Environmental Economics, Politics, and Worldviews

1. Environmental Economics, Politics, and Worldviews Chapter 17

2. Section 17-1 How are economic systems related to the biosphere?

3. Not all market systems are free-market systems • Economics is a social science that deals with the production, distribution, and consumption of goods and services to satisfy people’s needs and wants. • Market-based economic system—buyers and sellers interact in markets to make economic decisions about how goods and services are produced, distributed, and consumed. • In a free-market economic system, all economic decisions are governed solely by the competitive interactions of supply, demand, and price.

4. Not all market systems are free-market systems • If the demand for goods or services is greater than the supply, the price rises, and when supply exceeds demand, the price falls. • Ideally, (1) no company would control the prices of any goods or services; (2) the market prices would include direct and indirect costs; and (3) consumers would have full information about the beneficial and harmful environmental and health effects of goods and services. • Many companies push for government support such as subsidies, tax breaks, trade barriers, or regulations that will give their products a market advantage over their competitors’ products.

5. Not all market systems are free-market systems • Three types of capital, or resources, are used to produce goods and services. • Natural capital includes resources and services produced by the earth’s natural processes, which support all economies and all life. • Human capital, or human resources, includes people’s physical and mental talents that provide labor, innovation, culture, and organization. • Manufactured capital, or manufactured resources, are items such as machinery, equipment, and factories made from natural resources with the help of human resources.

6. Most economic systems use three types of resources to produce goods and services

7. + + = Natural Capital Manufactured Capital Human Capital Goods and Services Fig. 17-2, p. 436

8. Economists disagree over the importance of natural capital and the sustainability of economic growth • Economic growth for a city, state, country, or company is an increase in its capacity to provide goods and services to people. • Economic development is the improvement of human living standards made possible by economic growth. • High-throughput economies attempt to boost economic growth by increasing the flow of natural matter and energy resources through their economic systems to produce more goods and services.

9. The high-throughput economies of most of theworld’s more-developed countries rely on continually increasing the flow of energy and matter resources to increase economic growth

10. Inputs (from environment) System throughputs Outputs (into environment) Low-quality energy (heat) High-quality energy High-waste economy Waste and pollution High-quality matter Fig. 17-3, p. 436

11. Economists disagree over the importance of natural capital and the sustainability of economic growth • Neoclassical economists, following the ideas of Alfred Marshall (1842–1924) and Milton Friedman (1912–2006) view the earth’s natural capital as a subset, or part, of a human economic system and assume that the potential for economic growth is essentially unlimited and is necessary for providing businesses with profits and workers with jobs.

12. Economists disagree over the importance of natural capital and the sustainability of economic growth • Ecological economists believe that: • There are no substitutes for many vital natural resources such as air, water, and biodiversity, or for nature’s free ecological services such as climate control, pest control, and nutrient recycling. • Economic systems are subsystems of the biosphere that depend heavily on the earth’s irreplaceable natural resources and services. • Conventional economic growth eventually will become unsustainable because it can deplete or degrade various irreplaceable forms of natural capital, and because it will exceed the capacity of the environment to handle the pollutants and wastes we produce.

13. Economists disagree over the importance of natural capital and the sustainability of economic growth • The models of ecological economists are built on three major assumptions. • Resources are limited and should not be wasted; there are no substitutes for most types of natural capital. • We should encourage environmentally beneficial and sustainable forms of economic development, and discourage environmentally harmful and unsustainable forms of economic growth. • The harmful environmental and health effects of producing and using economic goods and services should be included in their market prices (full-cost pricing), so that consumers will have more accurate information about these effects.

14. Economists disagree over the importance of natural capital and the sustainability of economic growth • Many environmental economists argue that some forms of economic growth are not sustainable and should be discouraged through fine-tuning existing economic systems and tools.

