Economics, Environment, and Sustainability


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Economics, Environment, and Sustainability

  1. 1. Economics, Environment, and Sustainability G. Tyler Miller’s Living in the Environment 15 th Edition Chapter 26
  2. 2. Objectives <ul><li>What are economic systems and how do they work? </li></ul><ul><li>How do economists differ in their views of economic systems, pollution control, and resource management? </li></ul><ul><li>How can we monitor economic and environmental progress? </li></ul><ul><li>What is full-cost pricing? </li></ul><ul><li>What economic tools can we use to help us shift to full-cost pricing? </li></ul><ul><li>How does poverty reduce environmental quality, and how can we reduce poverty? </li></ul><ul><li>How can we shift to more environmentally sustainable economies over the next few decades? </li></ul>
  3. 3. Economic Resources and Systems <ul><li>An economic system produces and distributes goods and services by using natural, human, and physical resources. </li></ul><ul><li>An economic system produces, distributes, and consumes goods and services. </li></ul><ul><li>Three types of resources are used to produce: </li></ul><ul><li>natural resources, </li></ul><ul><li>human resources (labor and skills), and physical or manufactured resources (tools, machinery, etc.). </li></ul>
  4. 4. Free Market System <ul><li>A purely free-market system is a theoretical ideal where buyers and sellers interact in markets without government or other interference. </li></ul><ul><li>In the ideal, all economic decisions are governed by demand and supply as well as price. </li></ul><ul><li>Profit or loss is the difference between the cost of production and the price buyers are willing to pay. </li></ul><ul><li>The market price equilibrium shifts when either supply goes down or demand increases , so it may rise or fall depending on the changes that occur in the market. </li></ul>
  5. 5. <ul><li>Two related economic concepts are marginal costs , the cost of producing one more unit of a product, and seller’s marginal benefits , the profit made by producing and selling one more unit. </li></ul><ul><li>In real world economics, marginal costs and benefits are what actually determine prices and benefits to consumers and costs and profits to producers. </li></ul><ul><li>In practice, truly free markets do not exist . </li></ul><ul><li>Businesses try to exert as much control as possible over prices of goods and services and lobby for government subsidies, tax breaks, or regulations that give their product a market advantage. </li></ul><ul><li>Some consumers will buy a product regardless of its price; economists call this price inelasticity . </li></ul>
  6. 6. Why Governments Intervene? <ul><li>Governments intervene to provide economic stability , national security, public services, and environmental protection. </li></ul><ul><li>Markets often work well in the production of private goods. </li></ul><ul><li>Providing public services may require that governments intervene to correct market failures and to regulate national security and environmental protection. </li></ul><ul><li>Government regulation can also prevent development of monopolies or oligolipies where one or a few sellers or buyers dominate the market. </li></ul>
  7. 7. <ul><li>Government interventions also help: </li></ul><ul><li>provide a safety net for people who can’t meet their basic needs, </li></ul><ul><li>protect people from fraud, trespass, theft, and bodily harm, </li></ul><ul><li>establish and enforce civil rights and property rights, </li></ul><ul><li>protect the health and safety of workers and consumers, </li></ul><ul><li>prevent or reduce pollution and depletion of natural resources, and </li></ul><ul><li>manage public land resources . </li></ul>Why Governments Intervene?
