1. ENV 536: Environmental Economics and Policy (Lecture 2)
Assist.Prof. Sasitorn Suwannathep, Ph.d.
School of Liberal Arts
King Mongkut’s University of Technology Thonburi
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2. Link between economic activity and nature
Natural
Resource
Economics
Nature
Environmental Economics
(b)
(a)
Economy
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3. The Economy and the Environment
(a) represents raw materials flowing into production and consumption the nature plays its role as provider
(b) shows the impact of economic activity on the quality of the natural environment
the nature acts as a receiver.
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4. Economics and the Environment
Economic theory explains what we observe in reality, including environmental problems
Recognize the link between economic activity and the environment using models
Circular Flow Model
Materials Balance Model
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5. Circular Flow Model
Shows the real and monetary flows of economic activity through the output and factor markets
Forms the basis for modeling the relationship between economic activity and the environment
But does not explicitly show the linkage between economic activity and the environment
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6. Circular Flow Model of Economic Activity
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7. Materials Balance Model
Places the circular flow within a larger schematic to show links between economic activity and the natural environment via two sets of flows
Flow of resources from the environment to the economy
The focus of Natural Resource Economics
Flow of residuals from the economy to the environment
The focus of Environmental Economics
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8. Materials Balance Model (Con’t)
Residuals are pollution remaining in the environment after some process has occurred
Residuals can be delayed, but not prevented, through recovery, recycling, and reuse
Shown as inner flows in the model
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9. Materials Balance Model: The Interdependence of Economic Activity and Nature
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10. Science and the Materials Balance Model
The flow of resources and residuals are balanced according to laws of science
First Law of Thermodynamics
Matter and energy can neither be created nor destroyed
Second Law of Thermodynamics
Nature’s capacity to convert matter and energy is not without bound
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11. Using Science to understand the Material Balance
First law of thermodynamics: matter and energy can neither be created or destroy.
This law can apply to the materials balance model in the long run, the flow of materials and energy drawn from the nature into consumption and production must equal the flow of residuals that run from these activities back into the environment.
M = Rdp + R dc
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12. Natural Environment Recycled (R rp) Raw materials (M) Residuals (Rp)
Discharged
Producers
(Rdp)
Goods
(G)
Discharged
Residuals
Consumers
(Rc)
(Rdc)
Recycled (R rp)
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13. Using Science to understand the Material Balance
Because matter and energy cannot be destroyed, then the materials flow can go forever. The second law of thermodynamics states that the nature’s capacity to convert matter and energy is not unlimited.
Even recycling can delay the disposal of residuals, but it cannot be perfect, each cycle must lose some proportion of the recycled material.
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14. Environment Management
Rdp + Rdc = M = G + Rp – Rrp – Rrc
Three ways to reduce M
Reduce G (Goods and Services ￬)
Reduce Rp (Production Residuals ￬)
Increase (Rrp + Rrc) (Recycling ￪)
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15. Fundamental Concepts in Environmental Economics
Environmental economics is concerned with identifying and solving the problem of environmental damage, or pollution, associated with the flow of residuals.
Pollution >> The presence of matter or energy whose nature, location, or quantity has undesired effects on the environment.
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16. Fundamental Concepts in Environmental Economics
Environmental damage depends critically on identifying:
the causes of damage
the sources of damage
the scope of the damage.
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17. Causes of Environmental Damage
Classifying by their origin
Natural pollutants
Contaminants that come about through nonartificial processes in nature.
Volcanic eruptions
Salt spray from oceans etc.
Anthropogenic pollutants
Contaminants associated with human activity.
Gas from combustion
Chemical wastes from production process etc.
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18. Sources of Environmental Damage
Sources Grouped by Mobility
Stationary Source
A fixed-site producer of pollution (coal-burning power plants etc).
Mobile Source
Any nonstationary polluting source (automobiles etc).
Sources Grouped by Identifiability
Point Source
Any single identifiable source from which pollutants are released.
Nonpoint Source
A source that cannot be identified accurately and degrades the environment in a diffuse, indirect way over a broad area.
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19. Scope of Environmental Damage
Environmental pollution is often classified according to the relative size of its geographic impact as local, regional, or global.
Local Pollution
Environmental damage that does not extend far from the polluting source.
Ex. Urban Smog, Solid Waste Pollution
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20. Scope of Environmental Damage
Regional Pollution
Degradation that extends well beyond the polluting source.
Ex. Acidic Deposition
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21. Acid Rain in Europe source: http://science.howstuffworks.com/
acid-rain.htm/printable
28536B4F-F03D-4D72-AF56-B6EF7211EB72
Acid Rain in Europe
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22. Scope of Environmental Damage
Global Pollution
Environmental effects that are widespread with global implications.
Ex. Global Warming, Ozone Depletion
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23. Scope of Environmental Damage
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Source:

