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Chapter 24Chapter 24
Economics, Economics, Environment, and Environment, and
SustainabilitySustainability
Chapter Overview QuestionsChapter Overview Questions
What are economic systems and how do they What are economic systems and how do they work?work?
How do economists differ in their views of How do economists differ in their views of economic systems, pollution control, and economic systems, pollution control, and resource management?resource management?
How can we monitor economic environmental How can we monitor economic environmental progress?progress?
What economic tools can we use to improve What economic tools can we use to improve environmental quality?environmental quality?
Chapter Overview Questions (cont’d)Chapter Overview Questions (cont’d)
How does poverty reduce environmental How does poverty reduce environmental quality, and how can we reduce poverty?quality, and how can we reduce poverty?
How can we shift to more environmentally How can we shift to more environmentally sustainable economies over the next few sustainable economies over the next few decades?decades?
Updates OnlineUpdates Online
The latest references for topics covered in this section can be found at The latest references for topics covered in this section can be found at the book companion website. Log in to the book’s e-resources page at the book companion website. Log in to the book’s e-resources page at www.thomsonedu.com to access InfoTrac articles. www.thomsonedu.com to access InfoTrac articles.
InfoTrac: Is buying local always best? InfoTrac: Is buying local always best? The Christian Science The Christian Science MonitorMonitor, July 24, 2006 p13., July 24, 2006 p13.
InfoTrac: A corporate solution to global poverty. George C. Lodge; InfoTrac: A corporate solution to global poverty. George C. Lodge; Craig Wilson. Craig Wilson. The Chronicle of Higher EducationThe Chronicle of Higher Education, May 12, 2006 , May 12, 2006 v52 i36 pB14(1). v52 i36 pB14(1).
InfoTrac: No bar code: the next revolution in food is just around InfoTrac: No bar code: the next revolution in food is just around the corner. Michael Pollan. the corner. Michael Pollan. Mother JonesMother Jones, May-June 2006 v31 i3 , May-June 2006 v31 i3 p36(10).p36(10).
The Environmental Magazine: Sharing the Wealth.The Environmental Magazine: Sharing the Wealth. Global Policy Forum: Meet the Losers of GlobalizationGlobal Policy Forum: Meet the Losers of Globalization The Brookings Institution: Waging a LivingThe Brookings Institution: Waging a Living
Video: The Working PoorVideo: The Working Poor
This video clip is available in CNN Today This video clip is available in CNN Today Videos for Environmental Science, 2004, Videos for Environmental Science, 2004, Volume VII. Instructors, contact your local Volume VII. Instructors, contact your local sales representative to order this volume, sales representative to order this volume, while supplies last.while supplies last.
Core Case Study: A New Economic Core Case Study: A New Economic and Environmental Visionand Environmental Vision
Some components Some components of more of more environmentally environmentally sustainable sustainable economic economic development.development.
Figure 24-1Figure 24-1
Fig. 24-1, p. 569
Production of energy-efficient fuel-cell cars
Forest conservation
Underground CO2 storage using abandoned oil wells
No-till cultivation High-speed trains
Deep-sea CO2 storage
Solar-cell fields
Bicycling
Cluster housing development
Wind farmsCommunities of passive solar homes
LandfillRecycling plant
Water conservation
Recycling, reuse, & composting
ECONOMIC SYSTEMS AND ECONOMIC SYSTEMS AND SUSTAINABILITYSUSTAINABILITY
An economic system produces and An economic system produces and distributes goods and services by using distributes goods and services by using natural, human, and manufactured natural, human, and manufactured resources.resources.
In a pure free-market system, buyers and In a pure free-market system, buyers and sellers interact without any government or sellers interact without any government or other interference.other interference. Actual capitalist market systems deviate from this Actual capitalist market systems deviate from this
model.model.
Economic Resources: The Big ThreeEconomic Resources: The Big Three
Three types of resources are used to Three types of resources are used to produce goods and services.produce goods and services.
