005 Economics, Policy & Sustainable Development

Environment & Ecology

• Economics is concerned with allocation of scarce resources—including environmental

• Most environmental and economic problems are linked.

What is Environmental Economics?

The environment and economy are linked

• Economies receive inputs from the environment.

–Process them for use

–Discharge the wastes back into the environment

• Traditional economists ignore the environment.

–Environmental economists accept that human economies exist within, and depend on, the environment.

Natural Resources the Environment Provides

• Renewable resources:– Perpetually available: sunlight, wind, wave

energy– Renew themselves over short periods of

time• These can be destroyed

• Non-renewable resources: can be depleted

Renewable

Natural Resources the Environment Provides

Nonrenewable

MineralsFossil Fuels

ForestWaterFruit/NutsFish

• Waste are cleaned up

• Protect against flooding and hurricane damage

• Medicine

• Providing space for recreation, scenery, wildlife and aesthetic enjoyment

Natural Resources the Environment Provides

Environmental systems interact• Natural systems are divided into

categories– Lithosphere: rock and sediment– Atmosphere: the air surrounding the planet– Hydrosphere: all water on earth– Biosphere: the planet’s living organisms

• Categorizing systems allows humans to understand earth’s complexity.– Most systems overlap

Hydrosphere

• Lithosphere

• Hydrosphere

Environmental Segments

• Biosphere

• Atmosphere

Lithosphere

Biosphere

Atmosphere

Hydrosphere

• Economic growth and environmental Balance

• Conservation recourses

• Pollution control and environment

Scope of Environmental Economics

Ozone depletion

Atmospheric Pollution

Acid Rain

Global warming

• What is the fundamental nature of the environmental problem?

• Should the government “intervene” at all?

• How clean should the environment be?

• How can we achieve the desired environmental quality?

Policy Questions -EE

• “Free” markets will generate excessive pollution and overuse environmental services, hence, collective or public intervention is necessary

• How clean the environment should be? Till MB=MC

• Design of policy instruments to achieve environmental goals

• Valuation of non-market goods

Economic Perspective on Environmental Management

U.S. Environmental PolicyEarly U.S. environmental

policy addressed land management.(1st wave)

• To promote settlement, and the extraction and use of the West’s abundant natural resources.

• The Western lands were considered practically infinite, and inexhaustible in natural resources.

Second wave of U.S. environmental policy

addressed impacts of the first.• During this time the government

created national parks, wildlife refuges, and the forest system.

Grand Canyon of the Yellowstone, 1872 by Thomas Moran John Muir & Teddy Roosevelt in Yosemite

Earth Day April 22, 197020 million Americans

participated!

The public demanded that the federal government do more to protect the environment. Why?

• The publication of Rachel Carson’s Silent Spring, 1962

• The burning of the Cuyahoga River on several occasions in the 1950s and 1960s.

• The Santa Barbara, California oil spill in 1969.

The third wave responded largely to pollution.

NEPA (National Environmental Policy Act, 1970) was signed in 1970 and require EIS (Environmental Impact Statement) for federal actions and The Environmental Protection Agency (EPA) is created.

Other prominent laws followed: Two major laws were the Federal Water Pollution Control Acts (1965 and 1972) and Clean Water Act (1977).

Approaches to Environmental Policy

1. Command-and-control • An approach that sets strict legal limits, and

punishments as opposed to financial incentives.

• Ex. Regulate pollutants such as SO2 and NOx

Auto emissions Coal plant

Approaches to Environmental Policy

2. Subsidy• A government

giveaway of cash or publicly owned resources used to promote a particular activity.

Grains 20%

Sugar, oil, starch, alcohol 15%

Nuts & legumes 2%

Fruits & vegetables <1%

Meat & dairy 63%

The food that subsidies support

Approaches to Environmental Policy

3. Green taxes • Discourages undesirable activities by taxing

activities and products that cause undesirable environmental impacts.

• It’s a tool for policy as well as a way to fund government.