24. Environmental Objectives
The agenda setting is a political process.
Today, virtually every environmental decision is guided by what have become worldwide objectives :
environmental quality,
sustainable development,
and biodiversity.
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25. Environmental Objectives (Con’t)
Environmental Quality
A reduction in anthropogenic contamination to a level that is ‘acceptable’ to society.
Some pollution is natural and then not controllable.
The absence of anthropogenic pollutants could be achieved only if there were a prohibition on all goods and services that characterize modern living.
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26. Environmental Objectives (Con’t)
Sustainable development
Management of the earth’s resources such that their long-term quality and abundance is ensured for future generations.
Achieving an appropriate balance between economic growth the preservation of natural resources is the essence of the sustainable development.
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27. From Stockholm to Rio
In 1972 Stockholm had drawn attention to the role of development in protecting the environment.
By 1992 there was a clear recognition of the inextricable link between environment and development but there was also a strident demand for appropriate ethics and principles of behavior to be clearly stated. It was rewarding to see, twenty years later, that the relevance of the spiritual and moral dimension was at last being so widely recognized on an international level.
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28. Environmental Objectives (Con’t)
The Earth Summit
A more comprehensive environmental agenda was addressed at the United Nations Conference on Environment and Development (UNCED) held in Rio de Janeiro, Brazil, in 1992 and was attended by 6,000 delegates from more than 170 countries.
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29. Rio de Janeiro Declaration on Environment and Development
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Source:

30. Environmental Objectives (Con’t)
Biodiversity
The variety of distinct species, their genetic variability, and the variety of ecosystems they inhabit.
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31. Source: http://www.brazadv.com/images/biodiversity.bmp
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Source:

32. Environmental Objectives (Con’t)
The goals of environmental quality, sustainable development, and biodiversity set an ambitious agenda.
All of society must work toward developing effective environmental policy initiatives. Central to this effort is a planning process in which public officials, industry, and private citizens participate.
This process involves a series of decisions about assessing environmental risk and responding to it.
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33. Environmental Policy Planning : An Overview
Environmental policy planning involves the interdependence of many segments of society, including government agencies, private industry, the scientific community, and environmentalists.
Each group of participants, albeit from a different vantage point, plays a significant role in formulating policy, and each offers expertise to outcome.
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34. Environmental Policy Planning : An Overview
Policy Planning in the United States
The Environmental Protection Agency (EPA) acts as a sort of liaison between various constituents of each sector. EPA established in 1970 by President Nixon.
The National Environmental Policy Act (NEPA)
NEPA directs the integration of tasks across agencies, executive departments, and branches of government.
Environmental policy planning relies on careful research and analysis, which in turn depends on individuals with expertise in many disciplines, among them biology, chemistry, economics, law, and medicine.
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35. Parties Involved in Environmental Policy Planning
Private Sector
Environmentalist
Private Industry
Scientists
Economists
Labour Unions
Private Citizens
Public Sector
Executive Branch
Congress
Judiciary
FDA
Occupation Safety
And Health Adm.
Other Administrative
Agencies
State and Local Gov’t
Environmental
Protection
Agency
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36. Environmental Policy Planning : An Overview
Policy Planning Process Tool
Risk Analysis
Risk Assessment
Risk Management
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37. Environmental Policy Planning : An Overview
Risk Analysis
Risk Assessment
The environmental problems are identified, and prioritized, which are done through scientific assessment of the relative risk to human health and the ecology of a given environmental hazard.
The assessment must determine whether or not a causal relationship exists between the identified hazard and any observed health or ecological effects, if yes, then the scientists need to quantify how the effects change with the increased exposure to the hazard.
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38. Environmental Policy Planning : An Overview
Risk Analysis
Risk Management
After risk assessment, the planning process enters to risk management.
The decision-making process of evaluating and choosing from alternative responses to environmental risk.
The objective of risk management to choose a policy instrument that reduces the risk of harm to society.
Normally, risk responses to various types of control instruments.
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39. Environmental Policy Planning : An Overview
Risk Analysis
Risk Management
Policy Evaluation Criteria: these criteria are based on measures of risk, costs, or benefits - either singularly or in comparison to one another.
Allocative efficiency
Requires that resources be appropriated such that the additional benefits to society are equal to the additional costs.
Cost-effectiveness
Requires that the least amount of resources be used to achieve an objective.
Efficiency and cost-effectiveness are rooted in resource allocation.
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40. Environmental Policy Planning : An Overview
Risk Analysis
Risk Management
An Environmental equity criteria: Environmental Justice
Fairness of the environmental risk burden across segments of society or geographical regions.
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41. Environmental Policy Planning : An Overview
Risk Analysis
Risk Management
Government’s Overall Policy Approach:
Command-and-control approach : the Regulatory Approach
A policy that directly regulates polluters through the use of rules or standards.
Market approach: An incentive-based policy
A policy that encourages conservation practices or pollution reduction strategies.
A fee on pollutant release or tax levied on pollution-generating commodities.
the “polluter-pays principle”, found that approximately 270 economic instruments were in use across these countries.
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43. Environmental Policy Planning : An Overview
Risk Analysis
Risk Management
Setting the Time Horizon
Management strategies
- This approach is to target policy at more immediate or short-term problems.
- Methods that address existing environmental problems and attempt to reduce the damage from the residual flow.
Pollution prevention
A long-term strategy aimed at reducing the amount or toxicity of residuals released to nature.
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44. School of Liberal Arts Building
The End
Next lecture will be
on Nov 22, 2009 at Room LNG 604
School of Liberal Arts Building
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