1. Economics, Environment, and Sustainability
Chapter 23

2. Core Case Study: A New Economic and Environmental Vision
Economic growth and development
Neoclassical economists
Environmentally sustainable economy (eco-economy)
Ecological economists
Environmental economists
Economic revolution: sustainability revolution

3. Components of More Environmentally Sustainable Economic Development

4. Production of energy-efficient fuel-cell cars
High-speed trains
Underground
CO2 storage using abandoned oil wells
Forest conservation
No-till cultivation
Deep-sea CO2 storage
Solar-cell fields
Bicycling
Figure 23.1
Solutions: some components of more environmentally sustainable economic development favored by ecological and environmental economists. The goal is to get economic systems to put more emphasis on conserving and sustaining the air, water, soil, biodiversity, and other natural resources that sustain all life and all economies. Such a shift toward more efficient resource use, cleaner energy, cleaner production, ecocities (Chapter 22 Core Case Study, p. 588), and natural capital preservation could stimulate economies, create jobs, and be profitable. Question: What are three new types of jobs that could be generated by such an economy?
Wind farms
Communities of passive solar homes
Landfill
Cluster housing development
Recycling plant
Recycling, reuse, and composting
Water conservation
Fig. 23-1, p. 611

5. 23-1 How Are Economic Systems Related to the Biosphere? (1)
Concept 23-1A Ecological economists and most sustainability experts regard human economic systems as subsystems of the biosphere and subject to its processes and limiting factors.

6. 23-1 How Are Economic Systems Related to the Biosphere? (2)
Concept 23-1B Governments intervene in market economies to help correct or prevent market failures such as the failure to protect natural capital, which supports life and all economies.

7. Economic Systems Are Supported by Three Types of Resources
Natural capital
Human capital, human resources
Manufactured capital, manufactured resources

8. Three Types of Resources Are Used to Produce Goods and Services

9. Manufactured Resources
Natural Resources
Figure 23.2
Three types of resources are used to produce goods and services in an economic system.
Manufactured Resources
Human Resources
Goods and Services
Fig. 23-2, p. 613

10. Market Economic Systems Depend on Interactions between Buyers and Sellers
Supply, demand, and market price equilibrium point
Benefits of an economy with
Private ownership of all resources
No governmental interference
Opposition to such an economy

11. Supply, Demand, and Market Equilibrium for a Good in a Market Economic System

12. High Demand Supply Price Market equilibrium Low Low High Quantity
Figure 23.3
Supply, demand, and market equilibrium for a good such as oil in a market economic system. If all factors except price, supply, and demand are held fixed, market equilibrium occurs at the point at which the demand and supply curves intersect. This is the price at which sellers are willing to sell and buyers are willing to pay for the good or service provided. Question: How would a decrease in the available supply of oil shift the market equilibrium point on this diagram?
Low
Low
High
Quantity
Fig. 23-3, p. 613

13. Governments Intervene to Help Correct Market Failures
Private goods
Public services
Reasons for government intervention in the marketplace

14. Economists Disagree over Natural Capital, Sustainable Economic Growth
High-throughput economies
Resources flow through and end up in planetary sinks
Models of ecological economists
Strategies toward more sustainable eco-economies

15. High-Throughput Economies Rely on Ever-Increasing Energy, Matter Flow

16. Low-quality energy (heat)
Inputs
(from environment)
System throughputs
Outputs
(into environment)
High-quality energy
Low-quality energy (heat)
High-waste economy
High-quality matter
Waste and pollution
Figure 23.4
The high-throughput economies of most developed countries rely on continually increasing the rates of energy and matter flow to increase economic growth. This practice produces valuable goods and services, but it also converts high-quality matter and energy resources into waste, pollution, and low-quality heat, and in the process, can deplete or degrade various forms of natural capital that support all life and economies. See an animation based on this figure at CengageNOW. Question: What are three things that you regularly do that add to this throughput of matter and energy?
Fig. 23-4, p. 614

17. Ecological Economists: Economies Are Human Subsystems of the Biosphere

18. Solar Capital Economic Systems
Goods and services
Economic Systems
Heat
Production
Natural Capital
Depletion of nonrenewable resources
Natural resources such as air, land, soil, biodiversity, minerals, and energy, and natural services such as air and water purification, nutrient cycling, and climate control
Degradation of renewable resources (used faster than replenished)
Consumption
Figure 23.5
Ecological economists see all economies as human subsystems of the biosphere that depend on natural resources and services provided by the sun and earth. See an animation based on this figure at CengageNOW. Question: Do you agree or disagree with this model? Explain.
Pollution and waste (overloading nature’s waste disposal and recycling systems)
Recycling and reuse
Fig. 23-5, p. 615

19. Active Figure: Economic types

20. Active Figure: Two views of economics

21. 23-2 How Can We Put Values on Natural Capital, Pollution Control, Resource Use?
Concept 23-2A Economists have developed several ways to estimate the present and future values of a resource or ecological service and optimum levels of pollution control and resource use.
Concept 23-2B Comparing the likely costs and benefits of an environmental action is useful but involves many uncertainties.