Figure 24-2Figure 24-2
Fig. 24-2, p. 570
+ + =
Natural Resources
Manufactured Resources
Human Resources
Goods and Services
Market Economic Systems: Pure Free Market Economic Systems: Pure Free Market and Capitalistic ModelsMarket and Capitalistic Models
Supply, demand, Supply, demand, and market and market equilibrium for a equilibrium for a good or service in good or service in a pure market a pure market system.system.
Figure 24-3Figure 24-3
Fig. 24-3, p. 571
Dem
and curve
OIL
Quantity demanded
Quantity supplied
If the price is too high, more of a good is available than buyers are willing to buy.
Surplus
At this market equilibrium price, the quantity of a good suppliers are willing to sell is the same as the quantity buyers are willing to buy.
Pri
ce (
low
to
hig
h)
If the price is too low, buyers want to buy
more than suppliers are willing to sell.
Quantity supplied
ShortageQuantity
demanded0
Quantity
Sup
ply
curv
e
Government Intervention in Market Government Intervention in Market Economic Systems: Economic Systems:
Correcting Market FailuresCorrecting Market Failures Governments intervene in market systems to Governments intervene in market systems to
help provide economic stability, national help provide economic stability, national security, and public services such as security, and public services such as education, crime protection, and education, crime protection, and environmental protection.environmental protection.
Environmentally Sustainable Environmentally Sustainable Economic Development: Economic Development:
Copying NatureCopying Nature
Models of ecological economists are built on Models of ecological economists are built on the following assumptions:the following assumptions: Resources are limited.Resources are limited. Encourage environmentally beneficial and Encourage environmentally beneficial and
sustainable forms of development.sustainable forms of development. The harmful environmental and health effects of The harmful environmental and health effects of
producing goods and services should be included producing goods and services should be included in market prices.in market prices.
Depletion of nonrenewableresources
Degradation & depletionof renewable resources usedfaster than replenished
Pollution, waste from overloading nature’s waste disposal & recycling systems
Fig. 24-4, p. 573
Sun EARTHEARTH
HeatEconomic Economic SystemsSystems
Natural Capital Production
Air, water, land, soil, biodiversity, minerals, raw materials, energy resources; dilution, decomposition, & recycling services Consumption
Recyclingand reuse
Economic DevelopmentEconomic Development
Comparison of Comparison of unsustainable unsustainable economic economic development development and and environmentally environmentally sustainable sustainable economic economic development.development.
Figure 24-5Figure 24-5
Fig. 24-5, p. 573
Characteristic Unsustainable Economic Growth
Environmentally Sustainable Economic
Development
Production emphasis Quantity Quality
Natural resources Not very important Very important
Resource productivity
Inefficient (high waste)
Efficient (low waste)
Resource throughput
High Low
Resource type emphasized
Nonrenewable Renewable
Resource fate Matter discarded
Matter recycled, reused, or composted
Pollution control Cleanup (output reduction)
Prevention (input reduction)
Guiding principles Risk–benefit analysis
Prevention and precaution
ESTIMATING THE VALUE OF ESTIMATING THE VALUE OF ECOLOGICAL SERVICES AND ECOLOGICAL SERVICES AND
MONITORING ENVIRONMENTAL MONITORING ENVIRONMENTAL PROGRESSPROGRESS
Economists have developed several ways to Economists have developed several ways to estimate nonmarket values of the earth’s estimate nonmarket values of the earth’s ecological services based using:ecological services based using: Mitigation costMitigation cost: how much it takes to offset any : how much it takes to offset any
environmental damage.environmental damage. Willingness to payWillingness to pay: determine how much people : determine how much people
are willing to pay to keep the environment in tact are willing to pay to keep the environment in tact (e.g. protect an endangered species).(e.g. protect an endangered species).
