what is environmental economics?
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What is Environmental Economics?. Chapter 1 - BCF. What is Economics? In any economy there are competing objectives The important players could be Gov’t Households Businesses Nonprofit Org - PowerPoint PPT PresentationTRANSCRIPT
What is Environmental Economics?
Chapter 1 - BCF
What is Economics? In any economy there are competing
objectivesThe important players could be
Gov’t Households Businesses Nonprofit Org
Environ Eco is the application of the principles of economics to the study of environmental resources, how are they developed and managed.
It focuses primarily on how and why people make decisions that have environmental consequences. It is also concerned with how economic institutions and policies can be changed to bring these environmental impacts more into balance with human desires.
Derived more from microeconomics than macroeconomics. Hence, the first lecture is devoted to sketching out the kinds of questions environmental economists ask and the answers they seek
Economic Analysis Environ Eco focuses on
Society’s natural and environmental resources Examining the way people make decisions that
lead to either environmental destruction and environmental improvements
People pollute because… It’s easy and cheap (Waste Disposal) Decision-making dependent upon certain set of
economic and social institution Structure of incentives (monetary and non-monetary)
Distinction between normative and positive economics
Pollution is a result of the profit motive? Entrepreneurs don’t pay any heed to
environmental impact because it doesn’t pay What would you do to reduce environmental
pollution? But..
Individual consumer pollutes as well (Cars, etc)Non profit government agencies polluteCommumist regimes v/s capital economy
Therefore, any system will produce environmental damage if the incentives within the system are not structured to avoid them
Environmental degradation is a result of human behavior that is unethical and immoral
So, to get people stop polluting, one way is to increase general level of environmental morality in the society
Problems to moral reawakening...? Is it applicable for a problem with ethical
dimensionCan we enforce certain policies?Are we targeting right environmental objectives?
So, it is the way the economic system has been arranged!
INCENTIVES:An economic incentive is something that leads
people to channel their efforts at economic production and consumption in certain directions
Household example… People charged on each trash bag they put on
the curb That reduced amount of solid waste and lead
to huge amount of recycling Illegal dumping and difficulties with applying
the plan to household apartments
Incentives In IndustriesProblems:
Profit motive Use environmental resources for waste disposal Such services have been virtually free
Solutions: Enforce laws making pollution illegal Charge firms for pollution-causing material they
emit into environment European industries (CO2 taxes) Possible Affects…?
Incentives in Transportation:Widespread use of automobile and its
ownershipDetrimental to human health and
environmental damage Environmental Economists have termed
the word, External costs in order to describe a certain set of costsSome countries have proposed establishing
road charges on drivers to recognize the external costs
Design of Environmental Policy
There is an enormous range and variety of public programs and policies devoted to environmental matters at all levels of government
Vary in terms of effectiveness and efficiency
Environmental Protection Agency (EPA) Director quoted as saying,“… at this level
of expenditure, there is a very large obligation to get it right.”
Clean Air Act (1990)
Revolved around three air pollution problems:Urban smogEmissions of SO2
Other toxic chemical emissions
The law included things like:New technologiesProduction of super clean carsNew standards for toxic emissions
But is just composing a well written piece of policy a cost-effective way of attacking air pollution problems?
A major problem of environ policy: Perverse Incentives – incentives that work against the overall objectives of the policy
Environmental Economist is supposed to measure a policy in terms of cost effectiveness, getting the most pollution reduction for the money spent, aptly balancing costs and benefits
Macroeconomic questions: Environment and Growth? Micro: Individuals, small groups of consumers,
polluting firms etc Macro level aims?
Two main questions arise: Relationship between environmental-pollution control
measures and the rate of growth and unemployment Impact of economic growth on environmental quality?
What way is the relationship?
Developed vs. Developing countries…?
Cost-effective analysis:This is simply an analysis where we look for
the least expensive way of achieving a given environmental quality or target
Example, reducing CO2. Studies of this sort require close coordination of scientific and engineering analysis to determine realistic technical parameters and economic analysis to determine the values associated with these parameters
Benefit Cost Analysis:Main analytical tool used by economists to
evaluate environmental decisions.Used widely in public sectorAn aid in selecting efficient policies, agency
uses it to justify it’s workingsUsed to try and stop new regulations or
weaken old ones
The approach implies consideration of both benefits and costs – and this often puts such studies in the middle of political controversy on many issues
International Issues:Destruction of Ozone layerGlobal Warming
Economics and Politics:How to achieve effective environmental policy
in a highly political policy environment?Environmental policy decisions come out of
the political process where people and groups come together and contend for influence and control, where interests collide, coalitions shift, and bias intrude
So where does it leave environmental economist then? The best way for scientists and economists to
serve is to produce studies that are as clear and as objective as possible
It is politician’s job to compromise or seek advantage and it is scientist’s job to provide the best information to policymakers on alternative courses of action.
The Economy and the Environment
Chapter 2 – BCF
Economy It is a collection of technological, legal, and
social arrangement through which individuals seek to increase their spiritual and economic well-being
The two elementary economic functions are: Production Consumption
Economic System:Exists within and is encompassed by natural
world
Economy
Raw Materials (Inputs, Natural Resource Economics)
Residuals, (Environmental Economics)
Impact on environment is not specific to discharge of pollutants; any scenic degradation or habitat disruption also worsens the environment
Natural Resource Economics:Application of economic principles to the
study of activities like extraction and utilization of natural resources
Mineral Economics: Apt rate at which ore shall be extracted from mine, affect on mineral prices after exploration and addition
Forest Economics: Government policies affecting harvest rates and timber companies
Marine Economics: Apt rate at which fisheries should be managed, Affects on stocks of fish
Land Economics: Role of private sector, property laws and regulations
Energy Economics: Relationship between energy use and energy prices?
