Environmental Economics, Politics, and Worldviews

**Core Case Studies The Jabiluka Mine proposal East St. Louis People who opposed the mine did so largely on the basis of ethical and environmental justice concerns. Few challenged the mining plan on economic grounds Mine opponent generally recognized uranium as a lucrative resource that generates jobs, income, and electricity Although some questioned the benefits to local communities, they did not dispute the contribution of uranium exports to the Australian economy Thus, support for the mine was based primarily on economic factors Such conflict between ethical and economic motivations is a recurrent theme in environmental issues worldwide. **East St. Louis Those wealthy enough to live on the outskirts of East St. Loius are afforded the luxury of driving around this city without looking at it. Most people knew the conditions were wrong in the city, but could not afford to leave. Most of the conditions were caused by economic factors---the city’s debt being paid by cutting the sanitation and fire departments. The city’s railway being a throughway for toxic chemicals being transported in the name of economic gain.

**How Are Economic Systems Related to the Biosphere? Ecological economists and most sustainability experts regard human economic systems as subsystems of the biosphere and subject to its limiting factors. **Limiting Factors: The physical, chemical or biological characteristics of the environment that restrains population growth. (these could be the amount of food available, shelter, number of prey in an area, etc. Similarly, economic systems fall victim to those same limiting factors.

**Resources Supporting Economic Systems **Economics: is the study of how people decide to use scarce resources to provide goods and services in the face of demand for them. As mentioned in the opening of the lecture, an economy is a social system that converts resources into goods, material commodities manufactured for and bought by individuals and businesses. **There are four types of economies that we will discuss: Subsistence economy: the oldest type thrives on a localization of material goods for personal consumption and use Capitalist market economy: focus on interactions among buyers and sellers and they determine which goods and services are produced, how much are produced, how these are produced and distributed. Supply and demand determines prices Centrally planned economies (state socialist economies) the government determines in a top down manner how to allocate resources Mixed economies: many capitalist market economies have borrowed from state socialism and are hybrids. Three types: Natural resources Human resources Manufactured resources

Three Types of Resources Three types of resources are used to produce goods and services. Question: In which of these categories can resources be recycled?

**Economic Importance of Natural Resources There are three important economical viewpoints from which we can describe our viewpoints toward natural resources. **Neoclassical economists Examine the psychological factors underlying consumer choices. They explain market prices in terms of consumer preferences for units of particular commodities. They still maintain Smith’s overall assumptions about the economy that the market is guided by an “invisible hand”. There is the pillar of free-market thought. Think of the idea that a business owner will do certain things in order to ensure that you come back or continue to support his establishment over others. (i.e. sales, promotions, friendliness) In neoclassical economies, buyers desire the lowest possible price, sellers desire the highest possible price This conflict results in a compromise price being reached and the “right quantity of materials commodities being bought and sold. **Ecological economists Civilizations do not in the long run overcome their environmental limitation Advocate sustainability in economies and see natural systems as good models. Most argue that the growth paradigm will eventually fail due to unregulated population growth and resource consumption They want a change in the current economic model because it doesn’t work! This very Malthusian viewpoint and neo-Malthusian viewpoint is an important belief of ecological economists Advocate for a “steady-state economy” **Environmental economics takes middle ground Tend to agree with ecological economists which economies are unstable if population growth is not reduced and resources use is not made more efficient They maintain, however, that we can accomplish these changes and attain sustainability within our current economic systems. By retaining the principles of neoclassical economics and modifying them to address environmental challenges, environmental economists argue that we can keep our economies growing and that technology can continue to improve efficiency. Some forms of economic growth discouraged Environmentally sustainable economy – eco-economy

**Strategies to Transition to Eco-economy (1) Let’s focus for a moment on the Ecological Economy and how a system might be transferred to such a model. When we discuss this idea of an Eco-economy we are talking about a steady state economy. But what do we mean by that. **The idea of a steady-state economy started back in the 19th C when British economist John Stuart Mill hypothesized that as resources became harder to find and extract economic growth would slow and eventually stabilize. **Individuals and society would subsist sustainably on steady flows of natural resources and on saving accrued during productive periods of growth. **Proponents want a push towards this steady state way of thinking Opposers believe that an end to growth will mean an end to a rising quality of life

*Strategies to Transition to Eco-economy (2) Eco-labeling Indicators that monitor economic and environmental health Full-cost pricing Phase out of harmful government subsidies and tax breaks Decrease income and wealth taxes Increase taxes on pollution, resource waste, and environmentally harmful actions Innovation-friendly regulations Tradable permits Selling of services instead of things Over the course of the next chapter, we will be addressing several of these strategies listed as a way to transition an economy to a steady state economy. To highlight one of these practices: Eco-labeling is where manufacturers designate on their labels how products were grown, harvested, or manufactured. Tells consumers which brands use environmentally benign processes. By buying these products consumers can provide businesses an incentive to switch to more sustainable products.

**Eco-labeling Encourages companies and consumers to go green Programs in Europe, Japan, Canada, and U.S. Used to identify fish caught by sustainable methods

Midpoint Note Check What are three important economical viewpoints from which we can describe our viewpoints toward natural resources? How has Malthusian assumptions influenced the ecological economist perspective? What is eco-labeling? Switch notes with someone in your study group Highlight answers to the following questions in their notes and place the number of the question in the margin of their notes. Do not highlight anything if the complete answer is not present. Provide feedback on note-taking in the box on the question sheet. You will have 5 minutes to complete this exercise.

Ecological Economics Ecological economists see all economies as human subsystems that depend on natural resources and services provided by the sun and earth (Concept 17-1). The earth serves both as a source for raw materials and as a sink for the resulting wastes and pollution. Question: Do you agree or disagree with this model? Explain.

Components of Environmentally Sustainable Economic Development Solutions: some components of more environmentally sustainable economic development favored by ecological and environmental economists. The goal is to have economic systems put more emphasis on conserving and sustaining the air, water, soil, biodiversity, and other natural resources that sustain all life and all economies. Such a shift toward more efficient resource use, cleaner energy, cleaner production, and natural capital preservation can save money, create jobs, and be profitable. Question: What are three new types of jobs that could be generated by such an economy?

**How Can We Use Economic Tools to Deal with Environmental Problems? Using resources sustainably will require including the harmful environmental and health costs of resource use in the market prices of goods and services (full-cost pricing). Governments can help improve and sustain environmental quality by subsidizing environmentally beneficial activities and by taxing pollution and wastes instead of wages and profits.

**External Costs Unfortunately, market price leaves out environmental and health costs associated with its production There is a need for Goods and services include external costs Excluding external costs Hinders development of green goods and services Promotes pollution Fosters waste and environmental degradation

Genuine Progress Indicator = + - Genuine progress indicator Benefits not included in market transactions Harmful environmental & social costs GDP There is a need to monitor our use of environmental economic indicators. Estimating the value of natural capital Genuine progress indicator (GPI) monitors environmental well-being

Comparison of GDP and GPI Gross domestic product (GDP) does not measure environmental degradation. It is the total monetary value of final goods and services it provides each year. Fig. 17-5, p. 406

Include Harmful Environmental Costs in Prices of Goods and Services Environmentally honest market system makes sense Not widely used Wasteful and harmful producers would go out of business Difficult to estimate environmental costs Most consumers do not connect environmental costs with purchases Government action needed

Exit Ticket **Name four key contributions the environment makes to the economy. **Describe Adam Smith’s metaphor of the “invisible hand.” **How does neoclassical economics compare with classical economics? Compare and contrast the views of neoclassical economists, environmental economists, and ecological economists.