This is a group work carried out in the field of economics of sustainability. It looked at hidden cost and externalities. Also tried to appraise the emergence of carbon economics and carbon tax systems.

1. The Economics of Sustainability
Prepared by Sustainability Development Group Five
Sadiq Ikram Bello P14EVAT8027
Audu Michael Tsado P14EVAT8028
Hamisu Yushau P14EVAT8029
Tukur Sani Iliya P14EVAT8030
Isah Auwal Ahmad P14EVAT8034
Abdulrazaq Haroun P14EVAT8032

2. Synopsis
In this slide, we intend to
o Discuss on the concept of environmental, ecological and economic
sustainability
o What externalities and hidden cost entail
o Review economic growth in Nigeria
o Explore new thoughts in Economic approach to sustainability
o Discuss Carbon Tax and Carbon Trading concepts
o Give a scenario of Carbon Tax implementation in a community

3. Introduction
o For a sustainable development,
economy, social activities and
environment must go hand in hand.
o The natural environment is a center
that support economic activity and
growth.
o Economic growth contribute to the
investment and dynamism where
technology is developed and deployed
Figure 1Relationship between Social, Economic and
Environment (Source: Edward)

4. Introduction
Environment
The sum total of all surroundings of a living
organism, including natural forces and other
living things, which provide conditions for
development and growth
(businessdictionary.com, 2016).

5. Introduction
Ecology
Ecology is the scientific study of interactions of
organisms with one another and with the
physical and chemical environment
(businessdictionary.com, 2016).
Economy
Is an area of the production, distribution or
trade, and consumption of goods and services
by different agents in a given geographical
location(businessdictionary.com, 2016).

6. Ecological Economics
Ecological economics is a relatively new interdisciplinary field
concerned with the relationship between economic systems
and the biological and physical world (Stern, 2007).
1 • The economy is a sub-system of human-environment system.
2
• Models of the economy have to comply with biophysical principles.
3
• There are limits to substitution of human made inputs and knowledge for
natural resources and the environment.
4
• Economic policy must consider objectives of economic efficiency, equity, and
sustainability.
The principles of ecological economics says;

7. Externalities
o Technically, externalities simply
means the indirect effects having an
impact on the consumption and
production opportunities of others,
but the price of the product does
not take those externalities into
account (Thomas, 2010)

8. Externalities
o According to Martin Farnham
Externalities occur when some market
transaction involves costs and/or
benefits that accrue to people outside
the transaction.
o Externalities arise whenever the
actions of one economic agent make
another economic agent worse or
better off, yet the first agent neither
bears the costs nor receives the
benefits of doing so (Emmanuel,
2007)

9. Types of Externalities
There are two types of externalities in economic sustainability:
POSITIVE EXTERNALITY
Positive externalities have a positive impact on the
consumption and production opportunities.
NEGATIVE EXTERNALITY
Negative externalities have a negative impact on the
consumption and production opportunities.

10. Positive Externalities
Positive consumption externalities
Your attending party may add to festive
atmosphere for others.
Positive production externalities
Firms learn from each other by working in
close proximity; productivity-enhancing
ideas spread (knowledge spillovers).

11. Negative Externalities
BY VEHICLES
Environmental externalities
Wear and tear on roads
Safety externalities
Carbon emission, climate change, waste and pollution
Accidents, lost of lives and properties
Cause by overloading

12. Public Sector Remedies to Negative
Externalities
Price policy
corrective tax or subsidy equal to marginal
damage per unit
Quantity regulation
Government forces firms to produce the socially
efficient quantity

13. Private Sector Remedies to Negative
Externalities
Individual’s owners
If river is owned by individuals then individuals can
charge firms for polluting the river. They will charge firms
the marginal damage (MD) per unit of pollution.
Firm’s owners
if river is owned by firms then firm can charge
individuals for polluting less. They will also
charge individuals the MD per unit of
pollution.

14. Why Hidden Cost?
o Are the managers aware of the large hidden
costs of environmental regulation?
o What are the reasons for the large hidden
costs?
o What types of decisions are large hidden
costs likely to affect?

15. Expected Answers
o Problems of aggregating across plants and functional departments.
o Complexity in separating environmental component of costs of process
changes that have multiple objectives.
o The design of costing systems in industries facing significant environmental
regulations.
o Gross under-estimation of hidden costs is likely to lead to sub-optimal
decisions in managing these costs.

16. Expected Answers
o Hidden costs may distort variance analysis, contribute to product mis-
pricing.
o And lead to inappropriate product mix, plant closure, and investment
decisions.

17. Causes of Hidden Cost
1 • Environmental regulations
2
• Altering raw material compositions
3
• Input proportions
4
• Energy use
5
• Firms incur additional indirect labor costs

18. Impact of Hidden Cost
1
• Impacts on heavy industry
• increase in energy leads to decrease in workers wages and
benefits
2
• Increased in energy costs
• It prevent affordable Education, affordable Medical Care,
affordable Home Utility Bills, Social Justice etc.

