The economics of sustainability

The Economics of Sustainability

Prepared by Sustainability Development Group FiveSadiq Ikram Bello P14EVAT8027Audu Michael Tsado P14EVAT8028Hamisu Yushau P14EVAT8029Tukur Sani Iliya P14EVAT8030Isah Auwal Ahmad P14EVAT8034Abdulrazaq Haroun P14EVAT8032

SynopsisIn this slide, we intend too Discuss on the concept of environmental, ecological and

economic sustainabilityo What externalities and hidden cost entailo Review economic growth in Nigeriao Explore new thoughts in Economic approach to

sustainabilityo Discuss Carbon Tax and Carbon Trading conceptso Give a scenario of Carbon Tax implementation in a

community

Introductiono 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)

IntroductionEnvironment

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).

IntroductionEcology

Ecology is the scientific study of interactions of organisms with one another and with the physical and

chemical environment (businessdictionary.com, 2016).

EconomyIs 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).

Ecological EconomicsEcological 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 fornatural resources and the environment.

4• Economic policy must consider objectives of economic efficiency,

equity, and sustainability.

The principles of ecological economics says;

Externalitieso 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)

Externalitieso 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)

Types of ExternalitiesThere are two types of externalities in economic sustainability:

POSITIVE EXTERNALITYPositive externalities have a positive

impact on the consumption and production opportunities.

NEGATIVE EXTERNALITYNegative externalities have a negative

impact on the consumption and production opportunities.

Positive ExternalitiesPositive consumption externalitiesYour attending party may add to festive atmosphere for others.

Positive production externalitiesFirms learn from each other by working in close proximity; productivity-enhancing ideas spread (knowledge spillovers).

Negative ExternalitiesBY 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

Public Sector Remedies to Negative Externalities

Price policycorrective tax or subsidy equal to

marginal damage per unit

Quantity regulationGovernment forces firms to produce the

socially efficient quantity

Private Sector Remedies to Negative Externalities

Individual’s ownersIf 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 ownersif river is owned by firms then firm can charge individuals for polluting

less. They will also charge individuals the MD per unit of

pollution.

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?

Expected Answerso 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.

Expected Answerso Hidden costs may distort variance analysis, contribute to

product mis-pricing.o And lead to inappropriate product mix, plant closure, and

investment decisions.

Causes of Hidden Cost1 • Environmental regulations

2 • Altering raw material compositions

3 • Input proportions

4 • Energy use

5 • Firms incur additional indirect labor costs

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.

Economic GrowthEconomic growth involves the combination of different factors to produce goods and services

PRODUCTION CAPITAL HUMAN CAPITALNATURAL CAPITAL

SOCIAL CAPITALraw-materials, forest services, carbon sequestrations

machineries, buildings, roads etc.

education, knowledge, skills, techniques, labor

institutions, governments, community etc

Nigerian Economic GrowthAccording 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

Nigerian Economic GrowthStabilization & 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

Economic Growth Vs EnvironmentGlobally, 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:

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.

The Role of Environment on Economic Growth

The natural environment plays a significant role toward sustainable economy. It support economy;

DIRECTby providing resources and raw-materials (water, timber, air etc.)

required for the production of goods and services.

INDIRECTthrough ecosystem services like carbon

sequestration, water purification, managing flood risks, nutrient cycles and

many more.

Environmental PoliciesThe 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

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,

Carbon Tax And Trade

• WHAT IS CARBON TAX…• HOW CAN IT MITIGATE CLIMATE

CHANGE…• DOES THE MODEL WORK…• WHO HAS USED IT BEFORE…?

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!

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

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.

Where Has It Been Used?

Where Has It Been Used?

Pros and Cons of Carbon TaxLess Carbon DioxideIf 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 InnovationThis means that companies will look for new engines that run efficiently without the production of carbon dioxide.

Has the Ability to Increase RevenueAll 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

Pros and Cons of Carbon Tax

Encourage Secretive MethodsMany feel that the carbon tax will also encourage corporations to get sneakier with carbon production.

Costs Money to TaxPromoting and implementing a carbon tax is incredibly expensive.

ConsCorporations Will RelocateMany 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.

Implementing Carbon TaxProposed Community: Ahmadu Bello University, Zaria

Key Steps: o Identify sources of massive Carbon Productiono Establish a method of measureo Place a price for the rates.o Ensure monitoring and enforcement


Step 1: Identify sources of massive Carbon Productiono Motor Cars and Motorcycleso Generators (Community Market)o Restaurantso Incinerators


Step 2: Establish a method of measureo Motor Cars and Motorcycles: Cost Per Kilometero Generators (Community Market): Cost Per Hour Usageo Restaurants: Cost per Log of Wood burnto Incinerators: Cost per volume of Waste burnt


Step 3: Place a price for the rates.o Motor Cars and Motorcycles: #50/kmo Generators (Community Market): #20/hro Restaurants: #20/50kg of woodo Incinerators: #30/kg of waste


Step 4: Ensure monitoring and enforcemento This will involve a special group being

set up to handle the implementation process


Other Measureso There will be an active support for

green energy.o Alternative sources of every levied item

will be provided promptlyo Examples: Bicycle Hiring, Reduction of

Paper usage, Provision of Amortized solar equipment for power in shops etc.

Thank You!

ReferencesEkpo, 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.