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Berck+Ch+12 - Chapter 12 Private Markets and the...

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1 Chapter 12. Private Markets and the Environment: The Coase Theorem Tropical forests provide many ecological benefits from which people around the world gain benefits. They provide habitat for a huge variety of both plants and animals, not to mention many traditional human societies. They store large amounts of carbon dioxide that might otherwise get into the atmosphere and increase global warming. They are sources of water for major cities around the world. Yet they are being depleted rapidly, sometimes for their wood products, sometimes to be converted into agricultural lands. Since people around the world care deeply about the benefits from intact tropical forests, why are they being lost? In fact, people in developed countries are making efforts to assist developing countries to protect these lands, though many environmentalists consider these efforts not to be sufficient. Private markets will achieve efficiency in the absence of market failures. If a market fails, though, inefficiency will result: for instance, polluters will ignore the damages that they cause, and an inefficiently high amount of pollution will harm people. This chapter will consider one important approach to solving the problem of market failure: assigning ownership rights for goods that previously did not have rights, and allowing a market to form. We will examine: How rights definitions can apply to environmental goods Using markets to address environmental problems The limitations of markets for addressing environmental problems.
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2 THE BENEFITS AND COSTS OF SULFUR OXIDE EMISSIONS Sulfur oxides (SOx, primarily sulfur dioxide, SO 2 ) are emitted by many industries, including coal-powered electric power generators. SOx can significantly harm human health and ecosystems. They are a major source of acid rain; some lakes in the United States and Europe have become too acidic for fish because of SOx emissions. SOx are also a source of particulate matter in the air we breathe, which is especially dangerous for people with breathing difficulties, such as asthma. SO x have been regulated under the U.S. Clean Air Act since 1970. Even so, under current rules, SOx power plant emissions nationally are expected to be 9.1 million tons per year by 2010. This is considerably less than the 11.9 million tons emitted in 1995. However, during a similar period, Europe cut its emissions a great deal more: from 26.3 million tons to 15.2 million tons. Is 9.1 million tons the right amount of SO x emissions for the United States ? Let’s look at some estimates of the efficient amount of emissions. In the early 2000s, the administration of President George W. Bush and several lawmakers made varying proposals to further reduce these compounds. President Bush’s Clear Skies proposal would reduce SOx emissions by 6.1 million tons per year, resulting in emissions of 3 million tons per year by 2018. An alternative proposal, by Senator Jeffords, would reduce SOx emissions by 6.85 million tons by 2009, resulting in emissions of 2.25 million tons per year by 2009.
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