If it's Good for the Environment,is it Bad for the Economy?

If it's Good for the Environment,is it Bad for the Economy?

The Environmental

Problem

The Environmental

Problem

The environmental problemThe environmental problem

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

(Clipart for the environment: e.g. countryside scene)

Goods and services

Labour

Waste

The economy and the environmentThe economy and the environment

Resources Amenity value

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

The environmental problemThe environmental problem

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

Conflicts between these uses

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

Conflicts between these uses

The environmental problemThe environmental problem

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

Conflicts between these uses productive resource v. amenity value

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

Conflicts between these uses productive resource v. amenity value

The environmental problemThe environmental problem

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value

The environmental problemThe environmental problem

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value dump for waste v. productive resource

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

Conflicts between these uses productive resource v. amenity value dump for waste v. amenity value dump for waste v. productive resource

The environmental problemThe environmental problem

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of

environment Accelerated degradation

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of

environment Accelerated degradation

The environmental problemThe environmental problem

O W1

Env

ironm

enta

l dam

age

Waste

Accelerating environmental damage

Accelerating environmental damage

O W1

Env

ironm

enta

l dam

age

Waste

Totaldamage

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism?

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism?

The environmental problemThe environmental problem

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables

The environmental problemThe environmental problem

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments

The environmental problemThe environmental problem

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments Public opinion

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments Public opinion

The environmental problemThe environmental problem

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business

The environmental problemThe environmental problem

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business Government action

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business Government action

The environmental problemThe environmental problem

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business Government action BUT growing damage

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables Technological developments Public opinion Green business Government action BUT growing damage

The environmental problemThe environmental problem

The OECD environmental 'traffic lights'The OECD environmental 'traffic lights'

USAGermany

BelgiumSweden

UK Spain

Car

s pe

r th

ousa

nd p

opul

atio

n

W Germany

Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

Increase in car ownershipIncrease in car ownership

An Optimum Use of the

Environment

An Optimum Use of the

Environment

An optimum use of the environmentAn optimum use of the environment

Different approaches to sustainability

The free-market approach Prices reflect scarcity of resources

The social efficiency approach Market failures: can be corrected

The conservationist approach Care for environment for its own sake: importance of

sustainable development

The Gaia approach Deep green approach:

environment has rights

Different approaches to sustainability

The free-market approach Prices reflect scarcity of resources

The social efficiency approach Market failures: can be corrected

The conservationist approach Care for environment for its own sake: importance of

sustainable development

The Gaia approach Deep green approach:

environment has rights

O

D = MSB

Q2

Output of good

Cos

ts a

nd b

enef

its (

£)Optimum level of an activity that involves pollutionOptimum level of an activity that involves pollution

Q1Q3 Free-marketoutcome

Conservationist approach

MSC

S = MPC

MSC1

MPC1

Marginalpollution

externality

Sociallyefficient output

Gaiamaximum

output

Q4

Market FailuresMarket

Failures

Market failuresMarket failuresEnvironment as a public good

The global ‘commons’ Features of a public good

Non-excludability BUT rivalry

Over use at a zero price

Externalities External costs from pollution External benefits from ‘green’ activities Problems of identifying and measuring

IgnoranceInter-generational problems

Environment as a public good The global ‘commons’ Features of a public good

Non-excludability BUT rivalry

Over use at a zero price

Externalities External costs from pollution External benefits from ‘green’ activities Problems of identifying and measuring

IgnoranceInter-generational problems

Government Policy towards

the Environment

Government Policy towards

the Environment

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate

Government Environment PolicyGovernment Environment Policy

O

D = MSB

Q2

Output of good

Cos

ts a

nd b

enef

its (

£)

Q1

MSC

S = MPC

Optimumgreen tax

An socially efficient green tax

P

P – t

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate Problems with green taxes and subsidies

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate Problems with green taxes and subsidies

Government Environment PolicyGovernment Environment Policy

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate Problems with green taxes and subsidies Effects on business

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate Problems with green taxes and subsidies Effects on business

Government Environment PolicyGovernment Environment Policy

Green tax revenues as a % of GDPGreen tax revenues as a % of GDP

Green tax revenues as a % of GDPGreen tax revenues as a % of GDP

Non-market-based policies Command-and-control systems Alternative standards

Technology-based standards Ambient-based standards Social impact standards

Effects on business Advantages Disadvantages

Voluntary agreements

Education

Non-market-based policies Command-and-control systems Alternative standards

Technology-based standards Ambient-based standards Social impact standards

Effects on business Advantages Disadvantages

Voluntary agreements

Education

Government Environment PolicyGovernment Environment Policy

Tradable permits Permit to emit

Credits can be traded

Market price for permits Efficient solution?

Use in USA

Use in the EU (Kyoto)

Effects on business

Basis for international agreements? Quotas for emissions or use of resources

Tradable permits Permit to emit

Credits can be traded

Market price for permits Efficient solution?

Use in USA

Use in the EU (Kyoto)

Effects on business

Basis for international agreements? Quotas for emissions or use of resources

Government Environment PolicyGovernment Environment Policy

Can we rely on governments?

Short-termism

The free-rider problem

The weakness of international agreements

Can we rely on governments?

Short-termism

The free-rider problem

The weakness of international agreements

Government Environment PolicyGovernment Environment Policy

If it’s good for the environment, is it bad for the economy?

If it’s good for the environment, is it bad for the economy?

Possibly, but not necessarily.

Environmental challenges offer challenges to business and the government.

Some will gain; some will lose.

Is it another case of survival of the fittest?

Or is it survival of the greenest?

Possibly, but not necessarily.

Environmental challenges offer challenges to business and the government.

Some will gain; some will lose.

Is it another case of survival of the fittest?

Or is it survival of the greenest?

To access these slides, go to:

www.economicsnetwork.ac.uk/archive/A-level_Dec04.ppt