  8. 8. Economists’ Views of Pollution Control and Resource Management <ul><li>Neoclassical economists see natural resources as a component of an economic system , and </li></ul><ul><li>Ecological economists see economic systems as a component of nature’s economy. </li></ul><ul><li>Neoclassical economists feel that economic growth is necessary, desirable, and unlimited . </li></ul><ul><li>- Natural resources are important, but not vital </li></ul><ul><li>- because we can find substitutes for scarce resources. </li></ul><ul><li>Ecological and environmental economists view economic systems as subsystems of the environment that depend very much on irreplaceable natural resources . </li></ul><ul><li>Ecological and environmental economists distinguish between unsustainable economic growth and environmentally sustainable development. </li></ul>
  9. 9. Strategies to shift to an eco-economy <ul><li>Use resources more efficiently . </li></ul><ul><li>Use indicators that monitor economic and environmental health. </li></ul><ul><li>Have market prices of goods and services include their harmful effects on the environment and human health (full-cost pricing). </li></ul><ul><li>Phase out environmentally harmful government subsidies and tax breaks. </li></ul><ul><li>Shift taxes by lowering taxes on income and wealth and increasing taxes on pollution and resource waste. </li></ul><ul><li>Pass laws and regulations to prevent pollution and resource depletion in certain areas. </li></ul><ul><li>Use tradable permits or rights to pollute or use resources within programs that limit overall pollution and resource use in given areas. </li></ul><ul><li>Use eco-labeling to identify products produced by environmentally sound methods. </li></ul>
  10. 10. Monitoring Environmental Progress <ul><li>We need new indicators to distinguish between goods and services that are environmentally or socially beneficial/harmful. </li></ul><ul><li>A new approach is to develop indicators that add to the GDP </li></ul><ul><li>The genuine progress indicator (GPI) was introduced in 1995 to help evaluate and promote sustainability. </li></ul><ul><li>GPI = benefits not included in market transactions—harmful environmental and social costs. </li></ul><ul><li>The Index of Sustainable Economic Welfare (ISEP) combines estimates of income, natural resource depletion, environmental degradation, economic benefits from volunteer work, and distribution of income for different countries. </li></ul>
  11. 11. <ul><li>Economists have developed several ways to estimate the non-market values of the earth’s ecological services. </li></ul><ul><li>Economists use discount rates to estimate the future value of a resource. </li></ul><ul><li>Most businesses, the U.S. Office of Management and Budget, and the World Bank typically use a 10% annual discount rate. </li></ul><ul><li>High discount rates encourage rapid use of resources for immediate payoffs. </li></ul><ul><li>A moderate discount rate of 1–3% would mean that nonrenewable resources would be used more slowly or sustainably. </li></ul>
  12. 12. Harmful External Costs and Full-Cost Pricing <ul><li>The price you pay for an item does not include indirect environmental, health, and other harmful costs involved in its production and use. </li></ul><ul><li>1. Direct costs of a good include cost of the raw materials, labor, shipping, and sales markup. </li></ul><ul><li>2. Indirect or external costs or benefits are not included in the market price of an item. These costs and benefits are called externalities . </li></ul><ul><li>3. Negative externalities involve such things as extraction of raw materials, use of nonrenewable energy resources, hazardous wastes, land disturbance, and air and water pollution. </li></ul><ul><li>These costs may be paid for in poorer health, higher costs for health care, insurance and taxes for pollution control, road congestion and land used for highways and parking. </li></ul><ul><li>If Americans were to have indirect costs included in the price of gasoline, it would cost between $3–8.60 per gallon . This does not include the cost of future harmful effects on climate change. </li></ul>
  13. 13. <ul><li>Inclusion of external costs in market prices informs consumers </li></ul><ul><li>1. The full cost = actual internal costs + its actual external costs. </li></ul><ul><li>2. Full-cost pricing might encourage consumers to conserve water, use fuel-efficient cars, and produce less trash. </li></ul><ul><li>3. A gradual transformation to this type of system would allow transition to become more environmentally beneficial . </li></ul><ul><li>Reasons for not wide use : some businesses would be forced out of business and </li></ul><ul><li>- the difficulty in putting a price tag on environmental costs. </li></ul><ul><li>5. Consumers generally are looking for the best price, so phasing in full-cost pricing requires government action . </li></ul><ul><li>Governments could begin to move producers and consumers in this direction by:- phasing out environmentally harmful subsidies, </li></ul><ul><li>- taxing harmful goods and services, and </li></ul><ul><li>- regulating pollution and resource depletion. </li></ul>
