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

2 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.

3 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.

4 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)

5 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.

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8 Global population continues to rise

9 Arguments on Malthus ………………………………….

10 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.

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

16 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.

17 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.

18 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.

19 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.

20 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)

21 Aspects of Environmental/ Natural Resources No market Dynamics Irreversibility

22 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.

23 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.

24 The Importance of Incentives Economists study how incentives affect individual behavior. Since there is no market for environmental goods, then people try to make more benefits from these goods. (maximize profits or utilities) Pollution is a result of the profit-motive. Without taking environmental costs into account, there will be over production, then excess pollution will result.

25 The Design of Environmental Policy Environmental economics is essential for environmental policy making. It is important to know how alternative policy measures up in terms of cost-effectiveness, and in terms of efficiency. Effective decision making requires adequate information about consequences of the decisions.

26 Analysis Tools in Environmental Policy Questions Benefit-cost analysis Limitation of B/C analysis.  Not all costs and benefits are easily Identified or defined Quantified  Difficult to agree on all costs and benefits Non-market valuation techniques

27 International Environmental Issues The global environment International environmental agreements