1. Chapter 24 Economics, Environment, and Sustainability

2. Chapter Overview Questions  What are economic systems and how do they work?  How do economists differ in their views of economic systems, pollution control, and resource management?  How can we monitor economic environmental progress?  What economic tools can we use to improve environmental quality?

3. Chapter Overview Questions (cont’d)  How does poverty reduce environmental quality, and how can we reduce poverty?  How can we shift to more environmentally sustainable economies over the next few decades?

4. Core Case Study: A New Economic and Environmental Vision  Some components of more environmentally sustainable economic development. Figure 24-1

5. ECONOMIC SYSTEMS AND SUSTAINABILITY  An economic system produces and distributes goods and services by using natural, human, and manufactured resources.  In a pure free-market system, buyers and sellers interact without any government or other interference. Actual capitalist market systems deviate from this model. Actual capitalist market systems deviate from this model.

6. Economic Resources: The Big Three  Three types of resources are used to produce goods and services. Figure 24-2

7. Market Economic Systems: Pure Free Market and Capitalistic Models  Supply, demand, and market equilibrium for a good or service in a pure market system. Figure 24-3

8. Government Intervention in Market Economic Systems: Correcting Market Failures  Governments intervene in market systems to help provide economic stability, national security, and public services such as education, crime protection, and environmental protection.

9. Environmentally Sustainable Economic Development: Copying Nature  Models of ecological economists are built on the following assumptions: Resources are limited. Resources are limited. Encourage environmentally beneficial and sustainable forms of development. Encourage environmentally beneficial and sustainable forms of development. The harmful environmental and health effects of producing goods and services should be included in market prices. The harmful environmental and health effects of producing goods and services should be included in market prices.

10. Depletion of nonrenewable resources Degradation & depletion of renewable resources used faster than replenished Pollution, waste from overloading nature’s waste disposal & recycling systems Fig. 24-4, p. 573 Sun EARTH Heat Economic Systems Natural Capital Production Air, water, land, soil, biodiversity, minerals, raw materials, energy resources; dilution, decomposition, & recycling services Consumption Recycling and reuse

11. Economic Development  Comparison of unsustainable economic development and environmentally sustainable economic development. Figure 24-5

12. ESTIMATING THE VALUE OF ECOLOGICAL SERVICES AND MONITORING ENVIRONMENTAL PROGRESS  Economists have developed several ways to estimate nonmarket values of the earth’s ecological services based using: Mitigation cost: how much it takes to offset any environmental damage. Mitigation cost: how much it takes to offset any environmental damage. Willingness to pay: determine how much people are willing to pay to keep the environment in tact (e.g. protect an endangered species). Willingness to pay: determine how much people are willing to pay to keep the environment in tact (e.g. protect an endangered species).

13. ESTIMATING THE VALUE OF ECOLOGICAL SERVICES AND MONITORING ENVIRONMENTAL PROGRESS  Economists use discount rates (estimate resource’s future value compared to current) to estimate the future value of a resource.  The market price you pay for something does not include most of the environmental, health, and other harmful costs associated with its production and use.

14. Estimating the Optimum Levels of Pollution Control and Resource Use  Environmental economists try to determine optimum levels of pollution control and resource use. Figure 24-6

15. Optimum Pollution Control  The marginal cost of cleaning up pollution rises with each additional unit removed. Figure 24-7

16. Cost-Benefit Analysis: a Useful but Crude Tool  Comparing likely costs and benefits of an environmental action is useful but involves many uncertainties. Cost–benefit analyses involves determining: Cost–benefit analyses involves determining: Who or what might be affected by a particular regulation or project. Who or what might be affected by a particular regulation or project. Projecting potential outcomes.Projecting potential outcomes. Evaluating alternative actions.Evaluating alternative actions. Establishing who benefits and who is harmed.Establishing who benefits and who is harmed.

17. Environmental and Economic Indicators: Environmental Radar  We need indicators that reflect changing levels of environmental quality and human health. Gross domestic product (GDP): measures the annual economic value of all goods and services produced in a country without taking harmful effects into consideration. Gross domestic product (GDP): measures the annual economic value of all goods and services produced in a country without taking harmful effects into consideration. Genuine progress indicator (GPI): Subtracts from the GDP costs that lead to a lower quality of life or deplete / degrade natural resources. Genuine progress indicator (GPI): Subtracts from the GDP costs that lead to a lower quality of life or deplete / degrade natural resources.

