Chapter 24 Economics, Environment, and Sustainability

Chapter 24Chapter 24

Economics, Economics, Environment, and Environment, and

SustainabilitySustainability

Chapter Overview QuestionsChapter Overview Questions

What are economic systems and how do they What are economic systems and how do they work?work?

How do economists differ in their views of How do economists differ in their views of economic systems, pollution control, and economic systems, pollution control, and resource management?resource management?

How can we monitor economic environmental How can we monitor economic environmental progress?progress?

What economic tools can we use to improve What economic tools can we use to improve environmental quality?environmental quality?

Chapter Overview Questions (cont’d)Chapter Overview Questions (cont’d)

How does poverty reduce environmental How does poverty reduce environmental quality, and how can we reduce poverty?quality, and how can we reduce poverty?

How can we shift to more environmentally How can we shift to more environmentally sustainable economies over the next few sustainable economies over the next few decades?decades?

Updates OnlineUpdates Online

The latest references for topics covered in this section can be found at The latest references for topics covered in this section can be found at the book companion website. Log in to the book’s e-resources page at the book companion website. Log in to the book’s e-resources page at www.thomsonedu.com to access InfoTrac articles. www.thomsonedu.com to access InfoTrac articles.

InfoTrac: Is buying local always best? InfoTrac: Is buying local always best? The Christian Science The Christian Science MonitorMonitor, July 24, 2006 p13., July 24, 2006 p13.

InfoTrac: A corporate solution to global poverty. George C. Lodge; InfoTrac: A corporate solution to global poverty. George C. Lodge; Craig Wilson. Craig Wilson. The Chronicle of Higher EducationThe Chronicle of Higher Education, May 12, 2006 , May 12, 2006 v52 i36 pB14(1). v52 i36 pB14(1).

InfoTrac: No bar code: the next revolution in food is just around InfoTrac: No bar code: the next revolution in food is just around the corner. Michael Pollan. the corner. Michael Pollan. Mother JonesMother Jones, May-June 2006 v31 i3 , May-June 2006 v31 i3 p36(10).p36(10).

The Environmental Magazine: Sharing the Wealth.The Environmental Magazine: Sharing the Wealth. Global Policy Forum: Meet the Losers of GlobalizationGlobal Policy Forum: Meet the Losers of Globalization The Brookings Institution: Waging a LivingThe Brookings Institution: Waging a Living

Video: The Working PoorVideo: The Working Poor

This video clip is available in CNN Today This video clip is available in CNN Today Videos for Environmental Science, 2004, Videos for Environmental Science, 2004, Volume VII. Instructors, contact your local Volume VII. Instructors, contact your local sales representative to order this volume, sales representative to order this volume, while supplies last.while supplies last.

Core Case Study: A New Economic Core Case Study: A New Economic and Environmental Visionand Environmental Vision

Some components Some components of more of more environmentally environmentally sustainable sustainable economic economic development.development.

Figure 24-1Figure 24-1

Fig. 24-1, p. 569

Production of energy-efficient fuel-cell cars

Forest conservation

Underground CO2 storage using abandoned oil wells

No-till cultivation High-speed trains

Deep-sea CO2 storage

Solar-cell fields

Bicycling

Cluster housing development

Wind farmsCommunities of passive solar homes

LandfillRecycling plant

Water conservation

Recycling, reuse, & composting

ECONOMIC SYSTEMS AND ECONOMIC SYSTEMS AND SUSTAINABILITYSUSTAINABILITY

An economic system produces and An economic system produces and distributes goods and services by using distributes goods and services by using natural, human, and manufactured natural, human, and manufactured resources.resources.

In a pure free-market system, buyers and In a pure free-market system, buyers and sellers interact without any government or sellers interact without any government or other interference.other interference. Actual capitalist market systems deviate from this Actual capitalist market systems deviate from this

model.model.

