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MILLER/SPOOLMAN
LIVING IN THE ENVIRONMENT
17TH
Chapter 23
Economics, Environment,
and Sustainability
Case Study: Making Microloans
to the Poor (1)
• Micro-lending or microfinance
• 1983: Muhammad Yunus
•
•
•
•
Grameen (Village) Bank in Bangladesh
Provides microloans; mostly to women
“Solidarity” groups
How does it work?
• Half of borrowers eventually live above the poverty line
Case Study: Making Microloans
to the Poor (2)
• 2006: Muhammad Yunus
• Nobel Peace Prize
• 2006: Citibank and TIAA-Cref
• Microloans
Muhammed Yunus with Nobel Prize
Fig. 23-1, p. 613
23-1 How Are Economic Systems Related to
the Biosphere?
• Concept 23-1 Ecological economists and most
sustainability experts regard human economic
systems as subsystems of the biosphere
Economic Systems Are Supported by Three
Types of Resources
• Economic systems are supported by
• Natural capital
• Human capital, human resources
• Manufactured capital, manufactured resources
Three Types of Resources Are Used to
Produce Goods and Services
Fig. 23-2, p. 615
+
Natural Capital
+
Manufactured
Capital
=
Human Capital
Goods and Services
Fig. 23-2, p. 615
Market Economic Systems Depend on
Interactions between Buyers and Sellers (1)
• Supply, demand, market price equilibrium point
• True free market system
• No company or group controls prices of a good or
service
• Market prices include all direct and indirect costs (fullcost pricing)
• Consumers have full information about beneficial and
harmful environmental effects of goods and services
Market Economic Systems Depend on
Interactions between Buyers and Sellers (2)
• Real world
•
•
•
•
Tax breaks
Subsidies
Trade barriers
Withholding of negative information
Supply, Demand, and Market Equilibrium for a
Good in a Market Economic System
Fig. 23-3, p. 615
High
Supply
Price
Demand
Market equilibrium
Low
Low
Quantity
High
Fig. 23-3, p. 615
Economic Growth and Economic
Development
• Economic growth
• Increased capacity to supply goods and services
• Requires increased production and consumption
• Requires more consumers
• Economic development
• Improvement of living standards
• Environmentally sustainable economic
development
Gross World Product, 1970-2008
Figure 1, Supplement 9
Gross World Product per Person, 19702008
Figure 2, Supplement 9
Governments Intervene to Help Correct
Market Failures
• Private goods
• Public services
•
•
•
•
•
Environmental protection
National security
Police and fire protection
Safe food and water
Provided by government because private companies
can’t or won’t
Economists Disagree over Natural Capital,
Sustainable Economic Growth (1)
• High-throughput economies
• Resources flow through and end up in planetary sinks
where pollutant can be at harmful levels
• Models of ecological economists
• Economic systems as subsystems of biosphere
• Conventional economic growth unsustainable
• Wealth from depletion of natural capital
Economists Disagree over Natural Capital,
Sustainable Economic Growth (2)
• Ecological models’ three assumptions
1. Resources are limited and shouldn’t be wasted
2. Encourage environmentally beneficial and
sustainable forms of economic development
3. Full-cost pricing needed to take into account
harmful environmental and health effects of some
goods and services
• Environmental economists take middle ground
between classical and ecological economists
High-Throughput Economies Rely on EverIncreasing Energy, Matter Flow
Fig. 23-4, p. 617
Inputs
(from environment)
System throughputs
Outputs
(into environment)
Low-quality
energy (heat)
High-quality
energy
High-waste
economy
High-quality
matter
Waste and
pollution
Fig. 23-4, p. 617
Ecological Economists: Economies Are
Human Subsystems of the Biosphere
Fig. 23-5, p. 617
Solar
Capital
Goods and services
Economic Systems
Heat
Natural Capital
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
Production
Depletion of nonrenewable
resources
Consumption
Degradation of renewable
resources (used faster than
replenished)
Pollution and waste
(overloading nature’s waste disposal
and recycling systems)
Fig. 23-5, p. 617
What Is the Purpose of a Business?
