Reference no: EM133599331

Case Study: A few years back we were contracted to build a landfill gas to electricity project in the Willamette valley in Oregon. When finished it would power around 6,000 homes with super clean renewable energy. It is super clean because the landfill gas is otherwise wasted PLUS if not captured, it goes into the atmosphere unhindered. Methane is many, many times more damaging than CO2 in regards to degradation of ozone (we use 36 times as a benchmark, but you can find data that it is up to 100 times worse). So, we double up on the clean-ness. The quick basics are when we do one of these projects, we build the gas collection system (GCS), saving the municipal tax payers that expense. We build the electricity plant. We own & operate the plant while the landfill owner operates the GCS to stay in compliance with their emissions permits (some are federal, some are state, some are even local).

So, it's a win-win-win --> especially for the homeowners that don't have to pay the bill for environmental compliance at the landfill AND they get super clean energy. Well, as we were scoping out the lay of the land looking for some land upon which to build our plant, we were surprised to see that there were little bows tied around a whole bunch of plant stems - flower stems to be precise. What in the world was that? "Oh..that? That's because there's an endangered butterfly that lives in the valley. They eat those flowers - only those flowers. You can't destroy any of those flowers." Excuse me???? There were bows EVERYWHERE. "Oh...you can destroy them, if you create space within the valley that offsets the lost flowers where you want to build." In other words, move the flowers to a new place or plant as many new flowers as you destroy. As a side note, this sort of requirement is relatively common, including here in Michigan in regards to wetlands; but I've never encountered it for flowers.

These projects are razor thin on ROI, so any additional cost will likely kill the project. Also, these projects are subsidized by the federal government through tax credits to the ownership group; so the feds want these projects (you read about this in your reading for the week). If the project doesn't happen its: lose-lose-lose-lose-lose (i.e. for landfill owner, firm, residents, feds, ozone layer)

Questions: Come up with a solution.

1) In general, what happens when the government intervenes? Is it necessary a bad thing? Outline the justifications used for government intervention - e.g., externalities, monopoly power, asymmetric information, and public goods. Define each. Discuss your thoughts on these "justified" interventions.

2) How about my example? Was this a 'justified' intervention? It clearly limited the market for super clean energy. Make sure to consider the governments side. Why would they kill a project like this? What's the gain? Is it economic? Social? Political?

3) Now, put on your critical thinking economist caps. Can you come up with an alternative solution that could have saved the project AND satisfied the concerns of the government & the environmentalists?