economics and environment

7/27/2019 Economics and Environment

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Chapter ??

Economics,

Environment, andSustainability


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Chapter Overview Questions

What are economic systems and how do theywork?

How do economists differ in their views of

economic systems, pollution control, andresource management?

How can we monitor economic environmental

progress?What economic tools can we use to improve

environmental quality?


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Chapter Overview Questions (contd)

How does poverty reduce environmentalquality, and how can we reduce poverty?

How can we shift to more environmentally

sustainable economies over the next fewdecades?


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Core Case Study: A New Economic

and Environmental Vision

Some components

of more

environmentally

sustainable

economic

development.

Figure 24-1


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Fig. 24-1, p. 569

Production of energy-efficient fuel-cell cars

Forestconservation

Underground CO2storageusing abandoned oil wells

No-till

cultivation High-speed trains

Deep-sea CO2storageSolar-cell

fields

Bicycling

Clusterhousingdevelopment

Wind farmsCommunitiesof passivesolar homes

LandfillRecyclingplant

Waterconservation

Recycling, reuse, &composting


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ECONOMIC SYSTEMS AND

SUSTAINABILITY

An economic system produces and

distributes goods and services by using

natural, human, and manufactured resources. In a pure free-market system, buyers and

sellers interact without any government or

other interference.

Actual capitalist market systems deviate from this

model.


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Economic Resources: The Big Three

Three types of resources are used to produce

goods and services.

Figure 24-2


8/51Fig. 24-2, p. 570

+ + =

NaturalResources

ManufacturedResources

HumanResources

Goods andServices


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Market Economic Systems: Pure Free

Market and Capitalistic Models

Supply, demand,

and market

equilibrium for agood or service in

a pure market

system.

Figure 24-3


10/51Fig. 24-3, p. 571

OIL

Quantitydemanded

Quantitysupplied

If the price is toohigh, more of agood is availablethan buyers arewilling to buy.

Surplus

At this market equilibriumprice, the quantity of a goodsuppliers are willing to sell isthe same as the quantitybuyers are willing to buy.

Price(low

tohigh)

If the price is too low,buyers want to buymore than suppliers

are willing to sell.

Quantity

supplied

ShortageQuantity

demanded0Quantit


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Government Intervention in Market

Economic Systems:

Correcting Market FailuresGovernments intervene in market systems to

help provide economic stability, national

security, and public services such as

education, crime protection, and

environmental protection.


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Environmentally Sustainable

Economic Development:

Copying Nature

Models of ecological economists are built on

the following assumptions:

Resources are limited.

Encourage environmentally beneficial and

sustainable forms of development.

The harmful environmental and health effects of

producing goods and services should be included

in market prices.


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Depletion of nonrenewableresources

Degradation & depletionof renewable resources usedfaster than replenished

Pollution, waste from

overloading natures wastedisposal & recycling systems

Fig. 24-4, p. 573

Sun EARTH

HeatEconomicSystems

Natural Capital Production

Air, water, land, soil,

biodiversity,minerals, rawmaterials, energyresources; dilution,decomposition, &recycling services Consumption

Recyclingand reuse


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Economic Development

Comparison of

unsustainable

economic

developmentand

environmentally

sustainableeconomic

development.

Figure 24-5


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Characteristic UnsustainableEconomic Growth

EnvironmentallySustainableEconomic

Development

Productionemphasis Quantity Quality

Natural resources Not very important Very important

Resourceproductivity

Inefficient (highwaste)

Efficient(low waste)

Resourcethroughput

High Low

Resource typeemphasized

Nonrenewable Renewable

Resource fate Matterdiscarded

Matter recycled,reused, or

composted

Pollution control Cleanup (outputreduction)

Prevention (inputreduction)

Guiding principles Riskbenefitanalysis

Prevention andprecaution


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ESTIMATING THE VALUE OF

ECOLOGICAL SERVICES AND

MONITORING ENVIRONMENTALPROGRESS

Economists have developed several ways to

estimate nonmarket values of the earths

ecological services based using:

Mit igat ion cos t: how much it takes to offset any

environmental damage.

Will ingness to pay: determine how much people

are willing to pay to keep the environment in tact

(e.g. protect an endangered species).


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ESTIMATING THE VALUE OF

ECOLOGICAL SERVICES AND

MONITORING ENVIRONMENTALPROGRESS

Economists use discount rates (estimate

resources future value compared to current)

to estimate the future value of a resource.

The market price you pay for something does

not include most of the environmental, health,

and other harmful costs associated with its

production and use.


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Estimating the Optimum Levels of

Pollution Control and Resource Use

Environmental

economists try to

determine optimumlevels of pollution

control and resource

use.

Figure 24-6


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High

Marginalcost of

resourceproductionC

ost

Marginalcost ofresourceuse

Low

Optimum level ofresource use

Coal removed (%)


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Optimum Pollution Control

The marginal cost of cleaning up pollution

rises with each additional unit removed.Figure 24-7


21/51Fig. 24-7, p. 576

High

Marginalcost ofpollution

C

ost

Marginalcost ofpollutioncontrol

Optimum pollutionclean-up level

Low

Pollution removed (%)


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Cost-Benefit Analysis:

a Useful but Crude Tool

Comparing likely costs and benefits of an

environmental action is useful but involves

many uncertainties.

