Environmental Economics and
Policy
• Environmental Economics
– Making Green Profitable
• Environmental Policy
– Governments
Protecting the Public
and the Planet
• Examples of Real
Progress on the
Environment
Environment and economy are
intricately linked.
•
•
Economies receive inputs of resources from the
environment, process them in complex ways that
enable human society to function, then discharge
outputs of waste into the environment.
Environmental systems support economies,
purifying air and water, cycling nutrients,
providing pollination, and serving as receptacles
for waste; these are called ecosystem services.
Environmental Economics
How to measure economic productivity?
• Accounting at all levels needs to better reflect
the true, long-term, sustainable value of
economic activities.
• Many practices that today are “profitable” are
clearly actually contributing to long-term
degradation of natural systems and human
well-being. They are, in truth, counterproductive.
Classical Economics
Adam Smith helped found classical
economics.
The Theory of Moral Sentiments, 1759
The Wealth of Nations, 1776
Adam
Smith
(1723-1790)
Adam Smith, the father of classical
economics, believed that when people are free
to pursue their own economic self-interest in a
competitive marketplace, the marketplace will
behave as if guided by “an invisible hand”
that ensures their actions will benefit society.
He assumes resources are unlimited.
Neoclassical economics incorporates
psychology and cost-benefit analysis.
• The conflict between buyers and sellers results in a
compromise price being reached and the “right” quantity
of commodities being bought and sold.
• In cost-benefit analysis, the estimated costs for a proposed
action are totaled and compared to the sum of benefits
estimated to result from the action.
• Economic benefits tend to be overrepresented in traditional
cost-benefit analyses because they’re more easily
identified.
• Not all costs and benefits are easily identified, defined, or
quantified, or even identified or defined.
Neoclassical economics has profound
implications for the environment.
•
•
•
Workers and other resources are assumed to be infinite or
substitutable.
Long-term effects, occurring far in the future, are
discounted.
Costs and benefits are assumed to be internal to all
transactions (e.g. it ignores “externalities”)
–
–
•
The market does not take the costs of pollution into account.
Costs or benefits of a transaction are assumed to all be borne by
individuals engaging in the transaction. However, this is often
incorrect. There can be external costs, such as health problems or
pollution cleanup, which are paid by others.
Growth is required to keep employment high and
maintain social order.
Problems with Gross Domestic Product (GDP)
GDP is used to account for economic growth or decline and
GDP per capita is a widely-used indicator of relative wealth,
progress, and well-being.
• GDP takes no account of the inputs used to produce the output. For example,
if everyone worked for twice the number of hours, then GDP might roughly double,
but this does not necessarily mean that workers are better off as they would have less
leisure time. Similarly, the impact of economic activity on the environment is not
measured in calculating GDP.
• GDP does not measure factors that affect quality of life, such as the quality of
the environment and security from crime. This leads to distortions - for example,
spending on cleaning up an oil spill is included in GDP, but the negative impact of the
spill on well-being (e.g. loss of clean beaches) is not measured. These “externalities”
are critical to true valuation of economic activity but are not counted.
• Measures of GDP exclude unpaid economic activity, most importantly
domestic work such as childcare. This leads to distortions; for example, a paid
nanny's income contributes to GDP, but an unpaid parent's time spent caring for
children will not, even though they are both carrying out the same economic activity.
Ecosystem Services are not currently
incorporated into accounting.
Ecosystem services (clean water, pollination, etc.) are said to
have “non-market values”, values not usually included in the
price of a good or service.
• One technique of assigning non-market value is using
surveys to determine how much people would be willing
to pay to protect a resource or to restore it.
• An alternative approach is to calculate the overall
economic value of all services that an ecosystem
provides.
“In 1997, an international team of economists and environmental scientists put a dollar
amount on all the ecosystems services provided to humanity free of charge by the living
natural environment. Drawing from multiple databases, they estimated the contribution to
be $33 trillion or more each year. This amount is nearly twice the 1997 combined gross
national product (GNP) of all countries in the world, or gross world product, of $18
trillion.”
E.O. Wilson, 2002
Economists disagree on whether
economic growth is sustainable.
Many observers worry that growth has become an end in itself.
Resources are ultimately limited, they argue, so nonstop growth
is not sustainable.
versus
Some proponents of unrestrained growth believe that technology can
solve everything.
•
Ecological economists argue that civilizations do not overcome
environmental limitations in the long run. They advocate economies that are
stable, neither growing nor shrinking; these steady-state economies are
intended to mirror natural ecological systems.
•
Environmental economists maintain that we can attain sustainability
within our current economic systems by modifying the principles of
neoclassical economics to address environmental challenges.
