The document discusses Cape Town's water crisis from 2015-2017 due to a severe drought. Some key points: - Cape Town's population grew 79% from 1995 to 2018, straining water supplies. Water levels dropped to 10% capacity by May 2017. - Strict water restrictions were implemented from 2016-2017 as the crisis worsened, limiting usage to 50 liters/person/day by September 2017. "Day Zero" was set for April 2018 when taps would be shut off. - While the intense drought has ended, Cape Town is not yet free from water scarcity issues due to population growth. Desalination plants and more efficient dam systems are proposed solutions.

1. Cape Town Water Crisis and the Efficient Use of Scarce Water
By: Peter Ferrara
Cape Town Water Crisis Overview
As far back as 1990, water scarcity was talked about in South
Africa, with an article in the Cape Times predicting the city
would run out of water in 2007
Since then rapid population growth has played a role in the
water conversation
From 1995 to 2018 Cape Town’s Population grew 79%
Population not sits at close to 4 million people including the
greater metropolitan area
2014: cities water supply is 71.9%
2015: dropped all the way to 50% total capacity
May 2017: water levels reach low of 10% capacity

2. Water Restriction Timeline
South Africa experienced a once in a century drought from
2015-late 2017
Water restrictions
Jan. 1, 2016- level 2
Nov. 1, 2016- level 3, no use of hoses or sprinklers in
residential areas
Jun. 1 2017- level 4, water usage limited to 100L/person/day
Sep. 3, 2017- level 5, water usage limited to 50L/person/day
By Christmas Day 0 was set for April 21 2018
> Day 0 is the day when municiple water supplies would largely
be shut off and residents would have to rely on 140 water
collection points throughout the city to collect their water ration
of 25 L/person/day
> Day 0 was eventually moved back to May, then June, then
July and eventually postponed to an undisclosed date in 2019
> while the intense drought has largely finished Cape town in
not yet free of water scarcity
Tourism
According to the Tourism Satellite Account for South Africa
report, tourism directly contributed to 2.9% of GDP in 2016
This may seem small however, the tourism sector is now a
larger GDP driver than Agriculture
Despite pressure from the drought, the tourism sector saw a net
gain of 40,000 jobs from 2012 to 2016
Additionally it is hard to fully estimate how much revenue
tourism generates because certain actions by tourists are
categorized differently in GDP (buses and trains fall under

3. transportation)
Where does Cape Town go from here?
While the drought may be considered over, Cape Town and
South Africa in general most take further precautions to prevent
a crisis like this happening again
Recognizing that tourism is an essential driver of South Africa’s
GDP, Cape Town must include its water usage in any and all
water conservation methods moving forward.
Possible solutions
Desalination Centers
Cape Town has already released funding to build 3 emergency
desalination plants
More Efficient Dam Drainage Systems
Roughly 10% of their main water supply is unusable because it
is too difficult to drain from the dam
References
Flynn, Jaqueline. “How Cape Town Defeated Day Zero-for
Now.” Pulitzer Center, 23 Oct. 2018

4. “Chapter 9.” Environmental and Natural Resource Economics,
by Thomas H. Tietenberg, Taylor & Francis Group, 2018, pp.
208–212.
Africa, Statistics South. “How Important Is Tourism to the
South African Economy?” Statistics South Africa, 26 Mar.
2018, www.statssa.gov.za/?p=11030.
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14. ISBN-13: 978-0-13-139257-1 (alk. paper)
ISBN-10: 0-13-139257-3 (alk. paper)
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ISBN-10: 0-13-139257-3
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v
Contents in Brief
Preface xxi
1 Visions of the Future 1
2 The Economic Approach: Property Rights, Externalities,
and Environmental Problems 16
3 Evaluating Trade-Offs: Benefit–Cost Analysis and Other
Decision-Making Metrics 46
4 Valuing the Environment: Methods 74
5 Dynamic Efficiency and Sustainable Development 102
6 Depletable Resource Allocation: The Role of Longer Time
Horizons, Substitutes, and Extraction Cost 118
7 Energy: The Transition from Depletable to Renewable