ESTIMATING THE VALUE OF ESTIMATING THE VALUE OF ECOLOGICAL SERVICES AND ECOLOGICAL SERVICES AND
MONITORING ENVIRONMENTAL MONITORING ENVIRONMENTAL PROGRESSPROGRESS
Economists use discount rates (estimate Economists use discount rates (estimate resource’s future value compared to current) resource’s future value compared to current) to estimate the future value of a resource.to estimate the future value of a resource.
The market price you pay for something does The market price you pay for something does not include most of the environmental, health, not include most of the environmental, health, and other harmful costs associated with its and other harmful costs associated with its production and use.production and use.
Estimating the Optimum Levels of Estimating the Optimum Levels of Pollution Control and Resource UsePollution Control and Resource Use
Environmental Environmental economists try to economists try to determine optimum determine optimum levels of pollution levels of pollution control and resource control and resource use.use.
Figure 24-6Figure 24-6
Fig. 24-6, p. 575
High
Marginal cost of resource production
Co
st
Marginal cost of resource use
Low
Optimum level of resource use
Coal removed (%)
Optimum Pollution ControlOptimum Pollution Control
The marginal cost of cleaning up pollution The marginal cost of cleaning up pollution rises with each additional unit removed.rises with each additional unit removed.
Figure 24-7Figure 24-7
Fig. 24-7, p. 576
High
Marginal cost of pollution
Co
st
Marginal cost of pollution control
Optimum pollution clean-up level
Low
Pollution removed (%)
Cost-Benefit Analysis: Cost-Benefit Analysis: a Useful but Crude Toola Useful but Crude Tool
Comparing likely costs and benefits of an Comparing likely costs and benefits of an environmental action is useful but involves environmental action is useful but involves many uncertainties.many uncertainties. Cost–benefit analyses involves determining:Cost–benefit analyses involves determining:
• Who or what might be affected by a particular Who or what might be affected by a particular regulation or project. regulation or project.
• Projecting potential outcomes. Projecting potential outcomes. • Evaluating alternative actions.Evaluating alternative actions.• Establishing who benefits and who is harmed.Establishing who benefits and who is harmed.
Environmental and Economic Environmental and Economic Indicators: Environmental RadarIndicators: Environmental Radar
We need indicators that reflect changing We need indicators that reflect changing levels of environmental quality and human levels of environmental quality and human health.health. Gross domestic product (GDP)Gross domestic product (GDP): measures the : measures the
annual economic value of all goods and services annual economic value of all goods and services produced in a country without taking harmful produced in a country without taking harmful effects into consideration.effects into consideration.
Genuine progress indicator (GPI)Genuine progress indicator (GPI): Subtracts : Subtracts from the GDP costs that lead to a lower quality of from the GDP costs that lead to a lower quality of life or deplete / degrade natural resources.life or deplete / degrade natural resources.
Environmental and Economic Environmental and Economic Indicators: Environmental RadarIndicators: Environmental Radar
Comparison of Comparison of the per capita the per capita GDP and the GDP and the GPI in the U.S. GPI in the U.S. between 1950 between 1950 and 2002.and 2002.
Figure 24-8Figure 24-8
Fig. 24-8, p. 577
1996
Do
llar
s p
er p
erso
n
Per capita gross domestic product (GDP)
Per capita genuine progress indicator (GPI)
Year
How Would You Vote?How Would You Vote?
To conduct an instant in-class survey using a classroom response To conduct an instant in-class survey using a classroom response system, access “JoinIn Clicker Content” from the PowerLecture main system, access “JoinIn Clicker Content” from the PowerLecture main menu for Living in the Environment. menu for Living in the Environment.
Should full-cost pricing be used in setting Should full-cost pricing be used in setting market prices for goods and services?market prices for goods and services? a. No. Low-income people will not be able to a. No. Low-income people will not be able to
afford some essential goods and services.afford some essential goods and services. b. Yes. Full-cost pricing will improve b. Yes. Full-cost pricing will improve
environmental protection.environmental protection.