• Make a profit for its owners and investors
• Sustainability is about staying in business
• Another definition – “Making a quality product and
earn a profit without harming the environment.”
23-2 How Can We Put Values on Natural Capital
and Control Pollution and Resource Use?
• Concept 23-2A Economists have developed several
ways to estimate the present and future values of a
resource or ecological service, and optimum levels of
pollution control and resource use.
• Concept 23-2B Comparing the likely costs and
benefits of an environmental action is useful, but it
involves many uncertainties.
Protecting Natural Capital
• Estimating the values of the earth’s natural capital
• Estimate nonuse values
• Existence value
• Aesthetic value
• Bequest value, option value
Estimating the Future Value of a Resource
Is Controversial
• Discount rates
• Estimate of a resource’s future economic value
compared to its present value
• Proponents of a high discount rate
• Critics of a high discount
We Can Estimate Optimum Levels of
Pollution Control and Resource Use
• Marginal cost of resource production
• Optimum level of resource use
• Optimum level for pollution cleanup
Optimum Resource Use
Fig. 23-6, p. 620
High
Marginal cost
of resource
production
Cost
Marginal benefit
of resource use
Optimum level of
resource use
Low
0
25
50
Coal removed (%)
75
100
Fig. 23-6, p. 620
Cost-Benefit Analysis Is a Useful
but Crude Tool
• Cost-benefit analysis follows guidelines
•
•
•
•
State all assumptions used
Include estimates of the ecological services
Estimate short-and long-term benefits and costs
Compare the costs and benefits of alternative courses
of action
• Always uncertainties
23-3 How Can We Use Economic Tools to
Deal with Environmental Problems?
• Concept 23-3 We can use resources more
sustainably by including their harmful environmental
and health costs in the market prices of goods and
services (full-cost pricing); by subsidizing
environmentally beneficial goods and services; and
by taxing pollution and waste instead of wages and
profits.
Most Things Cost a Lot More
Than We Might Think
• Market price, direct price
• Indirect, external, or hidden costs
• Direct and indirect costs of a car
• Should indirect costs be part of the price of goods?
• Economists differ in their opinions
Environmental Economic Indicators Could Help
Us Reduce Our Environmental Impact
• Measurement and comparison of the economic
output of nations
• Gross domestic product (GDP)
• Per capita GDP
• Newer methods of comparison
• Genuine progress indicator (GPI)
• Gross National Happiness (GNH)
Monitoring Environmental Progress: Comparing
U.S. Per Capita GDP and GPI
Fig. 23-7, p. 622
35,000
30,000
1996 Dollars per person
25,000
20,000
Per capita gross domestic
product (GDP)
15,000
10,000
5,000
Per capita genuine progress indicator (GPI)
0
1950
1960
1970
1980
Year
1990
2000
Fig. 23-7, p. 622
We Can Include Harmful Environmental Costs in
the Prices of Goods, Services
• Environmentally honest market system
• Why isn’t full-cost pricing more widely used?
