Environmental Economics

Feedbacks Economy feeds back onto the environment Environment feeds back onto the economy How?

Why is economic growth important? Imperative to have the economy grow as long as human population continues to grow Developing countries must have a minimum of 3% annual growth to achieve equity with developed world –However, if they use current forms of development to achieve this growth, their energy use alone would have to increase by a factor of five!

Economic Feedbacks on to the Environment Most recent example is President Bush’s decision not to ratify Kyoto Protocol, citing that U.S. economy must take precedence Of course, economic growth means greater production and production means more use of raw materials, natural resources and emission of pollutants

Environmental feedbacks on to the economy On a global scale, the following issues will affect the world’s economic systems –Ozone hole –Acid rain –Deforestation –Grassland degradation –Global warming –Desertification

Cost/Benefit Analyses How do we determine if the environmental damage is something we can accept and live with or something we must change

What are these used for? The list is nearly endless --- Any subject that has both good points and bad points can be subjected to this type of analysis In some cases, actual dollar amounts are known or can be calculated In other cases, arbitrary numbers are assigned

Collect numbers in a table format ItemCostBenefitTotal A-$5000+$2000-$3000 B-$5000+$6000+$1000

Applying cost-benefit analysis to Global Climate Change

Upside RiskDownside Risk Learn – then – actIf climate damage low, mitigation costs saved If climate damage high irreversible damage caused & extra mitigation & adaptation costs incurred Act – then – learnIf climate damage high, irreversible impacts avoided and mitigation costs minimized If climate damage low, mitigation and adaptation costs incurred

Cost/benefit analysis itself has its own risks and benefits Will reflect the biases of the person/group using the analysis If done in an unbiased manner can be an effective tool However, not all biases are easily detected, even by the person doing the analysis!

Economies of Developing vs. Developed Nations Are cost and benefits separated? Should we care?

What role do developing nations play in global economic growth? Huge! During 1980s their economic growth virtually stopped, resulting in a cummulative third world debt ~ $1 trillion –Annual interest on this is $60 billion On a global scale money is flowing from third world to developed world rather than the reverse

Third world environment and economy Third world is shipping money and products to developed world Third world is bearing large proportion of environmental cost of developed world’s economic growth –Deforestation of rainforests –Desertification

In the total tropics, 10 trees are cut down for every one planted. In Africa, 29 trees are cut down for every one planted. Without natural resources, many of these nations have nothing to sell on global market

UN Commission on Sustainable Economic Development Changes in societal values and goals Changes in incentives Changes in process of decision making

Alternative Economies (young ecosystem) Energy flow Growth (production) Maintenance (respiration)

Linear Economics Resource Extraction Product production Pollution ConsumptionDiscard

Alternative Economies (mature ecosystem) Energy flow Growth (production) Maintenance (respiration)

Cyclic Economics Resource Extraction Product production Pollution Consumption Discard Recycling

How can these changes be brought about? Reduce rates of population growth Determine stock of ecological capital and don’t let it deteriorate or lessen Reform public policies that encourage desertification, deforestation, etc. –E.g. agricultural subsidies that encourage use of marginal land, selling resources by gov’t below cost

How can these changes be brought about? Agricultural production must be shifted to developing countries –This is currently undermined by dumping of Western surpluses Reduce energy cost/unit of production –This is less with recycled materials –Will also result in reduced emissions Merge environment & economics in decision making –Stop externalizing environmental costs

For a sustainable economy… Must slow population growth Finally, remember that scarcity is the “enemy” of economic well-being –Wise resource use and reuse