ECONOMIC TOOLS FOR ECONOMIC TOOLS FOR IMPROVING ENVIRONMENTAL IMPROVING ENVIRONMENTAL
QUALITYQUALITY Including external costs in market prices Including external costs in market prices
informs consumers about the harmful impact informs consumers about the harmful impact of their purchases the earth’s life-support of their purchases the earth’s life-support systems and on human health.systems and on human health.
Eco-Labeling: Informing Consumers Eco-Labeling: Informing Consumers So They can Vote with Their WalletsSo They can Vote with Their Wallets
Certifying and labeling environmentally Certifying and labeling environmentally beneficial goods and resources extracted by beneficial goods and resources extracted by more sustainable methods can help more sustainable methods can help consumers decide what goods and services consumers decide what goods and services to buy.to buy.
Figure 24-9Figure 24-9
Fig. 24-9, p. 579
Germany: Blue Angel
(1978)
Canada: Environmental Choice (1988)
United States: Green Seal
(1989)
Nordic Council:
White Swan (1989)
European Union:
Eco-label (1992)
China: Environmental
label (1993)
Subsidy ShiftingSubsidy Shifting
Taxes on pollution and resource use can Taxes on pollution and resource use can move us closer to full-costing pricing.move us closer to full-costing pricing. Shifting taxes from wages and profits to pollution Shifting taxes from wages and profits to pollution
and waste (green taxes) helps make this and waste (green taxes) helps make this feasible.feasible.
We can improve environmental quality and We can improve environmental quality and human health by replacing environmentally human health by replacing environmentally harmful government subsidies with harmful government subsidies with environmentally beneficial ones.environmentally beneficial ones.
Fig. 24-10, p. 580
Trade-Offs
Environmental Taxes and Fees
Advantages Disadvantages
Helps bring about full-cost pricing Penalizes low income groups unless safety nets are provided
Provides incentive for businesses to do better to save money
Hard to determine optimal level for taxes and fees
Need to frequently readjust levels, which is technically and politically difficult
Can change behavior of polluters and consumers if taxes & fees are set at a high enough level
Gov’ts may see this as a way of increasing general revenue instead of using funds to improve environmental quality and reduce taxes on income, payroll, & profits
Easily administered by existing tax agencies
Fairly easy to detect cheaters
How Would You Vote?How Would You Vote?
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Do the advantages of green taxes and fees Do the advantages of green taxes and fees outweigh the disadvantages?outweigh the disadvantages? a. No. Low-income people, farmers, ranchers, a. No. Low-income people, farmers, ranchers,
and small businesses would suffer from and small businesses would suffer from environmental taxes and fees.environmental taxes and fees.
b. Yes. They would reduce waste and protect the b. Yes. They would reduce waste and protect the environment.environment.
Green TaxesGreen Taxes
Advantages of Advantages of taxing wages taxing wages and profits less and profits less and pollution and pollution and waste and waste more.more.
Figure 24-11Figure 24-11
Fig. 24-11, p. 581
• Decreases depletion and degradation of natural resources
• Improves environmental quality by full-cost pricing
• Encourages pollution prevention & waste reduction
• Stimulates creativity in solving environmental problems to avoid paying pollution taxes and thereby increases profits
• Rewards recycling and reuse
• Relies more on marketplace rather than regulation for environmental protection
• Provides jobs
• Can stimulate sustainable economic development
• Allows cuts in income, payroll, and sales taxes
How Would You Vote?How Would You Vote?
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Do you favor shifting taxes on wages and profits to pollution and waste?Do you favor shifting taxes on wages and profits to pollution and waste? a. No. This tax system would penalize many farmers, ranchers, and a. No. This tax system would penalize many farmers, ranchers, and
businesses that cannot avoid generating waste.businesses that cannot avoid generating waste. b. Yes. But, only if we offer subsidies to assist lower income people in b. Yes. But, only if we offer subsidies to assist lower income people in
meeting their basic needs.meeting their basic needs. c. Yes. It would promote a cleaner environment.c. Yes. It would promote a cleaner environment.