18. Environmental and Economic Indicators: Environmental Radar  Comparison of the per capita GDP and the GPI in the U.S. between 1950 and 2002. Figure 24-8

19. ECONOMIC TOOLS FOR IMPROVING ENVIRONMENTAL QUALITY  Including external costs in market prices informs consumers about the harmful impact of their purchases the earth’s life-support systems and on human health.

20. Eco-Labeling: Informing Consumers So They can Vote with Their Wallets  Certifying and labeling environmentally beneficial goods and resources extracted by more sustainable methods can help consumers decide what goods and services to buy. Figure 24-9

21. Subsidy Shifting  Taxes on pollution and resource use can move us closer to full-costing pricing. Shifting taxes from wages and profits to pollution and waste (green taxes) helps make this feasible. Shifting taxes from wages and profits to pollution and waste (green taxes) helps make this feasible.  We can improve environmental quality and human health by replacing environmentally harmful government subsidies with environmentally beneficial ones.

22. Fig. 24-10, p. 580 Trade-Offs Environmental Taxes and Fees AdvantagesDisadvantages Helps bring about full-cost pricing Penalizes low income groups unless safety nets are provided Provides incentive for businesses to do better to save money Hard to determine optimal level for taxes and fees Need to frequently readjust levels, which is technically and politically difficult Can change behavior of polluters and consumers if taxes & fees are set at a high enough level Gov’ts may see this as a way of increasing general revenue instead of using funds to improve environmental quality and reduce taxes on income, payroll, & profits Easily administered by existing tax agencies Fairly easy to detect cheaters

23. Green Taxes  Advantages of taxing wages and profits less and pollution and waste more. Figure 24-11

24. ECONOMIC TOOLS FOR IMPROVING ENVIRONMENTAL QUALITY  Environmental laws and regulations work best if they motivate companies to find innovative ways to control and prevent pollution and reduce resource waste.  Governments can set a limit on pollution emissions or use of a resource, give permits to users, and allow them to trade their permits on the marketplace.

25. Fig. 24-12, p. 582 Trade-Offs Tradable Environmental Permits AdvantagesDisadvantages Big polluters and resource wasters can buy their way out Flexible Easy to administer May not reduce pollution at dirtiest plants Encourages pollution prevention and waste reduction Can exclude small companies from buying permits Caps can be too low Can promote achievement of caps Caps must be gradually reduced to encourage innovation Determining caps is difficult Permit prices determined by market transactions Must decide who gets permits and why Administrative costs high with many participants Confronts ethical problem of how much pollution or resource waste is acceptable Emissions and resource wastes must be monitored Confronts problem of how permits should be fairly distributed Sets bad example by selling legal rights to pollute or waste resources Self-monitoring can promote cheating

26. Green Economics: Selling Services Instead of Things  Some businesses can greatly decrease their resource use, pollution, and waste by shifting from selling goods and services to selling the services the goods provide. Carrier has begun shifting selling heating and air conditioning equipment to providing the service itself. Carrier has begun shifting selling heating and air conditioning equipment to providing the service itself. It makes higher profits by having the most energy- efficient units.It makes higher profits by having the most energy- efficient units.

27. REDUCING POVERTY TO IMPROVE ENVIRONMENTAL QUALITY AND HUMAN WELL-BEING  We can sharply cut poverty by forgiving the international debts of the poorest countries, greatly increasing international aid and small individual loans to help the poor help themselves.

28. Distribution of the World’s Wealth: a Widening Gap  The global distribution of income shows that most of the world’s income flows up. Each horizontal band is 1/5 th of the world’s population Each horizontal band is 1/5 th of the world’s population Figure 24-13

29. Solutions: Achieving the Millennium Development Goals  In 2000, the world’s nations set goals for sharply reducing hunger and poverty, improving health care and moving toward environmental sustainability by 2015. In 1980 and 2002, developed countries agreed to devote 0.7% of their annual national income towards achieving such goals. In 1980 and 2002, developed countries agreed to devote 0.7% of their annual national income towards achieving such goals. The average amount donated was 0.25%.The average amount donated was 0.25%. The U.S. gives 0.16%.The U.S. gives 0.16%.

30. Fig. 24-14, p. 586

31. MAKING THE TRANSITION TO MORE ENVIRONMENTALLY SUSTAINABLE ECONOMIES  Nature's four principles of sustainability and a number of environmental and economic strategies can be used to develop more environmentally sustainable economies.  The Netherlands has dedicated itself to making its economy more environmentally sustainable.

32. Eco-Economies  Principles for shifting to more environmentally sustainable economies during this century. Figure 24-15

33. Jobs, Profits, and the Environment: New Industries and New Jobs  Shifting to more environmentally sustainable economies will create immense profits and huge numbers of jobs. Figure 24-16