15. Ecological economists see all human economies as subsystems of the biosphere that depend on natural resources and services provided by the sun and earth

16. Solar Capital Goods and services Economic Systems Heat Production Natural Capital Depletion of nonrenewable resources Natural resources such as air, land, soil, biodiversity, minerals, and energy, and natural services such as air and water purification, nutrient cycling, and climate control Degradation of renewable resources (used faster than replenished) Consumption Pollution and waste (overloading nature’s waste disposal and recycling systems) Recycling and reuse Fig. 17-4, p. 437

17. Section 17-2 How can we use economic tools to deal with environmental problems?

18. Most things cost more than we might think • The market price, or direct price, that we pay for something does not include most of the indirect, or external, costs of harm to the environment and human health associated with its production and use. • Hidden costs are the indirect or external costs that can have short- and long-term harmful effects on other people, on future generations, and on the earth’s life-support systems.

19. Most things cost more than we might think • Analysts say that full-cost pricing would: • Reduce resource waste, pollution, and environmental degradation. • Improve human health by encouraging producers to invent more resource-efficient and less-polluting methods of production. • Enable consumers to make more informed decisions about the goods and services they buy.

20. Most things cost more than we might think • Phase in shift to full-cost pricing so that environmentally harmful businesses would have time to transform themselves and consumers have time to adjust their buying habits. • Resistance to full-cost pricing. • Opposition from producers of harmful and wasteful products and services who would have to charge more for them and might go out of business. • Difficulty estimating environmental and health costs and how they might change in the future.

21. Environmental economic indicators could help us reduce our environmental impact • Gross domestic product (GDP) is the annual market value of all goods and services produced by all firms and organizations, foreign and domestic, operating within a country. • The per capita GDP is the GDP divided by the country’s total population at midyear. • GDP provides a standardized, useful method for measuring and comparing the economic outputs of nations, and does not distinguish between goods and services that are environmentally or socially beneficial and those that are harmful.

22. Environmental economic indicators could help us reduce our environmental impact • Environmental and ecological economists and environmental scientists call for new indicators help monitor environmental quality and human well-being. • Genuine progress indicator (GPI) is the GDP plus the estimated value of beneficial transactions that meet basic needs, but in which no money changes hands, minus the estimated harmful environmental, health, and social costs of all transactions. • In the U.S., between 1950 and 2004 the per capita GDP rose sharply and the per capita GPI stayed nearly flat and even declined slightly, which shows that even if a nation’s economy is growing, its people are not necessarily better off.

23. Comparison of the per capita GDP and GPI in the US between 1950 and 2004

24. 35,000 30,000 25,000 20,000 Per capita gross domestic product (GDP) 1996 Dollars per person 15,000 10,000 5,000 Per capita genuine progress indicator (GPI) 0 1950 1960 1970 1980 1990 2000 Year Fig. 17-5, p. 439

25. We can reward environmentally sustainable businesses • Governments can use several strategies, including subsidies, to encourage or force producers to work toward full-cost pricing. • Perverse subsidies and tax breaks enable businesses to operate in such a way that they do damage to the environment or to human health, such as: • Extracting minerals and oil. • Cutting timber on public lands. • Irrigating with low-cost water. • Overfishing commercially valuable aquatic species.

26. We can reward environmentally sustainable businesses • Companies spend considerable money lobbying, or trying to influence governments to continue and even increase their subsidies. • Some countries have begun reducing these subsidies. • Governments could phase in environmentally beneficial subsidies and tax breaks for: • Pollution prevention. • Ecocity development. • Sustainable forestry, agriculture. • Sustainable water use. • Energy efficiency and renewable energy use. • Actions to slow projected climate change.

27. Tax pollution and wastes instead of wages and profits • Use green taxes, or ecotaxes, to help include many of the harmful environmental and health costs of production and consumption in market prices. • To many analysts, the tax system in most countries is backward because it discourages what we want more of—jobs, income, and profit-driven innovation—and encourages what we want less of—pollution, resource waste, and environmental degradation.

