AGEC/FNR 406 LECTURE 23

Is this the Economy-Environment Relationship?

GDP

Non-marketed services are excluded

Does not accounts for depreciation of natural capital

What doesn’t GDP measure?

Example: Exxon Valdez oil spill

Three types of capital

1. Human

2. Human made

3. Natural

The key issue from an environmental standpoint is whether these different forms of capital can be substituted

Alternatives to GDP

1. Net National Product (NNP) or Green GDP (gGDP)

Accounts for depreciation of naturalcapital.

2. Index of environmental indicators

Accounts for the fact that many benefits from environmental improvements are not accounted for in market transactions

International aspects of the environment

1. International public goods

2. Transfrontier pollution

3. Impact of environmental policy on trade

4. Impact of trade policy on environment

Global public goods

Similar to national or local public goods:nonexcludable and nonrival in consumption, but production and consumption are separated by political border.

Examples: The atmosphere and outer space

Disease prevention

Ecosystem services

Transfrontier Pollution

Pollution that crosses an international political boundary

Examples: Acid RainSmoke from firesWater pollution in major

river systems

Important because applying economic incentives may be difficult -- but some hope for solutions based on tradable permits.

Environmental Policy and Trade

Main concern is that a country’s environmental policies will reduce the country’s competitiveness and reduce its volume of exports.

Three main linkages: 1. Cost of production

2. Incentives for relocation

3. Export of “green technologies”

Trade Policy and the Environment

Trade policy is generally designed to promote exports and imports without regard to conditions of production. This often has the effect of undermining environmental goals (both domestic and international).

Trade Alliances

North American Free Trade Agreement (NAFTA) US + Mexico + Canada

General Agreement on Trade and Tariffs (GATT)

Includes most countries

Why are Trade Alliances Important?

They often specify that “unfair” barriers cannot be used to protect a country against imports.

WTO has generally held restrictions on environmental grounds to be unfair.

Examples: U.S. attempted tuna ban from Mexico (w/o “dolphin friendly” practices)

Conflict resolution?

Free trade and environmental policies are both beneficial.

A potential compromise would be to establish an international board to review cases and separate reasonable environmental barriers from phony barriers.