22. Taking into Account the Monetary Value of Natural Capital
Estimating the values of the earth’s natural capital
Estimate nonuse values
Existence value
Aesthetic value
Bequest value, option value
Estimating these types of monetary values
Mitigation cost
Willingness to pay

23. Estimating the Future Value of a Resource Is Controversial
Discount rates
Proponents of a high discount rate
Critics of a high discount

24. We Can Estimate Optimum Levels of Pollution Control and Resource Use
Relationship between
Marginal benefit of resource use
Marginal cost of resource production
Optimum level of resource use
Optimum level for pollution cleanup

25. Optimum Resource Use

26. Marginal benefit of resource use Marginal cost of resource production
High
Marginal benefit of resource use
Marginal cost of resource production
Cost
Figure 23.6
Optimum resource use. The cost of mining coal (blue line) from a particular mine rises with each additional unit removed. Mining a certain amount of coal is profitable, but at some point the marginal cost of further mining exceeds the monetary benefits (red line) unless some factor such as scarcity raises the value of the coal remaining in a mine (in which case, the red curve shifts to the right). Where the two curves meet is theoretically the optimum level of resource use. Question: How would the location of the optimum level of resource use shift if the value (and therefore the price) of the coal increased?
Optimum level of resource use
Low 25 50 75
100
Coal removed (%)
Fig. 23-6, p. 617

27. Optimum Pollution Control

28. Marginal cost of pollution control
High
Marginal cost of pollution control
Marginal benefit of pollution control
Cost
Figure 23.7
Optimum pollution control. The cost of cleaning up pollution (blue line) rises with each additional unit removed. Cleanup of a certain amount of pollution is affordable, but at some point the cost of additional pollution control is greater than the benefit of the pollution control to society. Where the blue curve intersects with the red curve is a level of optimum pollution control for the pollutant represented. The other two green triangles show where the curves would intersect if the red curve shifted to the left (if some factor lessened the value of pollution control). Question: How does the fact that the cost of pollution control goes up for each additional unit of a pollutant cleaned up relate to the second law of thermodynamics (p. 43)?
Optimum pollution clean-up level
Low 25 50 75
100
Pollution removed (%)
Fig. 23-7, p. 618

29. Cost-Benefit Analysis Is a Useful but Crude Tool
Cost-benefit analysis follows guidelines
Use uniform standards
State all assumptions used
Include estimates of the ecological services
How reliable is the data?
Estimate short-and long-term benefits and costs
What are alternatives?
Summarize range of estimated costs and benefits

30. 23-3 How Can We Use Economic Tools to Deal with Environmental Problems
Concept 23-3A Using resources more sustainably will require including the harmful environmental and health costs of resource use in the market prices of goods and services (full-cost pricing).

31. 23-3 How Can We Use Economic Tools to Deal with Environmental Problems
Concept 23-3B Governments can help to improve and sustain environmental quality by subsidizing environmentally beneficial activities and taxing pollution and waste instead of wages and profits.

32. Most Things Cost a Lot More Than You Think
Market price, direct price
Indirect, external, or hidden costs
Direct and indirect costs of a car
Should indirect costs be part of the price of goods?
Economists differ in their opinions

33. Using Environmental Economic Indicators Can Help Reduce Our Environmental Impact
Measurement and comparison of the economic output of nations
Gross domestic product (GDP)
Per capita GDP
Newer methods of comparison
Genuine progress indicator (GPI)
Happy Planet Index (HPI)
General National Happiness (GNH)

34. Monitoring Environmental Progress: Comparing Per Capita GDP and GPI

35. Per capita gross domestic product (GDP)
35,000
30,000
25,000
20,000
1996 Dollars per person
Per capita gross domestic product (GDP)
15,000
10,000
Figure 23.8
Monitoring environmental progress: Comparison of the per capita gross domestic product (GDP) and the per capita genuine progress indicator (GPI) in the United States between 1950 and Questions: Would you favor making widespread use of this or similar green economic indicators? Why hasn’t this been done? (Data from Redefining Progress, 2006)
5,000
Per capita genuine progress indicator (GPI)
1950
1960
1970
1980
1990
2000
Year
Fig. 23-8, p. 620

36. We Can Include Harmful Environmental Costs in the Prices of Goods, Services
Environmentally honest market system
Why isn’t full-cost pricing more widely used?
Government action to phase in such a system

37. Environmentally Informed Consumers Can Vote with Their Wallets
Product eco-labeling
Certification programs
The U.S. Green Seal labeling program

38. We Can Reward Environmentally Sustainable Businesses
Phase out environmentally harmful subsidies and tax breaks
Phase in environmentally beneficial subsidies and tax breaks for pollution prevention
Pros and cons
Subsidy shifts

39. Individual Matters: Ray Anderson
CEO of Interface, largest commercial manufacturer of carpet tiles
Goals
Zero waste
Greatly reduce energy use
Reduce fossil fuel use
Rely on solar energy
Copying nature
How’s it working?

