If it's Good for the Environment, is it Bad for the Economy? If it's Good for the Environment, is it Bad for the Economy?

The Environmental Problem

The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste

(Clipart for the environment: e.g. countryside scene) Goods and services Labour Waste The economy and the environment Resources Amenity value

The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste The environmental problem

u Use of the environment as: an amenity a source of primary products a dump for waste u Conflicts between these uses The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste u Conflicts between these uses The environmental problem

u Use of the environment as: an amenity a source of primary products a dump for waste u Conflicts between these uses productive resource v. amenity value The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste u Conflicts between these uses productive resource v. amenity value The environmental problem

u Use of the environment as: an amenity a source of primary products a dump for waste u Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste u Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value The environmental problem

u Use of the environment as: an amenity a source of primary products a dump for waste u Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value dump for waste v. productive resource The environmental problem u Use of the environment as: an amenity a source of primary products a dump for waste u Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value dump for waste v. productive resource The environmental problem

u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation The environmental problem

O W1W1 Environmental damage Waste Accelerating environmental damage

O W1W1 Environmental damage Waste Total damage

u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? The environmental problem

u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables The environmental problem

u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments The environmental problem

u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments Public opinion u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments Public opinion The environmental problem

u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business The environmental problem

u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business Government action u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business Government action The environmental problem

u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business Government action BUT growing damage u Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation u Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business Government action BUT growing damage The environmental problem

The OECD environmental 'traffic lights'

USA Germany Belgium Sweden UK Spain Cars per thousand population W Germany Energy and Transport in Figures (EC, 2002); Federal Highway Administration: Increase in car ownership

An Optimum Use of the Environment

An optimum use of the environment Different approaches to sustainability u The free-market approach Prices reflect scarcity of resources u The social efficiency approach Market failures: can be corrected u The conservationist approach Care for environment for its own sake: importance of sustainable development u The Gaia approach Deep green approach: environment has rights Different approaches to sustainability u The free-market approach Prices reflect scarcity of resources u The social efficiency approach Market failures: can be corrected u The conservationist approach Care for environment for its own sake: importance of sustainable development u The Gaia approach Deep green approach: environment has rights

O D = MSB Q2Q2 Output of good Costs and benefits (£) Optimum level of an activity that involves pollution Q1Q1 Q3Q3 Free-market outcome Conservationist approach MSC S = MPC MSC 1 MPC 1 Marginal pollution externality Socially efficient output Gaia maximum output Q4Q4

Market Failures

Market failures Environment as a public good u The global commons u Features of a public good Non-excludability BUT rivalry u Over use at a zero price Externalities u External costs from pollution u External benefits from green activities u Problems of identifying and measuring Ignorance Inter-generational problems Environment as a public good u The global commons u Features of a public good Non-excludability BUT rivalry u Over use at a zero price Externalities u External costs from pollution u External benefits from green activities u Problems of identifying and measuring Ignorance Inter-generational problems

Government Policy towards the Environment

Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate Government Environment Policy

O D = MSB Q2Q2 Output of good Costs and benefits (£) Q1Q1 MSC S = MPC Optimum green tax An socially efficient green tax P P – t

Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate u Problems with green taxes and subsidies Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate u Problems with green taxes and subsidies Government Environment Policy

Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate u Problems with green taxes and subsidies u Effects on business Environmental (green) taxes, charges and subsidies u Taxes on goods and services u The optimum tax rate u Problems with green taxes and subsidies u Effects on business Government Environment Policy

Green tax revenues as a % of GDP

Non-market-based policies u Command-and-control systems u Alternative standards Technology-based standards Ambient-based standards Social impact standards u Effects on business Advantages Disadvantages Voluntary agreements Education Non-market-based policies u Command-and-control systems u Alternative standards Technology-based standards Ambient-based standards Social impact standards u Effects on business Advantages Disadvantages Voluntary agreements Education Government Environment Policy

Tradable permits u Permit to emit Credits can be traded u Market price for permits Efficient solution? u Use in USA u Use in the EU (Kyoto) u Effects on business u Basis for international agreements? Quotas for emissions or use of resources Tradable permits u Permit to emit Credits can be traded u Market price for permits Efficient solution? u Use in USA u Use in the EU (Kyoto) u Effects on business u Basis for international agreements? Quotas for emissions or use of resources Government Environment Policy

Can we rely on governments? u Short-termism u The free-rider problem u The weakness of international agreements Can we rely on governments? u Short-termism u The free-rider problem u The weakness of international agreements Government Environment Policy

If its good for the environment, is it bad for the economy? Possibly, but not necessarily. Environmental challenges offer challenges to business and the government. Some will gain; some will lose. Is it another case of survival of the fittest? Or is it survival of the greenest? Possibly, but not necessarily. Environmental challenges offer challenges to business and the government. Some will gain; some will lose. Is it another case of survival of the fittest? Or is it survival of the greenest?

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