Lecture 9: Macro-Economics and the Environment Flashcards
(24 cards)
Macro-Economics
The study of the whole national economy; aggregate data-focused
Focused on the relations b/w four main markets:
- Goods and services
- Money
- Labour
- Trade
Key schools of macro-economics
- Neoclassical: Prices adjust to ‘shocks’; markets clear and tend to equilibrium
- (Post-)Keynesian: Disequilibrium; business cycles, need for gov’t intervention (formed by great depression and huge unemployment, so adjusted neoclassical to adjust)
- Institutional: Structure of markets and other institutions are critical to outcomes
- Marxism: Conflict b/w capitalists and labour; central planning
Gross Domestic Product (GDP)
Measure of the monetary value of goods and services produced by a country and sold to final consumers in a given year
GDP = C + I + G + (X-M)
where C=household consumption, I = investment, G = government expenditure, X = exports, M = imports
Gross National Production (a.k.a National Income) (GNP or NI)
Income earned by residents of a country; takes account of earnings from abroad
GNP = GDP + Net earnings from abroad
Net National Income (NNI)
NNI = GNP - depreciation
Issues with GDP
- Measure of monetary income; not a measure of economic welfare (although incomes may contribute to such welfare)–> GDP is not a measure of wealth but results from it
- Includes rents but excludes unpaid work (e.g. household), environmnetal impacts (externalities), illegal activity (drugs), income distirbution, leisure
SEEA (System of Environmental Economic Accounting) seeks to include environmental dimension in accounting by UN
Capital
A STOCK or asset which has the characteristic of producing a FLOW of income or some other benefit
- Loses value (depreciates) over time; must be replenished by investment
- Can be many kinds (manufacturerd, money, human, social, natural)
Stock is the net present value of the flow
Sustainable Income
The income generated once capital depreciation is accounted for
Strong Sustainability
The idea that natural capital > all others (can’t be substituted)
Four Capitals
Need to be combined in production process to generate benefits:
1. Human Capital: Knowledge, skills, etc. Inequality = reduction of human capital
2. Social Capital: Networks together with shared norms, values, and understanding; Organisational (knowledge w/in org); Cultural (habits through role models); Indicators = intensity of community involvement
3. Manufactured Capital: Physical capital
4. Natural Capital: Environmental, ecological
Environmental Taxes
Cause markets to take environmental impacts into account. Can be set
1. At MC of pollution damage at optimal pollution level (hard to calculate)
2. At level requird to reach given environmental outcome (standards & pricing) - most common
3. At level required to stimulate investment in alternatives
Environmental (Green) Tax (Fiscal) Reform (ETR/GFR)
- Entail imposition of environmental taxes
- ETR = Tax Shift; shift of burden of taxes from conventional (e.g. labour) to environmental
- GFR: Considers subsidies and may raise net revenues
- Revenue raised by ETR could go to green innovation/tech development –> higher output –> higher welfare
ETR in Europe
- Six countries have implemented; outcomes have been + environmentally and economically but so far the ETRs have been really small, small impact on GDP
What might large-scale ETR in Europe look like?
Used six scenarios in two models and found that ETR if euqal to EU carbon price cause GHG to significantly decline with small impacts on GDP
- Will stimulate resource-efficient innovation
UK Green Fiscal Commission
- Project in UK from ‘07-‘09 looking at what would happen if UK did GFR by itself; didn’t go into detail
- Considers 20% tax revenue shift from green taxes by 2020
- Found low-income homes need special arrangements but environmental taxes work & are efficient
GFR = crucial policy to get UK on low-carbon trajectory
Conclusion on Environmental Taxation
- The future of environmental taxation and emissions trading in the EU depends on international agreement to emissions reduction, and rise or decline of Euroscepticism and development of Eurozone
- Bust so far Energy Tax Directive revisions have gone nowhere.
Technical Efficiency (TE)
Type of Resource efficiency:
- Ratio of two physical variables that describes the relationship b/w input and output of a resource (e.g. material output Mo and material input Mi or energy output/energy input, etc.)
Resource Productivity (RP)
Type of Resource Efficiency:
- Ratio of two different variables. Numerator = some economic welfare indicator, Y, (e.g. Yo/L labor productivity). How productively we’re using these resources
Resource or Emission Intensity
Type of Resource Efficiency:
- Inverse of RP or production of some undesirable factor by some other factor
- E.g. Ei/Yo = energy intensity or Co/Yo = carbon intensity
Economic Efficiency
Type of Resource Efficiency:
- Maximum money output for given money input
Why we need to increase resource efficiency
- Volatility of resource/commodity prices
- Resource use has more than doubled from 1905 - 2010
- Assess availbility of resources for future
- Want to double decouple
Double Decoupling
Decouple resource use (resource decoupling) and environmental impact (impact decoupling) from economic activity and human well-being so then ‘green growth’ where we can become better off in money terms with less damage to environment/using less resources.
Benefits of Resource Efficiency
Often called ‘Circular Economy’
- Many studies have found that it can be done and if done sensibly then policies can benefit economic growth and help climate
- Lots of areas where RE could be achieved; top = Bulding EE
IRP Global Resources Outlook Results (2019):
- Markets will not achieve higher rates of resource efficiency themselves
- Significant barriers to increase resource efficiency but can be resolved
- Public policy and poltical will will be needed and countries required concerted action
- EU Circular Economy Package (CEP) and G7 Alliance on RE are right direction but must be scaled up.