ECONOMIC TOOLS FOR ECONOMIC TOOLS FOR IMPROVING ENVIRONMENTAL IMPROVING ENVIRONMENTAL
QUALITYQUALITY Environmental laws and regulations work Environmental laws and regulations work
best if they motivate companies to find best if they motivate companies to find innovative ways to control and prevent innovative ways to control and prevent pollution and reduce resource waste.pollution and reduce resource waste.
Governments can set a limit on pollution Governments can set a limit on pollution emissions or use of a resource, give permits emissions or use of a resource, give permits to users, and allow them to trade their to users, and allow them to trade their permits on the marketplace.permits on the marketplace.
Fig. 24-12, p. 582
Trade-Offs
Tradable Environmental Permits
Advantages Disadvantages
Big polluters and resource wasters can buy their way out
Flexible
Easy to administer May not reduce pollution at dirtiest plants
Encourages pollution prevention and waste reduction
Can exclude small companies from buying permits
Caps can be too low
Can promote achievement of capsCaps must be gradually reduced to encourage innovation
Determining caps is difficultPermit prices determined by market transactions Must decide who gets permits and why
Administrative costs high with many participantsConfronts ethical problem of how much
pollution or resource waste is acceptable Emissions and resource wastes must
be monitored
Confronts problem of how permits should be fairly distributed Sets bad example by selling legal rights to
pollute or waste resources
Self-monitoring can promote cheating
How Would You Vote?How Would You Vote?
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Do the advantages of using tradable pollution and resource-use permits Do the advantages of using tradable pollution and resource-use permits to reduce pollution and resource waste outweigh the disadvantages?to reduce pollution and resource waste outweigh the disadvantages?
a. No. The policies would allow old and dirty plants to continue polluting local a. No. The policies would allow old and dirty plants to continue polluting local air and water.air and water.
b. Yes. The policies are effective ways of capping and then reducing air and b. Yes. The policies are effective ways of capping and then reducing air and water pollution and resource use.water pollution and resource use.
Green Economics: Selling Services Green Economics: Selling Services Instead of ThingsInstead of Things
Some businesses can greatly decrease their Some businesses can greatly decrease their resource use, pollution, and waste by shifting resource use, pollution, and waste by shifting from selling goods and services to selling the from selling goods and services to selling the services the goods provide.services the goods provide. Carrier has begun shifting selling heating and air Carrier has begun shifting selling heating and air
conditioning equipment to providing the service conditioning equipment to providing the service itself.itself.• It makes higher profits by having the most energy-It makes higher profits by having the most energy-
efficient units.efficient units.
REDUCING POVERTY TO IMPROVE REDUCING POVERTY TO IMPROVE ENVIRONMENTAL QUALITY AND ENVIRONMENTAL QUALITY AND
HUMAN HUMAN WELL-BEINGWELL-BEING
We can sharply cut poverty by forgiving the We can sharply cut poverty by forgiving the international debts of the poorest countries, international debts of the poorest countries, greatly increasing international aid and small greatly increasing international aid and small individual loans to help the poor help individual loans to help the poor help themselves.themselves.
Distribution of the World’s Wealth: a Distribution of the World’s Wealth: a Widening GapWidening Gap
The global The global distribution of distribution of income shows income shows that most of the that most of the world’s income world’s income flows up. flows up.
Each horizontal band is 1/5Each horizontal band is 1/5 thth of the world’s populationof the world’s population
Figure 24-13Figure 24-13
Fig. 24-13, p. 584
Richest fifth 85%
Poorest fifth 1.3%
Solutions: Achieving the Millennium Solutions: Achieving the Millennium Development GoalsDevelopment Goals
In 2000, the world’s nations set goals for In 2000, the world’s nations set goals for sharply reducing hunger and poverty, sharply reducing hunger and poverty, improving health care and moving toward improving health care and moving toward environmental sustainability by 2015.environmental sustainability by 2015. In 1980 and 2002, developed countries agreed to In 1980 and 2002, developed countries agreed to
devote 0.7% of their annual national income devote 0.7% of their annual national income towards achieving such goals.towards achieving such goals.• The average amount donated was 0.25%.The average amount donated was 0.25%.• The U.S. gives 0.16%.The U.S. gives 0.16%.