15. Resources 140
8 Recyclable Resources: Minerals, Paper, Bottles, and E-Waste
180
9 Replenishable but Depletable Resources: Water 204
10 A Locationally Fixed, Multipurpose Resource: Land 237
11 Reproducible Private Property Resources: Agriculture
and Food Security 262
12 Storable, Renewable Resources: Forests 293
13 Common-Pool Resources: Fisheries and Other Commercially
Valuable Species 320
14 Economics of Pollution Control: An Overview 359
15 Stationary-Source Local and Regional Air Pollution 397
16 Climate Change 424
17 Mobile-Source Air Pollution 442
18 Water Pollution 471
19 Toxic Substances and Environmental Justice 508
20 The Quest for Sustainable Development 538
21 Population and Development 564
22 Visions of the Future Revisited 589
Answers to Self-Test Exercises 600
Glossary 623
Name Index 635
Subject Index 642
vi
Contents
Preface xxi

16. 1 Visions of the Future 1
Introduction 1
The Self-Extinction Premise 1
EXAMPLE 1.1 Historical Examples of Societal Self-Extinction
2
Future Environmental Challenges 3
Climate Change 3
Water Accessibility 4
Meeting the Challenges 5
How Will Societies Respond? 6
The Role of Economics 6
DEBATE 1.1 Ecological Economics versus Environmental
Economics 7
The Use of Models 8
EXAMPLE 1.2 Experimental Economics: Studying Human
Behavior in a Laboratory 9
The Road Ahead 9
The Issues 10
DEBATE 1.2 What Does the Future Hold? 11
An Overview of the Book 11
Summary 13 ● Discussion Questions 14 ● Self-Test Exercise 14
● Further Reading 14
2 The Economic Approach: Property Rights,
Externalities, and Environmental Problems 16
Introduction 16
The Human–Environment Relationship 17
The Environment as an Asset 17

17. The Economic Approach 19
EXAMPLE 2.1 Economic Impacts of Reducing Hazardous
Pollutant
Emissions from Iron and Steel Foundries 20
Environmental Problems and Economic Efficiency 20
Static Efficiency 20
Property Rights 22
Property Rights and Efficient Market Allocations 22
Efficient Property Rights Structures 23
Producer’s Surplus, Scarcity Rent, and Long-Run Competitive
Equilibrium 24
Externalities as a Source of Market Failure 25
The Concept Introduced 25
Types of Externalities 26
EXAMPLE 2.2 Shrimp Farming Externalities in Thailand 27
Improperly Designed Property Rights Systems 28
Other Property Rights Regimes 28
Public Goods 31
Imperfect Market Structures 33
EXAMPLE 2.3 Public Goods Privately Provided: The Nature
Conservancy 34
Government Failure 35
DEBATE 2.1 How Should OPEC Price Its Oil? 36
The Pursuit of Efficiency 38

18. Private Resolution through Negotiation 38
The Courts: Property Rules and Liability Rules 39
Legislative and Executive Regulation 41
An Efficient Role for Government 42
Summary 43 ● Discussion Questions 43 ● Self-Test Exercises
44
● Further Reading 45
3 Evaluating Trade-Offs: Benefit–Cost Analysis
and Other Decision-Making Metrics 46
Introduction 46
Normative Criteria for Decision Making 46
Evaluating Predefined Options: Benefit–Cost Analysis 46
EXAMPLE 3.1 Valuing Ecological Services from Preserved
Tropical Forests 48
Finding the Optimal Outcome 48
Relating Optimality to Efficiency 50
Comparing Benefits and Costs Across Time 52
Dynamic Efficiency 53
Applying the Concepts 54
Pollution Control 54
EXAMPLE 3.2 Does Reducing Pollution Make Economic
Sense?
Evidence from the Clean Air Act 54
Preservation versus Development 56
EXAMPLE 3.3 Choosing between Preservation and
Development in Australia 57
Issues in Benefit Estimation 57
viiContents

