Transcript ENV 536: Environmental Economics and Policy

ENV 536: Environmental
Economics and Policy
(Lecture 2)
Assist.Prof. Sasitorn Suwannathep, Ph.d.
School of Liberal Arts
King Mongkut’s University of Technology Thonburi
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Link between economic activity and nature
Natural
Resource
Economics
(a)
Nature
Environmental
Economics
(b)
Economy
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The Economy and the Environment
(a) represents raw materials flowing into
production and consumption
the
nature plays its role as provider
 (b) shows the impact of economic activity
on the quality of the natural environment
the nature acts as a receiver.

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Economics and the Environment
Economic theory explains what we
observe in reality, including environmental
problems
 Recognize the link between economic
activity and the environment using models



Circular Flow Model
Materials Balance Model
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Circular Flow Model

Shows the real and monetary flows of
economic activity through the output and
factor markets


Forms the basis for modeling the relationship
between economic activity and the
environment
But does not explicitly show the linkage
between economic activity and the
environment
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Circular Flow Model of Economic Activity
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Materials Balance Model
 Places
the circular flow within a
larger schematic to show links
between economic activity and the
natural environment via two sets of
flows

Flow of resources from the environment
to the economy
 The

focus of Natural Resource Economics
Flow of residuals from the economy to
the environment
 The
focus of Environmental Economics
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Materials Balance Model (Con’t)
 Residuals
are pollution remaining in
the environment after some process
has occurred

Residuals can be delayed, but not
prevented, through recovery,
recycling, and reuse
 Shown
as inner flows in the model
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Materials Balance Model: The Interdependence of
Economic Activity and Nature
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Science and the Materials Balance Model
The flow of resources and residuals are
balanced according to laws of science
 First Law of Thermodynamics



Matter and energy can neither be created nor
destroyed
Second Law of Thermodynamics

Nature’s capacity to convert matter and energy
is not without bound
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Using Science to understand the Material Balance

First law of thermodynamics: matter and
energy can neither be created or destroy.


This law can apply to the materials balance
model in the long run, the flow of materials
and energy drawn from the nature into
consumption and production must equal the
flow of residuals that run from these activities
back into the environment.
M = Rdp + R dc
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Natural Environment
Recycled (R
Raw materials (M)
r
p)
Residuals (Rp)
Producers
(Rdp)
Goods
(G)
Residuals
Consumers
(Rc)
Recycled (R
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Discharged
r
Discharged
(Rdc)
p)
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Using Science to understand the Material Balance
Because matter and energy cannot be
destroyed, then the materials flow can go
forever. The second law of
thermodynamics states that the nature’s
capacity to convert matter and energy is
not unlimited.
 Even recycling can delay the disposal of
residuals, but it cannot be perfect, each
cycle must lose some proportion of the
recycled material.

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Environment Management
Rdp + Rdc = M = G + Rp – Rrp – Rrc

Three ways to reduce M
￬)
 Reduce Rp (Production Residuals ￬)
 Increase (Rrp + Rrc) (Recycling ￪)

Reduce G (Goods and Services
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Fundamental Concepts in Environmental
Economics

Environmental economics is concerned
with identifying and solving the problem of
environmental damage, or pollution,
associated with the flow of residuals.

Pollution >> The presence of matter or
energy whose nature, location, or quantity
has undesired effects on the environment.
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Fundamental Concepts in Environmental
Economics
 Environmental
damage depends
critically on identifying:



the causes of damage
the sources of damage
the scope of the damage.
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Causes of Environmental Damage
Classifying by their origin
 Natural pollutants

Contaminants that come about through
nonartificial processes in nature.



Volcanic eruptions
Salt spray from oceans etc.
Anthropogenic pollutants

Contaminants associated with human activity.


Gas from combustion
Chemical wastes from production process etc.
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Sources of Environmental Damage

Sources Grouped by Mobility

Stationary Source
A fixed-site producer of pollution (coal-burning power plants etc).

Mobile Source
Any nonstationary polluting source (automobiles etc).

Sources Grouped by Identifiability

Point Source
Any single identifiable source from which pollutants are released.

Nonpoint Source
A source that cannot be identified accurately and degrades the
environment in a diffuse, indirect way over a broad area.
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Scope of Environmental Damage

Environmental pollution is often classified
according to the relative size of its
geographic impact as local, regional, or
global.

Local Pollution


Environmental damage that does not extend
far from the polluting source.
Ex. Urban Smog, Solid Waste Pollution
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Scope of Environmental Damage

Regional Pollution


Degradation that extends well beyond the
polluting source.
Ex. Acidic Deposition
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source: http://science.howstuffworks.com/
acid-rain.htm/printable
http://maps.grida.no/go/graphic/graphicid/
28536B4F-F03D-4D72-AF56-B6EF7211EB72
Acid Rain in Europe
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Scope of Environmental Damage

Global Pollution


Environmental effects that are widespread with
global implications.
Ex. Global Warming, Ozone Depletion
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Scope of Environmental Damage
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Source: www.met.sjsu.edu/~cordero/education/education.htm
Environmental Objectives
 The
agenda setting is a political
process.
 Today, virtually every environmental
decision is guided by what have
become worldwide objectives :



environmental quality,
sustainable development,
and biodiversity.
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Environmental Objectives (Con’t)

Environmental Quality

A reduction in anthropogenic contamination to
a level that is ‘acceptable’ to society.