The Real Cost of Gasoline
Market Price for a
Gallon of Gas (1994)
$1.60
Real Cost of a
Gallon of Gas (1994)
$12/gallon
How
and spent to
How much
much for
costcancer,
to addasthma,
for the billions
emphysema
fromtoairPersian
pollution?
preserve access
Gulf Oil?
How
dependence
onfreeways?
unfriendly
How much
much for
for supply
lives lost
on suburban
states and tax subsidies for oil companies?
How much for oil
water warming
pollution?and
thespills
costsand
of global
resulting fires, floods, droughts, and blizzards?
U.S. Environmental Policy
First wave of U.S. environmental policy
addressed land management.
• The early environmental laws were
intended to promote settlement, and the
extraction and use of the West’s abundant
natural resources.
• The Western lands were considered
practically infinite, and inexhaustible in
natural resources.
– General Land Ordinances of 1785 and 1787
(Thomas Jefferson’s Township and Range
System) provides mechanism and structure for
taking of Native American lands.
Second wave of U.S.
environmental policy
addressed impacts of the first.
• During this time the government
created national parks, wildlife
refuges, and the forest system.
Grand Canyon of the Yellowstone, 1872 by Thomas Moran
John Muir & Teddy Roosevelt in Yosemite
Earth Day
April 22, 1970
20 million Americans
participated!
The public demanded that the federal
government do more to protect the
environment. Why?
• The publication of Rachel Carson’s
Silent Spring, 1962
• The burning of the Cuyahoga River on
several occasions in the 1950s and
1960s.
• The Santa Barbara, California oil spill
in 1969.
The third wave responded
largely to pollution.
NEPA (National Environmental Policy Act, 1970)
was signed in 1970 and require EIS
(Environmental Impact Statement) for federal
actions and The Environmental Protection Agency
(EPA) is created.
Other prominent laws followed: Two major laws
were the Federal Water Pollution Control Acts
(1965 and 1972) and Clean Water Act (1977).
Approaches to Environmental Policy
1. Command-and-control approach sets strict legal limits, and
punishments, in what is sometimes called a approach. A
subsidy is a government giveaway of cash or publicly
owned resources used to promote a particular activity.
2. Subsidies can be used to promote environmentally
sustainable activities, but often they have been used to prop
up unsustainable ones. Market incentives are being tried
widely on the local level.
3. Green taxes (pollution taxes) discourage undesirable
activities. By taxing activities and products that cause
undesirable environmental impacts, a green tax becomes a
tool for policy as well as a way to fund government. Green
taxes do not have much support in the United States,
although they have been widely instituted in Europe.
Approaches to Environmental Policy
4. Markets in permits can save money and produce
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. (e.g. “Cap
and Trade” efforts at carbon dioxide reduction).
5. Ecolabeling tells consumers which brands use
environmentally benign processes. (e.g Fair Trade
and USDA Organic products).
The Fourth Wave:
Make the Market Tell the Truth!
Market forces are a powerful tool
for improving efficiency and
changing consumption patterns.
However, this is true only if we
properly account for environmental
damage. Moreover, free markets do
not work in the “commons.”
Genuine Progress Indicator (GPI)
• When calculating whether or not
economic activities have actually
increased well being GPI takes
externalities into account, such as:
•Cost of resource depletion
•Cost of crime
•Cost of ozone depletion
•Cost of family breakdown
•Cost of air, water, and noise
pollution
•Loss of farmland
•Loss of wetlands
• debated by the EU and Canada. It is
being used as a component of legislative
decisions in these countries.
“At least 11 countries (including Austria,
England, Sweden and Germany) have
recalculated their gross domestic
product using the GPI. The data for
European countries and the United
States show a steady decline over the
last 30 years.
Source: REAL WEALTH Linda Baker, Earth Action
Network January 5 1999 cited on Wikipedia.org.
The Fourth Wave:
Break Fossil Fuel Addiction!
One gallon of gas contains the energy equivalent
of about 600 hours of human manual labor.
Source: McKibben, B. 2010. Eaarth: Making Life on a Tough New Planet .
The
The U.S.
average
Department
American uses
of
Energy
almost three
estimates
gallons
that
per day
the world
or roughly
consumes
the equivalent
about
of
3,528,000,000
1,800 hours of
gallons
manualper
labor.
day.
Source: U.S. Energy Information Administration.
Energy Explained. www.eia.doe.gov/energyexplained/
Source: World Resources Institute. 2007. Vital Signs 2007-2008.
The Fourth Wave: A Sense of
Purpose and Urgency
• These challenges present an opportunity: fighting
to save civilization is an inspiring cause.