Economic Resources: The Big ThreeEconomic Resources: The Big Three

Three types of resources are used to Three types of resources are used to produce goods and services.produce goods and services.


Fig. 24-2, p. 570

+ + =

Natural Resources

Manufactured Resources

Human Resources

Goods and Services

Market Economic Systems: Pure Free Market Economic Systems: Pure Free Market and Capitalistic ModelsMarket and Capitalistic Models

Supply, demand, Supply, demand, and market and market equilibrium for a equilibrium for a good or service in good or service in a pure market a pure market system.system.


Fig. 24-3, p. 571

Dem

and curve

OIL

Quantity demanded

Quantity supplied

If the price is too high, more of a good is available than buyers are willing to buy.

Surplus

At this market equilibrium price, the quantity of a good suppliers are willing to sell is the same as the quantity buyers are willing to buy.

Pri

ce (

low

to

hig

h)

If the price is too low, buyers want to buy

more than suppliers are willing to sell.

Quantity supplied

ShortageQuantity

demanded0

Quantity

Sup

ply

curv

e

Government Intervention in Market Government Intervention in Market Economic Systems: Economic Systems:

Correcting Market FailuresCorrecting Market Failures Governments intervene in market systems to Governments intervene in market systems to

help provide economic stability, national help provide economic stability, national security, and public services such as security, and public services such as education, crime protection, and education, crime protection, and environmental protection.environmental protection.

Environmentally Sustainable Environmentally Sustainable Economic Development: Economic Development:

Copying NatureCopying Nature

Models of ecological economists are built on Models of ecological economists are built on the following assumptions:the following assumptions: Resources are limited.Resources are limited. Encourage environmentally beneficial and Encourage environmentally beneficial and

sustainable forms of development.sustainable forms of development. The harmful environmental and health effects of The harmful environmental and health effects of

producing goods and services should be included producing goods and services should be included in market prices.in market prices.

Depletion of nonrenewableresources

Degradation & depletionof renewable resources usedfaster than replenished

Pollution, waste from overloading nature’s waste disposal & recycling systems

Fig. 24-4, p. 573

Sun EARTHEARTH

HeatEconomic Economic SystemsSystems

Natural Capital Production

Air, water, land, soil, biodiversity, minerals, raw materials, energy resources; dilution, decomposition, & recycling services Consumption

Recyclingand reuse

Economic DevelopmentEconomic Development

Comparison of Comparison of unsustainable unsustainable economic economic development development and and environmentally environmentally sustainable sustainable economic economic development.development.


Fig. 24-5, p. 573

Characteristic Unsustainable Economic Growth

Environmentally Sustainable Economic

Development

Production emphasis Quantity Quality

Natural resources Not very important Very important

Resource productivity

Inefficient (high waste)

Efficient (low waste)

Resource throughput

High Low

Resource type emphasized

Nonrenewable Renewable

Resource fate Matter discarded

Matter recycled, reused, or composted

Pollution control Cleanup (output reduction)

Prevention (input reduction)

Guiding principles Risk–benefit analysis

Prevention and precaution

ESTIMATING THE VALUE OF ESTIMATING THE VALUE OF ECOLOGICAL SERVICES AND ECOLOGICAL SERVICES AND

MONITORING ENVIRONMENTAL MONITORING ENVIRONMENTAL PROGRESSPROGRESS

Economists have developed several ways to Economists have developed several ways to estimate nonmarket values of the earth’s estimate nonmarket values of the earth’s ecological services based using:ecological services based using: Mitigation costMitigation cost: how much it takes to offset any : how much it takes to offset any

environmental damage.environmental damage. Willingness to payWillingness to pay: determine how much people : determine how much people

are willing to pay to keep the environment in tact are willing to pay to keep the environment in tact (e.g. protect an endangered species).(e.g. protect an endangered species).