19. Approaches to Cost Estimation 58
The Treatment of Risk 59
Distribution of Benefits and Costs 61
Choosing the Discount Rate 62
EXAMPLE 3.4 The Importance of the Discount Rate 63
Divergence of Social and Private Discount Rates 64
A Critical Appraisal 65
Cost-Effectiveness Analysis 66
EXAMPLE 3.5 NO2 Control in Chicago: An Example of
Cost-Effectiveness Analysis 68
Impact Analysis 68
Summary 69 ● Discussion Questions 70 ● Self-Test Exercises
71
● Further Reading 71
Appendix: The Simple Mathematics of Dynamic Efficiency 73
4 Valuing the Environment: Methods 74
Introduction 74
Why Value the Environment? 75
DEBATE 4.1 Should Humans Place an Economic Value
on the Environment? 76
Valuing Environmental Services: Pollination as an Example 76
EXAMPLE 4.1 Valuing Ecosystem Services: Pollination,
Food Security, and the Collapse of Honeybee Colonies 77
Valuation 78

20. Types of Values 79
EXAMPLE 4.2 Historical Example: Valuing the Northern
Spotted Owl 81
Classifying Valuation Methods 82
Stated Preference Methods 83
DEBATE 4.1 Willingness to Pay versus Willingness to Accept:
Why So
Different? 86
EXAMPLE 4.3 Leave No Behavioral Trace: Using the
Contingent Valuation
Method to Measure Passive-Use Values 89
Revealed Preference Methods 90
Travel Cost Method 90
Hedonic Property Value and Hedonic Wage Methods 91
Averting Expenditures 92
Using Geographic Information Systems for
Economic Valuation 92
EXAMPLE 4.4 Valuing Damage from Groundwater
Contamination Using
Averting Expenditures 92
EXAMPLE 4.5 Using GIS to Inform Hedonic Property Values:
Visualizing the Data 94
DEBATE 4.2 Is Valuing Human Life Immoral? 95
Summary: Nonmarket Valuation Today 98 ● Discussion
Questions 99
● Self-Test Exercises 99 ● Further Reading 100
viii Contents

21. 5 Dynamic Efficiency and Sustainable Development 102
Introduction 102
A Two-Period Model 103
Defining Intertemporal Fairness 107
Are Efficient Allocations Fair? 108
EXAMPLE 5.1 The Alaska Permanent Fund 110
Applying the Sustainability Criterion 110
EXAMPLE 5.2 Nauru: Weak Sustainability in the Extreme 112
Implications for Environmental Policy 113
Summary 114 ● Discussion Question 115 ● Self-Test Exercises
115
● Further Reading 116
Appendix: The Mathematics of the Two-Period Model 117
6 Depletable Resource Allocation: The Role of Longer
Time Horizons, Substitutes, and Extraction Cost 118
Introduction 118
A Resource Taxonomy 119
Efficient Intertemporal Allocations 123
The Two-Period Model Revisited 123
The N-Period Constant-Cost Case 124
Transition to a Renewable Substitute 125
Increasing Marginal Extraction Cost 127
Exploration and Technological Progress 129
EXAMPLE 6.1 Historical Example of Technological Progress in
the Iron
Ore Industry 130
Market Allocations of Depletable Resources 131
Appropriate Property Rights Structures 131

22. Environmental Costs 132
Summary 134 ● Discussion Question 135 ● Self-Test Exercises
135
● Further Reading 136
Appendix: Extensions of the Constant Extraction cost
Depletable
Resource Model: Longer Time Horizons and the Role of an
Abundant Substitute 137
7 Energy: The Transition from Depletable to Renewable
Resources 140
Introduction 140
EXAMPLE 7.1 Hubbert’s Peak 141
Natural Gas: Price Controls 142
Oil: The Cartel Problem 146
Price Elasticity of Oil Demand 147
ixContents
Income Elasticity of Oil Demand 148
Non-OPEC Suppliers 148
Compatibility of Member Interests 149
Fossil Fuels: Climate Considerations and National Security 151
The Climate Dimension 151
The National Security Dimension 152
DEBATE 7.1 How Should the United States Deal with the
Vulnerability
of Its Imported Oil? 154

