The document discusses the concept of market failure in environmental goods and services, highlighting how private market decisions lead to inefficient resource allocation and significant environmental and social problems. It identifies major environmental issues, their impacts from industries, and the necessity for businesses to adopt environmentally friendly practices amidst regulatory frameworks. Additionally, the text outlines the environmental regulations in India, including laws, corporate social responsibility, and standards aimed at minimizing pollution and promoting sustainability.

1. Unit 7
Emerging Environmental
Challenges
7-Mar-13 Prof. Prabha Panth
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2. Market Failure
• The Perfect Competition market is assumed to
be the Best Market.
• But it fails to maximise Benefits in the allocation
of Environmental Goods and Services.
• Market failure occurs when private decisions
based on market prices, do not generate an
efficient allocation of resources to society.
• Leads to social and environmental problems –
cannot be tackled by market forces
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3. Characteristics of Environmental
Goods and Services
1. Free Goods:
All environmental goods and services provided
freely by nature.
No ownership, so there is no price for use or
misuse. Common property resources.
2. Pure Public Goods:
* Non-excludable: One person cannot stop
another from using it. E.g. oxygen, oceans
* Non-rival: One person‟s use of the
environment does not reduce the amount
available for others. E.g. oxygen, oceans 3
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Prof. Prabha Panth

4. 3. Externality:
Externality or External Costs and Benefits: when one
unit‟s action affects another outside the market price.
Marginal Environmental Cost or Benefit  Private Cost or
Benefit.
o A firm‟s MC does not show the Environmental costs –
e.g. cost of thermal electricity does not include cost of
global warming.
o Cost of paper does not include the costs of
deforestation.
o Cost of a car does not include the cost of vehicular
pollution.
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5. Ten top environmental issues
1. Climate Change 6. Air Pollution
2. Energy 7. Waste
Management
3. Water
8. Ozone Layer
4. Biodiversity and Depletion
Land Use
9. Oceans and
5. Chemicals, Toxics, Fisheries
and Heavy Metals
10.Deforestation
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6. Environmental Impacts of
Industries
• Industrial development requires huge amounts of
natural resources inputs.
• Creates huge amounts of pollution,
• Result:
– Loss of forests, coastal areas, erosion,
– Mining which affects soil, water and air,
– Industrial emissions affect air quality,
– Effluents affect water resources, agriculture
– Medical and solid wastes,
– Products themselves – environmentally harmful
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7. Environment Impacts and Business
• Business cannot ignore environmentalism
– Consumer awareness, Green consumerism, Good will
through „greening‟ business.
– Reaction by public affected by pollution and resource
degradation,
– Regulations and penalties
– Ecological conservation programmes,
– International controls – Environmental summits, Kyoto
Protocol, Montreal Protocol, etc.
– Cost effectiveness in “prevention” rather than “cure”
– Greater efficiency though saving energy, and recycling
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8. Air Pollution
• Chief sources: Industries, vehicles (in
cities), burning wastes, natural causes.
• Main Air Pollution problems:
– Globally - Acid rain. Climate change and
global warming, ozone layer depletion.
– Locally – CO and SPM, photo chemical
smog, smoke, dust,
Impacts of local pollution: respiratory systems,
eyes, lead poisoning,
Children and older population more vulnerable.
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9. Acid Rain
Sulphuric Acid
Oil Refineries Plants
3% 2% Others
1%
Steel
5%
Thermal Power
Plants
Usually it is SO2 that reacts with moisture in 89%
the air, and causes Acid Rain
Destroys vegetation, buildings, and
respiratory systems of living creatures
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10. • CFCs released by coolants
in ACs, refrigerators, fire
fighting equipment.
• Chemical reaction with
ozone in upper
stratosphere, depletes the
ozone layer,
• Ultraviolet rays enter the
earth.
– Can cause skin cancers,
cataracts,
– Affects plant growth,
– Phytoplankton growth
affected (6-8%
decrease).
– Biochemical cycles
affected.
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11. Climate Change
• Global warming, and climate
change,
• Affects: agriculture, forests,
• Melting of snow and ice,
• Rise in sea levels,
• Inundation of coasts and
small islands,
• Spread of tropical diseases.
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12. Greenhouse Gases
Greenhouse gases include:
• Carbon dioxide: through burning fossil fuels.
• Methane: agriculture, dairying,
• CFCs: cooling agents in fire fighting equipment,
air conditioners, refrigerators,
• Nitrous oxides: industrial smoke and vehicular
pollution.
• Deforestation and Land use change: CO2 not
converted to oxygen
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14. Share of CO2 from various sources - India (2008-09)
Wastes 3.60%
Electricity Fugitive 3.90%
24.60%
Other fuels
9.00%
Industry 13.8%
Land use change
18.20%
Transport
13.50%
Agriculture
13.50%
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15. 7518, Top six contributors - CO2 emissions 2008-09
8000 23%
6529,
7000 18.1% Top 6 are contributing
6000 more than 69% of world’s
CO2
million tonnes
5000 4177,
14%
4000
3000
1609, 1539.
2000 5.3% 5.1% 1163,
4%
1000
0
China USA European Russia India Japan
union
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16. Water Pollution
• Point source: from a specific point – such as
sewage, oil spills, industrial effluents from
stationary sources such as factories, etc.
