1. Chapter 23 Economics, Environment, and Sustainability

2. Case Study: Making Microloans to the Poor (1)
Micro-lending or microfinance
1983: Muhammad Yunus
Grameen (Village) Bank in Bangladesh
Provides microloans; mostly to women
“Solidarity” groups
How does it work?
Half of borrowers eventually live above the poverty line

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

4. Muhammed Yunus with Nobel Prize
Figure 23.1: In 1983, economist Muhammad Yunus established the Grameen Bank, which makes small loans to poor people in Bangladesh at very low interest rates. These loans have helped 7.6 million of the country’s people to improve their lives by working their way out of poverty. This has also helped to slow the country’s population growth and to empower women.
Fig. 23-1, p. 613

5. 23-1 How Are Economic Systems Related to the Biosphere?
Concept Ecological economists and most sustainability experts regard human economic systems as subsystems of the biosphere

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

7. Three Types of Resources Are Used to Produce Goods and Services
Figure 23.2: In an economic system, we use three types of resources to produce goods and services.
Fig. 23-2, p. 615

8. Market Economic Systems Depend on Interactions between Buyers and Sellers (1)
Supply, demand, market price equilibrium point
True free market system
No company or group controls prices of a good or service
Market prices include all direct and indirect costs (full-cost pricing)
Consumers have full information about beneficial and harmful environmental effects of goods and services

9. Market Economic Systems Depend on Interactions between Buyers and Sellers (2)
Real world
Tax breaks
Subsidies
Trade barriers
Withholding of negative information

10. Supply, Demand, and Market Equilibrium for a Good in a Market Economic System
Figure 23.3: This graph shows supply and demand curves and market equilibrium for a good such as oil in a market economic system. If all factors except supply, demand, and price are held fixed, market equilibrium occurs at the point where the supply and demand curves intersect. This represents 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?
Fig. 23-3, p. 615

11. Economic Growth and Economic Development
Increased capacity to supply goods and services
Requires increased production and consumption
Requires more consumers
Economic development
Improvement of living standards
Environmentally sustainable economic development

12. Gross World Product,
Figure 1, Supplement 9

13. Governments Intervene to Help Correct Market Failures
Private goods
Public services
Environmental protection
National security
Police and fire protection
Safe food and water
Provided by government because private companies can’t or won’t

14. Economists Disagree over Natural Capital, Sustainable Economic Growth (1)
High-throughput economies
Resources flow through and end up in planetary sinks where pollutant can be at harmful levels
Models of ecological economists
Economic systems as subsystems of biosphere
Conventional economic growth unsustainable
Wealth from depletion of natural capital

15. Economists Disagree over Natural Capital, Sustainable Economic Growth (2)
Ecological models’ three assumptions
Resources are limited and shouldn’t be wasted
Encourage environmentally beneficial and sustainable forms of economic development
Full-cost pricing needed to take into account harmful environmental and health effects of some goods and services
Environmental economists take middle ground between classical and ecological economists

16. High-Throughput Economies Rely on Ever-Increasing Energy, Matter Flow
Figure 23.4: The high-throughput economies of most of the world’s more-developed countries rely on continually increasing the flow of energy and matter resources 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 you regularly do that add to this throughput of matter and energy?
Fig. 23-4, p. 617

17. Ecological Economists: Economies Are Human Subsystems of the Biosphere
Figure 23.5: Ecological economists see all human economies as 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.
Fig. 23-5, p. 617

18. What Is the Purpose of a Business?
Make a profit for its owners and investors
Sustainability is about staying in business
Another definition – “Making a quality product and earn a profit without harming the environment.”

19. 23-2 How Can We Put Values on Natural Capital and Control Pollution and 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 it involves many uncertainties.

20. Protecting Natural Capital
Estimating the values of the earth’s natural capital
Estimate nonuse values
Existence value
Aesthetic value
Bequest value, option value

21. Estimating the Future Value of a Resource Is Controversial
Discount rates
Estimate of a resource’s future economic value compared to its present value
Proponents of a high discount rate
Critics of a high discount

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

23. Optimum Resource Use
Figure 23.6: Optimum resource use: The cost of extracting 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 removal exceeds the monetary benefits (red line) unless some factor such as scarcity raises the value of the coal remaining in the mine. Where the two curves meet at current prices is theoretically the optimum level of resource use. Question: How would the location of the optimum level of resource use shift if the price of coal doubled?
Fig. 23-6, p. 620

24. Cost-Benefit Analysis Is a Useful but Crude Tool
Cost-benefit analysis follows guidelines
State all assumptions used
Include estimates of the ecological services
Estimate short-and long-term benefits and costs
Compare the costs and benefits of alternative courses of action
Always uncertainties

25. 23-3 How Can We Use Economic Tools to Deal with Environmental Problems?
Concept We can use resources more sustainably by including their harmful environmental and health costs in the market prices of goods and services (full-cost pricing); by subsidizing environmentally beneficial goods and services; and by taxing pollution and waste instead of wages and profits.