Some pollution is natural and then not
controllable.
The absence of anthropogenic pollutants could
be achieved only if there were a prohibition on
all goods and services that characterize
modern living.

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Environmental Objectives (Con’t)

Sustainable development

Management of the earth’s resources such that
their long-term quality and abundance is
ensured for future generations.

Achieving an appropriate balance between
economic growth the preservation of natural
resources is the essence of the sustainable
development.
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From Stockholm to Rio


In 1972 Stockholm had drawn attention to the
role of development in protecting the
environment.
By 1992 there was a clear recognition of the
inextricable link between environment and
development but there was also a strident
demand for appropriate ethics and principles of
behavior to be clearly stated. It was rewarding to
see, twenty years later, that the relevance of the
spiritual and moral dimension was at last being
so widely recognized on an international level.
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Environmental Objectives (Con’t)


The Earth Summit
A more comprehensive environmental agenda
was addressed at the United Nations Conference
on Environment and Development (UNCED) held in
Rio de Janeiro, Brazil, in 1992 and was attended
by 6,000 delegates from more than 170
countries.
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Rio de Janeiro Declaration on Environment and Development
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Source: www.env.go.jp/en/wpaper/1993/eae220219000001.gif
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Environmental Objectives (Con’t)

Biodiversity

The variety of distinct species, their genetic
variability, and the variety of ecosystems they
inhabit.
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Source: http://www.brazadv.com/images/biodiversity.bmp
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Environmental Objectives (Con’t)
The goals of environmental quality,
sustainable development, and biodiversity
set an ambitious agenda.
 All of society must work toward developing
effective environmental policy initiatives.
Central to this effort is a planning process
in which public officials, industry, and
private citizens participate.
 This process involves a series of decisions
about assessing environmental risk and
responding to it.

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Environmental Policy Planning :
An Overview


Environmental policy planning involves the
interdependence of many segments of society,
including government agencies, private industry,
the scientific community, and environmentalists.
Each group of participants, albeit from a different
vantage point, plays a significant role in
formulating policy, and each offers expertise to
outcome.
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Environmental Policy Planning :
An Overview

Policy Planning in the United States


The Environmental Protection Agency (EPA)
acts as a sort of liaison between various
constituents of each sector. EPA established in
1970 by President Nixon.
The National Environmental Policy Act (NEPA)


NEPA directs the integration of tasks across agencies,
executive departments, and branches of government.
Environmental policy planning relies on careful
research and analysis, which in turn depends on
individuals with expertise in many disciplines, among
them biology, chemistry, economics, law, and
medicine.
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Parties Involved in Environmental Policy Planning
Private Sector
Public Sector
•Environmentalist
• Executive Branch
•Private Industry
•Congress
•Scientists
•Economists
Environmental
Protection
Agency
•Labour Unions
•Judiciary
•FDA
•Occupation Safety
And Health Adm.
•Private Citizens
•Other Administrative
Agencies
•State and Local Gov’t
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Environmental Policy Planning :
An Overview

Policy Planning Process Tool

Risk Analysis


Risk Assessment
Risk Management
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Environmental Policy
Planning : An Overview

Risk Analysis

Risk Assessment
The environmental problems are identified, and
prioritized, which are done through scientific
assessment of the relative risk to human health and
the ecology of a given environmental hazard.
 The assessment must determine whether or not a
causal relationship exists between the identified
hazard and any observed health or ecological
effects, if yes, then the scientists need to quantify
how the effects change with the increased exposure
to the hazard.

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Environmental Policy Planning :
An Overview

Risk Analysis

Risk Management
After risk assessment, the planning process
enters to risk management.
 The decision-making process of evaluating and
choosing from alternative responses to
environmental risk.
 The objective of risk management to choose a
policy instrument that reduces the risk of harm to
society.
 Normally, risk responses to various types of
control instruments.

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Environmental Policy Planning :
An Overview

Risk Analysis

Risk Management

Policy Evaluation Criteria: these criteria are based on
measures of risk, costs, or benefits - either singularly
or in comparison to one another.
 Allocative efficiency
Requires that resources be appropriated such that the
additional benefits to society are equal to the additional
costs.
 Cost-effectiveness
Requires that the least amount of resources be used to
achieve an objective.

Efficiency and cost-effectiveness are rooted in
resource allocation.
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Environmental Policy Planning :
An Overview

Risk Analysis

Risk Management

An Environmental equity criteria: Environmental
Justice
 Fairness of the environmental risk burden across
segments of society or geographical regions.
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Environmental Policy Planning :
An Overview

Risk Analysis

Risk Management

Government’s Overall Policy Approach:
 Command-and-control approach : the Regulatory
Approach
A policy that directly regulates polluters through the use of rules
or standards.
 Market approach: An incentive-based policy
A policy that encourages conservation practices or pollution
reduction strategies.
 A fee on pollutant release or tax levied on pollutiongenerating commodities.
 the “polluter-pays principle”, found that approximately 270
economic instruments were in use across these countries.
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http://www.ijc.org/rel/boards/wqb/psfig3.gif
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Environmental Policy Planning :
An Overview

Risk Analysis

Risk Management

Setting the Time Horizon

Management strategies
- This approach is to target policy at more immediate
or short-term problems.
- Methods that address existing environmental
problems and attempt to reduce the damage from the
residual flow.

Pollution prevention
A long-term strategy aimed at reducing the amount or
toxicity of residuals released to nature.
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Next lecture will be
on Nov 22, 2009 at Room LNG 604
School of Liberal Arts Building
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