28. Tax pollution and wastes instead of wages and profits • Three requirements for successful implementation of green taxes. • Phased in over 10–20 years to allow businesses to plan for the future. • Income, payroll, or other taxes would have to be reduced or replaced so that there is no net increase in taxes. • The poor and middle class would need a safety net to help provide them with essentials such as fuel and food.

29. Tax pollution and wastes instead of wages and profits • Polls indicate that once such tax shifting is explained to voters, 70% of European and U.S. voters support shifting toward a green tax. • In some countries in Europe, green taxes have helped to create jobs, lower taxes on wages, and increased use of renewable energy resources.

30. Using green taxes to help reduce pollution and resource waste has advantages and disadvantages

31. Environmental laws and regulations can discourage or encourage innovation • Environmental regulation is a form of government intervention in the marketplace that is widely used to help control or prevent pollution and to reduce resource waste and environmental degradation. • Laws that: • Set pollution standards. • Regulate harmful activities such as the release of toxic chemicals into the environment. • Protect certain irreplaceable or slowly replenished resources such as public forests.

32. Environmental laws and regulations can discourage or encourage innovation • Currently most environmental laws enforced through a command-and-control approach; often concentrating on cleanup instead of prevention. • Incentive-based environmental regulations use the economic forces of the marketplace to encourage businesses to be innovative in reducing pollution and resource waste. • Innovation-friendly environmental regulation sets goals and frees industries to meet them in any way that works, and allows enough time for innovation.

33. Using the marketplace to reduce pollution and resource waste • One incentive-based regulation system allows the government to set acceptable pollution/use limits or caps and gives or sells companies a certain number of tradable pollution or resource-use permits. • The U.S. has used this cap-and-trade approach to reduce the emissions of sulfur dioxide and several other air pollutants. • Effectiveness depends on how high or low the initial cap is set and on the rate at which the cap is reduced to encourage further innovation.

34. Using tradable permits to reduce pollution and resource waste has advantages and disadvantages

35. Reducing pollution and resource waste by selling services instead of things • A proposed new economic model would provide profits while greatly reducing resource use, pollution, and waste for a number of goods by shifting from the current material-flow economy to a service-flow one. • Customers rent/lease services that goods provide. • A manufacturer or service provider makes more money if its product uses the minimum amount of materials, lasts as long as possible, is energy efficient, produces as little pollution as possible in its production and use, and is easy to maintain, repair, reuse, or recycle • Since 1992, Xerox has been leasing most of its copy machines as part of its mission to provide document services instead of selling photocopiers.

36. Reducing poverty can help us deal with environmental problems • Poverty is defined as the inability to meet one’s basic economic needs. • 1.4 billion people struggle to survive on an income equivalent to less than $1.25 a day. • Poverty has numerous harmful health and environmental effects. • Reducing poverty benefits individuals, economies, and the environment and helps to slow population growth.

37. Reducing poverty can help us deal with environmental problems • Ways to reduce poverty and its harmful effects: • Mount a massive global effort to combat malnutrition and the infectious diseases that kill millions of people prematurely. • Provide primary school education for all children and for the world’s nearly 800 million illiterate adults. • Stabilize population growth. • Sharply reduce the total and per capita ecological footprints. • Large investments in small-scale infrastructure and sustainable agriculture projects. • Encourage lending agencies to make small loans to poor people who want to increase their income.

38. The Millennium Development Goals present challenges • Millennium Development Goals included sharply reducing hunger and poverty, improving health care, achieving universal primary education, empowering women, and moving toward environmental sustainability by 2015. • More-developed countries agreed to devote 0.7% of their annual national income toward achieving the goals. • By 2009, only five countries—Denmark, Luxembourg, Sweden, Norway, and the Netherlands—had donated what they had promised; the U.S.—the world’s richest country—gives only 0.16% of its national income to help poor countries.