• A cleaner, greener world will be better, healthier
world. It is not a sacrifice; it’s an improvement!
• We can make products that work with nature, not
against it. Biomimicry will be key.
• Science can and should lead the way.
Stabilize Population Growth
Good news for a
change! By roughly
2050 human
populations will
stabilize and begin to
fall. The sooner this
happens, the better.
Expand Preserves and Regenerate
Damaged Ecosystems
• Create a worldwide network of marine and
terrestrial preserves (aim for 20% of each).
• Plant trees on a war footing in the developing
world.
• These will strengthen the system’s ability to
recover and regenerate, to heal.
Forests will recover when left alone.
2005
Williams,
M. Observatory/Image
1989. Americans and
forests.
Cambridge
University Press.
from Michael
Goudie, Lefsky.
A. 2000
Source: NASA
Earth
bytheir
Jesse
Allen and
Robert Simmon/Based
onTaken
data from
Marine environments recover very
quickly, if left unmolested.
Reviews of global data show that marine reserves
produce major benefits in just the first two
years:
• 91% increase in density of organisms
• 192% increase in biomass of organisms
• 31% increase in average size of organisms
• 23% increase in species diversity
Sources: Halpern, Benjamin S. 2003. The Impact Of Marine Reserves: Do Reserves Work And Does Reserve Size Matter?
Ecological Applications 13; Withgott and Brennan. 2009. The Essential Environment. Pearson.
Government Interventions
• Apollo Mission for clean energy now.
• Eliminate all subsidies and tax breaks
for dirty energy production.
• Require green accounting practices.
• Ban or limit the most destructive
practices, especially in the oceans,
rivers, and atmosphere (e.g. trawling,
tuna fishing, CFCs, toxic pollution).
• Most radically: shift gradually from
income taxes to pollution taxes.
Real Progress
• In 1850 New Hampshire was 35% woods;
today it is 80% woods. Much of
Massachusetts, New Hampshire, and New
York exhibit similar patterns.
• Costa Rica now protects 25% of its entire
country in national parks.
• The European Union (EU) and Britain
increasingly incorporate sustainability into
policy decisions and are rapidly reducing
their dependence on fossil fuels.
Real Progress
Clean Air Act, 1970
• EPA successfully
improved ozone (smog),
carbon monoxide, sulfur
dioxide, nitrogen
dioxide, lead, and
particulate soot in U.S.
• EPA announced in April
of 2009 that CO2 is a
pollutant and will be
regulated.
Source: AQMD.gov, 2009
Real Progress
Denmark no longer imports oil for electricity
because of widespread adoption of wind power.
Iceland no longer imports oil for electricity
because of widespread construction of
geothermal power plants.
Brazil no longer imports oil for electricity now
that it uses sugar cane to make bio-fuels.
Nic Marks on the
Happy Planet Index (HPI)
http://www.ted.com/talks/nic_marks_the_happy_planet_index.html
Less Stuff, More Happiness: Graham Hill
William McDonough on
Sustainable Economies
The Next Industrial Revolution on YouTube.com
The revolution has begun.
Global Cumulative Installed World Wind Capacity 1996-2010
Source: Global Wind Energy Council. 2010. Global Wind Report 2010. http://www.gwec.net/index.php?id=8.
Join the revolution today!
Buy only things you need. Buy fewer of
them. Buy higher quality.
Organize,
Demand clean energy.
Support policies, groups, and politicians
that move us toward a reduce, reuse,
and recycle economy.
Spread the word.
Advocate for the
environment.
Protect it
Because a
good planet
is hard to
find.
Source: NASA, MODIS
Get involved
• 350.ORG www.350.org
• Natural Resources Defense Council www.nrdc.org
• World Wildlife Fund http://www.worldwildlife.org/
• The Sierra Club www.sierraclub.org
• Friends of the Earth http://www.foei.org/
• Treehugger.com http://www.treehugger.com/
Resources
• Lester Brown. 2010. Plan B 4.0 Mobilizing to Save Civilization.
http://www.earth-policy.org/index.php?/books/pb4/pb4_table_of_contents
• The U.N. Millennium Ecosystem Assessment, 2005.
http://www.maweb.org/en/index.aspx
• International Panel on Climate Change, 4th Assessment Summary for Policy
Makers, 2007. http://www.ipcc.ch/publications_and_data/ar4/syr/en/spm.html
• United States Federal Global Change Research Program.
http://www.globalchange.gov/publications/reports/scientific-assessments/usimpacts
• The World Wildlife Fund. Living Planet Report, 2010.
http://wwf.panda.org/about_our_earth/all_publications/living_planet_report/
• Beyond GDP Initiative. European Commission. http://www.beyondgdp.eu/news.html