Water Economics: Reallocation of water from agriculture to urban areas? Use of water?
Agriculture Economics: Support prices? Use of subsidies on farmers and production of crops?
Renewable and nonrenewable Resources:The living resources such as fish and timber
are renewable as they grow according to biological clocks and process
Non-living classis example: Sun’s energyNonrenewable resources have no processes
of replenishment—once gone, they are gone forever such as petroleum reserves and some minerals
Low replenishment rates..? Intertemporal trade-offs exist with
renewable and nonrenewable resources
Biological and ecological processes create connections between present and future generations.
Sustainability: choosing rates of use today so that they don’t jeopardize future generationsHow can it be defined for renewable and
nonrenewable resources…?
Depletion of earth’s assimilative capacity. Example: CO2,, heavy metals
Biologists estimate that there are more than 30 million species on earth making genetic information very useful in the fields of medicine, pesticides and so on
Habitual conservation and species preservation are contemporary resource problems
Blurring edges between natural resources and environmental resourcesResource extraction directly affects
environmental quality.
The Fundamental Balance
Model: The elements shown are parts of economic system
Producers (Take inputs convert them to outputs) Consumers (Receivers of final goods and services)
Producers
Consumers
Raw Materials (M)
Goods
(G)
Recycled (RPr)
Residuals (RP)
Recycled (Rcr)
Residuals (RC)
Discharged (RPd)
Discharged (RCd)
Natural Environment
The Fundamental Balance
Producers and consumers create residuals (leftovers) – Waste energy, pesticides, animal manure, sulfur dioxide, carbon dioxide, toxic solvents, the list goes on
Producers
Consumers
Raw Materials (M)
Goods
(G)
Recycled (RPr)
Residuals (RP)
Recycled (Rcr)
Residuals (RC)
Discharged (RPd)
Discharged (RCd)
Natural Environment
In the long run, M = RPd + RC
d
When system grows, it can retain some proportion of natural inputs (such as capital accumulation)
Recycling delays disposal of residuals The fundamental balance is achieved in
the long run only and to reduce the residual amount, the M has to be reduced
According to the flow diagram:RP
d + RCd = M = G + RP – RC
r – RPr
Reduce G, reduce RP and/or Increase RCr +
RPr
Reduce GReduce output or at least stopping its rate of
growth, for example, ZPG Stationary population can increase economically Even stationary population can gradually degrade
the environment in which it finds itself
Reduce RPFor a given output produced, reduce the
residuals Shift the intensity of production in every sector by
adopting new environment friendly technologies and practices
Shift composition of output sector wise Step towards Services sector, or Information
sector..?
Increase RCr + RP
r
Substituting recycled material for virgin materials However,
It is difficult to recycle every residual Process of energy conversion changes the chemical
structure of energy materials Recycling still will create residuals Role of materials research
The environment as an economic and social asset The productivity of natural environment lies in its
ability to support and enrich human life and to assimilate and assemble less harmful the waste products of economic system. The environment quality is directly affected by the types and amounts of residuals
PPC: A curve simply showing the different combinations of
two things a society may produce at any time, given its resources and technological capabilities
Market Goods
Environmental Quality (Index, derived from data on different dimensions of ambient environment – such as SO2, noise levels, etc
Terminology: Ambient Quality Environmental Quality (includes visual and aesthetic
quality of the environment) Residuals (production and consumption) Emissions (portion of residuals placed in the
environment) Recycling (residuals that could be used again in the
production process) Pollutant (A substance lowering ambient quality level) Effluent (Water Pollutant) Pollution (Lower ambient quality to the extent that
causes damages to the environment) Damages (Negative impact produced by pollution) Environmental Medium (classified as land, air, water) Source (location at which emissions occur)
Emissions, Ambient Quality and DamagesSource n
Production
Residuals
Residual handling
Emissions
Land Water Air
Physical, chemical and hydrological processes Ambient quality Human and nonhuman exposure Human and ecosystem damages
Environmental Media
Types of pollutantsCumulative and Noncumulative Pollutants
Cumulative (Radioactive waste (cosmic rays), plastic waste)
Noncumulative (Noise) Organic matter emitted into water bodies,
noncumulative (water has assimilative capacity rendering effluents as much more benign) and cumulative if rate of breaking down into less harmful chemicals is low
Basic problem is figuring out environmental damage and lessening the emissions
Cause-and-effect relationship between current emissions, current ambient quality and current damages
Local vs. Regional and Global Pollutants Local: Visual degradation, noise pollution Look at how widespread the effects are from any
particular pollution source Regional: Acid Rain and Global: Ozone layer
depletion Solutions… (emissions and impacts)?
Point Source vs. Nonpoint Source Pollutants Point: SO2 from a large power plant are easier to
locate Non point: Agriculture chemicals (and storm water)
usually run off land in a diffused pattern Emissions and impact easier to judge for…?
Continuous vs. Episodic EmissionsContinuous: Emissions from electric power
plant. Policy focus on rates of dischargesDoes continuous emissions mean continuous
damage to environmental quality?Episodic: Accidental chemical spills.Could be dangerous or could be ignored
Environmental damages not related to emissions!Apt policies still needed
Short Run and Long Run ChoicesPPC Analysis
Therefore, sustainability is an important issue.
Market Goods
Environmental Quality
Market Goods
Environmental Quality
Due to depletion of resources…