26. Most Things Cost a Lot More Than We Might 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

27. Environmental Economic Indicators Could Help Us 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)
Gross National Happiness (GNH)

28. Monitoring Environmental Progress: Comparing U. S
Monitoring Environmental Progress: Comparing U.S. Per Capita GDP and GPI
Figure 23.7: Monitoring environmental progress: This graph compares 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)
Fig. 23-7, p. 622

29. 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?
Many businesses would have to raise prices and would go out of business
Difficult to estimate environmental and health costs
Businesses have strong influence on government – preferential regulations, tax breaks, subsidies

30. Label Environmentally Beneficial Goods and Services
Product eco-labeling
Certification programs
Greenwashing

31. Reward Environmentally Sustainable Businesses
Phase out environmentally harmful subsidies and tax breaks
Phase in environmentally beneficial subsidies and tax breaks for pollution prevention
Political difficulties

32. Tax Pollution and Wastes Instead of Wages and Profits
Green taxes, ecotaxes
So that harmful products and services are at true cost
Steps for successful implementation of green taxes
Success stories in Europe

33. Trade-Offs: Environmental Taxes and Fees
Figure 23.8: Using green taxes to help reduce pollution and resource waste has advantages and disadvantages. Questions: Which single advantage and which single disadvantage do you think are the most important? Why?
Fig. 23-8, p. 624

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

35. We Can Use the Marketplace to Reduce Pollution and Resource Waste
Incentive-based regulation example
Tradable pollution or resource-use permits
Cap-and-trade approach used to reduce SO2
Advantages
Disadvantages

36. Trade-Offs: Tradable Environmental Permits
Figure 23.9: Using tradable pollution and resource-use permits to reduce pollution and resource waste has advantages and disadvantages. Questions: Which two advantages and which two disadvantages do you think are the most important? Why?
Fig. 23-9, p. 625

37. 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

38. Individuals Matter: 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?

39. Ray Anderson
Figure 23.A: Ray Anderson is one of the world’s most respected and effective leaders in making businesses more sustainable.
Fig. 23-A, p. 626

40. 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.

41. The Gap between the Rich and the Poor Is Getting Wider
Poverty
1.4 billion people live on less than $1.25 per day
Trickle-down effect
Flooding up
Wealth gap

42. Poor Family Members Struggling to Live in Mumbai, India
Figure 23.10: This mother and her child live in poverty on the edges of Mumbai (formerly Bombay), India, a thriving urban center.
Fig , p. 627

43. We Can Reduce Poverty (1)
South Korea and Singapore reduced poverty by
Education
Hard work
Discipline
Attracted investment capital

44. We Can Reduce Poverty (2)
Important measures
Combat malnutrition and infectious diseases
Universal primary school education
Stabilize population growth
Reduce total and per-capita ecological footprints
Large investments in small-scale infrastructure

45. Revisiting Microlending
Microloans give hope to the poor
Microloans help more than direct aid
Spreading around the world
Kiva.org

46. Solar Panel Purchased with Microloan in India
Figure 23.11: A microloan helped these women in a rural village in India to buy a small solar-cell panel (installed on the roof behind them) that provides electricity to help them make a living, thus applying the solar energy sustainability principle.
Fig , p. 629

47. 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?

48. What Should Our Priorities Be?
Figure 23.12: What should our priorities be? Question: Which item on the right side of the figure would you do without or reduce to pay for solving some of the problems listed on the left side of the figure? (Data from United Nations, World Health Organization, U.S. Department of Commerce, U.S. Office of Management and Budget, World Bank, Earth Policy Institute, and Stockholm International Peace Research Institute)
Fig , p. 629

49. 23-5 Making the Transition to More Environmentally Sustainable Economics
Concept We can use the three principles of sustainability as well as various economic and environmental strategies to develop more environmentally sustainable economies.

50. We Are Living Unsustainably
Depleting natural capital
Environmental alarm bells going off
Matter recycling and reuse economies
Mimic nature

51. 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

52. Solutions: Lessons from Nature: A Low Throughput Economy
Figure 23.13: Solutions.
Learning and applying lessons from nature can help us design and manage more sustainable economies. A low-throughput economy, based on energy flow and matter recycling, works with nature to reduce excessive throughput and the unnecessary waste of matter and energy resources (green boxes). 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 more efficiently; (4) reducing unnecessary and environmentally harmful forms of consumption; (5) emphasizing pollution prevention and waste reduction; and (6) controlling population growth to stabilize the number of matter and energy consumers. See an animation based on this figure at CengageNOW. Question: What are three ways in which your school could decrease its unsustainable economic and environmental practices, and three ways that it could promote more sustainable economic and environmental practices?
Fig , p. 631

53. Make Money and Create Jobs by Shifting to an Eco-Economy
Hawken, Brown, and other environmental business leaders
Transition to environmentally sustainable economies
Some companies will disappear
New jobs will be created
Economic succession
Green jobs

54. Solutions: Principles for Shifting to a More Environmentally Sustainable Economy
Figure 23.14: Solutions.
We can use certain 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?
Fig , p. 631

55. Solutions: Environmentally Sustainable Development
Figure 23.15: Solutions.
These are some of the 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 in turn sustain all life and all economies. Such a shift toward more efficient resource use, cleaner energy, cleaner production, ecocities, and natural capital preservation can stimulate economies, create jobs, and be profitable. Question: What are three new types of jobs that could be generated by such an economy?
Fig , p. 632

56. Green Careers Figure 23.16: Green careers.
Some key environmental businesses and careers 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 various environmental careers. Question: How could some of these careers help you to apply the three principles of sustainability?
Fig , p. 633

57. Green Career: Installing Solar Cells
Figure 23.17: Selling and installing solar-cell systems is a rapidly growing business and a source of many new green jobs in the United States and in many other countries.
Fig , p. 633

58. Three Big Ideas
Making a transition to more sustainable economies will require finding ways to estimate and include the harmful environmental and health costs of producing goods and services in their market prices.
Making this economic transition will also mean phasing out environmentally harmful subsidies and tax breaks, and replacing them with environmentally beneficial subsidies and tax breaks.

59. Three Big Ideas
Other tools to use in this transition are to tax pollution and wastes instead of wages and profits, and to use most of the revenues from these taxes to promote environmental sustainability and to reduce poverty.