1. Ch. 26 Economics and the Environment

2. Economy Economic Resources
System of production, distribution and consumption of goods and services that satisfies people’s wants or needs
Economic Resources
Natural resources
Human resources
Financial resources
Manufactured resources

3. Economic Systems Command and Market
Command – Government makes all economic decisions
Two types of Market systems
Pure Free Market – All economic decisions are based solely on competitive interactions of demand, supply and price. All other factors are constant.
Capitalist Market – Reality based, designed to subvert many of the theoretical conditions of the Pure Free Market

4. Economists and the Environmental Viewpoint
Conventional Economists -
Environment is a subsystem of the economy
Natural resources are important but not vital – can find substitutes
Because of human ingenuity – depletion and degradation of natural resources will not hinder economic growth

5. Figure 26-6 Page 694 Capitalist Market Economic System Flow of money
Money flows from
households to businesses
to pay for products
Products flow from
businesses to households
Flow of products
Households
Businesses
Flow of factors of production
Labor and other factors of
production flow from
households to businesses
Money flows from businesses
to households to pay for
labor and other production
Flow of money

6. Ecological Economist -
Economy is a subsystem of the environment
Natural resources are vital
Conventional economic growth is unsustainable because it depletes or degrades the environment on which it depends
Integrates ecology with economy

7. Figure 26-7 Page 694 sun EARTH Heat Economic Systems Natural
Depletion of
nonrenewable
resources
Natural
Capital
Production
Air; water,
land, soil,
biodiversity,
minerals,
raw materials,
energy
resources,
and dilution,
degradation,
and recycling
services
Degradation and
depletion of renewable
resources used faster
than replenished
Consumption
Pollution and waste
from overloading
nature’s waste disposal
and recycling systems
Figure 26-7 Page 694
Recycling and reuse

8. Eco - economy Uses renewable solar energy
Mimics nutrient cycles by replenishing nutrients, disposes of waste, pollution prevention based on reuse and recycling
Doesn’t deplete the earths net primary productivity
Does not exceed the sustainable yields of ecosystems that support all economies
Preserves biodiversity
Stabilizes population growth to be “in-balance” with resource consumption

9. What will it take?
Use ecological indicators to monitor economic and ecological health
Pricing that includes harmful environmental effects
Shift subsidies – reward sustainability, discourage harmful forms of growth
Shift taxes to pollution and waste from income and wealth
Use eco-labeling to identify environmentally friendly products and services

10. Figure 26-8 Page 695 Characteristic Unsustainable Economic Growth
Environmentally
Sustainable
Economic
Development
Production emphasis
Natural resources
Resource productivity
Resource throughput
Resource type
emphasized
Resource fate
Pollution control
Guiding principles
Quantity
Not very important
Inefficient
(high waste)
High
Nonrenewable
Matter discarded
Cleanup
(output reduction)
Risk–benefit
analysis
Quality
Very important
Efficient
(low waste)
Low
Renewable
Matter recycled,
reused, or
composted
Prevention
(input reduction)
Prevention and
precaution
Figure 26-8 Page 695

11. Reasons GNI(P) and GDP are poor measures of economic and environmental health and human well-being
They hide the harmful environmental and social effects of producing goods and services
They do not include the depletion and degradation of natural resources or assets on which all economies depend
They do not include many beneficial transactions that meet basic needs in which no money changes hands
They hide enormous waste of natural and human resources because they measure only money spent, not value received
They tell us nothing about income distribution and economic justice

12. Costs and Pricing Internal Costs -
All of the costs associated with manufacturing, marketing, maintaining, delivery, and sales of goods or services.
External Costs -
Harmful effects of producing the goods and services, such as depletion of non-renewable resources, production of solid and hazardous waste, air and water pollution, land disruption, reduction of biodiversity, and contributions to climate change.

13. Full-cost Pricing Results of internalizing external costs
Currently dealing with harmful external costs by:
Levy taxes
Pass laws and develop regulations
Provide subsidies
Using strategies that encourage or force producers to include most, if not all, of the costs in their market price

14. Results of full-cost pricing
Prevention would be more profitable than clean-up
Waste reduction, recycling and reuse would be more profitable than dealing with the waste after the fact.

15. Bad news:
Market prices for most things would rise
Government would have to reduce taxes for consumers, and stop subsidies for producers to off-set rise in prices
Good news:
Overall price will be the same.
More information on products for consideration by consumers
Encourages more resource-efficient and less-polluting methods of production
More “Green” products

16. What’s Holding us back?
Many producers of wasteful or harmful products would price themselves out of business
Producers would have to give up current subsidies that support the ability to hide harmful external costs
Prices of harmful but desirable goods and services would rise
Hard to put a price tag on many harmful environmental and health costs.
Many are unaware they are paying external costs

17. Economics of Pollution
Cost of removing pollutants goes up as we try to remove all pollutants.
At some point the cost of pollution control is greater than the harmful costs of pollution to society
Very difficult to determine the actual harmful costs of pollution

18. Assigning monetary values to resources and pollution costs
Mitigation costs-
Costs of offsetting the damages
Willingness to pay -
Survey public as to how much they would pay to avoid the problem
Maintenance and protection costs -
Cost of protecting the quality of various natural resources

19. Costs Associated with Pollution
Direct costs
Associated with prevention or clean-up.
Indirect costs
Incurred by governments in regulating pollution and damages to private revenues affected by pollution.
Repercussion costs
Costs to polluting company because of image damage.

