Ch. 26 Economics and the Environment. Economy System of production, distribution and consumption of...
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Transcript of Ch. 26 Economics and the Environment. Economy System of production, distribution and consumption of...
Ch. 26 Economics and the Environment
EconomySystem of production, distribution and consumption of goods and services that satisfies people’s wants or needs
Economic Resources
Natural resources
Human resourcesFinancial resources
Manufactured resources
Economic Systems
Command and MarketCommand – Government makes all economic decisions
Two types of Market systems
Pure Free Market – All economic decisions are based solely on competitive interactions of demand, supply and price. All other factors are constant.
Capitalist Market – Reality based, designed to subvert many of the theoretical conditions of the Pure Free Market
Economists and the Environmental Viewpoint
Conventional Economists -
• Environment is a subsystem of the economy
• Natural resources are important but not vital – can find substitutes
• Because of human ingenuity – depletion and degradation of natural resources will not hinder economic growth
Capitalist Market Economic System
Flow of money
Flow of money
Households
Money flows fromhouseholds to businesses
to pay for products
Products flow frombusinesses to households
Flow of products
Flow of factors of production
Labor and other factors ofproduction flow from
households to businesses
Money flows from businessesto households to pay for
labor and other production
Businesses
Figure 26-6Page 694
Ecological Economist -
• Economy is a subsystem of the environment
• Natural resources are vital
• Conventional economic growth is unsustainable because it depletes or degrades the environment on which it depends
• Integrates ecology with economy
sunEARTH
NaturalCapital
Air; water, land, soil, biodiversity,minerals, raw materials, energy resources, and dilution, degradation,and recyclingservices
EconomicSystems
Production
Consumption
Heat
Depletion ofnonrenewableresources
Degradation and depletion of renewable resources used faster than replenished
Pollution and waste from overloading nature’s waste disposal and recycling systems
Recycling and reuse
Figure 26-7Page 694
Eco - economy• Uses renewable solar energy
• Mimics nutrient cycles by replenishing nutrients, disposes of waste, pollution prevention based on reuse and recycling
• Doesn’t deplete the earths net primary productivity
• Does not exceed the sustainable yields of ecosystems that support all economies
• Preserves biodiversity
• Stabilizes population growth to be “in-balance” with resource consumption
What will it take?
• Use eco-labeling to identify environmentally friendly products and services
• Shift taxes to pollution and waste from income and wealth
• Shift subsidies – reward sustainability, discourage harmful forms of growth
• Pricing that includes harmful environmental effects
• Use ecological indicators to monitor economic and ecological health
Characteristic
Production emphasis
Natural resources
Resource productivity
Resource throughput
Resource typeemphasized
Resource fate
Pollution control
Guiding principles
UnsustainableEconomic Growth
Quantity
Not very important
Inefficient (high waste)
High
Nonrenewable
Matter discarded
Cleanup(output reduction)
Risk–benefitanalysis
EnvironmentallySustainableEconomic
Development
Quality
Very important
Efficient(low waste)
Low
Renewable
Matter recycled,reused, or composted
Prevention(input reduction)
Prevention andprecaution Figure 26-8
Page 695
Reasons GNI(P) and GDP are poor measures of economic and environmental health and human well-being
• They tell us nothing about income distribution and economic justice
• They hide enormous waste of natural and human resources because they measure only money spent, not value received
• They do not include many beneficial transactions that meet basic needs in which no money changes hands
• They do not include the depletion and degradation of natural resources or assets on which all economies depend
• They hide the harmful environmental and social effects of producing goods and services
Costs and Pricing
Internal Costs -
All of the costs associated with manufacturing, marketing, maintaining, delivery, and sales of goods or services.
External Costs -
Harmful effects of producing the goods and services, such as depletion of non-renewable resources, production of solid and hazardous waste, air and water pollution, land disruption, reduction of biodiversity, and contributions to climate change.
Full-cost Pricing
Results of internalizing external costs
Currently dealing with harmful external costs by:
• Levy taxes
• Pass laws and develop regulations
• Provide subsidies
• Using strategies that encourage or force producers to include most, if not all, of the costs in their market price
Results of full-cost pricing
• Prevention would be more profitable than clean-up
• Waste reduction, recycling and reuse would be more profitable than dealing with the waste after the fact.
Bad news:• Market prices for most things would rise
Government would have to reduce taxes for consumers, and stop subsidies for producers to off-set rise in prices
Good news:
• Overall price will be the same.
• More information on products for consideration by consumers
• Encourages more resource-efficient and less-polluting methods of production
• More “Green” products
What’s Holding us back?
• Many producers of wasteful or harmful products would price themselves out of business
• Producers would have to give up current subsidies that support the ability to hide harmful external costs
• Prices of harmful but desirable goods and services would rise
• Hard to put a price tag on many harmful environmental and health costs.
• Many are unaware they are paying external costs
Economics of Pollution
Cost of removing pollutants goes up as we try to remove all pollutants.
At some point the cost of pollution control is greater than the harmful costs of pollution to society
Very difficult to determine the actual harmful costs of pollution
Assigning monetary values to resources and pollution costs
Mitigation costs- Costs of offsetting the damages
Willingness to pay - Survey public as to how much they would pay to avoid the problem
Maintenance and protection costs -
Cost of protecting the quality of various natural resources
Costs Associated with Pollution
Direct costs
Indirect costs
Associated with prevention or clean-up.
