Economics, Environment, and SustainabilityEconomics, Environment, and Sustainability

Mr. Clark

BHS

Key ConceptsKey Concepts

Economic systems Economic systems Economics and resource management Economics and resource management Monitoring economic and environmental

progress

Monitoring economic and environmental progress

Full-cost pricing Full-cost pricing

Shifting to environmentally sustainable economies

Shifting to environmentally sustainable economies

Effect and reduction of poverty Effect and reduction of poverty

Economic ResourcesEconomic Resources

CapitalCapital

Human resourcesHuman resources

Natural resourcesNatural resources

Physical resourcesPhysical resources

Production ofenergy-efficientfuel-cell cars

Forestconservation

No-tillcultivation

Solar cellfields

Communities ofpassive solarhomes

Waterconservation

Recycling, reuse,and composing

High speed trains

Bicycling

Wind farms

Landfill

Clusterhousingdevelopment

Recyclingplant

Underground CO2

storage usingabandoned oil wells

Deep seaCO2 storage

Economic SystemsEconomic Systems

Pure free-market economic systemsPure free-market economic systems

Demand, supply and priceDemand, supply and price

Market price equilibrium pointMarket price equilibrium point

Marginal costs and benefitsMarginal costs and benefits

Price inelasticityPrice inelasticity

Government involvement in marketsGovernment involvement in markets

Quantity

Pri

ce (

low

to

hig

h)

Demand curve Supplycurve

Quantitydemanded

Quantitysupplied

Surplus If the price is toohigh, more oil is

available than buyersare willing to buy

Quantitysupplied

Quantitydemanded

At this market equilibriumprice, the quantity of oil thatsuppliers are willing to sell is

the same as the quantitybuyers are willing to buy

If the price is too lowbuyers want to buy more

than suppliers arewilling to sell

Shortage

Neoclassical vs. Ecological EconomistsNeoclassical vs. Ecological Economists

Differing views of natural resources

Differing views on economic growth

Effective property rights

“Eco-economy”

Differing views of natural resources

Differing views on economic growth

Effective property rights

“Eco-economy”

Natural Resources Manufactured Resources Human Resources Goods and Services

+ + =

Ecological EconomicsEcological Economics

Economic GrowthEconomic Growth

Environmentally sustainable economic development

Environmentally sustainable economic development

Economic growth

Economic growth

High

Low

Co

st

Optimum level ofresource use

0 25 50 75 100

Coal removed (%)

High

Low

Co

st

Optimum Pollutionclean-up level

0 25 50 75 100

Pollution removed (%)

35,00019

96 D

olla

rs p

er p

erso

n

Per capita genuine progress indicator (GPI)

0

1960 1970 1980 1990

Year

20001950

Per capita gross domestic product (GDP)

5,000

10,000

15,000

20,000

25,000

30,000

Economics of Pollution ControlEconomics of Pollution Control

Optimum level of pollutionOptimum level of pollution

Cost-benefit analysis (CBA)Cost-benefit analysis (CBA)

Green taxes and feesGreen taxes and fees

Monitoring Environmental ProgressMonitoring Environmental Progress

Gross domestic product (GDP) Gross domestic product (GDP)

Per capita GDP Per capita GDP

Limits of GDP and Per capita GDP Limits of GDP and Per capita GDP

Genuine progress indicator (GPI) Genuine progress indicator (GPI)

Index of Sustainable Economic Welfare Index of Sustainable Economic Welfare

Materials balance measurements Materials balance measurements

Harmful External Costs and Full-Cost PricingHarmful External Costs and Full-Cost Pricing

Internal costs Internal costs

External costs External costs

External benefits External benefits

Positive and negative externalities Positive and negative externalities

Full-cost pricing Full-cost pricing

Improving Environmental Quality and Shifting to Full-Cost PricingImproving Environmental Quality and Shifting to Full-Cost Pricing