Fig. 24-14, p. 586
Fig. 24-14a, p. 586
Expenditures per year (2005)
World military
U.S. military
U.S. highways $29 billion
U.S. potato chips & snacks
$22 billion
U.S. pet foods $19 billion
U.S. EPA$8 billion
U.S. foreign aid$8 billion
U.S. cosmetics$8 billion
$492 billion (including Iraq)
$1 trillion
Fig. 24-14b, p. 586
Expenditures per year needed to
Eliminate hunger & malnutrition $48 billion
Provide clean drinking water and sewage treatment for all
$37 billion
Provide basic health care for all $33 billion
Protect biodiversity $31 billion
Protect topsoil on cropland $24 billion
Provide universal primary education and end illiteracy
$16 billion
Restore fisheries $13 billion
Deal with global HIV/AIDS $10 billion
Stabilize water tables $10 billion
Restore rangelands $9 billion
Protect tropical forests $8 billion
Reforest the earth$6 billion
Total Earth Restoration and Social Budget = $245 billion
MAKING THE TRANSITION TO MAKING THE TRANSITION TO MORE ENVIRONMENTALLY MORE ENVIRONMENTALLY SUSTAINABLE ECONOMIESSUSTAINABLE ECONOMIES
Nature's four principles of sustainability and a Nature's four principles of sustainability and a number of environmental and economic number of environmental and economic strategies can be used to develop more strategies can be used to develop more environmentally sustainable economies.environmentally sustainable economies.
The Netherlands has dedicated itself to The Netherlands has dedicated itself to making its economy more environmentally making its economy more environmentally sustainable.sustainable.
Eco-EconomiesEco-Economies
Principles for Principles for shifting to more shifting to more environmentally environmentally sustainable sustainable economies economies during this during this century.century.
Figure 24-15Figure 24-15
Fig. 24-15, p. 587
Economics Environmentally Sustainable
Economy (Eco-Economy)
Resource Use & PollutionReward (subsidize) earth
sustaining behavior Reduce resource use and waste by refusing, reducing, reusing, and recycling
Penalize (tax and do not subsidize) earth degrading behavior
Improve energy efficiencyShift taxes from wages
and profits to pollution and waste
Rely more on renewable solar and geothermal energyUse full-cost pricingShift from a carbon-based (fossil fuel) economy to a renewable fuel–based economy
Sell more services instead of more things
Do not deplete or degrade natural capital
Live off income from natural capital
Reduce poverty
Ecology & Population
Use environmental indicators to measure progress
Mimic nature
Preserve biodiversity
Certify sustainable practices and products
Repair ecological damage
Use eco-labels on products
Stabilize population by reducing fertility
Jobs, Profits, and Jobs, Profits, and the Environment: the Environment: New Industries New Industries and New Jobsand New Jobs
Shifting to more Shifting to more environmentally environmentally sustainable sustainable economies will economies will create immense create immense profits and huge profits and huge numbers of jobs.numbers of jobs.
Figure 24-16Figure 24-16
Fig. 24-16, p. 589
Environmentally Sustainable Businesses and Careers
Aquaculture Environmental law
Biodiversity protectionEnvironmental nanotechnology
BiofuelsFuel cell technology
Climate change research
Geographic information systems (GIS)
Conservation biology
Geothermal geologist
Eco-industrial design
Hydrogen energy
Marine science
Ecotourism managementPollution prevention
Energy efficient product design
Reconciliation ecology
Selling services in place of products
Environmental chemistry Solar cell technology
Environmental design Sustainable agriculture
Environmental economicsSustainable forestry
Environmental educationWaste reduction
Watershed hydrologist
Environmental engineering Water conservation
Environmental health Wind energy