• Non-point sources: carried over to different
points from the main source:
– Effluents from industries
– agricultural chemicals from farmland,
– nutrients and toxic materials from urban and
suburban areas,
– Oil spills
This runoff finds its way into water bodies, and
pollutes them
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17. Environmental Regulations in India
• Indian Constitution: The right to clean and
pollution free environment, is a Fundamental
Right.
• Directive Principles of State: “The State shall
endeavour to protect and improve the
environment and to safeguard the forests and
wildlife of the country. (Article 48A).
• Duty of citizens to protect and improve the
natural environment including
forests, lakes, rivers and wild life, and to have
compassion for living creatures. (Article 51 A (g))
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18. Nodal Government Ministries
Ministry of
Environment
and Forests
Ministry of New
Ministry of Ministry of Earth and Renewable
Water sciences CPCB
Energy
Resources resources
SPCB
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19. Environmental Laws in India
• The Water (Prevention and Control of
Pollution) Act, 1974.
– Prevention and control of water pollution,
– Mandatory Green Clearance,
– CPCB and SPCBs were set up –
– Provision to inspect and penalise polluting
industries.
– Take samples of effluent for analysis,
– Can close down non-compliant factories, and cut
off water and power supply.
– Provides for criminal liabilities
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20. • The Water (Prevention and Control of
Pollution) CESS Act, 1977.
– Industries to pay for water use. Water cess.
– Quantity specified per industry, over use penalised.
– 25% rebate if ETPs installed
• The Air (Prevention and Control of Pollution)
Act, 1981.
– Air quality standards,
– Control of air pollution – industries, vehicles
– Polluting units can be sued before a Metropolitan
Magistrate or a Judicial Magistrate of the first class
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21. • The Environment (Protection) Act, 1986
– Umbrella legislation,
– Industrial location, handling of hazardous material.
– 5 years imprisonment, and 5 lakh Rs fine, and if not
compliant, Rs.5000 for each day on non-compliance
• National Environmental Policy 2006:
 Conservation of critical natural resources,
 Livelihood Security for the Poor.
 Integration of Environmental Concerns in Economic
and Social Development,
 Efficiency in Environmental Resource Use,
 Environmental Governance.
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22. Classification of polluting industries -
1991
• Red Industries: ETP mandatory
– Highly water polluting industries/activities,
– 65 categories – thermal plants, chemical,
drug, leather, nuclear, textiles, sugar, etc.
• Orange Industries: ETP mandatory
 Less polluting, 26 categories, includes
ceramics, bricks, soap, wires, etc.
• Green Industries:
– Least or not polluting, 56 categories, e.g. power
looms, paper pins, candles, ready made
garments, etc.
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23. Environmental regulation in India
1. Consent for operation and establishment
(green licence)
o Annual data to be submitted to State
PCB, which will inspect and check if information
is correct.
o If non-compliance is detected, can close down
the unit, or cut off power and water,
o Or ask company to pay compensation to
victims, until it is compliant.
o If not satisfied, consent may not be given.
o
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24. 2. Environmental Impact Assessment
– Statutory for 29 different activities:
– Industry, mining, irrigation, power plants, ports
and harbours, atomic power plants, railways
and road highways, bridges, airport and
communications.
– EIS to be submitted to Central Government.
– Includes 1) Alternatives, 2) Scope, 3)
Screening, 4) Public hearing, 5) Reporting
6) follow up.
• Projects may be denied if they cause large
environmental and social damages.
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25. 3. Environmental Audit:
• Introduced in March 1992 by the Central Pollution
Control Board (CPCB).
• Applicable to 125 selected polluting industries.
• Environmental auditing and submission of Annual
Environmental Statements, mandatory for 125
industries
 Objective: to minimise consumption of
resources,
 To promote use of clean technologies in
industrial production
 To minimise generation of wastes.
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26. 4. Corporate Social Responsibility (CSR):
• CSR: voluntary initiative taken by business
companies. Includes:
– codes of conduct – ethics of behaviour,
– improvements in working conditions of labour
– environmental management systems – installation of
ETP, air filters and chimneys,
– community development projects - health
programmes, education, water supply to locals,
– corporate donations to worthy causes, and
– company reporting on social and environmental
issues.
• Only 50% of major 1000 corporates in India were
undertaking CSR in 2009.
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27. 5. ISO 14000: International Organisation
for Standardisation:
 NGO, Geneva, Switzerland, 162 member countries
 international standard for business and industry in
environmental management, in 1996.
 Bureau of Indian Standards (BIS)
 ISO 14001 registration requires
a) an environmental management system,
b) compliance with all local environmental laws
wherever it operates, and
c) a commitment to continuous improvement
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28. 6. Cleaner Production and Waste
Minimisation Techniques:
o Increase profits through CP.
o National Productivity Council provides technology and
training,
o Includes: Textiles, dyes, rice mills, distilleries, paper mills
and edible oil units, small and medium scale industries
o Example: a textile firm in Tirupur saves Rs.10 lakhs p.a.
by changing its inputs, and reducing water inputs.
o Most firms recover their costs between 6 months – 5
years depending on size and product.
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29. Economics of environmental
protection by Industrial firms
• For most firms, cost of compliance < cost of
penalties of non-compliance.
• Closure – loss of profits.
• Power and water cuts: fall in production, and
loss of profits.
• Compensation to victims, adds to cost.
• International pressure on environmental safety
and pollution control. Affects exports.
• Prevention is better than cure.
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