39. What should our prioritiesbe?

40. Expenditures per year needed to Expenditures per year (2008) Reforest the earth $6 billion World military $1.4 trillion U. S. military $734 billion Protect tropical forests $8 billion $39 billion U. S. dog food Restore rangelands $9 billion U. S. highways $29 billion Stabilize water tables $10 billion $27 billion U. S. foreign aid Deal with global HIV/AIDS $10 billion U. S. potato chips and similar snacks $22 billion Restore fisheries $13 billion U. S. cosmetics $8 billion Provide universal primary education and eliminate illiteracy $7.2 billion U. S. EPA $14 billion Protect topsoil on cropland $24 billion Protect biodiversity $31 billion Provide basic health care for all $33 billion Provide clean drinking water and sewage treatment for all $37 billion $48 billion Eliminate hunger and malnutrition Total Earth Restoration and Social Budget $245 billion Fig. 17-9, p. 444

41. We can use lessons from nature to shift to more environmentally sustainable economies • There is a sharp contrast between the beliefs of neoclassical economists and ecological economists. • The best long-term solution to our environmental and resource problems is to shift from a high-throughput (high-waste) to a more sustainable low-throughput (low-waste) economy.

42. Learning and applying lessons from nature can help us to design and manage more sustainable low-throughput economies

43. Inputs (from environment) System throughputs Outputs (into environment) Low-quality energy (heat) Energy conservation High-quality energy Low-waste economy Waste and pollution prevention Pollution control Waste and pollution High-quality matter Recycle and reuse Fig. 17-10, p. 445

44. We can use lessons from nature to shift to more environmentally sustainable economies • Make this transition by: • reusing and recycling most nonrenewable matter resources • using renewable resources no faster than natural processes can replenish them • reducing resource waste by using matter and energy resources more efficiently • reducing environmentally harmful forms of consumption • emphasizing pollution prevention and waste reduction • slowing population growth to keep the number of matter and energy consumers growing slowly.

45. We can use lessons from nature to shift to more environmentally sustainable economies • Simple golden rule: “Leave the world better than you found it, take no more than you need, try not to harm life or the environment, and make amends if you do.” • Large numbers of new green jobs, which are devoted to improving environmental quality, developing cleaner and low-carbon energy resources, and promoting environmental sustainability.

46. We can use these strategies for shifting to eco-economies during this century

47. Economics Reward (subsidize) environmentally sustainable economic development Penalize (tax and do not subsidize) environmentally harmful economic growth Shift taxes from wages and profits to pollution and waste Use full-cost pricing Sell more services instead of more things Do not deplete or degrade natural capital Live off income from natural capital Environmentally Sustainable Economy (Eco-Economy) Reduce poverty Use environmental indicators to measure progress Certify sustainable practices and products Use eco-labels on products Resource Use and Pollution Cut resource use and waste by reducing, reusing, and recycling Improve energy efficiency Rely more on renewable solar, wind and geothermal energy Shift from a nonrenewable carbon-based (fossil fuel) economy to a non-carbon renewable energy economy Ecology and Population Mimic nature Preserve biodiversity Repair ecological damage Fig. 17-11, p. 446 Stabilize human population

48. Environmentally Sustainable Businesses and Careers

49. Aquaculture Environmental law Environmental nanotechnology Biodiversity protection Fuel cell technology Biofuels Geographic information systems (GIS) Climate change research Conservation biology Geothermal geologist Ecotourism management Hydrogen energy Hydrologist Energy-efficient product design Environmentally Sustainable Businesses and Careers Marine science Environmental chemistry Pollution prevention Recycling and reuse Environmental design and architecture Selling services in place of products Solar cell technology Sustainable agriculture Environmental economics Sustainable forestry Environmental education Urban gardening Urban planning Environmental engineering Waste reduction Water conservation Environmental entrepreneur Watershed hydrologist Environmental health Fig. 17-12, p. 446 Wind energy

50. Section 17-3 How can we implement more sustainable and just environmental policies?