ENV 536: Environmental Economics and Policy Introduction to Environmental Economics (Lecture 1) Assist.Prof. Sasitorn Suwannathep, Ph.d. School of Liberal Arts King Mongkut’s University of Technology Thonburi

The Origins of Environmental Economics Lies in the 1960s, the first wave of modern popular ‘green’ thinking and policy perceptions within developed countries. Fundamental ideas provided the frameworks for environmental economics can be traced to eighteenth century.

The Economy as an Open system Our economic system is underpinned by and cannot operate without the support of ecological systems. In order to provide goods and services to human, the economy must extract resources from the environment, processes to end-products and disposes of wastes to the environment.

Ecological limits on the Economy Economic activity is ‘limited’ by the capacities of natural environments. The works of famous scholars focused on the limits are: Malthus (1798) Ricardo (1817) Marx (1867)

Ecological limits on the Economy Malthus worried about absolute limits. Population growth tends to outgrow the means of subsistence (foods) and a state of misery will be the inevitable end result.

Global population continues to rise Trends and Projections in World Population Growth by Region, Medium Fertility Projection, 1950-2050 The youthful age structure of most developing countries means that their absolute populations continue to grow, even where the rate of increase has declined significantly. For more information, visit http://www.wri.org/wri/trends/popgrow.html Source: United Nations (U.N.) Population Division, Long Range World Population Projections: Two Centuries of World Population Growth: 1950-2150 (U.N., New York, 1992), Table 6, p. 22 Note: Projections are based on the U.N. medium variant.

Ecological limits on the Economy Ricardo viewed the limits in a relative term. Limits are set by rising costs as the highest grade resources, which are exploited first, become exhausted and have to be substituted for by successively lower grade resources.

Ecological limits on the Economy Marx perceived that the economic growth might be limited because of social and political unrest within the national economy.

High incomes and high population density increase environmental problems around the world? Higher income can lead to more pollution: rich people and rich countries consume more and thus can generate more pollution.

However, as people and societies get richer, their preferences change. Environment regarded as a luxury good: for poor people who are struggling with starvation, environmental issues take a backseat. As people become richer, quality of the environment becomes important to them.

What is Economics? Economics is the study of how and why individuals and groups make decisions about the use and distribution of valuable human and nonhuman resources. Economics is divided into Microeconomics: the study of the behavior of individuals and small groups Macroeconomics: the study of the economic performance of economies as a whole.

What is Environmental Economics? Environmental economics draw from both sides, much more from microeconomics. Environmental economics focuses on how and why people make decisions that have consequences for natural environment how economic institutions and policies can be changed to bring these environmental impacts back to balance.

What is Environmental Economics? The application of the principles of economics to study of how environmental resources are managed. Analytical subjects not only to describe the state of the environment and the change in it, but also to understand why this conditions exist and how we might bring about improvement the environmental quality.

What is Environmental Economics? Environmental economics: applied field like labour economics, health economics, development economics, experimental economics, financial economics, monetary economics etc. Environmental economics involves adapting concepts developed in other branches of economics and applying them to environmental problems.

Why study Environmental Economics? In general, prices reflect the relative scarcity of goods. In environmental economics, markets and prices do not exist (or market failure). There is no market for environmental resources Government intervention is need to correct such failures (Conventional Approach)

Aspects of Environmental/ Natural Resources No market Dynamics Irreversibility

Aspects of Environmental/ Natural Resources No market (Market failure) We usually rely on markets to match producer costs with consumer demands so as to obtain the optimal amount of consumer goods. With environmental goods, more difficult. Why? : markets may not work.

Aspects of Environmental/ Natural Resources Dynamic The decision to use natural resources today does affect what will be available tomorrow Irreversibility Damage to natural resources has long term effects. If we clear the forest, the future generation will unable to know about the biodiversity.

Topics to be covered in this class Externalities Need for Environmental Regulation Choice among Policy Instruments Measuring Benefits and Costs from Pollution Control Methods to Value Environmental Goods Trade and Environment, Development and Environment.