Economics, Environment, and Sustainability

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Chapter 24

• Economics, Environment, and Sustainability

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Chapter Overview Questions

• What are economic systems and how do they work?
• How do economists differ in their views of
  economic systems, pollution control, and resource
  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 environmental quality,
  and how can we reduce poverty?
• How can we shift to more environmentally
  sustainable economies over the next few decades?

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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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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
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Market Economic Systems Pure Free Market and
Capitalistic Models

• Supply, demand, and market equilibrium for a good
  or service in a pure market system.

Figure 24-3
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Government Intervention in Market Economic
Systems Correcting Market Failures

• Governments 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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EARTH
Sun
Economic Systems
Heat
Depletion of nonrenewable resources
Production
Natural Capital
Air, water, land, soil, biodiversity, minerals,
raw materials, energy resources dilution,
decomposition, recycling services
Degradation depletion of renewable resources
used faster than replenished
Consumption
Pollution, waste from overloading natures waste
disposal recycling systems
Recycling and reuse
Fig. 24-4, p. 573
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Economic Development

• Comparison of unsustainable economic development
  and environmentally sustainable economic
  development.

Figure 24-5
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ESTIMATING THE VALUE OF ECOLOGICAL SERVICES AND
MONITORING ENVIRONMENTAL PROGRESS

• Economists have developed several ways to
  estimate nonmarket values of the earths
  ecological services based using
• Mitigation cost how much it takes to offset any
  environmental damage.
• Willingness 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 ENVIRONMENTAL PROGRESS

• 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 optimum
  levels of pollution control and resource use.

Figure 24-6
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Optimum Pollution Control

• The marginal cost of cleaning up pollution rises
  with each additional unit removed.

Figure 24-7
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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 domestic product (GDP) measures the annual
  economic value of all goods and services produced
  in a country without taking harmful effects into
  consideration.
• Genuine progress indicator (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 the GPI in
  the U.S. between 1950 and 2002.

Figure 24-8
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ECONOMIC TOOLS FOR IMPROVING ENVIRONMENTAL QUALITY

• Including external costs in market prices informs
  consumers about the harmful impact of 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 environmentally
  beneficial goods and resources extracted by more
  sustainable methods can help consumers decide
  what goods and services to buy.

Figure 24-9
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Subsidy Shifting

• Taxes on pollution and resource use can move us
  closer to full-costing pricing.
• Shifting taxes from wages and profits to
  pollution and waste (green taxes) helps make this
  feasible.
• We can improve environmental quality and human
  health by replacing environmentally harmful
  government subsidies with environmentally
  beneficial ones.

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Trade-Offs
Environmental Taxes and Fees
Advantages
Disadvantages
Helps bring about full-cost pricing
Penalizes low income groups unless safety nets
are provided
Provides incentive for businesses to do better to
save money
Hard to determine optimal level for taxes and fees
Need to frequently readjust levels, which is
technically and politically difficult
Can change behavior of polluters and consumers if
taxes fees are set at a high enough level
Govts may see this as a way of increasing
general revenue instead of using funds to improve
environmental quality and reduce taxes on income,
payroll, profits
Easily administered by existing tax agencies
Fairly easy to detect cheaters
Fig. 24-10, p. 580
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Green Taxes

• Advantages of taxing wages and profits less and
  pollution and waste more.

Figure 24-11
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ECONOMIC TOOLS FOR IMPROVING ENVIRONMENTAL QUALITY

• Environmental laws and regulations work best if
  they motivate companies to find innovative 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.

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Trade-Offs
Tradable Environmental Permits
Advantages
Disadvantages
Big polluters and resource wasters can buy their
way out
Flexible
May not reduce pollution at dirtiest plants
Easy to administer
Can exclude small companies from buying permits
Encourages pollution prevention and waste
reduction
Caps can be too low
Caps must be gradually reduced to encourage
innovation
Can promote achievement of caps
Determining caps is difficult
Permit prices determined by market transactions
Must decide who gets permits and why
Administrative costs high with many participants
Confronts ethical problem of how much pollution
or resource waste is acceptable
Emissions and resource wastes must be monitored
Self-monitoring can promote cheating
Confronts problem of how permits should be fairly
distributed
Sets bad example by selling legal rights to
pollute or waste resources
Fig. 24-12, p. 582
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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 the
  services 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.

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REDUCING POVERTY TO IMPROVE ENVIRONMENTAL QUALITY
AND HUMAN WELL-BEING

• We can sharply cut poverty by forgiving the
  international debts of the poorest countries,
  greatly increasing international aid and small
  individual loans to help the poor help themselves.

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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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Solutions Achieving the Millennium Development
Goals

• In 2000, the worlds nations set goals for
  sharply reducing hunger and poverty, improving
  health care and moving toward environmental
  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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MAKING THE TRANSITION TO MORE ENVIRONMENTALLY
SUSTAINABLE ECONOMIES

• Nature's four principles of sustainability and a
  number of environmental and economic strategies
  can be used to develop more environmentally
  sustainable economies.
• The Netherlands has dedicated itself to making
  its economy more environmentally sustainable.

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Eco-Economies

• Principles for shifting to more environmentally
  sustainable economies during this century.

Figure 24-15
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Jobs, Profits, and the Environment New
Industries and New Jobs

• Shifting to more environmentally sustainable
  economies will create immense profits and huge
  numbers of jobs.

Figure 24-16