Development estimates total subsides amount to 105 to

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Development estimates total subsides amount to $1.05 to $1.38 per gallon Implication: economic value of resources used up in producing ethanol is 33% greater than the value of the product to consumers 1 Btu of energy inputs required to get 1.25 Btu of ethanol from corn U.S. ethanol program: (1) consumes 5% of world production of calories from corn, soybean, wheat and rice (2) raised the cost to world’s poor of meeting minimal dietary requirements by 34.5% Source: Roberts and Schlenker, “World Supply and Demand of Food Commodity Calories”, 2008. 86% of Americans support (reason: reduce dependence on foreign oil) Presumed justification: there are big geopolitical costs for imported oil (economic translation: external cost) Economic solution: tax the imported oil Chapter 11: Externalities and Property Rights A. External costs B. External benefits C. Negotiation and the Coase Theorem D. Using taxes to internalize negative externalities E. Using subsidies to internalize positive externalities F. Regulation versus market-based solutions
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4 Government regulation can sometimes be interpreted as response to externalities Speed limits and traffic laws Tort liability system Laws and regulations on disposal of chemicals, batteries, oil, computers, … Zoning laws Regulation of air and water pollution Combining regulation with market- based incentives Example: controlling air pollution from coal- fired power plants Mt. Storm, W. Virginia What can plant do to reduce SO2 emissions? 1) Use low-sulfur coal abundant supplies in Wyoming and Alaska many power plants in northeast big differences in transportation costs across facilities Healy, Alaska What can plant do to reduce SO2 emissions?
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