Review for Exam 3

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Review for Exam 3

• April 28, 2004

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Output Production Function
Q Q(L, M, K. E)
Q - Quantity of product output L -
Quantity of labor inputs M - Quantity of
material inputs K - Quantity of capital
inputs E - Quantity of energy inputs Q(
) - function defining relationship between
quantity of inputs and output
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Waste Production Function
Q Q(L, M, K, E) W W(Q) W(Q(L,M,K, E))
W - quantity of waste (liquid, gaseous or
solid) W( ) - function defining relationship
between quantity of waste and quantity of outputs
and inputs
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Mass Balance Constraint
Q Q(L, M, K) and W W(Q) s.t. Mass of W Mass
of M - Mass of Q
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Pollution abatement actions taken to reduce the
harmfulness of waste (waste management) or reduce
wastes (waste reduction) to prevent damage from
release of untreated wastes into the environment
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Pollution Abatement

• Waste Management (Transform W to make it less
  harmful)
• Proper Disposal
• Treatment
• Recycling
• Waste Reduction (Reduce amount of W generated)
• Good Housekeeping
• Material Substitution
• Process Modification
• Product Redesign
• Reduce Output (Q)

(M) Pollution Prevention
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Waste Management
Q Q(L, M, K, E) W W(Q) W(Q(L,M,K, E)) s.t.
M lbs. Q lbs. W lbs.
Proper Disposal
Recycling Technologies
Treatment Technologies
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Waste (W) Reduction
Q Q(L, M, K, E) s.t. W grams M grams - Q grams
Reduce Q
Reduce M
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Waste Reduction(Pollution Prevention)
Input substitution
Good housekeeping
Process modification
Product redesign
Q Q(L, M, K, E) W W(Q) W(Q(L,M,K,E)) s.t.
M lbs. Q lbs. W lbs.
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Profit Function
Total Revenue from selling Q
Total Cost of producing Q
Profit from supplying Q
-
Profit (PQ Q) (PL L) (PM M) (PK
K) C(W)
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Profits With Emissions Regulation
Profit (PQ Q) (PL L) (PM M) (PK
K) C(W)
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Supply of Abatement
Marginal Abatement Costs (MAC)
Represents minimum cost of abatement
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How much abatement will the firm undertake?
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Abatement vs. Emissions
Marginal Abatement Costs (MAC)
Emissions Penalty
MB of abatement ( MC of emissions)
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Inflation

• Price increases due to macroeconomic factors
• 5 annual inflation means prices increase by 5
  each year.
• FV PV(1i)
• PV is price today
• FV is price next year
• i is rate of inflation

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Discounting

• Time value of money
• Expect 10,000 gift in 10 years
• What is its current value? (What would someone
  give you for it now?) What could you buy now?
• PV FV/(1r)n
• r is discount rate
• n is number of years into the future

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Accounting

• Credits
• Money in
• Debits
• Money out
• An businesss accounting system keeps track of
  everything that is spent and everything that is
  earned.

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Environmental Accounting

• What is spent on environmentally related inputs
  or outputs?
• What income is generated from environmentally
  related inputs or outputs?

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Evaluating Abatement Options

• Measure baseline waste generation
• Measure baseline abatement costs
• Identify options
• Measure costs and benefits of each option
• Discount costs and benefits to present value
• Compare options and baseline
• Conduct sensitivity analysis

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What is Life Cycle Analysis?

• A tool to understand environmental impacts
  associated with products, processes, and
  activities
• LCA is a systems approach to evaluating
  environmental consequences of a product or
  process
• It takes a cradle to grave or cradle to
  cradle perspective.
• A systematic set of procedures for examining the
  environmental impacts of a product or service
  throughout its life cycle

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Components of an LCA

• Defining the purpose and scope
• Life-cycle Inventory
• Life-cycle Impact Assessment
• Life-cycle Improvement Analysis

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Ecosystem Principles

• Ecosystem members include producers, consumers,
  and recyclers closed loop systems
• Population growth of members is limited by
  carrying capacity of the ecosystem
• Symbiosis between members
• Close proximity of members
• Decentralized decision-making among members (no
  central planner)
• Renewable energy input to system (i.e.solar)
• No wastes all by-products are inputs
• Self-sustaining (sustainable growth)
• Resilience

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Industrial/economic systems
Transform energy and matter to meet human needs,
but.

