CH 23: ECONOMICS, ENVIRONMENT, AND SUSTAINABILITY Andrew, Summer, Nisha

Economic System An economic system is a social institution through which goods and services are produced, distributed, and consumed to satisfy people’s needs and wants, ideally in the most efficient possible way.

Natural Capital, Human Capital, Manufactured Capital Natural capital – resources and services produced by the earth’s natural processes Human capital – people’s physical and mental talents, which provide labor, innovation, culture, and organization. Manufactured capital – items such as machinery, equipment, and factories made from natural resources with the help of human resources.

Demand, Supply and Market Prices Equilibrium point – where the supplier’s price matches what buyers are willing to pay for some quantity of a good or service. When supply is increased and demand remains the same, the equilibrium price will go down. When the demand is increased and supply remains the same, the equilibrium price will increase.

Government Intervention Prevents private sellers or buyers from dominating the market Provide public services such as national security and education Protect people from fraud, trespass, theft, and bodily harm Establish and enforce civil rights and property rights Manage public land resources such as national forests, parks, and wildlife reserves

Transition to more sustainable eco- economies Tax shifting Use laws and regulations to help prevent pollution, resource depletion and degradation Sell services instead of things Reduce poverty, one of the basic causes of environmental degradation, pollution, poor health, and premature death

Discount Rate An estimate of a resource’s future economic value compared to its present value Affects how a resource is used Controversial process Owners of resources want high discount rates so they can make more money by investing their capital Critics point out that high discount rates encourage rapid exploitation of resources

The best level for pollution control and resource use The cost of pollution control goes up each time more for pollutant is removed – Takes more energy to remove lower concentrations of a pollutant Use supply (service supplied is removal of pollutants) vs demand (for cleanup) curves The optimum level is where the supply and demand meet – Ex. Going above the optimum level means that the cost of removing more pollutant is higher than the demand for cleanup

Cost-Benefit Analysis Deciding how to control pollution and manage resources Compare estimated costs and benefits for actions Advantages Helps make economic decisions Limitations Estimations vary from opinion to opinion Lot of room for error

Products and services cost more than people think because... We don’t account for the environmental cost and the human health cost

Environmental Economic Indicators Gross domestic product (GDP) economic indicator measures the annual economic value of all goods and services produced in a country Doesn’t include environmental costs and benefits Genuine progress indicator (GPI) includes everything the GDP does but takes the environmental costs and benefits into account This is what full-cost pricing is It’s difficult to estimate these costs, but would have the prices of many products go up Ecolabels on products help consumers know which products and services are environmentally friendly

Taxes We pay taxes for pollution cleanup, higher insurance and health costs, etc. that are given as subsidies to companies practicing harmful environmental practices by companies Ex. Tax breaks for extracting minerals and oil Phasing out these subsidies is difficult because of how powerful these companies are

Taxes ctd. Proposal to tax pollution instead of wages and profit would—green taxes To implement 1. Green taxes would have to be phased in over years 2. Income, wages or other taxes would have to be adjusted so there’s no net increase in taxes 3. Poor and middle class would need a safety net to account for the effect of new taxes on essentials like fuel or food

Environmental Regulation Command and control approach (what we use) Focuses on cleanup and using specific technologies instead of prevention and using energy efficient alternatives Incentive-based govt regulation Encourages businesses to come up with solutions to reduce pollution and resource waste Cap and trade approach A permit holder not using all of its allocation for pollution can save them for the future or sell them Good way to reduce emissions but big companies can buy their way out

Services vs Goods Selling services instead of goods Environmental Benefits Less waste Less pollution from production and a minimum use of resources Examples Xerox Canon Ray Anderson- CEO of a tile/carpet company plans to lease instead of sell his products

Poverty: Can we Help? Poverty Population growth Environmental degradation Three ways to reduce poverty Massive global effort to combat malnutrition and infectious diseases Provide universal primary education and eradicate illiteracy in adults Investing in family planning, reducing poverty, and elevating the social and economic status of women to stabilize population growth Advantages of Microloans

Eco-Friendly Economies Matter recycling and reuse economy Low throughput (low waste) economy