ESTIMATING THE VALUE OF ESTIMATING THE VALUE OF ECOLOGICAL SERVICES AND ECOLOGICAL SERVICES AND

MONITORING ENVIRONMENTAL MONITORING ENVIRONMENTAL PROGRESSPROGRESS

Economists use discount rates (estimate Economists use discount rates (estimate resource’s future value compared to current) resource’s future value compared to current) to estimate the future value of a resource.to estimate the future value of a resource.

The market price you pay for something does The market price you pay for something does not include most of the environmental, health, not include most of the environmental, health, and other harmful costs associated with its and other harmful costs associated with its production and use.production and use.

Estimating the Optimum Levels of Estimating the Optimum Levels of Pollution Control and Resource UsePollution Control and Resource Use

Environmental Environmental economists try to economists try to determine optimum determine optimum levels of pollution levels of pollution control and resource control and resource use.use.


Fig. 24-6, p. 575

High

Marginal cost of resource production

Co

st

Marginal cost of resource use

Low

Optimum level of resource use

Coal removed (%)

Optimum Pollution ControlOptimum Pollution Control

The marginal cost of cleaning up pollution The marginal cost of cleaning up pollution rises with each additional unit removed.rises with each additional unit removed.


Fig. 24-7, p. 576

High

Marginal cost of pollution

Co

st

Marginal cost of pollution control

Optimum pollution clean-up level

Low

Pollution removed (%)

Cost-Benefit Analysis: Cost-Benefit Analysis: a Useful but Crude Toola Useful but Crude Tool

Comparing likely costs and benefits of an Comparing likely costs and benefits of an environmental action is useful but involves environmental action is useful but involves many uncertainties.many uncertainties. Cost–benefit analyses involves determining:Cost–benefit analyses involves determining:

• Who or what might be affected by a particular Who or what might be affected by a particular regulation or project. regulation or project.

• Projecting potential outcomes. Projecting potential outcomes. • Evaluating alternative actions.Evaluating alternative actions.• Establishing who benefits and who is harmed.Establishing who benefits and who is harmed.

Environmental and Economic Environmental and Economic Indicators: Environmental RadarIndicators: Environmental Radar

We need indicators that reflect changing We need indicators that reflect changing levels of environmental quality and human levels of environmental quality and human health.health. Gross domestic product (GDP)Gross domestic product (GDP): measures the : measures the

annual economic value of all goods and services annual economic value of all goods and services produced in a country without taking harmful produced in a country without taking harmful effects into consideration.effects into consideration.

Genuine progress indicator (GPI)Genuine progress indicator (GPI): Subtracts : Subtracts from the GDP costs that lead to a lower quality of from the GDP costs that lead to a lower quality of life or deplete / degrade natural resources.life or deplete / degrade natural resources.

Environmental and Economic Environmental and Economic Indicators: Environmental RadarIndicators: Environmental Radar

Comparison of Comparison of the per capita the per capita GDP and the GDP and the GPI in the U.S. GPI in the U.S. between 1950 between 1950 and 2002.and 2002.


Fig. 24-8, p. 577

1996

Do

llar

s p

er p

erso

n

Per capita gross domestic product (GDP)

Per capita genuine progress indicator (GPI)

Year

How Would You Vote?How Would You Vote?

To conduct an instant in-class survey using a classroom response To conduct an instant in-class survey using a classroom response system, access “JoinIn Clicker Content” from the PowerLecture main system, access “JoinIn Clicker Content” from the PowerLecture main menu for Living in the Environment. menu for Living in the Environment.

Should full-cost pricing be used in setting Should full-cost pricing be used in setting market prices for goods and services?market prices for goods and services? a. No. Low-income people will not be able to a. No. Low-income people will not be able to

afford some essential goods and services.afford some essential goods and services. b. Yes. Full-cost pricing will improve b. Yes. Full-cost pricing will improve

environmental protection.environmental protection.

