Lecture 51 - What you should know How are finance and the...

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CEE 260: Environmental and Sustainable Engineering Principles Finance and the Environment Lecture#51 Reading: Rubin Ch 13: pages 543-567 What you should know How are finance and the environment connected? What are the basic terms used in finance? • Interest • Present Value / Future Value • Annuity / Uniform Series of Payments How are basic finance calculations performed? How can two technology options be compared financially via present value calculations? Internalizing an Externality Internalizing an externality means changing private costs so they equal social costs. Government policy can improve a situation that is economically inefficient. 9 Regulations can also be used, but they only work if up-to- date information on economically efficient quantities (i.e., achievable controls) can be obtained. 9 Taxes are generally seen as being more efficient than regulations. 9 Government can issue sellable rights to pollute to limit an activity to the lowest possible cost. Playing with the Market to Achieve Efficiency Quantity (# units) Price / Cost (dollars per unit) 10,000 Units D = Marginal Social Benefit Marginal Private Cost (MPC) $100 Marginal Social Cost (MSC) Market Equilibrium $180 8,000 Units Economically Efficient $140 Tax Per Unit $80 Why the Environment an Economic “Special Case” Tragedy of the Commons : Situations featuring individual benefits with shared costs lead to greedy decisions. The Environment is a “Global Commons” ¾ Atmosphere ¾ Hydrosphere 1. The Economic System does not set value , just price . 2. Valuation is Through Science, Not Inherent to Consumer. 3. The Distribution of Costs vs. Benefits Matters. An Understanding of Finance is a Prerequisite to Environmental Improvement (improvement requires providing reasonable cost-benefit to those paying the cost)
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Cost of Groundwater Cleanup Electrolux Refrigerator Comparison Life Cycle Costs z Earlier in the Life Cycle Assessment comparison of an energy efficient refrigerator we were asked to compare the relative environmental impact of using a 10 year old reused energy inefficient refrigerator to an energy efficient Electrolux model z We assumed the cost of energy savings from using an energy efficient refrigerator for ten years was offset by
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This note was uploaded on 04/17/2008 for the course CEE 260 taught by Professor Kimf.hayes during the Fall '06 term at University of Michigan.

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Lecture 51 - What you should know How are finance and the...

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