20. Factors affecting how a natural resource is used or managed
Discount rates
Time preferences
Opportunity costs
Gov’t subsidies and tax breaks
Taxes
Ethics

21. Benefit-Cost Analysis
Compares the estimated short-term and long-term benefits and costs for various courses of action
Issues with the benefit-cost analysis
Who benefits and who is harmed?
Many things we value cannot be reduced to monetary value.
Can be manipulated to desired outcome for either side of the issue.

22. Using Regulation and Market Forces to Improve Environmental Quality.
Regulations - set pollution standards, regulate harmful activities, ban release of toxic materials, protect finite resources
Need to be “innovation-friendly”
Emphasize pollution control and waste reduction
Requires affected parties to participate in the developing regulations and timetables
Sets goals, but allows freedom in meeting those goals
Sets strict enough standards to promote real innovation
Establishes well-defined deadlines
Uses market incentives to encourage compliance and innovation

23. What we reward, we tend to get more of, and what we discourage we tend to get less of.
Economic Incentives - rewards
Phase in government subsidies and tax breaks that encourage environmentally beneficial behavior and phase out those that encourage harmful behaviors
Eco-labeling – encourages development of green products and services and helps consumers make decisions.

24. Economic disincentives - punishments
Green taxes or effluent fees – used as a tax shift, not an additional burden.
User fees – for removal of materials from, or use of public lands
Posting pollution-prevention bonds for new major projects

25. Tradable Pollution and Resource Rights
Government sets total limit on emissions or resource use
Issue permits or auction off to manufacturers or users
Permit holders can:
Use as credit against future expansion
Use it in another part of their operation
Sell it to other companies

26. Table 26-1 Economic Solutions to Pollution and Resource Use Pg. 706

27. Resistance to Change Management Innovation-Directed Management
Figure Page 706
Phase 1
Phase 2
Pollution control
and confrontation
Acceptance without
innovation
Innovation-Directed Management
Phase 3
Total quality
management
Pollution prevention
and increased
resource
productivity
Phase 4
Life cycle
management
Product
stewardship and
selling services
instead of
things
Phase 5
Process
design
management
Clean
technology
Phase 6
Total life quality
management
Ecoindustrial
webs,
environmentally
sustainable
economies
and societies

28. Reducing Poverty to Improve Environmental Quality and Well-being
Causes premature deaths and preventable health problems
Increases birthrates
Pushes the poor to use resources unsustainably to survive

29. Richest fifth
85%
Poorest fifth
1.3%
Figure Page 708

30. How can we reduce poverty?
Developing countries governments policy changes:
Shift more of the national budget to help rural and urban poor work their way out of poverty
Give villages, villagers, and urban poor title to common land and to the crops and trees they plant on them.

31. Developed Countries could:
Forgive at least 60% of the debt form developing countries
Increase nonmilitary government and private aid directly to the poor from developing countries, to make them more self-reliant.
Encourage banks and other organizations to make small loans to those poor wanting to increase their income
Require international lending agencies to use standard environmental and social impact analysis to evaluate and proposed development project before it is funded
Carefully monitor all projects, and halt funding if environmental safeguards are not followed
Help developing countries increase resource productivity
Establish policies that stabilize populations of all countries

32. Figure 26-14 Page 710 Economics Environmentally Sustainable Economy
(Eco-Economy)
Resource Use
and Pollution
Reward (subsidize) earth-
sustaining behavior
Penalize (tax and do not
subsidize) earth-
degrading behavior
Tax pollution and waste
instead of wages and
profits
Use full-cost pricing
Sell more services instead
of more things
Do not deplete natural
capital
Live off income from
natural capital
Reduce poverty
Reduce resource use
and waste by refusing,
reducing, reusing, and
recycling
Improve energy
efficiency
Rely more on
renewable solar and
geothermal energy
Shift from a carbon
based (fossil fuel)
economy to a
solar–hydrogen based
economy
Ecology and
Population
Mimic nature
Preserve biodiversity
Repair ecological
damage
Stabilize population by
reducing fertility

33. Eco-Friendly Business
Sunset Business
Eco-Friendly Business
Figure Page 711
Coal mining
Oil production
Nuclear power
Energy-wasting motor
vehicles
Mining
Throwaway products
Clearcut logging
Paper production
Conventional pesticide
production
Unsustainable farming
Water well drilling
Conventional economics
Conventional engineering,
design, and architecture
Business travel
Solar cell production
Hydrogen production
Fuel-cell production
Wind turbine production
Wind farm construction
Geothermal energy
production
Production of energy-
efficient fuel-cell cars,
trucks, and buses
Conventional and electric
bicycle production
Light-rail construction
Sustainable agriculture
Integrated pest
Management
Agriculture
Recycling, reuse, and
composting
Soil conservation
Water conservation
Pollution prevention
Ecoindustrial design
Biodiversity
management and
protection
Ecological restoration
Disease prevention
Environmental
engineering, design,
and architecture
Ecocity urban design
Environmental science
education
Ecological economics
accounting
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