19. Economic Growth
Economic growth involves the combination of different factors to produce
goods and services
PRODUCTION CAPITAL
HUMAN CAPITAL
NATURAL CAPITAL
SOCIAL CAPITAL
raw-materials, forest services, carbon sequestrations
machineries, buildings, roads etc.
education, knowledge, skills, techniques, labor
institutions, governments, community etc

20. Nigerian Economic Growth
According to Ekpo & Umoh, 2010, the Nigerian economy can specifically be divided
into four eras;
Pre-oil Boom Era (1960-1970)
Agriculture, exportation, commercial activities
GDP 3.1% annually
Oil Boom Era (1971-1977)
Discovery of oil, Rural-urban migration, lack of food
production, corruption, real estate speculation, outright
looting
GDP grew remarkably by 62% annually

21. Nigerian Economic Growth
Stabilization & Structural Adjustment
Era (1978-1993)
high inflation, unemployment, fiscal imbalance,
external loans
GDP experienced downfall annually
Guided Deregulations Era
(1993-1998)
Increase in employment, shortage foreign
exchange, poverty generation
GDP experienced downfall annually

22. Economic Growth Vs Environment
Globally, economy is facing significant environmental challenges, from averting
dangerous climate change to loss of biodiversity and ecosystems.
Figure 2 Environmental Kuznets Curve
(Source Price, 2010)
Environmental Kuznets Curve:

23. Environmental Kuznets Curve
o At low incomes, pollution abatement is undesirable.
o Once a certain level of income is achieved, and environmental damage
increases at a lower rate.
o After a certain point, individuals prefer improvements in environmental
quality, and environmental quality begins to improve alongside economic
growth.

24. The Role of Environment on Economic
Growth
The natural environment plays a significant role toward sustainable economy. It
support economy;
DIRECT
by providing resources and raw-materials (water,
timber, air etc.) required for the production of
goods and services.
INDIRECT
through ecosystem services like carbon
sequestration, water purification, managing flood
risks, nutrient cycles and many more.

25. Environmental Policies
The role of environmental policy is to manage the provision and use of
environmental resources in a way that supports continual improvements in its
prosperity and wellbeing, for current and future generations (Price, 2010).
Available Environmental Policies
1 • Climate Change Policy
2
• Waste Policy
3
• Vehicle Standard
4
• Support for Electric Vehicle

26. Carbon Economics
• The fight for a sustainable earth must be looked at
critically from every perspective, with an aim of
establishing new ways to entice or enforce sustainable
practices.
• The Exploration of new economic thoughts to mitigate
the increase in unsustainable practices lead to the
development of two very popular models.
o Cap and Trade (Carbon Trading or Emissions Trading
Scheme ETS.) and
o Carbon tax systems,

27. Carbon Tax And Trade
• WHAT IS CARBON TAX…
• HOW CAN IT MITIGATE CLIMATE
CHANGE…
• DOES THE MODEL WORK…
• WHO HAS USED IT BEFORE…

28. What is Carbon Tax and Trading?
• Paying in full the social cost of pollution
• A means of internalizing externalities
• And of course, it is a levy!

29. How does Carbon Tax Work?
A levy is place on every ton of Carbon emitted. Factories and other
carbon emitting entities therefore pay that levy

30. How does Carbon Trading Work?
In the cap and trade system, companies
who emit large quantities of greenhouse
gases are collectively given a production
cap for these gases, and then license to
emit a volume is auctioned.

31. Where Has It Been Used?

32. Where Has It Been Used?

33. Pros and Cons of Carbon Tax
Less Carbon Dioxide
If a high tax is associated with carbon dioxide production, the tax will act as a
deterrent and keep carbon dioxide production to a minimum.
Encourage Innovation
This means that companies will look for new engines that run efficiently
without the production of carbon dioxide.
Has the Ability to Increase Revenue
All of the revenue that is generated from the carbon tax can also be used to
encourage the growing green movement and positively impact the
environment.
Pros

34. Pros and Cons of Carbon Tax
Encourage Secretive Methods
Many feel that the carbon tax will also encourage corporations to get
sneakier with carbon production.
Costs Money to Tax
Promoting and implementing a carbon tax is incredibly expensive.
Cons
Corporations Will Relocate
Many of these corporations will simply choose to move to countries that do
not issue this tax and it will result in the loss of many jobs.

35. Implementing Carbon Tax
Proposed Community: Ahmadu Bello University, Zaria
Key Steps:
o Identify sources of massive Carbon Production
o Establish a method of measure
o Place a price for the rates.
o Ensure monitoring and enforcement

36. Implementing Carbon Tax
Proposed Community: Ahmadu Bello University, Zaria
Step 1: Identify sources of massive Carbon Production
o Motor Cars and Motorcycles
o Generators (Community Market)
o Restaurants
o Incinerators

37. Implementing Carbon Tax
Proposed Community: Ahmadu Bello University, Zaria
Step 2: Establish a method of measure
o Motor Cars and Motorcycles: Cost Per Kilometer
o Generators (Community Market): Cost Per Hour Usage
o Restaurants: Cost per Log of Wood burnt
o Incinerators: Cost per volume of Waste burnt

38. Implementing Carbon Tax
Proposed Community: Ahmadu Bello University, Zaria
Step 3: Place a price for the rates.
o Motor Cars and Motorcycles: #50/km
o Generators (Community Market): #20/hr
o Restaurants: #20/50kg of wood
o Incinerators: #30/kg of waste

39. Implementing Carbon Tax
Proposed Community: Ahmadu Bello University, Zaria
Step 4: Ensure monitoring and enforcement
o This will involve a special group being set up to
handle the implementation process

40. Implementing Carbon Tax
Proposed Community: Ahmadu Bello University, Zaria
Other Measures
o There will be an active support for green energy.
o Alternative sources of every levied item will be
provided promptly
o Examples: Bicycle Hiring, Reduction of Paper
usage, Provision of Amortized solar equipment
for power in shops etc.

41. Thank You!

42. References
Ekpo, I., & Umoh, N. (2010). An Overview of the Nigerian Economic Growth and
Development. Journal of Economy and National Development, pp 50-62.
Emmanuel, S. (2007). Externalities; problem and solution. London: worth publisher.
Price, R. (2010). Economic Growth and the Environment. London: Department for
Environment Food and Rural Development.
Stern, D. I. (2007). Ecological Economics. Crawford: Crawford School of Economics
and Government.
Thomas, H. (2010). What are externalites? Back to basics , 48.