But not all countries are growing exponentially?

But not all countries are growing exponentially?

Demographic Transition Model (DTM) – predictable shifts in birth and death rates associated with modernization

Some have done extreme interventions …

Some have done extreme interventions …

What are the good and the bad sides of these population policies?

Alternative interventions …

What have we learned?

• Is there a link between population, scarcity and environmental impacts?

• Is population alone enough to explain the state of the environment?

• Would we be able to predict population trends based on environmental limits alone?

• Are we able to control population and is it ideal?

There is still a lot of debates and the relationship is complex!

Markets and

Commodities

Environment and SocietyLecture 2 and 3

How do markets (and the discipline of neoclassical economics) perceive human behavior?

The Market Response Model

Resource Availability

Resource Scarcity

Supply Increases

Demand Decreases

Search for new sources; Increased

output in known sources

Use of Substitutes; Increased Efficiency; Recycling

What does conservation lead to? The Jevons’ Paradox

William Stanley Jevons (1835 – 1882)

Jevons’ Paradox

Efficiency of resource use actually increases consumption of that resource.

Can you think of other examples?

How do we handle environmental bads? The Coase Theorem

Ronald Coase (1910 - 2013)

• Environmental harms can be most efficiently controlled through contracts and bargaining between parties.

Negative Environmental Externalities• The spillover of an environmental cost, as where

industrial activity at a site leads to pollution off-site that must be paid for by someone else.

Coase Theorem

Where else can we apply Coase Theorem?

Condition: Transaction cost must not be inhibiting

Coase Theorem

• In real world, transaction costs are almost always inhibiting – Coasean bargaining is inefficient;

• The assumption of complete information;• Incentive to free-ride;• Poorly defined property rights;• Always disparate socio-economic realities

between parties (i.e. power dynamics);

Issues with Coase Theorem:

Market-Based Instruments

• Green Taxes

• Cap and Trade

• Green Consumption

Market-Based Instruments: The Green Taxes

• Green taxes: changing the environmental decision-making behavior of individuals and firms by manipulating prices.

Taxes can:

- Lead to discovery of new resources;

- Drive innovations to substitute- Encourage alternatives- Alter consumption patterns

Market-Based Instruments: The Green Taxes

• Example: The Singapore Vehicle Taxation

Did it work?

What were the outcomes?

What are the problems?

Market-Based Instruments: The Green Taxes

• Some issues with Green Taxes

- Can be a very unpopular policy (good luck passing it in Congress!)

- Can it effectively change behaviors? Socio-economic status of individuals and firms change.

- How are revenues used by the government?

Market-Based Instruments: Cap and Trade• Cap and Trade: Imposition of a total limit of

pollution in a jurisdiction and shares of that total are distributed and traded among individuals and firms causing the pollution.

Market-Based Instruments: Cap and Trade

Market-Based Instruments: Cap and Trade

• Some issues with Cap and Trade

- Encourages business-as-usual activities;

- Measurement issues and cheating;

- Perverse incentives due to permit allocation

- Complicated market

Market-Based Instruments: Green Consumption• Green Certification: Programs to certify

commodities for the purposes of assuring their ecological credentials.

Market-Based Instruments: Green Consumption

• Some issues with Green Consumption

- Greenwashing (exaggerated or false marketing of a product, good, or service as environmentally friendly);

- Reactive rather than proactive response; - Voluntary both on the part of the firm and the

individual;- Possible justice issues and impacts on

producers on the ground (e.g. farmers and community forest managers)

Does the government have a role in Market-Based Instruments?

Do we need a fundamental change in the way we think about our economy?

For the longest time, we portray out economy as a circular system.

But how is our economy structured?

Nicholas Georgescu-Roegen (1906-1994)

Based on second law of thermodynamics, we have been using low entropy stocks (fossil fuels) to organize ourselves. Once used, stock energy becomes unusable. What happens when we run out of fossil fuels?

A Paradigm Shift: Thinking from “Empty” to “Full” World

How do we currently measure welfare and economic performance?

The Macro Perspective

Gross Domestic Product = Consumer Spending + Government Spending + Business Spending on Capital + Nation’s Total Net Exports

The Macro Perspective

Developed by Simon Kuznets, but warned that it should not be used as measure of welfare.

What are the problems with using GDP as measure of “how well we are doing”?

The Macro Perspective

- Measures also “defensive expenditures” (expenditures associated with unwanted consequences of economic activities);

- Measures depletion of natural capital as a “good thing”;

- Does it really measure our “welfare”?

GDP is not a bad measure per se. It just does not give us a comprehensive

picture of how we are doing.

Are there alternative measures? Yes!

The Macro Perspective

- Alternative 1: Index of Sustainable Economic Welfare (Daly and Cobb 1989);

ISEW = personal consumption+ public non-defensive expenditures- private defensive expenditures+ capital formation+ services from domestic labor- costs of environmental degradation- depreciation of natural capital

The Macro Perspective- Alternative 1: Index of Sustainable Economic

Welfare (Daly and Cobb 1989);

The Macro Perspective- Alternative 2: Human Development Index

(UNDP 1990);

But how SHOULD we measure welfare, really?

Max-Neef’s Matrix of Human Needs

Subsistence (food, shelter, work)

Protection (social security,

insurance, health systems, rights,

family)

Affection (friendship, family,

partnerships)

Understanding (literature,

education, teachers)

Participation(Rights,

responsibilities, duties, privileges)

Idleness(Games, spectacles,

parties, peace of mind)

Creation(Abilities, skills,

work)

Identity(Symbols, language,

religion, habits, customs, sexuality,

values, norms, memory)

Freedom(Equal rights)