The document discusses economic systems and sustainability. It describes different types of economic systems like free market systems and how governments intervene. It also discusses strategies to shift economies to be more environmentally sustainable, such as full-cost pricing and reducing poverty. Monitoring economic and environmental progress through new indicators is also covered.

1. Economics, Environment, and Sustainability G. Tyler Miller’s Living in the Environment 15 th Edition Chapter 26

2. Objectives 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 and environmental progress? What is full-cost pricing? What economic tools can we use to help us shift to full-cost pricing? 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?

3. Economic Resources and Systems An economic system produces and distributes goods and services by using natural, human, and physical resources. An economic system produces, distributes, and consumes goods and services. Three types of resources are used to produce: natural resources, human resources (labor and skills), and physical or manufactured resources (tools, machinery, etc.).

4. Free Market System A purely free-market system is a theoretical ideal where buyers and sellers interact in markets without government or other interference. In the ideal, all economic decisions are governed by demand and supply as well as price. Profit or loss is the difference between the cost of production and the price buyers are willing to pay. 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.

5. 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. In real world economics, marginal costs and benefits are what actually determine prices and benefits to consumers and costs and profits to producers. In practice, truly free markets do not exist . 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. Some consumers will buy a product regardless of its price; economists call this price inelasticity .

6. Why Governments Intervene? Governments intervene to provide economic stability , national security, public services, and environmental protection. Markets often work well in the production of private goods. Providing public services may require that governments intervene to correct market failures and to regulate national security and environmental protection. Government regulation can also prevent development of monopolies or oligolipies where one or a few sellers or buyers dominate the market.

7. Government interventions also help: provide a safety net for people who can’t meet their basic needs, protect people from fraud, trespass, theft, and bodily harm, establish and enforce civil rights and property rights, protect the health and safety of workers and consumers, prevent or reduce pollution and depletion of natural resources, and manage public land resources . Why Governments Intervene?

8. Economists’ Views of Pollution Control and Resource Management Neoclassical economists see natural resources as a component of an economic system , and Ecological economists see economic systems as a component of nature’s economy. Neoclassical economists feel that economic growth is necessary, desirable, and unlimited . - Natural resources are important, but not vital - because we can find substitutes for scarce resources. Ecological and environmental economists view economic systems as subsystems of the environment that depend very much on irreplaceable natural resources . Ecological and environmental economists distinguish between unsustainable economic growth and environmentally sustainable development.

9. Strategies to shift to an eco-economy Use resources more efficiently . Use indicators that monitor economic and environmental health. Have market prices of goods and services include their harmful effects on the environment and human health (full-cost pricing). Phase out environmentally harmful government subsidies and tax breaks. Shift taxes by lowering taxes on income and wealth and increasing taxes on pollution and resource waste. Pass laws and regulations to prevent pollution and resource depletion in certain areas. Use tradable permits or rights to pollute or use resources within programs that limit overall pollution and resource use in given areas. Use eco-labeling to identify products produced by environmentally sound methods.

10. Monitoring Environmental Progress We need new indicators to distinguish between goods and services that are environmentally or socially beneficial/harmful. A new approach is to develop indicators that add to the GDP The genuine progress indicator (GPI) was introduced in 1995 to help evaluate and promote sustainability. GPI = benefits not included in market transactions—harmful environmental and social costs. 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.

11. Economists have developed several ways to estimate the non-market values of the earth’s ecological services. Economists use discount rates to estimate the future value of a resource. Most businesses, the U.S. Office of Management and Budget, and the World Bank typically use a 10% annual discount rate. High discount rates encourage rapid use of resources for immediate payoffs. A moderate discount rate of 1–3% would mean that nonrenewable resources would be used more slowly or sustainably.

12. Harmful External Costs and Full-Cost Pricing The price you pay for an item does not include indirect environmental, health, and other harmful costs involved in its production and use. 1. Direct costs of a good include cost of the raw materials, labor, shipping, and sales markup. 2. Indirect or external costs or benefits are not included in the market price of an item. These costs and benefits are called externalities . 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. 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. 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.

13. Inclusion of external costs in market prices informs consumers 1. The full cost = actual internal costs + its actual external costs. 2. Full-cost pricing might encourage consumers to conserve water, use fuel-efficient cars, and produce less trash. 3. A gradual transformation to this type of system would allow transition to become more environmentally beneficial . Reasons for not wide use : some businesses would be forced out of business and - the difficulty in putting a price tag on environmental costs. 5. Consumers generally are looking for the best price, so phasing in full-cost pricing requires government action . Governments could begin to move producers and consumers in this direction by:- phasing out environmentally harmful subsidies, - taxing harmful goods and services, and - regulating pollution and resource depletion.

14. Reducing Poverty to Improve Environmental Quality and Human Well-Being A. Most financial benefits of global economic growth have gone to the rich rather than the poor. A 2000 World Bank study indicates that - half of the world’s population live on less than $3/day - and one-fifth has about $1/day . 2. Poverty is one of the six major causes of environmental problems. 3. Since 1960, the trickle-down effect has not functioned to help the poor, rather there has been a growing wealth gap. 4. This wealth gap is unsustainable. 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.

15. The World Bank makes loans to developing countries, but a number of these loans have had harmful effects . 1. The World Bank was formed in 1945 to help with the rebuilding of Europe and Japan after WWII. 2. A number of loans for large-scale dams, roads, and mining operations have been environmentally destructive and controversial . 3. Many developing countries sell their mineral, timber, and other resources in order to pay the interest on their loans. 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.

16. Strategies to alleviate poverty Forgiving the international debts of the poorest countries will sharply cut poverty. G8. 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. Combat malnutrition and infectious diseases. 4. Lending agencies can make small loans to poor people who want to increase their income. 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. 6. Stabilizing populations. 7. Integrate human rights with sustainable development. 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.

17. Transition to More Environmentally Sustainable Economies An eco-economy of sustainability. Paul Hawken’s golden rule of eco-economy is: “ 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.” 2. Some businesses will decline as we make the transition to more environmentally sustainable economies, and other businesses will grow in importance. Germany and the Netherlands are working to make their economies more environmentally sustainable. 1. Germany has developed the most efficient gas turbines. 2. In 1977, they started eco-labeling products. 3. All domestic German cars must be recycled. , 4. They are becoming the world leader in solar-cell and wind turbine technology and hydrogen fuel. 5. They also provide green foreign aid to developing countries.

18. In 1989, the Netherlands began a National Environmental Policy Plan (Green Plan) - Eight major areas for improvement were identified. - Task forces were formed . - Four general themes were the focus of each task force: a. life-cycle management, b. energy efficiency, c. environmentally sustainable technologies, and improving public awareness. 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. Next Class G. Tyler Miller’s Living in the Environment 15th Edition Chapter 8