GOV 312L 1st Edition Lecture 23 Outline of Current Lecture I. TMFPQII. Oil pricesIII. Environmental changesIV. Tragedy of the commonsV. Cap and tradeVI. Climate changeCurrent LectureCollapse in oil prices based off of decision in OPECDomestic revolution in the US TMFPQOil at $40 possible as market bc production can ...the flowthe IEA estimates to return 40 in cash per barrel possiblesince… oil has fallen from 12-18% and then in june 19 falling 40% (worst year since 2008 when oil peaked) - Lower oil prices will help.- Cut production -> Lower supply -> this will raise prices- This policy of cutting production has been Saudi, Kuwait plan of attack.- Cost of production of shale is higher.- Saudi, Kuwait want to drive US out of business.- if price of oil, heating goods, etc will collapse by maybe 60%; this means huge transfer of wealth- They rely on these oil revenues to maintain peace and stability- In long run, shale has created a lot of flexibility for the US in terms of FP. Shale has become the main of the oil industry- other countries are being affected, for ex Russian- Russian Ruble- they’ve lost about20% of their value which has impacted and had spillover effects for the consumers and russian states- Russia goes into recession next year for the first time since 2009, their economy goes down, increase in travel outside of russia- upside! it help the russian state who exports the energy outside...MEET THE PRESS VIDS-moving towards energy dependency- 5 year shift-causing opec to go into panic-we are in the middle of negotiating with iranThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.-russia needs well over 100 bucks and iran more in order to recoup-global growth is exceeding oil production-next vid-has changed mentality towards us economy and they see it as us strength-thinks that cap and trade generates economic value and is better than carbon tax-change in oil prices will change the ease in difficulty of getting oil?-oil prices go down, gap gets larger, it becomes larglier to cut down on carbon emissionsThe Shale RevolutionEnvironmental ChangesTragedy of the Commons-What do we do with public resources? (eg. air, water, land)-should we limit public usage of resources? (eg. fishing, farming)-What about privatized industries using public resources? (dumping into a river)-could get people sick, but people need jobs at the factory-by cutting pollution, you cut production, you cut income of workers-Coase Theorem- assign property rights to public goods for use-used to determine use of resources-ex. Cap and TradeCap and Trade-There are caps in place for pollution for different companies regarding public resources-companies can trade their “allotted pollution” to other companies to increase their production while the original owner of the rights makes moneyProblems-How to assign and measure these resources used?-Who and what monitors the use?-Enforcement of rules? The distributional politics of climate changeGlobal warming and the environment- Challenging political problem: distributional struggle on at least three levelso Within countries: business vs consumers in the USo Between countries: China vs US/Europeo Across generations: current vs future inhabitants- The science is contested. Is the skepticism of global warming rooted in questioning the science or is it a political issue?Scientific claim- Science claims that greenhouse gases like CO2 in atmosphere is contributing to global warmingo Attributed to human changes like Industrial Revolution; burning fossil fuels, oil, coal.o CO2 levels are at 399.2 parts per million, topping out at 300 ppm in the last 400,00 years.o Current trend: 300 ppm at 1950. - Effectso Temperatures (up by 1.4 F since 1890)o Ice sheets melt, ocean levels riseo Ocean temperatures rise.The tragedy of “the commons”- The Commons: Public resources, where it is difficult to exclude people from using the resource.- Divergence between private benefit and social cost.- Prisoner’s dilemma: Other people may consume the resource if you don’t, so you may think about using it before others.- Examples where “the commons” situation arise: oil fields, common grazing lands, fisheries, atmosphere, forests.Illustrative example- Factory dumps pollutant into river.- People get sick for pollution, but depend on the factory for the jobs.- Who should adjust?o Should the factory not pollute, lose its business.o Or, should the city gov’t pay the factory to cut emissions and lower the cost ofproduction for the factory by offering subsidies/reducing taxes/o Externalities- the factors that are not borne by the factory [more points here]Coase Theorem - In the absence of negotiating costs, private agents will bargain to an efficient outcome as long as property rights are well-defined.- So what’s the important part of the theorem = Defining property rights.- Assign property rights over common resources in these ways:o Cap and trade: impose caps on carbon emission, give countries/firm a certainquota to emit, allow them to trade what they “save” in their quota.o Set carbon price.o Countries polluting less can sell their “remaining” right to pollute to other countries who pollute more.o Market based solution: Get firms to choose their own strategies to adjust based on their own price signals/how they function.Challenges of the Coase Theorem- [list here]The political/distributional challenges of a climate accord- How to assign rights:o Offer initial bargaining initiatives: speed up emissions now to establish justification for property rights in the future.- BRIC (Brazil, Russia, India, China) countries vs developed countries (US, EU)o China demands foreign aid to offset the costs of producing less emissions.o The variation of level of emissions in the countries: US: carbon consumption in electricity, transportation, industry EU: less in transportation. Capping carbon emission in developing countries will hurt development of industries.Ethics of environmental protection- Short-term vs long-termo Environmental protection comes at short-term economic cost - jobs and economy are hurt, prices go up.o Long-term has huge reward - but uncertain of how long in the future before the benefits. Also we should ethically leave behind a better world for our future inhabitants.- Tangible vs abstract.o Short-term costs are tangible, real, especially to