APES Unit VI Economics.ppt

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Chapter 26

Chapter 26 Economics,

Economics,

Environment, and

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ECONOMIC SYSTEMS AND SUSTAINABILITY

•

An economic system produces and distributes An economic system produces and distributes goods and services by using natural, human,

goods and services by using natural, human,

and manufactured resources.

1.

Pure command system – government makes Pure command system – government makes all decisions.

all decisions.

2.

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.

– Actual capitalist market systems deviate from this Actual capitalist market systems deviate from this model.

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Economic Resources: The Big

Three

• Three types of resources are used to

Three types of resources are used to

produce goods and services.

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Market Economic Systems: Pure Free

Market and Capitalistic Models

• Supply, demand, Supply, demand, and market

and market

equilibrium for a

good or service in

a pure market

system.

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Government Intervention in

Market Economic Systems:

Correcting Market Failures

• Governments intervene in market systems

Governments intervene in market systems

to help provide economic stability, national

security, and public services such as

education, crime protection, and

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Environmentally Sustainable

Economic Development:

Copying Nature

•

Models of ecological economists are built on the Models of ecological economists are built on the following assumptions:

following assumptions:

– Resources are limited.Resources are limited.

– Encourage environmentally beneficial and sustainable Encourage environmentally beneficial and sustainable forms of development.

forms of development.

– The harmful environmental and health effects of The harmful environmental and health effects of producing goods and services should be included in

producing goods and services should be included in

market prices.

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Depletion of nonrenewable resources

Degradation & depletion

of renewable resources used faster than replenished

Pollution, waste from

overloading nature’s waste disposal & recycling systems

Sun EARTHEARTH

Heat Economic

Economic

Systems

Natural Capital Production

Air, water, land, soil, biodiversity,

minerals, raw materials, energy resources; dilution, decomposition, &

recycling services Consumption

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Economic Development

• Comparison of Comparison of unsustainable

unsustainable

economic

development and

environmentally

sustainable

economic

development.

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ESTIMATING THE VALUE OF ECOLOGICAL

SERVICES AND MONITORING

ENVIRONMENTAL PROGRESS

• Economists have developed several ways to

Economists have developed several ways to

estimate nonmarket values of the earth’s

ecological services based using:

– Mitigation cost_{Mitigation cost}: how much it takes to offset any : how much it takes to offset any environmental damage.

environmental damage.

– Willingness to pay_{Willingness to pay}: determine how much : determine how much

people are willing to pay to keep the environment

in tact (e.g. protect an endangered species).

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ESTIMATING THE VALUE OF ECOLOGICAL

SERVICES AND MONITORING

ENVIRONMENTAL PROGRESS

•

Economists use discount rates (estimate Economists use discount rates (estimate

resource’s future value compared to current) 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

production and use.

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Estimating the Optimum Levels of

Pollution Control and Resource

Use

• Environmental

Environmental

economists try to

determine optimum

levels of pollution

control and

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Optimum Pollution Control

•

The marginal cost of cleaning up pollution rises The marginal cost of cleaning up pollution rises with each additional unit removed.

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Cost-Benefit Analysis:

a Useful but Crude Tool

•

Comparing likely costs and benefits of an Comparing likely costs and benefits of an

environmental action is useful but involves many

uncertainties.

– Cost–benefit analyses involves determining:Cost–benefit analyses involves determining:

•

Who or what might be affected by a Who or what might be affected by a particular regulation or project.

particular regulation or project.

•

Projecting potential outcomes. Projecting potential outcomes.

•

Evaluating alternative actions.Evaluating alternative actions.

•

Establishing who benefits and who is Establishing who benefits and who is harmed.

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Environmental and Economic Indicators

•

We need indicators that reflect changing levels We need indicators that reflect changing levels of environmental quality and human health.

of environmental quality and human health.

– Gross domestic product (GDP)Gross domestic product (GDP): measures _{: measures}

the annual economic value of all goods and

services produced in a country without taking

harmful effects into consideration.

– Genuine progress indicator (GPI)Genuine progress indicator (GPI): :

Subtracts from the GDP costs that lead to a

lower quality of life or deplete / degrade

natural resources.

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Environmental and Economic

Indicators: Environmental Radar

• Comparison of

Comparison of

the per capita

GDP and the

GPI in the U.S.

between 1950

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Eco-Labeling: Informing Consumers So

They can Vote with Their Wallets

•

Certifying and labeling environmentally beneficial Certifying and labeling environmentally beneficial goods and resources extracted by more

goods and resources extracted by more

sustainable methods can help consumers decide

what goods and services to buy.

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Subsidy Shifting

•

Taxes on pollution and resource use can move Taxes on pollution and resource use can move us closer to full-costing pricing.

us closer to full-costing pricing.

– Shifting taxes from wages and profits to Shifting taxes from wages and profits to

pollution and waste (green taxes) helps make

this 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

environmentally beneficial ones.

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Green Taxes

•

Advantages of Advantages of taxing wages

taxing wages

and profits less

and pollution

and waste

more.

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ECONOMIC TOOLS FOR IMPROVING

ENVIRONMENTAL QUALITY

•

Environmental laws and regulations work best if Environmental laws and regulations work best if they motivate companies to find innovative ways

they motivate companies to find innovative ways

to control and prevent 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 to

users, and allow them to trade their permits on

the marketplace.

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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 caps Caps must be gradually reduced to _{encourage innovation}

Determining caps is difficult Permit prices determined by market

transactions Must decide who gets permits and why Administrative costs high with many participants

Confronts 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

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REDUCING POVERTY TO IMPROVE

ENVIRONMENTAL QUALITY AND

HUMAN WELL-BEING

• We can sharply cut poverty by forgiving

We can sharply cut poverty by forgiving

the international debts of the poorest

countries, greatly increasing international

aid and small individual loans to help the

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Distribution of the World’s Wealth: a

Widening Gap

•

The global The global

distribution of

income shows that

most of the

world’s income

flows up.

– Each horizontal band is 1/5Each horizontal band is 1/5thth of of

the world’s population

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Solutions: Achieving the Millennium

Development Goals

• In 2000, the world’s nations set goals for sharply In 2000, the world’s nations set goals for sharply

reducing hunger and poverty, improving health care and

moving toward environmental sustainability by 2015.

moving toward 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 towards

achieving such goals.

• The average amount donated was 0.25%.The average amount donated was 0.25%.

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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)

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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

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MAKING THE TRANSITION TO MORE

ENVIRONMENTALLY SUSTAINABLE

ECONOMIES

• Nature's four principles of sustainability

Nature's four principles of sustainability

and a number of environmental and

economic strategies can be used to

develop more environmentally sustainable

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Reliance on Solar Energy

Population Control Nutrient Recycling

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Eco-Economies

•

Principles for Principles for

shifting to more

environmentally

sustainable

economies

during this

century.

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Jobs, Profits, and the

Environment: New

Industries and New

Jobs

• Shifting to more Shifting to more environmentally

environmentally

sustainable

economies will create

immense profits and

huge numbers of

jobs.