Tire disposal taxElectronic waste tax

Approaches to Environmental Policy

4. Markets in permits • The government can issue permits to

individual polluters. • They may buy, sell, and trade these

marketable emissions permits• this provides financial incentives to reduce

pollution.

Approaches to Environmental Policy

5. Ecolabeling • tells consumers which brands use

environmentally benign processes.

Real Progress• In 1850 New Hampshire was

35% woods; today it is 80% woods. Much of Massachusetts, New Hampshire, and New York exhibit similar patterns.

• Costa Rica now protects 25% of its entire country in national parks.

Real Progress

Clean Air Act, 1970• EPA successfully

improved ozone (smog), carbon monoxide, sulfur dioxide, nitrogen dioxide, lead, and particulate soot in U.S.

• EPA announced in April of 2009 that CO2 is a pollutant and will be regulated. Source: AQMD.gov, 2009

Real ProgressDenmark no longer imports oil because of

widespread adoption of wind power.

Iceland no longer imports oil because of widespread construction of geothermal power plants.

Brazil no longer imports oil now that it uses sugar cane to make bio-fuels.

QUESTION: ReviewIn a capitalist market economy:

a) People get their daily needs from nature

b) The government determines what is produced

c) People do not purchase or trade goods

d) Buyers and sellers determine production of goods

e) People believe that making a profit is bad

QUESTION: ReviewWhich of the following is an ecosystem service?

a) Water purification in wetlands

b) Climate regulation in the atmosphere

c) Nutrient cycling in ecosystems

d) Waste treatment by bacteria

e) All of the above are ecosystem services.

QUESTION: Review

While valuable, neoclassical economics has led to environmental problems because:

a) Resources are treated as unlimited

b) Long-term effects are downplayed

c) Costs and benefits are experienced by people other than just the buyer and seller

d) All of the above assumptions have resulted in environmental problems.

QUESTION: Review

Which of the following is NOT considered an economic externality?a) Human health

b) Property damage

c) Price a buyer pays for a product

d) Aesthetic damage

e) All of the above are externalities.

QUESTION: ReviewWhich of the following statements would be spoken by an ecological economist?

a) The current economic system is working fine.

b) The current economic system simply needs to be fine-tuned.

c) The current economic system is broken and a new one needs to be developed.

d) Economic systems never work.

QUESTION: Review

________ occur(s) when the market does not reflect the negative impact on the environment of a particular activity.

a) A subsidy

b) Green taxes

c) Market failure

d) Equity

QUESTION: Review

_______ is defined as “policy made by the government that consists of laws and regulations.”

a) Tort lawb) Public policyc) Market failured) Tragedy of the commons

Which of the following is a goal of environmental policy?

a) Resource protection

b) Elimination of free riders

c) Addressing external costs

d) Promoting equity

e) All of these are goals of environmental policy.

QUESTION: Review

Policy is formulated to prevent ________, which tempts people to cheat.

a) Resource protection

b) External costs

c) The tragedy of the commons

d) Free riders

d) Overuse of a commonly held resource by the public

QUESTION: Review

What happened to the Cuyahoga River, which increased awareness of environmental problems?

a) It smelled bad.

b) People drowned in it.

c) It was drained.

d) It caught on fire.

e) It was drained because of its high pollution levels.

QUESTION: Review

NEPA requires an Environmental Impact Statement when:

a) An economically expensive project is proposed

b) Any state action may affect the environment

c) Any federal action may affect the environment

d) Politicians decide one is needed

e) The public demands one

QUESTION: Review

The _________ represent(s) multinational corporations to promote free trade and interpret(s) some environmental laws as unfair to trade.

a) World Trade Organization

b) The European Union

c) United Nations Environment Programme

d) Non-governmental Organizations

e) All of these represent multinational corporations.

QUESTION: Review

QUESTION: Review

Which statement is FALSE when formulating environmental policy?

a) Identification of the problem is the first step.b) Envisioning a solution to a problem involves

both science and social action.c) Individuals tend to be more effective than

organizations.d) Lobbyists try to influence politicians.e) The final step of policy formulation ends up with

a proposed bill or draft law.