1. Many businesses would have to raise prices and
would go out of business
2. Difficult to estimate environmental and health costs
3. Businesses have strong influence on government –
preferential regulations, tax breaks, subsidies
Label Environmentally Beneficial Goods
and Services
• Product eco-labeling
• Certification programs
• Greenwashing
Reward Environmentally Sustainable
Businesses
• Phase out environmentally harmful subsidies and tax
breaks
• Phase in environmentally beneficial subsidies and tax
breaks for pollution prevention
• Political difficulties
Tax Pollution and Wastes Instead of Wages
and Profits
• Green taxes, ecotaxes
• So that harmful products and services are at true cost
• Steps for successful implementation of green taxes
• Success stories in Europe
Trade-Offs: Environmental Taxes and Fees
Fig. 23-8, p. 624
Trade-Offs
Environmental Taxes and Fees
Advantages
Disadvantages
Help bring about fullcost pricing
Low-income groups are
penalized unless safety
nets are provided
Encourage businesses
to develop
environmentally
beneficial
technologies and
goods to save money
Easily administered by
existing tax agencies
Hard to determine
optimal level for
taxes and fees
Governments may use money
as general revenue instead of
improving environmental
quality and reducing taxes on
income, payroll, and profits
Fig. 23-8, p. 624
Environmental Laws and Regulations Can
Discourage or Encourage Innovation
• Environmental regulation
• Command and control approach
• Incentive-based environmental regulations
• Innovation-friendly regulations
We Can Use the Marketplace to Reduce
Pollution and Resource Waste
• Incentive-based regulation example
• Tradable pollution or resource-use permits
• Cap-and-trade approach used to reduce SO2
• Advantages
• Disadvantages
Trade-Offs: Tradable Environmental
Permits
Fig. 23-9, p. 625
Trade-Offs
Tradable Environmental Permits
Advantages
Disadvantages
Flexible
Big polluters and
resource wasters can
buy their way out
Easy to administer
Encourage pollution
prevention and
waste reduction
Permit prices
determined by market
transactions
May not reduce
pollution at dirtiest
plants
Caps can be too high
and not regularly
reduced to promote
progress
Self-monitoring of
emissions can allow
cheating
Fig. 23-9, p. 625
Reduce Pollution and Resource Waste by
Selling Services Instead of Things
• 1980s: Braungart and Stahl
• New economic model
• Service-flow economy, eco-lease (rent) services
• Xerox
• Carrier
• Ray Anderson: lease carpets in the future
Individuals Matter: Ray Anderson
• CEO of Interface, largest commercial manufacturer
of carpet tiles
• Goals
•
•
•
•
•
Zero waste
Greatly reduce energy use
Reduce fossil fuel use
Rely on solar energy
Copying nature
• How’s it working?
Ray Anderson
Fig. 23-A, p. 626
23-4 How Can Reducing Poverty Help Us to Deal
with Environmental Problems?
• Concept 23-4 Reducing poverty can help us to
reduce population growth, resource use, and
environmental degradation.
The Gap between the Rich and the
Poor Is Getting Wider
• Poverty
• 1.4 billion people live on less than $1.25 per day
• Trickle-down effect
• Flooding up
• Wealth gap
Poor Family Members Struggling
to Live in Mumbai, India
Fig. 23-10, p. 627
We Can Reduce Poverty (1)
• South Korea and Singapore reduced poverty by
•
•
•
•
Education
Hard work
Discipline
Attracted investment capital
We Can Reduce Poverty (2)
• Important measures
•
•
•
•
•
Combat malnutrition and infectious diseases
Universal primary school education
Stabilize population growth
Reduce total and per-capita ecological footprints
Large investments in small-scale infrastructure
Revisiting Microlending
• Microloans give hope to the poor
• Microloans help more than direct aid
• Spreading around the world
• Kiva.org
Solar Panel Purchased with Microloan in India
Fig. 23-11, p. 629
Achieve the World’s Millennium
Development Goals
• 2000: Millennium Development Goals
•
•
•
•
•
Sharply reduce hunger and poverty
Improve health care
Empower women
Environmental sustainability by 2015
Developed countries: spend 0.7% of national budget
toward these goals
• How is it working?
What Should Our Priorities Be?
Fig. 23-12, p. 629
Expenditures
per year needed to
Reforest the earth
Expenditures
per year (2008)
$6 billion
Protect tropical forests
$8 billion
Restore rangelands
$9 billion
World military
$1.4 trillion
U. S. military
$734 billion
$39 billion
U. S. dog food
U. S. highways
Stabilize water tables
Deal with global
HIV/AIDS
Restore fisheries
Provide universal primary
education and eliminate
illiteracy
Protect topsoil on
cropland
Protect biodiversity
Provide basic health
care for all
Provide clean drinking
water and sewage
treatment for all
Eliminate hunger and
malnutrition
$29 billion
$10 billion
U. S. foreign aid
$10 billion U. S. potato chips and similar
snacks
$13 billion
U. S. cosmetics
U. S. EPA
$14 billion
$27 billion
$22 billion
$8 billion
$7.2 billion
$24 billion
$31 billion
$33 billion
$37 billion
$48 billion
Total Earth Restoration and Social Budget
$245 billion
Fig. 23-12, p. 629
23-5 Making the Transition to More
Environmentally Sustainable Economics
• Concept 23-5 We can use the three principles of
sustainability as well as various economic and
environmental strategies to develop more
environmentally sustainable economies.
