Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12AGEC/FNR 406 LECTURE 23 Is this the Economy-Environment Relationship?GDPNon-marketed services are excludedDoes not accounts for depreciation of natural capital What doesn’t GDP measure?Example: Exxon Valdez oil spillThree types of capital1. Human2. Human made3. Natural The key issue from an environmental standpoint is whether these different forms of capital can be substitutedAlternatives to GDP 1. Net National Product (NNP) or Green GDP (gGDP)Accounts for depreciation of naturalcapital. 2. Index of environmental indicatorsAccounts for the fact that many benefits from environmental improvements are not accounted for in market transactionsInternational aspects of the environment 1. International public goods 2. Transfrontier pollution 3. Impact of environmental policy on trade 4. Impact of trade policy on environmentGlobal public goods Similar to national or local public goods:nonexcludable and nonrival in consumption, but production and consumption are separated by political border. Examples: The atmosphere and outer spaceDisease prevention Ecosystem servicesTransfrontier Pollution Pollution that crosses an international political boundary Examples: Acid RainSmoke from firesWater pollution in majorriver systems Important because applying economic incentives may be difficult -- but some hope for solutions based on tradable permits.Environmental Policy and Trade Main concern is that a country’s environmental policies will reduce the country’s competitiveness and reduce its volume of exports. Three main linkages: 1. Cost of production 2. Incentives for relocation 3. Export of “green technologies”Trade Policy and the Environment Trade policy is generally designed to promote exports and imports without regard to conditions of production. This often has the effect of undermining environmental goals (both domestic and international).Trade Alliances North American Free Trade Agreement (NAFTA) US + Mexico + Canada General Agreement on Trade and Tariffs (GATT) Includes most countriesWhy are Trade Alliances Important? They often specify that “unfair” barriers cannot be used to protect a country against imports. WTO has generally held restrictions on environmental grounds to be unfair. Examples: U.S. attempted tuna ban from Mexico (w/o“dolphin friendly” practices)Conflict resolution? Free trade and environmental policies are both beneficial.A potential compromise would be to establish an international board to review cases and separate reasonable environmental barriers from phony