Economics and the Environment
Environmental And Resource Economics Applies The Tools Of Economics To The
Subject Matter Of Environmental And Resource Issues
Lecture in Movie
OVERVIEW
3
The Power of Markets
02
Markets are very powerful ways of allocating goods.
Market signals, usually prices, affect what people
produce and buy, as well as how those goods are
produced; they can have strong effects on the
environment, both for good and for ill.
Env. and Resource Economics
Problems with Markets
Conflicts arise over the use of
environmental goods because there is not
enough available for people to have them
in their pristine state and also to use them
for production or waste disposal..
Markets often fail for environmental
goods, as well as other goods.
Understanding that markets fail
contributes greatly to understanding
the role of economic analysis in
public policy; understanding how they
fail gives further insight into
environmental problems.
Approaches to Env. Policy
The advantage these approaches are that,
because of their incentives and flexibility,
they can achieve any desired reduction in
pollution at a lower cost to society.
Scope of Env. Economics
05
Natural Resources
Natural resources are materials and
substances that occur naturally and can be
used for economic gain. They include
minerals, forests, fertile land, and water.
Some natural resources, such as soil and
water, are essential for the existence of life.
The scope of environmental studies is
very wide and it deals with many areas
like i) Conservation of natural resources,
ii) ecological aspects, iii) pollution of the
surrounding natural resources, iv)
controlling the pollution, v) social issues
connected to it, and vi) impacts of human
population on the environment.
What is
Environmental Economics?
Economics is the study of the allocation of scarce
goods– Including Environmental
The Environment and
Economy Are Linked
Economies Receive Inputs
From the Environment
– Process them for use
– Discharge the wastes back
into the environment
Traditional Economists Ignore
the Environment
– Environmental economists
accept that human
economies exist within, and
depend on, the environment
Environmental and
Resource Economics
01
02
03
Economics Studies
the allocation of
scarce resources,
specially but not
only through
market processes
Env. And resource
issues arise from
human interaction
with natural world
Env. And resource
economics uses
the tools of
economics to
analyze env. And
resource issues
Slide 6/
The Power of Markets
7
02
Market choices influence the
natural environment, in both
positive and negative ways
which lead to change people
behavior toward the
environment
01
Markets provide people
with the opportunity to
make choices in response
to prices. Changes in
prices lead to changes in
those choices
Problems with Market
Markets often do not exist
for env. goods. This failure of
markets may be the basis of
conflicts over env. Goods.
Markets may not work effectively for other goods
and situations. A problem with one market is likely
to cause difficulties in other markets connected to
it. The markets are highly interconnected including
the associated env. Problems.
Scope of Environmental
Economics
Economic growth and
environmental Balance
.
01
02
03
9
01
Conservation recourses
.
02
Pollution control and
environment
.
03
Environmental Segments
Atmosphere
Biosphere
Lithosphere
Hydrosphere
Natural Resources
the Environment Provides
Renewable resources:
– Perpetually available: sunlight, wind,
wave energy
– Renew themselves over short periods
of time
• These can be destroyed
Non-renewable resources: can be depleted
Natural Resources
the Environment Provides
Renewable
Forest
Water
Fruit/Nuts
Fish
Nonrenewable
Minerals
Fossil Fuels
Denmark No Longer Imports Oil
Because Of Widespread Adoption
Of Wind Power
Brazil No Longer Imports Oil
Now That It Uses Sugar Cane To
Make Bio-fuels
Iceland No Longer Imports Oil
Because Of Widespread Construction
Of Geothermal Power Plants
Environmental
Systems Interact
Natural systems are divided into categories
–
–
–
–
Lithosphere: Rock and sediment
Atmosphere: The air surrounding the planet
Hydrosphere: All water on earth
Biosphere: The planet’s living organisms
Categorizing systems allows humans to
understand earth’s complexity
– Most systems overlap
Economic Perspective on
Environmental Management
01
How clean the
environment should be?
.
Till MB=MC
17
“Free” markets will
generate excessive
pollution and overuse
environmental services,
hence, collective or
public intervention is
necessary
02
03
Valuation of nonmarket goods
04
Design of policy
instruments to achieve
environmental goals
Approaches to
Environmental Policy
18
tells consumers which brands
use environmentally benign
processes.
.
The government can issue permits
to individual polluters.
They may buy, sell, and trade these
marketable emissions permits
this provides financial incentives
to reduce pollution.
- Discourages undesirable activities by
taxing activities and products that cause
undesirable environmental impacts.
- It’s a tool for policy as well as a way to
fund government.
Commandand-control
- An approach that sets strict
legal limits, and punishments
.
as opposed to financial
incentives.
- Ex. Regulate pollutants such
as SO2 and NOx
A government giveaway of cash
or publicly owned resources
used to promote a particular
activity.