Costbenefit analyses involves determining:

Who or what might be affected by a particular

regulation or project.

Projecting potential outcomes. Evaluating alternative actions.

Establishing who benefits and who is harmed.


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Environmental and Economic

Indicators: Environmental Radar

We need indicators that reflect changing

levels of environmental quality and human

health.

Gross domest ic product (GDP): measures the

annual economic value of all goods and services

produced in a country without taking harmful

effects into consideration. Genu ine progress ind icator (GPI): Subtracts

from the GDP costs that lead to a lower quality of

life or deplete / degrade natural resources.


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Environmental and Economic

Indicators: Environmental Radar

Comparison of

the per capita

GDP and theGPI in the U.S.

between 1950

and 2002.

Figure 24-8


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Fig. 24-8, p. 577

1996Dolla

rsperperson

Per capita genuine progress indicator (GPI)

Year


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How Would You Vote?

To conduct an instant in-class survey using a classroom responsesystem, access JoinIn Clicker Content from the PowerLecture main

menu for Living in the Environment.

Should full-cost pricing be used in settingmarket prices for goods and services?

a. No. Low-income people will not be able to

afford some essential goods and services. b. Yes. Full-cost pricing will improve

environmental protection.


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ECONOMIC TOOLS FOR

IMPROVING ENVIRONMENTALQUALITY

Including external costs in market prices

informs consumers about the harmful impactof their purchases the earths life-support

systems and on human health.


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Eco-Labeling: Informing Consumers

So They can Vote with Their Wallets

Certifying and labeling environmentallybeneficial goods and resources extracted bymore sustainable methods can helpconsumers decide what goods and services

to buy. Figure 24-9


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Fig. 24-9, p. 579

Germany:Blue Angel

(1978)

Canada:Environmental

Choice (1988)

United States:Green Seal

(1989)

NordicCouncil:

White Swan(1989)

EuropeanUnion:

Eco-label(1992)

China:Environmental

label (1993)


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Subsidy Shifting

Taxes on pollution and resource use canmove us closer to full-costing pricing.

Shifting taxes from wages and profits to pollution

and waste (green taxes) helps make thisfeasible.

We can improve environmental quality and

human health by replacing environmentallyharmful government subsidies with

environmentally beneficial ones.

Trade-Offs


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Fig. 24-10, p. 580

Trade Offs

Environmental Taxes and Fees

Advantages Disadvantages

Helps bring about full-cost pricing Penalizes low income groupsunless safety nets are provided

Provides incentive forbusinesses to do better tosave money

Hard to determine optimal levelfor taxes and fees

Need to frequently readjust levels,which is technically and politicallydifficult

Can change behavior ofpolluters and consumers iftaxes & fees are set at a highenough level

Govts may see this as a way of

increasing general revenue instead ofusing funds to improve environmentalquality and reduce taxes on income,payroll, & profits

Easily administered by existing taxagencies

Fairly easy to detect cheaters


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How Would You Vote?



Do the advantages of green taxes and feesoutweigh the disadvantages?

a. No. Low-income people, farmers, ranchers,

and small businesses would suffer fromenvironmental taxes and fees.

b. Yes. They would reduce waste and protect the

environment.


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Green Taxes

Advantages of

taxing wages

and profits less

and pollutionand waste

more.

Figure 24-11


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Fig. 24-11, p. 581

Decreases depletion and degradation of

natural resources

Improves environmental quality

by full-cost pricing

Encourages pollution

prevention & waste reduction

Stimulates creativity in solving

environmental problems to avoidpaying pollution taxes andthereby increases profits

Rewards recycling and reuse

Relies more on marketplace

rather than regulation for

environmental protection Provides jobs

Can stimulate sustainable

economic development

Allows cuts in income, payroll, and sales taxes


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How Would You Vote?



Do you favor shifting taxes on wages and profits to pollution and waste?

a. No. This tax system would penalize many farmers, ranchers, andbusinesses that cannot avoid generating waste.

b. Yes. But, only if we offer subsidies to assist lower income people in

meeting their basic needs.

c. Yes. It would promote a cleaner environment.


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ECONOMIC TOOLS FOR

IMPROVING ENVIRONMENTAL

QUALITY

Environmental laws and regulations work

best if they motivate companies to findinnovative ways to control and prevent

pollution and reduce resource waste.

Governments can set a limit on pollution

emissions or use of a resource, give permits

to users, and allow them to trade their

permits on the marketplace.

Trade-Offs


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Fig. 24-12, p. 582

Tradable Environmental Permits

Advantages Disadvantages

Big polluters and resource wasters canbuy their way out

Flexible

Easy to administer May not reduce pollution at dirtiest plants

Encourages pollution preventionand waste reduction

Can exclude small companies from buyingpermits

Caps can be too low

Can promote achievement of capsCaps must be gradually reduced toencourage innovation

Determining caps is difficultPermit prices determined by markettransactions Must decide who gets permits and why

Administrative costs high with manyparticipantsConfronts ethical problem of how much

pollution or resource waste isacceptable Emissions and resource wastes must

be monitored

Confronts problem of how permitsshould be fairly distributed

Sets bad example by selling legal rights topollute or waste resources

Self-monitoring can promote cheating


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How Would You Vote?