Incurred by governments in regulating pollution and damages to private revenues affected by pollution.
Repercussion costsCosts to polluting company because of image damage.
Factors affecting how a natural resource is used or managed
Discount rates
Time preferences
Opportunity costs
Gov’t subsidies and tax breaks
Taxes
Ethics
Benefit-Cost AnalysisCompares the estimated short-term and long-term benefits and costs for various courses of action
Issues with the benefit-cost analysis
• Who benefits and who is harmed?
• Many things we value cannot be reduced to monetary value.
• Can be manipulated to desired outcome for either side of the issue.
Using Regulation and Market Forces to Improve Environmental Quality.
Regulations - set pollution standards, regulate harmful activities, ban release of toxic materials, protect finite resources
Need to be “innovation-friendly”
• Emphasize pollution control and waste reduction• Requires affected parties to participate in the
developing regulations and timetables• Sets goals, but allows freedom in meeting those goals• Sets strict enough standards to promote real
innovation• Establishes well-defined deadlines• Uses market incentives to encourage compliance and
innovation
Economic Incentives - rewards
What we reward, we tend to get more of, and what we discourage we tend to get less of.
Phase in government subsidies and tax breaks that encourage environmentally beneficial behavior and phase out those that encourage harmful behaviors
Eco-labeling – encourages development of green products and services and helps consumers make decisions.
Economic disincentives - punishments
Green taxes or effluent fees – used as a tax shift, not an additional burden.
User fees – for removal of materials from, or use of public lands
Posting pollution-prevention bonds for new major projects
Tradable Pollution and Resource Rights
Government sets total limit on emissions or resource use
• Issue permits or auction off to manufacturers or users
Permit holders can:
• Use as credit against future expansion• Use it in another part of their operation• Sell it to other companies
Table 26-1 Economic Solutions to Pollution and Resource Use Pg. 706
Resistance to Change Management
Phase 1
Pollution controland confrontation
Acceptance withoutinnovation
Phase 2
Innovation-Directed Management
Phase 3
Total qualitymanagement
Pollution preventionand increasedresourceproductivity
Phase 4
Life cyclemanagement
Productstewardship and selling servicesinstead ofthings
Phase 5
Processdesignmanagement
Cleantechnology
Phase 6
Total life qualitymanagement
Ecoindustrialwebs, environmentallysustainableeconomiesand societies
Figure 26-12Page 706
Reducing Poverty to Improve Environmental Quality and Well-being
• Causes premature deaths and preventable health problems
• Increases birthrates• Pushes the poor to use resources unsustainably
to survive
Poverty:
Richest fifth85%
Poorest fifth1.3%
Figure 26-13Page 708
How can we reduce poverty?
Developing countries governments policy changes:
• Shift more of the national budget to help rural and urban poor work their way out of poverty
• Give villages, villagers, and urban poor title to common land and to the crops and trees they plant on them.
Developed Countries could:
• Forgive at least 60% of the debt form developing countries
• Increase nonmilitary government and private aid directly to the poor from developing countries, to make them more self-reliant.
• Encourage banks and other organizations to make small loans to those poor wanting to increase their income
• Require international lending agencies to use standard environmental and social impact analysis to evaluate and proposed development project before it is funded
• Carefully monitor all projects, and halt funding if environmental safeguards are not followed
• Help developing countries increase resource productivity
• Establish policies that stabilize populations of all countries
Figure 26-14Page 710
Economics EnvironmentallySustainable
Economy(Eco-Economy)
Resource Useand Pollution
Ecology andPopulation
Reward (subsidize) earth-sustaining behavior
Penalize (tax and do notsubsidize) earth-degrading behavior
Tax pollution and wasteinstead of wages andprofits
Use full-cost pricing
Sell more services insteadof more things
Do not deplete naturalcapital
Live off income fromnatural capital
Reduce poverty
Reduce resource useand waste by refusing,reducing, reusing, andrecycling
Improve energyefficiency
Rely more onrenewable solar andgeothermal energy
Shift from a carbonbased (fossil fuel)economy to asolar–hydrogen basedeconomy
Mimic nature
Preserve biodiversity
Repair ecologicaldamage
Stabilize population by reducing fertility
Figure 26-15Page 711
Sunset Business Eco-Friendly Business
Coal mining
Oil production
Nuclear power
Energy-wasting motorvehicles
Mining
Throwaway products
Clearcut logging
Paper production
Conventional pesticideproduction
Unsustainable farming
Water well drilling
Conventional economics
Conventional engineering,design, and architecture
Business travel
Solar cell production
Hydrogen production
Fuel-cell production
Wind turbine production
Wind farm construction
Geothermal energyproduction
Production of energy-efficient fuel-cell cars,trucks, and buses
Conventional and electricbicycle production
Light-rail construction
Sustainable agriculture
Integrated pestManagement
Agriculture
Recycling, reuse, andcomposting
Soil conservation
Water conservation
Pollution prevention
Ecoindustrial design
Biodiversitymanagement andprotection
Ecological restoration
Disease prevention
Environmentalengineering, design,and architecture
Ecocity urban design
Environmental science
Environmentaleducation
Ecological economics
Environmentalaccounting
Teleconferencing