  14. 14. Reducing Poverty to Improve Environmental Quality and Human Well-Being <ul><li>A. Most financial benefits of global economic growth have gone to the rich rather than the poor. </li></ul><ul><li>A 2000 World Bank study indicates that </li></ul><ul><li>- half of the world’s population live on less than $3/day - and one-fifth has about $1/day . </li></ul><ul><li>2. Poverty is one of the six major causes of environmental problems. </li></ul><ul><li>3. Since 1960, the trickle-down effect has not functioned to help the poor, rather there has been a growing wealth gap. </li></ul><ul><li>4. This wealth gap is unsustainable. </li></ul><ul><li>5. Poverty is sustained by corruption, absence of property rights, insufficient legal protection, and inability of many people to borrow money to start a small business or grow crops. </li></ul>
  15. 15. <ul><li>The World Bank makes loans to developing countries, but a number of these loans have had harmful effects . </li></ul><ul><li>1. The World Bank was formed in 1945 to help with the rebuilding of Europe and Japan after WWII. </li></ul><ul><li>2. A number of loans for large-scale dams, roads, and mining operations have been environmentally destructive and controversial . </li></ul><ul><li>3. Many developing countries sell their mineral, timber, and other resources in order to pay the interest on their loans. </li></ul><ul><li>4. Environmentalists and representatives of the poor have protested the Bank’s policies , and the bank has begun to carry out more detailed reviews of the environmental and social impacts of its loans. </li></ul>
  16. 16. Strategies to alleviate poverty <ul><li>Forgiving the international debts of the poorest countries will sharply cut poverty. G8. </li></ul><ul><li>Developed countries should forgive at least 60% of the $2.4 trillion debt owed on the condition that the money is spent on meeting basic human needs. </li></ul><ul><li>Combat malnutrition and infectious diseases. </li></ul><ul><li>4. Lending agencies can make small loans to poor people who want to increase their income. </li></ul><ul><li>5. Small-scale infrastructure improvements such as solar cell power facilities, small-scale irrigation projects, and farm-to-market roads will help reduce poverty in developing countries. </li></ul><ul><li>6. Stabilizing populations. </li></ul><ul><li>7. Integrate human rights with sustainable development. </li></ul><ul><li>8. UNDP estimates it will cost about $50 billion a year to provide universal access to basic services such as education, health, nutrition, family planning, safe water, and sanitation. </li></ul>
  17. 17. Transition to More Environmentally Sustainable Economies <ul><li>An eco-economy of sustainability. </li></ul><ul><li>Paul Hawken’s golden rule of eco-economy is: </li></ul><ul><li>“ Leave the world better than you found it, take no more than you need, try not to harm life or the environment, and make amends if you do.” </li></ul><ul><li>2. Some businesses will decline as we make the transition to more environmentally sustainable economies, and other businesses will grow in importance. </li></ul><ul><li>Germany and the Netherlands are working to make their economies more environmentally sustainable. </li></ul><ul><li>1. Germany has developed the most efficient gas turbines. </li></ul><ul><li>2. In 1977, they started eco-labeling products. </li></ul><ul><li>3. All domestic German cars must be recycled. , </li></ul><ul><li>4. They are becoming the world leader in solar-cell and wind turbine technology and hydrogen fuel. </li></ul><ul><li>5. They also provide green foreign aid to developing countries. </li></ul>
  18. 18. <ul><li>In 1989, the Netherlands began a National Environmental Policy Plan (Green Plan) </li></ul><ul><li>- Eight major areas for improvement were identified. </li></ul><ul><li>- Task forces were formed . </li></ul><ul><li>- Four general themes were the focus of each task force: </li></ul><ul><ul><ul><li>a. life-cycle management, </li></ul></ul></ul><ul><ul><ul><li>b. energy efficiency, </li></ul></ul></ul><ul><ul><ul><li>c. environmentally sustainable technologies, and </li></ul></ul></ul><ul><ul><ul><li>improving public awareness. </li></ul></ul></ul>Industrial leaders like the Green Plan - There has been an increase in organic agriculture , greater use of bicycles in some cities, and eco-friendly new housing. - Some goals have had to be revised or abandoned. -The environmental revolution is also an economic revolution.
  19. 19. Next Class <ul><li>G. Tyler Miller’s </li></ul><ul><li>Living in the Environment </li></ul><ul><li>15th Edition </li></ul><ul><li>Chapter 8 </li></ul>