Nancy Olewiler

Competition in regional environmental policies when plant locations are endogenous

Abstract A two-region model is presented in which an imperfectly competitive firm produces a good with increasing returns at the plant level. Production of the good causes local pollution. The firm decides whether to maintain plants in both regions, serve both regions from a single plant or shut down. If the disutility of pollution is high enough, the two regions will compete by increasing their environmental taxes (standards) until the polluting firm is driven from the market. Alternatively, if the disutility from pollution is not as great, the regions will usually compete by undercutting each others pollution tax rates.

The Transition to Agriculture: Climate Reversals, Population Density, and Technical Change

Until about 13,000 years ago all humans obtained their food through hunting and gathering, but thereafter people in some parts of the world began a transition to agriculture. Recent data strongly implicate climate change as the driving force behind the transition in southwest Asia. We propose a model of this process in which population and technology respond endogenously to climate. After a period of favorable environmental conditions during which regional population grew, an abrupt climate reversal forced people to take refuge at a few favored sites. The resulting spike in local population density reduced the marginal product of labor in foraging and made agriculture attractive. Once agriculture was initiated, rapid technological progress through artificial selection led to domesticated plants. Farming became a permanent part of the regional economy when this productivity growth was combined with climate recovery. The available data on cases of transition and non-transition are consistent with this model but are often inconsistent with rival explanations.

SMART ENVIRONMENTAL POLICY WITH FULL-COST PRICING

Canada’s natural capital — its resources, ecosystems and wildlife — are indispensable to the productivity of industry. Despite this, both the public and private sectors have failed to adequately factor in the consequences of production and consumption on the natural environment. There is a growing need for full-cost pricing, a system that adjusts market prices to reflect not only the direct costs of good and services, but also their impact on this country’s natural capital. As this paper argues, the onus is on the federal government to create the conditions for full-cost pricing to succeed. Ottawa needs to eliminate energy subsidies (to producers and consumers), implement full-cost pricing on air contaminants and greenhouse gases and encourage projects at the provincial and municipal levels that adopt that methodology. The benefits include productivity gains; potentially billions in savings for consumers, businesses and governments; a strong environment supporting sustainable industries; and simplified tax systems. In surveying past and existing federal initiatives and missed opportunities in previous budgets, this paper assesses costs and consequences, arguing that a healthy environment is synonymous with a healthy economy, and providing hard data to back up that conviction. With Budget 2012 just around the corner, the time is ripe for the Harper government to introduce full-cost pricing, and guarantee Canada a brighter future.

Conclusion: What We Have Learned

Sustaining healthy coastal ecosystems that provide for people dependent on their goods and services requires good resource management. The research presented in this book can help enhance resource management in the three theme areas, specifically in terms of providing better information on (1) how to value marine and coastal ecosystems, (2) how these values are affected by economic activity in the form of harvesting and land transformation, and (3) the design of institutions to provide for sustainable livelihoods and resources. The papers in this volume also point to research and knowledge gaps and, hence, opportunities to fill them. The book is very much a beginning rather than an end in terms of our understanding of the complexities of our natural environment and how best to ensure that it will continue to provide the essential goods and services that the planet needs to survive.