Environmental Policy Choices in Developing Economies Lecture 22

The Environment and Development Solving the economic development problem is part of addressing local and global environmental concerns Sustainability cannot be achieved unless poverty is directly addressed. What are the links?

1. Many environmental problems are problems of poverty Unsafe drinking water Inadequate sewage facilities Indoor air pollution

Safe Water and Sanitation by Income

2. Conserving Resources Poor people often put an unsustainable burden on the natural capital in their immediate environment Higher consumption in rich countries has a substantially larger global impact

3. “Demand” for Pollution Control Richer people “demand” more pollution control Environmental Kuznets Curve (EKC) Hypothesis – As economic growth proceeds, certain types of pollution problems first get worse and then get better

Regulated and Unregulated Pollutants by Income

Explanations for the EKC Rising Education Political demand for pollution control Shift in industrial composition Relative risk considerations: is environmental quality a “luxury good”?

4. Population Growth Population growth slows with increased income As societies grow wealthier, families almost universally have fewer children

World Population,

Consumption and the Global Environment Consumption-pollution link 1. Rich country consumption responsible for 2/3 of global pollution 2. High consumption in rich countries is responsible for environmental degradation in poor countries

Natural Capital and Development Demand for resources in rich countries has depleted the natural capital stock in poor countries, WITHOUT investment of resource rents: – Colonial governments – Falling relative prices for primary resources – Low taxes on resource based industries – Spending on military and imported consumption goods for elites – Debt repayment

Debt Latin American external debt – 1960: $7.2 billion – 1982: $315.3 billion Costa Rica’s debt: $960 per capita, more than 1/3 the average yearly income Profits from cattle ranching go towards paying off this debt… Advantages for Sustainable Development Relatively effective governmental bureaucracy Few military expenses Commitment to education, especially of women Advanced welfare system

Global Debt Relief Watch the movie! G* Summit: Debt forgiveness for 18 poor countries, subject to “conditionality” Still only 1/6 of global debt of low incomc countries

Envisioning a Sustainable Future Bruntland Commission Report (Our Common Future) – “Sustainable development” gains widespread currency – Brighter future will not come without hard and conscious work – Four key sustainability steps

Sustainability Steps Population and human resources Food security Improved technology Resource conservation

Guns vs Sustainable Butter

Benefit-Cost Analysis Environmental Damage: – Impact on human health – Soil fertility – Resource depletion – Costs of environmental deterioration not assessed properly Measuring Benefits/Costs of environmental program – WTP: Underestimate the true value – Discounting

Altering Current Policies Economic growth and negative environmental impact Examples: – Subsidizing pesticides – Flood insurance – Lower incentive to conserve timber stocks

Institutional Policy: Property Rights Economic development includes modern economic institutions Text discusses the resource depletion in Ethiopia Why rising market price of fuel wood  deforestation? Open access resources: No owner! Socially desirable to conserve a particular resource

Cont’d Individual or small-group property rights Private land owners can’t defend the boundaries Institutions to settle land-use conflicts Avoid ill-defined rights and open-access externalities

Population Policy as Environmental Policy Total environmental impact: – Environmental impact per person * Number of people Policies leading to lower population growth rate (in developing economies) not necessarily lead to lower environmental impact! Population policies are no substitute for environmental policies on their own

Command-and-Control or Market Incentives? CAC Strategies: Direct and simple with uniform standards Easy monitoring Decentralized policies: developed world that has more sophisticated implementation and enforcement machinery Spectrum of developing countries

The Role of Developed Countries Technology transfer: – Of technology, knowledge and skills that can provide the impetus for economic development – International environmental treaties: Montreal Protocol – Develop new technologies and procedures – Transfer those ideas “effectively”

Debt-For-Nature Swaps – Buy debts in exchange for environmental conservation – Might be effective as an environmental tool but not as effective as debt-reduction tool – Enforcement Environmental values in international aid institutions The Role of Developed Countries