Do the advantages of using tradable pollution and resource-use permits

to reduce pollution and resource waste outweigh the disadvantages? a. No. The policies would allow old and dirty plants to continue polluting local

air and water.

b. Yes. The policies are effective ways of capping and then reducing air and

water pollution and resource use.


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Green Economics: Selling Services

Instead of Things

Some businesses can greatly decrease their

resource use, pollution, and waste by shifting

from selling goods and services to selling theservices the goods provide.

Carrier has begun shifting selling heating and air

conditioning equipment to providing the service

itself.

It makes higher profits by having the most energy-

efficient units.

REDUCING POVERTY TO


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REDUCING POVERTY TO

IMPROVE ENVIRONMENTAL

QUALITY AND HUMANWELL-BEING

We can sharply cut poverty by forgiving theinternational debts of the poorest countries,

greatly increasing international aid and small

individual loans to help the poor helpthemselves.

Di t ib ti f th W ld W lth


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Distribution of the Worlds Wealth: a

Widening Gap

The global

distribution of

income shows

that most of the

worlds income

flows up.

Each horizontal band is 1/5th

of the worlds population Figure 24-13


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Fig. 24-13, p. 584

Richest fifth85%

Poorest fifth1.3%


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Solutions: Achieving the Millennium

Development Goals

In 2000, the worlds nations set goals for

sharply reducing hunger and poverty,

improving health care and moving towardenvironmental sustainability by 2015.

In 1980 and 2002, developed countries agreed to

devote 0.7% of their annual national income

towards achieving such goals.

The average amount donated was 0.25%.

The U.S. gives 0.16%.


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Fig. 24-14, p. 586


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Fig. 24-14a, p. 586

Expenditures per year (2005)

World military

U.S. military

U.S. highways$29 billion

U.S. potatochips & snacks $22 billion

U.S. pet foods$19 billion

U.S. EPA$8 billion

U.S. foreign aid$8 billion

U.S. cosmetics$8 billion

$492 billion(including Iraq)

$1trillion

Expenditures per year needed to


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Fig. 24-14b, p. 586

Eliminate hunger & malnutrition $48 billion

Provide clean drinking waterand sewage treatment for all

$37 billion

Provide basic health care for all $33 billion

Protect biodiversity $31 billion

Protect topsoil on cropland $24 billion

Provide universal primaryeducation and end illiteracy

$16 billion

Restore fisheries $13 billion

Deal with global HIV/AIDS $10 billion

Stabilize water tables $10 billion

Restore rangelands $9 billion

Protect tropical forests $8 billion

Reforest the earth$6 billion

Total Earth Restoration and Social Budget = $245 billion


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MAKING THE TRANSITION TO

MORE ENVIRONMENTALLY

SUSTAINABLE ECONOMIES

Nature's four principles of sustainability and a

number of environmental and economicstrategies can be used to develop more

environmentally sustainable economies.

The Netherlands has dedicated itself tomaking its economy more environmentally

sustainable.


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Eco-Economies

Principles forshifting to more

environmentally

sustainableeconomies

during this

century.

Figure 24-15

Economics Environmentally Resource Use &P ll ti


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Fig. 24-15, p. 587

SustainableEconomy (Eco-

Economy)

PollutionReward (subsidize) earthsustaining behavior Reduce resource use

and waste by refusing,reducing, reusing, andrecycling

Penalize (tax and donot subsidize) earthdegrading behavior

Improve energyefficiencyShift taxes from wages

and profits to pollutionand waste

Rely more on renewablesolar and geothermalenergyUse full-cost pricingShift from a carbon-based (fossil fuel)

economy to arenewable fuelbasedeconomy

Sell more servicesinstead of more things

Do not deplete or degradenatural capital

Live off income fromnatural capital

Reduce poverty

Ecology &Population

Use environmentalindicators to measureprogress

Mimic nature

Preserve biodiversity

Certify sustainablepractices and products

Repair ecologicaldamage

Use eco-labels on

products

Stabilize population by

reducing fertility


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Jobs, Profits, and

the Environment:

New Industriesand New Jobs

Shifting to moreenvironmentally

sustainable

economies will

create immense

profits and huge

numbers of jobs.

Figure 24-16

Environmentally SustainableC


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Businesses and Careers

AquacultureEnvironmental law

Biodiversity protectionEnvironmental nanotechnology

Biofuels

Fuel cell technology

Climate change research

Geographic information systems (GIS)

Conservation biology

Geothermal geologist

Eco-industrial design

Hydrogen energy

Marine science

Ecotourism managementPollution prevention

Energy efficient product design

Reconciliation ecology

Selling services in place of products

Environmental chemistry Solar cell technology

Environmental design Sustainable agriculture

Environmental economicsSustainable forestry

Environmental educationWaste reduction

Watershed hydrologist

Environmental engineering Water conservation

economics and environment

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