40. We Can Tax Pollution and Wastes instead of Wages and Profits
Green taxes, ecotaxes
Steps for successful implementation of green taxes
Success stories in Europe

41. Trade-Offs: Environmental Taxes and Fees, Advantages and Disadvantages

42. TRADE-OFFS Environmental Taxes and Fees Advantages Disadvantages
Help bring about full-cost pricing
Low-income groups are penalized unless safety nets are provided
Encourage businesses
to develop environmentally beneficial technologies and goods to save money
Hard to determine optimal level for taxes and fees
Governments may use money as general revenue instead of improving environmental quality and reducing taxes on income, payroll, and profits
Figure 23.9
Advantages and disadvantages of using green taxes to help reduce pollution and resource waste (Concept 23-3B). Question: Which single advantage and which single disadvantage do you think are the most important? Why?
Easily administered by existing tax agencies
Fairly easy to detect cheaters
Fig. 23-9, p. 623

43. Environmental Laws and Regulations Can Discourage or Encourage Innovation
Command and control approach
Incentive-based regulations
Innovation-friendly regulations

44. We Can Use the Marketplace to Reduce Pollution and Resource Waste
Incentive-based regulation example
Cap-and-trade approach used to reduce SO2 emissions
Advantages
Disadvantages

45. Trade-Offs: Tradable Environmental Permits, Advantages & Disadvantages

46. TRADE-OFFS Tradable Environmental Permits Advantages Disadvantages
Flexible
Big polluters and resource wasters can buy their way out
Easy to administer
May not reduce pollution at dirtiest plants
Encourage pollution prevention and waste reduction
Can exclude small companies from buying permits
Permit prices determined by market transactions
Figure 23.10
Advantages and disadvantages of using tradable pollution and resource-use permits to reduce pollution and resource waste. Question: Which two advantages and which two disadvantages do you think are the most important? Why?
Caps can be too high and not regularly reduced to promote progress
Confront ethical problem of how much pollution or resource waste is acceptable
Self-monitoring of emissions can promote cheating
Fig , p. 624

47. Reduce Pollution and Resource Waste by Selling Services instead of Things
1980s: Braungart and Stahl
New economic model
Service-flow economy, eco-lease (rent) services
Xerox
Carrier
Ray Anderson: lease carpets in the future

48. 23-4 How Can Reducing Poverty Help Us to Deal with Environmental Problems?
Concept Reducing poverty can help us to reduce population growth, resource use, and environmental degradation.

49. The Gap between the Rich and the Poor Is Getting Wider
Poverty
Trickle-down effect
Flooding up
Wealth gap

50. Poor Family Members Struggling to Live in Mumbai, India

51. We Can Reduce Poverty South Korea and Singapore reduced poverty by
Education
Hard work
Discipline
Attracted investment capital
Developed countries can help
Cancel debt of the poorest nations
What else can they do?

52. Case Study: Making Microloans to the Poor (1)
Micro-lending or microfinance
1983: Muhammad Yunus
Grameen (Village) Bank in Banglash
Provides microloans; mostly to women
“Solidarity” groups
How does it work?

53. Case Study: Making Microloans to the Poor (2)
2006: Muhammad Yunus
Nobel Peace Prize
2006: Citibank and TIAA-Cref
Microloans

54. We Can Achieve the World’s Millennium Development Goals
Sharply reduce hunger and poverty
Improve health care
Empower women
Environmental sustainability by 2015
Developed countries: spend 0.7% of national budget toward these goals
How is it working?

55. What Should Our Priorities Be?

56. 23-5 Making the Transition to More Environmentally Sustainable Economics
Concept We can use the four principles of sustainability and various economic and environmental strategies to develop more environmentally sustainable economies.

