patterns, i.e., revealed preferences, tell quite a different story. In order to produce meaningful environmental change, governments must figure out a way to get revealed preferences to better coincide with stated preferences.

Finally, (at least for now) I want to draw your attention to a new world model–actually an update of the World3 model (“Limits to Growth”)--including climate change and its interaction with energy and natural resources. The inescapable conclusion reached by the authors is that we are on an unsustainable path. The model’s chief virtue, however, derives principally from the fact that it is a tool that can be used to experiment with ideas on how to solve these environmental problems. So as we celebrate another Earth Day, we can contemplate the increased role that private individuals, firms and governments must play, working together, to ensure that our children and grandchildren will be able to enjoy future Earth Days.

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