We Are Living Unsustainably
• Depleting natural capital
• Environmental alarm bells going off
• Matter recycling and reuse economies
• Mimic nature
Use Lessons from Nature to Shift to More
Sustainable Economies
• Donella Meadows: contrasts the views of
neoclassical economists and ecological economists
• Best long-term solution is a shift to
• Low-throughput low-waste, economy
Solutions: Lessons from Nature: A Low
Throughput Economy
Fig. 23-13, p. 631
Inputs
(from environment)
High-quality
energy
High-quality
matter
System throughputs
Outputs
(into environment)
Low-quality
energy
(heat)
Energy
conservation
Waste and
pollution
prevention
Low-waste
economy
Pollution control
Waste and
pollution
Recycle and
reuse
Fig. 23-13, p. 631
Make Money and Create Jobs by Shifting to
an Eco-Economy
• Hawken, Brown, and other environmental business
leaders
•
•
•
•
•
Transition to environmentally sustainable economies
Some companies will disappear
New jobs will be created
Economic succession
Green jobs
Solutions: Principles for Shifting to a More
Environmentally Sustainable Economy
Fig. 23-14, p. 631
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
Reduce poverty
Use environmental indicators to measure progress
Environmentally
Sustainable Economy
(Eco-Economy)
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
Stabilize human population
Fig. 23-14, p. 631
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
Reduce poverty
Environmentally
Sustainable
Economy
(Eco-Economy)
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 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
Stabilize human population
Stepped Art
Fig. 23-14, p. 630
Solutions: Environmentally Sustainable
Development
Fig. 23-15, p. 632
No-till cultivation
Forest conservation
Production of energy-efficient electric
cars recharged by wind and solar
energy
Sustainable
fishing and
aquaculture
Sustainable
organic
agriculture
and dripirrigation
High-speed trains
Solar-cell fields
Ecovillage
Wind farms
Bicycling
Water
conservation
Communities of
passive solar
homes
(ecovillage)
Recycling, reuse,
and composting
Recycling facility
Fig. 23-15, p. 632
Green Careers
Fig. 23-16, p. 633
Aquaculture
Environmental law
Biodiversity
protection
Environmental
nanotechnology
Biofuels
Fuel cell technology
Climate change
research
Geographic
information systems
(GIS)
Hydrogen energy
Conservation biology
Ecotourism
management
Energy-efficient product
design
Environmentally
Sustainable Environmental
Businesses chemistry
and Careers
Environmental design
and architecture
Environmental
economics
Environmental
education
Environmental
engineering
Environmental
entrepreneur
Environmental health
Geothermal geologist
Hydrologist
Marine science
Pollution prevention
Recycling and reuse
Selling services in place
of products
Solar cell technology
Sustainable
agriculture
Sustainable forestry
Urban gardening
Urban planning
Waste reduction
Watershed
hydrologist
Water conservation
Wind energy
Fig. 23-16, p. 633
Green Career: Installing Solar Cells
Fig. 23-17, p. 633
Three Big Ideas
1. Making a transition to more sustainable economies
will require finding ways to estimate and include
the harmful environmental and health costs of
producing goods and services in their market prices.
2. Making this economic transition will also mean
phasing out environmentally harmful subsidies and
tax breaks, and replacing them with
environmentally beneficial subsidies and tax breaks.
Three Big Ideas
3. Other tools to use in this transition are to tax
pollution and wastes instead of wages and profits,
and to use most of the revenues from these taxes
to promote environmental sustainability and to
reduce poverty.