23. EXAMPLE 7.2 Strategic Petroleum Reserve 156
The Other Depletable Sources: Unconventional Oil and Gas,
Coal,
and Nuclear Energy 157
Unconventional Oil and Gas Sources 157
EXAMPLE 7.3 Fuel from Shale: The Bakken Formation 158
Coal 159
Uranium 159
Electricity 163
EXAMPLE 7.4 Electricity Deregulation in California: What
Happened? 166
EXAMPLE 7.5 Tradable Energy Credits: The Texas Experience
167
EXAMPLE 7.6 Feed-in Tariffs 168
Energy Efficiency 169
Transitioning to Renewables 170
Hydroelectric Power 170
Wind 171
Photovoltaics 171
DEBATE 7.2 Dueling Externalities: Should the United States
Promote Wind Power? 172
Active and Passive Solar Energy 172
Ocean Tidal Power 173
Liquid Biofuels 173
Geothermal Energy 174
x Contents
Hydrogen 174
Summary 176 ● Discussion Questions 177 ● Self-Test Exercises

24. 177
● Further Reading 178
8 Recyclable Resources: Minerals, Paper, Bottles,
and E-Waste 180
Introduction 180
An Efficient Allocation of Recyclable Resources 180
Extraction and Disposal Cost 180
Recycling: A Closer Look 182
Recycling and Ore Depletion 183
Factors Mitigating Resource Scarcity 184
Exploration and Discovery 184
EXAMPLE 8.1 Lead Recycling 185
Technological Progress 186
Substitution 186
EXAMPLE 8.2 The Bet 188
Market Imperfections 188
Disposal Cost and Efficiency 189
The Disposal Decision 189
Disposal Costs and the Scrap Market 191
Subsidies on Raw Materials 191
Corrective Public Policies 192
EXAMPLE 8.3 Pricing Trash in Marietta, Georgia 192
DEBATE 8.1 “Bottle Bills”: Economic Incentives at Work? 194
EXAMPLE 8.4 Implementing the “Take-Back” Principle 196
Markets for Recycled Materials 197
E-Waste 197
Pollution Damage 200

25. Summary 201 ● Discussion Questions 202 ● Self-Test Exercises
202
● Further Reading 203
9 Replenishable but Depletable Resources: Water 204
Introduction 204
The Potential for Water Scarcity 205
The Efficient Allocation of Scarce Water 208
Surface Water 209
Groundwater 211
The Current Allocation System 212
Riparian and Prior Appropriation Doctrines 212
Sources of Inefficiency 214
DEBATE 9.1 What Is the Value of Water? 218
Potential Remedies 219
Water Transfers and Water Markets 219
EXAMPLE 9.1 Using Economic Principles to Conserve Water in
California 220
EXAMPLE 9.2 Water Transfers in Colorado: What Makes a
Market
for Water Work? 221
EXAMPLE 9.3 Water Market Assessment: Austrailia, Chile,
South Africa, and the United States 222
Instream Flow Protection 223
Water Prices 223
EXAMPLE 9.4 Reserving Instream Rights for Endangered
Species 224
EXAMPLE 9.5 Water Pricing in Canada 229
Desalination 230
Summary 231

26. DEBATE 9.2 Should Water Systems Be Privatized? 232
xiContents
GIS and Water Resources 233
Summary 233 ● Discussion Questions 234 ● Problems 234
● Further Reading 235
10 A Locationally Fixed, Multipurpose
Resource: Land 237
Introduction 237
The Economics of Land Allocation 238
Land Use 238
Land-Use Conversion 239
Sources of Inefficient Use and Conversion 240
Sprawl and Leapfrogging 240
Incompatible Land Uses 242
Undervaluing Environmental Amenities 242
The Influence of Taxes on Land-Use Conversion 243
DEBATE 10.1 Should Landowners Be Compensated for
“Regulatory Takings”? 244
Market Power 245
Special Problems in Developing Countries 246
DEBATE 10.2 What Is a “Public Purpose”? 247
Innovative Market-Based Policy Remedies 249
Establishing Property Rights 249
Transferable Development Rights 249
Wetlands Banking 250
EXAMPLE 10.1 Controlling Land Development with TDRs 250

