Environmental stability

Question 1

Intro

Answer 1

1. intergenerational equity
2. Targets, MBPs, regulations aim to reduce negative externalities that harm the environment during production of goods and services
3. Renewable energy, discouraging renewable resources

Question 2

P1 (trade off, government focus on growth instead)

Answer 2

• Free riders - firms can choose to pay but might not. Will prefer to not pay to increase profits
• Government would rather focus on economic growth
• Not in parliament enough to make long term bills that will improve climate change
• Australia in general is not good at sticking
• Market based policies are the most effective way to increase sustainability
• Eg. carbon tax (and how it was eliminated due to change in government)
• CPRS is another market based policy that outlines the relationship between EG and ES, government can set the emissions target
• CPRS graph
• Ppf trade of graph
• Negative externalities and graph - air water are at risk of exploitation
• Private cost is lower than the social cost
• Producers do not take into account the effects of their actions on the consumer
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Question 3

P3 (tragedy of the commons)

Answer 3

• Environmental commodities are impure public goods - not restricted to anyone, but only a limited number of consumers can enjoy it before consumption possibilities deteriorate, use by a large number of people reduce the quality of the good for others (eg. beaches, parks)
• These can be priced and used for tourism - so a decrease in the quality of these resources will reduce economic growth from tourism sector
• Poorly defined system of property rights leads to unrestricted access to property which can lead to degradation of natural resources
• Environment is used to dispose of biodegradable and non-biodegradable waste
• Poor property rights can affect this
• Number of users is large, hard to divide resources into smaller units so management policies are expensive
• Eg. fishing and UN law of the sea “sounds like a minecraft achievement”
• Governments would rather focus on economic growth
• Government policies to protect property rights are regulations
• Eg. protections act

Question 4

P3 (supply as a constraint of growth)

Answer 4

• Economic growth can be derived from the increase in supply
• AS = the potential for the economy to grow
• When resources are scarce the price increases
• Non-renewable resources (eg. coal, iron ore) will experience an increase in price once they become scarce
• However the price mechanism can only protect resources that are sold in markets
• Government needs to intervene in the market (market failure), however policies may not be able to save remaining resources
• If non-renewable resources run out, then unless a substitute resource can be found, that industry will die, this will decrease the amount of economic growth (for example, if Australia runs out of coal to power plants, then there will be an electricity shortage that will impact production)
• Economy needs to develop sustainable practices to be functional in the future → government adopts policy responses in order to adapt the economy to sustainable practice
• Subsidies = encourage environmentally sustainable practices (solar panel rebate)
• Taxes = discourage some forms of economic activity (carbon tax)

Question 5

P4 (kuznet)

Answer 5

• Kuznets curve
• Economy’s priority is to be stable in order to allow people to access resources needed for living
• Once an economy establishes stability, then it can implement environmental protection policies. Society begins to improve relationship with environment
• However, while an economy is being established, some environmental damage may be done in order to generate the profits and growth needed to make the economy self sustaining
• Some environmental damage will have to do be done in order to protect the environment further down

Question 6

Carbon tax

Answer 6

• The carbon tax or could call the permit system in which people have to buy the rights to pollute legally and in theory this provides incentive for companies to invest in more efficient methods. If they want to lower the price further then they reduce the number of permits available and hence due to supply and demand (include diagram) it will increase the price.
• Strengths: gives firms a monetary reason to work towards renewable energy which is better at driving them to try to keep up
• Weaknesses: Larger firms are able to afford the price and hence allows them to keep polluting legally and isn’t very effective in reducing the emissions in the moment and hence not working towards the goal.

Question 7

ARENA

Answer 7

• ARENA has the objective of accelerating the development and deployment of renewable energy technologies in Australia. It provides financial assistance, technical expertise and strategic advise to renewable energy projects and businesses. They have supported 653 projects with 2.04 billion in grant funding and unlocking a total investment of almost 9.06 billion in the renewable industry
• Is a market based strategy since the money provided works essentially like subsidies and hence shifts the supply curve to the right since it is cheaper to produce goods now and hence incentivises more development of and also allows it to be more viable as a replacement
• However, it does nothing to address the emissions being produced currently or work towards reaching the goals that Australia has agreed to. Australia has signed the Paris agreement which aims to limit global warming to 2 degrees above pre industrial levels and limit the temp increase to 1.5 degrees. Our current goal for 2030 is to reduce 43% lower than 2005 levels and by now we have reduced it by 22% however in order to reach the goals set we need to be reducing it by 60% by 2030 in order to meet our goals

Question 8

Paris agreement

Answer 8

Paris agreement was ratified in 2015 and is a legally binding international agreement under the UN framework and came into effect in 2016. It aims to limit global warming to 1-2 degrees above pre industrial levels. Each country is allowed to set their own emission reduction targets known as nationally determined contributions NDC’s and reports on progress are also necessary. It also requires developed countries to provide financial assistance and technology transfer to developing countries in order to aid them in reducing their emissions.

Question 9

RET

Answer 9

• Renewable energy target is a an Australian policy aimed to have 23.5% of electricity generated from renewable sources by 2020 to contribute to our GHG reduction commitment. It was enacted by the government by creating a permit market where renewable energy producers create certificates for the energy they generate. Firms are required to buy a certain amount of electricity → can also be seen as a market based strategy since the prices of the permits can change depending on supply and demand.
  
  • The RET doesn’t specifically target emissions but renewables which means it doesn’t actually try to limit emissions which were agreed under the Paris agreement.
  • The RET also doesn’t consider the electricity market which does not cope with renewables since wind and solar energy is hard to incorporate into the grid and it too many coal suppliers leave the market then supply may not be able to reach demand.