ECONOMIC TOOLS FOR ECONOMIC TOOLS FOR IMPROVING ENVIRONMENTAL IMPROVING ENVIRONMENTAL

QUALITYQUALITY Including external costs in market prices Including external costs in market prices

informs consumers about the harmful impact informs consumers about the harmful impact of their purchases the earth’s life-support of their purchases the earth’s life-support systems and on human health.systems and on human health.

Eco-Labeling: Informing Consumers Eco-Labeling: Informing Consumers So They can Vote with Their WalletsSo They can Vote with Their Wallets

Certifying and labeling environmentally Certifying and labeling environmentally beneficial goods and resources extracted by beneficial goods and resources extracted by more sustainable methods can help more sustainable methods can help consumers decide what goods and services consumers decide what goods and services to buy.to buy.


Fig. 24-9, p. 579

Germany: Blue Angel

(1978)

Canada: Environmental Choice (1988)

United States: Green Seal

(1989)

Nordic Council:

White Swan (1989)

European Union:

Eco-label (1992)

China: Environmental

label (1993)

Subsidy ShiftingSubsidy Shifting

Taxes on pollution and resource use can Taxes on pollution and resource use can move us closer to full-costing pricing.move us closer to full-costing pricing. Shifting taxes from wages and profits to pollution Shifting taxes from wages and profits to pollution

and waste (green taxes) helps make this and waste (green taxes) helps make this feasible.feasible.

We can improve environmental quality and We can improve environmental quality and human health by replacing environmentally human health by replacing environmentally harmful government subsidies with harmful government subsidies with environmentally beneficial ones.environmentally beneficial ones.

Fig. 24-10, p. 580

Trade-Offs

Environmental Taxes and Fees

Advantages Disadvantages

Helps bring about full-cost pricing Penalizes low income groups unless safety nets are provided

Provides incentive for businesses to do better to save money

Hard to determine optimal level for taxes and fees

Need to frequently readjust levels, which is technically and politically difficult

Can change behavior of polluters and consumers if taxes & fees are set at a high enough level

Gov’ts may see this as a way of increasing general revenue instead of using funds to improve environmental quality and reduce taxes on income, payroll, & profits

Easily administered by existing tax agencies

Fairly easy to detect cheaters



Do the advantages of green taxes and fees Do the advantages of green taxes and fees outweigh the disadvantages?outweigh the disadvantages? a. No. Low-income people, farmers, ranchers, a. No. Low-income people, farmers, ranchers,

and small businesses would suffer from and small businesses would suffer from environmental taxes and fees.environmental taxes and fees.

b. Yes. They would reduce waste and protect the b. Yes. They would reduce waste and protect the environment.environment.

Green TaxesGreen Taxes

Advantages of Advantages of taxing wages taxing wages and profits less and profits less and pollution and pollution and waste and waste more.more.


Fig. 24-11, p. 581

• Decreases depletion and degradation of natural resources

• Improves environmental quality by full-cost pricing

• Encourages pollution prevention & waste reduction

• Stimulates creativity in solving environmental problems to avoid paying pollution taxes and thereby increases profits

• Rewards recycling and reuse

• Relies more on marketplace rather than regulation for environmental protection

• Provides jobs

• Can stimulate sustainable economic development

• Allows cuts in income, payroll, and sales taxes



Do you favor shifting taxes on wages and profits to pollution and waste?Do you favor shifting taxes on wages and profits to pollution and waste? a. No. This tax system would penalize many farmers, ranchers, and a. No. This tax system would penalize many farmers, ranchers, and

businesses that cannot avoid generating waste.businesses that cannot avoid generating waste. b. Yes. But, only if we offer subsidies to assist lower income people in b. Yes. But, only if we offer subsidies to assist lower income people in

meeting their basic needs.meeting their basic needs. c. Yes. It would promote a cleaner environment.c. Yes. It would promote a cleaner environment.