• Open loop systems
• Growth with limited attention to the carrying
  capacity of local and global ecosystems
• Adversarial/exploitative relationship with biotic
  and abiotic environment
• Dependence on non-renewable resources
• Wastes are generated (not recycled,
  non-recyclable, toxic, harmful)

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Industrial Ecology

• Designing industrial systems using ecosystem
  analogy
• Minimizing matter and energy use
  (Dematerialization)

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Key Concepts in Industrial Ecology

• Systems analysis
• Material and energy flows and transformations
• Analogies to natural systems (creation of
  industrial ecosystems)
• Dematerialization of industrial output
• Closed loop systems
• Balancing industrial input and output to natural
  ecosystem capacity
• Multidisciplinary approach

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Eco-Industrial Parks

• Application of ecosystem principles to the design
  of industrial parks and communities
• Industrial symbiosis (one industrys wastes are
  raw materials for others)
• Closed loops
• Geographical clustering that improves each
  others viability

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Models, Tools Techniques

• Industrial metabolism
• Life cycle analysis
• Environmental accounting
• Materials flow analysis
• Design for the environment

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How do we judge how well the economy is doing?

• Gross Domestic Product (GDP) measures the money
  value of final goods and services produced in a
  year
• Flow of final Q from stock of K
• Expenditures on Q
• Inventories of Q
• Flow of unused new K from stock of K

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Final Goods and Services Include..

• Personal consumption expenditure by households
  (C)
• Private investment expenditures by households and
  firms (I)
• Government consumption and investment expenditure
  (G)
• Net exports exports minus imports (NX)

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Measures of Economic Performance

• GDP growth
• percent increase in GDP
• GDP per capita
• GDP divided by population size
• Net Domestic Product (NDP)
• GDP minus depreciation of capital (only man-made
  capital)
• Better income measure

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Shortcomings of GDP and NDP

• GDP and NDP understate economic well-being
• Exclude all non-market goods and services
• Excludes new investments in natural capital
  (future services)
• GDP overstates economic well-being
• Includes defensive expenditures
• Does not deduct depreciation of any capital
• NDP overstates economic well-being
• Includes defensive expenditures
• Does not deduct depreciation of natural, human or
  social capital

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Alternative Measures

• Integrated Economic Environmental Satellite
  Account
• Measures stock of natural capital and keeps track
  of depreciation of natural capital
• Index of Sustainable Economic Welfare
• Adds environmental goods and services
• Deducts defensive expenditures
• Deducts depreciation of natural capital

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Sustainable Economic Development

• Brundtland Commission Definition
• Development that meets the needs of the
  present generation without compromising the
  ability of future generations to meet their own
  needs

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Defining Sustainability

• Weak definition of sustainability
• Sustain total value of Q f(KN, KM, KH, KS) but
  allow substitution among different types of K
• Strong definition of sustainability
• Sustain total value of Q but allow substitution
  among different types of KN
• Sustain critical types of Kn (no close
  substitutes, cannot be replaced, and are critical
  to life support)
• Environmental sustainability
• Sustain all KN

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Measuring the IPAT Variables
Impact per unit of output
Output per Person
Number of people



Impact
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Reducing Impact
Impact per unit of output
Output per Person



Population
Impact
Impact per unit of output
Output per Person



Population
Impact
Output per Person
Impact per unit of output



Population
Impact
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Relationship between the Economy and the
Environment
Sun
Environment
Economy
Environment
Sun
Economy