If it's Good for the Environment, is it Bad for the Economy?

1. If it's Good for the Environment, is it Bad for the Economy?

2. The Environmental Problem

3. The environmental problem • The environmental problem • Use of the environment as: • an amenity • a source of primary products • a dump for waste

4. The economy and the environment Labour Goods and services Waste Amenity value Resources (Clipart for the environment: e.g. countryside scene)

5. The environmental problem • The environmental problem • Use of the environment as: • an amenity • a source of primary products • a dump for waste

6. The environmental problem • The environmental problem • Use of the environment as: • an amenity • a source of primary products • a dump for waste • Conflicts between these uses

7. The environmental problem • The environmental problem • Use of the environment as: • an amenity • a source of primary products • a dump for waste • Conflicts between these uses • productive resource v. amenity value

8. The environmental problem • The environmental problem • Use of the environment as: • an amenity • a source of primary products • a dump for waste • Conflicts between these uses • productive resource v. amenity value • dump for waste v. amenity value

9. The environmental problem • The environmental problem • Use of the environment as: • an amenity • a source of primary products • a dump for waste • Conflicts between these uses • productive resource v. amenity value • dump for waste v. amenity value • dump for waste v. productive resource

10. The environmental problem • Population pressure / limited resources • Problem of diminishing returns • Absorptive capacity ofenvironment • Accelerated degradation

12. Accelerating environmental damage Environmental damage O W1 Waste

13. Accelerating environmental damage Total damage Environmental damage O W1 Waste

14. The environmental problem • Population pressure / limited resources • Problem of diminishing returns • Absorptive capacity of environment • Accelerated degradation • Cause for optimism?

15. The environmental problem • Population pressure / limited resources • Problem of diminishing returns • Absorptive capacity of environment • Accelerated degradation • Cause for optimism? • Increased price of non-renewables

16. The environmental problem • Population pressure / limited resources • Problem of diminishing returns • Absorptive capacity of environment • Accelerated degradation • Cause for optimism? • Increased price of non-renewables • Technological developments

17. The environmental problem • Population pressure / limited resources • Problem of diminishing returns • Absorptive capacity of environment • Accelerated degradation • Cause for optimism? • Increased price of non-renewables • Technological developments • Public opinion

18. The environmental problem • Population pressure / limited resources • Problem of diminishing returns • Absorptive capacity of environment • Accelerated degradation • Cause for optimism? • Increased price of non-renewables • Technological developments • Public opinion • Green business

19. The environmental problem • Population pressure / limited resources • Problem of diminishing returns • Absorptive capacity of environment • Accelerated degradation • Cause for optimism? • Increased price of non-renewables • Technological developments • Public opinion • Green business • Government action

20. The environmental problem • Population pressure / limited resources • Problem of diminishing returns • Absorptive capacity of environment • Accelerated degradation • Cause for optimism? • Increased price of non-renewables • Technological developments • Public opinion • Green business • Government action • BUT growing damage

21. The OECD environmental 'traffic lights'

22. Increase in car ownership USA Germany W Germany Belgium Sweden Cars per thousand population UK Spain Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

23. An Optimum Use of the Environment

24. An optimum use of the environment • Different approaches to sustainability • The free-market approach • Prices reflect scarcity of resources • The social efficiency approach • Market failures: can be corrected • The conservationist approach • Care for environment for its own sake: importance of sustainable development • The Gaia approach • Deep green approach: environment has rights

25. Optimum level of an activity that involves pollution MSC MSC1 MPC1 Q3 Q1 Marginal pollution externality S = MPC Costs and benefits (£) Gaia maximum output D = MSB Socially efficient output Conservationist approach Q2 Q4 O Free-market outcome Output of good

26. Market Failures

27. Market failures • Environment as a public good • The global ‘commons’ • Features of a public good • Non-excludability • BUT rivalry • Over use at a zero price • Externalities • External costs from pollution • External benefits from ‘green’ activities • Problems of identifying and measuring • Ignorance • Inter-generational problems

28. Government Policy towards the Environment

29. Government Environment Policy • Environmental (‘green’) taxes, chargesand subsidies • Taxes on goods and services • The optimum tax rate

30. An socially efficient green tax MSC P P – t Optimum green tax S = MPC Costs and benefits (£) D = MSB Q2 Q1 O Output of good

31. Government Environment Policy • Environmental (‘green’) taxes, chargesand subsidies • Taxes on goods and services • The optimum tax rate • Problems with green taxes and subsidies

32. Government Environment Policy • Environmental (‘green’) taxes, chargesand subsidies • Taxes on goods and services • The optimum tax rate • Problems with green taxes and subsidies • Effects on business

33. Green tax revenues as a % of GDP

34. Green tax revenues as a % of GDP

35. Government Environment Policy • Non-market-based policies • Command-and-control systems • Alternative standards • Technology-based standards • Ambient-based standards • Social impact standards • Effects on business • Advantages • Disadvantages • Voluntary agreements • Education

36. Government Environment Policy • Tradable permits • Permit to emit • Credits can be traded • Market price for permits • Efficient solution? • Use in USA • Use in the EU (Kyoto) • Effects on business • Basis for international agreements? • Quotas for emissions or use of resources

37. Government Environment Policy • Can we rely on governments? • Short-termism • The free-rider problem • The weakness of international agreements

38. If it’s good for the environment, is it bad for the economy? • Possibly, but not necessarily. • Environmental challenges offer challenges to business and the government. • Some will gain; some will lose. • Is it another case of survival of the fittest? • Or is it survival of the greenest?

39. To access these slides, go to: www.economicsnetwork.ac.uk/archive/A-level_Dec04.ppt