ECONOMIC TOOLS FOR ECONOMIC TOOLS FOR IMPROVING ENVIRONMENTAL IMPROVING ENVIRONMENTAL

QUALITYQUALITY Environmental laws and regulations work Environmental laws and regulations work

best if they motivate companies to find best if they motivate companies to find innovative ways to control and prevent innovative ways to control and prevent pollution and reduce resource waste.pollution and reduce resource waste.

Governments can set a limit on pollution Governments can set a limit on pollution emissions or use of a resource, give permits emissions or use of a resource, give permits to users, and allow them to trade their to users, and allow them to trade their permits on the marketplace.permits on the marketplace.

Fig. 24-12, p. 582

Trade-Offs

Tradable Environmental Permits

Advantages Disadvantages

Big polluters and resource wasters can buy their way out

Flexible

Easy to administer May not reduce pollution at dirtiest plants

Encourages pollution prevention and waste reduction

Can exclude small companies from buying permits

Caps can be too low

Can promote achievement of capsCaps must be gradually reduced to encourage innovation

Determining caps is difficultPermit prices determined by market transactions Must decide who gets permits and why

Administrative costs high with many participantsConfronts ethical problem of how much

pollution or resource waste is acceptable Emissions and resource wastes must

be monitored

Confronts problem of how permits should be fairly distributed Sets bad example by selling legal rights to

pollute or waste resources

Self-monitoring can promote cheating



Do the advantages of using tradable pollution and resource-use permits Do the advantages of using tradable pollution and resource-use permits to reduce pollution and resource waste outweigh the disadvantages?to reduce pollution and resource waste outweigh the disadvantages?

a. No. The policies would allow old and dirty plants to continue polluting local a. No. The policies would allow old and dirty plants to continue polluting local air and water.air and water.

b. Yes. The policies are effective ways of capping and then reducing air and b. Yes. The policies are effective ways of capping and then reducing air and water pollution and resource use.water pollution and resource use.

Green Economics: Selling Services Green Economics: Selling Services Instead of ThingsInstead of Things

Some businesses can greatly decrease their Some businesses can greatly decrease their resource use, pollution, and waste by shifting resource use, pollution, and waste by shifting from selling goods and services to selling the from selling goods and services to selling the services the goods provide.services the goods provide. Carrier has begun shifting selling heating and air Carrier has begun shifting selling heating and air

conditioning equipment to providing the service conditioning equipment to providing the service itself.itself.• It makes higher profits by having the most energy-It makes higher profits by having the most energy-

efficient units.efficient units.

REDUCING POVERTY TO IMPROVE REDUCING POVERTY TO IMPROVE ENVIRONMENTAL QUALITY AND ENVIRONMENTAL QUALITY AND

HUMAN HUMAN WELL-BEINGWELL-BEING

We can sharply cut poverty by forgiving the We can sharply cut poverty by forgiving the international debts of the poorest countries, international debts of the poorest countries, greatly increasing international aid and small greatly increasing international aid and small individual loans to help the poor help individual loans to help the poor help themselves.themselves.

Distribution of the World’s Wealth: a Distribution of the World’s Wealth: a Widening GapWidening Gap

The global The global distribution of distribution of income shows income shows that most of the that most of the world’s income world’s income flows up. flows up.

Each horizontal band is 1/5Each horizontal band is 1/5 thth of the world’s populationof the world’s population


Fig. 24-13, p. 584

Richest fifth 85%

Poorest fifth 1.3%

Solutions: Achieving the Millennium Solutions: Achieving the Millennium Development GoalsDevelopment Goals

In 2000, the world’s nations set goals for In 2000, the world’s nations set goals for sharply reducing hunger and poverty, sharply reducing hunger and poverty, improving health care and moving toward improving health care and moving toward environmental sustainability by 2015.environmental sustainability by 2015. In 1980 and 2002, developed countries agreed to In 1980 and 2002, developed countries agreed to

devote 0.7% of their annual national income devote 0.7% of their annual national income towards achieving such goals.towards achieving such goals.• The average amount donated was 0.25%.The average amount donated was 0.25%.• The U.S. gives 0.16%.The U.S. gives 0.16%.