27. Conservation Banking 251
EXAMPLE 10.2 Conservation Banking: The Gopher Tortoise
Conservation Bank 252
Safe Harbor Agreements 252
Grazing Rights 253
Conservation Easements 253
Land Trusts 254
EXAMPLE 10.3 Using a Community Land Trust to Protect
Farmland 255
Development Impact Fees 256
Property Tax Adjustments 256
DEBATE 10.3 Does Ecotourism Provide a Pathway to
Sustainability? 257
EXAMPLE 10.4 Trading Water for Beehives and Barbed Wire
in Bolivia 258
EXAMPLE 10.5 Tax Strategies to Reduce Inefficient Land
Conversion:
Maine’s Open Space Program 259
xii Contents
Summary 258 ● Discussion Questions 260 ● Self-Test Exercises
260
● Further Reading 261
11 Reproducible Private Property Resources:
Agriculture and Food Security 262
Introduction 262
Global Scarcity 263
xiiiContents

28. Formulating the Global Scarcity Hypothesis 264
Testing the Hypotheses 266
Outlook for the Future 267
EXAMPLE 11.1 Can Eco-Certification Make a difference?
Organic
Costa Rican Coffee 277
DEBATE 11.1 When Organic Goes Mainstream:
Do You Get What You Pay For? 278
The Role of Agricultural Policies 278
Summing Up: Agriculture in the Industrialized Nations 280
DEBATE 11.2 Should Genetically Modified Organisms
Be Banned? 281
EXAMPLE 11.2 Are Consumers Willing to Pay a Premium
for GMO-Free Foods? 282
Distribution of Food Resources 282
Defining the Problem 283
Domestic Production in Developing Countries 283
Climate Change 286
Feast and Famine Cycles 286
Summary 290 ● Discussion Questions 291 ● Self-Test Exercises
291
● Further Reading 292
12 Storable, Renewable Resources: Forests 293
Introduction 293
Characterizing Forest Harvesting Decisions 294
Special Attributes of the Timber Resource 294

29. The Biological Dimension 295
The Economics of Forest Harvesting 296
Extending the Basic Model 299
Sources of Inefficiency 301
Perverse Incentives for the Landowner 301
Perverse Incentives for Nations 304
Poverty and Debt 305
Sustainable Forestry 306
Public Policy 307
EXAMPLE 12.1 Producing Sustainable Forestry through
Certification 308
EXAMPLE 12.2 Conservation Easements in Action: The
Blackfoot
Community Project 310
Royalty Payments 311
Carbon Sequestration Credits 311
EXAMPLE 12.3 Does Pharmaceutical Demand Offer Sufficient
Protection to Biodiversity? 312
EXAMPLE 12.4 Reducing Emissions from Deforestation and
Forest
Degradation (REDD): A Twofer? 313
EXAMPLE 12.5 Trust Funds for Habitat Preservation 314
Summary 314 ● Discussion Questions 316 ● Self-Test Exercises
316
● Further Reading 317
Appendix: The Harvesting Decision: Forests 318

30. 13 Common-Pool Resources: Fisheries and
Other Commercially Valuable Species 320
Introduction 320
Efficient Allocations 321
The Biological Dimension 321
Static Efficient Sustainable Yield 323
Dynamic Efficient Sustainable Yield 325
Appropriability and Market
Solution
s 327
EXAMPLE 13.1 Open-Access Harvesting of the Minke Whale
330
EXAMPLE 13.2 Harbor Gangs of Maine and Other Informal
Arrangements 331
Public Policy toward Fisheries 332
Aquaculture 332
DEBATE 13.1 Aquaculture: Does Privatization Cause More
Problems than It Solves? 335
Raising the Real Cost of Fishing 336
Taxes 338
Individual Transferable Quotas (ITQs) and Catch Shares 339

31. EXAMPLE 13.3 The Relative Effectiveness of Transferable
Quotas and
Traditional Size and Effort Restrictions in the
Atlantic Sea Scallop Fishery 344
Subsidies and Buybacks 345
Marine-Protected Areas and Marine Reserves 345
The 200-Mile Limit 347
The Economics of Enforcement 347
Preventing Poaching 349
DEBATE 13.2 Bluefin Tuna: Is Its High Price Part of the
Problem
or Part of the