Government subsidies and tax breaks Government subsidies and tax breaks

Green taxes Green taxes

Environmental tax reform Environmental tax reform

Innovation-friendly regulations Innovation-friendly regulations

Tradable pollution and resource-use rights Tradable pollution and resource-use rights

Market forces Market forces

Tradable Environmental PermitsTradable Environmental Permits

Flexible

Easy to administer

Encourages pollution prevention and waste reduction

Can guarantee achievement of caps

Permit prices determined by market transactions

Confronts ethical problem of how much pollution or resource waste is acceptable

Confronts problem of how permits should be fairly distributed

Big polluters and resource wasters can buy their way out

May not reduce pollution at dirtiest plants

Can exclude small companies frombuying permits

Caps can be too low

Caps must be gradually reduced to encourage innovation

Determining caps is difficult

Must decide who gets permits and why

Administrative costs high with many participants

Emissions and resource wastes must be monitored

Self-monitoring can promote cheating

Sets bad example by sellinglegal rights to pollute orwaste resources

Trade-Offs

Tradable Environmental PermitsAdvantages Disadvantages

Reducing PovertyReducing Poverty

Poverty Poverty

Premature death and health problems

Premature death and health problems

Environmental impact of poverty

Environmental impact of poverty

Poor help themselves Poor help themselves

Role of the World Bank Role of the World Bank

Expenditures per year (2003)

$12 billion

$11 billionprovide basic healthcare for all

provide clean drinking water for all

$12 billion

Expenditures per year needed to

$19 billioneliminate hunger and malnutrition

eliminate illiteracy

protect tropical forests

$5 billion

$8 billion

$29 billionU.S. highways

U.S. military $449 billion

$956 billionWorld military

U.S. cosmetics

U.S. foreign aid

U.S. EPA

U.S. pet foods

$8 billion

$8 billion

$8 billion

Environmentally Sustainable EconomiesEnvironmentally Sustainable Economies

Mimic natural systems Mimic natural systems

Sunset businesses Sunset businesses

Eco-friendly businesses Eco-friendly businesses

Improve public awareness Improve public awareness

Economics EnvironmentallySustainable

Economy(Eco-Economy)

Resource Useand Pollution

Ecology andPopulation

Reward (subsidize) earth-sustaining behavior

Penalize (tax and do notsubsidize) earth-degrading behavior

Shift taxes from wages and profits to pollution and waste

Use full-cost pricing

Sell more services insteadof more things

Do not deplete naturalcapital

Live off income fromnatural capital

Reduce poverty

Use environmental indicators to measureprogress

Certify sustainable practices and products

Use eco-labels on products

Reduce resource useand waste by refusing,reducing, reusing, andrecycling

Improve energyefficiency

Rely more onrenewable solar andgeothermal energy

Shift from a carbonbased (fossil fuel)economy to asolar–hydrogen basedeconomy

Mimic nature

Preserve biodiversity

Repair ecologicaldamage

Stabilize population by reducing fertility

Sunset Business Eco-Friendly Business

Coal mining

Oil production

Nuclear power

Energy-wasting motorvehicles

Mining

Throwaway products

Clear-cut logging

Paper production

Conventional pesticideproduction

Unsustainable farming

Water well drilling

Conventional economics

Conventional engineering,design, and architecture

Business travel

Solar cell production

Hydrogen production

Fuel-cell production

Wind turbine production

Wind farm construction

Geothermal energyproduction

Production of energy-efficient fuel-cell cars,trucks, and buses

Conventional and electricbicycle production

Light-rail construction

Sustainable agriculture

Integrated pestmanagement

Aquaculture

Recycling, reuse, andcomposting

Sustainable forestry

Soil conservation

Water conservation

Pollution prevention

Ecoindustrial design

Biodiversitymanagement andprotection

Ecological restoration

Disease prevention

Environmentalengineering, design,and architecture

Ecocity urban design

Environmental science

Environmentaleducation

Ecological economics

Environmentalaccounting

Teleconferencing

Environmentally Sustainable

Economy (Eco-Economy)