57. We Can Shift from High-Throughput to Matter Recycling and Reuse Economies
Mimic nature

58. We Can Put More Emphasis on Localizing Economic Production
Increase local environmental and economic stability
Businesses selling goods and services globally might decline

59. We Can Use Lessons from Nature to Shift to More Sustainable Economies
Donella Meadows: contrasts the views of neoclassical economists and ecological economists
Best long-term solution is a shift to
Low-throughput, low-waste, economy

60. Solutions: Lessons from Nature: A Low Throughput Economy

61. Waste and pollution prevention
Inputs
(from environment)
System throughputs
Outputs
(into environment)
Low-quality energy (heat)
High-quality energy
Energy conservation
Low-waste economy
Waste and pollution prevention
Pollution control
Waste and pollution
High-quality matter
Recycle and reuse
Figure 23.13
Solutions: lessons from nature. A low-throughput economy, based on energy flow and matter recycling, works with nature to reduce the throughput and unnecessary waste of matter and energy resources (items shown in green). This is done by (1) reusing and recycling most nonrenewable matter resources, (2) using renewable resources no faster than they are replenished, (3) reducing resource waste by using matter and energy resources efficiently, (4) reducing unnecessary and environmentally harmful forms of consumption, (5) emphasizing pollution prevention and waste reduction, and (6) controlling population growth to reduce the number of matter and energy consumers. See an animation based on this figure at CengageNOW. Question: What are three ways in which your community could operate more like a low-throughput economy?
Fig , p. 629

62. We Can Make Money and Create Jobs by Shifting to an Eco-Economy (1)
Hawken, Brown, and other environmental business leaders
Transition to environmentally sustainable economies
Some companies will disappear
New jobs will be created

63. We Can Make Money and Create Jobs by Shifting to an Eco-Economy (2)
General Electric: “ecoimagination plan”
Bainbridge Graduate Institute and Presidio graduates
Triple bottom line: people, planet, and profit

64. Solutions: Principles for Shifting to More Environmentally Sustainable Economies

65. Environmentally Sustainable Economy (Eco-Economy)
Economics
Environmentally Sustainable
Economy
(Eco-Economy)
Reward (subsidize) environmentally sustainable economic development
Penalize (tax and do not subsidize) environmentally harmful economic growth
Shift taxes from wages and profits to pollution and waste
Use full-cost pricing
Sell more services instead of more things
Do not deplete or degrade natural capital
Live off income from natural capital
Reduce poverty
Use environmental indicators to measure progress
Certify sustainable practices and products
Use eco-labels on products
Resource Use and Pollution
Cut resource use and waste by reducing, reusing, and recycling
Figure 23.14
Solutions: principles for shifting to more environmentally sustainable economies, or eco-economies, during this century. Question: Which five of these solutions do you think are the most important?
Improve energy efficiency
Rely more on renewable solar and geothermal energy
Ecology and Population
Mimic nature
Shift from a nonrenewable carbon-based (fossil fuel) economy to a non-carbon renewable energy economy
Preserve biodiversity
Repair ecological damage
Stabilize human population
Fig , p. 630

66. Environmentally Sustainable Economy (Eco-Economy)
Economics
Reward (subsidize) environmentally sustainable economic development
Penalize (tax and do not subsidize) environmentally harmful economic growth
Shift taxes from wages and profits to pollution and waste
Use full-cost pricing
Sell more services instead of more things
Do not deplete or degrade natural capital
Live off income from natural capital
Reduce poverty
Use environmental indicators to measure progress
Certify sustainable practices and products
Use eco-labels on products
Environmentally Sustainable
Economy
(Eco-Economy)
Resource Use and Pollution
Cut resource use and waste by reducing, reusing, and recycling
Improve energy efficiency
Rely more on renewable solar and geothermal energy
Shift from a nonrenewable carbon-based (fossil fuel) economy to a non-carbon renewable energy economy
Figure 23.14
Solutions: principles for shifting to more environmentally sustainable economies, or eco-economies, during this century. Question: Which five of these solutions do you think are the most important?
Ecology and Population
Mimic nature
Preserve biodiversity
Repair ecological damage
Stabilize human population
Stepped Art
Fig , p. 630

67. Green Careers: Some Eco-Friendly Businesses and Careers

68. Environmentally Sustainable Businesses and Careers
Aquaculture
Environmental law
Biodiversity protection
Environmental nanotechnology
Fuel cell technology
Biofuels
Geographic information systems (GIS)
Climate change research
Conservation biology
Geothermal geologist
Hydrogen energy
Eco-industrial design
Marine science
Ecotourism management
Pollution prevention
Reconciliation ecology
Energy efficient product design
Selling services in place of products
Environmental chemistry
Solar cell technology
Environmental (green) design
Figure 23.15
Green careers: some key environmentally sustainable, or eco-friendly, businesses and careers. These businesses are expected to flourish during this century, while environmentally harmful, or sunset, businesses are expected to decline. See the website for this book for more information on some of these environmental careers.
Sustainable agriculture
Environmental economics
Sustainable forestry
Waste reduction
Environmental education
Watershed hydrologist
Environmental engineering
Water conservation
Environmental health
Wind energy
Fig , p. 630