My Favorite D&S Schedules s1

Lecture 7(i) Announcements

1) Midterm results posted. a) Moodle gradebook has score and other info b) Link at Moodle (Week 6) explains how everything works c) Short version: to calculate your score = 100 − 2.5× Number wrong + 2.5 (1 question bonus) + 1.5 (if correct name/id) Median=81.5 ( 75th percentile = 91.5 25th percentile = 66.5 2) For large lectures, there is no class Wed of Thanksgiving week

3) Platform debates in discussion sections this week Participation counts towards your homework grade

Lecture 1. Further Discussion of Global Issue 1: Carbon Policy

2. New Issue: International Trade

3. Impacts of Tariffs and Quotas Carbon Emissions from Energy Consumption (Billions of tons)

Country Year 200 200 1990 0 7 2013 US 5.0 5.9 5.9 5.3 Europe 4.3 4.2 4.2 3.7 Japan 1.2 1.3 1.3 1.3

China 2.5 3.6 7.0 10.3 India 0.7 1.1 1.5 2.1 Rest of World 9.0 9.4 11.5 12.5

World 22.7 25.4 31.4 35.3 Source: European Commision, Joint Research Center,”Trends in Global CO2 Emissions.” Kyoto Protocol (1997): Attempt to get 5% reductions by 2012 relative to 1990.

Europe: main signatory. US didn’t sign because developing countries (including China and India) not part of agreement.

Let’s look at table to see what happened.

Japan now making the analogous argument about going forward made earlier by U.S. (Deal without US and China makes no sense.) http://www.mofa.go.jp/policy/environment/warm/cop/kp_pos_1012.html For upcoming Paris climate conference

: The tagline is: For a universal climate agreement Carbon Policy in European Union

1. EU Emissions Trading System

(https://www.youtube.com/watch?feature=player_embedded&v=yfNgsKrPKsg Issue: supply of allowances has been large relative to demand so that the price such that the price has been lower than expected (About €5 a ton.)

1) weak economy and shift of heavy industry out of Europe

2) clean energy

3) too many allowances given out? If distribute 6 allowances, market price will be _____ based on year 2000 supply and demand. What will price actually be in 2015 for allowances? ______2. Carbon taxes (existing high gas taxes)

(1 gallon gas→ 20 lbs CO2)

A number of studies suggest (as a ballpark figure)

$20 per ton of CO2 an appropriate Pigouvian tax. That’s 20 cents a gallon. Germany gas tax is already $3 a gallon! 3. Subsidizing clean technology

Germany’s push for clean energy

energiewende or “energy transition” (see New York time article and video) http://www.nytimes.com/2014/09/14/science/earth/sun-and-wind-alter-german-landscape-leaving-utilities-behind.html?_r=0

Getting 30% of eletric power from “clean” energy (wind/solar), (compared to 15% in US) Key problem with Germany’s policy:

Wind and solar are intermittent.

So need conventional sources as backup.

But how can conventional sources be economically viable if you only run them as backup?

Carbon in the U.S. Emissions down since 2007. Key reasons why:

1. Improvements in automobile fuel economy a) Policy (fuel-efficiency standards) b) Higher gas prices for a while, now going the other way 2. Continuing decline in manufacturing

3. Natural gas replacing coal because of success of fracking (natural gas produces twice as much heat per carbon emitted as coal.) Big policy issue going forward.

 Divided government

 President Obama using executive power through the Environmental Protection Agency (EPA)

 EPA now defines carbon as pollution; announced rules to make power plants cut back.

 Delegating to states how it gets done (maybe cap-and-trade?) Carbon in China Emissions growing Key reason why: Economic Growth (See homework graph relating emissions and GDP)

President Xi Jinping has announced a cap and trade system starting 2015 “Two-for-one” for China because switching away from coal reduces particulate pollution (China’s problem) and carbon (World’s problem)

Next Step:

Platform Debate on Carbon Policy in sections this week I WANT YOU to propose and debate a policy on this issue. 2. Global Issue 2: International Trade

Suppose Econland opens up to trade with the rest of the world and widgets cost $1 in the world economy.

PWorld = 1

With free trade, this will drive the price in Econland to the world price. At this price, producers want to supply 1 unit, consumers demand 9 units. The difference of 9-1=8 is made up by imports. $ 10 D S 9 8 7 6 5 4 3 2 1 0 Q 0 1 2 3 4 5 6 7 8 9 10 What happens in our Econland Demand and Supply Graph when we open up to trade in rest of world at

PWorld = 1 $ 10 D S 9 8 7 6 5 4 3 2 1 0 Q 0 1 2 3 4 5 6 7 8 9 10 .

Effects of Trade when PWorld = 1

Table Ban Free Change Imports Trade P 5

Qprod 5

Qcon 5

Imports 0 CS 12 PS 12 Gov S 0 TS 25 (Econland ) Alternative Scenario: PWorld = 7

Illustrate PS and CS with free trade $ 10 D S 9 8 7 6 5 4 3 2 1 0 Q 0 1 2 3 4 5 6 7 8 9 10 Effects of Trade when PWorld = 7

Table Ban Free Change Exports Trade P 5

Qprod 5

Qcon 5

Exports 0 CS 12.5 PS 12,5 Gov S 0 TS 25 (Econland) In the news: Since the 1970s, we have a ban on exports of oil. Hasn’t been relevant, until very recently. Here is what monthly crude production looks like US is still a net importer. The issue is that there are different types of crude, and different kinds of refineries are designed for different grades of oil. With free trade, US oil producers can get top $. With banning of exports, excess supplies of particular grades of oil can depress prices.

Refineries think the ban on exports is great and want to keep it.