Fig. 24-14, p. 586

Fig. 24-14a, p. 586

Expenditures per year (2005)

World military

U.S. military

U.S. highways $29 billion

U.S. potato chips & snacks

$22 billion

U.S. pet foods $19 billion

U.S. EPA$8 billion

U.S. foreign aid$8 billion

U.S. cosmetics$8 billion

$492 billion (including Iraq)

$1 trillion

Fig. 24-14b, p. 586

Expenditures per year needed to

Eliminate hunger & malnutrition $48 billion

Provide clean drinking water and sewage treatment for all

$37 billion

Provide basic health care for all $33 billion

Protect biodiversity $31 billion

Protect topsoil on cropland $24 billion

Provide universal primary education and end illiteracy

$16 billion

Restore fisheries $13 billion

Deal with global HIV/AIDS $10 billion

Stabilize water tables $10 billion

Restore rangelands $9 billion

Protect tropical forests $8 billion

Reforest the earth$6 billion

Total Earth Restoration and Social Budget = $245 billion

MAKING THE TRANSITION TO MAKING THE TRANSITION TO MORE ENVIRONMENTALLY MORE ENVIRONMENTALLY SUSTAINABLE ECONOMIESSUSTAINABLE ECONOMIES

Nature's four principles of sustainability and a Nature's four principles of sustainability and a number of environmental and economic number of environmental and economic strategies can be used to develop more strategies can be used to develop more environmentally sustainable economies.environmentally sustainable economies.

The Netherlands has dedicated itself to The Netherlands has dedicated itself to making its economy more environmentally making its economy more environmentally sustainable.sustainable.

Eco-EconomiesEco-Economies

Principles for Principles for shifting to more shifting to more environmentally environmentally sustainable sustainable economies economies during this during this century.century.


Fig. 24-15, p. 587

Economics Environmentally Sustainable

Economy (Eco-Economy)

Resource Use & PollutionReward (subsidize) earth

sustaining behavior Reduce resource use and waste by refusing, reducing, reusing, and recycling

Penalize (tax and do not subsidize) earth degrading behavior

Improve energy efficiencyShift taxes from wages

and profits to pollution and waste

Rely more on renewable solar and geothermal energyUse full-cost pricingShift from a carbon-based (fossil fuel) economy to a renewable fuel–based economy

Sell more services instead of more things

Do not deplete or degrade natural capital

Live off income from natural capital

Reduce poverty

Ecology & Population

Use environmental indicators to measure progress

Mimic nature

Preserve biodiversity

Certify sustainable practices and products

Repair ecological damage

Use eco-labels on products

Stabilize population by reducing fertility

Jobs, Profits, and Jobs, Profits, and the Environment: the Environment: New Industries New Industries and New Jobsand New Jobs

Shifting to more Shifting to more environmentally environmentally sustainable sustainable economies will economies will create immense create immense profits and huge profits and huge numbers of jobs.numbers of jobs.


Fig. 24-16, p. 589

Environmentally Sustainable Businesses and Careers

Aquaculture Environmental law

Biodiversity protectionEnvironmental nanotechnology

BiofuelsFuel cell technology

Climate change research

Geographic information systems (GIS)

Conservation biology

Geothermal geologist

Eco-industrial design

Hydrogen energy

Marine science

Ecotourism managementPollution prevention

Energy efficient product design

Reconciliation ecology

Selling services in place of products

Environmental chemistry Solar cell technology

Environmental design Sustainable agriculture

Environmental economicsSustainable forestry

Environmental educationWaste reduction

Watershed hydrologist

Environmental engineering Water conservation

Environmental health Wind energy

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Chapter 24 Economics, Environment, and Sustainability